UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28,August 31, 2023
or
☐ 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 001-08399
WORTHINGTON INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Ohio |
| 31-1189815 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
|
|
|
200 West Old Wilson Bridge Road, Columbus, Ohio |
| 43085 |
(Address of principal executive offices) |
| (Zip Code) |
(614) 438-3210 |
(Registrant’s telephone number, including area code) |
Not Applicable |
(Former name, former address and former fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Shares, Without Par Value | WOR | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
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). Yes ☒ No ☐
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.
Large accelerated filer | ☒ |
| Accelerated filer | ☐ |
Non-accelerated filer | ☐ |
| Smaller reporting company | ☐ |
|
|
| Emerging growth company | ☐ |
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 ☐ No ☒
APPLICABLE ONLY TO CORPORATE ISSUERS:
On March 31,September 29, 2023, the number of common shares, without par value, of the Registrant issued and outstanding was 49,755,36549,965,441.
TABLE OF CONTENTS
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| Item 1. |
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| Consolidated Balance Sheets – |
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| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Item 3. |
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| Item 1. |
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| Item 1A. |
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| Item 2. |
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| Item 3. |
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| Item 4. |
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| Item 5. |
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| Item 6. |
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i
Safe Harbor Statement
Selected statements contained in this Quarterly Report on Form 10-Q (this “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 “PSLRA”). Forward-looking statements reflect the Company’s 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,” “should,” “would,” “intend,” “plan,” “will,” “likely,” “estimate,” “project,” “positioned,“position,” “strategy,” “targets,“target,” “aims,“aim,” “seek,” “foresee,” or other similar words or phrases. These forward-looking statements include, without limitation, statements relating to:
ii
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:
ii
iii
The Company notes these factors for investors as contemplated by the PSLRA. 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 Form 10-Q are based on current information as of the date of this Form 10-Q, and the Company assumes no obligation to correct or update any such statements in the future, except as required by applicable law.
iv
PART I. FINANCIAL INFORMATION
Item 1. – Financial Statements
WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
|
| (Unaudited) |
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| (Unaudited) |
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| February 28, |
| May 31, |
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| August 31, |
| May 31, |
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| 2023 |
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| 2022 |
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| 2023 |
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| 2023 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
| $ | 267,244 |
|
| $ | 34,485 |
|
| $ | 201,009 |
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| $ | 454,946 |
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Receivables, less allowances of $5,233 and $1,292 at February 28, 2023 |
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and May 31, 2022, respectively |
|
| 715,899 |
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| 857,493 |
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Receivables, less allowances of $2,582 and $3,383 at August 31, 2023 and May 31, 2023, respectively |
|
| 698,287 |
|
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| 692,887 |
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Inventories: |
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|
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Raw materials |
|
| 271,518 |
|
|
| 323,609 |
|
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| 302,626 |
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| 264,568 |
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Work in process |
|
| 160,688 |
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| 255,019 |
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| 192,344 |
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| 183,248 |
|
Finished products |
|
| 168,918 |
|
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| 180,512 |
|
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| 177,326 |
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| 160,152 |
|
Total inventories |
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| 601,124 |
|
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| 759,140 |
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| 672,296 |
|
|
| 607,968 |
|
Income taxes receivable |
|
| 15,619 |
|
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| 20,556 |
|
|
| 2,593 |
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| 4,198 |
|
Assets held for sale |
|
| 5,191 |
|
|
| 20,318 |
|
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| 1,979 |
|
|
| 3,381 |
|
Prepaid expenses and other current assets |
|
| 105,689 |
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| 93,661 |
|
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| 115,692 |
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| 104,957 |
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Total current assets |
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| 1,710,766 |
|
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| 1,785,653 |
|
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| 1,691,856 |
|
|
| 1,868,337 |
|
Investments in unconsolidated affiliates |
|
| 244,277 |
|
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| 327,381 |
|
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| 241,564 |
|
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| 252,591 |
|
Operating lease assets |
|
| 102,474 |
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| 98,769 |
|
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| 97,316 |
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| 99,967 |
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Goodwill |
|
| 413,989 |
|
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| 401,469 |
|
|
| 415,813 |
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| 414,820 |
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Other intangible assets, net of accumulated amortization of $107,167 and |
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$93,973 at February 28, 2023 and May 31, 2022, respectively |
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| 318,483 |
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| 299,017 |
| ||||||||
Other intangible assets, net of accumulated amortization of $116,912 and $112,202 at August 31, 2023 and May 31, 2023, respectively |
|
| 310,030 |
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| 314,226 |
| ||||||||
Other assets |
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| 25,454 |
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| 34,394 |
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| 38,245 |
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| 25,323 |
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Property, plant and equipment: |
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Land |
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| 49,695 |
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| 51,483 |
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| 49,739 |
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| 49,697 |
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Buildings and improvements |
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| 306,296 |
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| 303,269 |
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| 309,752 |
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| 308,669 |
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Machinery and equipment |
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| 1,247,994 |
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| 1,196,806 |
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| 1,266,341 |
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| 1,263,962 |
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Construction in progress |
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| 57,307 |
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| 59,363 |
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| 64,414 |
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| 45,165 |
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Total property, plant and equipment |
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| 1,661,292 |
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| 1,610,921 |
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| 1,690,246 |
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| 1,667,493 |
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Less: accumulated depreciation |
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| 979,063 |
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| 914,581 |
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| 1,008,378 |
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| 991,839 |
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Total property, plant and equipment, net |
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| 682,229 |
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| 696,340 |
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| 681,868 |
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| 675,654 |
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Total assets |
| $ | 3,497,672 |
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| $ | 3,643,023 |
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| $ | 3,476,692 |
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| $ | 3,650,918 |
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Liabilities and equity |
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Current liabilities: |
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Accounts payable |
| $ | 489,346 |
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| $ | 668,438 |
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| $ | 526,686 |
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| $ | 528,920 |
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Short-term borrowings |
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| 3,605 |
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| 47,997 |
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| - |
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| 2,813 |
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Accrued compensation, contributions to employee benefit plans and related taxes |
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| 84,098 |
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| 117,530 |
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| 76,960 |
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| 93,810 |
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Dividends payable |
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| 17,630 |
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| 15,988 |
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| 18,603 |
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| 18,330 |
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Other accrued items |
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| 57,703 |
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| 70,125 |
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| 47,899 |
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| 53,362 |
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Current operating lease liabilities |
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| 12,166 |
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| 11,618 |
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| 12,610 |
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| 12,608 |
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Income taxes payable |
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| - |
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|
| 300 |
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| 35,913 |
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| 7,451 |
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Current maturities of long-term debt |
|
| 261 |
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| 265 |
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| 150,268 |
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| 264 |
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Total current liabilities |
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| 664,809 |
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| 932,261 |
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| 868,939 |
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| 717,558 |
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Other liabilities |
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| 118,736 |
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| 115,991 |
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| 109,840 |
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| 113,286 |
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Distributions in excess of investment in unconsolidated affiliate |
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| 116,825 |
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| 81,149 |
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| 116,377 |
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| 117,297 |
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Long-term debt |
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| 689,339 |
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| 696,345 |
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| 298,083 |
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| 689,718 |
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Noncurrent operating lease liabilities |
|
| 92,481 |
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| 88,183 |
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| 87,626 |
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| 89,982 |
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Deferred income taxes, net |
|
| 100,224 |
|
|
| 115,132 |
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| 93,911 |
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| 101,449 |
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Total liabilities |
|
| 1,782,414 |
|
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| 2,029,061 |
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| 1,574,776 |
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| 1,829,290 |
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Shareholders' equity - controlling interest |
|
| 1,585,426 |
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| 1,480,752 |
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| 1,774,623 |
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| 1,696,011 |
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Noncontrolling interests |
|
| 129,832 |
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| 133,210 |
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| 127,293 |
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| 125,617 |
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Total equity |
|
| 1,715,258 |
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| 1,613,962 |
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| 1,901,916 |
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| 1,821,628 |
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Total liabilities and equity |
| $ | 3,497,672 |
|
| $ | 3,643,023 |
|
| $ | 3,476,692 |
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| $ | 3,650,918 |
|
See condensed notes to consolidated financial statements.
1
WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per common share amounts)
(Unaudited)
| Three Months Ended |
| Nine Months Ended |
| Three Months Ended |
| ||||||||||||||||
| February 28, |
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| February 28, |
| August 31, |
| |||||||||||||||
| 2023 |
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| 2022 |
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| 2023 |
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| 2022 |
| 2023 |
|
| 2022 |
| ||||||
Net sales | $ | 1,103,322 |
|
| $ | 1,378,235 |
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| $ | 3,687,528 |
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| $ | 3,721,914 |
| $ | 1,193,256 |
|
| $ | 1,408,665 |
|
Cost of goods sold |
| 959,515 |
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| 1,235,107 |
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| 3,268,584 |
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| 3,174,821 |
|
| 995,767 |
|
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| 1,239,291 |
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Gross margin |
| 143,807 |
|
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| 143,128 |
|
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| 418,944 |
|
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| 547,093 |
|
| 197,489 |
|
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| 169,374 |
|
Selling, general and administrative expense |
| 106,057 |
|
|
| 102,945 |
|
|
| 317,318 |
|
|
| 294,926 |
|
| 112,348 |
|
|
| 103,448 |
|
Impairment of long-lived assets |
| 484 |
|
|
| 3,076 |
|
|
| 796 |
|
|
| 3,076 |
|
| 1,401 |
|
|
| 312 |
|
Restructuring and other expense (income), net |
| 824 |
|
|
| (504 | ) |
|
| (4,558 | ) |
|
| (14,782 | ) | |||||||
Restructuring and other income, net |
| - |
|
|
| (1,100 | ) | |||||||||||||||
Separation costs |
| 6,347 |
|
|
| - |
|
|
| 15,593 |
|
|
| - |
|
| 6,035 |
|
|
| - |
|
Operating income |
| 30,095 |
|
|
| 37,611 |
|
|
| 89,795 |
|
|
| 263,873 |
|
| 77,705 |
|
|
| 66,714 |
|
Other income (expense): |
|
|
|
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|
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| ||||||||||
Miscellaneous income (expense), net |
| 1,327 |
|
|
| 393 |
|
|
| (2,354 | ) |
|
| 2,063 |
|
| 1,011 |
|
|
| (5,086 | ) |
Loss on extinguishment of debt |
| (1,534 | ) |
|
| - |
| |||||||||||||||
Interest expense, net |
| (6,035 | ) |
|
| (8,140 | ) |
|
| (22,245 | ) |
|
| (23,170 | ) |
| (3,083 | ) |
|
| (8,598 | ) |
Equity in net income of unconsolidated affiliates |
| 36,926 |
|
|
| 47,466 |
|
|
| 105,495 |
|
|
| 160,600 |
|
| 54,381 |
|
|
| 31,712 |
|
Earnings before income taxes |
| 62,313 |
|
|
| 77,330 |
|
|
| 170,691 |
|
|
| 403,366 |
|
| 128,480 |
|
|
| 84,742 |
|
Income tax expense |
| 12,055 |
|
|
| 18,683 |
|
|
| 35,684 |
|
|
| 90,059 |
|
| 28,777 |
|
|
| 19,498 |
|
Net earnings |
| 50,258 |
|
|
| 58,647 |
|
|
| 135,007 |
|
|
| 313,307 |
|
| 99,703 |
|
|
| 65,244 |
|
Net earnings attributable to noncontrolling interests |
| 3,933 |
|
|
| 2,305 |
|
|
| 8,382 |
|
|
| 14,173 |
|
| 3,597 |
|
|
| 1,162 |
|
Net earnings attributable to controlling interest | $ | 46,325 |
|
| $ | 56,342 |
|
| $ | 126,625 |
|
| $ | 299,134 |
| $ | 96,106 |
|
| $ | 64,082 |
|
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Basic |
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Weighted average common shares outstanding |
| 48,587 |
|
|
| 49,749 |
|
|
| 48,541 |
|
|
| 50,331 |
|
| 48,842 |
|
|
| 48,478 |
|
Earnings per share attributable to controlling interest | $ | 0.95 |
|
| $ | 1.13 |
|
| $ | 2.61 |
|
| $ | 5.94 |
| |||||||
Earnings per common share attributable to controlling interest | $ | 1.97 |
|
| $ | 1.32 |
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Diluted |
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Weighted average common shares outstanding |
| 49,493 |
|
|
| 50,641 |
|
|
| 49,356 |
|
|
| 51,275 |
|
| 49,886 |
|
|
| 49,238 |
|
Earnings per share attributable to controlling interest | $ | 0.94 |
|
| $ | 1.11 |
|
| $ | 2.57 |
|
| $ | 5.83 |
| |||||||
Earnings per common share attributable to controlling interest | $ | 1.93 |
|
| $ | 1.30 |
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|
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| ||||||||
Common shares outstanding at end of period |
| 48,619 |
|
|
| 49,364 |
|
|
| 48,619 |
|
|
| 49,364 |
|
| 48,951 |
|
|
| 48,526 |
|
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Cash dividends declared per share | $ | 0.31 |
|
| $ | 0.28 |
|
| $ | 0.93 |
|
| $ | 0.84 |
| $ | 0.32 |
|
| $ | 0.31 |
|
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, |
|
| February 28, |
| ||||||||||
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Net earnings | $ | 50,258 |
|
| $ | 58,647 |
|
| $ | 135,007 |
|
| $ | 313,307 |
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
| ||||
Foreign currency translation, net of tax |
| 1,563 |
|
|
| (1,482 | ) |
|
| (7,680 | ) |
|
| (10,324 | ) |
Pension liability adjustment, net of tax |
| 323 |
|
|
| 1,368 |
|
|
| 3,180 |
|
|
| 1,364 |
|
Cash flow hedges, net of tax |
| 34,342 |
|
|
| (19,234 | ) |
|
| 17,042 |
|
|
| (72,520 | ) |
Other comprehensive income (loss) |
| 36,228 |
|
|
| (19,348 | ) |
|
| 12,542 |
|
|
| (81,480 | ) |
Comprehensive income |
| 86,486 |
|
|
| 39,299 |
|
|
| 147,549 |
|
|
| 231,827 |
|
Comprehensive income attributable to noncontrolling interests |
| 3,933 |
|
|
| 2,305 |
|
|
| 8,382 |
|
|
| 14,173 |
|
Comprehensive income attributable to controlling interest | $ | 82,553 |
|
| $ | 36,994 |
|
| $ | 139,167 |
|
| $ | 217,654 |
|
| Three Months Ended |
| |||||
| August 31, |
| |||||
| 2023 |
|
| 2022 |
| ||
Net earnings | $ | 99,703 |
|
| $ | 65,244 |
|
Other comprehensive income (loss), net of tax |
|
|
|
|
| ||
Foreign currency translation |
| 1,444 |
|
|
| (10,100 | ) |
Pension liability adjustment |
| (3 | ) |
|
| 2,939 |
|
Cash flow hedges |
| (6,849 | ) |
|
| (13,301 | ) |
Other comprehensive loss |
| (5,408 | ) |
|
| (20,462 | ) |
Comprehensive income |
| 94,295 |
|
|
| 44,782 |
|
Comprehensive income attributable to noncontrolling interests |
| 3,597 |
|
|
| 1,162 |
|
Comprehensive income attributable to controlling interest | $ | 90,698 |
|
| $ | 43,620 |
|
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 |
| Three Months Ended |
| ||||||||||||||||
| February 28, |
|
| February 28, |
| August 31, |
| |||||||||||||||
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| 2023 |
|
| 2022 |
| ||||||
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Net earnings | $ | 50,258 |
|
| $ | 58,647 |
|
| $ | 135,007 |
|
| $ | 313,307 |
| $ | 99,703 |
|
| $ | 65,244 |
|
Adjustments to reconcile net earnings to net cash provided (used) by operating activities: |
|
|
|
|
|
|
|
|
| |||||||||||||
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
| |||||||||||||||||
Depreciation and amortization |
| 28,153 |
|
|
| 27,425 |
|
|
| 84,508 |
|
|
| 70,579 |
|
| 28,325 |
|
|
| 28,001 |
|
Impairment of long-lived assets |
| 484 |
|
|
| 3,076 |
|
|
| 796 |
|
|
| 3,076 |
|
| 1,401 |
|
|
| 312 |
|
Provision for (benefit from) deferred income taxes |
| (5,525 | ) |
|
| 10,661 |
|
|
| (20,198 | ) |
|
| 13,336 |
| |||||||
Benefit from deferred income taxes |
| (5,453 | ) |
|
| (11,056 | ) | |||||||||||||||
Loss on extinguishment of debt |
| 1,534 |
|
|
| - |
| |||||||||||||||
Bad debt expense |
| 2,346 |
|
|
| 382 |
|
|
| 3,786 |
|
|
| 896 |
|
| (799 | ) |
|
| 342 |
|
Equity in net income of unconsolidated affiliates, net of distributions |
| 23,218 |
|
|
| (18,604 | ) |
|
| 84,415 |
|
|
| (83,096 | ) |
| 10,225 |
|
|
| 42,845 |
|
Net loss (gain) on sale of assets |
| 46 |
|
|
| (628 | ) |
|
| (4,988 | ) |
|
| (13,830 | ) |
| 105 |
|
|
| (769 | ) |
Stock-based compensation |
| 4,975 |
|
|
| 4,408 |
|
|
| 13,758 |
|
|
| 11,959 |
|
| 4,516 |
|
|
| 4,236 |
|
Changes in assets and liabilities, net of impact of acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Receivables |
| 3,382 |
|
|
| (33,766 | ) |
|
| 160,475 |
|
|
| (155,451 | ) |
| (8,843 | ) |
|
| 37,419 |
|
Inventories |
| 53,499 |
|
|
| 31,051 |
|
|
| 166,959 |
|
|
| (229,813 | ) |
| (64,327 | ) |
|
| 41,167 |
|
Accounts payable |
| 6,627 |
|
|
| 51,893 |
|
|
| (195,489 | ) |
|
| 50,967 |
|
| 278 |
|
|
| (101,581 | ) |
Accrued compensation and employee benefits |
| (2,900 | ) |
|
| (21,105 | ) |
|
| (33,432 | ) |
|
| (52,924 | ) |
| (12,014 | ) |
|
| (33,868 | ) |
Income taxes payable |
| - |
|
|
| (14,422 | ) |
|
| (300 | ) |
|
| (1,487 | ) |
| 28,462 |
|
|
| 7,329 |
|
Other operating items, net |
| 17,588 |
|
|
| (24,828 | ) |
|
| 833 |
|
|
| (22,245 | ) |
| (23,417 | ) |
|
| 1,417 |
|
Net cash provided (used) by operating activities |
| 182,151 |
|
|
| 74,190 |
|
|
| 396,130 |
|
|
| (94,726 | ) | |||||||
Net cash provided by operating activities |
| 59,696 |
|
|
| 81,038 |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Investment in property, plant and equipment |
| (22,748 | ) |
|
| (23,645 | ) |
|
| (68,715 | ) |
|
| (71,804 | ) |
| (29,298 | ) |
|
| (21,477 | ) |
Investment in note receivable |
| (15,000 | ) |
|
| - |
| |||||||||||||||
Investment in non-marketable equity securities |
| (20 | ) |
|
| - |
|
|
| (270 | ) |
|
| - |
|
| (40 | ) |
|
| (110 | ) |
Proceeds from sale of assets, net of selling costs |
| 51 |
|
|
| 11,755 |
| |||||||||||||||
Acquisitions, net of cash acquired |
| - |
|
|
| (269,511 | ) |
|
| (56,088 | ) |
|
| (377,261 | ) |
| - |
|
|
| (56,088 | ) |
Net proceeds from sale of investment in ArtiFlex |
| (300 | ) |
|
| - |
|
|
| 35,795 |
|
|
| - |
|
| - |
|
|
| 36,095 |
|
Proceeds from sale of assets, net of selling costs |
| 51 |
|
|
| 4,083 |
|
|
| 35,545 |
|
|
| 35,904 |
| |||||||
Net cash used by investing activities |
| (23,017 | ) |
|
| (289,073 | ) |
|
| (53,733 | ) |
|
| (413,161 | ) |
| (44,287 | ) |
|
| (29,825 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Net proceeds from (repayments of) short-term borrowings |
| (1,330 | ) |
|
| 105,638 |
|
|
| (44,392 | ) |
|
| 105,638 |
| |||||||
Net repayments of short-term borrowings |
| (2,813 | ) |
|
| (32,443 | ) | |||||||||||||||
Principal payments on long-term obligations |
| (5,759 | ) |
|
| (152 | ) |
|
| (5,909 | ) |
|
| (554 | ) |
| (243,757 | ) |
|
| (137 | ) |
Proceeds from issuance of common shares, net of tax withholdings |
| 704 |
|
|
| 269 |
|
|
| (3,411 | ) |
|
| (6,516 | ) |
| (5,130 | ) |
|
| (3,466 | ) |
Payments to noncontrolling interests |
| - |
|
|
| (3,360 | ) |
|
| (11,760 | ) |
|
| (15,436 | ) |
| (1,921 | ) |
|
| - |
|
Repurchase of common shares |
| - |
|
|
| (54,255 | ) |
|
| - |
|
|
| (127,842 | ) | |||||||
Dividends paid |
| (15,101 | ) |
|
| (14,127 | ) |
|
| (44,166 | ) |
|
| (43,390 | ) |
| (15,725 | ) |
|
| (13,884 | ) |
Net cash provided (used) by financing activities |
| (21,486 | ) |
|
| 34,013 |
|
|
| (109,638 | ) |
|
| (88,100 | ) | |||||||
Net cash used by financing activities |
| (269,346 | ) |
|
| (49,930 | ) | |||||||||||||||
|
|
|
|
|
| |||||||||||||||||
Increase (decrease) in cash and cash equivalents |
| 137,648 |
|
|
| (180,870 | ) |
|
| 232,759 |
|
|
| (595,987 | ) |
| (253,937 | ) |
|
| 1,283 |
|
Cash and cash equivalents at beginning of period |
| 129,596 |
|
|
| 225,194 |
|
|
| 34,485 |
|
|
| 640,311 |
|
| 454,946 |
|
|
| 34,485 |
|
Cash and cash equivalents at end of period | $ | 267,244 |
|
| $ | 44,324 |
|
| $ | 267,244 |
|
| $ | 44,324 |
| $ | 201,009 |
|
| $ | 35,768 |
|
See condensed notes to consolidated financial statements.
