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
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iii | ||||
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| Item 1. |
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Consolidated Balance Sheets – February |
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| 3 | |
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4 | ||||
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6 | ||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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26 | ||||
| Item 3. |
| 38 | |
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Item 4. |
| 38 | ||
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| Item 1. |
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39 | ||||
| Item 1A. |
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39 | ||||
| Item 2. |
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39 | ||||
| Item 3. |
| 40 | |
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Item 4. |
| 40 | ||
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Item 5. |
| 40 | ||
| Item 6. |
| 41 | |
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i
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
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:
Because they are based on beliefs, estimates and assumptions, forward-looking statements are inherently subject to risks and uncertainties that could cause actual results to differ materially from those projected. Any number of factors could affect actual results, including, without limitation, those that follow:
ii
iii
iii
iv
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
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:
1
PART I. FINANCIAL INFORMATION
Item 1. – Financial Statements
WORTHINGTON INDUSTRIES,ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
|
| (Unaudited) |
|
|
|
|
| (Unaudited) |
|
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| ||||
|
| February 28, |
| May 31, |
|
| February 29, |
| May 31, |
| ||||||
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||
Assets |
|
|
|
|
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|
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|
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Current assets: |
|
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|
|
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|
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|
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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 |
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|
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|
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and May 31, 2022, respectively |
|
| 715,899 |
|
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| 857,493 |
| ||||||||
Receivables, less allowances of $750 and $803 at February 29, 2024 and May 31, 2023, respectively |
|
| 219,389 |
|
|
| 224,863 |
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Inventories: |
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|
|
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|
|
|
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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 |
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|
| 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 |
|
| 226,859 |
|
|
| 230,851 |
| ||||||||
Other assets |
|
| 25,454 |
|
|
| 34,394 |
|
|
| 30,900 |
|
|
| 14,339 |
|
Property, plant and equipment: |
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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: |
|
|
|
|
|
|
|
|
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| ||||||
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
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
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
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 |
|
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
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
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
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
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
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 |
|
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
| 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 |
|
| 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 | ) |
|
|
|
|
|
|
|
|
|
(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
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
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
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
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
|
| 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
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
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 |
|
|
| % |
Expected volatility |
|
|
| % |
Risk-free interest rate |
|
|
| % |
Expected term (years) |
|
| 6.0 |
|
Expected volatility is based on the historical volatility of the common shares and the risk-free interest rate is based on the U.S. Treasury strip rate for the expected term of the non-qualified stock options. The expected term was developed using historical exercise experience.
Service-Based Restricted Common Shares
During the 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 |
|
|
|
2.67
%
Expected volatility
43.00
%
Risk-free interest rate
3.18
%
12
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
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 |
|
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
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 |
|
| 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 |
|
14
| 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
| 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 |
|
| Nine Months Ended February 28, 2022 |
| ||||||||||||||||||||
(in thousands) | Steel Processing |
|
| Consumer Products |
|
| Building Products |
| Sustainable Energy Solutions |
|
| Other |
|
| Consolidated |
| ||||||
Net sales | $ | 2,813,214 |
|
| $ | 450,268 |
|
| $ | 368,813 |
| $ | 89,619 |
|
| $ | - |
|
| $ | 3,721,914 |
|
Impairment of long-lived assets |
| 3,076 |
|
|
| - |
|
|
| - |
|
| - |
|
|
| - |
|
|
| 3,076 |
|
Restructuring and other expense (income), net |
| (12,199 | ) |
|
| - |
|
|
| (35 | ) |
| (143 | ) |
|
| (2,405 | ) |
|
| (14,782 | ) |
Miscellaneous income, net |
| 35 |
|
|
| 169 |
|
|
| 141 |
|
| (16 | ) |
|
| 1,734 |
|
|
| 2,063 |
|
Equity income |
| 22,864 |
|
|
| - |
|
|
| 132,865 |
|
| - |
|
|
