Metallus(MTUS) - 2022 Q3 - Quarterly Report

Part I. Financial Information Financial Statements This section presents the unaudited consolidated financial statements for the three and nine months ended September 30, 2022, compared to the same periods in 2021, including Statements of Operations, Comprehensive Income (Loss), Balance Sheets, Shareholders' Equity, and Cash Flows, along with detailed notes Consolidated Statements of Operations (Unaudited) | (Dollars in millions, except per share data) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $316.8 | $343.7 | $1,084.5 | $944.6 | | Gross Profit | $5.6 | $66.7 | $147.0 | $164.6 | | Income (Loss) Before Income Taxes | $(12.6) | $50.6 | $101.4 | $116.0 | | Net Income (Loss) | $(13.3) | $50.1 | $98.3 | $113.9 | | Diluted earnings (loss) per share | $(0.29) | $0.94 | $1.91 | $2.12 | Consolidated Balance Sheets (Unaudited) | (Dollars in millions) | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $582.5 | $582.3 | | Total Assets | $1,122.3 | $1,158.9 | | Total Current Liabilities | $191.9 | $250.8 | | Total Liabilities | $387.2 | $494.3 | | Total Shareholders' Equity | $735.1 | $664.6 | Consolidated Statements of Cash Flows (Unaudited) | (Dollars in millions) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $110.8 | $106.2 | | Net Cash Used by Investing Activities | $(12.7) | $(0.9) | | Net Cash Used by Financing Activities | $(94.5) | $(36.1) | | Increase in Cash and Cash Equivalents | $3.6 | $69.2 | Notes to Unaudited Consolidated Financial Statements The notes provide detailed explanations of the company's accounting policies and financial results, covering revenue breakdowns, restructuring, asset disposition, financing arrangements, and updates to retirement plans Net Sales by End-Market Sector (in millions) | End-Market | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 | | :--- | :--- | :--- | :--- | :--- | | Mobile | $130.0 | $133.5 | $427.0 | $400.0 | | Industrial | $146.0 | $182.0 | $529.2 | $480.3 | | Energy | $36.0 | $20.4 | $107.3 | $41.4 | Net Sales by Product Type (in millions) | Product Type | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 | | :--- | :--- | :--- | :--- | :--- | | Bar | $206.5 | $238.0 | $738.1 | $636.5 | | Tube | $44.8 | $43.8 | $144.1 | $120.8 | | Manufactured components | $60.7 | $54.1 | $181.3 | $164.3 | - In the first half of 2022, the company repurchased $25.2 million of its Convertible Senior Notes Due 2025 for a total cash payment of $67.6 million, resulting in a $43.0 million loss on extinguishment of debt, with no repurchases occurring in Q3 2022[84][161] - The company repurchased 1.9 million common shares for $32.4 million in the first nine months of 2022, with $17.6 million remaining on its $50.0 million share repurchase program as of September 30, 2022, and an additional $75.0 million program authorized on November 2, 2022[91][93] - On July 7, 2022, the company transferred approximately $256.2 million of pension obligations under the Bargaining Plan to Prudential via a group annuity contract, funded by plan assets, resulting in a non-cash settlement gain of $2.7 million in Q3 2022[95] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the key factors influencing the company's financial performance, noting significant Q3 2022 declines in net sales and gross profit due to a melt shop incident and unfavorable raw material spread, while highlighting strong liquidity and capital return activities - Q3 2022 net sales decreased 7.8% YoY to $316.8 million, driven by a 54 thousand ton drop in shipment volume due to a melt shop incident in July 2022 and lower surcharges, partially offset by favorable price/mix[122] - Q3 2022 gross profit plummeted 91.6% YoY to $5.6 million from $66.7 million, primarily due to higher manufacturing costs from lower cost absorption after the melt shop incident, unfavorable raw material spread, and lower volumes[126] - SG&A expenses decreased by $3.7 million (18.6%) in Q3 2022 and $4.0 million (6.6%) in the first nine months of 2022 compared to the same periods in 2021, mainly due to lower variable compensation expense[131] Liquidity Summary (in millions) | | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $262.5 | $259.6 | | Credit Facility Availability | $224.7 | $251.1 | | Total liquidity | $487.2 | $510.7 | - On September 30, 2022, the company entered into an Amended Credit Agreement, extending the maturity of its $400.0 million revolving credit facility to September 2027 and securing more favorable terms[153][154] Quantitative and Qualitative Disclosures About Market Risk The company identifies its primary market risks as interest rate, foreign currency, and commodity price fluctuations, with minimal interest rate risk due to fixed-rate debt and commodity price risk managed through surcharges, while noting potential future volatility from the Russia-Ukraine conflict - The company has no variable-rate debt outstanding as of September 30, 2022, so a rise in interest rates would not impact interest expense[199] - Exposure to commodity price risk (scrap steel, alloys, natural gas) is managed primarily through a raw material surcharge mechanism passed on to customers[202] - The Russia-Ukraine conflict is identified as a potential risk that could exacerbate inflation and cause market disruptions, though no material impact has been felt to date[201] Controls and Procedures Based on management's evaluation, including the CEO and CFO, the company's disclosure controls and procedures were deemed effective as of September 30, 2022, with no material changes in internal control over financial reporting during the third quarter - The principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of the end of the reporting period[203] - No changes in the Company's internal control over financial reporting occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, internal controls[204] Part II. Other Information Legal Proceedings The company is involved in various claims and legal actions arising in the ordinary course of business, which management does not expect to have a material adverse effect on the company's financial position, results of operations, or cash flows - Management believes that the ultimate outcome of ongoing legal actions, which arise in the ordinary course of business, will not have a material adverse effect on the company's financials[206] Risk Factors This section directs readers to the detailed discussion of risks and uncertainties found in the Risk Factors section of the company's Annual Report on Form 10-K for the year ended December 31, 2021 - The company is subject to various risks and uncertainties, which are detailed in its Annual Report on Form 10-K for the year ended December 31, 2021[207] Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's repurchase of its common shares during the third quarter of 2022, all made as part of the publicly announced $50.0 million share repurchase program authorized in December 2021 Share Repurchases for Q3 2022 | Month (2022) | Total Shares Purchased | Average Price Paid per Share | Maximum Value Remaining under Program (in millions) | | :--- | :--- | :--- | :--- | | July | 186,766 | $17.72 | $34.0 | | August | 69,635 | $17.76 | $32.8 | | September | 995,711 | $15.20 | $17.6 | | Quarter-to-date | 1,252,112 | $15.72 | $17.6 | - All share repurchases were part of the $50.0 million program announced on December 20, 2021, which does not have an expiration date[209] Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications from the Chief Executive Officer and Chief Financial Officer as required by the Sarbanes-Oxley Act, and various Inline XBRL documents for financial reporting - The report includes required CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[211] - Inline XBRL data files (Instance, Schema, Presentation, Calculation, Label, Definition) are filed as exhibits[211]