TOMORROW’S STEEL
STARTS TODAY.
2 0 2 0 P r o x y S t a t e m e n t & N o t i c e o f A n n u a l M e e t i n g
2 0 1 9 A n n u a l R e p o r t o n F o r m 1 0 - K
Shaping our future is part inspiration,
part determination. Our industry
has changed, and the promise of
tomorrow is built on the hard work
and commitment of today.
At TimkenSteel, our team is
focused on driving value and
profitability. With safety, quality,
customer engagement and
sustainability at our core, we’re
streamlining operations, simplifying
the organization and improving
efficiencies to position this
company for success.
Dear Shareholders,
TimkenSteel invites you to attend its 2020 annual meeting of shareholders at 10 a.m. local time on May 6, 2020, at
our corporate headquarters in Canton, Ohio. We will consider matters that are important to our company and to
you, our investors.
The past year was one of significant change for TimkenSteel. During the fourth quarter of 2019, Tim Timken
stepped down from his position as Chairman, Chief Executive Officer and President and as a member of the Board
of Directors. Jack Reilly assumed the role of Chairman of the Board and Terry Dunlap was named Interim Chief
Executive Officer and President.
Earlier in the year, we implemented an aggressive profitability improvement plan that helped to partially offset weak
end market demand and is expected to benefit the company in the years to come. These actions included:
•
•
•
•
refinancing of our asset-based revolving credit facility;
reduction of salaried workforce by 14 percent;
freezing of certain salaried long-term benefit plans;
the closure of our TimkenSteel Material Services facility in Houston, Texas and the divestiture of our scrap
processing facility in Akron, Ohio, both in the first quarter of 2020.
In total, these and other actions resulted in realized savings of approximately $40 million in 2019, with expected
annualized savings of $70 million going forward.
While the company improved working capital and generated positive free cash flow for the year, TimkenSteel’s net
sales and profitability fell short of expectations. For full-year 2019, net sales were $1.2 billion with a net loss of
$110 million. In comparison, full-year 2018 net sales were $1.6 billion with a net loss of $10 million. In light of this
performance, none of our executive officers received variable pay for 2019, validating that our pay-for-performance
compensation plans operated as intended.
We operate in challenging and competitive markets and we know there is much more work to be done to realize
the company’s potential. We are aligned in our efforts to operate safely, improve profitability and cash flow
generation and serve our customers. We intend to capture the significant opportunities ahead and appreciate your
ongoing support.
Sincerely,
Jack Reilly
Chairman of the Board
March 19, 2020
Enclosure
Terry Dunlap
Interim Chief Executive Officer and President
Table of Contents
Notice of annual meeting
Proxy summary
Proposal 1 Election of directors
Nominees for election
Continuing directors
Board of Directors information Audit committee
Audit committee report
Compensation committee
Compensation committee report
Nominating and corporate governance committee
Director compensation
Corporate governance Director independence
Board leadership structure
Risk oversight
Related-party transactions
Our commitment to corporate
sustainability
Beneficial ownership of
common stock Directors and officers ownership
Five percent shareholders
Proposal 2 Ratification of appointment of independent auditor
1
8
10
11
14
14
15
16
16
18
20
20
21
21
22
23
24
25
Proposal 3 Approval, on an advisory basis, of named executive officer compensation
27
Compensation discussion
and analysis Executive summary
Our compensation philosophy
Determining compensation for 2019
Elements of our executive compensation
Analysis of 2019 compensation
Retirement and other benefits
28
30
31
33
34
43
Other compensation program features
Compensation of executive
officers
2019 Summary compensation table
2019 Grants of plan-based awards table
Outstanding equity awards at 2019 year-end table
2019 Option exercises and stock vested table
Pension benefits
2019 Nonqualified deferred compensation table
Potential payments upon termination or change in control
CEO pay ratio
Proposal 4
Approval of TimkenSteel Corporation 2020 Equity and Incentive
Compensation Plan
Equity compensation plan
information
Annual meeting information Questions and answers
General information
Appendix A Non-GAAP financial measures
44
46
48
49
50
51
53
54
58
59
71
72
76
A-1
Appendix B
TimkenSteel Corporation 2020 Equity and Incentive Compensation Plan B-1
Notice of annual meeting
of shareholders
Annual meeting information
Date: May 6, 2020
Time: 10 a.m. Eastern time
Place: 1835 Dueber Ave., S.W., Canton, Ohio 44706
Record date: February 28, 2020
Agenda
1. Election of the following directors to serve a three-year term
expiring at the 2023 annual meeting: Randall H. Edwards,
Leila L. Vespoli and Randall A. Wotring
2. Ratification of the selection of Ernst & Young LLP as the
company’s independent auditor for the fiscal year ending
December 31, 2020
3. Approval, on an advisory basis, of the compensation of the
company’s named executive officers
4. Approval of the TimkenSteel Corporation 2020 Equity and
Incentive Compensation Plan
Admission to the meeting
Only holders of TimkenSteel common shares or the holders’
authorized representatives may attend the meeting.
If your shares are held through a broker, bank or some other
nominee, you will need to present proof of your ownership as of the
record date, February 28, 2020, for your admission to the meeting.
Proof of ownership could include a proxy card or a letter from your
bank or broker.
This proxy statement and the accompanying proxy card are being
made available to shareholders beginning on or about March 19,
2020.
March 19, 2020
Frank A. DiPiero
Executive Vice President, General Counsel and Secretary
Your vote is important
Please vote as soon as possible.
Whether or not you plan to attend the
2020 annual meeting of shareholders in
person, please sign and date the
enclosed proxy card and return it in the
postage-paid envelope provided, or
vote your shares electronically on the
internet or by telephone.
How to vote:
Online: www.cesvote.com
Phone: 1-888-693-8683
Mail: Sign, date and return
your proxy card in the
enclosed envelope
In-person: Attend the annual
meeting and vote in person
Additional voting instructions are
provided in this proxy statement and
on the accompanying proxy card.
Important notice regarding the availability of proxy materials for the 2020 annual meeting of shareholders to
be held on May 6, 2020: This proxy statement and our 2019 annual report to shareholders are available free of
charge on the following website: www.ReadMaterial.com/TMST. Directions to the annual meeting are posted on
the investor page of our website at http://investors.timkensteel.com.
Proxy summary
This summary highlights information contained elsewhere in this proxy statement and contains only a portion of the
information you should consider. You should read the entire proxy statement carefully before voting.
Our annual meeting
Date and time
Record date
Place
Who can vote
May 6, 2020
10 a.m. Eastern time
February 28, 2020
TimkenSteel Corporation
1835 Dueber Ave., S.W.,
Canton, Ohio 44706
Shareholders of record of
common shares at the
close of business on
February 28, 2020
Item Proposals
Board vote recommendations
Page #
1
2
3
4
Election of three directors to serve a three-year term expiring
at the 2023annual meeting
FOR each director nominee
Ratification of the selection of Ernst & Young LLP as the
company’s independent auditor for the fiscal year ending
December 31, 2020
Approval, on an advisory basis, of the compensation of the
company’s named executive officers
Approval of the TimkenSteel Corporation 2020 Equity and
Incentive Compensation Plan
FOR
FOR
FOR
Director nominees — term to expire in 2023
Name
Director
since
Age
Principal
occupation
Independent
Current committee memberships
Audit Compensation
Nominating and
Corporate
Governance
Randall H. Edwards 61
Leila L. Vespoli
60
2015 President and Chief
Executive Officer of
Premier Pipe, LLC
2019 Retired Executive Vice
President of
Corporate Strategy,
Regulatory Affairs and
Chief Legal Officer of
FirstEnergy Corp.
Randall A. Wotring 63
2014 Chief Operating
Officer of AECOM
Technology
Corporation
•
•
•
•
•
•
•
8
25
27
59
Other
public
company
boards
0
0
0
1
Diverse board skills and composition
Members of TimkenSteel’s Board of Directors possess a broad and diverse mix of executive leadership, strategic,
financial, human resources and industry experience and skills that enable them to effectively oversee the
management of the business and drive strategy that creates long-term, sustainable shareholder value.
Director qualifications
70%
80%
90%
100%
90%
100%
90%
CEO or
chairperson
experience
Finance/
accounting/
capital markets
Human resources/
executive
compensation/labor
Relevant industry/
end market
experience
Public company
board/corporate
governance
Corporate
development/
mergers and
acquisitions
International
operations
100%
80%
Manufacturing
and technology
Environmental and
safety
Director tenure
< 5 years
3
< 1 year
1
Average = 4.5 years
Current number of
public company boards
(other than TimkenSteel)
6
0
Number of boards
0
1
4
2
Diversity of background
70%
20%
10%
Current and former
CEOs or chairpersons
Women
Racial
and ethnic
Director age
Average age
62
40
45
50
55
60
65
70
75
30% age 60 or younger
2
Commitment to ethics and corporate governance
TimkenSteel’s Board of Directors is committed to good corporate governance, as it promotes the long-term interests
of shareholders, strengthens Board and management accountability and builds public trust in the company. The
“Corporate governance” section of this proxy statement describes our governance framework, which includes the
following highlights:
✓ Non-executive Chairman of the Board
✓ All directors, other than Mr. Dunlap, are
independent
✓ Anti-hedging and anti-pledging policies
✓ Comprehensive director and employee code of
conduct and ethics and compliance program
✓ Independent Audit, Compensation and Nominating
✓ Commitment to safety, sustainability and the
and Corporate Governance Committees
✓ Annual Board and committee evaluations
community
✓ Robust share ownership and holding requirements
for executive officers and directors
✓ Regular executive sessions of independent directors
✓ Majority voting policy in uncontested elections of
at Board and committee meetings
directors
✓ Risk oversight by the full Board of Directors and its
committees, under Audit Committee guidance
✓ Related-party transactions approval policy
✓ Two designated financial experts on Board of
✓ Annual review by Board of Directors of succession
Directors*
plans for CEO and key executives
* Mr. Dunlap is one of two designated financial experts on the Board of Directors. He served on the Audit Committee of the Board of Directors
until his appointment as Interim CEO and President on October 8, 2019, at which time he became a non-independent director and, accordingly,
stepped down from the Audit Committee. Please see “Board of directors information — Audit Committee” for additional information.
2019 performance
Improved working capital management resulted
in approximately $70M of operating cash flow and $32M
of free cash flow
Record on-time delivery of
94% at year end
Company drove
$40M in savings
from profitability
improvement actions
3
NET SALES
NET LOSS(1)
ADJUSTED EBITDA(2)
$2,000
$1,610
$1,500
$1,329
$1,208
$1,000
$500
$0
($10)
($31)
$0
($25)
($50)
($75)
($100)
($125)
($110)
$127
$82
$32
$150
$125
$100
$75
$50
$25
$0
2017
2018
2019
2017
2018
2019
2017
2018
2019
* Dollars in millions
(1) Net loss includes a loss $21.8M in 2017, $43.5M in 2018 and $40.6M in 2019 from the remeasurement of benefit plans.
(2) Adjusted EBITDA is a non-GAAP financial measure. Please see appendix for a reconciliation of this financial measure to the most
comparable GAAP financial measures.
Corporate sustainability
At TimkenSteel, we focus on creating long-term shareholder value by employing sustainable practices. Our
commitment to operating responsibly helps ensure we create and maintain a safe and healthy workplace, look after
our environmental resources and develop sustainable technologies and business practices that contribute to
economic growth and prosperity.
✓ TimkenSteel ranks in the top 15% of the lowest-emitting EAF steel plants according to the World
Steel Association
✓ 1,074,695 tons of 100% recycled scrap were delivered to TimkenSteel melt shops in 2019
OSHA recordable incident rate
Lost time accident rate
4
3
2
1
0
2.72
2.8
2.05
2.32
2.34
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
SMA
Primary Metals
TMST Recordable
1.2
1
0.8
0.6
0.4
0.2
0
0.26
0.29
0.24
0.26
0.44
5
1
0
2
6
6
1
0
2
7
1
0
2
8
1
0
2
9
9
1
0
2
SMA
Primary Metals
TMST LTA
4
Aligning pay with performance
Our compensation objectives and philosophy
At TimkenSteel, our executive compensation program is designed to align our executives’ interests with those of our
shareholders; to reward leaders for strong business results; and to attract, retain and motivate the best talent in the
industry.
Our executive compensation philosophy embodies the following principles:
✓ Recognizes people are our strongest asset
✓ Rewards results linked to short- and long-term performance (pay-for-performance)
✓ Positions pay affordably and competitively in the marketplace
✓ Drives a focus on increasing shareholder value
Named executive officer
Title
Ward J. “Tim” Timken, Jr.*
Former Chairman, CEO and President
Terry L. Dunlap
Interim CEO and President
Kristopher R. Westbrooks
Executive Vice President and Chief Financial Officer
Frank A. DiPiero
William P. Bryan
Executive Vice President, General Counsel and Secretary
Executive Vice President, Manufacturing and Supply Chain
Thomas D. Moline
Executive Vice President, Commercial Operations
*Mr. Timken’s employment with the company ended on October 8, 2019, at which time Mr. Dunlap
was appointed Interim CEO and President.
2019 target pay mix
In support of our pay-for-performance philosophy, a substantial majority of the target total direct compensation for
our former CEO, Mr. Timken, and our other named executive officers (“NEOs”) (not including Mr. Dunlap) was
performance-based in 2019.
CEO
Other NEOs (average)
17%
base salary
83%
performance-based
20%
annual
incentive
43%
long-term
incentives
64%
performance-based
36%
base salary
21%
annual
incentive
63%
long-term
incentives
5
Upon the appointment of Mr. Dunlap as Interim CEO and President in October 2019, the Compensation Committee
approved a new compensation package for Mr. Dunlap for his service in this temporary position. Under this
compensation package (which we expect to remain materially unchanged for the duration of Mr. Dunlap’s service as
our Interim CEO and President), Mr. Dunlap receives a cash payment of $115,000 per month, guaranteed for a
minimum period of one year from his appointment unless Mr. Dunlap is terminated for cause. Mr. Dunlap also
received a special award of restricted stock units (“RSUs”) at the time of his appointment, which RSUs will generally
vest on the first anniversary of the grant date. Mr. Dunlap is not eligible for annual incentive payments. While
Mr. Dunlap’s pay mix is less performance-based than that of the former (or any permanent) CEO, the committee
believes that this compensation structure is appropriate for Mr. Dunlap’s service in the temporary position as Interim
CEO and President. Further, the award of RSUs as part of Mr. Dunlap’s compensation structure closely aligns his
interests with those of our shareholders and incentivizes shareholder value creation.
Mr. Dunlap’s service as Interim CEO and President is currently expected to be temporary in nature, and the
compensation package provided to Mr. Dunlap, including the amount of base salary, the form of long-term
incentives, and the performance-based mix, was not intended to be and is not indicative of the ongoing
compensation structure that the committee would expect to provide to a permanent CEO in the future. For a
permanent CEO, the committee currently expects to revert to a compensation structure that is competitive with the
market and best practices and, like the compensation program for our previous CEO, weighted significantly toward
performance-based compensation.
See “Compensation discussion and analysis — Analysis of 2019 compensation — Compensation for Interim CEO” and
“Compensation discussion and analysis — Analysis of 2019 compensation — Long-term incentives awarded to Interim
CEO” for additional information.
Pay and performance at a glance
We pay for performance, and our incentive compensation plans operated as intended across the organization in
2019. Performance was well below threshold requirements, resulting in no payouts under the annual incentive plan.
Additionally, participants in our long-term incentive plan forfeited the outstanding performance shares scheduled to
vest for the 2018-2019 performance period due to average return on invested capital (“ROIC”) and base sales falling
below threshold performance requirements.
2019 Annual incentive plan
2018-2019 Performance shares
EBIT/BIC Cash flow
Key process
path sales
Weighting
70%
15%
Performance target
10.9%
$106M
Result
-4.0%
$35M
Metric performance
Payout percentage
0%
0%
0%
0%
15%
$765M
$567M
0%
0%
Average ROIC
Base sales
Weighting
Performance target
Result
Metric performance
Payout percentage
50%
10%
-1.1%
0%
0%
50%
$2.495B
$2.070B
0%
0%
6
Total realizable compensation
The actual realizable compensation as compared to target compensation for our NEOs reflects performance that did
not meet the thresholds for 2019, resulting in no payout on our 2019 annual incentive plan and the cancellation of all
performance shares scheduled to vest for the 2018-2019 performance period.
Named executive officer
Title
2019 Target
compensation
2019 Realizable
compensation**
Percent of
target
realizable
Ward J. “Tim” Timken, Jr.* Former Chairman, CEO and President
$4,362,591
$6,004,465
138%
Terry L. Dunlap ^
Interim CEO and President
-
$1,708,853
Kristopher R. Westbrooks EVP and Chief Financial Officer
Frank A. DiPiero
William P. Bryan
EVP, General Counsel and Secretary
EVP, Manufacturing and Supply Chain
Thomas D. Moline
EVP, Commercial Operations
$1,307,413
$1,092,345
$711,059
$711,059
$728,783
$790,655
$516,983
$531,217
-
56%
72%
73%
75%
*Mr. Timken’s employment with the company ended on October 8, 2019.
** Realizable compensation for 2019 includes base salary paid and long-term incentives, which include in-the-money stock options, unvested
restricted stock units and performance shares assuming target performance for the performance shares granted for the 2019—2021 performance
period. The value of long-term incentives is based on the closing price on December 31, 2019 of $7.86 per share.
For Mr. Timken, realizable compensation includes compensation earned through the termination of his employment with the company, as well as
compensation paid in accordance with the terms of a severance agreement previously entered into by Mr. Timken and the company. See
“Compensation of executive officers — Potential payments upon termination or change in control” for additional information.
^Mr. Dunlap was appointed Interim CEO and President on October 8, 2019. Due to the temporary nature of his appointment, a target
compensation level was not established by the committee. See “Compensation Discussion and Analysis — Analysis of 2019 Compensation —
Compensation for Interim CEO” for additional information.
Looking ahead in 2020
In 2019, shareholders approved the compensation of our NEOs with approximately 91% of votes cast in favor of our
“say-on-pay” proposal. Our Compensation Committee considered the results of this vote, shareholder feedback
received in previous years, the changes made to executive compensation programs for 2019 and market data in its
annual review of executive compensation plans. Based on this evaluation, the Compensation Committee
determined to make modest changes to the company’s executive compensation plans for 2020, including
simplifying the annual incentive plan with a focus on safety, profitability and cash flow generation, as well as making
certain changes to the performance shares utilized as part of the company’s long-term incentive program. For 2020,
the metric used to determine whether (and how many) performance shares are earned will be relative total
shareholder return measured over a three-year performance cycle. See “Compensation discussion and analysis —
Executive summary — 2019 say-on-pay vote and 2020 executive compensation changes” for additional information.
Seeking approval for a new equity compensation plan
At the 2020 annual meeting of shareholders, we will seek shareholders’ approval for a new equity plan, the
TimkenSteel Corporation 2020 Equity and Incentive Compensation Plan (the “2020 Plan”). The 2020 Plan, which will
replace the previously approved equity plan, authorizes the Compensation Committee to provide cash awards and
equity-based compensation in the form of stock options, stock appreciation rights, restricted shares, restricted share
units, performance shares, performance units, dividend equivalents, and certain other awards for the primary
purpose of providing our employees, officers and directors incentives and rewards for service and/or performance.
We believe our future success depends in part on our ability to attract, motivate and retain high-quality employees
and directors and that the ability to provide equity-based and incentive-based awards under the 2020 Plan is critical
to achieving this success. The use of common shares as part of our compensation program also is important
because equity-based awards are an essential component of our compensation program for key employees, as they
help link compensation with long-term shareholder value creation and reward participants based on service and/or
performance. See “Proposal 4 — Approval of the TimkenSteel Corporation Amended and Restated 2020 Equity and
Incentive Compensation Plan” for additional information.
7
Proposal 1
Election of directors
The company has 10 members on its Board of Directors. Our Board is divided into three classes for purposes of
election, with three-year terms of office ending in successive years.
The Board of Directors has nominated the following individuals for election as directors at the 2020 annual meeting
of shareholders, to serve for a term of three years expiring at the 2023 annual meeting of shareholders (or until their
respective successors are elected and qualified): Randall H. Edwards, Leila L. Vespoli and Randall A. Wotring. Each
of the nominees currently serves as a director and has agreed to continue his or her service if elected. Biographical
information on each of the nominees and a description of his or her qualifications to serve as a director, as well as
similar information about the other directors, is provided in the pages that follow.
If any of the nominees is unable to stand for election, the Board of Directors may designate a substitute. Shares
represented by proxies may be voted for the substitute but will not be voted for more than three nominees.
Directors are elected by a plurality of the votes cast. The three nominees receiving the greatest number of votes will
be elected.
Pursuant to the majority voting policy of the Board of Directors, any director who receives a greater number of
“withhold” votes than votes “for” his or her election in an uncontested election will submit his or her resignation to
the Board of Directors promptly after the certification of the election results. The Nominating and Corporate
Governance Committee and the Board of Directors will then consider the tendered resignation in light of any factors
they consider appropriate, including the director’s qualifications and contributions to the Board of Directors, as well
as any reasons given by shareholders regarding why they withheld votes from the director. The Board of Directors is
required to determine whether to accept or reject the tendered resignation within 90 days following the election and
to promptly disclose its decision, as well as the reasons for rejecting any tendered resignation, if applicable.
Holders of TimkenSteel common shares are entitled to cast one vote for each share held on the record date for up to
three nominees for director. A shareholder may not cumulate his or her shares in voting for director nominees. For
example, a shareholder who owns 100 TimkenSteel common shares may vote 100 shares for each of the three
nominees. The shareholder may not, however, vote more than 100 shares for any one nominee, or vote for more
than three nominees.
Shares represented by proxy will be voted FOR these nominees unless specified otherwise in the voting
instructions.
Your Board of Directors recommends a vote
for these nominees.
8
Our knowledgeable Board of Directors
Members of the TimkenSteel Board of Directors have diverse skills, qualifications and experiences that enable them
to effectively oversee the management of the company’s business and affairs. These directors represent the interests
of TimkenSteel’s stakeholders and help to drive strategic decisions for the company’s long-term success.
CEO or
chairperson
experience
Finance/
accounting/
capital
markets
Human
resources/
executive
compensation/
labor
Relevant
industry/end
market
experience
Public company
board and
corporate
governance
Corporate
development/
mergers and
acquisitions
International
operations
Manufacturing
and technology
Environmental
and safety
Š
Š
Š
Š
Š
Š
Š
Joseph A. Carrabba
Diane C. Creel
Terry L. Dunlap
Randall H. Edwards
Donald T. Misheff
John P. Reilly
Ronald A. Rice
Marvin A. Riley
Leila L. Vespoli
Randall A. Wotring
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Biographical information for each of the nominees for election and the other continuing directors with unexpired
terms of office is provided on the following pages. All information is as of March 2, 2020, unless otherwise indicated.
9
Nominees for election to serve a three-year term expiring at the 2023 annual meeting of shareholders
Randall H. Edwards
Age: 61
Term: Expires in 2020; director since 2015
Committee: Audit
Other public company boards: None
Business experience: Mr. Edwards has been President and Chief Executive Officer of
Premier Pipe, LLC (a leader in the supply and management of engineered premium oil
country tubular goods) since 2015. Previously, he served as President and Chief
Operating Officer of Premier Pipe from 2014 to 2015. From 1999 to 2014, Mr. Edwards
held various positions with NOV Grant Prideco (a leading supplier of oil field drill stem
components), including President of NOV Grant Prideco from 2008 to 2014. He began
his career at Wilson Supply, where he managed Wilson’s oil country tubular goods and
its drill pipe product line.
Leila L. Vespoli
Age: 60
Term: Expires in 2020; director since 2019
Committee: Audit
Other public company boards: None
Business experience: Ms. Vespoli retired from her position as Executive Vice President
of Corporate Strategy, Regulatory Affairs and Chief Legal Officer of FirstEnergy Corp. (an
electric utility headquartered in Akron, Ohio, whose subsidiaries are involved in the
transmission, distribution and generation of electricity) in April 2019, a position which
she had held since May 2016. Prior to that, she served as Executive Vice President,
Markets and Chief Legal Officer from January 2014 through May 2016. She began her
career with Ohio Edison, a predecessor company of FirstEnergy, in 1984 and served
since 2000 in numerous executive leadership roles at FirstEnergy with a broad range of
responsibilities in a highly complex and regulated industry.
Randall A. Wotring
Age: 63
Term: Expires in 2020; director since 2014
Committees: Compensation; Nominating and Corporate Governance
Other public company boards: None
Business experience: Mr. Wotring is Chief Operating Officer of AECOM Technology
Corporation (a premier, fully integrated infrastructure and support services firm and the
largest engineering design firm in the world), a position he has held since July 2017. He
previously served as President, Technical and Operational Services of AECOM from July
2016 until July 2017; as President, Management Services of AECOM from October 2014
until July 2016; and as Corporate Vice President and President of the Federal Services
division of URS Corporation from 2004 until October 2014 when URS was acquired by
AECOM.
CEO or
chairperson
experience
Finance/
accounting/
capital markets
Human resources/
executive
compensation/labor
Relevant industry/
end market
experience
Public company
board and corporate
governance
Corporate
development/mergers
and acquisitions
International
operations
Manufacturing
and technology
Environmental
and safety
10
Continuing directors
Joseph A. Carrabba
Age: 67
Term: Expires in 2021; director since 2014
Committees: Compensation; Nominating and Corporate Governance
Other public company boards: Mr. Carrabba has been a director of Aecon Group Inc.
since 2013 and Niocorp Developments Ltd. since 2014. Mr. Carrabba formerly was a
director of Cliffs Natural Resources; KeyBank Corporation, Lithium X Energy Corp, Fura
Gems Inc. and Newmont Mining Corporation.
Business experience: Mr. Carrabba is President and Chief Executive Officer of Bond
Resources Inc. (a Canada-based mineral exploration company), a position he has held
since November 2019. He also is Executive Chairman of Winston Gold Corp. (a mining
company focused on advancing high grade, low-cost mining opportunities), a position
he has held since July 2019. Previously, Mr. Carrabba served as President and Chief
Executive Officer of Ram River Coal Corporation (a Canadian company holding a 100%
interest in property that contains two well-defined metallurgical coal deposits in Alberta,
Canada) from 2017 until September 2018, and as Chief Executive Officer and President
of Irati Energy Corporation (an oil and gas exploration company focused on southern
Brazil oil shale development projects) from 2016 until April 2018. Mr. Carrabba also
previously served as Chairman, Chief Executive Officer and President of Cliffs Natural
Resources Inc. (an international mining and natural resources company) from 2005 until
his retirement in 2013. Prior to joining Cliffs Natural Resources in 2005, Mr. Carrabba
served for more than 20 years in a variety of leadership capacities at Rio Tinto, a global
mining company, at locations worldwide, including the United States, Asia, Australia,
Canada and Europe.
Diane C. Creel
Age: 71
Term: Expires in 2022; director since 2014
Committee: Compensation (Chairperson)
Other public company boards: Ms. Creel has been Chair of the Board of Allegheny
Technologies Incorporated (ATI) since 2019, a director of ATI since 1996 and a director
of EnPro Industries, Inc. since 2009. She was formerly a director of Goodrich
Corporation, URS Corporation and The Timken Company.
Business experience: Ms. Creel served as Chairman, Chief Executive Officer and
President of Ecovation Inc., a subsidiary of Ecolab Inc. (a waste stream technology
company using patented technologies), until her retirement in 2008. Prior to Ecovation,
Ms. Creel was Chairman, Chief Executive Officer and President of Earth Tech, Inc. from
1992 to 2003.
CEO or
chairperson
experience
Finance/
accounting/
capital markets
Human resources/
executive
compensation/labor
Relevant industry/
end market
experience
Public company
board and corporate
governance
Corporate
development/mergers
and acquisitions
International
operations
Manufacturing
and technology
Environmental
and safety
11
Terry L. Dunlap
Age: 60
Term: Expires in 2021; director since 2015
Committee: None
Other public company boards: Mr. Dunlap has been a director of Matthews
International Corporation since 2015 and a director of Ampco-Pittsburgh Corporation
since 2019.
Business experience: Mr. Dunlap is the Interim Chief Executive Officer and President of
TimkenSteel Corporation, a position he has held since October 2019. Previously,
Mr. Dunlap spent 31 years with Allegheny Technologies Incorporated (ATI) (a diversified
specialty metals producer), where he held numerous positions in sales, marketing,
manufacturing, supply chain, logistics and information technology. He served as
Executive Vice President of ATI’s flat-rolled products group from 2011 until his
retirement in December 2014. He also was President of ATI Allegheny Ludlum from
2002 to 2014 and served on the boards of two ATI joint venture companies.
Donald T. Misheff
Age: 63
Term: Expires in 2022; director since 2014
Committee: Audit (Chairperson)
Other public company boards: Mr. Misheff has been Non-Executive Chairman of the
Board of FirstEnergy Corp. since 2018 and a director since 2012. He has been a director
of Trinseo S.A. since 2015.
Business experience: Mr. Misheff was Managing Partner of the Northeast Ohio offices
of Ernst & Young LLP (a public accounting firm), from 2003 until his retirement in 2011.
He began his career at Ernst & Young in 1978 and has more than 30 years of experience
in taxation and in performing, reviewing and overseeing financial statement audits for a
wide range of public companies and advising those companies on financial and
corporate governance issues.
John P. Reilly
Age: 76
Term: Expires in 2021; director since 2014
Committees: Audit; Nominating and Corporate Governance (Chairperson)
Other public company boards: Mr. Reilly was formerly a director of The Timken
Company, Exide Technologies and Material Sciences Corporation.
Business experience: Mr. Reilly has been Chairman of the Board of Directors of
TimkenSteel Corporation since October 2019. Prior to his appointment as Chairman, he
served as the company’s lead independent director since 2014. Previously, Mr. Reilly
served as Chairman, President and Chief Executive Officer of Figgie International (an
international diversified operating company) from 1995 until 1998. He has more than 30
years of experience in the automotive industry, where he served as President and Chief
Executive Officer of several automotive suppliers, including Stant Corporation and
Tenneco Automotive. He also held leadership positions at Chrysler Corporation and
Navistar International and served as President of Brunswick Corporation.
CEO or
chairperson
experience
Finance/
accounting/
capital markets
Human resources/
executive
compensation/labor
Relevant industry/
end market
experience
Public company
board and corporate
governance
Corporate
development/mergers
and acquisitions
International
operations
Manufacturing
and technology
Environmental
and safety
12
Ronald A. Rice
Age: 57
Term: Expires in 2022; director since 2015
Committees: Compensation; Nominating and Corporate Governance
Other public company boards: None
Business experience: Mr. Rice retired in 2018 from his position as President and Chief
Operating Officer of RPM International Inc. (a manufacturer of specialty coatings,
sealants and building materials and provider of related services for industrial and
consumer markets globally), a position he had held since 2008. Previously, Mr. Rice held
a variety of increasingly responsible positions with RPM from 1995 to 2008. He began his
career with The Wyatt Company, an actuarial consulting firm, known today as Willis
Towers Watson, in 1985.
Marvin A. Riley
Age: 45
Term: Expires in 2022; director since 2018
Committee: Audit
Other public company boards: None
Business experience: Mr. Riley is President and Chief Executive Officer of EnPro
Industries (a leader in sealing products, metal polymer and filament-wound bearings,
components and service for reciprocating compressors, diesel and dual-fuel engines
and other engineered products used in critical applications in industries worldwide), a
position he has held since July 2019. Prior to his current role, Mr. Riley was Chief
Operating Officer of EnPro from July 2017 through June 2019. Previously, Mr. Riley
served in various leadership positions at EnPro, including as President of its Fairbanks
Morse division, focused on marine engines and power generation; Vice President of its
manufacturing function; Vice President of Americas; and head of global operations for
its GGB Bearing Technology division. Prior to joining EnPro, Mr. Riley served in
leadership roles at General Motors Corporation, working within the vehicle
manufacturing group.
CEO or
chairperson
experience
Finance/
accounting/
capital markets
Human resources/
executive
compensation/labor
Relevant industry/
end market
experience
Public company
board and corporate
governance
Corporate
development/mergers
and acquisitions
International
operations
Manufacturing
and technology
Environmental
and safety
13
Board of directors information
Meetings and committees
The standing committees of the Board of Directors consist of the Audit Committee, the Compensation Committee,
and the Nominating and Corporate Governance Committee. During the 2019 fiscal year, there were ten meetings of
the Board of Directors, seven meetings of the Audit Committee, four meetings of the Compensation Committee and
four meetings of the Nominating and Corporate Governance Committee. All directors attended 75% or more of the
aggregate number of meetings of the Board and its committees on which they served. It is our policy that all
members of the Board of Directors should attend the annual meeting of shareholders, and all directors attended the
2019 annual meeting of shareholders. The independent directors met separately in executive session without
management present at least quarterly in conjunction with regularly scheduled meetings of the Board in 2019, and
intend to meet separately in executive sessions without management present at least quarterly in conjunction with
regularly scheduled meetings of the Board of Directors in 2020 and thereafter.
Audit committee
The Audit Committee has oversight responsibility with respect to the company’s independent auditor and the
integrity of its financial statements. The Audit Committee currently is composed of Donald T. Misheff (chairperson),
Randall H. Edwards, John P. Reilly, Marvin A. Riley and Leila L. Vespoli. Philip R. Cox served on the Audit Committee
until his retirement from the Board on August 31, 2019, and Terry L. Dunlap served on the Audit Committee until his
appointment as Interim CEO and President on October 8, 2019. Our Board of Directors has determined that each
current or former member of the Audit Committee named above is financially literate and, during the term of their
service on the Audit Committee, independent as defined in the listing standards of the New York Stock Exchange
(“NYSE”) and the rules of the Securities and Exchange Commission (“SEC”). Our Board of Directors also has
determined that Donald T. Misheff qualifies as an audit committee financial expert. Previously, the Board had
determined that Terry L. Dunlap also qualified as an audit committee financial expert. As noted previously,
Mr. Dunlap became a non-independent director upon his appointment as Interim CEO and President and,
accordingly, stepped down from the Audit Committee.
The Board of Directors has adopted a written Audit Committee charter, which is reviewed and reassessed annually.
A current copy of the Audit Committee charter is available on the company’s website at www.timkensteel.com.
Audit committee report
The Audit Committee has reviewed and discussed with management and the company’s independent auditor the
audited financial statements contained in our Annual Report on Form 10-K for the fiscal year ended December 31,
2019. The Audit Committee also has discussed with our independent auditor the matters required to be discussed
by the applicable requirements of the Public Company Accounting Oversight Board (“PCAOB”) and the SEC.
The Audit Committee has received and reviewed the written disclosure and the letter from our independent auditor
required by applicable requirements of the PCAOB regarding the independent accountant’s communications with
the Audit Committee concerning independence, has discussed with our independent auditor such independent
auditor’s independence, and has considered the compatibility of non-audit services with the auditor’s
independence.
Based on the review and discussions referred to above, the Audit Committee recommended to our Board of
Directors that the audited financial statements be included in our Annual Report on Form 10-K for the fiscal year
ended December 31, 2019, filed with the SEC.
Donald T. Misheff (Chairperson)
Randall H. Edwards
John P. Reilly
Marvin A. Riley
Leila L. Vespoli
14
Compensation committee
The Compensation Committee establishes and administers our policies, programs and procedures for
compensating our senior management and Board of Directors. Members of the Compensation Committee are
Diane C. Creel (chairperson), Joseph A. Carrabba, Ronald A. Rice and Randall A. Wotring. Our Board of Directors
has determined that all members of the Compensation Committee are independent as defined in the listing
standards of the New York Stock Exchange, and that no member of the Compensation Committee has any
relationship to the company that is material to his or her ability to be independent from management in connection
with the duties of a member of the Compensation Committee. Each member of the committee is also a “non-
employee director” for purposes of Section 16 of the Securities Exchange Act of 1934 (the “Exchange Act”).
The Compensation Committee has adopted a written charter, which is reviewed and reassessed annually. A current
copy of the Compensation Committee charter is available on the company’s website at www.timkensteel.com.
With the guidance and approval of the Compensation Committee, the company has developed compensation
programs for its executive officers, including the Interim CEO and the other executive officers named in the summary
compensation table, that are intended to align the interests of our executives and shareholders; reward executives
for sustained, strong business and financial results; and enable us to attract, retain and motivate the best talent.
The agenda for meetings of the Compensation Committee is determined by its chairperson with the assistance of
the Executive Vice President, Human Resources and Corporate Relations and the Vice President, Total Rewards. The
meetings are regularly attended by the Interim CEO and President (and previously by the former Chairman, CEO
and President), the Executive Vice President and Chief Financial Officer, the Executive Vice President and General
Counsel, the Executive Vice President, Human Resources and Corporate Relations and the Vice President, Total
Rewards. The Compensation Committee meets in executive session at each of its meetings, and the chairperson
reports the committee’s actions regarding compensation of executive officers to the full Board of Directors. Our
human resources department supports the Compensation Committee in its duties and the committee may delegate
to the human resources department and to our General Counsel certain administrative duties in connection with the
company’s compensation programs.
The Compensation Committee has the sole authority to retain and terminate compensation consultants to assist in
the evaluation of director and executive officer compensation and the sole authority to approve the fees and other
retention terms of any compensation consultants. The committee has selected Meridian Compensation Partners,
LLC, to serve as its independent compensation consultant. The Compensation Committee has engaged Meridian to
analyze our executive compensation structure and plan designs, to assess whether the compensation program is
competitive and supports the Compensation Committee’s goal to align the interests of executive officers with those
of shareholders and, from time to time, to review the total compensation of directors. Meridian also provides market
data directly to the Compensation Committee, which the committee references when determining compensation for
executive officers. Additional information regarding the committee’s engagement of Meridian, including a
discussion of the committee’s assessment of the independence of Meridian, is available in the “Compensation
discussion and analysis” (“CD&A”) section of this proxy statement under the caption “Determining compensation for
2019 — Role of the compensation consultant.”
The Compensation Committee also plays an active role in our executive officer succession planning process by
meeting regularly with senior management to ensure an effective succession process is in place and to discuss
potential successors for executive officers.
15
Compensation committee interlocks and insider participation
No member of the Compensation Committee is, or was during 2019, an officer or employee of the company or was
formerly an officer or employee of the company. Further, during 2019, no member of the Compensation Committee
had a relationship that is required to be disclosed under SEC rules regarding related-party transactions. Finally, no
executive officer of the company serves or served on the compensation committee or board of directors of any
company where any member of the Compensation Committee or the TimkenSteel Corporation Board of Directors
is, or was during 2019, an executive officer.
Compensation committee report
The Compensation Committee has reviewed and discussed with our management the CD&A for the year ended
December 31, 2019. Following and based on that review and discussion, the Compensation Committee
recommended to our Board of Directors, and our Board approved, the inclusion of the CD&A in our Annual Report
on Form 10-K for the fiscal year ended December 31, 2019, and its inclusion in this proxy statement for filing with the
SEC.
Diane C. Creel (Chairperson)
Joseph A. Carrabba
Ronald A. Rice
Randall A. Wotring
Nominating and corporate governance committee
The Nominating and Corporate Governance Committee is responsible for, among other things, evaluating new
director candidates and incumbent directors and recommending directors to serve as members of our Board’s
standing committees. Members of the Nominating and Corporate Governance Committee are John P. Reilly
(chairperson), Joseph A. Carrabba, Ronald A. Rice and Randall A. Wotring. Our Board of Directors has determined
that all members of the Nominating and Corporate Governance Committee are independent as defined in the
listing standards of the New York Stock Exchange.
Director candidates recommended by our shareholders will be considered in accordance with the criteria outlined
below. In order for a shareholder to submit a recommendation, the shareholder must deliver a communication by
registered mail or in person to the Nominating and Corporate Governance Committee, c/o TimkenSteel
Corporation, Attn: Secretary, 1835 Dueber Ave. S.W., Canton, Ohio 44706. Such communication should include the
proposed candidate’s qualifications, any relationship between the shareholder and the proposed candidate, and
any other information that the shareholder would consider useful for the Nominating and Corporate Governance
Committee to consider in evaluating such candidate.
A shareholder who wishes to nominate a person for election as a director must provide written notice to the
company’s secretary in accordance with the procedures specified in Article I, Sections 13 and 14 of our Code of
Regulations. In general, to be timely, the written notice must be received by our secretary at our principal executive
offices not less than 90 nor more than 120 days prior to the first anniversary of the date on which the company held
the preceding year’s annual meeting of shareholders. If the date of the annual meeting of shareholders is scheduled
for a date more than 30 days prior to or more than 30 days after the first anniversary of the preceding year’s annual
meeting of shareholders, then a shareholder’s notice must be delivered to our secretary at our principal executive
offices not later than the close of business on the later of the 90th day prior to the annual meeting of shareholders or
the 10th day following the day on which public announcement of the date of the annual meeting of shareholders is
first made. The notice must provide certain information required by the Code of Regulations, including but not
limited to (a) biographical and share ownership information of the shareholder (and certain affiliates),
(b) descriptions of any material interests of the shareholder (and certain affiliates) in the nomination and any
arrangements between the shareholder (and certain affiliates) and another person or entity with respect to the
nomination, (c) biographical and employment information of each nominee, and (d) a brief description of any
arrangement or understanding between each individual proposed as a nominee and any other person pursuant to
which the individual was proposed as a nominee.
16
The Nominating and Corporate Governance Committee has utilized and expects to utilize a variety of sources to
identify possible director candidates, including professional associations and Board member recommendations. In
recommending candidates, the Nominating and Corporate Governance Committee considers the qualifications of
candidates such as business experience and other attributes and skills, including high standards of integrity and
ethical behavior, which qualify the candidate to serve as a director of the company in light of the company’s business
and structure. The Nominating and Corporate Governance Committee also may consider such other elements as it
deems appropriate, consistent with the factors in the company’s Corporate Governance Guidelines, including
whether the candidate enhances the diversity of the Board. Such diversity includes professional background and
capabilities, knowledge of specific industries and geographic experience, as well as the more traditional diversity
concepts of race, gender and national origin. The Nominating and Corporate Governance Committee also is
responsible for reviewing the qualifications of, and making recommendations to the Board of Directors regarding,
director nominations submitted by our shareholders. The committee will consider all potential candidates in the
same manner regardless of the source of recommendation.
The Nominating and Corporate Governance Committee will periodically review the appropriate size of the Board
and plans for director succession. In the event vacancies are anticipated or arise, the committee will consider
potential director candidates. As part of this process, the committee will assess the skills and attributes of our Board
as a whole and of each individual director and evaluate whether prospective candidates possess complementary
and supplementary skills and attributes that would strengthen our Board.
The Nominating and Corporate Governance Committee has adopted a written charter, which is reviewed and
reassessed annually. A current copy of the Nominating and Corporate Governance Committee charter is available
on the company’s website at www.timkensteel.com.
17
Director compensation
The compensation program under which non-employee directors were compensated for their services as directors
during 2019 is summarized below. As noted previously, this program is reviewed periodically by the Compensation
Committee and the Board to ensure that director compensation remains appropriate and competitive.
Cash compensation
Each non-employee director is paid an annual cash retainer for services as a director. For 2019, the annual cash
retainer paid to each non-employee director was $80,000. An additional annual fee of $20,000 was paid to the lead
director. Further, the following additional annual fees were paid to the chairperson of each standing committee of
our Board of Directors:
Committee
Audit
Compensation
Nominating and Corporate Governance
Chairperson fee
$ 15,000
$ 10,000
$ 10,000
Any director also employed by the company is not paid any compensation for serving as a director.
With the resignation of Mr. Timken as Chairman, CEO and President on October 8, 2019, and the appointment of
Mr. Reilly as non-executive Chairman of the Board, the annual fee payable to Mr. Reilly for his service as lead director
was increased from $20,000 to $90,000 in recognition of the increased responsibilities associated with the role of
Chairman. For 2019, the increase was prorated to reflect the period of time during which Mr. Reilly served as
Chairman of the Board. At the same time, with the appointment of Mr. Dunlap as Interim CEO and President, the
annual cash retainer payable to him as a non-employee director was discontinued effective October 9, 2019.
Stock compensation
Each non-employee director serving at the time of our annual meeting of shareholders will receive a grant of our
common shares following the meeting. The common shares are granted as deferred shares that vest on the first
anniversary of the grant date, provided the director continues to serve as a non-employee director on that date. For
2019, the approximate target value of the grant was $120,000. A non-employee director who is first elected to the
Board after the date of the annual meeting will receive a grant of common shares at the time of his or her election to
the Board.
The company requires that the common shares granted to a non-employee director be held for as long as the
director remains on the TimkenSteel Board. In addition, the Compensation Committee of the Board of Directors has
adopted stock ownership guidelines that require non-employee directors to own common shares with a value equal
to five times the director’s annual cash retainer. The company considers all shares owned by the director, plus
unvested deferred shares, in determining whether the director has met the ownership guidelines. As of March 2,
2020, each of the non-employee directors, with the exception of Mr. Riley who joined the Board in August 2018 and
Ms. Vespoli who joined the Board in November 2019, had achieved at least 50% of his or her ownership
requirement.
Compensation deferral
Any non-employee director may elect to defer the receipt of all or a specified portion of his or her cash and/or stock
compensation in accordance with the provisions of the Amended and Restated TimkenSteel Corporation Director
Deferred Compensation Plan. Pursuant to the plan, cash fees can be deferred and paid at a future date requested by
the director. The amount will be adjusted based on investment crediting options, which include interest earned
quarterly at a rate based on the prime rate plus one percent or the total shareholder return of our common shares,
with amounts paid in cash either in a lump sum or in installments. Stock compensation can be deferred to a future
date and paid either in a lump sum or installments and is payable in shares plus an amount representing dividend
equivalents, if any dividends are declared during the deferral period.
18
2019 Director compensation table
The following table provides details of non-employee director compensation in 2019:
Name(1)
Joseph A. Carrabba
Phillip R. Cox
Diane C. Creel
Randall H. Edwards
Donald T. Misheff
John P. Reilly
Ronald A. Rice
Marvin A. Riley
Leila L. Vespoli
Randall A. Wotring
Fees earned or
paid in cash(2)
$ 80,000
Stock awards(3) (4)
$ 115,120
$ 60,000
$ 90,000
$ 80,000
$ 95,000
$ 125,978
$ 80,000
$ 80,000
$ 20,000
$ 80,000
$ 115,120
$ 115,120
$ 115,120
$ 115,120
$ 115,120
$ 115,120
$ 115,120
$ 110,415
$ 115,120
Total
$ 195,120
$ 175,120
$ 205,120
$ 195,120
$ 210,120
$ 241,099
$ 195,120
$ 195,120
$ 130,415
$ 195,120
(1) Ward J. “Tim” Timken, Jr., Former Chairman, Chief Executive Officer and President, is not included in this table as he was an employee of the
company and received no additional compensation for his services as a director. Compensation paid to Terry L. Dunlap for his service as a
non-employee director prior to his appointment as Interim Chief Executive Officer and President on October 8, 2019 is included in the
Summary compensation table of this proxy statement.
(2) Mr. Cox retired from the Board of Directors effective August 31, 2019. Ms. Vespoli was appointed as a director effective November 13, 2019.
The amounts shown for Mr. Cox and Ms. Vespoli reflect the annual cash retainer payable to non-employee directors, prorated to reflect the
calendar quarters during which each of them, respectively, served as a director during 2019.
(3) The amount shown for each director, other than Ms. Vespoli, is the grant date fair value of 11,735 deferred shares awarded on May 7, 2019, as
computed in accordance with Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Topic 718. With
respect to Ms. Vespoli, the amount shown is the grant date fair value of 18,810 deferred shares awarded on November 13, 2019, the date she
was appointed as a director, as computed in accordance with FASB ASC Topic 718. These awards have a one-year vesting period.
(4) As of December 31, 2019, each director other than Mr. Cox and Ms. Vespoli held 11,735 unvested deferred shares, which are scheduled to
vest on May 7, 2020. In connection with Mr. Cox’s retirement on August 31, 2019, 8,801 of the 11,735 unvested deferred shares awarded to
him on May 7, 2019, were canceled. The remaining 2,934 unvested deferred shares will vest on May 7, 2020. As of December 31, 2019,
Ms. Vespoli held 18,810 unvested deferred shares, which are scheduled to vest on November 13, 2020. No director had any outstanding
company stock options.
19
Corporate governance
Corporate governance guidelines
The Board of Directors has adopted the TimkenSteel Corporation Corporate Governance Guidelines. These
guidelines outline the responsibilities of the Board of Directors, director selection criteria and procedures, board
composition criteria and various policies and procedures designed to ensure effective and responsive governance.
The TimkenSteel Corporation Corporate Governance Guidelines are reviewed annually by the Nominating and
Corporate Governance Committee and are available on our website at www.timkensteel.com.
Code of Conduct
Each of our employees and directors is required to comply with the TimkenSteel Corporation Code of Conduct, a
code of business conduct and ethics adopted by the company. Ethics and integrity, defined by the principles of
honesty, fairness, respect and responsibility, are core values of the company. The TimkenSteel Corporation Code of
Conduct sets forth policies covering a broad range of subjects, including antitrust and competition, corruption and
bribery, conflicts of interest, inside information, accurate financial records, harassment, environmental health and
safety and intellectual property, among other matters, and requires strict adherence to laws and regulations
applicable to the company’s business. Any waiver of the Code of Conduct for executive officers or directors may be
made only by the Board of Directors or its Nominating and Corporate Governance Committee and will be disclosed
promptly in accordance with applicable law and rules of the New York Stock Exchange. The TimkenSteel
Corporation Code of Conduct is reviewed periodically by the Nominating and Corporate Governance Committee
and is available on our website at www.timkensteel.com.
Director independence
The Board of Directors has adopted the independence standards of the New York Stock Exchange listing
requirements for determining the independence of directors. After consideration of all relevant facts and
circumstances, including each individual’s commercial, industrial, banking, consulting, legal, accounting, charitable
and familial relationships with the company, the Board has determined that the following directors meet those
independence standards and that each of these individuals is independent and free of any material relationships
with the company other than as established through his or her service as a director of the company: Joseph A.
Carrabba, Phillip R. Cox (prior to his retirement effective August 31, 2019), Diane C. Creel, Terry L. Dunlap (prior to
his appointment as Interim CEO and President on October 8, 2019), Randall H. Edwards, Donald T. Misheff, John P.
Reilly, Ronald A. Rice, Marvin A. Riley, Leila L. Vespoli and Randall A. Wotring. When Mr. Dunlap was appointed to
the role of Interim CEO and President in October 2019, he became a non-independent director and stepped down
from the Audit Committee of the Board.
Board leadership structure
The Board of Directors believes it is important to retain flexibility to allocate the responsibilities of the offices of the
chairman and chief executive officer in a manner that is in the best interests of the company’s shareholders. When
Ward J. “Tim” Timken, Jr. stepped down as Chairman, Chief Executive Officer and President on October 8, 2019, the
Board of Directors separated the positions of chairman and chief executive officer and appointed John P. Reilly as its
non-executive chairman. As non-executive chairman, among other duties, Mr. Reilly presides over all meetings of the
Board of Directors (including executive sessions of the independent directors), provides direction and input on
agendas, schedules, and materials for Board meetings, acts as the Board of Directors’ liaison to senior management
and is available for consultation and direct communications with major shareholders as appropriate.
At this time, the Board of Directors believes that the separation of the chairman and chief executive officer positions
is in the best interests of shareholders because it allows Mr. Dunlap, the company’s Interim CEO and President, to
focus his time and energy on driving the company’s business, strategy, and performance, while allowing Mr. Reilly to
lead the Board of Directors in its fundamental role of providing advice, counsel and oversight to management
regarding the company’s business, strategy and performance.
20
Risk oversight
The Board of Directors, in close coordination with its standing committees, oversees the company’s management of
risk, including the company’s processes for identifying, reporting and mitigating risks. The Audit Committee reviews
and discusses the guidelines, policies and processes by which the CEO and senior management of the company
assess and manage risks and discusses the company’s major financial risk exposures and the steps management has
taken to monitor and control these exposures. Where the Board of Directors, directly or through another committee
of the Board, has processes in place to manage non-financial risks, the Audit Committee will review such risk
management processes in a general manner. The Board believes that this approach, supported by our senior
leadership structure, provides appropriate checks and balances against undue risk-taking.
Related-party transactions approval policy
As noted, our directors and employees, including our executive officers, are subject to the TimkenSteel Corporation
Code of Conduct, which requires employees and directors to act in the best interests of the company and to avoid
actual or potential conflicts of interest. To fulfill this duty, employees and directors must avoid situations in which
their actions or loyalties are, or may appear to be, divided. While not every situation can be identified in a written
policy, our Code of Conduct specifically prohibits the following situations:
•
•
holding a significant financial interest or directorship in any of our customers, competitors or suppliers;
entering into personal transactions with our customers or suppliers on terms other than those generally
available to the public or our company’s employees;
investing in customers, suppliers or competitors that are not publicly traded;
•
• making or receiving a loan or credit from any of the company’s customers, competitors or suppliers or from
a director, officer or employee of a customer, competitor or supplier, other than in the ordinary course of
our company’s business;
giving or receiving gifts, gratuities or entertainment except to the extent they are customary, of nominal
value and not intended to influence a business decision;
taking personal advantage of corporate opportunities that the company might be interested in pursuing;
using the company’s assets for personal gain;
using the company’s property other than in connection with our business; and
conducting business with or supervising family members or friends.
•
•
•
•
•
Pursuant to the Code of Conduct, employees’ requests for waivers of the Code of Conduct, including but not limited
to waivers of any potential or actual conflict of interest, must be submitted to and approved by the General Counsel.
Any requested waivers of the Code of Conduct for directors or executive officers can be made only by the Board of
Directors or the Nominating and Corporate Governance Committee of the Board. Any such waivers for directors or
executive officers will be disclosed promptly in accordance with applicable law and the rules of the New York Stock
Exchange. There were no requests for, or grants of, waivers of the Code of Conduct for any of our executive officers
or directors in 2019.
The Nominating and Corporate Governance Committee also is responsible for reviewing and, if appropriate,
approving or ratifying any related-party transaction required to be disclosed under Item 404(a) of Regulation S-K of
the Securities Act of 1933. In this regard, during 2019, the company purchased approximately $3,641,922 in
products from, and sold approximately $13,055,148 in products to, various companies affiliated with Ellwood
Group, Inc. (“Ellwood”). As of March 2, 2020 and throughout 2019, Ellwood owned more than 5% of the company’s
outstanding common shares and therefore constituted a “related party” for purposes of Item 404(a). The purchases
and sales between the company and affiliates of Ellwood were made in the ordinary course of business and on an
arms-length basis and have been approved by the Nominating and Corporate Governance Committee.
Anti-hedging policy
Our insider trading policies prohibit all employees (including our executive officers) and directors from engaging in
any speculative transactions involving company stock or securities, including short sales; the purchase or sale of
puts, calls or listed options; and other hedging transactions such as zero-cost collars and forward contracts.
Additionally, certain employees (including our executive officers) and directors are prohibited from holding
company securities in a margin account or pledging company securities as collateral for a loan.
21
Our commitment to corporate
sustainability
At TimkenSteel, operating responsibly and sustainably is as important to us as making the world’s cleanest steel.
Guided by our core values of ethics and integrity,
quality, innovation and independence, we focus on
creating long-term shareholder value by employing
sustainable practices throughout the company.
TimkenSteel’s commitment to operating
responsibly helps us create and maintain a safe and
healthy workplace, look after our environmental
resources and develop sustainable technologies
and business practices that contribute to economic
growth and prosperity.
Serving as the foundation of our sustainability
program are business ethics and stakeholder
engagement. We are committed to operating in
accordance with the highest standards of ethics and
integrity and maintaining robust compliance
programs. In addition, we believe that
communicating regularly and transparently with
stakeholders and responding to feedback is key to
our overall success.
Built on that foundation are the pillars of social and cultural leadership, environmental stewardship and
economic impact, comprised of the following nine areas in which we are focusing our sustainability efforts:
•
•
•
•
•
•
•
•
•
safety and health
total wellbeing
community impact
resource conservation
sound environmental management
continuous improvement in environmental practices
shareholder value
corporate governance
risk management
Corporate sustainability committee
Our cross-functional corporate sustainability committee oversees TimkenSteel’s corporate responsibility objectives
and regularly monitors our progress toward achieving them. Progress reports are provided to the company’s
leadership team and the Board of Directors periodically.
TimkenSteel’s Corporate Sustainability Policy and more information on our corporate sustainability program can be
found at www.timkensteel.com/corporatesustainability. Please note, however, that information contained on the
website is not incorporated by reference in this proxy statement or considered to be a part of this document.
22
Beneficial ownership of common
stock
The following table shows, as of March 2, 2020, the beneficial ownership of our common shares by each director,
nominee for director and NEO, and by all directors, nominees for director and executive officers as a group.
Name
Joseph A. Carrabba
Diane C. Creel
Randall H. Edwards
Donald T. Misheff
John P. Reilly
Ronald A. Rice
Marvin A. Riley
Randall A. Wotring
Leila L. Vespoli
Terry L. Dunlap
William P. Bryan
Frank A. DiPiero
Thomas D. Moline
Kristopher R. Westbrooks
Ward J. “Tim” Timken, Jr.(4)
All directors, nominees for director and executive officers as
a group(2)(5) (14 individuals)
*
Percent of class is less than 1%.
Number of shares of common
stock beneficially owned(1)(2)
Percent of class(3)
39,079
35,996
30,835
30,587
47,428
58,448
8,715
61,094
—
29,650
64,954
98,260
75,264
17,385
3,667,736
597,695
*
*
*
*
*
*
*
*
*
*
*
*
*
8.0%
1.3%
(1) Except as otherwise indicated below, for the purposes of this table beneficial ownership of our common shares is based on the sole or shared
power to vote or direct the voting or to dispose or direct the disposition of our common shares. Beneficial ownership as determined in this
manner does not necessarily bear on the economic incidents of ownership of our common shares. None of the shares owned by directors,
nominees or the named executive officers have been pledged as security.
(2) The following table provides additional details regarding beneficial ownership of our common shares:
Name
Joseph A. Carrabba
Diane C. Creel
Terry L. Dunlap
Randall H. Edwards
Donald T. Misheff
John P. Reilly
Ronald A. Rice
Marvin A. Riley
Randall A. Wotring
Leila L. Vespoli
William P. Bryan
Frank A. DiPiero
Thomas D. Moline
Kristopher R. Westbrooks
Ward J. “Tim” Timken, Jr.