| 4,871 |
|
|
| 160,600 |
|
Adjusted EBIT (5) |
| 186,734 |
|
|
| 64,813 |
|
|
| 153,042 |
|
| (4,561 | ) |
|
| 5,517 |
|
|
| 405,545 |
|
Total assets for each of our reportable operating segments at the dates indicated were as follows:
| February 28, |
|
| May 31, |
| ||
(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
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:
|
| 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 |
|
| Measurement |
|
| Revised |
| |||
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 |
| |
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
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 |
|
| Measurement |
|
| Final |
| |||
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
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
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
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
The following table summarizes the gain (loss) recognized in OCI and the gain (loss) reclassified from Accumulated Other Comprehensive Income (Loss) (“AOCI”)AOCI into net earnings for derivative financial instruments designated as cash flow hedges for the periods presented:
(in thousands) |
| Gain (Loss) |
|
| Location of Gain (Loss) |
| Gain (Loss) Reclassified |
| ||||||||||||
(In thousands) |
| Gain (Loss) |
|
| Location of Gain (Loss) |
| Gain (Loss) Reclassified |
| ||||||||||||
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
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
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
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 |
|
21
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 |
|
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
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
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
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:
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
Recent Business Developments
24
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:
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
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
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 |
|
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/ |
| |||
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
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 |
|
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 | ) |
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 | ) |
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 |
|
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 |
|
28
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 |
|
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 | ) |
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
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 |
|
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 | ) |
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 |
|
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/ |
|
| 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 |
|
30
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 |
|
30
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 | ) |
31
31
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/ |
| |||
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 | ) |
32
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 | ) |
Selling, General and Administrative Expense
| Nine Months Ended |
| |||||||||||||||||
| February 28, |
| |||||||||||||||||
|
|
|
| % of |
|
|
|
|
| % of |
|
| Increase/ |
| |||||
(In millions) | 2023 |
|
| Net sales |
|
| 2022 |
|
| Net sales |
|
| (Decrease) |
| |||||
Selling, general and administrative expense | $ | 317.3 |
|
|
| 8.6 | % |
| $ | 294.9 |
|
|
| 7.9 | % |
| $ | 22.4 |
|
Other Operating Costs/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 | ) |
|
| 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 |
|
33
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 |
|
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 |
|
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 | ) |
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 |
|
34
Income Taxes
| Nine Months Ended |
| |||||||||||||||||
| February 28, |
| |||||||||||||||||
(In millions) | 2023 |
|
| Effective Tax Rate |
|
| 2022 |
|
| Effective Tax Rate |
|
| Increase/ |
| |||||
Income tax expense | $ | 35.7 |
|
|
| 22.8 | % |
| $ | 90.1 |
|
|
| 23.2 | % |
| $ | (54.4 | ) |
34
|
| 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 |
|
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 |
|
35
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
|
| 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 | ) |
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
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
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
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
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
PART II. OTHER INFORMATION
Item 1. – Legal Proceedings
We are involved in various judicial and administrative proceedings, as both plaintiff and defendant, arising in the ordinary course of business. We do not believe that any such proceedings will have a material adverse effect on our business, financial position, results of operation or cash flows.
Item 1A. – Risk Factors
There are certain risks and uncertainties in our business that could cause our actual results to differ materially from those anticipated. In “PART I – Item 1A. – Risk Factors” of the 20222023 Form 10-K, as filed with the SEC on August 1, 2022,July 31, 2023, and available at www.sec.gov or at www.worthingtonindustries.com,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 |
|
|
| - |
|
|
|
|
39
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
Item 6. – Exhibits
Exhibit No. |
| Description |
|
|
|
2.1 |
| |
|
|
|
3.1 |
| |
|
|
|
3.2 |
| |
4.1 | ||
4.2 | ||
4.3 | ||
4.4 | ||
10.1 | ||
10.2 | ||
10.3 | ||
10.4 | ||
10.5 |
41
Exhibit No. | Description | |
10.6 | ||
|
|
|
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 |
| |
|
|
|
32.2 |
| |
|
|
|
101.INS |
| XBRL Instance Document – the instance document does not appear in the Interactive |
|
|
|
101.SCH |
| Inline XBRL Taxonomy Extension Schema |
|
| |
|
| |
|
| |
|
| |
|
|
|
104 |
| Cover Page Interactive Data File – the cover page from this Quarterly Report on Form 10-Q for the quarterly period ended February |
* 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):
4142
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 |
|
|
|
Date: April | 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