UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, ~~2018~~2019



o	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		46-4024951
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1835 Dueber Avenue SW, Canton, OH		44706
(Address of principal executive offices)		(Zip Code)

330.471.7000

(Registrant’s telephone number, including area code)



Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class	Trading symbol	Name of exchange in which registered
Common shares	TMST	NASDAQ

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 ý No ¨

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ý 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	ýo		Accelerated filer	oý

Non-accelerated filer	o	~~(Do not check if smaller reporting company)~~	Smaller reporting company	o

			Emerging growth company	o

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 ý

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 July ~~16, 2018~~15, 2019
	Common Shares, without par value		~~44,584,668~~44,816,212

TimkenSteel Corporation

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL ~~STATEMENT~~STATEMENTS

TimkenSteel Corporation

Consolidated Statements of Operations (Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,					Six Months Ended June 30,
	2018		2017		2018		2017			2019			2018		2019			2018
(Dollars in millions, except per share data)
Net sales		$413.5		$339.3		$794.3		$648.7			$336.7			$413.5		$707.7			$794.3
Cost of products sold	381.4		315.5		741.1		607.9			311.3			381.4		653.2			741.1
Gross Profit	32.1		23.8		53.2		40.8			25.4			32.1		54.5			53.2

Selling, general and administrative expenses	24.9		22.3		49.6		45.2			20.2			24.9		43.5			49.6
Impairment charges and loss on sale or disposal of assets	0.9		—		0.9		—
Operating Income (Loss)	6.3		1.5		2.7		(4.4		)

Restructuring charges										3.6			—		3.6			—
Impairment charges and loss on asset disposals										1.8			0.9		1.8			0.9
Interest expense	3.9		3.7		8.5		7.3			4.2			3.9		8.4			8.5
Other income, net	6.2		4.3		12.6		8.8
Other income (expense), net										0.2			6.2		2.9			12.6
Income (Loss) Before Income Taxes	8.6		2.1		6.8		(2.9		)	(4.2		)	8.6		0.1			6.8
Provision for income taxes	0.2		0.8		0.3		1.1			0.2			0.2		0.3			0.3
Net Income (Loss)		$8.4		$1.3		$6.5		($4.0	)		($4.4	)		$8.4		($0.2	)		$6.5

Per Share Data:
Basic earnings (loss) per share		$0.19		$0.03		$0.15		($0.09	)		($0.10	)		$0.19		$—			$0.15
Diluted earnings (loss) per share		$0.19		$0.03		$0.14		($0.09	)		($0.10	)		$0.19		$—			$0.14

Dividends per share		$—		$—		$—		$—

See accompanying Notes to ~~Unaudited~~the unaudited Consolidated Financial Statements.

Table of Contents

TimkenSteel Corporation

Consolidated ~~Statements~~Statement of Comprehensive ~~Loss~~Income (Loss) (Unaudited)


	Three Months Ended June 30,					Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017		2018			2017			2019			2018			2019			2018
(Dollars in millions)
Net Income (Loss)		$8.4			$1.3		$6.5			($4.0	)
Other comprehensive income, net of tax:
Net income (loss)													($4.4	)		$8.4			($0.2	)		$6.5
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(1.2		)	0.6		(0.4		)	0.8			(0.6		)	(1.2		)	(0.2		)	(0.4		)
Pension and postretirement liability adjustments	0.2			—		0.3			0.3			69.4			0.2			69.5			0.3
Other comprehensive income (loss), net of tax	(1.0		)	0.6		(0.1		)	1.1			68.8			(1.0		)	69.3			(0.1		)
Comprehensive Income (Loss), net of tax		$7.4			$1.9		$6.4			($2.9	)		$64.4			$7.4			$69.1			$6.4

See accompanying Notes to ~~Unaudited~~the unaudited Consolidated Financial Statements.

Table of Contents

TimkenSteel Corporation

Consolidated Balance Sheets (Unaudited)


	June 30, 2018			December 31, 2017			June 30, 2019			December 31, 2018
(Dollars in millions)
ASSETS
Current Assets
Cash and cash equivalents		$39.0			$24.5			$20.9			$21.6
Accounts receivable, net of allowances (2018 - $1.8 million; 2017 - $1.4 million)	173.6			149.8
Accounts receivable, net of allowances (2019 - $1.4 million; 2018 - $1.7 million)							146.4			163.4
Inventories, net	294.5			224.0			304.8			296.8
Deferred charges and prepaid expenses	2.3			3.9			2.6			3.5
Other current assets	10.9			8.0			7.6			6.1
Total Current Assets	520.3			410.2			482.3			491.4

Property, Plant and Equipment, Net	679.8			706.7

Other Assets
Property, plant and equipment, net							649.7			674.4
Operating lease right-of-use assets							14.5			—
Pension assets	17.4			14.6			13.0			10.5
Intangible assets, net	17.5			19.9			17.4			17.8
Other non-current assets	5.0			5.2			2.7			3.5
Total Other Assets	39.9			39.7
Total Assets		$1,240.0			$1,156.6			$1,179.6			$1,197.6

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable, trade		$177.8			$135.3
Accounts payable								$110.3			$160.6
Salaries, wages and benefits	29.4			32.4			15.5			36.8
Accrued pension and postretirement costs	11.5			11.5			3.0			3.0
Current operating lease liabilities							5.7			—
Other current liabilities	18.8			27.6			20.5			20.4
Total Current Liabilities	237.5			206.8			155.0			220.8

Non-Current Liabilities
Convertible notes, net	72.0			70.1			76.3			74.1
Other long-term debt	150.0			95.2
Credit Agreement							145.0			115.0
Non-current operating lease liabilities							8.8			—
Accrued pension and postretirement costs	197.7			210.8			176.0			240.0
Deferred income taxes	—			0.3			0.6			0.8
Other non-current liabilities	11.8			12.7			10.6			11.7
Total Non-Current Liabilities	431.5			389.1
Total Liabilities							572.3			662.4

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 2018 and 2017- 45.7 million shares	—			—
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	842.7			843.7			841.4			846.3
Retained deficit	(231.0		)	(238.0		)	(269.4		)	(269.2		)
Treasury shares - 2018 - 1.1 million; 2017 - 1.3 million	(33.0		)	(37.4		)
Accumulated other comprehensive loss	(7.7		)	(7.6		)
Treasury shares - 2019 - 0.9 million; 2018 - 1.1 million							(25.1		)	(33.0		)
Accumulated other comprehensive income (loss)							60.4			(8.9		)
Total Shareholders’ Equity	571.0			560.7			607.3			535.2
Total Liabilities and Shareholders’ Equity		$1,240.0			$1,156.6			$1,179.6			$1,197.6

See accompanying Notes to ~~Unaudited~~the unaudited Consolidated Financial Statements.

Table of Contents

TimkenSteel Corporation

Consolidated Statements of Shareholders’ Equity (Unaudited)



(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, 2018	44,584,668			$846.3			($269.2	)		($33.0	)		($8.9	)		$535.2
Net income (loss)	—		—			4.2			—			—			4.2
Other comprehensive income (loss)	—		—			—			—			0.5			0.5
Stock-based compensation expense	—		2.2			—			—			—			2.2
Stock option activity	—		0.2			—			—			—			0.2
Issuance of treasury shares	261,130		(7.5		)	—			7.5			—			—
Shares surrendered for taxes	(79,889	)	—			—			(1.0		)	—			(1.0		)
Balance at March 31, 2019	44,765,909			$841.2			($265.0	)		($26.5	)		($8.4	)		$541.3
Net income (loss)	—		—			(4.4		)	—			—			(4.4		)
Other comprehensive income (loss)	—		—			—			—			68.8			68.8
Stock-based compensation expense	—		1.6			—			—			—			1.6
Issuance of treasury shares	50,185		(1.4		)	—			1.4			—			—
Balance at June 30, 2019	44,816,094			$841.4			($269.4	)		($25.1	)		$60.4			$607.3



	Common Shares Outstanding		Additional Paid-in Capital			Retained Deficit			Treasury Shares			Accumulated Other Comprehensive Income (Loss)			Total
Balance at December 31, 2017	44,445,747			$843.7			($238.0	)		($37.4	)		($7.6	)		$560.7
Net income (loss)	—		—			(1.9		)	—			—			(1.9		)
Other comprehensive income (loss)	—		—			—			—			0.9			0.9
Revenue recognition accounting standard adoption	—		—			0.7			—			—			0.7
Stock-based compensation expense	—		2.2			—			—			—			2.2
Stock option activity	—		0.1			—			—			—			0.1
Issuance of treasury shares	121,012		(3.4		)	(0.1		)	3.5			—			—
Shares surrendered for taxes	(37,533	)	—			—			(0.7		)	—			(0.7		)
Balance at March 31, 2018	44,529,226			$842.6			($239.3	)		($34.6	)		($6.7	)		$562.0
Net income (loss)	—		—			8.4			—			—				$8.4
Other comprehensive income (loss)	—		—			—			—			(1.0		)		($1.0	)
Stock-based compensation expense	—		1.5			—			—			—				$1.5
Stock option activity	—		0.1			—			—			—				$0.1
Issuance of treasury shares	55,442		(1.5		)	(0.1		)	1.6			—				$—
Balance at June 30, 2018	44,584,668			$842.7			($231.0	)		($33.0	)		($7.7	)		$571.0

See accompanying Notes to the unaudited Consolidated Financial Statements.

Table of Contents

TimkenSteel Corporation

Consolidated Statements of Cash Flows (Unaudited)


	Six Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2019			2018
(Dollars in millions)
CASH PROVIDED (USED)
Operating Activities
Net Income (Loss)		$6.5			($4.0	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Net income (loss)								($0.2	)		$6.5
Adjustments to reconcile net income (loss) to net cash used by operating activities:
Depreciation and amortization	36.9			37.8			35.7			36.9
Amortization of deferred financing fees and debt discount	3.0			2.1			2.5			3.0
Impairment charges and loss on sale or disposal of assets	0.9			0.4			1.8			0.9
Deferred income taxes	(0.3		)	0.2			(0.2		)	(0.3		)
Stock-based compensation expense	3.7			3.4			3.8			3.7
Pension and postretirement expense (benefit), net	(2.9		)	1.6			6.4			(2.9		)
Pension and postretirement contributions and payments	(12.9		)	(2.7		)	(3.5		)	(12.9		)
Changes in operating assets and liabilities:
Accounts receivable, net	(23.8		)	(61.9		)	17.0			(23.8		)
Inventories, net	(70.5		)	(35.1		)	(8.0		)	(70.5		)
Accounts payable, trade	42.5			43.8
Accounts payable							(50.3		)	42.5
Other accrued expenses	(12.9		)	1.5			(22.3		)	(12.9		)
Deferred charges and prepaid expenses	1.6			1.0			0.9			1.6
Other, net	(1.9		)	0.3			(1.2		)	(1.9		)
Net Cash Used by Operating Activities	(30.1		)	(11.6		)	(17.6		)	(30.1		)

Investing Activities										��
Capital expenditures	(9.0		)	(6.8		)	(12.3		)	(9.0		)
Proceeds from disposals of property, plant and equipment	1.0			—			—			1.0
Net Cash Used by Investing Activities	(8.0		)	(6.8		)	(12.3		)	(8.0		)

Financing Activities
Proceeds from exercise of stock options	0.2			0.2			0.2			0.2
Shares surrendered for employee taxes on stock compensation	(0.7		)	(1.2		)	(1.0		)	(0.7		)
Revenue Refunding Bonds repayments	(30.2		)	—
Credit Agreement repayments	(65.0		)	—
Amended Credit Agreement borrowings	155.0			30.0
Amended Credit Agreement repayments	(5.0		)	—
Debt issuance costs related to Amended Credit Agreement	(1.7		)	—
Refunding Bonds repayments							—			(30.2		)
Repayments on credit agreements							(10.0		)	(70.0		)
Borrowings on credit agreements							40.0			155.0
Debt issuance costs							—			(1.7		)
Net Cash Provided by Financing Activities	52.6			29.0			29.2			52.6
Increase In Cash and Cash Equivalents	14.5			10.6
Decrease (Increase) in Cash and Cash Equivalents							(0.7		)	14.5
Cash and cash equivalents at beginning of period	24.5			25.6			21.6			24.5
Cash and Cash Equivalents at End of Period		$39.0			$36.2			$20.9			$39.0

See accompanying Notes to ~~Unaudited~~the unaudited Consolidated Financial Statements.