Outstanding options(a)
Deferred common shares(b)
0
0
0
0
0
0
0
0
0
0
39,160
74,560
46,925
10,035
992,660
23
39,079
0
0
0
29,987
3,401
0
8,715
49,534
0
0
0
0
0
0
(a)
Includes shares that the individual named in the table has the right to acquire on or before May 2, 2020, through the exercise of stock
options pursuant to the TimkenSteel Corporation Amended and Restated 2014 Equity and Incentive Compensation Plan. Including those
listed (but not including Mr. Timken), all directors, nominees for director, and executive officers as a group have the right to acquire
170,680 shares on or before May 2, 2020, through the exercise of stock options pursuant to the TimkenSteel Corporation Amended and
Restated 2014 Equity and Incentive Compensation Plan. These shares have been treated as outstanding for the purpose of calculating
the percentage of the class beneficially owned by such individual or group, but not for the purpose of calculating the percentage of the
class owned by any other person.
(b) Acquired through deferrals of directors’ cash or equity compensation; these shares will not be issued until a later date under the
TimkenSteel Corporation Director Deferred Compensation Plan.
(3) Calculated using 44,938,082 shares as the number of common shares outstanding.
(4)
Includes 362,823 shares over which Mr. Timken exercises sole voting and investment authority, 2,312,253 shares with respect to which
Mr. Timken shares voting and investment discretion, and 992,660 shares which Mr. Timken has the right to acquire as discussed above. Of
the shares reported, Mr. Timken disclaims beneficial ownership of 2,269,149 shares, including 1,405 shares held by his spouse, 3,000 shares
held by the Ward J. Timken Trust FBO Grandchildren, and 2,264,744 shares held by The Timken Foundation of Canton.
(5) Shares beneficially owned by Mr. Timken are not included in the shares beneficially owned by all directors, nominees for director and
executive officers as a group, as Mr. Timken’s service as an executive officer and director of the company ended on October 8, 2019.
The following table provides information known to us about each beneficial owner of more than 5% of our common
shares as of March 2, 2020, unless otherwise indicated below.
Beneficial owner
BlackRock Inc.(1)
55 East 52nd Street
New York, NY 10022
Timken family(2)
Ellwood Group, Inc.(3)
1105 N. Market Street
P.O. Box 8985, Suite 1300
Wilmington, DE 19810
Dimensional Fund Advisors LP(4)
Building One
6300 Bee Cave Road
Austin, TX 78746
The Vanguard Group Inc.(5)
100 Vanguard Blvd.
Malvern, PA 19355
Amount
Percent of class(6)
6,622,417
5,130,914
14.7%
11.4%
4,285,026
9.5%
3,644,170
2,786,480
8.1%
6.2%
(1) Pursuant to a Schedule 13G/A filed with the SEC on February 4, 2020, BlackRock Inc. reported it is the beneficial owner of, and has sole
dispositive power over, 6,622,417 of our common shares, with respect to which it has sole voting power over 6,520,066 shares and shared
voting power over no shares.
(2) Members of the Timken family, including Ward J. “Tim” Timken, Jr., have in the aggregate sole or shared voting and dispositive power with
respect to 5,130,914 of our common shares, which includes 992,660 shares that Ward J. “Tim” Timken, Jr. has the right to acquire on or
before May 2, 2020. The Timken Foundation of Canton (the “Foundation”), 200 Market Avenue North, Suite 210, Canton, Ohio 44702, holds
2,264,744 of these shares, representing 5.0% of our outstanding common shares. Ward J. Timken, Joy A. Timken, Ward J. “Tim” Timken, Jr.,
William R. Timken, Jr. and Mark Scheffler are trustees of the Foundation and share the voting and investment power with respect to such
shares. There are no voting agreements or other arrangements among the members of the Timken family or the Foundation and its trustees
regarding the 5,130,914 common shares and, accordingly, the members of the Timken family are not a “group” for purposes of Rule 13d-3
under the Exchange Act with respect to such shares. Further, each member of the Timken family disclaims beneficial ownership of any of the
company’s common shares as to which such member does not have sole or shared voting or investment power.
(3) Pursuant to a Schedule 13D/A filed with the SEC on January 5, 2016, Ellwood Group, Inc. and its wholly-owned subsidiary, Ellwood Group
Investment Corp., reported it is the beneficial owner of, and has sole voting and dispositive power with respect to, 4,285,026 of our common
shares.
(4) Pursuant to a Schedule 13G/A filed with the SEC on February 12, 2020, Dimensional Fund Advisors LP reported it is the beneficial owner of,
and has sole dispositive power over, 3,644,170 of our common shares, with respect to which it has sole voting power over 3,472,600 shares
and shared voting power over no shares. Dimensional Fund Advisors LP disclaims beneficial ownership of the shares reported in the
Schedule 13G as all such shares are owned by investment companies and other commingled funds, group trusts and separate accounts for
which Dimensional Fund Advisors provides investment advice or serves as investment manager or sub-adviser.
(5) Pursuant to a Schedule 13G/A filed with the SEC on February 12, 2020, The Vanguard Group Inc. reported it is the beneficial owner of
2,786,480 of our common shares, with respect to which it has sole voting power over 38,009 shares, shared voting power over 3,035 shares,
sole dispositive power over 2,749,831 shares and shared dispositive power over 36,649 shares.
(6) Calculated using 44,938,082 shares as the number of common shares outstanding.
24
Proposal 2
Ratification of appointment of
independent auditor
Appointment of independent auditor for 2020
The Audit Committee of the Board of Directors has selected Ernst & Young LLP, an independent registered
public accounting firm, to perform the audit of the company’s financial statements and our internal control over
financial reporting for the 2020 fiscal year. Ernst & Young has served as TimkenSteel’s independent auditor
since 2012.
The selection of Ernst & Young as our independent auditor is not required to be submitted to a vote of our
shareholders for ratification, but our Board of Directors believes obtaining shareholder ratification is a sound
governance practice. If our shareholders fail to vote in favor of the selection of Ernst & Young, the Audit Committee
will reconsider whether to retain Ernst & Young and may retain that firm or another firm without resubmitting the
matter to our shareholders. Even if the shareholders ratify this appointment, the Audit Committee may, in its
discretion, direct the appointment of a different independent registered public accounting firm at any time during
the year if it determines that such a change would be in the company’s best interest.
Representatives of Ernst & Young are expected to be present at the 2020 annual meeting of shareholders. They will
have an opportunity to make a statement if they desire to do so and will be available to respond to appropriate
questions.
Ratification of the appointment of Ernst & Young as the company’s independent auditor for the 2020 fiscal year
requires the affirmative vote of a majority of the votes cast on the proposal.
Shares represented by proxy will be voted FOR this proposal unless you specify otherwise in your voting
instructions.
Your Board of Directors recommends a vote for the
ratification of the selection of Ernst & Young LLP as the
independent auditor for the 2020 fiscal year.
25
Services of independent auditor for 2019
Set forth below are the aggregate fees billed by Ernst & Young for professional services rendered to the company
for the fiscal years ended December 31, 2018 and 2019:
Audit fees(a)
Audit-related fees(b)
Tax fees
All other fees
Total fees
2019
2018
$
1,273,585
$
1,096,300
233,479
—
—
—
—
—
$
1,507,064
$
1,096,300
(a) Audit fees consist of fees for professional services rendered for the audit of our annual consolidated financial statements and internal control
over financial reporting, and the statutory audit performed in the UK. For 2019, audit fees also include professional services provided in
connection with changes in accounting and accounting and financial reporting associated with non-recurring transactions.
(b) Audit-related fees consist of fees for transaction advisory services provided in connection with sell-side due diligence related to the
company’s divestiture of its City Scrap & Salvage operations, and a working capital project performed during the third quarter of 2019.
Audit committee pre-approval policies and procedures
The Audit Committee annually approves the scope of services and fees payable for the year-end audit and statutory
audits to be performed by the independent auditor for the next fiscal year. In addition, the Audit Committee has
adopted a pre-approval policy pursuant to which the committee annually approves certain audit, audit-related and
tax services which may be provided by the independent auditor, along with the associated fees for such services,
during the upcoming fiscal year. Other than services pre-approved in connection with the annual engagement of the
independent auditor or pursuant to the pre-approval policy, all services to be provided by the independent auditor
must be pre-approved by the Audit Committee. Requests for pre-approval must contain sufficient detail to ensure
the Audit Committee knows precisely what services it is being asked to pre-approve so that it can make a well-
reasoned assessment of the impact of the service on the auditor’s independence. With certain specified limitations,
the Audit Committee has delegated its pre-approval authority to its chairperson, who must report any pre-approval
decisions to the full Audit Committee at its next scheduled meeting. All of the services described above were
approved by the Audit Committee in accordance with the foregoing policies and procedures.
26
Proposal 3
Approval, on an advisory basis,
of named executive officer
compensation
At the 2019 annual meeting of shareholders, the advisory vote to approve the compensation of the company’s
named executive officers passed with approximately 91% of the votes cast in favor of the company’s “say-on-pay”
proposal. Our Compensation Committee considered the results of this vote, shareholder feedback received in
previous years, the changes made to executive compensation programs for 2019 and market data in its review of
executive compensation plans for 2020. Based on this evaluation, the Compensation Committee determined to
make modest changes to the company’s executive compensation plans for 2020, including simplifying the annual
incentive plan metrics and, for the long-term incentive plan, implementing a relative total shareholder return
calculation over a three-year performance cycle as the metric used to determine whether (and how many)
performance shares are earned. Please see “Executive summary – 2019 say-on-pay vote and 2020 executive
compensation changes” in the CD&A for additional information.
We believe the compensation programs for our named executive officers:
•
•
•
align the interests of our executives with those of our shareholders;
reward executives for sustained, strong business and financial results; and
enable us to attract, retain and motivate the best talent.
As required under the Dodd-Frank Wall Street Reform and Consumer Protection Act and Section 14A of the
Exchange Act, we are asking you to approve, on an advisory (non-binding) basis, the following resolution at our
2020 annual meeting of shareholders:
RESOLVED, that the compensation of the named executive officers as disclosed pursuant to the
compensation disclosure rules of the Securities and Exchange Commission, including the
compensation discussion and analysis, the compensation tables and any related material disclosed
in this proxy statement, is hereby APPROVED.
We encourage you to carefully review the compensation discussion and analysis, the compensation tables, and
related disclosures included in this proxy statement. The Board recommends that shareholders indicate their
support for the compensation of the company’s named executive officers as described in this proxy statement by
voting “FOR” approval of this proposal at the annual meeting.
As an advisory vote, this resolution is not binding. Nonetheless, the Compensation Committee, which is responsible
for designing and administering our executive compensation program, values the opinions expressed by our
shareholders with respect to this proposal. The Compensation Committee will consider the affirmative vote of a
majority of the votes cast on this proposal as approval of the compensation paid to the company’s executive officers.
If there are a significant number of negative votes, the Compensation Committee will seek to understand and
consider the concerns that influenced such votes in making future decisions about executive compensation
programs.
Shares represented by proxy will be voted FOR this proposal unless you specify otherwise in your voting
instructions.
Your Board of Directors recommends a vote for
advisory approval of the compensation of our
named executive officers.
27
Compensation discussion and
analysis
This Compensation Discussion and Analysis (“CD&A”) provides an overview of our executive compensation
philosophy and practices, and the factors considered by the Compensation Committee in granting and delivering
executive compensation for 2019.
This CD&A focuses on the following individuals, whom we have determined to be the named executive officers
(“NEOs”) of TimkenSteel for 2019.
Named executive officer
Title
Ward J. “Tim” Timken, Jr.* Former Chairman, CEO and President
Terry L. Dunlap
Interim CEO and President
Kristopher R. Westbrooks Executive Vice President and Chief Financial Officer
Frank A. DiPiero
William P. Bryan
Executive Vice President, General Counsel and Secretary
Executive Vice President, Manufacturing and Supply Chain
Thomas D. Moline
Executive Vice President, Commercial Operations
*Mr. Timken’s employment with the company ended on October 8, 2019, at which time Mr. Dunlap was appointed as Interim CEO and President.
Executive summary
2019 developments
On October 8, 2019, Mr. Timken stepped down from his position as Chairman, CEO and President and as a
member of the Board of Directors, on which date the Board of Directors appointed director Terry L. Dunlap as
Interim CEO and President. Due to the temporary nature of his appointment, Mr. Dunlap did not receive an annual
incentive or long-term incentive target pursuant to the company’s incentive compensation programs described
more fully below, but instead the Compensation Committee approved a cash payment of $115,000 per month and
a special award of time-vested RSUs at the time of his appointment. Please see “Analysis of 2019 compensation –
Compensation for Interim CEO” and “Analysis of 2019 compensation – Long-term incentives awarded to Interim
CEO” in this CD&A for additional information.
Our 2019 business performance
During 2019, the company implemented an aggressive profitability improvement plan which included new
leadership, organizational restructuring, debt repayment, refinancing of our revolving credit facility and the sale and/
or closure of non-core assets. Although these efforts resulted in savings of approximately $40 million for 2019, they
did not offset declines in volume and, therefore, net sales and profitability fell short of expectations.
Operating cash flow for the year was $70 million. The company improved working capital and generated positive
free cash flow(3) of $32 million for the year.
Our pay-for-performance compensation plans operated as intended. Performance on all metrics was below
threshold, resulting in no variable compensation plans paying out.
28
2019
Net sales $1.21B
Net loss $(110.0M) (2)
Adjusted EBITDA(3)
$32.4M
as
compared
with
2018(1)
Net sales $1.61B
Net loss $(9.9M) (2)
Adjusted EBITDA(3)
$127.0M
(1) Financials have been restated for 2018 due to the retrospective adoption of a change in accounting principles. During the fourth quarter of
2019, the company elected to change its method of accounting for inventories from the last-in, first-out (“LIFO”) to the first-in, first-out
(“FIFO”) method.
(2) Net loss includes a loss of $43.5M in 2018 and $40.6M in 2019 from the remeasurement of benefit plans.
(3) Free cash flow and Adjusted EBITDA are non-GAAP financial measures. Please see appendix for a reconciliation of these financial measures
to the most comparable GAAP financial measures.
Pay for performance
At TimkenSteel, we believe in rewarding employees, including our NEOs, for helping us achieve our corporate
goals, deliver exceptional performance and build shareholder value. In this spirit, we designed our executive
compensation program to:
Objectives:
✓
✓
✓
Align the interests of our executives and shareholders
Reward executives for strong business and financial results
Attract, retain and motivate the best talent
The compensation of our NEOs during 2019 reflects our financial results and demonstrates that our compensation
plans pay for performance as intended.
•
•
•
The metrics established for our annual performance award plan (“APA plan”) for 2019 were based on
(i) percentage of earnings before interest and taxes to beginning invested capital (“EBIT/BIC”), (ii) cash flow
and (iii) sales of the company’s most profitable products or, as we call them, “key process path sales.”
There were no payouts awarded to our executives under the APA plan for 2019, as performance was below
threshold on all metrics, driven primarily by weak end markets.
Since 2015, our executives have received, in the aggregate, annual incentive payments equal to 23% of
target, reflecting the company’s performance during that challenging business cycle.
• Cumulative base sales and average return on invested capital achieved over the 2018-2019 performance
period were below threshold requirements for the 2018-2019 performance share cycle. As a result, the
2018-2019 performance share grants did not vest.
•
Since 2015, all performance shares granted to our NEOs have been forfeited, as the threshold performance
requirements have not been met.
• As a result, our NEOs’ aggregate realizable compensation for 2019, as in prior years, was significantly lower
than established target compensation.
2019 say-on-pay vote and 2020 executive compensation changes
In 2019, shareholders approved the compensation of our NEOs with approximately 91% of votes cast in favor of our
“say-on-pay” proposal. Our Compensation Committee considered the results of this vote, shareholder feedback
received in previous years, the changes made to executive compensation programs for 2019 and market data
during its annual review of executive compensation plans. Based on this evaluation, the Compensation Committee
determined to make modest changes to the company’s executive compensation plans for 2020, including:
•
Simplifying the annual incentive plan by utilizing two commonly understood key performance metrics,
earnings before interest, tax, depreciation and amortization (“EBITDA”) and operating cash flow with a
performance modifier if certain safety objectives are achieved.
29
•
Implementing a relative total shareholder return calculation over a three-year performance cycle as the
metric used to determine whether (and how many) performance shares are earned.
With respect to the annual incentive plan, the safety modifier supports our focus on safety as the company’s top
priority and will be measured by our performance on OSHA recordables and lost-time incidents.
With respect to the long-term incentive plan, beginning in 2020 the metric used to determine whether (and how
many) performance shares are earned will be based on total shareholder return over a three-year period as
compared to an identified peer group of steel companies. The committee believes this change to the performance
share metric, more precisely focused on share price appreciation, will further align the interests of management with
the interests of the company’s shareholders.
What we don’t do
x
x
x
x
x
Provide tax gross-ups
Re-price stock options
Pay current dividends on performance-based restricted
stock units
Provide excessive perquisites
Reward executives without a link to performance or
creation of shareholder value
Executive compensation highlights
What we do
✓ Pay for performance
✓ Establish target pay based on market norms
✓ Deliver total direct compensation primarily through
variable pay
✓ Set challenging short- and long-term incentive award
goals
✓ Provide strong oversight that ensures adherence to
incentive grant regulations and limits
✓ Maintain robust stock ownership requirements
✓ Include double-trigger vesting in the event of a change
in control
✓ Adhere to an incentive compensation recoupment
“clawback” policy
✓ Maintain anti-hedging and anti-pledging policies with
respect to company stock
✓ Offer market-competitive benefits
✓ Consult with an independent advisor on pay
Our compensation philosophy
At TimkenSteel, our executive compensation program is designed to align our executives’ interests with those of our
shareholders, to reward leaders for strong business results, and to attract, retain and motivate the best talent in the
industry.
Our executive compensation philosophy embodies the following principles:
✓
✓
✓
✓
Recognizes people are our strongest asset
Rewards results linked to short- and long-term performance (pay-for-performance)
Positions pay affordably and competitively in the marketplace
Drives a focus on increasing shareholder value
30
Rewarding performance
TimkenSteel’s success depends largely on the contributions by
motivated, focused and energized people working together to achieve
our strategic objectives. This understanding shapes our approach to
providing a competitive total rewards package to our CEO and the
other NEOs.
As noted above, pay-for-performance is one of the four principles of
our executive compensation philosophy. To ensure we are adhering to
this principle, we regularly evaluate our incentive compensation plans
to ensure that the opportunities and metrics drive desired business
results, including for 2019:
•
EBIT/BIC;
• Cash flow;
•
• Average return on invested capital; and
•
Key process path sales;
Base sales.
The Compensation Committee uses a comprehensive process to assess
company performance. We believe the metrics used in our incentive
compensation plans focus management on the appropriate objectives
for creating both short- and long-term shareholder value.
Performance-based pay comprised 83% of the target total direct
compensation for Mr. Timken and between 58% and 70% of the target
total direct compensation for the other NEOs (other than Mr. Dunlap).
Although Mr. Dunlap’s pay mix is less performance-based than that of
the former CEO, the Compensation Committee believes that this
compensation structure is appropriate for Mr. Dunlap’s position as
Interim CEO and President.
Determining compensation for 2019
Role of the Compensation Committee: Deciding on compensation
The Compensation Committee determines the appropriate level of
compensation for all executive officers, including the CEO and other
NEOs. The committee reviews all compensation components and
determines whether each individual’s total compensation is
reasonable and consistent with the company’s compensation
philosophy. In making this determination, the committee may
consider:
The company’s approach to
rewarding performance
Annual incentive
•
Reward achievement of short-term
corporate and individual
performance goals
Restricted stock units and stock options
•
•
•
Reward long-term value creation
Reinforce ownership in the
company
Support retention of executives
Performance shares
•
•
•
•
Reward achievement of long-term
financial results that drive value
creation
Link compensation to building
long-term shareholder value
Reinforce ownership in the
company
Support executive retention
The Compensation Committee considers
whether the company’s compensation
programs encourage unnecessary or
excessive risk-taking and has determined
that they do not.
• With respect to all NEOs other than the CEO, the CEO’s recommendations;
• Market data provided by the committee’s external compensation consultant; and
• Additional factors such as the executive’s operating responsibilities, experience level, retention risk, tenure
and performance in the position.
In light of these considerations, the Compensation Committee may make adjustments to a particular element of an
executive’s compensation. The committee then approves, with any modifications it deems appropriate, base salary
ranges, target annual performance award opportunities and long-term incentive opportunities and grants for the
company’s NEOs. With respect to the CEO, the committee determines the compensation package for the CEO and
then presents its recommendation to the independent members of the Board of Directors for approval during
executive session.
The amount of past compensation realized or potentially realizable does not directly impact the level at which
current and long-term pay opportunities are set, although the Compensation Committee does consider this
information in its deliberations.
31
Role of the CEO and management: Providing compensation recommendations
The CEO, working with human resources leadership and the compensation consultant, prepares compensation
recommendations for the NEOs (other than the CEO) and presents them to the Compensation Committee. These
recommendations are based on:
•
•
The CEO’s personal review of the other NEOs’ performance, job responsibilities and importance to the
company’s overall business strategy; and
The company’s compensation philosophy.
In preparing compensation recommendations for the NEOs, the CEO and human resources leadership together
consider market data for the key elements of NEO compensation and evaluate the total compensation package in
relation to the target established for the position, taking into account the scope of responsibilities for the particular
position. The CEO, human resources leadership and compensation consultant also evaluate total direct
compensation (base salary, annual incentives and long-term incentive grants) in relation to total compensation of
comparable positions derived from general market data as well as internal equity considerations.
Although these recommendations are given significant weight, the committee retains full discretion when
determining compensation.
Role of the compensation consultant: Advising the Compensation Committee
The Compensation Committee retains the authority to approve and monitor all compensation and benefit programs
(other than broad-based welfare benefit programs). The committee engages the services of a compensation
consultant to add rigor in the review process and to provide insight into market trends. The consultant analyzes the
company’s executive compensation structure and plan designs and assesses whether the compensation program is
competitive and supports the goal of aligning the interests of NEOs with those of shareholders. The consultant also
provides market data directly to the Compensation Committee for its use in determining compensation for NEOs
and assessing board compensation.
The committee retained Meridian Compensation Partners, LLC as its compensation consultant.
In 2019 Meridian’s primary areas of assistance were:
• Gathering information related to current trends and practices in board of directors and executive
compensation;
•
Reviewing information developed by management for the Compensation Committee and providing its
input to the committee;
• Attending and participating in meetings with the Compensation Committee, as well as briefings with the
committee chairperson and management between regularly scheduled meetings;
• Advising the committee with respect to compensation matters related to the separation from employment
of Mr. Timken and the appointment of Mr. Dunlap as the company’s Interim CEO and President;
• Assisting the CEO and human resources leadership in determining compensation recommendations for the
NEOs (other than the CEO); and
•
Reviewing with management and the Compensation Committee materials to be used in the company’s
proxy statement.
While the consultant reports directly to the Compensation Committee, the committee has authorized the consultant
to interact with company management, as needed, on the committee’s behalf. The Compensation Committee has
the sole authority to approve the independent compensation consultant’s fees and terms of the engagement. Thus,
the committee annually reviews its relationship with its consultant – including services provided, quality of services
and associated fees – to ensure executive compensation consulting independence.
32
Elements of our executive compensation program
TimkenSteel’s executive compensation program is designed to align the interests of our executives with those of our
shareholders and to encourage the personal and collective growth of our executives to foster improved company
performance. The company uses a balance of short- and long-term incentives as well as cash and non-cash
compensation to meet its executive compensation program objectives. The company’s incentive compensation
programs for executives are designed to link compensation with the full spectrum of the company’s short- and long-
term business goals. Our executive compensation program for 2019 consisted of the following elements:
Compensation element
Link to program objectives
)
L
A
U
N
N
A
(
M
R
E
T
-
T
R
O
H
S
M
R
E
T
-
G
N
O
L
S
T
I
F
E
N
E
B
Base salary
Provides a stable source of income and is a standard element in
executive compensation packages.
Annual incentive
Nonqualified stock options
Performance shares
Restricted stock units
Retirement and savings
Other benefits
Severance and change in control
agreements
Encourages executives to focus on specific corporate performance
goals. Target incentive opportunity is set as a percentage of base
salary and awards are earned after threshold performance levels are
met. Metrics for 2019 include:
EBIT/BIC
Cash flow
Key process path sales of our most profitable products
•
•
•
Helps ensure executive pay is directly linked to value created for
shareholders. Four-year vesting promotes retention, and NEOs
holding nonqualified stock options will receive greater value if the
stock price rises.
Links executive compensation to building long-term shareholder
value, balances short-term operating focus, and aligns executive
management’s long-term financial interests with those of our
shareholders, as value is linked to the stock price. For shares
awarded in 2019, performance is scored and the number of shares
earned is determined at the end of a two-year performance period
based on attainment of specific goals:
•
•
Base sales
Return on invested capital
Shares vest following an additional one-year holding period; the final
value of the award is determined by the share price on the last day of
the holding period.
Rewards long-term shareholder value creation. Three-year cliff
vesting promotes retention and enhances executive stock
ownership.
Helps attract and retain executive talent. NEOs receive retirement
benefits through several plans:
• Qualified and nonqualified defined contribution plans;
• Qualified and nonqualified defined benefit plans; and
• Deferred compensation plan.
Helps attract and retain executive talent. NEOs are eligible to
participate in the benefit plans available to salaried employees
including medical and dental benefits and life, accidental death and
disability insurance. Perquisites are limited in amount and are not
grossed up for taxes, and the Compensation Committee limits
eligibility and use.
Helps ensure NEOs remain focused on creating sustainable
performance. Agreements protect the company and the NEOs from
risks by providing:
Economic stability;
•
• Death or disability payments; and
•
Payments and benefits in the event of a change in control.
33
Analysis of 2019 compensation
The following factors guided compensation decisions for 2019:
•
•
•
Executive compensation program objectives and philosophy;
Expected and actual financial performance;
Recommendations of the former Chairman, CEO and President for the other NEOs;
• Assessment of risk associated with our compensation plans, including avoiding unnecessary or excessive
risk-taking;
• Advice of an independent compensation consultant; and
• Market pay practices as reflected by a newly adopted compensation peer group as well as external
executive compensation data, studies and trends.
Introduction of a compensation peer group
In 2018, the Compensation Committee approved the adoption of a compensation peer group to serve as the
primary benchmark in setting target compensation for the CEO and CFO beginning in 2019. The peer group
consists of 18 steel and related-industry companies that are generally within an appropriate revenue and market
capitalization range.
2019 Peer group companies
Allegheny Technologies Incorporated
Actuant Corporation
Barnes Group
Carpenter Technology Corporation
Century Aluminum Corporation
Columbus McKinnon Corporation
Harsco Corporation
Haynes International Inc.
Kaiser Aluminum Corporation
L.B. Foster Corporation
Materion Corporation
NN, Incorporated
Olympic Steel, Incorporated
Ryerson Holding Corporation
Schnitzer Steel Industries, Incorporated
SunCoke Energy, Incorporated
TriMas Corporation
Worthington Industries, Incorporated
Guidelines for CEO and CFO base salaries, annual incentives and long-term incentive grants are initially based on
the 50th percentile of peer group data for those roles.
With respect to the other NEOs, external general industry surveys of compensation practices for positions with
similar levels of responsibilities remains the primary benchmark for setting target compensation, with guidelines for
salaries, annual incentives, long-term incentives and target total direct compensation for these NEOs initially based
on the 50th percentile of general industry data.
The company may provide target compensation above or below the 50th percentile for a particular position, based
on factors such as the executive’s operating responsibilities, experience level, retention risk, tenure and performance
in the position.
The company establishes compensation levels in this way for two reasons:
•
•
First, this approach sets fair and reasonable pay levels needed to attract and retain qualified executives; and
Second, it requires excellent individual performance and company performance for pay that is higher than
that indicated in the peer group or general industry data, as applicable, for comparable roles.
34
Compensation for former CEO
In setting Mr. Timken’s target pay for 2019, the Compensation Committee reviewed compensation information for
the CEO positions within our peer group. As a result of this review, the committee concluded that target pay for
Mr. Timken should be reduced to better align with the market data. As such, the committee reduced Mr. Timken’s
long-term incentive opportunity, resulting in a 10% decrease in total target direct compensation. The Compensation
Committee believed the reduced target compensation was better aligned with market practices while still
acknowledging Mr. Timken’s unique experience and qualifications.
CEO TARGET COMPENSATION ($000)
$6,000
$5,000
$4,000
$3,000
$2,000
$1,000
$0
Represents a 19% decrease in target long-
term incentive compensation and a 10%
decrease in target total direct compensation
$3,200
$1,064
$887
FY 2018
$2,600
$1,101
$918
FY 2019
Base
Annual incentive
Long-term incentive
In support of our pay-for-performance philosophy, a substantial majority of the target total direct compensation for
Mr. Timken was performance-based in 2019.
2019 CEO target pay mix
17%
base salary
83%
performance-based
20%
annual
incentive
63%
long-term
incentives
35
Compensation for Interim CEO
Upon the appointment of Mr. Dunlap as Interim CEO and President in October 2019, the Compensation Committee
approved a new compensation package for Mr. Dunlap for his service in this temporary position. In determining the
appropriate compensation package for Mr. Dunlap, the Compensation Committee considered peer group data, the
former CEO’s compensation package, and information provided by Meridian regarding interim CEO compensation
practices, including form and amount of compensation relative to both market and outgoing CEO compensation
levels. Under this compensation package (which we expect to remain materially unchanged for the duration of
Mr. Dunlap’s service in the temporary position as our Interim CEO and President), Mr. Dunlap receives a cash
payment of $115,000 per month, guaranteed for a minimum period of one year from the date of his appointment
unless Mr. Dunlap is terminated for cause. At the time of his appointment, Mr. Dunlap also received a special award
of restricted stock units, which will generally vest on the first anniversary of the grant date. Mr. Dunlap is not eligible
for annual incentive payments. While Mr. Dunlap’s pay mix is less performance-based than that of the former (or any
permanent) CEO, the committee believes that this compensation structure is appropriate for Mr. Dunlap’s service in
the temporary position as Interim CEO and President. Further, the award of RSUs as part of Mr. Dunlap’s
compensation structure closely aligns his interests with those of our shareholders and incentivizes shareholder value
creation.
Mr. Dunlap’s service as Interim CEO and President is currently expected to be temporary in nature, and the
compensation package provided to Mr. Dunlap, including the amount of base salary, the form of long-term
incentives, and the performance-based mix, was not intended to be and is not indicative of the ongoing
compensation structure that the committee would expect to provide to a permanent CEO in the future. For a
permanent CEO, the committee currently expects to revert to a compensation structure that is competitive with the
market and best practices and, like the compensation program for our previous CEO, weighted significantly toward
performance-based compensation.
Please see “Analysis of 2019 compensation – Long-term incentives awarded to Interim CEO” in this CD&A for
additional information.
Base salary
Base salaries for the remaining NEOs are intended to be competitive and reflect the scope of their responsibilities,
the length of their experience performing those responsibilities and their performance. The Compensation
Committee initially determines base salary ranges for the CEO and CFO using the compensation peer group, and
external surveys of salary practices for positions with similar levels of responsibility for the remaining NEOs. The
committee also reviews the NEOs’ base salaries annually in light of each officer’s performance, experience,
leadership, current salary and position in the salary range.
Base salaries for all NEOs (with the exception of Mr. Dunlap who joined the company in October 2019) were
increased at the market rate for executives in 2019.
2019 Base salary decisions
Ward J. “Tim” Timken, Jr.*
Terry L. Dunlap
Kristopher R. Westbrooks
Frank A. DiPiero
William P. Bryan
Thomas D. Moline
2018 Salary
Base salary (annualized)
2019 Salary
Percent change
$891,156
-
$391,850
$382,459
$290,151
$290,151
$917,891
$1,380,000
$403,798
$393,933
$298,856
$298,856
3%
-
3%
3%
3%
3%
*Mr. Timken’s employment with the company ended on October 8, 2019. For actual salary paid to Mr. Timken during 2019, please see
“Compensation of executive officers – 2019 Summary compensation table.”
36
Annual incentive
The company’s annual incentive provides the NEOs (other than Mr. Dunlap, who does not participate in the annual
incentive plan) the opportunity to earn rewards based on achieving corporate performance goals established in
advance by the Compensation Committee. It is intended to focus the NEOs on specific performance goals in the
current year. For the NEOs, the annual incentive is delivered through the APA plan.
The Compensation Committee determined target award
opportunity levels for the NEOs based on our compensation peer
group for the CEO and CFO and external surveys for positions with
similar levels of responsibility for the remaining NEOs. The actual
awards could be higher or lower than the target opportunity based
on the results for each performance measure, consideration of
individual performance and the extent to which the committee uses
discretion to adjust the awards. Performance measures factor the
award between zero and 200% and individual performance further
indexes the award by a factor ranging from 70% to 130%, providing
an absolute range from zero to 260% of the target award.
Linking pay to performance
The Compensation Committee
established corporate EBIT/BIC as the
primary performance measure under the
annual incentive plan because it believes
this measure is closely correlated with the
creation of shareholder value.
Annual incentive
Target opportunity as a
percent of base salary
Ward J. “Tim” Timken, Jr.*
Terry L. Dunlap ^
Kristopher R. Westbrooks
Frank A. DiPiero
William P. Bryan
Thomas D. Moline
120%
-
70%
60%
50%
50%
*Mr. Timken’s employment with the company ended on October 8, 2019. For actual annual incentives paid to Mr. Timken during 2019, please
see “Compensation of executive officers – 2019 Summary compensation table.”
^Mr. Dunlap is not a participant in the annual incentive plan.
2019 Annual performance award decisions
Payouts under the APA plan are determined by the following factors:
• Earnings measured by EBIT/BIC;
• Cash flow;
• Key process path sales; and
• Individual performance.
37
The following charts show performance targets and actual performance levels for each metric in the 2019 APA plan.
EBIT/BIC
Cash flow
Key process path sales
70% weighting
15% weighting
15% weighting
Maximum
20.0%
18.0%
16.0%
14.0%
12.0%
10.9%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
(2.0%)
(4.0%)
Threshold
PERFORMANCE
TARGET
(4.0%)
RESULT
Maximum
$106
Threshold
$34.7
$184
$160
$140
$120
$100
$80
$60
$40
$20
$0
Maximum
$765
Threshold
$567
$935
$890
$850
$810
$770
$730
$690
$650
$610
$570
$530
PERFORMANCE
TARGET
RESULT
PERFORMANCE
TARGET
RESULT
0% metric performance
0% metric performance
0% metric performance
0% payout
0% payout
0% payout
Dollars in millions. Payout percentage is expressed as the percent of target opportunity.
Actual performance on the EBIT/BIC measure of -4.0%, cash flow of $35 million and key process path sales of
$567 million each were below the threshold performance requirement. Therefore, there was no payout under the
2019 APA plan.
For the 2019 APA plan, the EBIT/BIC metric was defined as EBIT/BIC excluding mark-to-market remeasurement
gains or losses; the effect of changes in tax law, accounting principles or other laws or provisions affecting reported
results; LIFO charges or credits incremental to the approved business plan; and the effects of any recapitalization,
restructuring, reorganization, merger, acquisition, divestiture, consolidation, spinoff, split-up, combination,
liquidation, facility shutdown, dissolution, sale of assets, stock or debt refinancing, impairment, goodwill or other
similar transaction. The operating cash flow metric was defined as net cash flow for the year ended December 31,
2019, excluding cash provided or used by financing activity; changes in applicable accounting principles, tax laws or
regulations; Board-approved capital investments incremental to the annual plan; and the effects of any
recapitalization, restructuring, reorganization, merger, acquisition, divestiture, consolidation, spinoff, split-up,
combination, liquidation, facility shutdown, dissolution, sale of assets, stock or debt refinancing, impairment,
goodwill or other similar transaction. The key process path sales metric was defined as base sales of the company’s
most profitable products. Base sales is net sales excluding raw material surcharges and excluding the effects of
acquisition and/or divestiture efforts.
Ward “Tim” J. Timken, Jr.
Terry L. Dunlap
Kristopher R. Westbrooks
Frank A. DiPiero
William P. Bryan
Thomas D. Moline
2019 Annual incentive payouts
Target opportunity
as a percent of
base salary
2019 Award
120%
-
70%
60%
50%
50%
38
$0
-
$0
$0
$0
$0
For information about annual incentive opportunities awarded to each of the NEOs in 2019, see the “2019 Grants of
plan-based awards table.”
Long-term incentives
In 2019, consistent with prior years, three different types of long-term incentive grants were used for the NEOs (other
than Mr. Dunlap):
• Nonqualified stock options, which vest 25% per year over four years and are intended to provide value to
the holder only if shareholders receive additional value (in the form of share price appreciation) after the
date of grant;
•
•
Restricted stock units, which cliff-vest at the end of a three-year period and have a value that changes based
on changes in the company’s stock price; and
Performance shares, which are performance-based restricted stock units designed to reward executives for
attainment of specified two-year corporate performance goals and which vest following an additional
one-year holding period, with the final value of the award determined by the share price on the last day of
the holding period.
For the participating NEOs, the Compensation Committee approved a mix of performance shares, stock options
and restricted stock units to address retention while keeping the majority of the NEOs’ long-term incentives
performance-based. With respect to Mr. Timken, to better align his long-term incentive opportunity with market
practice, the Compensation Committee reduced his long-term incentive opportunity in 2019 and, at the same time,
adjusted the mix to include restricted stock units. Previously, Mr. Timken’s long-term incentive opportunity included
only stock options and performance shares.
Long-term incentive mix
Performance-based
Performance
shares
Stock
options
Time-based
Restricted stock
units
Former chief executive officer
Other NEOs
55%
25%
20%
30%
25%
45%
The Compensation Committee believes these grants, in total, provide a balanced emphasis on shareholder value
creation and retention of executive management over the course of a full business cycle. These grants also serve to
balance the short-term operating focus of the company and align executive management’s long-term financial
interests with those of the company’s shareholders.
The value of the entire long-term incentive grant is linked directly to the price of the company’s common stock. For
nonqualified stock options, the recipient recognizes value only to the extent the stock price rises above the market
price of the stock at the time the option is granted. For restricted stock units, value rises or falls depending on stock
price performance. For performance shares, the value is tied to both the company’s stock price and the achievement
of financial objectives.
The size of the long-term incentive grants and the allocation of grant value among the long-term incentive grant
types are based on a combination of market practice, internal equity considerations and the relative importance of
the objectives underlying each of the grant types.
39
2019 Long-term incentive decisions
Target grant
opportunity*
Number of
stock options
Value of stock
options
Number of
restricted
stock units
Value of
restricted stock
units
Number of
performance
shares
Value of
performance shares
(at target)
Total value
of award
325%
92,200
$510,788
51,100
$636,195
112,300
$1,398,135
$2,545,118
Long-term incentives**
135%
33,100
$183,374
22,000
$273,900
12,200
$151,890
$609,164
120%
24,600
$136,284
16,400
$204,180
9,100
$113,295
$453,759
85%
85%
14,000
$77,560
9,300
$115,785
5,200
$64,740
$258,085
14,000
$77,560
9,300
$115,785
5,200
$64,740
$258,085
Ward J. “Tim”
Timken, Jr. ^
Kristopher R.
Westbrooks
Frank A.
DiPiero
William P.
Bryan
Thomas D.
Moline
* As a percentage of base salary midpoint.
^ Mr. Timken’s employment ended on October 8, 2019. Please see “2019 Grants of plan-based awards table” for additional information about
the long-term incentives awarded to Mr. Timken in 2019 and the impact of the termination of his employment on these awards.
** Mr. Dunlap is not included in this table as the long-term incentives awarded to him are discussed below.
The target value for each grant is converted to a number of options or shares based on a calculated average stock
price over a defined period prior to the grant. The Compensation Committee used the average closing price over
the five trading days immediately preceding the grant date in determining the number of shares granted in 2019.
The Compensation Committee typically makes long-term incentive grants at its first regularly scheduled meeting of
each year, when the committee determines all elements of the NEOs’ compensation for the year. Board and
committee meetings are generally scheduled at least a year in advance.
Long-term incentive award to Interim CEO
As part of the compensation package awarded to Mr. Dunlap in connection with his appointment as Interim CEO
and President on October 8, 2019, the committee determined to award Mr. Dunlap $1 million in value of restricted
stock units in order to closely align his interests with those of our shareholders and to incentivize long-term
shareholder value creation. The committee intended that the number of restricted stock units to be awarded would
be based on the closing market price on October 9, 2019 ($5.37 per share), after news of the change in leadership
had been absorbed by the markets and reflected in the company’s stock price. This would have resulted in a grant of
186,219 restricted stock units. On October 8, 2019, the date of Mr. Dunlap’s appointment as Interim CEO and
President, an initial grant of 165,600 restricted stock units was made. In the compensation tables below, this grant
has a grant date fair value of $970,416. To fulfill the committee’s original intention, on March 2, 2020, the committee
awarded Mr. Dunlap an additional 20,619 restricted stock units. This grant had a grant date fair value of $108,456.
These restricted stock units will generally vest on the first anniversary of their respective grant dates.
Stock options
In 2019, our key employees (including all NEOs other than Mr. Dunlap) received nonqualified stock options that:
• have an exercise price equal to the closing price of the stock on the date of grant;
• generally will vest over a four-year period in equal amounts each year; and
• generally will expire ten years after the date of grant.
The Compensation Committee believes these awards help the company retain executives and focus their attention
on the company’s longer-term performance. Stock options are an effective motivational tool because they have
value only to the extent the stock price on the date of exercise exceeds the exercise price set on the grant date. For
information about stock options awarded to the NEOs in 2019, see the “2019 Grants of plan-based awards table.”
Restricted stock units
Restricted stock units represent an interest in TimkenSteel stock and are issued as shares pursuant to a three-year
vesting schedule. Restricted stock units serve to both reward and retain executives, as the value of the shares is
linked to the stock price when the shares vest, generally on the third anniversary of the grant. For information about
service-based restricted stock units awarded to the NEOs in 2019, see the “2019 Grants of plan-based awards table.”
40
Performance shares
Performance shares are performance-based restricted stock units, with vesting and the number of shares received
contingent upon the achievement of specified performance objectives. The performance objectives are closely tied
to the company’s long-range plan. Performance is scored and the number of shares earned is determined at the end
of a two-year performance period. Shares vest following an additional one-year holding period; the final value of the
award is determined by the company’s share price on the last day of the holding period. Performance shares serve
to both reward and retain executives, as the receipt of a payout is linked to performance, and the value of the payout
is linked to the share price when the shares vest.
The performance objectives for performance shares granted in 2019 are average return on invested capital and
cumulative base sales for the 2019-2020 performance period. The Compensation Committee selected these metrics
because it believes both metrics align to growth tactics. Base sales growth aligns with commercial execution of the
strategy to grow the company, while return on invested capital is an indicator of the profitability of that growth as it
relates to productivity and throughput. Actual performance for the ROIC metric is calculated excluding
mark-to-market remeasurement gains or losses; calculated assuming a planning income tax rate of 1.3%, excluding
cash and cash equivalents, long-term debt, non-current pension liability, non-current deferred tax liability and
accrued interest; and the effects of any recapitalization, restructuring, reorganization, merger, acquisition,
divestiture, consolidation, spinoff, split-up, combination, liquidation, facility shutdown, dissolution, sale of assets,
stock or debt refinancing, impairment, goodwill or other similar corporate transaction. Actual performance for the
base sales metric is calculated excluding the impact of any actions related to the company’s restructuring efforts
and/or acquisition, divestiture or asset impairment. At the time the specific performance targets for the metrics were
established, the Compensation Committee believed the target for the performance shares granted in 2019 was very
challenging, but achievable.
In order for any performance shares awarded for the 2019-2021 performance share cycle to be earned, actual
performance must achieve at least the threshold performance level for average return on invested capital. If the
threshold performance level for that measure is not attained, then no award will be earned, even if base sales
exceeds threshold. Average return on invested capital and base sales metrics are weighted equally at 50%. If an
award is payable, the number of shares earned could range from 50% to 150% of target based upon actual
performance over the two-year performance period. Shares vest following an additional one-year holding period.
The value of a share is equal to the share price when the shares vest. Final awards are settled in cash or in company
shares, as follows:
• NEOs who have met their share ownership requirement at the time of grant receive the value of any final
award in cash; and
• NEOs who have not met their share ownership requirement at the time of grant receive the value of any final
award in shares.
For information about performance shares awarded to the NEOs in 2019, see the “2019 Grants of plan-based
awards table.”
41
2018-2019 Performance shares canceled
In 2018, the NEOs (other than Messrs. Dunlap and Westbrooks) received awards of performance shares for the
2018-2019 performance period. The performance objective for shares granted in 2018 was average ROIC and base
sales for the two-year period. The Compensation Committee selected these metrics because it believed both
aligned to growth tactics. Actual performance for the ROIC metric was calculated excluding mark-to-market
remeasurement gains or losses; effects of changes in tax laws or accounting principles; and the effects of any
recapitalization, restructuring, reorganization, merger, acquisition, divestiture, consolidation, spinoff, split-up,
combination, liquidation, facility shutdown, dissolution, sale of assets, stock or debt refinancing, impairment,
goodwill or other similar corporate transaction. Actual performance for the base sales metric was calculated
excluding the impact of any actions related to the company’s restructuring efforts and/or acquisition, divestiture or
asset impairment. Because actual performance fell below both threshold requirements of -1.1% for average ROIC
and $2.070 billion for base sales, the 2018-2019 performance share awards were canceled.
Average ROIC
50% weighting
Maximum
10%
Threshold
PERFORMANCE
TARGET
(1.1%)
RESULT
12%
10%
8%
6%
4%
2%
0%
(2%)
Cumulative base sales
50% weighting
Maximum
$2.495B
Threshold
$2.070B
PERFORMANCE
TARGET
RESULT
2.7 B
2.6 B
2.5 B
2.4 B
2.3 B
2.2 B
2.1 B
2.0 B
1.9 B
0% metric performance
0% metric performance
0% payout
0% payout
Ward J. “Tim” Timken Jr.
Frank A. DiPiero
Thomas D. Moline
William P. Bryan
Number of canceled performance
shares*
2018-2019
115,000
7,600
4,300
4,300
*Mr. Westbrooks is not included in this table as he was not awarded performance shares for the 2018-2019 performance share cycle when he was
appointed Executive Vice President and Chief Financial Officer of the company effective September 24, 2018. Mr. Dunlap is not included in this
table as he was not awarded performance shares in connection with his appointment as Interim CEO and President on October 8, 2019.
42
Retirement and other benefits
Retirement income programs
The company’s retirement income programs are an important
retention tool. The company maintains both qualified and
nonqualified retirement income programs. The NEOs
participate in qualified plans on the same terms and
conditions as all other salaried employees, and they also
participate in the company’s nonqualified retirement income
programs. The company currently provides retirement
income through several types of plans:
The company’s retirement income programs
support an additional component of the retention
strategy of our executive compensation program
objectives.
• Qualified and nonqualified defined contribution plans provide for savings based on each executive’s
contributions, company matching contributions and core defined contributions. The nonqualified defined
contribution arrangement in which the NEOs participate is the post-tax savings benefit. This benefit is
primarily intended to restore benefits that would be provided under the qualified retirement plans were it not
for limits on benefits and compensation imposed by the Internal Revenue Code.
• Qualified and nonqualified defined benefit plans provide for a targeted percentage of salary and annual
incentive income that will continue through retirement. The nonqualified defined benefit plan in which
Messrs. Bryan, Moline and Timken participate is the supplemental executive retirement program for executive
officers (“SERP”). The SERP provides for a benefit based on final average earnings with offsets for benefits
provided under the company’s other retirement programs. Messrs. DiPiero, Dunlap and Westbrooks are not
eligible to participate in the defined benefit plans. Their retirement savings are provided solely through the
defined contribution plans.
Although the policies and procedures underlying the company’s retirement income programs are the same for all
participants, the age and length of service (including service as an officer of the company) of each participant can
have a significant effect on an individual’s benefit calculation because the programs have changed over time. In
addition, because benefits under the company’s defined benefit plans are based on final average earnings (base
salary and cash annual incentive compensation for the five highest non-consecutive years out of the final ten years),
pension values can increase significantly as salary and cash annual incentive compensation increase. Pension values
also are influenced by external factors and actuarial assumptions. See “Compensation of executive officers -- Pension
benefits” for additional information.
The value of the nonqualified retirement income programs is quantified each year and these programs are
periodically reviewed for their competitiveness. The value of these programs has not had a significant impact on
decisions regarding salary, annual incentive awards or long-term incentive grants.
In November 2019, the qualified and nonqualified defined benefit plans in which certain of the NEOs participate, as
described above, were amended to provide that additional benefit accruals for any remaining active participants will
cease effective December 31, 2020.
Deferred compensation
The company maintains a deferred compensation plan that allows certain employees, including the NEOs, to defer
receipt of all or a portion of their salary, employee contributions and company matching contributions that would
otherwise be paid out post-tax, and incentive compensation payable in cash, until a specified point in the future.
Cash deferrals earn interest quarterly at a rate based on the prime rate plus one percent. In 2019, none of the NEOs
earned “above-market” interest as defined by the Securities and Exchange Commission.
The deferred compensation plan is not funded by the company, and participants have an unsecured contractual
commitment by the company to pay the amounts due under the plan. When such payments are due, they will be
distributed from the company’s general assets. In the event of a change in control of the company, as defined in the
plan, participants are entitled to receive deferred amounts immediately. The Compensation Committee believes
that providing employees with tax deferral opportunities aids in the attraction and retention of such employees. The
value of the deferred compensation program is quantified each year and the program is reviewed periodically for its
competitiveness. The value of deferred compensation has not had a significant impact on decisions regarding salary,
annual incentive awards or long-term incentive grants for our NEOs.
43
Other benefits
The company’s executive officers, including the NEOs, are eligible to participate in a number of broad-based benefit
programs including health, disability and life insurance programs.
The NEOs also may receive certain perquisites including term life insurance coverage (although this program is
closed to new entrants), financial counseling and tax preparation assistance, executive physicals, access to corporate
country club memberships (although personal expenses are not reimbursed), spousal travel benefits and home
security systems (although this program is closed to new entrants). The value of these benefits is reflected in the “All
other compensation” column in the “2019 Summary compensation table.”
The company does not provide tax gross-ups for these benefits to executives. These benefits are intended to
provide executives with a competitive perquisite program that is reasonable and consistent with the company’s
overall approach to executive compensation. The total cost of these benefits is a small percentage of each NEO’s
total compensation.
The financial counseling and tax preparation assistance, country club memberships, home security system and
spousal travel benefits are being discontinued at various dates on or before March 31, 2020.
Severance agreements
In addition to retirement payments, the company provides termination-related payments to individual executives
through severance agreements, in the event of involuntary termination without cause and involuntary termination
without cause following a change in control. Severance agreements are provided based on competitive market
practice and the company’s desire to ensure some level of income continuity should an executive’s employment be
terminated without cause. The company believes providing for such income continuity results in greater
management stability and less unwanted and disruptive management turnover.
The level of severance benefits reflects the company’s perception of competitive market practice for the NEOs’
positions, based on assessments conducted by the Compensation Committee’s consultant. Severance pay was
established as a multiple of base salary and actual annual incentive compensation. The committee did not target
specific dollar values. The amounts of potential payouts are outlined in the “Termination scenarios table” below.
Other compensation program features
Stock ownership guidelines
Stock ownership guidelines have been established for all
senior executives and are intended to align the interests of
executive management with those of our shareholders. The
Compensation Committee has established guidelines of
six-times base salary for the company’s CEO, three-times base
salary for the CFO and two-times base salary for the other
NEOs.
Linking compensation to stock performance
Stock ownership guidelines align the interests of
the NEOs with those of our shareholders, given
that the increase or decrease in our stock price
impacts the value of the NEOs’ personal holdings.
In determining whether the executive has met the applicable ownership targets, the company considers all shares
owned by the executive plus deferred shares and restricted stock units still subject to forfeiture, but not shares that
are subject to unexercised options or performance shares still subject to forfeiture. As of March 2, 2020, none of the
NEOs met the established guidelines. Each NEO is required to retain shares (net of tax withholding) earned under
the company’s long-term incentive plan until the ownership target is achieved.
Anti-pledging and anti-hedging policy
The company prohibits pledging company stock or hedging the economic risk related to such stock ownership.
Please see “Corporate governance – Anti-hedging policy” for additional information.
Clawback provisions
The company maintains specific policies regarding the recovery (“clawback”) of awards to deter certain types of
conduct, including conduct that could affect the accuracy of the company’s financial statements. These provisions
apply to both short- and long-term incentive programs whereby, if personal misconduct or any fraudulent activity on
the part of the executive leads to the restatement of company financial results, the company can clawback all or part
44
of an award. In such cases, the Compensation Committee has discretion, based on applicable facts and
circumstances, to cause the company to recover all or any portion of the incentive paid or payable to the executive
for some or all of the years covered by the restatement.
Tax accounting rules and regulations
Section 162(m) of the Internal Revenue Code generally disallows a federal income tax deduction to publicly traded
companies for compensation paid to certain executives (and, beginning in 2018, certain former executive officers) to
the extent such compensation exceeds $1 million per executive in any fiscal year. Effective for tax years beginning
after December 31, 2017, the exemption for performance-based compensation from the deduction limitation of
Section 162(m) was repealed, unless certain transition relief for certain compensation arrangements in place as of
November 2, 2017 is available. As such, certain compensation paid to covered individuals in excess of $1 million
may not be deductible.
The Compensation Committee retains the flexibility to award compensation that is consistent with the company’s
objectives and philosophy even if it does not qualify for a tax deduction. The Compensation Committee believes the
tax deduction limitation should not be permitted to compromise the company’s ability to design and maintain
executive compensation arrangements that will attract and retain the executive talent we need to compete
successfully. Accordingly, achieving the desired flexibility in the design and delivery of compensation may result in
compensation that in certain cases is not deductible for federal income tax purposes.
45
Compensation of executive officers
2019 Summary compensation table
The following table sets forth information concerning compensation for our NEOs for the fiscal years ending
December 31, 2019, 2018 and 2017:
Name and principal
position
Year
Salary
Stock
awards(3)
Option
awards(4)
Change in
pension value
and
nonqualified
deferred
compensation
earnings(6)
Non-equity
incentive plan
compensation(5)
All other
compensation(7)
Total
Ward J. “Tim” Timken, Jr.
Former Chairman, CEO and
President (1)
2019
2018
2017
$ 703,917
$ 886,830
$ 865,200
$ 2,034,330
$ 1,905,550
$ 1,882,824
$
510,788
$ 1,508,412
$ 1,455,360
$
0
$ 309,870
$ 358,395
$ 4,521,000
$
0
$ 1,441,000
$ 4,145,813
125,358
$
105,126
$
$ 11,915,848
4,736,020
$
6,107,905
$
2019 $ 376,739 $ 1,085,536 $
0
$
0
$
0
$
15,519
$
1,477,794
Terry L. Dunlap
Interim CEO and
President (2)
Kristopher R. Westbrooks
Executive Vice
President and Chief
Financial Officer
Frank A. DiPiero
Executive Vice
President, General
Counsel and Secretary
William P. Bryan
Executive Vice President,
Manufacturing and Supply
Chain
2019
2018
$ 401,807
$ 106,126
$
$
425,790
106,116
$
$
183,374
45,619
$
$
0
44,992
2019
2018
2017
$ 392,021
$ 380,602
$ 369,517
2019
2018
2017
$ 297,405
$ 288,743
$ 263,970
$
$
$
$
$
$
$
$
$
317,475
351,284
286,344
180,525
198,840
143,172
180,525
198,840
190,314
$
$
$
$
$
$
$
$
$
136,284
145,470
119,808
$
0
$ 138,307
76,533
$
77,560
82,806
59,904
77,560
82,806
79,872
$
$
$
$
$
$
0
92,483
43,031
0
87,438
46,905
$
$
$
$
$
$
$
$
$
$
$
0
0
0
0
0
275,000
0
154,000
270,000
0
157,000
$
$
$
$
$
$
$
$
$
$
$
24,130
3,076
30,470
47,234
39,134
22,644
26,090
20,604
15,699
20,759
20,760
$
$
$
$
$
$
$
$
$
$
$
1,035,101
305,929
876,250
1,062,897
891,336
853,134
688,962
684,681
841,189
678,586
766,609
Thomas D. Moline
Executive Vice President,
Commercial Operations
2019
2018
2017
$ 297,405
$ 288,743
$ 271,758
(1) Mr. Timken’s employment with the company ended on October 8, 2019. The amount reported as 2019 salary for Mr. Timken includes all
salary compensation paid to him in 2019.
(2)
(3)
The amount reported as salary for Mr. Dunlap reflects the sum of (a) amounts received as a non-employee director for his service as a
member of the Board of Directors prior to his appointment as Interim CEO and President on October 8, 2019 and (b) amounts earned as
Interim CEO and President from October 9, 2019 through December 31, 2019. Of the total salary amount, $61,739 is attributable to
non-employee director fees and $315,000 is attributable to monthly salary earned as Interim CEO and President. Of the total stock awards,
$115,120 is attributable to the award of 11,735 deferred shares to Mr. Dunlap in May 2019 for his service as a non-employee director, and
$970,416 is attributable to the grant of 165,600 restricted stock units in connection with his appointment as Interim CEO and President.
The amounts shown in this column represent, for 2019, the grant date fair value (calculated in accordance with FASB ASC Topic 718) of
(a)(i) restricted stock units granted to Messrs. Timken, Westbrooks, DiPiero, Bryan and Moline on March 1, 2019 and to Mr. Dunlap on
October 8, 2019 and (ii) deferred shares granted to Mr. Dunlap on May 7, 2019 for his service as a non-employee director, disregarding in
each case estimates for forfeitures; and (b) performance shares (subject to being earned based upon achievement of the established
performance objectives) granted to Messrs. Timken, Westbrooks, DiPiero, Bryan and Moline on March 1, 2019, assuming target achievement
of the established performance objectives, which was the probable outcome on the grant date. Should performance equal or exceed the
maximum goals for these 2019 performance shares, the grant date fair value for such awards would be as follows: Mr. Timken — $2,097,203;
Mr. Westbrooks – $227,835; Mr. DiPiero — $169,943; Mr. Bryan — $97,110 and Mr. Moline — $97,110.
