TimkenSteel-2014-Annual-Report-FINAL-03112015_v001_d4t4ig

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SALES AND DISTRIBUTION Our products are sold by a sales force largely made up of engineers that are backed by a team of metallurgists and other technical experts. We work with customers in the automotive and truck; forging; construction; industrial equipment; oil & gas drilling and anti-friction bearing. These customized solutions are manufactured to exact specifications and typically shipped directly from our steel manufacturing plants to customers. While most of our products are sold directly to OE manufacturers, a portion of our sales are made through authorized distributors and steel service centers. The majority of our customers are served through individually negotiated contracts that have one-year terms. A smaller percentage of our contracts extend for more than one year and contain prices fixed for a period extending beyond current shipments. Typically, these types of contracts include a commitment by the customer to purchase a designated percentage of its requirements from us. We do not believe that there is any significant loss of earnings risk associated with any given contract. 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 mechanical components and alloy steel. For bar products less than 6-inch in diameter, principal competitors include foreignowned 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 are our principal competitors. For very large bars from 9 to 16 inches in diameter, offshore producers are the primary competitors as well as specialty forging companies in North America such as Scot Forge and Sorel Steel. For seamless tubing, offshore producers such as Tenaris, S.A. and Vallourec, S.A. 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 industrial, energy and automotive sectors. Competitors within the value-added market sector are non-integrated component producers such as Linamar, Jernberg and Curtis Screw Company. BACKLOG The backlog of orders for our operations is estimated to have been $571.1 million at December 31, 2014 and $285.7 million at December 31, 2013. Virtually our entire backlog at December 31, 2014 is scheduled for delivery in the succeeding 12 months. Actual shipments depend upon customers’ ever-changing production schedules. During periods of shorter lead times, backlog may not be a meaningful indicator of future sales. Accordingly, we do not believe our backlog data and 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. Because of our diverse order book and demanding steel requirements, we have developed differentiated expertise in this area and created a raw material management system that contributes to our competitive cost position and advantage. In addition to accessing scrap and alloys through the open market, we have established a scrap return supply chain with many of our customers. In addition, we operate a scrap processing company for improved access, reliability and cost. Our raw material feeder system is designed to achieve high consistency, reliable chemistry and low variability from a number of our sources. We have extensive segregation points, chemistry monitoring, computerized modeling of variability and total systems optimization (inventory, operating practices, capacity impact, order book, procurement flexibility and strategy). Roughly 40% of our raw material sources are considered “highly controlled,” which gives 4
us greater flexibility to substitute lower-cost scrap based on availability. Our raw material management process achieves competitive procurement at competitive costs. This part of our business solidly rests on a deep knowledge of the raw material supply industry and an extensive network of relationships that result in steady, reliable supply from our raw material sources. RESEARCH Our engineers analyze customer application challenges and develop new solutions to address them. With nearly 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. We invest in technology that results in cleaner, stronger, and more easily processed materials. Our engineers drive technology advances in many market sectors, producing new and improved products that have demonstrated increased performance in high-stress conditions. Whether we need to develop new material specifications or help solve a customer processing challenge, our advanced material engineers are among the most knowledgeable in our industry. This expertise extends to advanced process technology in which advanced 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 new product growth and create value for our customers. Our research and development expenditures for the years ended December 31, 2014, 2013 and 2012 were $8.5 million, $9.4 million and $11.2 million, respectively. ENVIRONMENTAL MATTERS We continue our efforts to protect the