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TimkenSteel Corporation

Notes to Unaudited Consolidated Financial Statements

(dollars in millions, except per share data)

Note 1 - ~~Company and~~ Basis of Presentation

The accompanying ~~Unaudited~~unaudited Consolidated Financial Statements have been prepared by TimkenSteel Corporation (the Company or TimkenSteel) in accordance with generally accepted accounting principles in the United States (U.S. GAAP) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) and disclosures considered necessary for a fair presentation have been included. For further information, refer to TimkenSteel’s ~~Audited~~audited Consolidated Financial Statements and Notes included in its Annual Report on Form 10-K for the year ended December 31, ~~2017.~~

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-add solutions such as precision steel components, and billets. In addition, TimkenSteel manages machining, thermal treatment, and raw material recycling programs that 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: oil and gas; oil country tubular goods (OCTG); automotive; industrial equipment; mining; construction; rail; aerospace and defense; heavy truck; agriculture; and power generation.

The SBQ bars, tubes, and billets 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-add solutions production processes take place at three downstream manufacturing facilities: TimkenSteel Material Services (Houston, TX), Tryon Peak (Columbus, NC), and St. Clair (Eaton, OH). 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 of the Company, not any specific aspect of the business.2018.

Note 2 - Recent Accounting Pronouncements

Adoption of New Accounting Standards

The Company adopted the following Accounting Standard Updates (ASU) in the first quarter of ~~2018,~~2019, all of which were effective as of ~~date~~ January 1, ~~2018.~~2019. The adoption of these standards ~~did not have a material~~had no impact on the ~~Unaudited~~unaudited Consolidated Financial Statements or the related Notes to the ~~Unaudited~~unaudited Consolidated Financial Statements.



Standards Adopted	Description
~~2014-09, Revenue from Contracts with Customers~~	The standard defines that a company will recognize revenue when it transfers control of goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This standard also requires additional disclosures about the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers.
~~2017-01, Clarifying the Definition of a Business~~	~~The standard clarifies the definition of a business when evaluating whether transactions should be accounted for as acquisitions, or disposals of assets or businesses.~~
~~2017-09, Stock Compensation, Scope of Modification Accounting~~	~~The standard provides guidance intended to reduce diversity in practice when accounting for a modification to the terms and conditions of a share-based payment award.~~

On January 1, 2018, TimkenSteel adopted the new revenue standard using the modified retrospective approach as applied to customer contracts that were not completed as of January 1, 2018. As a result, financial information for reporting periods beginning on or after January 1, 2018, are presented in accordance with the new revenue standard. Comparative financial information for reporting periods beginning prior to January 1, 2018, has not been adjusted and continues to be reported in accordance with the Company's revenue recognition policies prior to the adoption of the new revenue standard. The cumulative effect was an adjustment to the opening balance of retained earnings. Under the new revenue standard, the Company will continue

~~Table of Contents~~

to recognize revenue at a point in time when it transfers promised goods or services to customers. Refer to Note 10 - Revenue Recognition in the Notes to Unaudited Consolidated Financial Statements for further discussion.

~~The following table outlines the cumulative effect of adopting the new revenue standard as of January 1, 2018.~~

Consolidated Balance Sheet caption
As of
December 31, 2017
ASU 2014-09 Adjustment
As of
January 1, 2018
Inventories, net
$224.0

($3.3 )
$220.7
Other current liabilities
$27.6

($4.0 )
$23.6
Retained deficit
($238.0 )
$0.7

($237.3 )

The ASU 2014-09 adoption adjustment is due to transactions in which the Company bills a customer for product but retains physical possession of the product until it is transferred to the customer at a point in time in the future. Prior to the adoption of the new revenue standard, TimkenSteel would recognize revenue when the product was physically transferred to the customer. Under the new revenue standard, the Company has satisfied its performance obligation and the customer obtains control when the goods are ready to be transferred to the customer and revenue is recorded at that time.

~~For the three and six months ended June 30, 2018, the adoption of the new revenue standard did not have a material impact on the Unaudited Consolidated Financial Statements.~~

~~Accounting Standards Issued But Not Yet Adopted~~

~~The Company has considered the recent ASUs issued by the FASB summarized below.~~



~~Standard Pending Adoption~~	~~Description~~	~~Effective Date~~	~~Anticipated Impact~~
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.	~~January 1, 2019~~	~~The Company is currently evaluating the impact of the adoption of this ASU on its results of operations and financial condition.~~
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.	~~January 1, 2019~~	~~The Company is currently evaluating the impact of the adoption of this ASU on its results of operations and financial condition.~~
~~ASU 2018-01, Leases - Land Easement Practical Expedient for Transition to Topic 842~~	The standard provides an optional transition practical expedient for land easements that allows an entity to continue applying its current accounting policy for certain land easements that exist or expire before the standard’s effective date.	~~January 1, 2019~~	~~The Company is currently evaluating the impact of the adoption of this ASU on its results of operations and financial condition.~~
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:


◦	Whether a contract is or contains a lease


◦	Lease classification


◦	Initial direct costs

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 unaudited 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, 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 11 - Leases” for additional information.

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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	Description	Effective Date	Anticipated Impact
ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40)	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.	January 1, ~~2019~~2020	The Company plans on adopting this ASU using the prospective method. The Company does not expect the ASU to have a material impact on its results of operations or financial condition.
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	The Company does not expect the ASU to have a material impact on its results of operations or financial condition.
ASU 2016-13, Measurement of Credit Losses on Financial Instruments	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.	January 1, 2020	The Company ~~is currently evaluating~~does not expect the ASU to have a material impact ~~of the adoption of this ASU~~ on its results of operations ~~and~~or financial condition.

Note 3 - 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 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. Quantities are defined at the time the customer issues periodic releases against 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. Amounts billed to customers related to shipping and handling costs are included in net sales and related costs are included in costs of products sold in the unaudited Consolidated Financial Statements.

The following table provides the major sources of revenue by end-market sector for the three and six months ended June 30, 2019 and 2018:



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Mobile		$135.3		$141.6		$279.5		$284.1
Industrial	124.3		166.9		271.3		314.6
Energy	54.1		68.8		114.9		117.9
Other⁽¹⁾	23.0		36.2		42.0		77.7
Total Net Sales		$336.7		$413.5		$707.7		$794.3

⁽¹⁾“Other” for sales by end-market sector includes the Company’s scrap and OCTG billet sales.

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The following table provides the major sources of revenue by product type for the three and six months ended June 30, 2019 and 2018:



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Bar		$225.4		$262.4		$465.3		$496.8
Tube	40.8		70.6		90.4		134.3
Value-add	63.1		69.2		136.8		141.9
Other⁽²⁾	7.4		11.3		15.2		21.3
Total Net Sales		$336.7		$413.5		$707.7		$794.3

⁽²⁾“Other” for sales by product type includes the Company’s scrap sales.

Note 4 - Restructuring Charges

During the second quarter of 2019, TimkenSteel made organizational changes to enhance profitable and sustainable growth. These company-wide actions included the restructuring of its commercial and technology organizations to drive innovation and focus on the key growth areas identified by the Company such as value-added components, energy products and government business. Given these and other restructuring efforts, the Company implemented approximately 55 salaried position eliminations. As a result of the headcount reduction, TimkenSteel recognized restructuring charges of $3.6 million consisting of severance and employee-related benefits. TimkenSteel recorded reserves for such restructuring charges as other current liabilities on the unaudited Consolidated Balance Sheets. The reserve balance at June 30, 2019 is expected to be substantially used in the next twelve months.

The following is a summary of the restructuring reserve for the six months ended June 30, 2019:


~~ASU 2016-02, Leases~~	The standard requires lessees to recognize lease liabilities and right-of-use assets on the balance sheet for operating leases, and requires additional quantitative and qualitative disclosures and must be adopted using a modified retrospective approach.
Balance at December 31, 2018		~~January 1,~~$—
Expenses	3.6
Payments	(0.2		)
Balance at June 30, 2019	The Company is currently reviewing its lease contracts, related systems and internal controls as it continues to evaluate the impact of the adoption of this ASU on its results of operations and financial condition.	$3.4

Note 5 - Other Income (Expense), net

The following table provides the components of other income (expense), net for the three and six months ended June 30, 2019 and 2018:



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Pension and postretirement non-service benefit income		$4.5			$6.2			$7.3			$12.5
Loss from remeasurement of benefit plans	(4.4		)	—			(4.4		)	—
Foreign currency exchange gain (loss)	0.2			(0.1		)	0.1			—
Miscellaneous income (expense)	(0.1		)	0.1			(0.1		)	0.1
Total other income (expense), net		$0.2			$6.2			$2.9			$12.6

Non-service benefit income is derived from the Company’s pension and other postretirement plans. The Company’s expected return on assets has exceeded the interest cost component, resulting in income for the three and six months ended June 30, 2019 and 2018. In the second quarter of 2019, the Company amended its postretirement benefit plan. This amendment reduced the postretirement liability and therefore required the Company to perform a full remeasurement of its postretirement obligations and plan assets as of April 30, 2019. The reduction in the Accumulated Postretirement Benefit Obligation (APBO) is recognized in Other Comprehensive Income and subsequently amortized as an offset to postretirement benefit cost. For more details on the remeasurement refer to Note 13 - “Retirement and Postretirement Plans.” Foreign currency exchange gain (loss) is due to exchange-rate fluctuations on the Company’s various foreign-currency denominated transactions.

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Note 36 - Income Tax Provision

TimkenSteel’s provision for income taxes in interim periods is computed by applying the appropriate estimated annual effective tax rates to income or loss before income taxes for the period. In addition, non-recurring or discrete items, including interest on prior-year tax liabilities, are recorded during the periods in which they occur.



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Provision for incomes taxes		$0.2			$0.2			$0.3			$0.3
Effective tax rate	(6.8		)%	1.9		%	228.8		%	4.1		%

In light of TimkenSteel’s recent operating performance in the U.S. and current industry conditions, the Company assessed its U.S. deferred tax assets and concluded, based upon all available evidence, that it was more likely than not that it would not realize the assets. As a result, the Company will maintain a full valuation allowance against its deferred tax assets in the U.S. and applicable foreign countries until sufficient positive evidence exists to conclude that a valuation allowance is not necessary. 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 majority of TimkenSteel’s taxes are derived from foreign operations.