The restricted stock units granted to Messrs. Westbrooks, DiPiero, Bryan and Moline will vest in full on March 1, 2022, provided the named
executive officer remains continuously employed by the company through that date. For Mr. Dunlap, the grant of deferred shares will vest in
full on May 7, 2020 and the grant of restricted stock units will vest in full on October 8, 2020, provided he remains continuously in the service
of the company through those respective dates. As a result of Mr. Timken’s employment with the company ending on October 8, 2019,
7,097 of the 51,100 restricted stock units awarded to him in 2019 were canceled. The remaining 41,313 restricted stock units will vest on
March 1, 2022.
The performance shares granted in 2019 to Messrs. Timken, Westbrooks, DiPiero, Bryan and Moline were awarded to track performance for
the 2019-2021 cycle with a one-year holding period applied to allow for share price to impact the final award. On December 31, 2020,
achievement of the established performance objectives for the 2019-2020 performance period will be scored and the portion of the
performance shares which have been earned by each NEO, if any, will be determined, with any earned shares vesting on December 31,
2021. As a result of Mr. Timken’s employment with the company ending on October 8, 2019, 9,358 of the 112,300 performance shares
awarded to Mr. Timken were canceled. Any portion of the remaining 102,942 performance shares which are earned by Mr. Timken (based
on achievement of the established performance objectives for the 2019-2020 performance period) will vest on December 31, 2021. Based
46
(4)
(5)
(6)
on assessment of ownership levels at the time of grant, the settlement for any 2019 performance shares earned will be in cash for Mr. Timken
and in shares for Messrs. Westbrooks, DiPiero, Bryan and Moline.
The amounts shown in this column represent, for each year, the grant date fair value of nonqualified stock options (calculated in accordance
with FASB ASC Topic 718) using the Black-Scholes model. All stock options vest at a rate of 25% per year. Assumptions used to determine
the value of these nonqualified stock options are described in Note 16 of the Notes to Consolidated Financial Statements included in our
Annual Report on Form 10-K for the year ended December 31, 2019. As a result of Mr. Timken’s employment with the company ending on
October 8, 2019, 46,100 options granted to Mr. Timken on March 1, 2019 and 50,550 options granted to Mr. Timken on February 14, 2018
were canceled and all remaining unvested options granted in 2017, 2018 and 2019 were vested.
The amounts shown in this column for 2019 represent cash payouts earned under the TimkenSteel Corporation Annual Performance Award
plan for Messrs. Timken, Westbrooks, DiPiero, Bryan and Moline. Because the company’s performance failed to meet threshold performance
requirements in 2019, no APA payouts were earned for 2019. Mr. Dunlap does not participate in the Annual Performance Award plan. For
additional information, see “Analysis of 2019 compensation — Annual incentive — 2019 Annual performance award decisions” in the
Compensation Discussion and Analysis section of this proxy statement.
The amounts shown in this column for 2019 represent the difference between the amounts shown in the “2019 Pension benefits table” as of
December 31, 2019, and those amounts calculated as of December 31, 2018. The amounts were calculated using the same assumptions
used in 2018 and included in the footnotes of the “2019 Pension benefits table,” except that the calculations as of December 31, 2019
utilized (a) a discount rate of 3.51% (while a discount rate of 4.40% was used for the calculation as of December 31, 2018) and (b) updated
mortality statistics consistent with the 2019 mortality projection scale of the Society of Actuaries. The increase in value of $4.521 million for
Mr. Timken is comprised of an increase of $1.692 million from the use of the lower discount rate and an increase of $2.905 million from other
assumption changes due to Mr. Timken’s employment ending, offset by a decrease of $76,000 from the use of the updated mortality
projection scale. The increase in value of $275,000 for Mr. Bryan is comprised of an increase of $146,000 from the use of the lower discount
rate and an increase of $137,000 from the accrual of additional benefit service, offset by a decrease of $8,000 from the use of the updated
mortality projection scale. The increase in value of $270,000 for Mr. Moline is comprised of an increase of $165,000 from the use of the lower
discount rate and an increase of $112,000 from the accrual of additional benefit service, offset by a decrease of $7,000 from the use of the
updated mortality projection scale. Messrs. Dunlap, Westbrooks and DiPiero are not eligible for company-paid pension benefits. For
additional information, please see “2019 Pension benefits table” in this proxy statement.
Liabilities were determined assuming no probability of termination, retirement, death or disability before age 62 (the earliest age unreduced
pension benefits are payable from the plans) except for Mr. Timken, for whom a commencement age of 55 was used. None of the NEOs
earned above-market earnings in a deferred compensation plan. For additional information, see the discussion below under “Pension
benefits.”
(7)
The amounts shown in this column for 2019 are broken down in detail in the following table (a):
Annual
company
contribution
to SIP plan
and core
DC
program(b)
Annual
company
contribution
to post-tax
savings
benefit(c)
Annual
life
insurance
premium
(company
paid)
Executive
physicals
(company
recommended)
Financial
planning
reimbursement
Home
security
Personal
use of
company’s
country
club
member-
ships(d)
Spousal
travel(e)
Life
insurance(f)
Other(g)
Name
Ward J. “Tim”
Timken Jr.
$ 25,200 $ 75,168 $ 2,937
$ 1,374
Terry L. Dunlap
$
0 $
0 $
Kristopher R.
Westbrooks
Frank A. DiPiero
William P. Bryan
Thomas D.
Moline
$ 18,200 $
1,317 $
$ 23,800 $
$ 12,600 $
0 $
0 $
$ 12,600 $
0 $
0
0
0
0
0
$
0
$
$
0
0
$ 2,828
$ 1,375
$ 2,063
$ 1,970
$ 1,743
$ 5,000
$
0
$ 1,855
$ 378 $
99 $
0 $ 1,937 $ 4,038,721
$
$
$
$
$
0 $
0 $
0 $ 2,633 $
12,886
0 $
0 $
0 $
0 $
410 $
0 $
0 $ 2,637 $
0 $ 1,392 $
0 $ 1,909 $
0 $
0 $
0 $ 1,244 $
0
0
0
0
(a)
(b)
(c)
(d)
The company does not provide tax gross-ups for executive benefits.
The “SIP plan” refers to the Savings and Investment Pension Plan, which is the company’s qualified defined contribution plan for salaried
employees. “Core DC program” refers to the core defined contribution program for salaried employees hired on or after January 1,
2004, as well as for salaried employees whose age plus years of service with The Timken Company (the company’s former parent
company) equaled less than 50 as of December 31, 2003. In 2019, Messrs. Timken, Westbrooks and DiPiero received core DC program
contributions.
The “Post-tax savings benefit” is the company’s non-tax qualified restoration benefit for salaried employees whose contributions and
benefits in qualified retirement plans are limited by Section 415 of the Internal Revenue Code.
The amounts shown for Messrs. Timken and Bryan represent compensation attributable to personal use of country club memberships
during 2019. Amounts shown for personal use of country club memberships include pro-rated amounts of company-paid annual
membership dues attributed to the personal use of country clubs by the NEO. There are no incremental costs to the company for other
personal expenses associated with such personal use, as all such costs are borne by the executive.
(e) None of the NEOs received compensation attributable to spousal travel during 2019. If an NEO had received compensation in the form
(f)
(g)
of spousal travel benefits, amounts shown for spousal travel would have included actual incremental travel expenses.
The amounts shown represent imputed income for the cost of pre-tax term life insurance (which is provided by the company for all
salaried employees equal to one times their annual salary) for the portion that exceeds the IRS pre-tax limit of $50,000.
The amount shown for Mr. Timken represents payments made as a result of his separation from the company on October 8, 2019 and in
accordance with the severance agreement previously entered into between Mr. Timken and the company. Pursuant to this agreement,
Mr. Timken received severance pay equal to two times his current base salary plus two times his target annual cash incentive
opportunity. For additional information, see “Potential payments upon termination or change in control.” The amount shown for
Mr. Dunlap represents personal benefits received as a result of his appointment as Interim CEO and President on October 8, 2019,
including rental payments for his apartment in Canton and mileage reimbursement for commutes to his primary residence.
47
2019 Grants of plan-based awards table
The following table sets forth information concerning potential awards payable to our NEOs with respect to the
short-term and long-term incentive award opportunities granted in 2019:
Name
Grant date
Threshold
Target
Maximum Threshold
Target Maximum
Estimated future payouts under
non-equity incentive plan awards
Estimated future payouts under
equity incentive plan awards
Ward J. “Tim” Timken, Jr. 03/01/2019 APA(1)
03/01/2019 RSUs(2)
03/01/2019 NQSOs(3)
03/01/2019 Perf RSUs(4)
Terry L. Dunlap
05/07/2019 Def.
Shares(5)
10/08/2019 RSUs(2)
Kristopher R. Westbrooks 03/01/2019 APA(1)
03/01/2019 RSUs(2)
03/1/2019 NQSO(3)
03/01/2019 Perf RSUs(4)
Frank A. DiPiero
William P. Bryan
Thomas D. Moline
03/01/2019 APA(1)
03/01/2019 RSUs(2)
03/01/2019 NQSOs(3)
03/01/2019 Perf RSUs(4)
03/01/2019 APA(1)
03/01/2019 RSUs(2)
03/01/2019 NQSOs(3)
03/01/2019 Perf RSUs(4)
03/01/2019 APA(1)
03/01/2019 RSUs(2)
03/01/2019 NQSOs(3)
03/01/2019 Perf RSUs(4)
$
0
$844,700
$ 1,689,400
56,150
112,300
168,450
$
$
$
$
0
$281,265
$ 562,529
0
$235,212
$ 470,425
0
$148,703
$ 297,405
0
$148,703
$ 297,405
6,100
12,200
18,300
4,550
9,100
13,650
2,600
5,200
7,800
2,600
5,200
7,800
All other
stock
awards:
number of
shares of
stock
or units
All other
option
awards:
number of
securities
underlying
options
Exercise or
base price
of option
awards
($/share)
Grant date
fair value
of stock
and option
awards(6)
51,100
11,735
165,600
22,000
16,400
9,300
9,300
92,200
$ 12.45
33,100
$ 12.45
24,600
$ 12.45
14,000
$ 12.45
14,000
$ 12.45
$ 636,195
$ 510,788
$ 1,398,135
$ 115,120
$ 970,416
$ 273,900
$ 183,374
$ 151,890
$ 204,180
$ 136,284
$ 113,295
$ 115,785
77,560
$
64,740
$
$ 115,785
77,560
$
64,740
$
(1) “APA” reflects the annual incentive opportunity available to each of the NEOs under the TimkenSteel Corporation Annual Performance Award
plan at threshold, target and maximum performance levels for the 2019 performance period. Mr. Dunlap does not participate in the Annual
Performance Award plan.
(2) “RSUs” refers to restricted stock units granted to each of the NEOs on the grant date indicated. Restricted stock units reported in this table for
Messrs. Westbrooks, DiPiero, Bryan and Moline will vest in full on March 1, 2022 provided the executive maintains continuous employment
with the company through that date. For Mr. Dunlap, the restricted stock units reported in this table reflect the grant received upon his
appointment as Interim CEO and President on October 8, 2019, which will vest in full on October 8, 2020 provided he remains in the
continuous service of the company through that date. For Mr. Timken, because his employment ended on October 8, 2019, 7,097 of the
51,100 restricted stock units awarded to him were canceled. The remaining 41,313 of Mr. Timken’s restricted stock units will vest on March 1,
2022. For additional information, see “Analysis of 2019 compensation – Long-term incentives” in the Compensation discussion and analysis
section of this proxy statement. For additional information regarding vesting of equity in the event of a change in control or other termination
scenarios, see “Potential payments upon termination or change in control.”
(3) “NQSOs” refers to the nonqualified stock options granted to each of the NEOs (except Mr. Dunlap, who was not awarded nonqualified stock
options) on the grant date indicated. Each grant of NQSOs reported in the table has an exercise price equal to the fair market value (as
defined in the plan) on the date of grant, has a ten-year term and will become exercisable over four years in 25% increments on the
anniversary of the grant date. As a result of Mr. Timken’s employment with the company ending on October 8, 2019, 46,100 options granted
to Mr. Timken on March 1, 2019 were canceled and the remaining 46,100 options were vested. For additional information, see “Analysis of
2019 Compensation — Long-term incentives” in the Compensation discussion and analysis section of this proxy statement. For additional
information regarding vesting of equity in the event of a change in control or other termination scenarios, see “Potential payments upon
termination or change in control.”
(4) The “Perf RSUs” amounts reported in this table indicate threshold, target and maximum award opportunities for the performance shares
granted to the NEOs (except Mr. Dunlap, who was not awarded performance shares) on March 1, 2019. The performance shares granted in
2019 were awarded to track performance for the 2019-2021 cycle with a one-year holding period applied to allow for share price to impact
the final award. On December 31, 2020, achievement of the established performance objectives for the 2019-2020 performance period will
be scored and the portion of the performance shares which have been earned by each NEO, if any, will be determined, with any shares
earned vesting on December 31, 2021. As a result of Mr. Timken’s employment with the company ending on October 8, 2019, 9,358 of the
112,300 performance shares awarded to Mr. Timken were canceled. Any portion of the remaining 102,942 performance shares which are
earned by Mr. Timken (based on achievement of the established performance objectives for the 2019-2020 performance period) will vest on
December 31, 2021. For additional information, see “Analysis of 2019 Compensation – Long-term incentives” in the Compensation discussion
and analysis section of this proxy statement. For additional information regarding vesting of equity in the event of a change in control or other
termination scenarios, see “Potential payments upon termination or change in control.”
(5) “Def. Shares” refers to deferred shares awarded to Mr. Dunlap on May 7, 2019, for his service as a non-employee director. These deferred
shares will vest in full on May 7, 2020, provided Mr. Dunlap remains in the continuous service of the company through that date.
(6) The amounts shown in this column reflect the fair value on the date of grant of RSUs, deferred shares, stock options and performance shares
granted in 2019, computed in accordance with FASB ASC Topic 718. The fair value of RSUs and deferred shares is equal to the closing price
of TimkenSteel common shares on the date of grant multiplied by the number of RSUs or deferred shares granted. The fair value of stock
options is determined using the Black-Scholes model. The fair value of performance shares is equal to the closing price of TimkenSteel
common shares on the date of grant multiplied by the target number of performance shares granted, which was the probable outcome on
the grant date.
48
Outstanding equity awards at 2019 year-end table
The following table sets forth information concerning unexercised stock options and stock awards that have not yet
vested for each of our NEOs as of December 31, 2019:
Option awards(1)
Stock awards(2)
Name
Ward J. “Tim”
Timken, Jr. (3)
Terry L. Dunlap
Kristopher R.
Westbrooks
Frank A. DiPiero
William P. Bryan
Thomas. D
Moline
Number of
securities
underlying
unexercised
options
exercisable
Number of
securities
underlying
unexercised
options
unexercisable
52,300
53,000
45,100
46,450
46,000
95,000
319,960
189,500
151,650
46,100
1,760
0
8,700
9,000
21,945
7,800
4,875
0
1,300
1,800
1,800
1,600
5,500
8,570
3,900
2,775
0
2,800
2,150
2,250
1,750
5,500
10,750
5,200
2,775
0
0
0
0
0
0
0
0
0
0
0
5,280
33,100
0
0
7,315
7,800
14,625
24,600
0
0
0
0
0
3,690
3,900
8,325
14,000
0
0
0
0
0
4,875
5,200
8,325
14,000
Option
exercise
price
($/share)
$ 13.61
$ 29.95
$ 31.06
$ 33.76
$ 34.26
$ 29.00
$ 7.46
$ 17.46
$ 16.57
$ 12.45
$ 14.34
$ 12.45
$ 46.08
$ 29.00
$ 7.46
$ 17.46
$ 16.57
$ 12.45
$ 29.95
$ 31.06
$ 33.76
$ 34.26
$ 29.00
$ 7.46
$ 17.46
$ 16.57
$ 12.45
$ 29.95
$ 31.06
$ 33.76
$ 34.26
$ 29.00
$ 7.46
$ 17.46
$ 16.57
$ 12.45
Option
expiration
date
02/08/2020
02/08/2021
02/09/2022
10/08/2022
10/08/2022
10/08/2022
10/08/2022
10/08/2022
10/08/2022
10/08/2022
09/24/2028
03/01/2029
08/05/2024
01/29/2025
02/17/2026
02/15/2027
02/14/2028
03/01/2029
02/08/2021
02/09/2022
02/07/2023
02/13/2024
01/29/2025
02/17/2026
02/15/2027
02/14/2028
03/01/2029
02/08/2021
02/09/2022
02/07/2023
02/13/2024
01/29/2025
02/17/2026
02/15/2027
02/14/2028
03/01/2029
Grant date
02/08/2010
02/08/2011
02/09/2012
02/07/2013
02/13/2014
01/29/2015
02/17/2016
02/15/2017
02/14/2018
03/01/2019
09/24/2018
03/01/2019
08/05/2014
01/29/2015
02/17/2016
02/15/2017
02/14/2018
03/01/2019
02/08/2011
02/09/2012
02/07/2013
02/13/2014
01/29/2015
02/17/2016
02/15/2017
02/14/2018
03/01/2019
02/08/2011
02/09/2012
02/07/2013
02/13/2014
01/29/2015
02/17/2016
02/15/2017
02/14/2018
03/01/2019
Number of
shares or
units of
stock that
have not
vested
Market value
of shares or
units of stock
that have
not vested
Equity incentive
plan awards:
number of
unearned
shares, units or
other rights
that have not
vested
Equity incentive
plan awards:
market or payout
value of unearned
shares, units or
other rights that
have not vested
Grant date
03/01/2019
41,313
$
324,720
51,471
$ 404,562
05/07/2019
10/08/2019
09/24/2018
03/01/2019
02/15/2017
02/14/2018
03/01/2019
11,735
165,600
7,400
22,000
10,500
13,600
16,400
$
92,237
$ 1,301,616
58,164
$
172,920
$
82,530
$
106,896
$
128,904
$
6,100
4,550
$
$
47,946
35,763
02/15/2017
02/14/2018
03/01/2019
5,300
7,700
9,300
$
$
$
41,658
60,522
73,098
2,600
$
20,436
02/15/2017
02/14/2018
03/01/2019
7,000
7,700
9,300
$
$
$
55,020
60,522
73,098
2,600
$
20,436
(1) All option awards reported in this table are nonqualified stock options that vest ratably 25% per year over the four-year period from the date
of grant.
(2)
Stock awards reported in this table include, for Messrs. Timken, DiPiero, Bryan and Moline, performance shares and restricted stock units;
and, for Mr. Dunlap, deferred shares and restricted stock units. Performance shares (reported under the Equity incentive plan awards
column) were granted on March 1, 2019, with performance against the established objectives measured over a two-year performance period
ending on December 31, 2020, and with any earned shares vesting following an additional one-year holding period to allow for share price
to impact the value of the final award. The number of shares reported for the performance shares granted on March 1, 2019 reflects the
number of shares that would be earned by each respective NEO assuming threshold performance is achieved under the established
performance objectives. The settlement for any performance shares earned will be in cash for Mr. Timken and in shares for Messrs.
Westbrooks, DiPiero, Bryan and Moline.
Restricted stock units were granted to Messrs. DiPiero, Bryan and Moline on February 15, 2017, February 14, 2018 and March 1, 2019; to
Mr. Westbrooks on September 24, 2018 and March 1, 2019; and to Mr. Timken on March 1, 2019. Each of these grants of RSUs vests on the
third anniversary of their respective grant dates.
Deferred shares were granted to Mr. Dunlap on May 7, 2019 as compensation for his service as a non-employee director, and restricted
stock units were granted to Mr. Dunlap on October 8, 2019 in connection with his appointment as Interim CEO and President. Each of
Mr. Dunlap’s stock awards will vest on the first anniversary of grant date.
The market value of all shares and awards reported in this table was determined based upon the closing price of TimkenSteel’s common
shares on December 31, 2019, the last trading day of the year, which was $7.86.
(3) As a result of Mr. Timken’s employment with the company ending on October 8, 2019, 46,100 options granted to Mr. Timken on March 1,
2019 and 50,550 options granted to Mr. Timken on February 14, 2018 were canceled and the remaining 321,940 unvested options granted
in 2016, 2017, 2018 and 2019 were immediately vested. As a result of Mr. Timken’s employment with the company ending, all outstanding
options remain exercisable for three years. Additionally, 7,097 of the 51,100 restricted stock units awarded to Mr. Timken in 2019 were
canceled, and 2,690 of the restricted stock units awarded in 2019 were withheld to satisfy tax withholding requirements as the awards are no
longer subject to a substantial risk of forfeiture. Finally, 9,358 of the 112,300 performance shares awarded to Mr. Timken on March 1, 2019
were canceled.
49
2019 Option exercises and stock vested table
The following table sets forth information with respect to the exercise of stock options by and vesting of stock-based
awards for our NEOs during 2019.
Option awards (1)
Stock awards (2)
Name
Ward J. “Tim” Timken, Jr.
Terry L. Dunlap(3)
Kristopher R. Westbrooks
Frank A. DiPiero
William P. Bryan
Thomas D. Moline
Number of shares
acquired on exercise
0
0
0
0
0
0
Value realized
on exercise
0
0
0
0
0
0
Number of shares
acquired on vesting
0
7,155
0
14,750
7,500
10,000
Value realized
on vesting
$0
$76,201
$0
$183,638
$93,375
$124,500
(1)
(2)
There were no exercises of stock options by any of our NEOs during 2019.
The value realized on vesting for stock awards is calculated by multiplying the number of shares acquired on vesting by the fair market value
of TimkenSteel common shares on the vesting date. For purposes of this calculation, the fair market value of restricted stock units which vest
is equal to the closing price of our common shares on the vesting date. The value shown in the table does not include performance shares
granted for the 2018-2019 cycle, as performance results for the cycle fell below threshold requirements. Accordingly, all performance shares
granted for the 2018-2019 performance cycle were canceled without a payout.
(3)
The value realized on vesting of stock awards for Mr. Dunlap reflects the vesting of deferred shares granted to Mr. Dunlap in 2018 for his
service as a non-employee director. These shares vested on May 7, 2019, prior to his appointment as Interim CEO and President.
50
Pension benefits
Qualified Plan
In connection with the spinoff of TimkenSteel from The Timken Company on June 30, 2014, TimkenSteel adopted a
tax-qualified defined benefit retirement plan (the “Qualified Plan”) which is substantially similar to the defined benefit
retirement plan maintained by The Timken Company prior to spinoff. Years of service with The Timken Company
prior to spinoff count toward years of service under the Qualified Plan.
Pursuant to the Qualified Plan, salaried employees whose age plus years of service equaled or exceeded 50 as of
December 31, 2003, participate in a defined benefit plan with a formula of 0.75% per year of service times average
earnings, including base salary and cash annual incentive compensation, for the highest five non-consecutive years
of the ten years preceding retirement (“Final Average Earnings”). For all employees in a defined benefit plan as of
December 31, 2003, the formula in effect at the time of service, using Final Average Earnings at retirement, is
applied to such service.
The benefit is generally payable beginning at age 65 for the lifetime of the employee, with alternative forms of
payment available with actuarial adjustments. Participants may retire early for purposes of the Qualified Plan if they
meet any of the following eligibility requirements:
• Age 62 and 15 years of service;
• Age 60 and 25 years of service; or
• Any age and 30 years of service.
In addition, participants age 55 with at least 15 years of service may retire and receive the portion of their Qualified
Plan benefit attributable to service earned after 2003.
Benefits for service after December 31, 1991, are reduced for early commencement at a rate of 3% per year before
the age of 60 for the portion of the benefit attributable to service earned between 1992 and 2003, and 4% per year
before age 62 for the portion of the benefit attributable to service earned after 2003.
Benefits for a NEO who dies while actively employed are payable to the surviving spouse from the defined benefit
pension plans at the NEO’s normal retirement date (or on a reduced basis at an early retirement date) if the NEO had
at least five years of service. The benefit is equal to 50% of the benefit payable if the NEO had terminated
employment on the date of his death, survived to the payment date (as elected by his spouse), elected the 50% joint
and survivor form of payment and died the next day. If the NEO had at least 15 years of service at the time of his
death, the benefit is equal to 50% of the accrued benefit at time of death payable immediately, but with any
applicable early commencement reduction.
Supplemental Pension Plan
In connection with the spinoff, the company also adopted the Supplemental Pension Plan of TimkenSteel
Corporation (effective June 30, 2014), or the TimkenSteel SERP, which is substantially similar to the supplemental
pension plan maintained by The Timken Company prior to the spinoff. Supplemental retirement income benefits
under the TimkenSteel SERP are calculated using a target benefit of 60% of Final Average Earnings, offset by any
defined benefit plan payments provided by the company and the aggregate earnings opportunity provided by any
company contributions under the core defined contribution program (the TimkenSteel Corporation Savings and
Investment Pension Plan) and the post-tax savings benefit. The supplemental benefit will vest after five years of
service as an officer of the company, with normal retirement being considered as of age 62. Early retirement at age
55 with at least 15 years of company service is available, but if benefits are commenced early, they will be reduced
by 4% per year for each year of early commencement prior to age 62.
For both the Qualified Plan and the TimkenSteel SERP, only actual years of service with TimkenSteel and, prior to the
spinoff, The Timken Company, are counted in calculating pension benefits, except in the case of involuntary
termination without cause, in which case up to two additional years of service will be credited.
In November 2019, the Qualified Plan and the SERP were each amended to provide that additional benefit accruals
for any remaining active participants will cease effective December 31, 2020.
51
2019 Pension benefits table
The following table sets forth the number of years of credited service and actuarial value of the defined benefit
pension plans for our NEOs as of December 31, 2019:
Name
Plan name
Ward J. “Tim” Timken, Jr.(2)
Supplemental Plan
Terry L. Dunlap(3)
Qualified Plan
Supplemental Plan
Qualified Plan
Kristopher R. Westbrooks(3)
Supplemental Plan
Frank A. DiPiero(3)
William P. Bryan
Thomas D. Moline
Qualified Plan
Supplemental Plan
Qualified Plan
Supplemental Plan
Qualified Plan
Supplemental Plan
Qualified Plan
Number of
years of
credited
service
27.6
11.6
N/A
N/A
N/A
N/A
N/A
N/A
42.5
42.5
35.5
35.5
$
$
$
$
$
$
$
$
$
$
$
$
Present value of
accumulated benefit (1)
13,055,000
227,000
-
-
0
0
0
0
335,000
1,107,000
301,000
1,007,000
(1)
(2)
(3)
The “Present Value of Accumulated Benefit” is the present value, as of December 31, 2019. Age 62 is the earliest age an unreduced benefit is
payable from the plans. The assumptions used to determine the present value include a 3.51% discount rate and updated mortality statistics
consistent with the 2019 Society of Actuaries revised mortality projection scale. Benefits for the applicable NEOs were determined assuming
no probability of termination, retirement, death or disability before age 62, except for Mr. Timken for whom a commencement age of 55 was
used.
Because Mr. Timken did not have a combination of age and service that equaled or exceeded 50 as of December 31, 2003, he did not
accumulate any service under the Qualified Plan after December 31, 2003.
Because Messrs. Dunlap, Westbrooks and DiPiero were hired after January 1, 2004, they do not accumulate any service under either the
Supplemental or Qualified Plan.
52
2019 Nonqualified deferred compensation table
The table below sets forth information regarding contributions, earnings and withdrawals during 2019 and the
account balances as of December 31, 2019, for the NEOs under the TimkenSteel Corporation Deferred
Compensation Plan:
Name
Ward J. “Tim” Timken, Jr.
Terry L. Dunlap
Kristopher R. Westbrooks
Frank A. DiPiero
William P. Bryan
Thomas D. Moline
Executive
contributions in
2019 (1)
Company
contributions in
2019 (1)
Aggregate
earnings in
2019 (2)
Aggregate
withdrawals/
distributions in
2019
Aggregate
balance at
December 31,
2019 (3)
$
$
$
$
$
$
35,827
-
-
-
-
-
$
$
$
$
$
$
75,168
$ 206,263
-
1,317
-
-
-
$
$
$
$
$
-
-
-
-
-
$
$
$
$
$
$
-
-
-
-
-
-
$ 2,802,387
$
$
$
$
$
-
1,317
-
-
-
(1) Amounts shown as executive contributions or company contributions in 2019 are reported in the 2019 Summary compensation table.
(2) This amount includes interest earned from cash deferrals. Earnings during this year and previous years were not above market or preferential;
therefore, these amounts are not included in the 2019 Summary compensation table.
(3) Amounts included in the aggregate balances that previously were reported as compensation in the Summary compensation table for
previous years (or would have been had the recipient been identified as a NEO for such years) are as follows: Mr. Timken, $1,776,608.
53
Potential payments upon termination or change in control
The company has entered into severance agreements with each of its NEOs (other than Mr. Dunlap) that provide for
compensation in the event of termination of employment under certain circumstances (the “Severance
Agreements”). In addition, our NEOs are entitled to post-termination payments or benefits under award agreements
entered into under the TimkenSteel Amended and Restated 2014 Equity and Incentive Compensation Plan and,
under certain circumstances, under our retirement and benefit plans. The following circumstances would trigger
post-termination payments to our named executive officers: change in control followed by certain events described
below; involuntary termination without cause; retirement; permanent disability; and death. For purposes of
calculating the payments that would be due to each of our NEOs, the termination scenarios described below
assume a December 31, 2019 termination date.
Change in control
Under the Severance Agreements with our NEOs, when certain events occur, such as a reduction in responsibilities
or termination of employment without cause, following a change in control of the company (as defined in the
Severance Agreements), the NEO is entitled to receive a cash severance payment in an amount equal to a multiple
of three times the sum of his annual base salary and the greater of: (1) his target annual amount of incentive
compensation for the year in which he terminates employment; or (2) his target annual amount of incentive
compensation for the year in which the change in control occurs. The form of Severance Agreement does not
contain an excise tax gross-up provision. Rather, the agreements provide that the NEO can choose the “best net”
benefit of either: (1) paying all excise taxes incurred with respect to the change in control benefits, without a
gross-up by the company; or (2) accepting aggregate change in control benefits that do not exceed the excise tax
threshold. In the event of a change in control, the amounts payable under the Severance Agreements would
become secured by a trust arrangement.
In addition, the NEO would receive a lump sum amount representing the SERP benefit. The lump sum amount is
determined by calculating the benefit under the Qualified Plan and the SERP assuming the NEO continued to earn
service for three additional years with annual earnings during those three years equal to the compensation
described above. This lump sum is determined based on mortality tables and interest rates promulgated by the IRS
under Section 417(e)(3) of the Internal Revenue Code and would be reduced by the lump sum equivalent of the
benefit payable from the Qualified Plan.
Under the terms of the agreements pursuant to which equity is awarded to our NEOs, if following a change in
control there would be a loss of equity by the NEO because (a) the equity of the company is not continued and the
value of the equity award is not replaced with an equivalent equity instrument of the surviving entity or (b) the NEO’s
employment is involuntarily terminated or voluntarily terminated with good cause (as defined in the agreement),
then in those circumstances any unvested equity-based grants would vest and become nonforfeitable and the NEO
would have three years to exercise all stock options.
Finally, the NEO would be entitled to continuation of health and welfare benefits for three years and career
outplacement services.
Voluntary termination
In the case of a voluntary termination of employment by an NEO, the NEO is not entitled to receive, and the
company will not make any cash severance, retirement benefits or other perquisite payments, and unvested equity-
based grants will not vest.
Involuntary termination with cause
The company provides no cash severance, retirement benefits, other perquisite payments or vesting of any equity-
based grants when an NEO is terminated by the company with cause. As used in the Severance Agreements,
termination with “cause” means the commission of an intentional act of fraud, embezzlement or theft in connection
with the NEO’s duties with the company; an intentional wrongful disclosure of secret processes or confidential
information of the company or a company subsidiary; or an intentional wrongful engagement in any competitive
activity (as defined in the Severance Agreements) which would constitute a material breach of the officer’s duty of
loyalty to the company.
54
If the company terminates the NEO’s employment for cause, any benefit payable from a qualified plan will be
forfeited.
Involuntary termination without cause
The Severance Agreements with our NEOs provide that, in the case of an involuntary termination without cause, the
NEO is entitled to severance equal to 1.5 times the sum of his base salary and highest annual incentive
compensation during the preceding five years (not to exceed target), except that the agreement with our former
Chairman, CEO and President entitled him to severance of 2 times the sum of his base salary and highest annual
incentive compensation during the preceding five years (not to exceed target). Each NEO also is entitled to
continuation of health and welfare benefits through the severance period and career outplacement services. In
consideration for providing severance benefits, the company receives confidentiality and non-compete covenants
from the NEOs, as well as a release of liability for all claims against the company.
Retirement
“Retirement” means either: (1) retirement of the NEO prior to age 62, if the Compensation Committee of the Board
of Directors determines that such retirement is for the convenience of the company; or (2) retirement of the NEO on
or after age 62.
In addition to retirement benefits shown in the “2019 Pension benefits table” (which are not shown in the following
table of termination scenarios), NEOs who retire under the circumstances described above will be entitled to receive
prorated payouts of performance shares and continued normal vesting of other unvested equity awards as if the
officer had remained in the continuous employ of the company for the remainder of the vesting period.
Death or permanent disability
“Permanent Disability” occurs if the NEO qualifies for permanent disability benefits under a disability plan or
program of the company or, in the absence of a disability plan or program of the company, under a government-
sponsored disability program.
All equity-based awards immediately vest in the event of death or permanent disability except performance shares,
which are prorated and then vest at the end of the performance period. In the case of disability, the NEO has up to
five years to exercise stock options. In the case of the NEO’s death, the NEO’s beneficiary will have one year
following the death to exercise stock options.
55
Termination scenarios for NEOs
Cash severance
Equity
Retirement benefits
Other benefits
Excise tax gross-up(5)
Total
Cash severance
Equity
Retirement benefits
Other benefits
Excise tax gross-up(5)
Total
Cash severance(1)
Equity(2)
Retirement benefits(3)
Other benefits(4)
Excise tax gross-up(5)
Total
Cash severance(1)
Equity(2)
Retirement benefits(3)
Other benefits(4)
Excise tax gross-up(5)
Total
Cash severance(1)
Equity(2)
Retirement benefits(3)
Other benefits(4)
Excise tax gross-up(5)
Total
Cash severance(1)
Equity(2)
Retirement benefits(3)
Other benefits(4)
Excise tax gross-up(5)
Total
Voluntary
resignation
0
$
0
$
0
$
0
$
$
0
Mr. Timken (7)
Termination
with cause Retirement(6)
$
$
$
$
0
0
0
0
$
$
$
$
0
0
0
0
Death and
disability
0
$
0
$
0
$
0
$
Termination
without cause
$4,038,721
$1,261,828
0
$
50,000
$
0
$
Mr. Dunlap (8)
$
0
$
0
$5,350,549
Voluntary
resignation
0
$
0
$
0
$
0
$
Termination
with cause Retirement(6)
$
$
$
$
0
0
0
0
Death and
disability
$1,035,000
$1,393,853
0
$
0
$
Termination
without cause
$1,035,000
$ 314,128
0
$
0
$
$
0
Voluntary
resignation
0
$
0
$
0
$
0
$
0
0
$
$
Mr. Westbrooks
Termination
with cause Retirement(6)
$
$
$
$
0
0
0
0
$2,428,853
$1,349,128
Death and
disability
$
0
$ 263,048
0
$
0
$
Termination
without cause
$1,029,685
$ 262,390
0
$
42,500
$
$
0
$
0
$
0
$ 263,048
$1,334,575
Mr. DiPiero
Voluntary
resignation
0
$
0
$
0
$
0
$
Termination
with cause Retirement(6)
$
$
$
$
0
0
0
0
Death and
disability
0
$
$ 316,456
0
$
0
$
Termination
without cause
$ 945,439
$ 352,217
0
$
42,500
$
$
0
$
0
$
0
$ 316,456
$1,340,156
Mr. Bryan
Voluntary
resignation
0
$
0
$
0
$
0
$
Termination
with cause Retirement(6)
$
$
$
$
$ 72,000
0
0
0
0
Death and
disability
$
0
$ 147,131
0
$
0
$
Termination
without cause
$ 672,426
$ 194,565
0
$
42,500
$
$
0
$
0
$ 72,000
$ 147,131
$ 909,491
Mr. Moline
Voluntary
resignation
0
$
0
$
0
$
0
$
Termination
with cause Retirement(6)
$
$
$
$
$148,000
0
0
0
0
Death and
disability
$
0
$ 187,967
0
$
0
$
Termination
without cause
$ 672,426
$ 208,401
0
$
42,500
$
$
0
$
0
$148,000
$ 187,967
$ 923,327
56
Change in
control
$
$
$
$
$
$
0
0
0
0
0
0
Change in
control
$1,035,000
$1,393,853
0
$
0
$
$
0
$2,428,853
Change in
control
$2,059,370
$ 236,976
97,000
$
65,000
$
$
0
$2,458,346
Change in
control
$1,890,878
$ 364,140
$ 115,000
65,000
$
0
$
$2,435,018
Change in
control
$1,344,852
$ 201,379
$ 268,000
65,000
$
$
0
$1,879,231
Change in
control
$1,344,852
$ 215,215
$ 277,000
65,000
$
$
0
$1,902,067
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
“Cash severance” refers to amounts payable to each NEO (other than Messrs. Timken and Dunlap) under the Severance Agreements.
“Equity” includes the value of restricted stock units, performance shares and stock option grants which the NEO will be entitled to receive
under the termination scenarios described in the table. As discussed above, equity-based grants immediately vest in the event of a change in
control (as defined in the Severance Agreements) followed by an involuntary termination of employment or a termination of employment for
good cause, or at the time of death or permanent disability. In the case of an involuntary termination without cause, equity-based grants will
continue to vest through the period of time represented by the cash severance multiple. For purposes of calculating the value of equity
reflected in this table, all full-share awards are valued at the closing price of our common shares on December 31, 2019, which was $7.86. As
of December 31, 2019, all outstanding stock options, with the exception of the February 17, 2016 grant, were below the exercise price,
resulting in minimal value in the table. Our equity grant agreements include a double-trigger vesting requirement for awards in the event of
a change in control.
“Retirement Benefits” represent the value of additional benefits earned under the qualified and supplemental plans as a result of a change in
control.
“Other Benefits” includes the value of health and welfare benefits through the applicable severance period, with an estimated value of
$15,000 per year, plus outplacement services with an estimated value of $20,000.
“Excise Tax Gross-Up” will not be triggered for any of the NEOs, as each of them has entered into an agreement that excludes the payment of
tax gross-up amounts.
Values are shown under the retirement scenario only for those NEOs who were eligible for normal retirement or early retirement as of
December 31, 2019.
The “cash severance” and “other benefits” amounts reflect the amounts paid to Mr. Timken as a result of his termination of employment with
the company on October 8, 2019, in accordance with the terms of the Severance Agreement previously entered into between Mr. Timken
and the company. The value reflected under “equity” for Mr. Timken includes the value as of December 31, 2019 of 319,960 nonqualified
stock options granted on February 17, 2016, which were above the grant price of $7.46; 41,313 restricted stock units that will vest on
March 1, 2022 and are no longer subject to any risk of forfeiture; and 102,942 performance shares, which will vest on December 31, 2021,
subject to satisfaction of the performance objectives established in March 2019. All other stock options held by Mr. Timken were underwater
and had no value as of December 31, 2019.
The “cash severance” amount shown for Mr. Dunlap reflects the value of the monthly cash payments remaining to be paid at December 31,
2019, in accordance with the terms of the compensation package awarded Mr. Dunlap upon his appointment as Interim CEO and President.
This compensation package guaranteed him pay of $115,000 per month for a minimum of one year from the date of his appointment,
except in the event of a voluntary resignation or termination for cause. Values shown under “equity” for Mr. Dunlap in the event of a
change-in-control or death and disability include the value as of December 31, 2019 of 165,600 restricted stock units awarded Mr. Dunlap
upon his appointment as Interim CEO and President and 11,735 deferred shares awarded him in May 2019 as compensation for his service
as a non-employee director. The value shown under involuntary termination includes the prorated value of these restricted stock units and
deferred shares assuming a termination date of December 31, 2019. For purposes of calculating the value of equity reflected in this table, all
full-share awards (including restricted stock units and deferred shares) are valued at the closing price of our common shares on
December 31, 2019, which was $7.86.
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CEO pay ratio
For 2019, the ratio of the annual total CEO compensation to the median of the annual total compensation of all of
our employees and those of our consolidated subsidiaries (other than the CEO) as described below (“Median
Annual Compensation”) was approximately 51 to 1. We note that, due to our permitted use of reasonable estimates
and assumptions in preparing this CEO pay ratio disclosure, the disclosure may involve a degree of imprecision, and
thus this CEO pay ratio disclosure is a reasonable estimate calculated in a manner consistent with Item 402(u) of
Regulation S-K using the data and assumptions described below. In this summary, we refer to the employee who
received the Median Annual Compensation as the “Median Employee.” For purposes of this disclosure, the date
used to identify the Median Employee was December 31, 2017 (the “Determination Date”). For 2019, we elected to
use the same Median Employee that we identified in 2017 as there have been no significant changes in our
employee population or compensation arrangements that we believe would significantly impact our pay ratio
disclosure.
For purposes of calculating the CEO pay ratio, the CEO compensation for 2019 was determined to be $4,673,724,
which matches Mr. Timken’s and Mr. Dunlap’s combined total compensation for their service as Chairman, CEO and
President and Interim CEO and President, respectively, as reflected in the 2019 Summary compensation table, plus
Mr. Timken’s company-paid health care benefit costs of $16,663; but does not include the severance payment made
to Mr. Timken. In the case of Mr. Dunlap, we used the amount shown in the ”Total” column of the Summary
compensation table, minus the amounts that were paid to Mr. Dunlap for his service as a non-employee director
through October 8, 2019. With respect to the Median Employee, the Median Annual Compensation was calculated
using the same methodology the company uses to calculate compensation for the named executive officers as set
forth in the 2019 Summary compensation table included in this proxy statement, and then adjusted to add the value
of company-paid health care benefit costs. The Median Annual Compensation for 2019 was determined to be
$92,369.
In terms of our selection of the Median Employee, on December 31, 2017, the company employed a total of 2,829
employees (including 2,789 employees based in the United States). The company determined the Median
Employee as of December 31, 2017 by identifying total cash compensation for the period beginning on January 1,
2017 and ending on December 31, 2017 for 2,788 employees who were employed by the company on that date.
This group of employees included all full- and part-time employees but excluded Mr. Timken and 40 non-U.S.
employees (consisting of 22 employees in Mexico, 14 employees in China, 2 employees in the United Kingdom and
2 employees in Poland). This group of employees did not include any independent contractors or “leased” workers
and did not exclude any employees of businesses acquired by us or combined with us. Further, we did not utilize
any statistical sampling or cost-of-living adjustments for purposes of this CEO pay ratio disclosure. A portion of our
employee workforce (full-time and part-time) identified above worked for less than the full fiscal year due to
commencing employment after January 1, 2017. In determining the Median Employee, we annualized the total
compensation for such individuals (but avoided creating full-time equivalencies) based on reasonable assumptions
and estimates relating to our employee compensation program, including base salary, bonus payments, equity
compensation and any imputed income.
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Proposal 4
Approval of the TimkenSteel
Corporation 2020 Equity and
Incentive Compensation Plan
General
On February 12, 2020, upon recommendation by the Compensation Committee, the Board of Directors approved
and adopted, subject to the approval of the company’s shareholders at the annual meeting, the TimkenSteel
Corporation 2020 Equity and Incentive Compensation Plan (the “2020 Plan”) to succeed the TimkenSteel
Corporation 2014 Equity and Incentive Compensation Plan, including as amended or amended and restated (the
“2014 Plan” or the “Predecessor Plan”).
You are being asked to approve the 2020 Plan. The 2020 Plan will continue to afford the Compensation Committee
the ability to design compensatory awards that are responsive to the company’s needs and authorizes a variety of
award types designed to advance the interests and long-term success of the company by encouraging stock
ownership among employees (including officers), non-employee directors and certain consultants or other service
providers of the company and its subsidiaries.
Shareholder approval of the 2020 Plan would make available for issuance as awards under the 2020 Plan up to
2,000,000 new common shares, without par value, of the company (“Common Shares”), as described below and in
the 2020 Plan, with such amount subject to adjustment, including under the share counting rules.
The Board recommends that you vote to approve the 2020 Plan. If the 2020 Plan is approved by shareholders at the
annual meeting, it will be effective as of the day of the annual meeting, and no further grants will be made on or after
such date under the Predecessor Plan. Outstanding awards under the Predecessor Plan, however, will continue in
effect in accordance with their terms. If the 2020 Plan is not approved by our shareholders, no awards will be made
under the 2020 Plan, and the Predecessor Plan will remain in effect.
The actual text of the 2020 Plan is attached to this proxy statement as Appendix B. The following description of the
2020 Plan is only a summary of its principal terms and provisions and is qualified by reference to the actual text as set
forth in Appendix B.
Why we believe you should vote for this proposal
The 2020Plan authorizes the Compensation Committee to provide cash awards and equity-based compensation in
the form of stock options, stock appreciation rights (“SARs”), restricted shares, restricted share units (“RSUs”),
performance shares, performance units, dividend equivalents, and certain other awards, including those denominated
or payable in, or otherwise based on, Common Shares, for the purpose of providing incentives and rewards for service
and/or performance to our employees (including our officers), non-employee directors and certain consultants and
other service providers of the company and its subsidiaries. Some of the key features of the 2020 Plan that reflect our
commitment to effective management of equity and incentive compensation are set forth below.
We believe our future success depends in part on our ability to attract, motivate and retain high quality employees
and directors and that the ability to provide equity-based and incentive-based awards under the 2020 Plan is critical
to achieving this success. We would be at a severe competitive disadvantage if we could not use share-based
awards to recruit and compensate our employees and directors. The use of Common Shares as part of our
compensation program is important because equity-based awards are an essential component of our compensation
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program for key employees, as they help link compensation with long-term shareholder value creation and reward
participants based on service and/or performance.
As of March 2, 2020, only 735 Common Shares remained available for issuance under the 2014 Plan. If the 2020 Plan
is not approved, we may be compelled to increase significantly the cash component of our employee and director
compensation. This approach may not necessarily align employee and director compensation interests with the
investment interests of our shareholders. Replacing equity awards with cash also would increase cash compensation
expense and use cash that could be better utilized if reinvested in our business or returned to our shareholders.
The following includes aggregated information regarding our view of the overhang and dilution associated with the
Predecessor Plan and the potential dilution associated with the 2020 Plan. This information is as of March 2, 2020. As
of that date, there were approximately 44,938,082 Common Shares outstanding.
Common Shares subject to outstanding awards and available for future awards under the 2014 Plan:
Total Common Shares subject to outstanding awards (stock options, time-based RSUs, deferred shares and
performance-based RSUs assuming maximum performance): 4,864,689 shares (approximately 10.83% of
our outstanding Common Shares)
Total Common Shares available for future awards under the 2014 Plan: 735 shares (approximately 0.00% of
our outstanding Common Shares) (however, as noted above, no further grants will be made under the 2014
Plan upon the effective date of the 2020 Plan)
In summary, the total number of Common Shares subject to outstanding awards (4,864,689 shares), plus the
total number of Common Shares available for future awards under the 2014 Plan (735 shares), represents a
current overhang percentage of 9.76% (in other words, the potential dilution of our shareholders
represented by the Predecessor Plan).
Proposed Common Shares available for awards under the 2020 Plan:
2,000,000 new shares (approximately 4.45% of our outstanding Common Shares, which percentage reflects
the simple dilution of our shareholders that would occur if the 2020 Plan is approved), subject to
adjustment, including under the share counting rules of the 2020 Plan.
The total Common Shares subject to outstanding awards as of March 2, 2020 (4,864,689 shares), plus the proposed
Common Shares available for future awards under the 2020 Plan (up to 2,000,000 shares), represent a total
overhang of 6,864,689 shares (13.25%) under the 2020 Plan.
Based on the closing price on the NYSE for our Common Shares on March 2, 2020 of $5.26 per share, the aggregate
market value as of March 2, 2020 of the up to 2,000,000 Common Shares requested under the 2020 Plan was
$10,520,000.
In fiscal years 2017, 2018, and 2019, we granted awards (including stock options, restricted stock units,
performance-based restricted stock units and deferred shares) under the 2014 Plan covering 676,940 shares,
746,606 shares, and 1,090,838 shares, respectively. Based on our basic weighted average Common Shares
outstanding for those three fiscal years of 44,445,747, 44,584,668, and 44,820,153, respectively, for the
three-fiscal-year period 2017-2019, our average burn rate, not taking into account forfeitures, was 1.88%. (Our
individual years’ burn rates were 1.52% for fiscal 2017, 1.67% for fiscal 2018 and 2.43% for fiscal 2019.)
In determining the number of shares to request for approval under the 2020 Plan, our management team worked
with the Compensation Committee to evaluate a number of factors, including our recent share usage and criteria
expected to be utilized by institutional proxy advisory firms in evaluating our proposal for the 2020 Plan.
If the 2020 Plan is approved, we intend to utilize the shares authorized under the 2020 Plan to continue our practice
of incentivizing key individuals through equity grants. We currently anticipate that the shares requested in
connection with the approval of the 2020 Plan will last for about two years, based on our historic grant rates, new
hiring and the approximate current share price, but could last for a different period of time if actual practice does not
match recent rates or our share price changes materially. As noted below, our Compensation Committee retains full
discretion under the 2020 Plan to determine the number and amount of awards to be granted under the 2020 Plan,
subject to the terms of the 2020 Plan. Future benefits that may be received by participants under the 2020 Plan are
not determinable at this time.
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We believe that we have demonstrated a commitment to sound equity compensation practices in recent years. We
recognize that equity compensation awards dilute shareholders’ equity, so we have carefully managed our equity
incentive compensation. Our equity compensation practices are intended to be competitive and consistent with
market practices, and we believe our historical share usage has been responsible and mindful of shareholder
interests, as described above.
In evaluating this proposal, shareholders should consider all of the information in this proposal.
2020 Plan highlights
Reasonable 2020 Plan limits
Generally, awards under the 2020 Plan are limited to 2,000,000 Common Shares, plus Common Shares subject to
any forfeitures (or similar events) that occur under the 2014 Plan or the 2020 Plan after the effective date of the 2020
Plan. These shares may be shares of original issuance or treasury shares, or a combination of the two.
The 2020 Plan also provides that, subject as applicable to adjustment and the applicable Common Shares counting
provisions as described in the 2020 Plan:
•
•
•
the aggregate number of Common Shares actually issued or transferred upon the exercise of incentive
stock options will not exceed 2,000,000 Common Shares;
the number of Common Shares subject to awards granted under the 2020 Plan other than stock options or
SARs (after taking into account any applicable share recycling provisions under the 2020 Plan) will not,
during the life of the 2020 Plan, in the aggregate exceed 1,800,000 Common Shares; and
no non-employee director will be granted, in any one calendar year, compensation for such service having
an aggregate maximum value (measured at the date of grant and calculating the value of any awards based
on the grant date fair value for financial reporting purposes) in excess of $500,000.
Limited share recycling provisions
Subject to certain exceptions described in the 2020 Plan, if any award granted under the 2020 Plan (in whole or in
part) is canceled or forfeited, expires, is settled for cash, or is unearned, the Common Shares subject to such award,
to the extent of such cancellation, forfeiture, expiration, cash settlement, or unearned amount, will again be available
under the 2020 Plan. Additionally, if after the effective date of the 2020 Plan, any Common Shares subject to an
award granted under the Predecessor Plan are forfeited, or an award granted under the Predecessor Plan (in whole
or in part) is canceled or forfeited, expires, is settled for cash, or is unearned, the Common Shares subject to such
award will, to the extent of such cancellation, forfeiture, expiration, cash settlement, or unearned amount, be
available for awards under the 2020 Plan. The following Common Shares will not be added (or added back, as
applicable) to the aggregate share limit under the 2020 Plan: (1) Common Shares withheld by us, tendered or
otherwise used in payment of the exercise price of a stock option granted under the 2020 Plan, and (2) Common
Shares reacquired by the company on the open market or otherwise using cash proceeds from the exercise of stock
options granted under the 2020 Plan. Further, none of the Common Shares covered by share-settled SARs that are
exercised and settled in shares, whether or not all Common Shares covered by the SARs are actually issued to the
participant upon exercise, will be added back to the aggregate number of shares available under the 2020 Plan. In
addition, Common Shares withheld by us, tendered or otherwise used to satisfy tax withholding with respect to stock
options or SARs will not be added (or added back, as applicable) to the aggregate share limit under the 2020 Plan.
However, Common Shares withheld by us, tendered or otherwise used to satisfy tax withholding with respect to
awards other than stock options or SARs will be added back to the aggregate number of Common Shares available
under the 2020 Plan, but only for a period not to exceed 10 years from the effective date of the 2020 Plan. If a
participant elects to give up the right to receive compensation in exchange for Common Shares based on fair
market value, such Common Shares will not count against the aggregate number of shares available under the 2020
Plan.
Any Common Share that becomes available under the 2020 Plan as described above will be added (or added back,
as applicable) as (A) one Common Share if such Common Share was subject to an award granted under the 2020
Plan or a stock option or stock appreciate right granted under the Predecessor Plan, (B) 2.46 Common Shares if such
Common Share was subject to an award granted under the Predecessor Plan prior to April 28, 2016 other than a
stock option or stock appreciation right, and (C) 2.50 Common Shares if such Common Share was subject to an
award granted under the Predecessor Plan on or after April 28, 2016 other than a stock option or stock appreciation
right.
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No repricing without shareholder approval
Outside of certain corporate transactions or adjustment events described in the 2020 Plan or in connection with a
“change in control,” the exercise or base price of stock options and SARs cannot be reduced, and “underwater”
stock options or SARs cannot be canceled in exchange for cash or replaced with other awards with a lower exercise
or base price, without shareholder approval under the 2020 Plan.
Change in control definition
The 2020 Plan includes a non-liberal definition of “change in control,” which is described below.
Default change in control treatment
The 2020 Plan includes the following “default” treatment for awards in the event of a change in control:
• Unless otherwise determined by the Compensation Committee, each applicable evidence of award will
provide that, in the event of a change in control, for outstanding awards under the 2020 Plan that vest, are
earned or become exercisable (as applicable) based solely on employment, service or the passage of time
(as opposed to the achievement of one or more management objectives), such awards will accelerate and
vest, be earned or become exercisable, as applicable, where either (A) within a specified period the
participant’s employment or service is involuntarily terminated for reasons other than for cause, the
participant terminates his or her employment or service for good reason or the participant’s employment or
service is terminated due to the participant’s death or disability, or (B) such awards are not assumed or
converted into replacement awards in a manner described in the evidence of award.
• Unless otherwise determined by the Compensation Committee, each applicable evidence of award will
provide that, in the event of a change in control, for outstanding awards under the 2020 Plan that vest, are
earned or become exercisable (as applicable) based on the achievement of one or more management
objectives (as opposed to only employment, service or the passage of time), such awards will accelerate and
vest, be earned or become exercisable, as applicable, based on the greater of (A) target performance or
(B) actual performance (or the Common Share price relating to the change in control, if applicable)
determined as of the date of the change in control, where either (1) within a specified period the
participant’s employment or service is involuntarily terminated for reasons other than for cause, the
participant terminates his or her employment or service for good reason or the participant’s employment or
service is terminated due to the participant’s death or disability, or (2) such awards are not assumed or
converted into replacement awards in a manner described in the evidence of award.
Exercise or base price limitation
The 2020 Plan also provides that, except with respect to certain converted, assumed or substituted awards as
described in the 2020 Plan, no stock options or SARs will be granted with an exercise or base price less than the fair
market value of a Common Share on the date of grant.
Minimum vesting periods
Awards granted under the 2020 Plan will vest no earlier than after a minimum one-year vesting period or one-year
performance period, as applicable. However, an aggregate of up to 5% of the Common Shares available for awards
under the 2020 Plan, as may be adjusted under the terms of the 2020 Plan, may be used for awards that do not at
grant comply with such minimum vesting requirement. Further, the minimum vesting requirement does not
preclude the committee, in its sole discretion, from (1) providing for continued vesting or accelerated vesting for any
award under the 2020 Plan, including in connection with or following the retirement, death, disability or termination
of employment or service of a participant or (2) exercising its discretionary vesting authority under the 2020 Plan at
any time following the grant of an award.
Summary of other material terms of the 2020 Plan
Administration
The 2020 Plan will generally be administered by the Compensation Committee (or its successor), or any other
committee of the Board of Directors designated by the Board to administer the 2020 Plan; provided, however, that
notwithstanding anything in the 2020 Plan to the contrary, the Board may grant awards under the 2020 Plan to
non-employee directors and administer the 2020 Plan with respect to such awards. References to the “committee” in
this proposal generally refer to the Compensation Committee or such other committee designated by the Board, or
the Board, as applicable. The committee may from time to time delegate all or any part of its authority under the
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2020 Plan to a subcommittee. Any interpretation, construction and determination by the committee of any provision
of the 2020 Plan, or of any agreement, notification or document evidencing the grant of awards under the 2020 Plan,
will be final and conclusive. To the extent permitted by applicable law, the committee may delegate to one or more
of its members or to one or more officers, or to one or more agents or advisors of the company, such administrative
duties or powers as it deems advisable. In addition, the committee may by resolution, subject to certain restrictions
set forth in the 2020 Plan, authorize one or more officers of the company to (1) designate employees to be recipients
of awards under the 2020 Plan and (2) determine the size of such awards. The committee may not, however,
delegate such responsibilities to officers for awards granted to non-employee directors or certain officers who are
subject to the reporting requirements of Section 16 of the Securities Exchange Act of 1934, as amended. The
committee is authorized to take appropriate action under the 2020 Plan subject to the express limitations contained
in the 2020 Plan.
Eligibility
Any person who is selected by the committee to receive benefits under the 2020 Plan and who is at that time an
officer or other employee of the company or any of its subsidiaries (including a person who has agreed to
commence serving in such capacity within 90 days of the date of grant) is eligible to participate in the 2020 Plan. In
addition, non-employee directors of the company and certain persons (including consultants) who provide services
to the company or any of its subsidiaries that are equivalent to those typically provided by an employee (provided
that such persons satisfy the Form S-8 definition of “employee”) may also be selected by the committee to
participate in the 2020 Plan. As of March 2, 2020, there were approximately 74 employees, nine non-employee
directors and no consultants of the company eligible to participate in the 2020 Plan. The basis for participation in the
2020 Plan by eligible persons is the selection of such persons for participation by the committee (or its proper
delegate) in its discretion.
