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 28,29, 20232024

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,ENTERPRISES, 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, 2023,April 3, 2024, the number of common shares, without par value, of the Registrant issued and outstanding was 49,755,36550,146,357.

 

 

TABLE OF CONTENTS

 

Safe Harbor Statement

 

ii

iii

Part I. Financial Information

 

 

 

Item 1.

Financial Statements

 

 

 

 

Consolidated Balance Sheets – February 28, 202329, 2024 and May 31, 2022

1

Consolidated Statements of Earnings – Three Months and Nine Months Ended February 28, 2023 and 2022

 

2

 

 

Consolidated Statements of Earnings – Three and Nine Months Ended February 29, 2024 and February 28, 2023

 

3

 

 

Consolidated Statements of Comprehensive Income – Three Months and Nine Months Ended February 29, 2024 and February 28, 2023 and 2022

 

3

4

 

 

Consolidated Statements of Cash Flows – Three Months and Nine Months Ended February 29, 2024 and February 28, 2023 and 2022

 

45

 

 

Condensed Notes to Consolidated Financial Statements

 

5

6

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

24

26

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

38

 

Item 4.

Controls and Procedures

 

38

Part II. Other Information

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

40

39

 

Item 1A.

Risk Factors

 

40

39

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

40

39

 

Item 3.

Defaults Upon Senior Securities (Not applicable)

 

40

 

Item 4.

Mine Safety Disclosures (Not applicable)

 

40

 

Item 5.

Other Information (Not applicable)

 

40

 

Item 6.

Exhibits

 

41

Signatures

 

4243

 

 

i

Table of Contents

 

COMMONLY USED OR DEFINED TERMS

References in this Form 10-Q to “we,” “our,” “us” or the “Company” are collectively to Worthington Enterprises and its consolidated subsidiaries. In addition, the following terms, when used in this Form 10-Q, have the meanings set forth below:

Term

Definition

ABI

Architecture Billings Index

AOCI

Accumulated other comprehensive income (loss)

ArtiFlex

ArtiFlex Manufacturing, LLC

AR Facility

Our former revolving trade accounts receivable securitization facility

Board

Board of Directors of Worthington Enterprises, Inc.

CARES Act

Coronavirus Aid, Relief and Economic Security Act

ClarkDietrich

Clarkwestern Dietrich Building Systems LLC

CODM

Chief Operating Decision Maker

common shares

The common shares, no par value, of Worthington Enterprises

COVID-19

The novel coronavirus disease first known to originate in December 2019

Credit Facility

Our $500,000,000 unsecured revolving credit facility with a group of lenders

Distribution

The pro-rata distribution of all outstanding shares of Worthington Steel whereby each holder of record of Worthington Enterprises common shares received one common share of Worthington Steel for every one common share of Worthington Enterprises held as of the Record Date.

EPS

Earnings per common share

Equity Income

Equity in net income of unconsolidated affiliates

Exchange Act

Securities Exchange Act of 1934, as amended

Form 10-Q

Our Quarterly Report on Form 10-Q for the quarterly period ended February 29, 2024

fiscal 2023

Our fiscal year ended May 31, 2023

fiscal 2024

Our fiscal year ending May 31, 2024

GAAP

U.S. generally accepted accounting principles

GDP

Gross domestic product

HPG

Halo Products Group, LLC

HMI

The National Association of Home Builders/Wells Fargo Housing Market Index

MD&A

Management’s Discussion and Analysis of Financial Condition and Results of Operations

NYSE

New York Stock Exchange

OCI

Other comprehensive income (loss)

PSLRA

Private Securities Litigation Reform Act of 1995, as amended

Record Date

Close of business on November 21, 2023

Samuel

Worthington Samuel Coil Processing LLC

SEC

Securities and Exchange Commission

Separation

The separation of our Steel Processing business, effective December 1, 2023

Serviacero

Serviacero Planos, S. de R. L. de C.V.

SG&A

Selling, general and administrative expenses

SOFR

Secured Overnight Financing Rate

Spartan

Spartan Steel Coating, L.L.C.

TWB

TWB Company, L.L.C.

U.S.

United States of America

Voestalpine

Voestalpine Automotive Components Nagold GmbH & Co. KG

WAVE

Worthington Armstrong Venture

Halo

WH Products, LLC

Worthington Enterprises

Worthington Enterprises, Inc. (formerly known as Worthington Industries, Inc.)

Workhorse

Taxi Workhorse Holdings, LLC

Worthington Steel

Worthington Steel, Inc.

Worthington Steel Credit Facility

Worthington Steel’s $550,000,000 senior secured revolving credit facility with a group of lenders

WSP

Worthington Specialty Processing

2023 Form 10-K

Our Annual Report on Form 10-K for fiscal 2023 as filed with the SEC on July 31, 2023

2024 Notes

The senior unsecured notes that we issued on August 10, 2012, in the principal amount of $150,000,000, which bore interest at a rate of 4.60% and were set to mature on August 10, 2024

2026 Notes

The senior unsecured notes that we issued on April 15, 2014, in the principal amount of $250,000,000, which bore interest at a rate of 4.55% and were scheduled to mature on April 15, 2026

ii

Table of Contents

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,”MD&A, constitute “forward-looking statements”statements,” as that term is used in the Private Securities Litigation Reform ActPSLRA. The Company wishes to take advantage of 1995 (the “PSLRA”).the safe harbor provisions included in the Act. 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:

•
the ever-changing effects of the novel coronavirus (“COVID-19”) pandemic and the various responses of governmental and nongovernmental authorities thereto (such as fiscal stimulus packages, quarantines, shut downs and other restrictions on travel and commercial, social or other activities) on economies (local, national and international) and markets, and on the Company’s customers, counterparties, employees and third-party service providers;
•
future or expected cash positions, liquidity and ability to access financial markets and capital;
•
outlook, strategyoutlooks, strategies or business plans;
•
the intended separation of the Company’s Steel Processing business (the “Separation”), see Note A – Basis of Presentation for additional information related to the Separation;
•
the timing and method of the Separation;
•
the anticipated benefits of the Separation;
•
the expected financial and operational performance of, and future opportunities for, eachthe Company following the Separation;
•
the Company’s performance on a pro forma basis to illustrate the estimated effects of the two independent, publicly-traded companies following the Separation;Separation on historical periods;
•
the tax treatment of the Separation transaction;
•
the leadership of each of the two independent, publicly-traded companies following the Separation;
•
future or expected growth, growth potential, forward momentum, performance, competitive position, sales, volumes, cash flows, earnings, margins, balance sheet strengths, debt, financial condition or other financial measures;
•
pricing trends for raw materials and finished goods and the impact of pricing changes;
•
the ability to improve or maintain margins;
•
expected demand or demand trends for the Company or its markets;
•
additions to product lines and opportunities to participate in new markets;
•
expected benefits from transformation and innovation efforts;
•
the ability to improve performance and competitive position at the Company’s operations;
•
anticipated working capital needs, capital expenditures and asset sales;
•
anticipated improvements and efficiencies in costs, operations, sales, inventory management, sourcing and the supply chain and the results thereof;
•
projected profitability;profitability potential;
•
the ability to make acquisitions, form joint ventures and consolidate operations, and the projected timing, results, benefits, costs, charges and expenditures related to acquisitions, joint ventures, headcount reductions and facility dispositions, shutdowns and consolidations;
•
projected capacity and the alignment of operations with demand;
•
the ability to operate profitably and generate cash in down markets;
•
the ability to capture and maintain market share and to develop or take advantage of future opportunities, customer initiatives, new businesses, new products and new markets;
•
expectations for Company and customer inventories, jobs and orders;
•
expectations for the economy and markets or improvements therein;
•
expectations for generating improving and sustainable earnings, earnings potential, margins or shareholder value;
•
effects of judicial rulings;rulings, laws and regulations;
•
the ever-changing effects of COVID-19 and the various responses of governmental and nongovernmental authorities thereto on economies and markets, and on the Company’s customers, counterparties, employees and third-party service providers; and
•
other non-historical matters.

Because they are based on beliefs, estimates and assumptions, forward-looking statements are inherently subject to risks and uncertainties that could cause actual results to differ materially from those projected. Any number of factors could affect actual results, including, without limitation, those that follow:

•
obtaining final approval of the Separation by the Board of Directors (the “Board”) of Worthington Industries, Inc. (“Worthington Industries”);
•
the uncertainty of obtaining regulatory approvals in connection with the Separation, including rulings from the Internal Revenue Service;
•
the ability to satisfy the necessary closing conditions to complete the Separation on a timely basis, or at all;

ii

Table of Contents

•
the Company’s ability to successfully separate into two independent companies and realize the anticipated benefits of the Separation;
•
the risks, uncertainties and impacts related to the COVID-19 pandemic – the duration, extent and severity of which are impossible to predict, including the possibility of future resurgence in the spread of COVID-19 or variants thereof – and the availability, effectiveness and acceptance of vaccines, and other actual or potential public health emergencies and actions taken by governmental authorities or others in connection therewith;

iii

Table of Contents

•
the effect of national, regional and global economic conditions generally and within major product markets, including significant economic disruptions from COVID-19, the actions taken in connection therewith and the implementation of related fiscal stimulus packages;
•
the effect of conditions in national and worldwide financial markets, including inflation, increases in interest rates and economic recession, and with respect to the ability of financial institutions to provide capital;
•
the impact of tariffs, the adoption of trade restrictions affecting the Company’s products or suppliers, a United States (“U.S.”) withdrawal from or significant renegotiation of trade agreements, the occurrence of trade wars, the closing of border crossings, and other changes in trade regulations or relationships;
•
changing oil prices and/or supply;
•
product demand and pricing;
•
changes in product mix, product substitution and market acceptance of the Company’s products;
•
volatility or fluctuations in the pricing, quality or availability of raw materials (particularly steel), supplies, transportation, utilities, labor and other items required by operations (especially in light of the COVID-19 pandemic and Russia’s invasion of Ukraine);
•
effects of sourcing and supply chain constraints;
•
the outcome of adverse claims experience with respect to workers’ compensation, product recalls or product liability, casualty events or other matters;
•
effects of facility closures and the consolidation of operations;
•
the effect of financial difficulties, consolidation and other changes within the steel, automotive, construction and other industries in which the Company participates;
•
failure to maintain appropriate levels of inventories;
•
financial difficulties (including bankruptcy filings) of original equipment manufacturers, end-users and customers, suppliers, joint venture partners and others with whom the Company does business;
•
the ability to realize targeted expense reductions from headcount reductions, facility closures and other cost reduction efforts;
•
the ability to realize cost savings and operational, sales and sourcing improvements and efficiencies, and other expected benefits from transformation initiatives, on a timely basis;
•
the overall success of, and the ability to integrate, newly-acquired businesses and joint ventures, maintain and develop their customers, and achieve synergies and other expected benefits and cost savings therefrom;
•
capacity levels and efficiencies, within facilities, within major product markets and within the industries in which the Company participates as a whole;
•
the effect of disruption in the business of suppliers, customers, facilities and shipping operations due to adverse weather, casualty events, equipment breakdowns, labor shortages, (especially in light of the COVID-19 pandemic), interruption in utility services, civil unrest, international conflicts (especially in light of Russia’s invasion of Ukraine), terrorist activities, or other causes;
•
changes in customer demand, inventories, spending patterns, product choices, and supplier choices;
•
risks associated with doing business internationally, including economic, political and social instability (especially in light of Russia’s invasion of Ukraine), foreign currency exchange rate exposure and the acceptance of the Company’s products in global markets;
•
the ability to improve and maintain processes and business practices to keep pace with the economic, competitive and technological environment;
•
the effect of inflation, interest rate increases and economic recession, as well as potential adverse impacts as a result of the Inflation Reduction Act of 2022, which may negatively impact the Company’s operations and financial results;
•
deviation of actual results from estimates and/or assumptions used by the Company in the application of its significant accounting policies;
•
the level of imports and import prices in the Company’s markets;
•
the impact of environmental laws and regulations or the actions of the U.S. Environmental Protection Agency or similar regulators which increase costs or limit the Company’s ability to use or sell certain products;
•
the impact of increasing environmental, greenhouse gas emission and sustainability considerationsregulations or regulations;considerations;

iii

Table of Contents

•
the impact of judicial rulings and governmental regulations, both in the U.S. and abroad, including those adopted by the U.S. Securities and Exchange Commission (the “SEC”)SEC and other governmental agencies as contemplated by the Coronavirus Aid, Relief and Economic Security (CARES)CARES Act, the Consolidated Appropriations Act, 2021, the American Rescue Plan Act of 2021, and the Dodd-Frank Wall Street Reform and the Consumer Protection Act of 2010;
•
the effect of healthcare laws in the U.S. and potential changes for such laws, especially in light of the COVID-19 pandemic, which may increase the Company’s healthcare and other costs and negatively impact the Company’s operations and financial results;
•
the effectseffect of tax laws in the U.S. and potential changes for such laws, which may increase the Company’s costs and negatively impact the Company’s operations and financial results;
•
cyber security risks;

iv

Table of Contents

•
the effectseffect of privacy and information security laws and standards; and
•
other risks described from time to time in the Company’s filings of Worthington Industries with the SEC, including those described in “PART“Part I – Item 1A. —– Risk Factors” of the Annual Report on2023 Form 10-K of Worthington Industries for the fiscal year ended May 31, 2022 (“2022 Form 10-K”).10-K.

The Company notes these risk factors for investors as contemplated by the PSLRA. Forward-looking statements should be construed in the light of such risks. It is impossible to predict or identify all potential risk factors. Consequently, youreaders should not consider the foregoing list to be a complete set of all potential risks and uncertainties. AnyReaders are cautioned not to place undue reliance on any forward-looking statements, in this Form 10-Q are based on current informationwhich speak only as of the date of this Form 10-Q,made. The Company does not undertake, and the Company assumes nohereby disclaims, any obligation to correct or update any suchforward-looking statements, in thewhether as a result of new information, future developments or otherwise, except as required by applicable law.

 

ivv

Table of Contents

 

USE OF NON-GAAP FINANCIAL MEASURES AND DEFINITIONS


Adjusted EBITDA

Adjusted EBITDA is defined as adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization. EBITDA is calculated by adding or subtracting, as appropriate, interest expense, net, income tax expense, depreciation, and amortization to/from net earnings from continuing operations attributable to controlling interest, which is further adjusted to exclude impairment and restructuring charges (gains) as well as other items that management believes are not reflective of, and thus should not be included when evaluating the performance of its ongoing operations, as outlined below. Adjusted EBITDA also excludes stock-based compensation due to its non-cash nature, which is consistent with how management assesses operating performance. At the segment level, adjusted EBITDA includes expense allocations for centralized corporate back-office functions that exist to support the day-to-day business operations. Public company and other governance costs are held at the corporate level.

Adjusted EBITDA typically excludes items that management believes are not reflective of, and thus should not be included when evaluating the performance of our ongoing operations. Management uses the non-GAAP financial measures to evaluate our performance, engage in financial and operational planning, and determine incentive compensation. Management believes these non-GAAP financial measures provide useful supplemental information and additional perspective on the performance of our ongoing operations and should not be considered as an alternative to the comparable GAAP measure. Additionally, management believes these non-GAAP financial measures allow for meaningful comparisons and analysis of trends in our businesses and enables investors to evaluate operations and future prospects in the same manner as management.

Exclusions from adjusted EBITDA

Management believes it is useful to exclude the following items from adjusted EBITDA for its own and investors’ assessment of the business for the reasons identified below:

•
Impairment charges are excluded 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, which we believe facilitates the comparison of historical, current and forecasted financial results.
•
Restructuring activities, which can result in both discrete gains and/or losses, 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). These items are excluded because they are not part of the ongoing operations of our underlying business.
•
Separation costs, which consist of direct and incremental costs incurred in connection with the completed Separation, are excluded as they are one-time in nature and are not expected to occur in periods following the Separation. These costs include fees paid to third-party advisors, such as investment banking, audit and other advisory services as well as direct and incremental costs associated with the separation of shared corporate functions. Results in fiscal 2024 also include incremental compensation expense associated with the modification of unvested short and long-term incentive compensation awards, as required under the employee matters agreement executed in conjunction with the Separation.
•
Loss on early extinguishment of debt, is excluded because it does not occur in the normal course of business and may obscure analysis of trends and financial performance. Additionally, the amount and frequency of this type of charge is not consistent and is significantly impacted by the timing and size of debt extinguishment transactions.
•
Pension settlement charges, are excluded because of their non-cash nature and the fact that they do not occur in the normal course of business and may obscure analysis of trends and financial performance. These transactions typically result from the transfer of all or a portion of the total projected benefit obligation to third-party insurance companies.

1

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. – Financial Statements

WORTHINGTON INDUSTRIES,ENTERPRISES, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)

 

 

(Unaudited)

 

 

 

 

 

(Unaudited)

 

 

 

 

 

February 28,

 

May 31,

 

 

February 29,

 

May 31,

 

 

2023

 

 

2022

 

 

2024

 

 

2023

 

Assets

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

267,244

 

 

$

34,485

 

 

$

227,310

 

 

$

422,268

 

Receivables, less allowances of $5,233 and $1,292 at February 28, 2023

 

 

 

 

 

and May 31, 2022, respectively

 

 

715,899

 

 

 

857,493

 

Receivables, less allowances of $750 and $803 at February 29, 2024 and May 31, 2023, respectively

 

 

219,389

 

 

 

224,863

 

Inventories:

 

 

 

 

 

 

 

 

 

Raw materials

 

 

271,518

 

 

 

323,609

 

 

 

74,929

 

 

 

91,988

 

Work in process

 

 

160,688

 

 

 

255,019

 

 

 

18,234

 

 

 

19,189

 

Finished products

 

 

168,918

 

 

 

180,512

 

 

 

98,553

 

 

 

83,322

 

Total inventories

 

 

601,124

 

 

 

759,140

 

 

 

191,716

 

 

 

194,499

 

Income taxes receivable

 

 

15,619

 

 

 

20,556

 

 

 

2,398

 

 

 

1,681

 

Assets held for sale

 

 

5,191

 

 

 

20,318

 

Prepaid expenses and other current assets

 

 

105,689

 

 

 

93,661

 

 

 

50,298

 

 

 

46,301

 

Current assets of discontinued operations

 

 

-

 

 

 

978,725

 

Total current assets

 

 

1,710,766

 

 

 

1,785,653

 

 

 

691,111

 

 

 

1,868,337

 

Investments in unconsolidated affiliates

 

 

244,277

 

 

 

327,381

 

 

 

120,707

 

 

 

138,041

 

Operating lease assets

 

 

102,474

 

 

 

98,769

 

 

 

21,285

 

 

 

24,686

 

Goodwill

 

 

413,989

 

 

 

401,469

 

 

 

345,445

 

 

 

336,178

 

Other intangible assets, net of accumulated amortization of $107,167 and

 

 

 

 

 

$93,973 at February 28, 2023 and May 31, 2022, respectively

 

 

318,483

 

 

 

299,017

 

Other intangible assets, net of accumulated amortization of $82,190 and $73,308 at February 29, 2024 and
May 31, 2023, respectively

 

 

226,859

 

 

 

230,851

 

Other assets

 

 

25,454

 

 

 

34,394

 

 

 

30,900

 

 

 

14,339

 

Property, plant and equipment:

 

 

 

 

 

 

 

 

 

Land

 

 

49,695

 

 

 

51,483

 

 

 

12,203

 

 

 

12,120

 

Buildings and improvements

 

 

306,296

 

 

 

303,269

 

 

 

142,522

 

 

 

139,514

 

Machinery and equipment

 

 

1,247,994

 

 

 

1,196,806

 

 

 

417,777

 

 

 

403,885

 

Construction in progress

 

 

57,307

 

 

 

59,363

 

 

 

39,260

 

 

 

24,779

 

Total property, plant and equipment

 

 

1,661,292

 

 

 

1,610,921

 

 

 

611,762

 

 

 

580,298

 

Less: accumulated depreciation

 

 

979,063

 

 

 

914,581

 

 

 

343,380

 

 

 

323,883

 

Total property, plant and equipment, net

 

 

682,229

 

 

 

696,340

 

 

 

268,382

 

 

 

256,415

 

Non-current assets of discontinued operations

 

 

-

 

 

 

782,071

 

Total assets

 

$

3,497,672

 

 

$

3,643,023

 

 

$

1,704,689

 

 

$

3,650,918

 

 

 

 

 

 

 

 

 

 

 

Liabilities and equity

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

489,346

 

 

$

668,438

 

 

$

108,660

 

 

$

126,743

 

Short-term borrowings

 

 

3,605

 

 

 

47,997

 

Accrued compensation, contributions to employee benefit plans and related taxes

 

 

84,098

 

 

 

117,530

 

 

 

47,657

 

 

 

46,782

 

Dividends payable

 

 

17,630

 

 

 

15,988

 

 

 

8,916

 

 

 

18,330

 

Other accrued items

 

 

57,703

 

 

 

70,125

 

 

 

29,697

 

 

 

37,801

 

Current operating lease liabilities

 

 

12,166

 

 

 

11,618

 

 

 

6,555

 

 

 

6,682

 

Income taxes payable

 

 

-

 

 

 

300

 

 

 

536

 

 

 

8,918

 

Current maturities of long-term debt

 

 

261

 

 

 

265

 

 

 

267

 

 

 

264

 

Current liabilities of discontinued operations

 

 

-

 

 

 

472,038

 

Total current liabilities

 

 

664,809

 

 

 

932,261

 

 

 

202,288

 

 

 

717,558

 

Other liabilities

 

 

118,736

 

 

 

115,991

 

 

 

76,300

 

 

 

71,766

 

Distributions in excess of investment in unconsolidated affiliate

 

 

116,825

 

 

 

81,149

 

 

 

116,775

 

 

 

117,297

 

Long-term debt

 

 

689,339

 

 

 

696,345

 

 

 

297,695

 

 

 

689,718

 

Noncurrent operating lease liabilities

 

 

92,481

 

 

 

88,183

 

Non-current operating lease liabilities

 

 

15,103

 

 

 

18,326

 

Deferred income taxes, net

 

 

100,224

 

 

 

115,132

 

 

 

82,086

 

 

 

82,356

 

Non-current liabilities of discontinued operations

 

 

-

 

 

 

132,269

 

Total liabilities

 

 

1,782,414

 

 

 

2,029,061

 

 

 

790,247

 

 

 

1,829,290

 

Shareholders' equity - controlling interest

 

 

1,585,426

 

 

 

1,480,752

 

Shareholders’ equity - controlling interest

 

 

912,096

 

 

 

1,696,011

 

Noncontrolling interests

 

 

129,832

 

 

 

133,210

 

 

 

2,346

 

 

 

125,617

 

Total equity

 

 

1,715,258

 

 

 

1,613,962

 

 

 

914,442

 

 

 

1,821,628

 

Total liabilities and equity

 

$

3,497,672

 

 

$

3,643,023

 

 

$

1,704,689

 

 

$

3,650,918

 

 

See condensed notes to consolidated financial statements.