environment and comply with environmental protection laws. Additionally, we have invested in pollution control equipment and updated plant operational practices. We are committed to implementing a documented environmental management system worldwide and to becoming certified under the ISO 14001 standard. Six of our plants have obtained an ISO 14001 certification. We believe we have established appropriate reserves to cover our environmental expenses. We have a well-established environmental compliance audit program for our domestic units. This program measures performance against applicable laws as well as against internal standards that have been established for all units. It is difficult to assess the possible effect of compliance with future requirements that differ from existing ones. As previously reported, we are unsure of the future financial impact to us that could result from the United States Environmental Protection Agency’s (EPA), final rules to tighten the National Ambient Air Quality Standards for fine particulate and ozone. In addition, we are unsure of the future financial impact to us that could result from the EPA instituting hourly ambient air quality standards for sulfur dioxide and nitrogen oxide. We are also unsure of the potential future financial impact to us that could result from possible future legislation regulating emissions of carbon dioxide or greenhouse gases. We and certain of our subsidiaries located in the U.S. have been identified as potentially responsible parties for investigation and remediation at off-site disposal or recycling facilities under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) known as the Superfund, or state laws similar to CERCLA. In general, such claims for investigation and remediation also have been asserted against numerous 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, 2014, we recorded reserves for such environmental matters of $1.3 million classified as other current liabilities on the Consolidated Balance Sheets. There were no amounts accrued as of December 31, 2013. 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 that their ultimate dispositions should not have a material adverse effect on our financial position, cash flows, or results of operations. 20 14 TIMKENSTEEL ANNUAL REPORT 5
Page 2 and 3: TimkenSteel is built on values that
Page 4 and 5: Dear fellow shareholders, In this i
Page 6 and 7: OUR STRATEGY TO GENERATE CUSTOMER A
Page 8 and 9: people who thrive on challenges
Page 10 and 11: Talk to any engineer at TimkenSteel
Page 12 and 13: innovation that creates opportunity
Page 14 and 15: We’re a leader in profitable nich
Page 16 and 17: leadership Ward J. “Tim” Timken
Page 18 and 19: oard of directors Ward J. “Tim”
Page 21 and 22: UNITED STATES SECURITIES AND EXCHAN
Page 23 and 24: PART I. ITEM 1. BUSINESS OVERVIEW T
Page 25: STRENGTHS AND STRATEGY We believe o
Page 29 and 30: ITEM 1A. RISK FACTORS The following
Page 31 and 32: A decline in consumer and business
Page 33 and 34: We may be subject to risks relating
Page 35 and 36: We may issue preferred shares with
Page 37 and 38: With respect to taxes and other lia
Page 39 and 40: ITEM 2. PROPERTIES We are headquart
Page 41 and 42: PERFORMANCE GRAPH: The following gr
Page 43 and 44: ITEM 7. MANAGEMENT’S DISCUSSION A
Page 45 and 46: Key indicators for our market inclu
Page 47 and 48: Unallocated Years Ended December 31
Page 49 and 50: Unallocated Years Ended December 31
Page 51 and 52: Current liabilities increased to $2
Page 53 and 54: CONTRACTUAL OBLIGATIONS The followi
Page 55 and 56: jurisdiction when it is more likely
Page 57 and 58: ITEM 7A. QUANTITATIVE AND QUALITATI
Page 59 and 60: REPORT OF INDEPENDENT REGISTERED PU
Page 61 and 62: CONSOLIDATED STATEMENTS OF COMPREHE
Page 63 and 64: CONSOLIDATED STATEMENTS OF CHANGES
Page 65 and 66: NOTES TO CONSOLIDATED FINANCIAL STA
Page 67 and 68: If an asset or asset group is consi
Page 69 and 70: Pension and Other Postretirement Be
Page 71 and 72: NOTE 4 - PROPERTY, PLANT AND EQUIPM
Page 73 and 74: Revenue Refunding Bonds On June 1,
Page 75 and 76: and accumulated other comprehensive
Page 77 and 78:
The components of net periodic bene
Page 79 and 80:
Defined Contribution Plan Prior to
Page 81 and 82:
The following summarizes TimkenStee
Page 83 and 84:
Net Sales: Years Ended December 31,
Page 85 and 86:
The provision for income taxes cons
Page 87 and 88:
As of December 31, 2014, Timken is
Page 89 and 90:
Employee Matters Agreement - Timken
Page 91 and 92:
ITEM 9. CHANGES IN AND DISAGREEMENT
Page 93 and 94:
ITEM 14. PRINCIPAL ACCOUNTING FEES
Page 95 and 96:
Exhibit Number Exhibit Description
Page 97 and 98:
SIGNATURES Pursuant to the requirem
Page 99 and 100:
EXHIBIT 31.2 CERTIFICATION I, Chris
Page 101 and 102:
CORPORATE OFFICES TimkenSteel Corpo
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