Shares available for awards under the 2020 Plan
Subject to adjustment as described in the 2020 Plan and the 2020 Plan share counting rules, the number of
Common Shares available under the 2020 Plan for awards of stock options or SARs, restricted shares, RSUs,
performance shares or performance units, other stock-based awards under the 2020 Plan, or dividend equivalents
paid with respect to awards under the 2020 Plan will not exceed, in the aggregate, 2,000,000 Common Shares, plus
Common Shares that become available under the 2020 Plan as a result of forfeiture, cancellation, expiration, cash
settlement or less-than-maximum earning of 2020 Plan awards (or, as described, Predecessor Plan awards), after the
effective date of the 2020 Plan.
Share counting
Generally, the aggregate number of Common Shares available under the 2020 Plan will be reduced by one
Common Share for every one Common Share subject to an award granted under the 2020 Plan.
Types of awards under the 2020 Plan
Pursuant to the 2020 Plan, the company may grant cash awards and stock options (including stock options intended
to be “incentive stock options” as defined in Section 422 of the Internal Revenue Code (the “Code”), SARs, restricted
shares, RSUs, performance shares, performance units, and certain other awards based on or related to our Common
Shares.
Generally, each grant of an award under the 2020 Plan will be evidenced by an award agreement, certificate,
resolution or other type or form of writing or other evidence approved by the committee (an “Evidence of Award”),
which will contain such terms and provisions as the committee may determine, consistent with the 2020 Plan. A brief
description of the types of awards which may be granted under the 2020 Plan is set forth below.
Stock options: A stock option is a right to purchase Common Shares upon exercise of the stock option. Stock options
granted to an employee under the 2020 Plan may consist of either an incentive stock option, a non-qualified stock
option that is not intended to be an incentive stock option under Section 422 of the Code, or a combination of both.
Incentive stock options may only be granted to employees of the company or certain of our related corporations.
Except with respect to awards issued in substitution for, in conversion of, or in connection with an assumption of
stock options held by awardees of an entity engaging in a corporate acquisition or merger with us or any of our
subsidiaries, stock options must have an exercise price per share that is not less than the fair market value of a
Common Share on the date of grant. The term of a stock option may not extend more than 10 years from the date of
grant. The committee may provide in an Evidence of Award for the automatic exercise of a stock option.
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Each grant of a stock option will specify the applicable terms of the stock option, including the number of Common
Shares subject to the stock option and the required period or periods of the participant’s continuous service, if any,
before any stock option or portion of a stock option will become exercisable. Stock options may provide for
continued vesting or the earlier exercise of the stock options, including in the event of retirement, death, disability or
termination of employment or service of the participant or in the event of a change in control.
Any grant of stock options may specify management objectives regarding the vesting of the stock options. Each
grant will specify whether the consideration to be paid in satisfaction of the exercise price will be payable: (1) in cash,
by check acceptable to the company, or by wire transfer of immediately available funds; (2) by the actual or
constructive transfer to the company of Common Shares owned by the participant with a value at the time of
exercise that is equal to the total exercise price; (3) subject to any conditions or limitations established by the
committee, by a net exercise arrangement pursuant to which the company will withhold Common Shares otherwise
issuable upon exercise of a stock option; (4) by a combination of the foregoing methods; or (5) by such other
methods as may be approved by the committee. To the extent permitted by law, any grant may provide for deferred
payment of the exercise price from the proceeds of a sale through a bank or broker of some or all of the shares to
which the exercise relates. Stock options granted under the 2020 Plan may not provide for dividends or dividend
equivalents.
SARs: The committee may, from time to time and upon such terms and conditions as it may determine, authorize the
granting of SARs. A SAR is a right to receive from us an amount equal to 100%, or such lesser percentage as the
committee may determine, of the spread between the base price and the value of our Common Shares on the date
of exercise.
Each grant of SARs will specify the period or periods of continuous service, if any, by the participant with the
company or any subsidiary that is necessary before the SARs or installments of such SARs will become exercisable.
SARs may provide for continued vesting or earlier exercise, including in the case of retirement, death, disability or
termination of employment or service of the participant or in the event of a change in control. Any grant of SARs may
specify management objectives regarding the vesting of such SARs. A SAR may be paid in cash, Common Shares or
any combination of the two.
Except with respect to awards issued in substitution for, in conversion of, or in connection with an assumption of
SARs held by awardees of an entity engaging in a corporate acquisition or merger with us or any of our subsidiaries,
the base price of a SAR may not be less than the fair market value of a Common Share on the date of grant. The term
of a SAR may not extend more than 10 years from the date of grant. The committee may provide in an Evidence of
Award for the automatic exercise of a SAR. SARs granted under the 2020 Plan may not provide for dividends or
dividend equivalents.
Restricted shares: Restricted shares constitute an immediate transfer of the ownership of Common Shares to the
participant in consideration of the performance of services, entitling such participant to voting, dividend and other
ownership rights (subject in particular to certain dividend provisions in the 2020 Plan), subject to the substantial risk
of forfeiture and restrictions on transfer determined by the committee for a period of time determined by the
committee or until certain management objectives specified by the committee are achieved. Each such grant or sale
of restricted shares may be made without additional consideration or in consideration of a payment by the
participant that is less than the fair market value per Common Share on the date of grant.
Any grant of restricted shares may specify management objectives regarding the vesting of the restricted shares.
Any grant of restricted shares may require that any and all dividends or distributions paid on restricted shares that
remains subject to a substantial risk of forfeiture be automatically deferred and/or reinvested in additional restricted
shares, which will be subject to the same restrictions as the underlying restricted shares, but any such dividends or
other distributions on restricted shares must be deferred until, and paid contingent upon, the vesting of such
restricted shares. Restricted shares may provide for continued vesting or the earlier vesting of such restricted shares,
including in the event of retirement, death, disability or termination of employment or service of the participant or in
the event of a change in control. Each grant of restricted shares will be evidenced by an Evidence of Award. Each
Evidence of Award will be subject to the 2020 Plan and will contain such terms and provisions, consistent with the
2020 Plan, as the committee may approve.
RSUs: RSUs awarded under the 2020 Plan constitute an agreement by the company to deliver Common Shares,
cash, or a combination of the two, to the participant in the future in consideration of the performance of services, but
subject to the fulfillment of such conditions (which may include achievement regarding management objectives)
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during the restriction period as the committee may specify. Each grant or sale of RSUs may be made without
additional consideration or in consideration of a payment by the participant that is less than the fair market value of
our Common Shares on the date of grant.
RSUs may provide for continued vesting or the earlier lapse or other modification of the restriction period, including
in the event of retirement, death, disability or termination of employment or service of the participant or in the event
of a change in control. During the restriction period applicable to RSUs, the participant will have no right to transfer
any rights under the award and will have no rights of ownership in the Common Shares deliverable upon payment of
the RSUs and no right to vote them. Rights to dividend equivalents may be extended to and made part of any RSU
award at the discretion of and on the terms determined by the committee, on a deferred and contingent basis,
based upon the vesting of such RSUs. Each grant or sale of RSUs will specify the time and manner of payment of the
RSUs that have been earned. An RSU may be paid in cash, Common Shares or any combination of the two.
Performance shares, performance units and cash incentive awards: Performance shares, performance units and cash
incentive awards may also be granted to participants under the 2020 Plan. A performance share is a bookkeeping
entry that records the equivalent of one Common Share, and a performance unit is a bookkeeping entry that records
a unit equivalent to $1.00 or such other value as determined by the committee. Each grant will specify the number or
amount of performance shares or performance units, or the amount payable with respect to a cash incentive award
being awarded, which number or amount may be subject to adjustment to reflect changes in compensation or other
factors.
Each grant of a cash incentive award, performance shares or performance units will specify management objectives
regarding the earning of the award. Each grant will specify the time and manner of payment of performance shares,
performance units or a cash incentive award that have been earned.
Any grant of performance shares or performance units may provide for the payment of dividend equivalents in cash
or in additional Common Shares, which dividend equivalents will be subject to deferral and payment on a
contingent basis based on the participant’s earning and vesting of the performance shares or performance units, as
applicable, with respect to which such dividend equivalents are paid.
The performance period with respect to each grant of performance shares or performance units or cash incentive
award will be a period of time determined by the committee and within which the management objectives relating
to such award are to be achieved. The performance period may be subject to continued vesting or earlier lapse or
modification, including in the event of retirement, death, disability or termination of employment or service of the
participant or in the event of a change in control.
Other awards: Subject to applicable law and applicable share limits under the 2020 Plan, the committee may grant
to any participant Common Shares or such other awards (“Other Awards”) that may be denominated or payable in,
valued in whole or in part by reference to, or otherwise based on, or related to, Common Shares or factors that may
influence the value of such Common Shares, including, without limitation, convertible or exchangeable debt
securities; other rights convertible or exchangeable into Common Shares; purchase rights for Common Shares;
awards with value and payment contingent upon performance of the company or specified subsidiaries, affiliates or
other business units or any other factors designated by the committee; and awards valued by reference to the book
value of the Common Shares or the value of securities of, or the performance of, the subsidiaries, affiliates or other
business units of the company. The terms and conditions of any such awards will be determined by the committee.
Common Shares delivered under such an award in the nature of a purchase right granted under the 2020 Plan will
be purchased for such consideration, paid for at such time, by such methods, and in such forms, including, without
limitation, Common Shares, other awards, notes or other property, as the committee determines.
In addition, the committee may grant cash awards, as an element of or supplement to any other awards granted
under the 2020 Plan. The committee may also authorize the grant of Common Shares as a bonus or may authorize
the grant of Other Awards in lieu of obligations of the company or a subsidiary to pay cash or deliver other property
under the 2020 Plan or under other plans or compensatory arrangements, subject to terms determined by the
committee in a manner that complies with Section 409A of the Code.
Other Awards may provide for the earning or vesting of, or earlier elimination of restrictions applicable to, such
award, including in the event of the retirement, death, disability or termination of employment or service of the
participant or in the event of a change in control. The committee may provide for the payment of dividends or
dividend equivalents on Other Awards on a deferred and contingent basis, in cash or in additional Common Shares,
based upon the earning and vesting of such awards.
65
Change in control
The 2020 Plan includes a definition of “change in control.” In general, except as may be otherwise prescribed by the
committee in an Evidence of Award, a change in control shall be deemed to have occurred upon the occurrence of
any of the following events (subject to certain exceptions and limitations and as further described in the 2020 Plan):
(1) any individual, entity or group is or becomes the beneficial owner of 30% or more of the combined voting power
of the then-outstanding Common Shares or voting shares of the company (subject to certain exceptions); (2) a
majority of the Board ceases to be comprised of incumbent directors; (3) a consummation of a reorganization,
merger or consolidation, or sale or other disposition of all or substantially all of the assets of the company, as
described in the 2020 Plan (subject to certain exceptions); or (4) approval by the shareholders of the company of a
complete liquidation or dissolution of the company (subject to certain exceptions).
Management objectives
The 2020 Plan generally provides that any of the awards set forth above may be granted subject to the achievement
of specified management objectives. Management objectives are defined as the measurable performance objective
or objectives established pursuant to the 2020 Plan for participants who have received grants of performance
shares, performance units or cash incentive awards or, when so determined by the committee, stock options, SARs,
restricted shares, RSUs, dividend equivalents or Other Awards.
Additionally, if the committee determines that a change in the business, operations, corporate structure or capital
structure of the company, or the manner in which it conducts its business, or other events or circumstances render
the management objectives unsuitable, the committee may in its discretion modify such management objectives or
the goals or actual levels of achievement, in whole or in part, as the committee deems appropriate and equitable.
Transferability of awards
Except as otherwise provided by the committee, and subject to the terms of the 2020 Plan with respect to
Section 409A of the Code, no stock option, SAR, restricted share, RSU, performance share, performance unit, cash
incentive award, Other Award or dividend equivalents paid with respect to awards made under the 2020 Plan will be
transferrable by a participant except by will or the laws of descent and distribution. In no event will any such award
granted under the 2020 Plan be transferred for value. Except as otherwise determined by the committee, stock
options and SARs will be exercisable during the participant’s lifetime only by him or her or, in the event of the
participant’s legal incapacity to do so, by his or her guardian or legal representative acting on behalf of the
participant in a fiduciary capacity under state law or court supervision.
The committee may specify on the grant date that all or part of the Common Shares that are subject to awards under
the 2020 Plan will be subject to further restrictions on transfer.
Adjustments
The committee will make or provide for such adjustments in: (1) the number and kind of Common Shares covered
by outstanding stock options, SARs, restricted shares, RSUs, performance shares and performance units granted
under the 2020 Plan; (2) if applicable, the number and kind of Common Shares covered by Other Awards granted
pursuant to the 2020 Plan; (3) the exercise price or base price provided in outstanding stock options and SARs,
respectively; (4) cash incentive awards; and (5) other award terms, as the committee in its sole discretion, exercised
in good faith, determines to be equitably required in order to prevent dilution or enlargement of the rights of
participants that otherwise would result from (a) any extraordinary cash dividend, stock dividend, stock split,
combination of shares, recapitalization or other change in the capital structure of the company; (b) any merger,
consolidation, spin-off, spin-out, split-off, split-up, reorganization, partial or complete liquidation or other distribution
of assets, issuance of rights or warrants to purchase securities; or (c) any other corporate transaction or event having
an effect similar to any of the foregoing.
In the event of any such transaction or event, or in the event of a change in control of the company, the committee
may provide in substitution for any or all outstanding awards under the 2020 Plan such alternative consideration
(including cash), if any, as it may in good faith determine to be equitable under the circumstances and will require in
connection therewith the surrender of all awards so replaced in a manner that complies with Section 409A of the
Code. In addition, for each stock option or SAR with an exercise price or base price, respectively, greater than the
consideration offered in connection with any such transaction or event or change in control of the company, the
committee may in its discretion elect to cancel such stock option or SAR without any payment to the person holding
such stock option or SAR. The committee will make or provide for such adjustments to the numbers of Common
Shares available under the 2020 Plan and the share limits of the 2020 Plan as the committee in its sole discretion
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may in good faith determine to be appropriate to reflect such transaction or event. Any adjustment to the limit on the
number of Common Shares that may be issued upon exercise of Incentive Stock Options, however, will be made
only if and to the extent such adjustment would not cause any stock option intended to qualify as an Incentive Stock
Option to fail to so qualify.
Prohibition on repricing
Except in connection with certain corporate transactions or changes in the capital structure of the company or in
connection with a change in control, the terms of outstanding awards may not be amended to (1) reduce the
exercise price or base price of outstanding stock options or SARs, respectively, or (2) cancel outstanding
“underwater” stock options or SARs in exchange for cash, other awards or stock options or SARs with an exercise
price or base price, as applicable, that is less than the exercise price or base price of the original stock options or
SARs, as applicable, without shareholder approval. The 2020 Plan specifically provides that this provision is intended
to prohibit the repricing of “underwater” stock options and SARs and that it may not be amended without approval
by our shareholders.
Detrimental activity and recapture
Any Evidence of Award may reference a clawback policy of the company or provide for the cancellation or forfeiture
of an award, or forfeiture and repayment to us of any gain related to an award, or other provisions intended to have
a similar effect, upon such terms and conditions as may be determined by the committee from time to time, if any
participant, either during employment or other service with us or a subsidiary or within a specified period after such
employment or service, engages in any detrimental activity, as described in the applicable Evidence of Award or
such clawback policy. In addition, any Evidence of Award or such clawback policy may provide for cancellation or
forfeiture of an award or the forfeiture and repayment of any Common Shares issued under and/or any other benefit
related to an award, or other provisions intended to have a similar effect, including upon such terms and conditions
as may be required by the committee or under Section 10D of the Securities Exchange Act of 1934 and any
applicable rules and regulations promulgated by the Securities and Exchange Commission or any national securities
exchange or national securities association on which the Common Shares may be traded.
Grants to non-U.S. based participants
In order to facilitate the making of any grant or combination of grants under the 2020 Plan, the committee may
provide for such special terms for awards to participants who are foreign nationals, who are employed by the
company or any of its subsidiaries outside of the United States of America or who provide services to the company
or any of its subsidiaries under an agreement with a foreign nation or agency, as the committee may consider
necessary or appropriate to accommodate differences in local law, tax policy or custom. The committee may
approve such supplements to, or amendments, restatements or alternative versions of, the 2020 Plan (including
sub-plans) (to be considered part of the 2020 Plan) as it may consider necessary or appropriate for such purposes,
provided that no such special terms, supplements, amendments or restatements will include any provisions that are
inconsistent with the terms of the 2020 Plan as then in effect unless the 2020 Plan could have been amended to
eliminate such inconsistency without further approval by our shareholders.
Withholding
To the extent the company is required to withhold federal, state, local or foreign taxes or other amounts in
connection with any payment made or benefit realized by a participant or other person under the 2020 Plan, and the
amounts available to us for such withholding are insufficient, it will be a condition to the receipt of such payment or
the realization of such benefit that the participant or such other person make arrangements satisfactory to the
company for payment of the balance of such taxes or other amounts required to be withheld, which arrangements,
in the discretion of the committee, may include relinquishment of a portion of such benefit. If a participant’s benefit is
to be received in the form of Common Shares, and such participant fails to make arrangements for the payment of
taxes or other amounts, then, unless otherwise determined by the committee, we will withhold Common Shares
having a value equal to the amount required to be withheld. When a participant is required to pay the company an
amount required to be withheld under applicable income, employment, tax or other laws, the participant may elect,
unless otherwise determined by the committee, to satisfy the obligation, in whole or in part, by having withheld, from
the shares required to be delivered to the participant, Common Shares having a value equal to the amount required
to be withheld or by delivering to us other Common Shares held by such participant. The Common Shares used for
tax or other withholding will be valued at an amount equal to the fair market value of such Common Shares on the
date the benefit is to be included in the participant’s income. In no event will the fair market value of the Common
Shares to be withheld and delivered pursuant to the 2020 Plan exceed the minimum amount required to be
withheld, unless (1) an additional amount can be withheld and not result in adverse accounting consequences,
67
(2) such additional withholding amount is authorized by the committee, and (3) the total amount withheld does not
exceed the participant’s estimated tax obligations attributable to the applicable transaction. Participants will also
make such arrangements as the company may require for the payment of any withholding tax or other obligation
that may arise in connection with the disposition of Common Shares acquired upon the exercise of stock options.
No right to continued employment
The 2020 Plan does not confer upon any participant any right with respect to continuance of employment or service
with the company or any of its subsidiaries.
Effective date of the 2020 Plan
The 2020 Plan will become effective on the date it is approved by the company’s shareholders. No grants will be
made under the Predecessor Plan on or after the date on which our shareholders approve the 2020 Plan, provided
that outstanding awards granted under the Predecessor Plan will continue unaffected following such date.
Amendment and termination of the 2020 Plan
The Board of Directors generally may amend the 2020 Plan from time to time in whole or in part. If any amendment,
however, for purposes of applicable stock exchange rules (and except as permitted under the adjustment provisions
of the 2020 Plan) (1) would materially increase the benefits accruing to participants under the 2020 Plan, (2) would
materially increase the number of securities which may be issued under the 2020 Plan, (3) would materially modify
the requirements for participation in the 2020 Plan or (4) must otherwise be approved by our shareholders in order
to comply with applicable law or the rules of the NYSE, or, if the Common Shares are not traded on the NYSE, the
principal national securities exchange upon which the Common Shares are traded or quoted, all as determined by
the Board, then such amendment will be subject to shareholder approval and will not be effective unless and until
such approval has been obtained.
Further, subject to the 2020 Plan’s prohibition on repricing, the committee generally may amend the terms of any
award prospectively or retroactively. Except in the case of certain adjustments permitted under the 2020 Plan, no
such amendment may be made that would materially impair the rights of any participant without his or her consent.
If permitted by Section 409A of the Code and subject to certain other limitations set forth in the 2020 Plan, including
in the case of termination of employment or service, or in the case of unforeseeable emergency or other
circumstances or in the event of a change in control, the committee may provide for continued vesting or accelerate
the vesting of certain awards granted under the 2020 Plan or waive any other limitation or requirement under any
such award.
The Board may, in its discretion, terminate the 2020 Plan at any time. Termination of the 2020 Plan will not affect the
rights of participants or their successors under any awards outstanding and not exercised in full on the date of
termination. No grant will be made under the 2020 Plan on or after the tenth anniversary of the effective date of the
2020 Plan, but all grants made prior to such date will continue in effect thereafter subject to their terms and the terms
of the 2020 Plan.
Allowances for conversion awards and assumed plans
Common Shares issued or transferred under awards granted under the 2020 Plan in substitution for or conversion
of, or in connection with an assumption of, stock options, SARs, restricted shares, RSUs, or other stock or stock-based
awards held by awardees of an entity engaging in a corporate acquisition or merger transaction with us or any of our
subsidiaries will not count against (or be added to) the aggregate share limit or other 2020 Plan limits described
above. Additionally, shares available under certain plans that we or our subsidiaries may assume in connection with
corporate transactions from another entity may be available for certain awards under the 2020 Plan, under
circumstances further described in the 2020 Plan, but will not count against the aggregate share limit or other 2020
Plan limits described above.
New plan benefits
It is not possible to determine the specific amounts and types of awards that may be awarded in the future under the
2020 Plan because the grant and actual settlement of awards under the 2020 Plan are subject to the discretion of the
plan administrator.
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U.S. federal income tax consequences
The following is a brief summary of certain of the federal income tax consequences of certain transactions under the
2020 Plan based on federal income tax laws in effect. This summary, which is presented for the information of
shareholders considering how to vote on this proposal and not for 2020 Plan participants, is not intended to be
complete and does not describe federal taxes other than income taxes (such as Medicare and social security taxes),
or state, local or foreign tax consequences.
Tax consequences to participants
Restricted shares: The recipient of restricted shares generally will be subject to tax at ordinary income rates on the
fair market value of the restricted shares (reduced by any amount paid by the recipient for such restricted shares) at
such time as the restricted shares are no longer subject to forfeiture or restrictions on transfer for purposes of
Section 83 of the Code (“Restrictions”). However, a recipient who so elects under Section 83(b) of the Code within 30
days of the date of transfer of the shares will have taxable ordinary income on the date of transfer of the shares equal
to the excess of the fair market value of such shares (determined without regard to the Restrictions) over the
purchase price, if any, of such restricted shares. If a Section 83(b) election has not been made, any dividends
received with respect to restricted shares that are subject to the Restrictions generally will be treated as
compensation that is taxable as ordinary income to the recipient.
Performance shares, performance units and cash incentive awards: No income generally will be recognized upon the
grant of performance shares, performance units or cash incentive awards. Upon payment in respect of the earn-out
of performance shares, performance units or cash incentive awards, the recipient generally will be required to
include as taxable ordinary income in the year of receipt an amount equal to the amount of cash received and the
fair market value of any unrestricted Common Shares received.
Nonqualified stock options: In general, no income will be recognized by an optionee at the time a non-qualified
stock option is granted. At the time of exercise of a non-qualified stock option, ordinary income will be recognized
by the optionee in an amount equal to the difference between the option price paid for the shares and the fair
market value of the shares, if unrestricted, on the date of exercise. At the time of sale of shares acquired pursuant to
the exercise of a non-qualified stock option, appreciation (or depreciation) in value of the shares after the date of
exercise will be treated as either short-term or long-term capital gain (or loss) depending on how long the shares
have been held.
Incentive stock options: No income generally will be recognized by an optionee upon the grant or exercise of an
“incentive stock option” as defined in Section 422 of the Code. If Common Shares are issued to the optionee
pursuant to the exercise of an incentive stock option, and if no disqualifying disposition of such shares is made by
such optionee within two years after the date of grant or within one year after the transfer of such shares to the
optionee, then upon sale of such shares, any amount realized in excess of the option price will be taxed to the
optionee as a long-term capital gain and any loss sustained will be a long-term capital loss.
If Common Shares acquired upon the exercise of an incentive stock option are disposed of prior to the expiration of
either holding period described above, the optionee generally will recognize ordinary income in the year of
disposition in an amount equal to the excess (if any) of the fair market value of such shares at the time of exercise (or,
if less, the amount realized on the disposition of such shares if a sale or exchange) over the exercise price paid for
such shares. Any further gain (or loss) realized by the participant generally will be taxed as short-term or long-term
capital gain (or loss) depending on the holding period.
SARs: No income will be recognized by a participant in connection with the grant of a SAR. When the SAR is
exercised, the participant normally will be required to include as taxable ordinary income in the year of exercise an
amount equal to the amount of cash received and the fair market value of any unrestricted Common Shares received
on the exercise.
RSUs: No income generally will be recognized upon the award of RSUs. The recipient of an RSU award generally will
be subject to tax at ordinary income rates on the fair market value of unrestricted Common Shares on the date that
such shares are transferred to the participant under the award (reduced by any amount paid by the participant for
such RSUs), and the capital gains/loss holding period for such shares will also commence on such date.
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Tax consequences to the company or its subsidiaries
To the extent that a participant recognizes ordinary income in the circumstances described above, the company or
the subsidiary for which the participant performs services will be entitled to a corresponding deduction from any
applicable federal income tax, provided that, among other things, the income meets the test of reasonableness, is
an ordinary and necessary business expense, is not an “excess parachute payment” within the meaning of
Section 280G of the Code and is not disallowed by the $1.0 million limitation on certain executive compensation
under Section 162(m) of the Code.
Code Section 162(m)
Section 162(m) of the Code generally disallows a deduction for certain compensation paid to certain executive
officers (and, beginning in 2018, certain former executive officers) to the extent that compensation to a covered
employee exceeds $1.0 million for such year. Compensation qualifying for a performance-based exception as
“qualified performance-based compensation” under Section 162(m) of the Code has historically not been subject to
the deduction limit if the compensation satisfies the requirements of Section 162(m) of the Code. This exception has
now been repealed, effective for taxable years beginning after December 31, 2017, unless certain transition relief for
certain compensation arrangements in place as of November 2, 2017 is available. Currently, the company does not
anticipate that it will be able to make any future grants under the 2020 Plan that will be intended to qualify for the
performance-based exception. To be clear, shareholders are not being asked to approve the 2020 Plan (or any of its
provisions) for purposes of Section 162(m) of the Code or the performance-based exception.
Registration with the SEC
We intend to file a Registration Statement on Form S-8 relating to the issuance of Common Shares under the 2020
Plan with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended, as soon as
practicable after approval of the 2020 Plan by our shareholders.
Your Board of Directors recommends a vote for
approval of the TimkenSteel Corporation 2020
Equity and Incentive Compensation Plan.
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Equity compensation plan
information
The following table sets forth certain information as of December 31, 2019, regarding the only equity compensation
plan maintained by us on that date, the TimkenSteel Corporation Amended and Restated 2014 Equity and Incentive
Compensation Plan (the “Equity Plan”).
Plan category
Equity compensation plans
approved by security holders(4)
Equity compensation plans not
approved by security holders
Total
(a)
(b)
(c)
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights(1)
Weighted-average
exercise price of
outstanding options,
warrants and rights (2)
Number of securities
remaining available for
future issuance under
equity compensation plans
reflected in column (a)(3)
3,850,330
$20.64
2,430,868
—
3,850,330
—
$20.64
—
2,430,868
(1)
(2)
(3)
The amount shown in column (a) includes the following: nonqualified stock options - 2,641,570; deferred shares - 181,759; performance-
based restricted stock units - 105,273; and time-based restricted stock units - 921,728 (which includes 658,642 cliff-vested restricted stock
units).
The weighted average exercise price in column (b) includes nonqualified stock options only.
The amount shown in column (c) represents common shares remaining available under the Equity Plan, under which the Compensation
Committee is authorized to make awards of option rights, appreciation rights, restricted shares, restricted stock units, deferred shares,
performance shares, performance units and cash incentive awards. Awards may be credited with dividend equivalents payable in the form
of common shares. Under the Equity Plan, for any award that is not an option right or a stock appreciation right, 2.46 common shares for
awards granted before April 28, 2016 and 2.50 common shares for awards granted on or after April 28, 2016, are subtracted from the
maximum number of common shares available under the plan for every common share issued under the award. For awards of option rights
and stock appreciation rights, however, only one common share is subtracted from the maximum number of common shares available
under the plan for every common share granted.
(4)
The company also maintains the Director Deferred Compensation Plan pursuant to which non-employee Directors may defer receipt of
common shares authorized for issuance under the Equity Plan. The table does not include separate information about this plan because it
merely provides for the deferral, rather than the issuance, of common shares.
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Annual meeting information
Questions and answers
What is the purpose of this proxy statement?
This proxy statement and the accompanying proxy card are being made available to shareholders beginning on or
about March 19, 2020, in connection with the company’s solicitation of proxies for the 2020 annual meeting of
shareholders to be held on May 6, 2020, at 10 a.m. local time at the corporate offices of the company (1835 Dueber
Ave. S.W., Canton, Ohio 44706), and at any adjournments and postponements thereof, for the purpose of
considering and acting upon the matters specified in the notice accompanying this proxy statement.
What is a proxy?
A proxy is your legal appointment of another person to vote the shares you own in accordance with your
instructions. The person you appoint to vote your shares also is called a proxy. On the proxy card, you will find the
names of the persons designated by the company to act as proxies to vote your shares at the annual meeting. The
designated proxies are required to vote your shares in the manner you instruct.
Who can vote?
Record holders of TimkenSteel Corporation common stock at the close of business on February 28, 2020 (the
“Record Date”) are entitled to vote at the meeting. Shareholders are entitled to one vote for each full share held on
the Record Date. On that date, there were 44,938,082 of our common shares outstanding.
How do I vote?
Registered holders. If your shares are registered in your name, you may vote in person at the meeting or by proxy. If
you decide to vote by proxy, you may do so in any ONE of the following three ways:
By telephone. After reading the proxy materials, you may call the toll-free number 1-888-693-8683. You will be
prompted to enter your control number, which you can find on your notice of internet availability or your proxy card.
This number will identify you and the company. Then you can follow the simple instructions that will be given to you
to record your vote. Telephone voting will be available until 6 a.m. EDT on May 6, 2020.
Over the internet. After reading the proxy materials, you may use a computer to access the website
www.cesvote.com. You will be prompted to enter your control number, which you can find on your notice of
internet availability or your proxy card. This number will identify you and the company. Then you can follow the
simple instructions that will be given to you to record your vote. Internet voting will be available until 6 a.m. EDT on
May 6, 2020.
By mail. After reading the proxy materials, you may vote your shares by marking, signing, dating and returning your
proxy card to the company’s tabulation agent, Corporate Election Services, Inc. (“Corporate Election Services” or
“CES”), in the postage-paid envelope provided, or return it to Corporate Election Services, P.O. Box 1150,
Pittsburgh, PA 15230. Proxy cards returned by mail must be received by CES by 6 a.m. EDT on May 6, 2020, in order
for your vote to be recorded.
The internet and telephone voting procedures have been set up for your convenience and have been designed to
authenticate your identity, allow you to give voting instructions and confirm that those instructions have been
recorded properly.
Whether you choose to vote in person, by telephone, over the internet or by mail, you can specify whether your
shares should be voted for all, some or none of the nominees for director. You also can specify whether you want to
vote for or against, or abstain from voting on, the ratification of the selection of our independent auditor, the
approval, on an advisory basis, of the compensation of the company’s named executive officers and the approval of
the TimkenSteel Corporation 2020 Equity and Incentive Compensation Plan.
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Shares represented by properly executed proxy cards, online instructions, or telephone instructions will be voted as
you direct. If you provide a properly-executed proxy card or properly-submitted online or telephone instructions but
do not specify how you want to vote your shares, your shares will be voted according to the Board’s
recommendations as set forth below and, as to any other business as may be properly brought before the 2020
annual meeting of shareholders and any adjournments or postponements thereof, in the discretion of the proxy
holders:
Proposal
Board recommendation
1.
2.
3.
4.
Election of the Board’s three nominees as directors
Ratification of the selection of Ernst & Young LLP as the company’s
independent auditor for the fiscal year ending December 31, 2020
Approval, on an advisory basis, of the compensation of the company’s named
executive officers
Approval of the TimkenSteel Corporation 2020 Equity and Incentive
Compensation Plan
For
For
For
For
401(k) Plan participants. If you participate in a 401(k) plan sponsored by the company, including the TimkenSteel
Corporation Savings and Investment Pension Plan, the TimkenSteel Corporation Bargaining Savings and Investment
Pension Plan, the TimkenSteel Corporation Voluntary Investment Pension Plan, or the TimkenSteel Corporation
Savings Plan for Certain Bargaining Employees, any shares held for your account in the TimkenSteel Stock Fund of
the plan will be voted by the trustee for the plan, Bank of America Merrill Lynch, according to confidential voting
instructions provided by you. You may give your voting instructions to the plan trustee in any ONE of the three ways
set forth above; however, your instructions must be received no later than 6 a.m. EDT on May 4, 2020. If you do not
provide timely voting instructions, your shares will be voted by the plan trustee in the same proportion as it votes
plan shares for which it did receive timely instructions.
Beneficial owners/nominee shares. If your shares are held by a broker, bank, or some other nominee, that entity
will give you information on how you can vote your shares. As the beneficial owner, you have the right to direct your
broker, bank or nominee how to vote. Your broker, bank or nominee will provide you with a voting instruction card
or some other means for you to use in directing the broker, bank or nominee regarding how to vote your shares. If
you do not provide the broker, bank or other nominee with your voting instructions, the broker, bank or other
nominee will determine if it has the discretionary authority to vote on the particular matter. Under applicable New
York Stock Exchange rules, brokers have the discretion to vote only on any matters deemed by the New York Stock
Exchange to be routine, such as the ratification of the selection of the company’s independent auditor (Proposal 2 in
this proxy statement). All other matters identified above (Proposals 1, 3 and 4 in this proxy statement) are not
considered to be routine matters and your broker will not have discretion to vote on those matters. If you do not
provide voting instructions to your broker, your shares will not be voted on any matter for which your broker does
not have discretionary authority. When the broker does not vote on a proposal because it is a non-routine item and
the broker’s customer has not provided voting instructions, this is referred to as a “broker non-vote.”
In-person voting. Registered shareholders and beneficial owners of shares held in street name also may vote in
person at the annual meeting. If you are a registered shareholder and attend the meeting, you may deliver your
completed proxy card in person. Additionally, written ballots will be available for any shareholder who wishes to vote
in person at the meeting. Beneficial owners of shares held in street name who wish to vote at the meeting will need
to obtain a legal proxy from the institution that holds their shares as record owner.
May I change my vote?
You may change your vote after you submit your proxy by:
• sending a written notice addressed to the secretary of the company and received prior to the close of
business on May 5, 2020, stating that you want to revoke your proxy;
• submitting another completed proxy card to the secretary of the company that is received prior to the close
of business on May 5, 2020, that has a later date than the previously submitted proxy card;
• entering later-dated telephone or internet voting instructions prior to 6 a.m. EDT on May 6, 2020, which will
automatically revoke the earlier proxy; or
• attending the annual meeting and voting in person. The mere presence of a shareholder at the meeting will
not automatically revoke any proxy previously given.
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Who counts the votes?
Corporate Election Services will be responsible for tabulating the results of shareholder voting. CES will submit a
total vote only, keeping all individual votes confidential. A representative of CES will serve as the inspector of
election for the 2020 annual meeting of shareholders.
What is a “quorum”?
A quorum is necessary to hold a valid meeting of shareholders. A quorum exists if the holders of record of shares
entitled to exercise not less than 50% of the voting power of the company in respect of any one of the purposes for
which the meeting is called are present in person or by proxy. If you vote – including by internet, telephone, or proxy
card – your shares will be counted toward the quorum for the annual meeting. Withhold votes for election of
directors, proxies marked as abstentions, and broker non-votes also are treated as present for purposes of
determining a quorum.
What vote is necessary to pass the items of business at the annual meeting?
If a quorum is present at the annual meeting, the three nominees for election as directors will be elected if they
receive a plurality of the votes cast. If you vote, your shares will be voted for election of all of the Board’s director
nominees unless you give instructions to “withhold” your vote for one or more of the nominees. Withhold votes and
broker non-votes will not count either in favor of or against the election of a nominee.
The affirmative vote of a majority of the votes cast on the proposal is required for Proposal 2, ratification of the
selection of Ernst & Young LLP as the company’s independent auditor, and Proposal 4, approval of the TimkenSteel
Corporation 2020 Equity and Incentive Compensation Plan. In determining whether each of these proposals has
received the affirmative vote of a majority of the votes cast on the proposal, abstentions and broker non-votes are
not considered votes cast and, therefore, will not count either in favor of or against the proposal.
The shareholder vote on Proposal 3, approval of the compensation of the company’s named executive officers, is
advisory in nature and therefore not binding on the company. Although this is an advisory vote, the Board of
Directors and the Compensation Committee will consider the affirmative vote of a majority of the votes cast on this
proposal as approval of the compensation paid to the company’s named executive officers. Abstentions and broker
non-votes are not considered votes cast and, therefore, will not count either in favor of or against the proposal.
How will voting on any other business be conducted?
The company does not know of any business or proposals to be considered at the annual meeting other than the
items described in this proxy statement. If any other business is properly brought before the meeting, the properly
submitted proxies received from you and other shareholders give the persons voting the proxies the authority to
vote on the matter according to their judgment.
Who is soliciting proxies?
The enclosed proxy is being solicited by the Board of Directors of the company, and the company will pay the cost
of the solicitation.
We have retained Innisfree M&A Incorporated to assist in the solicitation of proxies for a fee of $17,500, plus
reasonable out-of-pocket expenses. Solicitations may be made by any means of communication. It is anticipated that
the solicitations will consist primarily of requests to brokers, banks, trustees, nominees and fiduciaries to forward the
soliciting material to the beneficial owners of shares held of record by those persons. The company will reimburse
brokers and other persons holding shares for others for their reasonable expenses in sending soliciting material to
the beneficial owners.
In addition, certain officers and other employees of the company may, without extra remuneration, solicit the return
of proxies. Solicitations may be made by any means of communication, including by telephone, letter, personal visit,
electronic mail or other electronic means.
When are shareholder proposals due for the next annual meeting?
We must receive by November 19, 2020, any proposal of our shareholders intended to be presented at the 2021
annual meeting of shareholders and to be included in our proxy materials related to the 2021 annual meeting of
shareholders pursuant to Rule 14a-8 under the Exchange Act. Such proposals should be submitted by certified mail,
return receipt requested.
74
A shareholder submitting a proposal outside the processes of Rule 14a-8 in connection with the 2020 annual
meeting of shareholders (“Non-Rule 14a-8 Proposals”) must submit written notice of such proposal in accordance
with Article I, Sections 12 and 14 of our Code of Regulations. In general, to be timely, a shareholder’s notice must be
delivered to or mailed and received by our secretary at our principal executive offices not less than 90 nor more than
120 days prior to the first anniversary of the date on which the company held the preceding year’s annual meeting of
shareholders. If the date of the 2021 annual meeting of shareholders is scheduled for a date more than 30 days prior
to or more than 30 days after the first anniversary of the 2020 annual meeting of shareholders, then a shareholder’s
notice must be delivered to our secretary at our principal executive offices not later than the close of business on the
later of the 90th day prior to the 2021 annual meeting of shareholders or the 10th day following the day on which
public announcement of the date of the 2021 annual meeting of shareholders is first made. Our proxy related to the
2021 annual meeting of shareholders will give discretionary authority to the proxy holders to vote with respect to all
Non-Rule 14a-8 Proposals received by us after February 5, 2021.
How can a shareholder or other interested party communicate with the Board of Directors?
Shareholders or interested parties may send communications to the Board of Directors, to any standing committee
of the Board, or to any director, in writing c/o TimkenSteel Corporation, Attn: Secretary, 1835 Dueber Ave. S.W.,
Canton, Ohio 44706. Shareholders or interested parties also may submit questions, concerns or reports of
misconduct through the TimkenSteel HelpLine at 1-855-754-2921 (anonymously, if so desired). Communications
received may be reviewed by the office of the General Counsel to ensure appropriate and careful consideration of
the matter.
75
General information
The SEC permits companies to send a single set of annual disclosure documents to any household at which two or
more shareholders reside, unless contrary instructions have been received, but only if the companies provide
advance notice and follow certain procedures. In such cases, such shareholders continue to receive a separate
notice of the meeting and proxy card. This “householding” process reduces the volume of duplicate information and
reduces printing and mailing expenses. TimkenSteel has not instituted householding for shareholders of record;
however, a number of brokerage firms may have instituted householding for beneficial owners of our common
shares held through such brokerage firms. If your family has multiple accounts holding common shares, you already
may have received a householding notification from your broker. Please contact your broker directly if you have any
questions or require additional copies of the annual disclosure documents. The broker will arrange for delivery of a
separate copy of this proxy statement or our Annual Report on Form 10-K for the year ended December 31, 2019,
promptly upon your request. You may decide at any time to revoke your decision to household and thereby receive
multiple copies.
Unless you specify otherwise in your voting instructions, the
proxy holders will vote for each of the nominees named in
Proposal 1, and for Proposals 2, 3 and 4.
76
Appendix A
Non-GAAP financial measures
This proxy statement includes references to Adjusted EBITDA and free cash flow, which are non-GAAP financial
measures as defined by the Securities and Exchange Commission. Adjusted 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 Adjusted EBITDA is useful to investors as this
measure is representative of the company’s performance and provides improved comparability of results. Free cash
flow is also an important financial measure used in the management of the business. 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.
Non-GAAP financial measures should be viewed as additions to, and not as alternatives for, TimkenSteel’s results
prepared in accordance with GAAP. In addition, the non-GAAP measures TimkenSteel uses may differ from
non-GAAP measures used by other companies, and other companies may not define the non-GAAP measures
TimkenSteel uses in the same way. See the following table for a definition of the non-GAAP financial measures
referred to above and a reconciliation of these non-GAAP financial measures to the most comparable GAAP
financial measures.
A – 1
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)
Net income (loss)
Provision (benefit) for income taxes
Interest expense
Year Ended December 31,
2019
2018
Adjusted(5)
2017
Adjusted(5)
$
(110.0) $
(10.0) $
(31.3)
(16.1)
15.7
1.8
17.1
1.5
14.8
Earnings Before Interest and Taxes (EBIT) (1)
$
(110.4) $
8.9
$
(15.0)
EBIT Margin (1)
(9.1)%
0.6%
(1.1)%
Depreciation and amortization
73.5
73.0
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) (2) $
(36.9) $
81.9
$
74.9
59.9
EBITDA Margin (2)
Executive severance and transition costs
Impairment charges and loss on sale or disposal of assets
Restructuring charges
Loss from remeasurement of benefit plans
Facility phase down: Inventory write-down
Accelerated depreciation and amortization (EBIT only)
Business transformation costs
Adjusted EBIT (3)
Adjusted EBIT Margin (3)
Adjusted EBITDA (4)
Adjusted EBITDA Margin (4)
(3.1)%
5.1%
4.5%
(5.6)
(8.9)
(8.9)
(40.6)
(4.8)
(2.8)
(0.5)
(38.3) $
(3.2)%
(1.7)
—
—
(43.5)
—
—
—
54.1
3.4%
32.4
$
127.1
2.7%
7.9%
$
$
—
—
—
(21.8)
—
—
—
6.8
0.5%
81.7
6.1%
$
$
(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, as applicable, executive severance and transition costs, the loss from
remeasurement of benefit plans, restructuring charges, impairment charges and loss on sale or disposal of assets, facility
phase down: inventory write-down, accelerated depreciation and amortization and business transformation costs. Adjusted
EBIT Margin is Adjusted EBIT as a percentage of net sales.
(4) Adjusted EBITDA is defined as EBITDA excluding, as applicable, executive severance and transition costs, the loss from
remeasurement of benefit plans, restructuring charges, impairment charges and loss on sale or disposal of assets, facility
phase down: inventory write-down and business transformation costs. Adjusted EBITDA Margin is Adjusted EBITDA as a
percentage of net sales.
(5) The company changed its inventory valuation method for the majority of its inventory from the last in, first out (LIFO) method
to the first in, first out (FIFO) method effective as of December 31, 2019. The company has retrospectively applied this change
to its prior year financial statements and denoted impacted prior year columns in the above table as “Adjusted”.
A – 2
Reconciliation of Free Cash Flow(1) to GAAP Net Cash Provided (Used) by Operating Activities:
This reconciliation is provided as additional relevant information about the Company’s financial position. Free cash
flow is an important financial measure used in the management of the business. 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)
Net Cash Provided (Used) by Operating Activities
Less: Capital expenditures
Free Cash Flow
Year Ended
December 31, 2019
$
$
70.3
(38.0)
32.3
(1) Free Cash Flow is defined as net cash provided (used) by operating activities less capital expenditures.
A – 3
Appendix B
TimkenSteel Corporation 2020
Equity and Incentive
Compensation Plan
Purpose. The purpose of this Plan is to permit award grants to non-employee Directors, officers and other
1.
employees of the Company and its Subsidiaries, and certain consultants to the Company and its Subsidiaries, and to
provide to such persons incentives and rewards for service and/or performance.
2.
Definitions. As used in this Plan:
(a)
(b)
“Appreciation Right” means a right granted pursuant to Section 5 of this Plan.
“Base Price” means the price to be used as the basis for determining the Spread upon the exercise
of an Appreciation Right.
(c)
(d)
(e)
(f)
“Board” means the Board of Directors of the Company.
“Cash Incentive Award” means a cash award granted pursuant to Section 8 of this Plan.
“Change in Control” has the meaning set forth in Section 12 of this Plan.
“Code” means the Internal Revenue Code of 1986, as amended from time to time, and the
regulations thereunder, as such law and regulations may be amended from time to time.
(g)
“Committee” means the Compensation Committee of the Board (or its successor(s)), or any other
committee of the Board designated by the Board to administer this Plan pursuant to Section 10 of this Plan.
(h)
“Common Shares” means the common shares, without par value per share, of the Company or any
security into which such common shares may be changed by reason of any transaction or event of the type referred
to in Section 11 of this Plan.
(i)
(j)
“Company” means TimkenSteel Corporation, an Ohio corporation, and its successors.
“Date of Grant” means the date provided for by the Committee on which a grant of Option Rights,
Appreciation Rights, Performance Shares, Performance Units, Cash Incentive Awards, or other awards contemplated
by Section 9 of this Plan, or a grant or sale of Restricted Shares, Restricted Share Units, or other awards
contemplated by Section 9 of this Plan, will become effective (which date will not be earlier than the date on which
the Committee takes action with respect thereto).
(k)
(l)
“Director” means a member of the Board.
“Effective Date” means the date this Plan is approved by the Shareholders.
(m)
“Evidence of Award” means an agreement, certificate, resolution or other type or form of writing or
other evidence approved by the Committee that sets forth the terms and conditions of the awards granted under
this Plan. An Evidence of Award may be in an electronic medium, may be limited to notation on the books and
records of the Company and, unless otherwise determined by the Committee, need not be signed by a
representative of the Company or a Participant.
B – 1
(n)
“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, and the
rules and regulations thereunder, as such law, rules and regulations may be amended from time to time.
(o)
“Incentive Stock Option” means an Option Right that is intended to qualify as an “incentive stock
option” under Section 422 of the Code or any successor provision.
(p)
“Management Objectives” means the measurable performance objective or objectives established
pursuant to this Plan for Participants who have received grants of Performance Shares, Performance Units or Cash
Incentive Awards or, when so determined by the Committee, Option Rights, Appreciation Rights, Restricted Shares,
Restricted Share Units, dividend equivalents or other awards pursuant to this Plan. If the Committee determines that
a change in the business, operations, corporate structure or capital structure of the Company, or the manner in
which it conducts its business, or other events or circumstances render the Management Objectives unsuitable, the
Committee may in its discretion modify such Management Objectives or the goals or actual levels of achievement
regarding the Management Objectives, in whole or in part, as the Committee deems appropriate and equitable.
(q)
“Market Value per Share” means, as of any particular date, the closing price of a Common Share as
reported for that date on the New York Stock Exchange or, if the Common Shares are not then listed on the New
York Stock Exchange, on any other national securities exchange on which the Common Shares are listed, or if there
are no sales on such date, on the next preceding trading day during which a sale occurred. If there is no regular
public trading market for the Common Shares, then the Market Value per Share shall be the fair market value as
determined in good faith by the Committee. The Committee is authorized to adopt another fair market value pricing
method provided such method is stated in the applicable Evidence of Award and is in compliance with the fair
market value pricing rules set forth in Section 409A of the Code.
(r)
“Optionee” means the optionee named in an Evidence of Award evidencing an outstanding Option
Right.
(s)
(t)
“Option Price” means the purchase price payable on exercise of an Option Right.
“Option Right” means the right to purchase Common Shares upon exercise of an award granted
pursuant to Section 4 of this Plan.
(u)
“Participant” means a person who is selected by the Committee to receive benefits under this Plan
and who is at the time (i) a non-employee Director, (ii) an officer or other employee of the Company or any
Subsidiary, including a person who has agreed to commence serving in such capacity within 90 days of the Date of
Grant, or (iii) a person, including a consultant, who provides services to the Company or any Subsidiary that are
equivalent to those typically provided by an employee (provided that such person satisfies the Form S-8 definition of
an “employee”).
(v)
“Performance Period” means, in respect of a Cash Incentive Award, Performance Share or
Performance Unit, a period of time established pursuant to Section 8 of this Plan within which the Management
Objectives relating to such Cash Incentive Award, Performance Share or Performance Unit are to be achieved.
(w)
“Performance Share” means a bookkeeping entry that records the equivalent of one Common Share
awarded pursuant to Section 8 of this Plan.
(x)
“Performance Unit” means a bookkeeping entry awarded pursuant to Section 8 of this Plan that
records a unit equivalent to $1.00 or such other value as is determined by the Committee.
(y)
“Plan” means this TimkenSteel Corporation 2020 Equity and Incentive Compensation Plan, as may
be amended or amended and restated from time to time.
(z)
“Predecessor Plan” means the TimkenSteel Corporation 2014 Equity and Incentive Compensation
Plan, in each case including as amended or amended and restated.
(aa)
“Restricted Shares” means Common Shares granted or sold pursuant to Section 6 of this Plan as to
which neither the substantial risk of forfeiture nor the prohibition on transfers has expired.
B – 2
(bb)
“Restricted Share Units” means an award made pursuant to Section 7 of this Plan of the right to
receive Common Shares, cash or a combination thereof at the end of the applicable Restriction Period.
(cc)
“Restriction Period” means the period of time during which Restricted Share Units are subject to
restrictions, as provided in Section 7 of this Plan.
(dd)
“Shareholder” means an individual or entity that owns one or more Common Shares.
(ee)
“Spread” means the excess of the Market Value per Share on the date when an Appreciation Right is
exercised over the Base Price provided for with respect to the Appreciation Right.
(ff)
“Subsidiary” means a corporation, company or other entity (i) more than 50% of whose outstanding
shares or securities (representing the right to vote for the election of directors or other managing authority) are, or
(ii) which does not have outstanding shares or securities (as may be the case in a partnership, joint venture, limited
liability company, unincorporated association or other similar entity), but more than 50% of whose ownership
interest representing the right generally to make decisions for such other entity is, now or hereafter, owned or
controlled, directly or indirectly, by the Company; provided, however, that for purposes of determining whether any
person may be a Participant for purposes of any grant of Incentive Stock Options, “Subsidiary” means any
corporation in which the Company at the time owns or controls, directly or indirectly, more than 50% of the total
combined Voting Power represented by all classes of stock issued by such corporation.
(gg)
“Voting Power” means, at any time, the combined voting power of the then-outstanding securities
entitled to vote generally in the election of Directors in the case of the Company or members of the board of
directors or similar body in the case of another entity.
3.
Shares Available Under this Plan.
(a)
Maximum Shares Available Under this Plan.
(i) Subject to adjustment as provided in Section 11 of this Plan and the share counting rules set
forth in Section 3(b) of this Plan, the number of Common Shares available under this Plan for
awards of (A) Option Rights or Appreciation Rights, (B) Restricted Shares, (C) Restricted Share Units,
(D) Performance Shares or Performance Units, (E) awards contemplated by Section 9 of this Plan, or
(F) dividend equivalents paid with respect to awards made under this Plan will not exceed in the
aggregate 2,000,000 Common Shares, plus the Common Shares that are subject to awards granted
under this Plan or the Predecessor Plan that are added (or added back, as applicable) to the
aggregate number of Common Shares available under this Section 3(a)(i) pursuant to the share
counting rules of this Plan. Such shares may be shares of original issuance or treasury shares or a
combination of the foregoing.
(ii) Subject to the share counting rules set forth in Section 3(b) of this Plan, the aggregate number of
Common Shares available under Section 3(a)(i) of this Plan will be reduced by one Common Share
for every one Common Share subject to an award granted under this Plan.
(b)
Share Counting Rules.
(i) Except as provided in Section 22 of this Plan, if any award granted under this Plan (in whole or in
part) is canceled or forfeited, expires, is settled for cash, or is unearned, the Common Shares subject
to such award will, to the extent of such cancellation, forfeiture, expiration, cash settlement, or
unearned amount, again be available under Section 3(a)(i) above in accordance with
Section 3(b)(v) below.
(ii) If, after the Effective Date, any Common Shares subject to an award granted under the
Predecessor Plan are forfeited, or an award granted under the Predecessor Plan (in whole or in part)
is canceled or forfeited, expires, is settled for cash, or is unearned, the Common Shares subject to
such award will, to the extent of such cancellation, forfeiture, expiration, cash settlement, or
unearned amount, be available for awards under this Plan in accordance with Section 3(b)(v)
below.
B – 3
(iii) Notwithstanding anything to the contrary contained in this Plan: (A) Common Shares withheld by
the Company, tendered or otherwise used in payment of the Option Price of an Option Right will
not be added (or added back, as applicable) to the aggregate number of Common Shares available
under Section 3(a)(i) of this Plan; (B) Common Shares withheld by the Company, tendered or
otherwise used to satisfy tax withholding with respect to Option Rights or Appreciation Rights (or
option rights or appreciation rights granted under the Predecessor Plan) will not be added (or
added back, as applicable) to the aggregate number of Common Shares available under
Section 3(a)(i) of this Plan; (C) Common Shares withheld by the Company, tendered or otherwise
used to satisfy tax withholding with respect to awards other than Option Rights and Appreciation
Rights (or option rights or appreciation rights granted under the Predecessor Plan) will be added
back to the aggregate number of Common Shares available under Section 3(a)(i) of this Plan in
accordance with Section 3(b)(v) below, but only for a period not to exceed 10 years from the
Effective Date; (D) Common Shares subject to a share-settled Appreciation Right that are not
actually issued in connection with the settlement of such Appreciation Right on the exercise thereof
will not be added back to the aggregate number of Common Shares available under Section 3(a)(i)
of this Plan; and (E) Common Shares reacquired by the Company on the open market or otherwise
using cash proceeds from the exercise of Option Rights will not be added (or added back, as
applicable) to the aggregate number of Common Shares available under Section 3(a)(i) of this
Plan.
(iv) If, under this Plan, a Participant has elected to give up the right to receive compensation in
exchange for Common Shares based on fair market value, such Common Shares will not count
against the aggregate limit under Section 3(a)(i) of this Plan.
(v) Any Common Share that becomes available under this Plan under this Section 3(b) will be
added (or added back, as applicable) as (A) one Common Share if such Common Share was subject
to an award granted under this Plan or a stock option or stock appreciation right granted under the
Predecessor Plan, (B) 2.46 Common Shares if such Common Share was subject to an award granted
under the Predecessor Plan prior to April 28, 2016 other than a stock option or stock appreciation
right, and (C) as 2.50 Common Shares if such Common share was subject to an award granted
under the Predecessor Plan on or after April 28, 2016 other than a stock option or stock
appreciation right.
(c)
Limit on Incentive Stock Options; Full Value Award Limit. Notwithstanding anything to the contrary
contained in this Plan, and subject to adjustment as provided in Section 11 of this Plan, (i) the aggregate number of
Common Shares actually issued or transferred by the Company upon the exercise of Incentive Stock Options will not
exceed 2,000,000 Common Shares; and (ii) the number of Common Shares subject to awards granted under this
Plan other than Option Rights or Appreciation Rights (after taking into account any applicable share recycling under
Section 3(b)) will not, during the life of this Plan, in the aggregate exceed 1,800,000 Common Shares.
(d)
Non-Employee Director Compensation Limit. Notwithstanding anything to the contrary contained
in this Plan, in no event will any non-employee Director in any one calendar year be granted compensation for such
service having an aggregate maximum value (measured at the Date of Grant as applicable, and calculating the value
of any awards based on the grant date fair value for financial reporting purposes) in excess of $500,000.
(e)
Minimum Vesting. Notwithstanding anything in this Plan (outside of this Section 3(e)) to the
contrary, awards granted under this Plan shall vest no earlier than after a minimum one-year vesting period or
one-year performance period, as applicable; provided, however, that, notwithstanding the foregoing, an aggregate
of up to 5% of the Common Shares available for awards under this Plan under Section 3(a)(i), as may be adjusted
under Section 11 of this Plan, may be used for awards that do not at grant comply with such minimum vesting
requirement. Nothing in this Section 3(e) or otherwise in this Plan shall preclude the Committee, in its sole
discretion, from (i) providing for continued vesting or accelerated vesting for any award under the Plan, including in
connection with or following the retirement, death, disability or termination of employment or service of a
Participant, or (ii) exercising its authority under Section 18(c) at any time following the grant of an award.
B – 4
4.
Option Rights. The Committee may, from time to time and upon such terms and conditions as it may
determine, authorize the granting to Participants of Option Rights. Each such grant may utilize any or all of the
authorizations, and will be subject to all of the requirements, contained in the following provisions:
(a)
Each grant will specify the number of Common Shares to which it pertains subject to the limitations
set forth in Section 3 of this Plan.
(b)
Each grant will specify an Option Price per Common Share, which Option Price (except with respect
to awards under Section 22 of this Plan) may not be less than the Market Value per Share on the Date of Grant.
(c)
Each grant will specify whether the Option Price will be payable (i) in cash, by check acceptable to
the Company or by wire transfer of immediately available funds, (ii) by the actual or constructive transfer to the
Company of Common Shares owned by the Optionee having a value at the time of exercise equal to the total
Option Price, (iii) subject to any conditions or limitations established by the Committee, by the withholding of
Common Shares otherwise issuable upon exercise of an Option Right pursuant to a “net exercise” arrangement (it
being understood that, solely for purposes of determining the number of treasury shares held by the Company, the
Common Shares so withheld will not be treated as issued and acquired by the Company upon such exercise), (iv) by
a combination of such methods of payment, or (v) by such other methods as may be approved by the Committee.
(d)
To the extent permitted by law, any grant may provide for deferred payment of the Option Price
from the proceeds of sale through a bank or broker on a date satisfactory to the Company of some or all of the
Common Shares to which such exercise relates.
