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,November 30, 2019
or
| ☐ | TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to ___________
Commission file number 001-08399
WORTHINGTON INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Ohio |
| 31-1189815 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
|
|
|
200 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 | 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 ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. On April 1,December 31, 2019, the number of Common Shares, without par value, issued and outstanding was 57,312,254.was 56,067,068.
i
Selected statements contained in this Quarterly Report on Form 10-Q, including, without limitation, in “PART I – Item 2. – Management’s Discussion and Analysis of Financial Condition and Results of Operations,” constitute “forward-looking statements” as that term is used in the Private Securities Litigation Reform Act of 1995 (the “Act”). Forward-looking statements reflect our current expectations, estimates or projections concerning future results or events. These statements are often identified by the use of forward-looking words or phrases such as “believe,” “expect,” “anticipate,” “may,” “could,” “intend,” “estimate,” “plan,” “foresee,” “likely,” “will,” “should” or other similar words or phrases. These forward-looking statements include, without limitation, statements relating to:
outlook, strategy or business plans;
• | outlook, strategy or business plans; |
future or expected growth, growth potential, forward momentum, performance, competitive position, sales, volumes, cash flows, earnings, margins, balance sheet strengths, debt, financial condition or other financial measures;
• | future or expected growth, growth potential, forward momentum, performance, competitive position, sales, volumes, cash flows, earnings, margins, balance sheet strengths, debt, financial condition or other financial measures; |
pricing trends for raw materials and finished goods and the impact of pricing changes;
• | pricing trends for raw materials and finished goods and the impact of pricing changes; |
the ability to improve or maintain margins;
• | the ability to improve or maintain margins; |
expected demand or demand trends for us or our markets;
• | expected demand or demand trends for us or our markets; |
additions to product lines and opportunities to participate in new markets;
• | additions to product lines and opportunities to participate in new markets; |
expected benefits from Transformation and innovation efforts;
• | expected benefits from Transformation and innovation efforts; |
the ability to improve performance and competitive position at our operations;
• | the ability to improve performance and competitive position at our operations; |
anticipated working capital needs, capital expenditures and asset sales;
• | anticipated working capital needs, capital expenditures and asset sales; |
anticipated improvements and efficiencies in costs, operations, sales, inventory management, sourcing and the supply chain and the results thereof;
• | anticipated improvements and efficiencies in costs, operations, sales, inventory management, sourcing and the supply chain and the results thereof; |
projected profitability potential;
• | projected profitability potential; |
the ability to make acquisitions and the projected timing, results, benefits, costs, charges and expenditures related to acquisitions, newly-created joint ventures, headcount reductions and facility dispositions, shutdowns and consolidations;
• | the ability to make acquisitions and the projected timing, results, benefits, costs, charges and expenditures related to acquisitions, joint ventures, headcount reductions and facility dispositions, shutdowns and consolidations; |
the successful sale of the WAVE international business;
• | projected capacity and the alignment of operations with demand; |
projected capacity and the alignment of operations with demand;
• | the ability to operate profitably and generate cash in down markets; |
the ability to operate profitably and generate cash in down markets;
• | the ability to capture and maintain market share and to develop or take advantage of future opportunities, customer initiatives, new businesses, new products and new markets; |
the ability to capture and maintain market share and to develop or take advantage of future opportunities, customer initiatives, new businesses, new products and new markets;
• | expectations for Company and customer inventories, jobs and orders; |
expectations for Company and customer inventories, jobs and orders;
• | expectations for the economy and markets or improvements therein; |
expectations for the economy and markets or improvements therein;
• | expectations for generating improving and sustainable earnings, earnings potential, margins or shareholder value; |
expectations for generating improving and sustainable earnings, earnings potential, margins or shareholder value;
• | effects of judicial rulings; and |
effects of judicial rulings; and
other non-historical matters.
• | other non-historical matters. |
Because they are based on beliefs, estimates and assumptions, forward-looking statements are inherently subject to risks and uncertainties that could cause actual results to differ materially from those projected. Any number of factors could affect actual results, including, without limitation, those that follow:
the effect of national, regional and global economic conditions generally and within major product markets, including a recurrent slowing economy;
the effect of conditions in national and worldwide financial markets;
the impact of tariffs, the adoption of trade restrictions affecting our products or suppliers, a United States withdrawal from or significant renegotiation of trade agreements, the occurrence of trade wars, the closing of border crossings, and other changes in trade regulations or relationships;
lower oil prices as a factor in demand for products;
product demand and pricing;
changes in product mix, product substitution and market acceptance of our products;
fluctuations in the pricing, quality or availability of raw materials (particularly steel), supplies, transportation, utilities and other items required by operations;
the outcome of adverse claims experience with respect to workers’ compensation, product recalls or product liability, casualty events or other matters;
effects of facility closures and the consolidation of operations;
the effect of financial difficulties, consolidation and other changes within the steel, automotive, construction, oil and gas, and other industries in which we participate;
failure to maintain appropriate levels of inventories;
• | the effect of national, regional and global economic conditions generally and within major product markets, including a recurrent slowing economy; |
• | the impact of tariffs, the adoption of trade restrictions affecting our products or suppliers, a United States withdrawal from or significant renegotiation of trade agreements, the occurrence of trade wars, the closing of border crossings, and other changes in trade regulations or relationships; |
• | lower oil prices as a factor in demand for products; |
• | product demand and pricing; |
• | changes in product mix, product substitution and market acceptance of our products; |
• | fluctuations in the pricing, quality or availability of raw materials (particularly steel), supplies, transportation, utilities and other items required by operations; |
• | the outcome of adverse claims experience with respect to workers’ compensation, product recalls or product liability, casualty events or other matters; |
• | effects of facility closures and the consolidation of operations; |
• | the effect of financial difficulties, consolidation and other changes within the steel, automotive, construction, oil and gas, and other industries in which we participate; |
• | failure to maintain appropriate levels of inventories; |
• | financial difficulties (including bankruptcy filings) of original equipment manufacturers, end-users and customers, suppliers, joint venture partners and others with whom we do business; |
ii
the ability to realize targeted expense reductions from headcount reductions, facility closures and other cost reduction efforts;
• | the ability to realize targeted expense reductions from headcount reductions, facility closures and other cost reduction efforts; |
the ability to realize cost savings and operational, sales and sourcing improvements and efficiencies, and other expected benefits from Transformation initiatives, on a timely basis;
• | the ability to realize cost savings and operational, sales and sourcing improvements and efficiencies, and other expected benefits from Transformation initiatives, on a timely basis; |
the overall success of, and the ability to integrate, newly-acquired businesses and joint ventures, maintain and develop their customers, and achieve synergies and other expected benefits and cost savings therefrom;
• | the overall success of, and the ability to integrate, newly-acquired businesses and joint ventures, maintain and develop their customers, and achieve synergies and other expected benefits and cost savings therefrom; |
capacity levels and efficiencies, within facilities, within major product markets and within the industries as a whole;
• | capacity levels and efficiencies, within facilities, within major product markets and within the industries in which we participate as a whole; |
the effect of disruption in the business of suppliers, customers, facilities and shipping operations due to adverse weather, casualty events, equipment breakdowns, interruption in utility services, civil unrest, international conflicts, terrorist activities or other causes;
• | the effect of disruption in the business of suppliers, customers, facilities and shipping operations due to adverse weather, casualty events, equipment breakdowns, interruption in utility services, civil unrest, international conflicts, terrorist activities or other causes; |
changes in customer demand, inventories, spending patterns, product choices, and supplier choices;
• | changes in customer demand, inventories, spending patterns, product choices, and supplier choices; |
risks associated with doing business internationally, including economic, political and social instability, foreign currency exchange rate exposure and the acceptance of our products in global markets;
• | risks associated with doing business internationally, including economic, political and social instability, foreign currency exchange rate exposure and the acceptance of our products in global markets; |
the ability to improve and maintain processes and business practices to keep pace with the economic, competitive and technological environment;
• | the ability to improve and maintain processes and business practices to keep pace with the economic, competitive and technological environment; |
deviation of actual results from estimates and/or assumptions used by the Company in the application of its significant accounting policies;
• | deviation of actual results from estimates and/or assumptions used by the Company in the application of our significant accounting policies; |
level of imports and import prices in our markets;
• | the level of imports and import prices in our markets; |
the impact of judicial rulings and governmental regulations, both in the United States and abroad, including those adopted by the United States Securities and Exchange Commission and other governmental agencies as contemplated by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010;
• | the impact of judicial rulings and governmental regulations, both in the United States and abroad, including those adopted by the United States Securities and Exchange Commission and other governmental agencies as contemplated by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010; |
the effect of healthcare laws in the United States and potential changes for such laws which may increase our healthcare and other costs and negatively impact our operations and financial results;
• | the effect of healthcare laws in the United States and potential changes for such laws which may increase our healthcare and other costs and negatively impact our operations and financial results; |
cyber security risks;
• | cyber security risks; |
the effects of privacy and information security laws and standards; and
• | the effects of privacy and information security laws and standards; and |
other risks described from time to time in the filings of Worthington Industries, Inc. with the United States Securities and Exchange Commission, including those described in “PART I – Item 1A. — Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended May 31, 2018 and in “PART II – Item 1A. – Risk Factors” of this Quarterly Report on Form 10-Q.
• | other risks described from time to time in the filings of Worthington Industries, Inc. with the United States Securities and Exchange Commission, including those described in “PART I – Item 1A. — Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended May 31, 2019 and in “PART II – Item 1A. – Risk Factors” of this Quarterly Report on Form 10-Q. |
We note these factors for investors as contemplated by the Act. It is impossible to predict or identify all potential risk factors. Consequently, you should not consider the foregoing list to be a complete set of all potential risks and uncertainties. Any forward-looking statements in this Quarterly Report on Form 10-Q are based on current information as of the date of this Quarterly Report on Form 10-Q, and we assume no obligation to correct or update any such statements in the future, except as required by applicable law.
iii
PART I. FINANCIALFINANCIAL INFORMATION
Item 1. – Financial Statements
WORTHINGTON INDUSTRIES, INC.
