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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
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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
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
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(Zip Code) |
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(Registrant’s telephone number, including area code) |
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Not Applicable |
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(Former name, former address and former fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Accelerated filer |
☐ |
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Non-accelerated filer |
☐ |
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Smaller reporting company |
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Emerging growth company |
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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 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
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. On March 31, 2022, the number of Common Shares, without par value, issued and outstanding was
TABLE OF CONTENTS
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Item 1. |
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Consolidated Balance Sheets – February 28, 2022 and May 31, 2021 |
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1 |
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Consolidated Statements of Earnings – Three Months and Nine Months Ended February 28, 2022 and 2021 |
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3 |
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4 |
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5 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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25 |
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Item 3. |
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40 |
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Item 4. |
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Item 1. |
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40 |
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Item 1A. |
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40 |
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Item 2. |
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41 |
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Item 3. |
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41 |
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Item 4. |
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41 |
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Item 5. |
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41 |
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Item 6. |
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42 |
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43 |
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i
Safe Harbor Statement
Selected statements contained in this Quarterly Report on Form 10-Q, including, without limitation, in “PART I – Item 2. – Management’s Discussion and Analysis of Financial Condition and Results of Operations,” constitute “forward-looking statements” as that term is used in the Private Securities Litigation Reform Act of 1995 (the “Act”). Forward-looking statements reflect our current expectations, estimates or projections concerning future results or events. These statements are often identified by the use of forward-looking words or phrases such as “believe,” “expect,” “anticipate,” “may,” “could,” “intend,” “estimate,” “plan,” “foresee,” “likely,” “will,” “should” or other similar words or phrases. These forward-looking statements include, without limitation, statements relating to:
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the ever-changing effects of the novel coronavirus (“COVID-19”) pandemic and the various responses of governmental and nongovernmental authorities thereto (such as fiscal stimulus packages, quarantines, shut downs and other restrictions on travel and commercial, social or other activities) on economies (local, national and international) and markets, and on our customers, counterparties, employees and third-party service providers; |
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future or expected cash positions, liquidity and ability to access financial markets and capital; |
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outlook, strategy or business plans; |
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future or expected growth, growth potential, forward momentum, performance, competitive position, sales, volumes, cash flows, earnings, margins, balance sheet strengths, debt, financial condition or other financial measures; |
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pricing trends for raw materials and finished goods and the impact of pricing changes; |
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the ability to improve or maintain margins; |
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expected demand or demand trends for us or our markets; |
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additions to product lines and opportunities to participate in new markets; |
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expected benefits from Transformation and innovation efforts; |
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the ability to improve performance and competitive position at our operations; |
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anticipated working capital needs, capital expenditures and asset sales; |
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anticipated improvements and efficiencies in costs, operations, sales, inventory management, sourcing and the supply chain and the results thereof; |
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projected profitability potential; |
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the ability to make acquisitions and the projected timing, results, benefits, costs, charges and expenditures related to acquisitions, joint ventures, headcount reductions and facility dispositions, shutdowns and consolidations; |
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projected capacity and the alignment of operations with demand; |
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the ability to operate profitably and generate cash in down markets; |
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the ability to capture and maintain market share and to develop or take advantage of future opportunities, customer initiatives, new businesses, new products and new markets; |
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expectations for Company and customer inventories, jobs and orders; |
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expectations for the economy and markets or improvements therein; |
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expectations for generating improving and sustainable earnings, earnings potential, margins or shareholder value; |
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effects of judicial rulings; and |
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other non-historical matters. |
Because they are based on beliefs, estimates and assumptions, forward-looking statements are inherently subject to risks and uncertainties that could cause actual results to differ materially from those projected. Any number of factors could affect actual results, including, without limitation, those that follow:
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the risks, uncertainties and impacts related to the COVID-19 pandemic – the duration, extent and severity of which is impossible to predict, including the possibility of future resurgence in the spread of COVID-19 or variants thereof – and the availability, effectiveness and acceptance of vaccines, and other actual or potential public health emergencies and actions taken by governmental authorities or others in connection therewith; |
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the effect of national, regional and global economic conditions generally and within major product markets, including significant economic disruptions from COVID-19, the actions taken in connection therewith and the implementation of related fiscal stimulus packages; |
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the effect of conditions in national and worldwide financial markets, including inflation and increases in interest rates, and with respect to the ability of financial institutions to provide capital; |
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the impact of tariffs, the adoption of trade restrictions affecting our products or suppliers, a United States withdrawal from or significant renegotiation of trade agreements, the occurrence of trade wars, the closing of border crossings, and other changes in trade regulations or relationships; |
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changing oil prices; |
ii
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product demand and pricing; |
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changes in product mix, product substitution and market acceptance of our products; |
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fluctuations in the pricing, quality or availability of raw materials (particularly steel), supplies, transportation, utilities and other items required by operations; |
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the outcome of adverse claims experience with respect to workers’ compensation, product recalls or product liability, casualty events or other matters; |
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effects of facility closures and the consolidation of operations; |
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the effect of financial difficulties, consolidation and other changes within the steel, automotive (especially in light of the semi-conductor shortages), construction and other industries in which we participate; |
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failure to maintain appropriate levels of inventories; |
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financial difficulties (including bankruptcy filings) of original equipment manufacturers, end-users and customers, suppliers, joint venture partners and others with whom we do business; |
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the ability to realize targeted expense reductions from headcount reductions, facility closures and other cost reduction efforts; |
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the ability to realize cost savings and operational, sales and sourcing improvements and efficiencies, and other expected benefits from Transformation initiatives, on a timely basis; |
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the overall success of, and the ability to integrate, newly-acquired businesses and joint ventures, maintain and develop their customers, and achieve synergies and other expected benefits and cost savings therefrom; |
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capacity levels and efficiencies, within facilities, within major product markets and within the industries in which we participate as a whole; |
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the effect of disruption in the business of suppliers, customers, facilities and shipping operations due to adverse weather, casualty events, equipment breakdowns, labor shortages (especially in light of the COVID-19 pandemic), interruption in utility services, civil unrest, international conflicts (especially in light of Russia’s invasion of Ukraine), terrorist activities, pandemics or other causes; |
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changes in customer demand, inventories, spending patterns, product choices, and supplier choices; |
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risks associated with doing business internationally, including economic, political and social instability (especially in light of Russia’s invasion of Ukraine), foreign currency exchange rate exposure and the acceptance of our products in global markets; |
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the ability to improve and maintain processes and business practices to keep pace with the economic, competitive and technological environment; |
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deviation of actual results from estimates and/or assumptions used by us in the application of our significant accounting policies; |
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the level of imports and import prices in our markets; |
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the impact of environmental laws and regulations or other actions of the United States Environmental Protection Agency or similar regulators which increase costs or limit our ability to use or sell certain products; |
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the impact of judicial rulings and governmental regulations, both in the United States and abroad, including those adopted by the United States Securities and Exchange Commission and other governmental agencies as contemplated by the Coronavirus Aid, Relief and Economic Security (CARES) Act, the Consolidated Appropriations Act, 2021, the American Rescue Plan Act of 2021, and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010; |
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the effect of healthcare laws in the United States and potential changes for such laws, especially in light of the COVID-19 pandemic, which may increase our healthcare and other costs and negatively impact our operations and financial results; |
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the effect of tax laws in the United States and potential changes for such laws, which may increase our costs and negatively impact our operations and financial results; |
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cyber security risks; |
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the effects of privacy and information security laws and standards; and |
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other risks described from time to time in the filings of Worthington Industries, Inc. with the United States Securities and Exchange Commission, including those described in “PART I – Item 1A. — Risk Factors” of the Annual Report on Form 10-K for the fiscal year ended May 31, 2021. |
We note these factors for investors as contemplated by the Act. It is impossible to predict or identify all potential risk factors. Consequently, you should not consider the foregoing list to be a complete set of all potential risks and uncertainties. Any forward-looking statements in this Quarterly Report on Form 10-Q are based on current information as of the date of this Quarterly Report on Form 10-Q, and we assume no obligation to correct or update any such statements in the future, except as required by applicable law.
iii
PART I. FINANCIAL INFORMATION
Item 1. – Financial Statements
WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
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(Unaudited) |
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February 28, |
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May 31, |
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2022 |
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2021 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
$ |
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$ |
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Receivables, less allowances of $ |
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and May 31, 2021, respectively |
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Inventories: |
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Raw materials |
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Work in process |
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Finished products |
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Total inventories |
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Income taxes receivable |
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Assets held for sale |
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Prepaid expenses and other current assets |
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Total current assets |
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Investments in unconsolidated affiliates |
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Operating lease assets |
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Goodwill |
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Other intangible assets, net of accumulated amortization of $ |
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$ |
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Other assets |
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Property, plant and equipment: |
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Land |
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Buildings and improvements |
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Machinery and equipment |
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Construction in progress |
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Total property, plant and equipment |
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Less: accumulated depreciation |
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Total property, plant and equipment, net |
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Total assets |
$ |
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$ |
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Liabilities and equity |
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Current liabilities: |
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Accounts payable |
$ |
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$ |
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Short-term borrowings |
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- |
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Accrued compensation, contributions to employee benefit plans and |
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related taxes |
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Dividends payable |
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Other accrued items |
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Current operating lease liabilities |
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Income taxes payable |
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Current maturities of long-term debt |
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Total current liabilities |
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Other liabilities |
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Distributions in excess of investment in unconsolidated affiliate |
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Long-term debt |
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Noncurrent operating lease liabilities |
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Deferred income taxes, net |
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Total liabilities |
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Shareholders' equity - controlling interest |
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Noncontrolling interests |
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Total equity |
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Total liabilities and equity |
$ |
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$ |
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See condensed notes to consolidated financial statements.
1
WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
(Unaudited)
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Three Months Ended |
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Nine Months Ended |
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February 28, |
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February 28, |
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2022 |
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2021 |
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2022 |
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2021 |
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Net sales |
$ |
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$ |
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$ |
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$ |
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Cost of goods sold |
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Gross margin |
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Selling, general and administrative expense |
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Impairment of long-lived assets |
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Restructuring and other (income) expense, net |
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( |
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( |
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Incremental expenses related to Nikola gains |
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( |
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Operating income |
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Other income (expense): |
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Miscellaneous income, net |
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Interest expense |
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( |
) |
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( |
) |
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( |
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( |
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Equity in net income of unconsolidated affiliates |
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Gains on investment in Nikola |
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Earnings before income taxes |
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Income tax expense |
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Net earnings |
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Net earnings attributable to noncontrolling interests |
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Net earnings attributable to controlling interest |
$ |
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$ |
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$ |
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$ |
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Basic |
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Weighted average common shares outstanding |
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Earnings per share attributable to controlling interest |
$ |
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$ |
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$ |
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$ |
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Diluted |
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Weighted average common shares outstanding |
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Earnings per share attributable to controlling interest |
$ |
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$ |
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$ |
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$ |
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Common shares outstanding at end of period |
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Cash dividends declared per share |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
See condensed notes to consolidated financial statements.
2
WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
February 28, |
|
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February 28, |
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||||||||||
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|
2022 |
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2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Net earnings |
$ |
|
|
|
$ |
|
|
|
$ |
|
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|
$ |
|
|
|
Other comprehensive income (loss) |
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Foreign currency translation, net of tax |
|
( |
) |
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( |
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Pension liability adjustment, net of tax |
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( |
) |
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|
|
|
|
|
|
|
Cash flow hedges, net of tax |
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Other comprehensive income (loss) |
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to controlling interest |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
See condensed notes to consolidated financial statements.
3
WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
February 28, |
|
|
February 28, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Adjustments to reconcile net earnings to net cash provided (used) by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of long-lived assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for (benefit from) deferred income taxes |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Bad debt expense (income) |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Equity in net income of unconsolidated affiliates, net of distributions |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Net (gain) loss on sale of assets |
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains on investment in Nikola |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Charitable contribution of Nikola shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities, net of impact of acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Inventories |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Accounts payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued compensation and employee benefits |
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Income taxes payable |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
Other operating items, net |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Net cash provided (used) by operating activities |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in property, plant and equipment |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Acquisitions, net of cash acquired |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Proceeds from sale of assets, net |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Proceeds from sale of Nikola shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by investing activities |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from short-term borrowings, net of issuance costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments on long-term obligations and debt redemption costs |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Proceeds from issuance of common shares, net of tax withholdings |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Payments to noncontrolling interests |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Repurchase of common shares |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Dividends paid |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Net cash provided (used) by financing activities |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
See condensed notes to consolidated financial statements.
4
WORTHINGTON INDUSTRIES, INC.
CONDENSED Notes to Consolidated Financial Statements
(Unaudited)
NOTE A – Basis of Presentation
The consolidated financial statements include the accounts of Worthington Industries, Inc. and consolidated subsidiaries (collectively, “we,” “our,” “Worthington,” or the “Company”). Investments in unconsolidated affiliates are accounted for using the equity method. Significant intercompany accounts and transactions have been eliminated.
The Company owns controlling interests in the following
These unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the United States Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, which are of a normal and recurring nature except those which have been disclosed elsewhere in this Quarterly Report on Form 10-Q, necessary for a fair presentation of the consolidated financial statements for these interim periods, have been included. Operating results for the three months and nine months ended February 28, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending May 31, 2022 (“fiscal 2022”). For further information, refer to the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the fiscal year ended May 31, 2021 (“fiscal 2021”) of Worthington Industries, Inc. (the “2021 Form 10-K”).
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Segment Reporting: The Company’s operations are managed principally on a products and services basis. Segment information is prepared on the same basis that the Chief Operating Decision Maker (“CODM”) reviews financial information for operational decision-making purposes. See further discussion in “NOTE P – Segment Operations”.
Recently Adopted Accounting Standards
On June 1, 2021, the Company adopted ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes, eliminates certain exceptions within Topic 740 and clarifies certain aspects of the current guidance to promote consistency among reporting entities. The adoption of the accounting standard did not have a material impact on the Company’s consolidated financial position, results of operations, or cash flows.