Note 7 - Earnings (Loss) Per Share

Basic earnings (loss) per share is computed based upon the weighted average number of common shares outstanding. Diluted earnings (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 the if-converted method to calculate diluted earnings (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 earnings (loss) per share.

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

The following table sets forth the reconciliation of the numerator and the denominator of basic and diluted earnings (loss) per share for the three and six months ended June 30, 2019 and 2018:



	Three Months Ended June 30,					Six Months Ended June 30,
	2019			2018		2019			2018
Numerator:
Net income (loss)		($4.4	)		$8.4		($0.2	)		$6.5

Denominator:
Weighted average shares outstanding, basic	44.8			44.6		44.7			44.5
Dilutive effect of stock-based awards	—			0.6		—			0.7
Weighted average shares outstanding, diluted	44.8			45.2		44.7			45.2

Basic earnings (loss) per share		($0.10	)		$0.19		$—			$0.15
Diluted earnings (loss) per share		($0.10	)		$0.19		$—			$0.14

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Note 8 - Inventories

The components of inventories, net of reserves as of June 30, ~~2018~~2019 and December 31, ~~2017~~2018 were as follows:


	June 30, 2018			December 31, 2017			June 30, 2019			December 31, 2018
Inventories:
Manufacturing supplies		$40.3			$36.3			$56.0			$46.9
Raw materials	45.8			31.9			40.5			35.2
Work in process	190.5			137.8			154.9			155.7
Finished products	90.1			82.9			125.8			142.8
Gross inventory	366.7			288.9			377.2			380.6
Allowance for surplus and obsolete inventory	(7.5		)	(7.8		)	(5.2		)	(5.1		)
LIFO reserve	(64.7		)	(57.1		)	(67.2		)	(78.7		)
Total Inventories, net		$294.5			$224.0			$304.8			$296.8

Inventories are valued at the lower of cost or market, with approximately ~~65%~~74% valued by the ~~LIFO~~last in, first out (LIFO) method, and the remaining inventories, including manufacturing supplies inventory as well as international (outside the United States) inventories, valued by ~~FIFO,~~the first-in, first-out, average cost or specific identification methods.

An actual valuation of the inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations must be based on management’s estimates of expected year-end inventory levels and costs. Because these calculations are subject to many factors beyond management’s control, annual results may differ from interim results as they are subject to the final year-end LIFO inventory valuation.

TimkenSteel projects ~~that~~ its LIFO reserve will ~~increase~~decrease for the year ending December 31, ~~2018,~~2019 due ~~primarily~~ to ~~higher~~lower anticipated ~~scrap prices~~raw material costs, manufacturing costs and ~~inflation.~~quantities.

~~Note 4 -Property, Plant and Equipment~~

~~The components of property, plant and equipment, net as of June 30, 2018 and December 31, 2017, were as follows:~~

June 30,
2018 December 31,
2017
Property, Plant and Equipment, net:
Land
$13.4

$13.4
Buildings and improvements 422.6
420.6
Machinery and equipment 1,403.0
1,387.4
Construction in progress 14.3
30.4
Subtotal 1,853.3
1,851.8
Less allowances for depreciation (1,173.5 ) (1,145.1 )
Property, Plant and Equipment, net
$679.8

$706.7

Total depreciation expense was $34.0 million and $34.2 million for the six months ended June 30, 2018 and 2017, respectively. TimkenSteel recorded capitalized interest related to construction projects of $0.1 million and $0.3 million for the six months ended June 30, 2018 and 2017, respectively. During the six months ended June 30, 2018, TimkenSteel recorded approximately $0.5 million of impairment charges and loss on sale or disposals related to the discontinued use of certain assets.

~~Table of Contents~~

Note 59 - Property, Plant and Equipment

The components of property, plant and equipment, net as of June 30, 2019 and December 31, 2018 were as follows:



	June 30, 2019			December 31, 2018
Land		$14.1			$14.1
Buildings and improvements	426.4			424.4
Machinery and equipment	1,413.2			1,404.2
Construction in progress	21.7			28.5
Subtotal	1,875.4			1,871.2
Less allowances for depreciation	(1,225.7		)	(1,196.8		)
Property, Plant and Equipment, net		$649.7			$674.4

Total depreciation expense was $16.5 million and $17.0 million for the three months ended June 30, 2019 and 2018, respectively. Total depreciation expense was $32.9 million and $34.0 million for the six months ended June 30, 2019 and 2018, respectively. During the three and six months ended June 30, 2019, TimkenSteel recorded a loss on disposal of assets of $1.7 million, primarily related to the abandonment of certain equipment. During the three and six months ended June 30, 2018, TimkenSteel recorded approximately $0.5 million of impairment charges and loss on sale or disposals related to the discontinued use of certain assets.

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Note 10 - Intangible Assets

The components of intangible assets, net as of June 30, ~~2018~~2019 and December 31, ~~2017~~2018 were as follows:


	June 30, 2018						December 31, 2017						June 30, 2019						December 31, 2018
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Intangible Assets Subject to Amortization:
Customer relationships		$6.3		$4.4		$1.9		$6.3		$4.1		$2.2		$6.3		$4.7		$1.6		$6.3		$4.6		$1.7
Technology use	9.0		6.1		2.9		9.0		5.9		3.1		9.0		6.8		2.2		9.0		6.5		2.5
Capitalized software	58.9		46.2		12.7		59.1		44.5		14.6		62.2		48.6		13.6		61.6		48.0		13.6
Total Intangible Assets		$74.2		$56.7		$17.5		$74.4		$54.5		$19.9		$77.5		$60.1		$17.4		$76.9		$59.1		$17.8

Intangible assets subject to amortization are amortized on a straight-line method over their legal or estimated useful lives. Amortization expense for intangible assets for the three months ended June 30, 2019 and 2018 was $1.4 million for both periods. Amortization expense for intangible assets for the six months ended June 30, 2019 and 2018 ~~and 2017~~ was ~~$2.9~~$2.8 million and ~~$3.6~~$2.9 million, respectively. During the three and six months ended June 30, 2019, TimkenSteel recorded a loss on disposal of intangibles of $0.1 million. During the three and six months ended June 30, 2018, TimkenSteel recorded approximately $0.4 million of impairment charges due to the discontinued use of certain capitalized software. ~~There were~~

Note 11 - Leases

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 June 30, 2019, the Company has no ~~impairment charges~~financing leases. The weighted average remaining lease term for our operating leases as of June 30, 2019 was 2.9 years.

Leases with an initial term of 12 months or less (short-term leases) are not recorded ~~during~~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 three and six months ended June 30, ~~2017.~~

~~Note 6 - Financing Arrangements~~

~~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 are2019 as follows:

~~Maturity Date: June 1, 2021 unless repurchased or converted earlier~~

~~Interest Rate: 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~~When available, the ~~Company~~

~~Initial Conversion Rate:~~ ~~79.5165common shares per $1,000 principal amount of Notes~~

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 market-based information available at lease commencement. The ~~net proceeds~~weighted average discount rate used 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 the Credit Agreement.

~~The components of the Convertible Notes~~measure our operating lease liabilities as of June 30, ~~2018 and December 31, 2017 were~~2019 was 4.7%.

Supplemental cash flow information related to leases was as follows:

June 30,
2018 December 31, 2017

Principal
$86.3

$86.3
Less: Debt issuance costs, net of amortization (1.4 ) (1.6 )
Less: Debt discount, net of amortization (12.9 ) (14.6 )
Convertible notes, net
$72.0

$70.1

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’ 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.



	Six Months Ended June 30, 2019
Cash paid for amounts included in the measurement of operating lease liabilities		$3.6
Right-of-use assets obtained in exchange for operating lease obligations		$1.7

1013

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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 for the three and six months ended June 30, 2018 and 2017:~~

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Contractual interest expense
$1.3

$1.3

$2.6

$2.6
Amortization of debt issuance costs 0.1
0.1
0.2
0.2
Amortization of debt discount 0.8
0.8
1.7
1.6
Total
$2.2

$2.2

$4.5

$4.4

~~The fair value of the Convertible Notes was approximately $157.0 million~~Future minimum lease payments under non-cancellable leases as of June 30, ~~2018. The fair value of the Convertible Notes, which falls within Level 1 of the fair value hierarchy, is based on the last price traded in June 2018.~~

Holders may convert all or any portion of their Convertible Notes, in multiples of $1,000 principal amount, at their option at any time prior to the close of business on the business day immediately preceding March 1, 2021 only under certain circumstances described in the Convertible Notes Indenture, based on the reported sale price of the Company’s common shares for specified trading days as a percentage of the conversion price of the Convertible Notes, and upon the occurrence of specified corporate events. On or after March 1, 2021 until the business day preceding the maturity date, holders may convert all or any portion of their Convertible Notes, in multiples of $1,000 principal amount, at their option.

Upon conversion, the Company will pay or deliver, as the case may be, cash, common shares or a combination of cash and common shares, at its election. If the Company satisfies its conversion obligation solely in cash or through payment and delivery, as the case may be, of a combination of cash and common shares, the amount of cash and number of common shares, if any, due upon conversion will be based on a daily conversion value calculated on a proportionate basis for each trading day in a 40-trading day period.

If the Company undergoes a fundamental change, subject to certain conditions, holders may require the Company to repurchase for cash all or part of their Convertible Notes at a repurchase price equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest to the repurchase date.

Upon certain events of default occurring and continuing (including failure to pay principal or interest on the Convertible Notes when due and payable), the Trustee or the holders of at least 25% in principal amount may declare 100% of the principal and accrued and unpaid interest, if any, on all the Convertible Notes to be due and payable. In case of certain events of bankruptcy, insolvency or reorganization, involving the Company or a significant subsidiary, 100% of the principal and accrued and unpaid interest on the Convertible Notes will become due and payable immediately.

~~Other Long-Term Debt~~

~~The components of other long-term debt as of June 30, 2018 and December 31, 2017~~2019 were as follows:

June 30,
2018 December 31,
2017

Variable-rate State of Ohio Water Development Revenue Refunding Bonds, maturing on November 1, 2025 (1.58% as of December 31, 2017)
$—

$12.2
Variable-rate State of Ohio Air Quality Development Revenue Refunding Bonds, maturing on November 1, 2025 (1.60% as of December 31, 2017) —
9.5
Variable-rate State of Ohio Pollution Control Revenue Refunding Bonds, maturing on June 1, 2033 (1.60% as of December 31, 2017) —
8.5
Credit Agreement, due 2019 (LIBOR plus applicable spread) —
65.0
Amended Credit Agreement, due 2023 (LIBOR plus applicable spread) 150.0
—
Total Other Long-Term Debt
$150.0

$95.2

~~Credit Agreement~~

~~Table of Contents~~

On February 26, 2016, the Company, as a borrower, and certain domestic subsidiaries, as subsidiary guarantors, entered into the Amended and Restated Credit Agreement (the Credit Agreement), with JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders party thereto. The Credit Agreement provided for a $265 million asset based revolving credit facility.

~~Amended 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 (Amended Credit Agreement), with JPMorgan 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.

The Amended Credit Agreement provides for a $300.0 million asset-based revolving credit facility, including a $15.0 million sublimit for the issuance of commercial and standby letters of credit and a $30.0 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 $50.0 million, to the extent that existing or new lenders agree to provide such additional commitments.