(In thousands)
(Unaudited)
| February 28, |
|
| May 31, |
| November 30, |
|
| May 31, |
| ||||
| 2019 |
|
| 2018 |
| 2019 |
|
| 2019 |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents | $ | 113,116 |
|
| $ | 121,967 |
| $ | 72,260 |
|
| $ | 92,363 |
|
Receivables, less allowances of $859 and $632 at February 28, 2019 |
|
|
|
|
|
|
| |||||||
and May 31, 2018, respectively |
| 512,739 |
|
|
| 572,689 |
| |||||||
Receivables, less allowances of $1,407 and $1,150 at November 30, 2019 |
|
|
|
|
|
|
| |||||||
and May 31, 2019, respectively |
| 477,228 |
|
|
| 501,944 |
| |||||||
Inventories: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw materials |
| 269,733 |
|
|
| 237,471 |
|
| 190,310 |
|
|
| 268,607 |
|
Work in process |
| 110,326 |
|
|
| 122,977 |
|
| 82,400 |
|
|
| 113,848 |
|
Finished products |
| 106,015 |
|
|
| 93,579 |
|
| 107,077 |
|
|
| 101,825 |
|
Total inventories |
| 486,074 |
|
|
| 454,027 |
|
| 379,787 |
|
|
| 484,280 |
|
Income taxes receivable |
| 17,534 |
|
|
| 1,650 |
|
| 12,557 |
|
|
| 10,894 |
|
Assets held for sale |
| 7,568 |
|
|
| 30,655 |
|
| 1,731 |
|
|
| 6,924 |
|
Prepaid expenses and other current assets |
| 68,082 |
|
|
| 60,134 |
|
| 67,083 |
|
|
| 69,508 |
|
Total current assets |
| 1,205,113 |
|
|
| 1,241,122 |
|
| 1,010,646 |
|
|
| 1,165,913 |
|
Investments in unconsolidated affiliates |
| 222,865 |
|
|
| 216,010 |
|
| 225,791 |
|
|
| 214,930 |
|
Operating lease assets |
| 37,864 |
|
|
| - |
| |||||||
Goodwill |
| 335,311 |
|
|
| 345,183 |
|
| 341,850 |
|
|
| 334,607 |
|
Other intangible assets, net of accumulated amortization of $86,370 and |
|
|
|
|
|
|
| |||||||
$74,922 at February 28, 2019 and May 31, 2018, respectively |
| 201,588 |
|
|
| 214,026 |
| |||||||
Other intangible assets, net of accumulated amortization of $92,889 and |
|
|
|
|
|
|
| |||||||
$87,759 at November 30, 2019 and May 31, 2019, respectively |
| 190,703 |
|
|
| 196,059 |
| |||||||
Other assets |
| 21,475 |
|
|
| 20,476 |
|
| 33,612 |
|
|
| 20,623 |
|
Property, plant and equipment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land |
| 24,018 |
|
|
| 24,229 |
|
| 23,028 |
|
|
| 23,996 |
|
Buildings and improvements |
| 309,141 |
|
|
| 300,542 |
|
| 301,713 |
|
|
| 310,112 |
|
Machinery and equipment |
| 1,050,372 |
|
|
| 1,030,720 |
|
| 1,043,314 |
|
|
| 1,049,068 |
|
Construction in progress |
| 49,314 |
|
|
| 32,282 |
|
| 58,039 |
|
|
| 49,423 |
|
Total property, plant and equipment |
| 1,432,845 |
|
|
| 1,387,773 |
|
| 1,426,094 |
|
|
| 1,432,599 |
|
Less: accumulated depreciation |
| 851,904 |
|
|
| 802,803 |
|
| 857,599 |
|
|
| 853,935 |
|
Total property, plant and equipment, net |
| 580,941 |
|
|
| 584,970 |
|
| 568,495 |
|
|
| 578,664 |
|
Total assets | $ | 2,567,293 |
|
| $ | 2,621,787 |
| $ | 2,408,961 |
|
| $ | 2,510,796 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable | $ | 424,480 |
|
| $ | 473,485 |
| $ | 330,959 |
|
| $ | 393,517 |
|
Accrued compensation, contributions to employee benefit plans and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
related taxes |
| 58,160 |
|
|
| 96,487 |
|
| 62,932 |
|
|
| 78,155 |
|
Dividends payable |
| 14,380 |
|
|
| 13,731 |
|
| 14,364 |
|
|
| 14,431 |
|
Other accrued items |
| 67,045 |
|
|
| 57,125 |
|
| 54,102 |
|
|
| 59,810 |
|
Current operating lease liabilities |
| 11,201 |
|
|
| - |
| |||||||
Income taxes payable |
| 106 |
|
|
| 4,593 |
|
| 33 |
|
|
| 1,164 |
|
Current maturities of long-term debt |
| 1,167 |
|
|
| 1,474 |
|
| 272 |
|
|
| 150,943 |
|
Total current liabilities |
| 565,338 |
|
|
| 646,895 |
|
| 473,863 |
|
|
| 698,020 |
|
Other liabilities |
| 72,396 |
|
|
| 74,237 |
|
| 72,639 |
|
|
| 69,976 |
|
Distributions in excess of investment in unconsolidated affiliate |
| 124,198 |
|
|
| 55,198 |
|
| 97,243 |
|
|
| 121,948 |
|
Long-term debt |
| 748,319 |
|
|
| 748,894 |
|
| 698,531 |
|
|
| 598,356 |
|
Noncurrent operating lease liabilities |
| 30,065 |
|
|
| - |
| |||||||
Deferred income taxes, net |
| 80,034 |
|
|
| 60,188 |
|
| 77,877 |
|
|
| 74,102 |
|
Total liabilities |
| 1,590,285 |
|
|
| 1,585,412 |
|
| 1,450,218 |
|
|
| 1,562,402 |
|
Shareholders' equity - controlling interest |
| 856,622 |
|
|
| 918,769 |
|
| 835,891 |
|
|
| 831,246 |
|
Noncontrolling interests |
| 120,386 |
|
|
| 117,606 |
|
| 122,852 |
|
|
| 117,148 |
|
Total equity |
| 977,008 |
|
|
| 1,036,375 |
|
| 958,743 |
|
|
| 948,394 |
|
Total liabilities and equity | $ | 2,567,293 |
|
| $ | 2,621,787 |
| $ | 2,408,961 |
|
| $ | 2,510,796 |
|
See notes to consolidated financial statements.
1
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
(Unaudited)
| Three Months Ended February 28, |
|
| Nine Months Ended February 28, |
| Three Months Ended November 30, |
|
| Six Months Ended November 30, |
| ||||||||||||||||||||
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||||||
Net sales | $ | 874,381 |
|
| $ | 841,657 |
|
| $ | 2,820,714 |
|
| $ | 2,561,160 |
| $ | 827,637 |
|
| $ | 958,226 |
|
| $ | 1,683,496 |
|
| $ | 1,946,333 |
|
Cost of goods sold |
| 784,360 |
|
|
| 714,603 |
|
|
| 2,466,762 |
|
|
| 2,161,249 |
|
| 707,026 |
|
|
| 837,292 |
|
|
| 1,445,594 |
|
|
| 1,682,402 |
|
Gross margin |
| 90,021 |
|
|
| 127,054 |
|
|
| 353,952 |
|
|
| 399,911 |
|
| 120,611 |
|
|
| 120,934 |
|
|
| 237,902 |
|
|
| 263,931 |
|
Selling, general and administrative expense |
| 75,220 |
|
|
| 84,294 |
|
|
| 250,529 |
|
|
| 261,968 |
|
| 88,543 |
|
|
| 84,668 |
|
|
| 179,366 |
|
|
| 175,309 |
|
Impairment of goodwill and long-lived assets |
| - |
|
|
| - |
|
|
| 2,381 |
|
|
| 8,289 |
| |||||||||||||||
Restructuring and other income, net |
| (11,176 | ) |
|
| (3 | ) |
|
| (11,710 | ) |
|
| (7,393 | ) | |||||||||||||||
Impairment of long-lived assets |
| - |
|
|
| - |
|
|
| 40,601 |
|
|
| 2,381 |
| |||||||||||||||
Restructuring and other expense (income), net |
| (50 | ) |
|
| 402 |
|
|
| 405 |
|
|
| (534 | ) | |||||||||||||||
Operating income |
| 25,977 |
|
|
| 42,763 |
|
|
| 112,752 |
|
|
| 137,047 |
|
| 32,118 |
|
|
| 35,864 |
|
|
| 17,530 |
|
|
| 86,775 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Miscellaneous income, net |
| 525 |
|
|
| 1,500 |
|
|
| 2,222 |
|
|
| 3,169 |
|
| 636 |
|
|
| 1,432 |
|
|
| 1,331 |
|
|
| 1,697 |
|
Interest expense |
| (9,341 | ) |
|
| (9,775 | ) |
|
| (28,541 | ) |
|
| (28,620 | ) |
| (7,315 | ) |
|
| (9,472 | ) |
|
| (16,795 | ) |
|
| (19,200 | ) |
Loss on extinguishment of debt |
| - |
|
|
| - |
|
|
| (4,034 | ) |
|
| - |
| |||||||||||||||
Equity in net income of unconsolidated affiliates |
| 20,802 |
|
|
| 19,770 |
|
|
| 71,897 |
|
|
| 63,521 |
|
| 47,346 |
|
|
| 21,087 |
|
|
| 72,113 |
|
|
| 51,095 |
|
Earnings before income taxes |
| 37,963 |
|
|
| 54,258 |
|
|
| 158,330 |
|
|
| 175,117 |
|
| 72,785 |
|
|
| 48,911 |
|
|
| 70,145 |
|
|
| 120,367 |
|
Income tax expense (benefit) |
| 8,415 |
|
|
| (24,039 | ) |
|
| 34,032 |
|
|
| 7,124 |
| |||||||||||||||
Income tax expense |
| 15,863 |
|
|
| 11,119 |
|
|
| 15,678 |
|
|
| 25,617 |
| |||||||||||||||
Net earnings |
| 29,548 |
|
|
| 78,297 |
|
|
| 124,298 |
|
|
| 167,993 |
|
| 56,922 |
|
|
| 37,792 |
|
|
| 54,467 |
|
|
| 94,750 |
|
Net earnings (loss) attributable to noncontrolling interests |
| 2,775 |
|
|
| (791 | ) |
|
| 8,581 |
|
|
| 3,968 |
| |||||||||||||||
Net earnings attributable to noncontrolling interests |
| 4,836 |
|
|
| 3,790 |
|
|
| 7,157 |
|
|
| 5,806 |
| |||||||||||||||
Net earnings attributable to controlling interest | $ | 26,773 |
|
| $ | 79,088 |
|
| $ | 115,717 |
|
| $ | 164,025 |
| $ | 52,086 |
|
| $ | 34,002 |
|
| $ | 47,310 |
|
| $ | 88,944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding |
| 56,478 |
|
|
| 60,383 |
|
|
| 57,650 |
|
|
| 61,451 |
|
| 55,059 |
|
|
| 57,716 |
|
|
| 55,150 |
|
|
| 58,226 |
|
Earnings per share attributable to controlling interest | $ | 0.47 |
|
| $ | 1.31 |
|
| $ | 2.01 |
|
| $ | 2.67 |
| $ | 0.95 |
|
| $ | 0.59 |
|
| $ | 0.86 |
|
| $ | 1.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding |
| 57,974 |
|
|
| 62,345 |
|
|
| 59,389 |
|
|
| 63,507 |
|
| 56,072 |
|
|
| 59,338 |
|
|
| 56,205 |
|
|
| 60,013 |
|
Earnings per share attributable to controlling interest | $ | 0.46 |
|
| $ | 1.27 |
|
| $ | 1.95 |
|
| $ | 2.58 |
| $ | 0.93 |
|
| $ | 0.57 |
|
| $ | 0.84 |
|
| $ | 1.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding at end of period |
| 56,181 |
|
|
| 59,802 |
|
|
| 56,181 |
|
|
| 59,802 |
|
| 55,094 |
|
|
| 56,957 |
|
|
| 55,094 |
|
|
| 56,957 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per share | $ | 0.23 |
|
| $ | 0.21 |
|
| $ | 0.69 |
|
| $ | 0.63 |
| $ | 0.24 |
|
| $ | 0.23 |
|
| $ | 0.48 |
|
| $ | 0.46 |
|
See notes to consolidated financial statements.
2
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
| Three Months Ended February 28, |
|
| Nine Months Ended February 28, |
| Three Months Ended November 30, |
|
| Six Months Ended November 30, |
| ||||||||||||||||||||
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||||||
Net earnings | $ | 29,548 |
|
| $ | 78,297 |
|
| $ | 124,298 |
|
| $ | 167,993 |
| $ | 56,922 |
|
| $ | 37,792 |
|
| $ | 54,467 |
|
| $ | 94,750 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation |
| 1,476 |
|
|
| 9,542 |
|
|
| (8,857 | ) |
|
| 26,925 |
|
| 6,662 |
|
|
| (6,638 | ) |
|
| 11,444 |
|
|
| (10,333 | ) |
Pension liability adjustment, net of tax |
| 37 |
|
|
| 251 |
|
|
| (60 | ) |
|
| 245 |
|
| 95 |
|
|
| - |
|
|
| 1,108 |
|
|
| (97 | ) |
Cash flow hedges, net of tax |
| (596 | ) |
|
| (556 | ) |
|
| (7,228 | ) |
|
| (879 | ) |
| 3,213 |
|
|
| (4,662 | ) |
|
| 574 |
|
|
| (6,632 | ) |
Other comprehensive income (loss) |
| 917 |
|
|
| 9,237 |
|
|
| (16,145 | ) |
|
| 26,291 |
|
| 9,970 |
|
|
| (11,300 | ) |
|
| 13,126 |
|
|
| (17,062 | ) |
Comprehensive income |
| 30,465 |
|
|
| 87,534 |
|
|
| 108,153 |
|
|
| 194,284 |
|
| 66,892 |
|
|
| 26,492 |
|
|
| 67,593 |
|
|
| 77,688 |
|
Comprehensive income (loss) attributable to noncontrolling interests |
| 2,803 |
|
|
| (680 | ) |
|
| 8,537 |
|
|
| 4,438 |
| |||||||||||||||
Comprehensive income attributable to noncontrolling interests |
| 4,836 |
|
|
| 3,735 |
|
|
| 7,157 |
|
|
| 5,734 |
| |||||||||||||||
Comprehensive income attributable to controlling interest | $ | 27,662 |
|
| $ | 88,214 |
|
| $ | 99,616 |
|
| $ | 189,846 |
| $ | 62,056 |
|
| $ | 22,757 |
|
| $ | 60,436 |
|
| $ | 71,954 |
|
See notes to consolidated financial statements.