4
WORTHINGTON INDUSTRIES, INC.
CONDENSED Notes to Consolidated Financial Statements (UNAUDITED)
(Unaudited)(In thousands, except per common share amounts)
Note A – Basis of Presentation
Basis of Presentation
TheThese unaudited consolidated financial statements include the accounts of Worthington Industries and its consolidated subsidiaries (collectively, “we,” “our,” “us” “Worthington,” or the “Company”). All amounts in these financial statements, notes and tables have been rounded to the nearest thousand dollars, except share and per share amounts, unless otherwise indicated. Significant intercompany accounts and transactions have been eliminated.
We own controlling interests in the following three operating joint ventures: Spartan Steel Coating, L.L.C. (“Spartan”) (52%); TWB Company, L.L.C. (“TWB”) (55%); and Worthington Samuel Coil Processing LLC (“Samuel”) (63%). We also own a 51% controlling interest in Worthington Specialty Processing (“WSP”), which became a non-operating joint venture on October 31, 2022, when the remaining net assets of the joint ventureWSP were disposed of. See “Note F – Restructuring and Other Expense (Income), Net” for additional information.sold. These joint ventures are consolidated with the equity owned by the other joint venture members shown as “Noncontrolling interests”noncontrolling interests in our consolidated balance sheets, and the other joint venture members’their portions of net earnings and other comprehensive income (loss) (“OCI”) are shown as net earnings or comprehensive income attributable to noncontrolling interests in our consolidated statements of earnings and consolidated statements of comprehensive income, respectively. Investments in unconsolidated affiliates that we do not control are accounted for using the equity method with our proportionate share of income or loss recognized within equity in net income of unconsolidated affiliates (“equity income”) in our consolidated statements of earnings. See further discussion of our unconsolidated affiliates in “Note DC – Investments in Unconsolidated Affiliates.”
These unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of 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 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, 2023first quarter of fiscal 2024 are not necessarily indicative of the results that may be expected for the fiscal year ending May 31, 20232024 (“fiscal 2023”2024”). For further information, refer to the consolidated financial statements and notes thereto included in the 2022our fiscal 2023 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 materially differ from those estimates.
The Proposed Separation of the Steel Processing SeparationBusiness
On September 29, 2022, we announced that the Board approved the Separation, a plan to pursue a separation into two independent, publicly-traded companies – one company, (“Worthington Steel”)Steel, is expected to be comprised of our Steel Processing operating segment, and the other company, (“New Worthington”)Worthington, is expected to be comprised of our Consumer Products, Building Products and Sustainable Energy Solutions operating segments. We plan to effect the Separation via a distribution of stockcommon shares of theWorthington Steel, Processing business, which is expected to be tax-free to shareholders of Worthington Industries for U.S. federal income tax purposes. The Separation transaction is expected to be completed by early calendar 2024, but is subject to certain conditions, including, among other things, general market conditions, finalization of the capital structure of the two companies, completion of steps necessary to qualify the Separation as a tax-free transaction, receipt of regulatory approvals and final approval from the Board. Direct
We have and expect to continue to incur direct and incremental costs incurred in connection with the anticipated Separation, including fees paid to third-party parties for audit, advisory and legal services to effect the Separation, nonrecurring employee-related costs, such as retention bonuses, and nonrecurring functional costs associated with the separation of shared corporate functions. These costs are presented separatelyas a separate component of operating expenses as “Separation costs” in our consolidated statements of earnings as “Separation costs.” Separation costs totaled $6,347,000 and $15,593,000 for the three months and nine months ended February 28, 2023, respectively.
Note B – Inventory
Due to a decline in steel pricing during the first quarter of fiscal 2023, the net realizable value of our inventory was lower than the cost reflected in our records at August 31, 2022. Accordingly, we recorded a lower of cost or net realizable value adjustment during the first quarter of fiscal 2023 totaling $4,488,000 to reflect this lower value. The entire amount of the adjustment was attributed to our Steel Processing operating segment and was recorded in cost of goods sold in the consolidated statement of earnings for the three months ended August 31, 2022. There was 2023, in the amount of $no6,035 lower of cost or net realizable value adjustment to inventory during either of the three months ended November 30, 2022 or the three months ended February 28, 2023..
5
Note CB – Revenue Recognition
The following table summarizes net sales by operating segment and product class within the Steel Processing operating segment for the periods presented:
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
| February 28, |
|
| February 28, |
| ||||||||||
(in thousands) | 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Steel Processing |
|
|
|
|
|
|
|
|
|
|
| ||||
Direct | $ | 722,328 |
|
| $ | 1,015,716 |
|
| $ | 2,531,722 |
|
| $ | 2,704,411 |
|
Toll |
| 34,679 |
|
|
| 36,846 |
|
|
| 106,112 |
|
|
| 108,803 |
|
Total |
| 757,007 |
|
|
| 1,052,562 |
|
|
| 2,637,834 |
|
|
| 2,813,214 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Consumer Products (1) |
| 162,647 |
|
|
| 161,692 |
|
|
| 505,145 |
|
|
| 450,268 |
|
Building Products (1) |
| 151,876 |
|
|
| 132,944 |
|
|
| 443,870 |
|
|
| 368,813 |
|
Sustainable Energy Solutions (1) |
| 31,792 |
|
|
| 31,037 |
|
|
| 100,679 |
|
|
| 89,619 |
|
Total | $ | 1,103,322 |
|
| $ | 1,378,235 |
|
| $ | 3,687,528 |
|
| $ | 3,721,914 |
|
| Three Months Ended |
| |||||
| August 31, |
| |||||
(In thousands) | 2023 |
|
| 2022 |
| ||
Steel Processing |
|
|
|
|
| ||
Direct | $ | 845,363 |
|
| $ | 1,002,135 |
|
Toll |
| 35,976 |
|
|
| 36,745 |
|
Total |
| 881,339 |
|
|
| 1,038,880 |
|
|
|
|
|
|
| ||
Consumer Products |
| 149,412 |
|
|
| 188,703 |
|
Building Products |
| 133,868 |
|
|
| 150,323 |
|
Sustainable Energy Solutions |
| 28,637 |
|
|
| 30,759 |
|
Total | $ | 1,193,256 |
|
| $ | 1,408,665 |
|
The following table summarizes revenue that has been recognized over time for the periods presented:
| Three Months Ended |
|
| Nine Months Ended |
| Three Months Ended |
| |||||||||||||||
| February 28, |
|
| February 28, |
| August 31, |
| |||||||||||||||
(in thousands) | 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| |||||||||||
(In thousands) | 2023 |
|
| 2022 |
| |||||||||||||||||
Steel Processing - toll | $ | 34,679 |
|
| $ | 36,846 |
|
| $ | 106,112 |
|
| $ | 108,803 |
| $ | 35,976 |
|
| $ | 36,745 |
|
The following table summarizes the unbilled receivables at the dates indicated:
|
| February 28, |
|
| May 31, |
|
| August 31, |
|
| May 31, |
| ||||||
(in thousands) | Balance Sheet Classification |
| 2023 |
|
| 2022 |
| |||||||||||
(In thousands) | Balance Sheet Classification |
| 2023 |
|
| 2023 |
| |||||||||||
Unbilled receivables | Receivables |
| $ | 4,961 |
|
| $ | 5,001 |
| Receivables |
| $ | 3,513 |
|
| $ | 3,708 |
|
There were no contract assets at February 28,August 31, 2023 or at May 31, 2022.
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, 2023, there were no unsatisfied or partially satisfied performance obligations related to contracts with an expected duration greater than one year.2023.
Note DC – 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, 2023, we held noncontrolling investments inmethod and included the following affiliated companies:at August 31, 2023: Clarkwestern Dietrich Building Systems LLC (“ClarkDietrich”) (25%); Serviacero Planos, S. de R. L. de C.V. (“Serviacero Worthington”) (50%); Taxi Workhorse Holdings, LLC (“Workhorse”) (20%); and Worthington Armstrong Venture (“WAVE”) (50%).
On August 3, 2022, we sold ourWe also held a 50% noncontrolling equity interest in ArtiFlex Manufacturing, LLC (“ArtiFlex”) to, on a historical basis, through August 3, 2022, when it was purchased by the unaffiliatedunrelated joint venture member forpartner. In connection with this transaction, we received net cash proceeds of approximately $41,795,000, after adjustments for closing debt and final net working capital. Approximately $6,000,00036,095 of the total cash proceeds were attributed to real property in Wooster, Ohio, with a net book value of approximately $6,300,000. This real property was owned by us and leased to ArtiFlex prior to closing of the transaction. For the nine months ended February 28, 2023, we recognizedrealized a pre-tax loss of $16,059,00015,759 inwithin equity income, related torepresenting the sale, including a lossamount by which the book value of $300,000 forour investment exceeded the settlement of final transaction costs related to the sale during the three months ended February 28, 2023.net cash proceeds.
6
We received distributions from unconsolidated affiliates totaling $189,910,00064,606 during the ninethree months ended February 28,August 31, 2023. We have received cumulative distributions from WAVE in excess of our investment balance amounting to $116,825,000116,377 and $117,297, respectively, at August 31, 2023 and May 31, 2023, which is shown as a separate liability onare presented separately within long-term liabilities in our consolidated balance sheet at February 28, 2023.sheets. In accordance with the applicable accounting guidance, we have reclassified the negative investment balance to the liabilities section of our consolidated balance sheets. We will continue to record our equity in the net income of WAVE as a debit to the investment account, and if the investment balance becomes positive, it will again be shown as an asset on our consolidated balance sheets. If it becomes probable that any excess distribution may not be returned (upon joint venture liquidation or otherwise), we will recognize any negative investment balance classified as a liability as income immediately.
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.
6
The following tables summarize combined financial information for our unconsolidated affiliates as of the dates, and for the periods presented:
| February 28, |
| May 31, |
| August 31, |
| May 31, |
| ||||||
(in thousands) | 2023 |
|
| 2022 |
| |||||||||
(In thousands) | 2023 |
|
| 2023 |
| |||||||||
Cash and cash equivalents | $ | 83,482 |
|
| $ | 68,563 |
| $ | 45,766 |
|
| $ | 49,185 |
|
Other current assets |
| 820,978 |
|
|
| 1,148,029 |
|
| 862,913 |
|
|
| 899,913 |
|
Noncurrent assets |
| 308,512 |
|
|
| 369,608 |
|
| 390,681 |
|
|
| 394,468 |
|
Total assets | $ | 1,212,972 |
|
| $ | 1,586,200 |
| $ | 1,299,360 |
|
| $ | 1,343,566 |
|
|
|
|
|
|
|
|
|
|
| |||||
Current liabilities |
| 213,496 |
|
|
| 345,097 |
|
| 309,692 |
|
|
| 247,796 |
|
Short-term borrowings |
| 10,000 |
|
|
| 5,943 |
| |||||||
Current maturities of long-term debt |
| 48,898 |
|
|
| 33,054 |
|
| 32,151 |
|
|
| 36,936 |
|
Long-term debt |
| 349,161 |
|
|
| 306,814 |
|
| 348,269 |
|
|
| 349,215 |
|
Other noncurrent liabilities |
| 66,538 |
|
|
| 76,437 |
|
| 141,328 |
|
|
| 144,649 |
|
Equity |
| 524,879 |
|
|
| 818,855 |
|
| 467,920 |
|
|
| 564,970 |
|
Total liabilities and equity | $ | 1,212,972 |
|
| $ | 1,586,200 |
| $ | 1,299,360 |
|
| $ | 1,343,566 |
|
| Three Months Ended |
| Nine Months Ended |
| Three Months Ended |
| |||||||||||||||
| February 28, |
| February 28, |
| August 31, |
| |||||||||||||||
(in thousands) | 2023 |
|
| 2022 |
| 2023 |
|
| 2022 |
| |||||||||||
(In thousands) | 2023 |
|
| 2022 |
| ||||||||||||||||
Net sales | $ | 626,527 |
|
| $ | 789,483 |
| $ | 2,162,134 |
|
| $ | 2,392,643 |
| $ | 720,433 |
|
| $ | 823,942 |
|
Gross margin |
| 150,698 |
|
|
| 187,602 |
| 479,402 |
|
|
| 603,778 |
|
| 194,308 |
|
|
| 181,405 |
| |
Operating income |
| 107,994 |
|
|
| 144,575 |
| 353,177 |
|
|
| 475,341 |
|
| 149,409 |
|
|
| 137,827 |
| |
Depreciation and amortization |
| 6,774 |
|
|
| 7,831 |
| 21,826 |
|
|
| 23,907 |
|
| 8,643 |
|
|
| 8,188 |
| |
Interest expense |
| 4,607 |
|
|
| 2,661 |
| 11,197 |
|
|
| 7,833 |
|
| 5,739 |
|
|
| 2,680 |
| |
Income tax expense (benefit) |
| (3,782 | ) |
|
| 4,478 |
| (410 | ) |
|
| 20,938 |
| ||||||||
Income tax expense |
| 1,646 |
|
|
| 2,110 |
| ||||||||||||||
Net earnings |
| 111,135 |
|
|
| 136,346 |
| 349,556 |
|
|
| 449,149 |
|
| 143,566 |
|
|
| 133,238 |
|
7
Note ED – Impairment of Long-Lived Assets
Impairment of Long-Lived Assets
Fiscal 2023: During the third quarter of fiscal 2023, we determined that certain assets associated with a capital project at our Building Products facility in Jefferson, Ohio, were impaired. These assets were determined to have no alternative use and were written down to their estimated salvage value of approximately $70,000 resulting in an impairment charge of $484,000 during the three months ended February 28, 2023.
During the first quarter of fiscal 2023, we committed to plans to liquidate certain fixed assets at Samuel’sour Samuel joint venture’s toll processing facility in Cleveland, Ohio. As all of the criteria for classification as assets held for sale were met, the net assets were presented separately as assets held for sale in our consolidated balance sheet at August 31, 2022. 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. As a result,sell resulting in a pre-tax impairment charge of $312,000312 was recognized during.
During the first quarter of fiscal 2023, which represents the excess book value2024, we lowered our estimate of the asset group over its estimated fair value less cost to sell. The land and building were subsequently sold during the second quarter of fiscal 2023 for net cash proceeds of $3,298,000, with no impact to earnings. Machinery and equipment related to the facility with a net book value of $1,562,000 continued to be classified as held for sale at February 28, 2023.
Fiscal 2022: During the third quarter of fiscal 2022, management committed to plans to sell certain production equipment at the Samuel facility in Twinsburg, Ohio. As all of the criteria for classification as assets held for sale were met, the net assets were presented separately as assets held for sale in our consolidated balance sheet at May 31, 2023. In accordance with the applicable accounting guidance, the net assets were written down to the lower of net book value or fair market value less costs to sell resulting in an impairment chargeto reflect the expected scrap value of the equipment, or $3,076,000 during the third quarter of fiscal 2022. The assets were subsequently sold during the second quarter of fiscal 2023 for cash proceeds of approximately $1,063,000150, resulting in a pre-tax gainimpairment charge of $363,0001,401 within restructuring and other expense (income), net..
Note FE – Restructuring and Other Expense (Income),Income, Net
We consider restructuring activities to be programs whereby we fundamentally change our operations, such as divestitures, closing or consolidating facilities, employee severance (including rationalizing headcount or other significant changes in personnel), and realignment of existing operations (including changes to management structure in response to underlying performance and/or changing market conditions).
A progression ofWe made severance payments associated with a prior restructuring initiative within Building Products totaling $135 during the three months ended August 31, 2023. As a result, there were no liabilities associated with our restructuring activities combined with a reconciliation to the restructuringat August 31, 2023.
Restructuring and other expense (income),income, net financial statement caption, in our consolidated statement of earnings for the nine months ended February 28, 2023 is summarized below:
(in thousands) |
| Balance, as of May 31, 2022 |
|
| Expense |
|
| Payments |
|
| Adjustments |
|
| Balance, as of February 28, 2023 |
| |||||
Early retirement and severance |
| $ | 541 |
|
| $ | 908 |
|
| $ | (1,083 | ) |
| $ | - |
|
| $ | 366 |
|
Net gain on sale of assets |
|
|
|
|
| (5,466 | ) |
|
|
|
|
|
|
|
|
| ||||
Restructuring and other income, net |
|
| $ | (4,558 | ) |
|
|
|
|
|
|
|
|
|
The total liability associated with our restructuring activities as of February 28, 2023 is expected to be paid in the next twelve months.
8
Note GF – 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.
Note HG – 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. However, at August 31, 2023 we had in place $14,137,000 of outstanding stand-by letters of credit issued to third-party service providers at February 28, 2023. No amounts were drawn against these stand-by letters of credit at February 28, 2023. We are also party to an operating lease for an aircraft forin which we have guaranteed a residual value at the termination of the lease, termination.which ends on March 30, 2028. The maximum obligation under the terms of this guarantee was approximately $17,180,00016,491 at February 28,August 31, 2023. Based on current facts and circumstances, we have estimated the likelihood of payment pursuant to this guarantee is not probable and, therefore, no amount has been recognized in our consolidated financial statements.
At August 31, 2023, we also had in place $12,137 of outstanding stand-by letters of credit issued to third-party service providers. The fair value of these guarantee instruments, based on premiums paid, was not material and no amounts were drawn against them at August 31, 2023.
8
Note H – Debt and Receivables Securitization
The following table summarizes our long-term debt and short-term borrowings outstanding at August 31, 2023 and May 31, 2023:
| August 31, |
| May 31, |
| ||
(In thousands) | 2023 |
| 2023 |
| ||
Short-term borrowings | $ | - |
| $ | 2,813 |
|
4.60% senior notes due August 10, 2024 |
| 150,000 |
|
| 150,000 |
|
4.55% senior notes due April 15, 2026 |
| - |
|
| 243,623 |
|
4.30% senior notes due August 1, 2032 |
| 200,000 |
|
| 200,000 |
|
1.56% Series A senior note due August 23, 2031 |
| 39,791 |
|
| 39,226 |
|
1.90% Series B senior notes due August 23, 2034 |
| 59,634 |
|
| 58,786 |
|
Other |
| 401 |
|
| 528 |
|
Total debt |
| 449,826 |
|
| 694,976 |
|
Unamortized discount and debt issuance costs |
| (1,475 | ) |
| (2,181 | ) |
Total debt, net |
| 448,351 |
|
| 692,795 |
|
Less: current maturities and short-term borrowings |
| 150,268 |
|
| 3,077 |
|
Total long-term debt | $ | 298,083 |
| $ | 689,718 |
|
Note I –Maturities of long-term debt and short-term borrowings in the current fiscal year and next four fiscal years thereafter, are as follows:
(In thousands) |
|
| |
2024 | $ | 133 |
|
2025 |
| 150,268 |
|
2026 |
| - |
|
2027 |
| - |
|
2028 |
| - |
|
Thereafter |
| 299,425 |
|
Total | $ | 449,826 |
|
Long-Term Debt
On April 15, 2014, we issued senior unsecured notes in the principal amount of $250,000, which bear interest at a rate of 4.55% and are scheduled to mature on April 15, 2026 (the “2026 Notes”). During fiscal 2023, we purchased approximately $6,377 of principal amount of the 2026 Notes in open market transactions, leaving $243,623 within long-term debt at May 31, 2023. On June 29, 2023, we notified the trustee under the indenture to which the 2026 Notes are subject that we had elected to redeem in full the 2026 Notes. On July 28, 2023, we redeemed, in full, the 2026 Notes at a price that approximated the par value of the debt of $243,623. In connection with the debt redemption, we recognized a non-cash loss of $1,534 related primarily to unamortized debt issuance costs and amounts deferred in AOCI associated with an interest rate swap executed prior to the issuance of the 2026 Notes.