NOTE B – Inventory
Due to the recent decline in steel pricing, the net realizable value of our inventory was lower than the cost reflected in our records at February 28, 2022. Accordingly, we recorded a lower of cost or net realizable value adjustment during the third quarter of fiscal 2022 totaling $
5
NOTE C – Revenue Recognition
The following table summarizes net sales by reportable segment and product class for the periods presented:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
February 28, |
|
|
February 28, |
|
||||||||||
|
(in thousands) |
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Steel Processing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Toll |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Products (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Building Products (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sustainable Energy Solutions (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil & Gas Equipment |
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
Engineered Cabs |
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
|
|
|
Other |
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
Total |
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
||||||||||||||
We recognize revenue at a point in time, with the exception of the toll processing revenue stream and, on a historical basis, certain contracts within the oil & gas equipment revenue stream, which were recognized over time.
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
February 28, |
|
|
February 28, |
|
||||||||||
|
(in thousands) |
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Steel Processing - toll |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Certain oil & gas equipment contracts |
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
Total over time revenue |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The following table summarizes the unbilled receivables at the dates indicated:
|
|
|
|
February 28, |
|
|
May 31, |
|
||
|
(in thousands) |
Balance Sheet Classification |
|
2022 |
|
|
2021 |
|
||
|
Unbilled receivables |
Receivables |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were |
|
||||||||
We have elected the optional exemption, which allows for the exclusion of the amounts for remaining performance obligations that are a part of contracts with an expected duration of one year or less. As of February 28, 2022, there were
6
NOTE D – Investment in Nikola
On
The Company sold or contributed all of these shares during the nine months ended February 28, 2021, and recognized pre-tax gains of $
NOTE E – Investments in Unconsolidated Affiliates
Investments in affiliated companies that we do not control, either through majority ownership or otherwise, are accounted for using the equity method. At February 28, 2022, the Company held non-controlling investments in the following affiliated companies: ArtiFlex Manufacturing, LLC (“ArtiFlex”) (
We received distributions from unconsolidated affiliates totaling $
We use the “cumulative earnings” approach for determining cash flow presentation of distributions from our unconsolidated joint ventures. Distributions received are included in our consolidated statements of cash flows as operating activities, unless the cumulative distributions received, less distributions received in prior periods that were determined to be returns of investment, exceed our portion of the cumulative equity in the net earnings of the joint venture, in which case the excess distributions are deemed to be returns of the investment and are classified as investing activities in our consolidated statements of cash flows.
The following tables summarize combined financial information for our unconsolidated affiliates as of the dates, and for the periods presented:
|
|
February 28, |
|
|
May 31, |
|
||
|
(in thousands) |
2022 |
|
|
2021 |
|
||
|
Cash |
$ |
|
|
|
$ |
|
|
|
Other current assets |
|
|
|
|
|
|
|
|
Noncurrent assets |
|
|
|
|
|
|
|
|
Total assets |
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
$ |
|
|
|
$ |
|
|
|
Short-term borrowings |
|
|
|
|
|
|
|
|
Current maturities of long-term debt |
|
|
|
|
|
|
|
|
Long-term debt |
|
|
|
|
|
|
|
|
Other noncurrent liabilities |
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
Total liabilities and equity |
$ |
|
|
|
$ |
|
|
7
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
February 28, |
|
|
February 28, |
|
||||||||||
|
(in thousands) |
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Net sales |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Gross margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE F – Goodwill and Long-Lived Assets
Goodwill
|
(in thousands) |
|
Steel Processing |
|
|
Consumer Products (1) |
|
|
Building Products (1) |
|
|
Sustainable Energy Solutions (1) |
|
|
Total |
|
|||||
|
Balance at May 31, 2021 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Acquisitions and purchase accounting adjustments |
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Translation adjustments |
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Balance at February 28, 2022 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
|||||||||||||||||||
There was
Impairment of Long-Lived Assets
Fiscal 2022: During the third quarter of fiscal 2022, management committed to plans to sell certain production equipment at the Samuel joint venture’s facility in Twinsburg, Ohio. As all of the criteria for classification of assets held for sale were met, the net assets have been presented separately as assets held for sale in our consolidated balance sheets. In accordance with the applicable accounting guidance, the net assets were recorded at the lower of net book value or fair market value less costs to sell. The net book value of the production equipment exceeded its estimated fair market value less costs to sell of $
Fiscal 2021: During the first nine months of fiscal 2021, we recorded impairment charges totaling $
|
|
• |
Due to the economic impact of the COVID-19 pandemic and related market softness in the oil & gas equipment operations in Tulsa, Oklahoma, we tested the long-lived assets consisting of fixed assets and customer list intangible assets with net book values of $ |
|
|
• |
The future undiscounted cash flows of the cryogenics business primarily operated out of the Theodore, Alabama facility did not support its book value. As a result, property, plant and equipment with a carrying value of $ |
8
|
|
• |
We decided to discontinue our operation of the manufacturing line for alternative fuel cylinders at the Jefferson, Ohio facility. As a result, long-lived assets with a carrying value of $ |
|
|
• |
The Company recognized a $ |
NOTE G – Restructuring and Other Income, Net
We consider restructuring activities to be programs whereby we fundamentally change our operations, such as closing and consolidating manufacturing facilities or moving manufacturing of a product to another location. Restructuring activities may also involve substantial realignment of the management structure of a business unit in response to changing market conditions.
A progression of the liabilities associated with our restructuring activities, combined with a reconciliation to the restructuring and other income, net financial statement caption, in our consolidated statement of earnings for the nine months ended February 28, 2022 is summarized below:
|
|
|
Balance, as of |
|
|
Expense |
|
|
|
|
|
|
|
|
|
|
Balance, as of |
|
|||
|
(in thousands) |
|
May 31, 2021 |
|
|
(Income) |
|
|
Payments |
|
|
Adjustments |
|
|
February 28, 2022 |
|
|||||
|
Early retirement and severance |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
Facility exit and other costs |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
Net gain on sale of assets (1)(2) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on lease buyout (3) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and other income, net |
|
|
|
|
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
(1)
(2)
(3)
The total liability associated with our restructuring activities as of February 28, 2022 is expected to be paid in the next twelve months.
NOTE H – Contingent Liabilities and Commitments
Legal Proceedings
We are defendants in certain legal actions. In the opinion of management, the outcome of these actions, which is not clearly determinable at the present time, would not significantly affect our consolidated financial position or future results of operations. We also believe that environmental issues will not have a material effect on our capital expenditures, consolidated financial position or future results of operations.
Voluntary Tank Replacement Program
In February 2019, our former Structural Composites Industries, LLC subsidiary (“SCI”) agreed to participate in a tank replacement program for specific design sizes of SCI’s composite hydrogen fuel tanks, which are integrated into a customer’s hydrogen fuel cells used to fuel material handling equipment, primarily rider pallet jacks in warehouses. As of February 28, 2022, the Company has a reserve of $
9
NOTE I – Guarantees
We do not have guarantees that we believe are reasonably likely to have a material current or future effect on our consolidated financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. We had in place $
NOTE J – Debt
NOTE K – Other Comprehensive Income (Loss)
The following table summarizes the tax effects on each component of OCI for the periods presented:
|
|
Three Months Ended |
|
|||||||||||||||||||||
|
|
February 28, 2022 |
|
|
February 28, 2021 |
|
||||||||||||||||||
|
|
Before-Tax |
|
|
Tax |
|
|
Net-of-Tax |
|
|
Before-Tax |
|
|
Tax |
|
|
Net-of-Tax |
|
||||||
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation |
$ |
( |
) |
|
|
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
Pension liability adjustment |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Cash flow hedges |
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Other comprehensive income (loss) |
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
Nine Months Ended |
|
|||||||||||||||||||||
|
|
February 28, 2022 |
|
|
February 28, 2021 |
|
||||||||||||||||||
|
|
Before-Tax |
|
|
Tax |
|
|
Net-of-Tax |
|
|
Before-Tax |
|
|
Tax |
|
|
Net-of-Tax |
|
||||||
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation |
$ |
( |
) |
|
|
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
Pension liability adjustment |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Cash flow hedges |
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Other comprehensive income (loss) |
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
10
NOTE L – Changes in Equity
The following tables summarize the changes in equity by component and in total for the periods presented:
|
|
|
Controlling Interest |
|
|
|
|
|
|
|
|
|
|||||||||||||
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Comprehensive |
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|||
|
|
|
Paid-in |
|
|
Income (Loss), |
|
|
Retained |
|
|
|
|
|
|
controlling |
|
|
|
|
|
||||
|
(in thousands) |
|
Capital |
|
|
Net of Tax |
|
|
Earnings |
|
|
Total |
|
|
Interests |
|
|
Total |
|
||||||
|
Balance at May 31, 2021 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Common shares issued, net of withholding tax |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Common shares in non-qualified plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases and retirement of common shares |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Cash dividends declared |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Dividends to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Balance at August 31, 2021 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Common shares issued, net of withholding tax |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Common shares in non-qualified plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases and retirement of common shares |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Cash dividends declared |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Dividends to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Balance at November 30, 2021 |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Common shares issued, net of withholding tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares in non-qualified plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases and retirement of common shares |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Cash dividends declared |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Dividends to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Balance at February 28, 2022 |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
11
|
|
|
Controlling Interest |
|
|
|
|
|
|
|
|
|
|||||||||||||
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Comprehensive |
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|||
|
|
|
Paid-in |
|
|
Loss, |
|
|
Retained |
|
|
|
|
|
|
controlling |
|
|
|
|
|
||||
|
(in thousands) |
|
Capital |
|
|
Net of Tax |
|
|
Earnings |
|
|
Total |
|
|
Interests |
|
|
Total |
|
||||||
|
Balance at May 31, 2020 |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued, net of withholding tax |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Common shares in non-qualified plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases and retirement of common shares |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Cash dividends declared |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Dividends to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Balance at August 31, 2020 |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Net earnings (loss) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued, net of withholding tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares in non-qualified plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases and retirement of common shares |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Contribution to Samuel joint venture |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Balance at November 30, 2020 |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued, net of withholding tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares in non-qualified plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases and retirement of common shares |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Cash dividends declared |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Dividends to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Balance at February 28, 2021 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
12
The following tables summarize the changes in accumulated other comprehensive income (loss) for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
Foreign |
|
|
Pension |
|
|
|
|
|
|
Other |
|
|||
|
|
|
Currency |
|
|
Liability |
|
|
Cash Flow |
|
|
Comprehensive |
|
||||
|
(in thousands) |
|
Translation |
|
|
Adjustment |
|
|
Hedges |
|
|
Income (Loss) |
|
||||
|
Balance as of May 31, 2021 |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
Other comprehensive income (loss) before reclassifications |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustments to net earnings (a) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Income tax effect |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Balance as of February 28, 2022 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
Foreign |
|
|
Pension |
|
|
|
|
|
|
Other |
|
|||
|
|
|
Currency |
|
|
Liability |
|
|
Cash Flow |
|
|
Comprehensive |
|
||||
|
(in thousands) |
|
Translation |
|
|
Adjustment |
|
|
Hedges |
|
|
Income (Loss) |
|
||||
|
Balance as of May 31, 2020 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Other comprehensive income before reclassifications |
|
|
|
|
|
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|
|
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|
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|
|
|
|
|
|
Reclassification adjustments to net earnings (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax effect |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Balance as of February 28, 2021 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
|
(a) |
|
NOTE M – Stock-Based Compensation
Non-Qualified Stock Options
During the nine months ended February 28, 2022, we granted non-qualified stock options covering a total of
|
Dividend yield |
|
|
|
% |
|
Expected volatility |
|
|
|
% |
|
Risk-free interest rate |
|
|
|
% |
|
Expected term (years) |
|
|
|
|
Expected volatility is based on the historical volatility of Worthington Industries, Inc.’s common shares and the risk-free interest rate is based on the U.S. Treasury strip rate for the expected term of the stock options. The expected term was developed using historical exercise experience.
Service-Based Restricted Common Shares
During the nine months ended February 28, 2022, we granted an aggregate of
13
Performance Share Awards
We have awarded performance shares to certain key employees under our stock-based compensation plans. These performance shares are earned based on the level of achievement with respect to corporate targets for cumulative corporate economic value added, earnings per share growth and, in the case of business unit executives, a business unit adjusted earnings before interest and taxes target, in each case for the three-year periods ending May 31, 2022, 2023 and 2024. These performance share awards will be paid, to the extent earned, in common shares of Worthington Industries, Inc. in the fiscal quarter following the end of the applicable three-year performance period. The fair values of our performance shares are determined by the closing market prices of the underlying common shares at the respective grant dates of the performance shares and the pre-tax stock-based compensation expense is based on our periodic assessment of the probability of the targets being achieved and our estimate of the number of common shares that will ultimately be issued. During the nine months ended February 28, 2022, we granted performance share awards covering an aggregate of
NOTE N – Income Taxes
Income tax expense for the nine months ended February 28, 2022 and 2021 reflected estimated annual effective income tax rates of
NOTE O – Earnings per Share
The following table sets forth the computation of basic and diluted earnings per share attributable to controlling interest for the periods presented:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
February 28, |
|
|
February 28, |
|
||||||||||
|
(in thousands, except per share amounts) |
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Numerator (basic & diluted): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to controlling interest - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income available to common shareholders |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share attributable to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
controlling interest - weighted average common shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per share attributable to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
controlling interest - adjusted weighted average common shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share attributable to controlling interest |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Diluted earnings per share attributable to controlling interest |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Stock options covering an aggregate of
14
NOTE P – Segment Operations
Segment information is prepared on the same basis that our management reviews financial information for operational decision-making purposes. Factors used to identify reportable operating segments include the nature of the products and services provided by each business, the management reporting structure, similarity of economic characteristics and certain quantitative measures, as prescribed by authoritative accounting guidance.