The availability of borrowings under the Amended Credit Agreement 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 Amended Credit Agreement 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 of the administrative agent, (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 commitment fee on the average daily unused amount of the credit facility in a percentage determined by the Company’s average daily availability for the most recently completed calendar month.~~The interest rate under the Amended Credit Agreement was 4.0% as of June 30, 2018. The amount available under the Amended Credit Agreement as of June 30, 2018 was $147.4 million.~~

The proceeds of the Amended Credit Agreement will be used to finance working capital, capital expenditures, certain permitted acquisitions and other general corporate purposes. In addition, $30.2 million of the proceeds were used to redeem the revenue refunding bonds (discussed below). All of the indebtedness under the Amended Credit Agreement is guaranteed by the Company’s material domestic subsidiaries, as well as any other domestic subsidiary 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 Amended Credit Agreement matures on January 26, 2023. 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 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.

~~Table of Contents~~

~~Revenue Refunding Bonds~~

In connection with entering into the Amended Credit Agreement, 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).

~~Note 7 - Accumulated Other Comprehensive Loss~~

~~Changes in accumulated other comprehensive loss for the six months ended June 30, 2018 and 2017 by component are as follows:~~

Foreign Currency Translation Adjustments Pension and Postretirement Liability Adjustments Total
Balance at December 31, 2017
($5.9 )
($1.7 )
($7.6 )
Other comprehensive income before reclassifications, before income tax (0.4 ) —
(0.4 )
Amounts reclassified from accumulated other comprehensive loss, before income tax —
0.3
0.3
Income tax —
—
—
Net current period other comprehensive (loss) income, net of income taxes (0.4 ) 0.3
(0.1 )
Balance at June 30, 2018
($6.3 )
($1.4 )
($7.7 )

Foreign Currency Translation Adjustments Pension and Postretirement Liability Adjustments Total
Balance at December 31, 2016
($7.0 )
($2.4 )
($9.4 )
     Other comprehensive income before reclassifications, before income tax 0.8
—
0.8
      Amounts reclassified from accumulated other comprehensive loss, before income tax —
0.8
0.8
              Income tax —
(0.5 ) (0.5 )
Net current period other comprehensive income, net of income taxes 0.8
0.3
1.1
Balance at June 30, 2017
($6.2 )
($2.1 )
($8.3 )



2019 (excluding the six months ended June 30, 2019)		$3.2
2020	5.8
2021	3.9
2022	1.6
2023	0.9
After 2023	0.1
Total future minimum lease payments	15.5
Less amount of lease payment representing interest	(1.0		)
Total present value of lease payments		$14.5

~~The amount reclassified from accumulated other comprehensive loss for the pension and postretirement liability adjustment was included in other income, net in the Unaudited Consolidated Statements~~Future minimum lease payments under non-cancellable leases as of ~~Operations. These accumulated other comprehensive loss components are components of net periodic benefit cost. See Note 9 - Retirement and Postretirement Plans for additional information.~~

~~Table of Contents~~

~~Note 8 - Changes in Shareholders' Equity~~

~~Changes in the components of shareholders’ equity for the six months ended June 30,~~December 31, 2018 were as follows:

Total Additional Paid-in Capital Retained Deficit Treasury Shares Accumulated Other Comprehensive Loss
Balance at December 31, 2017
$560.7

$843.7

($238.0 )
($37.4 )
($7.6 )
Net Income 6.5
—
6.5
—
—
Pension and postretirement adjustment, net of tax 0.3
—
—
—
0.3
Foreign currency translation adjustments (0.4 ) —
—
—
(0.4 )
ASU 2014-09 adjustment 0.7
—
0.7
—
—
Stock-based compensation expense 3.7
3.7
—
—
—
Stock option activity 0.2
0.2
—
—
—
Issuance of treasury shares —
(4.9 ) (0.2 ) 5.1
—
Shares surrendered for taxes (0.7 ) —
—
(0.7 ) —
Balance at June 30, 2018
$571.0

$842.7

($231.0 )

($33.0 )

($7.7 )



2019		$6.3
2020	5.2
2021	3.3
2022	1.0
2023	0.6
After 2023	—
Total future minimum lease payments		$16.4

As of June 30, 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 $3.0 million. Accordingly, these leases are not recorded on the unaudited Consolidated Balance Sheet at June 30, 2019. These operating leases will commence between 2019 and 2022 with lease terms of three to four years.

Note 912 - ~~Retirement and Postretirement Plans~~Financing Arrangements

For a detailed discussion of the Company's long-term debt and credit arrangements, refer to “Note 6 - Financing Arrangements” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

Convertible Notes

The components of ~~net periodic benefit cost for~~ the ~~three and six months ended~~Convertible Notes as of June 30, ~~2018~~2019 and ~~2017~~December 31, 2018 were as follows:

Three Months Ended
June 30, 2018 Three Months Ended
June 30, 2017

Components of net periodic benefit cost: Pension Postretirement Pension Postretirement
Service cost
$4.3

$0.5

$4.6

$0.4
Interest cost 11.4
1.9
12.3
2.1
Expected return on plan assets (18.5 ) (1.2 ) (17.7 ) (1.3 )
Amortization of prior service cost 0.1
—
0.1
0.3
Net Periodic Benefit Cost
($2.7 )
$1.2

($0.7 )
$1.5

Six Months Ended
June 30, 2018 Six Months Ended
June 30, 2017

Components of net periodic benefit cost: Pension Postretirement Pension Postretirement
Service cost
$8.6

$0.9

$9.2

$0.8
Interest cost 22.8
3.8
24.5
4.2
Expected return on plan assets (36.9 ) (2.4 ) (35.2 ) (2.7 )
Amortization of prior service cost 0.2
0.1
0.2
0.6
Net Periodic Benefit Cost
($5.3 )
$2.4

($1.3 )
$2.9



	June 30, 2019			December 31, 2018
Principal		$86.3			$86.3
Less: Debt issuance costs, net of amortization	(1.0		)	(1.2		)
Less: Debt discount, net of amortization	(9.0		)	(11.0		)
Convertible notes, net		$76.3			$74.1

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~~Note 10 - Revenue Recognition~~The following table sets forth total interest expense recognized related to the Convertible Notes:



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Contractual interest expense		$1.3		$1.3		$2.6		$2.6
Amortization of debt issuance costs	0.1		0.1		0.2		0.2
Amortization of debt discount	1.0		0.8		2.0		1.7
Total		$2.4		$2.2		$4.8		$4.5

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 JPMorgan 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. The interest rate under the Credit Agreement was 4.6% as of June 30, 2019. The amount available under the Credit Agreement as of June 30, 2019 was $152.4 million. As ~~discussed~~of June 30, 2019, the Company was in ~~Note 2 - Recent Accounting Pronouncements~~,compliance with all covenants.

Refunding Bonds

In connection with amending the Credit Agreement, on January 23, 2018, the Company redeemed in full $12.2 million of Ohio Water Development Revenue Refunding Bonds (originally due on November 1, 2018 TimkenSteel adopted the new revenue recognition standard. Under this new standard, TimkenSteel recognizes revenue from contracts at a point in time when it has satisfied its performance obligation2025), $9.5 million of Ohio Air Quality Development Revenue Refunding Bonds (originally due on November 1, 2025) and ~~the customer obtains control~~$8.5 million of Ohio Pollution Control Revenue Refunding Bonds (originally due on June 1, 2033).

Fair Value Measurement

The fair value of the ~~goods, at~~Convertible Notes was approximately $86.5 million as of June 30, 2019. The fair value of the ~~amount that reflects~~Convertible Notes, which falls within Level 1 of the consideration the Company expects to receive for those goods. The Company receives and 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 quantitiesfair value hierarchy as 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 accruedby Accounting Standards Codification (ASC) 820, Fair Value Measurements, is based on the ~~estimated probability~~last price traded in June 2019.

TimkenSteel’s Credit Agreement 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 ~~requirements being met. Amounts billed to customers related to shipping~~fair value hierarchy and ~~handling costs~~is based on quoted prices for similar assets and liabilities in active markets that are ~~included in net sales and related costs are included in costs of products sold in the Unaudited Consolidated Financial Statements.~~observable either directly or indirectly.

Interest Paid

The ~~following table provides~~total cash interest paid for the ~~major sources of revenue by end market sector.~~six months ended June 30, 2019 and 2018 was $6.1 million and $5.2 million, respectively.

Three Months Ended June 30, Six Months Ended June 30,
2018
2017 2018 2017
Mobile
$141.6

$135.6

$284.1

$272.2
Industrial 166.9
120.2
314.6
230.8
Energy 68.8
37.6
117.9
61.3
Other 36.2
45.9
77.7
84.4
Total Net Sales
$413.5

$339.3

$794.3

$648.7

~~The following table provides the major sources of revenue by product type.~~

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Bar
$262.4

$219.8

$496.8

$418.0
Tube 70.6
42.4
134.3
77.0
Value-add 69.2
68.4
141.9
136.3
Other 11.3
8.7
21.3
17.4
Total Net Sales
$413.5

$339.3

$794.3

$648.7

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Note 1113 - ~~Earnings Per Share~~Retirement and Postretirement Plans

~~Basic income (loss) per share is computed based upon the weighted average number~~The components of common shares outstanding. Diluted earnings (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 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.

Common share equivalents for shares issuable for equity-based awards were excluded from the computation of diluted earnings (loss) per share for the six months ended June 30, 2017 because the effect of their inclusion would have been anti-dilutive. Common share equivalents for shares issuable upon the conversion of outstanding convertible notes, were excluded from the computation of diluted earnings (loss) per shareperiodic benefit cost (income) for the three and six months ended June 30, 2019 and 2018 ~~and 2017 because the effect of their inclusion would have been anti-dilutive.~~

The following table sets forth the reconciliation of the numerator and the denominator of basic earnings (loss) per share and diluted earnings (loss) per share for the three and six months ended June 30, 2018 and 2017:were as follows:

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Numerator:
Net income (loss) for basic and diluted earnings per share
$8.4

$1.3

$6.5

($4.0 )

Denominator:
Weighted average shares outstanding, basic 44.6
44.4
44.5
44.3
Dilutive effect of stock-based awards 0.6
0.4
0.7
—
Weighted average shares outstanding, diluted 45.2
44.8
45.2
44.3

Basic earnings (loss) per share
$0.19

$0.03

$0.15

($0.09 )
Diluted earnings (loss) per share
$0.19

$0.03

$0.14

($0.09 )

~~Note~~12 - ~~Income Tax Provision~~



	Three Months Ended June 30, 2019						Three Months Ended June 30, 2018
	Pension			Postretirement			Pension			Postretirement
Service cost		$4.4			$0.3			$4.3			$0.5
Interest cost	12.3			1.5			11.4			1.9
Expected return on plan assets	(16.4		)	(1.0		)	(18.5		)	(1.2		)
Amortization of prior service cost	0.1			(1.0		)	0.1			—
Net remeasurement losses (gains)	—			4.4			—			—
Net Periodic Benefit Cost (Income)		$0.4			$4.2			($2.7	)		$1.2

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Provision for incomes taxes
$0.2

$0.8

$0.3

$1.1
Effective tax rate 1.9 % 39.6 % 4.1 % (39.1 )%



	Six Months Ended June 30, 2019						Six Months Ended June 30, 2018
	Pension			Postretirement			Pension			Postretirement
Service cost		$8.7			$0.6			$8.6			$0.9
Interest cost	24.5			3.5			22.8			3.8
Expected return on plan assets	(32.6		)	(1.9		)	(36.9		)	(2.4		)
Amortization of prior service cost	0.2			(1.0		)	0.2			0.1
Net remeasurement losses (gains)	—			4.4			—			—
Net Periodic Benefit Cost (Income)		$0.8			$5.6			($5.3	)		$2.4

~~Operating losses generated~~In the second quarter of 2019, the Company amended its postretirement benefit plan relating to moving Medicare-eligible union retirees to an individual plan on a Medicare healthcare exchange. This amendment reduced the postretirement liability by $70.2 million. This amendment required the Company to perform a full remeasurement of its postretirement obligations and plan assets as of April 30, 2019. The $70.2 million reduction in the ~~U.S. resulted~~APBO is recognized in Other Comprehensive Income (Loss) and subsequently amortized as an offset to postretirement benefit cost over a ~~decrease in~~period of 12 years (average remaining service period). In addition to the ~~carrying value~~reduction of the ~~Company’s U.S. deferred tax liability to~~APBO, the ~~point of~~Company recognized a net U.S. deferred tax asset at December 31, 2016. At that time, the Company assessed, based upon operating performance in the U.S. and industry conditions that it was more likely than not it would not realize a portionremeasurement loss of its U.S. deferred tax assets. The Company recorded a valuation allowance in 2016 and 2017 and remained in a valuation allowance position in the first half of 2018. 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. The change in the effective tax rate for the three and six months ended June 30, 2018 compared to the$4.4 million.