Other Financing Arrangements
We maintain a $500,000,000500,000 multi-year revolving credit facility scheduled to mature on August 20, 2026 (the “Credit Facility”) with a group of lenders. Borrowings under the Credit Facility have maturities of up to one year. We have the option to borrow at rates equal to an applicable margin over the Daily LIBORSimple SOFR Rate, the Prime Rate of PNC Bank, National Association or the Overnight Bank Funding Rate. The Credit Facility contains customary LIBOR benchmark replacement language. The applicable margin is determined by our credit rating. There were no borrowings outstanding under the Credit Facility at February 28,August 31, 2023, leaving $500,000,000500,000 available for future use.
We also maintainOn May 19, 2022, we entered into a 5-year revolving trade accounts receivable securitization facility (the “AR(“AR Facility”). Pursuant that allowed for short-term borrowings of up to $175,000 through the termsfactoring and subsequent sale, on a revolving basis, of the AR Facility,eligible accounts receivable of certain of our subsidiaries sell or contribute all of their eligible accounts receivable and other related assets without recourse, on a revolving basis, to Worthington Receivables Company, LLC, (“WRC”), a wholly-owned, consolidated, bankruptcy-remote indirect subsidiary. In turn, WRC sells, on a revolving basis, upOn June 29, 2023, we elected to $terminate the AR Facility. 175,000,000No of undivided ownership interests in this pool of accounts receivable to a third-party bank. We retain an undivided interest in this pool and are subject to risk of loss based on the collectability of the receivables from this retained interest. Because the amount eligible to be sold excludes receivables more than 120 days past due, receivables offset by an allowance for doubtful accounts due to bankruptcyearly termination or other cause, concentrations over certain limitssimilar fees or penalties were paid in connection with specific customers and certain reserve amounts, we believe additional risk of loss is minimal. As of February 28, 2023, there were no borrowings outstanding under the AR Facility, leaving $175,000,000 available for future use.termination.
Tempel Steel Company’s China location (“Tempel China”) has short-term loan facilities that result in the equivalent of $3,605,000 outstanding at February 28, 2023. These loans, which are used to finance steel purchases, are collateralized by Tempel China property and equipment and mature in 2023. New loans may be entered into as these loans mature. The effective interest rate on the loans outstanding at February 28, 2023 was 3.5%.
During the third quarter of fiscal 2023, we repurchased $5,615,000 of the $250,000,000 senior notes due April 15, 2026 (the “2026 Notes”) through open market purchases. This repurchase activity generated a gain of $77,000, which is recorded in miscellaneous income (expense), net in our consolidated statement of earnings for the three months and nine months ended February 28, 2023.
9
Note JI – 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, 2023 |
|
| February 28, 2022 |
| ||||||||||||||||||
| Before-Tax |
|
| Tax |
|
| Net-of-Tax |
|
| Before-Tax |
|
| Tax |
|
| Net-of-Tax |
| ||||||
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Foreign currency translation | $ | 1,421 |
|
| $ | 142 |
|
| $ | 1,563 |
|
| $ | (1,348 | ) |
| $ | (134 | ) |
| $ | (1,482 | ) |
Pension liability adjustment |
| 415 |
|
|
| (92 | ) |
|
| 323 |
|
|
| 1,700 |
|
|
| (332 | ) |
|
| 1,368 |
|
Cash flow hedges |
| 43,963 |
|
|
| (9,621 | ) |
|
| 34,342 |
|
|
| (26,529 | ) |
|
| 7,295 |
|
|
| (19,234 | ) |
Other comprehensive income (loss) | $ | 45,799 |
|
| $ | (9,571 | ) |
| $ | 36,228 |
|
| $ | (26,177 | ) |
| $ | 6,829 |
|
| $ | (19,348 | ) |
| Nine Months Ended |
| Three Months Ended |
| ||||||||||||||||||||||||||||||||||||||||||
| February 28, 2023 |
|
| February 28, 2022 |
| August 31, 2023 |
|
| August 31, 2022 |
| ||||||||||||||||||||||||||||||||||||
| Before-Tax |
|
| Tax |
|
| Net-of-Tax |
|
| Before-Tax |
|
| Tax |
|
| Net-of-Tax |
| |||||||||||||||||||||||||||||
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
(In thousands) | Before-Tax |
|
| Tax |
|
| Net-of-Tax |
|
| Before-Tax |
|
| Tax |
|
| Net-of-Tax |
| |||||||||||||||||||||||||||||
Foreign currency translation | $ | (7,549 | ) |
| $ | (131 | ) |
| $ | (7,680 | ) |
| $ | (9,473 | ) |
| $ | (851 | ) |
| $ | (10,324 | ) | $ | 1,326 |
|
| $ | 118 |
|
| $ | 1,444 |
|
| $ | (9,519 | ) |
| $ | (581 | ) |
| $ | (10,100 | ) |
Pension liability adjustment |
| 4,155 |
|
|
| (975 | ) |
|
| 3,180 |
|
|
| 1,700 |
|
|
| (336 | ) |
|
| 1,364 |
|
| - |
|
|
| (3 | ) |
|
| (3 | ) |
|
| 3,725 |
|
|
| (786 | ) |
|
| 2,939 |
|
Cash flow hedges |
| 21,201 |
|
|
| (4,159 | ) |
|
| 17,042 |
|
|
| (95,405 | ) |
|
| 22,885 |
|
|
| (72,520 | ) |
| (8,811 | ) |
|
| 1,962 |
|
|
| (6,849 | ) |
|
| (17,097 | ) |
|
| 3,796 |
|
|
| (13,301 | ) |
Other comprehensive income (loss) | $ | 17,807 |
|
| $ | (5,265 | ) |
| $ | 12,542 |
|
| $ | (103,178 | ) |
| $ | 21,698 |
|
| $ | (81,480 | ) | $ | (7,485 | ) |
| $ | 2,077 |
|
| $ | (5,408 | ) |
| $ | (22,891 | ) |
| $ | 2,429 |
|
| $ | (20,462 | ) |
Note KJ – Changes in Equity
The following tables summarize the changes in equity by component and in total for the periods presented:
|
| Controlling Interest |
|
|
|
|
|
|
| Controlling Interest |
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
|
|
|
| Other |
|
|
|
|
|
|
|
|
|
|
|
| Other |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
|
| Additional |
| Comprehensive |
|
|
|
|
| Non- |
|
|
|
| Additional |
| Comprehensive |
|
|
|
|
| Non- |
|
|
| ||||||||||||||||||||||
|
| Paid-in |
| Income (Loss), |
| Retained |
|
|
| controlling |
|
|
|
| Paid-in |
| Income (Loss), |
| Retained |
|
|
| controlling |
|
|
| ||||||||||||||||||||||
(in thousands) |
| Capital |
|
| Net of Tax |
|
| Earnings |
|
| Total |
|
| Interests |
|
| Total |
| ||||||||||||||||||||||||||||||
Balance at May 31, 2022 |
| $ | 273,439 |
|
| $ | (22,850 | ) |
| $ | 1,230,163 |
|
| $ | 1,480,752 |
|
| $ | 133,210 |
|
| $ | 1,613,962 |
| ||||||||||||||||||||||||
Net earnings |
|
| - |
|
|
| - |
|
|
| 64,082 |
|
|
| 64,082 |
|
|
| 1,162 |
|
|
| 65,244 |
| ||||||||||||||||||||||||
Other comprehensive loss |
|
| - |
|
|
| (20,462 | ) |
|
| - |
|
|
| (20,462 | ) |
|
| - |
|
|
| (20,462 | ) | ||||||||||||||||||||||||
Common shares issued, net of withholding tax |
|
| (3,466 | ) |
|
| - |
|
|
| - |
|
|
| (3,466 | ) |
|
| - |
|
|
| (3,466 | ) | ||||||||||||||||||||||||
Common shares in non-qualified plans |
|
| 136 |
|
|
| - |
|
|
| - |
|
|
| 136 |
|
|
| - |
|
|
| 136 |
| ||||||||||||||||||||||||
Stock-based compensation |
|
| 6,976 |
|
|
| - |
|
|
| - |
|
|
| 6,976 |
|
|
| - |
|
|
| 6,976 |
| ||||||||||||||||||||||||
Cash dividends declared |
|
| - |
|
|
| - |
|
|
| (15,418 | ) |
|
| (15,418 | ) |
|
| - |
|
|
| (15,418 | ) | ||||||||||||||||||||||||
Balance at August 31, 2022 |
| $ | 277,085 |
|
| $ | (43,312 | ) |
| $ | 1,278,827 |
|
| $ | 1,512,600 |
|
| $ | 134,372 |
|
| $ | 1,646,972 |
| ||||||||||||||||||||||||
(In thousands) |
| Capital |
|
| Net of Tax |
|
| Earnings |
|
| Subtotal |
|
| Interests |
|
| Total |
| ||||||||||||||||||||||||||||||
Balance at May 31, 2023 |
| $ | 290,799 |
|
| $ | (23,179 | ) |
| $ | 1,428,391 |
|
| $ | 1,696,011 |
|
| $ | 125,617 |
|
| $ | 1,821,628 |
| ||||||||||||||||||||||||
Net earnings |
|
| - |
|
|
| - |
|
|
| 16,218 |
|
|
| 16,218 |
|
|
| 3,287 |
|
|
| 19,505 |
|
|
| - |
|
|
| - |
|
|
| 96,106 |
|
|
| 96,106 |
|
|
| 3,597 |
|
|
| 99,703 |
|
Other comprehensive loss |
|
| - |
|
|
| (3,224 | ) |
|
| - |
|
|
| (3,224 | ) |
|
| - |
|
|
| (3,224 | ) |
|
| - |
|
|
| (5,408 | ) |
|
| - |
|
|
| (5,408 | ) |
|
| - |
|
|
| (5,408 | ) |
Common shares issued, net of withholding tax |
|
| (649 | ) |
|
| - |
|
|
| - |
|
|
| (649 | ) |
|
| - |
|
|
| (649 | ) |
|
| (5,130 | ) |
|
| - |
|
|
| - |
|
|
| (5,130 | ) |
|
| - |
|
|
| (5,130 | ) |
Common shares in non-qualified plans |
|
| 298 |
|
|
| - |
|
|
| - |
|
|
| 298 |
|
|
| - |
|
|
| 298 |
|
|
| 130 |
|
|
| - |
|
|
| - |
|
|
| 130 |
|
|
| - |
|
|
| 130 |
|
Stock-based compensation |
|
| 3,620 |
|
|
| - |
|
|
| - |
|
|
| 3,620 |
|
|
| - |
|
|
| 3,620 |
|
|
| 8,995 |
|
|
| - |
|
|
| - |
|
|
| 8,995 |
|
|
| - |
|
|
| 8,995 |
|
Cash dividends declared |
|
| - |
|
|
| - |
|
|
| (15,470 | ) |
|
| (15,470 | ) |
|
| - |
|
|
| (15,470 | ) |
|
| - |
|
|
| - |
|
|
| (16,081 | ) |
|
| (16,081 | ) |
|
| - |
|
|
| (16,081 | ) |
Dividends to noncontrolling interests |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (11,760 | ) |
|
| (11,760 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1,921 | ) |
|
| (1,921 | ) |
Balance at November 30, 2022 |
| $ | 280,354 |
|
| $ | (46,536 | ) |
| $ | 1,279,575 |
|
| $ | 1,513,393 |
|
| $ | 125,899 |
|
| $ | 1,639,292 |
| ||||||||||||||||||||||||
Net earnings |
|
| - |
|
|
| - |
|
|
| 46,325 |
|
|
| 46,325 |
|
|
| 3,933 |
|
|
| 50,258 |
| ||||||||||||||||||||||||
Other comprehensive income |
|
| - |
|
|
| 36,228 |
|
|
| - |
|
|
| 36,228 |
|
|
| - |
|
|
| 36,228 |
| ||||||||||||||||||||||||
Common shares issued, net of withholding tax |
|
| 704 |
|
|
| - |
|
|
| - |
|
|
| 704 |
|
|
| - |
|
|
| 704 |
| ||||||||||||||||||||||||
Common shares in non-qualified plans |
|
| 107 |
|
|
| - |
|
|
| - |
|
|
| 107 |
|
|
| - |
|
|
| 107 |
| ||||||||||||||||||||||||
Stock-based compensation |
|
| 3,818 |
|
|
| - |
|
|
| - |
|
|
| 3,818 |
|
|
| - |
|
|
| 3,818 |
| ||||||||||||||||||||||||
Cash dividends declared |
|
| - |
|
|
| - |
|
|
| (15,149 | ) |
|
| (15,149 | ) |
|
| - |
|
|
| (15,149 | ) | ||||||||||||||||||||||||
Balance at February 28, 2023 |
| $ | 284,983 |
|
| $ | (10,308 | ) |
| $ | 1,310,751 |
|
| $ | 1,585,426 |
|
| $ | 129,832 |
|
| $ | 1,715,258 |
| ||||||||||||||||||||||||
Balance at August 31, 2023 |
| $ | 294,794 |
|
| $ | (28,587 | ) |
| $ | 1,508,416 |
|
| $ | 1,774,623 |
|
| $ | 127,293 |
|
| $ | 1,901,916 |
|
10
|
| Controlling Interest |
|
|
|
|
|
|
| Controlling Interest |
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
|
|
|
| Other |
|
|
|
|
|
|
|
|
|
|
|
|
| Other |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
|
| Additional |
|
| Comprehensive |
|
|
|
|
|
| Non- |
|
|
|
| Additional |
|
| Comprehensive |
|
|
|
|
|
| Non- |
|
|
| ||||||||||||||||||
|
| Paid-in |
|
| Income (Loss), |
|
| Retained |
|
|
| controlling |
|
|
|
| Paid-in |
|
| Income (Loss), |
|
| Retained |
|
|
| controlling |
|
|
| ||||||||||||||||||
(in thousands) |
| Capital |
|
| Net of Tax |
|
| Earnings |
|
| Total |
|
| Interests |
|
| Total |
| ||||||||||||||||||||||||||||||
Balance at May 31, 2021 |
| $ | 282,790 |
|
| $ | 45,387 |
|
| $ | 1,070,016 |
|
| $ | 1,398,193 |
|
| $ | 153,502 |
|
| $ | 1,551,695 |
| ||||||||||||||||||||||||
(In thousands) |
| Capital |
|
| Net of Tax |
|
| Earnings |
|
| Subtotal |
|
| Interests |
|
| Total |
| ||||||||||||||||||||||||||||||
Balance at May 31, 2022 |
| $ | 273,439 |
|
| $ | (22,850 | ) |
| $ | 1,230,163 |
|
| $ | 1,480,752 |
|
| $ | 133,210 |
|
| $ | 1,613,962 |
| ||||||||||||||||||||||||
Net earnings |
|
| - |
|
|
| - |
|
|
| 132,491 |
|
|
| 132,491 |
|
|
| 8,984 |
|
|
| 141,475 |
|
|
| - |
|
|
| - |
|
|
| 64,082 |
|
|
| 64,082 |
|
|
| 1,162 |
|
|
| 65,244 |
|
Other comprehensive loss |
|
| - |
|
|
| (4,274 | ) |
|
| - |
|
|
| (4,274 | ) |
|
| - |
|
|
| (4,274 | ) |
|
| - |
|
|
| (20,462 | ) |
|
| - |
|
|
| (20,462 | ) |
|
| - |
|
|
| (20,462 | ) |
Common shares issued, net of withholding tax |
|
| (4,091 | ) |
|
| - |
|
|
| - |
|
|
| (4,091 | ) |
|
| - |
|
|
| (4,091 | ) |
|
| (3,466 | ) |
|
| - |
|
|
| - |
|
|
| (3,466 | ) |
|
| - |
|
|
| (3,466 | ) |
Common shares in non-qualified plans |
|
| 89 |
|
|
| - |
|
|
| - |
|
|
| 89 |
|
|
| - |
|
|
| 89 |
|
|
| 136 |
|
|
| - |
|
|
| - |
|
|
| 136 |
|
|
| - |
|
|
| 136 |
|
Stock-based compensation |
|
| 6,324 |
|
|
| - |
|
|
| - |
|
|
| 6,324 |
|
|
| - |
|
|
| 6,324 |
|
|
| 6,976 |
|
|
| - |
|
|
| - |
|
|
| 6,976 |
|
|
| - |
|
|
| 6,976 |
|
Purchases and retirement of common shares |
|
| (5,477 | ) |
|
| - |
|
|
| (55,408 | ) |
|
| (60,885 | ) |
|
| - |
|
|
| (60,885 | ) | ||||||||||||||||||||||||
Cash dividends declared |
|
| - |
|
|
| - |
|
|
| (14,504 | ) |
|
| (14,504 | ) |
|
| - |
|
|
| (14,504 | ) |
|
| - |
|
|
| - |
|
|
| (15,418 | ) |
|
| (15,418 | ) |
|
| - |
|
|
| (15,418 | ) |
Dividends to noncontrolling interests |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (9,197 | ) |
|
| (9,197 | ) | ||||||||||||||||||||||||
Balance at August 31, 2021 |
| $ | 279,635 |
|
| $ | 41,113 |
|
| $ | 1,132,595 |
|
| $ | 1,453,343 |
|
| $ | 153,289 |
|
| $ | 1,606,632 |
| ||||||||||||||||||||||||
Net earnings |
|
| - |
|
|
| - |
|
|
| 110,301 |
|
|
| 110,301 |
|
|
| 2,884 |
|
|
| 113,185 |
| ||||||||||||||||||||||||
Other comprehensive loss |
|
| - |
|
|
| (57,858 | ) |
|
| - |
|
|
| (57,858 | ) |
|
| - |
|
|
| (57,858 | ) | ||||||||||||||||||||||||
Common shares issued, net of withholding tax |
|
| (2,694 | ) |
|
| - |
|
|
| - |
|
|
| (2,694 | ) |
|
| - |
|
|
| (2,694 | ) | ||||||||||||||||||||||||
Common shares in non-qualified plans |
|
| 257 |
|
|
| - |
|
|
| - |
|
|
| 257 |
|
|
| - |
|
|
| 257 |
| ||||||||||||||||||||||||
Stock-based compensation |
|
| 3,304 |
|
|
| - |
|
|
| - |
|
|
| 3,304 |
|
|
| - |
|
|
| 3,304 |
| ||||||||||||||||||||||||
Purchases and retirement of common shares |
|
| (1,297 | ) |
|
| - |
|
|
| (11,405 | ) |
|
| (12,702 | ) |
|
| - |
|
|
| (12,702 | ) | ||||||||||||||||||||||||
Cash dividends declared |
|
| - |
|
|
| - |
|
|
| (14,154 | ) |
|
| (14,154 | ) |
|
| - |
|
|
| (14,154 | ) | ||||||||||||||||||||||||
Dividends to noncontrolling interests |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (2,879 | ) |
|
| (2,879 | ) | ||||||||||||||||||||||||
Balance at November 30, 2021 |
| $ | 279,205 |
|
| $ | (16,745 | ) |
| $ | 1,217,337 |
|
| $ | 1,479,797 |
|
| $ | 153,294 |
|
| $ | 1,633,091 |
| ||||||||||||||||||||||||
Net earnings |
|
| - |
|
|
| - |
|
|
| 56,342 |
|
|
| 56,342 |
|
|
| 2,305 |
|
|
| 58,647 |
| ||||||||||||||||||||||||
Other comprehensive loss |
|
| - |
|
|
| (19,348 | ) |
|
| - |
|
|
| (19,348 | ) |
|
| - |
|
|
| (19,348 | ) | ||||||||||||||||||||||||
Common shares issued, net of withholding tax |
|
| 269 |
|
|
| - |
|
|
| - |
|
|
| 269 |
|
|
| - |
|
|
| 269 |
| ||||||||||||||||||||||||
Common shares in non-qualified plans |
|
| 79 |
|
|
| - |
|
|
| - |
|
|
| 79 |
|
|
| - |
|
|
| 79 |
| ||||||||||||||||||||||||
Stock-based compensation |
|
| 2,889 |
|
|
| - |
|
|
| - |
|
|
| 2,889 |
|
|
| - |
|
|
| 2,889 |
| ||||||||||||||||||||||||
Purchases and retirement of common shares |
|
| (5,559 | ) |
|
| - |
|
|
| (48,696 | ) |
|
| (54,255 | ) |
|
| - |
|
|
| (54,255 | ) | ||||||||||||||||||||||||
Cash dividends declared |
|
| - |
|
|
| - |
|
|
| (14,407 | ) |
|
| (14,407 | ) |
|
| - |
|
|
| (14,407 | ) | ||||||||||||||||||||||||
Dividends to noncontrolling interests |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (3,360 | ) |
|
| (3,360 | ) | ||||||||||||||||||||||||
Balance at February 28, 2022 |
| $ | 276,883 |
|
| $ | (36,093 | ) |
| $ | 1,210,576 |
|
| $ | 1,451,366 |
|
| $ | 152,239 |
|
| $ | 1,603,605 |
| ||||||||||||||||||||||||
Balance at August 31, 2022 |
| $ | 277,085 |
|
| $ | (43,312 | ) |
| $ | 1,278,827 |
|
| $ | 1,512,600 |
|
| $ | 134,372 |
|
| $ | 1,646,972 |
|
The following table summarizes the changes in accumulated OCI for the periods presented:
|
|
|
|
|
|
|
|
|
|
| Accumulated |
| ||||
|
| Foreign |
|
| Pension |
|
|
|
|
| Other |
| ||||
|
| Currency |
|
| Liability |
|
| Cash Flow |
|
| Comprehensive |
| ||||
(in thousands) |
| Translation |
|
| Adjustment |
|
| Hedges |
|
| Loss |
| ||||
Balance at May 31, 2022 |
| $ | (15,310 | ) |
| $ | (6,244 | ) |
| $ | (1,296 | ) |
| $ | (22,850 | ) |
Other comprehensive loss before reclassifications |
|
| (7,549 | ) |
|
| (619 | ) |
|
| (2,999 | ) |
|
| (11,167 | ) |
Reclassification adjustments to net earnings (a) |
|
| - |
|
|
| 4,774 |
|
|
| 24,200 |
|
|
| 28,974 |
|
Income tax effect |
|
| (131 | ) |
|
| (975 | ) |
|
| (4,159 | ) |
|
| (5,265 | ) |
Balance at February 28, 2023 |
| $ | (22,990 | ) |
| $ | (3,064 | ) |
| $ | 15,746 |
|
| $ | (10,308 | ) |
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
| Accumulated |
| ||||||||||||||
|
| Foreign |
| Pension |
|
|
| Other |
|
| Foreign |
| Pension |
|
|
| Other |
| ||||||||||||||
|
| Currency |
| Liability |
| Cash Flow |
| Comprehensive |
|
| Currency |
| Liability |
| Cash Flow |
| Comprehensive |
| ||||||||||||||
(in thousands) |
| Translation |
|
| Adjustment |
|
| Hedges |
|
| Income (Loss) |
| ||||||||||||||||||||
Balance at May 31, 2021 |
| $ | 1,779 |
|
| $ | (15,955 | ) |
| $ | 59,563 |
|
| $ | 45,387 |
| ||||||||||||||||
(In thousands) |
| Translation |
|
| Adjustment |
|
| Hedges |
|
| Loss |
| ||||||||||||||||||||
Balance at May 31, 2023 |
| $ | (22,123 | ) |
| $ | (1,730 | ) |
| $ | 674 |
|
| $ | (23,179 | ) | ||||||||||||||||
Other comprehensive income (loss) before reclassifications |
|
| (9,473 | ) |
|
| 500 |
|
|
| 11,747 |
|
|
| 2,774 |
|
|
| 1,326 |
|
|
| - |
|
|
| (2,038 | ) |
|
| (712 | ) |
Reclassification adjustments to net earnings (a) |
|
| - |
|
|
| 1,200 |
|
|
| (107,152 | ) |
|
| (105,952 | ) |
|
| - |
|
|
| - |
|
|
| (6,773 | ) |
|
| (6,773 | ) |
Income tax effect |
|
| (851 | ) |
|
| (336 | ) |
|
| 22,885 |
|
|
| 21,698 |
|
|
| 118 |
|
|
| (3 | ) |
|
| 1,962 |
|
|
| 2,077 |
|
Balance at February 28, 2022 |
| $ | (8,545 | ) |
| $ | (14,591 | ) |
| $ | (12,957 | ) |
| $ | (36,093 | ) | ||||||||||||||||
Balance at August 31, 2023 |
| $ | (20,679 | ) |
| $ | (1,733 | ) |
| $ | (6,175 | ) |
| $ | (28,587 | ) |
1110
|
|
|
|
|
|
|
|
|
|
| Accumulated |
| ||||
|
| Foreign |
|
| Pension |
|
|
|
|
| Other |
| ||||
|
| Currency |