Effective June 1, 2021, we reorganized the management structure of our Pressure Cylinders business to better align around the end markets which it served, resulting in
Consumer Products: This reportable segment is comprised of brands that offer market-leading products in the tools, outdoor living and celebrations end markets with brands that include Coleman®, Bernzomatic®, Balloon Time®, Mag Torch®, General®, Garden-Weasel®, Pactool International®, Hawkeye™ and Worthington Pro-Grade™. This market sector includes propane-filled cylinders for torches, camping stoves and other applications, certain propane gas (LPG) cylinders, hand-held torches, Balloon Time® helium-filled balloon kits, and specialized hand tools and instruments. These products are sold primarily to mass merchandisers, retailers and distributors. LPG cylinders, which hold fuel for barbeque grills and recreational vehicle equipment, are also sold through cylinder exchangers.
Building Products: This reportable segment includes refrigerant and LPG cylinders, well water and expansion tanks, and other specialty products. Cylinders are generally sold to gas producers and distributors. Refrigerant gas cylinders are used to hold refrigerant gases for commercial, residential, and automotive air conditioning and refrigeration systems. LPG cylinders hold fuel for residential and light commercial heating systems, industrial forklifts and commercial/residential cooking (the latter, generally outside North America).Well water tanks and expansion tanks are used in the residential market with the latter also sold into commercial markets. Specialty products include a variety of fire suppression and chemical tanks.
Sustainable Energy Solutions: This reportable segment, which is primarily based in Europe, includes on-board fueling systems and services, as well as gas containment solutions and services for storage, transport and distribution of industrial gases. It includes high pressure and acetylene cylinders for life support cylinders and alternative fuel cylinders used to hold compressed natural gas (CNG) and hydrogen for automobiles, buses, and light-duty trucks.
Other: Divested businesses historically reported within Pressure Cylinders but no longer included in the Company’s management structure are presented within the “Other” category, on a historical basis, through the date of disposal. For the periods presented, these include the following: Structural Composites Industries, LLC (until March 2021); Oil & Gas Equipment (until January 2021); and Cryogenic Storage and Cryo-Science (until October 2020). The Other category also includes the results of our former Engineered Cabs operating segment, on a historical basis, through the date of disposition (
Prior period financial information has been revised to reflect the operating results and financial position of the new reportable operating segments. Historical financial information presented herein reflects this change.
Concurrent with the change in management structure described above, the profit measure that the Company’s CODM uses to assess segment performance and allocate resources was changed from operating income to adjusted earnings (loss) before interest and taxes (“adjusted EBIT”). In general, adjusted EBIT excludes impairment and restructuring charges (gains), but may also exclude other items that management believes are not reflective of, and thus should not be included when evaluating, the performance of the Company’s ongoing operations. Adjusted EBIT is a non-GAAP measure and is used by management to evaluate segment performance, engage in financial and operational planning and determine incentive compensation because we believe that this measure provides additional perspective and, in some circumstances is more closely correlated to, the performance of the Company’s ongoing operations.
|
Unconsolidated Joint Ventures Included in Segment Profit |
||||||||
|
Steel Processing |
|
Consumer Products |
|
Building Products |
|
Sustainable Energy Solutions |
|
Other |
|
Serviacero Worthington |
|
|
|
|
|
|
|
|
|
|
|
|
|
ClarkDietrich |
|
|
|
ArtiFlex |
15
The following table presents summarized financial information for our reportable segments for the periods indicated.
|
|
Three Months Ended February 28, 2022 |
|
|||||||||||||||||||||
|
(in thousands) |
Steel Processing |
|
|
Consumer Products |
|
|
Building Products |
|
|
Sustainable Energy Solutions |
|
|
Other |
|
|
Consolidated |
|
||||||
|
Net sales |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
- |
|
|
$ |
|
|
|
Impairment of long-lived assets |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Restructuring and other expense (income), net (1) |
|
|
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
Miscellaneous income (loss), net |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Equity in net income of unconsolidated affiliates |
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Adjusted earnings (loss) before interest and taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
Three Months Ended February 28, 2021 |
|
|||||||||||||||||||||
|
(in thousands) |
Steel Processing |
|
|
Consumer Products |
|
|
Building Products |
|
|
Sustainable Energy Solutions |
|
|
Other |
|
|
Consolidated |
|
||||||
|
Net sales |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Restructuring and other expense (income), net (1) |
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Incremental expenses related to Nikola gains |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
Miscellaneous income (loss), net |
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in net income of unconsolidated affiliates |
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Adjusted earnings before interest and taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Nine Months Ended February 28, 2022 |
|
|||||||||||||||||||||||
|
(in thousands) |
Steel Processing |
|
|
Consumer Products |
|
|
Building Products |
|
|
|
|
Sustainable Energy Solutions |
|
|
Other |
|
|
Consolidated |
|
||||||
|
Net sales |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
$ |
- |
|
|
$ |
|
|
|
Impairment of long-lived assets |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Restructuring and other income, net (2) |
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Miscellaneous income (loss), net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Equity in net income of unconsolidated affiliates |
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Adjusted earnings (loss) before interest and taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
Nine Months Ended February 28, 2021 |
|
|||||||||||||||||||||
|
(in thousands) |
Steel Processing |
|
|
Consumer Products |
|
|
Building Products |
|
|
Sustainable Energy Solutions |
|
|
Other |
|
|
Consolidated |
|
||||||
|
Net sales |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Impairment of long-lived assets (2) |
|
- |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Restructuring and other expense (income), net (2) |
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Incremental expenses related to Nikola gains |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Miscellaneous income (loss), net |
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in net income of unconsolidated affiliates |
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Adjusted earnings (loss) before interest and taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2) |
|
||||||||||||||||||||||
16
Total assets for each of our reportable segments as of the dates indicated were as follows:
|
|
February 28, |
|
|
May 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
|
Total assets |
|
|
|
|
|
|
|
|
Steel Processing |
$ |
|
|
|
$ |
|
|
|
Consumer Products |
|
|
|
|
|
|
|
|
Building Products |
|
|
|
|
|
|
|
|
Sustainable Energy Solutions |
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
Total assets |
$ |
|
|
|
$ |
|
|
NOTE Q – Acquisitions
Tempel Steel Company
On December 1, 2021, the Company’s Steel Processing reportable operating segment completed its acquisition of Tempel Steel Company (“Tempel”), a leading global manufacturer of precision motor and transformer laminations for the electrical steel market that includes transformers, machine motors and electric vehicle (EV) motors for cash consideration of $
The information included herein has been based on the preliminary allocation of the purchase price using estimates of the fair value and useful lives of the assets acquired. The purchase price allocation is subject to further adjustment until all pertinent information regarding the assets acquired is fully evaluated by the Company, including but not limited to, the fair value accounting.
The assets acquired and liabilities assumed were recognized at their estimated acquisition-date fair values, with goodwill representing the excess of the purchase price over the fair value of the net identifiable assets acquired.
|
(in thousands) |
|
|
|
|
|
|
|
Category |
|
Amount |
|
|
Useful Life (Years) |
|
|
Customer relationships |
|
$ |
|
|
|
|
|
Technological know how |
|
|
|
|
|
6-8 |
|
Total acquired identifiable intangible assets |
|
$ |
|
|
|
|
17
The purchase price includes the fair values of other assets that were not identifiable, not separately recognizable under accounting rules (e.g., assembled workforce) or of immaterial value. The purchase price also includes strategic and synergistic benefits (investment value) specific to us, which resulted in a purchase price in excess of the fair value of the identifiable net assets. This additional investment value resulted in goodwill which is not expected to be deductible for income tax purposes. The purchase price was allocated as follows:
|
(in thousands) |
|
Preliminary Valuation |
|
|
|
Cash |
|
$ |
|
|
|
Accounts receivable |
|
|
|
|
|
Inventories |
|
|
|
|
|
Other current assets |
|
|
|
|
|
Property, plant and equipment |
|
|
|
|
|
Intangible assets |
|
|
|
|
|
Operating lease assets |
|
|
|
|
|
Total identifiable assets |
|
|
|
|
|
Accounts payable |
|
|
( |
) |
|
Notes payable |
|
|
( |
) |
|
Accrued liabilities |
|
|
( |
) |
|
Current operating lease liabilities |
|
|
( |
) |
|
Noncurrent operating lease liabilities |
|
|
( |
) |
|
Other non-current liabilities (1) |
|
|
( |
) |
|
Net identifiable assets |
|
|
|
|
|
Goodwill |
|
|
|
|
|
Purchase price |
|
$ |
|
|
|
|
(1) |
Includes approximately $ |
Operating results of Tempel have been included in the Company’s consolidated statement of earnings since December 1, 2021, the date of acquisition. During the three months ended February 28, 2022, Tempel contributed net sales of $
The following unaudited pro forma information presents consolidated financial information as if Tempel had been acquired at the beginning of fiscal 2021. Depreciation and amortization expense included in the pro forma results reflect the preliminary acquisition-date fair values assigned to the definite-lived intangible assets and fixed assets of Tempel assuming a June 1, 2020 acquisition date. Adjustments have been made to remove acquisition-related costs and the acquisition date fair value adjustment to acquired inventories. The pro forma adjustments noted above have been adjusted for the applicable income tax impact. The pro forma information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place on June 1, 2020.
|
|
|
Three months ended |
|
|
Nine months ended |
|
||||||||||
|
|
|
February 28, |
|
|
February 28, |
|
||||||||||
|
(in thousands, except per share amounts) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Net sales |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Net earnings attributable to controlling interest |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Diluted earnings per share attributable to controlling interest |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
18
Shiloh Industries’ U.S. BlankLight®
On June 8, 2021, the Company’s Steel Processing reportable operating segment, along with the Company’s
The acquisition consisted of
The information included herein has been based on the preliminary allocation of the purchase price using estimates of the fair value and useful lives of the assets acquired. The purchase price allocation is subject to further adjustment until all pertinent information regarding the assets acquired is fully evaluated by the Company, including but not limited to, the fair value accounting.
The assets acquired and liabilities assumed were recognized at their estimated acquisition-date fair values, with goodwill representing the excess of the purchase price over the fair value of the net identifiable assets acquired.
|
(in thousands) |
|
|
|
|
|
|
|
|
|
Category |
|
Amount |
|
|
Useful Life (Years) |
|
||
|
Customer relationships |
|
$ |
|
|
|
15-20 |
|
|
|
Non-compete agreement |
|
|
|
|
|
|
|
|
|
In-process research & development |
|
|
|
|
|
Indefinite |
|
|
|
Total acquired identifiable intangible assets |
|
$ |
|
|
|
|
|
|
The purchase price includes the fair values of other assets that were not identifiable, not separately recognizable under accounting rules (e.g., assembled workforce) or of immaterial value. The purchase price also includes strategic and synergistic benefits (investment value) specific to us, which resulted in a purchase price in excess of the fair value of the identifiable net assets. This additional investment value resulted in goodwill which will be deductible for income tax purposes.
|
(in thousands) |
|
Preliminary Valuation |
|
|
Measurement Period Adjustments |
|
|
Revised Valuation |
|
|||
|
Accounts receivable |
|
$ |
|
|
|
$ |
- |
|
|
$ |
|
|
|
Inventories |
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease assets |
|
|
|
|
|
|
- |
|
|
|
|
|
|
Total identifiable assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
Current operating lease liabilities |
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
Noncurrent operating lease liabilities |
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
Net identifiable assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Purchase price |
|
$ |
|
|
|
$ |
- |
|
|
$ |
|
|
19
NOTE R – Derivative Instruments and Hedging Activities
We utilize derivative financial instruments to primarily manage exposure to certain risks related to our ongoing operations. The primary risks managed through the use of derivative instruments include interest rate risk, foreign currency exchange rate risk and commodity price risk. While certain of our derivative instruments are designated as hedging instruments, we also enter into derivative instruments that are designed to hedge a risk, but are not designated as hedging instruments and, therefore, do not qualify for hedge accounting. These derivative instruments are adjusted to current fair value through earnings at the end of each period.
Interest Rate Risk Management – We are exposed to the impact of interest rate changes. Our objective is to manage the impact of interest rate changes on cash flows and the market value of our borrowings. We utilize a mix of debt maturities along with both fixed-rate and variable-rate debt to manage changes in interest rates. In addition, we enter into interest rate swaps and treasury locks to further manage our exposure to interest rate variations related to our borrowings and to lower our overall borrowing costs.
Foreign Currency Exchange Rate Risk Management – We conduct business in several major international currencies and are, therefore, subject to risks associated with changing foreign currency exchange rates. We enter into various contracts that change in value as foreign currency exchange rates change to manage this exposure. Such contracts limit exposure to both favorable and unfavorable currency exchange rate fluctuations. The translation of foreign currencies into U.S. dollars also subjects us to exposure related to fluctuating currency exchange rates; however, derivative instruments are not used to manage this risk.
Commodity Price Risk Management – We are exposed to changes in the price of certain commodities, including steel, natural gas, zinc and other raw materials, and our utility requirements. Our objective is to reduce earnings and cash flow volatility associated with forecasted purchases and sales of these commodities to allow management to focus its attention on business operations. Accordingly, we enter into derivative contracts to manage the associated price risk.
We are exposed to counterparty credit risk on all of our derivative instruments. Accordingly, we have established and maintain strict counterparty credit guidelines. We have credit support agreements in place with certain counterparties to limit our credit exposure. These agreements require either party to post cash collateral if its cumulative market position exceeds a predefined liability threshold. Amounts posted to the margin accounts accrue interest at market rates and are required to be refunded in the period in which the cumulative market position falls below the required threshold. We do not have significant exposure to any one counterparty, and management believes the overall risk of loss is remote and, in any event, would not be material.