1

2

Table of Contents

 

WORTHINGTON INDUSTRIES,ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per common share amounts)

(Unaudited)

 

Three Months Ended

 

Nine Months Ended

 

Three Months Ended

 

 

Nine Months Ended

 

February 28,

 

 

February 28,

 

February 29,

 

February 28,

 

February 29,

 

 

February 28,

 

2023

 

 

2022

 

 

2023

 

 

2022

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Net sales

$

1,103,322

 

 

$

1,378,235

 

 

$

3,687,528

 

 

$

3,721,914

 

$

316,755

 

 

$

346,315

 

 

$

926,902

 

 

$

1,049,694

 

Cost of goods sold

 

959,515

 

 

 

1,235,107

 

 

 

3,268,584

 

 

 

3,174,821

 

 

243,643

 

 

 

267,344

 

 

 

720,882

 

 

 

820,266

 

Gross margin

 

143,807

 

 

 

143,128

 

 

 

418,944

 

 

 

547,093

 

Gross profit

 

73,112

 

 

 

78,971

 

 

 

206,020

 

 

 

229,428

 

Selling, general and administrative expense

 

106,057

 

 

 

102,945

 

 

 

317,318

 

 

 

294,926

 

 

65,134

 

 

 

71,359

 

 

 

210,262

 

 

 

211,208

 

Impairment of long-lived assets

 

484

 

 

 

3,076

 

 

 

796

 

 

 

3,076

 

 

-

 

 

 

484

 

 

 

-

 

 

 

484

 

Restructuring and other expense (income), net

 

824

 

 

 

(504

)

 

 

(4,558

)

 

 

(14,782

)

 

698

 

 

 

823

 

 

 

704

 

 

 

(354

)

Separation costs

 

6,347

 

 

 

-

 

 

 

15,593

 

 

 

-

 

 

2,999

 

 

 

2,305

 

 

 

12,465

 

 

 

3,572

 

Operating income

 

30,095

 

 

 

37,611

 

 

 

89,795

 

 

 

263,873

 

Operating income (loss)

 

4,281

 

 

 

4,000

 

 

 

(17,411

)

 

 

14,518

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Miscellaneous income (expense), net

 

1,327

 

 

 

393

 

 

 

(2,354

)

 

 

2,063

 

 

(6,995

)

 

 

217

 

 

 

(5,983

)

 

 

(4,499

)

Loss on extinguishment of debt

 

-

 

 

 

-

 

 

 

(1,534

)

 

 

-

 

Interest expense, net

 

(6,035

)

 

 

(8,140

)

 

 

(22,245

)

 

 

(23,170

)

 

(50

)

 

 

(4,186

)

 

 

(1,596

)

 

 

(15,689

)

Equity in net income of unconsolidated affiliates

 

36,926

 

 

 

47,466

 

 

 

105,495

 

 

 

160,600

 

 

43,235

 

 

 

37,111

 

 

 

127,328

 

 

 

102,004

 

Earnings before income taxes

 

62,313

 

 

 

77,330

 

 

 

170,691

 

 

 

403,366

 

 

40,471

 

 

 

37,142

 

 

 

100,804

 

 

 

96,334

 

Income tax expense

 

12,055

 

 

 

18,683

 

 

 

35,684

 

 

 

90,059

 

 

18,471

 

 

 

7,391

 

 

 

34,041

 

 

 

20,709

 

Net earnings from continuing operations

 

22,000

 

 

 

29,751

 

 

 

66,763

 

 

 

75,625

 

Net earnings from discontinued operations

 

-

 

 

 

20,507

 

 

 

83,106

 

 

 

59,382

 

Net earnings

 

50,258

 

 

 

58,647

 

 

 

135,007

 

 

 

313,307

 

 

22,000

 

 

 

50,258

 

 

 

149,869

 

 

 

135,007

 

Net earnings attributable to noncontrolling interests

 

3,933

 

 

 

2,305

 

 

 

8,382

 

 

 

14,173

 

 

-

 

 

 

3,933

 

 

 

7,460

 

 

 

8,382

 

Net earnings attributable to controlling interest

$

46,325

 

 

$

56,342

 

 

$

126,625

 

 

$

299,134

 

$

22,000

 

 

$

46,325

 

 

$

142,409

 

 

$

126,625

 

Basic

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

48,587

 

 

 

49,749

 

 

 

48,541

 

 

 

50,331

 

Earnings per share attributable to controlling interest

$

0.95

 

 

$

1.13

 

 

$

2.61

 

 

$

5.94

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

49,493

 

 

 

50,641

 

 

 

49,356

 

 

 

51,275

 

Earnings per share attributable to controlling interest

$

0.94

 

 

$

1.11

 

 

$

2.57

 

 

$

5.83

 

Amounts attributable to controlling interest:

 

 

 

 

 

 

 

 

Net earnings from continuing operations

$

22,000

 

 

$

29,751

 

 

$

66,763

 

 

$

75,625

 

Net earnings from discontinued operations

 

-

 

 

 

16,574

 

 

 

75,646

 

 

 

51,000

 

Net earnings attributable to controlling interest

$

22,000

 

 

$

46,325

 

 

$

142,409

 

 

$

126,625

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common shares outstanding at end of period

 

48,619

 

 

 

49,364

 

 

 

48,619

 

 

 

49,364

 

Earnings per share from continuing operations - basic

$

0.45

 

 

$

0.61

 

 

$

1.36

 

 

$

1.56

 

Earnings per share from discontinued operations - basic

 

-

 

 

 

0.34

 

 

 

1.54

 

 

 

1.05

 

Net earnings per share attributable to controlling interest - basic

$

0.45

 

 

$

0.95

 

 

$

2.90

 

 

$

2.61

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per share

$

0.31

 

 

$

0.28

 

 

$

0.93

 

 

$

0.84

 

Earnings per share from continuing operations - diluted

$

0.44

 

 

$

0.60

 

 

$

1.33

 

 

$

1.53

 

Earnings per share from discontinued operations - diluted

 

-

 

 

 

0.34

 

 

 

1.50

 

 

 

1.04

 

Net earnings per share attributable to controlling interest - diluted

$

0.44

 

 

$

0.94

 

 

$

2.83

 

 

$

2.57

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic

 

49,315

 

 

 

48,587

 

 

 

49,113

 

 

 

48,541

 

Weighted average common shares outstanding - diluted

 

50,417

 

 

 

49,493

 

 

 

50,271

 

 

 

49,356

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

$

0.16

 

 

$

0.31

 

 

$

0.80

 

 

$

0.93

 

 

See condensed notes to consolidated financial statements.

23

Table of Contents

 

WORTHINGTON INDUSTRIES,ENTERPRISES, 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

 

 

Nine Months Ended

 

 

February 29,

 

 

February 28,

 

 

February 29,

 

 

February 28,

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Net earnings

$

22,000

 

 

$

50,258

 

 

$

149,869

 

 

$

135,007

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation

 

(700

)

 

 

1,563

 

 

 

1,643

 

 

 

(7,680

)

Pension liability adjustment

 

6,805

 

 

 

323

 

 

 

6,802

 

 

 

3,180

 

Cash flow hedges

 

218

 

 

 

34,342

 

 

 

6,916

 

 

 

17,042

 

Other comprehensive income

 

6,323

 

 

 

36,228

 

 

 

15,361

 

 

 

12,542

 

Comprehensive income

 

28,323

 

 

 

86,486

 

 

 

165,230

 

 

 

147,549

 

Comprehensive income attributable to noncontrolling interests

 

-

 

 

 

3,933

 

 

 

7,460

 

 

 

8,382

 

Comprehensive income attributable to controlling interest

$

28,323

 

 

$

82,553

 

 

$

157,770

 

 

$

139,167

 

 

See condensed notes to consolidated financial statements.

34

Table of Contents

 

WORTHINGTON INDUSTRIES,ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

Three Months Ended

 

 

Nine Months Ended

 

 

February 29,

 

 

February 28,

 

 

February 29,

 

 

February 28,

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Operating activities:

 

 

 

 

 

 

 

 

 

 

 

Net earnings

$

22,000

 

 

$

50,258

 

 

$

149,869

 

 

$

135,007

 

Adjustments to reconcile net earnings to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

11,949

 

 

 

28,153

 

 

 

68,281

 

 

 

84,508

 

Impairment of long-lived assets

 

-

 

 

 

484

 

 

 

1,401

 

 

 

796

 

Provision for (benefit from) deferred income taxes

 

4,329

 

 

 

(5,525

)

 

 

843

 

 

 

(20,198

)

Loss on extinguishment of debt

 

-

 

 

 

-

 

 

 

1,534

 

 

 

-

 

Bad debt expense (income)

 

24

 

 

 

2,346

 

 

 

(430

)

 

 

3,786

 

Equity in net income of unconsolidated affiliates, net of distributions

 

(2,926

)

 

 

23,218

 

 

 

3,169

 

 

 

84,415

 

Net loss (gain) on sale of assets

 

(14

)

 

 

46

 

 

 

(348

)

 

 

(4,988

)

Stock-based compensation

 

2,602

 

 

 

4,975

 

 

 

13,294

 

 

 

13,758

 

Changes in assets and liabilities, net of impact of acquisitions:

 

 

 

 

 

 

 

 

 

 

 

Receivables

 

(18,124

)

 

 

3,382

 

 

 

49,737

 

 

 

160,475

 

Inventories

 

16,176

 

 

 

53,499

 

 

 

54,999

 

 

 

166,959

 

Accounts payable

 

15,561

 

 

 

6,627

 

 

 

(59,534

)

 

 

(195,489

)

Accrued compensation and employee benefits

 

7,190

 

 

 

(2,900

)

 

 

(2,030

)

 

 

(33,432

)

Income taxes payable

 

(725

)

 

 

-

 

 

 

(7,691

)

 

 

(300

)

Other operating items, net

 

(7,921

)

 

 

17,588

 

 

 

(28,288

)

 

 

833

 

Net cash provided by operating activities

 

50,121

 

 

 

182,151

 

 

 

244,806

 

 

 

396,130

 

 

 

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

 

 

 

 

Investment in property, plant and equipment

 

(10,017

)

 

 

(22,748

)

 

 

(72,191

)

 

 

(68,715

)

Acquisitions, net of cash acquired

 

(8,707

)

 

 

-

 

 

 

(29,721

)

 

 

(56,088

)

Proceeds from sale of assets, net of selling costs

 

35

 

 

 

51

 

 

 

837

 

 

 

35,545

 

Investment in note receivable

 

100

 

 

 

-

 

 

 

(14,900

)

 

 

-

 

Investment in non-marketable equity securities

 

(75

)

 

 

(20

)

 

 

(1,614

)

 

 

(270

)

Net proceeds from sale of investment in ArtiFlex

 

-

 

 

 

(300

)

 

 

-

 

 

 

35,795

 

Excess distributions from unconsolidated affiliate

 

-

 

 

 

-

 

 

 

1,085

 

 

 

-

 

Net cash used by investing activities

 

(18,664

)

 

 

(23,017

)

 

 

(116,504

)

 

 

(53,733

)

 

 

 

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

 

 

 

 

Dividend from Worthington Steel at Separation

 

150,000

 

 

 

-

 

 

 

150,000

 

 

 

-

 

Distribution to Worthington Steel at Separation

 

(218,048

)

 

 

-

 

 

 

(218,048

)

 

 

-

 

Net proceeds from (repayments of) short-term borrowings (1)

 

-

 

 

 

(1,330

)

 

 

172,187

 

 

 

(44,392

)

Principal payments on long-term obligations

 

(150,133

)

 

 

(5,759

)

 

 

(393,890

)

 

 

(5,909

)

Proceeds from issuance of common shares, net of tax withholdings

 

(1,023

)

 

 

704

 

 

 

(15,360

)

 

 

(3,411

)

Payments to noncontrolling interests

 

-

 

 

 

-

 

 

 

(1,920

)

 

 

(11,760

)

Dividends paid

 

(15,849

)

 

 

(15,101

)

 

 

(48,907

)

 

 

(44,166

)

Net cash used by financing activities

 

(235,053

)

 

 

(21,486

)

 

 

(355,938

)

 

 

(109,638

)

 

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

(203,596

)

 

 

137,648

 

 

 

(227,636

)

 

 

232,759

 

Cash and cash equivalents at beginning of period

 

430,906

 

 

 

129,596

 

 

 

454,946

 

 

 

34,485

 

Cash and cash equivalents at end of period

$

227,310

 

 

$

267,244

 

 

$

227,310

 

 

$

267,244

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

February 28,

 

 

February 28,

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Operating activities:

 

 

 

 

 

 

 

 

 

 

 

Net earnings

$

50,258

 

 

$

58,647

 

 

$

135,007

 

 

$

313,307

 

Adjustments to reconcile net earnings to net cash provided (used) by operating activities:

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

28,153

 

 

 

27,425

 

 

 

84,508

 

 

 

70,579

 

Impairment of long-lived assets

 

484

 

 

 

3,076

 

 

 

796

 

 

 

3,076

 

Provision for (benefit from) deferred income taxes

 

(5,525

)

 

 

10,661

 

 

 

(20,198

)

 

 

13,336

 

Bad debt expense

 

2,346

 

 

 

382

 

 

 

3,786

 

 

 

896

 

Equity in net income of unconsolidated affiliates, net of distributions

 

23,218

 

 

 

(18,604

)

 

 

84,415

 

 

 

(83,096

)

Net loss (gain) on sale of assets

 

46

 

 

 

(628

)

 

 

(4,988

)

 

 

(13,830

)

Stock-based compensation

 

4,975

 

 

 

4,408

 

 

 

13,758

 

 

 

11,959

 

Changes in assets and liabilities, net of impact of acquisitions:

 

 

 

 

 

 

 

 

 

 

 

Receivables

 

3,382

 

 

 

(33,766

)

 

 

160,475

 

 

 

(155,451

)

Inventories

 

53,499

 

 

 

31,051

 

 

 

166,959

 

 

 

(229,813

)

Accounts payable

 

6,627

 

 

 

51,893

 

 

 

(195,489

)

 

 

50,967

 

Accrued compensation and employee benefits

 

(2,900

)

 

 

(21,105

)

 

 

(33,432

)

 

 

(52,924

)

Income taxes payable

 

-

 

 

 

(14,422

)

 

 

(300

)

 

 

(1,487

)

Other operating items, net

 

17,588

 

 

 

(24,828

)

 

 

833

 

 

 

(22,245

)

Net cash provided (used) by operating activities

 

182,151

 

 

 

74,190

 

 

 

396,130

 

 

 

(94,726

)

 

 

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

 

 

 

 

Investment in property, plant and equipment

 

(22,748

)

 

 

(23,645

)

 

 

(68,715

)

 

 

(71,804

)

Investment in non-marketable equity securities

 

(20

)

 

 

-

 

 

 

(270

)

 

 

-

 

Acquisitions, net of cash acquired

 

-

 

 

 

(269,511

)

 

 

(56,088

)

 

 

(377,261

)

Net proceeds from sale of investment in ArtiFlex

 

(300

)

 

 

-

 

 

 

35,795

 

 

 

-

 

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

)

 

 

 

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

 

 

 

 

Net proceeds from (repayments of) short-term borrowings

 

(1,330

)

 

 

105,638

 

 

 

(44,392

)

 

 

105,638

 

Principal payments on long-term obligations

 

(5,759

)

 

 

(152

)

 

 

(5,909

)

 

 

(554

)

Proceeds from issuance of common shares, net of tax withholdings

 

704

 

 

 

269

 

 

 

(3,411

)

 

 

(6,516

)

Payments to noncontrolling interests

 

-

 

 

 

(3,360

)

 

 

(11,760

)

 

 

(15,436

)

Repurchase of common shares

 

-

 

 

 

(54,255

)

 

 

-

 

 

 

(127,842

)

Dividends paid

 

(15,101

)

 

 

(14,127

)

 

 

(44,166

)

 

 

(43,390

)

Net cash provided (used) by financing activities

 

(21,486

)

 

 

34,013

 

 

 

(109,638

)

 

 

(88,100

)

Increase (decrease) in cash and cash equivalents

 

137,648

 

 

 

(180,870

)

 

 

232,759

 

 

 

(595,987

)

Cash and cash equivalents at beginning of period

 

129,596

 

 

 

225,194

 

 

 

34,485

 

 

 

640,311

 

Cash and cash equivalents at end of period

$

267,244

 

 

$

44,324

 

 

$

267,244

 

 

$

44,324

 

(1)
Net proceeds in the nine months ended February 29, 2024 consisted of borrowings under short-term credit facilities assumed by Worthington Steel in conjunction with the Separation.

The cash flows related to discontinued operations have not been segregated. Accordingly, the consolidated statements of cash flows include the results from continuing and discontinued operations. See “Note B – Discontinued Operations” for a summarization of significant non-cash items related to discontinued operations.

 

See condensed notes to consolidated financial statements.

45

Table of Contents

 

WORTHINGTON INDUSTRIES,ENTERPRISES, 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 interim unaudited consolidated financial statements include the accounts of Worthington IndustriesEnterprises 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.subsidiaries. Significant intercompany accounts and transactions have been eliminated.

We ownPrior to the Separation, we owned controlling interests in the following threefour 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 ; and WSP (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 venture were disposed of. See “Note F – Restructuring and Other Expense (Income), Net” for additional information.. These joint ventures arewere consolidated with the equity owned by the other joint venture members and shown as “Noncontrolling interests”noncontrolling interests in our consolidated balance sheets,sheet at May 31, 2023, and the other joint venture members’their portions of net earnings and other comprehensive income (loss) (“OCI”)OCI are shown as net earnings from discontinued operations or comprehensive income attributable to noncontrolling interests in our consolidated statements of earnings and consolidated statements of comprehensive income, respectively. As of the Separation, Spartan, TWB, Samuel and WSP became joint ventures of Worthington Steel and are no longer reported in our current results. On February 1, 2024, we acquired an 80% controlling interest in Halo. See further discussion of Halo in “Note P – Acquisitions.”

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”)Equity Income in our consolidated statements of earnings. See further discussion of our unconsolidated affiliates in “Note D – Investments in Unconsolidated Affiliates.”

These interim unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”)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, 202329, 2024 are not necessarily indicative of the results that may be expected for the fiscal year ending May 31, 2023 (“fiscal 2023”).2024. For further information, refer to the consolidated financial statements and notes thereto included in the 2022our 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.

 

Revenue Recognition

We recognize all revenue at the point in time the performance obligation is satisfied and control of the product is transferred to the customer upon shipment or delivery. There were no contract assets or unbilled receivables at February 29, 2024. Unbilled receivables of $3,708 at May 31, 2023 were attributed to Worthington Steel Processing Separationand recorded in current assets of discontinued operations on the consolidated balance sheet.

 

The Separation of Worthington Steel

On September 29, 2022,December 1, 2023, we completed the previously announced that the Board approved a plan to pursue a separation into two independent, publicly-traded companies – one company (“Worthington Steel”) is expected to be comprisedSeparation of our Steel Processing operatingbusiness segment andinto a separate public company in a transaction intended to qualify as tax free to our shareholders, which was accomplished via the otherdistribution of 100% of the outstanding common shares of Worthington Steel to holders of record of the Company’s common shares as of the close of business on November 21, 2023. Each holder of record received one share of Worthington Steel for every one share of the Company’s common stock held on the Record Date for the Distribution. Worthington Steel is an independent public company (trading under the symbol “WS” on the NYSE.

“

New Worthington”) is expected to be comprised of our Consumer Products, Building Products and Sustainable Energy Solutions operating segments. We plan to effectIn connection with the Separation, via a distribution of stock of thewe entered into several agreements with Worthington Steel, Processing business, which is expected to be tax-free to shareholders for U.S. federal income tax purposes. The Separation transaction is expected to be completed by early 2024, but is subject to certain conditions, including,effective November 30, 2023, that, among other things, generalprovide a framework for our relationship with Worthington Steel after the Separation, including a long-term Steel Supply Agreement, a Trademark License Agreement, and Transition Services Agreement.

6

Table of Contents

Pursuant to the long-term Steel Supply Agreement, Worthington Steel manufactures and supplies to us, at reasonable market conditions, finalizationrates, certain flat rolled steel products, and will provide us with certain related support services such as design, engineering/technical services, price risk management, scrap management, steel purchasing, supply chain optimization and product rework services, and other services at our request that are ancillary to the supply of the capital structureflat rolled steel products. Purchases from Worthington Steel under this agreement for the three and nine months ended February 29, 2024, totaled $20,274, 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. Directwhich $10,702 was payable at February 29, 2024.

We have incurred direct and incremental costs incurred in connectionassociated with the anticipated Separation, including audit,approximately $30,986 and $15,593 during the nine months ended February 29, 2024, and February 28, 2023, respectively, of which $18,521 and $12,021 have been attributed to discontinued operations. These costs consisted primarily of third-party advisory fees and legalcertain non-recurring employee-related costs and, to the extent not attributed to Worthington Steel, are presented separatelyas a separate component of operating expense in our consolidated statements of earnings as “Separation costs.” Separation costs totaled $and held at the corporate level.6,347,000 and $15,593,000 for the three months and nine months ended February 28, 2023, respectively.

 

Note B –- Discontinued Operations

The following table summarizes the assets and liabilities from discontinued operations at May 31, 2023:

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

 

$

32,678

 

Receivables, less allowances of $2,581

 

 

468,024

 

Inventories:

 

 

 

Raw materials

 

 

172,580

 

Work in process

 

 

164,059

 

Finished products

 

 

76,830

 

Total inventories

 

 

413,469

 

Income taxes receivable

 

 

2,517

 

Prepaid expenses and other current assets

 

 

58,656

 

Assets held for sale

 

 

3,381

 

Total current assets

 

 

978,725

 

Investments in unconsolidated affiliates

 

 

114,550

 

Operating lease assets

 

 

75,281

 

Goodwill

 

 

78,642

 

Other intangible assets, net of accumulated amortization of $38,894

 

 

83,375

 

Other assets

 

 

10,984

 

 Property, plant and equipment:

 

 

 

 Land

 

 

37,577

 

 Buildings and improvements

 

 

169,155

 

 Machinery and equipment

 

 

860,077

 

 Construction in progress

 

 

20,386

 

 Total property, plant and equipment

 

 

1,087,195

 

 Less: accumulated depreciation

 

 

667,956

 

Total property, plant and equipment, net

 

 

419,239

 

Total assets

 

$

1,760,796

 

 

 

 

Liabilities

 

 

 

Current liabilities:

 

 

 

Accounts payable

 

$

402,177

 

Short-term borrowings

 

 

2,813

 

Accrued compensation, contributions to employee benefit plans and related taxes

 

 

47,028

 

Other accrued items

 

 

14,094

 

Current operating lease liabilities

 

 

5,926

 

Total current liabilities

 

 

472,038

 

Other liabilities

 

 

41,520

 

Noncurrent operating lease liabilities

 

 

71,656

 

Deferred income taxes, net

 

 

19,093

 

Total liabilities

 

$

604,307

 

7

Table of Contents

The following table summarizes the financial results from the discontinued operations of Worthington Steel for the periods presented. There were no discontinued operations for the three months ended February 29, 2024.

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

February 29,

 

 

February 28,

 

 

February 29,

 

 

February 28,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Net sales

 

$

-

 

 

$

757,007

 

 

$

1,670,027

 

 

$

2,637,834

 

Cost of goods sold

 

 

-

 

 

 

692,171

 

 

 

1,481,731

 

 

 

2,448,319

 

Gross profit

 

 

-

 

 

 

64,836

 

 

 

188,296

 

 

 

189,515

 

Selling, general and administrative expense

 

 

-

 

 

 

34,698

 

 

 

74,908

 

 

 

106,110

 

Impairment of long-lived assets

 

 

-

 

 

 

-

 

 

 

1,401

 

 

 

312

 

Restructuring and other expense (income)

 

 

-

 

 

 

1

 

 

 

-

 

 

 

(4,204

)

Separation costs

 

 

-

 

 

 

4,042

 

 

 

18,521

 

 

 

12,021

 

Operating income

 

 

-

 

 

 

26,095

 

 

 

93,466

 

 

 

75,276

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Miscellaneous income, net

 

 

-

 

 

 

1,110

 

 

 

1,016

 

 

 

2,146

 

Interest expense, net

 

 

-

 

 

 

(1,849

)

 

 

(3,706

)

 

 

(6,557

)

Equity in net income of unconsolidated affiliate

 

 

-

 

 

 

(185

)

 

 

12,735

 

 

 

3,491

 

Earnings before income taxes

 

 

-

 

 

 

25,171

 

 

 

103,511

 

 

 

74,356

 

Income tax expense

 

 

-

 

 

 

4,664

 

 

 

20,405

 

 

 

14,974

 

Net earnings

 

 

-

 

 

 

20,507

 

 

 

83,106

 

 

 

59,382

 

Net earnings attributable to noncontrolling interest

 

 

-

 

 

 

3,933

 

 

 

7,460

 

 

 

8,382

 

Net earnings attributable to controlling interest

 

$

-

 

 

$

16,574

 

 

$

75,646

 

 

$

51,000

 

As permitted under GAAP, the cash flows related to discontinued operations have not been segregated in our consolidated statements of cash flows. Accordingly, the consolidated statements of cash flows include the results from both continuing and discontinued operations and amounts for certain captions will not agree with respective data in the consolidated balance sheet. We did not report any cash flows from discontinued operations during the three months ended February 29, 2024.