|
| Liability |
|
| Cash Flow |
|
| Comprehensive |
| ||||
(In thousands) |
| Translation |
|
| Adjustment |
|
| Hedges |
|
| Loss |
| ||||
Balance at May 31, 2022 |
| $ | (15,310 | ) |
| $ | (6,244 | ) |
| $ | (1,296 | ) |
| $ | (22,850 | ) |
Other comprehensive loss before reclassifications |
|
| (9,519 | ) |
|
| (1,049 | ) |
|
| (14,207 | ) |
|
| (24,775 | ) |
Reclassification adjustments to net earnings (a)(b) |
|
| - |
|
|
| 4,774 |
|
|
| (2,890 | ) |
|
| 1,884 |
|
Income tax effect |
|
| (581 | ) |
|
| (786 | ) |
|
| 3,796 |
|
|
| 2,429 |
|
Balance at August 31, 2022 |
| $ | (25,410 | ) |
| $ | (3,305 | ) |
| $ | (14,597 | ) |
| $ | (43,312 | ) |
(a)
Note LK – Stock-Based Compensation
Non-Qualified Stock Options
During the ninethree months ended February 28,August 31, 2023, we granted non-qualified stock options covering a total of 84,40054 common shares, no par value, of Worthington Industries (the “common shares”) under our stock-based compensation plans. The exercise price of $46.3969.47 per share was equal to the market price of the underlying common shares on the grant date. The fair value of these non-qualified stock options, based on the Black-Scholes option-pricing model, calculated at the grant date, was $16.3625.95 per share. The calculated pre-tax stock-based compensation expense for these non-qualified stock options ofwas $1,381,0001,401 and will be recognized on a straight-line basis over the three-year vesting period, net of any forfeitures. The following assumptions were used to value these non-qualified stock options:
Dividend yield |
|
|
| % |
Expected volatility |
|
|
| % |
Risk-free interest rate |
|
|
| % |
Expected term (years) |
|
| 6.0 |
|
Expected volatility is based on the historical volatility of the common shares and the risk-free interest rate is based on the U.S. Treasury strip rate for the expected term of the non-qualified stock options. The expected term was developed using historical exercise experience.
Service-Based Restricted Common Shares
During the ninethree months ended February 28,August 31, 2023, we granted an aggregate of 345,55097 service-based restricted common shares under our stock-based compensation plans, which generallycliff vest three years after theirfrom the grant date. The fair value of these restricted common shares was equal to the weighted average closing market price of the underlying common shares on the date of grant, or $49.4969.62 per share. The calculated pre-tax stock-based compensation expense for these restricted common shares iswas $17,100,0006,757 and will be recognized on a straight-line basis over the three-year service-based vesting period, net of any forfeitures.
Market-Based Restricted Common Shares
On June 24, 2022, we granted 10,000 market-based restricted common shares to one key employee under one of our stock-based compensation plans. Vesting of these restricted common shares is contingent upon the average closing price of the common shares reaching $65.00 during any 90 consecutive day period during the five-year period following the date of grant and completion of a three-year service vesting period. The grant date fair value of these restricted common shares, as determined by a Monte Carlo simulation model, was $35.49 per share. The calculated pre-tax stock-based compensation expense for these market-based restricted common shares is $355,000 and will be recognized on a straight-line basis over the three-year service-based vesting period. The following assumptions were used to determine the grant-date fair value and the derived service period for these restricted common shares:
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 (“adjusted EBIT”) target, in each case for the three-year periods ending May 31, 2023, 2024, 2025 and 2025.2026. These performance share awards will be paid, to the extent earned, in common shares 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 ninethree months ended February 28,August 31, 2023, we granted performance share awards covering an aggregate of 58,10047 common shares (at target levels). The calculated pre-tax stock-based compensation expense for these performance shares is $2,695,0003,235 (at target levels). The ultimate pre-tax stock-based compensation expense to be recognized over the three-year performance period on all tranches will vary based on our periodic assessment of the probability of the targets being achieved.
11
Note ML – Income Taxes
Income tax expense for the ninethree months ended February 28,August 31, 2023 and 2022 reflected estimated annual effective income tax rates of 22.823.3% and 23.223.9%, respectively, and excludeexcluded any impact from the inclusion of net earnings attributable to noncontrolling interests in our consolidated statements of earnings. Net earnings attributable to noncontrolling interests are primarily a result of our WSP, Spartan, Samuel Spartan,and TWB and WSP (through the disposition of its remaining net assets on October 31, 2022) consolidated joint ventures. The net earnings attributable to the noncontrolling interests in WSP, Spartan, Samuel Spartan, TWB and WSP’sTWB’s U.S. operations do not generate tax expense to us since the investors in WSP, Spartan, Samuel Spartan, TWB and WSP’sTWB’s U.S. operations are taxed directly based on the earnings attributable to them. The tax expense of TWB’s wholly-owned foreign corporations is reported in our consolidated income tax expense. Management is required to estimate the annual effective income tax rate based upon its forecast of annual pre-tax income for domestic and foreign operations. Our actual effective income tax rate for fiscal 20232024 could be materially different from the forecasted rate as of February 28,August 31, 2023.
Note NM – 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 |
| Three Months Ended |
| ||||||||||||||||
| February 28, |
|
| February 28, |
| August 31, |
| |||||||||||||||
(in thousands, except per share amounts) | 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| |||||||||||
(In thousands, except per common share amounts) | 2023 |
|
| 2022 |
| |||||||||||||||||
Numerator (basic & diluted): |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Net earnings attributable to controlling interest - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
income available to common shareholders | $ | 46,325 |
|
| $ | 56,342 |
|
| $ | 126,625 |
|
| $ | 299,134 |
| $ | 96,106 |
|
| $ | 64,082 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Denominator for basic earnings per share attributable to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
controlling interest - weighted average common shares |
| 48,587 |
|
|
| 49,749 |
|
|
| 48,541 |
|
|
| 50,331 |
| |||||||
controlling interest – weighted average common shares |
| 48,842 |
|
|
| 48,478 |
| |||||||||||||||
Effect of dilutive securities |
| 906 |
|
|
| 892 |
|
|
| 815 |
|
|
| 944 |
|
| 1,044 |
|
|
| 760 |
|
Denominator for diluted earnings per share attributable to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
controlling interest - adjusted weighted average common shares |
| 49,493 |
|
|
| 50,641 |
|
|
| 49,356 |
|
|
| 51,275 |
| |||||||
controlling interest – adjusted weighted average common shares |
| 49,886 |
|
|
| 49,238 |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Basic earnings per share attributable to controlling interest | $ | 0.95 |
|
| $ | 1.13 |
|
| $ | 2.61 |
|
| $ | 5.94 |
| |||||||
Diluted earnings per share attributable to controlling interest | $ | 0.94 |
|
| $ | 1.11 |
|
| $ | 2.57 |
|
| $ | 5.83 |
| |||||||
Basic earnings per common share attributable to controlling interest | $ | 1.97 |
|
| $ | 1.32 |
| |||||||||||||||
Diluted earnings per common share attributable to controlling interest | $ | 1.93 |
|
| $ | 1.30 |
|
Stock options covering an aggregate of 138,10037 and 53,800117 common shares for the three months ended February 28, 2023 and 2022, respectively, and 131,000 and 49,500 common shares for the nine months ended February 28,August 31, 2023 and 2022, respectively, have been excluded from the computation of diluted earnings per common share because the effect would have been anti-dilutive for those periods.
13
Note ON – Segment Operations
We are an industrial manufacturing company focused on value-added steel processing and manufactured consumer, building, and sustainable mobility products. Our operations are managed principally on a products and services basis and organized under four operating segments: Steel Processing, Consumer Products, Building Products, and Sustainable Energy Solutions. As none of our operating segments have been aggregated for segment reporting purposes, they correspond with our reportable segments. Segment information is prepared on the same basis that our CODM reviews financial information for operational decision-making purposes. Factors used to identify 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.
We have identified our Chief Executive Officer as the chief operating decision maker (“CODM”), who is our Chief Executive Officer,as defined in the accounting literature. Our CODM assesses segment operating segment performance and allocates resources based on the profitability measure of adjusted EBIT. EBIT is calculated by adding interest expense and income tax expense to net earnings attributable to controlling interest. Adjusted EBIT excludes impairment and restructuring expense (income), but may also exclude other items, as described in the tables below, that management believes are not reflective of, and thus should not be included when evaluating the performance of our ongoing operations. Adjusted EBIT is a non-GAAP financial measure and is used by management to evaluate operating segment performance, engage in financial and operational planning and determine incentive compensation.
Impairment charges are excluded from adjusted EBIT because they do not occur in the ordinary course of our ongoing business operations, are inherently unpredictable in timing and amount, and are non-cash, so their exclusion facilitates the comparison of historical, current and forecasted financial results.
12
Restructuring activities consist of established programs that are not part of our ongoing operations, such as divestitures, closing or consolidating facilities, employee severance (including rationalizing headcount or other significant changes in personnel), and realignment of existing operations (including changes to management structure in response to underlying performance and/or changing market conditions).
The following table presents summarized financial information for our operatingreportable segments for the periods indicated.
| Three Months Ended February 28, 2023 |
| Three Months Ended August 31, 2023 |
| ||||||||||||||||||||||||||||||||||||||||
(in thousands) | Steel Processing |
|
| Consumer Products |
|
| Building Products |
| Sustainable Energy Solutions |
|
| Other |
|
| Consolidated |
| ||||||||||||||||||||||||||||
(In thousands) | Steel Processing |
|
| Consumer Products |
|
| Building Products |
| Sustainable Energy Solutions |
|
| Other |
|
| Consolidated |
| ||||||||||||||||||||||||||||
Net sales | $ | 757,007 |
|
| $ | 162,647 |
|
| $ | 151,876 |
| $ | 31,792 |
|
| $ | - |
|
| $ | 1,103,322 |
| $ | 881,339 |
|
| $ | 149,412 |
|
| $ | 133,868 |
| $ | 28,637 |
|
| $ | - |
|
| $ | 1,193,256 |
|
Impairment of long-lived assets |
| - |
|
|
| - |
|
|
| 484 |
| - |
|
|
| - |
|
|
| 484 |
|
| 1,401 |
|
|
| - |
|
|
| - |
| - |
|
|
| - |
|
|
| 1,401 |
| ||
Restructuring and other expense, net |
| 1 |
|
|
| 206 |
|
|
| 617 |
| - |
|
|
| - |
|
|
| 824 |
| |||||||||||||||||||||||
Separation costs |
| - |
|
|
| - |
|
|
| - |
| - |
|
|
| 6,347 |
|
|
| 6,347 |
|
| - |
|
|
| - |
|
|
| - |
| - |
|
|
| 6,035 |
|
|
| 6,035 |
| ||
Miscellaneous income (expense), net |
| 1,111 |
|
|
| (21 | ) |
|
| 130 |
| (37 | ) |
|
| 144 |
|
|
| 1,327 |
|
| 712 |
|
|
| 31 |
|
|
| 57 |
| 281 |
|
|
| (70 | ) |
|
| 1,011 |
| ||
Loss on extinguishment of debt |
| - |
|
|
| - |
|
|
| - |
| - |
|
|
| 1,534 |
|
|
| 1,534 |
| |||||||||||||||||||||||
Equity income |
| (185 | ) |
|
| - |
|
|
| 37,836 |
| - |
|
|
| (725 | ) |
|
| 36,926 |
|
| 8,957 |
|
|
| - |
|
|
| 45,043 |
| - |
|
|
| 381 |
|
|
| 54,381 |
| ||
Adjusted EBIT (1) |
| 7,788 |
|
|
| 17,943 |
|
|
| 51,472 |
| (1,440 | ) |
|
| (4,443 | ) |
|
| 71,320 |
|
| 78,002 |
|
|
| 8,991 |
|
|
| 54,016 |
| (4,722 | ) |
|
| 132 |
|
|
| 136,419 |
|
| Three Months Ended February 28, 2022 |
| Three Months Ended August 31, 2022 |
| ||||||||||||||||||||||||||||||||||||||||
(in thousands) | Steel Processing |
|
| Consumer Products |
|
| Building Products |
| Sustainable Energy Solutions |
|
| Other |
|
| Consolidated |
| ||||||||||||||||||||||||||||
(In thousands) | Steel Processing |
|
| Consumer Products |
|
| Building Products |
| Sustainable Energy Solutions |
|
| Other |
|
| Consolidated |
| ||||||||||||||||||||||||||||
Net sales | $ | 1,052,562 |
|
| $ | 161,692 |
|
| $ | 132,944 |
| $ | 31,037 |
|
| $ | - |
|
| $ | 1,378,235 |
| $ | 1,038,880 |
|
| $ | 188,703 |
|
| $ | 150,323 |
| $ | 30,759 |
|
| $ | - |
|
| $ | 1,408,665 |
|
Impairment of long-lived assets |
| 3,076 |
|
|
| - |
|
|
| - |
| - |
|
|
| - |
|
|
| 3,076 |
|
| 312 |
|
|
| - |
|
|
| - |
| - |
|
|
| - |
|
|
| 312 |
| ||
Restructuring and other expense (income), net |
| 114 |
|
|
| - |
|
|
| (35 | ) |
| - |
|
|
| (583 | ) |
|
| (504 | ) |
| 78 |
|
|
| - |
|
|
| - |
| - |
|
|
| (1,178 | ) |
|
| (1,100 | ) | |
Miscellaneous income, net |
| (12 | ) |
|
| (39 | ) |
|
| (3 | ) |
| (38 | ) |
|
| 485 |
|
|
| 393 |
|
| 184 |
|
|
| (35 | ) |
|
| 222 |
| (86 | ) |
|
| (5,371 | ) |
|
| (5,086 | ) | |
Equity income |
| 4,692 |
|
|
| - |
|
|
| 39,978 |
| - |
|
|
| 2,796 |
|
|
| 47,466 |
|
| 1,770 |
|
|
| - |
|
|
| 43,866 |
| - |
|
|
| (13,924 | ) |
|
| 31,712 |
| ||
Adjusted EBIT (2) |
| 7,116 |
|
|
| 26,674 |
|
|
| 49,570 |
| (2,801 | ) |
|
| 4,039 |
|
|
| 84,598 |
|
| 34,913 |
|
|
| 20,934 |
|
|
| 52,734 |
| (1,393 | ) |
|
| 5,145 |
|
|
| 112,333 |
|
14
Tablethe remaining real property of Contents
| Nine Months Ended February 28, 2023 |
| ||||||||||||||||||||
(in thousands) | Steel Processing |
|
| Consumer Products |
|
| Building Products |
| Sustainable Energy Solutions |
|
| Other |
|
| Consolidated |
| ||||||
Net sales | $ | 2,637,834 |
|
| $ | 505,145 |
|
| $ | 443,870 |
| $ | 100,679 |
|
| $ | - |
|
| $ | 3,687,528 |
|
Impairment of long-lived assets |
| 312 |
|
|
| - |
|
|
| 484 |
|
| - |
|
|
| - |
|
|
| 796 |
|
Restructuring and other expense (income), net |
| (4,204 | ) |
|
| 206 |
|
|
| 617 |
|
| - |
|
|
| (1,177 | ) |
|
| (4,558 | ) |
Separation costs |
| - |
|
|
| - |
|
|
| - |
|
| - |
|
|
| 15,593 |
|
|
| 15,593 |
|
Miscellaneous income (expense), net |
| 2,145 |
|
|
| (102 | ) |
|
| 428 |
|
| 19 |
|
|
| (4,844 | ) |
|
| (2,354 | ) |
Equity income |
| 3,491 |
|
|
| - |
|
|
| 116,809 |
|
| - |
|
|
| (14,805 | ) |
|
| 105,495 |
|
Adjusted EBIT (3)(4) |
| 25,450 |
|
|
| 52,350 |
|
|
| 145,431 |
|
| (1,690 | ) |
|
| (2,588 | ) |
|
| 218,953 |
|
13
| Nine Months Ended February 28, 2022 |
| ||||||||||||||||||||
(in thousands) | Steel Processing |
|
| Consumer Products |
|
| Building Products |
| Sustainable Energy Solutions |
|
| Other |
|
| Consolidated |
| ||||||
Net sales | $ | 2,813,214 |
|
| $ | 450,268 |
|
| $ | 368,813 |
| $ | 89,619 |
|
| $ | - |
|
| $ | 3,721,914 |
|
Impairment of long-lived assets |
| 3,076 |
|
|
| - |
|
|
| - |
|
| - |
|
|
| - |
|
|
| 3,076 |
|
Restructuring and other expense (income), net |
| (12,199 | ) |
|
| - |
|
|
| (35 | ) |
| (143 | ) |
|
| (2,405 | ) |
|
| (14,782 | ) |
Miscellaneous income, net |
| 35 |
|
|
| 169 |
|
|
| 141 |
|
| (16 | ) |
|
| 1,734 |
|
|
| 2,063 |
|
Equity income |
| 22,864 |
|
|
| - |
|
|
| 132,865 |
|
| - |
|
|
| 4,871 |
|
|
| 160,600 |
|
Adjusted EBIT (5) |
| 186,734 |
|
|
| 64,813 |
|
|
| 153,042 |
|
| (4,561 | ) |
|
| 5,517 |
|
|
| 405,545 |
|
Total assets for each of our reportable operating segments at the dates indicated were as follows:
| February 28, |
| May 31, |
| August 31, |
| May 31, |
| ||||||
(in thousands) | 2023 |
|
| 2022 |
| |||||||||
(In thousands) | 2023 |
|
| 2023 |
| |||||||||
Total assets |
|
|
|
|
|
|
|
| ||||||
Steel Processing | $ | 1,763,730 |
|
| $ | 2,082,522 |
| $ | 1,786,067 |
|
| $ | 1,758,981 |
|
Consumer Products |
| 636,896 |
|
|
| 577,026 |
|
| 615,223 |
|
|
| 615,430 |
|
Building Products |
| 647,582 |
|
|
| 681,188 |
|
| 619,794 |
|
|
| 635,650 |
|
Sustainable Energy Solutions |
| 121,689 |
|
|
| 114,084 |
|
| 139,147 |
|
|
| 129,872 |
|
Other |
| 327,775 |
|
|
| 188,203 |
|
| 316,461 |
|
|
| 510,985 |
|
Total assets | $ | 3,497,672 |
|
| $ | 3,643,023 |
| $ | 3,476,692 |
|
| $ | 3,650,918 |
|
15
Note PO – Acquisitions
Level5®Level5 Tools, LLC
On June 2, 2022, we acquired Level5® Tools, LLC (“Level5”),Level5, a leading provider of drywall tools and related accessories. The total purchase price was $59,321,00059,321, including $2,000,0002,000 attributed to an earnout agreement with the selling shareholders, that provides for up to an additional $25,000,00025,000 of cash consideration should certain earnings targets be met annually through calendar year 2024. The earnout agreement also requires continued employment of a selling shareholder during the duration of the earnout period. Accordingly, payments to this key employee, to the extent earned, will be accounted for as post-combination compensation expense. During the third quarter, a pre-tax benefitAs of $1,050,000 was recorded within SG&A in the consolidated statements of earnings to reverse theAugust 31, 2023, no amounts were accrued as compensation expense accrued during the first six months of fiscal 2023 for the anticipated payoutpayments under the firstsecond earnout period ending December 31, 2023.