Refer to "NOTE S – Fair Value" for additional information regarding the accounting treatment for our derivative instruments, as well as how fair value is determined.
The following table summarizes the fair value of our derivative instruments and the respective lines in which they were recorded in the consolidated balance sheet at February 28, 2022:
|
|
|
Asset Derivatives |
|
|
Liability Derivatives |
|
||||||
|
|
|
Balance |
|
|
|
|
|
Balance |
|
|
|
|
|
|
|
Sheet |
|
Fair |
|
|
Sheet |
|
Fair |
|
||
|
(in thousands) |
|
Location |
|
Value |
|
|
Location |
|
Value |
|
||
|
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts |
|
Receivables |
|
$ |
|
|
|
Accounts payable |
|
$ |
|
|
|
|
|
Other assets |
|
|
- |
|
|
Other liabilities |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts |
|
Other assets |
|
|
|
|
|
Accounts payable |
|
|
- |
|
|
Total |
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts |
|
Receivables |
|
$ |
|
|
|
Accounts payable |
|
$ |
|
|
|
|
|
Other assets |
|
|
|
|
|
Other liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts |
|
Other assets |
|
|
- |
|
|
Accounts payable |
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative instruments |
|
|
|
$ |
|
|
|
|
|
$ |
|
|
20
The amounts in the table above reflect the fair value of the Company’s derivative instruments on a net basis where allowable under master netting arrangements. Had these amounts been recognized on a gross basis, the impact would have been a $
The following table summarizes the fair value of our derivative instruments and the respective lines in which they were recorded in the consolidated balance sheet at May 31, 2021:
|
|
|
Asset Derivatives |
|
|
Liability Derivatives |
|
||||||
|
|
|
Balance |
|
|
|
|
|
Balance |
|
|
|
|
|
|
|
Sheet |
|
Fair |
|
|
Sheet |
|
Fair |
|
||
|
(in thousands) |
|
Location |
|
Value |
|
|
Location |
|
Value |
|
||
|
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts |
|
Receivables |
|
$ |
|
|
|
Accounts payable |
|
$ |
- |
|
|
|
|
Other assets |
|
|
|
|
|
Other liabilities |
|
|
|
|
|
Total |
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts |
|
Receivables |
|
$ |
|
|
|
Accounts payable |
|
$ |
|
|
|
|
|
Other assets |
|
|
|
|
|
Other liabilities |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts |
|
Receivables |
|
|
- |
|
|
Accounts payable |
|
|
|
|
|
Total |
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
Total derivative instruments |
|
|
|
$ |
|
|
|
|
|
$ |
|
|
The amounts in the table above reflect the fair value of the Company’s derivative instruments on a net basis where allowable under master netting arrangements. Had these amounts been recognized on a gross basis, the impact would have been a $
Cash Flow Hedges
We enter into derivative instruments to hedge our exposure to changes in cash flows attributable to commodity price fluctuations associated with certain forecasted transactions. These derivative instruments are designated and qualify as cash flow hedges. The earnings effects of these derivative instruments are presented in the same statement of earnings line items as the earnings effects of the hedged items. For derivative instruments designated as cash flow hedges, the Company assesses hedge effectiveness both at the onset of the hedge and at regular intervals throughout the life of the derivative instruments.
The following table summarizes our cash flow hedges outstanding at February 28, 2022:
|
|
|
Notional |
|
|
|
|
|
(in thousands) |
|
Amount |
|
|
Maturity Date |
|
|
Commodity contracts |
|
|
|
|
|
March 2022 - July 2023 |
|
Foreign currency exchange contracts |
|
|
|
|
|
March 2022 - March 2023 |
21
The following table summarizes the gain (loss) recognized in OCI and the gain (loss) reclassified from AOCI into net earnings for derivative instruments designated as cash flow hedges for the periods presented:
|
(in thousands) |
|
Gain (Loss) Recognized in OCI |
|
|
Location of Gain (Loss) Reclassified from AOCI into Net Earnings |
|
Gain (Loss) Reclassified from AOCI into Net Earnings |
|
||
|
For the three months ended February 28, 2022: |
|
|||||||||
|
Commodity contracts |
|
$ |
( |
) |
|
Cost of goods sold |
|
$ |
|
|
|
Interest rate contracts |
|
|
- |
|
|
Interest expense |
|
|
( |
) |
|
Foreign currency exchange contracts |
|
|
( |
) |
|
Miscellaneous income, net |
|
|
( |
) |
|
Total |
|
$ |
( |
) |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended February 28, 2021: |
|
|||||||||
|
Commodity contracts |
|
$ |
|
|
|
Cost of goods sold |
|
$ |
|
|
|
Interest rate contracts |
|
|
- |
|
|
Interest expense |
|
|
( |
) |
|
Total |
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended February 28, 2022: |
|
|||||||||
|
Commodity contracts |
|
$ |
|
|
|
Cost of goods sold |
|
$ |
|
|
|
Interest rate contracts |
|
|
- |
|
|
Interest expense |
|
|
( |
) |
|
Foreign currency exchange contracts |
|
|
( |
) |
|
Miscellaneous income, net |
|
|
( |
) |
|
Total |
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended February 28, 2021: |
|
|||||||||
|
Commodity contracts |
|
$ |
|
|
|
Cost of goods sold |
|
$ |
( |
) |
|
Interest rate contracts |
|
|
- |
|
|
Interest expense |
|
|
( |
) |
|
Total |
|
$ |
|
|
|
|
|
$ |
( |
) |
The estimated net amount of the losses recognized in AOCI at February 28, 2022 expected to be reclassified into net earnings within the succeeding twelve months is $
Economic (Non-designated) Hedges
We enter into foreign currency exchange contracts to manage our foreign currency exchange rate exposure related to inter-company and financing transactions that do not meet the requirements for hedge accounting treatment. We also enter into certain commodity contracts that do not qualify for hedge accounting treatment. Accordingly, these derivative instruments are adjusted to current market value at the end of each period through earnings (loss).
The following table summarizes our economic (non-designated) derivative instruments outstanding at February 28, 2022:
|
|
|
Notional |
|
|
|
|
|
(in thousands) |
|
Amount |
|
|
Maturity Date(s) |
|
|
Commodity contracts |
|
$ |
|
|
|
March 2022 - August 2023 |
|
Foreign currency exchange contracts |
|
|
|
|
|
March 2022 - March 2023 |
The following table summarizes the gain (loss) recognized in earnings for economic (non-designated) derivative financial instruments for the periods presented:
|
|
|
|
|
Gain (Loss) Recognized |
|
|||||
|
|
|
|
|
In Earnings for the |
|
|||||
|
|
|
Location of Gain (Loss) |
|
Three Months Ended February 28, |
|
|||||
|
(in thousands) |
|
Recognized in Earnings |
|
2022 |
|
|
2021 |
|
||
|
Commodity contracts |
|
Cost of goods sold |
|
$ |
( |
) |
|
$ |
|
|
|
Foreign currency exchange contracts |
|
Miscellaneous income, net |
|
|
( |
) |
|
|
( |
) |
|
Total |
|
|
|
$ |
( |
) |
|
$ |
|
|
22
|
|
|
|
|
Gain (Loss) Recognized |
|
|||||
|
|
|
|
|
in Earnings for the |
|
|||||
|
|
|
Location of Gain (Loss) |
|
Nine Months Ended February 28, |
|
|||||
|
(in thousands) |
|
Recognized in Earnings |
|
2022 |
|
|
2021 |
|
||
|
Commodity contracts |
|
Cost of goods sold |
|
$ |
|
|
|
$ |
|
|
|
Foreign currency exchange contracts |
|
Miscellaneous income, net |
|
|
|
|
|
|
( |
) |
|
Total |
|
|
|
$ |
|
|
|
$ |
|
|
NOTE S – Fair Value
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is an exit price concept that assumes an orderly transaction between willing market participants and is required to be based on assumptions that market participants would use in pricing an asset or a liability. Current accounting guidance establishes a three-tier fair value hierarchy as a basis for considering such assumptions and for classifying the inputs used in the valuation methodologies. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair values are as follows:
Level 1 – Observable prices in active markets for identical assets and liabilities.
Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the assets and liabilities, either directly or indirectly.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities.
Recurring Fair Value Measurements
At February 28, 2022, our assets and liabilities measured at fair value on a recurring basis were as follows:
|
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|||
|
|
|
in Active |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
|
|||
|
|
|
Markets |
|
|
Inputs |
|
|
Inputs |
|
|
|
|
|
|||
|
(in thousands) |
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Totals |
|
||||
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments (1) |
|
$ |
- |
|
|
$ |
|
|
|
$ |
- |
|
|
$ |
|
|
|
Total assets |
|
$ |
- |
|
|
$ |
|
|
|
$ |
- |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments (1) |
|
$ |
- |
|
|
$ |
|
|
|
$ |
- |
|
|
$ |
|
|
|
Total liabilities |
|
$ |
- |
|
|
$ |
|
|
|
$ |
- |
|
|
$ |
|
|
At May 31, 2021, our assets and liabilities measured at fair value on a recurring basis were as follows:
|
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|||
|
|
|
in Active |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
|
|||
|
|
|
Markets |
|
|
Inputs |
|
|
Inputs |
|
|
|
|
|
|||
|
(in thousands) |
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Totals |
|
||||
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments (1) |
|
$ |
- |
|
|
$ |
|
|
|
$ |
- |
|
|
$ |
|
|
|
Total assets |
|
$ |
- |
|
|
$ |
|
|
|
$ |
- |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments (1) |
|
$ |
- |
|
|
$ |
|
|
|
$ |
- |
|
|
$ |
|
|
|
Total liabilities |
|
$ |
- |
|
|
$ |
|
|
|
$ |
- |
|
|
$ |
|
|
|
|
(1) |
The fair value of our derivative instruments is based on the present value of the expected future cash flows considering the risks involved, including non-performance risk, and using discount rates appropriate for the respective maturities. Market |
23
|
|
observable, Level 2 inputs are used to determine the present value of the expected future cash flows. Refer to “NOTE R – Derivative Instruments and Hedging Activities” for additional information regarding our use of derivative instruments. |
Non-Recurring Fair Value Measurements
At February 28, 2022, our assets measured at fair value on a non-recurring basis were as follows:
|
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|||
|
|
|
in Active |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
|
|||
|
|
|
Markets |
|
|
Inputs |
|
|
Inputs |
|
|
|
|
|
|||
|
(in thousands) |
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Totals |
|
||||
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets held for sale (1) |
|
$ |
- |
|
|
$ |
|
|
|
$ |
- |
|
|
$ |
|
|
|
Total assets |
|
$ |
- |
|
|
$ |
|
|
|
$ |
- |
|
|
$ |
|
|
|
|
(1) |
|
At May 31, 2021, our assets measured at fair value on a non-recurring basis were as follows:
|
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|||
|
|
|
in Active |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
|
|||
|
|
|
Markets |
|
|
Inputs |
|
|
Inputs |
|
|
|
|
|
|||
|
(in thousands) |
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Totals |
|
||||
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets held for sale (2) |
|
$ |
- |
|
|
$ |
|
|
|
$ |
- |
|
|
$ |
|
|
|
Total assets |
|
$ |
- |
|
|
$ |
|
|
|
$ |
- |
|
|
$ |
|
|
|
|
(2) |
Comprised of our alternative fuel cylinders assets at the Jefferson, Ohio facility with an estimated fair market value of $ |
The fair value of non-derivative financial instruments included in the carrying amounts of cash and cash equivalents, receivables, income taxes receivable, other assets, accounts payable, accrued compensation, contributions to employee benefit plans and related taxes, other accrued items, income taxes payable and other liabilities approximate carrying value due to their short-term nature. The fair value of long-term debt, including current maturities, based upon models utilizing market observable (Level 2) inputs and credit risk, was $
24
Item 2. – Management’s Discussion and Analysis of Financial Condition and Results of Operations
Selected statements contained in this “Item 2. – Management’s Discussion and Analysis of Financial Condition and Results of Operations” constitute “forward-looking statements” as that term is used in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based, in whole or in part, on management’s beliefs, estimates, assumptions and currently available information. For a more detailed discussion of what constitutes a forward-looking statement and of some of the factors that could cause actual results to differ materially from such forward-looking statements, please refer to the “Safe Harbor Statement” in the beginning of this Quarterly Report on Form 10-Q (this “Form 10-Q”) and “Part I – Item 1A. – Risk Factors” of the Annual Report on Form 10-K for the fiscal year ended May 31, 2021 (“fiscal 2021”) of Worthington Industries, Inc. (the “Form 10-K”).
Unless otherwise indicated, all Note references contained in this Part I – Item 2. refer to the Condensed Notes to Consolidated Financial Statements included in “Part I – Item 1. – Financial Statements” of this Form 10-Q.
Introduction
The following discussion and analysis of market and industry trends, business developments, and the results of operations and financial position of Worthington Industries, Inc., together with its subsidiaries (collectively, “we,” “our,” “Worthington,” or the “Company”), should be read in conjunction with our consolidated financial statements and notes thereto included in “Part I – Item 1. – Financial Statements” of this Quarterly Report on Form 10-Q. The Form 10-K includes additional information about Worthington, our operations and our consolidated financial position and should be read in conjunction with this Form 10-Q.
Our operations are managed principally on a products and services basis. Segment information is prepared on the same basis that our management reviews financial information for operational decision-making purposes. Factors used to identify reportable operating segments include the nature of the products and services provided by each business, the management reporting structure, the similarity of economic characteristics and certain quantitative measures, as prescribed by authoritative accounting guidance.