The following table summarizes significant non-cash operating items and capital expenditures of discontinued operations included in the consolidated statements of cash flows for the periods presented. There were no discontinued operations for the three months ended February 29, 2024.

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

February 29,

 

 

February 28,

 

 

February 29,

 

 

February 28,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Significant non-cash operating items:

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

$

-

 

 

$

16,260

 

 

$

32,043

 

 

$

50,306

 

Impairment of long-lived assets

 

 

-

 

 

 

-

 

 

 

1,401

 

 

 

312

 

Equity in income of unconsolidated affiliate

 

 

-

 

 

 

10,185

 

 

 

(12,734

)

 

 

6,509

 

Net loss (gain) on sale of assets

 

 

-

 

 

 

46

 

 

 

(412

)

 

 

(3,778

)

Stock-based compensation

 

 

-

 

 

 

1,211

 

 

 

3,472

 

 

 

3,340

 

Significant investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Investment in property, plant and equipment

 

 

-

 

 

 

(10,809

)

 

 

(33,457

)

 

 

(36,450

)

Acquisitions, net of cash acquired

 

 

-

 

 

 

-

 

 

 

(21,013

)

 

 

-

 

Significant financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Net proceeds from short-term borrowings

 

 

-

 

 

 

-

 

 

 

172,187

 

 

 

-

 

8

Table of Contents

Note C - Inventory

 

Due to a decline in steel pricing duringDuring the firstthird 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,2024, we recorded arecognized lower of cost or net realizable value adjustmentcharges totaling approximately $1,900 related to propane tanks imported from Europe that had higher than expected transportation costs. These charges were attributed to our Building Products operating segment and were recorded in cost of goods sold in the consolidated statement of earnings during the firstthird quarter of fiscal 2023 totaling2024.

During the second quarter of fiscal 2024, we initiated a recall with the U.S. Consumer Protection Safety Commission for our recently introduced Balloon Time® mini helium tank. We have reserved for the estimated direct and incremental costs expected to be incurred to administer the recall program, which we expect to be immaterial due to the small population of tanks purchased by end consumers. However, we booked a reserve of approximately $4,488,0003,000 to reflect this lowerthe impacted inventory at its estimated net realizable value. The entire amount of the adjustment was attributed to our Steel ProcessingConsumer Products operating segment and was recorded in cost of goods sold in the consolidated statement of earnings forduring the three months ended August 31, 2022. There was no lowersecond quarter 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

Table of Contents

Note C – Revenue Recognition

The following table summarizes net sales by operating segment and product class 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

 

(1)
The products contained within each of these operating segments have similar production processes, require substantially the same raw materials, use similar equipment, and serve similar purposes. Therefore, we believe the products within each of these operating segments are appropriately combined for purposes of the disclosure requirements prescribed by Accounting Standards Codification (“ASC”) Topic 280 and Topic 606.

The following table summarizes revenue that has been recognized over time for the periods presented:

 

Three Months Ended

 

 

Nine Months Ended

 

 

February 28,

 

 

February 28,

 

(in thousands)

2023

 

 

2022

 

 

2023

 

 

2022

 

Steel Processing - toll

$

34,679

 

 

$

36,846

 

 

$

106,112

 

 

$

108,803

 

The following table summarizes the unbilled receivables at the dates indicated:

 

 

 

February 28,

 

 

May 31,

 

(in thousands)

Balance Sheet Classification

 

2023

 

 

2022

 

Unbilled receivables

Receivables

 

$

4,961

 

 

$

5,001

 

There were no contract assets at February 28, 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.fiscal 2024.

 

Note D – 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: Clarkwestern Dietrich Building Systems LLC (“ClarkDietrich”)at February 29, 2024: ClarkDietrich (25%); Serviacero Planos, S. de R. L. de C.V. (“Serviacero Worthington”)WAVE (50%); Taxiand Workhorse Holdings, LLC (“Workhorse”) (20%); and Worthington Armstrong Venture (“WAVE”) (. We held a 50%). non-controlling interest in Serviacero prior to the Separation. Equity Income and the related investment have been presented as discontinued operations for all periods presented.

 

On August 3, 2022, we sold ourWe also held a 50% noncontrolling equity interest in ArtiFlex, Manufacturing, LLC (“ArtiFlex”) tothrough 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 $6,000,00035,795 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 $16,059,00016,059 in equity income related towithin Equity Income, representing 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

TableDuring the second quarter of Contentsfiscal 2024, we recognized a pre-tax gain of $2,780 within Equity Income in connection with the sale of Workhorse’s operations in Brazil.

 

We received distributions from unconsolidated affiliates totaling $189,910,000144,317 during the nine months ended February 28, 2023.29, 2024. We have received cumulative distributions from WAVE in excess of our investment balance amounting to $116,825,000116,775 and $117,297, which is shown as a separate liability on our consolidated balance sheetrespectively, at February 28, 2023. In accordance with the applicable accounting guidance, we have reclassified the negative investment balance to the29, 2024 and May 31, 2023, which are presented separately within long-term liabilities section ofin 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“excess” distributions are deemed to be returns of the investment and are classified as investing activities in our consolidated statements of cash flows. During the nine months ended February 29, 2024, we classified $1,085 of “excess” dividends received from WAVE as an investing activity.

 

The following tables summarize combined financial information for our unconsolidated affiliates included in continuing operations as of the dates, and for the periods presented:

 

February 28,

 

May 31,

 

 

 

 

February 29,

 

 

May 31,

 

(in thousands)

2023

 

 

2022

 

(In thousands)

 

2024

 

 

2023

 

Cash and cash equivalents

$

83,482

 

 

$

68,563

 

 

$

86,533

 

 

$

36,988

 

Other current assets

 

820,978

 

 

 

1,148,029

 

 

 

 

 

574,099

 

 

 

661,700

 

Noncurrent assets

 

308,512

 

 

 

369,608

 

Non-current assets

 

 

 

 

324,793

 

 

 

335,567

 

Total assets

$

1,212,972

 

 

$

1,586,200

 

 

$

985,425

 

 

$

1,034,255

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

213,496

 

 

 

345,097

 

 

 

 

 

312,235

 

 

 

176,959

 

Short-term borrowings

 

10,000

 

 

 

5,943

 

Current maturities of long-term debt

 

48,898

 

 

 

33,054

 

 

 

 

 

20,500

 

 

 

36,936

 

Long-term debt

 

349,161

 

 

 

306,814

 

 

 

 

 

349,377

 

 

 

349,215

 

Other noncurrent liabilities

 

66,538

 

 

 

76,437

 

Other non-current liabilities

 

 

 

 

137,275

 

 

 

139,228

 

Equity

 

524,879

 

 

 

818,855

 

 

 

 

 

166,038

 

 

 

331,917

 

Total liabilities and equity

$

1,212,972

 

 

$

1,586,200

 

 

 

 

$

985,425

 

 

$

1,034,255

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

February 28,

 

February 28,

 

(in thousands)

2023

 

 

2022

 

2023

 

 

2022

 

Net sales

$

626,527

 

 

$

789,483

 

$

2,162,134

 

 

$

2,392,643

 

Gross margin

 

150,698

 

 

 

187,602

 

 

479,402

 

 

 

603,778

 

Operating income

 

107,994

 

 

 

144,575

 

 

353,177

 

 

 

475,341

 

Depreciation and amortization

 

6,774

 

 

 

7,831

 

 

21,826

 

 

 

23,907

 

Interest expense

 

4,607

 

 

 

2,661

 

 

11,197

 

 

 

7,833

 

Income tax expense (benefit)

 

(3,782

)

 

 

4,478

 

 

(410

)

 

 

20,938

 

Net earnings

 

111,135

 

 

 

136,346

 

 

349,556

 

 

 

449,149

 

9

7

Table of Contents

 

Three Months Ended

 

Nine Months Ended

 

 

February 29,

 

 

February 28,

 

February 29,

 

 

February 28,

 

(In thousands)

2024

 

 

2023

 

2024

 

 

2023

 

Net sales

$

497,938

 

 

$

511,663

 

$

1,579,992

 

 

$

1,727,225

 

Gross profit

 

171,497

 

 

 

154,980

 

 

492,812

 

 

 

467,664

 

Operating income

 

126,377

 

 

 

115,286

 

 

376,782

 

 

 

349,925

 

Depreciation and amortization

 

6,936

 

 

 

5,662

 

 

21,737

 

 

 

18,559

 

Interest expense

 

4,943

 

 

 

4,476

 

 

15,220

 

 

 

10,920

 

Income tax expense

 

549

 

 

 

791

 

 

1,900

 

 

 

1,604

 

Net earnings

 

119,982

 

 

 

111,505

 

 

360,748

 

 

 

342,574

 

 

Note E – 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 $70,00070 resulting in an impairment charge of $484,000484 during the three months ended February 28, 2023.

 

During the first quarterOur Sustainable Energy Solutions business continues to operate in a challenging market, driven by continued weakness in overall economic conditions in Europe as well as slow adoption of fiscal 2023, we committedhydrogen and CNG transportation applications. Management continues to plansfocus on near term cost controls while making investments necessary to liquidate certain fixed assets at Samuel’s toll processing facility in Cleveland, Ohio. As all of the criteria for classificationmaintain its position 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 accordancea global solutions provider with the applicable accounting guidance,scale and expertise to effectively serve the net assets were recorded atemerging sustainability economy worldwide. We believe the lower of net book value or fair market value less costsoverall long-term outlook for the business is positive and project sufficient future cash flows to sell. As a result, a pre-tax impairment charge of $312,000 was recognized duringsupport the first quarter of fiscal 2023, which represents the excess bookcurrent carrying value of the asset group over its estimated fair value less costbusiness. However, it is at least reasonably possible that continued lower-than-expected volumes and financial results, or a decision to sell. The land and building were subsequently sold duringexplore strategic alternatives, could change our determination that the second quarter of fiscal 2023 for net cash proceeds of assets are not impaired.

$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 charge of $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 $1,063,000, resulting in a pre-tax gain of $363,000 within restructuring and other expense (income), net.

Note F – Restructuring and Other Expense, (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 of the liabilities associated with our restructuring activities, combined with a reconciliation to the restructuring and other expense (income),income, net financial statement caption, in our consolidated statement of earnings for the nine months ended February 28, 20232024 is summarized below:

(in thousands)

 

Balance, as of May 31, 2022

 

 

Expense
(Income)

 

 

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

)

 

 

 

 

 

 

 

 

 

•
On June 14, 2022, we sold real property in Tulsa, Oklahoma, for net cash proceeds of $5,775,000, resulting in a pre-tax gain of $1,177,000. These assets had been excluded from the sale of our former oil & gas equipment business in January 2021. The assets were classified in assets held for sale on the consolidated balance sheets immediately prior to the closing of the sale.
•
On October 31, 2022, our consolidated steel processing joint venture, WSP, sold its remaining manufacturing facility, located in Jackson, Michigan. Net proceeds of $21,277,000 were realized in connection with the transaction, of which $2,000,000 is being held in escrow for contingent indemnification obligations associated with general representations and warranties. The transaction resulted in a pre-tax gain of $3,926,000. The assets had a net book value of $14,263,000 and were classified as assets held for sale on the consolidated balance sheet as of May 31, 2022.

(In thousands)

 

Balance, as of May 31, 2023

 

 

Expense

 

 

Payments

 

 

Balance, as of February 29, 2024

 

Early retirement and severance

 

$

135

 

 

$

704

 

 

$

(253

)

 

$

586

 

 

The total liability associated with our restructuring activities as of February 28, 202329, 2024 is expected to be paid in the next twelve12 months.

810

Table of Contents

 

Note G – 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 H – 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, 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 amounts29, 2024, we 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.on March 30, 2028. The maximum obligation under the terms of this guarantee was approximately $17,180,00015,796 at February 28, 2023.29, 2024. 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 February 29, 2024, 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 guaranteed instruments, based on premiums paid, was not material and no amounts were drawn against them at February 29, 2024.

 

Note I – Debt and Receivables Securitization

The following table summarizes our long-term debt outstanding at February 29, 2024 and May 31, 2023:

 

February 29,

 

May 31,

 

(In thousands)

2024

 

2023

 

2024 Notes

 

-

 

 

150,000

 

2026 Notes

 

-

 

 

243,623

 

4.30% senior notes due August 1, 2032

 

200,000

 

 

200,000

 

2.06% Series A senior note due August 23, 2031

 

39,654

 

 

39,226

 

2.40% Series B senior notes due August 23, 2034

 

59,427

 

 

58,786

 

Other

 

267

 

 

528

 

Total debt

 

299,348

 

 

692,163

 

Unamortized discount and debt issuance costs

 

(1,386

)

 

(2,181

)

Total debt, net

 

297,962

 

 

689,982

 

Less: current maturities and short-term borrowings

 

267

 

 

264

 

Total long-term debt

$

297,695

 

$

689,718

 

Maturities of long-term debt are as follows:

(In thousands)

 

 

2025

$

267

 

2026

 

-

 

2027

 

-

 

2028

 

-

 

2029

 

-

 

Thereafter

 

299,081

 

Total

$

299,348

 

11

Table of Contents

Long-Term Debt

 

On April 15, 2014, we issued the 2026 Notes. During fiscal 2023, we purchased approximately $We maintain6,377 of the 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 $500,000,000243,623. In connection with the debt redemption, we recognized a non-cash loss of $1,534 multi-year revolving credit facility scheduledrelated primarily to mature onunamortized 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

On September 27, 2023, we amended and restated the Credit Facility, extending the final maturity from August 20, 2026 (the “Credit Facility”) with a group of lenders.to September 27, 2028, while keeping in place the $500,000 aggregate commitments under the Credit Facility. 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 LIBOR Rate,Simple SOFR, 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.Total Leverage Ratio. There were no borrowings outstanding under the Credit Facility at February 28, 2023,29, 2024, leaving $500,000,000500,000 available for future use.

We also maintainOn May 19, 2022, we entered into the five-year AR Facility that allowed for short-term borrowings of up to $175,000 through the factoring and subsequent sale, on a revolving tradebasis, of eligible accounts receivable securitization facility (the “AR Facility”). Pursuant to the terms of the AR Facility, 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.

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.termination.

9

Table of Contents

Note J – Other Comprehensive Income (Loss)

 

The following table summarizes the tax effects on each component of OCI for the periods presented:

 

Three Months Ended

 

Three Months Ended

 

February 28, 2023

 

 

February 28, 2022

 

February 29, 2024

 

 

February 28, 2023

 

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

$

1,421

 

 

$

142

 

 

$

1,563

 

 

$

(1,348

)

 

$

(134

)

 

$

(1,482

)

$

(615

)

 

$

(85

)

 

$

(700

)

 

$

1,421

 

 

$

142

 

 

$

1,563

 

Pension liability adjustment

 

415

 

 

 

(92

)

 

 

323

 

 

 

1,700

 

 

 

(332

)

 

 

1,368

 

 

8,927

 

 

 

(2,122

)

 

 

6,805

 

 

 

415

 

 

 

(92

)

 

 

323

 

Cash flow hedges

 

43,963

 

 

 

(9,621

)

 

 

34,342

 

 

 

(26,529

)

 

 

7,295

 

 

 

(19,234

)

 

564

 

 

 

(346

)

 

 

218

 

 

 

43,963

 

 

 

(9,621

)

 

 

34,342

 

Other comprehensive income (loss)

$

45,799

 

 

$

(9,571

)

 

$

36,228

 

 

$

(26,177

)

 

$

6,829

 

 

$

(19,348

)

$

8,876

 

 

$

(2,553

)

 

$

6,323

 

 

$

45,799

 

 

$

(9,571

)

 

$

36,228

 

 

Nine Months Ended

 

Nine Months Ended

 

February 28, 2023

 

 

February 28, 2022

 

February 29, 2024

 

 

February 28, 2023

 

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

)

$

1,555

 

 

$

88

 

 

$

1,643

 

 

$

(7,549

)

 

$

(131

)

 

$

(7,680

)

Pension liability adjustment

 

4,155

 

 

 

(975

)

 

 

3,180

 

 

 

1,700

 

 

 

(336

)

 

 

1,364

 

 

8,927

 

 

 

(2,125

)

 

 

6,802

 

 

 

4,155

 

 

 

(975

)

 

 

3,180

 

Cash flow hedges

 

21,201

 

 

 

(4,159

)

 

 

17,042

 

 

 

(95,405

)

 

 

22,885

 

 

 

(72,520

)

 

9,140

 

 

 

(2,224

)

 

 

6,916

 

 

 

21,201

 

 

 

(4,159

)

 

 

17,042

 

Other comprehensive income (loss)

$

17,807

 

 

$

(5,265

)

 

$

12,542

 

 

$

(103,178

)

 

$

21,698

 

 

$

(81,480

)

$

19,622

 

 

$

(4,261

)

 

$

15,361

 

 

$

17,807

 

 

$

(5,265

)

 

$

12,542

 

 

12

Table of Contents

Note K – 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

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

Non-

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

Paid-in

 

AOCI,

 

Retained

 

 

 

controlling

 

 

 

 

Additional

 

Comprehensive

 

 

 

 

 

Non-

 

 

 

 

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

 

Balance at August 31, 2023

 

$

294,794

 

 

$

(28,587

)

 

$

1,508,416

 

 

$

1,774,623

 

 

$

127,293

 

 

$

1,901,916

 

Net earnings

 

 

-

 

 

 

-

 

 

 

46,325

 

 

 

46,325

 

 

 

3,933

 

 

 

50,258

 

 

 

-

 

 

 

-

 

 

 

24,302

 

 

 

24,302

 

 

 

3,865

 

 

 

28,167

 

Other comprehensive income

 

 

-

 

 

 

36,228

 

 

 

-

 

 

 

36,228

 

 

 

-

 

 

 

36,228

 

 

 

-

 

 

 

14,446

 

 

 

-

 

 

 

14,446

 

 

 

-

 

 

 

14,446

 

Common shares issued, net of withholding tax

 

 

704

 

 

 

-

 

 

 

-

 

 

 

704

 

 

 

-

 

 

 

704

 

 

 

(9,207

)

 

 

-

 

 

 

-

 

 

 

(9,207

)

 

 

-

 

 

 

(9,207

)

Common shares in non-qualified plans

 

 

107

 

 

 

-

 

 

 

-

 

 

 

107

 

 

 

-

 

 

 

107

 

 

 

195

 

 

 

-

 

 

 

-

 

 

 

195

 

 

 

-

 

 

 

195

 

Stock-based compensation

 

 

3,818

 

 

 

-

 

 

 

-

 

 

 

3,818

 

 

 

-

 

 

 

3,818

 

 

 

4,511

 

 

 

-

 

 

 

-

 

 

 

4,511

 

 

 

-

 

 

 

4,511

 

Cash dividends declared

 

 

-

 

 

 

-

 

 

 

(15,149

)

 

 

(15,149

)

 

 

-

 

 

 

(15,149

)

 

 

-

 

 

 

-

 

 

 

(16,061

)

 

 

(16,061

)

 

 

-

 

 

 

(16,061

)

Balance at February 28, 2023

 

$

284,983

 

 

$

(10,308

)

 

$

1,310,751

 

 

$

1,585,426

 

 

$

129,832

 

 

$

1,715,258

 

Dividends to noncontrolling interests

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Balance at November 30, 2023

 

$

290,293

 

 

$

(14,141

)

 

$

1,516,657

 

 

$

1,792,809

 

 

$

131,158

 

 

$

1,923,967

 

Net earnings

 

 

-

 

 

 

-

 

 

 

22,000

 

 

 

22,000

 

 

 

-

 

 

 

22,000

 

Other comprehensive income

 

 

-

 

 

 

6,323

 

 

 

-

 

 

 

6,323

 

 

 

-

 

 

 

6,323

 

Common shares issued, net of withholding tax

 

 

(1,023

)

 

 

-

 

 

 

-

 

 

 

(1,023

)

 

 

-

 

 

 

(1,023

)

Common shares in non-qualified plans

 

 

53

 

 

 

-

 

 

 

-

 

 

 

53

 

 

 

-

 

 

 

53

 

Stock-based compensation

 

 

2,071

 

 

 

-

 

 

 

-

 

 

 

2,071

 

 

 

-

 

 

 

2,071

 

Separation of Worthington Steel

 

 

-

 

 

 

(717

)

 

 

(901,370

)

 

 

(902,087

)

 

 

(128,812

)

 

 

(1,030,899

)

Cash dividends declared

 

 

-

 

 

 

-

 

 

 

(8,050

)

 

 

(8,050

)

 

 

-

 

 

 

(8,050

)

Balance at February 29, 2024

 

$

291,394

 

 

$

(8,535

)

 

$

629,237

 

 

$

912,096

 

 

$

2,346

 

 

$

914,442

 

 

 

 

Controlling Interest

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 

Non-

 

 

 

 

 

 

Paid-in

 

 

AOCI,

 

 

Retained

 

 

 

 

 

controlling

 

 

 

 

(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

 

 

-

 

 

 

-

 

 

 

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

 

Net earnings

 

 

-

 

 

 

-

 

 

 

16,218

 

 

 

16,218

 

 

 

3,287

 

 

 

19,505

 

Other comprehensive loss

 

 

-

 

 

 

(3,224

)

 

 

-

 

 

 

(3,224

)

 

 

-

 

 

 

(3,224

)

Common shares issued, net of withholding tax

 

 

(649

)

 

 

-

 

 

 

-

 

 

 

(649

)

 

 

-

 

 

 

(649

)

Common shares in non-qualified plans

 

 

298

 

 

 

-

 

 

 

-

 

 

 

298

 

 

 

-

 

 

 

298

 

Stock-based compensation

 

 

3,620

 

 

 

-

 

 

 

-

 

 

 

3,620

 

 

 

-

 

 

 

3,620

 

Cash dividends declared

 

 

-

 

 

 

-

 

 

 

(15,470

)

 

 

(15,470

)

 

 

-

 

 

 

(15,470

)

Dividends to noncontrolling interests

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(11,760

)

 

 

(11,760

)

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

 

10

13

Table of Contents

 

 

 

Controlling Interest

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Comprehensive

 

 

 

 

 

 

 

 

Non-

 

 

 

 

 

 

Paid-in

 

 

Income (Loss),

 

 

Retained

 

 

 

 

 

controlling

 

 

 

 

(in thousands)

 

Capital

 

 

Net of Tax

 

 

Earnings

 

 

Total

 

 

Interests

 

 

Total

 

Balance at May 31, 2021

 

$

282,790

 

 

$

45,387

 

 

$

1,070,016

 

 

$

1,398,193

 

 

$

153,502

 

 

$

1,551,695

 

Net earnings

 

 

-

 

 

 

-

 

 

 

132,491

 

 

 

132,491

 

 

 

8,984

 

 

 

141,475

 

Other comprehensive loss

 

 

-

 

 

 

(4,274

)

 

 

-

 

 

 

(4,274

)

 

 

-

 

 

 

(4,274

)

Common shares issued, net of withholding tax

 

 

(4,091

)

 

 

-

 

 

 

-

 

 

 

(4,091

)

 

 

-

 

 

 

(4,091

)

Common shares in non-qualified plans

 

 

89

 

 

 

-

 

 

 

-

 

 

 

89

 

 

 

-

 

 

 

89

 

Stock-based compensation

 

 

6,324

 

 

 

-

 

 

 

-

 

 

 

6,324

 

 

 

-

 

 

 

6,324

 

Purchases and retirement of common shares

 

 

(5,477

)

 

 

-

 

 

 

(55,408

)

 

 

(60,885

)

 

 

-

 

 

 

(60,885

)

Cash dividends declared

 

 

-

 

 

 

-

 

 

 

(14,504

)

 

 

(14,504

)

 

 

-

 

 

 

(14,504

)

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

 

 

The following table summarizes the changes in accumulated OCIAOCI 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

 

 

 

Foreign

 

 

Pension

 

 

 

 

 

Other

 

 

 

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

 

Other comprehensive income (loss) before reclassifications

 

 

(9,473

)

 

 

500

 

 

 

11,747

 

 

 

2,774

 

Reclassification adjustments to net earnings (a)

 

 

-

 

 

 

1,200

 

 

 

(107,152

)

 

 

(105,952

)

Income tax effect

 

 

(851

)

 

 

(336

)

 

 

22,885

 

 

 

21,698

 

Balance at February 28, 2022

 

$

(8,545

)

 

$

(14,591

)

 

$

(12,957

)

 

$

(36,093

)

 

 

Foreign

 

 

Pension

 

 

 

 

 

 

 

 

 

Currency

 

 

Liability

 

 

Cash Flow

 

 

 

 

(In thousands)

 

Translation

 

 

Adjustment

 

 

Hedges

 

 

AOCI

 

Balance at May 31, 2023

 

$

(22,123

)

 

$

(1,730

)

 

$

674

 

 

$

(23,179

)

Other comprehensive income before reclassifications

 

 

1,555

 

 

 

60

 

 

 

14,893

 

 

 

16,508

 

Reclassification adjustments to net earnings (a)(b)

 

 

-

 

 

 

8,867

 

 

 

(5,753

)

 

 

3,114

 

Income tax effect

 

 

88

 

 

 

(2,125

)

 

 

(2,224

)

 

 

(4,261

)

Separation of Worthington Steel

 

 

10,874

 

 

 

(5,984

)

 

 

(5,607

)

 

 

(717

)

Balance at February 29, 2024

 

$

(9,606

)

 

$

(912

)

 

$

1,983

 

 

$

(8,535

)

 

 

 

Foreign

 

 

Pension

 

 

 

 

 

 

 

 

 

Currency

 

 

Liability

 

 

Cash Flow

 

 

 

 

(In thousands)

 

Translation

 

 

Adjustment

 

 

Hedges

 

 

AOCI

 

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)(b)

 

 

-

 

 

 

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

)

11

Table of Contents

(a)
The consolidated statement of earnings classification of amounts reclassified to net earningsincome include:

1.
Pension liability adjustment – During August 2022, we purchased (using pension plan assets) an annuity contract from a third-party insurance company to transfer approximately 31% of the total projected benefit obligation of The Gerstenslager Company Bargaining Unit Employees’ Pension Plan as of the purchase date. As a result of this transaction: 1) we incurred a non-cash settlement charge of $4,774,000 recorded in miscellaneous income (expense), net in the consolidated statements of earnings; 2) we were relieved of all responsibility for these pension obligations; and 3) the insurance company is now required to pay and administer the retirement benefits owed to 220 beneficiaries; and
2.(a)
Cash flow hedges – See the disclosureDisclosure of reclassification adjustments classified within continuing operations is provided in “Note Q – Derivative Financial Instruments and Hedging Activities”. Activities.” The residual amount relates to Worthington Steel and has been presented within discontinued operations.
(b)
Pension liability adjustment – Reflects the acceleration of deferred pension costs in AOCI related to separate pension lift-out transactions completed in February 2024 and August 2022, respectively, to transfer the pension benefit obligation under The Gerstenslager Company Bargaining Unit Employees’ Pension Plan to third-party insurance companies.