Level5 is being operated as part of the Consumer Products operating segment and its results have been included in our consolidated statements of earnings since the date of acquisition. Proforma results, including the acquired business since the beginning of fiscal 2022, would not be materially different from the reported results.
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 us, 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 connection with the acquisition of Level5, we identified and valued the following intangible assets:
(in thousands) |
|
|
|
| ||||||||
(In thousands) |
|
|
|
| ||||||||
Category |
| Amount |
|
| Useful Life (Years) |
| Amount |
|
| Useful Life (Years) | ||
Trade name |
| $ | 13,500 |
|
| Indefinite |
| $ | 13,500 |
|
| Indefinite |
Customer relationships |
|
| 13,300 |
|
| 10 |
|
| 13,300 |
|
| 10 |
Technological know-how |
|
| 6,500 |
|
| 20 |
|
| 6,500 |
|
| 20 |
Non-compete agreement |
|
| 280 |
|
| 3 |
|
| 280 |
|
| 3 |
Total acquired identifiable intangible assets |
| $ | 33,580 |
|
|
|
| $ | 33,580 |
|
|
|
The purchase price includes the fair values of other assets that were not identifiable, not separately recognizable under applicable 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 by us for income tax purposes.
1614
The following table summarizes the consideration transferredpaid and the estimatedfinal fair value assigned to the assets acquired and liabilities assumed at the acquisition date.
These amounts reflect various preliminary fair value estimates and assumptions, including preliminary work performed by a third-party valuation specialist, and are subject to change within the measurement period as the valuation is finalized. The primary areas of preliminary purchase price allocation subject to change relate to the valuation of acquired tangible assets and liabilities, identification and valuation of residual goodwill and tax effects of acquired assets and assumed liabilities.
(in thousands) |
| Preliminary |
|
| Measurement |
|
| Revised |
| |||||||||||||||
(In thousands) |
| Preliminary |
|
| Measurement |
|
| Final |
| |||||||||||||||
Cash and cash equivalents |
| $ | 1,515 |
|
| $ | - |
|
| $ | 1,515 |
|
| $ | 1,515 |
|
| $ | - |
|
| $ | 1,515 |
|
Accounts receivable |
|
| 2,860 |
|
|
| - |
|
|
| 2,860 |
|
|
| 2,860 |
|
|
| - |
|
|
| 2,860 |
|
Inventories |
|
| 9,161 |
|
|
| - |
|
|
| 9,161 |
|
|
| 9,161 |
|
|
| - |
|
|
| 9,161 |
|
Prepaid expenses |
|
| 64 |
|
|
| - |
|
|
| 64 |
|
|
| 64 |
|
|
| - |
|
|
| 64 |
|
Property, plant and equipment |
|
| 273 |
|
|
| - |
|
|
| 273 |
|
|
| 273 |
|
|
| - |
|
|
| 273 |
|
Intangible assets |
|
| 33,580 |
|
|
| - |
|
|
| 33,580 |
|
|
| 33,580 |
|
|
| - |
|
|
| 33,580 |
|
Operating lease assets |
|
| 377 |
|
|
| - |
|
|
| 377 |
|
|
| 377 |
|
|
| - |
|
|
| 377 |
|
Total identifiable assets |
|
| 47,830 |
|
|
| - |
|
|
| 47,830 |
|
|
| 47,830 |
|
|
| - |
|
|
| 47,830 |
|
Accounts payable |
|
| (3,175 | ) |
|
| - |
|
|
| (3,175 | ) |
|
| (3,175 | ) |
|
| - |
|
|
| (3,175 | ) |
Accrued expenses |
|
| (904 | ) |
|
| 151 |
|
|
| (753 | ) |
|
| (904 | ) |
|
| 151 |
|
|
| (753 | ) |
Current operating lease liabilities |
|
| (111 | ) |
|
| - |
|
|
| (111 | ) |
|
| (111 | ) |
|
| - |
|
|
| (111 | ) |
Noncurrent operating lease liabilities |
|
| (266 | ) |
|
| - |
|
|
| (266 | ) |
|
| (266 | ) |
|
| - |
|
|
| (266 | ) |
Net identifiable assets |
|
| 43,374 |
|
|
| 151 |
|
|
| 43,525 |
|
|
| 43,374 |
|
|
| 151 |
|
|
| 43,525 |
|
Goodwill |
|
| 15,947 |
|
|
| - |
|
|
| 15,947 |
|
|
| 15,947 |
|
|
| - |
|
|
| 15,947 |
|
Total purchase price |
|
| 59,321 |
|
|
| 151 |
|
|
| 59,472 |
|
|
| 59,321 |
|
|
| 151 |
|
|
| 59,472 |
|
Less: Fair value of earnout |
|
| (2,000 | ) |
|
| - |
|
|
| (2,000 | ) |
|
| (2,000 | ) |
|
| - |
|
|
| (2,000 | ) |
Plus: Net working capital deficit |
|
| 282 |
|
|
| (151 | ) |
|
| 131 |
|
|
| 282 |
|
|
| (151 | ) |
|
| 131 |
|
Cash purchase price |
| $ | 57,603 |
|
| $ | - |
|
| $ | 57,603 |
|
| $ | 57,603 |
|
| $ | - |
|
| $ | 57,603 |
|
Note QP – Derivative Financial 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 financial instruments include interest rate risk, foreign currency exchange rate risk and commodity price risk. While certain of our derivative financial instruments are designated as hedging instruments, we also enter into derivative financial 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 financial 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 financial 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, copper, 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 financial instruments to manage the associated price risk.
17
We are exposed to counterparty credit risk on all of our derivative financial 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.
15
Refer to “Note RQ – Fair Value” for additional information regarding the accounting treatment for our derivative financial instruments, as well as how fair value is determined.
The following table summarizes the fair value of our derivative financial instruments and the respective lines in which they were recorded in the consolidated balance sheet at February 28,August 31, 2023:
|
| Asset Derivatives |
|
| Liability Derivatives |
| ||||||
|
| Balance |
|
|
|
| Balance |
|
|
| ||
|
| Sheet |
| Fair |
|
| Sheet |
| Fair |
| ||
(in thousands) |
| Location |
| Value |
|
| Location |
| Value |
| ||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
| ||
Commodity contracts |
| Receivables |
| $ | 30,670 |
|
| Accounts payable |
| $ | 1,701 |
|
| Other assets |
|
| 1,137 |
|
| Other liabilities |
|
| 8 |
| |
|
|
|
| 31,807 |
|
|
|
|
| 1,709 |
| |
Foreign currency exchange contracts |
| Other assets |
|
| 273 |
|
| Accounts payable |
|
| - |
|
Total |
|
|
| $ | 32,080 |
|
|
|
| $ | 1,709 |
|
|
|
|
|
|
|
|
|
|
| |||
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
| ||||
Commodity contracts |
| Receivables |
| $ | 1,410 |
|
| Accounts payable |
| $ | 19,185 |
|
| Other assets |
|
| - |
|
| Other liabilities |
|
| 1,719 |
| |
|
|
|
| 1,410 |
|
|
|
|
| 20,904 |
| |
Foreign currency exchange contracts |
| Receivables |
|
| - |
|
| Accounts payable |
|
| 15 |
|
Total |
|
|
| $ | 1,410 |
|
|
|
| $ | 20,919 |
|
|
|
|
|
|
|
|
|
|
|
| ||
Total derivative financial instruments |
|
|
| $ | 33,490 |
|
|
|
| $ | 22,628 |
|
The amounts in the table above reflect the fair value of our derivative financial 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 an $8,326,000 increase in Receivables with a corresponding increase in Accounts payable.
18
The following table summarizes the fair value of our derivative financial instruments and the respective lines in which they were recorded in the consolidated balance sheet at May 31, 2022:
|
| Asset Derivatives |
|
| Liability Derivatives |
|
| Asset Derivatives |
|
| Liability Derivatives |
| ||||||||||||
|
| Balance |
|
|
| Balance |
|
|
|
| Balance |
|
|
| Balance |
|
|
| ||||||
|
| Sheet |
| Fair |
|
| Sheet |
| Fair |
|
| Sheet |
| Fair |
|
| Sheet |
| Fair |
| ||||
(in thousands) |
| Location |
| Value |
|
| Location |
| Value |
| ||||||||||||||
(In thousands) |
| Location |
| Value |
|
| Location |
| Value |
| ||||||||||||||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commodity contracts |
| Receivables |
| $ | 1,040 |
|
| Accounts payable |
| $ | 4,517 |
|
| Receivables |
| $ | 80 |
|
| Accounts payable |
| $ | 9,490 |
|
| Other assets |
|
| 176 |
|
| Other liabilities |
|
| - |
| |||||||||||||
| Other assets |
|
| - |
|
| Other liabilities |
|
| 48 |
|
|
|
|
| 256 |
|
|
|
|
| 9,490 |
| |
|
|
|
| 1,040 |
|
|
|
|
| 4,565 |
|
|
|
|
|
|
|
|
|
|
| |||
Foreign currency exchange contracts |
| Receivables |
|
| - |
|
| Accounts payable |
|
| - |
|
| Receivables |
|
| - |
|
| Accounts payable |
|
| 63 |
|
|
| Other assets |
|
| - |
|
| Other liabilities |
|
| 17 |
|
|
|
|
| - |
|
|
|
|
| 63 |
|
|
|
|
|
| - |
|
|
|
|
| 17 |
|
|
|
|
|
|
|
|
|
|
| ||
Total |
|
|
| $ | 1,040 |
|
|
|
| $ | 4,582 |
| ||||||||||||
Subtotals |
|
|
| $ | 256 |
|
|
|
| $ | 9,553 |
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Derivatives not designated as hedging instruments: | Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
| Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
| ||||||
Commodity contracts |
| Receivables |
| $ | 11,555 |
|
| Accounts payable |
| $ | 4,142 |
|
| Receivables |
| $ | 976 |
|
| Accounts payable |
| $ | 3,320 |
|
| Other assets |
|
| 48 |
|
| Other liabilities |
|
| 24 |
|
| Other assets |
|
| - |
|
| Other liabilities |
|
| 20 |
| |
|
|
|
| 11,603 |
|
|
|
|
| 4,166 |
| |||||||||||||
Foreign currency exchange contracts |
| Receivables |
|
| - |
|
| Accounts payable |
|
| 255 |
| ||||||||||||
Total |
|
|
| $ | 11,603 |
|
|
|
| $ | 4,421 |
| ||||||||||||
Subtotals |
|
|
|
| 976 |
|
|
|
|
| 3,340 |
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total derivative financial instruments |
|
|
| $ | 12,643 |
|
|
|
| $ | 9,003 |
|
|
|
| $ | 1,232 |
|
|
|
| $ | 12,893 |
|
The amounts in the table above reflect the fair value of our derivative financial 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 $6,300,0003,791 increase in Receivablesreceivables with a corresponding increase in Accountsaccounts payable.
The following table summarizes the fair value of our derivative financial instruments and the respective lines in which they were recorded in the consolidated balance sheet at May 31, 2023:
|
| Asset Derivatives |
|
| Liability Derivatives |
| ||||||
|
| Balance |
|
|
|
| Balance |
|
|
| ||
|
| Sheet |
| Fair |
|
| Sheet |
| Fair |
| ||
(In thousands) |
| Location |
| Value |
|
| Location |
| Value |
| ||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
| ||
Commodity contracts |
| Receivables |
| $ | 20 |
|
| Accounts payable |
| $ | 6,749 |
|
| Other assets |
|
| 51 |
|
| Other liabilities |
|
| 379 |
| |
|
|
|
| 71 |
|
|
|
|
| 7,128 |
| |
|
|
|
|
|
|
|
|
|
|
| ||
Foreign currency exchange contracts |
| Receivables |
|
| - |
|
| Accounts payable |
|
| 33 |
|
|
|
|
|
| - |
|
|
|
|
| 33 |
|
|
|
|
|
|
|
|
|
|
|
| ||
Subtotals |
|
|
| $ | 71 |
|
|
|
| $ | 7,161 |
|
|
|
|
|
|
|
|
|
|
| |||
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
| ||||
Commodity contracts |
| Receivables |
| $ | 2,539 |
|
| Accounts payable |
| $ | 8,604 |
|
| Other assets |
|
| - |
|
| Other liabilities |
|
| 35 |
| |
Subtotals |
|
|
|
| 2,539 |
|
|
|
|
| 8,639 |
|
|
|
|
|
|
|
|
|
|
|
| ||
Total derivative financial instruments |
|
|
| $ | 2,610 |
|
|
|
| $ | 15,800 |
|
16
The amounts in the table above reflect the fair value of our derivative financial 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 $7,576 increase in receivables with a corresponding increase in accounts payable.
Cash Flow Hedges
We enter into derivative financial instruments to hedge our exposure to changes in cash flows attributable to commodity price fluctuations associated with certain forecasted transactions. These derivative financial instruments are designated and qualify as cash flow hedges. The earnings effects of these derivative financial instruments are presented in the same statement of earnings line items as the earnings effects of the hedged items. For derivative financial instruments designated as cash flow hedges, we assess hedge effectiveness both at the onset of the hedge and at regular intervals throughout the life of the derivative financial instruments.
The following table summarizes our cash flow hedges outstanding at February 28,August 31, 2023:
|
| Notional |
|
|
| Notional |
|
| ||||
(in thousands) |
| Amount |
|
| Maturity Date | |||||||
(In thousands) |
| Amount |
|
| Maturity Date | |||||||
Commodity contracts |
| $ | 136,907 |
|
| March 2023 - September 2024 |
| $ | 63,431 |
|
| September 2023 - December 2024 |
Foreign currency exchange contracts |
| $ | 604 |
|
| March 2023 - July 2023 |
| $ | 2,494 |
|
| September 2023 - November 2023 |
19
The following table summarizes the gain (loss) recognized in OCI and the gain (loss) reclassified from Accumulated Other Comprehensive Income (Loss) (“AOCI”)AOCI into net earnings for derivative financial instruments designated as cash flow hedges for the periods presented:
(in thousands) |
| Gain (Loss) |
|
| Location of Gain (Loss) |
| Gain (Loss) Reclassified |
| ||||||||||||
For the three months ended February 28, 2023: |
| |||||||||||||||||||
(In thousands) |
| Gain (Loss) |
|
| Location of Gain (Loss) |
| Gain (Loss) Reclassified |
| ||||||||||||
For the three months ended August 31, 2023: | For the three months ended August 31, 2023: |
| ||||||||||||||||||
Commodity contracts |
| $ | (2,061 | ) |
| Cost of goods sold |
| $ | 7,330 |
| ||||||||||
Interest rate contracts |
|
| - |
|
| Loss on extinguishment of debt |
|
| (641 | ) | ||||||||||
Interest rate contracts |
|
| - |
|
| Interest expense, net |
|
| 31 |
| ||||||||||
Foreign currency exchange contracts |
|
| 23 |
|
| Net sales/Cost of goods sold |
|
| 53 |
| ||||||||||
Total |
| $ | (2,038 | ) |
| $ | 6,773 |
| ||||||||||||
|
|
|
|
|
| |||||||||||||||
For the three months ended August 31, 2022: | For the three months ended August 31, 2022: |
| ||||||||||||||||||
Commodity contracts |
| $ | 32,976 |
|
| Cost of goods sold |
| $ | (10,980 | ) |
| $ | (14,045 | ) |
| Cost of goods sold |
| $ | 2,869 |
|
Interest rate contracts |
|
| - |
|
| Interest expense |
|
| (7 | ) |
|
| - |
|
| Interest expense |
|
| (7 | ) |
Foreign currency exchange contracts |
|
| 67 |
|
| Net sales/Cost of goods sold |
|
| 67 |
|
|
| (162 | ) |
| Miscellaneous income, net |
|
| 28 |
|
Total |
| $ | 33,043 |
|
| $ | (10,920 | ) |
| $ | (14,207 | ) |
| $ | 2,890 |
| ||||
|
|
|
|
|
| |||||||||||||||
For the three months ended February 28, 2022: |
| |||||||||||||||||||
Commodity contracts |
| $ | (2,460 | ) |
| Cost of goods sold |
| $ | 24,025 |
| ||||||||||
Interest rate contracts |
|
| - |
|
| Interest expense |
|
| (7 | ) | ||||||||||
Foreign currency exchange contracts |
|
| (71 | ) |
| Miscellaneous income, net |
|
| (21 | ) | ||||||||||
Total |
| $ | (2,531 | ) |
| $ | 23,997 |
| ||||||||||||
|
|
|
|
|
| |||||||||||||||
For the nine months ended February 28, 2023: |
| |||||||||||||||||||
Commodity contracts |
| $ | (3,123 | ) |
| Cost of goods sold |
| $ | (24,173 | ) | ||||||||||
Interest rate contracts |
|
| - |
|
| Interest expense |
|
| (20 | ) | ||||||||||
Foreign currency exchange contracts |
|
| 124 |
|
| Net sales/Cost of goods sold |
|
| (7 | ) | ||||||||||
Total |
| $ | (2,999 | ) |
| $ | (24,200 | ) | ||||||||||||
|
|
|
|
|
|
| ||||||||||||||
For the nine months ended February 28, 2022: |
| |||||||||||||||||||
Commodity contracts |
| $ | 11,758 |
|
| Cost of goods sold |
| $ | 107,190 |
| ||||||||||
Interest rate contracts |
|
| - |
|
| Interest expense |
|
| (20 | ) | ||||||||||
Foreign currency exchange contracts |
|
| (11 | ) |
| Miscellaneous income, net |
|
| (18 | ) | ||||||||||
Total |
| $ | 11,747 |
|
| $ | 107,152 |
|
The estimated net amount of the gainslosses recognized in AOCI at February 28,August 31, 2023 expected to be reclassified into net earnings within the succeeding twelve months is $13,848,0007,750 (net of tax of $3,313,0002,182). This amount was computed using the fair value of the cash flow hedges at February 28,August 31, 2023, and will change before actual reclassification from OCI to net earnings during the fiscal years ending May 31, 20232024 and May 31, 2024.2025.
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 financial instruments are adjusted to current market value at the end of each period through gain (loss) recognized in earnings.