3
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Three Months Ended February 28, |
|
| Nine Months Ended February 28, |
| Three Months Ended November 30, |
|
| Six Months Ended November 30, |
| ||||||||||||||||||||
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||||||
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings | $ | 29,548 |
|
| $ | 78,297 |
|
| $ | 124,298 |
|
| $ | 167,993 |
| $ | 56,922 |
|
| $ | 37,792 |
|
| $ | 54,467 |
|
| $ | 94,750 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
| 23,625 |
|
|
| 25,338 |
|
|
| 71,643 |
|
|
| 76,986 |
|
| 22,596 |
|
|
| 23,525 |
|
|
| 46,773 |
|
|
| 48,018 |
|
Impairment of goodwill and long-lived assets |
| - |
|
|
| - |
|
|
| 2,381 |
|
|
| 8,289 |
| |||||||||||||||
Provision for (benefit from) deferred income taxes |
| (730 | ) |
|
| (27,373 | ) |
|
| 21,493 |
|
|
| (20,022 | ) | |||||||||||||||
Bad debt (income) expense |
| 201 |
|
|
| 17 |
|
|
| 454 |
|
|
| (4 | ) | |||||||||||||||
Impairment of long-lived assets |
| - |
|
|
| - |
|
|
| 40,601 |
|
|
| 2,381 |
| |||||||||||||||
Provision for deferred income taxes |
| 6,843 |
|
|
| 3,289 |
|
|
| 3,345 |
|
|
| 22,223 |
| |||||||||||||||
Bad debt expense |
| 143 |
|
|
| 32 |
|
|
| 311 |
|
|
| 253 |
| |||||||||||||||
Equity in net income of unconsolidated affiliates, net of distributions |
| (865 | ) |
|
| 2,835 |
|
|
| 3,298 |
|
|
| (1,968 | ) |
| (19,879 | ) |
|
| 14,182 |
|
|
| (14,797 | ) |
|
| 4,163 |
|
Net gain on assets |
| (12,606 | ) |
|
| (1,437 | ) |
|
| (10,203 | ) |
|
| (10,692 | ) | |||||||||||||||
Net (gain) loss on sale of assets |
| (17 | ) |
|
| (312 | ) |
|
| 601 |
|
|
| 2,403 |
| |||||||||||||||
Stock-based compensation |
| 1,143 |
|
|
| 2,882 |
|
|
| 7,755 |
|
|
| 10,076 |
|
| 3,280 |
|
|
| 3,456 |
|
|
| 7,275 |
|
|
| 6,612 |
|
Loss on extinguishment of debt |
| - |
|
|
| - |
|
|
| 4,034 |
|
|
| - |
| |||||||||||||||
Changes in assets and liabilities, net of impact of acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables |
| 1,546 |
|
|
| 4,071 |
|
|
| 55,793 |
|
|
| 20,652 |
|
| (5,456 | ) |
|
| 40,838 |
|
|
| 9,525 |
|
|
| 54,247 |
|
Inventories |
| (1,054 | ) |
|
| (15,398 | ) |
|
| (38,525 | ) |
|
| (40,223 | ) |
| 43,601 |
|
|
| 5,866 |
|
|
| 87,883 |
|
|
| (37,471 | ) |
Prepaid expenses and other current assets |
| (4,276 | ) |
|
| (4,914 | ) |
|
| (25,944 | ) |
|
| (149 | ) | |||||||||||||||
Other assets |
| 79 |
|
|
| (2,069 | ) |
|
| (1,181 | ) |
|
| (3,045 | ) | |||||||||||||||
Accounts payable and accrued expenses |
| 14,963 |
|
|
| 35,564 |
|
|
| (85,533 | ) |
|
| (12,804 | ) | |||||||||||||||
Other liabilities |
| 464 |
|
|
| 2,107 |
|
|
| 1,458 |
|
|
| 7,568 |
| |||||||||||||||
Accounts payable |
| (20,743 | ) |
|
| (72,974 | ) |
|
| (57,977 | ) |
|
| (70,160 | ) | |||||||||||||||
Accrued compensation and employee benefits |
| 9,619 |
|
|
| 3,556 |
|
|
| (13,596 | ) |
|
| (27,378 | ) | |||||||||||||||
Other operating items, net |
| 7,251 |
|
|
| (14,546 | ) |
|
| 84 |
|
|
| (24,892 | ) | |||||||||||||||
Net cash provided by operating activities |
| 52,038 |
|
|
| 99,920 |
|
|
| 127,187 |
|
|
| 202,657 |
|
| 104,160 |
|
|
| 44,704 |
|
|
| 168,529 |
|
|
| 75,149 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in property, plant and equipment |
| (19,379 | ) |
|
| (13,628 | ) |
|
| (60,554 | ) |
|
| (55,319 | ) |
| (28,381 | ) |
|
| (21,741 | ) |
|
| (50,555 | ) |
|
| (41,175 | ) |
Acquisitions, net of cash acquired |
| - |
|
|
| - |
|
|
| - |
|
|
| (285,028 | ) | |||||||||||||||
Acquisitions |
| (29,283 | ) |
|
| - |
|
|
| (29,283 | ) |
|
| - |
| |||||||||||||||
Distributions from unconsolidated affiliate |
| 1,492 |
|
|
| - |
|
|
| 56,693 |
|
|
| - |
|
| - |
|
|
| 55,201 |
|
|
| - |
|
|
| 55,201 |
|
Proceeds from sale of assets |
| 27,843 |
|
|
| 3 |
|
|
| 48,290 |
|
|
| 16,742 |
|
| 23 |
|
|
| 170 |
|
|
| 9,199 |
|
|
| 20,447 |
|
Net cash provided (used) by investing activities |
| 9,956 |
|
|
| (13,625 | ) |
|
| 44,429 |
|
|
| (323,605 | ) |
| (57,641 | ) |
|
| 33,630 |
|
|
| (70,639 | ) |
|
| 34,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net repayments of short-term borrowings, net of issuance costs |
| - |
|
|
| (1,108 | ) |
|
| - |
|
|
| (508 | ) | |||||||||||||||
Proceeds from long-term debt, net of issuance costs |
| - |
|
|
| - |
|
|
| - |
|
|
| 197,685 |
|
| (134 | ) |
|
| - |
|
|
| 101,464 |
|
|
| - |
|
Principal payments on long-term debt |
| (303 | ) |
|
| (374 | ) |
|
| (1,104 | ) |
|
| (813 | ) | |||||||||||||||
Proceeds from issuance of common shares, net of tax withholdings |
| 104 |
|
|
| 581 |
|
|
| (4,645 | ) |
|
| (3,415 | ) | |||||||||||||||
Principal payments on long-term obligations and debt redemption costs |
| (490 | ) |
|
| (371 | ) |
|
| (154,467 | ) |
|
| (801 | ) | |||||||||||||||
Payments for issuance of common shares, net of tax withholdings |
| (3,811 | ) |
|
| (658 | ) |
|
| (7,024 | ) |
|
| (4,749 | ) | |||||||||||||||
Payments to noncontrolling interests |
| - |
|
|
| - |
|
|
| (6,327 | ) |
|
| (3,916 | ) |
| (1,453 | ) |
|
| (4,007 | ) |
|
| (1,453 | ) |
|
| (6,327 | ) |
Repurchase of common shares |
| (28,587 | ) |
|
| (47,418 | ) |
|
| (129,020 | ) |
|
| (159,942 | ) |
| - |
|
|
| (63,581 | ) |
|
| (29,599 | ) |
|
| (100,433 | ) |
Dividends paid |
| (13,119 | ) |
|
| (12,766 | ) |
|
| (39,371 | ) |
|
| (38,800 | ) |
| (13,954 | ) |
|
| (13,533 | ) |
|
| (26,914 | ) |
|
| (26,252 | ) |
Net cash used by financing activities |
| (41,905 | ) |
|
| (61,085 | ) |
|
| (180,467 | ) |
|
| (9,709 | ) |
| (19,842 | ) |
|
| (82,150 | ) |
|
| (117,993 | ) |
|
| (138,562 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
| 20,089 |
|
|
| 25,210 |
|
|
| (8,851 | ) |
|
| (130,657 | ) |
| 26,677 |
|
|
| (3,816 | ) |
|
| (20,103 | ) |
|
| (28,940 | ) |
Cash and cash equivalents at beginning of period |
| 93,027 |
|
|
| 122,214 |
|
|
| 121,967 |
|
|
| 278,081 |
|
| 45,583 |
|
|
| 96,843 |
|
|
| 92,363 |
|
|
| 121,967 |
|
Cash and cash equivalents at end of period | $ | 113,116 |
|
| $ | 147,424 |
|
| $ | 113,116 |
|
| $ | 147,424 |
| $ | 72,260 |
|
| $ | 93,027 |
|
| $ | 72,260 |
|
| $ | 93,027 |
|
See notes to consolidated financial statements.
4
Notes to Consolidated Financial Statements
(Unaudited)
NOTE A – Basis of Presentation
The unaudited consolidated financial statements include the accounts of Worthington Industries, Inc. and consolidated subsidiaries (collectively, “we,” “our,” “Worthington,” or the “Company”). Investments in unconsolidated affiliates are accounted for using the equity method. Significant intercompany accounts and transactions are eliminated.
The Company owns controlling interests in the following three joint ventures: Spartan Steel Coating, LLC (“Spartan”) (52%), TWB Company, L.L.C. (“TWB”) (55%), and Worthington Specialty Processing (“WSP”) (51%). These joint ventures are consolidated with the equity owned by the other joint venture members shown as noncontrolling interests in our consolidated balance sheets, and their portions of net earnings and other comprehensive income (“OCI”) shown as net earnings or comprehensive income (loss) attributable to noncontrolling interests in our consolidated statements of earnings and consolidated statements of comprehensive income, respectively.
These unaudited consolidated financial statementsThey have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the United States Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements.
At November 30, 2019, the Company owned controlling interests in the following 3 joint ventures: Spartan Steel Coating, LLC (“Spartan”) (52%), TWB Company, L.L.C. (“TWB”) (55%), and Worthington Specialty Processing (“WSP”) (51%). These joint ventures are consolidated in the Company’s financial statement, and the equity owned by the other joint venture members shown as noncontrolling interests in our consolidated balance sheets, and their portions of net earnings and other comprehensive income (“OCI”) shown as net earnings or comprehensive income attributable to noncontrolling interests in our consolidated statements of earnings and consolidated statements of comprehensive income, respectively. Investments in unconsolidated affiliates are accounted for using the equity method. See further discussion on unconsolidated affiliates in “NOTE C – Investments in Unconsolidated Affiliates”.
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. In the opinion of management, all adjustments, which are of a normal and recurring nature except those which have been disclosed elsewhere in this Quarterly Report on Form 10-Q, necessary for a fair presentation of the consolidated financial statements for these interim periods, have been included and significant intercompany accounts and transactions have been eliminated.
Operating results for the three and ninesix months ended February 28,November 30, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending May 31, 20192020 (“fiscal 2019”2020”). For further information, refer to the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the fiscal year ended May 31, 20182019 (“fiscal 2018”2019”) of Worthington Industries, Inc. (the “2018“2019 Form 10-K”).
Deconsolidation of Engineered Cabs: On November 1, 2019, we reached an agreement with an affiliate of Angeles Equity Partners, LLCto contribute substantially all of the net assets of the Company’s Engineered Cabs business to a newly-formed joint venture, Taxi Workhorse Holdings, LLC (the “Cabs joint venture”), in which the Company retained a 20% noncontrolling interest. Immediately following the contribution, the Cabs joint venture acquired the net assets of Crenlo Cab Products, LLC (“Crenlo”), to better position the combined business to drive growth and generate value. The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reportedinvestment in the Cabs joint venture is accounted for under the equity method, due to lack of control as more fully described in “NOTE C – Investments in Unconsolidated Affiliates”.
The Company’s contribution to the Cabs joint venture consisted of the net assets of its two primary manufacturing facilities located in Greeneville, Tennessee and Watertown, South Dakota. In anticipation of the transaction for substantially all the net assets of the Engineered Cabs business, an impairment charge of $35,194,000 was recognized when the disposal group met the criteria as assets held for sale as of August 31, 2019. Certain non-core assets of the Engineered Cabs business, including the fabricated products facility in Stow, Ohio, and the steel packaging facility in Greensburg, Indiana, were retained. The Company is in the process of evaluating strategic alternatives for the retained assets. Refer to “NOTE E – Impairment of Long-Lived Assets” for additional information.
On November 1, 2019, the closing date, the contributed net assets were deconsolidated, resulting in a one-time net gain of $50,000 within restructuring and other expense (income), net in our consolidated financial statements and accompanying notes. Actual results could differ from those estimates.of earnings for the three months ended November 30, 2019, as summarized below.
(in thousands) |
|
|
|
Retained investment (at fair value) | $ | 13,623 |
|
Contributed net assets (at carrying value) |
| 13,394 |
|
Gain on deconsolidation |
| 229 |
|
Less: deal costs |
| (179 | ) |
Net gain on deconsolidation | $ | 50 |
|
5
In accordance with the applicable accounting guidance, our minority ownership interest in the Cabs joint venture was recorded at fair value as of the closing date. The Company’s estimate of fair value was based on a preliminary valuation of the net assets of the Cabs joint venture. For additional information regarding the fair value of our minority ownership interest in the Cabs joint venture, refer to “NOTE R – Fair Value”.