Note L – Stock-Based Compensation

 

The Separation of the Steel Processing Business

In connection with the Separation, we adjusted our outstanding share-based awards in accordance with the terms of the Employee Matters Agreement. Adjustments to the underlying shares and terms of outstanding non-qualified stock options, services-based restricted common shares, and performance share awards were made to preserve the intrinsic value of the awards immediately before the Separation. The adjustment of the underlying shares and exercise prices, as applicable, was determined using a ratio based on the relative values of our pre-Distribution common share price and our post-Distribution common share price.

Non-Qualified Stock Options

The table below summarizes our stock option activity during the nine months ended February 29, 2024:

 

 

 

 

Weighted

 

 

 

 

 

Average

 

 

Stock

 

 

Exercise

 

(In thousands, except per common share amounts)

Options

 

 

Price

 

Outstanding - June 1, 2023

 

573

 

 

$

42.61

 

Converted to Worthington Steel common shares (1)

 

(61

)

 

 

51.44

 

Separation related adjustment

 

254

 

 

 

-

 

Granted

 

58

 

 

 

68.68

 

Exercised

 

(126

)

 

 

39.73

 

Forfeited

 

(7

)

 

 

45.91

 

Outstanding - February 29, 2024

 

691

 

 

$

28.83

 

14

Table of Contents

(1)
Effective as of the Distribution, each outstanding stock option held by a then-current or former employee or service provider of Worthington Steel was converted into a stock option denominated in the common shares of Worthington Steel.

 

During the nine months ended February 28, 2023,29, 2024, we granted non-qualified stock options covering a total of 84,40058 common sharesno par value, of Worthington Industries (the “common shares”) under our stock-based compensation plans. TheFor each grant, the exercise price of $46.39per share was equal to the closing market price of the underlying common shares onat the respective grant date. The weighted average fair value of these non-qualified stock options, based on the Black-Scholes option-pricing model, calculated at the grant date, was $16.3625.61 per share. The calculated pre-tax stock-based compensation expense for these non-qualified stock options ofwas $1,381,0001,485 and will be recognized on a straight-line basis over the three-year vesting period, net of any forfeitures. The weighted average fair value of stock options granted during the nine months ended February 29, 2024 was based on the following assumptions were used to value these non-qualified stock options:assumptions:

 

Dividend yield

 

 

2.332.34

%

Expected volatility

 

 

41.6342.62

%

Risk-free interest rate

 

 

3.194.04

%

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 nine months ended February 28, 2023,29, 2024, we granted an aggregate of 345,550214 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 grant date, of grant, or $49.4964.57 per share. The calculated pre-tax stock-based compensation expense for these restricted common shares iswas $17,100,00013,831 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-basedThe table below sets forth the service-based restricted common shares to one key employee under one of our stock-based compensation plans. Vesting of these restricted common shares is contingent uponfor the average closing price of the common shares reaching $nine months ended February 29, 2024:65.00

 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:

 

 

 

 

Weighted

 

 

Restricted

 

 

Average

 

 

Common

 

 

Grant Date

 

(In thousands, except per common share amounts)

Shares

 

 

Fair Value

 

Outstanding - June 1, 2023

 

800

 

 

$

47.39

 

Converted to Worthington Steel common shares (1)

 

(296

)

 

 

55.70

 

Separation related adjustment

 

220

 

 

 

-

 

Granted

 

214

 

 

 

64.57

 

Vested

 

(337

)

 

 

39.17

 

Forfeited

 

(20

)

 

 

47.07

 

Outstanding - February 29, 2024

 

581

 

 

$

36.34

 

 

Dividend yield

 

(1)
Effective as of the Distribution, each restricted stock award held by an employee or director of Worthington Steel was converted into a restricted stock award covering Worthington Steel common shares.

 

2.67

%

Expected volatility

43.00

%

Risk-free interest rate

3.18

%

12

Table of Contents

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 shareEPS growth and, in the case of business unit executives, a business unit adjusted earnings before interest and taxes (“ adjusted EBIT”)EBITDA 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 nine months ended February 28, 2023, we granted performance share awards covering an aggregate of 58,100 common shares (at target levels). The calculated pre-tax stock-based compensation expense for these performance shares is $2,695,000 (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.

15

Table of Contents

The table summarizes our performance activity for the nine months ended February 29, 2024.

 

 

 

 

Weighted

 

 

Restricted

 

 

Average

 

 

Common

 

 

Grant Date

 

(In thousands, except per common share amounts)

Shares

 

 

Fair Value

 

Outstanding - June 1, 2023

 

172

 

 

$

46.37

 

Converted to Worthington Steel common shares (1)

 

(39

)

 

 

56.99

 

Separation related adjustment

 

58

 

 

 

-

 

Granted

 

113

 

 

 

52.73

 

Vested

 

(131

)

 

 

39.93

 

Forfeited

 

(25

)

 

 

36.02

 

Outstanding - February 29, 2024

 

148

 

 

$

37.70

 

(1)
Effective as of the Distribution, each performance share award held by an employee or director of Worthington Steel was converted into a restricted stock award covering Worthington Steel shares.

Note M – Income Taxes

Income tax expense for the nine months ended February 29, 2024 and February 28, 2023 and 2022 reflected estimated annual effective income tax rates of 22.830.8% and 23.222.6%, respectively, and exclude 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 a result of our Samuel, Spartan, 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 Samuel, Spartan, TWB and WSP’s U.S. operations do not generaterespectively. Income tax expense to us sincein the investors in Samuel, Spartan, TWB and WSP’s U.S. operations are taxed directly based oncurrent year period was impacted by certain discrete tax items triggered by 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.Separation, which were primarily non-deductible transaction costs. Our actual effective income tax rate for fiscal 20232024 could be materially different from the forecasted rate as of February 28, 2023.29, 2024.

Note N – Earnings per Share

The following table sets forth the computation of basic and diluted earnings per shareEPS attributable to controlling interest for the periods presented:

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

February 28,

 

 

February 28,

 

(in thousands, except per share amounts)

2023

 

 

2022

 

 

2023

 

 

2022

 

Numerator (basic & diluted):

 

 

 

 

 

 

 

 

 

 

 

Net earnings attributable to controlling interest -

 

 

 

 

 

 

 

 

 

 

 

income available to common shareholders

$

46,325

 

 

$

56,342

 

 

$

126,625

 

 

$

299,134

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

Denominator for basic earnings per share attributable to

 

 

 

 

 

 

 

 

 

 

 

controlling interest - weighted average common shares

 

48,587

 

 

 

49,749

 

 

 

48,541

 

 

 

50,331

 

Effect of dilutive securities

 

906

 

 

 

892

 

 

 

815

 

 

 

944

 

Denominator for diluted earnings per share attributable to

 

 

 

 

 

 

 

 

 

 

 

controlling interest - adjusted weighted average common shares

 

49,493

 

 

 

50,641

 

 

 

49,356

 

 

 

51,275

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

February 29,

 

 

February 28,

 

 

February 29,

 

 

February 28,

 

(In thousands, except per common share amounts)

2024

 

 

2023

 

 

2024

 

 

2023

 

Numerator (basic & diluted):

 

 

 

 

 

 

 

 

 

 

 

Net earnings from continuing operations

$

22,000

 

 

$

29,751

 

 

$

66,763

 

 

$

75,625

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

Denominator for basic EPS from continuing operations -

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares

 

49,315

 

 

 

48,587

 

 

 

49,113

 

 

 

48,541

 

Effect of dilutive securities

 

1,102

 

 

 

906

 

 

 

1,158

 

 

 

815

 

Denominator for diluted EPS from continuing operations -

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares

 

50,417

 

 

 

49,493

 

 

 

50,271

 

 

 

49,356

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic EPS from continuing operations

$

0.45

 

 

$

0.61

 

 

$

1.36

 

 

$

1.56

 

Diluted EPS from continuing operations

$

0.44

 

 

$

0.60

 

 

$

1.33

 

 

$

1.53

 

 

Stock options covering an aggregate of 138,10055 and 53,80094 common shares for the three months ended February 29, 2024 and February 28, 2023, and 2022, respectively, and 131,00061 and 49,50089 common shares for the nine months ended February 29, 2024 and February 28, 2023, and 2022, respectively, have been excluded from the computation of diluted earnings per shareEPS because the effect would have been anti-dilutive for those periods.

13

Table of Contents

Note O – Segment Operations

 

Our chiefoperations are managed principally on a products and services basis. Factors used to identify reportable segments include the nature of the products and services provided by each business, the management reporting structure, similarity of economic characteristics and certain quantitative measures, as prescribed by authoritative accounting guidance. Our operations are organized under three operating decision maker (“CODM”), who is our Chief Executive Officer, assessessegments: Consumer Products, Building Products, and Sustainable Energy Solutions, none of which are aggregated for segment reporting purposes. In prior quarters, we also presented an additional operating segment, performance and allocates resources based on adjusted EBIT. EBITSteel Processing, which is calculated by adding interest expense and income tax expenseno longer a reportable segment as a result of the Separation. The related segment disclosures herein have been updated accordingly, including recasting prior period information to net earnings attributable to controlling interest. Adjusted EBIT excludes impairment and restructuring expense (income), but may also exclude other items,reflect the Steel Processing business as described below, that management believes are not reflective of, and thus should not be included when evaluating the performance of our ongoingdiscontinued 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.

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 operating segments for the periods indicated.16

 

Three Months Ended February 28, 2023

 

(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

 

Impairment of long-lived assets

 

-

 

 

 

-

 

 

 

484

 

 

-

 

 

 

-

 

 

 

484

 

Restructuring and other expense, net

��

1

 

 

 

206

 

 

 

617

 

 

-

 

 

 

-

 

 

 

824

 

Separation costs

 

-

 

 

 

-

 

 

 

-

 

 

-

 

 

 

6,347

 

 

 

6,347

 

Miscellaneous income (expense), net

 

1,111

 

 

 

(21

)

 

 

130

 

 

(37

)

 

 

144

 

 

 

1,327

 

Equity income

 

(185

)

 

 

-

 

 

 

37,836

 

 

-

 

 

 

(725

)

 

 

36,926

 

Adjusted EBIT (1)

 

7,788

 

 

 

17,943

 

 

 

51,472

 

 

(1,440

)

 

 

(4,443

)

 

 

71,320

 

(1)
Excludes the following:
•
A pre-tax benefit of $1,050,000 within selling, general, and administrative expense (“SG&A”) to reverse the compensation expense accrued during the first six months of fiscal 2023 for the anticipated payout under the first annual earnout period ending December 31, 2023 associated with the Level5 acquisition (see the discussion of this acquisition in “Note P – Acquisitions”);
•
Separation costs of $6,347,000 within Other related to direct and incremental costs incurred in connection with the anticipated Separation, including audit, advisory, and legal costs; and
•
A loss of $300,000 for the settlement of final transaction costs within Other related to the sale of our 50% noncontrolling equity investment in ArtiFlex.

 

Three Months Ended February 28, 2022

 

(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

 

Impairment of long-lived assets

 

3,076

 

 

 

-

 

 

 

-

 

 

-

 

 

 

-

 

 

 

3,076

 

Restructuring and other expense (income), net

 

114

 

 

 

-

 

 

 

(35

)

 

-

 

 

 

(583

)

 

 

(504

)

Miscellaneous income, net

 

(12

)

 

 

(39

)

 

 

(3

)

 

(38

)

 

 

485

 

 

 

393

 

Equity income

 

4,692

 

 

 

-

 

 

 

39,978

 

 

-

 

 

 

2,796

 

 

 

47,466

 

Adjusted EBIT (2)

 

7,116

 

 

 

26,674

 

 

 

49,570

 

 

(2,801

)

 

 

4,039

 

 

 

84,598

 

(2)
Excludes the noncontrolling interest portion of the impairment of long-lived assets and restructuring expense within Steel Processing of $1,139,000.

14

Table 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

 

Segment information is prepared on the same basis that our CODM reviews financial information for operational decision-making purposes. We have identified our Chief Executive Officer as our CODM. 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.

In connection with the Separation, our CODM began evaluating segment operating performance on the basis of adjusted EBITDA, as previously described in the “Use of Non-GAAP Financial Measures and Definitions” section preceding Part I, Item 1 of this Form 10-Q. At the operating segment level, adjusted EBITDA excludes public company and other governance-related costs. Effective December 1, 2023, we also realigned management responsibilities and the internal reporting of our liquified petroleum gas propane tank manufacturing facility in Westerville, Ohio, to fall under our Building Products segment (from Consumer Products). Previously reported results have been recast to reflect these changes.

The following tables presents summarized financial information for our reportable segments for the periods indicated.

 

Three Months Ended February 29, 2024

 

(In thousands)

Consumer Products

 

 

Building Products

 

 

Sustainable Energy Solutions

 

Unallocated Corporate and Other

 

 

Consolidated (5)

 

Net sales

$

133,181

 

 

$

148,190

 

 

$

35,384

 

$

-

 

 

$

316,755

 

Restructuring and other expense, net

 

-

 

 

 

84

 

 

 

-

 

 

614

 

 

 

698

 

Separation costs

 

-

 

 

 

-

 

 

 

-

 

 

2,999

 

 

 

2,999

 

Miscellaneous income (expense), net

 

12

 

 

 

154

 

 

 

328

 

 

(7,489

)

 

 

(6,995

)

Equity Income

 

-

 

 

 

43,813

 

 

 

-

 

 

(578

)

 

 

43,235

 

Adjusted EBITDA (1)

 

25,649

 

 

 

53,059

 

 

 

(2,667

)

 

(9,170

)

 

 

66,871

 

 

Three Months Ended February 28, 2023

 

(In thousands)

Consumer Products

 

 

Building Products

 

 

Sustainable Energy Solutions

 

Unallocated Corporate and Other

 

 

Consolidated (5)

 

Net sales

$

130,684

 

 

$

183,839

 

 

$

31,792

 

$

-

 

 

$

346,315

 

Impairment of long-lived assets

 

-

 

 

 

484

 

 

 

-

 

 

-

 

 

 

484

 

Restructuring and other expense, net

 

206

 

 

 

617

 

 

 

-

 

 

-

 

 

 

823

 

Separation costs

 

-

 

 

 

-

 

 

 

-

 

 

2,305

 

 

 

2,305

 

Miscellaneous income (expense), net

 

(12

)

 

 

122

 

 

 

(37

)

 

144

 

 

 

217

 

Equity Income

 

-

 

 

 

37,836

 

 

 

-

 

 

(725

)

 

 

37,111

 

Adjusted EBITDA (2)(4)

 

21,100

 

 

 

58,097

 

 

 

212

 

 

(9,193

)

 

 

70,216

 

 

Nine Months Ended February 29, 2024

 

(In thousands)

Consumer Products

 

 

Building Products

 

 

Sustainable Energy Solutions

 

Unallocated Corporate and Other

 

 

Consolidated (5)

 

Net sales

$

369,923

 

 

$

465,421

 

 

$

91,558

 

$

-

 

 

$

926,902

 

Restructuring and other expense, net

 

-

 

 

 

84

 

 

 

-

 

 

620

 

 

 

704

 

Separation costs

 

-

 

 

 

-

 

 

 

-

 

 

12,465

 

 

 

12,465

 

Miscellaneous income (expense), net

 

49

 

 

 

452

 

 

 

1,165

 

 

(7,649

)

 

 

(5,983

)

Loss on extinguishment of debt

 

-

 

 

 

-

 

 

 

-

 

 

(1,534

)

 

 

(1,534

)

Equity Income

 

-

 

 

 

124,032

 

 

 

-

 

 

3,296

 

 

 

127,328

 

Adjusted EBITDA (1)(2)(3)(4)

 

52,537

 

 

 

158,501

 

 

 

(6,434

)

 

(16,775

)

 

 

187,829

 

17

Table of Contents

 

Nine Months Ended February 29, 2023

 

(In thousands)

Consumer Products

 

 

Building Products

 

 

Sustainable Energy Solutions

 

Unallocated Corporate and Other

 

 

Consolidated (5)

 

Net sales

$

406,479

 

 

$

542,536

 

 

$

100,679

 

$

-

 

 

$

1,049,694

 

Impairment of long-lived assets

 

-

 

 

 

484

 

 

 

-

 

 

-

 

 

 

484

 

Restructuring and other expense (income), net

 

206

 

 

 

617

 

 

 

-

 

 

(1,177

)

 

 

(354

)

Separation costs

 

-

 

 

 

-

 

 

 

-

 

 

3,572

 

 

 

3,572

 

Miscellaneous income (expense), net

 

(78

)

 

 

405

 

 

 

19

 

 

(4,845

)

 

 

(4,499

)

Equity Income

 

-

 

 

 

116,809

 

 

 

-

 

 

(14,805

)

 

 

102,004

 

Adjusted EBITDA (1)(2)(4)

 

67,846

 

 

 

157,458

 

 

 

2,932

 

 

(15,948

)

 

 

212,288

 

 

(3)
Excludes the following:
•(1)
A non-cash settlement chargeExcludes pre-tax charges of $4,774,0008,103 and $4,774 from separate pension lift-out transactions completed in miscellaneous income (expense), net within Other relatedFebruary 2024 and August 2022, respectively, to transfer the pension lift-out transaction associated withbenefit obligation under The Gerstenslager Company Bargaining Unit Employees’ Pension Plan and described furtherto third-party insurance companies.
(2)
Excludes the following items reflected in “Note K – ChangesEquity Income in Equity;”our consolidated statements of earnings:
•
For the nine months ended February 29, 2024, our share of the gain realized by our engineered cabs joint venture, Workhorse, in connection with the sale of the joint venture’s operations in Brazil, which totaled $2,780 on a pre-tax basis.
•
AFor the nine months ended February 28, 2023, the loss of $16,059,000 forrealized in connection with the settlement of final transaction costs within Other related to theAugust 3, 2022, sale of our then 50% noncontrolling equity investment in ArtiFlex, effective August 3, 2022; andor $16,059 on a pre-tax basis, including $300 of transaction costs during the three months ended February 28, 2023.
•(3)
Separation costsExcludes a pre-tax loss of $15,593,0001,534 within Other related to direct and incremental costs incurredrealized in connection with the anticipated Separation, including audit, advisory,July 28, 2023, early redemption of the 2026 Notes. The loss resulted primarily from unamortized issuance costs and legal costs.discount included in the carrying amount of the 2026 Notes and the acceleration of the remaining unamortized loss in equity related to a treasury lock derivative instrument executed in connection with the issuance of the 2026 Notes.
(4)
ExcludesReflects reductions in certain corporate overhead costs that no longer exist post-Separation. These costs were included in continuing operations as they represent general corporate overhead that was historically allocated to Worthington Steel but did not meet the noncontrolling interest portion of the impairment of long-lived assets and restructuring income within Steel Processing of $1,734,000.requirements to be presented as discontinued operations.

 

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

 

(5)
ExcludesA reconciliation of net earnings from continuing operations (the most comparable GAAP financial measure) to consolidated adjusted EBITDA is included in the noncontrolling interest portionMD&A “Results of impairmentOperations” section of long-lived assetsthis Form 10-Q for the respective three and restructuring income within Steel Processing of $4,888,000.nine months ended February 29, 2024 and February 28, 2023.

 

Total assets for each of our reportable operating segments at the dates indicated were as follows:

 

 

February 28,

 

 

May 31,

 

(in thousands)

2023

 

 

2022

 

Total assets

 

 

 

 

 

Steel Processing

$

1,763,730

 

 

$

2,082,522

 

Consumer Products

 

636,896

 

 

 

577,026

 

Building Products

 

647,582

 

 

 

681,188

 

Sustainable Energy Solutions

 

121,689

 

 

 

114,084

 

Other

 

327,775

 

 

 

188,203

 

Total assets

$

3,497,672

 

 

$

3,643,023

 

 

February 29,

 

 

May 31,

 

(In thousands)

2024

 

 

2023

 

Consumer Products

$

566,715

 

 

$

544,911

 

Building Products

 

678,699

 

 

 

706,169

 

Sustainable Energy Solutions

 

144,543

 

 

 

129,872

 

Unallocated Corporate and Other

 

314,732

 

 

 

509,170

 

Total assets of continuing operations

$

1,704,689

 

 

$

1,890,122

 

 

1518

Table of Contents

 

Note P – Acquisitions

 

Level5® Tools, LLC

On June 2, 2022, we acquired Level5® Tools, LLC (“Level5”), a leading provider of drywall tools and related accessories. The total purchase price was $59,321,000, including $2,000,000 attributed to an earnout agreement with the selling shareholders, that provides for up to an additional $25,000,000 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 benefit of $1,050,000 was recorded within SG&A in the consolidated statements of earnings to reverse the compensation expense accrued during the first six months of fiscal 2023 for the anticipated payout under the first earnout period ending December 31, 2023.Halo

 

Level5On February 1, 2024, we acquired an 80% controlling interest in a newly formed joint venture with HPG for total cash consideration of $9,386, of which $679 related to a customer overpayment and was held back at closing. The remaining 20% noncontrolling interest was retained by HPG. Halo is an asset-light business with technology-enabled solutions in the outdoor cooking space with products that include HaloTM branded pizza ovens, pellet grills, griddles and other accessories. Halo is being operated as part of the Consumer Products operating segment and its operating results have been included in our consolidated statementsstatement of earnings since the date of acquisition. ProformaPro forma results, including the acquired business since the beginning of fiscal 2022,2023, would not be materially different fromthan the reported results.