(e)
Each grant will specify the period or periods of continuous service by the Optionee with the
Company or any Subsidiary, if any, that is necessary before any Option Rights or installments thereof will vest. Option
Rights may provide for continued vesting or the earlier vesting of such Option Rights, including in the event of the
retirement, death, disability or termination of employment or service of a Participant or in the event of a Change in
Control.
(f)
Any grant of Option Rights may specify Management Objectives regarding the vesting of such
rights.
(g)
Option Rights granted under this Plan may be (i) options, including Incentive Stock Options, that are
intended to qualify under particular provisions of the Code, (ii) options that are not intended to so qualify, or
(iii) combinations of the foregoing. Incentive Stock Options may only be granted to Participants who meet the
definition of “employees” under Section 3401(c) of the Code.
(h)
No Option Right will be exercisable more than 10 years from the Date of Grant. The Committee may
provide in any Evidence of Award for the automatic exercise of an Option Right upon such terms and conditions as
established by the Committee.
(i)
Option Rights granted under this Plan may not provide for any dividends or dividend equivalents
thereon.
(j)
Each grant of Option Rights will be evidenced by an Evidence of Award. Each Evidence of Award
will be subject to this Plan and will contain such terms and provisions, consistent with this Plan, as the Committee
may approve.
5.
Appreciation Rights.
(a)
The Committee may, from time to time and upon such terms and conditions as it may determine,
authorize the granting to any Participant of Appreciation Rights. An Appreciation Right will be the right of the
Participant to receive from the Company an amount determined by the Committee, which will be expressed as a
percentage of the Spread (not exceeding 100%) at the time of exercise.
(b)
Each grant of Appreciation Rights may utilize any or all of the authorizations, and will be subject to all
of the requirements, contained in the following provisions:
(i) Each grant may specify that the amount payable on exercise of an Appreciation Right will be paid
by the Company in cash, Common Shares or any combination thereof.
B – 5
(ii) Each grant will specify the period or periods of continuous service by the Participant with the
Company or any Subsidiary, if any, that is necessary before the Appreciation Rights or installments
thereof will vest. Appreciation Rights may provide for continued vesting or the earlier vesting of
such Appreciation Rights, including in the event of the retirement, death, disability or termination of
employment or service of a Participant or in the event of a Change in Control.
(iii) Any grant of Appreciation Rights may specify Management Objectives regarding the vesting of
such Appreciation Rights.
(iv) Appreciation Rights granted under this Plan may not provide for any dividends or dividend
equivalents thereon.
(v) Each grant of Appreciation Rights will be evidenced by an Evidence of Award. Each Evidence of
Award will be subject to this Plan and will contain such terms and provisions, consistent with this
Plan, as the Committee may approve.
(c)
Also, regarding Appreciation Rights:
(i) Each grant will specify in respect of each Appreciation Right a Base Price, which (except with
respect to awards under Section 22 of this Plan) may not be less than the Market Value per Share
on the Date of Grant; and
(ii) No Appreciation Right granted under this Plan may be exercised more than 10 years from the
Date of Grant. The Committee may provide in any Evidence of Award for the automatic exercise of
an Appreciation Right upon such terms and conditions as established by the Committee.
Restricted Shares. The Committee may, from time to time and upon such terms and conditions as it may
6.
determine, authorize the grant or sale of Restricted Shares to Participants. Each such grant or sale may utilize any or
all of the authorizations, and will be subject to all of the requirements, contained in the following provisions:
(a)
Each such grant or sale will constitute an immediate transfer of the ownership of Common Shares to
the Participant in consideration of the performance of services, entitling such Participant to voting, dividend and
other ownership rights (subject in particular to Section 6(g) of this Plan), but subject to the substantial risk of
forfeiture and restrictions on transfer hereinafter described.
(b)
Each such grant or sale may be made without additional consideration or in consideration of a
payment by such Participant that is less than the Market Value per Share on the Date of Grant.
(c)
Each such grant or sale will provide that the Restricted Shares covered by such grant or sale will be
subject to a “substantial risk of forfeiture” within the meaning of Section 83 of the Code for a period to be
determined by the Committee on the Date of Grant or until achievement of Management Objectives referred to in
Section 6(e) of this Plan.
(d)
Each such grant or sale will provide that during or after the period for which such substantial risk of
forfeiture is to continue, the transferability of the Restricted Shares will be prohibited or restricted in the manner and
to the extent prescribed by the Committee on the Date of Grant (which restrictions may include rights of repurchase
or first refusal of the Company or provisions subjecting the Restricted Shares to a continuing substantial risk of
forfeiture while held by any transferee).
(e)
Restricted Shares.
Any grant of Restricted Shares may specify Management Objectives regarding the vesting of such
(f)
Notwithstanding anything to the contrary contained in this Plan, Restricted Shares may provide for
continued vesting or the earlier vesting of such Restricted Shares, including in the event of the retirement, death,
disability or termination of employment or service of a Participant or in the event of a Change in Control.
(g)
Any such grant or sale of Restricted Shares may require that any and all dividends or other
distributions paid thereon during the period of such restrictions be automatically deferred and/or reinvested in
B – 6
additional Restricted Shares, which will be subject to the same restrictions as the underlying award. For the
avoidance of doubt, any such dividends or other distributions on Restricted Shares will be deferred until, and paid
contingent upon, the vesting of such Restricted Shares.
(h)
Each grant or sale of Restricted Shares will be evidenced by an Evidence of Award. Each Evidence
of Award will be subject to this Plan and will contain such terms and provisions, consistent with this Plan, as the
Committee may approve. Unless otherwise directed by the Committee, (i) all certificates representing Restricted
Shares will be held in custody by the Company until all restrictions thereon will have lapsed, together with a stock
power or powers executed by the Participant in whose name such certificates are registered, endorsed in blank and
covering such shares or (ii) all Restricted Shares will be held at the Company’s transfer agent in book entry form with
appropriate restrictions relating to the transfer of such Restricted Shares.
7.
Restricted Share Units. The Committee may, from time to time and upon such terms and conditions as it
may determine, authorize the granting or sale of Restricted Share Units to Participants. Each such grant or sale may
utilize any or all of the authorizations, and will be subject to all of the requirements, contained in the following
provisions:
(a)
Each such grant or sale will constitute the agreement by the Company to deliver Common Shares or
cash, or a combination thereof, to the Participant in the future in consideration of the performance of services, but
subject to the fulfillment of such conditions (which may include achievement regarding Management Objectives)
during the Restriction Period as the Committee may specify.
(b)
Each such grant or sale may be made without additional consideration or in consideration of a
payment by such Participant that is less than the Market Value per Share on the Date of Grant.
(c)
Notwithstanding anything to the contrary contained in this Plan, Restricted Share Units may provide
for continued vesting or the earlier lapse or other modification of the Restriction Period, including in the event of the
retirement, death, disability or termination of employment or service of a Participant or in the event of a Change in
Control.
(d)
During the Restriction Period, the Participant will have no right to transfer any rights under his or her
award and will have no rights of ownership in the Common Shares deliverable upon payment of the Restricted Share
Units and will have no right to vote them, but the Committee may, at or after the Date of Grant, authorize the
payment of dividend equivalents on such Restricted Share Units on a deferred and contingent basis, either in cash or
in additional Common Shares; provided, however, that dividend equivalents or other distributions on Common
Shares underlying Restricted Share Units shall be deferred until and paid contingent upon the vesting of such
Restricted Share Units.
(e)
Each grant or sale of Restricted Share Units will specify the time and manner of payment of the
Restricted Share Units that have been earned. Each grant or sale will specify that the amount payable with respect
thereto will be paid by the Company in Common Shares or cash, or a combination thereof.
(f)
Each grant or sale of Restricted Share Units will be evidenced by an Evidence of Award. Each
Evidence of Award will be subject to this Plan and will contain such terms and provisions, consistent with this Plan, as
the Committee may approve.
Cash Incentive Awards, Performance Shares and Performance Units. The Committee may, from time to
8.
time and upon such terms and conditions as it may determine, authorize the granting of Cash Incentive Awards,
Performance Shares and Performance Units. Each such grant may utilize any or all of the authorizations, and will be
subject to all of the requirements, contained in the following provisions:
(a)
Each grant will specify the number or amount of Performance Shares or Performance Units, or
amount payable with respect to a Cash Incentive Award, to which it pertains, which number or amount may be
subject to adjustment to reflect changes in compensation or other factors.
(b)
The Performance Period with respect to each Cash Incentive Award or grant of Performance Shares
or Performance Units will be such period of time as will be determined by the Committee, which may be subject to
continued vesting or earlier lapse or other modification, including in the event of the retirement, death, disability or
termination of employment or service of a Participant or in the event of a Change in Control.
B – 7
(c)
Each grant of a Cash Incentive Award, Performance Shares or Performance Units will specify
Management Objectives regarding the earning of the award.
(d)
Each grant will specify the time and manner of payment of a Cash Incentive Award, Performance
Shares or Performance Units that have been earned.
(e)
The Committee may, on the Date of Grant of Performance Shares or Performance Units, provide for
the payment of dividend equivalents to the holder thereof either in cash or in additional Common Shares, which
dividend equivalents will be subject to deferral and payment on a contingent basis based on the Participant’s
earning and vesting of the Performance Shares or Performance Units, as applicable, with respect to which such
dividend equivalents are paid.
(f)
Each grant of a Cash Incentive Award, Performance Shares or Performance Units will be evidenced
by an Evidence of Award. Each Evidence of Award will be subject to this Plan and will contain such terms and
provisions, consistent with this Plan, as the Committee may approve.
9.
Other Awards.
(a)
Subject to applicable law and the applicable limits set forth in Section 3 of this Plan, the Committee
may authorize the grant to any Participant of Common Shares or such other awards that may be denominated or
payable in, valued in whole or in part by reference to, or otherwise based on, or related to, Common Shares or
factors that may influence the value of such shares, including, without limitation, convertible or exchangeable debt
securities, other rights convertible or exchangeable into Common Shares, purchase rights for Common Shares,
awards with value and payment contingent upon performance of the Company or specified Subsidiaries, affiliates or
other business units thereof or any other factors designated by the Committee, and awards valued by reference to
the book value of the Common Shares or the value of securities of, or the performance of specified Subsidiaries or
affiliates or other business units of the Company. The Committee will determine the terms and conditions of such
awards. Common Shares delivered pursuant to an award in the nature of a purchase right granted under this
Section 9 will be purchased for such consideration, paid for at such time, by such methods, and in such forms,
including, without limitation, Common Shares, other awards, notes or other property, as the Committee determines.
(b)
Cash awards, as an element of or supplement to any other award granted under this Plan, may also
be granted pursuant to this Section 9.
(c)
The Committee may authorize the grant of Common Shares as a bonus, or may authorize the grant
of other awards in lieu of obligations of the Company or a Subsidiary to pay cash or deliver other property under this
Plan or under other plans or compensatory arrangements, subject to such terms as will be determined by the
Committee in a manner that complies with Section 409A of the Code.
(d)
The Committee may, at or after the Date of Grant, authorize the payment of dividends or dividend
equivalents on awards granted under this Section 9 on a deferred and contingent basis, either in cash or in
additional Common Shares, based upon the earning and vesting of such awards.
(e)
Each grant of an award under this Section 9 will be evidenced by an Evidence of Award. Each such
Evidence of Award will be subject to this Plan and will contain such terms and provisions, consistent with this Plan, as
the Committee may approve, and will specify the time and terms of delivery of the applicable award.
(f)
Notwithstanding anything to the contrary contained in this Plan, awards under this Section 9 may
provide for the earning or vesting of, or earlier elimination of restrictions applicable to, such award, including in the
event of the retirement, death, disability or termination of employment or service of a Participant or in the event of a
Change in Control.
10.
Administration of this Plan.
(a)
This Plan will be administered by the Committee; provided, however, that notwithstanding anything
in this Plan to the contrary, the Board may grant awards under this Plan to non-employee Directors and administer
this Plan with respect to such awards. The Committee may from time to time delegate all or any part of its authority
under this Plan to a subcommittee thereof. To the extent of any such delegation, references in this Plan to the
Committee will be deemed to be references to such subcommittee.
B – 8
(b)
The interpretation and construction by the Committee of any provision of this Plan or of any
Evidence of Award (or related documents) and any determination by the Committee pursuant to any provision of
this Plan or of any such agreement, notification or document will be final and conclusive. No member of the
Committee shall be liable for any such action or determination made in good faith. In addition, the Committee is
authorized to take any action it determines in its sole discretion to be appropriate subject only to the express
limitations contained in this Plan, and no authorization in any Plan section or other provision of this Plan is intended
or may be deemed to constitute a limitation on the authority of the Committee.
(c)
To the extent permitted by law, the Committee may delegate to one or more of its members, to one
or more officers of the Company, or to one or more agents or advisors, such administrative duties or powers as it
may deem advisable, and the Committee, the subcommittee, or any person to whom duties or powers have been
delegated as aforesaid, may employ one or more persons to render advice with respect to any responsibility the
Committee, the subcommittee or such person may have under this Plan. The Committee may, by resolution,
authorize one or more officers of the Company to do one or both of the following on the same basis as the
Committee: (i) designate employees to be recipients of awards under this Plan; and (ii) determine the size of any
such awards; provided, however, that (A) the Committee will not delegate such responsibilities to any such officer for
awards granted to an employee who is an officer (for purposes of Section 16 of the Exchange Act), Director, or more
than 10% “beneficial owner” (as such term is defined in Rule 13d-3 promulgated under the Exchange Act) of any
class of the Company’s equity securities that is registered pursuant to Section 12 of the Exchange Act, as determined
by the Committee in accordance with Section 16 of the Exchange Act; (B) the resolution providing for such
authorization shall set forth the total number of Common Shares such officer(s) may grant; and (C) the officer(s) will
report periodically to the Committee regarding the nature and scope of the awards granted pursuant to the
authority delegated.
11.
Adjustments. The Committee shall make or provide for such adjustments in the number of and kind of
Common Shares covered by outstanding Option Rights, Appreciation Rights, Restricted Shares, Restricted Share
Units, Performance Shares and Performance Units granted hereunder and, if applicable, in the number of and kind
of Common Shares covered by other awards granted pursuant to Section 9 of this Plan, in the Option Price and
Base Price provided in outstanding Option Rights and Appreciation Rights, respectively, in Cash Incentive Awards,
and in other award terms, as the Committee, in its sole discretion, exercised in good faith, determines is equitably
required to prevent dilution or enlargement of the rights of Participants that otherwise would result from (a) any
extraordinary cash dividend, stock dividend, stock split, combination of shares, recapitalization or other change in
the capital structure of the Company, (b) any merger, consolidation, spin-off, split-off, spin-out, split-up,
reorganization, partial or complete liquidation or other distribution of assets, issuance of rights or warrants to
purchase securities, or (c) any other corporate transaction or event having an effect similar to any of the foregoing.
Moreover, in the event of any such transaction or event or in the event of a Change in Control, the Committee may
provide in substitution for any or all outstanding awards under this Plan such alternative consideration (including
cash), if any, as it, in good faith, may determine to be equitable in the circumstances and shall require in connection
therewith the surrender of all awards so replaced in a manner that complies with Section 409A of the Code. In
addition, for each Option Right or Appreciation Right with an Option Price or Base Price, respectively, greater than
the consideration offered in connection with any such transaction or event or Change in Control, the Committee may
in its discretion elect to cancel such Option Right or Appreciation Right without any payment to the person holding
such Option Right or Appreciation Right. The Committee shall also make or provide for such adjustments in the
number of Common Shares specified in Section 3 of this Plan as the Committee in its sole discretion, exercised in
good faith, determines is appropriate to reflect any transaction or event described in this Section 11; provided,
however, that any such adjustment to the Incentive Stock Option limitation specified in Section 3(c) of this Plan will
be made only if and to the extent that such adjustment would not cause any Option Right intended to qualify as an
Incentive Stock Option to fail to so qualify.
12.
Change in Control.
(a)
Definition. For purposes of this Plan, except as may be otherwise prescribed by the Committee in
an Evidence of Award made under this Plan, a “Change in Control” will be deemed to have occurred upon the
occurrence (after the Effective Date) of any of the following events:
(i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Exchange Act) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 30% or more of either: (A) the then-outstanding Common
B – 9
Shares; or (B) the combined voting power of the then-outstanding voting securities of the
Corporation entitled to vote generally in the election of directors (“Voting Shares”); provided,
however, that for purposes of this subsection (i), the following acquisitions shall not constitute a
Change in Control: (1) any acquisition directly from the Corporation; (2) any acquisition by the
Corporation; (3) any acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Corporation or any of its Subsidiaries; or (4) any acquisition by any Person
pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (iii);
(ii) Individuals who, as of the Effective Date, constitute the Board (the “Incumbent Board”) cease for
any reason (other than death or disability) to constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent to the Effective Date whose election,
or nomination for election by the Corporation’s shareholders, was approved by a vote or the
approval of at least a majority of the directors then comprising the Incumbent Board (either by a
specific vote or written action or by approval of the proxy statement of the Corporation in which
such person is named as a nominee for director, without objection to such nomination) shall be
considered as though such individual were a member of the Incumbent Board, but excluding for
this purpose, any such individual whose initial assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person other than the Board;
(iii) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or
substantially all of the assets of the Corporation (a “Business Combination”), in each case, unless,
following such Business Combination, (A) all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Common Shares and Voting Shares immediately
prior to such Business Combination beneficially own, directly or indirectly, more than 66-2/3% of,
respectively, the then-outstanding common shares and the combined voting power of the then-
outstanding voting securities entitled to vote generally in the election of directors, as the case may
be, of the entity resulting from such Business Combination (including, without limitation, an entity
which as a result of such transaction owns the Corporation or all or substantially all of the
Corporation’s assets either directly or through one or more subsidiaries) in substantially the same
proportions relative to each other as their ownership, immediately prior to such Business
Combination, of the Common Shares and Voting Shares of the Corporation, as the case may be,
(B) no Person (excluding any entity resulting from such Business Combination or any employee
benefit plan (or related trust) sponsored or maintained by the Corporation or such entity resulting
from such Business Combination) beneficially owns, directly or indirectly, 30% or more of,
respectively, the then-outstanding common shares of the entity resulting from such Business
Combination, or the combined voting power of the then-outstanding voting securities of such entity
except to the extent that such ownership existed prior to the Business Combination, and (C) at least
a majority of the members of the board of directors of the entity resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business Combination; or
(iv) Approval by the shareholders of the Corporation of a complete liquidation or dissolution of the
Corporation.
(b)
Treatment of Awards Upon a Change in Control.
(i) Unless otherwise determined by the Committee, each applicable Evidence of Award will provide
that, in the event of a Change in Control, for outstanding awards under this Plan that vest, are
earned or become exercisable (as applicable) based solely on employment, service or the passage
of time (as opposed to the achievement of one or more Management Objectives), such awards will
accelerate and vest, be earned or become exercisable, as applicable, where either (A) within a
specified period the Participant’s employment or service is involuntarily terminated for reasons
other than for cause, the Participant terminates his or her employment or service for good reason or
the Participant’s employment or service is terminated due to the Participant’s death or disability, or
(B) such awards are not assumed or converted into replacement awards in a manner described in
the Evidence of Award.
B – 10
(ii) Unless otherwise determined by the Committee, each applicable Evidence of Award will provide
that, in the event of a Change in Control, for outstanding awards under this Plan that vest, are
earned or become exercisable (as applicable) based on the achievement of one or more
Management Objectives (as opposed to only employment, service or the passage of time), such
awards will accelerate and vest, be earned or become exercisable, as applicable, based on the
greater of (A) target performance or (B) actual performance (or the Common Share price relating to
the Change in Control, if applicable) determined as of the date of the Change in Control, where
either (I) within a specified period the Participant’s employment or service is involuntarily terminated
for reasons other than for cause, the Participant terminates his or her employment or service for
good reason or the Participant’s employment or service is terminated due to the Participant’s death
or disability, or (II) such awards are not assumed or converted into replacement awards in a manner
described in the Evidence of Award.
Detrimental Activity and Recapture Provisions. Any Evidence of Award may reference a clawback
13.
policy of the Company or provide for the cancellation or forfeiture of an award or the forfeiture and repayment to the
Company of any gain related to an award, or other provisions intended to have a similar effect, upon such terms and
conditions as may be determined by the Committee from time to time, if a Participant, either (a) during employment
or other service with the Company or a Subsidiary, or (b) within a specified period after termination of such
employment or service, engages in any detrimental activity, as described in the applicable Evidence of Award or
such clawback policy. In addition, notwithstanding anything in this Plan to the contrary, any Evidence of Award or
such clawback policy may also provide for the cancellation or forfeiture of an award or the forfeiture and repayment
to the Company of any Common Shares issued under and/or any other benefit related to an award, or other
provisions intended to have a similar effect, including upon such terms and conditions as may be required by the
Committee or under Section 10D of the Exchange Act and any applicable rules or regulations promulgated by the
Securities and Exchange Commission or any national securities exchange or national securities association on which
the Common Shares may be traded.
Non-U.S. Participants. In order to facilitate the making of any grant or combination of grants under this
14.
Plan, the Committee may provide for such special terms for awards to Participants who are foreign nationals or who
are employed by the Company or any Subsidiary outside of the United States of America or who provide services to
the Company or any Subsidiary under an agreement with a foreign nation or agency, as the Committee may
consider necessary or appropriate to accommodate differences in local law, tax policy or custom. Moreover, the
Committee may approve such supplements to or amendments, restatements or alternative versions of this Plan
(including sub-plans) (to be considered part of this Plan) as it may consider necessary or appropriate for such
purposes, without thereby affecting the terms of this Plan as in effect for any other purpose, and the secretary or
other appropriate officer of the Company may certify any such document as having been approved and adopted in
the same manner as this Plan. No such special terms, supplements, amendments or restatements, however, will
include any provisions that are inconsistent with the terms of this Plan as then in effect unless this Plan could have
been amended to eliminate such inconsistency without further approval by the Shareholders.
15.
Transferability.
(a)
Except as otherwise determined by the Committee, and subject to compliance with Section 17(b)
of this Plan and Section 409A of the Code, no Option Right, Appreciation Right, Restricted Share, Restricted Share
Unit, Performance Share, Performance Unit, Cash Incentive Award, award contemplated by Section 9 of this Plan or
dividend equivalents paid with respect to awards made under this Plan will be transferable by the Participant except
by will or the laws of descent and distribution. In no event will any such award granted under this Plan be transferred
for value. Where transfer is permitted, references to “Participant” shall be construed, as the Committee deems
appropriate, to include any permitted transferee to whom such award is transferred. Except as otherwise
determined by the Committee, Option Rights and Appreciation Rights will be exercisable during the Participant’s
lifetime only by him or her or, in the event of the Participant’s legal incapacity to do so, by his or her guardian or legal
representative acting on behalf of the Participant in a fiduciary capacity under state law or court supervision.
(b)
The Committee may specify on the Date of Grant that part or all of the Common Shares that are
(i) to be issued or transferred by the Company upon the exercise of Option Rights or Appreciation Rights, upon the
termination of the Restriction Period applicable to Restricted Share Units or upon payment under any grant of
Performance Shares or Performance Units or (ii) no longer subject to the substantial risk of forfeiture and restrictions
on transfer referred to in Section 6 of this Plan, will be subject to further restrictions on transfer, including minimum
holding periods.
B – 11
Withholding Taxes. To the extent that the Company is required to withhold federal, state, local or foreign
16.
taxes or other amounts in connection with any payment made or benefit realized by a Participant or other person
under this Plan, and the amounts available to the Company for such withholding are insufficient, it will be a condition
to the receipt of such payment or the realization of such benefit that the Participant or such other person make
arrangements satisfactory to the Company for payment of the balance of such taxes or other amounts required to be
withheld, which arrangements (in the discretion of the Committee) may include relinquishment of a portion of such
benefit. If a Participant’s benefit is to be received in the form of Common Shares, and such Participant fails to make
arrangements for the payment of taxes or other amounts, then, unless otherwise determined by the Committee, the
Company will withhold Common Shares having a value equal to the amount required to be withheld.
Notwithstanding the foregoing, when a Participant is required to pay the Company an amount required to be
withheld under applicable income, employment, tax or other laws, the Participant may elect, unless otherwise
determined by the Committee, to satisfy the obligation, in whole or in part, by having withheld, from the Common
Shares required to be delivered to the Participant, Common Shares having a value equal to the amount required to
be withheld or by delivering to the Company other Common Shares held by such Participant. The Common Shares
used for tax or other withholding will be valued at an amount equal to the fair market value of such Common Shares
on the date the benefit is to be included in Participant’s income. In no event will the fair market value of the Common
Shares to be withheld and delivered pursuant to this Section 16 exceed the minimum amount required to be
withheld, unless (i) an additional amount can be withheld and not result in adverse accounting consequences,
(ii) such additional withholding amount is authorized by the Committee, and (iii) the total amount withheld does not
exceed the Participant’s estimated tax obligations attributable to the applicable transaction. Participants will also
make such arrangements as the Company may require for the payment of any withholding tax or other obligation
that may arise in connection with the disposition of Common Shares acquired upon the exercise of Option Rights.
17.
Compliance with Section 409A of the Code.
(a)
To the extent applicable, it is intended that this Plan and any grants made hereunder comply with
the provisions of Section 409A of the Code, so that the income inclusion provisions of Section 409A(a)(1) of the
Code do not apply to the Participants. This Plan and any grants made hereunder will be administered in a manner
consistent with this intent. Any reference in this Plan to Section 409A of the Code will also include any regulations or
any other formal guidance promulgated with respect to such section by the U.S. Department of the Treasury or the
Internal Revenue Service.
(b)
Neither a Participant nor any of a Participant’s creditors or beneficiaries will have the right to subject
any deferred compensation (within the meaning of Section 409A of the Code) payable under this Plan and grants
hereunder to any anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or
garnishment. Except as permitted under Section 409A of the Code, any deferred compensation (within the meaning
of Section 409A of the Code) payable to a Participant or for a Participant’s benefit under this Plan and grants
hereunder may not be reduced by, or offset against, any amount owed by a Participant to the Company or any of its
Subsidiaries.
(c)
If, at the time of a Participant’s separation from service (within the meaning of Section 409A of the
Code), (i) the Participant will be a specified employee (within the meaning of Section 409A of the Code and using
the identification methodology selected by the Company from time to time) and (ii) the Company makes a good
faith determination that an amount payable hereunder constitutes deferred compensation (within the meaning of
Section 409A of the Code) the payment of which is required to be delayed pursuant to the six-month delay rule set
forth in Section 409A of the Code in order to avoid taxes or penalties under Section 409A of the Code, then the
Company will not pay such amount on the otherwise scheduled payment date but will instead pay it, without
interest, on the tenth business day of the seventh month after such separation from service.
(d)
Solely with respect to any award that constitutes nonqualified deferred compensation subject to
Section 409A of the Code and that is payable on account of a Change in Control (including any installments or
stream of payments that are accelerated on account of a Change in Control), a Change in Control shall occur only if
such event also constitutes a “change in the ownership,” “change in effective control,” and/or a “change in the
ownership of a substantial portion of assets” of the Company as those terms are defined under Treasury Regulation
§1.409A-3(i)(5), but only to the extent necessary to establish a time and form of payment that complies with
Section 409A of the Code, without altering the definition of Change in Control for any purpose in respect of such
award.
B – 12
(e)
Notwithstanding any provision of this Plan and grants hereunder to the contrary, in light of the
uncertainty with respect to the proper application of Section 409A of the Code, the Company reserves the right to
make amendments to this Plan and grants hereunder as the Company deems necessary or desirable to avoid the
imposition of taxes or penalties under Section 409A of the Code. In any case, a Participant will be solely responsible
and liable for the satisfaction of all taxes and penalties that may be imposed on a Participant or for a Participant’s
account in connection with this Plan and grants hereunder (including any taxes and penalties under Section 409A of
the Code), and neither the Company nor any of its affiliates will have any obligation to indemnify or otherwise hold a
Participant harmless from any or all of such taxes or penalties.
18.
Amendments.
(a)
The Board may at any time and from time to time amend this Plan in whole or in part; provided,
however, that if an amendment to this Plan, for purposes of applicable stock exchange rules and except as permitted
under Section 11 of this Plan, (i) would materially increase the benefits accruing to Participants under this Plan,
(ii) would materially increase the number of securities which may be issued under this Plan, (iii) would materially
modify the requirements for participation in this Plan, or (iv) must otherwise be approved by the Shareholders in
order to comply with applicable law or the rules of the New York Stock Exchange or, if the Common Shares are not
traded on the New York Stock Exchange, the principal national securities exchange upon which the Common Shares
are traded or quoted, all as determined by the Board, then, such amendment will be subject to Shareholder
approval and will not be effective unless and until such approval has been obtained.
(b)
Except in connection with a corporate transaction or event described in Section 11 of this Plan or in
connection with a Change in Control, the terms of outstanding awards may not be amended to reduce the Option
Price of outstanding Option Rights or the Base Price of outstanding Appreciation Rights, or cancel outstanding
“underwater” Option Rights or Appreciation Rights (including following a Participant’s voluntary surrender of
“underwater” Option Rights or Appreciation Rights) in exchange for cash, other awards or Option Rights or
Appreciation Rights with an Option Price or Base Price, as applicable, that is less than the Option Price of the original
Option Rights or Base Price of the original Appreciation Rights, as applicable, without Shareholder approval. This
Section 18(b) is intended to prohibit the repricing of “underwater” Option Rights and Appreciation Rights and will
not be construed to prohibit the adjustments provided for in Section 11 of this Plan. Notwithstanding any provision
of this Plan to the contrary, this Section 18(b) may not be amended without approval by the Shareholders.
(c)
If permitted by Section 409A of the Code, but subject to the paragraph that follows, including in the
case of termination of employment or service, or in the case of unforeseeable emergency or other circumstances or
in the event of a Change in Control, to the extent a Participant holds an Option Right or Appreciation Right not
immediately exercisable in full, or any Restricted Shares as to which the substantial risk of forfeiture or the prohibition
or restriction on transfer has not lapsed, or any Restricted Share Units as to which the Restriction Period has not been
completed, or any Cash Incentive Awards, Performance Shares or Performance Units which have not been fully
earned, or any dividend equivalents or other awards made pursuant to Section 9 of this Plan subject to any vesting
schedule or transfer restriction, or who holds Common Shares subject to any transfer restriction imposed pursuant to
Section 15(b) of this Plan, the Committee may, in its sole discretion, provide for continued vesting or accelerate the
time at which such Option Right, Appreciation Right or other award may vest or be exercised or the time at which
such substantial risk of forfeiture or prohibition or restriction on transfer will lapse or the time when such Restriction
Period will end or the time at which such Cash Incentive Awards, Performance Shares or Performance Units will be
deemed to have been earned or the time when such transfer restriction will terminate or may waive any other
limitation or requirement under any such award.
(d)
Subject to Section 18(b) of this Plan, the Committee may amend the terms of any award
theretofore granted under this Plan prospectively or retroactively. Except for adjustments made pursuant to
Section 11 of this Plan, no such amendment will materially impair the rights of any Participant without his or her
consent. The Board may, in its discretion, terminate this Plan at any time. Termination of this Plan will not affect the
rights of Participants or their successors under any awards outstanding hereunder and not exercised in full on the
date of termination.
19.
construed in accordance with the internal substantive laws of the State of Ohio.
Governing Law. This Plan and all grants and awards and actions taken hereunder will be governed by and
20.
or after the Effective Date under the Predecessor Plan, provided that outstanding awards granted under the
Effective Date/Termination. This Plan will be effective as of the Effective Date. No grants will be made on
B – 13
Predecessor Plan will continue unaffected following the Effective Date. No grant will be made under this Plan on or
after the tenth anniversary of the Effective Date, but all grants made prior to such date will continue in effect
thereafter subject to the terms thereof and of this Plan. For clarification purposes, the terms and conditions of this
Plan shall not apply to or otherwise impact previously granted and outstanding awards under the Predecessor Plan,
as applicable.
21.
Miscellaneous Provisions.
(a)
The Company will not be required to issue any fractional Common Shares pursuant to this Plan. The
Committee may provide for the elimination of fractions or for the settlement of fractions in cash.
(b)
This Plan will not confer upon any Participant any right with respect to continuance of employment
or other service with the Company or any Subsidiary, nor will it interfere in any way with any right the Company or
any Subsidiary would otherwise have to terminate such Participant’s employment or other service at any time.
(c)
Except with respect to Section 21(e) of this Plan, to the extent that any provision of this Plan would
prevent any Option Right that was intended to qualify as an Incentive Stock Option from qualifying as such, that
provision will be null and void with respect to such Option Right. Such provision, however, will remain in effect for
other Option Rights and there will be no further effect on any provision of this Plan.
(d)
No award under this Plan may be exercised by the holder thereof if such exercise, and the receipt of
cash or shares thereunder, would be, in the opinion of counsel selected by the Company, contrary to law or the
regulations of any duly constituted authority having jurisdiction over this Plan.
(e)
Absence on leave approved by a duly constituted officer of the Company or any of its Subsidiaries
will not be considered interruption or termination of service of any employee for any purposes of this Plan or awards
granted hereunder.
(f)
No Participant will have any rights as a Shareholder with respect to any Common Shares subject to
awards granted to him or her under this Plan prior to the date as of which he or she is actually recorded as the holder
of such Common Shares upon the share records of the Company.
(g)
The Committee may condition the grant of any award or combination of awards authorized under
this Plan on the surrender or deferral by the Participant of his or her right to receive a cash bonus or other
compensation otherwise payable by the Company or a Subsidiary to the Participant.
(h)
Except with respect to Option Rights and Appreciation Rights, the Committee may permit
Participants to elect to defer the issuance of Common Shares under this Plan pursuant to such rules, procedures or
programs as it may establish for purposes of this Plan and which are intended to comply with the requirements of
Section 409A of the Code. The Committee also may provide that deferred issuances and settlements include the
crediting of dividend equivalents or interest on the deferral amounts.
(i)
If any provision of this Plan is or becomes invalid or unenforceable in any jurisdiction, or would
disqualify this Plan or any award under any law deemed applicable by the Committee, such provision will be
construed or deemed amended or limited in scope to conform to applicable laws or, in the discretion of the
Committee, it will be stricken and the remainder of this Plan will remain in full force and effect. Notwithstanding
anything in this Plan or an Evidence of Award to the contrary, nothing in this Plan or in an Evidence of Award
prevents a Participant from providing, without prior notice to the Company, information to governmental authorities
regarding possible legal violations or otherwise testifying or participating in any investigation or proceeding by any
governmental authorities regarding possible legal violations, and for purpose of clarity a Participant is not prohibited
from providing information voluntarily to the Securities and Exchange Commission pursuant to Section 21F of the
Exchange Act.
22.
anything in this Plan to the contrary:
Share-Based Awards in Substitution for Awards Granted by Another Company. Notwithstanding
(a)
Awards may be granted under this Plan in substitution for or in conversion of, or in connection with
an assumption of, stock options, stock appreciation rights, restricted shares, restricted share units or other share or
share-based awards held by awardees of an entity engaging in a corporate acquisition or merger transaction with
B – 14
the Company or any Subsidiary. Any conversion, substitution or assumption will be effective as of the close of the
merger or acquisition, and, to the extent applicable, will be conducted in a manner that complies with Section 409A
of the Code. The awards so granted may reflect the original terms of the awards being assumed or substituted or
converted for and need not comply with other specific terms of this Plan, and may account for Common Shares
substituted for the securities covered by the original awards and the number of shares subject to the original awards,
as well as any exercise or purchase prices applicable to the original awards, adjusted to account for differences in
stock prices in connection with the transaction.
(b)
In the event that a company acquired by the Company or any Subsidiary or with which the
Company or any Subsidiary merges has shares available under a pre-existing plan previously approved by
shareholders and not adopted in contemplation of such acquisition or merger, the shares available for grant
pursuant to the terms of such plan (as adjusted, to the extent appropriate, to reflect such acquisition or merger) may
be used for awards made after such acquisition or merger under this Plan; provided, however, that awards using
such available shares may not be made after the date awards or grants could have been made under the terms of
the pre-existing plan absent the acquisition or merger, and may only be made to individuals who were not
employees or directors of the Company or any Subsidiary prior to such acquisition or merger.
(c)
Any Common Shares that are issued or transferred by, or that are subject to any awards that are
granted by, or become obligations of, the Company under Sections 22(a) or 22(b) of this Plan will not reduce the
Common Shares available for issuance or transfer under this Plan or otherwise count against the limits contained in
Section 3 of this Plan. In addition, no Common Shares subject to an award that is granted by, or becomes an
obligation of, the Company under Sections 22(a) or 22(b) of this Plan, will be added to the aggregate limit
contained in Section 3(a)(i) of this Plan.
B – 15
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
È Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2019 OR
‘ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from
to
Commission file number: 1-36313
TIMKENSTEEL CORPORATION
(Exact name of registrant as specified in its charter)
Ohio
(State or other jurisdiction of incorporation or organization)
1835 Dueber Avenue SW, Canton, OH
(Address of principal executive offices)
46-4024951
(I.R.S. Employer Identification No.)
44706
(Zip Code)
Title of each class
Common shares
330.471.7000 (Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Trading symbol
Name of exchange in which registered
TMST
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ‘ No È
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Exchange Act. Yes ‘ No È
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes È No ‘
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be
submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this Chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit such files). Yes È No ‘
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer
or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
‘
‘
Accelerated filer
Smaller reporting company
Emerging growth company
È
‘
‘
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial reporting accounting standards provided pursuant
to Section 13(a) of the Exchange Act. ‘
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes ‘ No È
As of June 30, 2019, the aggregate market value of the registrant’s common stock held by non-affiliates was
$337,525,844 based on the closing sale price as reported on the New York Stock Exchange for that date.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable
date.
Class
Outstanding at February 15, 2020
Common Shares, without par value
44,821,588
DOCUMENTS INCORPORATED BY REFERENCE
Document
Parts Into Which Incorporated
Proxy Statement for the 2020 Annual Meeting of
Shareholders
Part III
[THIS PAGE INTENTIONALLY LEFT BLANK]
TimkenSteel Corporation
Table of Contents
Part I.
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4A.
Part II.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Part III.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Part IV.
Item 15.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Executive Officers of the Registrant
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
Signatures
Page
2
7
18
18
19
19
21
23
24
40
41
86
86
86
87
87
87
88
88
89
93
Part I.
Item 1. Business
Overview
TimkenSteel Corporation (we, us, our, the Company or TimkenSteel) was incorporated in Ohio on
October 24, 2013, and became an independent, publicly traded company as the result of a spinoff
from The Timken Company (Timken) on June 30, 2014. In the spinoff, Timken transferred to us all of
the assets and generally all of the liabilities related to Timken’s steel business.
We manufacture alloy steel, as well as carbon and micro-alloy steel, with an annual melt capacity of
approximately 2 million tons and shipment capacity of 1.5 million tons. Our portfolio includes
special bar quality (SBQ) bars, seamless mechanical tubing (tubes), value-added solutions such as
precision steel components, and billets. In addition, we supply machining and thermal treatment
services, and we manage raw material recycling programs, which are used as a feeder system for
our melt operations. Our products and services are used in a diverse range of demanding
applications in the following market sectors: automotive; oil and gas; industrial equipment; mining;
construction; rail; defense; heavy truck; agriculture; power generation; and oil country tubular
goods (OCTG).
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 custom steel products. We focus on creating tailored products
and services for our customers’ most demanding applications. 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 value-added solutions production processes take place at three downstream manufacturing
facilities: TimkenSteel Material Services (Houston, Texas), 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.
In the fourth quarter of 2019, our Board of Directors approved a plan to close our TimkenSteel
Material Services facility during the first quarter of 2020. See “Note 6 - Disposition of Non-Core
Assets” in the Notes to the Consolidated Financial Statements for additional information.
Operating Segments
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 Chief Operating Decision Maker
(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.
2
Industry Segments and Geographical Financial Information
Information required by this Item is incorporated herein by reference to “Note 3 - Segment
Information” in the Notes to the Consolidated Financial Statements.
Strengths and Strategy
Our customers depend on us to be the leader in solving their industries’ constantly evolving
challenges. Our team, including engineers and experienced manufacturing professionals in both
materials and applications, works closely with customers to deliver flexible solutions related to our
products as well as our customers’ applications and supply chains.
The TimkenSteel business model delivers these tailored solutions based on the following
foundation:
• Deep and experienced management and technical team.
• Close and trusted working relationship with customers across diverse end markets.
•
•
Leadership position in niche markets with differentiated products.
Track record of innovation rooted in a deep technical knowledge of steel materials,
manufacturing processes and a focus on end-user applications. Our research and
development efforts focus on creating solutions for our customers’ toughest challenges.
Major Customers
We sell products and services that are used in a range of demanding applications around the world.
We have over 400 diverse customers in the following market sectors: automotive; oil and gas;
industrial equipment; mining; construction; rail; defense; heavy truck; agriculture; power
generation; and OCTG.
Products
We believe we produce some of the cleanest, highest performing alloy air-melted steels in the world
for our customers’ most demanding applications. We leverage our technical knowledge,
development expertise and production and engineering capabilities across all of our products and
end-markets to deliver high-performance products to our customers.
SBQ Steel Bar, Seamless Mechanical Steel Tubes, and Billets. Our focus is on alloy steel, although
in total we manufacture more than 700 grades of high-performance carbon, micro-alloy and alloy
steel, sold as ingots, bars, tubes and billets. These products are custom-made in a variety of
chemistries, lengths and finishes. Our metallurgical expertise and what we believe to be unique
operational capabilities drive high-value solutions for industrial, energy and mobile customers. Our
specialty steels are featured in a wide variety of end products including: gears; hubs; axles;
crankshafts and connecting rods; oil country drill pipe; bits and collars; bearing races and rolling
elements; bushings; fuel injectors; wind energy shafts; anti-friction bearings; and other demanding
applications where mechanical power transmission is critical to the end customer.
Value-added Precision Products and Services. In addition to our customized steels, we also
custom-make precision components that provide us with the opportunity to further expand our
market for bar and tube products and capture additional sales. These products provide customers,
especially those in the automotive industry, with ready-to-finish components that simplify vendor
management, streamline supply chains and often cost less than other alternatives. We also
customize products and services for the industrial and energy market sectors.
3
Sales and Distribution
Our sales force is made up largely of engineers that are backed by a team of metallurgists and other
technical experts. While most of our products are sold directly to original equipment (OE)
manufacturers, a portion of our sales are made through authorized distributors and steel service
centers, representing approximately 19% of net sales during 2019. The majority of our customers
are served through individually negotiated price agreements.
Competition
The steel industry, both domestically and globally, is highly competitive and is expected to remain
so. Maintaining high standards of product quality and reliability, while keeping production costs
competitive, is essential to our ability to compete with domestic and foreign manufacturers of alloy
steel and mechanical components. For bar products less than 6-inch in diameter, principal
competitors include foreign-owned domestic producers Gerdau Special Steel North America (a unit
of Brazilian steelmaker Gerdau, S.A.) and Republic Steel (a unit of Mexican steel producer ICH). For
bar products up to 9-inch in diameter, domestic producers Steel Dynamics, Inc. and Nucor
Corporation (in some cases up to 10-inch) are our principal competitors. For very large bars from 10
to 16 inches in diameter, offshore producers as well as specialty forging companies in North
America such as Scot Forge and Finkl Steel - Sorel are the primary competitors. For seamless
mechanical tubing, offshore producers such as Tenaris, S.A., Vallourec, S.A. and TMK Group are our
primary competitors as well as the foreign-owned domestic producer ArcelorMittal Tubular
Products (a unit of Luxembourg-based ArcelorMittal, S.A.). We also provide unique value-added
steel products and supply chain solutions to our customers in the automotive, industrial and energy
sectors. Competitors within the value-added market sector include both integrated and
non-integrated component producers.
Backlog
The backlog of orders for our operations is estimated to have been approximately 198,000 and
314,000 tons at December 31, 2019 and 2018, respectively.
Virtually our entire backlog at December 31, 2019 is scheduled for delivery in the succeeding
12 months. Actual shipments depend upon customers’ production schedules and may not be a
meaningful indicator of future sales. Accordingly, we do not believe our backlog data, or
comparisons thereof as of different dates, reliably indicate future sales or shipments.
Raw Materials
The principal raw materials that we use to manufacture steel are recycled scrap metal, chrome,
nickel, molybdenum oxide, vanadium and other alloy materials. Raw materials comprise a significant
portion of the steelmaking cost structure and are subject to price and availability changes due to
global demand fluctuations and local supply limitations. Proper selection and management of raw
materials can have a significant impact on procurement cost, flexibility to supply changes,
steelmaking energy costs and mill productivity. In addition to accessing scrap and alloys through the
open market, we have established a scrap return supply chain with many of our customers. This part
of our business leverages our knowledge of the raw material supply industry and an extensive
network of relationships that result in steady, reliable supply from our raw material sources. We
previously operated a scrap processing facility as an additional source of raw materials; however,
during the fourth quarter of 2019 we marketed and subsequently entered into an agreement to
dispose of the assets associated with the operation. The disposal was completed in January 2020.
See “Note 6 - Disposition of Non-Core Assets” in the Notes to the Consolidated Financial Statements
for additional information.
4
Research and Development
Our engineers analyze customer application challenges and develop solutions to address the
customers’ needs. With a century of experience in materials science and steelmaking, we leverage
our technical know-how to improve the performance of our customers’ products and supply chains.
This expertise extends to advanced process technology in which material conversion, finishing,
gaging and assembly enables high quality production of our products. With resources dedicated to
studying, developing and implementing new manufacturing processes and technologies, we are
able to support our customers’ requirements.
Our research and development expense for the years ended December 31, 2019, 2018 and 2017
were $4.1 million, $8.1 million and $8.0 million, respectively.
Environmental Matters
We consider compliance with environmental regulations and environmental sustainability a key
strategic focus area and integral to our responsibility as a good corporate citizen. All of our
domestic steel making and processing operations and our water treatment plant have obtained and
maintain ISO 14001 certification.
We believe we have established appropriate reserves to cover our environmental expenses. We
have a well-established environmental compliance audit program that measures performance
against applicable laws as well as against internal standards that have been established for all
facilities. It is difficult to assess the possible effect of compliance with future requirements that differ
from existing ones both domestically and internationally. As previously reported, we are unsure of
the future financial impact to us from the U.S. Environmental Protection Agency’s (EPA) rule changes
related to the Clean Air Act (CAA), Clean Water Act (CWA), waste and other environmental rules and
regulations.
We and certain of our subsidiaries located in the U.S. have been identified as potentially responsible
parties under the Toxic Substances Control Act (TSCA), Resource Conservation and Recovery Act
(RCRA), CAA and CWA, as well as other laws. In general, certain cost allocations for investigation
and remediation have been asserted by us against other entities, which are believed to be
financially solvent and are expected to substantially fulfill their proportionate share of any
obligations.
From time to time, we may be a party to lawsuits, claims or other proceedings related to
environmental matters and/or receive notices of potential violations of environmental laws and
regulations from the EPA and similar state or local authorities. As of December 31, 2019 and 2018,
we recorded reserves for such environmental matters of $1.2 million and $0.8 million, respectively.
Accruals related to such environmental matters represent management’s best estimate of the fees
and costs associated with these matters. Although it is not possible to predict with certainty the
outcome of such matters, management believes the ultimate disposition of these matters should not
have a material adverse effect on our consolidated financial position, results of operations or cash
flows.
Legal Proceedings
We are involved in various claims and legal actions arising in the ordinary course of business. In the
opinion of our management, the ultimate disposition of these matters will not have a material
adverse effect on our consolidated financial position, results of operations or cash flows.
5
Canton, Ohio U.S. EPA Notice of Violation
The EPA issued two related Notices of Violation (NOV) to TimkenSteel on August 5, 2014 and
November 2, 2015. The EPA alleges violations under the CAA based on purported violations of
permitted emission limits and engineering requirements at TimkenSteel’s Faircrest and Harrison
facilities in Canton, Ohio. TimkenSteel disputes many of EPA’s allegations but is working
cooperatively with the EPA and the U.S. Department of Justice to resolve the government’s claims.
Negotiations to resolve the NOVs are ongoing, but it is not anticipated that the ultimate resolution
of the NOVs will have a material adverse effect on our consolidated financial position, results of
operations or cash flows. For additional information, please refer to “Note 18 - Contingencies” in the
Notes to the Consolidated Financial Statements.
Patents, Trademarks and Licenses
While we own a number of U.S. and foreign patents, trademarks, licenses and copyrights, none are
material to our products and production processes.
Employment
At December 31, 2019, we had approximately 2,500 employees, with about 58% of our employees
covered under one of two collective bargaining agreements that expire in September 2021 and
December 2022. The collective bargaining agreement that expires in September 2021 covers
approximately 57% of our employees. The collective bargaining agreement expiring in December
2022 related to the scrap processing facility that was disposed of in January 2020.
Available Information
We use our Investor Relations website at http://investors.timkensteel.com, as a channel for routine
distribution of important information, including news releases, analyst presentations and financial
information. We post filings (including our annual, quarterly and current reports on Forms 10-K,
10-Q and 8-K, respectively; our proxy statements; and any amendments to those reports or
statements) as soon as reasonably practicable after they are electronically filed with, or furnished to,
the Securities and Exchange Commission (SEC). All such postings and filings are available on our
website free of charge. In addition, our website allows investors and other interested persons to sign
up to automatically receive e-mail alerts when we post news releases and financial information on
our website. The SEC also maintains a website, www.sec.gov, which contains reports, proxy and
information statements and other information regarding issuers that file electronically with the SEC.
The content on any website referred to in this Annual Report on Form 10-K is not incorporated by
reference into this Annual Report unless expressly noted.
6
Item 1A. Risk Factors
The following are certain risk factors that could affect our business, financial condition and results of
operations. The risks that are highlighted below are not the only ones we face. You should carefully
consider each of the following risks and all of the other information contained in this Annual Report
on Form 10-K. Some of these risks relate principally to our business and the industry in which we
operate, while others relate principally to our debt, the securities markets in general, ownership of
our common shares and our spinoff from The Timken Company. If any of the following risks actually
occur, our business, financial condition or results of operations could be negatively affected.
Risks Relating to Our Industry and Our Business
Competition in the steel industry, together with potential global overcapacity, could result in
significant pricing pressure for our products.
Competition within the steel industry, both domestically and worldwide, is intense and is expected
to remain so. The steel industry has historically been characterized by periods of excess global
capacity and supply. Excess global capacity and supply has negatively affected and could continue
to negatively affect domestic steel prices, which could adversely impact our results of operations
and financial condition. High levels of steel imports into the U.S. could exacerbate a decrease in
domestic steel prices.
In an effort to protect the domestic steel industry, the United States government implemented tariffs,
duties and quotas for certain steel products imported from a number of countries into the United
States. If these tariffs, duties and quotas expire or are repealed, it could result in substantial imports
of foreign steel and create pressure on United States steel prices and the overall industry. This could
have a material adverse effect on our operations.
Any change in the operation of our raw material surcharge mechanisms, a raw material market
index or the availability or cost of raw materials and energy resources could materially affect
our revenues, earnings, and cash flows.
We require substantial amounts of raw materials, including scrap metal and alloys, electricity and
natural gas, to operate our business. Many of our customer agreements contain surcharge pricing
provisions that are designed to enable us to recover raw material cost increases. The surcharges are
generally tied to a market index for that specific raw material. Historically, many raw material market
indices have reflected significant fluctuations. Any change in a raw material market index could
materially affect our revenues. Any change in the relationship between the market indices and our
underlying costs could materially affect our earnings.
We rely on third parties to supply certain raw materials that are critical to the manufacture of our
products. Purchase prices and availability of these critical raw materials are subject to volatility. At
any given time we may be unable to obtain an adequate supply of these critical raw materials on a
timely basis, on acceptable price and other terms, or at all. If suppliers increase the price of critical
raw materials, we may not have alternative sources of supply. In addition, to the extent we have
quoted prices to customers and accepted customer orders or entered into agreements for products
prior to purchasing necessary raw materials, we may be unable to raise the price of products to
cover all or part of the increased cost of the raw materials.
The cost and availability of electricity and natural gas are also subject to volatile market
conditions.
Steel producers like us consume large amounts of energy. We rely on third parties for the supply of
energy resources we consume in our steelmaking activities. The prices for and availability of
7
electricity, natural gas, oil and other energy resources are also subject to volatile market conditions,
often affected by weather conditions as well as political and economic factors beyond our control.
Any increase in the prices for electricity, natural gas, oil and other energy resources could materially
affect our costs and therefore our earnings and cash flows.
As a large consumer of electricity and gas, we must have dependable delivery in order to operate.
Accordingly, we are at risk in the event of an energy disruption. Prolonged black-outs or brown-outs
or disruptions caused by natural disasters or governmental action would substantially disrupt our
production.
Moreover, many of our finished steel products are delivered by truck. Unforeseen fluctuations in the
price of fuel would also have a negative impact on our costs or on the costs of many of our
customers.
In addition, changes in certain environmental laws and regulations, including those that may impose
output limitations or higher costs associated with climate change or greenhouse gas emissions,
could substantially increase the cost of manufacturing and raw materials, such as energy, to us and
other U.S. steel producers.
Our operating results depend in part on continued successful research, development and
marketing of new and/or improved products and services, and there can be no assurance that
we will continue to successfully introduce new products and services.
The success of new and improved products and services depends on their initial and continued
acceptance by our customers. Our business is affected, to varying degrees, by technological change
and corresponding shifts in customer demand, which could result in unpredictable product
transitions or shortened life cycles. We may experience difficulties or delays in the research,
development, production, or marketing of new products and services that may prevent us from
recouping or realizing a return on the investments required to bring new products and services to
market.
New technologies in the steel industry may: (a) improve cost competitiveness; (b) increase
production capabilities; or (c) improve operational efficiency compared to our current production
methods. However, we may not have sufficient capital to invest in such technologies or to make
certain capital improvements, and may, from time to time, incur cost over-runs and difficulties
adapting and fully integrating these technologies or capital improvements into our existing
operations. We may also encounter control or production restrictions, or not realize the cost benefit
from such capital-intensive technology adaptations or capital improvements to our current
production processes.
Our business is capital-intensive, and if there are downturns in the industries we serve, we may
be forced to significantly curtail or suspend operations with respect to those industries, which
could result in our recording asset impairment charges or taking other measures that may
adversely affect our results of operations and profitability.
Our business operations are capital-intensive. If there are downturns in the industries we serve, we
may be forced to significantly curtail or suspend our operations with respect to those industries,
including laying-off employees, recording asset impairment charges and other measures. In
addition, we may not realize the benefits or expected returns from announced plans, programs,
initiatives and capital investments. Any of these events could adversely affect our results of
operations and profitability.
8
We are dependent on our key customers.
As a result of our dependence on our key customers, we could experience a material adverse effect
on our business, financial condition and results of operations if any of the following, among other
things, were to occur: (a) a loss of any key customer, or a material amount of business from such key
customer; (b) the insolvency or bankruptcy of any key customer; (c) a declining market in which
customers reduce orders; or (d) a strike or work stoppage at a key customer facility, which could
affect both its suppliers and customers. For the year ended December 31, 2019, sales to our 10
largest customers accounted for approximately 42% of our net sales. Additionally, customers
continue to demand stronger and lighter products, among other adaptations to traditional
products. We may not be successful in meeting these technological challenges and there may be
increased liability exposure connected with the supply of additional products and services.
Weakness in global economic conditions or in any of the industries or geographic regions in
which we or our customers operate, as well as the cyclical nature of our customers’ businesses
generally or sustained uncertainty in financial markets, could adversely impact our revenues
and profitability by reducing demand and margins.
Our results of operations may be materially affected by conditions in the global economy generally
and in global capital markets. There has been volatility in the capital markets and in the end markets
and geographic regions in which we or our customers operate, which has negatively affected our
revenues. Many of the markets in which our customers participate are also cyclical in nature and
experience significant fluctuations in demand for our steel products based on economic conditions,
consumer demand, raw material and energy costs, and government actions, and many of these
factors are beyond our control.
A decline in consumer and business confidence and spending, together with severe reductions in
the availability and increased cost of credit, as well as volatility in the capital and credit markets,
could adversely affect the business and economic environment in which we operate and the
profitability of our business. We also are exposed to risks associated with the creditworthiness of our
suppliers and customers. If the availability of credit to fund or support the continuation and
expansion of our customers’ business operations is curtailed or if the cost of that credit is increased,
the resulting inability of our customers or of their customers to either access credit or absorb the
increased cost of that credit could adversely affect our business by reducing our sales or by
increasing our exposure to losses from uncollectible customer accounts. These conditions and a
disruption of the credit markets could also result in financial instability of some of our suppliers and
customers. The consequences of such adverse effects could include the interruption of production
at the facilities of our customers, the reduction, delay or cancellation of customer orders, delays or
interruptions of the supply of raw materials or other inputs we purchase, and bankruptcy of
customers, suppliers or other creditors. Any of these events could adversely affect our profitability,
cash flow and financial condition.
Our capital resources may not be adequate to provide for all of our cash requirements, and we
are exposed to risks associated with financial, credit, capital and banking markets.
In the ordinary course of business, we will seek to access competitive financial, credit, capital and/or
banking markets. Currently, we believe we have adequate capital available to meet our reasonably
anticipated business needs based on our historic financial performance, as well as our expected
financial position. However, if we need to obtain additional financing in the future, to the extent our
access to competitive financial, credit, capital and/or banking markets was to be impaired, our
operations, financial results and cash flows could be adversely impacted.
9
We have significant retiree health care and pension plan costs, which may negatively affect our
results of operations and cash flows.
We maintain retiree health care and defined benefit pension plans covering many of our domestic
employees and former employees upon their retirement. These benefit plans have significant
liabilities that are not fully funded, which will require additional cash funding in future years.
Minimum contributions to domestic qualified pension plans are regulated under the Employee
Retirement Income Security Act of 1974 (ERISA) and the Pension Protection Act of 2006 (PPA).
The level of cash funding for our defined benefit pension plans in future years depends upon
various factors, including voluntary contributions that we may make, future pension plan asset
performance, actual interest rates, union negotiated benefit changes, future government
regulations, and other factors, many of which are not within our control. In addition, assets held by
the trusts for our pension plan and our trust for retiree health care and life insurance benefits are
subject to the risks, uncertainties and variability of the financial markets. See “Note 15 - Retirement
and Postretirement Plans” in the Notes to the Consolidated Financial Statements for a discussion of
assumptions and further information associated with these benefit plans.
Product liability, warranty and product quality claims could adversely affect our operating
results.
We produce high-performance carbon and alloy steel, sold as ingots, bars, tubes and billets in a
variety of chemistries, lengths and finishes designed for our customers’ demanding applications.