Effective June 1, 2021, we reorganized the management structure of our Pressure Cylinders business to better align around its end markets. As a result, these operations have been redefined under three new reportable operating segments: Consumer Products, Building Products and Sustainable Energy Solutions. These new reportable segments are in addition to our Steel Processing operating segment. Concurrent with the change in reportable operating segments, we revised our prior period financial information to reflect comparable information for the new segment structure. A discussion of each of these new reportable operating segments is included below:
25
|
Reportable Segments |
Description |
|
Consumer Products |
The Consumer Products reportable segment is comprised of brands that offer market-leading products in the tools, outdoor living and celebrations end markets with brands that include Coleman®, Bernzomatic®, Balloon Time®, Mag Torch®, General®, Garden-Weasel®, Pactool International®, Hawkeye™ and Worthington Pro Grade™. This market sector includes propane-filled cylinders for torches, camping stoves and other applications, certain propane gas (LPG) cylinders, hand-held torches, Balloon Time® helium-filled balloon kits, and specialized hand tools and instruments. These products are sold primarily to mass merchandisers, retailers and distributors. LPG cylinders, which hold fuel for barbeque grills and recreational vehicle equipment, are also sold through cylinder exchangers. |
|
Building Products |
The Building Products reportable segment includes refrigerant and LPG cylinders, well water and expansion tanks, and other specialty products. Cylinders in this market sector are generally sold to gas producers, and distributors. Refrigerant gas cylinders are used to hold refrigerant gases for commercial, residential, and automotive air conditioning and refrigeration systems. LPG cylinders hold fuel for residential and light commercial heating systems, industrial forklifts and commercial/residential cooking (the latter, generally outside North America). Well water tanks and expansion tanks are used in the residential market with the latter also sold into commercial markets. Specialty products include a variety of fire suppression and chemical tanks. |
|
Sustainable Energy Solutions |
The Sustainable Energy Solutions reportable segment, which is primarily based in Europe, includes on-board fueling systems and services, as well as gas containment solutions and services for storage, transport and distribution of industrial gases. It includes high pressure and acetylene cylinders for life support cylinders and alternative fuel cylinders used to hold compressed natural gas (CNG) and hydrogen for automobiles, buses, and light-duty trucks. |
|
Other |
Divested businesses historically reported within Pressure Cylinders but no longer included in the Company’s management structure are presented within the "Other" category, on a historical basis, through the date of disposal. For the periods presented, these include the following: Structural Composites Industries, LLC (until March 2021); Oil & Gas Equipment (until January 2021); and Cryogenic Storage and Cryo-Science (until October 2020). The Other category also includes the results of our former Engineered Cabs operating segment, on a historical basis, through the date of disposition (November 1, 2019) as well as certain income and expense items not allocated to our operating segments. |
As of February 28, 2022, we held equity positions in nine joint ventures. Four of these joint ventures are consolidated within the Steel Processing segment with the equity owned by the other joint venture member(s) shown as noncontrolling interests in our consolidated balance sheets, and their portions of net earnings and other comprehensive income shown as net earnings or comprehensive income attributable to noncontrolling interests in our consolidated statements of earnings and consolidated statements of comprehensive income, respectively. The remaining five of our joint ventures are accounted for using the equity method.
Recent Business Developments
|
|
• |
On June 8, 2021, the Company acquired certain assets of the Shiloh Industries’ U.S. BlankLight® business (“Shiloh”), a provider of laser welded solutions, for approximately $104.8 million, subject to closing adjustments. The acquisition included three facilities that will expand the capacity and capabilities of TWB’s laser welded products business and an additional blanking facility that will support the Company’s core Steel Processing operations. |
|
|
• |
On June 9, 2021, the Company’s consolidated joint venture, WSP, sold the remaining assets of its Canton, Michigan, facility for approximately $20 million, resulting in a pre-tax gain of $12.2 million within restructuring and other income, net. WSP continues to operate locations in Jackson and Taylor, Michigan. |
|
|
• |
On August 20, 2021, the Company amended and restated its existing multi-year, revolving credit facility, extending the final maturity to August 20, 2026. The aggregate commitments available under the amended and restated revolving credit facility remained at $500 million. |
|
|
• |
On December 1, 2021, the Company acquired all of the issued and outstanding capital stock of Tempel Steel Company (“Tempel”), a leading global manufacturer of precision motor and transformer laminations for the electrical steel market. The purchase price consisted of cash consideration of approximately $272.5 million, after adjustments for estimated excess working capital and closing cash, plus the assumption of certain long-term liabilities. The purchase price is subject to post-closing adjustments and was funded primarily with existing cash and some borrowing from our line of credit. Tempel, which will |
26
|
|
operate as part of the Company’s Steel Processing business segment, employs approximately 1,500 people, and is headquartered in Chicago, Illinois, with additional manufacturing locations in Burlington, Canada, Changzhou, China, Chennai, India and Monterrey, Mexico. |
|
|
• |
During the first nine months of fiscal 2022, the Company repurchased a total of 2,235,000 of its common shares for $127.8 million, at an average purchase price of $57.20. |
|
|
• |
On March 22, 2022, the Worthington Industries Inc. Board of Directors (the “Worthington Industries Board”) declared a quarterly dividend of $0.28 per share payable on June 29, 2022, to shareholders of record on June 15, 2022. |
27
Market & Industry Overview
We sell our products and services to a diverse customer base and a broad range of end markets. The breakdown of net sales by end market for the third quarter of each of fiscal 2022 and fiscal 2021 is illustrated in the following chart:
The automotive industry is one of the largest consumers of flat-rolled steel, and thus the largest end market for our Steel Processing operating segment. Approximately 49% of Steel Processing’s net sales are to the automotive market. North American vehicle production, primarily by Ford, General Motors and Stellantis (the “Detroit Three automakers”), has a considerable impact on the activity within this operating segment. The majority of the net sales of two of our unconsolidated joint ventures, Serviacero Worthington and ArtiFlex, are also to the automotive market.
Approximately 16% of the net sales of our Steel Processing operating segment are to the construction market. The construction market is also the predominant end market for two of our unconsolidated joint ventures: WAVE and ClarkDietrich. While the market price of steel significantly impacts these businesses, there are other key indicators that are meaningful in analyzing construction market demand, including U.S. gross domestic product (“GDP”), the Dodge Index of construction contracts and, in the case of ClarkDietrich, trends in the relative price of framing lumber and steel.
Substantially all of the net sales of our Consumer Products, Building Products, and Sustainable Energy Solutions operating segments, and approximately 35% of the net sales of our Steel Processing operating segment, are to other markets such as agricultural, appliance, consumer products, heavy truck, industrial products, lawn and garden, and sustainable energy. Given the many different products that make up these net sales and the wide variety of end markets, it is very difficult to detail the key market indicators that drive these portions of our business. However, we believe that the trend in U.S. GDP growth is a good economic indicator for analyzing the demand of these end markets.
We use the following information to monitor our costs and demand in our major end markets:
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||||||||||
|
|
|
February 28, |
|
|
February 28, |
|
||||||||||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
Inc / (Dec) |
|
|
2022 |
|
|
2021 |
|
|
Inc / (Dec) |
|
||||||
|
U.S. GDP (% growth (decline) year-over-year) 1 |
|
|
5.4 |
% |
|
|
(0.4 |
%) |
|
|
5.8 |
% |
|
|
6.9 |
% |
|
|
(2.4 |
%) |
|
|
9.3 |
% |
|
Hot-Rolled Steel ($ per ton) 2 |
|
$ |
1,421 |
|
|
$ |
1,016 |
|
|
$ |
405 |
|
|
$ |
1,690 |
|
|
$ |
705 |
|
|
$ |
985 |
|
|
Detroit Three Auto Build (000's vehicles) 3 |
|
|
1,522 |
|
|
|
1,602 |
|
|
|
(80 |
) |
|
|
4,378 |
|
|
|
5,320 |
|
|
|
(942 |
) |
|
No. America Auto Build (000's vehicles) 3 |
|
|
3,215 |
|
|
|
3,502 |
|
|
|
(287 |
) |
|
|
9,628 |
|
|
|
11,336 |
|
|
|
(1,708 |
) |
|
Zinc ($ per pound) 4 |
|
$ |
1.60 |
|
|
$ |
1.23 |
|
|
$ |
0.37 |
|
|
$ |
1.47 |
|
|
$ |
1.10 |
|
|
$ |
0.37 |
|
|
Natural Gas ($ per mcf) 5 |
|
$ |
4.18 |
|
|
$ |
2.65 |
|
|
$ |
1.53 |
|
|
$ |
4.37 |
|
|
$ |
2.40 |
|
|
$ |
1.97 |
|
|
On-Highway Diesel Fuel Prices ($ per gallon) 6 |
|
$ |
3.68 |
|
|
$ |
2.70 |
|
|
$ |
0.98 |
|
|
$ |
3.53 |
|
|
$ |
2.51 |
|
|
$ |
1.02 |
|
|
1 |
2021 figures based on revised actuals 2CRU Hot-Rolled Index; period average 3IHS Global 4LME Zinc; period average 5NYMEX Henry Hub Natural Gas; period average 6Energy Information Administration; period average |
28
U.S. GDP growth rate trends are generally indicative of the strength in demand and, in many cases, pricing for our products. A year-over-year increase in U.S. GDP growth rates is indicative of a stronger economy, which generally increases demand and pricing for our products. Conversely, decreasing U.S. GDP growth rates generally indicate a weaker economy. Changes in U.S. GDP growth rates can also signal changes in conversion costs related to production and in selling, general and administrative expense.
The market price of hot-rolled steel is one of the most significant factors impacting our selling prices and operating results. When steel prices fall, we typically have higher-priced material flowing through cost of goods sold, while selling prices compress to what the market will bear, negatively impacting our results. On the other hand, in a rising price environment, our results are generally favorably impacted, as lower-priced material purchased in previous periods flows through cost of goods sold, while our selling prices increase at a faster pace to cover current replacement costs. Based on the recent decline in steel prices, we expect to have meaningful inventory holding losses in the fourth quarter of fiscal 2022.
The following table presents the average quarterly market price per ton of hot-rolled steel during fiscal 2022 (first and second quarters), fiscal 2021:
|
|
|
Fiscal Year |
|
|||||||||
|
(Dollars per ton 1 ) |
|
2022 |
|
|
2021 |
|
|
2020 |
|
|||
|
1st Quarter |
|
$ |
1,762 |
|
|
$ |
475 |
|
|
$ |
564 |
|
|
2nd Quarter |
|
$ |
1,888 |
|
|
$ |
625 |
|
|
$ |
526 |
|
|
3rd Quarter |
|
$ |
1,421 |
|
|
$ |
1,016 |
|
|
$ |
571 |
|
|
4th Quarter |
|
N/A |
|
|
$ |
1,358 |
|
|
$ |
527 |
|
|
|
Annual Avg. |
|
$ |
1,690 |
|
|
$ |
869 |
|
|
$ |
547 |
|
|
|
1 |
CRU Hot-Rolled Index; period average |
Sales to one Steel Processing customer in the automotive industry represented 12.7% and 11.0% of consolidated net sales during the third quarter of fiscal 2022 and fiscal 2021, respectively. While our automotive business is largely driven by the production schedules of the Detroit Three automakers, our customer base is much broader and includes other domestic manufacturers and many of their suppliers. During the third quarter of fiscal 2022, vehicle production for the Detroit Three automakers was down 5% from the third quarter of fiscal 2021, while North American vehicle production as a whole was down 8%.
Certain other commodities, such as zinc, natural gas and diesel fuel, represent a significant portion of our cost of goods sold, both directly through our plant operations and indirectly through transportation and freight expense.
Results of Operations
Third Quarter – Fiscal 2022 Compared to Fiscal 2021
The following discussion provides a review of results for the three months ended February 28, 2022 and 2021.
|
|
Three Months Ended |
|
|||||||||
|
|
February 28, |
|
|||||||||
|
(in millions, except per share amounts) |
2022 |
|
|
2021 |
|
|
Increase/ (Decrease) |
|
|||
|
Net sales |
$ |
1,378.2 |
|
|
$ |
759.1 |
|
|
$ |
619.1 |
|
|
Operating income |
|
37.6 |
|
|
|
49.8 |
|
|
|
(12.2 |
) |
|
Equity income |
|
47.5 |
|
|
|
31.7 |
|
|
|
15.8 |
|
|
Net earnings attributable to controlling interest |
|
56.3 |
|
|
|
67.6 |
|
|
|
(11.3 |
) |
|
Earnings per diluted share attributable to controlling interest |
|
1.11 |
|
|
|
1.27 |
|
|
|
(0.16 |
) |
29
Net Sales and Volume
The following table provides a breakdown of consolidated net sales by reportable operating segment, along with the respective percentage of the total of each, for the three months ended February 28, 2022 and 2021.
|
|
Three Months Ended |
|
|
|||||||||||||||||
|
|
February 28, |
|
|
|||||||||||||||||
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
Increase/ |
|
|
|||
|
(in millions) |
2022 |
|
|
Net sales |
|
|
2021 |
|
|
Net sales |
|
|
(Decrease) |
|
|
|||||
|
Steel Processing |
$ |
1,052.6 |
|
|
|
76.4 |
% |
|
$ |
504.5 |
|
|
|
66.5 |
% |
|
$ |
548.1 |
|
|
|
Consumer Products |
|
161.7 |
|
|
|
11.7 |
% |
|
|
115.1 |
|
|
|
15.2 |
% |
|
|
46.6 |
|
|
|
Building Products |
|
132.9 |
|
|
|
9.6 |
% |
|
|
96.3 |
|
|
|
12.7 |
% |
|
|
36.6 |
|
|
|
Sustainable Energy Solutions |
|
31.0 |
|
|
|
2.2 |
% |
|
|
32.1 |
|
|
|
4.2 |
% |
|
|
(1.1 |
) |
|
|
Other |
|
- |
|
|
|
0.0 |
% |
|
|
11.1 |
|
|
|
1.5 |
% |
|
|
(11.1 |
) |
|
|
Consolidated Net Sales |
$ |
1,378.2 |
|
|
|
100.0 |
% |
|
$ |
759.1 |
|
|
|
100.0 |
% |
|
$ |
619.1 |
|
|
The following table provides volume by reportable operating segment for the three months ended February 28, 2022 and 2021.