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~~same periods~~Note 14 - Accumulated Other Comprehensive Income (Loss)

Changes in ~~2017 is primarily due to a discrete charge of approximately $1.0 million recorded~~accumulated other comprehensive income (loss) for the six months ended June 30, 2019 and 2018 by component were as follows:



	Foreign Currency Translation Adjustments			Pension and Postretirement Liability Adjustments			Total
Balance as of December 31, 2018		($7.3	)		($1.6	)		($8.9	)
Other comprehensive income before reclassifications, before income tax	(0.2		)	—			(0.2		)
Amounts reclassified from accumulated other comprehensive income (loss), before income tax	—			(0.7		)	(0.7		)
Amounts deferred to accumulated other comprehensive income (loss), before income tax	—			70.2			70.2
Income tax	—			—			—
Net current period other comprehensive income, net of income taxes	(0.2		)	69.5			69.3
Balance as of June 30, 2019		($7.5	)		$67.9			$60.4

	Foreign Currency Translation Adjustments			Pension and Postretirement Liability Adjustments			Total
Balance at December 31, 2017		($5.9	)		($1.7	)		($7.6	)
Other comprehensive income before reclassifications, before income tax	(0.4		)	—			(0.4		)
Amounts reclassified from accumulated other comprehensive loss, before income tax	—			0.3			0.3
Income tax	—			—			—
Net current period other comprehensive income, net of income taxes	(0.4		)	0.3			(0.1		)
Balance as of June 30, 2018		($6.3	)		($1.4	)		($7.7	)

The amount reclassified from accumulated other comprehensive income (loss) for the pension and postretirement liability adjustment was included in other income (expense), net in the ~~second quarter~~unaudited Consolidated Statements of ~~2017.~~

~~Tax Cuts and Jobs Act Bill~~

~~On December 22, 2017,~~Operations. The amount deferred to accumulated other comprehensive income in the ~~Tax Cut and Jobs Act (the Act)~~six months ended June 30, 2019, 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 reducing the federal corporate income tax rate from 35% to 21%, limiting the interest expense deduction, expensing of cost of acquired qualified property and eliminating the domestic production activities deduction. We are currently evaluating the impact of the Act, however we do not anticipate that the Act will have a material impact on our financial condition and results of operations. At this time, we do not anticipate 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, as we expect to be in~~ a ~~valuation allowance in 2018.~~

Other provisions of the Act include a new minimum tax on certain foreign earnings, the Global Intangibles Low-taxed Income, a new tax on certain payments to foreign related parties, the Base Erosion Anti-avoidance Tax, a new incentive for Foreign-derived Intangibles Income, changesplan amendment to the ~~limitation on the deductibility~~Company’s postretirement benefit plan. These accumulated other comprehensive income (loss) components are components of ~~certain executive compensation,~~net periodic benefit cost. See “Note 13 - Retirement and ~~new limitations on the deductibility of interest expense. Generally, these other provisions take effect~~Postretirement Plans” for the Company in the year ending December 31, 2018. On December 22, 2017, the SEC issued Staff Accounting Bulletin No. 118 (SAB 118). This guidance allows registrants a “measurement period,” not to exceed one year from the date of enactment, to complete their accounting for the tax effects of the Act. SAB 118 further directs that, during the measurement period, registrants that are able to make reasonable estimates of the tax effects of the Act should include those amounts in their financial statements as “provisional” amounts. Registrants should reflect adjustments over subsequent periods as they are able to refine their estimates and complete their accounting for the tax effects of the Act. The tax effects related to the Act described in the paragraph above represent the Company’s reasonable estimates within the meaning of SAB 118. Also, it is expected that the U.S. Treasury will issue regulations and other guidance on the application of certain provisions of the Act. In subsequent periods, but within the measurement period, the Company will analyze that guidance and other necessaryadditional information.

Note 1315 - 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. ~~As of June 30, 2018 and December 31, 2017, TimkenSteel had a $0.6 million and a $0.9 million contingency reserve, respectively, related to loss exposures incurred in the ordinary course of business.~~

~~Environmental Matters~~

~~From time to time, TimkenSteel may be a party to lawsuits, claims or other proceedings~~Accruals related to environmental matters and/or may receive notices of potential violations of environmental laws and regulations from the U.S. Environmental Protection Agency (EPA) and similar state or local authorities. TimkenSteel recorded reserves for such environmental matters as other current and non-current liabilities on the Consolidated Balance Sheets. Accruals related to such environmental mattersclaims represent management’s best estimate of the fees and costs associated with these ~~matters.~~claims. Although it is not possible to predict with certainty the outcome of such ~~matters,~~claims, management believes that their ultimate dispositions should not have a material adverse effect on ~~TimkenSteel’s~~our financial position, cash flows or results of operations. As of June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, TimkenSteel had a ~~$0.9~~$1.5 million ~~and $0.5 million~~contingency reserve for ~~such environmental matters as other current and non-current liabilities on the Unaudited Consolidated Balance Sheets, respectively.~~

~~The following is a rollforward of the accrual~~both periods, related to ~~environmental matters for~~loss exposures incurred in the ~~six months ended June 30, 2018 and 2017:~~ordinary course of business.

Six Months Ended June 30,
2018 2017
Beginning balance, January 1
$0.5

$0.6
Expenses 0.4
0.1
Payments —
(0.1 )
Ending balance, June 30
$0.9

$0.6

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(dollars in millions, except per share data)

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 on June 30, 2014.~~

~~We manufacture~~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. Our portfolio includes special bar quality (SBQ) bars, seamless mechanical tubing (tubes), value-add solutions such as precision steel components, and billets. In addition, we ~~manage~~supply machining and thermal treatment services and manage raw material recycling programs, ~~that~~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:~~categories: oil and gas; ~~OCTG;~~oil country tubular goods (OCTG); automotive; industrial equipment; mining; construction; rail; aerospace and defense; heavy truck; agriculture; and power generation.

Based on our knowledge of the steel industry, we believe we are the only focused SBQ steel producer in North America and have the largest SBQ steel large bar (6-inch diameter and greater) production capacity among North American steel producers. In addition, we are the only steel manufacturer able to produce rolled SBQ steel large bars up to 16-inches in diameter. 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%~~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. We believe our unique operating model and production assets give us a competitive advantage in our industry.

The SBQ ~~bars, tubes,~~bar, tube, and ~~billets~~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-add solutions production processes take place at three downstream manufacturing facilities: TimkenSteel Material Services (Houston, ~~TX)~~Texas), Tryon Peak (Columbus, ~~NC)~~North Carolina), and St. Clair (Eaton, ~~OH)~~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.

~~Capital Investments~~

~~Our recent capital investments are expected to significantly strengthen~~We conduct our ~~position~~business activities and report financial results as ~~a leader~~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 ~~providing differentiated solutions~~which the Chief Operating Decision Maker (CODM) evaluates performance and makes resource and operating decisions for the ~~energy, industrial and automotive market sectors, while enhancing our operational performance and customer service capabilities.~~

Inbusiness as described above. Furthermore, the ~~fourth quarter of 2017, we launched our new advanced quench-and-temper heat-treat line. The approximately $40 million investment performs quench-and-temper heat-treat operations and has~~Company notes that monitoring financial results as one reportable segment helps the ~~capacity for up to 50,000 process-tons annually of 4-inch to 13-inch bars and tubes. This equipment is located in~~CODM manage costs on a ~~separate facility in Perry Township, Ohio on~~consolidated basis, consistent with the ~~site~~integrated nature of our Gambrinus Steel Plant, and is one of our larger thermal treatment facilities. This new equipment allows us to meet stringent industry requirements regardless of the order size, resulting in better service for our customers.operations.

Impact of Raw Material Prices and LIFO

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 ~~also~~ utilize a raw material surcharge mechanism ~~that~~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.

We value ~~some~~a 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 materials and other costs may have been incurred in different periods at significantly different values due to the length of time of our production cycle. In a period of rising raw material prices, cost of products sold recognized under LIFO is generally higher than the cash costs incurred to acquire the inventory sold. Conversely, in a period of declining raw materials prices, cost of products sold recognized under LIFO is

~~Table of Contents~~

~~generally lower than cash costs incurred to acquire the inventory sold. In~~ periods of rising inventories and deflating raw material prices, the likely result will be a positive impact to net income. Conversely, in periods of rising inventories and increasing raw materials prices, the likely result will be a negative impact to net income.

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Results of Operations

Net Sales

The charts below present net sales and shipments for the three months ended June 30, ~~2018~~2019 and ~~2017.~~2018.

Net sales for the three months ended June 30, ~~2018~~2019 were ~~$413.5~~$336.7 million, ~~an increase~~a decrease of ~~$74.2~~$76.8 million, or ~~22%~~18.6%, compared towith the three months ended June 30, ~~2017.~~2018. The decrease was due to a reduction in volume of approximately 62 thousand ship tons, resulting in a decrease of $65.7 million of net sales, and lower surcharges of $25.9 million. The primary driver in the decrease in volume was lower shipments in the industrial end markets and the reduction of OCTG billet shipments. The decrease in surcharges was primarily due to lower volumes. These decreases were partially offset by favorable price/mix of $13.7 million, as we realized the benefit of price increases and continue focused efforts to sell our higher value products. This resulted in net sales per ton increasing 1.6% from 2018. Excluding surcharges, net sales ~~increased $48.0~~decreased $50.9 million, or ~~18%~~16.4%. The increase was due to higher volumes of $20.0 million and price/mix of approximately $28.0 million. For the three months ended June 30, 2018, ship tons increased by 15.1 thousand tons, or 5%, compared to the three months ended June 30, 2017, due primarily to higher demand in industrial and energy end markets.

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The charts below present net sales and shipments for the six months ended June 30, ~~2018~~2019 and ~~2017.~~2018.