Failure of the materials that are included in our customers’ applications could give rise to product
liability or warranty claims. There can be no assurance that our insurance coverage will be adequate
or continue to be available on terms acceptable to us. If we fail to meet a customer’s specifications
for its products, we may be subject to product quality costs and claims. A successful warranty or
product liability claim against us could have a material adverse effect on our earnings.
We may incur restructuring and impairment charges that could materially affect our
profitability.
Changes in business or economic conditions, or our business strategy, may result in actions that
require us to incur restructuring and impairment charges in the future, which could have a material
adverse effect on our earnings. For additional information on current restructuring and impairment
charges, refer to “Note 5 - Restructuring Charges” and “Note 6 - Disposition of Non-Core Assets” in
the Notes to Consolidated Financial Statements.
If our internal controls are found to be ineffective, our financial results or our stock price may
be adversely affected.
Our most recent evaluation resulted in our conclusion that, as of December 31, 2019, our internal
control over financial reporting was effective. We believe that we currently have adequate internal
control procedures in place for future periods. However, if our internal control over financial
reporting is found to be ineffective, investors may lose confidence in the reliability of our financial
statements, which may adversely affect our stock price.
We are subject to extensive environmental, health and safety laws and regulations, which
impose substantial costs and limitations on our operations, and environmental, health and
safety compliance and liabilities may be more costly than we expect.
We are subject to extensive federal, state, and local environmental, health and safety laws and
regulations concerning matters such as worker health and safety, air emissions, wastewater
discharges, hazardous material and solid and hazardous waste use, generation, handling, treatment
10
and disposal and the investigation and remediation of contamination. We are subject to the risk of
substantial liability and limitations on our operations due to such laws and regulations. The risks of
substantial costs and liabilities related to compliance with these laws and regulations, which tend to
become more stringent over time, are an inherent part of our business, and future conditions may
develop, arise or be discovered that create substantial environmental compliance or remediation or
other liabilities and costs.
Compliance with environmental, health and safety legislation and regulatory requirements may
prove to be more limiting and costly than we anticipate. To date, we have committed significant
expenditures in our efforts to achieve and maintain compliance with these requirements, and we
expect that we will continue to make significant expenditures related to such compliance in the
future. From time to time, we may be subject to legal proceedings brought by private parties or
governmental authorities with respect to environmental matters, including matters involving alleged
contamination, property damage or personal injury. New laws and regulations, including those that
may relate to emissions of greenhouse gases, stricter enforcement of existing laws and regulations,
the discovery of previously unknown contamination or the imposition of new clean-up requirements,
could require us to incur costs or become the basis for new or increased liabilities that could have a
material adverse effect on our business, financial condition or results of operations.
From both a medium- and long-term perspective, we are likely to see an increase in costs relating to
our assets that emit relatively significant amounts of greenhouse gases as a result of new and
existing legal and regulatory initiatives. These initiatives will be either voluntary or mandatory and
may impact our operations directly or through our suppliers or customers. Until the timing, scope
and extent of any future legal and regulatory initiatives become known, we cannot predict the effect
on our business, financial condition or results of operations.
Unexpected equipment failures or other disruptions of our operations may increase our costs
and reduce our sales and earnings due to production curtailments or shutdowns.
Interruptions in production capabilities would likely increase our production costs and reduce sales
and earnings for the affected period. In addition to equipment failures, our facilities and information
technology systems are also subject to the risk of catastrophic loss due to unanticipated events such
as fires, explosions or violent weather conditions. Our manufacturing processes are dependent
upon critical pieces of equipment for which there may be only limited or no production alternatives,
such as furnaces, continuous casters and rolling equipment, as well as electrical equipment, such as
transformers, and this equipment may, on occasion, be out of service as a result of unanticipated
failures. In the future, we may experience material plant shutdowns or periods of reduced
production as a result of these types of equipment failures, which could cause us to lose or prevent
us from taking advantage of various business opportunities or prevent us from responding to
competitive pressures.
A significant portion of our manufacturing facilities are located in Stark County, Ohio, which
increases the risk of a significant disruption to our business as a result of unforeseeable
developments in this geographic area.
It is possible that we could experience prolonged periods of reduced production due to unforeseen
catastrophic events occurring in or around our manufacturing facilities in Stark County, Ohio. As a
result, we may be unable to shift manufacturing capabilities to alternate locations, accept materials
from suppliers, meet customer shipment deadlines or address other significant issues, any of which
could have a material adverse effect on our business, financial condition or results of operations.
We may be subject to risks relating to our information technology systems and cybersecurity.
We rely on information technology systems to process, transmit and store electronic information
and manage and operate our business. We face the challenge of supporting our older systems and
11
implementing upgrades when necessary. Additionally, a breach in security could expose us and our
customers and suppliers to risks of misuse of confidential information, manipulation and destruction
of data, production downtimes and operations disruptions, which in turn could adversely affect our
reputation, competitive position, business or results of operations. While we have taken reasonable
steps to protect the Company from cybersecurity risks and security breaches (including enhancing
our firewall, workstation, email security and network monitoring and alerting capabilities, and
training employees around phishing, malware and other cybersecurity risks), and we have policies
and procedures to prevent or limit the impact of systems failures, interruptions, and security
breaches, there can be no assurance that such events will not occur or that they will be adequately
addressed if they do. Although we rely on commonly used security and processing systems to
provide the security and authentication necessary to effect the secure transmission of data, these
precautions may not protect our systems from all potential compromises or breaches of security.
Work stoppages or similar difficulties could significantly disrupt our operations, reduce our
revenues and materially affect our earnings.
A work stoppage at one or more of our facilities could have a material adverse effect on our
business, financial condition and results of operations. As of December 31, 2019, approximately
58% of our employees were covered under two collective bargaining agreements. The agreement
that expires in September 2021 covers approximately 57% of our employees. The collective
bargaining agreement expiring in December 2022 related to the scrap processing facility that was
divested in January 2020. Any failure to negotiate and conclude new collective bargaining
agreements with the unions when the existing agreements expire could cause work interruptions or
stoppages. Also, if one or more of our customers were to experience a work stoppage, that
customer may halt or limit purchases of our products, which could have a material adverse effect on
our business, financial condition and results of operations.
We are subject to a wide variety of domestic and foreign laws and regulations that could
adversely affect our results of operations, cash flow or financial condition.
We are subject to a wide variety of domestic and foreign laws and regulations, and legal compliance
risks, including securities laws, tax laws, employment and pension-related laws, competition laws,
U.S. and foreign export and trading laws, privacy laws and laws governing improper business
practices. We are affected by new laws and regulations, and changes to existing laws and
regulations, including interpretations by courts and regulators. With respect to tax laws, with the
finalization of specific actions (Actions) contained within the Organization for Economic
Development and Cooperation’s (OECD) Base Erosion and Profit study, many OECD countries have
acknowledged their intent to implement the Actions and update their local tax regulations. The
extent, if any, to which countries in which we operate adopt and implement the Actions could affect
our effective tax rate and our future results from non-U.S. operations.
Compliance with the laws and regulations described above or with other applicable foreign, federal,
state, and local laws and regulations currently in effect or that may be adopted in the future could
materially adversely affect our competitive position, operating results, financial condition and
liquidity.
If we are unable to attract and retain key personnel, our business could be materially adversely
affected.
Our business substantially depends on the continued service of key members of our management.
The loss of the services of a significant number of members of our management could have a
material adverse effect on our business. Modern steel-making uses specialized techniques and
advanced equipment that requires experienced engineers and skilled laborers. Our future success
12
will depend on our ability to attract and retain such highly skilled personnel, as well as finance,
marketing and senior management professionals. Competition for these employees is intense, and
we could experience difficulty from time to time in hiring and retaining the personnel necessary to
support our business. If we do not succeed in retaining our current employees and attracting new
high-quality employees, our business could be materially adversely affected.
We may not realize the improved operating results that we anticipate from past and future
acquisitions and we may experience difficulties in integrating acquired businesses.
We may seek to grow, in part, through strategic acquisitions and joint ventures, which are intended
to complement or expand our businesses. These acquisitions could involve challenges and risks. In
the event that we do not successfully integrate these acquisitions into our existing operations so as
to realize the expected return on our investment, our results of operations, cash flows or financial
condition could be adversely affected.
We may not be able to execute successfully on our business strategies or achieve the intended
results.
Our business strategy includes driving organizational changes to reduce costs and enhance
profitable and sustainable growth. We have taken company-wide actions including the restructuring
of the business support functions and the evaluation of non-core assets. If we are unsuccessful in
executing on our business strategies, it could negatively impact profitability and liquidity, requiring
us to alter our strategy.
Our ability to use our net operating loss, interest, and credit carryforwards to offset future
taxable income may be subject to certain limitations.
As of December 31, 2019, we have loss carryforwards totaling $370.1 million (of which
$314.9 million relates to the U.S. and $55.2 million relates to various non-U.S. jurisdictions), having
various expiration dates, as well as certain credit carryforwards. The majority of the non-U.S. loss
carryforwards represent local country net operating losses for entities treated as branches of
TimkenSteel under U.S. tax law. As of December 31, 2019, TimkenSteel had a gross deferred tax
asset for disallowed business interest in the U.S. of $25.2 million, which carries forward indefinitely.
Operating losses generated in the U.S. resulted in a decrease in the carrying value of our U.S.
deferred tax liability to the point of a net U.S. deferred tax asset at December 31, 2016. At that time,
we assessed, based upon operating performance in the U.S. and industry conditions that it was
more likely than not we would not realize a portion of our U.S. deferred tax assets. The Company
recorded a valuation allowance in 2016 and remained in a valuation allowance position in 2019.
Going forward, the need to maintain valuation allowances against deferred tax assets in the U.S. and
other affected countries will cause variability in our effective tax rate. We will maintain a valuation
allowance against our deferred tax assets in the U.S. and applicable foreign countries until sufficient
positive evidence exists to eliminate them. Our ability to utilize our net operating loss, interest, and
credit carryforwards is dependent upon our ability to generate taxable income in future periods and
may be limited due to restrictions imposed on utilization of net operating loss, interest, and credit
carryforwards under federal and state laws upon a change in ownership. Refer to “Note 8 - Income
Tax Provision” in the Notes to the Consolidated Financial Statements for more information.
Section 382 and Section 383 of the Internal Revenue Code of 1986, as amended (the Code), provide
an annual limitation on our ability to utilize our U.S. net operating loss and credit carryforwards
against future U.S. taxable income in the event of a change in ownership, as defined in the Code,
which could result from one or more transactions involving our shares, including transactions that
are outside of our control, as well as the issuance of shares upon conversion of our 6.00%
Convertible Senior Notes due 2021 (Convertible Notes). Accordingly, such transactions could
13
adversely impact our ability to offset future tax liabilities and, therefore, adversely affect our financial
condition, net income and cash flow. Refer to “Note 14 - Financing Arrangements” in the Notes to
the Consolidated Financial Statements for more information.
Risks related to our debt
Our substantial debt could adversely affect our financial health and we may not be able to
generate sufficient cash to service our debt.
We have substantial debt and, as a result, we have significant debt service obligations. As of
December 31, 2019, we had outstanding debt of approximately $168.6 million. Our debt may:
• make it more difficult for us to satisfy our financial obligations under our indebtedness and
our contractual and commercial commitments and increase the risk that we may default on
our debt obligations;
•
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•
•
•
require us to use a substantial portion of our cash flow from operations to pay interest and
principal on our debt, which would reduce the funds available for working capital, capital
expenditures and other general corporate purposes;
limit our ability to obtain additional financing for working capital, capital expenditures,
acquisitions and other investments, or general corporate purposes, which may limit the
ability to execute our business strategy and affect the market price of our common shares;
heighten our vulnerability to downturns in our business, our industry or in the general
economy and restrict us from exploiting business opportunities or making acquisitions;
place us at a competitive disadvantage compared to those of our competitors that may have
less debt;
limit management’s discretion in operating our business;
limit our flexibility in planning for, or reacting to, changes in our business, the industry in
which we operate or the general economy; and
result in higher interest expense if interest rates increase and we have outstanding floating
rate borrowings.
If our cash flows and capital resources are insufficient to fund our debt service obligations, we may
be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional
capital or restructure or refinance our debt. These alternative measures may not be successful and
may not permit us to meet our scheduled debt service obligations. If our operating results and
available cash are insufficient to meet our debt service obligations, we could face substantial
liquidity problems and might be required to dispose of material assets or operations to meet our
debt service and other obligations. We may not be able to consummate those dispositions or to
obtain the proceeds that we could realize from them, and these proceeds may not be adequate to
meet any debt service obligations then due. Further, we may need to refinance all or a portion of
our debt on or before maturity, and we cannot assure you that we will be able to refinance any of
our debt on commercially reasonable terms or at all.
Restrictive covenants in the agreements governing our other indebtedness may restrict our
ability to operate our business, which may affect the market price of our common shares.
On October 15, 2019, the Company, as borrower, and certain domestic subsidiaries of the
Company, as subsidiary guarantors, entered into a Third Amended and Restated Credit Agreement
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(the Amended Credit Agreement), with JP Morgan Chase Bank, N.A., as administrative agent (the
Administrative Agent), Bank of America, N.A., as syndication agent, and the other lenders party
thereto (collectively, the Lenders), which further amended and restated the Company’s existing
Credit Agreement dated as of January 26, 2018.
A breach of any of our covenants in the agreements governing our indebtedness could result in a
default, which could allow the lenders to declare all amounts outstanding under the applicable debt
immediately due and payable and which may affect the market price of our common shares. We
may also be prevented from taking advantage of business opportunities that arise because of the
limitations imposed on us by the restrictive covenants under our indebtedness. Refer to “Note 14 -
Financing Arrangements” in the Notes to the Consolidated Financial Statements for more detail on
the Amended Credit Agreement.
The conditional conversion feature of the Convertible Notes, if triggered, may adversely affect
our financial condition and operating results.
In the event the conditional conversion feature of the Convertible Notes (refer to “Note 14 -
Financing Arrangements” in the Notes to the Consolidated Financial Statements) is triggered,
holders of Convertible Notes will be entitled to convert the Convertible Notes at any time during
specified periods at their option. If one or more holders elect to convert their Convertible Notes,
unless we elect to satisfy our conversion obligation by delivering solely our common shares (other
than paying cash in lieu of delivering any fractional share), we would be required to settle a portion
or all of our conversion obligation through the payment of cash, which could adversely affect our
liquidity. In addition, under certain circumstances, we could be required under applicable
accounting rules to reclassify all or a portion of the outstanding principal of the Convertible Notes as
a current rather than long-term liability, which would result in a material reduction of our net working
capital.
Risks related to our common shares
The price of our common shares may fluctuate significantly.
The market price of our common shares may fluctuate significantly in response to many factors,
including:
•
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•
•
•
actual or anticipated changes in operating results or business prospects;
changes in financial estimates by securities analysts;
an inability to meet or exceed securities analysts’ estimates or expectations;
conditions or trends in our industry or sector;
the performance of other companies in our industry or sector and related market valuations;
announcements by us or our competitors of significant acquisitions, strategic partnerships,
divestitures, joint ventures or other strategic initiatives;
general financial, economic or political instability;
hedging or arbitrage trading activity in our common shares;
changes in interest rates;
capital commitments;
15
•
•
additions or departures of key personnel; and
future sales of our common shares or securities convertible into, or exchangeable or
exercisable for, our common shares.
Many of the factors listed above are beyond our control. These factors may cause the market price
of our common shares to decline, regardless of our financial condition, results of operations,
business or prospects.
Provisions in our corporate documents and Ohio law could have the effect of delaying,
deferring or preventing a change in control of us, even if that change may be considered
beneficial by some of our shareholders, which could reduce the market price of our common
shares.
The existence of some provisions of our articles of incorporation and regulations and Ohio law
could have the effect of delaying, deferring or preventing a change in control of us that a
shareholder may consider favorable. These provisions include:
•
•
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•
providing that our board of directors fixes the number of members of the board;
providing for the division of our board of directors into three classes with staggered terms;
establishing advance notice requirements for nominations of candidates for election to our
board of directors or for proposing matters that can be acted on by shareholders at
shareholder meetings; and
authorizing the issuance of “blank check” preferred shares, which could be issued by our
board of directors to increase the number of outstanding securities of ours with voting rights
and thwart a takeover attempt.
As an Ohio corporation, we are subject to Chapter 1704 of the Ohio Revised Code. Chapter 1704
prohibits certain corporations from engaging in a “Chapter 1704 transaction” (described below)
with an “interested shareholder” for a period of three years after the date of the transaction in which
the person became an interested shareholder, unless, among other things, prior to the interested
shareholder’s share acquisition date, the directors of the corporation have approved the transaction
or the purchase of shares on the share acquisition date.
After the three-year moratorium period, the corporation may not consummate a Chapter 1704
transaction unless, among other things, it is approved by the affirmative vote of the holders of at
least two-thirds of the voting power in the election of directors and the holders of a majority of the
voting shares, excluding all shares beneficially owned by an interested shareholder or an affiliate or
associate of an interested shareholder, or the shareholders receive certain minimum consideration
for their shares. A Chapter 1704 transaction includes certain mergers, sales of assets, consolidations,
combinations and majority share acquisitions involving an interested shareholder. An interested
shareholder is defined to include, with limited exceptions, any person who, together with affiliates
and associates, is the beneficial owner of a sufficient number of shares of the corporation to entitle
the person, directly or indirectly, alone or with others, to exercise or direct the exercise of 10% or
more of the voting power in the election of directors after taking into account all of the person’s
beneficially owned shares that are not then outstanding.
We are also subject to Section 1701.831 of the Ohio Revised Code, which requires the prior
authorization of the shareholders of certain corporations in order for any person to acquire, either
directly or indirectly, shares of that corporation that would entitle the acquiring person to exercise or
direct the exercise of 20% or more of the voting power of that corporation in the election of
16
directors or to exceed specified other percentages of voting power. The acquiring person may
complete the proposed acquisition only if the acquisition is approved by the affirmative vote of the
holders of at least a majority of the voting power of all shares entitled to vote in the election of
directors represented at the meeting, excluding the voting power of all “interested shares.”
Interested shares include any shares held by the acquiring person and those held by officers and
directors of the corporation.
We believe these provisions protect our shareholders from coercive or otherwise unfair takeover
tactics by requiring potential acquirors to negotiate with our board of directors and by providing our
board of directors with more time to assess any acquisition proposal, and are not intended to make
our Company immune from takeovers. However, these provisions apply even if the offer may be
considered beneficial by some shareholders and could delay, defer or prevent an acquisition that
our board of directors determines is not in the best interests of our Company and our shareholders,
which under certain circumstances could reduce the market price of our common shares.
We may issue preferred shares with terms that could dilute the voting power or reduce the
value of our common shares.
Our articles of incorporation authorize us to issue, without the approval of our shareholders, one or
more classes or series of preferred shares having such designation, powers, preferences and
relative, participating, optional and other special rights, including preferences over our common
shares respecting dividends and distributions, as our board of directors generally may determine.
The terms of one or more classes or series of preferred shares could dilute the voting power or
reduce the value of our common shares. For example, we could grant holders of preferred shares
the right to elect some number of our directors in all events or on the happening of specified events
or the right to veto specified transactions. Similarly, the repurchase or redemption rights or
liquidation preferences we could assign to holders of preferred shares could affect the residual
value of the common shares.
Risks relating to the spinoff
We remain subject to continuing contingent liabilities of The Timken Company following the
spinoff.
There are several significant areas where the liabilities of The Timken Company may yet become our
obligations. The separation and distribution agreement and employee matters agreement generally
provide that we are responsible for substantially all liabilities that relate to our steel business
activities, whether incurred prior to or after the spinoff, as well as those liabilities of The Timken
Company specifically assumed by us. In addition, under the Internal Revenue Code (Code) and the
related rules and regulations, each corporation that was a member of The Timken Company
consolidated tax reporting group during any taxable period or portion of any taxable period ending
on or before the completion of the spinoff is jointly and severally liable for the federal income tax
liability of the entire The Timken Company consolidated tax reporting group for that taxable period.
In connection with the spinoff, we entered into a tax sharing agreement with The Timken Company
that allocated the responsibility for prior period taxes of The Timken Company consolidated tax
reporting group between us and The Timken Company. However, if The Timken Company is unable
to pay any prior period taxes for which it is responsible, we could be required to pay the entire
amount of such taxes. Other provisions of federal law establish similar liability for other matters,
including laws governing tax-qualified pension plans as well as other contingent liabilities.
Potential liabilities associated with certain assumed obligations under the tax sharing
agreement cannot be precisely quantified at this time.
Under the tax sharing agreement with The Timken Company, we are responsible generally for all
taxes paid after the spinoff attributable to us or any of our subsidiaries, whether accruing before, on
17
or after the spinoff. We also have agreed to be responsible for, and to indemnify The Timken
Company with respect to, all taxes arising as a result of the spinoff (or certain internal restructuring
transactions) failing to qualify as transactions under Sections 368(a) and 355 of the Code for U.S.
federal income tax purposes (which could result, for example, from a merger or other transaction
involving an acquisition of our shares) to the extent such tax liability arises as a result of any breach
of any representation, warranty, covenant or other obligation by us or certain affiliates made in
connection with the issuance of the tax opinion relating to the spinoff or in the tax sharing
agreement. As described above, such tax liability would be calculated as though The Timken
Company (or its affiliate) had sold its common shares of our Company in a taxable sale for their fair
market value, and The Timken Company (or its affiliate) would recognize taxable gain in an amount
equal to the excess of the fair market value of such shares over its tax basis in such shares. That tax
liability could have a material adverse effect on our Company. As of December 31, 2019, there are
no known or recorded liabilities associated with the spinoff.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We are headquartered in Canton, Ohio, at a facility we own in fee. We have facilities in three
countries: U.S., China and Mexico. We lease sales offices in these countries.
We have manufacturing facilities at multiple locations in the U.S. These manufacturing facilities are
located in Akron, Canton and Eaton, Ohio; Houston, Texas; and Columbus, North Carolina. In
addition to these manufacturing facilities, we own or lease warehouses and distribution facilities in
the U.S., Mexico and China. The aggregate floor area of these facilities is 3.8 million square feet, of
which approximately 290,000 square feet is leased and the rest is owned in fee. The buildings
occupied by us are principally made of brick, steel, reinforced concrete and concrete block
construction.
Our facilities vary in age and condition, and each of them has an active maintenance program to
ensure a safe operating environment and to keep the facilities in good condition. We believe our
facilities are in satisfactory operating condition and are suitable and adequate to conduct our
business and support future growth.
Please refer to Management’s Discussion and Analysis of Financial Condition and Results of
Operations for further discussion of our melt capacity utilization.
18
Item 3. Legal Proceedings
We are involved in various claims and legal actions arising in the ordinary course of business. In the
opinion of our management, the ultimate disposition of these matters will not have a material
adverse effect on our consolidated financial position, results of operations or cash flows.
Canton, Ohio U.S. EPA Notice of Violation
The U.S. Environmental Protection Agency (EPA) issued two related Notices of Violation (NOV) to
TimkenSteel on August 5, 2014 and November 2, 2015. The EPA alleges violations under the Clean
Air Act based on purported violations of permitted emission limits and engineering requirements at
TimkenSteel’s Faircrest and Harrison facilities in Canton, Ohio. TimkenSteel disputes many of EPA’s
allegations but is working cooperatively with EPA and the U.S. Department of Justice to resolve the
government’s claims. Negotiations to resolve the NOVs are ongoing, but it is not anticipated that the
ultimate resolution of the NOVs will have a material adverse effect on our consolidated financial
position, results of operations or cash flows.
Item 4A. Executive Officers of the Registrant
The executive officers of our Company as of February 25, 2020, are as follows:
Name
Terry L. Dunlap
Age Current Position
60
Interim Chief Executive Officer and President
Kristopher R. Westbrooks
Frank A. DiPiero
Thomas D. Moline
William P. Bryan
41
63
57
60
Executive Vice President and Chief Financial Officer
Executive Vice President, General Counsel and Secretary
Executive Vice President, Commercial Operations
Executive Vice President, Manufacturing, Supply Chain and Information
Technology
Terry L. Dunlap is the interim Chief Executive Officer and President. Mr. Dunlap’s experience covers
many aspects of the metals industry, including sales, marketing, manufacturing, supply chain,
logistics, procurement and information technology. Mr. Dunlap has been the principal at
Sweetwater LLC, a consulting and investing business with a focus on manufacturing and technology,
since 2015. Prior to founding Sweetwater LLC, Mr. Dunlap spent 31 years with Allegheny
Technologies Inc., a diversified specialty metals producer, serving in various positions, most recently
as executive vice president of ATI’s flat-rolled products group from 2011 until his retirement in
December 2014. He earned his bachelor’s degree in Marketing from Indiana University of
Pennsylvania.
Kristopher R. Westbrooks is Executive Vice President and Chief Financial Officer. Previously,
Mr. Westbrooks served from April 2015 until August 2018 as Vice President, Corporate Controller
and Chief Accounting Officer at A. Schulman, Inc., a global supplier of high-performance plastic
compounds, composites and powders. From 2011 until his appointment as Chief Accounting
Officer in 2015, Mr. Westbrooks held various finance roles of increasing responsibility at
A. Schulman, Inc. He earned his bachelor’s of science degree in business and master’s degree in
accountancy from Miami University in Ohio and is a certified public accountant.
Frank A. DiPiero is Executive Vice President, General Counsel and Secretary. Mr. DiPiero joined The
Timken Company in 2014. Previously, Mr. DiPiero was Associate General Counsel, UTC Aerospace
Systems of United Technologies Corporation, a provider of technology products and services to the
19
global aerospace and building systems industries; Vice President, Corporate Secretary and
Segment Counsel, Electronic Systems of Goodrich Corporation; and Segment Counsel, Actuation
and Landing Systems of Goodrich Corporation. Mr. DiPiero earned his bachelor’s degree from
Youngstown State University and J.D. from The University of Toledo College of Law.
Thomas D. Moline is Executive Vice President of Commercial Operations. Prior to assuming his
current role in 2017, Mr. Moline served as Executive Vice President of Manufacturing, where he led
steel plant operations. Since joining The Timken Company in 1984, Mr. Moline held a variety of
leadership positions, including as an engineer on the team that built the Faircrest facility. He earned
his bachelor’s degree in manufacturing engineering from Miami University in Ohio.
William P. Bryan is Executive Vice President of Manufacturing, Supply Chain and Information
Technology. In 2017, Mr. Bryan assumed responsibility for manufacturing operations in addition to
his then existing role as Executive Vice President, Supply Chain and Information Technology. Since
joining The Timken Company in 1977, Mr. Bryan served in various positions related to supply chain,
economics and information technology in both the U.S. and Europe. He holds bachelor’s and
master’s degrees in business administration from Kent State University. Mr. Bryan also completed
the Executive Development for Global Excellence (EDGE) program at the University of Virginia’s
Darden School of Business.
20
Part II
Item 5. Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities
Quarterly Common Stock Prices and Cash Dividends Per Share:
Our common shares are traded on the New York Stock Exchange (NYSE) under the symbol “TMST.”
The estimated number of record holders of our common shares at December 31, 2019 was 3,559.
Our Amended Credit Agreement places certain limitations on the payment of cash dividends.
Please refer to “Note 14 - Financing Arrangements” in the Notes to the Consolidated Financial
Statements and the Results of Operations for additional discussion.
Issuer Purchases of Common Shares:
Our Amended Credit Agreement places certain limitations on our ability to purchase our common
shares. Please refer to Management’s Discussion and Analysis of Financial Condition and Results of
Operations for additional discussion.
Securities Authorized for Issuance Under Equity Compensation Plans:
The following table sets forth certain information as of December 31, 2019, regarding the only
equity compensation plan maintained by us on that date, the TimkenSteel Corporation Amended
and Restated 2014 Equity and Incentive Compensation Plan (the Equity Plan).
(a)
(b)
(c)
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights (1)
Weighted-
average exercise
price of outstanding
options, warrants and
rights (2)
Number of securities
remaining available for
future issuance under equity
compensation plans
reflected in column (a) (3)
3,850,330
$20.64
2,430,868
—
3,850,330
—
$20.64
—
2,430,868
Plan Category
Equity compensation
plans approved by
security holders(4)
Equity compensation
plans not approved by
security holders
Total
(1) The amount shown in column (a) includes the following: nonqualified stock options - 2,641,570; deferred
shares - 181,759; performance-based restricted stock units - 105,273; and time-based restricted stock units -
921,728 (which includes 658,642 cliff-vested restricted stock units).
(2) The weighted average exercise price in column (b) includes nonqualified stock options only.
(3) The amount shown in column (c) represents common shares remaining available under the Equity Plan,
under which the Compensation Committee is authorized to make awards of option rights, appreciation rights,
restricted shares, restricted stock units, deferred shares, performance shares, performance units and cash
incentive awards. Awards may be credited with dividend equivalents payable in the form of common shares.
Under the Equity Plan, for any award that is not an option right or a stock appreciation right, 2.46 common
21
shares for awards granted before April 28, 2016 and 2.50 common shares for awards granted on or after
April 28, 2016, are subtracted from the maximum number of common shares available under the plan for every
common share issued under the award. For awards of option rights and stock appreciation rights, however,
only one common share is subtracted from the maximum number of common shares available under the plan
for every common share granted.
(4) The Company also maintains the Director Deferred Compensation Plan pursuant to which non-employee
Directors may defer receipt of common shares authorized for issuance under the Equity Plan. The table does
not include separate information about this plan because it merely provides for the deferral, rather than the
issuance, of common shares.
Performance Graph:
The following graph compares the cumulative total return of our common shares with the
cumulative total return of the Standard & Poor’s (S&P) MidCap 400 Index and S&P Steel Group
Index, assuming $100 was invested and that cash dividends were reinvested for the period from
July 1, 2014 through December 31, 2019.
COMPARISON OF CUMULATIVE TOTAL RETURN
$160
$140
$120
$100
$80
$60
$40
$20
$0
July 1, 2 0 1 4
b er 3 1, 2 0 1 4
D e c e m
D e c e m
b er 3 1, 2 0 1 5
D e c e m
b er 3 1, 2 0 1 6
D e c e m
b er 3 1, 2 0 1 7
D e c e m
b er 3 1, 2 0 1 8
D e c e m
b er 3 1, 2 0 1 9
TimkenSteel Corporation
S&P MidCap 400 Index
S&P 500 Steel Index
Date
July 1, 2014
December 31, 2014
December 31, 2015
December 31, 2016
December 31, 2017
December 31, 2018
December 31, 2019
TimkenSteel
Corporation
S&P MidCap
400 Index
S&P 500
Steel Index
$100.00
$100.00
$100.00
$96.71
$22.29
$41.18
$37.59
$21.63
$19.95
$102.11
$99.89
$95.49
$80.49
$120.61
$122.43
$131.51
$135.49
$115.08
$127.04
$142.75
$107.22
This performance graph shall not be deemed to be “soliciting material” or to be “filed” with the SEC
or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act.
22
Item 6. Selected Financial Data
(dollars and shares in millions, except per share data)
Statement of Operations Data:
Net sales
Net (loss) income
Earnings (loss) per share(1):
Basic
Diluted
Cash dividends declared per share
Weighted average shares outstanding, diluted
Balance Sheet Data:
Total assets
Long-term debt
Total shareholders’ equity
Other Data:
Book value per share(2)
Year Ended December 31,
2019
2018 (3)
2017 (3)
2016 (3)
2015(3)
$1,208.8 $1,610.6 $1,329.2
$869.5 $1,106.2
(110.0)
(10.0)
(31.3)
(105.5)
(45.0)
($2.46)
($0.22)
($0.70)
($2.39)
($1.01)
($2.46)
($0.22)
($0.70)
($2.39)
($1.01)
$—
44.8
$—
44.6
$—
44.4
$—
44.2
$0.42
44.5
$1,085.2 $1,275.3 $1,212.6 $1,069.9 $1,142.5
168.6
563.1
189.1
612.9
165.3
616.7
136.6
597.4
200.2
682.0
$12.57
$13.74
$13.89
$13.52
$15.33
(1) See “Note 9 - Earnings (Loss) Per Share” in the Notes to the Consolidated Financial Statements for additional information.
(2) Book value per share is calculated by dividing total shareholders’ equity (as of the period end) by the weighted average
shares outstanding, diluted.
(3) The table reflects the change in accounting principle from the last-in, first-out method to the first-in, first-out method of
accounting for inventory for 2018 and 2017. The years 2016 and 2015 have not been adjusted to reflect the change and
therefore are not comparable. See “Note 1 - Basis of Presentation” in the Notes to the Consolidated Financial Statements for
additional information.
23
Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(dollars in millions, except per share data)
Business Overview
We manufacture alloy steel, as well as carbon and micro-alloy steel, with an annual melt capacity of
approximately 2 million tons and shipment capacity of 1.5 million tons. Our portfolio includes
special bar quality (SBQ) bars, seamless mechanical tubing (tubes), value-added solutions such as
precision steel components, and billets. In addition, we supply machining and thermal treatment
services and manage raw material recycling programs, which are used as a feeder system for our
melt operations. Our products and services are used in a diverse range of demanding applications
in the following market sectors: automotive; oil and gas; industrial equipment; mining; construction;
rail; defense; heavy truck; agriculture; power generation; and OCTG.
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 all recycled steel, using our
expertise in raw materials to create custom steel products. We focus on creating tailored products
and services for our customers’ most demanding applications. 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 value-added solutions production processes take place at three downstream
manufacturing facilities: TimkenSteel Material Services (Houston, Texas), 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.
In the fourth quarter of 2019, our Board of Directors approved a plan to close our TimkenSteel
Material Services facility during the first quarter of 2020. See “Note 6 - Disposition of Non-Core
Assets” in the Notes to the Consolidated Financial Statements for additional information.
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.
Markets We Serve
We sell products and services that are used in a diverse range of demanding applications around
the world. No one customer accounted for 10% or more of net sales in 2019.
Key indicators for our market include the U.S. light vehicle production Seasonally Adjusted Annual
Rate, oil and gas rig count activity and U.S. footage drilled, and industrial production for agriculture
and construction markets, distribution, and mining and oil field machinery products. In addition, we
closely monitor the Purchasing Managers’ Index, which is a leading indicator for our overall
business.
24
Impact of Raw Material Prices
In the ordinary course of business, we are exposed to the volatility of the costs of our raw materials.
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 utilize a raw material surcharge mechanism when pricing
products to our customers, which is 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.
Results of Operations
During the fourth quarter of 2019, TimkenSteel elected to change its method for valuing its
inventories that previously used the last-in, first-out (LIFO) method to the first-in, first-out (FIFO)
method. Total inventories accounted for under the LIFO method represented approximately 70% of
the Company’s total inventories prior to this change in method. The Company believes that the FIFO
method is preferable as it improves comparability with our peers, more closely resembles the
physical flow of our inventory, and aligns with how the Company internally manages the business.
The effects of the change in accounting principle have been retrospectively applied to all periods
presented in Item 7. Refer to “Note 1 - Basis of Presentation” in the Notes to the Consolidated
Financial Statements.
Net Sales
The charts below present net sales and shipments for the years ended December 31, 2019, 2018
and 2017.
Net Sales
Shipments (tons)
$1,610.6
$1,329.2
$1,208.8
s
n
o
i
l
l
i
M
n
i
$
$2,000
$1,500
$1,000
$500
$0
s
d
n
a
s
u
o
h
t
n
i
s
n
o
T
1,400
1,200
1,000
800
600
400
200
0
1,199.4
1,150.2
898.3
2019
2018
2017
2019
2018
2017
Net sales for the year ended December 31, 2019 were $1,208.8 million, a decrease of
$401.8 million, or 24.9%, compared to the year ended December 31, 2018. The decrease was due
to a reduction in volume of 301 thousand ship tons, resulting in a decrease in net sales of
$311.9 million and lower raw material surcharge revenue of $151.9 million. The primary driver in the
decrease in volume was lower customer demand across all key end markets. We also experienced a
loss in sales of approximately $10 million due to a strike at one of our automotive customers. The
decrease in surcharges was primarily due to lower volumes and decreasing scrap prices throughout
2019. These decreases were partially offset by favorable price/mix of $60.9 million, as the Company
25
realized the benefit of previous price increases and lower billet product shipments. Excluding
surcharges, net sales decreased $249.9 million, or 20.7%.
Net sales for the year ended December 31, 2018 were $1,610.6 million, an increase of
$281.4 million or 21.2% compared to the year ended December 31, 2017. Excluding surcharges,
net sales increased $167.4 million, or 16.1%. The increase was due to favorable price/mix of
$107.0 million and higher volumes of $61.0 million, as we focused efforts to sell our higher margin
products. This resulted in net sales per ton increasing 16.2% from 2017. For the year ended
December 31, 2018, ship tons increased by 49 thousand tons, or 4.3%, compared to the year ended
December 31, 2017, due primarily to higher demand in industrial and energy end markets, partially
offset by a reduction in billet shipments.
Gross Profit
The chart below presents the drivers of the gross profit variance from the year ended December 31,
2019 to December 31, 2018.
s
n
o
i
l
l
i
M
n
i
$
$200
$150
$100
$50
$0
$46.3
$126.6
Gross Profit
($54.5)
($49.3)
2018
Gross
profit
Price /
Mix
Manufacturing
Raw
material
spread
($39.2)
($7.3)
Volume
Other
$22.6
2019
Gross
profit
Gross profit for the year ended December 31, 2019 decreased $104.0 million, or 82.1%, compared
with the year ended December 31, 2018. The decrease was driven primarily by unfavorable
manufacturing costs, raw material spread, lower volumes and a facility phase down. Higher
manufacturing costs as a percentage of sales in 2019 were primarily driven by a decline in melt
utilization to 50% from 74% in 2018, resulting in unfavorable fixed-cost leverage. Raw material
spread was a headwind due to a decline in the No.1 Busheling scrap index and lower volumes
26
during the year ended December 31, 2019 compared with the year end December 31, 2018.
Volume was a decrease for the year ended December 31, 2019 primarily due to weaker demand
across all end markets, compared with December 31, 2018. The other category includes the
non-cash accounting implications of the Company’s announced closure of its Houston, Texas facility
during the fourth quarter of 2019, as a result of which we recorded a $4.8 million charge to write-
down inventory and $2.8 million of accelerated depreciation. The facility was subsequently closed in
the first quarter of 2020. These decreases were partially offset by improved price/mix. Price/mix was
favorable due to increased pricing in 2019 compared with 2018, and a reduction in billet shipments.
The chart below presents the drivers of the gross profit variance from the year ended December 31,
2018 to December 31, 2017.
Gross Profit
($23.2)
($3.0)
($0.6)
($4.3)
$126.6
$77.4
$80.3
s
n
o
i
l
l
i
M
n
i
$
$200
$150
$100
$50
$0
2017
Gross
profit
Price /
Mix
Manufacturing
Raw
material
spread
Volume
Other
2018
Gross
profit
Gross profit for the year ended December 31, 2018 increased $46.3 million, or 57.7%, compared to
the year ended December 31, 2017. The increase was driven primarily by favorable price/mix due to
higher demand in our end markets, and our focus on selling higher margin products. The favorable
price/mix was partially offset by increased manufacturing costs. Higher manufacturing costs in 2018
were driven primarily by consumables inflation and higher maintenance costs, partially offset by
improved fixed-cost leverage and the benefit of continuous improvement activities. The favorable
impact of higher volume was more than offset by an increase in freight expense. Melt utilization for
the year ended December 31, 2018 was 74% compared to 73% as of year ended December 31,
2017.
27
Selling, General and Administrative Expenses
The charts below present selling, general and administrative (SG&A) expense for the years ended
December 31, 2019, 2018 and 2017.
s
n
o
i
l
l
i
M
n
i
$
$120
$100
$80
$60
$40
$20
$0
SG&A Expense
$91.8
$98.2
$90.5
2019
2018
2017
SG&A expense for the year ended December 31, 2019 decreased by $6.4 million, or 6.5%,
compared with the year ended December 31, 2018. The decline in 2019 is primarily the result of the
Company’s profitability improvement plans that targeted, among other areas, a reduction in salaried
employees, as well as lower professional services fees and post-retirement benefit costs. These
reductions were partially offset by executive severance of $5.6 million. Additionally, variable
compensation decreased in 2019.
SG&A expense for the year ended December 31, 2018 increased $7.7 million, or 8.5%, compared to
the year ended December 31, 2017. The increase was due primarily to an increase in variable
compensation of $1.5 million and executive severance of $1.7 million.
Restructuring Charges
During 2019, TimkenSteel made organizational changes to enhance profitable and sustainable
growth. These company-wide actions included the restructuring of its business support functions,
the reduction of management layers throughout the organization, the announced closure of the
TimkenSteel Material Services (TMS) facility in Houston, Texas (See “Note 6 - Disposition of
Non-Core Assets”), and other actions to further improve the Company’s overall cost structure.
Through these restructuring efforts, the Company eliminated approximately 15% of its salaried
workforce, or approximately 150 salaried positions. As a result of the headcount reduction,
TimkenSteel recognized restructuring charges of $8.6 million, consisting of severance and
employee-related benefits. The Company expects to realize annual savings of approximately
$18 million beginning in 2020 as a result of these actions. Refer to “Note 5 - Restructuring Charges”
in the Notes to the Consolidated Financial Statements for additional information. There were no
restructuring charges during the years ended December 31, 2018 and 2017.
Interest Expense
Interest expense for the year ended December 31, 2019 was $15.7 million, a decrease of
$1.4 million, compared with the year ended December 31, 2018. The decrease in interest expense
28
was primarily due to a reduction in outstanding borrowings under the credit facility and a lower
borrowing cost following the October 2019 credit agreement refinancing. Interest expense for the
year ended December 31, 2018 was $17.1 million, an increase of $2.3 million from 2017. The
increase was primarily due to higher average outstanding revolver debt and the write-off of deferred
financing costs of $0.7 million associated with amending the previous credit agreement and
redeeming the revenue refunding bonds. Refer to “Note 14 - Financing Arrangements “ in the Notes
to the Consolidated Financial Statements for additional information.
Other Income (Expense), net
Pension and postretirement non-service benefit income
Loss from remeasurement of benefit plans
Foreign currency exchange gain (loss)
Miscellaneous income (expense)
Total other income (expense), net
Pension and postretirement non-service benefit income
Loss from remeasurement of benefit plans
Foreign currency exchange gain (loss)
Miscellaneous income (expense)
Total other income (expense), net
Year Ended December 31,
2019
2018
$ Change
$17.5
(40.6)
—
(0.2)
$25.2
(43.5)
(0.2)
(0.1)
($23.3)
($18.6)
($7.7)
2.9
0.2
(0.1)
($4.7)
Year Ended December 31,
2018
2017
$ Change
$25.2
(43.5)
(0.2)
(0.1)
$17.5
(21.8)
0.3
(0.1)
$7.7
(21.7)
(0.5)
—
($18.6)
($4.1)
($14.5)
Non-service benefit income is derived from our pension and other postretirement plans. In the years
ended December 31, 2019, 2018 and 2017, expected return on assets exceeded the interest cost
component resulting in income, which more than offset the annual benefit plan remeasurement loss.
For more details on the remeasurement, refer to “Note 15 - Retirement and Postretirement Plans” in
the Notes to Consolidated Financial Statements.
Provision for Income Taxes
Provision (benefit) for income taxes
Effective tax rate
Provision (benefit) for income taxes
Effective tax rate
Year Ended December 31,
2019
2018
$ Change
($16.1)
$ 1.8
($17.9)
12.8%
(5.9)%
NM
Year Ended December 31,
2018
2017
$ Change
$ 1.8
$ 1.5
(5.9)%
(3.7)%
$ 0.3
NM
The majority of the Company’s tax expense is derived from foreign operations. The Company
remains in a full valuation for the U.S. jurisdiction for the years ended December 31, 2019, 2018 and
29
2017. For the year ended December 31, 2019, the Company recorded an intraperiod tax allocation
adjustment between continuing operations and other categories of comprehensive income. In
periods in which the Company has a pre-tax loss from continuing operations and pre-tax income in
other categories of comprehensive income, the Company must consider that income in determining
the amount of tax benefit that results from a loss in continuing operations and that will be allocated
to continuing operations. As a result of the intraperiod tax allocation for the year ended December
31, 2019, income tax expense of $16.7 million was recorded within other comprehensive income
and a corresponding benefit was recorded to continuing operations.
Non-GAAP Financial Measures
The table below presents net sales by end market sector, adjusted to exclude raw material
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 adjusted to exclude raw material surcharges provides additional
insight into key drivers of net sales such as base price and product mix.
Net Sales adjusted to exclude surcharges
(dollars in millions, tons in thousands)
Tons
Net Sales
Less: Surcharges
Base Sales
Net Sales / Ton
Base Sales / Ton
Tons
Net Sales
Less: Surcharges
Base Sales
Net Sales / Ton
Base Sales / Ton
Tons
Net Sales
Less: Surcharges
Base Sales
Net Sales / Ton
Base Sales / Ton
2019
Mobile
Industrial
Energy
Other
Total
397.6
348.2
90.6
61.9
898.3
$479.3
$486.3
$166.4
$76.8
$1,208.8
104.1
99.9
32.8
16.7
253.5
$375.2
$386.4
$133.6
$60.1
$955.3
$1,205
$944
$1,397
$1,110
$1,241
$1,346
$971
$1,063
$1,837
$1,475
2018
Mobile
Industrial
Energy
Other
Total
428.3
462.7
152.8
155.6
1,199.4
$553.9
$637.5
$265.6
$153.6
$1,610.6
134.4
161.5
61.2
48.3
405.4
$419.5
$476.0
$204.4
$105.3
$1,205.2
$1,293
$979
$1,378
$1,029
$1,738
$1,338
2017
$987
$677
$1,343
$1,005
Mobile
Industrial
Energy
Other
Total
428.1
413.4
97.0
211.7
1,150.2
$528.6
$486.4
$141.7
$172.5
$1,329.2
105.1
106.6
23.5
56.1
291.3
$379.8
$1,177
$919
$118.2
$1,461
$1,219
$116.4
$1,037.9
$815
$550
$1,156
$902
$423.5
$1,235
$989
30
Liquidity and Capital Resources
Credit Agreement
On January 26, 2018, the Company, as borrower, and certain domestic subsidiaries, as subsidiary
guarantors, entered into the Second Amended and Restated Credit Agreement (Credit Agreement),
with JP Morgan Chase Bank, N.A., as administrative agent, Bank of America, N.A., as syndication
agent, and the other lenders party thereto, which amended and restated the Company’s credit
agreement dated as of February 26, 2016.
Amended Credit Agreement
On October 15, 2019, the Company, entered into a Third Amended and Restated Credit Agreement
(the Amended Credit Agreement), with JP Morgan Chase Bank, N.A. which further amends and
restates the Company’s Second Amended and Restated Credit Agreement dated as of January 26,
2018.
The Amended Credit Agreement increased capacity to $400 million compared to $300 million in
the previous facility and extended the maturity date to October 15, 2024. Furthermore, the
Amended Credit Agreement included an enhanced asset base with reappraised fixed assets and
investment grade foreign accounts receivable collateral in the borrowing base, improved interest
rate spread pricing of 50 basis points, and reduced the unused commitment fee to a fixed 25 basis
points from the previous 37.5 to 50 basis point range.
Refer to “Note 14 - Financing Arrangements” in the Notes of the Consolidated Financial Statements
for additional information.
Convertible Notes
In May 2016, we issued $75.0 million aggregate principal amount of Convertible Notes, plus an
additional $11.3 million principal amount to cover over-allotments. The Convertible Notes bear cash
interest at a rate of 6.0% per year, payable semiannually on June 1 and December 1, beginning on
December 1, 2016. The Convertible Notes will mature on June 1, 2021, unless earlier repurchased
or converted. The net proceeds received from the offering were $83.2 million, after deducting the
initial underwriters’ discount and fees and paying the offering expenses. We used the net proceeds
to repay a portion of the amounts outstanding under our credit agreement.
Revenue Refunding Bonds
On January 23, 2018, we redeemed in full $12.2 million of Ohio Water Development Revenue
Refunding Bonds (originally due on November 1, 2025), $9.5 million of Ohio Air Quality
Development Revenue Refunding Bonds (originally due on November 1, 2025), and $8.5 million of
Ohio Pollution Control Revenue Refunding Bonds (originally due on June 1, 2033).
31
Additional Liquidity Considerations
The following represents a summary of key liquidity measures under the credit agreement in effect
as of December 31, 2019 and December 31, 2018:
Cash and cash equivalents
Credit Agreement:
Maximum availability
Suppressed availability(1)
Availability
Credit facility amount borrowed
Letter of credit obligations
Availability not borrowed
December 31,
2019
December 31,
2018
$27.1
$21.6
$400.0
(103.0)
297.0
(90.0)
(3.8)
203.2
$300.0
—
300.0
(115.0)
(2.6)
182.4
Total liquidity
$230.3
$204.0
(1) As of December 31, 2019, 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 credit agreement. As of December 31, 2019, taking into
account our view of automotive, industrial, and energy market demands for our products, our 2020
operating and long-range plan, we believe that our cash balance as of December 31, 2019,
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 obligations, for
at least the next twelve months and through the maturity date of our Amended Credit Agreement.
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 would also consider additional cost reductions and restructuring, changes in
working capital management and further reductions of capital expenditures. Regardless, we will
continue to evaluate additional financing or may seek to refinance outstanding borrowings under
the Amended Credit Agreement to provide us with additional flexibility and liquidity. Any additional
financing beyond that incurred to refinance existing debt would increase our overall debt and could
increase interest expense.
For additional details regarding the Credit Agreement, the Amended Credit Agreement and the
Convertible Notes, please refer to “Note 14 - Financing Arrangements” in the Notes to the
Consolidated Financial Statements, and for our discussion regarding risk factors related to our
business and our debt, see Risk Factors in this Annual Report on Form 10-K.
32
Cash Flows
The following table reflects the major categories of cash flows for the years ended December 31,
2019 and 2018. For additional details, please refer to the Consolidated Statements of Cash Flows
included in Item 8 - Financial Statements and Supplemental Data of this Annual Report.
Net cash provided (used) by operating activities
Net cash provided (used) by investing activities
Net cash provided (used) by financing activities
Increase (Decrease) in Cash and Cash Equivalents
Operating activities
Year Ended December 31,
2019
2018
2017
$70.3
$18.5
(38.0)
(26.8)
$5.5
(39.0)
17.6
($2.9)
$8.1
(33.0)
23.8
($1.1)
Net cash provided by operating activities for the year ended December 31, 2019 was $70.3 million
compared with net cash provided of $18.5 million for the same period 2018. The increase in cash
provided by operating activities of $51.8 million was primarily due to an increase in cash provided
from working capital, partially offset by a net loss of $110.0 million and lower accrued liabilities,
primarily due to lower variable compensation.
The improvement in cash used for working capital between periods was due to inventories and
accounts receivable, partially offset by accounts payable. The increase in cash provided for
inventory was driven by the impact of declining scrap prices combined with a lower quantity of
inventory on hand during the year ended December 31, 2019 as compared to the opposite trend
during the same period in the prior year. The increase in cash provided by accounts receivable was
primarily due to declining sales for the year ended December 31, 2019, which resulted in collections
exceeding billings, as compared to increasing sales in the same period in the prior year. Accounts
payable offset these increases due to lower production and declining scrap prices. Refer to the
Consolidated Statements of Cash Flows in the Consolidated Financial Statements for additional
information.
Net cash provided by operating activities for the years ended December 31, 2018 and 2017 was
$18.5 million and $8.1 million, respectively. The improvement in net cash provided by operating
activities was primarily due to an increase in gross profit partially offset by benefit payments for our
domestic pension plans and an increased use of cash for working capital to support customer
demand.
Investing activities
Net cash used by investing activities for the years ended December 31, 2019, 2018 and 2017 was
$38.0 million, $39.0 million, and $33.0 million, respectively. In 2019, we focused our capital
investment spend on enhancing our value-added components capabilities as well as ongoing
investments to support our steel manufacturing operation.
Net cash used by investing activities for the years ended December 31, 2018 and 2017 was
$39.0 million and $33.0 million, respectively. Cash used for investing activities primarily relates to
capital investments in our manufacturing facilities. Capital spending in 2018 increased $7.0 million
from 2017 due to an increase in strategic spending on our capital investments.
Our business requires capital investments to maintain our plants and equipment to remain
competitive and ensure we can implement strategic initiatives. Our construction in progress balance
33
of approximately $31 million as of December 31, 2019 includes: (a) approximately $16 million
relating to growth initiatives (new product offerings and new capabilities) and continuous
improvement projects; and (b) approximately $15 million relating primarily to routine capital costs
to maintain the reliability, integrity and safety of our manufacturing equipment and facilities. In the
next one to three years, we expect to spend approximately $17 million to complete existing
ongoing projects (made up of approximately $11 million relating to additional growth initiatives and
approximately $6 million related to continuous improvement).
Financing activities
Net cash used by financing activities for the year ended December 31, 2019 was $26.8 million
compared to net cash provided by financing activities of $17.6 million for the year ended
December 31, 2018. The change was mainly due to net repayments of debt of $25.0 million during
the year ended December 31, 2019 as compared to net borrowings of $19.8 million during the year
ended December 31, 2018. With the additional cash generated by operating activities in 2019, we
focused on paying down our credit facility.
Net cash provided by financing activities for the year ended December 31, 2018 was approximately
$17.6 million compared to $23.8 million for the year ended December 31, 2017. The change was
mainly due to lower net borrowings on the Credit Agreement during the year ended December 31,
2018 compared to the prior year.
Contractual Obligations
The following table summarizes our contractual obligations as of December 31, 2019:
Contractual Obligations
Convertible notes and other long-term debt
Interest payments
Operating leases
Purchase commitments
Retirement benefits
Total
Total
$176.3
24.9
15.4
143.0
171.1
Less than
1 Year
$—
8.2
6.8
33.6
3.2
1-3 Years 3-5 Years
$86.3
$90.0
13.4
6.8
28.7
24.8
3.3
1.8
27.4
67.7
More than
5 Years
$—
—
—
53.3
75.4
$530.7
$51.8
$160.0
$190.2
$128.7
The caption Convertible notes and other long-term debt includes the outstanding Convertible
Notes principal balance of $86.3 million and the Amended Credit Agreement of $90 million. Interest
payments include interest on the Convertible Notes and estimated interest payments on variable
rate debt computed using the assumption that the outstanding balance interest rate at
December 31, 2019 is in effect for the remaining term of the variable rate debt. Actual interest could
vary. See Item 7A - Quantitative and Qualitative Disclosures about Market Risk of this Annual Report
on Form 10-K for further discussion.
Purchase commitments are defined as agreements to purchase goods or services that are
enforceable and legally binding. Included in purchase commitments are certain obligations related
to capital commitments, service agreements and energy consumed in our production process.
These purchase commitments do not represent our entire anticipated purchases in the future but
represent only those items for which we are presently contractually obligated. The majority of our
products and services are purchased as needed, with no advance commitment. We do not have any
off-balance sheet arrangements with unconsolidated entities or other persons.
34
Retirement benefits are paid from plan assets and our operating cash flow. The table above includes
payments to meet minimum funding requirements of our defined benefit pension plans, estimated
benefit payments for our unfunded supplemental executive retirement pension, and postretirement
plans. The retirement benefit funding requirements included in the table above are estimated
required contributions and are significantly affected by asset returns and several other variables.
These amounts are subject to change year to year. These amounts are based on Company estimates
and current funding laws, actual future payments may be different. Refer to “Note 15 - Retirement
and Postretirement Plans” in the Notes to the Consolidated Financial Statements for further
information related to the total pension and other postretirement benefit plans and expected
benefit payments.
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 - Significant Accounting Policies” in the Notes to the Consolidated Financial Statements.
Revenue Recognition
We recognize revenue from contracts at a point in time when we have satisfied our performance
obligation and the customer obtains control of the goods, at the amount that reflects the
consideration we expect to receive for those goods. We receive and acknowledge purchase orders
from our customers, which define the quantity, pricing, payment and other applicable terms and
conditions. In some cases, we receive a blanket purchase order from our customer, which includes
pricing, payment and other terms and conditions, with quantities defined at the time the customer
issues periodic releases from the blanket purchase order. Certain contracts contain variable
consideration, which primarily consists of rebates that are accounted for in net sales and accrued
based on the estimated probability of the requirements being met.
Inventory
During the fourth quarter of 2019, we elected to change our method for valuing our inventories that
previously used the last-in, first-out (LIFO) method to the first-in, first-out (FIFO) method. Total
inventories accounted for under the LIFO method represented approximately 70% of the
Company’s total inventories prior to this change in method. We believe that the FIFO method is
preferable as it improves comparability with our peers, more closely resembles the physical flow of
our inventory, and aligns with how we internally manage the business.
The effects of the change in accounting principle from LIFO to FIFO have been retrospectively
applied to all periods presented. As a result of the retrospective application of the change in
accounting principle, certain financial statement line items in the Company’s consolidated balance
sheets as of December 31, 2019 and 2018 and consolidated statements of operations and
consolidated statements of cash flows for 2019, 2018, and 2017 were adjusted as necessary. Refer
to “Note 1 - Basis of Presentation” in the Notes to the Consolidated Financial Statements for further
information.
35
Long-lived Assets
Long-lived assets (including tangible assets and intangible assets subject to amortization) are
reviewed for impairment when events or changes in circumstances have occurred indicating the
carrying value of the assets may not be recoverable.
We test recoverability of long-lived assets at the lowest level for which there are identifiable cash
flows that are independent from the cash flows of other assets. Assets and asset groups held and
used are measured for recoverability by comparing the carrying amount of the asset or asset group
to the sum of future undiscounted net cash flows expected to be generated by the asset or asset
group.
Assumptions and estimates about future values and remaining useful lives of our long-lived assets
are complex and subjective. They can be affected by a variety of factors, including external factors
such as industry and economic trends and internal factors such as changes in our business strategy
and our internal forecasts.
If an asset or asset group is considered to be impaired, the impairment loss that would be
recognized is the amount by which the carrying amount of the assets exceeds the fair value of the
assets. To determine fair value, we use internal cash flow estimates discounted at an appropriate
interest rate, third party appraisals as appropriate, and/or market prices of similar assets, when
available.
As the result of the discontinued use of certain assets, we recorded impairment charges and loss on
sale or disposal of assets of $9.3 million, $0.9 million and $0.7 million for the years ended
December 31, 2019, 2018 and 2017, respectively.