|
|
Three Months Ended |
|
|||||||||
|
|
February 28, |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
|
|
|
2022 |
|
|
2021 |
|
|
(Decrease) |
|
|||
|
Steel Processing (Tons) |
|
998,590 |
|
|
|
1,014,873 |
|
|
|
(16,283 |
) |
|
Consumer Products (Units) |
|
20,297,372 |
|
|
|
17,659,834 |
|
|
|
2,637,538 |
|
|
Building Products (Units) |
|
2,786,560 |
|
|
|
2,805,408 |
|
|
|
(18,848 |
) |
|
Sustainable Energy Solutions (Units) |
|
144,108 |
|
|
|
207,698 |
|
|
|
(63,590 |
) |
|
Other (Units) |
|
- |
|
|
|
10,530 |
|
|
|
(10,530 |
) |
|
|
• |
Steel Processing – Net sales more than doubled over the prior year quarter to $1,052.6 million. The increase in net sales was driven by higher average selling prices and, to a lesser extent, the impact of acquisitions completed in fiscal 2022. Overall volumes were down as automotive demand remained depressed due to COVID-19 related production issues and the on-going semi-conductor chip shortage. |
|
|
• |
Consumer Products – Net sales increased 41%, or $46.6 million, over the prior year quarter. The increase was driven primarily by higher average selling prices and, to a lesser extent, higher volume, which benefited from the inclusion of General Tools & Instruments Company LLC (“GTI”) for the full quarter. |
|
|
• |
Building Products – Net sales increased 38%, or $36.6 million, over the prior year quarter. The increase was driven by higher average selling prices. |
|
|
• |
Sustainable Energy Solutions – Net sales decreased $1.1 million, or 3%, from the prior year quarter. The decrease was driven by lower volume, which was negatively impacted by the May 31, 2021 divestiture of the Liquified Petroleum Gas (“LPG”) business in Poland, as well as the ongoing semi-conductor chip shortage. |
Gross Margin
|
|
Three Months Ended |
|
|||||||||||||||||
|
|
February 28, |
|
|||||||||||||||||
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
Increase/ |
|
|||
|
(in millions) |
2022 |
|
|
Net sales |
|
|
2021 |
|
|
Net sales |
|
|
(Decrease) |
|
|||||
|
Gross Margin |
$ |
143.1 |
|
|
|
10.4 |
% |
|
$ |
164.1 |
|
|
|
21.6 |
% |
|
$ |
(21.0 |
) |
|
|
• |
Gross margin decreased $21.0 million from the prior year quarter to $143.1 million, primarily due to the $56.0 million unfavorable swing from inventory holding gains in the prior year quarter to inventory holding losses in the current quarter in Steel Processing. This was partially offset by improvements in both the Consumer and Building Products businesses. |
30
Selling, General and Administrative Expense
|
|
Three Months Ended |
|
|||||||||||||||||
|
|
February 28, |
|
|||||||||||||||||
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
Increase/ |
|
|||
|
(in millions) |
2022 |
|
|
Net sales |
|
|
2021 |
|
|
Net sales |
|
|
(Decrease) |
|
|||||
|
Selling, general and administrative expense |
$ |
102.9 |
|
|
|
7.5 |
% |
|
$ |
86.9 |
|
|
|
11.4 |
% |
|
$ |
16.0 |
|
|
|
• |
SG&A expense increased $16.0 million over the prior year quarter due primarily to the impact of acquisitions. |
Other Operating Costs
|
|
Three Months Ended |
|
|||||||||
|
|
February 28, |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
|
|
(in millions) |
2022 |
|
|
2021 |
|
|
(Decrease) |
|
|||
|
Impairment of long-lived assets |
$ |
3.1 |
|
|
$ |
- |
|
|
$ |
3.1 |
|
|
Restructuring and other (income) expense, net |
|
(0.5 |
) |
|
|
28.2 |
|
|
|
(28.7 |
) |
|
Incremental expenses related to Nikola gains |
|
- |
|
|
|
(0.8 |
) |
|
|
0.8 |
|
|
|
• |
Impairment of long-lived assets totaled $3.1 million for the current period, due to charges within our consolidated Samuel joint venture to write down certain production equipment at the Twinsburg, Ohio, facility that was determined to be below fair market value. There were no impairment charges recorded in the third quarter of fiscal 2021. |
|
|
• |
Restructuring activity during the three months ended February 28, 2022 related primarily to a $0.7 million gain recognized on the sale of our Wooster, Ohio facility. Restructuring activity in the prior year quarter primarily resulted from a pre-tax loss within the historical Pressure Cylinders segment in connection with the sale of the former oil & gas equipment business. |
|
|
• |
Incremental expenses related to Nikola gains of $0.8 million in the prior year quarter consisted of a net reduction in accrued discretionary profit sharing and bonus expenses related to the Company’s investment in Nikola. |
Equity Income
|
|
Three Months Ended |
|
|||||||||
|
|
February 28, |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
|
|
(in millions) |
2022 |
|
|
2021 |
|
|
(Decrease) |
|
|||
|
WAVE |
$ |
18.6 |
|
|
$ |
19.5 |
|
|
$ |
(0.9 |
) |
|
ClarkDietrich |
|
21.4 |
|
|
|
5.9 |
|
|
|
15.5 |
|
|
Serviacero Worthington |
|
4.7 |
|
|
|
4.2 |
|
|
|
0.5 |
|
|
ArtiFlex |
|
1.8 |
|
|
|
1.7 |
|
|
|
0.1 |
|
|
Cabs |
|
1.0 |
|
|
|
0.4 |
|
|
|
0.6 |
|
|
Total Equity Income |
$ |
47.5 |
|
|
$ |
31.7 |
|
|
$ |
15.8 |
|
|
|
• |
Equity income increased $15.8 million over the prior year quarter to $47.5 million, due to higher contributions from ClarkDietrich, where results benefited from significantly higher average selling prices. The Company received cash distributions of $28.9 million from unconsolidated joint ventures during the current quarter. |
31
Other Income
|
|
Three Months Ended |
|
|||||||||
|
|
February 28, |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
|
|
(in millions) |
2022 |
|
|
2021 |
|
|
(Decrease) |
|
|||
|
Miscellaneous income, net |
$ |
0.4 |
|
|
$ |
0.5 |
|
|
$ |
(0.1 |
) |
|
Gain on investment in Nikola |
|
- |
|
|
|
2.7 |
|
|
|
(2.7 |
) |
|
|
• |
During the prior year quarter, the Company recognized a pre-tax gain of $2.7 million resulting from the sale of our remaining 7,048,020 shares of Nikola common stock. For additional information, refer to “NOTE D” – Investment in Nikola.” |
Adjusted EBIT
We evaluate segment performance based on adjusted earnings before interest and taxes (“adjusted EBIT”). In general, adjusted EBIT excludes impairment and restructuring charges (gains), but may also exclude other items that management believes are not reflective of, and thus should not be included when evaluating, the performance of the Company’s ongoing operations. Adjusted EBIT is a non-GAAP measure and is used by management to evaluate segment performance, engage in financial and operational planning and determine incentive compensation because we believe that this measure provides additional perspective and, in some circumstances is more closely correlated to, the performance of the Company’s ongoing operations. Refer to “NOTE P – Segment Operations” for additional information regarding our reportable operating segments.
The following table provides a reconciliation of consolidated net earnings attributable to controlling interest to adjusted EBIT for the periods presented:
|
|
Three Months Ended |
|
|||||
|
|
February 28, |
|
|||||
|
(in millions) |
2022 |
|
|
2021 |
|
||
|
Net earnings attributable to controlling interest |
$ |
56.3 |
|
|
$ |
67.6 |
|
|
Interest expense |
|
8.1 |
|
|
|
7.6 |
|
|
Income tax expense |
|
18.7 |
|
|
|
4.5 |
|
|
Earnings before interest and taxes |
$ |
83.1 |
|
|
$ |
79.7 |
|
|
Impairment of long-lived assets (1) |
|
2.0 |
|
|
|
- |
|
|
Restructuring and other (income) expense, net (1) |
|
(0.5 |
) |
|
|
28.2 |
|
|
Incremental expenses related to Nikola gains |
|
- |
|
|
|
(0.8 |
) |
|
Gain on investment in Nikola |
|
- |
|
|
|
(2.7 |
) |
|
Adjusted earnings before interest and taxes (1) |
$ |
84.6 |
|
|
$ |
104.4 |
|
|
(1) Excludes the impact of the noncontrolling interests. |
|
||||||
The following table provides a summary of adjusted EBIT by segment for the periods presented.
|
|
Three Months Ended |
|
|||||||||
|
|
February 28, |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
|
|
(in millions) |
2022 |
|
|
2021 |
|
|
(Decrease) |
|
|||
|
Steel Processing |
$ |
7.1 |
|
|
$ |
61.8 |
|
|
$ |
(54.7 |
) |
|
Consumer Products |
|
26.7 |
|
|
|
14.6 |
|
|
|
12.1 |
|
|
Building Products |
|
49.6 |
|
|
|
27.3 |
|
|
|
22.3 |
|
|
Sustainable Energy Solutions |
|
(2.8 |
) |
|
|
0.1 |
|
|
|
(2.9 |
) |
|
Other |
|
4.0 |
|
|
|
0.5 |
|
|
|
3.5 |
|
|
Total Adjusted EBIT |
$ |
84.6 |
|
|
$ |
104.3 |
|
|
$ |
(19.7 |
) |
|
|
• |
Steel Processing – Adjusted EBIT was down $54.7 million over the prior year quarter to $7.1 million due to inventory holding losses, estimated to be $24.9 million in the current quarter compared to inventory holding gains of $31.1 million in the prior |
32
|
|
year quarter. Current quarter inventory losses included a pre-tax charge of $15.7 million to write inventory down to net realizable value. Equity earnings at Serviacero of $4.7 million were up slightly over the prior year quarter on improved spreads. The mix of direct tons versus toll tons processed was 51% to 49% in the current quarter, compared to 48% to 52% in the prior year quarter. |
|
|
• |
Consumer Products – Adjusted EBIT was up $12.1 million over the prior year quarter to $26.7 million on the combined impact of higher average selling prices and higher volume, which were partially offset by higher wages. |
|
|
• |
Building Products – Adjusted EBIT of $49.6 million was $22.3 million more than the prior quarter, due to higher equity earnings at ClarkDietrich, up $15.5 million, and an increase in operating income, up $7.9 million on the favorable impact of higher average selling prices, partially offset by higher wages and freight costs. |
|
|
• |
Sustainable Energy Solutions – Adjusted EBIT was a loss of $2.8 million compared to income of $0.1 million in the prior year quarter, as the combined impact of higher production costs and unfavorable mix more than offset the favorable impact of higher average selling prices. Both volume and mix in the current quarter were negatively impacted by the ongoing semi-conductor chip shortage. This business continues to evolve as it transitions to serve the global hydrogen ecosystem and adjacent sustainable energies. |
Interest Expense
|
|
Three Months Ended |
|
|||||||||
|
|
February 28, |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
|
|
(in millions) |
2022 |
|
|
2021 |
|
|
(Decrease) |
|
|||
|
Interest Expense |
$ |
8.1 |
|
|
$ |
7.6 |
|
|
$ |
0.5 |
|
|
|
• |
Interest expense was $8.1 million in the current quarter, up $0.5 million from the prior year quarter due to the impact of higher average debt levels resulting from borrowings under the Company’s revolving credit facility. |
Income Taxes
|
|
Three Months Ended |
|
|||||||||||||||||
|
|
February 28, |
|
|||||||||||||||||
|
(in millions) |
2022 |
|
|
Effective Tax Rate |
|
|
2021 |
|
|
Effective Tax Rate |
|
|
Increase/ (Decrease) |
|
|||||
|
Income tax expense |
$ |
18.7 |
|
|
|
23.2 |
% |
|
$ |
4.5 |
|
|
|
20.1 |
% |
|
$ |
14.2 |
|
|
|
• |
Income tax expense was $18.7 million in the current quarter compared to income tax expense of $4.5 million in the prior year quarter. The change was driven by the impact of a $19.7 million discrete tax benefit realized in connection with the sale of the oil & gas equipment business in the prior year quarter, combined with lower core pre-tax earnings in the current quarter. Tax expense in the current quarter reflected an estimated annual effective rate of 23.2% compared to 20.1% for the prior year quarter. For additional information regarding the Company’s income taxes, refer to “NOTE N – Income Taxes”. |
Nine Months Year-to-date – Fiscal 2022 Compared to Fiscal 2021
The following discussion provides a review of results for the nine months ended February 28, 2022 and 2021.
|
|
Nine Months Ended |
|
|||||||||
|
|
February 28, |
|
|||||||||
|
(in millions, except per share amounts) |
2022 |
|
|
2021 |
|
|
Increase/ (Decrease) |
|
|||
|
Net sales |
$ |
3,721.9 |
|
|
$ |
2,193.1 |
|
|
$ |
1,528.8 |
|
|
Operating income |
|
263.9 |
|
|
|
57.0 |
|
|
|
206.9 |
|
|
Equity income |
|
160.6 |
|
|
|
80.9 |
|
|
|
79.7 |
|
|
Net earnings attributable to controlling interest |
|
299.1 |
|
|
|
610.2 |
|
|
|
(311.1 |
) |
|
Earnings per diluted share attributable to controlling interest |
|
5.83 |
|
|
|
11.28 |
|
|
|
(5.45 |
) |
33
Net Sales and Volume
The following table provides a breakdown of consolidated net sales by reportable operating segment, along with the respective percentage of the total of each, for the nine months ended February 28, 2022 and 2021.