Recently Adopted Accounting Standards
On June 1, 2018,2019, the Company adopted new accounting guidance that replaces most existing revenue recognition guidance under U.S. GAAP. See “NOTE B – Revenue Recognition” for further explanation related to this adoption, including newly-required disclosures.
In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532; 34-83875, “DisclosureAccounting Standards Update and Simplification,” adopting amendments to certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded, in light of other SEC disclosure requirements, GAAP or changes in the information environment. In addition, the amendments expanded the disclosure requirements relating to the analysis of shareholders’ equity for interim financial statements. Under the amendments, an analysis of the changes in each caption of shareholders’ equity and noncontrolling interests presented in the balance sheet must be provided in a note or separate statement. The analysis must present a reconciliation of the beginning balance to the ending balance of each period for2016-02, Leases (“Topic 842”), which a statement of earnings is required to be filed. The final rule was effective on November 5, 2018. The Company adopted the final rule effective for the second quarter of fiscal 2019. The adoption of the final rule did not have a significant impact on the Company’s consolidated financial position or results of operations. See “NOTE J – Changes in Equity” for the newly-required disclosures related to this adoption.
Recently Issued Accounting Standards
In February 2016, new accounting guidance was issued that replaces most existing lease accounting guidance under U.S. GAAP. Among other changes,See “NOTE D – Leases” for additional information regarding the newCompany’s adoption of Topic 842, including newly-required disclosures.
On June 1, 2019, the Company adopted ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“Topic 815”), which amended the existing hedge accounting guidance requires that leased assetsunder U.S. GAAP. The ASU is intended to simplify and liabilities be recognized onclarify the balance sheetaccounting and disclosure requirements for hedging activities by lessees for those leases classified as operating leases under previousmore closely aligning the results of cash flow and fair value hedge accounting guidance.with the underlying risk management activities. The new accounting guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted, and the change is to be applied using a modified retrospective approach as of the beginning of the earliest period presented. In July 2018, the FASB issued additional accounting standard updates clarifying certain provisions, as well as providing for a second transition method allowing entities to initially apply the standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance sheet of retained earnings. The scoping and diagnostic phases of the implementation of this new accounting guidance have been completed. We are continuing to evaluate the components and criteria of existing leases and reviewing contracts
5
and agreements to identify items that may meet the definition of a lease under the new accounting guidance. We have procured a third-party software to track and manage our leases and are getting ready to start the process of importing lease data into the software. While we are in the process of evaluating the effect this new accounting guidance will havehad no current or historical impact on the presentation of our consolidated financial statementsposition or results of operations. See “NOTE Q – Derivative Instruments and related disclosures, the adoption is anticipated to have a material impact on the Company’s consolidated balance sheets with the addition of right-of-use assets, offset by the associated liabilities; however, we do not expect it to have a material impact on the consolidated statements of earnings.Hedging Activities” for additional information.
Recently Issued Accounting Standards
In June 2016, amended accounting guidance was issued related to the measurement of credit losses on financial instruments. The amended accounting guidance changes the impairment model for most financial assets to require measurement and recognition of expected credit losses for financial assets held. The amended accounting guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We are in the process of evaluating the effect this amended accounting guidance will have on our consolidated financial position and results of operations; however, we do not expect the amended accounting guidance to have a material impact on our ongoing financial reporting.
In August 2017, amended accounting guidance was issued that modifies hedge accounting by making more hedge strategies eligibleReclassification
Certain prior period amounts have been reclassified within the operating section of the consolidated statements of cash flows for hedge accounting, amending presentation and disclosure requirements, and changing how companies assess effectiveness. The intent is to simplify application of hedge accounting and increase transparency of information about an entity’s risk management activities. The amended accounting guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. It is to be applied using a modified retrospective transition approach for cash flow and net investment hedges existing atconsistency with the date of adoption. The presentation and disclosure guidance is only required prospectively. Early adoption is permitted. We are in the process of evaluating the effect this amended accounting guidance will have on our consolidated financial position and results of operations; however, we do not expect the amended accounting guidance to have a material impact on our ongoing financial reporting.current period presentation.
NOTE B – Revenue Recognition
Through fiscal 2018, in accordance with our historical accounting policies for revenue recognition, we recognized revenue upon transfer of title and risk of loss, or in the case of toll processing revenue, upon delivery of the goods, provided persuasive evidence of an arrangement existed, pricing was fixed or determinable and collectability was reasonably assured. Through charges toThe following tables summarize net sales provisions were madeby product class for returns & allowances, customer rebates and sales discounts based on past experience, specific agreements, and anticipated levels of customer activity.the periods presented:
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
| November 30, |
|
| November 30, |
| ||||||||||
(in thousands) | 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
Reportable segments by product class: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steel Processing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct | $ | 481,058 |
|
| $ | 602,010 |
|
| $ | 974,704 |
|
| $ | 1,228,872 |
|
Toll |
| 35,879 |
|
|
| 33,033 |
|
|
| 65,608 |
|
|
| 66,658 |
|
Total | $ | 516,937 |
|
| $ | 635,043 |
|
| $ | 1,040,312 |
|
| $ | 1,295,530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pressure Cylinders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial products | $ | 130,334 |
|
| $ | 152,018 |
|
| $ | 282,952 |
|
| $ | 304,865 |
|
Consumer products |
| 128,065 |
|
|
| 117,194 |
|
|
| 247,545 |
|
|
| 234,017 |
|
Oil & gas equipment |
| 31,737 |
|
|
| 25,235 |
|
|
| 64,035 |
|
|
| 55,918 |
|
Total | $ | 290,136 |
|
| $ | 294,447 |
|
| $ | 594,532 |
|
| $ | 594,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineered Cabs | $ | 20,550 |
|
| $ | 28,729 |
|
| $ | 48,616 |
|
| $ | 55,981 |
|
Other |
| 14 |
|
|
| 7 |
|
|
| 36 |
|
|
| 22 |
|
Total | $ | 20,564 |
|
| $ | 28,736 |
|
| $ | 48,652 |
|
| $ | 56,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total | $ | 827,637 |
|
| $ | 958,226 |
|
| $ | 1,683,496 |
|
| $ | 1,946,333 |
|
On June 1, 2018, we adopted new accounting guidance that replaces most existing6
We recognize revenue recognition accounting guidance under U.S. GAAP, Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606) (“Topic 606”). The new accounting guidance was adopted using the modified retrospective approach as applied to customer contracts that were not complete at the date of adoption, with the cumulative effect recognized in retained earnings. Comparative financial information for reporting periods beginning prior to June 1, 2018, has not been restated and continues to be reported under the previous accounting guidance. The cumulative effect adjustment resulted from a change in the pattern of recognition for our toll processing revenue stream and certain contracts within the oil & gas equipment revenue stream, which previously were accounted for as point in time, and now will be accounted for over time.
The following table outlines the cumulative effect of adopting the new revenue recognition guidance:
(in thousands) | May 31, 2018 (As Reported) |
|
| Cumulative Effect of Topic 606 Adoption |
|
| June 1, 2018 (As Adjusted) |
| |||
Consolidated Balance Sheet |
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
Receivables | $ | 572,689 |
|
| $ | 4,706 |
|
| $ | 577,395 |
|
Total inventories |
| 454,027 |
|
|
| (3,452 | ) |
|
| 450,575 |
|
Prepaid expenses and other current assets |
| 60,134 |
|
|
| 944 |
|
|
| 61,078 |
|
Liabilities and equity |
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes, net |
| 60,188 |
|
|
| 454 |
|
|
| 60,642 |
|
Retained earnings |
| 637,757 |
|
|
| 1,174 |
|
|
| 638,931 |
|
Noncontrolling interests |
| 117,606 |
|
|
| 570 |
|
|
| 118,176 |
|
Under the new accounting guidance, we recognize revenue upon transfer of control of promised goods or services to customers in an amount that reflects the consideration we expect to receive for those goods or services, including any variable consideration.
Shipping and handling costs charged to customers are treated as fulfillment activities and are recorded in both net sales and cost of goods sold at the time control is transferred to the customer. Due to the short-term nature of our contracts with customers, we have
6
elected to apply the practical expedients under Topic 606 to: (1) expense as incurred, incremental costs of obtaining a contract; and (2) not adjust the consideration for the effects of a significant financing component for contracts with an original expected duration of one year or less. When we satisfy (or partially satisfy) a performance obligation, prior to being able to invoice the customer, we recognize an unbilled receivable when the right to consideration is unconditional and a contract asset when the right to consideration is conditional. Unbilled receivables and contract assets are included in receivables and prepaid and other current assets, respectively, on the consolidated balance sheets. Additionally, we do not maintain contract liability balances, as performance obligations are satisfied prior to customer payment for product. Payments from customers are generally due within 30 to 60 days of invoicing, which generally occurs upon shipment or delivery of the goods.
Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that we collect from a customer, are excluded from revenue.
Certain contracts with customers include warranties associated with the delivered goods or services. These warranties are not considered to be separate performance obligations, and accordingly, we record an estimated liability for potential warranty costs as the goods or services are transferred.
With the exception of the toll processing revenue stream and certain contracts within the oil & gas equipment revenue stream, we recognize 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. Generally, we receive and acknowledge purchase orders from our customers, which define the quantity, pricing, payment and other applicable terms and conditions. In some cases, we receive a blanket purchase order from our customers, which includes pricing, payment and other terms and conditions, with quantities defined at the time each customer subsequently issues periodic releases against the blanket purchase order.
For the toll processing revenue stream and certain contracts within the oil & gas equipment revenue stream, we recognize revenueare recognized over time. Revenue is primarily measured usingThe following table summarizes the cost-to-cost method, which we believe best depicts the transfer of control to the customer. Under the cost-to-cost method, the extent of progress towards completion is measured based on the ratio of actual costs incurred to the total estimated costs expected upon satisfying the identified performance obligation. Revenues are recorded proportionally as costs are incurred. We have elected to not disclose the value of unsatisfied performance obligations for contracts with an original expected duration of one year or less.
Certain contracts contain variable consideration, which is not constrained, and primarily include estimated sales returns, customer rebates, and sales discounts which are recorded on an expected value basis. These estimates are based on historical returns, analysis of credit memo data and other known factors. We account for rebates by recording reductions toover time revenue for rebates in the same period the related revenue is recorded. The amount of these reductions is based upon the terms agreed to with the customer. We do not exercise significant judgments in determining the timing of satisfaction of performance obligations or the transaction price.