Net sales for the six months ended June 30, ~~2018~~2019 were ~~$794.3~~$707.7 million, ~~an increase~~a decrease of ~~$145.6~~$86.6 million, or ~~22%~~10.9%, compared towith the six months ended June 30, ~~2017.~~2018. The decrease was due to lower volumes of approximately 100 thousand ship tons, resulting in a decrease of $104.1 million of net sales, and lower surcharges of $26.5 million. The primary driver in the decrease in volume was lower shipments in the industrial end markets and the reduction of OCTG billet shipments. The decrease in surcharges was primarily due to lower volumes. These decreases were partially offset by favorable price/mix of $43.2 million, driven by increased pricing in first half 2019, compared with the same period 2018, and continued focused efforts to sell our higher value products. This resulted in net sales per ton increasing 6.7% from 2018. Excluding surcharges, net sales ~~increased $87.0~~decreased $59.7 million, or 17%. The increase was due to higher volumes of approximately $42 million and price/mix of approximately $46 million. For the six months ended June 30, 2018, ship tons increased by 34.9 thousand tons, or 6%, compared to the six months ended June 30, 2017, due primarily to higher demand in industrial and energy end markets.10.0%

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Gross Profit

The charts below present the drivers of the gross profit variance from the three months ended June 30, 2018 to June 30, 2019.

Gross profit for the three months ended June 30, ~~2018 increased $8.3~~2019 decreased $6.7 million, or ~~35%~~20.9%, compared towith the three months ended June 30, ~~2017.~~2018. The ~~increase~~decrease was driven primarily by unfavorable manufacturing cost, raw material spread, and lower volumes. Higher manufacturing costs in second-quarter 2019 were primarily driven by accelerating annual maintenance for two of our plants, in order to free up capacity later in 2019, combined with lower melt utilization, resulting in lower fixed-cost leverage. Raw material spread was a headwind due to a decline in the No.1 busheling scrap index and lower volumes during second quarter of 2019. Lower volumes were a result of reduced shipments to the industrial end markets and reductions in OCTG billet sales. These decreases were partially offset by a favorable LIFO adjustment and higher price/mix. LIFO benefited from declining scrap prices and inventory quantities in the second quarter of 2019 as compared to amounts in inventory at December 31, 2018. Price/mix was favorable due to increased pricing in second quarter of 2019, compared with the same period in 2018, and continued focused efforts to sell our higher demand in the industrial and energy end markets. Partially offsetting the increase were unfavorable manufacturing costs and LIFO primarily due to higher inflation and higher raw material costs impacted by timing as well as higher costs of obsolete grades of scrap, and the absence of a supplier refund that occurred in the three months ended June 30, 2017.

value products.

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The charts below present the drivers of the gross profit variance from the six months ended June 30, 2018 to June 30, 2019.

Gross profit for the six months ended June 30, ~~2018~~2019 increased ~~$12.4~~$1.3 million, or ~~approximately 30%~~2.4%, compared towith the six months ended June 30, ~~2017.~~2018. The increase was driven primarily by a favorable price/mix and a favorable LIFO adjustment. Price/mix was favorable due to increased pricing in first half of 2019, compared with the same period in 2018, and continued focused efforts to sell our higher ~~demand~~value products. LIFO benefited from declining scrap prices and inventory quantities in the ~~industrial~~first half of 2019 as compared to amounts in inventory at December 31, 2018. These increases were partially offset by unfavorable manufacturing costs, raw material spread, and ~~energy~~lower volumes. Manufacturing costs were unfavorable due to accelerated annual plant maintenance for two of our plants, in order to free up capacity later in 2019, combined with lower melt utilization, resulting in lower fixed-cost leverage during the first half of 2019. Raw material spread was a headwind due to a decline in the No.1 busheling scrap index and lower volume during the first half of 2019. Lower volumes were a result of reduced shipments to the industrial end markets and favorable raw material spread. Partially offsetting the increase were unfavorable manufacturing costs due to higher inflation, non-recurring legal costs and employee benefit claims and the absence of a supplier refund that occurredreductions in ~~the six months ended June 30, 2017.~~OCTG billet sales.

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Selling, General and Administrative Expenses

The charts below present selling, general and administrative (SG&A) expense for the three and six months ended June 30, ~~2018~~2019 and ~~2017.~~2018.

~~SG&A~~Selling, general and administrative (SG&A) expense for the three months and six months ended June 30, ~~2018 increased~~2019 decreased by ~~$2.6~~$4.7 million, or 18.9%, and ~~$4.4~~$6.1 million, or 12.3%, respectively, compared towith the same periods in ~~2017,~~2018. The decline in both periods was primarily due ~~primarily~~ to ~~an increase~~lower variable compensation.

Restructuring Charges

During the second quarter of 2019, TimkenSteel made organizational changes to enhance profitable and sustainable growth. These company-wide actions included the restructuring of its commercial and technology organizations to drive innovation and focus on the key growth areas identified by the Company such as value-added components, energy products and government business. Given these and other restructuring efforts, the Company implemented approximately 55 salaried position eliminations. As a result of the headcount reduction, TimkenSteel recognized restructuring charges of $3.6 million consisting of severance and employee-related benefits. The Company expects savings of approximately $2 million in ~~variable compensation and employee costs.~~fiscal 2019 with annual savings of approximately $7 million beginning in fiscal 2020. Refer to “Note 4 - Restructuring Charges” in the Notes to the unaudited Consolidated Financial Statements for additional information.

Interest Expense


	Three Months Ended June 30,									Three Months Ended June 30,
	2018			2017			$ Change			2019			2018			$ Change
Cash interest paid		$4.3			$4.1			$0.2			$4.3			$4.3			$—
Accrued interest	(1.6		)	(1.3		)	(0.3		)	(1.3		)	(1.6		)	0.3
Amortization of convertible notes discount and deferred financing	1.2			0.9			0.3			1.2			1.2			—
Total Interest Expense		$3.9			$3.7			$0.2
Total interest expense											$4.2			$3.9			$0.3

Six Months Ended June 30,
2018 2017 $ Change
Cash interest paid
$5.2

$4.6

$0.6
Accrued interest 0.3
0.6
(0.3 )
Amortization of convertible notes discount and deferred financing 3.0
2.1
0.9
Total Interest Expense
$8.5

$7.3

$1.2

Interest expense for the three months ended June 30, 2018 was $3.9 million, an increase of $0.2 million compared to the three months ended June 30, 2017. Interest expense for the six months ended June 30, 2018 increased $1.2 million, compared to the same period in 2017. The increase is due to the write-off of deferred financing costs of $0.5 million associated with amending the Credit Agreement and $0.2 million associated with the redemption of the Revenue Refunding Bonds, which occurred in the first quarter of 2018, and higher average borrowings on the Amended Credit Agreement in the first half of 2018 as compared to average borrowings on the Credit Agreement in the same period in 2017, partially offset by lower interest rates. For additional details regarding the Credit Agreement, the Amended Credit Agreement and the Revenue Refunding Bonds, please refer to Note 6 - Financing Arrangements in the Notes to Unaudited Consolidated Financial Statements.



	Six Months Ended June 30,
	2019			2018		$ Change
Cash interest paid		$6.1			$5.2		$0.9
Accrued interest	(0.2		)	0.3		(0.5		)
Amortization of convertible notes discount and deferred financing	2.5			3.0		(0.5		)
Total interest expense		$8.4			$8.5		($0.1	)

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~~Provision~~Interest expense for the three months ended June 30, 2019 was $4.2 million, an increase of $0.3 million, compared with the three months ended June 30, 2018. The increase is due to higher interest rates in second-quarter of 2019. Interest expense was relatively flat for the six months ended June 30, 2019 compared with the same period in 2018. This is due to higher interest rates in the second quarter of 2019, offset by higher deferred financing fee write-offs for the first quarter of 2018. Refer to “Note 12 - Financing Arrangements” in the Notes to the unaudited Consolidated Financial Statements for additional information.

Other Income ~~Taxes~~(Expense), net

Three Months Ended June 30,

2018
2017
$ Change
% Change
Provision for income taxes
$0.2

$0.8

($0.6 ) (75.0 )%
Effective tax rate 1.9 % 39.6 % NM
—



	Three Months Ended June 30,
	2019			2018			$ Change
Pension and postretirement non-service benefit income		$4.5			$6.2			($1.7	)
Loss from remeasurement of benefit plans	(4.4		)	—			(4.4		)
Foreign currency exchange gain (loss)	0.2			(0.1		)	0.3
Miscellaneous income (expense)	(0.1		)	0.1			(0.2		)
Total other income (expense), net		$0.2			$6.2			($6.0	)

Six Months Ended June 30,
2018 2017 $ Change % Change
Provision for income taxes
$0.3

$1.1

($0.8 ) (72.7 )%
Effective tax rate 4.1 % (39.1 )% NM
—



	Six Months Ended June 30,
	2019			2018		$ Change
Pension and postretirement non-service benefit income		$7.3			$12.5		($5.2	)
Loss from remeasurement of benefit plans	(4.4		)	—		(4.4		)
Foreign currency exchange gain (loss)	0.1			—		0.1
Miscellaneous income (expense)	(0.1		)	0.1		(0.2		)
Total other income (expense), net		$2.9			$12.6		($9.7	)

~~Operating losses generated in the U.S. resulted in a decrease in the carrying value of~~Non-service benefit income is derived from 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 2017 and remained in a valuation allowance position in the first half of 2018. Going forward, the need to maintain valuation allowances against deferred tax assets in the U.S.pension and other ~~affected countries will cause variability~~postretirement plans. Expected return on assets has exceeded the interest cost component, resulting 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. The change in the effective tax rateincome for the three and six months ended June 30, ~~2018 compared to the same periods in 2017 is primarily due to a discrete charge of approximately $1.0 million recorded in~~2019 and 2018. In the second quarter of ~~2017.~~

~~On December 22, 2017,~~2019, we amended the ~~Tax Cut~~postretirement benefit plan. This amendment reduced the postretirement liability and ~~Jobs Act (the Act) was signed into law, which enacts significant changes~~therefore required us to ~~U.S. tax and related laws. We are currently evaluating the impact~~perform a full remeasurement of the ~~Act, however we do not anticipate that~~postretirement obligations and plan assets as of April 30, 2019. The reduction in the ~~Act will have a material impact~~Accumulated Postretirement Benefit Obligation (APBO) is recognized in Other Comprehensive Income (Loss) and subsequently amortized as an offset to postretirement benefit cost. For more details on the remeasurement refer to Note 13 - “Retirement and Postretirement Plans” in the Notes to unaudited Consolidated Financial Statements. Foreign currency exchange loss (gain) is due to exchange-rate fluctuations on our ~~financial condition and results~~various foreign-currency denominated transactions.

Provision for Income Taxes



	Three Months Ended June 30,
	2019			2018			$ Change
Provision for income taxes		$0.2			$0.2			$—
Effective tax rate	(6.8		)%	1.9		%	NM



	Six Months Ended June 30,
	2019			2018			$ Change
Provision for income taxes		$0.3			$0.3			$—
Effective tax rate	228.8		%	4.1		%	NM

The majority of our tax expense is derived from foreign operations. At this time, we do not anticipate 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, as we expect to beWe remain in a full valuation ~~allowance in 2018.~~for the U.S. jurisdiction for the three and six months ended June 30, 2019.