|
|
Nine Months Ended |
|
|||||||||||||||||||
|
|
February 28, |
|
|||||||||||||||||||
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
|
% of |
|
|
Increase/ |
|
|||
|
(in millions) |
2022 |
|
|
Net sales |
|
|
2021 |
|
|
|
|
Net sales |
|
|
(Decrease) |
|
|||||
|
Steel Processing |
$ |
2,813.2 |
|
|
|
75.6 |
% |
|
$ |
1,404.2 |
|
|
|
|
|
64.0 |
% |
|
$ |
1,409.0 |
|
|
Consumer Products |
|
450.3 |
|
|
|
12.1 |
% |
|
|
366.2 |
|
|
|
|
|
16.7 |
% |
|
|
84.1 |
|
|
Building Products |
|
368.8 |
|
|
|
9.9 |
% |
|
|
278.3 |
|
|
|
|
|
12.7 |
% |
|
|
90.5 |
|
|
Sustainable Energy Solutions |
|
89.6 |
|
|
|
2.4 |
% |
|
|
94.0 |
|
|
|
|
|
4.3 |
% |
|
|
(4.4 |
) |
|
Other |
|
- |
|
|
|
0.0 |
% |
|
|
50.4 |
|
|
|
|
|
2.3 |
% |
|
|
(50.4 |
) |
|
Consolidated Net Sales |
$ |
3,721.9 |
|
|
|
100.0 |
% |
|
$ |
2,193.1 |
|
|
|
|
|
100.0 |
% |
|
$ |
1,528.8 |
|
The following table provides consolidated volume by reportable operating segment for the nine months ended February 28, 2022 and 2021
|
|
Nine Months Ended |
|
|||||||||
|
|
February 28, |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
|
|
|
2022 |
|
|
2021 |
|
|
(Decrease) |
|
|||
|
Steel Processing (Tons) |
|
3,128,466 |
|
|
|
2,967,296 |
|
|
|
161,170 |
|
|
Consumer Products (Units) |
|
60,384,101 |
|
|
|
53,138,211 |
|
|
|
7,245,890 |
|
|
Building Products (Units) |
|
8,237,296 |
|
|
|
7,792,019 |
|
|
|
445,277 |
|
|
Sustainable Energy Solutions (Units) |
|
429,785 |
|
|
|
644,895 |
|
|
|
(215,110 |
) |
|
Other (Units) |
|
- |
|
|
|
32,157 |
|
|
|
(32,157 |
) |
|
|
• |
Steel Processing – Net sales increased $1.4 billion over the prior year period to $2,8 billion. The increase was driven by higher average selling prices, and, to a lesser extent, the impact of acquisitions completed in fiscal 2022. |
|
|
• |
Consumer Products – Net sales increased 23%, or $84.1 million, over the prior year period. The increase was driven by higher average selling prices and higher volume driven largely by the acquisition of GTI in the third quarter of fiscal 2021. |
|
|
• |
Building Products – Net sales increased 33%, or $90.5 million, over the prior year period. The increase was driven by higher average selling prices and to a lesser extent higher volume, which were at depressed levels in the prior year period due to the COVID-19 pandemic. |
|
|
• |
Sustainable Energy Solutions – Net sales decreased $4.4 million, or 5%, from the prior year period. The decrease was driven primarily by lower volume, which was negatively impacted by the May 31, 2021 divestiture of the LPG business in Poland as well as the ongoing semi-conductor chip shortage. |
Gross Margin
|
|
Nine Months Ended |
|
|||||||||||||||||
|
|
February 28, |
|
|||||||||||||||||
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
Increase/ |
|
|||
|
(in millions) |
2022 |
|
|
Net sales |
|
|
2021 |
|
|
Net sales |
|
|
(Decrease) |
|
|||||
|
Gross Margin |
$ |
547.1 |
|
|
|
14.7 |
% |
|
$ |
412.9 |
|
|
|
18.8 |
% |
|
$ |
134.2 |
|
|
|
• |
Gross margin increased $134.2 million over the prior year period to $547.1 million. The improvement over the prior year period was primarily due to higher direct spreads in Steel Processing, and to a lesser extent, the impact of acquisitions and |
34
|
|
higher average selling prices in Building Products. The decrease in gross margin as a percent of net sales was due to lower contributions from Steel Processing due to the impact of higher overall steel prices. |
Selling, General and Administrative Expense
|
|
Nine Months Ended |
|
|||||||||||||||||
|
|
February 28, |
|
|||||||||||||||||
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
Increase/ |
|
|||
|
(in millions) |
2022 |
|
|
Net sales |
|
|
2021 |
|
|
Net sales |
|
|
(Decrease) |
|
|||||
|
Selling, general and administrative expense |
$ |
294.9 |
|
|
|
7.9 |
% |
|
$ |
251.2 |
|
|
|
11.5 |
% |
|
$ |
43.7 |
|
|
|
• |
SG&A expense increased $43.7 million over the prior year period. The increase was driven primarily by the impact of acquisitions and higher profit sharing and bonus expense to correspond with the increase in operating income over the prior year period. |
Other Operating Costs
|
|
Nine Months Ended |
|
|||||||||
|
|
February 28, |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
|
|
(in millions) |
2022 |
|
|
2021 |
|
|
(Decrease) |
|
|||
|
Impairment of long-lived assets |
$ |
3.1 |
|
|
$ |
13.7 |
|
|
$ |
(10.6 |
) |
|
Restructuring and other (income) expense, net |
|
(14.8 |
) |
|
|
37.7 |
|
|
|
(52.5 |
) |
|
Incremental expenses related to Nikola gains |
|
- |
|
|
|
53.3 |
|
|
|
(53.3 |
) |
|
|
• |
Impairment of long-lived assets totaled $3.1 million for the current period, due to charges within our consolidated Samuel joint venture to write down certain production equipment at the Twinsburg, Ohio, facility that was determined to be below fair market value. Impairment charges in the prior year period related primarily to charges in our historical Pressure Cylinders segment of $8.0 million to write-down certain assets in the cryogenics business and $3.8 million to write-down certain assets in the oil & gas business. |
|
|
• |
Restructuring activity during the nine months ended February 28, 2022, related primarily to the divestiture of the WSP joint venture’s facility in Canton, Michigan, which generated a pre-tax gain of $12.2 million and our exit from the former Engineered Cabs facility located in Stow, Ohio, which generated a pre-tax gain of $1.8 million. Restructuring activity in the prior year period consisted primarily of losses from the sale of the Company’s former cryogenics and oil & gas equipment businesses. |
|
|
• |
Incremental expenses related to Nikola gains of $53.3 million consisted of $32.7 million of discretionary profit sharing and bonus expenses directly related to the Nikola gains and $20.6 million for the contribution of 500,000 shares of Nikola common stock to the Worthington Industries Foundation. |
Equity Income
|
|
Nine Months Ended |
|
|||||||||
|
|
February 28, |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
|
|
(in millions) |
2022 |
|
|
2021 |
|
|
(Decrease) |
|
|||
|
WAVE |
$ |
66.7 |
|
|
$ |
54.4 |
|
|
$ |
12.3 |
|
|
ClarkDietrich |
|
66.2 |
|
|
|
16.2 |
|
|
|
50.0 |
|
|
Serviacero Worthington |
|
22.9 |
|
|
|
7.4 |
|
|
|
15.5 |
|
|
ArtiFlex |
|
4.8 |
|
|
|
2.9 |
|
|
|
1.9 |
|
|
Total Equity Income |
$ |
160.6 |
|
|
$ |
80.9 |
|
|
$ |
79.7 |
|
|
|
• |
Equity income increased $79.7 million over the prior year period to $160.6 million. The increase was driven by higher contributions from ClarkDietrich, WAVE, and Serviacero Worthington, up a combined $77.8 million on strong volume and the favorable impact of higher average steel prices. The Company received cash distributions of $77.5 million from unconsolidated joint ventures during the current year period. |
35
Other Income
|
|
Nine Months Ended |
|
|||||||||
|
|
February 28, |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
|
|
(in millions) |
2022 |
|
|
2021 |
|
|
(Decrease) |
|
|||
|
Miscellaneous income, net |
$ |
2.1 |
|
|
$ |
1.4 |
|
|
$ |
0.7 |
|
|
Gains on investment in Nikola |
|
- |
|
|
|
655.1 |
|
|
|
(655.1 |
) |
|
|
• |
Gains on investment in Nikola totaled $655.1 million and consisted of $508.5 million of realized gains from the sale and charitable contribution of the Company’s Nikola shares in the first quarter of fiscal 2021 combined with a $146.6 million realized gain from the sale of our remaining 7,048,020 shares of Nikola common stock in the third quarter of fiscal 2021. For additional information, refer to “NOTE D – Investment in Nikola”. |
Adjusted EBIT
The following table provides a reconciliation of consolidated net earnings attributable to controlling interest to adjusted EBIT for the periods presented:
|
|
Nine Months Ended |
|
|||||
|
|
February 28, |
|
|||||
|
(in millions) |
2022 |
|
|
2021 |
|
||
|
Net earnings attributable to controlling interest |
$ |
299.1 |
|
|
$ |
610.2 |
|
|
Interest expense |
|
23.2 |
|
|
|
22.7 |
|
|
Income tax expense |
|
90.1 |
|
|
|
148.8 |
|
|
Earnings before interest and taxes |
$ |
412.4 |
|
|
$ |
781.7 |
|
|
Impairment of long-lived assets (1) |
|
2.0 |
|
|
|
13.7 |
|
|
Restructuring and other (income) expense, net (1) |
|
(8.9 |
) |
|
|
37.6 |
|
|
Incremental expenses related to Nikola gains |
|
- |
|
|
|
53.3 |
|
|
Gains on investment in Nikola |
|
- |
|
|
|
(655.1 |
) |
|
Adjusted earnings before interest and taxes (1) |
$ |
405.5 |
|
|
$ |
231.2 |
|
|
(1) Excludes the impact of the noncontrolling interests. |
|
||||||
The following table provides a summary of adjusted EBIT by segment for the periods presented.
|
|
Nine Months Ended |
|
|||||||||
|
|
February 28, |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
|
|
(in millions) |
2022 |
|
|
2021 |
|
|
(Decrease) |
|
|||
|
Steel Processing |
$ |
186.7 |
|
|
$ |
110.3 |
|
|
$ |
76.4 |
|
|
Consumer Products |
|
64.8 |
|
|
|
55.9 |
|
|
|
8.9 |
|
|
Building Products |
|
153.0 |
|
|
|
76.7 |
|
|
|
76.3 |
|
|
Sustainable Energy Solutions |
|
(4.6 |
) |
|
|
1.1 |
|
|
|
(5.7 |
) |
|
Other |
|
5.6 |
|
|
|
(13.0 |
) |
|
|
18.6 |
|
|
Total Adjusted EBIT |
$ |
405.5 |
|
|
$ |
231.0 |
|
|
|
174.5 |
|
|
|
• |
Steel Processing – Adjusted EBIT was up $76.4 million over the prior year period to $186.7 million on improved operating results and a higher contribution of equity income from Serviacero Worthington, which was up $15.5 million due to the favorable impact of higher steel prices. The improvement in operating income was driven primarily by higher direct spreads, which benefited from higher inventory holding gains over the prior year period, up an estimated $39.7 million. The mix of direct tons versus toll tons processed was 49% to 51% in the current year period, compared to 49% to 51% in the prior year period. |
36
|
|
• |
Consumer Products – Adjusted EBIT was up $8.9 million over the prior year period to $64.8 million on improved volume and spread, slightly offset by higher manufacturing expenses. |
|
|
• |
Building Products – Adjusted EBIT of $153.0 million was $76.3 million more than the prior year period, due primarily to higher equity earnings at ClarkDietrich and WAVE, up a combined $62.2 million on strong volume and the favorable impact of higher steel prices. The remaining increase was due to higher operating income, up $15.6 million over the prior year, on the combined impact of higher volume and higher average selling prices, partially offset by an increase in labor and material costs. Volume in the prior year period had been at depressed levels due to the COVID-19 pandemic. |
|
|
• |
Sustainable Energy Solutions – Adjusted EBIT reflected a loss of $4.6 million, unfavorable by $5.7 million when compared to the prior year period, on the combined impact of lower volume, and an unfavorable product mix. Both volume and mix in the current period were negatively impacted by the ongoing semi-conductor chip shortage. Volume in the current period was also negatively impacted by the May 31, 2021, divestiture of the LPG business in Poland. |
Interest Expense
|
|
Nine Months Ended |
|
|||||||||
|
|
February 28, |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
|
|
(in millions) |
2022 |
|
|
2021 |
|
|
(Decrease) |
|
|||
|
Interest Expense |
$ |
23.2 |
|
|
$ |
22.7 |
|
|
$ |
0.5 |
|
|
|
• |
Interest expense was $23.2 million for the current year period, up $0.5 million from the prior year period due to the impact of higher average debt levels resulting from borrowings under the Company’s revolving credit facility. |
Income Taxes
|
|
Nine Months Ended |
|
|||||||||||||||||
|
|
February 28, |
|
|||||||||||||||||
|
(in millions) |
2022 |
|
|
Effective Tax Rate |
|
|
2021 |
|
|
Effective Tax Rate |
|
|
Increase/ (Decrease) |
|
|||||
|
Income tax expense |
$ |
90.1 |
|
|
|
23.2 |
% |
|
$ |
148.8 |
|
|
|
20.1 |
% |
|
$ |
(58.7 |
) |
|
|
• |
Income tax expense decreased $58.7 million from the comparable period in the prior year due to the impact of the Nikola gains and associated expenses in the prior year period, partially offset by higher core pre-tax earnings in the current year period and the impact of a $19.7 million discrete tax benefit realized in connection with the sale of the oil & gas equipment business in the prior year period. The current year period tax expense reflected an estimated annual effective income tax rate of 23.2% versus 20.1% in the prior year period. For additional information regarding the Company’s income taxes, refer to “NOTE N – Income Taxes”. |
37
Liquidity and Capital Resources
During the nine months ended February 28, 2022, we invested $71.8 million in property, plant and equipment, spent a combined $377.3 million on acquisitions and received $35.9 million in proceeds from assets sold. Additionally, Worthington Industries, Inc. acquired 2,235,000 of its common shares at a cost of $127.8 million and paid dividends of $43.4 million on Worthington Industries, Inc.’s common shares. The following table summarizes our consolidated cash flows for the periods presented:
|
|
Nine Months Ended |
|
|||||
|
|
February 28, |
|
|||||
|
(in millions) |
2022 |
|
|
2021 |
|
||
|
Net cash provided (used) by operating activities |
$ |
(94.7 |
) |
|
$ |
234.1 |
|
|
Net cash provided (used) by investing activities |
|
(413.2 |
) |
|
|
459.9 |
|
|
Net cash used by financing activities |
|
(88.1 |
) |
|
|
(191.7 |
) |
|
Increase (decrease) in cash and cash equivalents |
|
(596.0 |
) |
|
|
502.3 |
|
|
Cash and cash equivalents at beginning of period |
|
640.3 |
|
|
|
147.2 |
|
|
Cash and cash equivalents at end of period |
$ |
44.3 |
|
|
$ |
649.5 |
|
We believe that the available borrowing capacity of our committed line of credit is sufficient to meet the needs of our existing businesses for normal operating costs, mandatory capital expenditures, debt redemptions, dividend payments, and working capital, to the extent not funded by cash provided by operating activities.