The following table summarizes our economic (non-designated) derivative financial instruments outstanding at February 28,August 31, 2023:
|
| Notional |
|
|
| |
(in thousands) |
| Amount |
|
| Maturity Date(s) | |
Commodity contracts |
| $ | 2,439 |
|
| February 2023 - December 2024 |
Foreign currency exchange contracts |
| $ | 2,138 |
|
| March 2023 - July 2023 |
|
| Notional |
|
|
| |
(In thousands) |
| Amount |
|
| Maturity Date(s) | |
Commodity contracts |
| $ | 13,619 |
|
| September 2023 - December 2024 |
2017
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 |
| 2023 |
|
| 2022 |
| ||
Commodity contracts |
| Cost of goods sold |
| $ | (6,523 | ) |
| $ | (4,694 | ) |
Foreign currency exchange contracts |
| Miscellaneous income, net |
|
| 79 |
|
|
| (23 | ) |
Total |
|
|
| $ | (6,444 | ) |
| $ | (4,717 | ) |
|
|
|
| Gain (Loss) Recognized |
| |||||
|
|
|
| in Earnings for the |
| |||||
|
| Location of Gain (Loss) |
| Nine Months Ended February 28, |
| |||||
(in thousands) |
| Recognized in Earnings |
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
|
|
|
| ||
Commodity contracts |
| Cost of goods sold |
| $ | (6,428 | ) |
| $ | 14,698 |
|
Foreign currency exchange contracts |
| Miscellaneous income, net |
|
| 32 |
|
|
| 226 |
|
Total |
|
|
| $ | (6,396 | ) |
| $ | 14,924 |
|
|
|
|
| Loss Recognized |
| |||||
|
|
|
| In Earnings for the |
| |||||
|
| Location of Loss |
| Three Months Ended August 31, |
| |||||
(In thousands) |
| Recognized in Earnings |
| 2023 |
|
| 2022 |
| ||
Commodity contracts |
| Cost of goods sold |
| $ | (1,019 | ) |
| $ | (1,577 | ) |
Note RQ – 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,August 31, 2023, our assets and liabilities measured at fair value on a recurring basis were as follows:
|
|
|
| Significant |
|
|
|
|
|
|
|
| Significant |
|
|
|
|
| ||||||||||||||
|
| Quoted Prices |
| Other |
| Significant |
|
|
|
| Quoted Prices |
| Other |
| Significant |
|
|
| ||||||||||||||
|
| in Active |
| Observable |
| Unobservable |
|
|
|
| in Active |
| Observable |
| Unobservable |
|
|
| ||||||||||||||
|
| Markets |
| Inputs |
| Inputs |
|
|
|
| Markets |
| Inputs |
| Inputs |
|
|
| ||||||||||||||
(in thousands) |
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
|
| Totals |
| ||||||||||||||||||||
(In thousands) |
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
|
| Totals |
| ||||||||||||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Derivative financial instruments (1) |
| $ | - |
|
| $ | 33,490 |
|
| $ | - |
|
| $ | 33,490 |
|
| $ | - |
|
| $ | 1,232 |
|
| $ | - |
|
| $ | 1,232 |
|
Total assets |
| $ | - |
|
| $ | 33,490 |
|
| $ | - |
|
| $ | 33,490 |
|
| $ | - |
|
| $ | 1,232 |
|
| $ | - |
|
| $ | 1,232 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Derivative financial instruments (1) |
| $ | - |
|
| $ | 22,628 |
|
| $ | - |
|
| $ | 22,628 |
|
| $ | - |
|
| $ | 12,893 |
|
| $ | - |
|
| $ | 12,893 |
|
Total liabilities |
| $ | - |
|
| $ | 22,628 |
|
| $ | - |
|
| $ | 22,628 |
|
| $ | - |
|
| $ | 12,893 |
|
| $ | - |
|
| $ | 12,893 |
|
21
18
At May 31, 2022,2023, our assets and liabilities measured at fair value on a recurring basis were as follows:
|
|
|
| Significant |
|
|
|
|
|
|
|
| Significant |
|
|
|
|
| ||||||||||||||
|
| Quoted Prices |
| Other |
| Significant |
|
|
|
| Quoted Prices |
| Other |
| Significant |
|
|
| ||||||||||||||
|
| in Active |
| Observable |
| Unobservable |
|
|
|
| in Active |
| Observable |
| Unobservable |
|
|
| ||||||||||||||
|
| Markets |
| Inputs |
| Inputs |
|
|
|
| Markets |
| Inputs |
| Inputs |
|
|
| ||||||||||||||
(in thousands) |
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
|
| Totals |
| ||||||||||||||||||||
(In thousands) |
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
|
| Totals |
| ||||||||||||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Derivative financial instruments (1) |
| $ | - |
|
| $ | 12,643 |
|
| $ | - |
|
| $ | 12,643 |
|
| $ | - |
|
| $ | 2,610 |
|
| $ | - |
|
| $ | 2,610 |
|
Total assets |
| $ | - |
|
| $ | 12,643 |
|
| $ | - |
|
| $ | 12,643 |
|
| $ | - |
|
| $ | 2,610 |
|
| $ | - |
|
| $ | 2,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Derivative financial instruments (1) |
| $ | - |
|
| $ | 9,003 |
|
| $ | - |
|
| $ | 9,003 |
|
| $ | - |
|
| $ | 15,800 |
|
| $ | - |
|
| $ | 15,800 |
|
Total liabilities |
| $ | - |
|
| $ | 9,003 |
|
| $ | - |
|
| $ | 9,003 |
|
| $ | - |
|
| $ | 15,800 |
|
| $ | - |
|
| $ | 15,800 |
|
Non-Recurring Fair Value Measurements
At February 28,August 31, 2023, our assets measured at fair value on a non-recurring basis were as follows:
|
|
|
| Significant |
|
|
|
|
|
|
|
| Significant |
|
|
|
|
| ||||||||||||||
|
| Quoted Prices |
| Other |
| Significant |
|
|
|
| Quoted Prices |
| Other |
| Significant |
|
|
| ||||||||||||||
|
| in Active |
| Observable |
| Unobservable |
|
|
|
| in Active |
| Observable |
| Unobservable |
|
|
| ||||||||||||||
|
| Markets |
| Inputs |
| Inputs |
|
|
|
| Markets |
| Inputs |
| Inputs |
|
|
| ||||||||||||||
(in thousands) |
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
|
| Totals |
| ||||||||||||||||||||
(In thousands) |
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
|
| Totals |
| ||||||||||||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Long-lived assets held and used (1) |
| $ | - |
|
| $ | 70 |
|
| $ | - |
|
| $ | 70 |
| ||||||||||||||||
Long-lived assets held for sale (1) |
| $ | - |
|
| $ | 150 |
|
| $ | - |
|
| $ | 150 |
| ||||||||||||||||
Total assets |
| $ | - |
|
| $ | 70 |
|
| $ | - |
|
| $ | 70 |
|
| $ | - |
|
| $ | 150 |
|
| $ | - |
|
| $ | 150 |
|
At May 31, 2022,2023, our assets measured at fair value on a non-recurring basis were as follows:
|
|
|
| Significant |
|
|
|
|
|
|
|
| Significant |
|
|
|
|
| ||||||||||||||
|
| Quoted Prices |
| Other |
| Significant |
|
|
|
| Quoted Prices |
| Other |
| Significant |
|
|
| ||||||||||||||
|
| in Active |
| Observable |
| Unobservable |
|
|
|
| in Active |
| Observable |
| Unobservable |
|
|
| ||||||||||||||
|
| Markets |
| Inputs |
| Inputs |
|
|
|
| Markets |
| Inputs |
| Inputs |
|
|
| ||||||||||||||
(in thousands) |
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
|
| Totals |
| ||||||||||||||||||||
(In thousands) |
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
|
| Totals |
| ||||||||||||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Long-lived assets held for sale (1) |
| $ | - |
|
| $ | 700 |
|
| $ | - |
|
| $ | 700 |
|
| $ | - |
|
| $ | 2,623 |
|
| $ | - |
|
| $ | 2,623 |
|
Long-lived assets held and used (2) |
|
| - |
|
|
| 70 |
|
|
| - |
|
|
| 70 |
| ||||||||||||||||
Total assets |
| $ | - |
|
| $ | 700 |
|
| $ | - |
|
| $ | 700 |
|
| $ | - |
|
| $ | 2,693 |
|
| $ | - |
|
| $ | 2,693 |
|
2219
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 $638,163,000395,987 and $684,830,000639,948 at February 28,August 31, 2023 and May 31, 2022,2023, respectively. The carrying amount of long-term debt, including current maturities, was $689,600,000448,351 and $696,610,000689,982 at February 28,August 31, 2023 and May 31, 2022,2023, respectively.
23Note R – Subsequent Events
On September 27, 2023, we amended and restated the Credit Facility, extending the final maturity from August 20, 2026 to September 27, 2028 while keeping in place the $500,000 aggregate commitments under the Credit Facility.
20
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 PSLRA. 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 Form 10-Q and “Part I – Item 1A. – Risk Factors” of the 20222023 Form 10-K.
Unless otherwise indicated, all Note references contained in this “Part I – Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” 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 our operations and financial position, should be read in conjunction with our consolidated financial statements and notes thereto included in “Part I – Item 1. – Financial Statements” of this Form 10-Q. The 20222023 Form 10-K includes additional information about our business, operations and consolidated financial position and should be read in conjunction with this Form 10-Q. This MD&A is designed to provide a reader with material information relevant to an assessment of our financial condition and results of operations and to allow investors to view the Company from the perspective of management. This MD&A is divided into seven main sections:
Planned Separation of the Steel Processing Business
On September 29, 2022, we announced our intention to complete the Separation, a spin-off of Worthington Steel, our existing Steel Processing business, into a stand-alone publicly traded company through a generally tax-free pro rata distribution of 100% of the common shares of Worthington Steel to Worthington Industries’ shareholders. New Worthington, the remaining company, is expected to be comprised of our Consumer Products, Building Products and Sustainable Energy Solutions operating segments. While we currently intend to effect the distribution, subject to satisfaction of certain conditions, we have no obligation to pursue or consummate any dispositions of our ownership interest in Worthington Steel, including through the completion of the distribution, by any specified date or at all. The distribution is subject to various conditions, including final approval by the Board; the completion of the transfer of assets and liabilities to Worthington Steel in accordance with the separation agreement; due execution and delivery of the agreements relating to the Separation; no order, injunction or decree issued by any court of competent jurisdiction or other legal restraint or prohibition being in effect preventing the consummation of the Separation, the distribution or any of the related transactions; acceptance for listing on the NYSE of the common shares of Worthington Steel to be distributed, subject to official notice of distribution; completion of financing for Worthington Steel, and no other event or development having occurred or being in existence that, in the judgment of the Board, in its sole discretion, makes it inadvisable to effect the Separation, the distribution or the other related transactions.
Business Overview
We are an industrial manufacturing company focused on value-added steel processing and manufactured consumer, building, and sustainable mobility products. Our operations are managed principally on a products and services basis.basis and organized under four operating segments: Steel Processing, Consumer Products, Building Products, and Sustainable Energy Solutions. Segment information is prepared on the same basis that our CODM reviews financial information for operational decision-making purposes. Factors used to identify 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.
21
As of February 28, 2023, we held equity positions in seven operating joint ventures and one non-operating joint venture.
We own controlling interests in four of thesethe following consolidated operating joint ventures, including theventures: Spartan, Samuel and TWB. We also own a controlling interest in WSP, which became a non-operating joint venture on October 31, 2022, when we completed the sale of its remaining net assets. The net assets and theyoperating results of these four joint ventures are consolidated within the Steel Processing operating segment. When we own controlling interests in a joint venture,with the equity owned by the otherminority joint venture member(s) ismember shown as noncontrolling interests“noncontrolling interests” in our consolidated balance sheets, and other joint venture members’ portions ofthe noncontrolling interest in net earnings and OCI are shown as net earnings or comprehensive income attributable to noncontrolling interests in our consolidated statements of earnings and consolidated statements of comprehensive income, respectively. We holdalso own noncontrolling equity investments in the remainingif four of ourunconsolidated joint ventures: ClarkDietrich (25%), Serviacero Worthington (50%), WAVE (50%) and Workhorse (20%). These joint ventures and they are accounted for using the equity method.method, as described further in “Note C – Investments in Unconsolidated Affiliates.” We also held a noncontrolling equity method investment in ArtiFlex Manufacturing, LLC (“ArtiFlex”) prior to the August 3, 2022 sale of our 50% ownership interest to our former partner in the joint venture.
Recent Business Developments
•
Trends and Factors Impacting our consolidated joint venture, WSP, sold its remaining manufacturing facility, locatedPerformance
The industries in Jackson, Michigan, for net proceedswhich we participate are fragmented and highly competitive. Given the broad base of approximately $21.3 million, resultingproducts and services offered, specific competitors vary based on the target industry, product type, service type, size of program and geography. Competition is primarily on the basis of price, product quality and the ability to meet delivery requirements. Our products are priced competitively, primarily based on market factors, including, among other things, market pricing, the cost and availability of raw materials, transportation and shipping costs, and overall economic conditions in a pre-tax gain of $3.9 million within Restructuringthe U.S. and other expense (income), net. Refer to “Note F – Restructuring and Other Expense (Income), Net” for additional information.
24
22
General Economic and Market Conditions
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 thirdfirst quarter of each of fiscal 20232024 and fiscal 20222023 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 53%55% of Steel Processing’s net sales are to the automotive market. North American vehicle production, primarily by Ford, General Motors and Stellantis North America (the “Detroitthe Detroit Three automakers”),automakers, has a considerable impact on the activity within the Steel Processing operating segment. The majority of the net sales of one of oursegment, including its unconsolidated joint ventures,venture, Serviacero Worthington, is also to the automotive market.Worthington.
Approximately 12% 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 our unconsolidated joint ventures within the Building Products operating segment, 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 the U.S. gross domestic product (“U.S. GDP”), the Dodge Index of construction contracts and, in the case of ClarkDietrich, trends in the relative prices 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%33% of the net sales of our Steel Processing operating segment are to other markets such as agricultural, appliance, consumer products, heavy-truck, industrial products, including the industrial electric motor, generator, and transformer end markets, and lawn and garden. 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.
25
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 generally indicative of a stronger economy, which generally increases demand and pricing for our products. Conversely, declining U.S. GDP growth rates generally indicate a weaker economy, which generally decreases demand and pricing for our products. Changes in U.S. GDP growth rates can also signal changes in conversion costs related to production and in selling, general, and administrative expense (“SG&A.&A”).
23
Inflation has accelerated and government deficits and debt levels remain at high levels in many major markets. Inflationarylevels. Although inflationary pressures have beenabated somewhat from the levels experienced throughout fiscal 2022 and into fiscal 2023, they continue to be felt across our business in the form of higher year-over-year input and conversion costs as well as higher overall SG&A.&A expense. The U.S. Federal Reserve has pushed interest rates to the highest level in more than 15 years in an attempt to slow growth and reduce inflation. The impact of risinghigh interest rates could causehave a significantnegative impact on economic downturn and impact severalconditions, including consumer demand in the various end markets that we serve, as well as overalldomestic steel demand for our products and services. Despite the economic headwinds presented by a rising interest rate environment, demand remained steady through the third quarter of fiscal 2023 in most of our end markets and we believe pent-up demand continues to exist in certain markets, like automotive, due to lingering supply chain effects brought on by the COVID-19 pandemic.overall.
We use the following information to monitor our costs and demand in our major end markets:
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| |||||||||||||||||||||||||||
|
| February 28, |
|
| February 28, |
|
| August 31, |
|
| |||||||||||||||||||||||||||
|
| 2023 |
|
| 2022 |
|
| Inc / (Dec) |
|
| 2023 |
|
| 2022 |
|
| Inc / (Dec) |
|
| 2023 |
|
| 2022 (1) |
|
| Inc/ (Dec) |
|
| |||||||||
U.S. GDP (% growth year-over-year) |
|
| 1.2 | % |
|
| 6.0 | % |
|
| (4.8 | %) |
|
| 1.8 | % |
|
| 5.3 | % |
|
| (3.5 | %) |
|
| 2.2 | % |
|
| 1.8 | % |
|
| 0.4 | % |
|
Hot-Rolled Steel ($ per ton) (2) |
| $ | 720 |
|
| $ | 1,421 |
|
| $ | (701 | ) |
| $ | 814 |
|
| $ | 1,690 |
|
| $ | (876 | ) |
| $ | 879 |
|
| $ | 978 |
|
| $ | (99 | ) |
|
Detroit Three Auto Build (000's vehicles) (3) |
|
| 1,614 |
|
|
| 1,522 |
|
|
| 92 |
|
|
| 5,086 |
|
|
| 4,378 |
|
|
| 708 |
|
|
| 1,791 |
|
|
| 1,729 |
|
|
| 62 |
|
|
No. America Auto Build (000's vehicles) (3) |
|
| 3,448 |
|
|
| 3,215 |
|
|
| 233 |
|
|
| 10,789 |
|
|
| 9,628 |
|
|
| 1,161 |
|
|
| 4,028 |
|
|
| 3,638 |
|
|
| 390 |
|
|
Zinc ($ per pound) (4) |
| $ | 1.44 |
|
| $ | 1.60 |
|
| $ | (0.16 | ) |
| $ | 1.45 |
|
| $ | 1.47 |
|
| $ | (0.02 | ) |
| $ | 1.09 |
|
| $ | 1.55 |
|
| $ | (0.46 | ) |
|
Natural Gas ($ per mcf) (5) |
| $ | 3.94 |
|
| $ | 4.18 |
|
| $ | (0.24 | ) |
| $ | 6.19 |
|
| $ | 4.37 |
|
| $ | 1.82 |
|
| $ | 2.57 |
|
| $ | 7.87 |
|
| $ | (5.30 | ) |
|
On-Highway Diesel Fuel Prices ($ per gallon) (6) |
| $ | 4.57 |
|
| $ | 3.80 |
|
| $ | 0.77 |
|
| $ | 5.05 |
|
| $ | 3.57 |
|
| $ | 1.48 |
|
| $ | 4.02 |
|
| $ | 5.42 |
|
| $ | (1.40 | ) |
|
Sales to one Steel Processing customer in the automotive industry represented 12.5% and 12.3%11.2% of consolidated net sales during the thirdfirst quarter of fiscal 20232024 and the thirdfirst quarter of fiscal 2022,2023, 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 thirdfirst quarter of fiscal 2023,2024, vehicle production for the Detroit Three automakers and the North American vehicle production was up 6%4% and 7%11%, respectively, over the prior year quarter.first quarter of fiscal 2023.
Sales for most of our products are generally strongest in our fiscal fourth quarter when our facilities operate at seasonal peaks. Historically, sales have been weaker in our fiscal third quarter, primarily due to reduced seasonal activity in the building and construction industry, as well as customer plant shutdowns due to holidays, particularly in the automotive industry. We do not believe backlog is a significant indicator of our business.
Impact of Raw Material Prices
The market price of hot-rolledOur principal raw material is flat-rolled steel, is one of the most significant factors impacting our selling prices and operating results. Thewhich we purchase from multiple primary steel industry as a whole has been cyclical, and at times availability and pricing can be volatile due to a number of factors beyond our control. This volatility can significantly affect our steel costs. In an environment of increasing prices for steel and other raw materials, competitive conditions may impact how much of the price increases we can pass on to our customers. To the extent we are unable to pass on future price increases in our raw materials to our customers, our financial results could be adversely affected. Also, if steel prices decrease, in general, competitive conditions may impact how quickly we must reduce our prices to our customers, and we could be forced to use higher-priced raw materials to complete orders for which the selling prices have decreased. Declining steel prices could also require us to write-down the value of our inventories to reflect current market pricing. Further, the number of suppliers has decreased in recent years due to industry consolidation and the financial difficulties of certain suppliers, and consolidation may continue. Accordingly, if delivery from a major steel supplier is disrupted, it may be more difficult to obtain an alternative supply than in the past.
26
producers. 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. BasedSteel prices declined throughout most of fiscal 2023 before increasing significantly in the fourth quarter on currentproduction cuts at major steel mills and the replenishing of inventories in major end markets, then decreased again in the first quarter of fiscal 2024. This run up in steel prices resulted in estimated inventory holding gains of $32.6 million and $15.5 million during the fourth quarter of fiscal 2023 and the first quarter of fiscal 2024, respectively. However, as a result of the more recent price levels,declines, we expect to have meaningful inventory holding gains inlosses during the fourthsecond quarter of fiscal 2023.2024.