Income Taxes
We are subject to income taxes in the U.S. and numerous non-U.S. jurisdictions, and we account for
income taxes in accordance with Financial Accounting Standards Board Accounting Standard
Codification Topic 740, “Income Taxes” (ASC 740). Deferred tax assets and liabilities are recorded
for the future tax consequences attributable to differences between financial statement carrying
amounts of existing assets and liabilities and their respective tax bases, as well as net operating loss
and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which temporary differences are expected to be
recovered or settled. We record valuation allowances against deferred tax assets by tax jurisdiction
when it is more likely than not that such assets will not be realized. In determining the need for a
valuation allowance, the historical and projected financial performance of the entity recording the
net deferred tax asset is considered along with any other pertinent information. Net deferred tax
assets relate primarily to net operating losses and pension and other postretirement benefit
obligations in the U.S., which we believe are more likely than not to result in future tax benefits. As of
December 31, 2019, we have recorded a valuation allowance on our net deferred tax assets in the
U.S., as we do not believe it is more likely than not that a portion of our U.S. deferred tax assets will
be realized.
In the ordinary course of our business, there are many transactions and calculations regarding which
the ultimate income tax determination is uncertain. We are regularly under audit by tax authorities.
Accruals for uncertain tax positions are provided for in accordance with the requirements of ASC
740. We record interest and penalties related to uncertain tax positions as a component of income
tax expense.
During the year ended December 31, 2018, the Company made the accounting policy election to
treat taxes related to Global Intangible Low-Taxed Income as a current period expense when
incurred.
36
Benefit Plans
We recognize an overfunded status or underfunded status (i.e., the difference between the fair value
of plan assets and the benefit obligations) as either an asset or a liability for our defined benefit
pension and other postretirement benefit plans on the Consolidated Balance Sheets. We recognize
actuarial gains and losses immediately through net periodic benefit cost in the Consolidated
Statements of Operations upon the annual remeasurement at December 31, or on an interim basis
as triggering events warrant remeasurement. In addition, we use fair value to account for the value
of plan assets.
As of December 31, 2019, our projected benefit obligations related to our pension and other
postretirement benefit plans were $1,311.4 million and $126.2 million, respectively, and the
underfunded status of our pension and other postretirement benefit obligations were $156.0 million
and $43.9 million, respectively. These benefit obligations were valued using a weighted average
discount rate of 3.42% for pension benefit plans and other postretirement benefit plans. The
determination of the discount rate is generally based on an index created from a hypothetical bond
portfolio consisting of high-quality fixed income securities with durations that match the timing of
expected benefit payments. Changes in the selected discount rate could have a material impact on
our projected benefit obligations and the unfunded status of our pension and other postretirement
benefit plans.
For the year ended December 31, 2019, net periodic pension benefit cost was $35.9 million, and
net periodic other postretirement benefit cost was $5.7 million. In 2019, net periodic pension and
other postretirement benefit costs were calculated using a variety of assumptions, including a
weighted average discount rate of 4.30% and 4.34%/3.94% (The discount rate for the
postretirement plans was adjusted after the second quarter 2019 amendment. To calculate benefit
costs, the discount rate of 4.34% was used for January to April and the discount rate of 3.94% was
used for May to December), respectively, and an expected return on plan assets of 6.41% and
5.00%, respectively. The expected return on plan assets is determined based on several factors,
including adjusted historical returns, historical risk premiums for various asset classes and target
asset allocations within the portfolio. Adjustments made to the historical returns are based on recent
return experience in the equity and fixed income markets and the belief that deviations from
historical returns are likely over the relevant investment horizon.
The net periodic benefit cost and benefit obligation are affected by applicable year-end
assumptions. Sensitivities to these assumptions may be asymmetric and are specific to the time
periods noted. The impact of changing multiple factors simultaneously cannot be calculated by
combining the individual sensitivities. The sensitivity to changes in discount rate assumptions may
not be linear. A sensitivity analysis of the projected incremental effect of a 0.25% increase
(decrease), holding all other assumptions constant, is as follows:
Discount Rate
Net periodic benefit cost, prior to annual remeasurement gains or losses
Benefit obligation
Return on plan assets
Hypothetical Rate
Increase
0.25%
(0.25)%
$1.0
$1.1
($39.5)
$41.5
Net periodic benefit cost, prior to annual remeasurement gains or losses
($2.7)
$2.7
37
Aggregate net periodic pension and other postretirement benefit income for 2020 is forecasted to
be $1.3 million and $4.3 million, respectively. This estimate is based on a weighted average
discount rate of 3.42% for the pension benefit plans and other postretirement benefit plans, as well
as an expected return on assets of 5.80% for the pension benefit plans and 4.50% for the other
postretirement benefit plans. Actual cost also is dependent on various other factors related to the
employees covered by these plans. Adjustments to our actuarial assumptions could have a material
adverse impact on our operating results.
Please refer to “Note 15 - Retirement and Postretirement Plans” in the Notes to the Consolidated
Financial Statements for further information related to our pension and other postretirement benefit
plans.
Other Loss Reserves
We have a number of loss exposures that are incurred in the ordinary course of business, such as
environmental claims, product liability claims, product warranty claims, litigation and accounts
receivable reserves. Establishing loss reserves for these matters requires management’s estimate
and judgment with regard to risk exposure and ultimate liability or realization. These loss reserves
are reviewed periodically, and adjustments are made to reflect the most recent facts and
circumstances. These other loss reserves have an immaterial impact on the Consolidated Financial
Statements.
Forward-Looking Statements
Certain statements set forth in this Annual Report on Form 10-K (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,” “believe,” “could,” “estimate,” “expect,” “forecast,” “outlook,” “intend,” “may,” “plan,”
“possible,” “potential,” “predict,” “project,” “seek,” “should,” “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-K. 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 world 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 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; 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;
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;
38
•
•
•
•
•
•
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 unions that represent 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, and environmental issues and taxes,
among other matters;
the availability of financing and interest rates, which affect our cost of funds and/or ability to
raise capital; 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; and the amount of any dividend declared by our
Board of Directors on our common shares;
The overall impact of the pension and postretirement mark-to-market accounting; and
Those items identified under the caption Risk Factors in this Annual Report on Form 10-K.
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.
39
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
Our borrowings include both fixed and variable-rate debt. The variable 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 December 31, 2019, we
have $168.6 million of aggregate debt outstanding, of which $90.0 million consists of debt with
variable interest rates. Based on the amount of debt with variable-rate interest outstanding, a 1%
rise in interest rates would result in an increase in interest expense of $0.9 million annually.
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. 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 price risk related to
commodities. 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, the surcharge
impacts sales prices to a lesser extent.
40
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firm
Consolidated Statements of Operations for the Years Ended December 31, 2019, 2018 and
2017
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended
December 31, 2019, 2018 and 2017
Consolidated Balance Sheets as of December 31, 2019 and 2018
Consolidated Statements of Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page
42
45
46
47
48
49
50
41
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of TimkenSteel Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of TimkenSteel Corporation (the
Company) as of December 31, 2019 and 2018, and the related consolidated statements of
operations, comprehensive income (loss), shareholders’ equity and cash flows for each of the three
years in the period ended December 31, 2019, and the related notes and the financial statement
schedule included at Item 15a (collectively referred to as the “consolidated financial statements”). In
our opinion, the consolidated financial statements present fairly, in all material respects, the
consolidated financial position of the Company at December 31, 2019 and 2018, and the
consolidated results of its operations and its cash flows for each of the three years in the period
ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as
of December 31, 2019, based on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework), and our report dated February 25, 2020, expressed an unqualified opinion thereon.
Changes in Accounting Principles
As discussed in Note 1 to the consolidated financial statements, the Company elected to change its
method of accounting for certain inventories to the first-in, first-out (“FIFO”) method during the year
ended December 31, 2019.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility
is to express an opinion on the Company’s financial statements based on our audits. We are a public
accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. Our audits included
performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditors since 2012.
Cleveland, Ohio
February 25, 2020
42
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of TimkenSteel Corporation
Opinion on Internal Control over Financial Reporting
We have audited TimkenSteel Corporation’s internal control over financial reporting as of
December 31, 2019, based on criteria established in Internal Control-Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the
COSO criteria). In our opinion, TimkenSteel Corporation (the Company) maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2019, based on the
COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of
December 31, 2019 and 2018, and the related consolidated statements of operations,
comprehensive income (loss), shareholders’ equity and cash flows for each of the three years in the
period ended December 31, 2019, and the related notes and the financial statement schedule
included at Item 15a and our report dated February 25, 2020 expressed an unqualified opinion
thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting
included in the accompanying Report of Management on Internal Control over Financial Reporting.
Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing
the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures
as we considered necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles. A company’s
internal control over financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
43
acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Cleveland, Ohio
February 25, 2020
44
TimkenSteel Corporation
Consolidated Statements of Operations
(Dollars in millions, except per share data)
Net sales
Cost of products sold
Gross Profit
Selling, general and administrative expenses
Restructuring charges
Impairment charges and loss on sale or disposal of assets
Interest expense
Other income (expense), net
Income (Loss) Before Income Taxes
Provision (benefit) for income taxes
Net Income (Loss)
Per Share Data:
Basic earnings (loss) per share
Diluted earnings (loss) per share
See accompanying Notes to the Consolidated Financial Statements.
Year Ended December 31,
2019
2018
ADJUSTED
2017
ADJUSTED
$1,208.8
$1,610.6
$1,329.2
1,186.2
1,484.0
1,248.9
22.6
126.6
80.3
91.8
8.6
9.3
15.7
(23.3)
(126.1)
(16.1)
98.2
—
0.9
17.1
(18.6)
(8.2)
1.8
90.5
—
0.7
14.8
(4.1)
(29.8)
1.5
($110.0)
($10.0)
($31.3)
($2.46)
($2.46)
($0.22)
($0.22)
($0.70)
($0.70)
45
TimkenSteel Corporation
Consolidated Statements of Comprehensive Income (Loss)
(Dollars in millions)
Net income (loss)
Other comprehensive income (loss), net of tax of $16.7 million in
2019:
Year Ended December 31,
2019
2018
ADJUSTED
2017
ADJUSTED
($110.0)
($10.0)
($31.3)
Foreign currency translation adjustments
Pension and postretirement liability adjustments
Other comprehensive income (loss), net of tax
0.5
53.1
53.6
(1.4)
0.1
(1.3)
1.1
0.7
1.8
Comprehensive Income (Loss), net of tax
($56.4)
($11.3)
($29.5)
See accompanying Notes to the Consolidated Financial Statements.
46
TimkenSteel Corporation
Consolidated Balance Sheets
(Dollars in millions)
ASSETS
Current Assets
Cash and cash equivalents
Accounts receivable, net of allowances (2019 - $1.5 million; 2018 - $1.7 million)
Inventories, net
Deferred charges and prepaid expenses
Assets held for sale
Other current assets
Total Current Assets
Property, plant and equipment, net
Operating lease right-of-use assets
Pension assets
Intangible assets, net
Other non-current assets
Total Assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable
Salaries, wages and benefits
Accrued pension and postretirement costs
Current operating lease liabilities
Other current liabilities
Total Current Liabilities
Convertible notes, net
Credit Agreement
Non-current operating lease liabilities
Accrued pension and postretirement costs
Deferred income taxes
Other non-current liabilities
Total Liabilities
Shareholders’ Equity
Preferred shares, without par value; authorized 10.0 million shares, none issued
Common shares, without par value; authorized 200.0 million shares; issued 2019 and
2018 - 45.7 million shares
Additional paid-in capital
Retained deficit
Treasury shares - 2019 - 0.9 million; 2018 - 1.1 million
Accumulated other comprehensive income (loss)
Total Shareholders’ Equity
Total Liabilities and Shareholders’ Equity
See accompanying Notes to the Consolidated Financial Statements.
47
December 31,
2019
2018
ADJUSTED
$27.1
77.5
281.9
3.3
4.1
7.8
$21.6
163.4
374.5
3.5
—
6.1
401.7
569.1
626.4
674.4
14.3
25.2
14.3
3.3
—
10.5
17.8
3.5
$1,085.2
$1,275.3
$69.3
13.9
3.0
6.2
19.9
112.3
78.6
90.0
8.2
222.1
0.9
10.0
522.1
—
—
844.8
(301.5)
(24.9)
44.7
563.1
$160.6
36.8
3.0
—
20.4
220.8
74.1
115.0
—
240.0
0.8
11.7
662.4
—
—
846.3
(191.5)
(33.0)
(8.9)
612.9
$1,085.2
$1,275.3
TimkenSteel Corporation
Consolidated Statements of Shareholders’ Equity
(Dollars in millions)
Common
Shares
Outstanding
Additional
Paid-in
Capital
Retained
Deficit
Treasury
Shares
Accumulated
Other
Comprehensive
Income (Loss)
Total
Balance as of December 31, 2016
44,228,213
$845.6
($193.9)
($44.9)
($9.4)
$597.4
Cumulative effect of change in accounting
principle (Note 1)
Net income (loss)
Other comprehensive income (loss)
Stock-based compensation expense
Stock option activity
—
—
—
—
—
—
—
—
6.5
0.2
43.5
(31.3)
—
—
—
Issuance of treasury shares
300,130
(8.6)
(0.3)
Shares surrendered for taxes
(82,596)
—
—
—
—
—
—
—
8.9
(1.4)
—
—
1.8
—
—
—
—
43.5
(31.3)
1.8
6.5
0.2
—
(1.4)
Balance as of December 31, 2017 ADJUSTED
44,445,747
$843.7
($182.0)
($37.4)
($7.6)
$616.7
Net income (loss)
Other comprehensive income (loss)
Adoption of new accounting standard (Note 2)
Stock-based compensation expense
Stock option activity
—
—
—
—
—
—
—
—
7.3
0.2
(10.0)
—
0.7
—
—
Issuance of treasury shares
176,454
(4.9)
(0.2)
Shares surrendered for taxes
(37,533)
—
—
—
—
—
—
—
5.1
(0.7)
—
(10.0)
(1.3)
(1.3)
—
—
—
—
—
0.7
7.3
0.2
—
(0.7)
Balance as of December 31, 2018 ADJUSTED
44,584,668
$846.3
($191.5)
($33.0)
($8.9)
$612.9
Net income (loss)
Other comprehensive income (loss)
Stock-based compensation expense
Stock option activity
Issuance of treasury shares
Shares surrendered for taxes
—
—
—
—
—
—
7.4
0.2
321,739
(9.1)
(86,254)
—
(110.0)
—
—
—
—
—
—
—
—
—
9.1
(1.0)
—
(110.0)
53.6
53.6
—
—
—
—
7.4
0.2
—
(1.0)
Balance at December 31, 2019
44,820,153
$844.8 ($301.5)
($24.9)
$44.7 $563.1
See accompanying Notes to the Consolidated Financial Statements.
48
TimkenSteel Corporation
Consolidated Statements of Cash Flows
(Dollars in millions)
CASH PROVIDED (USED)
Operating Activities
Net income (loss)
Adjustments to reconcile net loss to net cash provided (used) by operating activities:
Depreciation and amortization
Amortization of deferred financing fees and debt discount
Impairment charges and loss on sale or disposal of assets
Deferred income taxes
Stock-based compensation expense
Pension and postretirement expense (benefit), net
Pension and postretirement contributions and payments
Changes in operating assets and liabilities:
Accounts receivable, net
Inventories, net
Accounts payable
Other accrued expenses
Deferred charges and prepaid expenses
Other, net
Net Cash Provided (Used) by Operating Activities
Investing Activities
Capital expenditures
Proceeds from disposals of property, plant and equipment
Net Cash Provided (Used) by Investing Activities
Financing Activities
Proceeds from exercise of stock options
Shares surrendered for employee taxes on stock compensation
Refunding Bonds repayments
Repayments on credit agreements
Borrowings on credit agreements
Debt issuance costs
Net Cash Provided (Used) by Financing Activities
Increase (Decrease) in Cash and Cash Equivalents
Cash and cash equivalents at beginning of period
Cash and Cash Equivalents at End of Period
See accompanying Notes to the Consolidated Financial Statements.
49
Year Ended December 31,
2019
2018
ADJUSTED
2017
ADJUSTED
($110.0)
($10.0)
($31.3)
73.5
5.1
9.3
(16.6)
7.4
41.6
(3.8)
85.9
92.6
(87.7)
(26.0)
0.2
(1.2)
70.3
(38.0)
—
(38.0)
0.2
(1.0)
—
73.0
5.5
0.9
0.8
7.3
37.4
(13.1)
(13.6)
(94.5)
24.4
(3.8)
0.4
3.8
18.5
(40.0)
1.0
(39.0)
0.2
(0.7)
(30.2)
(65.0)
(105.0)
40.0
(1.0)
(26.8)
5.5
21.6
155.0
(1.7)
17.6
(2.9)
24.5
74.9
4.0
1.6
(0.3)
6.5
24.7
(4.3)
(58.2)
(72.3)
45.7
18.3
(0.5)
(0.7)
8.1
(33.0)
—
(33.0)
0.2
(1.4)
—
(5.0)
30.0
—
23.8
(1.1)
25.6
$27.1
$21.6
$24.5
TimkenSteel Corporation
Notes to Consolidated Financial Statements
(dollars in millions, except per share data)
Note 1 - Basis of Presentation
TimkenSteel Corporation (the Company or TimkenSteel) manufactures alloy steel, as well as carbon
and micro-alloy steel, with an annual melt capacity of approximately 2 million tons and shipment
capacity of 1.5 million tons. TimkenSteel’s portfolio includes special bar quality (SBQ) bars, seamless
mechanical tubing (tubes), value-added solutions such as precision steel components, and billets. In
addition, TimkenSteel supplies machining and thermal treatment services and manages raw
material recycling programs, which are used as a feeder system for the Company’s melt operations.
The Company’s products and services are used in a diverse range of demanding applications in the
following market sectors: automotive; oil and gas; industrial equipment; mining; construction; rail;
defense; heavy truck; agriculture; power generation; and oil country tubular goods (OCTG);.
The SBQ bar, tube, and billet production processes take place at the Company’s Canton, Ohio
manufacturing location. This location accounts for all of the SBQ bars, seamless mechanical tubes
and billets the Company produces and includes three manufacturing facilities: the Faircrest,
Harrison, and Gambrinus facilities. TimkenSteel’s value-added solutions production processes take
place at three downstream manufacturing facilities: TimkenSteel Material Services (Houston, Texas),
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
the Company’s market sectors. As a result, investments in the Company’s facilities and resource
allocation decisions affecting the Company’s operations are designed to benefit the overall
business, not any specific aspect of the business. In the fourth quarter of 2019, our Board of
Directors approved a plan to close our TimkenSteel Material Services facility during the first quarter
of 2020.
Basis of Consolidation:
The Consolidated Financial Statements include the consolidated assets, liabilities, revenues and
expenses related to TimkenSteel as of December 31, 2019, 2018 and 2017. All significant
intercompany accounts and transactions within TimkenSteel have been eliminated in the
preparation of the Consolidated Financial Statements.
Use of Estimates:
The preparation of these Consolidated Financial Statements in conformity with accounting
principles generally accepted in the United States requires management to make estimates and
assumptions that affect the amounts reported in the Consolidated Financial Statements and
accompanying notes. These estimates and assumptions are reviewed and updated regularly to
reflect recent experience.
Presentation:
Certain items previously reported in specific financial statement captions have been reclassified to
conform to the fiscal 2019 presentation.
Change in Accounting Principle:
During the fourth quarter of 2019, TimkenSteel elected to change its method for valuing its
inventories that previously used the last-in, first-out (LIFO) method to the first-in, first-out (FIFO)
50
method. Total inventories accounted for under the LIFO method represented approximately 70% of
the Company’s total inventories prior to this change in method. The Company believes that the FIFO
method is preferable as it improves comparability with our peers, more closely resembles the
physical flow of our inventory, and aligns with how the Company internally manages the business.
The effects of the change in accounting principle from LIFO to FIFO have been retrospectively
applied to all periods presented. As a result of the retrospective application of the change in
accounting principle, certain financial statement line items in the Company’s consolidated balance
sheets as of December 31, 2018 and the consolidated statements of operations, comprehensive
income (loss), shareholders’ equity and cash flows for the years ended December 31, 2018 and
2017 were adjusted as necessary.
The following table reflects the effect of the change in the accounting principle on the 2019
Consolidated Financial Statements (dollars in million, except per share data):
For the Year Ended December 31, 2019
As Computed under
LIFO
As Reported under
FIFO
Effect of
Change
Statement of Operations
Cost of products sold
Gross profit
Income (loss) before income taxes
Net income (loss)
Per Share Data:
Basic earnings (loss) per share
Diluted earnings (loss) per share
$1,160.5
$1,186.2
$25.7
48.3
(100.4)
(84.3)
(1.89)
(1.89)
22.6
(126.1)
(110.0)
(25.7)
(25.7)
(25.7)
(2.46)
(2.46)
(0.57)
(0.57)
For the Year Ended December 31, 2019
Statement of Comprehensive Income (Loss)
Net (loss) income
Comprehensive income (loss), net of tax
As Computed under
LIFO
As Reported under
FIFO
Effect of
Change
($84.3)
(30.7)
($110.0)
($25.7)
(56.4)
(25.7)
As of December 31, 2019
Balance Sheet
Inventories, net
Retained deficit
As Computed under
LIFO
As Reported under
FIFO
Effect of
Change
$229.8
(249.4)
$281.9
(301.5)
$52.1
(52.1)
For the Year Ended December 31, 2019
Statement of Cash Flows
As Computed under
LIFO
As Reported under
FIFO
Effect of
Change
Net (loss) income
($84.3)
($110.0)
($25.7)
Changes in operating assets and liabilities:
Inventories, net
66.9
92.6
25.7
51
The following tables reflect the impact to the financial statement line items as a result of the change
in accounting principle for the prior periods presented in the accompanying financial statements
(dollars in millions, except per share data):
Consolidated Statement of
Operations
2018
2017
As
Reported Adjustments
As
Adjusted
As
Reported Adjustments
As
Adjusted
Cost of products sold
$ 1,505.7 $
(21.7) $ 1,484.0 $ 1,261.4 $
(12.5) $ 1,248.9
Gross profit
104.9
21.7
126.6
67.8
12.5
80.3
Income (loss) before income
taxes
Net income (loss)
Per Share Data:
(29.9)
(31.7)
21.7
21.7
(8.2)
(10.0)
(42.3)
(43.8)
12.5
12.5
(29.8)
(31.3)
Basic earnings (loss) per share
$
(0.71)$
0.49 $
(0.22) $
(0.99)$
0.29 $
(0.70)
Diluted earnings (loss) per share $
(0.71)$
0.49 $
(0.22) $
(0.99)$
0.29 $
(0.70)
Consolidated Statement of
Comprehensive Income (Loss)
2018
2017
As
Reported Adjustments
As
Adjusted
As
Reported Adjustments
As
Adjusted
Net income (loss)
$
(31.7)$
21.7 $
(10.0) $
(43.8)$
12.5 $
(31.3)
Comprehensive income (loss),
net of tax
Consolidated Balance Sheet
Inventories, net
Retained deficit (1)
(33.0)
21.7
(11.3)
(42.0)
12.5
(29.5)
2018
As
Reported Adjustments
As
Adjusted
$
296.8 $
77.7 $
374.5
(269.2)
77.7
(191.5)
(1) As a result of the accounting change, retained deficit as of January 1, 2017 decreased from $193.9 million, as originally
reported using the LIFO method, to $150.4 million using the FIFO method. The change of $43.5 million is reflected as a
cumulative change in accounting principle in the Consolidated Statements of Shareholders’ Equity.
Consolidated Statement of Cash
Flows
2018
2017
Net income (loss)
$
(31.7) $
21.7 $ (10.0) $
(43.8) $
Changes in operating assets and
liabilities:
As
Reported Adjustments
As
Adjusted
As
Reported Adjustments
As
Adjusted
12.5 $ (31.3)
Inventories, net
(72.8)
(21.7)
(94.5)
(59.8)
(12.5)
(72.3)
Note 2 - Significant Accounting Policies
Revenue Recognition:
TimkenSteel recognizes revenue from contracts at a point in time when it has satisfied its
performance obligation and the customer obtains control of the goods, at the amount that reflects
the consideration the Company expects to receive for those goods. The Company receives and
52
acknowledges purchase orders from its customers, which define the quantity, pricing, payment and
other applicable terms and conditions. In some cases, the Company receives a blanket purchase
order from its customer, which includes pricing, payment and other terms and conditions, with
quantities defined at the time the customer issues periodic releases from the blanket purchase
order. Certain contracts contain variable consideration, which primarily consists of rebates that are
accounted for in net sales and accrued based on the estimated probability of the requirements
being met.
Cash Equivalents:
TimkenSteel considers all highly liquid investments with a maturity of three months or less when
purchased to be cash equivalents.
Allowance for Doubtful Accounts:
TimkenSteel maintains an allowance for doubtful accounts, which represents an estimate of losses
expected from the accounts receivable portfolio, to reduce accounts receivable to their net
realizable value. The allowance is based upon historical trends in collections and write-offs,
management’s judgment of the probability of collecting accounts and management’s evaluation of
business risk. TimkenSteel extends credit to customers satisfying pre-defined credit criteria.
TimkenSteel believes it has limited concentration of credit risk due to the diversity of its customer
base.
Inventories, Net:
At December 31, 2019, inventories were stated at the lower of cost or net realizable value. During
the fourth quarter of 2019, the Company elected to change its method for valuing its inventories
that previously used the LIFO method to the FIFO method. The Company believes that the FIFO
method is preferable as it improves comparability with our peers, more closely resembles the
physical flow of our inventory, and aligns with how the Company internally manages the business.
The remaining inventories, including raw materials, manufacturing supplies inventory as well as
international (outside the U.S.) inventories, will continue to be valued using the FIFO or average cost
method.
The effects of the change in accounting principle from LIFO to FIFO have been retrospectively
applied to all periods presented. Refer to “Note 1 - Basis of Presentation” for more information.
Property, Plant and Equipment, Net:
Property, plant and equipment, net are valued at cost less accumulated depreciation. Maintenance
and repairs are charged to expense as incurred. The provision for depreciation is computed
principally by the straight-line method based upon the estimated useful lives of the assets. The
useful lives are approximately 30 years for buildings and three to 20 years for machinery and
equipment.
Intangible Assets, Net:
Intangible assets subject to amortization are amortized on a straight-line method over their legal or
estimated useful lives, with useful lives ranging from three to 15 years.
In accordance with Financial Accounting Standards Board (FASB) Accounting Standards
Codification (ASC) Topic 350-40, “Internal-Use Software,” (ASC 350-40), TimkenSteel capitalizes
certain costs incurred for computer software developed or obtained for internal use. TimkenSteel
capitalizes substantially all external costs and qualifying internal costs related to the purchase and
53
implementation of software projects used for business operations. Capitalized software costs
primarily include purchased software and external consulting fees. Capitalized software projects are
amortized over the estimated useful lives of the software.
Long-lived Assets:
Long-lived assets (including tangible assets and intangible assets subject to amortization) are
reviewed for impairment when events or changes in circumstances have occurred indicating that the
carrying value of the assets may not be recoverable.
TimkenSteel tests recoverability of long-lived assets at the lowest level for which there are
identifiable cash flows that are independent from the cash flows of other assets. Assets and asset
groups held and used are measured for recoverability by comparing the carrying amount of the
asset or asset group to the sum of future undiscounted net cash flows expected to be generated by
the asset or asset group.
Assumptions and estimates about future values and remaining useful lives of TimkenSteel’s long-
lived assets are complex and subjective. They can be affected by a variety of factors, including
external factors such as industry and economic trends and internal factors such as changes in
TimkenSteel’s business strategy and internal forecasts.
If an asset or asset group is considered to be impaired, the impairment loss that would be
recognized is the amount by which the carrying amount of the assets exceeds the fair value of the
assets. To determine fair value, TimkenSteel uses internal cash flow estimates discounted at an
appropriate interest rate, third party appraisals, as appropriate, and/or market prices of similar
assets, when available.
Refer to “Note 6 - Disposition of Non-Core Assets” and “Note 11 - Property, Plant and Equipment”
for additional information.
Product Warranties:
TimkenSteel accrues liabilities for warranties based upon specific claim incidents in accordance with
accounting rules relating to contingent liabilities. Should TimkenSteel become aware of a specific
potential warranty claim for which liability is probable and reasonably estimable, a specific charge is
recorded and accounted for accordingly. TimkenSteel had no significant warranty claims for the
years ended December 31, 2019, 2018 or 2017.
Income Taxes:
Deferred tax assets and liabilities are recorded for the future tax consequences attributable to
differences between financial statement carrying amounts of existing assets and liabilities and their
respective tax bases, as well as net operating loss and tax credit carryforwards. TimkenSteel
accounts for income taxes under the asset and liability method, which requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of events that have been
included in the financial statements. Under this method, deferred tax assets and liabilities are
determined on the basis of the differences between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which the differences are expected to
reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in
income in the period that includes the enactment date. TimkenSteel recognizes deferred tax assets
to the extent TimkenSteel believes these assets are more likely than not to be realized. In making
such a determination, TimkenSteel considers all available positive and negative evidence, including
future reversals of existing taxable temporary differences, projected future taxable income,
tax-planning strategies, and results of recent operations. If TimkenSteel determines that it would be
54
able to realize deferred tax assets in the future in excess of their net recorded amount, TimkenSteel
would make an adjustment to the deferred tax asset valuation allowance, which would reduce the
provision for income taxes.
TimkenSteel records uncertain tax positions in accordance with FASB ASC Topic 740, “Income
Taxes” (ASC 740), on the basis of a two-step process whereby (1) TimkenSteel determines whether it
is more likely than not that the tax positions will be sustained on the basis of the technical merits of
the position, and (2) for those tax positions that meet the more-likely-than-not recognition threshold,
TimkenSteel recognizes the largest amount of tax benefit that is more than 50 percent likely to be
realized upon ultimate settlement with the related tax authority.
TimkenSteel recognizes interest and penalties related to unrecognized tax benefits within the
provision (benefit) for income taxes line in the accompanying Consolidated Statements of
Operations. Accrued interest and penalties are included within the related tax liability line in the
Consolidated Balance Sheets.
During the year ended December 31, 2018, the Company made the accounting policy election to
treat taxes related to Global Intangible Low-Taxed Income (GILTI) as a current period expense when
incurred.
Foreign Currency:
Assets and liabilities of subsidiaries are translated at the rate of exchange in effect on the balance
sheet date. Income and expenses are translated at the average rates of exchange prevailing during
the year. The related translation adjustments are reflected as a separate component of accumulated
other comprehensive loss. Gains and losses resulting from foreign currency transactions are
included in other expense, net in the Consolidated Statements of Operations. TimkenSteel realized
a foreign currency exchange loss of $0.2 million in 2018 and a gain of $0.3 million in 2017. There
were no foreign currency exchange gains or losses in 2019.
Pension and Other Postretirement Benefits:
TimkenSteel recognizes an overfunded status or underfunded status (e.g., the difference between
the fair value of plan assets and the benefit obligations) as either an asset or a liability for its defined
benefit pension and other postretirement benefit plans on the Consolidated Balance Sheets. The
Company recognizes actuarial gains and losses immediately through net periodic benefit cost in the
Consolidated Statements of Operations upon the annual remeasurement at December 31, or on an
interim basis as triggering events warrant remeasurement. In addition, the Company uses fair value
to account for the value of plan assets.
Stock-Based Compensation:
TimkenSteel recognizes stock-based compensation expense based on the grant date fair value of
the stock-based awards over their required vesting period on a straight-line basis, whether the
awards were granted with graded or cliff vesting. Stock options are issued with an exercise price
equal to the closing market price of TimkenSteel common shares on the date of grant. The fair value
of stock options is determined using a Black-Scholes option pricing model, which incorporates
assumptions regarding the expected volatility, the expected option life, the risk-free interest rate
and the expected dividend yield. The fair value of stock-based awards that will settle in TimkenSteel
common shares, other than stock options, is based on the closing market price of TimkenSteel
common shares on the grant date. The fair values of stock-based awards that will settle in cash are
remeasured at each reporting period until settlement of the awards.
TimkenSteel recognizes all excess tax benefits and tax deficiencies as income tax expense or benefit
in the Consolidated Statements of Operations. The excess tax benefits and tax deficiencies are
55
considered discrete items in the reporting period they occur and are not included in the estimate of
an entity’s annual effective tax rate.
Research and Development:
Expenditures for TimkenSteel research and development amounted to $4.1 million for the year
ended December 31, 2019, $8.1 million for the year ended December 31, 2018 and $8.0 million for
the year ended December 31, 2017, and were recorded as a component of selling, general and
administrative expenses in the Consolidated Statements of Operations. These expenditures may
fluctuate from year to year depending on special projects and the needs of TimkenSteel and its
customers.
Adoption of New Accounting Standards:
The Company adopted the following Accounting Standard Updates (ASU) in the first quarter of
2019, all of which were effective as of January 1, 2019. The adoption of these standards had no
impact on the Consolidated Financial Statements or the related Notes to the Consolidated Financial
Statements.
Standards Adopted
Description
ASU 2018-07, Compensation - Stock Compensation
(Topic 718): Improvements to Nonemployee Share-
Based Payment Accounting
The standard provides an expanded scope of Topic
718, to include share-based payment transactions for
acquiring goods and services from nonemployees.
ASU 2018-02, Reporting Comprehensive Income:
Reclassification of Certain Tax Effects from
Accumulated Other Comprehensive Income
The standard permits entities to reclassify tax effects
stranded in accumulated other comprehensive
income as a result of tax reform to retained earnings.
ASU 2017-11, Distinguishing Liabilities from Equity;
Derivatives and Hedging
The standard eliminates the requirement to consider
“down round” features when determining whether
certain equity-linked financial instruments or
embedded features are indexed to an entity’s own
stock.
On January 1, 2019, the Company adopted ASU 2016-02, “Leases (Topics 842),” which requires
lessees to recognize lease liabilities and right-of-use assets on the balance sheet for not only finance
(previously capital) leases but also operating leases. The standard also requires additional
quantitative and qualitative disclosures. The Company adopted the standard using the modified
retrospective transition approach without adjusting comparative periods.
The Company elected certain of the practical expedients permitted under the transition guidance
within the new standard as follows:
• A package of practical expedients to not reassess:
O Whether a contract is or contains a lease
O
Lease classification
Initial direct costs
O
• A practical expedient to not reassess certain land easements
The Company has implemented internal controls and lease accounting software to enable the
quantification of the expected impact on the Consolidated Balance Sheets and to facilitate the
calculations of the related accounting entries and disclosures. Adoption of the lease standard
resulted in recognition of right-to-use assets and lease liabilities of $16.0 million as of January 1,
56
2019. Adoption of the lease standard had no impact on the Company’s debt covenant compliance
under its current agreements. Also, the standard did not materially affect the Company’s results of
operations or its cash flows. Refer to “Note 13 - Leases” for additional information.
Accounting Standards Issued But Not Yet Adopted
The Company has considered the recent ASUs issued by the Financial Accounting Standards Board
summarized below:
Standard Pending
Adoption
ASU 2018-15, Intangibles -
Goodwill and Other -
Internal-Use Software
(Subtopic 350-40)
Description
The standard aligns the
requirements for capitalizing
implementation costs in cloud
computing software
arrangements with the
requirements for capitalizing
implementation costs incurred
to develop or obtain
internal-use software.
Effective
Date
January 1,
2020
Anticipated Impact
The Company evaluated the
impact of the adoption of this
ASU on its results of operations
and financial condition and
determined that the impact is
immaterial.
ASU 2018-14, Compensation
- Retirement Benefits -
Defined Benefit Plans -
General (Subtopic 715-20)
The standard eliminates,
modifies and adds disclosure
requirements for employers that
sponsor defined benefit
pension or other postretirement
plans.
January 1,
2021
The Company is currently
evaluating the impact of the
adoption of this ASU on its
results of operations and
financial condition.
ASU 2018-13, Fair Value
Measurement (Topic 820)
The standard eliminates,
modifies and adds disclosure
requirements for fair value
measurements.
January 1,
2020
ASU 2016-13, Measurement
of Credit Losses on Financial
Instruments
January 1,
2020
The standard changes how
entities will measure credit
losses for most financial assets,
including trade and other
receivables and replaces the
current incurred loss approach
with an expected loss model.
ASU 2019-12, Income Taxes
(Topic 740)
The standard simplifies the
accounting for income taxes by
removing various exceptions.
January 1,
2021
The Company evaluated the
impact of the adoption of this
ASU on its results of operations
and financial condition and
determined that the impact is
immaterial.
The Company evaluated the
impact of the adoption of this
ASU on its results of operations
and financial condition and
determined that the impact is
immaterial.
The Company is currently
evaluating the impact of the
adoption of this ASU on its
results of operations and
financial condition.
Note 3 - Segment Information
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 the Company
operates its business and is consistent with the manner in which the Chief Operating Decision Maker
57
(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 the operations.
Geographic Information
Net sales by geographic area are reported by the country in which the customer is domiciled. Long-lived assets
include property, plant and equipment and intangible assets subject to amortization. Long-lived assets by
geographic area are reported by the location of the TimkenSteel operations to which the asset is attributed.
Net Sales:
United States
Foreign
Long-lived Assets, net:
United States
Foreign
Year Ended December 31,
2019
2018
2017
$1,096.8
$1,456.2 $1,207.7
112.0
154.4
121.5
$1,208.8
$1,610.6 $1,329.2
December 31,
2019
2018
$654.8
$692.0
0.2
0.2
$655.0
$692.2
Note 4 - Revenue Recognition
The following table provides the major sources of revenue by end-market sector for the years ended
December 31, 2019, 2018 and 2017:
Mobile
Industrial
Energy
Other(1)
Total Net Sales
Year Ended December 31,
2019
$479.3
2018
2017
$553.9
$528.6
486.3
166.4
76.8
637.5
265.6
153.6
486.4
141.7
172.5
$1,208.8
$1,610.6
$1,329.2
(1) “Other” for sales by end market sector includes the Company’s scrap and OCTG billet sales.
58
The following table provides the major sources of revenue by product type for the years ended
December 31, 2019, 2018 and 2017:
Bar
Tube
Value-add
Other(2)
Total Net Sales
Year Ended December 31,
2019
2018
2017
$783.0
151.8
240.6
33.4
$1,030.7
254.7
284.3
40.9
$850.0
176.9
265.3
37.0
$1,208.8
$1,610.6 $1,329.2
(2) “Other” for sales by product type includes the Company’s scrap sales.
Note 5 - Restructuring Charges
During 2019, TimkenSteel made organizational changes to enhance profitable and sustainable
growth. These company-wide actions included the restructuring of its business support functions,
the reduction of management layers throughout the organization, the announced closure of the
TimkenSteel Material Services (TMS) facility in Houston, Texas (See “Note 6 - Disposition of
Non-Core Assets”), and other actions to further improve the Company’s overall cost structure.
Through these restructuring efforts, the Company eliminated approximately 150 salaried positions
and recognized restructuring charges of $8.6 million, consisting of severance and employee-related
benefits. TimkenSteel recorded reserves for such restructuring charges as other current liabilities on
the Consolidated Balance Sheets. The reserve balance at December 31, 2019 is expected to be
substantially used in the next twelve months.
The following is a summary of the restructuring reserve for the twelve months ended December 31,
2019:
Balance at December 31, 2018
Expenses (1)
Payments
Balance at December 31, 2019
$—
8.6
(2.6)
$6.0
(1) Expenses of $8.6 million exclude stock compensation of $0.3 million that was accelerated as a result of the Company’s
restructuring activities.
There were no restructuring charges for the years ended December 31, 2018 and 2017.
Note 6 - Disposition of Non-Core Assets
During the fourth quarter of 2019, management signed a letter of intent to dispose of the
Company’s scrap processing facility in Akron, Ohio for cash consideration of approximately
$4.0 million. This letter of intent and cash consideration were for the land, buildings, machinery and
equipment associated with this facility.
As a result of the agreement to sell the scrap processing facility, the Company ceased depreciation
of the assets and recorded them as assets held for sale on the Consolidated Balance Sheet as of
December 31, 2019. This disposal does not represent a discontinued operation. Additionally, the
Company recorded an impairment charge of $7.3 million in the fourth quarter of 2019 which
represents the cash consideration to be received less cost to sell the assets compared with the
$11.3 million carrying value of the assets being sold, including supplies inventory. The sale of the
assets was completed in the first quarter of 2020.
59
Additionally, in the fourth quarter of 2019, the Board of Directors approved a plan to close the
Company’s TMS facility in Houston, Texas in the first quarter of 2020. The closure of the facility does
not qualify as a discontinued operation. At December 31, 2019, the associated assets did not meet
the criteria to be classified as held for sale. As a result of the plan, the Company recorded the
following charges in the fourth quarter of 2019:
•
•
Restructuring charges of approximately $0.7 million, primarily related to severance and
other employee termination charges;
Inventory write-downs of $4.8 million, which represents the difference between the
expected selling price and carrying value of the related inventory. The expected selling
price was based upon the Company’s most recently published price lists related to this
inventory;
• Accelerated depreciation and amortization on TMS assets of $2.8 million in the fourth
quarter of 2019, with an additional $1.6 million of accelerated depreciation to be recorded
in the first quarter of 2020. Accelerated depreciation was recorded to reduce the carrying
value of the assets to expected liquidation value at the end of the phase-down period in the
first quarter of 2020. The liquidation value was based on initial broker estimates of fair value
obtained in conjunction with the plan to close this facility.
Note 7 - Other Income (Expense), net
The following table provides the components of other income (expense), net for the years ended
December 31, 2019, 2018 and 2017:
Year Ended December 31,
2018
2019
2017
Pension and postretirement non-service benefit income
Loss from remeasurement of benefit plans
Foreign currency exchange gain (loss)
Miscellaneous income (expense)
$17.5
(40.6)
—
(0.2)
$25.2
(43.5)
(0.2)
(0.1)
$17.5
(21.8)
0.3
(0.1)
Total other income (expense), net
($23.3)
($18.6)
($4.1)
Non-service benefit income from all years is derived from the Company’s pension and other
postretirement plans. The Company has had a favorable return on assets for its benefit plans,
resulting in a benefit for all years. The loss from remeasurement of benefit plans is due to the
Company performing mark-to-market accounting on its pension and postretirement assets at
year-end and upon the occurrence of certain triggering events, partially offset with curtailments of
$8.9 million due to the freezing of the salaried pension plan. For more details on the
remeasurement and curtailments, refer to “Note 15 - Retirement and Postretirement Plans.”
60
Note 8 - Income Tax Provision
Income (loss) from operations before income taxes, based on geographic location of the operations
to which such earnings are attributable, is provided below.
United States
Non-United States
Years Ended December 31,
2019
($130.8)
2018
ADJUSTED
2017
ADJUSTED
($10.1)
($37.0)
4.7
1.9
7.2
Loss from operations before income taxes
($126.1)
($ 8.2)
($29.8)
The provision (benefit) for income taxes consisted of the following:
Current:
Federal
State and local
Foreign
Total current tax expense (benefit)
Deferred:
Federal
State and local
Foreign
Total deferred tax expense (benefit)
Provision (benefit) for incomes taxes
Years Ended December 31,
2019
2018
2017
$—
0.1
0.4
$0.5
$—
0.3
0.7
$1.0
$1.1
0.1
0.6
$1.8
($14.4)
$0.4
($0.4)
(2.0)
(0.2)
(16.6)
($16.1)
—
0.4
0.8
$1.8
—
0.1
(0.3)
$1.5
For the year ended December 31, 2019, TimkenSteel made $0.6 million in foreign tax payments,
$0.2 million in state tax payments, and no U.S. federal payments, and had no refundable
overpayments of state income taxes. For the year ended December 31, 2018, TimkenSteel made
$0.6 million in foreign tax payments, $0.2 million in state tax payments, and no U.S. federal
payments, and had no refundable overpayments of state income taxes.
61
The reconciliation between TimkenSteel’s effective tax rate on income (loss) from continuing
operations and the statutory tax rate is as follows:
Tax at the U.S. federal statutory rate
Adjustments:
State and local income taxes, net of federal tax benefit
Foreign earnings taxed at different rates
U.S. research tax credit
Valuation allowance
Global intangible low-taxed income
Tax reform impact - transition tax and rate change
Permanent differences
Other items, net
Provision (benefit) for income taxes
Effective tax rate
Years Ended December 31,
2019
2018
2017
($26.5)
($6.3)
($14.8)
(1.3)
—
0.2
10.2
0.2
—
1.3
(0.2)
($16.1)
(0.5)
0.2
(0.2)
7.5
0.5
—
0.8
(0.2)
$1.8
(0.7)
(0.2)
(0.2)
6.3
—
10.2
0.3
0.6
$1.5
12.8 %
(5.9)%
(3.7)%
Income tax expense includes U.S. and international income taxes. Except as required under U.S. tax
law, U.S. income and foreign withholding taxes have not been recognized on the excess of the
amount for financial reporting over the tax basis of investments in foreign subsidiaries that is
indefinitely reinvested outside the U.S. This amount becomes taxable upon a repatriation of assets
from the subsidiary or a sale or liquidation of the subsidiary. Undistributed earnings of foreign
subsidiaries outside of the U.S. were $6.5 million, $5.5 million and $2.9 million at December 31,
2019, 2018 and 2017, respectively. The 2017 cumulative earnings amounts were recognized
through the transition tax calculation pursuant to the Tax and Jobs Act enacted on December 22,
2017. The Company has recognized a deferred tax liability in the amount of $0.7 million and
$0.6 million at December 31, 2019 and 2018, respectively, for undistributed earnings at its
TimkenSteel (Shanghai) Corporation Limited and TimkenSteel de Mexico S. de R.C. de C.V.
subsidiaries, as those earnings are not permanently reinvested by the Company.
62
The effect of temporary differences giving rise to deferred tax assets and liabilities at December 31,
2019 and 2018 was as follows:
Deferred tax liabilities:
Depreciation
Inventory
Convertible debt
Lease liability
Other, net
Deferred tax liabilities
Deferred tax assets:
Pension and postretirement benefits
Other employee benefit accruals
Tax loss carryforwards
Intangible assets
Inventory
State decoupling
Leases - right-of-use asset
Interest limitation
Other, net
Deferred tax assets subtotal
Valuation allowances
Deferred tax assets
Net deferred tax assets (liabilities)
December 31,
2019
2018
($98.6)
($101.4)
(24.3)
(1.7)
(3.4)
(0.7)
(9.9)
(2.6)
—
(0.7)
($128.7)
($114.6)
$47.9
7.2
86.0
1.1
5.4
4.5
3.4
6.0
1.2
$55.2
7.1
82.0
1.1
1.2
5.1
—
3.2
2.6
$162.7
$157.5
(34.9)
127.8
($0.9)
(43.7)
113.8
($0.8)
As of December 31, 2019 and 2018, the Company had a deferred tax liability of $0.9 million and
$0.8 million, respectively, on the Consolidated Balance Sheets.
As of December 31, 2019, TimkenSteel had loss carryforwards in the U.S. and various non-U.S.
jurisdictions totaling $370.1 million (of which $314.9 million relates to the U.S. and $55.2 million
relates to the UK jurisdiction), having various expiration dates. TimkenSteel has provided valuation
allowances of $34.9 million against these carryforwards. The majority of the non-U.S. loss
carryforwards represent local country net operating losses for branches of TimkenSteel or entities
treated as branches of TimkenSteel under U.S. tax law. Tax benefits have previously been recorded
for these losses in the U.S. The related local country net operating loss carryforwards are offset fully
by valuation allowances. As of December 31, 2019, TimkenSteel had a gross deferred tax asset for
disallowed business interest in the U.S. of $25.2 million, which carries forward indefinitely.
During the fourth quarter of 2019, TimkenSteel elected to change its method for valuing its
inventories that previously used the LIFO method to the FIFO method. For tax purposes, prior to this
change, the Company had a LIFO reserve of approximately $130 million. The LIFO reserve will be
63
treated as taxable income over a four year period beginning in 2019. The Company expects this
income to be fully offset by our net operating losses resulting in no cash tax liability. A deferred tax
liability has been established for the future reversal amount and is included in the inventory line in
the table above.
During 2016, operating losses generated in the U.S. resulted in a decrease in the carrying value of
the Company’s U.S. deferred tax liability to the point that would result in a net U.S. deferred tax asset
at December 31, 2016. In light of TimkenSteel’s operating performance in the U.S. and current
industry conditions, the Company assessed, based upon all available evidence, and concluded that
it was more likely than not that it would not realize a portion of its U.S. deferred tax assets. The
Company recorded a valuation allowance in 2016 and as a result of current year activity, the
Company remained in a full valuation allowance position through 2019. Going forward, the need to
maintain valuation allowances against deferred tax assets in the U.S. and other affected countries
will cause variability in the Company’s effective tax rate. The Company will maintain a valuation
allowance against its deferred tax assets in the U.S. and applicable foreign countries until sufficient
positive evidence exists to eliminate them.
TimkenSteel records interest and penalties related to uncertain tax positions as a component of
provision (benefit) for income taxes. As of December 31, 2019, 2018 and 2017, TimkenSteel had no
total gross unrecognized tax benefits, and no amounts which represented unrecognized tax benefits
that would favorably impact TimkenSteel’s effective income tax rate in any future periods if such
benefits were recognized. As of December 31, 2019, TimkenSteel does not anticipate a change in its
unrecognized tax positions during the next 12 months. TimkenSteel had no accrued interest and
penalties related to uncertain tax positions as of December 31, 2019, 2018 and 2017.
TimkenSteel does not have any unrecognized tax benefits as of years ended December 31, 2019,
2018, and 2017.
As of December 31, 2019, TimkenSteel is not subject to examination by the IRS. Pursuant to the Tax
Sharing Agreement dated June 30, 2014 between TimkenSteel and The Timken Company,
TimkenSteel may be subject to results from tax examinations for The Timken Company for federal,
state and local and various foreign tax jurisdictions in various open audit periods.
Tax Cuts and Jobs Act Bill
On December 22, 2017, the Tax Cuts and Jobs Act (the Act) was signed into law, which resulted in
significant changes to U.S. tax and related laws. Some of the provisions of the Act affecting
corporations include, but are not limited to, a reduction in the federal corporate income tax rate
from 35% to 21%, expensing the cost of acquired qualified property, the elimination of alternative
minimum tax, a modification of the net operating loss deduction, and the creation of global
intangible low-taxed income. Further, several changes and limitations to deductions were
encompassed in the new law and were effective for TimkenSteel in 2018, including, interest
expense, performance-based compensation, meals and entertainment expenses, transportation
fringe benefits, and elimination of the domestic production activities deduction. We have evaluated
the impact of the new tax law on TimkenSteel’s financial condition and results of operations. We did
not experience a significant reduction in our effective income tax rate or our net deferred federal
income tax assets as a result of the income tax rate reduction or changes to U.S. tax law.
Note 9 - Earnings (Loss) Per Share
Basic loss per share is computed based upon the weighted average number of common shares
outstanding. Diluted loss per share is computed based upon the weighted average number of
common shares outstanding plus the dilutive effect of common share equivalents calculated using
the treasury stock method or if-converted method. For the Convertible Notes, the Company utilizes
64
the if-converted method to calculate diluted loss per share. Under the if-converted method, the
Company adjusts net earnings to add back interest expense (including amortization of debt
discount) recognized on the Convertible Notes and includes the number of shares potentially
issuable related to the Convertible Notes in the weighted average shares outstanding. Treasury
stock is excluded from the denominator in calculating both basic and diluted loss per share.
For the years ended December 31, 2019, 2018 and 2017, 3.7 million, 3.3 million, and 3.1 million
shares issuable for equity-based awards, respectively, were excluded from the computation of
diluted loss per share because the effect of their inclusion would have been anti-dilutive. In periods
in which a net loss has occurred, as is the case for years ended December 31, 2019, 2018 and 2017,
the dilutive effect of equity-based awards is not recognized and thus not utilized in the calculation of
diluted loss per share, because the effect of their inclusion would have been anti-dilutive. The shares
potentially issuable of 6.9 million related to the Convertible Notes were also anti-dilutive for the
years ended December 31, 2019, 2018 and 2017.
The following table sets forth the reconciliation of the numerator and the denominator of basic and
diluted loss per share for the years ended December 31, 2019, 2018 and 2017:
Year Ended December 31,
2018
ADJUSTED
2017
ADJUSTED
2019
Numerator:
Net income (loss)
Denominator:
($110.0)
($10.0)
($31.3)
Weighted average shares outstanding, basic
Weighted average shares outstanding, diluted
44.8
44.8
44.6
44.6
44.4
44.4
Basic earnings (loss) per share
Diluted earnings (loss) per share
Note 10 - Inventories
($2.46)
($2.46)
($0.22)
($0.22)
($0.70)
($0.70)
The components of inventories as of December 31, 2019 and 2018 were as follows:
Manufacturing supplies
Raw materials
Work in process
Finished products
Gross inventory
Allowance for inventory reserves
Total inventories, net
December 31,
2019
2018
ADJUSTED
$49.8
26.0
123.7
93.1
292.6
$46.9
35.2
155.7
142.8
380.6
(10.7)
(6.1)
$281.9
$374.5
Previously, the Company utilized the LIFO method to account for a substantial portion of its
inventory. As described in Note 1, in the fourth quarter of 2019 the Company elected to change the
65
method of accounting for the inventory under the LIFO method to the FIFO method. The effects of
this change in accounting principle have been retrospectively applied to all periods presented. The
remaining inventories, including raw materials, manufacturing supplies inventory as well as
international inventories, were not impacted by this change in accounting principle and continue to
be valued by the average cost or FIFO methods.
In connection with the announced closure of TMS, the company recorded an additional reserve
against inventory of $4.8 million to state it at the lower of cost or net realizable value. See
“Note 6 - Disposition of Non-Core Assets.”
Note 11 - Property, Plant and Equipment
The components of property, plant and equipment, net as of December 31, 2019 and 2018 were as
follows:
Land
Buildings and improvements
Machinery and equipment
Construction in progress
Subtotal
Less allowances for depreciation
Property, plant and equipment, net
December 31,
2019
2018
$13.3
419.0
1,404.6
30.9
1,867.8
$14.1
424.4
1,404.2
28.5
1,871.2
(1,241.4)
(1,196.8)
$626.4
$674.4
Total depreciation expense was $67.4 million, $67.5 million, and $68.3 million for the years ended
December 31, 2019, 2018, and 2017 respectively. Depreciation expense in 2019 includes
$1.9 million of accelerated depreciation related to the announced closure of TMS. See “Note 6 -
Disposition of Non-Core Assets” for additional information. For the year ended December 31, 2019,
TimkenSteel recorded impairments and loss on disposal of assets of $9.0 million primarily related to
the abandonment of certain equipment and the impairment of assets held for sale. For the years
ended December 31, 2018 and 2017, TimkenSteel recorded approximately $0.5 million and
$0.7 million, respectively, of impairment charges and loss on sale or disposal of assets related to the
discontinued use of certain assets.
Note 12 - Intangible Assets
The components of intangible assets, net as of December 31, 2019 and 2018 were as follows:
December 31, 2019
December 31, 2018
Gross
Carrying
Amount
$6.3
9.0
61.1
Accumulated
Amortization
Net Carrying
Amount
$5.0
8.0
49.1
$1.3
1.0
12.0
Gross
Carrying
Amount
$6.3
9.0
61.6
Accumulated
Amortization
Net Carrying
Amount
$4.6
6.5
48.0
$1.7
2.5
13.6
Customer relationships
Technology use
Capitalized software
Total intangible assets
$76.4
$62.1
$14.3
$76.9
$59.1
$17.8
66
Intangible assets subject to amortization are amortized on a straight-line method over their legal or
estimated useful lives. The weighted average useful lives of the customer relationships, technology
use and capitalized software are 15 years, 15 years and 6 years, respectively. The weighted average
useful life of total intangible assets is 8 years. Amortization expense for intangible assets for the
years ended December 31, 2019, 2018, and 2017 was $6.1 million, $5.5 million and $6.6 million,
respectively. Amortization expense in 2019 includes accelerated amortization of $0.9 million related
to the announced closure of TMS. See “Note 6 - Disposition of Non-Core Assets” for additional
information. During the year ended December 31, 2019, TimkenSteel recorded a loss on disposal of
$0.1 million. For the year ended December 31, 2018, TimkenSteel recorded approximately
$0.4 million of impairment charges due to the discontinued use of certain capitalized software. No
impairment charges were recorded for the year ended December 31, 2017.
Based upon the intangible assets subject to amortization as of December 31, 2019, TimkenSteel’s
estimated annual amortization for the five succeeding years is shown below (in millions):
Year
2020
2021
2022
2023
2024
Note 13 - Leases
Amortization
Expense
$3.3
2.0
1.8
1.7
0.8
The Company has operating leases for office space, warehouses, land, machinery and equipment,
vehicles and certain information technology equipment. These leases have remaining lease terms of
less than one year to six years, some of which may include options to extend the leases for one or
more years. Certain leases also include options to purchase the leased property. As of
December 31, 2019, the Company has no financing leases. The weighted average remaining lease
term for our operating leases as of December 31, 2019 was 2.9 years.
Leases with an initial term of 12 months or less (short-term leases) are not recorded on the balance
sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease
term. For lease agreements entered into after the adoption of ASC 842, the Company combines
lease and non-lease components. The Company’s lease agreements do not contain material
residual value guarantees or material restrictive covenants.
The Company recorded lease cost for the year ended December 31, 2019 as follows:
Operating lease cost
Short-term lease cost
Total lease cost
Year Ended
December 31, 2019
$7.4
1.9
$9.3
When available, the rate implicit in the lease is used to discount lease payments to present value;
however, the Company’s leases generally do not provide a readily determinable implicit rate.
Therefore, the incremental borrowing rate to discount the lease payments is estimated using
67
market-based information available at lease commencement. The weighted average discount rate
used to measure our operating lease liabilities as of December 31, 2019 was 4.5%.
Supplemental cash flow information related to leases was as follows:
Cash paid for amounts included in the measurement of operating lease liabilities
Right-of-use assets obtained in exchange for operating lease obligations
Year Ended
December 31, 2019
$7.5
$4.3
Future minimum lease payments under non-cancellable leases as of December 31, 2019 were as
follows:
2020
2021
2022
2023
After 2023
Total future minimum lease payments
Less amount of lease payment representing interest
Total present value of lease payments
$6.8
4.6
2.2
1.3
0.5
15.4
(1.0)
$14.4
Future minimum lease payments under non-cancellable leases as of December 31, 2018 were as
follows:
2019
2020
2021
2022
2023
After 2023
Total future minimum lease payments
$6.3
5.2
3.3
1.0
0.6
—
$16.4
As of December 31, 2019, we have additional operating leases that have not yet commenced for
which the present value of lease payments over the respective lease terms totals approximately
$7.6 million. These leases are primarily manufacturing equipment to support the Company’s mobile
value-added powertrain component product sales. These operating leases will commence in the
first half of 2020 with lease terms of three to four years. Accordingly, these leases are not recorded
on the Consolidated Balance Sheet at December 31, 2019.