 

The information included herein has beenis 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)

 

 

 

 

 

Category

 

Amount

 

 

Useful Life (Years)

Trade name

 

$

13,500

 

 

Indefinite

Customer relationships

 

 

13,300

 

 

10

Technological know-how

 

 

6,500

 

 

20

Non-compete agreement

 

 

280

 

 

3

Total acquired identifiable intangible assets

 

$

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(i.e., 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.

 

16The 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 Halo, we identified and valued the following intangible assets:

Table of Contents

 

 

Amount

 

 

Useful Life

Category

 

(In thousands)

 

 

(Years)

Trade name

 

$

3,500

 

 

10

Product design/Know-how

 

 

800

 

 

8

Customer relationships

 

 

200

 

 

8

Total acquired identifiable intangible assets

 

$

4,500

 

 

 

 

The following table summarizes the consideration transferred and the estimated 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
Valuation

 

 

Measurement
Period
Adjustments

 

 

Revised
Valuation

 

Cash and cash equivalents

 

$

1,515

 

 

$

-

 

 

$

1,515

 

Accounts receivable

 

 

2,860

 

 

 

-

 

 

 

2,860

 

Inventories

 

 

9,161

 

 

 

-

 

 

 

9,161

 

Prepaid expenses

 

 

64

 

 

 

-

 

 

 

64

 

Property, plant and equipment

 

 

273

 

 

 

-

 

 

 

273

 

Intangible assets

 

 

33,580

 

 

 

-

 

 

 

33,580

 

Operating lease assets

 

 

377

 

 

 

-

 

 

 

377

 

Total identifiable assets

 

 

47,830

 

 

 

-

 

 

 

47,830

 

Accounts payable

 

 

(3,175

)

 

 

-

 

 

 

(3,175

)

Accrued expenses

 

 

(904

)

 

 

151

 

 

 

(753

)

Current operating lease liabilities

 

 

(111

)

 

 

-

 

 

 

(111

)

Noncurrent operating lease liabilities

 

 

(266

)

 

 

-

 

 

 

(266

)

Net identifiable assets

 

 

43,374

 

 

 

151

 

 

 

43,525

 

Goodwill

 

 

15,947

 

 

 

-

 

 

 

15,947

 

Total purchase price

 

 

59,321

 

 

 

151

 

 

 

59,472

 

Less: Fair value of earnout

 

 

(2,000

)

 

 

-

 

 

 

(2,000

)

Plus: Net working capital deficit

 

 

282

 

 

 

(151

)

 

 

131

 

Cash purchase price

 

$

57,603

 

 

$

-

 

 

$

57,603

 

(In thousands)

 

Preliminary
Valuation

 

Accounts receivable

 

$

88

 

Inventories

 

 

5,511

 

Property, plant and equipment

 

 

1,732

 

Intangible assets

 

 

4,500

 

Total identifiable assets

 

 

11,831

 

Accounts payable

 

 

(7,293

)

Other accrued items

 

 

(1,099

)

Net identifiable assets

 

 

3,439

 

Goodwill

 

 

8,294

 

Net assets

 

 

11,733

 

Noncontrolling interest

 

 

(2,347

)

Total cash consideration

 

$

9,386

 

19

Table of Contents

Level5

On June 2, 2022, we acquired Level5, a leading provider of drywall tools and related accessories. The total purchase price was $59,321, including $2,000 attributed to an earnout agreement with the selling shareholders, which provides for up to an additional $25,000 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. As of February 29, 2024, no amounts were accrued as compensation expense for anticipated payments under the second earnout period ending December 31, 2023 or the third earnout period ending December 31, 2024.

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 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:

 

 

Amount

 

 

Useful Life

Category

 

(In thousands)

 

 

(Years)

Trade name

 

$

13,500

 

 

Indefinite

Customer relationships

 

 

13,300

 

 

10

Technological know-how

 

 

6,500

 

 

20

Non-compete agreement

 

 

280

 

 

3

Total acquired identifiable intangible assets

 

$

33,580

 

 

 

The purchase price includes the fair values of other assets that were not identifiable, not separately recognizable under accounting rules (e.g., assembled workforce) or of immaterial value. The purchase price also includes strategic and synergistic benefits (i.e., investment value) specific to us, which resulted in a purchase price in excess of the fair value of the identifiable net assets. This additional investment value resulted in goodwill which will be deductible for income tax purposes.

The following table summarizes the consideration paid and the final fair value assigned to the assets and liabilities assumed at the acquisition date.

(In thousands)

 

Preliminary
Valuation

 

 

Measurement
Period
Adjustments

 

 

Final
Valuation

 

Cash and cash equivalents

 

$

1,515

 

 

$

-

 

 

$

1,515

 

Accounts receivable

 

 

2,860

 

 

 

-

 

 

 

2,860

 

Inventories

 

 

9,161

 

 

 

-

 

 

 

9,161

 

Prepaid expenses

 

 

64

 

 

 

-

 

 

 

64

 

Property, plant and equipment

 

 

273

 

 

 

-

 

 

 

273

 

Intangible assets

 

 

33,580

 

 

 

-

 

 

 

33,580

 

Operating lease assets

 

 

377

 

 

 

-

 

 

 

377

 

Total identifiable assets

 

 

47,830

 

 

 

-

 

 

 

47,830

 

Accounts payable

 

 

(3,175

)

 

 

-

 

 

 

(3,175

)

Accrued expenses

 

 

(904

)

 

 

151

 

 

 

(753

)

Current operating lease liabilities

 

 

(111

)

 

 

-

 

 

 

(111

)

Noncurrent operating lease liabilities

 

 

(266

)

 

 

-

 

 

 

(266

)

Net identifiable assets

 

 

43,374

 

 

 

151

 

 

 

43,525

 

Goodwill

 

 

15,947

 

 

 

-

 

 

 

15,947

 

Total purchase price

 

 

59,321

 

 

 

151

 

 

 

59,472

 

Less: Fair value of earnout

 

 

(2,000

)

 

 

-

 

 

 

(2,000

)

Plus: Net working capital deficit

 

 

282

 

 

 

(151

)

 

 

131

 

Cash purchase price

 

$

57,603

 

 

$

-

 

 

$

57,603

 

 

20

Table of Contents

Note Q – 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, aluminum 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

Table of Contents

 

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.

 

Refer to “Note R – 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 28,29, 2024 and May 31, 2023:

 

 

Asset Derivatives

 

 

Liability Derivatives

 

 

Fair Value of Assets

 

 

Fair Value of Liabilities

 

 

Balance

 

 

 

Balance

 

 

 

 

Balance

 

 

 

 

 

Balance

 

 

 

 

 

 

Sheet

 

Fair

 

 

Sheet

 

Fair

 

 

Sheet

 

February 29,

 

 

May 31,

 

Sheet

 

February 29,

 

 

May 31,

 

(in thousands)

 

Location

 

Value

 

 

Location

 

Value

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Location

 

2024

 

 

2023

 

 

Location

 

2024

 

 

2023

 

Derivatives designated as hedging instruments

Derivatives designated as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

Receivables

 

$

30,670

 

 

Accounts payable

 

$

1,701

 

 

Receivables

 

$

1,064

 

 

$

20

 

 

Accounts payable

 

$

115

 

 

$

4,069

 

Commodity contracts

 

Other assets

 

 

26

 

 

 

-

 

 

Other liabilities

 

 

-

 

 

 

237

 

Foreign currency exchange contracts

 

Receivables

 

 

-

 

 

 

-

 

 

Accounts payable

 

 

-

 

 

 

33

 

Subtotal

 

$

1,090

 

 

$

20

 

 

$

115

 

 

$

4,339

 

 

Other assets

 

 

1,137

 

 

Other liabilities

 

 

8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31,807

 

 

 

 

 

1,709

 

Derivatives not designated as hedging instruments

Derivatives not designated as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

Receivables

 

$

308

 

 

$

294

 

 

Accounts payable

 

$

445

 

 

$

1,609

 

Foreign currency exchange contracts

 

Other assets

 

 

273

 

 

Accounts payable

 

 

-

 

 

Receivables

 

 

-

 

 

 

-

 

 

Accounts payable

 

 

3

 

 

 

-

 

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

 

Subtotal

 

$

308

 

 

$

294

 

 

$

448

 

 

$

1,609

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total derivative financial instruments

 

 

 

$

33,490

 

 

 

 

$

22,628

 

 

$

1,398

 

 

$

314

 

 

 

$

563

 

 

$

5,948

 

 

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 $8,326,000increase in Receivablesreceivables with a corresponding increase in Accounts payable.accounts payable of $174 and $272 at February 29, 2024 and May 31, 2023, respectively.

1821

Table of Contents

 

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

 

 

 

Balance

 

 

 

 

Balance

 

 

 

 

 

Sheet

 

Fair

 

 

Sheet

 

Fair

 

(in thousands)

 

Location

 

Value

 

 

Location

 

Value

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

Receivables

 

$

1,040

 

 

Accounts payable

 

$

4,517

 

 

Other assets

 

 

-

 

 

Other liabilities

 

 

48

 

 

 

 

 

1,040

 

 

 

 

 

4,565

 

Foreign currency exchange contracts

 

Receivables

 

 

-

 

 

Accounts payable

 

 

-

 

 

 

Other assets

 

 

-

 

 

Other liabilities

 

 

17

 

 

 

 

 

 

-

 

 

 

 

 

17

 

Total

 

 

 

$

1,040

 

 

 

 

$

4,582

 

 

 

 

 

 

 

 

 

 

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

Commodity contracts

 

Receivables

 

$

11,555

 

 

Accounts payable

 

$

4,142

 

 

Other assets

 

 

48

 

 

Other liabilities

 

 

24

 

 

 

 

 

11,603

 

 

 

 

 

4,166

 

Foreign currency exchange contracts

 

Receivables

 

 

-

 

 

Accounts payable

 

 

255

 

Total

 

 

 

$

11,603

 

 

 

 

$

4,421

 

 

 

 

 

 

 

 

 

 

 

 

Total derivative financial instruments

 

 

 

$

12,643

 

 

 

 

$

9,003

 

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 $6,300,000 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, 2023:29, 2024:

 

 

 

Notional

 

 

 

(in thousands)

 

Amount

 

 

Maturity Date

Commodity contracts

 

$

136,907

 

 

March 2023 - September 2024

Foreign currency exchange contracts

 

$

604

 

 

March 2023 - July 2023

 

 

Notional

 

 

 

(In thousands)

 

Amount

 

 

Maturity Date(s)

Commodity contracts

 

$

9,113

 

 

March 2024 - June 2025

 

19

Table of Contents

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)
Recognized in OCI

 

 

Location of Gain (Loss)
Reclassified from AOCI
into Net Earnings

 

Gain (Loss) Reclassified
from AOCI into
Net Earnings

 

(In thousands)

 

Gain (Loss)
Recognized in OCI

 

 

Location of Gain (Loss)
Reclassified from AOCI
into Net Earnings

 

Gain (Loss) Reclassified
from AOCI into
Net Earnings

 

For the three months ended February 29, 2024:

For the three months ended February 29, 2024:

 

Commodity contracts

 

$

1,944

 

 

Cost of goods sold

 

$

1,328

 

Interest rate contracts

 

 

-

 

 

Interest expense, net

 

 

52

 

Total

 

$

1,944

 

 

$

1,380

 

 

 

 

 

 

 

For the three months ended February 28, 2023:

For the three months ended February 28, 2023:

 

For the three months ended February 28, 2023:

 

Commodity contracts

 

$

32,976

 

 

Cost of goods sold

 

$

(10,980

)

 

$

7,093

 

 

Cost of goods sold

 

$

(4,858

)

Interest rate contracts

 

 

-

 

 

Interest expense

 

 

(7

)

 

 

-

 

 

Interest expense

 

 

(7

)

Foreign currency exchange contracts

 

 

67

 

 

Net sales/Cost of goods sold

 

 

67

 

 

 

66

 

 

Miscellaneous income, net

 

 

67

 

Total

 

$

33,043

 

 

$

(10,920

)

 

$

7,159

 

 

$

(4,798

)

 

 

 

 

 

 

 

 

 

 

 

For the three months ended February 28, 2022:

 

For the nine months ended February 29, 2024:

For the nine months ended February 29, 2024:

 

Commodity contracts

 

$

(2,460

)

 

Cost of goods sold

 

$

24,025

 

 

$

3,553

 

 

Cost of goods sold

 

$

(921

)

Interest rate contracts

 

 

-

 

 

Loss on extinguishment of debt

 

 

(642

)

Interest rate contracts

 

 

-

 

 

Interest expense

 

 

(7

)

 

 

-

 

 

Interest expense

 

 

136

 

Foreign currency exchange contracts

 

 

(71

)

 

Miscellaneous income, net

 

 

(21

)

 

 

(11

)

 

Cost of goods sold

 

 

(44

)

Total

 

$

(2,531

)

 

$

23,997

 

 

$

3,542

 

 

$

(1,471

)

 

 

 

 

 

 

 

 

 

 

For the nine months ended February 28, 2023:

For the nine months ended February 28, 2023:

 

For the nine months ended February 28, 2023:

 

Commodity contracts

 

$

(3,123

)

 

Cost of goods sold

 

$

(24,173

)

 

$

(7,770

)

 

Cost of goods sold

 

$

(10,925

)

Interest rate contracts

 

 

-

 

 

Interest expense

 

 

(20

)

 

 

-

 

 

Interest expense

 

 

(20

)

Foreign currency exchange contracts

 

 

124

 

 

Net sales/Cost of goods sold

 

 

(7

)

 

 

124

 

 

Miscellaneous income, net

 

 

(7

)

Total

 

$

(2,999

)

 

$

(24,200

)

 

$

(7,646

)

 

$

(10,952

)

 

 

 

 

 

 

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, 202329, 2024 expected to be reclassified into net earnings within the succeeding twelve months is $13,848,000903 (net of tax of $3,313,000232). This amount was computed using the fair value of the cash flow hedges at February 28, 2023,29, 2024, and will change before actual reclassification from OCI to net earnings during the fiscal years ending May 31, 20232024 and May 31, 2024.2025.

 

22

Table of Contents

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, 2023:29, 2024:

 

 

Notional

 

 

 

Notional

 

 

(in thousands)

 

Amount

 

 

Maturity Date(s)

(In thousands)

 

Amount

 

 

Maturity Date(s)

Commodity contracts

 

$

2,439

 

 

February 2023 - December 2024

 

$

1,648

 

 

March 2024 - December 2024

Foreign currency exchange contracts

 

$

2,138

 

 

March 2023 - July 2023

 

$

7,034

 

 

March 2024

 

20

Table of Contents

The following table summarizes the gain (loss) recognized in earnings for economic (non-designated) derivative financial instruments for the periods presented:

 

 

Gain (Loss) Recognized

 

 

Gain Recognized

 

 

In Earnings for the

 

 

in Earnings for the

 

 

Location of Gain (Loss)

 

Three Months Ended February 28,

 

 

Three Months Ended

 

(in thousands)

 

Recognized in Earnings

 

2023

 

 

2022

 

 

Location of Gain (Loss)

 

February 29,

 

February 28,

 

(In thousands)

 

Recognized in Earnings

 

2024

 

 

2023

 

Commodity contracts

 

Cost of goods sold

 

$

(6,523

)

 

$

(4,694

)

 

Cost of goods sold

 

$

311

 

 

$

2,613

 

Foreign currency exchange contracts

 

Miscellaneous income, net

 

 

79

 

 

 

(23

)

 

Miscellaneous income, net

 

 

(82

)

 

 

79

 

Total

 

$

(6,444

)

 

$

(4,717

)

 

$

229

 

 

$

2,692

 

 

 

Gain (Loss) Recognized

 

 

Gain (Loss) Recognized

 

 

in Earnings for the

 

 

in Earnings for the

 

 

Location of Gain (Loss)

 

Nine Months Ended February 28,

 

 

Nine Months Ended

 

(in thousands)

 

Recognized in Earnings

 

2023

 

 

2022

 

 

 

 

 

 

 

Location of Gain (Loss)

 

February 29,

 

February 28,

 

(In thousands)

 

Recognized in Earnings

 

2024

 

 

2023

 

Commodity contracts

 

Cost of goods sold

 

$

(6,428

)

 

$

14,698

 

 

Cost of goods sold

 

$

(832

)

 

$

4,841

 

Foreign currency exchange contracts

 

Miscellaneous income, net

 

 

32

 

 

 

226

 

 

Miscellaneous income, net

 

 

(3

)

 

 

32

 

Total

 

$

(6,396

)

 

$

14,924

 

 

$

(835

)

 

$

4,873

 

 

Note R – 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.

 

23

Table of Contents

Recurring Fair Value Measurements

 

At February 28, 2023,29, 2024, our assets and liabilities measured at fair value on a recurring basis were as follows:

 

 

 

 

 

 

Significant

 

 

 

 

 

 

 

 

 

Quoted Prices

 

 

Other

 

 

Significant

 

 

 

 

 

 

in Active

 

 

Observable

 

 

Unobservable

 

 

 

 

 

 

Markets

 

 

Inputs

 

 

Inputs

 

 

 

 

(in thousands)

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

Totals

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments (1)

 

$

-

 

 

$

33,490

 

 

$

-

 

 

$

33,490

 

Total assets

 

$

-

 

 

$

33,490

 

 

$

-

 

 

$

33,490

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments (1)

 

$

-

 

 

$

22,628

 

 

$

-

 

 

$

22,628

 

Total liabilities

 

$

-

 

 

$

22,628

 

 

$

-

 

 

$

22,628

 

 

 

 

 

 

Significant

 

 

 

 

 

 

 

 

 

Quoted Prices

 

 

Other

 

 

Significant

 

 

 

 

 

 

in Active

 

 

Observable

 

 

Unobservable

 

 

 

 

 

 

Markets

 

 

Inputs

 

 

Inputs

 

 

 

 

(In thousands)

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

Total

 

Assets (1)

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

$

-

 

 

$

1,398

 

 

$

-

 

 

$

1,398

 

Total assets

 

$

-

 

 

$

1,398

 

 

$

-

 

 

$

1,398

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities (1)

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

$

-

 

 

$

563

 

 

$

-

 

 

$

563

 

Total liabilities

 

$

-

 

 

$

563

 

 

$

-

 

 

$

563

 

 

(1)
The fair value of our derivative financial instruments is based on the present value of the expected future cash flows considering the risks involved, including non-performance risk, and using discount rates appropriate for the respective maturities. Market observable, Level 2 inputs are used to determine the present value of the expected future cash flows. Refer to “Note Q – Derivative Financial Instruments and Hedging Activities” for additional information regarding our use of derivative financial instruments.

21

Table of Contents

 

At May 31, 2022,2023, our assets and liabilities measured at fair value on a recurring basis were as follows:

 

 

 

 

 

 

Significant

 

 

 

 

 

 

 

 

 

Quoted Prices

 

 

Other

 

 

Significant

 

 

 

 

 

 

in Active

 

 

Observable

 

 

Unobservable

 

 

 

 

 

 

Markets

 

 

Inputs

 

 

Inputs

 

 

 

 

(in thousands)

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

Totals

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments (1)

 

$

-

 

 

$

12,643

 

 

$

-

 

 

$

12,643

 

Total assets

 

$

-

 

 

$

12,643

 

 

$

-

 

 

$

12,643

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments (1)

 

$

-

 

 

$

9,003

 

 

$

-

 

 

$

9,003

 

Total liabilities

 

$

-

 

 

$

9,003

 

 

$

-

 

 

$

9,003

 

 

 

 

 

 

Significant

 

 

 

 

 

 

 

 

 

Quoted Prices

 

 

Other

 

 

Significant

 

 

 

 

 

 

in Active

 

 

Observable

 

 

Unobservable

 

 

 

 

 

 

Markets

 

 

Inputs

 

 

Inputs

 

 

 

 

(In thousands)

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

Total

 

Assets (1)

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

$

-

 

 

$

314

 

 

$

-

 

 

$

314

 

Total assets

 

$

-

 

 

$

314

 

 

$

-

 

 

$

314

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities (1)

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

$

-

 

 

$

5,948

 

 

$

-

 

 

$

5,948

 

Total liabilities

 

$

-

 

 

$

5,948

 

 

$

-

 

 

$

5,948

 

 

(1)
The fair value of our derivative financial instruments is based on the present value of the expected future cash flows considering the risks involved, including non-performance risk, and using discount rates appropriate for the respective maturities. Market observable, Level 2 inputs are used to determine the present value of the expected future cash flows. Refer to “Note Q – Derivative Financial Instruments and Hedging Activities” for additional information regarding our use of derivative financial instruments.

 

Non-Recurring Fair Value Measurements

 

At February 28,29, 2024, there were no assets measured at fair value on a non-recurring basis on our consolidated balance sheet.

At May 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

 

 

 

-

 

 

 

70

 

 

 

-

 

 

 

70

 

Total assets

 

$

-

 

 

$

70

 

 

$

-

 

 

$

70

 

 

$

-

 

 

$

70

 

 

$

-

 

 

$

70

 

 

24

Table of Contents

(1)
During the three months ended February 28, 2023, we recognized a pre-tax impairment chargeComprised of $484,000 related to certain assets associated with a capital project at our Building Products facility in Jefferson, Ohio thatwhich were determined to have no alternative use and written down to their estimated salvage value of approximately $70,00070.

At May 31, 2022, our assets measured at fair value on a non-recurring basis were as follows:

 

 

 

 

 

Significant

 

 

 

 

 

 

 

 

 

Quoted Prices

 

 

Other

 

 

Significant

 

 

 

 

 

 

in Active

 

 

Observable

 

 

Unobservable

 

 

 

 

 

 

Markets

 

 

Inputs

 

 

Inputs

 

 

 

 

(in thousands)

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

Totals

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Long-lived assets held for sale (1)

 

$

-

 

 

$

700

 

 

$

-

 

 

$

700

 

Total assets

 

$

-

 

 

$

700

 

 

$

-

 

 

$

700

 

22

Table of Contents

(1)
Comprised of production equipment at our Samuel facility in Twinsburg, Ohio facility with an estimated fair market value of $700,000. Refer to “Note E – Impairment of Long-Lived Assets” for additional information.

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 $638,163,000227,908 and $684,830,000639,948 at February 28, 202329, 2024 and May 31, 2022,2023, respectively. The carrying amount of long-term debt, including current maturities, was $689,600,000297,962 and $696,610,000689,982 at February 28, 202329, 2024 and May 31, 2022,2023, respectively.

 

2325

Table of Contents

 

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”MD&A 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”MD&A 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. The results of operations contained in this MD&A include all of our operations, including our former Steel Processing business. Beginning in the third quarter of fiscal 2024, our historical results have been restated to reflect the operations of Worthington Steel as a discontinued operation in periods prior to the December 1, 2023 Separation. This MD&A is divided into six main sections:

•
Separation of the Steel Processing Business;
•
Recent Business Developments;
•
Trends and Factors Impacting our Performance;
•
Results of Operations;
•
Liquidity and Capital Resources; and
•
Critical Accounting Estimates.