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NON-GAAP FINANCIAL MEASURES

Net Sales, Excluding Surcharges

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 ~~U.S. GAAP.~~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)
	Three Months Ended June 30, 2019
	Mobile		Industrial		Energy		Other		Total
Tons	110.3		86.4		31.0		20.4		248.1

Net Sales		$135.3		$124.3		$54.1		$23.0		$336.7
Less: Surcharges	32.1		27.4		12.0		6.4		77.9
Base Sales		$103.2		$96.9		$42.1		$16.6		$258.8

Net Sales / Ton		$1,227		$1,439		$1,745		$1,127		$1,357
Base Sales / Ton		$936		$1,122		$1,358		$814		$1,043

	Three Months Ended June 30, 2018
	Mobile		Industrial		Energy		Other		Total
Tons	111.9		123.0		40.5		34.3		309.7

Net Sales		$141.6		$166.9		$68.8		$36.2		$413.5
Less: Surcharges	34.9		42.9		15.1		10.9		103.8
Base Sales		$106.7		$124.0		$53.7		$25.3		$309.7

Net Sales / Ton		$1,265		$1,357		$1,699		$1,055		$1,335
Base Sales / Ton		$954		$1,008		$1,326		$738		$1,000


Net Sales adjusted to exclude surcharges
(dollars in millions, tons in thousands)
	Three Months Ended June 30,
	2018										2017										Six Months Ended June 30, 2019
	Mobile		Industrial		Energy		Other		Total		Mobile		Industrial		Energy		Other		Total		Mobile		Industrial		Energy		Other			Total
Tons	111.9		123.0		40.5		34.3		309.7		108.7		102.8		25.7		57.4		294.6		223.1		188.9		62.4		34.6			509.0

Net Sales		$141.6		$166.9		$68.8		$36.2		$413.5		$135.6		$120.2		$37.6		$45.9	339.3			$279.5		$271.3		$114.9		$42.0			$707.7
Less: Surcharges	34.9		42.9		15.1		10.9		103.8		28.2		27.7		6.0		15.7		77.6		69.6		62.5		24.5		11.0			167.6
Base Sales		$106.7		$124.0		$53.7		$25.3		$309.7		$107.4		$92.5		$31.6		$30.2		$261.7		$209.9		$208.8		$90.4		$31.0			$540.1

Net Sales / Ton		$1,265.4		$1,356.9		$1,698.8		$1,055.4		$1,335.2		$1,247.5		$1,169.3		$1,463.0		$799.7		$1,151.7		$1,253		$1,436		$1,841		$1,214			$1,390
Base Sales / Ton		$953.5		$1,008.1		$1,325.9		$737.6		$1,000.0		$988.0		$899.8		$1,229.6		$526.1		$888.3		$941		$1,105		$1,449		$896			$1,061

	Six Months Ended June 30,																				Six Months Ended June 30, 2018
	2018										2017										Mobile		Industrial		Energy		Other			Total
	Mobile		Industrial		Energy		Other		Total		Mobile		Industrial		Energy		Other		Total
Tons	222.3		236.7		69.5		80.9		609.4		223.6		202.2		42.6		106.1		574.5		222.3		236.7		69.5		80.9			609.4

Net Sales		$284.1		$314.6		$117.9		$77.7		$794.3		$272.2		$230.8		$61.3		$84.4		$648.7		$284.1		$314.6		$117.9		$77.7			$794.3
Less: Surcharges	66.2		78.1		26.1		24.1		194.5		51.1		48.1		8.9		27.8		135.9		66.2		78.1		26.1		24.1			194.5
Base Sales		$217.9		$236.5		$91.8		$53.6		$599.8		$221.1		$182.7		$52.4		$56.6		$512.8		$217.9		$236.5		$91.8		$53.6	$—		$599.8

Net Sales / Ton		$1,278.0		$1,329.1		$1,696.4		$960.4		$1,303.4		$1,217.4		$1,141.4		$1,439.0		$795.5		$1,129.2		$1,278		$1,329		$1,696		$960			$1,303
Base Sales / Ton		$980.2		$999.2		$1,320.9		$662.5		$984.2		$988.8		$903.6		$1,230.0		$533.5		$892.6		$980		$999		$1,321		$663			$984

~~THE BALANCE SHEET~~

~~The following discussion is a comparison of the Consolidated Balance Sheets as of June 30, 2018 (Unaudited) and December 31, 2017:~~

Current Assets June 30,
2018 December 31,
2017
Cash and cash equivalents
$39.0

$24.5
Accounts receivable, net 173.6
149.8
Inventories, net 294.5
224.0
Deferred charges and prepaid expenses 2.3
3.9
Other current assets 10.9
8.0
Total Current Assets
$520.3

$410.2

Refer to the Liquidity and Capital Resources section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations for a discussion of the change in cash and cash equivalents. Accounts receivable, net increased $23.8 million as of June 30, 2018 compared to December 31, 2017, due to an increase in net sales of approximately $72.1 million in the second quarter 2018 compared to the fourth quarter of 2017. Inventories, net increased $70.5 million as of June 30, 2018 compared to December 31, 2017, primarily due to increased raw material costs and inventory build for increased sales demand in the industrial and energy end markets.

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Property, Plant and Equipment June 30,
2018 December 31,
2017
Property, plant and equipment, net
$679.8

$706.7

Property, plant and equipment, net decreased $26.9 million as of June 30, 2018 compared to December 31, 2017. The decrease was primarily due to $34.0 million of depreciation expense and approximately $0.5 million of impairment charges and loss on sale or disposals related to the discontinued use of certain assets, partially offset by capital expenditures of approximately $8.0 million during the six months ended June 30, 2018.

Other Assets June 30,
2018 December 31,
2017
Pension assets
$17.4

$14.6
Intangible assets, net 17.5
19.9
Other non-current assets 5.0
5.2
Total Other Assets
$39.9

$39.7

Pension assets increased $2.8 million as of June 30, 2018 compared to December 31, 2017, primarily driven by the annual pension contribution made in the first quarter of 2018 to the Company’s U.K. pension plan. Intangible assets, net decreased $2.4 million as of June 30, 2018 compared to December 31, 2017, primarily due to amortization expense of $2.9 million and approximately $0.4 million of impairment charges due to the discontinued use of certain capitalized software, partially offset by capitalized software expenditures of approximately $1.0 million during the six months ended June 30, 2018.

Liabilities and Shareholders’ Equity June 30,
2018 December 31,
2017
Current liabilities
$237.5

$206.8
Convertible notes, net 72.0
70.1
Other long-term debt 150.0
95.2
Accrued pension and postretirement costs - long-term 197.7
210.8
Deferred income taxes —
0.3
Other non-current liabilities 11.8
12.7
Total shareholders’ equity 571.0
560.7
Total Liabilities and Shareholders’ Equity
$1,240.0

$1,156.6

Current liabilities increased $30.7 million as of June 30, 2018 compared to December 31, 2017, primarily due to an increase in accounts payable of $42.5 million from higher production and scrap costs, partially offset by lower plant maintenance cost accruals related to our annual shutdown that occurred in the fourth quarter of 2017.

Other long-term debt increased due to net borrowings of $54.8 million on the Amended Credit Agreement primarily to fund working capital. See Note 6 - Financing Arrangements in the Notes to Unaudited Consolidated Financial Statements and the Liquidity and Capital Resources section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional discussion of our other long-term debt and the Convertible Notes.

~~Refer to Note 8 - Changes in Shareholders' Equity in the Notes to Unaudited Consolidated Financial Statements for details regarding the decrease in total shareholder’s equity.~~

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LIQUIDITY AND CAPITAL RESOURCES

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 ~~the~~our Credit Agreement.

~~Credit Agreement~~

On February 26, 2016, the Company, as borrower, and certain domestic subsidiaries, as subsidiary guarantors, entered into the Amended and Restated Credit Agreement (the Credit Agreement), with JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders party thereto. The Credit Agreement provided for a $265 million asset based revolving credit facility.

~~Amended~~ Credit Agreement

On January 26, 2018, we as borrower, and certain domestic subsidiaries, as subsidiary guarantors, entered into the Second Amended and Restated Credit Agreement ~~(Amended Credit~~(Credit Agreement), with JPMorgan 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 existing Credit Agreement.

The Amended Credit Agreement provides for a $300 million asset-based revolving credit facility, including a $15 million sublimit for the issuance of commercial and standby letters of credit and a $30 million sublimit for swingline loans. Pursuant to the terms of the Amended Credit Agreement, we are 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 $50 million, to the extent that existing or new lenders agree to provide such additional commitments.

The availability of borrowings under the Amended Credit Agreement is subject to a borrowing base calculation based upon a valuation of the eligible accounts receivable, inventory and machinery and equipment of us and our 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 Amended Credit Agreement will be, at our 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 of the administrative agent, (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 our average quarterly availability. In addition, we will pay a commitment fee on the average daily unused amount of the credit facility in a percentage determined by our average daily availability for the most recently completed calendar month.~~The interest rate under the Amended Credit Agreement was 4.0% as of June 30, 2018. The amount available under the Amended Credit Agreement as of June 30, 2018 was approximately $147.4 million.~~

~~The Amended~~ Credit Agreement matures on January 26, 2023. 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.

In addition, the Amended Credit Agreement requires us 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,

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~~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.~~

~~Revenue~~ Refunding Bonds

In connection with ~~entering into~~amending the ~~Amended~~ Credit Agreement, 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).

Additional Liquidity Considerations

The following represents a summary of key liquidity measures under the ~~Amended~~ Credit Agreement as of June 30, ~~2018~~2019 and ~~the Credit Agreement as of~~ December 31, ~~2017:~~2018:


	June 30, 2018		December 31, 2017		June 30, 2019		December 31, 2018
Cash and cash equivalents		$39.0		$24.5		$20.9		$21.6

Credit Agreement:
Maximum availability		$300.0		$265.0		$300.0		$300.0
Amount borrowed	150.0		65.0		145.0		115.0
Letter of credit obligations	2.6		2.6		2.6		2.6
Availability not borrowed	147.4		197.4		152.4		182.4
Availability block	—		33.1
Net availability		$147.4		$164.3

Total liquidity		$186.4		$188.8		$173.3		$204.0

Our principal sources of liquidity are cash and cash equivalents, cash flows from operations and available borrowing capacity under our ~~Amended~~ Credit Agreement. We currently expect that our cash and cash equivalents on hand, expected cash flows from operations and borrowings available under the ~~Amended~~ Credit Agreement will be sufficient to meet liquidity needs; however, these plans rely on certain underlying assumptions and estimates that may differ from actual results. Such assumptions include ~~growing~~stable market demand, ~~lowered~~lower operating costs and ~~increased liquidity.~~continued working capital management.

As of June 30, ~~2018,~~2019, taking into account the foregoing, as well as our view of industrial, energy, and automotive market demands for our products, our ~~2018~~2019 operating plan and our long-range plan, we believe that our cash balance as of June 30, ~~2018 of $39.0 million,~~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 ~~January 26, 2023,~~ the maturity date of our ~~Amended~~ Credit Agreement.

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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 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 and the Convertible Notes, please refer to “Note 12 - Financing Arrangements” in the Notes to the unaudited Consolidated Financial Statements and for our discussion regarding risk factors related to our business and our debt, see Risk Factors in our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~

For additional details regarding the Credit Agreement, the Amended Credit Agreement and the Convertible Notes, please refer to Note 6 - Financing Arrangements in the Notes to Unaudited Consolidated Financial Statements.