The following tables summarize net sales by product class and by timing of revenue recognition for the three month and nine month periods ended February 28, 2019:
(in thousands) | Reportable Segments |
| |||||||||||||||||
Three months ended February 28, 2019 | Steel Processing |
|
| Pressure Cylinders |
|
| Engineered Cabs |
|
| Other |
|
| Total |
| |||||
Product class: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steel Processing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct | $ | 527,970 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 527,970 |
|
Toll |
| 27,901 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 27,901 |
|
Pressure Cylinders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial products |
| - |
|
|
| 148,018 |
|
|
| - |
|
|
| - |
|
|
| 148,018 |
|
Consumer products |
| - |
|
|
| 118,006 |
|
|
| - |
|
|
| - |
|
|
| 118,006 |
|
Oil & gas equipment |
| - |
|
|
| 24,666 |
|
|
| - |
|
|
| - |
|
|
| 24,666 |
|
Engineered Cabs |
| - |
|
|
| - |
|
|
| 27,817 |
|
|
| - |
|
|
| 27,817 |
|
Other |
| - |
|
|
| - |
|
|
| - |
|
|
| 3 |
|
|
| 3 |
|
Total | $ | 555,871 |
|
| $ | 290,690 |
|
| $ | 27,817 |
|
| $ | 3 |
|
| $ | 874,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timing of revenue recognition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goods transferred at a point in time | $ | 527,970 |
|
| $ | 270,131 |
|
| $ | 27,817 |
|
| $ | 3 |
|
| $ | 825,921 |
|
Goods and services transferred over time |
| 27,901 |
|
|
| 20,559 |
|
|
| - |
|
|
| - |
|
|
| 48,460 |
|
Total | $ | 555,871 |
|
| $ | 290,690 |
|
| $ | 27,817 |
|
| $ | 3 |
|
| $ | 874,381 |
|
7presented:
(in thousands) | Reportable Segments |
| |||||||||||||||||
Nine months ended February 28, 2019 | Steel Processing |
|
| Pressure Cylinders |
|
| Engineered Cabs |
|
| Other |
|
| Total |
| |||||
Product class: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steel Processing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct | $ | 1,756,842 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 1,756,842 |
|
Toll |
| 94,559 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 94,559 |
|
Pressure Cylinders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial products |
| - |
|
|
| 452,883 |
|
|
| - |
|
|
| - |
|
|
| 452,883 |
|
Consumer products |
| - |
|
|
| 352,023 |
|
|
| - |
|
|
| - |
|
|
| 352,023 |
|
Oil & gas equipment |
| - |
|
|
| 80,584 |
|
|
| - |
|
|
| - |
|
|
| 80,584 |
|
Engineered Cabs |
| - |
|
|
| - |
|
|
| 83,798 |
|
|
| - |
|
|
| 83,798 |
|
Other |
| - |
|
|
| - |
|
|
| - |
|
|
| 25 |
|
|
| 25 |
|
Total | $ | 1,851,401 |
|
| $ | 885,490 |
|
| $ | 83,798 |
|
| $ | 25 |
|
| $ | 2,820,714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timing of revenue recognition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goods transferred at a point in time | $ | 1,756,842 |
|
| $ | 836,130 |
|
| $ | 83,798 |
|
| $ | 25 |
|
| $ | 2,676,795 |
|
Goods and services transferred over time |
| 94,559 |
|
|
| 49,360 |
|
|
| - |
|
|
| - |
|
|
| 143,919 |
|
Total | $ | 1,851,401 |
|
| $ | 885,490 |
|
| $ | 83,798 |
|
| $ | 25 |
|
| $ | 2,820,714 |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
| November 30, |
|
| November 30, |
| ||||||||||
(in thousands) | 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
Steel Processing - toll | $ | 35,879 |
|
| $ | 33,033 |
|
| $ | 65,608 |
|
| $ | 66,658 |
|
Pressure Cylinders - certain oil & gas contracts |
| 27,531 |
|
|
| 17,482 |
|
|
| 57,539 |
|
|
| 28,801 |
|
Total over time revenue | $ | 63,410 |
|
| $ | 50,515 |
|
| $ | 123,147 |
|
| $ | 95,459 |
|
The following tables showtable summarizes the adjustments that would be required to be made to our fiscal 2019 consolidated financial statements to reflectunbilled receivables and contract assets for the balances that would have been recorded if we continued to follow our accounting policies under the previous revenue recognition guidance.periods indicated:
8
February 28, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
(in thousands) | As Currently Reported |
|
| Topic 606 Adjustments |
|
| Balances Without Adoption of Topic 606 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Consolidated Balance Sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables | $ | 512,739 |
|
| $ | (4,785 | ) |
| $ | 507,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total inventories |
| 486,074 |
|
|
| 6,207 |
|
|
| 492,281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets |
| 68,082 |
|
|
| (4,057 | ) |
|
| 64,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes payable |
| 106 |
|
|
| (41 | ) |
|
| 65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes, net |
| 80,034 |
|
|
| (454 | ) |
|
| 79,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity - controlling interest |
| 856,622 |
|
|
| (1,489 | ) |
|
| 855,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests |
| 120,386 |
|
|
| (651 | ) |
|
| 119,735 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three months ended February 28, 2019 |
|
| Nine months ended February 28, 2019 |
| ||||||||||||||||||
(in thousands) | As Currently Reported |
|
| Topic 606 Adjustments |
|
| Balances Without Adoption of Topic 606 |
|
| As Currently Reported |
|
| Topic 606 Adjustments |
|
| Balances Without Adoption of Topic 606 |
| ||||||
Consolidated Statements of Earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales | $ | 874,381 |
|
| $ | 464 |
|
| $ | 874,845 |
|
| $ | 2,820,714 |
|
| $ | (3,193 | ) |
| $ | 2,817,521 |
|
Cost of goods sold |
| 784,360 |
|
|
| 170 |
|
|
| 784,530 |
|
|
| 2,466,762 |
|
|
| (2,755 | ) |
|
| 2,464,007 |
|
Income tax expense |
| 8,415 |
|
|
| 65 |
|
|
| 8,480 |
|
|
| 34,032 |
|
|
| (41 | ) |
|
| 33,991 |
|
Net earnings |
| 29,548 |
|
|
| 229 |
|
|
| 29,777 |
|
|
| 124,298 |
|
|
| (397 | ) |
|
| 123,901 |
|
Net earnings attributable to noncontrolling interests |
| 2,775 |
|
|
| (34 | ) |
|
| 2,741 |
|
|
| 8,581 |
|
|
| (82 | ) |
|
| 8,499 |
|
Net earnings attributable to controlling interest |
| 26,773 |
|
|
| 263 |
|
|
| 27,036 |
|
|
| 115,717 |
|
|
| (315 | ) |
|
| 115,402 |
|
(in thousands) | Balance Sheet Classification |
| November 30, 2019 |
|
| May 31, 2019 |
| ||
Unbilled receivables | Receivables |
| $ | 5,538 |
|
| $ | 5,366 |
|
Contract assets | Prepaid and other current assets |
| $ | 8,460 |
|
| $ | 8,792 |
|
NOTE C – 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. These includeAt November 30, 2019, the Company held investments in the following affiliated companies: ArtiFlex Manufacturing, LLC (“ArtiFlex”) (50%), Clarkwestern Dietrich Building Systems LLC (“ClarkDietrich”) (25%), Samuel Steel Pickling Company (31.25%), Serviacero Planos, S. de R. L. de C.V. (“Serviacero Worthington”) (50%), Worthington Armstrong Venture (“WAVE”) (50%), and Zhejiang Nisshin Worthington Precision Specialty Steel Co., Ltd. (“Nisshin”) (10%) and the Cabs joint venture (20%).
During the first quarter of fiscal 2020, the Company began the process of exploring the potential exit of its interest in the Nisshin joint venture in China. As a result, the Company evaluated its investment for potential impairment. The Company concluded the remaining book value of the investment was fully impaired, resulting in an impairment charge of $4,236,000 within equity income during the three months ended August 31, 2019. On December 19, 2019, the Company finalized an agreement to transfer the risks and rewards related to its 10% interest to the other joint venture partners. As a result, the Company has no further rights or obligations as it relates to the Nisshin joint venture.
During the second quarter of fiscal 2020, the Company’s exploration of strategic alternatives relating to its investment in ArtiFlex resulted in the need to evaluate this investment for potential impairment. Based on the analysis performed, the Company concluded its investment was not impaired, as current and projected cash flows were deemed sufficient to recover the remaining book value of $54,566,000. However, it is possible the Company’s estimate of future cash flows could decline to a level that no longer supports the current book value of the investment. Factors which could have an adverse impact on the current cash flow projections, include, but are not limited to deteriorating market conditions as well as potential outcomes that may result from management’s review of strategic alternatives.
On November 1, 2019, we reached an agreement with an affiliate of Angeles Equity Partners, LLC to contribute substantially all of the net assets of our Engineered Cabs business to a newly-formed joint venture, in which we retained a 20% noncontrolling interest. Immediately following the contribution, the Cabs joint venture acquired the net assets of Crenlo. Our contributions to the Cabs joint venture consisted of the net assets of its primary manufacturing facilities located in Greeneville, Tennessee and Watertown, South Dakota. Our investment in the Cabs joint venture is accounted for under the equity method, due to lack of control.
We received distributions from unconsolidated affiliates totaling $131,888,000$57,316,000 during the ninesix months ended February 28, 2019, including $60,000,000 of one-time special distributions from WAVE, comprised of $35,000,000 related to the pending sale of the international operations and $25,000,000 in connection with a financing transaction.November 30, 2019. We have received cumulative distributions from WAVE in excess of our investment balance, which resulted in an amount recorded within other liabilities on our consolidated balance sheets of $124,198,000$97,243,000 at February 28,November 30, 2019. In accordance with the applicable accounting guidance, we reclassified the negative investment balance to the liabilities section of our consolidated balance sheet. 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 sheet. 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
7
our portion of the cumulative equity in the net earnings of the joint venture, in which case the excess distributions are deemed to be returns of the investment and are classified as investing activities in our consolidated statements of cash flows. We received excess distributions from WAVE of $56,693,000 during the nine months ended February 28, 2019.
9
The following tables summarize combined financial information for our unconsolidated affiliates as of the dates, and for the periods presented:
| February 28, |
|
| May 31, |
| November 30, |
|
| May 31, |
| ||||
(in thousands) | 2019 |
|
| 2018 |
| 2019 |
|
| 2019 |
| ||||
Cash | $ | 41,087 |
|
| $ | 52,812 |
| $ | 31,641 |
|
| $ | 37,471 |
|
Other current assets |
| 595,417 |
|
|
| 590,578 |
|
| 633,772 |
|
|
| 594,959 |
|
Current assets for discontinued operations |
| 35,609 |
|
|
| 37,640 |
|
| - |
|
|
| 35,793 |
|
Noncurrent assets |
| 363,992 |
|
|
| 358,927 |
|
| 390,433 |
|
|
| 360,925 |
|
Total assets | $ | 1,036,105 |
|
| $ | 1,039,957 |
| $ | 1,055,846 |
|
| $ | 1,029,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities | $ | 234,230 |
|
| $ | 166,493 |
| $ | 202,450 |
|
| $ | 236,781 |
|
Current liabilities for discontinued operations |
| 8,744 |
|
|
| 7,142 |
|
| - |
|
|
| 9,610 |
|
Short-term borrowings |
| 21,983 |
|
|
| 26,599 |
|
| 1,965 |
|
|
| 15,162 |
|
Current maturities of long-term debt |
| 23,216 |
|
|
| 23,243 |
|
| 2,582 |
|
|
| 33,003 |
|
Long-term debt |
| 322,306 |
|
|
| 259,588 |
|
| 346,223 |
|
|
| 321,791 |
|
Other noncurrent liabilities |
| 18,734 |
|
|
| 17,536 |
|
| 42,144 |
|
|
| 18,192 |
|
Equity |
| 406,892 |
|
|
| 539,356 |
|
| 460,482 |
|
|
| 394,609 |
|
Total liabilities and equity | $ | 1,036,105 |
|
| $ | 1,039,957 |
| $ | 1,055,846 |
|
| $ | 1,029,148 |
|
| Three Months Ended February 28, |
|
| Nine Months Ended February 28, |
| Three Months Ended November 30, |
|
| Six Months Ended November 30, |
| ||||||||||||||||||||
(in thousands) | 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||||||
Net sales | $ | 454,579 |
|
| $ | 403,426 |
|
| $ | 1,433,840 |
|
| $ | 1,258,667 |
| $ | 458,859 |
|
| $ | 480,716 |
|
| $ | 946,134 |
|
| $ | 979,261 |
|
Gross margin |
| 77,706 |
|
|
| 72,828 |
|
|
| 257,033 |
|
|
| 230,185 |
|
| 97,329 |
|
|
| 75,515 |
|
|
| 198,944 |
|
|
| 179,327 |
|
Operating income |
| 47,392 |
|
|
| 41,546 |
|
|
| 164,360 |
|
|
| 133,313 |
|
| 63,452 |
|
|
| 44,592 |
|
|
| 132,857 |
|
|
| 116,968 |
|
Depreciation and amortization |
| 6,310 |
|
|
| 5,406 |
|
|
| 19,368 |
|
|
| 18,534 |
|
| 7,538 |
|
|
| 6,581 |
|
|
| 14,627 |
|
|
| 13,058 |
|
Interest expense |
| 3,529 |
|
|
| 2,564 |
|
|
| 9,836 |
|
|
| 7,517 |
|
| 3,139 |
|
|
| 3,382 |
|
|
| 6,506 |
|
|
| 6,307 |
|
Income tax expense (benefit) |
| 1,877 |
|
|
| (1,095 | ) |
|
| 9,970 |
|
|
| 2,069 |
| |||||||||||||||
Income tax expense |
| 1,576 |
|
|
| 3,568 |
|
|
| 2,578 |
|
|
| 8,093 |
| |||||||||||||||
Net earnings from continuing operations |
| 40,196 |
|
|
| 36,058 |
|
|
| 141,613 |
|
|
| 118,995 |
|
| 104,431 |
|
|
| 36,523 |
|
|
| 165,572 |
|
|
| 101,417 |
|
Net earnings from discontinued operations |
| 1,001 |
|
|
| 1,805 |
|
|
| 4,713 |
|
|
| 1,532 |
| |||||||||||||||
Net earnings (loss) from discontinued operations |
| (3,990 | ) |
|
| 2,028 |
|
|
| (1,178 | ) |
|
| 3,712 |
| |||||||||||||||
Net earnings |
| 41,197 |
|
|
| 37,863 |
|
|
| 146,326 |
|
|
| 120,527 |
|
| 100,441 |
|
|
| 38,551 |
|
|
| 164,394 |
|
|
| 105,129 |
|
The amounts presented within the discontinued operations captions in the tables above reflect the international operations of our WAVE joint venture which are being soldprior to their sale on September 30, 2019. Upon closing of the transaction, the related net assets were deconsolidated resulting in a pre-tax gain within net earnings from continuing operations of $46,238,000, subject to certain post-closing adjustments. The sale of these operations was closed as part of a broader transaction between the joint venture partner, Armstrong World Industries, Inc. (“AWI”), and Knauf Group,Ceilings and Holding GmbH (“Knauf”), a family-owned manufacturer of building materials headquartered in Germany. WAVE’sOur portion of the total sales proceeds is expected to be approximately $90,000,000 ($45,000,000 attributed to Worthington). The transaction is subject to regulatory approvalsnet gain was $23,119,000 and other customary closing conditions. During the first quarter of fiscal 2019, the parties agreed to extend the date by which certain competition clearance conditions were to be satisfied per the original purchase agreement. In exchange, Knauf Group irrevocably agreed to fund the purchase price which was received by AWI in two distributions, the first on August 1, 2018, and the balance on September 15, 2018. In September 2018, we received a cash distribution of $35,000,000 from WAVE related to the pending sale of the international operations. We will receive the remaining proceeds at closing, subject to certain adjustments as provided in the purchase agreement, including those related to the economic impact of any required regulatory remedies and a working capital adjustment. Despite receiving a portion of the sales proceeds, there has been no changerecognized within equity in controlnet income of the international operations of WAVE; therefore, the gain to be realized from this transaction has not been reflected in WAVE’s statement of earnings. The closingis expected to occur by June 30, 2019.
unconsolidated affiliates.