Our operations are managed principally onSeparation of the Steel Processing Business

On December 1, 2023, we completed the previously announced Separation of our Steel Processing business segment into a products and services basis. Segment informationseparate public company in a transaction intended to qualify as tax free to our shareholders, which was accomplished via the distribution of 100% of the outstanding common shares of Worthington Steel to holders of record of the Company’s common shares as of the Record Date. Worthington Steel is preparedan independent public company trading under the symbol “WS” on the same basis that our CODM reviews financial information for operational decision-making purposes. Factors usedNYSE. Following the Separation, Worthington Industries, Inc. changed its name to identify operating segments includeWorthington Enterprises, Inc. and its common shares continue trading on the natureNYSE under the ticker symbol “WOR.” Worthington Enterprises is comprised of the productsBuilding Products, Consumer Products and services providedSustainable Energy Solutions businesses. In connection with the Separation, we received a one-time cash dividend of $150.0 million from Worthington Steel to finalize each company’s respective capital structure. The dividend was funded by each business,cash drawn on Worthington Steel Credit Facility of $175.0 million immediately prior to the management reporting structure, the similarity of economic characteristics and certain quantitative measures, as prescribed by authoritative accounting guidance.Distribution.

As

26

Table 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 these joint ventures, including the non-operating joint venture, and they are consolidated within the Steel Processing operating segment. When we own controlling interests in a joint venture, the equity owned by the other joint venture member(s) is shown as noncontrolling interests in our consolidated balance sheets, and other joint venture members’ portions of 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 hold noncontrolling investments in the remaining four of our joint ventures and they are accounted for using the equity method.Contents

Recent Business Developments

•
On June 2, 2022,July 28, 2023, we redeemed the 2026 Notes, which resulted in a non-cash loss of approximately $1.5 million related primarily to unamortized issuance costs and the remaining loss associated with an interest rate swap deferred in AOCI at redemption. See “Note I – Debt and Receivables Securitization” for additional information.
•
On December 6, 2023, we used the proceeds received from Worthington Steel in connection with the Separation to pay off in full the 2024 Notes. The payoff amount consisted of $150.0 million in principal plus accrued interest of $0.5 million. See “Note I – Debt and Receivables Securitization” for additional information.
•
On February 1, 2024, we acquired Level5, a leading provider of drywall tools and related accessories.an 80% ownership stake in Halo, an asset-light business with technology-enabled solutions in the outdoor cooking space. The total purchase price was approximately $59.3 million, with a potential earnout based on performance through 2024.$9.4 million. Refer to “Note P – Acquisitions” for additional information.
•
On August 3, 2022, we sold our 50% noncontrolling equity interest in ArtiFlex to the unaffiliated joint venture member for net proceeds of approximately $41.8 million, after adjustments for closing debt and final net working capital. Approximately $6.0 million of the total cash proceeds were attributed to real property in Wooster, Ohio, with a net book value of $6.3 million. 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 recognized a pre-tax loss of $16.1 million in equity income related to the sale, including a loss of $0.3 million for the settlement of final transaction costs related to the sale during the three months ended February 28, 2023.
•
On September 29, 2022, we announced that the Board approved a plan to pursue the Separation of our Steel Processing business which we expect to complete by early 2024. This plan is referred to as “Worthington 2024.” Worthington 2024 will result in two independent, publicly-traded companies that are more specialized and fit-for purpose, with enhanced prospects for growth and value creation. We plan to effect the Separation via a distribution of stock of the Steel Processing business, which is expected to be tax-free to shareholders for U.S. federal income tax purposes. Refer to “Note A – Basis of Presentation” for additional information.
•
On October 31, 2022, our consolidated joint venture, WSP, sold its remaining manufacturing facility, located in Jackson, Michigan, for net proceeds of approximately $21.3 million, resulting in a pre-tax gain of $3.9 million within Restructuring and other expense (income), net. Refer to “Note F – Restructuring and Other Expense (Income), Net” for additional information.
•
On January 5, 2023, we announced the implementation of a Board transition plan, pursuant to which John H. McConnell II was appointed as a member of the Board, effective on January 4, 2023, and John P. McConnell intends to step down in June 2023.

24

Table of Contents

•
On February 2, 2023, we announced the senior leadership teams for New Worthington and Worthington Steel which will be effective upon the completion of the planned Separation.
•
On March 22, 2023, the Board declared a quarterly dividend of $0.31 per share payable on June 29, 2023, to shareholders of record on June 15, 2023.

 

General EconomicTrends and Market ConditionsFactors Impacting our Performance

End Markets and Competition

We sell our products and services to a diverse customer base and a broad range of end markets. The breakdownThese end markets include residential construction, nonresidential construction, and repair and remodel, which drives demand in our Building Products operating segment, including WAVE and ClarkDietrich, our unconsolidated joint ventures; general consumer and outdoor recreation, which drives demand in our Consumer Products operating segment; and renewable energy, which drives demand in our Sustainable Energy Solutions operating segment. Given the broad base of products 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 the U.S. and abroad. Sales to one customer within Consumer Products represented 12.4% of consolidated net sales by end market forduring the third quarter of each of fiscal 2023 and fiscal 2022 is illustrated in the following chart:

img148288794_0.jpg 

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% 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 “Detroit Three automakers”), has a considerable impact on the activity within the Steel Processing operating segment. The majority of the net sales of one of our unconsolidated joint ventures, Serviacero Worthington, is also to the automotive market.2024.

 

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, WAVEGeneral Economic 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.Market Conditions

Substantially all of the net sales of our Consumer Products, Building Products, and Sustainable Energy Solutions operating segments and approximately 35% of the net sales of our Steel Processing operating segment are to other markets such as agricultural, appliance, consumer products, heavy-truck, industrial products, 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

Table of Contents

 

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 SG&A.

Inflation has accelerated and government deficits and debt levels remain at high levels in many major markets. Inflationary pressures have been felt across our business in the form of higher input and conversion costs as well as higher overall SG&A. 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 rising interest rates could cause a significant economic downturn and impact several end markets that we serve as well as overall 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.

 

We usealso closely monitor other publicly available macroeconomic trends that provide insight into the following information to monitor our costs and demandactivity in our major end markets:

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

February 28,

 

 

February 28,

 

 

 

2023

 

 

2022

 

 

Inc / (Dec)

 

 

2023

 

 

2022

 

 

Inc / (Dec)

 

U.S. GDP (% growth year-over-year) (1)

 

 

1.2

%

 

 

6.0

%

 

 

(4.8

%)

 

 

1.8

%

 

 

5.3

%

 

 

(3.5

%)

Hot-Rolled Steel ($ per ton) (2)

 

$

720

 

 

$

1,421

 

 

$

(701

)

 

$

814

 

 

$

1,690

 

 

$

(876

)

Detroit Three Auto Build (000's vehicles) (3)

 

 

1,614

 

 

 

1,522

 

 

 

92

 

 

 

5,086

 

 

 

4,378

 

 

 

708

 

No. America Auto Build (000's vehicles) (3)

 

 

3,448

 

 

 

3,215

 

 

 

233

 

 

 

10,789

 

 

 

9,628

 

 

 

1,161

 

Zinc ($ per pound) (4)

 

$

1.44

 

 

$

1.60

 

 

$

(0.16

)

 

$

1.45

 

 

$

1.47

 

 

$

(0.02

)

Natural Gas ($ per mcf) (5)

 

$

3.94

 

 

$

4.18

 

 

$

(0.24

)

 

$

6.19

 

 

$

4.37

 

 

$

1.82

 

On-Highway Diesel Fuel Prices ($ per gallon) (6)

 

$

4.57

 

 

$

3.80

 

 

$

0.77

 

 

$

5.05

 

 

$

3.57

 

 

$

1.48

 

(1)markets, including, but not limited to the ABI, the Dodge Momentum Index, the HMI, steel prices, retail sales, state and local government spending, interest rate environment and inflation metrics. Current macro-economic trends within our end markets are described in additional detail below.2022 figures based on revised actuals; (2)CRU Hot-Rolled Index, period average; (3)IHS Global; (4)LME Zinc, period average; (5)NYMEX Henry Hub Natural Gas, period average; (6)Energy Information Administration, period average

 

Sales to one Steel Processing customerResidential Construction: The residential construction sector has demonstrated positive year-over-year growth, with an overall increase in spending since its relative low in the automotive industry represented 12.5%spring of 2023. New housing starts and 12.3% of consolidated net saleshousing permits issued have also increased during the third quarter of fiscal 2023 and the third quarter of fiscal 2022, respectively. While our automotive business is largely driven by the production schedules of the Detroit Three automakers, our customer base is much broader and includes other domestic manufacturers and many of their suppliers. During the third quarter of fiscal 2023, vehicle productioncurrent year period. The HMI for February 2024 was up for the Detroit Three automakersfourth consecutive month and was at its highest level since August 2023, suggesting improving builder sentiment. Fixed mortgage rates remain too high for many buyers to enter the North American vehicle production was up 6% and 7%, respectively, overmarket; however, data gathered from the prior year quarter.Federal Reserve Economic Database, shows a recent decline in the 30-year fixed rate mortgage from 7.22% at November 30, 2023 to 6.94% at February 29, 2024, which may allow more buyers to enter the market.

 

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, primarilyNon-residential Construction: Non-residential construction spending has shown consistent year-over-year growth. However, the near-term outlook appears to be mixed due to reduced seasonal activitya rise in on-hold projects and delayed bids. Commercial real estate remains generally weak, with notable softness for office buildings, partially offset by strong demand for data centers and manufacturing facilities. The ABI continued to decline in February 2024. However, the building and construction industry, as well as customer plant shutdowns due to holidays, particularlydecline was the most modest easing in billings since July 2023, suggesting that the automotive industry. We do not believe backlog is a significant indicator of our business.recent slowdown may be receding.

 

Impact of Raw Material PricesRepair and Remodel:

The market price of hot-rolled steelSpending on home improvement is one ofexpected to decline in the most significant factors impacting our selling prices and operating results. The steel industrynear term, as a whole has been cyclical, andexisting home sales are at times availability and pricing can be volatilemulti-decade lows; however, the long-term outlook remains strong due to a numberthe aging housing stock, higher interest rates, and tightening 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.lending policies.

2627

Table of Contents

 

When steel prices fall, we typically

General Consumer: Consumer income and debt-to-income ratios are gradually returning to pre-pandemic levels and inflation has moderated recently. However, consumer spending on discretionary items is expected to continue to be under pressure as a higher proportion of income is spent on essential purchases and mortgage payments.

Outdoor: Participation inoutdoor recreation is beginning to normalize to pre-pandemic levels as new U.S. camping households, a measure of first time campers, has steadily declined from a high in 2020. The long-term fundamentals in the outdoor category remain strong as outdoor recreation and camping participation continue to grow despite broader economic headwinds.

Renewable Energy: The impact of unprecedented investment in renewable infrastructure will likely become more apparent over the next several years as many jurisdictions around the world have higher-priced material flowing through costmandated clean energy standards and policies. While regulation could lay the foundation for strong long-term fundamentals, the near-term outlook is mixed, especially in Europe as economies continue to be challenged by the conflict in Ukraine.

Seasonality

Historically, sales tend to be stronger in the third and fourth quarters of goods sold, while selling prices compress to what the market will bear, negatively impacting our results. On the other hand,fiscal year for our Consumer Products operating segment when our facilities perform at seasonal peaks, matching consumer demand. Sales in a rising price environment, our resultsBuilding Products operating segment are generally favorably impacted, as lower-priced material purchased in previous periods flows through cost of goods sold, while our selling prices increase at a faster pace to cover current replacement costs. Based on current price levels, we expect to have meaningful inventory holding gainsstronger in the first and fourth quarters of our fiscal year due to weather conditions, customer business cycles, and the timing of renovation and new construction projects. Sustainable Energy sales are typically at greater levels during our fiscal fourth quarter of fiscal 2023.due to customer business cycles.

 

The following table presentsFurthermore, post-pandemic market dynamics, including the average quarterly market price per tonimpact of hot-rolled steel during fiscal 2023 (first, secondpent-up demand as COVID restrictions were eased, resulted in higher-than-normal inventory levels at some of our larger retail and third quarters), fiscal 2022 and fiscal 2021:

 

 

Fiscal Year

 

(Dollars per ton)(1)

 

2023

 

 

2022

 

 

2021

 

1st Quarter

 

$

978

 

 

$

1,762

 

 

$

475

 

2nd Quarter

 

$

742

 

 

$

1,888

 

 

$

625

 

3rd Quarter

 

$

720

 

 

$

1,421

 

 

$

1,016

 

4th Quarter

 

N/A

 

 

$

1,280

 

 

$

1,358

 

Annual Avg.

 

$

813

 

 

$

1,588

 

 

$

869

 

(1)
CRU Hot-Rolled Index, period average

No matter how efficient,wholesale customers, which has temporarily impacted demand for some of 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 increasesproducts in the priceform of the steel raw material, it can have a negative impact on our margins.

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.destocking.

 

Results of Operations

Third Quarter – Fiscal 20232024 Compared to Fiscal 20222023

 

The following discussion provides a review of results for the three months ended February 29, 2024 and February 28, 2023 and 2022.2023:

 

 

Three Months Ended

 

 

February 28,

 

(In millions, except per share amounts)

2023

 

 

2022

 

 

Increase/
(Decrease)

 

Net sales

$

1,103.3

 

 

$

1,378.2

 

 

$

(274.9

)

Operating income

 

30.1

 

 

 

37.6

 

 

 

(7.5

)

Equity income

 

36.9

 

 

 

47.5

 

 

 

(10.6

)

Net earnings attributable to controlling interest

 

46.3

 

 

 

56.3

 

 

 

(10.0

)

Earnings per diluted share attributable to controlling interest

$

0.94

 

 

$

1.11

 

 

$

(0.17

)

 

 

Three Months Ended

 

 

 

February, 29

 

 

February 28,

 

 

Increase/

 

(In millions, except per common share amounts)

 

2024

 

 

2023

 

 

(Decrease)

 

Net sales

 

$

316.8

 

 

$

346.3

 

 

$

(29.5

)

Operating income

 

 

4.3

 

 

 

4.0

 

 

 

0.3

 

Equity Income

 

 

43.2

 

 

 

37.1

 

 

 

6.1

 

Net earnings from continuing operations

 

 

22.0

 

 

 

29.8

 

 

 

(7.8

)

EPS from continuing operations - diluted

 

$

0.44

 

 

$

0.60

 

 

$

(0.16

)

 

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.indicated:

 

Three Months Ended

 

 

February 28,

 

 

 

Three Months Ended

 

 

 

% of

 

 

 

% of

 

Increase/

 

 

 

February 29,

 

 

February 28,

 

 

Increase/

 

 

 

 

(In millions)

2023

 

 

Net sales

 

 

2022

 

 

Net sales

 

 

(Decrease)

 

 

 

2024

 

 

2023

 

 

(Decrease)

 

 

% Inc/(Dec)

 

Steel Processing

$

757.0

 

 

 

68.6

%

 

$

1,052.6

 

 

 

76.4

%

 

$

(295.6

)

 

Consumer Products

 

162.6

 

 

 

14.7

%

 

 

161.7

 

 

 

11.7

%

 

 

0.9

 

 

 

$

133.2

 

 

$

130.7

 

 

$

2.5

 

 

 

1.9

%

Building Products

 

151.9

 

 

 

13.8

%

 

 

132.9

 

 

 

9.6

%

 

 

19.0

 

 

 

 

148.2

 

 

 

183.8

 

 

 

(35.6

)

 

 

(19.4

%)

Sustainable Energy Solutions

 

31.8

 

 

 

2.9

%

 

 

31.0

 

 

 

2.2

%

 

 

0.8

 

 

 

 

35.4

 

 

 

31.8

 

 

 

3.6

 

 

 

11.3

%

Consolidated Net Sales

$

1,103.3

 

 

 

100.0

%

 

$

1,378.2

 

 

 

100.0

%

 

$

(274.9

)

 

 

$

316.8

 

 

$

346.3

 

 

$

(29.5

)

 

 

(8.5

%)

 

2728

Table of Contents

 

The following table provides volume (in units) by operating segment for the periods presented.presented:

 

 

Three Months Ended

 

 

February 28,

 

 

 

 

 

 

 

 

Increase/

 

 

2023

 

 

2022

 

 

(Decrease)

 

Steel Processing (Tons)

 

917,670

 

 

 

998,590

 

 

 

(80,920

)

Consumer Products (Units)

 

19,158,164

 

 

 

20,297,372

 

 

 

(1,139,208

)

Building Products (Units)

 

2,494,881

 

 

 

2,786,560

 

 

 

(291,679

)

Sustainable Energy Solutions (Units)

 

122,139

 

 

 

144,108

 

 

 

(21,969

)

 

 

Three Months Ended

 

 

 

February 29,

 

 

February 28,

 

 

Increase/

 

 

 

2024

 

 

2023

 

 

(Decrease)

 

Consumer Products

 

 

19,009,883

 

 

 

18,154,053

 

 

 

855,830

 

Building Products

 

 

3,422,475

 

 

 

3,498,992

 

 

 

(76,517

)

Sustainable Energy Solutions

 

 

142,878

 

 

 

122,139

 

 

 

20,739

 

•
Steel ProcessingConsumer Products – Net sales decreased $295.6totaled $133.2 million fromin the prior year quarter. The decrease was driven almost entirelythird quarter of fiscal 2024, up $2.5 million, or 1.9% over the third quarter of fiscal 2023 on higher volume, partially offset by lower average selling prices as steel prices declined significantly from the prior year quarter. Volume also declined during the quarter, but the decrease was isolated to toll processing sales, which were impacted by the divestiture of the operating assets of WSP and therefore was not a significant driver of the decrease in net sales. Direct volume, which results in significantly higher sales dollars, was up slightly over the prior year quarter. The mix of direct versus toll tons processed was 56% to 44% in the current quarter, compared to 51% to 49% in the prior year quarter. The shift in mix towards direct tons was driven primarily by lower tolling volume with our mill customers and the sale of WSP’s remaining manufacturing facility on October 31, 2022.prices.
•
ConsumerBuilding Products – Net sales increased 0.6%totaled $148.2 million in the third quarter of fiscal 2024, down $35.6 million, or 19.4%, or $0.9 million, overfrom the prior yearthird quarter of fiscal 2023, primarily due to higher average selling prices, partially offset by lower volume and an unfavorable changeshift in product mix.
•
Sustainable Energy Solutions – Net sales totaled $35.4 million in the third quarter of fiscal 2024, up $3.6 million, or 11.3%, over the third quarter of fiscal 2023, due to higher volume.

Gross profit

 

 

Three Months Ended

 

 

 

February 29,

 

 

% of

 

 

February 28,

 

 

% of

 

 

Increase/

 

(In millions)

 

2024

 

 

Net sales

 

 

2023

 

 

Net sales

 

 

(Decrease)

 

Gross profit

 

$

73.1

 

 

 

23.1

%

 

$

79.0

 

 

 

22.8

%

 

$

(5.9

)

•
Gross profit was $73.1 million for the third quarter of fiscal 2024, a decrease of $5.9 million compared to the third quarter of fiscal 2023, due to lower contributions at Building Products, – Net sales increased 14.3%, or $19.0down $10.2 million overon the prior year quarter. The increase was driven by a favorable change in productcombined impact of unfavorable mix and slightly lower volume, and Sustainable Energy Solutions, down $3.3 million on higher average selling prices,fixed cost absorption, partially offset by lower overall volumes.improvements within Consumer Products, up $5.4 million on higher volume.

SG&A

 

 

Three Months Ended

 

 

 

February 29,

 

 

% of

 

 

February 28,

 

 

% of

 

 

Increase/

 

(In millions)

2024

 

 

Net sales

 

 

2023

 

 

Net sales

 

 

(Decrease)

 

SG&A

 

$

65.1

 

 

 

20.5

%

 

$

71.4

 

 

 

20.6

%

 

$

(6.3

)

•
Sustainable Energy Solutions – Net sales increased $0.8SG&A was $65.1 million for the third quarter of fiscal 2024, down $6.3 million, or 2.6%8.8%, from the third quarter of fiscal 2023, driven primarily by the impact of $10.4 million of corporate costs in the prior year quarter primarily due tothat were eliminated at Separation, partially offset by higher average selling prices.healthcare and other benefit-related costs on a per employee basis.

 

Gross MarginOther operating items

 

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

 

•
Gross margin increased $0.7 million from the prior year quarter to $143.8 million, as higher direct spreads in Steel Processing and a favorable product mix in Building Products were largely offset by a $23.2 million increase in manufacturing expenses, primarily due to inflationary pressures and lower volume in the Consumer Products business.

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

 

•
SG&A increased $3.2 million over the prior year quarter due primarily to the net impact of acquisitions and divestitures, partially offset by lower profit sharing and bonus expense.

28

Table of Contents

 

Other Operating Items

Three Months Ended

 

February 28,

 

 

Three Months Ended

 

 

 

 

 

Increase/

 

 

February 29,

 

February 28,

 

 

Increase/

 

(In millions)

2023

 

 

2022

 

 

(Decrease)

 

 

2024

 

 

2023

 

 

(Decrease)

 

Impairment of long-lived assets

$

0.5

 

 

$

3.1

 

 

$

(2.6

)

 

$

-

 

 

$

0.5

 

 

$

(0.5

)

Restructuring and other expense (income), net

 

0.8

 

 

 

(0.5

)

 

 

1.3

 

Restructuring and other expense, net

 

 

0.7

 

 

 

0.8

 

 

 

(0.1

)

Separation costs

 

6.3

 

 

 

-

 

 

 

6.3

 

 

$

3.0

 

 

$

2.3

 

 

$

0.7

 

•
Impairment of long-lived assets in the current yearthird quarter of fiscal 2023 was due to changes in the intended use of certain fixed assets at our Building Products facility in Jefferson, Ohio. Impairment charges in the prior year quarter were due to the write-down of certain production equipment at our Samuel facility in Twinsburg, Ohio facility that was determined to be below fair market value. Refer to “Note E – Impairment of Long-Lived Assets” for additional information.
•
Restructuring activity during the current yearthird quarter of fiscal 2024 was the result of severance costs within Unallocated Corporate and Other. Restructuring activity during the third quarter of fiscal 2023 related primarily to a reduction in workforce at our Columbus, Ohio manufacturing facility and organizational realignment within Building Products. Restructuring activity in the prior year quarter was driven by a $0.7 million gain recognized on the sale of our Wooster, Ohio facility that was previously leased to ArtiFlex. Refer to “Note F – Restructuring and Other Expense (Income), net” for additional information.
•
Separation costs of $6.3 million reflect direct and incremental costs incurred in connection with the planned Separation including audit, advisory, and legal costs. Refer toas discussed in “Note A -– Basis of Presentation” for additional information.Presentation.”

Miscellaneous Income, net

 

Three Months Ended

 

 

February 28,

 

 

 

 

 

 

 

 

Increase/

 

(In millions)

2023

 

 

2022

 

 

(Decrease)

 

Miscellaneous income, net

$

1.3

 

 

$

0.4

 

 

$

0.9

 

Interest Expense, net

 

Three Months Ended

 

 

February 28,

 

 

 

 

 

 

 

 

Increase/

 

(In millions)

2023

 

 

2022

 

 

(Decrease)

 

Interest expense, net

$

6.0

 

 

$

8.1

 

 

$

(2.1

)

•
Interest expense was $6.0 million in the current quarter, down $2.1 million over the prior year quarter due to higher interest income earned on the Company’s cash balances, and to a lesser extent, the impact of lower average debt levels associated with short-term borrowings.

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

)

29

Table of Contents

 

Miscellaneous expense (income), net

 

 

Three Months Ended

 

 

 

February, 29

 

 

 

 

 

 

 

 

 

Increase/

 

(In millions)

 

2024

 

 

2023

 

 

(Decrease)

 

Miscellaneous expense (income), net

 

$

7.0

 

 

$

(0.2

)

 

$

7.2

 

(1)•
On August 3, 2022, we sold our 50% noncontrolling equity interestMiscellaneous expense, net was $7.0 million in ArtiFlex. Activity for the three months ended Februarythird quarter of fiscal 2024, unfavorable $7.2 million to the third quarter of fiscal 2023, primarily due to an $8.1 million pension settlement charge to annuitize, in full, the remaining projected benefit obligation of The Gerstenslager Company Bargaining Unit Employees’ Pension Plan to third-party insurance companies.