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2018.

Cash Flows

The following table reflects the major categories of cash flows for the six months ended June 30, ~~2018~~2019 and ~~2017.~~2018. For additional details, please ~~see~~refer to the ~~Unaudited~~unaudited Consolidated Statements of Cash Flows ~~contained elsewhere~~included in this quarterly report.


Cash Flows	Six Months Ended June 30,
							Six Months Ended June 30,
	2018			2017			2019			2018
Net cash used by operating activities		($30.1	)		($11.6	)		($17.6	)		($30.1	)
Net cash used by investing activities	(8.0		)	(6.8		)	(12.3		)	(8.0		)
Net cash provided by financing activities	52.6			29.0			29.2			52.6
Increase in Cash and Cash Equivalents		$14.5			$10.6
(Decrease) Increase in Cash and Cash Equivalents								($0.7	)		$14.5

Operating activities

Net cash used by operating activities for the six months ended June 30, ~~2018~~2019 was ~~$30.1~~$17.6 million compared to ~~$11.6~~$30.1 million for the six months ended June 30, ~~2017.~~2018. The ~~change~~decrease in cash used of ~~$18.5~~$12.5 million was primarily due to ~~the effect of managing~~lower cash used for working capital and lower payments related to pension and postretirement plans. These sources of cash were partially offset by 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 decrease in cash used for inventory was driven by the impact of declining scrap prices during the first half of 2019 as compared to the impact of increasing scrap prices during the same period in the prior year, combined with ~~volume. During~~ the buildup of inventory quantities in the first half of 2018. The decrease in cash used for accounts receivable was primarily due to lower sales in the first six months ~~ended June 30, 2018, our working capital~~of 2019 as compared to the same period in the prior year. The increase in cash used for accounts payable was driven by lower scrap spend as a ~~use~~result of ~~cash and cash equivalents~~declining scrap prices during the first half of ~~$65.0 million, funded primarily by $54.8 million net borrowings on~~2019 as compared to the ~~Amended Credit Agreement.~~impact of increasing scrap prices during the same period in the prior year. Refer to the ~~Unaudited~~unaudited Consolidated Statements of Cash Flows for additional information.

Investing activities

Net cash used by investing activities for the six months ended June 30, 2019 and 2018 ~~and 2017~~ was ~~$8.0~~$12.3 million and ~~$6.8~~$8.0 million, respectively. Cash used for investing activities primarily relates to ~~maintaining~~ capital investments in our ~~production processes.~~manufacturing facilities.

Our business ~~sometimes~~ requires capital investments to maintain our plants and equipment to remain competitive and ensure we can implement strategic initiatives. Our construction in progress balance of ~~$14.3~~$21.7 million as of June 30, ~~2018~~2019 includes: (a) $3$3.7 million relating to growth initiatives (e.g. new product offerings, additional capacity and new capabilities) and continuous improvement projects; and (b) ~~$11~~$18 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 ~~incur~~spend approximately ~~$35~~$47 million ~~of additional costs~~to complete existing ongoing projects (made up of approximately ~~$26~~$37 million relating to additional growth initiatives and approximately $9$10 million related to continuous improvement) ~~to complete other remaining projects.~~.

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Financing activities

Net cash provided by financing activities for the six months ended June 30, ~~2018 and 2017~~2019 was $29.2 million compared to $52.6 million ~~and $29.0 million, respectively.~~for the six months ended June 30, 2018. The change was mainly due to net borrowings ~~of $54.8 million on the Amended Credit Agreement during the six months ended June 30, 2018 as compared to $30 million~~ on the Credit Agreement during the six months ended June 30, ~~2017. See Note 6 - Financing Arrangements in~~2019 of $30.0 million as compared to $54.8 million during the ~~Notes to Unaudited Consolidated Financial Statements for additional discussion of our Credit Agreement and Amended Credit Agreement.~~

~~Covenant Compliance~~

~~As stated above, on January 26, 2018, we entered into the Amended Credit Agreement, which amended and restated the Credit Agreement.~~

We expect to remain in compliance with our debt covenants for at least the next twelve months. If at any time we expect that we will be unable to meet the covenants under the Amended Credit Agreement, we would seek to further amend the Amended Credit Agreement to be in compliance and avoid a default or pursue other alternatives, such as additional financing. If, contrary to our expectations, we were unable to amend the terms of our Amended Credit Agreement to remain in compliance or refinance

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the debt under the Amended Credit Agreement, we would experience an event of default and all outstanding debt under the revolving credit facility would be subject to acceleration and may become immediately due and payable.

~~For additional discussion regarding risk factors related to our business and our debt, see Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2017.~~

~~Dividends and Share Repurchases~~

On November 13, 2015, our Board of Directors suspended the cash dividend as we continued to manage through a challenging market environment. Our Board of Directors will review dividend considerations as business conditions improve.2018.

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.

On January 1, 2019, TimkenSteel adopted ASU 2016-02 “Leases” and ASU 2018-11 “Leases - Targeted Improvements”. Refer to Note 2 - Recent Accounting Pronouncements and Note 11 - Leases for additional information.

On January 1, 2018, TimkenSteel adopted ASU 2014-09 “Revenue from Contracts with Customers.” Refer to Note 2 - Recent Accounting Pronouncements and Note 103 - Revenue Recognition for additional information.

New Accounting Guidance

See Note 2 - Recent Accounting Pronouncements in the Notes to the ~~Unaudited~~unaudited Consolidated Financial Statements.

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FORWARD-LOOKING STATEMENTS

Certain statements set forth in this Quarterly Report on Form 10-Q (including our forecasts, beliefs and expectations) that are not historical in nature are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. In particular, Management’s Discussion and Analysis of Financial Condition and Results of Operations contains numerous forward-looking statements. Forward-looking statements generally will be accompanied by words such as “anticipate,” “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 ~~report.~~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;

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 (including the jumbo bloom vertical caster and advanced quench-and-temper facility);~~investments; the ability to integrate acquired companies; the ability of acquired companies to achieve satisfactory operating results, including results being accretive to earnings; 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 our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

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.

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ITEM 3. 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 June 30, ~~2018,~~2019, we have ~~$222.0~~$221.3 million of aggregate debt outstanding, of which ~~$150.0~~$145.0 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 ~~approximately $1.5~~$1.4 million ~~annually, with a corresponding increase in income before income taxes of the same amount.~~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 ~~also~~ 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 natural gas and electricity purchases. 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 isare lower, however, the surcharge impacts sales prices to a lesser extent.

ITEM 4. ~~Controls and Procedures~~CONTROLS AND PROCEDURES

(a) Disclosure Controls and Procedures

As of the end of the period covered by this quarterly report, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)). Based upon that evaluation, the principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

(b) Changes in Internal Control Over Financial Reporting

During the Company’s most recent fiscal quarter, there have been no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. 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~~Environmental Protection Agency Notice of Violation.

The ~~EPA~~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 alleged violations of permitted emission limits and engineering requirements at TimkenSteel’s Faircrest and Harrison Steel Plants 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

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on our consolidated financial position, results of operations or cash flows. ~~For additional information, please refer to Note 13 - Contingencies in the Notes to Unaudited Consolidated Financial Statements.~~

ITEM 1A. RISK FACTORS

We are subject to various risks and uncertainties in the course of our business. The discussion of such risks and uncertainties may be found under Risk Factors in our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 filed with the SEC. There have been no material changes to such risk factors.

~~Item 2. Unregistered Sales of Equity Securities and Use of Proceeds~~

~~None.~~

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ITEM 6. EXHIBITS



Exhibit Number		Exhibit Description
12.1*		~~Computation of Ratio of Earnings to Fixed Charges.~~
31.1*		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.
31.2*		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.
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.

* Filed herewith.

** Furnished herewith.

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SIGNATURES

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.



		TIMKENSTEEL CORPORATION


Date:	~~July 26, 2018~~August 1, 2019	/s/ ~~Christopher J. Holding~~Kristopher R. Westbrooks
		~~Christopher J. Holding~~Kristopher R. Westbrooks Executive Vice President and Chief Financial Officer (Principal Financial Officer)

~~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.~~

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~~INDEX TO EXHIBITS~~



~~Exhibit Number~~		~~Exhibit Description~~
~~12.1~~		~~Computation of Ratio of Earnings to Fixed Charges.~~
~~31.1~~		~~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.~~
~~31.2~~		~~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.~~
~~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.~~



		PAGE
PART I. Financial Information		3
Item 1.	Financial Statements	3
	Consolidated Statements of Operations (Unaudited)	3
	Consolidated Statements of Comprehensive ~~Loss~~Income (Loss) (Unaudited)	4
	Consolidated Balance Sheets (Unaudited)	5
	Consolidated Statements of Shareholders’ Equity (Unaudited)	6
	Consolidated Statements of Cash Flows (Unaudited)	67
	Notes to Unaudited Consolidated Financial Statements	78
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3230
Item 4.	Controls and Procedures	3230
PART II. Other Information		3231
Item 1.	Legal Proceedings	3231
Item ~~1A.~~1A.	Risk Factors	33
~~Item 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~	3331
Item 6.	Exhibits	3432
	Signatures	3533



Consolidated Balance Sheet caption	As of December 31, 2017			ASU 2014-09 Adjustment			As of January 1, 2018
Inventories, net		$224.0			($3.3	)		$220.7
Other current liabilities		$27.6			($4.0	)		$23.6
Retained deficit		($238.0	)		$0.7			($237.3	)



	June 30, 2018			December 31, 2017
Property, Plant and Equipment, net:
Land		$13.4			$13.4
Buildings and improvements	422.6			420.6
Machinery and equipment	1,403.0			1,387.4
Construction in progress	14.3			30.4
Subtotal	1,853.3			1,851.8
Less allowances for depreciation	(1,173.5		)	(1,145.1		)
Property, Plant and Equipment, net		$679.8			$706.7



	Three Months Ended June 30, 2018						Three Months Ended June 30, 2017
	Three Months Ended June 30, 2018						Three Months Ended June 30, 2017
Components of net periodic benefit cost:	Pension			Postretirement			Pension			Postretirement
Service cost		$4.3			$0.5			$4.6			$0.4
Interest cost	11.4			1.9			12.3			2.1
Expected return on plan assets	(18.5		)	(1.2		)	(17.7		)	(1.3		)
Amortization of prior service cost	0.1			—			0.1			0.3
Net Periodic Benefit Cost		($2.7	)		$1.2			($0.7	)		$1.5



	Six Months Ended June 30, 2018						Six Months Ended June 30, 2017
	Six Months Ended June 30, 2018						Six Months Ended June 30, 2017
Components of net periodic benefit cost:	Pension			Postretirement			Pension			Postretirement
Service cost		$8.6			$0.9			$9.2			$0.8
Interest cost	22.8			3.8			24.5			4.2
Expected return on plan assets	(36.9		)	(2.4		)	(35.2		)	(2.7		)
Amortization of prior service cost	0.2			0.1			0.2			0.6
Net Periodic Benefit Cost		($5.3	)		$2.4			($1.3	)		$2.9



Property, Plant and Equipment	June 30, 2018		December 31, 2017
Property, plant and equipment, net		$679.8		$706.7

Three Months Ended June 30, 2019

Six Months Ended
June 30, 2019

Operating lease cost

Short-term lease cost

Total lease cost