NOTE D – ImpairmentLeases
On June 1, 2019, the Company adopted the new lease accounting standard under U.S. GAAP, Topic 842, which among other things, requires right-of-use (“ROU”) assets and liabilities be recognized upon lease commencement for operating leases based on the present value of Goodwilllease payments over the lease term. Topic 842 was adopted using the modified retrospective approach as of the effective date of the new standard. As such, comparative financial information for reporting periods beginning prior to June 1, 2019, has not been restated and Long-Lived Assets
Duringcontinues to be reported under the first quarterprevious accounting standard. As allowed, we elected to carry forward the historical lease classification and to apply the short-term lease measurement and recognition exemption whereby ROU assets and lease liabilities are not recognized for short-term leases. Adoption of fiscal 2019, changesthe new standard resulted in the factsrecognition of $42,200,000 of net operating lease ROU assets and circumstances related$43,400,000 of corresponding operating lease liabilities. The net ROU asset includes the effect of reclassifying deferred rent as an offset in accordance with the transition guidance. The impact of the new standard was immaterial to the planned saleCompany’s results of operations and cash flows.
8
The Company determines if an arrangement is a lease at inception. Operating lease ROU assets include any initial direct costs and prepayments less lease incentives. Lease terms include options to renew or terminate the lease when it is reasonably certain the Company will exercise such options. As most of our cryogenics businessleases do not include an implicit rate, we use our collateralized incremental borrowing rate based on the information available at the lease commencement date, in Turkey, Worthington Aritas, resulteddetermining the present value of lease payments. Operating lease expense is recognized on a straight-line basis over the lease term and is included in our loweringcost of goods sold or selling, general and administrative expense depending on the estimateunderlying nature of fair value less costthe leased assets.
We lease certain property and equipment from third parties under non-cancellable operating lease agreements. Certain lease agreements provide for payment of property taxes, maintenance and insurance by the Company. Under Topic 842, we elected the practical expedient to sell to $7,000,000 which generatedaccount for lease and non-lease components as a single component for all asset classes. Certain leases include variable lease payments based on usage or an impairment charge of $2,381,000. Fair value was determined using observable (Level 2) inputs. index or rate.
During the second quarter of fiscal 2018,2020, we entered into a non-cancellable financing lease agreement for land and a building which was paid as part of the Company determined that indicatorscash consideration in connection with the acquisition of impairment were present with regard to the goodwill and intangiblecertain operating assets of Heidtman Steel Products, Inc. (“Heidtman”). Refer to “NOTE P – Acquisitions” for additional information. In the WEI reporting unit. As a result, theseconsolidated balance sheets, the financing leases ROU assets are recorded in other assets and the current and long-term portion of the financing leases ROU liabilities are recorded in other accrued items and other liabilities, respectively.
The components of lease expense were written down to their estimated fair value resulting in an impairment charge of $7,325,000. as follows:
(in thousands) |
| Three Months Ended November 30, 2019 |
|
| Six Months Ended November 30, 2019 |
| ||
Operating lease expense |
| $ | 2,880 |
|
| $ | 6,222 |
|
Financing lease expense: |
|
|
|
|
|
|
|
|
Amortization of leased assets |
|
| 65 |
|
|
| 110 |
|
Interest on lease liabilities |
|
| 9 |
|
|
| 19 |
|
Total financing lease expense |
|
| 74 |
|
|
| 129 |
|
Short-term lease expense |
|
| 590 |
|
|
| 996 |
|
Variable lease expense |
|
| 150 |
|
|
| 304 |
|
Total lease expense |
| $ | 3,694 |
|
| $ | 7,651 |
|
During the secondfirst quarter of fiscal 2018,2020, ROU assets within the Engineered Cabs operating segment with a book value of $4,843,000 were deemed to be fully impaired and written off. Refer to “NOTE E – Impairment of Long-Lived Assets” for additional information.
Other information related to the Company’s leases, as of and for the six-month period ended November 30, 2019, is provided below:
(dollars in thousands) |
| Operating Leases |
|
| Financing Leases |
| ||
Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
|
|
|
|
|
Operating cash flows |
| $ | 5,702 |
|
| $ | 19 |
|
Financing cash flows |
| $ | - |
|
| $ | 173 |
|
ROU assets obtained in exchange for lease liabilities |
| $ | 3,722 |
|
| $ | 8,028 |
|
Weighted-average remaining lease term (in years) |
|
| 5.45 |
|
| 3.12 |
| |
Weighted-average discount rate |
|
| 3.44 | % |
|
| 3.23 | % |
9
Future minimum lease payments for non-cancelable leases having an initial or remaining term in excess of one year at November 30, 2019, were as follows:
(in thousands) | Operating Leases |
|
| Financing Leases |
| ||
Year 1 | $ | 12,436 |
|
| $ | 384 |
|
Year 2 |
| 10,312 |
|
|
| 376 |
|
Year 3 |
| 8,014 |
|
|
| 369 |
|
Year 4 |
| 5,256 |
|
|
| 53 |
|
Year 5 |
| 3,265 |
|
|
| - |
|
Thereafter |
| 6,554 |
|
|
| - |
|
Total |
| 45,837 |
|
|
| 1,182 |
|
Less: imputed interest |
| (4,571 | ) |
|
| (56 | ) |
Present value of lease liabilities | $ | 41,266 |
|
| $ | 1,126 |
|
As previously disclosed in our 2019 Form 10-K, under the prior accounting guidance, future minimum lease payments for non-cancelable operating leases having an initial or remaining term in excess of one year at May 31, 2019, were as follows:
(in thousands) |
|
|
|
Year 1 | $ | 10,774 |
|
Year 2 |
| 8,398 |
|
Year 3 |
| 5,428 |
|
Year 4 |
| 4,054 |
|
Year 5 |
| 2,098 |
|
Thereafter |
| 2,637 |
|
Total | $ | 33,389 |
|
NOTE E – Impairment of Long-Lived Assets
Fiscal 2020: During the first quarter of fiscal 2020, the Company also identifiedcommitted to plans to sell substantially all of the presencenet assets of impairment indicatorsits Engineered Cabs business with regard to vacant landthe exception of the fabricated products facility in Stow, Ohio, and the steel packaging facility in Greensburg, Indiana. As of August 31, 2019, the disposal group met the criteria for classification as assets held for sale and the net assets were recorded at the oil & gas equipment facilitylower of net book value or fair value, less costs to sell, and presented separately as assets held for sale in Bremen, Ohio, resulting in an impairment chargeour consolidated balance sheet. The book value of $964,000 to write the vacant land down todisposal group exceeded its estimated fair market value.value of $12,860,000 (determined using Level 2 inputs), which resulted in the recording of a $35,194,000 impairment charge during the first quarter of fiscal 2020. Included in the impairment charge were lease ROU assets with a net book value of $905,000 that were deemed fully impaired and written off. On November 1, 2019, the assets of the disposal group were contributed to the Cabs joint venture. For additional information, refer to “NOTE C – Investments in Unconsolidated Affiliates”. The Company also identified an impairment indicator for the long-lived assets of the Engineered Cabs fabricated products business as the planned sale will have an adverse impact on the manner and extent in which these assets are used. As a result, fixed assets with a net book value of $1,469,000 and lease ROU assets with a net book value of $3,938,000 were deemed to be fully impaired and written off during the first quarter ended August 31, 2019.
10
NOTE EF – Restructuring and Other Income,Expense (Income), Net
We consider restructuring activities to be programs whereby we fundamentally change our operations, such as closing and consolidating manufacturing facilities or moving manufacturing of a product to another location. Restructuring activities may also involve substantial realignment of the management structure of a business unit in response to changing market conditions.
10
A progression of the liabilities associated with our restructuring activities, combined with a reconciliation to the restructuring and other income,expense (income), net financial statement caption, in our consolidated statement of earnings is summarized below for the period presented:
|
| Balance, as of |
|
| Expense |
|
|
|
|
|
|
|
|
|
| Balance, as of |
|
| Balance, as of |
|
| Expense |
|
|
|
|
|
|
|
|
|
| Balance, as of |
| ||||||
(in thousands) |
| May 31, 2018 |
|
| (income) |
|
| Payments |
|
| Adjustments |
|
| February 28, 2019 |
|
| May 31, 2019 |
|
| (income) |
|
| Payments |
|
| Adjustments |
|
| November 30, 2019 |
| ||||||||||
Early retirement and severance |
| $ | 1,116 |
|
| $ | 1,379 |
|
| $ | (1,522 | ) |
| $ | (58 | ) |
| $ | 915 |
|
| $ | 774 |
|
| $ | - |
|
| $ | (596 | ) |
| $ | (89 | ) |
| $ | 89 |
|
Facility exit and other costs |
|
| - |
|
|
| 306 |
|
|
| (278 | ) |
|
| 8 |
|
|
| 36 |
|
|
| 2 |
|
|
| (26 | ) |
|
| (56 | ) |
|
| 81 |
|
|
| 1 |
|
|
| $ | 1,116 |
|
|
| 1,685 |
|
| $ | (1,800 | ) |
| $ | (50 | ) |
| $ | 951 |
|
| $ | 776 |
|
|
| (26 | ) |
| $ | (652 | ) |
| $ | (8 | ) |
| $ | 90 |
|
Net gain on sale of assets |
|
|
|
|
|
| (13,395 | ) |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Restructuring and other income, net |
|
|
|
|
| $ | (11,710 | ) |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Net loss on sale of assets |
|
|
|
|
|
| 431 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Restructuring and other expense, net |
|
|
|
|
| $ | 405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
During the ninesix months ended February 28,November 30, 2019, the following actions were taken related to the Company’s restructuring activities:
• | In July 2019, the Company completed the sale of its cryogenics business in Turkey, the net assets of which had been previously classified as assets held for sale. In connection with the sale, the Company realized net cash proceeds of $8,295,000 and recognized a net loss of $481,000. |
• | In November 2019, the Company contributed substantially all of the net assets of the Engineered Cabs business to a newly-formed Cabs joint venture. In connection with the transaction, the Company recognized a net gain of $50,000. |
In connection with the ongoing consolidation of the Company’s industrial gas operations in Portugal following the acquisition of AMTROL in fiscal 2018, the Company recognized severance expense of $1,086,000 and facility exit costs of $315,000.
Within the Pressure Cylinders business, the Company sold two oil & gas manufacturing facilities resulting in a net gain on disposal of $1,962,000.
In connection with the sale of the operating assets and real property related to the solder business and certain brazing assets within the Pressure Cylinders business, the Company recognized severance expense of $89,000 and a net gain on disposal of $11,433,000.
In connection with other non-significant restructuring activities, the Company recognized severance expense of $204,000 and a reduction to facility exit costs of $9,000.
• | In connection with other non-significant restructuring activities, the Company recognized a reduction to facility exit costs of $26,000. |
The total liability associated with our restructuring activities as of February 28,November 30, 2019 is expected to be paid in the next twelve months.
NOTE FG – Contingent Liabilities and Commitments
Legal Proceedings
We are defendants in certain legal actions. In the opinion of management, the outcome of these actions, which is not clearly determinable at the present time, would not significantly affect our consolidated financial position or future results of operations. We also believe that environmental issues will not have a material effect on our capital expenditures, consolidated financial position or future results of operations.