24
The following table presents the average quarterly market price per ton of hot-rolled steel during fiscal 20232024 (first second and third quarters)quarter), fiscal 20222023 and fiscal 2021:2022:
|
| Fiscal Year |
|
| Fiscal Year |
| ||||||||||||||||||
(Dollars per ton)(1) |
| 2023 |
|
| 2022 |
|
| 2021 |
|
| 2024 |
|
| 2023 |
|
| 2022 |
| ||||||
1st Quarter |
| $ | 978 |
|
| $ | 1,762 |
|
| $ | 475 |
|
| $ | 879 |
|
| $ | 978 |
|
| $ | 1,762 |
|
2nd Quarter |
| $ | 742 |
|
| $ | 1,888 |
|
| $ | 625 |
|
| N/A |
| $ | 742 |
|
| $ | 1,888 |
| ||
3rd Quarter |
| $ | 720 |
|
| $ | 1,421 |
|
| $ | 1,016 |
|
| N/A |
| $ | 720 |
|
| $ | 1,421 |
| ||
4th Quarter |
| N/A |
| $ | 1,280 |
|
| $ | 1,358 |
|
| N/A |
| $ | 1,116 |
|
| $ | 1,280 |
| ||||
Annual Avg. |
| $ | 813 |
|
| $ | 1,588 |
|
| $ | 869 |
|
| $ | 879 |
|
| $ | 889 |
|
| $ | 1,588 |
|
No matter how efficient, our operations, which use steel as a raw material, create some amount of scrap. The expected price of scrap compared to the price of the steel raw material is factored into pricing. Generally, as the price of steel increases, the price of scrap increases by a similar amount. When increases in scrap prices do not keep pace with the increases in the price of the steel raw material, it can have a negative impact on our margins. We refer to this effect as the “scrap gap,” which has narrowed in recent years from historically high levels, including quarter-over-quarter declines in the current period.
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
ThirdFirst Quarter – Fiscal 20232024 Compared to Fiscal 20222023
The following discussion provides a review of results for the three months ended February 28,August 31, 2023 and 2022.
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||||||||||
| February 28, |
|
| August 31, |
| ||||||||||||||||||
(In millions, except per share amounts) | 2023 |
|
| 2022 |
|
| Increase/ |
| |||||||||||||||
(In millions, except per common share amounts) |
| 2023 |
|
| 2022 |
|
| Increase/ |
| ||||||||||||||
Net sales | $ | 1,103.3 |
|
| $ | 1,378.2 |
|
| $ | (274.9 | ) |
| $ | 1,193.3 |
|
| $ | 1,408.7 |
|
| $ | (215.4 | ) |
Operating income |
| 30.1 |
|
|
| 37.6 |
|
|
| (7.5 | ) |
|
| 77.7 |
|
|
| 66.7 |
|
|
| 11.0 |
|
Equity income |
| 36.9 |
|
|
| 47.5 |
|
|
| (10.6 | ) |
|
| 54.4 |
|
|
| 31.7 |
|
|
| 22.7 |
|
Net earnings attributable to controlling interest |
| 46.3 |
|
|
| 56.3 |
|
|
| (10.0 | ) |
|
| 96.1 |
|
|
| 64.1 |
|
|
| 32.0 |
|
Earnings per diluted share attributable to controlling interest | $ | 0.94 |
|
| $ | 1.11 |
|
| $ | (0.17 | ) | ||||||||||||
Earnings per diluted common share attributable to controlling interest |
| $ | 1.93 |
|
| $ | 1.30 |
|
| $ | 0.63 |
|
Net Sales and Volume
The following table provides a breakdown of our consolidated net sales by operating segment, along with the respective percentage of the consolidated net sales of each, for the periods indicated.
| Three Months Ended |
|
|
| Three Months Ended |
| ||||||||||||||||||||||||||||||||||
| February 28, |
|
|
| August 31, |
| ||||||||||||||||||||||||||||||||||
|
|
| % of |
|
|
| % of |
| Increase/ |
|
|
|
|
| % of |
|
|
|
| % of |
|
| Increase/ |
| ||||||||||||||||
(In millions) | 2023 |
|
| Net sales |
|
| 2022 |
|
| Net sales |
|
| (Decrease) |
|
|
| 2023 |
|
| Net sales |
|
| 2022 |
|
| Net sales |
|
| (Decrease) |
| ||||||||||
Steel Processing | $ | 757.0 |
|
|
| 68.6 | % |
| $ | 1,052.6 |
|
|
| 76.4 | % |
| $ | (295.6 | ) |
|
| $ | 881.3 |
|
|
| 73.9 | % |
| $ | 1,038.9 |
|
|
| 73.7 | % |
| $ | (157.6 | ) |
Consumer Products |
| 162.6 |
|
|
| 14.7 | % |
|
| 161.7 |
|
|
| 11.7 | % |
|
| 0.9 |
|
|
|
| 149.4 |
|
|
| 12.5 | % |
|
| 188.7 |
|
|
| 13.4 | % |
|
| (39.3 | ) |
Building Products |
| 151.9 |
|
|
| 13.8 | % |
|
| 132.9 |
|
|
| 9.6 | % |
|
| 19.0 |
|
|
|
| 133.9 |
|
|
| 11.2 | % |
|
| 150.3 |
|
|
| 10.7 | % |
|
| (16.4 | ) |
Sustainable Energy Solutions |
| 31.8 |
|
|
| 2.9 | % |
|
| 31.0 |
|
|
| 2.2 | % |
|
| 0.8 |
|
|
|
| 28.7 |
|
|
| 2.4 | % |
|
| 30.8 |
|
|
| 2.2 | % |
|
| (2.1 | ) |
Consolidated Net Sales | $ | 1,103.3 |
|
|
| 100.0 | % |
| $ | 1,378.2 |
|
|
| 100.0 | % |
| $ | (274.9 | ) |
|
| $ | 1,193.3 |
|
|
| 100.0 | % |
| $ | 1,408.7 |
|
|
| 100.0 | % |
| $ | (215.4 | ) |
2725
The following table provides volume by operating segment for the periods presented.
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||||||||||
| February 28, |
|
| August 31, |
| ||||||||||||||||||
|
|
|
|
| Increase/ |
|
|
|
|
|
|
| Increase/ |
| |||||||||
| 2023 |
|
| 2022 |
|
| (Decrease) |
|
| 2023 |
|
| 2022 |
|
| (Decrease) |
| ||||||
Steel Processing (Tons) |
| 917,670 |
|
|
| 998,590 |
|
|
| (80,920 | ) |
|
| 999,658 |
|
|
| 974,649 |
|
|
| 25,009 |
|
Consumer Products (Units) |
| 19,158,164 |
|
|
| 20,297,372 |
|
|
| (1,139,208 | ) |
|
| 17,068,945 |
|
|
| 22,383,341 |
|
|
| (5,314,396 | ) |
Building Products (Units) |
| 2,494,881 |
|
|
| 2,786,560 |
|
|
| (291,679 | ) |
|
| 2,771,458 |
|
|
| 2,922,163 |
|
|
| (150,705 | ) |
Sustainable Energy Solutions (Units) |
| 122,139 |
|
|
| 144,108 |
|
|
| (21,969 | ) |
|
| 106,306 |
|
|
| 133,133 |
|
|
| (26,827 | ) |
Gross margin
|
| Three Months Ended |
| |||||||||||||||||
|
| August 31, |
| |||||||||||||||||
|
|
|
|
| % of |
|
|
|
|
| % of |
|
| Increase/ |
| |||||
(In millions) |
| 2023 |
|
| Net sales |
|
| 2022 |
|
| Net sales |
|
| (Decrease) |
| |||||
Gross Margin |
| $ | 197.5 |
|
|
| 16.6 | % |
| $ | 169.4 |
|
|
| 12.0 | % |
| $ | 28.1 |
|
Gross margin increased $0.8$28.1 million or 2.6%,over the prior year quarter to $197.5 million, as higher direct spreads drove a $39.7 million increase in gross margin at Steel Processing, more than offsetting the impact of lower volumes in Consumer Products. Direct spreads in Steel Processing benefited from an estimated $17.0 million favorable swing from $1.5 million estimated inventory holding losses in the prior year quarter to estimated gains of $15.5 million in the current quarter.
Selling, general and administrative expense
|
| Three Months Ended |
| |||||||||||||||||
|
| August 31, |
| |||||||||||||||||
|
|
|
|
| % of |
|
|
|
|
| % of |
|
| Increase/ |
| |||||
(In millions) |
| 2023 |
|
| Net sales |
|
| 2022 |
|
| Net sales |
|
| (Decrease) |
| |||||
Selling, general and administrative expense |
| $ | 112.3 |
|
|
| 9.4 | % |
| $ | 103.4 |
|
|
| 7.3 | % |
| $ | 8.9 |
|
Gross Margin
| Three Months Ended |
| |||||||||||||||||
| February 28, |
| |||||||||||||||||
|
|
|
| % of |
|
|
|
|
| % of |
|
| Increase/ |
| |||||
(In millions) | 2023 |
|
| Net sales |
|
| 2022 |
|
| Net sales |
|
| (Decrease) |
| |||||
Gross Margin | $ | 143.8 |
|
|
| 13.0 | % |
| $ | 143.1 |
|
|
| 10.4 | % |
| $ | 0.7 |
|
Selling, General and Administrative Expense
| Three Months Ended |
| |||||||||||||||||
| February 28, |
| |||||||||||||||||
|
|
|
| % of |
|
|
|
|
| % of |
|
| Increase/ |
| |||||
(In millions) | 2023 |
|
| Net sales |
|
| 2022 |
|
| Net sales |
|
| (Decrease) |
| |||||
Selling, general and administrative expense | $ | 106.1 |
|
|
| 9.6 | % |
| $ | 102.9 |
|
|
| 7.5 | % |
| $ | 3.2 |
|
2826
Other Operating Itemsoperating items
| Three Months Ended |
| |||||||||
| February 28, |
| |||||||||
|
|
|
|
|
|
| Increase/ |
| |||
(In millions) | 2023 |
|
| 2022 |
|
| (Decrease) |
| |||
Impairment of long-lived assets | $ | 0.5 |
|
| $ | 3.1 |
|
| $ | (2.6 | ) |
Restructuring and other expense (income), net |
| 0.8 |
|
|
| (0.5 | ) |
|
| 1.3 |
|
Separation costs |
| 6.3 |
|
|
| - |
|
|
| 6.3 |
|
|
| Three Months Ended |
| |||||||||
|
| August 31, |
| |||||||||
|
|
|
|
|
|
|
| Increase/ |
| |||
(In millions) |
| 2023 |
|
| 2022 |
|
| (Decrease) |
| |||
Impairment of long-lived assets |
| $ | 1.4 |
|
| $ | 0.3 |
|
| $ | 1.1 |
|
Restructuring and other income, net |
|
| - |
|
|
| (1.1 | ) |
|
| 1.1 |
|
Separation costs |
|
| 6.0 |
|
|
| - |
|
|
| 6.0 |
|
Miscellaneous Income,income (expense), net
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||||||||||
| February 28, |
|
| August 31, |
| ||||||||||||||||||
|
|
|
|
|
| Increase/ |
|
|
|
|
|
|
| Increase/ |
| ||||||||
(In millions) | 2023 |
|
| 2022 |
|
| (Decrease) |
|
| 2023 |
|
| 2022 |
|
| (Decrease) |
| ||||||
Miscellaneous income, net | $ | 1.3 |
|
| $ | 0.4 |
|
| $ | 0.9 |
| ||||||||||||
Miscellaneous income (expense), net |
| $ | 1.0 |
|
| $ | (5.1 | ) |
| $ | 6.1 |
|
Loss on extinguishment of debt
|
| Three Months Ended |
| |||||||||
|
| August 31, |
| |||||||||
|
|
|
|
|
|
|
| Increase/ |
| |||
|
| 2023 |
|
| 2022 |
|
| (Decrease) |
| |||
Loss on extinguishment of debt |
| $ | 1.5 |
|
| $ | - |
|
| $ | 1.5 |
|
Interest Expense,expense, net
| Three Months Ended |
| |||||||||
| February 28, |
| |||||||||
|
|
|
|
|
|
| Increase/ |
| |||
(In millions) | 2023 |
|
| 2022 |
|
| (Decrease) |
| |||
Interest expense, net | $ | 6.0 |
|
| $ | 8.1 |
|
| $ | (2.1 | ) |
|
| Three Months Ended |
| |||||||||
|
| August 31, |
| |||||||||
|
|
|
|
|
|
|
| Increase/ |
| |||
(In millions) |
| 2023 |
|
| 2022 |
|
| (Decrease) |
| |||
Interest expense, net |
| $ | 3.1 |
|
| $ | 8.6 |
|
| $ | (5.5 | ) |
Equity Income
| Three Months Ended |
| |||||||||
| February 28, |
| |||||||||
|
|
|
|
|
|
| Increase/ |
| |||
(In millions) | 2023 |
|
| 2022 |
|
| (Decrease) |
| |||
WAVE | $ | 18.9 |
|
| $ | 18.6 |
|
| $ | 0.3 |
|
ClarkDietrich |
| 18.9 |
|
|
| 21.4 |
|
|
| (2.5 | ) |
Serviacero Worthington |
| (0.2 | ) |
|
| 4.7 |
|
|
| (4.9 | ) |
ArtiFlex (1) |
| (0.3 | ) |
|
| 1.8 |
|
|
| (2.1 | ) |
Workhorse |
| (0.4 | ) |
|
| 1.0 |
|
|
| (1.4 | ) |
Total Equity Income | $ | 36.9 |
|
| $ | 47.5 |
|
| $ | (10.6 | ) |
2927
(1)
Equity income
|
| Three Months Ended |
| |||||||||
|
| August 31, |
| |||||||||
|
|
|
|
|
|
|
| Increase/ |
| |||
(In millions) |
| 2023 |
|
| 2022 |
|
| (Decrease) |
| |||
WAVE |
| $ | 28.3 |
|
| $ | 23.8 |
|
| $ | 4.5 |
|
ClarkDietrich |
|
| 16.7 |
|
|
| 20.1 |
|
|
| (3.4 | ) |
Serviacero Worthington |
|
| 9.0 |
|
|
| 1.8 |
|
|
| 7.2 |
|
ArtiFlex |
|
| - |
|
|
| (13.4 | ) |
|
| 13.4 |
|
Workhorse |
|
| 0.4 |
|
|
| (0.6 | ) |
|
| 1.0 |
|
Total Equity Income |
| $ | 54.4 |
|
| $ | 31.7 |
|
| $ | 22.7 |
|
Income Taxes
| Three Months Ended |
| |||||||||||||||||||||||||||||||||||||
| Three Months Ended |
|
| August 31, |
| ||||||||||||||||||||||||||||||||||
| February 28, |
|
|
|
| Effective |
|
|
|
| Effective |
|
| Increase/ |
| ||||||||||||||||||||||||
(In millions) | 2023 |
|
| Effective Tax Rate |
|
| 2022 |
|
| Effective Tax Rate |
|
| Increase/ |
|
| 2023 |
|
| Tax Rate |
|
| 2022 |
|
| Tax Rate |
|
| (Decrease) |
| ||||||||||
Income tax expense | $ | 12.1 |
|
|
| 22.8 | % |
| $ | 18.7 |
|
|
| 23.2 | % |
| $ | (6.6 | ) |
| $ | 28.8 |
|
|
| 23.3 | % |
| $ | 19.5 |
|
|
| 23.9 | % |
| $ | 9.3 |
|
28
Adjusted EBIT
We evaluate operating performance on the basis of adjusted EBIT.earnings before interest and taxes (“adjusted EBIT”). EBIT, a non-GAAP financial measure, is calculated by adding interest expense and income tax expense to net earnings attributable to controlling interest. Adjusted EBIT excludes impairment and restructuring expense (income), but may also exclude other items, as described below, that management believes are not reflective of, and thus should not be included when evaluating the performance of our ongoing operations. Adjusted EBIT is a non-GAAP financial measure and is used by management to evaluate operating performance, engage in financial and operational planning and determine incentive compensation because we believe that this financial measure provides additional perspective on the performance of our ongoing operations. Additionally, management believes these non-GAAP financial measures provide useful information to investors because they allow for meaningful comparisons and analysis of trends in our businesses and enable investors to evaluate operations and future prospects in the same manner as management.
The following table provides a reconciliation from consolidatedof net earnings attributable to controlling interest (the most comparable GAAP financialFinancial measure) to adjusted EBIT for the periods presented:
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||
| February 28, |
|
| August 31, |
| ||||||||||
(In millions) | 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Net earnings attributable to controlling interest | $ | 46.3 |
|
| $ | 56.3 |
|
| $ | 96.1 |
|
| $ | 64.1 |
|
Interest expense, net |
| 6.0 |
|
|
| 8.1 |
|
|
| 3.1 |
|
|
| 8.6 |
|
Income tax expense |
| 12.1 |
|
|
| 18.7 |
|
|
| 28.8 |
|
|
| 19.5 |
|
EBIT | $ | 64.4 |
|
| $ | 83.1 |
|
|
| 128.0 |
|
|
| 92.2 |
|
True-up of Level5 earnout accrual (1) |
| (1.0 | ) |
|
| - |
| ||||||||
Incremental expense related to Level5 earnout (1) |
|
| - |
|
|
| 0.5 |
| |||||||
Impairment of long-lived assets (2) |
| 0.5 |
|
|
| 2.0 |
|
|
| 0.9 |
|
|
| 0.1 |
|
Restructuring and other expense (income), net (3) |
| 0.8 |
|
|
| (0.5 | ) | ||||||||
Restructuring and other income, net (3) |
|
| - |
|
|
| (1.1 | ) | |||||||
Separation costs (4) |
| 6.3 |
|
|
| - |
|
|
| 6.0 |
|
|
| - |
|
Loss on sale of investment in ArtiFlex (5) |
| 0.3 |
|
|
| - |
| ||||||||
Loss on extinguishment of debt (5) |
|
| 1.5 |
|
|
| - |
| |||||||
Pension settlement charge (6) |
|
| - |
|
|
| 4.8 |
| |||||||
Loss on sale of investment in ArtiFlex (7) |
|
| - |
|
|
| 15.8 |
| |||||||
Adjusted EBIT | $ | 71.3 |
|
| $ | 84.6 |
|
| $ | 136.4 |
|
| $ | 112.3 |
|
30
29
The following table provides a summary of adjusted EBIT by operating segment for the periods presented.
| Three Months Ended |
| |||||||||
| February 28, |
| |||||||||
|
|
|
|
|
|
| Increase/ |
| |||
(In millions) | 2023 |
|
| 2022 |
|
| (Decrease) |
| |||
Steel Processing | $ | 7.8 |
|
| $ | 7.1 |
|
| $ | 0.7 |
|
Consumer Products |
| 17.9 |
|
|
| 26.7 |
|
|
| (8.8 | ) |
Building Products |
| 51.5 |
|
|
| 49.6 |
|
|
| 1.9 |
|
Sustainable Energy Solutions |
| (1.4 | ) |
|
| (2.8 | ) |
|
| 1.4 |
|
Other |
| (4.5 | ) |
|
| 4.0 |
|
|
| (8.5 | ) |
Total Adjusted EBIT | $ | 71.3 |
|
| $ | 84.6 |
|
| $ | (13.3 | ) |
|
| Three Months Ended |
| |||||||||||||||||
|
| August 31, |
| |||||||||||||||||
|
|
|
|
| % of Adjusted |
|
|
|
|
| % of Adjusted |
|
| Increase/ |
| |||||
(In millions) |
| 2023 |
|
| EBIT |
|
| 2022 |
|
| EBIT |
|
| (Decrease) |
| |||||
Steel Processing |
| $ | 78.0 |
|
|
| 57.2 | % |
| $ | 34.9 |
|
|
| 31.1 | % |
| $ | 43.1 |
|
Consumer Products |
|
| 9.0 |
|
|
| 6.6 | % |
|
| 20.9 |
|
|
| 18.6 | % |
|
| (11.9 | ) |
Building Products |
|
| 54.0 |
|
|
| 39.6 | % |
|
| 52.7 |
|
|
| 46.9 | % |
|
| 1.3 |
|
Sustainable Energy Solutions |
|
| (4.7 | ) |
|
| (3.5 | %) |
|
| (1.4 | ) |
|
| (1.2 | %) |
|
| (3.3 | ) |
Other |
|
| 0.1 |
|
|
| 0.1 | % |
|
| 5.1 |
|
|
| 4.6 | % |
|
| (5.0 | ) |
Total Adjusted EBIT |
| $ | 136.4 |
|
|
| 100.0 | % |
| $ | 112.3 |
|
|
| 100.0 | % |
| $ | 24.1 |
|
31
Nine Months Year-to-Date – Fiscal 2023 compared to Fiscal 2022
The following discussion provides a review of results for the nine months ended February 28, 2023 and 2022.
| Nine Months Ended |
| |||||||||
| February 28, |
| |||||||||
(In millions, except per share amounts) | 2023 |
|
| 2022 |
|
| Increase/ |
| |||
Net sales | $ | 3,687.5 |
|
| $ | 3,721.9 |
|
| $ | (34.4 | ) |
Operating income |
| 89.8 |
|
|
| 263.9 |
|
|
| (174.1 | ) |
Equity income |
| 105.5 |
|
|
| 160.6 |
|
|
| (55.1 | ) |
Net earnings attributable to controlling interest |
| 126.6 |
|
|
| 299.1 |
|
|
| (172.5 | ) |
Earnings per diluted share attributable to controlling interest | $ | 2.57 |
|
| $ | 5.83 |
|
| $ | (3.26 | ) |
Net Sales and Volume
The following table providesfirst quarter of fiscal 2024, a breakdowndecline of our consolidated net sales by operating segment, along with the respective percentage of the consolidated net sales represented by each, for the periods indicated.