Interest expense, net

 

 

Three Months Ended

 

 

 

February 29,

 

 

February 28,

 

 

Increase/

 

(In millions)

 

2024

 

 

2023

 

 

(Decrease)

 

Interest expense, net

 

$

0.1

 

 

$

4.2

 

 

$

(4.1

)

•
Interest expense, net was nominal in the third quarter of fiscal 2024 compared to $4.2 million in the third quarter of fiscal 2023 due to lower average debt levels driven by the July 28, 2023, represents settlementredemption of final deal costs associated with the sale.2026 Notes and higher interest income, up $1.3 million. Refer to “Note I – Debt and Receivables Securitization” for additional information.

Equity Income

 

 

Three Months Ended

 

 

 

February 29,

 

 

February 28,

 

 

Increase/

 

(In millions)

 

2024

 

 

2023

 

 

(Decrease)

 

WAVE

 

$

26.0

 

 

$

18.9

 

 

$

7.1

 

ClarkDietrich

 

 

17.8

 

 

 

18.9

 

 

 

(1.1

)

ArtiFlex

 

 

-

 

 

 

(0.3

)

 

 

0.3

 

Workhorse

 

 

(0.6

)

 

 

(0.4

)

 

 

(0.2

)

   Total Equity Income

 

$

43.2

 

 

$

37.1

 

 

$

6.1

 

 

•
Equity income from unconsolidated joint ventures decreased $10.6Income increased $6.1 million fromover the prior yearthird quarter driven by lower contributions from Serviacero Worthingtonof fiscal 2023, primarily due to higher profitability at WAVE on higher volume and ClarkDietrich, down $4.9 million and $2.5 million, respectively, combined with the divestiture of ArtiFlex which contributed $1.8 million in the prior year quarter. Lower contributions from Serviacero Worthington were primarily the result of reduced spreads driven by falling steel prices. ClarkDietrich’s results have declined from historical levels as prior year results benefited from customers executing purchases in advance of rising steel prices. ClarkDietrich’s current year volumes have been impacted by reduced demand in the construction end market.gross margin improvement.

Income Taxes

 

Three Months Ended

 

Three Months Ended

 

 

 

 

Estimated

 

 

 

 

Estimated

 

 

 

 

February 28,

 

 

February 29,

 

 

Effective

 

 

February 28,

 

 

Effective

 

 

Increase/

 

(In millions)

2023

 

 

Effective Tax Rate

 

 

2022

 

 

Effective Tax Rate

 

 

Increase/
(Decrease)

 

 

2024

 

 

Tax Rate

 

 

2023

 

 

Tax Rate

 

 

(Decrease)

 

Income tax expense

$

12.1

 

 

 

22.8

%

 

$

18.7

 

 

 

23.2

%

 

$

(6.6

)

 

$

18.5

 

 

 

30.8

%

 

$

7.4

 

 

 

22.6

%

 

$

11.1

 

 

•
Income tax expense was $12.1$18.5 million in the currentthird quarter of fiscal 2024 compared to income tax expense of $18.7$7.4 million in the prior year quarter.third quarter of fiscal 2023. The decreaseincrease was primarily driven by lower pre-tax earnings. Tax$9.2 million of one-time discrete tax charges related to the Separation. Income tax expense in the currentthird quarter of fiscal 2024 reflected an estimated annual effective rate of 22.8% compared30.8% up from 22.6% in the third quarter of fiscal 2023 primarily due to 23.2% for the prior year quarter. For additional information regarding our income taxes, refer to “Note M – Income Taxes.”effect of current quarter discrete tax items.

30

Table of Contents

 

Adjusted EBITEBITDA

 

We evaluate operating performance on the basis of 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 interestfrom continuing operations (the most comparable GAAP financial measure) to the non-GAAP financial measure of adjusted EBITEBITDA for the periods presented:presented. For additional information regarding our use of non-GAAP financial measures, refer to the “Use of Non-GAAP Financial Measures and Definitions” section preceding Part I, Item 1 of this Form 10-Q.

 

 

Three Months Ended

 

 

February 28,

 

(In millions)

2023

 

 

2022

 

Net earnings attributable to controlling interest

$

46.3

 

 

$

56.3

 

Interest expense, net

 

6.0

 

 

 

8.1

 

Income tax expense

 

12.1

 

 

 

18.7

 

EBIT

$

64.4

 

 

$

83.1

 

True-up of Level5 earnout accrual (1)

 

(1.0

)

 

 

-

 

Impairment of long-lived assets (2)

 

0.5

 

 

 

2.0

 

Restructuring and other expense (income), net (3)

 

0.8

 

 

 

(0.5

)

Separation costs (4)

 

6.3

 

 

 

-

 

Loss on sale of investment in ArtiFlex (5)

 

0.3

 

 

 

-

 

Adjusted EBIT

$

71.3

 

 

$

84.6

 

 

 

Three Months Ended

 

 

 

February 29,

 

 

February 28,

 

(In millions)

 

2024

 

 

2023

 

Net earnings from continuing operations (GAAP)

 

$

22.0

 

 

$

29.8

 

Interest expense, net

 

 

0.1

 

 

 

4.2

 

Income tax expense

 

 

18.5

 

 

 

7.4

 

EBIT (subtotal)

 

 

40.6

 

 

 

41.4

 

Impairment of long-lived assets

 

 

-

 

 

 

0.5

 

Restructuring and other income, net

 

 

0.7

 

 

 

0.8

 

Separation costs

 

 

3.0

 

 

 

2.3

 

True-up of Level5 earnout accrual (1)

 

 

-

 

 

 

(1.1

)

Pension settlement charge (2)

 

 

8.1

 

 

 

 

Loss on investment in ArtiFlex (3)

 

 

-

 

 

 

0.3

 

Corporate costs eliminated at Separation (4)

 

 

-

 

 

 

10.3

 

Adjusted EBIT (subtotal)

 

 

52.4

 

 

 

54.5

 

Depreciation and amortization

 

 

11.9

 

 

 

11.9

 

Stock-based compensation

 

 

2.6

 

 

 

3.8

 

Adjusted EBITDA (non-GAAP)

 

$

66.9

 

 

$

70.2

 

 

(1)
Reflects a pre-tax benefit of $1.0 million within SG&A expense to reverse the compensation expense accrued during the first six months of fiscal 2023 for anticipated payout under the first annual earnout opportunity associated with the Level5 acquisition.

30

Table of Contents

(2)
Impairment charges are excluded because they do not occurReflects a pre-tax charge of $8.1 million from a pension lift-out transaction to transfer, in full, the ordinary courseremaining projected benefit obligation 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.The Gerstenslager Company Bargaining Unit Employees’ Pension Plan to third-party insurance companies.
(3)
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). Excludes the impact of noncontrolling interests.
(4)
Reflects direct and incremental costs incurred in connection with the anticipated Separation, including audit, advisory, and legal costs.
(5)
On August 3, 2022, we sold our 50% noncontrolling equity investment in ArtiFlex, resulting in a pre-tax loss of $16.1 million in equity incomeEquity Income related to the sale, including a loss of $0.3 million for the settlement of final transaction costs related to the sale during the three months ended February 28, 2023.
(4)
Reflects reductions in certain indirect and/or shared corporate overhead costs that were eliminated at Separation. These costs were included in continuing operations as they represent general corporate overhead that was historically allocated to Worthington Steel but did not meet the requirements to be presented as discontinued operations.

 

The following table provides a summary of adjusted EBITEBITDA by operatingreportable segment, along with the respective percentage of consolidated net sales of each, for the periods presented.

 

Three Months Ended

 

February 28,

 

 

Three Months Ended

 

 

 

 

 

 

 

Increase/

 

 

February 29,

 

 

% of

 

 

February 28,

 

 

% of

 

 

Increase/

 

(In millions)

2023

 

 

2022

 

 

(Decrease)

 

 

2024

 

 

Net sales

 

 

2023

 

 

Net sales

 

 

(Decrease)

 

Steel Processing

$

7.8

 

 

$

7.1

 

 

$

0.7

 

Consumer Products

 

17.9

 

 

 

26.7

 

 

 

(8.8

)

 

$

25.6

 

 

 

8.1

%

 

$

21.1

 

 

 

6.1

%

 

$

4.5

 

Building Products

 

51.5

 

 

 

49.6

 

 

 

1.9

 

 

 

53.1

 

 

 

16.8

%

 

 

58.1

 

 

 

16.8

%

 

 

(5.0

)

Sustainable Energy Solutions

 

(1.4

)

 

 

(2.8

)

 

 

1.4

 

 

 

(2.7

)

 

 

(0.9

%)

 

 

0.2

 

 

 

0.1

%

 

 

(2.9

)

Other

 

(4.5

)

 

 

4.0

 

 

 

(8.5

)

Total Adjusted EBIT

$

71.3

 

 

$

84.6

 

 

$

(13.3

)

Unallocated Corporate and Other

 

 

(9.1

)

 

 

(2.9

%)

 

 

(9.2

)

 

 

(2.7

%)

 

 

0.1

 

Total Adjusted EBITDA

 

$

66.9

 

 

 

21.1

%

 

$

70.2

 

 

 

20.3

%

 

$

(3.3

)

 

•
Steel Processing – Adjusted EBIT was up $0.7 million over the prior year quarter to $7.8 million due to an improvement in operating income which was largely offset by a $4.9 million decline in contribution of equity income from Serviacero Worthington due to inventory holding losses in the current quarter versus inventory holding gains in the prior year quarter. Operating income was up $8.1 million over the prior year quarter to $10.8 million. Excluding the $3.2 million of combined impairment and restructuring charges in the prior year quarter, operating income was up $4.9 million over the prior year quarter, as the favorable impact of higher spreads was partially offset by a $12.3 million increase in manufacturing costs due to increased wages, benefits and maintenance costs. Inventory holding losses, estimated to be $26.6 million in the current quarter, were comparable to the estimated inventory holding losses of $24.9 million in the prior year quarter.
•
Consumer Products – Adjusted EBITEBITDA was down $8.8$25.6 million in the currentthird quarter to $17.9of fiscal 2024, an increase of $4.5 million asover the favorable impactthird quarter of fiscal 2023, driven by higher average selling prices was more thanvolumes, partially offset by lower volumes andslightly higher input and production costs due to inflationary cost pressures. Adjusted EBIT in the prior year quarter benefitted from price increases aheadSG&A before corporate allocations.

31

Table of inflationary pressures.Contents

•
Building Products – Adjusted EBIT increased $1.9EBITDA decreased $5.0 million from the prior yearthird quarter of fiscal 2023 from $58.1 million to $51.5$53.1 million, primarily due toas unfavorable mix compressed gross profit. Higher contributions of Equity Income, driven by a favorable product mix and higher average selling prices,$7.1 million increase at WAVE, partially offset by higher input and production costs andthe impact of lower contributions of equity income. Equity income for the current quarter totaled $37.8 million, down $2.2 million from the prior year quarter, as ClarkDietrich’s results declined $2.5 million from the record levels in the prior year quarter while WAVE’s results improved slightly.gross profit.
•
Sustainable Energy Solutions – Adjusted EBITEBITDA was a loss of $1.4$2.7 million favorable by $1.4in the third quarter of fiscal 2024, unfavorable $2.9 million to the prior year quarter’s loss,third quarter of fiscal 2023, as higher average selling prices improved margins, but were partially offset by higher production costs.volumes remained too low to absorb the fixed costs in the business.

31

Table of Contents

Nine Months Year-to-Date –- Fiscal 20232024 compared to Fiscal 20222023

 

The following discussion provides a review of results for the nine months ended February 29, 2024 and February 28, 2023 and 2022.2023.

 

 

Nine Months Ended

 

 

February 28,

 

(In millions, except per share amounts)

2023

 

 

2022

 

 

Increase/
(Decrease)

 

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

)

 

 

Nine Months Ended

 

 

 

February 29,

 

 

February 28,

 

 

Increase/

 

(In millions, except per common share amounts)

 

2024

 

 

2023

 

 

(Decrease)

 

Net sales

 

$

926.9

 

 

$

1,049.7

 

 

$

(122.8

)

Operating income (loss)

 

 

(17.4

)

 

 

14.5

 

 

 

(31.9

)

Equity Income

 

 

127.3

 

 

 

102.0

 

 

 

25.3

 

Net earnings from continuing operations

 

 

66.8

 

 

 

75.6

 

 

 

(8.8

)

EPS from continuing operations - diluted

 

$

1.33

 

 

$

1.53

 

 

$

(0.20

)

 

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 represented by each, for the periods indicated.indicated:

 

Nine Months Ended

 

February 28,

 

 

Nine Months Ended

 

 

 

% of

 

 

 

% of

 

 

Increase/

 

 

February 29,

 

 

February 28,

 

 

Increase/

 

 

 

 

(In millions)

2023

 

 

Net sales

 

 

2022

 

 

Net sales

 

 

(Decrease)

 

 

2024

 

 

2023

 

 

(Decrease)

 

 

% Inc/(Dec)

 

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

 

 

$

369.9

 

 

$

406.5

 

 

$

(36.6

)

 

 

(9.0

%)

Building Products

 

443.9

 

 

 

12.0

%

 

 

368.8

 

 

 

9.9

%

 

 

75.1

 

 

 

465.4

 

 

 

542.5

 

 

 

(77.1

)

 

 

(14.2

%)

Sustainable Energy Solutions

 

100.7

 

 

 

2.8

%

 

 

89.6

 

 

 

2.4

%

 

 

11.1

 

 

 

91.6

 

 

 

100.7

 

 

 

(9.1

)

 

 

(9.0

%)

Consolidated Net Sales

$

3,687.5

 

 

 

100.0

%

 

$

3,721.9

 

 

 

100.0

%

 

$

(34.4

)

 

$

926.9

 

 

$

1,049.7

 

 

$

(122.8

)

 

 

(11.7

%)

 

The following table provides volume by operating segment for the periods presented.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

)

 

 

Nine Months Ended

 

 

 

February 29,

 

 

February 28,

 

 

Increase/

 

 

 

2024

 

 

2023

 

 

(Decrease)

 

Consumer Products

 

 

50,972,515

 

 

 

55,067,624

 

 

 

(4,095,109

)

Building Products

 

 

10,578,278

 

 

 

10,842,022

 

 

 

(263,744

)

Sustainable Energy Solutions

 

 

363,247

 

 

 

410,959

 

 

 

(47,712

)

 

•
Steel Processing – Net sales decreased $175.4 million from the prior year period, as the impact of lower average selling prices and lower tolling volumes more than offset the impact of the Tempel Steel Company (“Tempel”) acquisition. The mix of direct versus toll tons processed was 56% to 44% in the current year period, compared to 49% to 51% in the prior year period. The shift in mix towards direct tons was driven primarily by lower tolling volume with our mill customers and the sale of WSP’s remaining manufacturing facility on October 31, 2022.
•
Consumer Products – Net sales increased 12.2%totaled $369.9 million in the current year period, down $36.6 million, or 9.0%, or $54.8 million, overfrom the prior year period. The increase wasperiod, due primarily to lower volumes driven largely by higher average selling prices, and, to a lesser extent, contributions from the June 2, 2022 acquisitiondestocking at some of Level5. Excluding Level5 units shipped in the current period, overall volumes were down 5.9% asour retail customers reduced inventory levels resulting in lower customer orders.that continued into the first quarter of fiscal 2024.
•
Building Products – Net sales increased 20.4%totaled $465.4 million in the current year period, down $77.1 million, or 14.2%, or $75.1 million, overfrom the prior year period. The increase was driven primarily by higher average selling prices.period, due to an unfavorable shift in product mix, and to a lesser extent, lower volumes.
•
Sustainable Energy Solutions – Net sales increased $11.1totaled $91.6 million in the current year period, down $9.1 million, or 12.4%9.0%, overfrom the prior year period driven by higher average selling prices.on an unfavorable shift in product mix and lower volumes.

32

Table of Contents

 

Gross MarginProfit

 

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

)

 

 

Nine Months Ended

 

 

 

February 29,

 

 

% of

 

 

February 28,

 

 

% of

 

 

Increase/

 

(In millions)

 

2024

 

 

Net sales

 

 

2023

 

 

Net sales

 

 

(Decrease)

 

Gross profit

 

$

206.0

 

 

 

22.2

%

 

$

229.4

 

 

 

21.9

%

 

$

(23.4

)

 

•
Gross margin decreased $128.2profit was $206.0 million fromin the priorcurrent year period, to $418.9a decrease of $23.4 million due primarilycompared to a $134.1 million decline in contribution from Steel Processing, as declining steel prices resulted in an estimated $145.4 million unfavorable swing from prior year estimated inventory holding gains to current year estimated holding losses. Manufacturing expenses were also up $119.1 million, as inflationary pressures increased costs across all segments. The lower contribution from Steel Processing was partially offset by a $10.3 million improvement in Building Products driven primarily by higher average selling prices and a favorable product mix.

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

 

•
SG&A increased $22.4 million over the prior year period, driven primarily by the net impact of acquisitionslower overall volume and divestitures, partially offset by lower profit sharing and bonus expense.an unfavorable shift in product mix.

 

Other Operating Costs/IncomeSG&A

 

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

)

 

 

Nine Months Ended

 

 

 

February 29,

 

 

% of

 

 

February 28,

 

 

% of

 

 

Increase/

 

(In millions)

2024

 

 

Net sales

 

 

2023

 

 

Net sales

 

 

(Decrease)

 

SG&A

 

$

210.3

 

 

 

22.7

%

 

$

211.2

 

 

 

20.1

%

 

$

(0.9

)

•
SG&A was $210.3 million in the current year period, down $0.9 million, or 0.4%, from the prior year period. Excluding the impact of corporate costs in the prior year period that were eliminated post-Separation, SG&A was up $10.9 million, primarily due to higher healthcare and other benefit-related costs, and to a lesser extent, higher wages.

 

 

Nine Months Ended

 

 

 

February 29,

 

 

February 28,

 

 

Increase/

 

(In millions)

 

2024

 

 

2023

 

 

(Decrease)

 

Impairment of long-lived assets

 

$

-

 

 

$

0.5

 

 

$

(0.5

)

Restructuring and other expense (income), net

 

 

0.7

 

 

 

(0.4

)

 

 

1.1

 

Separation costs

 

$

12.5

 

 

$

3.6

 

 

$

8.9

 

 

•
Impairment of long-lived assets in the currentprior year period consisted of $0.5 million related towas driven by changes in the intended use of certain fixed assets at our Building Products facility in Jefferson, Ohio and $0.3 million related to our commitment to a plan to sell certain fixed assets at our Samuel facility in Cleveland, Ohio that were written down to fair value less cost to sell. Impairment charges in the prior year period related to the write-down of certain production equipment at our Samuel facility in Twinsburg, Ohio that was determined to be below fair market value.Ohio. Refer to “Note E – Impairment of Long-Lived Assets” for additional information.
•
Restructuring and other income, net inactivity during the current year period was driven by gains realized from the sale of long-lived assets, including a $3.9 million gain realized from the sale of WSP’s former manufacturing facility in Jackson, Michigan.related primarily to severance costs within Unallocated Corporate and Other. Restructuring activity in the prior year period was related primarily to the divestiture of WSP’s manufacturinga reduction in workforce at our Columbus, Ohio facility, in Canton, Michigan, which generatedorganizational realignment within Building Products and a pre-taxpretax gain of $12.2$1.2 million and our exit from the former Engineered Cabs facility locatedsale of real property in Stow, Ohio, which generated a pre-tax gain of $1.8 million. Refer to “Note F – Restructuring and Other Expense (Income), Net” for additional information.Tulsa Oklahoma.
•
Separation costs of $15.6 million reflect direct and incremental costs incurred in connection with the planned Separation including audit, advisory, and legal costs. Refer toas discussed in “Note A – Basis of Presentation” for additional information.Presentation.”

 

33

Table of Contents

 

Miscellaneous income (expense),expense, net

 

Nine Months Ended

 

February 28,

 

 

Nine Months Ended

 

 

 

 

 

 

Increase/

 

 

February 29,

 

February 28,

 

 

Increase/

 

(In millions)

2023

 

 

2022

 

 

(Decrease)

 

 

2024

 

 

2023

 

 

(Decrease)

 

Miscellaneous income (expense), net

$

(2.4

)

 

$

2.1

 

 

$

(4.5

)

Miscellaneous expense, net

 

$

6.0

 

 

$

4.5

 

 

$

1.5

 

 

•
Miscellaneous expense in both the current and prior year periodperiods was driven primarily by separate pension lift-out transactions completed in February 2024 and August 2022, respectively, to transfer the annuitization of a portion of the total projectedpension benefit obligation of the inactiveunder The Gerstenslager Company Bargaining Unit Employees’ Pension Plan asto third-party insurance companies. These transactions resulted in an $8.1 million pre-tax non-cash charge in the current year period and a 4.8 million pre-tax charge in the prior year period, respectively.

Loss on extinguishment of debt

 

 

Nine Months Ended

 

 

 

February 29,

 

 

February 28,

 

 

Increase/

 

(In millions)

 

2024

 

 

2023

 

 

(Decrease)

 

Loss on extinguishment of debt

 

$

1.5

 

 

$

-

 

 

$

1.5

 

•
Loss on extinguishment of debt of $1.5 million resulted from the July 28, 2023 early redemption of the purchase date2026 Notes and consisted primarily of unamortized debt issuance costs and the remaining loss deferred in AOCI associated with an interest rate swap executed prior to the issuance of the annuity contract, which resulted in a pre-tax, non-cash settlement charge of $4.8 million in the first quarter of fiscal 2023 to accelerate a portion of deferred pension cost.2026 Notes.

 

Interest Expense, net

 

Nine Months Ended

 

 

February 28,

 

 

 

 

 

 

 

 

Increase/

 

(In millions)

2023

 

 

2022

 

 

(Decrease)

 

Interest expense, net

$

22.2

 

 

$

23.2

 

 

$

(1.0

)

 

 

Nine Months Ended

 

 

 

February 29,

 

 

February 28,

 

 

Increase/

 

(In millions)

 

2024

 

 

2023

 

 

(Decrease)

 

Interest expense, net

 

$

1.6

 

 

$

15.7

 

 

$

(14.1

)

 

•
Interest expense, was $22.2net of $1.6 million in the current year period down $1.0 million fromwas favorable compared to the prior year period due to higher interest income,by $15.7 million, driven primarily by lower average debt levels as a result of the redemption of the 2024 Notes and 2026 Notes in the current fiscal year and, to a lesser extent, the impact of lower average debt levels associated with short-term borrowings.higher interest income. Refer to “Note I – Debt and Receivables Securitization” for additional information.

 

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

)

 

 

Nine Months Ended

 

 

 

February 29,

 

 

February 28,

 

 

Increase/

 

(In millions)

 

2024

 

 

2023

 

 

(Decrease)

 

WAVE

 

$

75.8

 

 

$

61.7

 

 

$

14.1

 

ClarkDietrich

 

 

48.3

 

 

 

55.1

 

 

 

(6.8

)

ArtiFlex

 

 

-

 

 

 

(13.7

)

 

 

13.7

 

Workhorse

 

 

3.3

 

 

 

(1.1

)

 

 

4.4

 

   Total Equity Income

 

$

127.4

 

 

$

102.0

 

 

$

25.4

 

 

(1)•
On August 3, 2022, we sold our 50% noncontrolling equity interest in ArtiFlex. Activity forEquity Income increased $25.4 million over the prior year period, as the nine months ended February 28, 2023 includesincluded a $16.1 million pre-tax loss related to the sale.

•
Equity income from our unconsolidated joint ventures decreased $55.1 million from the prior year period to $105.5 million due to a $16.1 million pre-tax loss related to the sale of our noncontrolling equity interest in ArtiFlex and lowerArtiFlex. Additionally, higher contributions from allWAVE were partially offset by a decline at ClarkDietrich, which was down $6.8 million from the near-record equity earnings contributed in the prior year period.

