Impairment and Restructuring Charges

9 Months Ended

Sep. 30, 2014

Restructuring and Related Activities [Abstract]

Impairment and Restructuring Charges

Note 13 - Impairment and Restructuring Charges

Impairment and restructuring charges by segment are comprised of the following:

For the three months ended September 30, 2014:

	Mobile Industries		Process Industries		Aerospace		Corporate		Total
Impairment charges	$	—	$	0.2	$	97.4	$	0.4	$	98.0
Severance and related benefit costs	0.7		0.3		0.3		—		1.3
Exit costs	—		0.1		—		—		0.1
Total	$	0.7	$	0.6	$	97.7	$	0.4	$	99.4

For the nine months ended September 30, 2014:

	Mobile Industries		Process Industries		Aerospace		Corporate		Total
Impairment charges	$	0.8	$	0.2	$	97.4	$	0.4	$	98.8
Severance and related benefit costs	5.0		1.7		0.4		—		7.1
Exit costs	1.4		1.4		—		—		2.8
Total	$	7.2	$	3.3	$	97.8	$	0.4	$	108.7

For the three months ended September 30, 2013:

	Mobile Industries		Process Industries		Aerospace		Corporate		Total
Severance and related benefit costs	$	3.1	$	0.1	$	—	$	—	$	3.2
Exit costs	0.2		0.3		—		—		0.5
Total	$	3.3	$	0.4	$	—	$	—	$	3.7

For the nine months ended September 30, 2013:

	Mobile Industries		Process Industries		Aerospace		Corporate		Total
Severance and related benefit costs	$	9.9	$	0.3	$	—	$	—	$	10.2
Exit costs	1.1		0.3		—		—		1.4
Total	$	11.0	$	0.6	$	—	$	—	$	11.6

The following discussion explains the impairment and restructuring charges recorded for the periods presented; however, it is not intended to reflect a comprehensive discussion of all amounts in the tables above.

Mobile Industries

In May 2012, the Company announced the closure of its manufacturing facility in St. Thomas, Ontario, Canada (St. Thomas), which was intended to consolidate bearing production from this plant with its existing U.S. operations to better align the Company's manufacturing footprint with customer demand. The Company also moved customer service for the Canadian market to its offices in Toronto. The Company completed the closure of this manufacturing facility on March 31, 2013. The closure of the St. Thomas manufacturing facility displaced 190 employees. The Company expects to incur pretax costs of approximately $55 million to $60 million in connection with this closure, of which approximately $20 million to $25 million is expected to be pretax cash costs.

The Company has incurred pretax costs related to this closure of approximately $42.4 million as of September 30, 2014, including rationalization costs recorded in cost of products sold. During the first nine months of 2014, the Company recorded $0.8 million of severance and related benefits, including pension settlement charges of $0.7 million, related to this closure. During the third quarter of 2013, the Company recorded $1.5 million of severance and related benefits related to pension settlement charges of $1.5 million. During the first nine months of 2013, the Company recorded $7.8 million of severance and related benefits, including pension settlement charges of $6.7 million, related to this closure.

In addition to the above charges, the Company incurred $2.3 million of severance and related benefit costs related to the rationalization of one of its facilities in Europe during the first nine months of 2014.

Aerospace:

On September 8, 2014, the Company announced plans to: eliminate its Aerospace segment leadership positions and integrate aerospace activities under the direction of Christopher A. Coughlin, executive vice president and group president; close its aerospace engine overhaul business, located in Mesa, Arizona, by the end of the year; evaluate strategic alternatives for its aerospace MRO parts business, also located in Mesa; and close its aerospace bearing facility located in Wolverhampton, United Kingdom, rationalizing the capacity into existing facilities, with timing to be finalized at a later date. In conjunction with this announcement, the Company reviewed goodwill for impairment for its three reporting units within the Aerospace segment as a result of declining sales forecasts and financial performance within the segment. As a result of that review, the Company recorded a pretax goodwill impairment charge of $86.3 million during the third quarter of 2014 related to its Drive Systems and Aerospace Aftermarket reporting units. In addition, the Company recorded an intangible asset impairment charge of $9.9 million, an impairment charge of $1.2 million for its overhaul business, which it classified as assets held for sale and severance and related benefits of $0.3 million. See Note 17 - Fair Value for additional information on the impairment charges for the Aerospace segment.

Workforce Reductions:

During 2013, the Company began the realignment of its organization to improve efficiency and reduce costs. During the first nine months of 2014, the Company recognized $2.8 million of severance and related benefit costs to eliminate approximately 30 positions. Of the $2.8 million charge for the first nine months of 2014, $1.5 million related to the Mobile Industries segment, $1.2 million related to the Process Industries segment, and $0.1 million related to the Aerospace segment.

The following is a rollforward of the consolidated restructuring accrual for the nine months ended September 30, 2014 and the twelve months ended December 31, 2013:

	September 30, 2014			December 31, 2013
Beginning balance, January 1	$	10.8		$	17.6
Expense	9.0			8.7
Payments	(12.7		)	(15.5		)
Ending balance	$	7.1		$	10.8

The restructuring accrual at September 30, 2014 and December 31, 2013 was included in other current liabilities on the Consolidated Balance Sheets. The restructuring accrual at September 30, 2014 excluded costs related to the settlement of pension benefit plans of $0.7 million.

Note - Separation Costs

Separation costs for the three months and nine months ended September 30, 2014 were as follows:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2014		2014
Severance expense and related benefit costs	$	2.3	$	2.3
Professional fees	9.2		9.2
Exit costs	—		—
Total	$	11.5	$	11.5

On September 5, 2013, the Company announced that its board of directors had approved a plan to pursue a separation of its steel business from its bearings and power transmission business through a spinoff, creating a new independent publicly traded steel company, TimkenSteel Corporation. The transaction is expected to be tax-free to shareholders and is expected to be completed by June 30, 2014, subject to certain conditions including, among others, approval of the Company's board of directors, declaration of the effectiveness of the registration statement on Form 10 and receipt of an opinion of our tax counsel regarding the tax free nature of the spinoff. One-time transaction costs in connection with the separation of the two companies are expected to be approximately $95 million, consisting of $75 million of expense and $20 million of capital. The majority of these costs include consulting and professional fees associated with preparing for the spinoff. In addition, these costs include a cost reduction initiative to eliminate corporate positions to mitigate the incremental enterprise costs associated with operating two separate companies. The expected cost of this cost reduction initiative is expected to be approximately $15 million.

In the first quarter of 2014, the Company recorded $2.3 million of severance and related benefit costs related to the cost reduction initiative. The Company also recorded $9.2 million of professional fees related to the planned spinoff of the steel business.

The following is a rollforward of the consolidated separation accrual for the quarter ended September 30, 2014:

	2014
Beginning balance, January 1	$	5.7
Expense	11.5
Payments	(10.9		)
Ending balance, December 31	$	6.3

The separation accrual at September 30, 2014 was included in other current liabilities in the Consolidated Balance Sheets. At September 30, 2014, accrued separation costs included $3.2 million related to severance and related benefit costs and $3.1 million related to professional fees. The professional fees are recorded when incurred.