| Nine Months Ended |
| |||||||||||||||||
| February 28, |
| |||||||||||||||||
|
|
|
| % of |
|
|
|
|
| % of |
|
| Increase/ |
| |||||
(In millions) | 2023 |
|
| Net sales |
|
| 2022 |
|
| Net sales |
|
| (Decrease) |
| |||||
Steel Processing | $ | 2,637.8 |
|
|
| 71.5 | % |
| $ | 2,813.2 |
|
|
| 75.6 | % |
| $ | (175.4 | ) |
Consumer Products |
| 505.1 |
|
|
| 13.7 | % |
|
| 450.3 |
|
|
| 12.1 | % |
|
| 54.8 |
|
Building Products |
| 443.9 |
|
|
| 12.0 | % |
|
| 368.8 |
|
|
| 9.9 | % |
|
| 75.1 |
|
Sustainable Energy Solutions |
| 100.7 |
|
|
| 2.8 | % |
|
| 89.6 |
|
|
| 2.4 | % |
|
| 11.1 |
|
Consolidated Net Sales | $ | 3,687.5 |
|
|
| 100.0 | % |
| $ | 3,721.9 |
|
|
| 100.0 | % |
| $ | (34.4 | ) |
The following table provides volume by operating segment for the periods presented.
| Nine Months Ended |
| |||||||||
| February 28, |
| |||||||||
|
|
|
|
|
|
| Increase/ |
| |||
| 2023 |
|
| 2022 |
|
| (Decrease) |
| |||
Steel Processing (Tons) |
| 2,817,752 |
|
|
| 3,128,466 |
|
|
| (310,714 | ) |
Consumer Products (Units) |
| 58,124,832 |
|
|
| 60,384,101 |
|
|
| (2,259,269 | ) |
Building Products (Units) |
| 7,784,814 |
|
|
| 8,237,296 |
|
|
| (452,482 | ) |
Sustainable Energy Solutions (Units) |
| 410,959 |
|
|
| 429,785 |
|
|
| (18,826 | ) |
32
Gross Margin
| Nine Months Ended |
| |||||||||||||||||
| February 28, |
| |||||||||||||||||
|
|
|
| % of |
|
|
|
|
| % of |
|
| Increase/ |
| |||||
(In millions) | 2023 |
|
| Net sales |
|
| 2022 |
|
| Net sales |
|
| (Decrease) |
| |||||
Gross Margin | $ | 418.9 |
|
|
| 11.4 | % |
| $ | 547.1 |
|
|
| 14.7 | % |
| $ | (128.2 | ) |
Selling, General and Administrative Expense
| Nine Months Ended |
| |||||||||||||||||
| February 28, |
| |||||||||||||||||
|
|
|
| % of |
|
|
|
|
| % of |
|
| Increase/ |
| |||||
(In millions) | 2023 |
|
| Net sales |
|
| 2022 |
|
| Net sales |
|
| (Decrease) |
| |||||
Selling, general and administrative expense | $ | 317.3 |
|
|
| 8.6 | % |
| $ | 294.9 |
|
|
| 7.9 | % |
| $ | 22.4 |
|
Other Operating Costs/Income
| Nine Months Ended |
| |||||||||
| February 28, |
| |||||||||
|
|
|
|
|
|
| Increase/ |
| |||
(In millions) | 2023 |
|
| 2022 |
|
| (Decrease) |
| |||
Impairment of long-lived assets | $ | 0.8 |
|
| $ | 3.1 |
|
| $ | (2.3 | ) |
Restructuring and other income, net |
| (4.6 | ) |
|
| (14.8 | ) |
|
| 10.2 |
|
Separation costs |
| 15.6 |
|
|
| - |
|
|
| (15.6 | ) |
33
Miscellaneous income (expense), net
| Nine Months Ended |
| |||||||||
| February 28, |
| |||||||||
|
|
|
|
|
|
| Increase/ |
| |||
(In millions) | 2023 |
|
| 2022 |
|
| (Decrease) |
| |||
Miscellaneous income (expense), net | $ | (2.4 | ) |
| $ | 2.1 |
|
| $ | (4.5 | ) |
Interest Expense, net
| Nine Months Ended |
| |||||||||
| February 28, |
| |||||||||
|
|
|
|
|
|
| Increase/ |
| |||
(In millions) | 2023 |
|
| 2022 |
|
| (Decrease) |
| |||
Interest expense, net | $ | 22.2 |
|
| $ | 23.2 |
|
| $ | (1.0 | ) |
Equity Income
| Nine Months Ended |
| |||||||||
| February 28, |
| |||||||||
|
|
|
|
|
|
| Increase/ |
| |||
(In millions) | 2023 |
|
| 2022 |
|
| (Decrease) |
| |||
WAVE | $ | 61.7 |
|
| $ | 66.7 |
|
| $ | (5.0 | ) |
ClarkDietrich |
| 55.1 |
|
|
| 66.2 |
|
|
| (11.1 | ) |
Serviacero Worthington |
| 3.5 |
|
|
| 22.9 |
|
|
| (19.4 | ) |
ArtiFlex (1) |
| (13.7 | ) |
|
| 4.8 |
|
|
| (18.5 | ) |
Workhorse |
| (1.1 | ) |
|
| - |
|
|
| (1.1 | ) |
Total Equity Income | $ | 105.5 |
|
| $ | 160.6 |
|
| $ | (55.1 | ) |
Income Taxes
| Nine Months Ended |
| |||||||||||||||||
| February 28, |
| |||||||||||||||||
(In millions) | 2023 |
|
| Effective Tax Rate |
|
| 2022 |
|
| Effective Tax Rate |
|
| Increase/ |
| |||||
Income tax expense | $ | 35.7 |
|
|
| 22.8 | % |
| $ | 90.1 |
|
|
| 23.2 | % |
| $ | (54.4 | ) |
34
Adjusted EBIT
The following table provides a reconciliation from consolidated net earnings attributable to controlling interest (the most comparable GAAP measure) to the non-GAAP measure of adjusted EBIT for the periods presented:
| Nine Months Ended |
| |||||
| February 28, |
| |||||
(In millions) | 2023 |
|
| 2022 |
| ||
Net earnings attributable to controlling interest | $ | 126.6 |
|
| $ | 299.1 |
|
Interest expense, net |
| 22.2 |
|
|
| 23.2 |
|
Income tax expense |
| 35.7 |
|
|
| 90.1 |
|
EBIT | $ | 184.5 |
|
| $ | 412.4 |
|
Impairment of long-lived assets (1) |
| 0.7 |
|
|
| 2.0 |
|
Restructuring and other income, net (2) |
| (2.7 | ) |
|
| (8.9 | ) |
Separation costs (3) |
| 15.6 |
|
|
| - |
|
Pension settlement charge (4) |
| 4.8 |
|
|
| - |
|
Loss on sale of investment in ArtiFlex |
| 16.1 |
|
|
| - |
|
Adjusted EBIT | $ | 219.0 |
|
| $ | 405.5 |
|
The following table provides a summary of adjusted EBIT by operating segment for the periods presented.
| Nine Months Ended |
| |||||||||
| February 28, |
| |||||||||
|
|
|
|
|
|
| Increase/ |
| |||
(In millions) | 2023 |
|
| 2022 |
|
| (Decrease) |
| |||
Steel Processing | $ | 25.5 |
|
| $ | 186.7 |
|
| $ | (161.2 | ) |
Consumer Products |
| 52.4 |
|
|
| 64.8 |
|
|
| (12.4 | ) |
Building Products |
| 145.4 |
|
|
| 153.0 |
|
|
| (7.6 | ) |
Sustainable Energy Solutions |
| (1.7 | ) |
|
| (4.6 | ) |
|
| 2.9 |
|
Other |
| (2.6 | ) |
|
| 5.6 |
|
|
| (8.2 | ) |
Total Adjusted EBIT | $ | 219.0 |
|
| $ | 405.5 |
|
|
| (186.5 | ) |
35
•
Liquidity and Capital Resources
During the ninethree months ended February 28,August 31, 2023, we generated $396.1$59.7 million of cash from operating activities, invested $68.7$29.3 million in property, plant and equipment spent $56.1and invested $15.0 million to acquire Level5, and generated net cash proceeds of $71.3 million from the sale of assets, including $35.8 million from the sale of our 50% noncontrolling equity interest in ArtiFlex.a note receivable. Additionally, we repaid $44.4$243.8 million to redeem our 2026 Notes, repaid $2.8 million of short-term borrowings and paid dividends of $44.2$15.7 million on the common shares. The following table summarizes our consolidated cash flows for the periods presented:
| Nine Months Ended |
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| Three Months Ended |
| ||||||||||
| February 28, |
|
| August 31, |
| ||||||||||
(in millions) | 2023 |
|
| 2022 |
| ||||||||||
Net cash provided (used) by operating activities | $ | 396.1 |
|
| $ | (94.7 | ) | ||||||||
(In millions) |
| 2023 |
|
| 2022 |
| |||||||||
Net cash provided by operating activities |
| $ | 59.7 |
|
| $ | 81.0 |
| |||||||
Net cash used by investing activities |
| (53.7 | ) |
|
| (413.2 | ) |
|
| (44.3 | ) |
|
| (29.8 | ) |
Net cash used by financing activities |
| (109.6 | ) |
|
| (88.1 | ) |
|
| (269.3 | ) |
|
| (49.9 | ) |
Increase (decrease) in cash and cash equivalents |
| 232.8 |
|
|
| (596.0 | ) |
|
| (253.9 | ) |
|
| 1.3 |
|
Cash and cash equivalents at beginning of period |
| 34.5 |
|
|
| 640.3 |
|
|
| 454.9 |
|
|
| 34.5 |
|
Cash and cash equivalents at end of period | $ | 267.3 |
|
| $ | 44.3 |
|
| $ | 201.0 |
|
| $ | 35.8 |
|
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, working capital, to the extent not funded by cash provided by operating activities, for at least 12 months and for the foreseeable future thereafter, and expenditures related to the planned Separation. Our resources include cash and cash equivalents and unused committed lines of credit. There were no borrowings outstanding under the Credit Facility at August 31, 2023, leaving up to $500.0 million available for future use.
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Although we do not currently anticipate a need, based on our current operating structure, we believe that we could access the financial markets to be in a position to sell long-term debt or equity securities. However, lingering supply chain disruptions and other challenges caused by the COVID-19 pandemic and softeningcontinuation of soft economic conditions and an uncertain interest rate environment could create further uncertainty and volatility in the financial markets, which may impact our ability to access capital and the terms under which we can do so. AsDuring fiscal 2023, the financial markets experienced disruption due to certain bank failures. Given the diversification and credit profile of our exposure to bank counterparties, we do not foresee any material financial impact of such challenges on the economy and our operations is evolving, wefrom this disruption. We will continue to reviewmonitor the economic environment and its impact on our discretionary spendingoperations and other variable costs as well as our liquidity needs.
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We routinely monitor current operational requirements, financial market conditions, and credit relationships and we may choose to seek additional capital by issuing new debt and/or equity securities to strengthen our liquidity or capital structure. We are also in the process of evaluating our post-Separation capital structure. Should we seek such additional capital, there can be no assurance that we would be able to obtain such additional capital on terms acceptable to us, if at all, and such additional equity or debt financing could dilute the interests of our existing shareholders and/or increase our interest costs. We may also from time to time seek to retire or repurchase our outstanding debt through cash purchases, in open-market purchases, privately negotiatedprivately-negotiated transactions or otherwise. Such repurchases, if any, will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved in any such transaction may or may not be material. On July 28, 2023, we redeemed in full our 2026 Notes for $243.8 million. The redemption price approximated the par value of debt of $243.6 million plus accrued interest. See “Note H” – Debt” for additional information.
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 provided by operating activities was $396.1$59.7 million during the nine months ended February 28, 2023,first quarter of fiscal 2024, compared to net cash used by operating activities of $94.7$81.0 million during the nine months ended February 28, 2022.prior year quarter. This change was primarily due to a $466.2$49.9 million decreaseincrease in net operating working capital (accounts receivable, inventories, and accounts payable) requirements over the prior year nine-month period,quarter, mainly driven by the impact of lower averagehigher inventory balances, fluctuations in steel prices.prices and lagging price indices.
Investing Activities
Net cash used by investing activities was $53.7$44.3 million during the nine months ended February 28, 2023first quarter of fiscal 2024, compared to $413.2$29.8 million during the prior year period. Net cash used by investing activities in the prior year period resulted primarily from cash used to acquire certain assets of the Shiloh Industries’ U.S BlankLight ® business on June 8, 2021, for $104.8 million and Tempel on December 1, 2021 for $272.5 million.quarter. Net cash used by investing activities in the current year periodquarter resulted from capital expenditures of $29.3 million and investment in a note receivable of $15.0 million. Net cash used by investing activities in the first quarter of fiscal 2023 resulted primarily from the purchase of the Level5 business on June 2, 2022, for $56.1 million, net of cash acquired, and capital expenditures of $68.7$21.5 million, partially offset by combined cash proceeds of $71.3$47.9 million from the sale of our 50% noncontrolling equity investment in ArtiFlex and the sale of our WSP Jackson, Michigan facility and other long-lived assets.assets, including the related real property that was owned by Worthington and leased to ArtiFlex.
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.
Financing Activities
Net cash used by financing activities was $109.6$269.3 million during the nine months ended February 28, 2023first quarter of fiscal 2024, compared to $88.1$49.9 million in the prior year period.quarter. The change was primarily due to $44.4the repayment of $243.8 million of net repaymentslong-term debt associated with the redemption of short-term borrowingsthe 2026 Notes in the current year period and the repurchase of 2,235,000 common shares, at a cost of $127.8 million, in the prior year period.July 2023.
Common shares – On March 22,September 27, 2023, the Board declared a quarterly dividend of $0.31$0.32 per share payable on June 29,December 15, 2023, to shareholders of record on JuneNovember 15, 2023.
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On March 20, 2019, the Board authorized the repurchase of up to 6,600,0006.6 million common shares.
On March 24, 2021, the Board authorized the repurchase of up to an additional 5,618,4645.6 million common shares, increasing the total number of common shares then authorized for repurchase to 10,000,000.10.0 million. As of February 28,August 31, 2023, 6,065,0006.1 million common shares remained available for repurchase under these two authorizations.
The common shares may be repurchased under these authorizations 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.
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Long-term debt and short-term borrowings – As of February 28,August 31, 2023, we were in compliance with the financial covenants of our short-term and long-term financial debt agreements. Our debt agreements do not include credit rating triggers or material adverse change provisions. There were no outstanding borrowings drawn against our ARCredit Facility at February 28,August 31, 2023, leaving the full borrowing capacity of $175.0$500.0 million available for future use. This is in addition to $500.0 million of short-term borrowing capacity available under our Credit Facility.
During the third quarter of fiscal 2023, we repurchased $5,615,000 of the 2026 Notes through open market purchases. This repurchase activity generated a gain of $77,000, which is recorded in Miscellaneous income (expense), net in the consolidated statements of earnings. Refer to “Note I – Debt” for additional information.
Dividend Policy
We currently have no material contractual or regulatory restrictions on the payment of dividends. Dividends are declared at the discretion of the Board. The 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 of dividends will continue in the future.
Critical Accounting Estimates
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 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”Estimates” of the 20222023 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 20222023 Form 10-K.
Item 4. – Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures as(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 Worthington Industries files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including Worthington Industries’ principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
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Management, under the supervision of and with the participation of Worthington Industries’ principal executive officer and 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 Form 10-Q (the quarterly period ended February 28,August 31, 2023). Based on that evaluation, Worthington Industries’ principal executive officer and principal financial officer have concluded that such disclosure controls and procedures were effective at a reasonable assurance level as of the end of the quarterly period covered by this Form 10-Q.
Changes in Internal Control Over Financial Reporting
There were no changes that occurred during the period covered by this Form 10-Q (the quarterly period ended February 28,August 31, 2023) 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.
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PART II. OTHER INFORMATION
Item 1. – Legal Proceedings
We are involved in various judicial and administrative proceedings, as both plaintiff and defendant, arising in the ordinary course of business. We do not believe that any such proceedings will have a material adverse effect on our business, financial position, results of operation 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 20222023 Form 10-K, as filed with the SEC on August 1, 2022,July 31, 2023, and available at www.sec.gov or at www.worthingtonindustries.com, we included a detailed discussion of our risk factors. OurOther than as noted below, our risk factors have not changed significantly from those disclosed in the 20222023 Form 10-K. These risk factors should be read carefully in connection with evaluating our business and investments in the common shares and in connection with the forward-looking statements and other information contained in this Form 10-Q. Any of the risks described in the 20222023 Form 10-K, as well as the risk described below, 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 20222023 Form 10-K and the risk described below 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.
The UAW strikes against the Detroit Three automakers could have material adverse effects on our business, financial position, results of operations and cash flows as well as the planned Separation. The automotive industry is one of the largest consumers of flat-rolled steel, and the largest end market for our Steel Processing operating segment. While the duration and scope of the initial and any future UAW strikes against the Detroit Three automakers, as well as the corresponding impact on the business of suppliers to the Detroit Three automakers and the impact on our own business, financial position, results of operations and cash flow, are impossible to predict at this time, the prolonged idling of our customers’ production facilities in response to the strikes could have a material adverse impact on us. Prolonged strikes by the UAW may also impact the Separation, including the timing of the Separation and the expected performance of each of the two independent, publicly-traded companies following the planned Separation. The extent to which the UAW strikes will impact us and the Separation will depend on future developments, which cannot be predicted and are highly uncertain. The ultimate impact on our business, financial position, results of operations and cash flows, as well as the planned Separation, will depend on factors beyond our control including the duration and scope of the strikes.
Item 2. – Unregistered Sales of Equity Securities, and Use of Proceeds, and Issuer Purchases of Equity Securities
Unregistered Sales of Equity Securities
There were no unregistered sales of equity securities of Worthington Industries sold by Worthington Industries during the three months ended August 31, 2023 that were not registered under the Securities Act of 1933, as amended.
Issuer Purchases of Equity Securities
Common shares withheld to cover tax withholding obligations in connection with the vesting of restricted common shares are treated as common share repurchases. Those withheld common shares are not considered common share repurchases under an authorized common share repurchase plan. The table below provides information regarding common shares withheld from our employees to satisfy minimum statutory tax withholding obligations arising from the vesting of restricted common shares. The presentation of the table below and related footnote represents full common share amounts.
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|
|
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| Total Number of |
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|
|
| ||||
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|
|
|
|
|
|
| Common Shares |
|
|
|
| ||||
|
|
|
|
|
|
|
| Purchased as |
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| Maximum Number of |
| ||||
|
| Total Number |
|
| Average Price |
|
| Part of Publicly |
|
| Common Shares that |
| ||||
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| of Common |
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| Paid per |
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| Announced |
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| May Yet Be |
| ||||
| Shares |
|
| Common |
|
| Plans or |
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| Purchased Under the |
| |||||
Period |
| Purchased |
|
| Share |
|
| Programs (2) |
|
| Plans or Programs (1) |
| ||||
June 1-30, 2023 |
| 81,828 |
|
| $ | 61.62 |
|
|
| - |
|
|
| 6,065,000 |
| |
July 1-31, 2023 |
| 57,734 |
|
|
| 69.64 |
|
|
| - |
|
|
| 6,065,000 |
| |
August 1-31, 2023 |
| - |
|
|
| - |
|
|
| - |
|
|
| 6,065,000 |
| |
Total |
|
| 139,562 |
|
| $ | 65.72 |
|
|
| - |
|
|
|
|
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Item 3. – Defaults Upon Senior Securities
Not applicable.
Item 4. – Mine Safety Disclosures
Not applicable.
Item 5. – Other Information
Not applicable.No response required.
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Item 6. – Exhibits
Exhibit No. |
| Description |
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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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10.1 | ||
10.2 | ||
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31.1 |
| 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 |
| Inline XBRL Taxonomy Extension Schema Document # |
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101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document # |
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101.LAB |
| 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 |
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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 |
* Filed herewith.
** 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 will supplementally furnishIndicates a copy of any of the omitted Disclosure Schedules and Exhibits to the SEC on a confidential basis upon request.management contract or compensatory plan or arrangement.
# Attached as Exhibit 101 to this Quarterly Report on Form 10-Q of Worthington Industries are the following documents formatted in Inline XBRL (Extensible Business Reporting Language):
4136
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: | 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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| (On behalf of the Registrant as Duly Authorized Officer and as Principal Financial Officer) |
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