34

Table of our unconsolidated joint ventures. The lower contribution from Serviacero Worthington was primarily the result of reduced spreads driven by falling steel prices.

Contents

 

Income Taxes

 

Nine Months Ended

 

 

February 28,

 

(In millions)

2023

 

 

Effective Tax Rate

 

 

2022

 

 

Effective Tax Rate

 

 

Increase/
(Decrease)

 

Income tax expense

$

35.7

 

 

 

22.8

%

 

$

90.1

 

 

 

23.2

%

 

$

(54.4

)

 

34

Table of Contents

 

 

Nine Months Ended

 

 

 

 

 

 

Estimated

 

 

 

 

 

Estimated

 

 

 

 

 

 

February 29,

 

 

Effective

 

 

February 28,

 

 

Effective

 

 

Increase/

 

(In millions)

 

2024

 

 

Tax Rate

 

 

2023

 

 

Tax Rate

 

 

(Decrease)

 

Income tax expense

 

$

34.0

 

 

 

30.8

%

 

$

20.7

 

 

 

22.6

%

 

$

13.3

 

 

•
Income tax expense was down $54.4$34.0 million in the current year period compared to $35.7 million.income tax expense of $20.7 million in the prior year period. The decreaseincrease was primarily driven primarily by lower pre-tax earnings. Tax$9.2 million of one-time discrete tax charges related to the Separation. Income tax expense in the current year period reflected an estimated annual effective rate of 22.8% compared to 23.2% for30.8% up from 22.6% in the prior year period. For additional information regarding our income taxes, referperiod, primarily due to “Note M – Income Taxes.”the effect of current quarter discrete tax items, including those related to the Separation.

 

Adjusted EBITEBITDA

 

The following table provides a reconciliation from consolidatedof net earnings attributable to controlling interestfrom continuing operations (the most comparable GAAP financial measure) to the non-GAAP measure of adjusted EBITEBITDA for the periods presented:presented. For additional information regarding our use of non-GAAP financial measures refer to the “Use of Non-GAAP Financial Measures and Definitions” section preceding Part I, Item 1 of this Form 10-Q.

 

 

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

 

 

 

Nine Months Ended

 

 

 

February 29,

 

 

February 28,

 

(In millions)

 

2024

 

 

2023

 

Net earnings from continuing operations (GAAP)

 

$

66.8

 

 

$

75.6

 

Interest expense, net

 

 

1.6

 

 

 

15.7

 

Income tax expense

 

 

34.0

 

 

 

20.7

 

EBIT (subtotal)

 

 

102.4

 

 

 

112.0

 

Impairment of long-lived assets

 

 

-

 

 

 

0.5

 

Restructuring and other income, net

 

 

0.7

 

 

 

(0.4

)

Separation costs

 

 

12.5

 

 

 

3.6

 

Pension settlement charge (1)

 

 

8.1

 

 

 

4.8

 

Loss on sale of investment in ArtiFlex (2)

 

 

-

 

 

 

16.1

 

Loss on extinguishment of debt (3)

 

 

1.5

 

 

 

-

 

Corporate costs eliminated at Separation (4)

 

 

19.4

 

 

 

31.1

 

Gain on sale of assets in Equity Income (5)

 

 

(2.8

)

 

 

-

 

Adjusted EBIT (Subtotal)

 

 

141.8

 

 

 

167.7

 

Depreciation and amortization

 

 

36.2

 

 

 

34.2

 

Stock-based compensation

 

 

9.8

 

 

 

10.4

 

Adjusted EBITDA (non-GAAP)

 

$

187.8

 

 

$

212.3

 

(1)
ImpairmentReflects pre-tax charges are excluded because they do not occur in the ordinary course of our ongoing business operations, are inherently unpredictable in timing$8.1 million and amount, and are non-cash, so their exclusion facilitates the comparison of historical, current and forecasted financial results. Excludes the impact of the noncontrolling interests.
(2)
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). Excludes the impact of the noncontrolling interests.
(3)
Reflects direct and incremental costs incurred in connection with the anticipated Separation, including audit, advisory, and legal costs.
(4)
During the first quarter of 2023, we completed the$4.8 million from separate pension lift-out transaction completed in February 2024 and August 2022, respectively, to transfer a portion of the total projectedpension benefit obligation ofunder The Gerstenslager Company Bargaining Unit Employees'Employees’ Pension Plan to a third-party insurance company, resultingcompanies.
(2)
Reflects the loss realized in connection with the August 3, 2022 sale of our 50% noncontrolling equity investment in ArtiFlex.
(3)
Reflects a non-cash settlement charge of $4.7$1.5 million to accelerate a portionloss realized in connection with the July 28, 2023 early redemption of the overall deferred pension cost.2026 Notes.
(4)
Reflects reductions in certain corporate overhead costs that no longer exist post-Separation. These costs were included in continuing operations as they represent general corporate overhead that was historically allocated to Worthington Steel but did not meet the requirements to be presented as discontinued operations.
(5)
Reflects a $2.8 million gain associated with the divestiture of the Brazilian operations of Workhorse.

35

Table of Contents

 

The following table provides a summary of adjusted EBITEBITDA by operatingreportable segment, along with the respective percentage of consolidated net sales of each, 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

Table of Contents

•
Steel Processing – Adjusted EBIT was down $161.2 million from the prior year period to $25.5 million, due to a $151.9 million decline in operating income contribution and a $19.4 million decline in equity income contribution. Excluding impairment and restructuring activity, operating income was down $146.6 million from the prior year period driven primarily by an estimated $145.4 million unfavorable swing related to estimated inventory holding losses of $81.2 million in the current year period compared to estimated inventory holding gains of $64.2 million in the prior year period, partially offset by the favorable impact of higher spreads. Adjusted EBIT was also negatively impacted by $19.4 million in lower equity income at Serviacero Worthington from the prior year period, as lower steel prices reduced spreads.

 

 

Nine Months Ended

 

 

 

February 29,

 

 

% of

 

 

February 28,

 

 

% of

 

 

Increase/

 

(In millions)

 

2024

 

 

Net sales

 

 

2023

 

 

Net sales

 

 

(Decrease)

 

Consumer Products

 

$

52.5

 

 

 

5.7

%

 

$

67.8

 

 

 

6.5

%

 

$

(15.3

)

Building Products

 

 

158.5

 

 

 

17.1

%

 

 

157.5

 

 

 

15.0

%

 

 

1.0

 

Sustainable Energy Solutions

 

 

(6.4

)

 

 

(0.7

%)

 

 

2.9

 

 

 

0.3

%

 

 

(9.3

)

Unallocated Corporate and Other

 

 

(16.8

)

 

 

(1.8

%)

 

 

(15.9

)

 

 

(1.5

%)

 

 

(0.9

)

   Total Adjusted EBITDA

 

$

187.8

 

 

 

20.3

%

 

$

212.3

 

 

 

20.2

%

 

$

(24.5

)

•
Consumer Products – Adjusted EBITEBITDA was down $12.4$15.3 million from the prior year period to $52.4$52.5 million, as the favorable impact of higher average selling prices was more than offsetdriven by lower volumes, andpartially offset by higher input and production costs, including $2.7 million of incremental material cost related to Level5 inventory that was written-up to fair value at acquisition. Adjusted EBIT was also negatively impacted by $11.2 million of higher SG&A, primarily due to the impact of the Level5 acquisition.selling prices, as increases implemented in fiscal 2023 held steady through February 29, 2024.
•
Building Products – Adjusted EBIT decreased $7.6EBITDA was $158.5 million fromin the current year period, an increase of $1.0 million over the prior year period, to $145.4 million due to a $16.1 million decline inas higher equity income, contribution, partiallyup $7.3 million, more than offset by a $7.0 million increase in operating income. Lower equity income was due to a $11.1 million and $5.0 million decrease in equity income at ClarkDietrich and WAVE, respectively, driven primarily by lower volumes. The increase in operating income was primarilygross profit, driven by higher average selling prices and a favorablean unfavorable product mix, partially offset by higher input and production costs.mix.
•
Sustainable Energy Solutions – Adjusted EBITEBITDA was a loss of $1.7$6.4 million favorable by $2.9for the current year period, a decline of $9.3 million compared to the prior year period, driven by higher average selling prices, partially offset by higher productionas volumes remained too low to absorb the fixed costs and an unfavorable product mix.in the business.

Liquidity and Capital Resources

During the nine months ended February 28, 2023,29, 2024, we generated $396.1$244.8 million of cash from operating activities, invested $68.7$72.2 million in property, plant and equipment, and spent $56.1$29.7 million on acquisitions, which included Worthington Steel’s purchase of Voestalpine for $21.0 million. In connection with the Separation, we distributed $68.0 million to acquire Level5,Worthington Steel, net of the $150.0 million one-time special dividend received from Worthington Steel at Separation and generated net cash proceeds of $71.3 million fromfunded by the sale of assets, including $35.8 million from the sale of our 50% noncontrolling equity interest in ArtiFlex.Worthington Steel Credit Facility. Additionally, we repaid $44.4redeemed, in full, the 2024 Notes and the 2026 Notes for an aggregate of $393.9 million of short-term borrowings and paid dividends of $44.2$48.9 million on theour common shares.

The following table summarizes our consolidated cash flows for the periods presented:

 

Nine Months Ended

 

 

Nine Months Ended

 

February 28,

 

(in millions)

2023

 

 

2022

 

Net cash provided (used) by operating activities

$

396.1

 

 

$

(94.7

)

(In millions)

 

2024

 

 

2023

 

Net cash provided by operating activities

 

$

244.8

 

 

$

396.1

 

Net cash used by investing activities

 

(53.7

)

 

 

(413.2

)

 

 

(116.5

)

 

 

(53.7

)

Net cash used by financing activities

 

(109.6

)

 

 

(88.1

)

 

 

(355.9

)

 

 

(109.6

)

Increase (decrease) in cash and cash equivalents

 

232.8

 

 

 

(596.0

)

 

 

(227.6

)

 

 

232.8

 

Cash and cash equivalents at beginning of period

 

34.5

 

 

 

640.3

 

 

 

454.9

 

 

 

34.4

 

Cash and cash equivalents at end of period

$

267.3

 

 

$

44.3

 

 

$

227.3

 

 

$

267.2

 

 

We believe that the available borrowing capacity of our committed line of creditthe Credit Facility 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,thereafter. Our resources include cash and expenditures relatedcash equivalents and unused committed lines of credit. There were no borrowings outstanding under the Credit Facility at February 29, 2024, leaving up to the planned Separation.$500.0 million available for future use.

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. As the impact of such challenges on the economy and our operations is evolving, we will continue to review our discretionary spending and other variable costs as well as our liquidity needs.

 

36

Table of Contents

 

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. To facilitate our post-Separation capital structure, during the first quarter of fiscal 2024, we redeemed in full our 2026 Notes for $243.8 million followed by the early redemption of the 2024 Notes for $150.0 million on December 6, 2023, as further discussed in “Note I – Debt and Receivables Securitization.”

 

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 risearise 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$244.8 million during the nine months ended February 28, 2023,29, 2024, compared to net cash used by operating activities of $94.7$396.1 million during the nine months ended February 28, 2022.prior year period. This change was primarily due to a $466.2an $86.7 million decreaseincrease in net operating working capital (accounts receivable, inventories, and accounts payable) requirements over the prior year nine-month period mainly driven byand a decrease in dividends received from our unconsolidated affiliates, down $21.9 million from the impact ofprior year period on lower average steel prices.equity earnings.

 

Investing Activities

 

Net cash used by investing activities was $53.7$116.5 million during the nine months ended February 28, 202329, 2024, compared to $413.2$53.7 million during the prior year period. Net cash used by investing activities in the priorcurrent year period resulted primarily from cash used to acquire certain assetscapital expenditures of the Shiloh Industries’ U.S BlankLight ® business on June 8, 2021, for $104.8$72.2 million, investment in notes receivable of $14.9 million, and Tempel on December 1, 2021the acquisitions of Halo and Voestalpine for $272.5 million.cash consideration of $8.7 million and $21.0 million, respectively. Net cash used by investing activities in the currentprior year period resulted 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 million, partially offset by combined cash proceeds of $71.3 million from the sale of our 50% noncontrolling equity investment in ArtiFlex, and the sale of the remaining net assets of our former WSP Jackson, Michigan facility and other long-lived assets.

 

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$355.9 million during the nine months ended February 28, 202329, 2024, compared to $88.1$109.6 million in the prior year period. The change was primarily due to $44.4activity related to the Separation transaction including the net distribution of $68.0 million to Worthington Steel and net proceeds of net repayments of$172.2 million under Worthington Steel’s short-term borrowingscredit facilities, which were assumed by Worthington Steel. To facilitate our post-Separation capital structure, we redeemed in the current year periodfull our 2026 Notes for $243.8 million and the repurchase of 2,235,000 common shares, at a cost of $127.8our 2024 Notes for $150.0 million, as further discussed in the prior year period.“Note I - Debt and Receivables Securitization.”

 

Common shares – On March 22, 2023,20, 2024, the Board declared a quarterly dividend of $0.31$0.16 per common share payable on June 29, 2023,28, 2024, to shareholders of record at the close of business on June 15, 2023.14, 2024.

 

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, 2023, 6,065,00029, 2024, 6.1 million common shares remained available for repurchase under these two authorizations.

 

37

Table of Contents

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.

37

Table of Contents

 

Long-term debt and short-term borrowings – As of February 28, 2023,29, 2024, 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 ARthe Credit Facility at February 28, 2023,29, 2024, 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”)Act) that are designed to provide reasonable assurance that information required to be disclosed in the reports that Worthington IndustriesEnterprises 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’Enterprises’ principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

 

38

Table of Contents

Management, under the supervision of and with the participation of Worthington Industries’Enterprises’ 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, 2023)29, 2024). Based on that evaluation, Worthington Industries’Enterprises’ 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, 2023)29, 2024) 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.

3938

Table of Contents

 

PART II. OTHER INFORMATION

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,www.worthingtonenterprises.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.

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

Unregistered Sales of Equity Securities

There were no unregistered sales of equity securities of Worthington IndustriesEnterprises sold by Worthington Enterprises during the period covered by this Form 10-Q. There were no common shares repurchased by, or on behalf of, Worthington Industries or any affiliated purchaser (as defined in Rule 10b - 18(a)(3) under the Exchange Act) during the threenine months ended February 28, 2023.29, 2024 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.

 

 

 

 

 

 

 

 

Total Number of

 

 

 

 

 

 

 

 

 

 

 

 

Common Shares

 

 

 

 

 

 

 

 

 

 

 

 

Purchased as

 

 

Maximum Number of

 

 

 

Total Number

 

 

Average Price

 

 

Part of Publicly

 

 

Common Shares that

 

 

 

of Common

 

 

Paid per

 

 

Announced

 

 

May Yet Be

 

 

Shares

 

 

Common

 

 

Plans or

 

 

Purchased Under the

 

Period

 

Purchased

 

 

Share

 

 

Programs

 

 

Plans or Programs (1)

 

December 1-31, 2023

 

23,602

 

 

$

51.17

 

 

 

-

 

 

 

6,065,000

 

January 1-31, 2024

 

50

 

 

 

57.04

 

 

 

-

 

 

 

6,065,000

 

February 1-29, 2024

 

336

 

 

 

62.19

 

 

 

-

 

 

 

6,065,000

 

Total

 

 

23,988

 

 

$

65.72

 

 

 

-

 

 

 

 

(1)
The number shown represents, as of the end of each period, the maximum number of common shares that could be purchased under the publicly announced repurchase authorizations then in effect. On March 20, 2019, the Board authorized the repurchase of up to 6,600,000 common shares. On March 24, 2021, the Board authorized the repurchase of up to an additional 5,618,464 common shares, increasing the total number of common shares then authorized for repurchase to 10,000,000 (net of previously repurchased common shares). A total of 3,935,000 common shares have been repurchased since the latest authorization, leaving 6,065,000 common shares available for repurchase under these authorizations at February 29, 2024. The common shares available for repurchase under the authorizations currently in effect may be purchased 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.

39

Table of Contents

Item 3. – Defaults Upon Senior Securities

 

Not applicable.

 

Item 4. – Mine Safety Disclosures

 

Not applicable.

 

Item 5. – Other Information

 

Not applicable.During the quarter ended February 29, 2024, no director or officer (as defined under Rule 16a-1 of the Exchange Act) adopted or terminated any Rule 10b5-1 trading arrangements or any non-Rule 10b5-1 trading arrangements (in each case, as defined in Item 408(a) of Regulation S-K).

40

Table of Contents

 

Item 6. – Exhibits

 

Exhibit No.

 

Description

 

 

 

2.1

 

Equity Interest PurchaseSeparation and Distribution Agreement, dated as of October 29, 2021, byNovember 30, 2023, between Worthington Enterprises, Inc. and among Worthington Steel, of Michigan, Inc., Tempel Holdings Inc., and Tempel Steel Company (Incorporated herein by reference to Exhibit 2.012.1 to the Current Report on Form 8-K of Worthington Industries,Enterprises, Inc. dated November 1, 2021 and filed with the SEC on the same date (SEC File No. 1-8399)) †December 5, 2023)

 

 

 

3.1

 

Amended Articles of Incorporation of Worthington Industries,Enterprises, Inc., as filed with [This document represents the Ohio Secretaryarticles of State on October 13, 1998incorporation of Worthington Enterprises, Inc. in compiled form incorporating all amendments.] (Incorporated herein by reference to Exhibit 3(a)3.1 to the Quarterly Report on Form 10-Q of Worthington Industries,Enterprises, Inc. for the quarterly period ended August 31, 1998 (SEC File No. 0-4016)) PNovember 20, 2023

 

 

 

3.2

 

Code of Regulations of Worthington Industries,Enterprises, Inc. (reflecting all amendments through the date of this Quarterly Report on Form 10-Q) [This document represents the Code of Regulations of Worthington Industries,Enterprises, Inc. in compiled form incorporating all amendments.] (Incorporated herein by reference to Exhibit 3(b) to the Quarterly Report on Form 10-Q of Worthington Industries,Enterprises, Inc. for the quarterly period ended August 31, 2000 (SEC File2000)

4.1

Fourth Amended and Restated Credit Agreement, dated as of September 27, 2023, among Worthington Enterprises, Inc., as a Borrower; PNC Bank, National Association, as a Lender, the Swingline Lender, an Issuing Bank and Administrative Agent; JPMorgan Chase Bank, N.A. and Bank of America, N.A., as Lenders and Syndication Agents; U.S. Bank National Association, The Huntington National Bank, Fifth Third Bank, National Association, The Northern Trust Company, First National Bank of Pennsylvania and Goldman Sachs Bank USA, as Lenders; and Wells Fargo Bank, National Association and BMO Harris Bank, N.A., as the Departing Lenders; with Citibank, N.A. and The Huntington National Bank serving as Co-Documentation Agents; and JPMorgan Chase Bank, N.A., PNC Capital Markets LLC and BofA Securities, Inc. serving as Joint Bookrunners and Joint Lead Arrangers (Incorporated herein by reference to Exhibit 4.1 to the Current Report on Form 8-K of Worthington Enterprises, Inc. filed with the SEC on September 28, 2023)

4.2

Amendment No. 1-8399))2 to Note Purchase and Private Shelf Agreement, dated as of November 1, 2023, by and among Worthington Enterprises, Inc., Worthington Industries International S.á.r.l., Worthington Cylinders GmbH, PGIM, Inc., the Prudential Insurance Company of America, Pruco Life Insurance Company of New Jersey, Pruco Life Insurance Company and the other affiliates of Prudential who become party thereto from time to time (Incorporated herein by reference to Exhibit 4.1 to the Current Report on Form 8-K of Worthington Enterprises filed with the SEC on November 7, 2023)

4.3

Form of 2.06% Amended and Restated Series A Note Due August 23, 2031 issued on November 1, 2023, by Worthington Industries International S.á.r.l. (Incorporated herein by reference to Exhibit 4.2 to the Current Report on Form 8-K of Worthington Enterprises filed with the SEC on November 7, 2023)

4.4

Form of 2.40% Amended and Restated Series B Notes Due August 23, 2034 issued on November 1, 2023, by Worthington Cylinders GmbH (Incorporated herein by reference to Exhibit 4.3 to the Current Report on Form 8-K of Worthington Enterprises filed with the SEC on November 7, 2023)

10.1

Transition Services Agreement, dated November 30, 2023, between Worthington Enterprises, Inc. and Worthington Steel, Inc. (Incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K of Worthington Enterprises, Inc. filed with the SEC on December 5, 2023)

10.2

Tax Matters Agreement, dated November 30, 2023, between Worthington Enterprises, Inc. and Worthington Steel, Inc. (Incorporated herein by reference to Exhibit 10.2 to the Current Report on Form 8-K of Worthington Enterprises, Inc. filed with the SEC on December 5, 2023)

10.3

Employee Matters Agreement, dated November 30, 2023, between Worthington Enterprises, Inc. and Worthington Steel, Inc. (Incorporated herein by reference to Exhibit 10.3 to the Current Report on Form 8-K of Worthington Enterprises, Inc. filed with the SEC on December 5, 2023)

10.4

Trademark License Agreement, dated November 30, 2023, between Worthington Enterprises, Inc. and Worthington Steel, Inc. (Incorporated herein by reference to Exhibit 10.4 to the Current Report on Form 8-K of Worthington Enterprises, Inc. filed with the SEC on December 5, 2023

10.5

WBS License Agreement, dated November 30, 2023, between Worthington Enterprises, Inc. and Worthington Steel, Inc. (Incorporated herein by reference to Exhibit 10.5 to the Current Report on Form 8-K of Worthington Enterprises, Inc. filed with the SEC on December 5, 2023)

41

Table of Contents

Exhibit No.

Description

10.6

Steel Supply Agreement, dated November 30, 2023, between Worthington Enterprises, Inc. and Worthington Steel, Inc. (Incorporated herein by reference to Exhibit 10.6 to the Current Report on Form 8-K of Worthington Enterprises, Inc. filed with the SEC on December 5, 2023) +

 

 

 

31.1

 

Rule 13a - 14(a) / 15d - 14(a) Certifications (Principal Executive Officer) *

 

 

 

31.2

 

Rule 13a - 14(a) / 15d - 14(a) Certifications (Principal Financial Officer) *

 

 

 

32.1

 

Certifications of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**

 

 

 

32.2

 

Certifications of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**

 

 

 

101.INS

 

XBRL Instance Document – the instance document does not appear in the Interactive DateData File because its XBRL tags are embedded within the Inline XBRL document.

 

 

 

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document #

101.PRE

Inline XBRL Taxonomy Extension PresentationWith Embedded Linkbase Document #

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document #

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document #

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document #Documents.

 

 

 

104

 

Cover Page Interactive Data File – the cover page from this Quarterly Report on Form 10-Q for the quarterly period ended February 28, 2023,29, 2024, formatted in Inline XBRL (included(is included within the Exhibit 101 attachments).

 

* 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):

(i)
Consolidated Balance Sheets at February 28, 202329, 2024 and May 31, 2022;2023;
(ii)
Consolidated Statements of Earnings for the three months and nine months ended February 28, 202329, 2024 and February 28, 2022;2023;
(iii)
Consolidated Statements of Comprehensive Income for the three months and nine months ended February 28, 202329, 2024 and February 28, 2022;2023;
(iv)
Consolidated Statements of Cash Flows for the three months and nine months ended February 28, 202329, 2024 and February 28, 2022;2023; and
(v)
Condensed Notes to Consolidated Financial Statements.

4142

Table of Contents

 

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.

 

 

 

WORTHINGTON INDUSTRIES,ENTERPRISES, INC.

 

 

 

Date: April 10, 20239, 2024

By:

 /s/ Joseph B. Hayek

 

 

Joseph B. Hayek,

 

 

Vice President and Chief Financial Officer

 

 

(On behalf of the Registrant as Duly Authorized Officer and as Principal Financial Officer)

 

 

 

 

4243