Note 14 - Financing Arrangements
Credit Agreement
On January 26, 2018, the Company, as borrower, and certain domestic subsidiaries, as subsidiary
guarantors, entered into the Second Amended and Restated Credit Agreement (Credit Agreement),
with JP Morgan Chase Bank, N.A., as administrative agent, Bank of America, N.A., as syndication
agent, and the other lenders party thereto, which amended and restated the Company’s credit
agreement dated as of February 26, 2016.
68
Amended Credit Agreement
On October 15, 2019, the Company, as borrower, and certain domestic subsidiaries of the
Company, as subsidiary guarantors, entered into a Third Amended and Restated Credit Agreement
(the Amended Credit Agreement), with JP Morgan Chase Bank, N.A., as administrative agent (the
Administrative Agent), Bank of America, N.A., as syndication agent, and the other lenders party
thereto (collectively, the Lenders), which further amended and restated the Company’s existing
Credit Agreement dated as of January 26, 2018.
The Amended Credit Agreement provides for a $400.0 million asset-based revolving credit facility
(the Credit Facility), including a $15.0 million sublimit for the issuance of commercial and standby
letters of credit and a $40.0 million sublimit for swingline loans. Pursuant to the terms of the
Amended Credit Agreement, the Company is entitled, on up to two occasions and subject to the
satisfaction of certain conditions, to request increases in the commitments under the Amended
Credit Agreement in the aggregate principal amount of up to $100.0 million, to the extent that
existing or new lenders agree to provide such additional commitments. In addition to and
independent of any increase described in the preceding sentence, the Company is entitled, subject
to the satisfaction of certain conditions, to request a separate first-in, last-out (FILO) tranche in an
aggregate principal amount of up to $30.0 million with a separate borrowing base and interest rate
margins, in each case, to be agreed upon among the Company, the Administrative Agent and the
Lenders providing the incremental FILO tranche.
The availability of borrowings under the Credit Facility is subject to a borrowing base calculation
based upon a valuation of the eligible accounts receivable, inventory and machinery and equipment
of the Company and the subsidiary guarantors, each multiplied by an applicable advance rate. The
availability of borrowings may be further modified by reserves established from time to time by the
Administrative Agent in its permitted discretion.
The interest rate per annum applicable to loans under the Credit Facility will be, at the Company’s
option, equal to either (i) the alternate base rate plus the applicable margin or (ii) the relevant
adjusted LIBO rate for an interest period of one, two, three or six months (as selected by the
Company) plus the applicable margin. The base rate will be a fluctuating rate per annum equal to
the greatest of (i) the prime rate as quoted in The Wall Street Journal, (ii) the effective Federal
Reserve Bank of New York rate plus 0.50% and (iii) the adjusted LIBO rate for a one-month interest
period on the applicable date, plus 1.00%. The adjusted LIBO rate will be equal to the applicable
London interbank offered rate for the selected interest period, as adjusted for statutory reserve
requirements for eurocurrency liabilities. The applicable margin will be determined by a pricing grid
based on the Company’s average quarterly availability. In addition, the Company will pay a 0.25%
per annum commitment fee on the average daily unused amount of the Credit Facility. The interest
rate under the Amended Credit Agreement was 3.3% as of December 31, 2019. The amount
available under the Amended Credit Agreement as of December 31, 2019 was $203.2 million.
All of the indebtedness under the Credit Facility is guaranteed by the Company’s material domestic
subsidiaries, as well as any other domestic subsidiary that the Company elects to make a party to the
Amended Credit Agreement, and is secured by substantially all of the personal property of the
Company and the subsidiary guarantors.
The Credit Facility matures on October 15, 2024. Prior to the maturity date, amounts outstanding
are required to be repaid (without reduction of the commitments thereunder) from mandatory
prepayment events from the proceeds of certain asset sales, equity or debt issuances or casualty
events.
The Amended Credit Agreement contains certain customary covenants, including covenants that
limit the ability of the Company and its subsidiaries to, among other things, (i) incur or suffer to exist
69
certain liens, (ii) make investments, (iii) incur or guaranty additional indebtedness, (iv) enter into
consolidations, mergers, acquisitions, sale-leaseback transactions and sales of assets, (v) make
distributions and other restricted payments, (vi) change the nature of its business, (vii) engage in
transactions with affiliates and (viii) enter into restrictive agreements, including agreements that
restrict the ability to incur liens or make distributions.
In addition, the Amended Credit Agreement requires the Company to (i) unless certain conditions
are met, maintain certain minimum liquidity as specified in the Amended Credit Agreement during
the period commencing on March 1, 2021 and ending on June 1, 2021 and (ii) maintain a minimum
specified fixed charge coverage ratio on a springing basis if minimum availability requirements as
specified in the Amended Credit Agreement are not maintained.
The Amended Credit Agreement contains certain customary events of default. If any event of default
occurs and is continuing, the Lenders would be entitled to take various actions, including the
acceleration of amounts due under the Amended Credit Agreement, and exercise other rights and
remedies.
Convertible Notes
In May 2016, the Company issued $75.0 million aggregate principal amount of Convertible Senior
Notes, and an additional $11.3 million principal amount to cover over-allotments (Convertible
Notes). The Indenture for the Convertible Notes dated May 31, 2016, which was filed with the
Securities and Exchange Commission as an exhibit to a Form 8-K filed on May 31, 2016, contains a
complete description of the terms of the Convertible Notes. The key terms are as follows:
Maturity Date:
Interest Rate:
June 1, 2021 unless repurchased or converted earlier
6.0% cash interest per year
Interest Payments Dates:
June 1 and December 1 of each year, beginning on December 1, 2016
Initial Conversion Price:
Approximately $12.58 per common share of the Company
Initial Conversion Rate:
79.5165 common shares per $1,000 principal amount of Notes
The net proceeds to the Company from the offering were $83.2 million, after deducting the initial
underwriters’ discount and fees and the offering expenses payable by the Company. The Company
used the net proceeds to repay a portion of the amounts outstanding under its revolving credit
agreement.
The components of the Convertible Notes as of December 31, 2019 and December 31, 2018 were
as follows:
Principal
Less: Debt issuance costs, net of amortization
Less: Debt discount, net of amortization
Convertible notes, net
Year Ended December 31,
2019
2018
$86.3
(0.7)
(7.0)
$78.6
$86.3
(1.2)
(11.0)
$74.1
The initial value of the principal amount recorded as a liability at the date of issuance was
$66.9 million, using an effective interest rate of 12.0%. The remaining $19.4 million of principal
amount was allocated to the conversion feature and recorded as a component of shareholders’
70
equity at the date of issuance. This amount represents a discount to the debt to be amortized
through interest expense using the effective interest method through the maturity of the Convertible
Notes.
Transaction costs were allocated to the liability and equity components based on their relative
values. Transaction costs attributable to the liability component of $2.4 million are amortized to
interest expense over the term of the Convertible Notes, and transaction costs attributable to the
equity component of $0.7 million are included in shareholders’ equity.
The following table sets forth total interest expense recognized related to the Convertible Notes:
Contractual interest expense
Amortization of debt issuance costs
Amortization of debt discount
Total
Revenue Refunding Bonds
Year Ended December 31,
2019
2018
$5.2
0.4
4.0
$9.6
$5.2
0.4
3.6
$9.2
On January 23, 2018, the Company redeemed in full $12.2 million of Ohio Water Development
Revenue Refunding Bonds (originally due on November 1, 2025), $9.5 million of Ohio Air Quality
Development Revenue Refunding Bonds (originally due on November 1, 2025) and $8.5 million of
Ohio Pollution Control Revenue Refunding Bonds (originally due on June 1, 2033).
Fair Value Measurement
The fair value of the Convertible Notes was approximately $89.3 million as of December 31, 2019.
The fair value of the Convertible Notes, which falls within Level 1 of the fair value hierarchy as
defined by Accounting Standards Codification (ASC) 820, Fair Value Measurements, is based on the
last price traded in December 2019.
TimkenSteel’s Credit Facility is variable-rate debt. As such, the carrying value is a reasonable
estimate of fair value as interest rates on these borrowings approximate current market rates. This
valuation falls within Level 2 of the fair value hierarchy and is based on quoted prices for similar
assets and liabilities in active markets that are observable either directly or indirectly.
Interest Paid
The total cash interest paid for the year ended December 31, 2019 and 2018 was $11.5 million and
$11.8 million, respectively.
Note 15 - Retirement and Postretirement Plans
Eligible TimkenSteel employees, including certain employees in foreign countries, participate in the
following TimkenSteel-sponsored plans: TimkenSteel Corporation Retirement Plan; TimkenSteel
Corporation Bargaining Unit Pension Plan, Supplemental Pension Plan of TimkenSteel Corporation,
TimkenSteel U.K. Pension Scheme, TimkenSteel Corporation Bargaining Unit Welfare Benefit Plan
for Retirees, and TimkenSteel Corporation Welfare Benefit Plan for Retirees.
During the second quarter of 2019, the Company amended the TimkenSteel Corporation
Bargaining Unit Welfare Plan for Retirees relating to moving Medicare-eligible retirees to an
71
individual plan on a Medicare healthcare exchange. The amendment reduced the postretirement
liability by $70.2 million, and required the Company to perform a full remeasurement of its
obligation and plan assets as of April 30, 2019. The $70.2 million reduction in the APBO was
recognized in Other Comprehensive Income (Loss) and is being amortized as an offset to
postretirement benefit cost over a period of 12 years (average remaining service period). In addition
to the reduction of the APBO, the Company recognized a net remeasurement loss of $4.4 million.
During the fourth quarter of 2019, the Company amended the Supplemental Pension Plan of
TimkenSteel Corporation, which provides for the payment of nonqualified supplemental pension
benefits to certain salaried participants in the TimkenSteel Corporation Retirement Plan. The
amendment provides for the cessation of benefit accruals under the Supplemental Plan, effective as
of December 31, 2020. Effective January 1, 2021, there will be no new accruals of benefits, including
with respect to service accruals and the final average compensation determination. Certain of the
Company’s named executive officers are participants in the plan. Existing benefits under the plan, as
of December 31, 2020, will otherwise continue in accordance with the terms of the plan. This
amendment reduced the pension liability, resulting in a curtailment gain of $0.8 million. This
curtailment gain was recognized in Other Income (Expense) in the Consolidated Statement of
Operations.
During the fourth quarter of 2019, the Company amended the TimkenSteel Corporation Retirement
Plan, which provides payments of tax-qualified pension benefits to certain salaried employees of the
Company and its subsidiaries, to cease benefit accruals under the Pension Plan for all remaining
active participants, effective as of December 31, 2020. This plan amendment reduced the pension
liability, resulting in a curtailment gain of $8.1 million. This curtailment gain was recognized in Other
Income (Expense) in the Consolidated Statement of Operations.
During the fourth quarter of 2019, the Company also amended the TimkenSteel Corporation
Welfare Benefit Plan for Retirees, under which certain retired salaried employees of the Company
and its subsidiaries are eligible to receive a Company contribution for their medical and prescription
drug benefits under the retiree welfare plan. The amendment was to eliminate the retiree medical
subsidy, effective as of December 31, 2019, for all remaining active salaried participants who retire
after December 31, 2019 (provided, however, that participants who are laid off on or before
March 31, 2020 and who otherwise qualify for the retiree medical subsidy under the terms of the
retiree welfare plan remain entitled to receive the retiree medical subsidy). This plan amendment
reduced the pension liability by $2.3 million, was recognized in Other Comprehensive Income (Loss)
and is being amortized as an offset to postretirement benefit cost in future periods.
Pension benefits earned are generally based on years of service and compensation during active
employment. TimkenSteel’s funding policy is consistent with the funding requirements of applicable
laws and regulations. Asset allocations are established in a manner consistent with projected plan
liabilities, benefit payments and expected rates of return for the various asset classes. The expected
rate of return for the investment portfolio is based on expected rates of return for various asset
classes, as well as historical asset class and fund performance.
72
The following tables set forth the change in benefit obligation, change in plan assets, funded status
and amounts recognized on the Consolidated Balance Sheets for the defined benefit pension plans
as of December 31, 2019 and 2018:
Change in benefit obligation:
Pension
2019
2018
Postretirement
2018
2019
Benefit obligation at the beginning of year
$1,178.3
$1,282.1
$194.7
$216.2
Service cost
Interest cost
Actuarial (gains) losses
Benefits paid
Plan amendment
Curtailments
Foreign currency translation adjustment
17.4
48.9
145.7
(72.3)
(0.7)
(8.9)
3.0
17.2
45.6
(70.4)
(92.4)
0.5
—
(4.3)
1.1
5.9
11.4
(14.4)
(72.5)
—
—
1.6
7.6
(11.7)
(19.0)
—
—
—
Benefit obligation at the end of year
$1,311.4
$1,178.3
$126.2
$194.7
Change in plan assets:
Pension
Postretirement
2019
2018
2019
2018
Fair value of plan assets at the beginning of year
$1,054.4
$1,186.6
$86.1
$104.0
Actual return on plan assets
Company contributions / payments
Benefits paid
Foreign currency translation adjustment
167.7
2.0
(72.3)
3.6
(45.5)
10.6
(92.4)
(4.9)
8.9
1.7
(1.3)
2.4
(14.4)
(19.0)
—
—
Fair value of plan assets at end of year
$1,155.4
$1,054.4
$82.3
$86.1
Funded status at end of year
($156.0)
($123.9)
($43.9)
($108.6)
The TimkenSteel Corporation Retirement Plan (Salaried Plan) has a provision that permits
employees to elect to receive their pension benefits in a lump sum. In the fourth quarter 2018, the
cumulative cost of all lump sums exceeded the sum of the service cost and interest cost components
of net periodic pension cost for the Salaried Plan. For the year ended December 31, 2018 total
settlements were $26.0 million. These settlements are included in benefits paid in the tables above
and in the net remeasurement losses (gains) as a component of net periodic benefit cost. The
cumulative cost of all lump sums did not exceed service cost and interest cost components of net
periodic pension cost for the year ended December 31, 2019.
For the years ended December 31, 2019 and 2018, the pension plan had administrative expenses of
$3.5 million and $2.2 million, respectively. These expenses are included in benefits paid in the
tables above.
The accumulated benefit obligation at December 31, 2019 exceeded the fair value of plan assets for
two of the Company’s pension plans. For these plans, the benefit obligation was $998.5 million, the
accumulated benefit obligation was $983.6 million and the fair value of plan assets was
$817.3 million as of December 31, 2019.
The total pension accumulated benefit obligation for all plans was $1,294.5 million and
$1,149.8 million as of December 31, 2019 and 2018, respectively.
73
Amounts recognized on the balance sheet at December 31, 2019 and 2018, for TimkenSteel’s
pension and postretirement benefit plans include:
Non-current assets
Current liabilities
Non-current liabilities
Total
Pension
Postretirement
2019
2018
2019
2018
$25.2
$10.5
(0.6)
(0.6)
$—
(2.4)
$—
(2.4)
(180.6)
(133.8)
(41.5)
(106.2)
($156.0)
($123.9)
($43.9)
($108.6)
Included in accumulated other comprehensive loss at December 31, 2019 and 2018, were the
following before-tax amounts that had not been recognized in net periodic benefit cost:
Pension
Postretirement
2019
2018
2019
2018
Unrecognized prior service (benefit) cost
$0.5
$1.6
($67.8)
$0.9
Amounts expected to be amortized from accumulated other comprehensive loss (income) and
included in total net periodic benefit cost during the year ended December 31, 2020 are as follows:
Prior service (benefit) cost
Pension
Postretirement
$0.3
($6.0)
The weighted average assumptions used in determining benefit obligation as of December 31,
2019 and 2018 were as follows:
Assumptions:
Discount rate
Future compensation assumption
Pension
Postretirement
2019
2018
2019
2018
3.42%
2.32%
4.30%
2.36%
3.42%
n/a
4.34%
n/a
The weighted average assumptions used in determining benefit cost for the years ended
December 31, 2019 and 2018 were as follows:
Assumptions:
Discount rate(1)
Future compensation assumption
Expected long-term return on plan assets
Pension
2019
2018
Postretirement
2019
2018
4.30%
2.36%
6.41%
3.68% 4.34% /3.94%
3.66%
2.37%
6.45%
n/a
n/a
5.00%
5.00%
(1) The discount rate for the postretirement plans was adjusted after the second quarter 2019 amendment. To calculate benefit
costs, the discount rate of 4.34% was used for January to April and the discount rate of 3.94% was used for May to December.
The discount rate assumption is based on current rates of high-quality long-term corporate bonds
over the same period that benefit payments will be required to be made. The expected rate of
return on plan assets assumption is based on the weighted-average expected return on the various
asset classes in the plans’ portfolios. The asset class return is developed using historical asset return
performance as well as current market conditions such as inflation, interest rates and equity market
performance.
74
For measurement purposes, TimkenSteel assumed a weighted-average annual rate of increase in
the per capita cost (health care cost trend rate) of 5.75% and 6.00% for 2019 and 2018, respectively.
A one percentage point increase in the assumed health care cost trend rate would have increased
the 2019 and 2018 postretirement benefit obligation by $0.3 million and $1.1 million, respectively
and increased the total service and interest cost components by $0.1 million in both the years
ended December 31, 2019 and 2018. A one percentage point decrease would have decreased the
2019 and 2018 postretirement benefit obligation by $0.2 million and $1.0 million, respectively and
decreased the total service and interest cost components by $0.1 million in both the years ended
December 31, 2019 and 2018.
The components of net periodic benefit cost (income) for the years ended December 31, 2019,
2018 and 2017 were as follows:
Pension
Years Ended December 31,
Postretirement
Years Ended December 31,
Components of net periodic benefit cost
(income):
2019
2018
2017
2019
2018
2017
Service cost
Interest cost
$17.4
$17.2
$18.2
48.9
45.6
49.1
Expected return on plan assets
(65.0)
(74.0)
(70.7)
Amortization of prior service cost
Curtailment
Net remeasurement losses (gains)
Net Periodic Benefit Cost (Income)
0.4
(8.9)
43.1
$35.9
0.5
—
49.1
$38.4
0.5
—
12.5
$9.6
$1.1
5.9
(3.9)
(3.8)
—
6.4
$1.6
7.6
$1.6
8.4
(4.8)
(5.2)
0.2
—
(5.6)
1.0
—
9.3
$5.7
($1.0)
$15.1
TimkenSteel recognizes its overall responsibility to ensure that the assets of its various defined
benefit pension plans are managed effectively and prudently and in compliance with its policy
guidelines and all applicable laws. Preservation of capital is important; however, TimkenSteel also
recognizes that appropriate levels of risk are necessary to allow its investment managers to achieve
satisfactory long-term results consistent with the objectives and the fiduciary character of the
pension funds. Asset allocations are established in a manner consistent with projected plan
liabilities, benefit payments and expected rates of return for various asset classes. The expected rate
of return for the investment portfolios is based on expected rates of return for various asset classes,
as well as historical asset class and fund performance. The target allocations for plan assets are 21%
equity securities, 61% debt securities and 18% in all other types of investments.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date (exit price). The
inputs used to measure fair value are classified into the following hierarchy:
Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 - Unadjusted quoted prices in active markets for similar assets or liabilities, or
unadjusted quoted prices for identical or similar assets or liabilities in markets that
are not active, or inputs other than quoted prices that are observable for the asset
or liability.
Level 3 - Unobservable inputs for the asset or liability.
75
The following table presents the fair value hierarchy for those investments of TimkenSteel’s pension
assets measured at fair value on a recurring basis as of December 31, 2019:
Total
Level 1
Level 2
Level 3
Assets:
Cash and cash equivalents
U.S. government and agency securities
Corporate bonds
Equity securities
Mutual fund - fixed income
$12.2
250.3
102.7
49.8
56.4
$0.9
$11.3
$—
246.1
4.2
—
102.7
49.8
56.4
—
—
Total Assets in the fair value hierarchy
$471.4
$353.2
$118.2
Assets measured at net asset value (1)
Total Assets
684.0
—
—
$1,155.4
$353.2
$118.2
—
—
—
—
$—
—
$—
(1) Certain assets that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have
not been classified in the fair value hierarchy. Such assets include common collective trusts that invest in equity securities and
fixed income securities, limited partnerships, real estate partnerships, hedge funds, and risk parity investments. As of
December 31, 2019, these assets are redeemable at net asset value within 90 days.
The following table presents the fair value hierarchy for those investments of TimkenSteel’s pension
assets measured at fair value on a recurring basis as of December 31, 2018:
Total
Level 1
Level 2
Level 3
Assets:
Cash and cash equivalents
U.S. government and agency securities
Corporate bonds
Equity securities
Mutual fund - fixed income
Mutual fund - real estate
$22.5
234.2
97.4
37.1
33.1
7.7
$0.6
229.1
—
37.1
33.1
7.7
$21.9
5.1
97.4
—
—
—
Total Assets in the fair value hierarchy
$432.0
$307.6
$124.4
Assets measured at net asset value (1)
622.4
—
—
Total Assets
$1,054.4
$307.6
$124.4
$—
—
—
—
—
—
$—
—
$—
(1) Certain assets that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have
not been classified in the fair value hierarchy. Such assets include common collective trusts that invest in equity securities and
fixed income securities, limited partnerships, real estate partnerships, and risk parity investments. As of December 31, 2018,
these assets were redeemable at net asset value within 90 days.
76
The following table presents the fair value hierarchy for those investments of TimkenSteel’s
postretirement assets measured at fair value on a recurring basis as of December 31, 2019:
Assets:
Cash and cash equivalents
Mutual fund - fixed income
Total Assets in the fair value hierarchy
Assets measured at net asset value (1)
Total Assets
Total
Level 1
Level 2
Level 3
$3.0
15.8
$3.0
15.8
$18.8
$18.8
63.5
—
$82.3
$18.8
$—
—
$—
—
$—
$—
—
$—
—
$—
(1) Certain assets that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have
not been classified in the fair value hierarchy. Such assets include common collective trusts that invest in equity securities and
fixed income securities, limited partnerships, real estate partnerships, hedge funds, and risk parity investments. As of
December 31, 2019, these assets are redeemable at net asset value within 90 days.
The following table presents the fair value hierarchy for those investments of TimkenSteel’s
postretirement assets measured at fair value on a recurring basis as of December 31, 2018:
Assets:
Cash and cash equivalents
Mutual fund - fixed income
Total Assets in the fair value hierarchy
Assets measured at net asset value (1)
Total Assets
Total
Level 1
Level 2
Level 3
$5.6
8.9
$5.6
8.9
$14.5
$14.5
71.6
—
$86.1
$14.5
$—
—
$—
—
$—
$—
—
$—
—
$—
(1) Certain assets that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have
not been classified in the fair value hierarchy. Such assets include common collective trusts that invest in equity securities and
fixed income securities, limited partnerships, real estate partnerships, and risk parity investments. As of December 31, 2018,
these assets were redeemable at net asset value within 90 days.
Future benefit payments are expected to be as follows:
Benefit Payments:
Pension
Postretirement
2020
2021
2022
2023
2024
2025-2029
$78.8
79.2
85.6
76.5
76.0
374.3
$11.9
11.0
10.3
9.6
9.0
39.3
The Company expects to make required contributions to its U.K. pension plan in 2020 of
approximately $1.3 million.
Defined Contribution Plans
The Company recorded expense primarily related to employer matching and non-discretionary
contributions to these defined contribution plans of $7.1 million in 2019, $6.3 million in 2018, and
$5.4 million in 2017.
77
Note 16 - Stock-Based Compensation
Description of the Plan
On April 28, 2016, shareholders of TimkenSteel approved the TimkenSteel Corporation Amended
and Restated 2014 Equity and Incentive Compensation Plan (TimkenSteel 2014 Plan), which
authorizes the Compensation Committee of the TimkenSteel Board of Directors to grant
non-qualified or incentive stock options, stock appreciation rights, stock awards (including restricted
shares, restricted share unit awards, performance shares, performance units, deferred shares and
common shares) and cash awards to TimkenSteel employees and non-employee directors. No more
than 11.05 million TimkenSteel common shares may be delivered under the TimkenSteel 2014 Plan.
The TimkenSteel 2014 Plan contains fungible share counting mechanics, which generally means that
awards other than stock options and stock appreciation rights will be counted against the aggregate
share limit as 2.50 common shares for every one common share that is actually issued or transferred
under such awards. The TimkenSteel 2014 Plan authorized up to 3.0 million common shares for use
in granting “replacement awards” to current holders of The Timken Company equity awards under
The Timken Company’s equity compensation plans at the time of the spinoff.
As of December 31, 2019, approximately 2.4 million shares of TimkenSteel common stock remained
available for grants under the TimkenSteel 2014 Plan.
In connection with the spinoff, stock compensation awards granted under The Timken Company
Long-Term Incentive Plan (Timken LTIP Plan) and The Timken Company 2011 Long-Term Incentive
Plan (Timken 2011 Plan) were adjusted as follows:
•
•
Vested and unvested stock options were adjusted so that the grantee holds options to
purchase both The Timken Company and TimkenSteel common shares.
The adjustment to The Timken Company and TimkenSteel stock options, when combined,
were intended to generally preserve the intrinsic value of each original option grant and the
ratio of the exercise price to the fair market value of The Timken Company common shares
on June 30, 2014.
• Unvested restricted stock awards were replaced with adjusted, substitute awards for
restricted shares or units, as applicable, of The Timken Company and TimkenSteel common
shares. The new awards of restricted stock were intended to generally preserve the intrinsic
value of the original award determined as of June 30, 2014.
•
Vesting periods of awards were unaffected by the adjustment and substitution.
Awards granted in connection with the adjustment of awards originally issued under The Timken
Company LTIP Plan and the Timken 2011 Plan are referred to as replacement awards under the
TimkenSteel 2014 Plan and, as noted above, reduce the maximum number of TimkenSteel common
shares available for delivery under the TimkenSteel 2014 Plan. TimkenSteel recorded compensation
expense for both TimkenSteel and The Timken Company common shares for awards held by
TimkenSteel employees only.
78
The following table provides the significant assumptions used to calculate the grant date fair market
values of options granted using a Black-Scholes option pricing method:
Weighted-average fair value per option
Risk-free interest rate
Dividend yield
Expected stock volatility
Expected life - years
2019
$5.54
2.63%
—%
2018
$7.46
2017
$7.68
2.77%
2.21%
—%
—%
41.36%
41.67% 43.23%
6
6
6
The expected life of stock option awards granted is based on historical data and represents the
period of time that options granted are expected to be held prior to exercise. Because of the
absence of adequate stock price history of TimkenSteel common stock, expected volatility related to
stock option awards granted subsequent to the spinoff is based on the historical volatility of a
selected group of peer companies’ stock. Expected annual dividend yield is estimated using the
most recent dividend payment per share as of the grant date, of which no dividends were paid in
these grant periods. The risk-free rate for periods within the expected life of the option is based on
the U.S. Treasury yield curve in effect at the time of the grant.
The following summarizes TimkenSteel stock option activity from January 1, 2019 to December 31,
2019:
Number
of Shares
Weighted
Average Exercise
Price
Weighted
Average
Remaining
Contractual Term
Aggregate
Intrinsic Value
(millions)
Outstanding as of December 31, 2018
2,532,669
Granted
Exercised
Canceled, forfeited or expired
329,720
(25,039)
(195,780)
Outstanding as of December 31, 2019
2,641,570
Options expected to vest
Options exercisable
403,774
2,237,796
$21.33
$12.45
$ 8.83
$17.33
$20.64
$13.43
$21.94
5.27
8.30
4.73
$0.2
$—
$0.2
Stock options presented in this table represent TimkenSteel awards only, including those held by The Timken Company
employees.
For stock options exercised during the period of January 1, 2019 to December 31, 2019, the total
intrinsic value was $0.1 million with cash proceeds of $0.2 million. There was no tax benefit
associated with these stock option exercises.
79
The following summarizes TimkenSteel stock-settled restricted share award activity from January 1,
2019 to December 31, 2019:
Outstanding as of December 31, 2018
Granted
Vested
Canceled, forfeited or expired
Outstanding as of December 31, 2019
Number of Shares
Weighted
Average Grant
Date Fair Value
817,884
833,220
(365,800)
(111,635)
1,173,669
$14.15
$9.86
$10.23
$13.79
$11.94
Restricted share awards presented in this table represent TimkenSteel awards only, including those held by The Timken
Company employees.
TimkenSteel recognized stock-based compensation expense of $7.4 million, $7.3 million and
$6.5 million for the years ended December 31, 2019, 2018 and 2017, respectively, related to stock
option awards and stock-settled restricted share awards.
Outstanding restricted share awards include restricted stock units, performance-based restricted
stock units and deferred shares that will settle in common shares. Outstanding restricted stock units
generally cliff-vest after three years or vest in 25% increments annually beginning on the first
anniversary of the date of grant. Performance-based restricted stock units vest based on
achievement of specified performance objectives.
As of December 31, 2019, unrecognized compensation cost related to stock option awards and
stock-settled restricted stock units was $7.3 million, which is expected to be recognized over a
weighted average period of 1.4 years. The calculations of unamortized expense and weighted-
average periods include awards based on both TimkenSteel and The Timken Company stock
awards held by TimkenSteel employees.
Certain restricted stock units, including performance-based restricted stock units, are settled in cash
and were adjusted and substituted as described above. TimkenSteel recognized a liability of
$0.1 million and $0.8 million as of December 31, 2019 and 2018, respectively, for these awards
which was included in salaries, wages and benefits, and other non-current liabilities on the
Consolidated Balance Sheets. TimkenSteel paid $0.1 million for cash-settled restricted stock units
during 2018. There were no cash-settled restricted stock units during 2019.
80
Note 17 - Accumulated Other Comprehensive Income (Loss)
Changes in accumulated other comprehensive income (loss) for the years ended December 31,
2019 and 2018 by component were as follows:
Balance as of December 31, 2018
Foreign
Currency
Translation
Adjustments
($7.3)
Pension and
Postretirement
Liability
Adjustments
($1.6)
Total
($8.9)
Other comprehensive income before reclassifications, before income tax
0.5
—
0.5
Amounts reclassified from accumulated other comprehensive income
(loss), before income tax
Amounts deferred to accumulated other comprehensive income (loss),
before income tax
Tax effect
Net current period other comprehensive income, net of income taxes
Balance as of December 31, 2019
Balance as of December 31, 2017
Other comprehensive income before reclassifications, before income tax
Amounts reclassified from accumulated other comprehensive loss,
before income tax
Tax effect
Net current period other comprehensive income, net of income taxes
Balance as of December 31, 2018
—
—
—
0.5
($6.8)
(2.4)
(2.4)
72.2
(16.7)
72.2
(16.7)
53.1
53.6
$51.5 $44.7
Foreign
Currency
Translation
Adjustments
Pension and
Postretirement
Liability
Adjustments
Total
($5.9)
(1.4)
—
—
(1.4)
($7.3)
($1.7)
($7.6)
(0.5)
(1.9)
0.7
(0.1)
0.1
0.7
(0.1)
(1.3)
($1.6)
($8.9)
The amount reclassified from accumulated other comprehensive income (loss) in the year ended
December 31, 2019 for the pension and postretirement liability adjustment was included in other
income, net in the Consolidated Statements of Operations. The amount deferred to accumulated
other comprehensive income in the year ended December 31, 2019, was a result of a plan
amendment to the Company’s postretirement benefit plan. These accumulated other
comprehensive income (loss) components are components of net periodic benefit cost. See
“Note 15 - Retirement and Postretirement Plans” for additional information.
Note 18 - Contingencies
TimkenSteel has a number of loss exposures incurred in the ordinary course of business, such as
environmental claims, product warranty claims, and litigation. Establishing loss reserves for these
matters requires management’s estimate and judgment regarding risk exposure and ultimate
liability or realization. These loss reserves are reviewed periodically and adjustments are made to
reflect the most recent facts and circumstances. Accruals related to environmental claims represent
management’s best estimate of the fees and costs associated with these claims. Although it is not
possible to predict with certainty the outcome of such claims, management believes that their
ultimate dispositions should not have a material adverse effect on our financial position, cash flows
81
or results of operations. As of both December 31, 2019 and 2018, TimkenSteel had a $1.5 million
contingency reserve, related to loss exposures incurred in the ordinary course of business.
Note 19 - Relationships with The Timken Company and Related Entities
Prior to the spinoff on June 30, 2014, TimkenSteel was managed and operated in the normal course
of business with other affiliates of The Timken Company. Transactions between The Timken
Company and TimkenSteel, with the exception of sale and purchase transactions and
reimbursements for payments made to third-party service providers by The Timken Company on
TimkenSteel’s behalf, are reflected in equity in the Consolidated Balance Sheets as net parent
investment and in the Consolidated Statements of Cash Flows as a financing activity in net transfers
(to)/from The Timken Company and affiliates.
Transactions with The Timken Company
TimkenSteel sold finished goods to The Timken Company. During the years ended December 31,
2019, 2018 and 2017, revenues from related-party sales of products totaled $26.1 million or 2.2% of
net sales, $43.2 million, or 2.7% of net sales, and $48.5 million or 3.6% of net sales, respectively.
TimkenSteel did not purchase material from The Timken Company during the years ending
December 31, 2019, 2018 or 2017. In addition, certain of TimkenSteel’s third-party service providers
were paid by The Timken Company on behalf of TimkenSteel. TimkenSteel would subsequently
reimburse The Timken Company in cash for such payments.
Material Agreements Between TimkenSteel and The Timken Company
On June 30, 2014, TimkenSteel entered into a separation and distribution agreement and several
other agreements with The Timken Company to effect the spinoff and to provide a framework for
the relationship with The Timken Company. These agreements govern the relationship between
TimkenSteel and The Timken Company subsequent to the completion of the spinoff and provide for
the allocation between TimkenSteel and The Timken Company of assets, liabilities and obligations
attributable to periods prior to the spinoff. Because these agreements were entered into in the
context of a related party transaction, the terms may not be comparable to terms that would be
obtained in a transaction between unaffiliated parties.
Separation and Distribution Agreement — The separation and distribution agreement contains the
key provisions relating to the spinoff, including provisions relating to the principal intercompany
transactions required to effect the spinoff, the conditions to the spinoff and provisions governing the
relationships between TimkenSteel and The Timken Company after the spinoff.
Tax Sharing Agreement — The tax sharing agreement generally governs TimkenSteel’s and The
Timken Company’s respective rights, responsibilities and obligations after the spinoff with respect to
taxes for any tax period ending on or before the distribution date, as well as tax periods beginning
before and ending after the distribution date. Generally, TimkenSteel is liable for all pre-distribution
U.S. federal income taxes, foreign income taxes and non-income taxes attributable to TimkenSteel’s
business, and all other taxes attributable to TimkenSteel, paid after the distribution. In addition, the
tax sharing agreement addresses the allocation of liability for taxes that are incurred as a result of
restructuring activities undertaken to effectuate the distribution. The tax sharing agreement also
provides that TimkenSteel is liable for taxes incurred by The Timken Company that arise as a result
of TimkenSteel’s taking or failing to take, as the case may be, certain actions that result in the
distribution failing to meet the requirements of a tax-free distribution under Section 355 of the
Internal Revenue Code of 1986, as amended.
82
Employee Matters Agreement — TimkenSteel entered into an employee matters agreement with The
Timken Company, which generally provides that TimkenSteel and The Timken Company each has
responsibility for its own employees and compensation plans, subject to certain exceptions as
described in the agreement. In general, prior to the spinoff, TimkenSteel employees participated in
various retirement, health and welfare, and other employee benefit and compensation plans
maintained by The Timken Company. Following the spinoff (or earlier, in the case of the
tax-qualified defined benefit plans and retiree medical plans), pursuant to the employee matters
agreement, TimkenSteel employees and former employees generally participate in similar plans
and arrangements established and maintained by TimkenSteel. The employee matters agreement
provides for the bifurcation of equity awards as described in Note 16 - Stock-Based Compensation.
Among other things, the employee matters agreement also provides for TimkenSteel’s assumption
of certain employment-related contracts that its employees originally entered into with The Timken
Company, the allocation of certain employee liabilities and the cooperation between TimkenSteel
and The Timken Company in the sharing of employee information.
83
Supplemental Data
Selected Quarterly Financial Data (Unaudited)
(dollars in millions, except per share data)
The following selected quarterly operating results for each quarter of fiscal 2019 and 2018 have
been adjusted to reflect the change in accounting principle as described in “Note 1 - Basis of
Presentation”:
Quarters ended
December 31, 2019
September 30. 2019
Net sales
Gross profit
Net income (loss)
Per share data:
Basic earnings (loss) per share
Diluted earnings (loss) per share
$226.9
(18.0)
(84.6)
($1.89)
($1.89)
As
Reported
Adjustments
As
Adjusted
$274.2
$—
$274.2
13.2
(4.6)
(15.8)
(12.4)
(2.6)
(17.0)
($0.10)
($0.10)
($0.28)
($0.28)
($0.38)
($0.38)
Quarters ended
June 30, 2019
March 31, 2019
As
Reported Adjustments
As
Adjusted
As
Reported Adjustments
As
Adjusted
$336.7
$—
$336.7
$371.0
$—
$371.0
25.4
(4.4)
(10.6)
14.8
(7.5)
(11.9)
29.1
4.2
(0.7)
(0.7)
28.4
3.5
Net sales
Gross profit
Net income (loss)
Per share data:
Basic earnings (loss) per share
Diluted earnings (loss) per share
($0.10)
($0.10)
($0.17)
($0.27)
($0.17)
($0.27)
$0.09
$0.09
($0.01)
$0.08
($0.01)
$0.08
Quarters ended
December 31, 2018
September 30, 2018
As
Reported Adjustments
As
Adjusted
As
Reported Adjustments
$406.4
$—
$406.4
$409.9
27.1
(39.6)
10.2
10.2
37.3
(29.4)
24.6
1.4
$—
3.8
3.8
As
Adjusted
$409.9
28.4
5.2
Net sales
Gross profit
Net income (loss)
Per share data:
Basic earnings (loss) per share
Diluted earnings (loss) per share
($0.89)
($0.89)
$0.23
($0.66)
$0.23
($0.66)
$0.03
$0.03
$0.09
$0.09
$0.12
$0.12
84
Quarters ended
June 30, 2018
March 31, 2018
As
Reported Adjustments
As
Adjusted
As
Reported Adjustments
$—
6.4
6.4
$413.5
$380.8
38.5
14.8
21.1
(1.9)
$—
1.3
1.3
As
Adjusted
$380.8
22.4
(0.6)
Net sales
Gross profit
Net income (loss)
Per share data:
Basic earnings (loss) per share
Diluted earnings (loss) per share
$413.5
32.1
8.4
$0.19
$0.19
$0.14
$0.14
$0.33
$0.33
($0.04)
($0.04)
$0.03
($0.01)
$0.03
($0.01)
85
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Annual Report on Form 10-K, our management carried
out an evaluation, under the supervision and with the participation of the Company’s principal
executive officer and principal financial officer, of the effectiveness of the design and operation of
the Company’s 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 the Company’s disclosure controls and procedures were effective as of the end of the period
covered by this Annual Report on Form 10-K.
Report of Management on Internal Control Over Financial Reporting
The management of TimkenSteel is responsible for establishing and maintaining adequate internal
control over financial reporting for the Company. TimkenSteel’s internal control system is designed
to provide reasonable assurance regarding the preparation and fair presentation of published
financial statements. Because of its inherent limitations, internal control over financial reporting may
not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
TimkenSteel management assessed the effectiveness of the Company’s internal control over
financial reporting as of December 31, 2019. In making this assessment, it used the criteria set forth
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this
assessment under COSO’s “Internal Control-Integrated Framework (2013 framework),”
management believes that, as of December 31, 2019, TimkenSteel’s internal control over financial
reporting is effective.
Ernst & Young LLP, an independent registered public accounting firm, has issued an audit report on
our assessment of TimkenSteel’s internal control over financial reporting as of December 31, 2019.
Please refer to Item 8, “Reports of Independent Registered Public Accounting Firm.”
Changes in Internal Controls
There have been no changes during the Company’s fourth quarter of 2019 in our internal control
over financial reporting that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
Item 9B. Other Information
None.
86
Part III.
Item 10. Directors, Executive Officers and Corporate Governance
Required information will be set forth under the captions “Proposal 1: Election of directors” in the
proxy statement to be filed within 120 days of December 31, 2019 in connection with the annual
meeting of shareholders to be held on May 6, 2020, and is incorporated herein by reference.
Information regarding the executive officers of the registrant is included in Part I hereof. Information
regarding the Company’s Audit Committee and its Audit Committee Financial Expert is set forth
under the caption “Board of directors information - Audit committee” in the proxy statement filed in
connection with the annual meeting of shareholders to be held on May 6, 2020, and is incorporated
herein by reference.
The Company’s Corporate Governance Guidelines and the charters of its Audit Committee,
Compensation Committee and Nominating and Corporate Governance Committee are available on
the Company’s website at www.timkensteel.com. The information on the Company’s website is not
incorporated by reference into this Annual Report on Form 10-K.
The Company has adopted a code of ethics that applies to all of its employees, including its
principal executive officer, principal financial officer and principal accounting officer or controller, as
well as to its directors. The Company’s code of ethics, the TimkenSteel Code of Conduct, is available
on its website at www.timkensteel.com. The Company intends to disclose any amendment to its
code of ethics or waiver from its code of ethics that applies to its principal executive officer, principal
financial officer, principal accounting officer or controller, or any director, by posting such
amendment or waiver, as applicable, on its website at www.timkensteel.com.
Item 11. Executive Compensation
Required information will be set forth under the captions “Compensation discussion and analysis”;
“2019 Summary compensation table”; “2019 Grants of plan-based awards table”; “Outstanding
equity awards at 2019 year-end table”; “2019 Option exercises and stock vested table”; “Pension
benefits”; “2019 Nonqualified deferred compensation table”; “Potential payments upon termination
or change in control”; “Director compensation”; “CEO pay ratio”; “Board of directors information -
Compensation committee”; “Board of directors information - Compensation committee interlocks
and insider participation”; and “Board of directors information - Compensation committee report” in
the proxy statement to be filed within 120 days of December 31, 2019 in connection with the annual
meeting of shareholders to be held on May 6, 2020, and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
Required information, including with respect to institutional investors owning more than 5% of the
Company’s common shares, will be set forth under the caption “Beneficial ownership of common
stock” in the proxy statement to be filed within 120 days of December 31, 2019 in connection with
the annual meeting of shareholders to be held on May 6, 2020, and is incorporated herein by
reference. Required information regarding securities authorized for issuance under the Company’s
equity compensation plans is included in Item 5 of this Annual Report on Form10-K and is
incorporated herein by reference.
87
Item 13. Certain Relationships and Related Transactions, and
Director Independence
Required information will be set forth under the captions “Corporate governance - Director
independence” and “ Corporate governance - Related-party transactions approval policy” in the
proxy statement to be filed within 120 days of December 31, 2019 in connection with the annual
meeting of shareholders to be held on May 6, 2020, and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
Required information regarding fees paid to and services provided by the Company’s independent
auditor during the years ended December 31, 2019 and 2018 and the pre-approval policies and
procedures of the Audit Committee of the Company’s Board of Directors will be set forth under the
captions “ Proposal 2: Ratification of appointment of independent auditors - Services of
independent auditor for 2019“ and “Proposal 2: Ratification of appointment of independent
auditors - Audit committee pre-approval policies and procedures” in the proxy statement to be filed
within 120 days of December 31, 2019 in connection with the annual meeting of shareholders to be
held on May 6, 2020, and is incorporated herein by reference.
88
Part IV.
Item 15. Exhibits, Financial Statement Schedules
(a)(1) - Financial Statements are included in Part II, Item 8 of the Annual Report on Form 10-K.
(a)(2) - Schedule II - Valuation and Qualifying Accounts is submitted as a separate section of this
report. Schedules I, III, IV and V are not applicable to the Company and, therefore, have been
omitted.
(a)(3) Listing of Exhibits
Exhibit
Number Exhibit Description
Separation and Distribution Agreement, dated as of June 30, 2014, by and between
TimkenSteel Corporation and The Timken Company.
2.1†
Amended and Restated Articles of Incorporation of TimkenSteel Corporation
(incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K
filed on June 13, 2014, File No. 001-36313).
Code of Regulations of TimkenSteel Corporation (incorporated by reference to
Exhibit 3.2 of Amendment No. 3 to the Company’s Registration Statement on Form 10
filed on May 15, 2014, File No. 001-36313).
Indenture, dated May 31, 2016, by and between the Company and U.S. Bank National
Association, as Trustee (incorporated by reference to Exhibit 4.1 to the Company’s
Current Report on Form 8-K filed on May 31, 2016, File No. 001-36313).
First Supplemental Indenture, dated May 31, 2016, by and between the Company and
U.S. Bank National Association, as Trustee (including Form of Note) (incorporated by
reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on May 31,
2016, File No. 001-36313).
3.1
3.2
4.1
4.2
4.3* Description of Common Stock
Tax Sharing Agreement, dated as of June 30, 2014, by and between TimkenSteel
Corporation and The Timken Company.
Employee Matters Agreement, dated as of June 30, 2014, by and between TimkenSteel
Corporation and The Timken Company.
Form of Amended and Restated Employee Excess Benefits Agreement with TimkenSteel
Corporation (incorporated by reference to Exhibit 10.2 to the Company’s Current
Report on Form 8-K filed on June 13, 2014, File No. 001-36313).
Trademark License Agreement, dated as of June 30, 2014, by and between TimkenSteel
Corporation and The Timken Company.
TimkenSteel Corporation Amended and Restated 2014 Equity and Incentive
Compensation Plan (incorporated by reference to Exhibit 4.3 to the Company’s
Registration Statement on Form S-8 filed on October 28, 2016, Registration
No. 333-214297).
TimkenSteel Corporation Amended and Restated Annual Performance Award Plan,
effective January 1, 2018 (incorporated by reference to Exhibit 10.1 to the Company’s
Quarterly Report on Form 10-Q filed April 26, 2018, File No. 001-36313).
10.1†
10.2†
10.3
10.4†
10.5
10.6
89
Exhibit
Number Exhibit Description
Supplemental Pension Plan of TimkenSteel Corporation (Effective June 30, 2014)
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K filed on June 13, 2014, File No. 001-36313).
Form of Severance Agreement with TimkenSteel Corporation (incorporated by
reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on
June 13, 2014, File No. 001-36313).
10.7
10.8
10.9†† Form of Director Indemnification Agreement.
10.10†† Form of Officer Indemnification Agreement.
10.11†† Form of Director and Officer Indemnification Agreement.
Form of Severance Agreement between TimkenSteel and Certain Executive Officers
(incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on
Form 10-Q filed on October 26, 2017, File No. 001-36313).
Amended and Restated TimkenSteel Corporation 2014 Deferred Compensation Plan
(incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on
Form 10-Q filed on May 11, 2015, File No. 001-36313).
Amended and Restated TimkenSteel Corporation Director Deferred Compensation Plan
(incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on
Form 10-Q filed on May 11, 2015, File No. 001-36313).
Form of Nonqualified Stock Option Agreement (incorporated by reference to
Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on April 27, 2017,
File No. 001-36313).
Form of Time-Based Restricted Stock Unit Agreement (Cliff Vesting) (incorporated by
reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on
April 27, 2017, File No. 001-36313).
Form of Time-Based Restricted Stock Unit Agreement (Ratable Vesting) (incorporated by
reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed on
April 27, 2017, File No. 001-36313).
Form of Performance-Based Restricted Stock Unit Agreement (incorporated by
reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed on
April 27, 2017, File No. 001-36313).
Form of Nonqualified Stock Option Agreement (incorporated by reference to
Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on May 2, 2019, File
No. 001-36313).
Form of Time-Based Restricted Stock Unit Agreement (incorporated by reference to
Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on May 2, 2019, File
No. 001-36313).
Form of Time-Based Ratable Restricted Stock Unit Agreement (incorporated by
reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed on
May 2, 2019, File No. 001-36313).
Form of Performance Shares Agreement (incorporated by reference to Exhibit 10.4 to
the Company’s Quarterly Report on Form 10-Q filed on May 2, 2019, File
No. 001-36313).
Form of Deferred Shares Agreement (incorporated by reference to Exhibit 10.1 to the
Company’s Quarterly Report on Form 10-Q filed on August 4, 2016, File
No. 001-36313).
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
90
Exhibit
Number Exhibit Description
Third Amended and Restated Credit Agreement dated as of October 15, 2019, by and
among TimkenSteel Corporation, the other loan parties and lenders party thereto,
JPMorgan Chase Bank, N.A., as administrative agent, Bank of America, N.A., as
syndication agent, and BMO Harris Bank N.A. and U.S. Bank National Association, as
co-documentation agents (incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed on October 17, 2019, File No. 001-36313).
Letter of Independent Registered Public Accounting Firm Regarding Change in
Accounting Principle
10.24
18.1*
21.1* A list of subsidiaries of the Registrant.
23.1* Consent of Independent Registered Public Accounting Firm.
24.1* Power of Attorney.
Certification of the Chief Executive Officer pursuant to Rule 13a-14 of the Exchange Act,
as adopted, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Financial Officer pursuant to Rule 13a-14 of the Exchange Act,
as adopted, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.1*
31.2*
32.1**
Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS* XBRL Instance Document.
101.SCH* XBRL Taxonomy Extension Schema Document.
101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document.
101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB* XBRL Taxonomy Extension Label Linkbase Document.
101.DEF* XBRL Taxonomy Extension Definition Linkbase Document.
Incorporated by reference to the exhibit filed under the corresponding Exhibit Number of
the Company’s Current Report on Form 8-K filed on July 3, 2014, File No. 001-36313.
†
Incorporated by reference to the exhibit filed under the corresponding Exhibit Number
of Amendment No. 3 to the Company’s Registration Statement on Form 10 filed on
May 15, 2014, File No. 001-36313.
††
* Filed herewith.
** Furnished herewith.
91
Schedule II-Valuation and Qualifying Accounts
Allowance for uncollectible accounts:
Balance at Beginning of Period
Additions:
Charged to Costs and Expenses (1)
Deductions (2)
Balance at End of Period
Allowance for inventory reserves
Balance at Beginning of Period
Additions:
Charged to Costs and Expenses (3)
Deductions (4)
Balance at End of Period
2019
2018
2017
$1.7
$1.4
$2.1
—
(0.2)
$1.5
0.3
—
$1.7
—
(0.7)
$1.4
2019
2018
Adjusted(8)
2017
Adjusted(8)
$6.1
$8.9
$8.1
9.0
(4.4)
$10.7
1.6
(4.4)
$6.1
2.1
(1.3)
$8.9
Valuation allowance on deferred tax assets:
Balance at Beginning of Period
2019
2018
2017
$43.7
$36.6
$24.4
Additions:
Charged to Costs and Expenses (5)
Charged to Other Accounts (6)
Deductions (7)
Balance at End of Period
—
16.7
(25.5)
$34.9
7.1
—
—
12.2
—
—
$43.7
$36.6
(1) Provision for uncollectible accounts included in expenses.
(2) Actual accounts written off against the allowance, net of recoveries.
(3) Provisions for surplus and obsolete inventory and lower cost or net realizable value included in expenses.
(4)
(5)
(6)
(7) Amount primarily relates to the change in accounting principle from LIFO to FIFO and a net benefit recorded as a
Inventory items written off against the allowance.
Increase in valuation allowance is recorded as a component of the provision for income taxes.
Includes valuation allowances recorded against other comprehensive income/loss.
component of income tax.
(8) As described on Note 1 - Basis of Presentation, the effects of the change in accounting principle from LIFO to FIFO
have been retrospectively applied to all periods presented.
92
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
Signatures
Date: February 25, 2020
/s/ Kristopher R. Westbrooks
TIMKENSTEEL CORPORATION
Kristopher R. Westbrooks
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
93
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by
the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
/s/ Terry L. Dunlap
Interim Chief Executive Officer and President
(Principal Executive Officer)
Date
February 25, 2020
Terry L. Dunlap
/s/ Kristopher R. Westbrooks
Kristopher R. Westbrooks
/s/ Nicholas A. Yacobozzi
Nicholas A. Yacobozzi
*
Joseph A. Carrabba
*
Leila L. Vespoli
*
Diane C. Creel
*
Randall H. Edwards
*
Donald T. Misheff
*
John P. Reilly
*
Ronald A. Rice
*
Marvin A. Riley
*
Randall A. Wotring
*Signed by the undersigned
as attorney-in-fact and agent
for the directors indicated.
/s/ Kristopher R. Westbrooks
Kristopher R. Westbrooks
Executive Vice President and Chief Financial
Officer (Principal Financial Officer)
February 25, 2020
Corporate Controller
(Principal Accounting Officer)
February 25, 2020
Director
Director
Director
Director
Director
Director
Director
Director
Director
February 25, 2020
February 25, 2020
February 25, 2020
February 25, 2020
February 25, 2020
February 25, 2020
February 25, 2020
February 25, 2020
February 25, 2020
Executive Vice President and Chief Financial
Officer (Principal Financial Officer)
February 25, 2020
94
Exhibit 31.1
I, Terry L. Dunlap, certify that:
CERTIFICATION
I have reviewed this annual report on Form 10-K of TimkenSteel Corporation;
1. Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
2. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
3.
The registrant’s other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial
reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
4.
The registrant’s other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant’s auditors and the
audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial
information; and
b. Any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrant’s internal control over financial reporting.
Date: February 25, 2020
/s/ Terry L. Dunlap
Terry L. Dunlap
Interim Chief Executive Officer and President
(Principal Executive Officer)
Exhibit 31.2
I, Kristopher R. Westbrooks, certify that:
CERTIFICATION
I have reviewed this annual report on Form 10-K of TimkenSteel Corporation;
1. Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
2. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
3.
The registrant’s other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial
reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
4.
The registrant’s other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant’s auditors and the
audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial
information; and
b. Any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrant’s internal control over financial reporting.
Date: February 25, 2020
/s/ Kristopher R. Westbrooks
Kristopher R. Westbrooks
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
Exhibit 32.1
CERTIFICATION
Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of TimkenSteel Corporation (the “Company”) on
Form 10-K for the period ended December 31, 2019, as filed with the Securities and Exchange
Commission on the date hereof (the “Report”), each of the undersigned officers of the Company
certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002, that, to such officer’s knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company as of the dates and for the periods
expressed in the Report.
Date: February 25, 2020
Date: February 25, 2020
/s/ Terry L. Dunlap
Terry L. Dunlap
Interim Chief Executive Officer and President
(Principal Executive Officer)
/s/ Kristopher R. Westbrooks
Kristopher R. Westbrooks
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
[THIS PAGE INTENTIONALLY LEFT BLANK]
CORPORATE OFFICES
LEADERSHIP
TimkenSteel Corporation
1835 Dueber Ave. SW, Canton, OH 44706-2728
telephone: 330-471-7000
website: timkensteel.com
STOCK LISTING
TimkenSteel stock is traded on the New York Stock Exchange
under the symbol TMST.
NYSE ANNUAL CEO CERTIFICATION
The annual CEO certification required by Section 303A.12(a) of the
New York Stock Exchange Listed Company Manual was submitted
without qualification by Ward J. Timken, Jr., on June 5, 2019.
ANNUAL MEETING OF SHAREHOLDERS
May 6, 2020, 10 a.m. Eastern time
TimkenSteel corporate offices
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
950 Main Ave., Suite 1800, Cleveland, OH 44113-7214
PUBLICATIONS
The notice of annual meeting and proxy statement are made
available to shareholders in March.
Copies of the annual report, proxy statement, forms 10-K and 10-Q
may be obtained from the company’s website, investors.timkensteel.
com, or by written request at no charge from:
TimkenSteel Corporation
Shareholder Relations, GNE-15
P.O. Box 6928, Canton, OH 44706-0928
SHAREHOLDER INFORMATION
TimkenSteel Corporation offers an open enrollment stock purchase
plan through its transfer agent, EQ Shareowner Service. This program
allows current shareholders and new investors the opportunity to
purchase shares of common stock without a broker. Information
and enrollment materials are available online or by contacting EQ
Shareowner Service. Inquiries regarding change of address or lost
certificates should be directed to:
EQ Shareowner Service
P.O. Box 64874, St. Paul, MN 55164-0874
telephone: 800-468-9716
website: www.shareowneronline.com
INVESTOR RELATIONS
Investors and securities analysts may contact:
Jennifer Beeman
Senior Manager of Communications & Investor Relations, GNE-1
TimkenSteel Corporation
1835 Dueber Ave. SW, Canton, OH 44706-2728
email: ir@timkensteel.com
Terry Dunlap
Interim Chief Executive Officer & President
Kristopher Westbrooks
Executive Vice President & Chief Financial Officer
William Bryan
Executive Vice President of Manufacturing
& Supply Chain
Frank DiPiero
Executive Vice President, General Counsel
& Secretary
Thomas Moline
Executive Vice President of Commercial
Operations
Kevin Raketich
Executive Vice President of Strategy
& Corporate Development
Elaine Russell Reolfi
Executive Vice President of Human Resources
& Corporate Relations
BOARD OF DIRECTORS
John Reilly
Chairman of the Board – TimkenSteel;
Retired Chairman, President & Chief Executive
Officer – Figgie International, Inc.
Terry Dunlap
Interim Chief Executive Officer & President –
TimkenSteel; Retired Executive Vice President –
Allegheny Technologies Inc.
Joseph Carrabba
President & Chief Executive Officer –
Bond Resources Inc.; Executive Chairman –
Winston Gold Corp.
Diane Creel
Retired Chairman, Chief Executive Officer
& President – Ecovation
Randall Edwards
Chief Executive Officer – Premier Pipe, LLC
Donald Misheff
Retired Managing Partner, Northeast Ohio –
Ernst & Young
Ronald Rice
Retired President & Chief Operating Officer –
RPM International
Marvin Riley
President & Chief Executive Officer –
EnPro Industries
Leila Vespoli
Retired Executive Vice President of Corporate
Strategy & Regulatory Affairs, Chief Legal
Officer – FirstEnergy Corp.
Randall Wotring
Chief Operating Officer – AECOM
NYSE: TMST
timkensteel.com
Twitter: @TimkenSteel
TimkenSteel® is a registered trademark. | ©2020 TimkenSteel Corporation
Printed in USA