Voluntary Tank Replacement Program
In February 2019, our Structural Composites Industries, LLC subsidiary (“SCI”) agreed to participate in a tank replacement program for specific design sizes of its composite hydrogen fuel tanks, which are integrated into a customer’s hydrogen fuel cells used to fuel material handling equipment, primarily rider pallet jacks in warehouses. The tanks being replaced were sold mainly between 2012 and 2015, and were designed to meet specified ISO-standards. These tanks successfully passed a number of ISO-certification tests; however, because it was mistakenly determined these tanks would qualify as a “child” of a similar fully-tested tank, not all tests for full standalone ISO-certification were completed. Since the identical carbon fiber used to manufacture most of these tanks is no longer commercially available, SCI cannot manufacture new units to retroactively complete this testing. The tanks were supplied to a single customer. The replacement program is underway and is expected to take approximately six months to complete. In connection with this matter, we recorded a $13,000,000 charge to costs of goods sold during the third quarter of fiscal 2019 to reflect our estimated costs of replacing these tanks. The actual cost incurred by the Company related to this matter may vary from the initial estimate.
A progression of the liabilities recorded in connection with this matter during fiscal 20192020 is summarized in the following table:
11
Beginning |
|
|
|
|
|
|
|
|
|
| Ending |
| Beginning |
|
|
|
|
|
|
|
|
|
| Ending |
| |||||
(in thousands) | Balance |
|
| Payments |
|
| Adjustments |
|
| Balance |
| Balance |
|
| Expense |
|
| Payments |
|
| Balance |
| ||||||||
Tank replacement costs | $ | 13,000 |
|
| $ | 2,000 |
|
| $ | - |
|
| $ | 11,000 |
| $ | 8,500 |
|
| $ | - |
|
| $ | (211 | ) |
| $ | 8,289 |
|
We believe these liabilities are sufficient to absorb our remaining direct costs related to the replacement program, which are expected to be paid in the next sixnine months. The actual costs incurred by the Company related to this matter may vary from the initial estimate.
NOTE GH – 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, as of February 28,November 30, 2019, we were party to an operating lease for an aircraft in which we have guaranteed a residual value at the termination of the lease. The maximum obligation under the terms of this guarantee was approximately $7,642,000$6,914,000 at February 28,November 30, 2019. 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.
11
We also had in place $15,366,000$12,800,000 of outstanding stand-by letters of credit issued to third-party service providers at February 28,November 30, 2019. NoNaN amounts were drawn against themthese stand-by letters of credit at February 28,November 30, 2019.
NOTE HI – Debt and Receivables Securitization
On August 23, 2019, 2 of our European subsidiaries issued a €36,700,000 principal amount unsecured 1.56% Series A Senior Note due August 23, 2031 (the “2031 Note”) and €55,000,000 aggregate principal amount of unsecured 1.90% Series B Senior Notes due August 23, 2034 (the “2034 Notes”), (collectively, the “Senior Notes”). The 2031 Note is to be repaid in the principal amount of €30,000,000, together with accrued interest, on August 23, 2029, with the remaining €6,700,000 principal amount payable on August 23, 2031, together with accrued interest. The 2034 Notes are to be repaid in the aggregate principal amount of €23,300,000, together with accrued interest, on August 23, 2031, with the remaining €31,700,000 aggregate principal amount payable on August 23, 2034, together with accrued interest. Debt issuance costs of $134,000 were incurred in connection with the issuance of the Senior Notes and have been recorded on the consolidated balance sheet within long-term debt as a contra-liability. They will continue to be amortized, through interest expense, in our consolidated statements of earnings over the term of the respective Senior Notes. The unamortized portion of the debt issuance costs was $131,000 at November 30, 2019.
The Senior Notes were issued in a private placement and the proceeds thereof were used to redeem $150,000,000 aggregate principal amount of unsecured 6.50% senior notes that were set to mature on April 15, 2020 (the “2020 Notes”). The 2020 Notes were redeemed in full on August 30, 2019. In connection with the early redemption, the Company recognized a loss on extinguishment of debt of $4,034,000, which has been presented separately in our consolidated statements of earnings.
We maintain a $500,000,000 multi-year revolving credit facility (the “Credit Facility”) with a group of lenders which matures in February 2023. 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 LIBOR, Prime Rate or Overnight Bank Funding Rate. The applicable margin is determined by our credit rating. There were no0 borrowings outstanding under the Credit Facility at February 28,November 30, 2019. As discussed in “NOTE GH – Guarantees,” we provided $15,366,000$12,800,000 in stand-by letters of credit for third-party beneficiaries as of February 28,November 30, 2019. While not0t drawn against at February 28,November 30, 2019, $1,950,000$450,000 of these letters of credit were issued against availability under the Credit Facility, leaving $498,050,000$499,550,000 available at February 28,November 30, 2019.
We also maintain a $50,000,000 revolving trade accounts receivable securitization facility (the “AR Facility”). On that matures in January 15, 2019,2020. We are in the Company extended the maturityprocess of evaluating our options for the AR Facility by one year to January 2020.including renewing the AR Facility at a lower capacity. Pursuant to the terms of the AR Facility, certain of our subsidiaries sell their accounts receivable without recourse, on a revolving basis, to Worthington Receivables Corporation (“WRC”), a wholly-owned, consolidated, bankruptcy-remote subsidiary. In turn, WRC may sell without recourse, on a revolving basis, up to $50,000,000 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 90 days past due, receivables offset by an allowance for doubtful accounts due to bankruptcy or other cause, concentrations over certain limits with specific customers and certain reserve amounts, we believe additional risk of loss is minimal. As of February 28,November 30, 2019, no0 undivided ownership interests in this pool of accounts receivable had been sold.
NOTE IJ – Other Comprehensive Income (Loss)
The following table summarizes the tax effects on each component of OCI for the periods presented:
| Three months ended February 28, |
| Three months ended November 30, |
| ||||||||||||||||||||||||||||||||||||||||||
| 2019 |
|
| 2018 |
| 2019 |
|
| 2018 |
| ||||||||||||||||||||||||||||||||||||
| Before-Tax |
|
| Tax |
|
| Net-of-Tax |
|
| Before-Tax |
|
| Tax |
|
| Net-of-Tax |
| Before-Tax |
|
| Tax |
|
| Net-of-Tax |
|
| Before-Tax |
|
| Tax |
|
| Net-of-Tax |
| ||||||||||||
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation | $ | 1,476 |
|
| $ | - |
|
| $ | 1,476 |
|
| $ | 9,542 |
|
| $ | - |
|
| $ | 9,542 |
| $ | 6,662 |
|
| $ | - |
|
| $ | 6,662 |
|
| $ | (6,638 | ) |
| $ | - |
|
| $ | (6,638 | ) |
Pension liability adjustment |
| 48 |
|
|
| (11 | ) |
|
| 37 |
|
|
| 230 |
|
|
| 21 |
|
|
| 251 |
|
| 117 |
|
|
| (22 | ) |
|
| 95 |
|
|
| - |
|
|
| - |
|
|
| - |
|
Cash flow hedges |
| (844 | ) |
|
| 248 |
|
|
| (596 | ) |
|
| (711 | ) |
|
| 155 |
|
|
| (556 | ) |
| 4,016 |
|
|
| (803 | ) |
|
| 3,213 |
|
|
| (6,066 | ) |
|
| 1,404 |
|
|
| (4,662 | ) |
Other comprehensive income | $ | 680 |
|
| $ | 237 |
|
| $ | 917 |
|
| $ | 9,061 |
|
| $ | 176 |
|
| $ | 9,237 |
| |||||||||||||||||||||||
Other comprehensive income (loss) | $ | 10,795 |
|
| $ | (825 | ) |
| $ | 9,970 |
|
| $ | (12,704 | ) |
| $ | 1,404 |
|
| $ | (11,300 | ) |
12
Nine months ended February 28, |
| Six months ended November 30, |
| |||||||||||||||||||||||||||||||||||||||||||
| 2019 |
|
| 2018 |
| 2019 |
|
| 2018 |
| ||||||||||||||||||||||||||||||||||||
| Before-Tax |
|
| Tax |
|
| Net-of-Tax |
|
| Before-Tax |
|
| Tax |
|
| Net-of-Tax |
| Before-Tax |
|
| Tax |
|
| Net-of-Tax |
|
| Before-Tax |
|
| Tax |
|
| Net-of-Tax |
| ||||||||||||
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation | $ | (8,857 | ) |
| $ | - |
|
| $ | (8,857 | ) |
| $ | 26,925 |
|
| $ | - |
|
| $ | 26,925 |
| $ | 11,444 |
|
| $ | - |
|
| $ | 11,444 |
|
| $ | (10,333 | ) |
| $ | - |
|
| $ | (10,333 | ) |
Pension liability adjustment |
| 48 |
|
|
| (108 | ) |
|
| (60 | ) |
|
| 230 |
|
|
| 15 |
|
|
| 245 |
|
| 1,421 |
|
|
| (313 | ) |
|
| 1,108 |
|
|
| - |
|
|
| (97 | ) |
|
| (97 | ) |
Cash flow hedges |
| (9,437 | ) |
|
| 2,209 |
|
|
| (7,228 | ) |
|
| (1,213 | ) |
|
| 334 |
|
|
| (879 | ) |
| 691 |
|
|
| (117 | ) |
|
| 574 |
|
|
| (8,593 | ) |
|
| 1,961 |
|
|
| (6,632 | ) |
Other comprehensive income (loss) | $ | (18,246 | ) |
| $ | 2,101 |
|
| $ | (16,145 | ) |
| $ | 25,942 |
|
| $ | 349 |
|
| $ | 26,291 |
| $ | 13,556 |
|
| $ | (430 | ) |
| $ | 13,126 |
|
| $ | (18,926 | ) |
| $ | 1,864 |
|
| $ | (17,062 | ) |
NOTE JK – Changes in Equity
The following tables summarize the changes in equity by component and in total for the periods presented:
|
| Controlling Interest |
|
|
|
|
|
|
|
|
| |||||||||||||
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
| Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Additional |
|
| Comprehensive |
|
|
|
|
|
|
|
|
|
| Non- |
|
|
|
|
| |||
|
| Paid-in |
|
| Loss, |
|
| Retained |
|
|
|
|
|
| controlling |
|
|
|
|
| ||||
(in thousands) |
| Capital |
|