Although we do not currently anticipate a need, we also believe that we could access the financial markets to be in a position to sell long-term debt or equity securities to strengthen our liquidity or capital resources. However, the COVID-19 pandemic, supply chain issues, labor shortages and other national and global economic conditions, could create uncertainty and volatility in the financial markets which may impact our ability to obtain such additional capital on terms acceptable to us, if at all, and such debt financing or additional equity could increase our interest cost and/or dilute the interests of our existing shareholders.
Operating Activities
Our business is cyclical and cash flows from operating activities may fluctuate during the year and from year to year due to economic and industry conditions. We rely on cash and short-term borrowings to meet cyclical increases in working capital needs. These needs generally rise during periods of increased economic activity or increasing raw material prices, requiring higher levels of inventory and accounts receivable. During economic slowdowns, or periods of decreasing raw material costs, working capital needs generally decrease as a result of the reduction of inventories and accounts receivable.
Net cash used by operating activities was $94.7 million during the nine months ended February 28, 2022, a difference of $328.8 million from the net cash provided by operating activities in the prior year period. This change was primarily due to a $374.6 million increase in operating working capital (accounts receivable, inventory, and accounts payable) requirements over the prior year-to-date period, mainly driven by higher average steel prices.
Investing Activities
Net cash used by investing activities was $413.2 million during the nine months ended February 28, 2022 compared to net cash provided by investing activities of $459.9 million in the prior year period. Net cash provided by investing activities in the prior year period resulted primarily from proceeds from the sale of Nikola shares which totaled $634.4 million. Net cash used by investing activities in the current year period resulted primarily from the purchase of certain assets of the Shiloh Industries’ U.S BlankLight ® business on June 8, 2021, for $104.8 million and Tempel Steel Company on December 1, 2021 for $272.5 million. Capital expenditures in the current year period totaled $71.8 million, an increase of $6.5 million from the prior year period.
Investment activities are largely discretionary, and future investment activities could be reduced significantly, or eliminated, as economic conditions warrant. We assess acquisition opportunities as they arise, and such opportunities may require additional financing. There can be no assurance, however, that any such opportunities will arise, that any such acquisition opportunities will be consummated, or that any needed additional financing will be available on satisfactory terms if required.
38
Financing Activities
Net cash used by financing activities was $88.1 million during the nine months ended February 28, 2022 compared to $191.7 million in the prior year period. During the nine months ended February 28, 2022, Worthington Industries, Inc. paid $127.8 million to repurchase 2,235,000 of Worthington Industries, Inc.’s common shares, paid dividends of $43.4 million on Worthington Industries, Inc.’s common shares, and borrowed $104.0 million under its revolving credit facility. During the nine months ended February 28, 2021, we paid $145.3 million to repurchase 3,318,464 of Worthington Industries, Inc.’s common shares and paid dividends of $40.0 million on Worthington Industries, Inc.’s common shares.
Long-term debt and short-term borrowings – As of February 28, 2022, we were in compliance with our short-term and long-term financial debt covenants. Our debt agreements do not include credit rating triggers or material adverse change provisions. Our credit ratings at February 28, 2022 were unchanged from those reported as of May 31, 2021. Borrowings outstanding under the Credit Facility totaled $104,000,000 at February 28, 2022, leaving $396,000,000 available for future use.
Common shares – On March 22, 2022, the Worthington Industries Board declared a quarterly dividend of $0.28 per common share payable on June 29, 2022, to shareholders of record on June 15, 2022.
On March 20, 2019, the Worthington Industries Board authorized the repurchase of up to 6,600,000 of Worthington Industries, Inc.’s outstanding common shares.
On March 24, 2021, the Worthington Industries Board authorized the repurchase of up to an additional 5,618,464 of Worthington Industries, Inc.’s common shares, increasing the total number of common shares then authorized for repurchase to 10,000,000. As of February 28, 2022, 7,065,000 common shares remained available for repurchase under these authorizations.
The common shares available for repurchase under the authorizations currently in effect may be repurchased from time to time with consideration given to the market price of the common shares, the nature of other investment opportunities, cash flows from operations, general economic conditions and other relevant considerations. Repurchases may be made on the open market or through privately negotiated transactions.
Dividend Policy
We currently have no material contractual or regulatory restrictions on the payment of dividends. Dividends are declared at the discretion of the Worthington Industries Board. The Worthington Industries Board reviews the dividend quarterly and establishes the dividend rate based upon our consolidated financial condition, results of operations, capital requirements, current and projected cash flows, business prospects, and other relevant factors. While we have paid a dividend every quarter since becoming a public company in 1968, there is no guarantee that payments will continue in the future.
Contractual Cash Obligations and Other Commercial Commitments
Our contractual cash obligations and other commercial commitments have not materially changed from those disclosed in “Part II – Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Contractual Cash Obligations and Other Commercial Commitments” of the Form 10-K.
Off-Balance Sheet Arrangements
We do not have guarantees or other off-balance sheet financing arrangements that we believe are reasonably likely to have a material current or future effect on our consolidated financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. We continually evaluate our estimates, including those related to our valuation of receivables, inventories, intangible assets, accrued liabilities, income and other tax accruals, contingencies and litigation, and business combinations. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. These results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Critical accounting policies are defined as those that reflect our significant judgments and uncertainties that could potentially result in materially different results under different assumptions and conditions. Although actual results historically have not deviated significantly from those determined using our estimates, our consolidated financial position or results of operations could be materially different if we were to report under different conditions or to use different assumptions in the application of such policies. Our critical accounting
39
policies have not significantly changed from those discussed in “Part II – Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” of the Form 10-K.
Item 3. – Quantitative and Qualitative Disclosures About Market Risk
Market risks have not materially changed from those disclosed in “Part II – Item 7A. – Quantitative and Qualitative Disclosures About Market Risk” of the Form 10-K.
Item 4. – Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures [as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)] that are designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Management, with the participation of our principal executive officer and our principal financial officer, performed an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q (the quarterly period ended February 28, 2022). Based on that evaluation, our principal executive officer and our principal financial officer have concluded that such disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period covered by this Quarterly Report on Form 10-Q.
Changes in Internal Control Over Financial Reporting
There were no changes that occurred during the period covered by this Quarterly Report on Form 10-Q (the quarterly period ended February 28, 2022) in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. – Legal Proceedings
Various legal actions, which generally have arisen in the ordinary course of business, are pending against the Company. None of this pending litigation, individually or collectively, is expected to have a material adverse effect on our consolidated financial position, results of operations or cash flows.
Item 1A. – Risk Factors
There are certain risks and uncertainties in our business that could cause our actual results to differ materially from those anticipated. In “PART I – Item 1A. – Risk Factors” of the Form 10-K, as filed with the U.S. Securities and Exchange Commission on July 30, 2021, and available at www.sec.gov or at www.worthingtonindustries.com, we included a detailed discussion of our risk factors. Our risk factors have not changed significantly from those disclosed in the Form 10-K. These risk factors should be read carefully in connection with evaluating our business and in connection with the forward-looking statements and other information contained in this Quarterly Report on Form 10-Q. Any of the risks described in the Form 10-K could materially affect our business, consolidated financial condition or future results and the actual outcome of matters as to which forward-looking statements are made. The risk factors described in the Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, also may materially adversely affect our business, consolidated financial condition and/or future results.
40
Item 2. – Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information about purchases made by, or on behalf of, Worthington Industries, Inc. or any “affiliated purchaser” (as defined in Rule 10b-18(a) (3) under the Securities Exchange Act of 1934, as amended) of common shares of Worthington Industries, Inc. during each month of the quarterly period ended February 28, 2022:
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased as |
|
|
Maximum Number of |
|
||
|
|
Total Number |
|
|
Average Price |
|
|
Part of Publicly |
|
|
Common Shares that |
|
||||
|
|
of Common |
|
|
Paid per |
|
|
Announced |
|
|
May Yet Be |
|
||||
|
|
Shares |
|
|
Common |
|
|
Plans or |
|
|
Purchased Under the |
|
||||
|
Period |
Purchased |
|
|
Share |
|
|
Programs |
|
|
Plans or Programs (1) |
|
||||
|
December 1- 31, 2022 |
|
427,000 |
|
|
$ |
52.58 |
|
|
|
427,000 |
|
|
|
7,638,000 |
|
|
January 1- 31, 2022 |
|
573,000 |
|
|
|
56.03 |
|
|
|
573,000 |
|
|
|
7,065,000 |
|
|
February 1- 28, 2022 |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
7,065,000 |
|
|
Total |
|
1,000,000 |
|
|
$ |
54.26 |
|
|
|
1,000,000 |
|
|
|
|
|
|
(1) |
The numbers shown in this column represent, as of the end of each period, the maximum number of common shares that were available for repurchase under authorizations of the Worthington Industries Board. On March 20, 2019, the Company announced that on that same day, the Worthington Industries Board authorized the repurchase of up to 6,600,000 of Worthington Industries, Inc.’s outstanding common shares. On March 24, 2021, the Company announced that on that same day, the Worthington Industries Board authorized the repurchase of up to an additional 5,618,464 of Worthington Industries, Inc.’s outstanding common shares, increasing the total number of common shares then authorized for repurchase to 10,000,000. A total of 2,935,000 common shares have been repurchased since the latest authorization, leaving 7,065,000 common shares available for repurchase under the existing authorizations at February 28, 2022. |
The common shares available for repurchase under the authorizations currently in effect may be repurchased from time to time, with consideration given to the market price of the common shares, the nature of other investment opportunities, cash flows from operations, general economic conditions, and other relevant considerations. Repurchases may be made on the open market or through privately negotiated transactions.
Item 3. – Defaults Upon Senior Securities
Not applicable.
Item 4. – Mine Safety Disclosures
Not applicable.
Item 5. – Other Information
Not applicable.
41
Item 6. – Exhibits
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Exhibit No. |
|
Description |
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2.1 |
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3.1 |
|
Amended Articles of Incorporation of Worthington Industries, Inc., as filed with the Ohio Secretary of State on October 13, 1998 (Incorporated herein by reference to Exhibit 3(a) to the Quarterly Report on Form 10-Q of Worthington Industries, Inc. for the quarterly period ended August 31, 1998 (SEC File No. 0-4016)) P |
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3.2 |
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31.1 |
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Rule 13a - 14(a) / 15d - 14(a) Certifications (Principal Executive Officer) * |
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31.2 |
|
Rule 13a - 14(a) / 15d - 14(a) Certifications (Principal Financial Officer) * |
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32.1 |
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32.2 |
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101.INS |
|
XBRL Instance Document – the instance document does not appear in the Interactive Date File because its XBRL tags are embedded within the Inline XBRL document. |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document # |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document # |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document # |
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101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document # |
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101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document # |
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104 |
|
Cover Page Interactive Data File – the cover page from this Quarterly Report on Form 10-Q for the quarterly period ended February 28, 2022, formatted in Inline XBRL (included within the Exhibit 101 attachments). |
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* |
Filed herewith. |
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** |
Furnished herewith. |
|
† |
The Disclosure Schedules and Exhibits referenced in the Equity Interest Purchase Agreement have been omitted pursuant to Item 601(a)(5) of SEC Regulation S-K. Worthington Industries, Inc. will supplementally furnish a copy of any of the omitted Disclosure Schedules and Exhibits to the Securities and Exchange Commission on a confidential basis upon request. |
|
# |
Attached as Exhibit 101 to this Quarterly Report on Form 10-Q of Worthington Industries, Inc. are the following documents formatted in Inline XBRL (Extensible Business Reporting Language): |
|
|
(i) |
Consolidated Balance Sheets at February 28, 2022 and May 31, 2021; |
|
|
(ii) |
Consolidated Statements of Earnings for the three months and nine months ended February 28, 2022 and February 28, 2021; |
|
|
(iii) |
Consolidated Statements of Comprehensive Income for the three months and nine months ended February 28, 2022 and February 28, 2021; |
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|
(iv) |
Consolidated Statements of Cash Flows for the three months and nine months ended February 28, 2022 and February 28, 2021; and |
|
|
(v) |
Condensed Notes to Consolidated Financial Statements. |
42
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.
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WORTHINGTON INDUSTRIES, INC. |
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Date: April 11, 2022 |
By: |
/s/ Joseph B. Hayek |
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|
Joseph B. Hayek, |
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|
|
Vice President and Chief Financial Officer |
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|
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(On behalf of the Registrant as Duly Authorized Officer and as Principal Financial Officer) |
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43