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

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 spinoff from Timken, while others relate
principally to our business and the industry in which we operate or to the securities markets in general
and ownership of our common shares. 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, and could continue to, negatively affected domestic steel
prices, which could adversely impact our results of operations and financial condition. High levels of steel
imports into the United States could exacerbate the decrease in domestic steel prices.
Additionally, in some applications, steel competes with other materials. Increased use of materials
in substitution for steel products could have a material adverse effect on prices and demand for our
steel products.
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
and earnings.
We require substantial amounts of raw materials, including scrap metal and alloys and natural gas, to
operate our business. Many of our customer contracts 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. Recently, 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. Any change in our projected year-end input costs could materially affect our last-in,
first-out (LIFO) inventory valuation method and earnings.
A rapid rise in raw material costs could have a negative effect on our operating results. Since we value
the majority of our inventory utilizing the LIFO inventory valuation method, changes in the cost of raw
materials and production activities are recognized in cost of products sold in the current period even
though these material and other costs may have been incurred at significantly different values due to
the length of time of our production cycle. In a period of rising prices, cost of products sold expense
recognized under LIFO is generally higher than the cash costs incurred to acquire the inventory sold.
Conversely, in a period of declining raw material prices, cost of sales recognized under LIFO is generally
lower than cash costs incurred to acquire the inventory sold.
Moreover, future disruptions in the supply of our raw materials could impair our ability to manufacture our
products for our customers or require us to pay higher prices in order to obtain these raw materials from
other sources, and could thereby affect our sales and profitability. Any increase in the prices for such raw
materials could materially affect our costs and therefore our earnings.
We rely to a substantial extent 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 for products prior to purchasing necessary raw
materials, or have existing contracts, we may be unable to raise the price of products to cover all or part
of the increased cost of the raw materials.
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TIMKENSTEEL ANNUAL REPORT
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