| Net of Tax |
|
| Earnings |
|
| Total |
|
| Interests |
|
| Total |
| ||||||
Balance at May 31, 2018 |
| $ | 295,592 |
|
| $ | (14,580 | ) |
| $ | 637,757 |
|
| $ | 918,769 |
|
| $ | 117,606 |
|
| $ | 1,036,375 |
|
Net earnings |
|
| - |
|
|
| - |
|
|
| 54,942 |
|
|
| 54,942 |
|
|
| 2,016 |
|
|
| 56,958 |
|
Other comprehensive loss |
|
| - |
|
|
| (5,745 | ) |
|
| - |
|
|
| (5,745 | ) |
|
| (17 | ) |
|
| (5,762 | ) |
Common shares issued, net of withholding tax |
|
| (4,091 | ) |
|
| - |
|
|
| - |
|
|
| (4,091 | ) |
|
| - |
|
|
| (4,091 | ) |
Common shares in NQ plans |
|
| 152 |
|
|
| - |
|
|
| - |
|
|
| 152 |
|
|
| - |
|
|
| 152 |
|
Stock-based compensation |
|
| 4,838 |
|
|
| - |
|
|
| - |
|
|
| 4,838 |
|
|
| - |
|
|
| 4,838 |
|
ASC 606 transition adjustment |
|
| - |
|
|
| - |
|
|
| 1,174 |
|
|
| 1,174 |
|
|
| 570 |
|
|
| 1,744 |
|
Purchases and retirement of common shares |
|
| (4,003 | ) |
|
| - |
|
|
| (32,849 | ) |
|
| (36,852 | ) |
|
| - |
|
|
| (36,852 | ) |
Cash dividends declared |
|
| - |
|
|
| - |
|
|
| (13,668 | ) |
|
| (13,668 | ) |
|
| - |
|
|
| (13,668 | ) |
Dividends to noncontrolling interest |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (2,320 | ) |
|
| (2,320 | ) |
Balance at August 31, 2018 |
| $ | 292,488 |
|
| $ | (20,325 | ) |
| $ | 647,356 |
|
| $ | 919,519 |
|
| $ | 117,855 |
|
| $ | 1,037,374 |
|
Net earnings |
|
| - |
|
|
| - |
|
|
| 34,002 |
|
|
| 34,002 |
|
|
| 3,790 |
|
|
| 37,792 |
|
Other comprehensive loss |
|
| - |
|
|
| (11,245 | ) |
|
| - |
|
|
| (11,245 | ) |
|
| (55 | ) |
|
| (11,300 | ) |
Common shares issued, net of withholding tax |
|
| (658 | ) |
|
| - |
|
|
| - |
|
|
| (658 | ) |
|
| - |
|
|
| (658 | ) |
Common shares in NQ plans |
|
| 306 |
|
|
| - |
|
|
| - |
|
|
| 306 |
|
|
| - |
|
|
| 306 |
|
Stock-based compensation |
|
| 3,730 |
|
|
| - |
|
|
| - |
|
|
| 3,730 |
|
|
| - |
|
|
| 3,730 |
|
Purchases and retirement of common shares |
|
| (7,540 | ) |
|
| - |
|
|
| (56,041 | ) |
|
| (63,581 | ) |
|
| - |
|
|
| (63,581 | ) |
Cash dividends declared |
|
| - |
|
|
| - |
|
|
| (13,401 | ) |
|
| (13,401 | ) |
|
| - |
|
|
| (13,401 | ) |
Dividends to noncontrolling interest |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (4,007 | ) |
|
| (4,007 | ) |
Balance at November 30, 2018 |
| $ | 288,326 |
|
| $ | (31,570 | ) |
| $ | 611,916 |
|
| $ | 868,672 |
|
| $ | 117,583 |
|
| $ | 986,255 |
|
Net earnings |
|
| - |
|
|
| - |
|
|
| 26,773 |
|
|
| 26,773 |
|
|
| 2,775 |
|
|
| 29,548 |
|
Other comprehensive income |
|
| - |
|
|
| 889 |
|
|
| - |
|
|
| 889 |
|
|
| 28 |
|
|
| 917 |
|
Common shares issued, net of withholding tax |
|
| 104 |
|
|
| - |
|
|
| - |
|
|
| 104 |
|
|
| - |
|
|
| 104 |
|
Common shares in NQ plans |
|
| 80 |
|
|
| - |
|
|
| - |
|
|
| 80 |
|
|
| - |
|
|
| 80 |
|
Stock-based compensation |
|
| 1,947 |
|
|
| - |
|
|
| - |
|
|
| 1,947 |
|
|
| - |
|
|
| 1,947 |
|
Purchases and retirement of common shares |
|
| (4,061 | ) |
|
| - |
|
|
| (24,526 | ) |
|
| (28,587 | ) |
|
| - |
|
|
| (28,587 | ) |
Cash dividends declared |
|
| - |
|
|
| - |
|
|
| (13,256 | ) |
|
| (13,256 | ) |
|
| - |
|
|
| (13,256 | ) |
Balance at February 28, 2019 |
| $ | 286,396 |
|
| $ | (30,681 | ) |
| $ | 600,907 |
|
| $ | 856,622 |
|
| $ | 120,386 |
|
| $ | 977,008 |
|
13
| Controlling Interest |
|
|
|
|
|
|
|
|
|
| Controlling Interest |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
| Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Additional |
|
| Comprehensive |
|
|
|
|
|
|
|
|
|
| Non- |
|
|
|
|
|
| Additional |
|
| Comprehensive |
|
|
|
|
|
|
|
|
|
| Non- |
|
|
|
|
| ||||||
|
| Paid-in |
|
| Loss, |
|
| Retained |
|
|
|
|
|
| controlling |
|
|
|
|
|
| Paid-in |
|
| Loss, |
|
| Retained |
|
|
|
|
|
| controlling |
|
|
|
|
| ||||||||
(in thousands) |
| Capital |
|
| Net of Tax |
|
| Earnings |
|
| Total |
|
| Interests |
|
| Total |
|
| Capital |
|
| Net of Tax |
|
| Earnings |
|
| Total |
|
| Interests |
|
| Total |
| ||||||||||||
Balance at May 31, 2017 |
| $ | 303,391 |
|
| $ | (27,775 | ) |
| $ | 676,019 |
|
| $ | 951,635 |
|
| $ | 122,294 |
|
| $ | 1,073,929 |
| ||||||||||||||||||||||||
Net earnings |
|
| - |
|
|
| - |
|
|
| 45,534 |
|
|
| 45,534 |
|
|
| 2,540 |
|
|
| 48,074 |
| ||||||||||||||||||||||||
Balance at May 31, 2019 |
| $ | 283,177 |
|
| $ | (43,464 | ) |
| $ | 591,533 |
|
| $ | 831,246 |
|
| $ | 117,148 |
|
| $ | 948,394 |
| ||||||||||||||||||||||||
Net earnings (loss) |
|
| - |
|
|
| - |
|
|
| (4,776 | ) |
|
| (4,776 | ) |
|
| 2,321 |
|
|
| (2,455 | ) | ||||||||||||||||||||||||
Other comprehensive income |
|
| - |
|
|
| 17,314 |
|
|
| - |
|
|
| 17,314 |
|
|
| 439 |
|
|
| 17,753 |
|
|
| - |
|
|
| 3,156 |
|
|
| - |
|
|
| 3,156 |
|
|
| - |
|
|
| 3,156 |
|
Common shares issued, net of withholding tax |
|
| (3,274 | ) |
|
| - |
|
|
| - |
|
|
| (3,274 | ) |
|
| - |
|
|
| (3,274 | ) |
|
| (3,213 | ) |
|
| - |
|
|
| - |
|
|
| (3,213 | ) |
|
| - |
|
|
| (3,213 | ) |
Common shares in NQ plans |
|
| 536 |
|
|
| - |
|
|
| - |
|
|
| 536 |
|
|
| - |
|
|
| 536 |
|
|
| 74 |
|
|
| - |
|
|
| - |
|
|
| 74 |
|
|
| - |
|
|
| 74 |
|
Stock-based compensation |
|
| 4,822 |
|
|
| - |
|
|
| - |
|
|
| 4,822 |
|
|
| - |
|
|
| 4,822 |
|
|
| 4,545 |
|
|
| - |
|
|
| - |
|
|
| 4,545 |
|
|
| - |
|
|
| 4,545 |
|
Purchases and retirement of common shares |
|
| (4,235 | ) |
|
| - |
|
|
| (40,841 | ) |
|
| (45,076 | ) |
|
| - |
|
|
| (45,076 | ) |
|
| (3,814 | ) |
|
| - |
|
|
| (25,785 | ) |
|
| (29,599 | ) |
|
| - |
|
|
| (29,599 | ) |
Cash dividends declared |
|
| - |
|
|
| - |
|
|
| (13,317 | ) |
|
| (13,317 | ) |
|
| - |
|
|
| (13,317 | ) |
|
| - |
|
|
| - |
|
|
| (13,460 | ) |
|
| (13,460 | ) |
|
| - |
|
|
| (13,460 | ) |
Dividends to noncontrolling interest |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (720 | ) |
|
| (720 | ) | ||||||||||||||||||||||||
Balance at August 31, 2017 |
| $ | 301,240 |
|
| $ | (10,461 | ) |
| $ | 667,395 |
|
| $ | 958,174 |
|
| $ | 124,553 |
|
| $ | 1,082,727 |
| ||||||||||||||||||||||||
Net earnings |
|
| - |
|
|
| - |
|
|
| 39,403 |
|
|
| 39,403 |
|
|
| 2,219 |
|
|
| 41,622 |
| ||||||||||||||||||||||||
Other comprehensive loss |
|
| - |
|
|
| (619 | ) |
|
| - |
|
|
| (619 | ) |
|
| (80 | ) |
|
| (699 | ) | ||||||||||||||||||||||||
Common shares issued, net of withholding tax |
|
| (722 | ) |
|
| - |
|
|
| - |
|
|
| (722 | ) |
|
| - |
|
|
| (722 | ) | ||||||||||||||||||||||||
Common shares in NQ plans |
|
| 350 |
|
|
| - |
|
|
| - |
|
|
| 350 |
|
|
| - |
|
|
| 350 |
| ||||||||||||||||||||||||
Stock-based compensation |
|
| 3,169 |
|
|
| - |
|
|
| - |
|
|
| 3,169 |
|
|
| - |
|
|
| 3,169 |
| ||||||||||||||||||||||||
Purchases and retirement of common shares |
|
| (7,245 | ) |
|
| - |
|
|
| (60,203 | ) |
|
| (67,448 | ) |
|
| - |
|
|
| (67,448 | ) | ||||||||||||||||||||||||
Cash dividends declared |
|
| - |
|
|
| - |
|
|
| (13,020 | ) |
|
| (13,020 | ) |
|
| - |
|
|
| (13,020 | ) | ||||||||||||||||||||||||
Dividends to noncontrolling interest |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (3,196 | ) |
|
| (3,196 | ) | ||||||||||||||||||||||||
Balance at November 30, 2017 |
| $ | 296,792 |
|
| $ | (11,080 | ) |
| $ | 633,575 |
|
| $ | 919,287 |
|
| $ | 123,496 |
|
| $ | 1,042,783 |
| ||||||||||||||||||||||||
Balance at August 31, 2019 |
| $ | 280,769 |
|
| $ | (40,308 | ) |
| $ | 547,512 |
|
| $ | 787,973 |
|
| $ | 119,469 |
|
| $ | 907,442 |
| ||||||||||||||||||||||||
Net earnings |
|
| - |
|
|
| - |
|
|
| 79,088 |
|
|
| 79,088 |
|
|
| (791 | ) |
|
| 78,297 |
|
|
| - |
|
|
| - |
|
|
| 52,086 |
|
|
| 52,086 |
|
|
| 4,836 |
|
|
| 56,922 |
|
Other comprehensive income |
|
| - |
|
|
| 9,126 |
|
|
| - |
|
|
| 9,126 |
|
|
| 111 |
|
|
| 9,237 |
|
|
| - |
|
|
| 9,970 |
|
|
| - |
|
|
| 9,970 |
|
|
| - |
|
|
| 9,970 |
|
Common shares issued, net of withholding tax |
|
| 581 |
|
|
| - |
|
|
| - |
|
|
| 581 |
|
|
| - |
|
|
| 581 |
|
|
| (3,811 | ) |
|
| - |
|
|
| - |
|
|
| (3,811 | ) |
|
| - |
|
|
| (3,811 | ) |
Common shares in NQ plans |
|
| 117 |
|
|
| - |
|
|
| - |
|
|
| 117 |
|
|
| - |
|
|
| 117 |
|
|
| 239 |
|
|
| - |
|
|
| - |
|
|
| 239 |
|
|
| - |
|
|
| 239 |
|
Stock-based compensation |
|
| 3,212 |
|
|
| - |
|
|
| - |
|
|
| 3,212 |
|
|
| - |
|
|
| 3,212 |
|
|
| 2,880 |
|
|
| - |
|
|
| - |
|
|
| 2,880 |
|
|
| - |
|
|
| 2,880 |
|
Purchases and retirement of common shares |
|
| (4,831 | ) |
|
| - |
|
|
| (42,587 | ) |
|
| (47,418 | ) |
|
| - |
|
|
| (47,418 | ) | ||||||||||||||||||||||||
Cash dividends declared |
|
| - |
|
|
| - |
|
|
| (12,822 | ) |
|
| (12,822 | ) |
|
| - |
|
|
| (12,822 | ) |
|
| - |
|
|
| - |
|
|
| (13,446 | ) |
|
| (13,446 | ) |
|
| - |
|
|
| (13,446 | ) |
Balance at February 28. 2018 |
| $ | 295,871 |
|
| $ | (1,954 | ) |
| $ | 657,254 |
|
| $ | 951,171 |
|
| $ | 122,816 |
|
| $ | 1,073,987 |
| ||||||||||||||||||||||||
Dividends to noncontrolling interest |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1,453 | ) |
|
| (1,453 | ) | ||||||||||||||||||||||||
Balance at November 30, 2019 |
| $ | 280,077 |
|
| $ | (30,338 | ) |
| $ | 586,152 |
|
| $ | 835,891 |
|
| $ | 122,852 |
|
| $ | 958,743 |
|
13
|
| Controlling Interest |
|
|
|
|
|
|
|
|
| |||||||||||||
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
| Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Additional |
|
| Comprehensive |
|
|
|
|
|
|
|
|
|
| Non- |
|
|
|
|
| |||
|
| Paid-in |
|
| Loss, |
|
| Retained |
|
|
|
|
|
| controlling |
|
|
|
|
| ||||
(in thousands) |
| Capital |
|
| Net of Tax |
|
| Earnings |
|
| Total |
|
| Interests |
|
| Total |
| ||||||
Balance at May 31, 2018 |
| $ | 295,592 |
|
| $ | (14,580 | ) |
| $ | 637,757 |
|
| $ | 918,769 |
|
| $ | 117,606 |
|
| $ | 1,036,375 |
|
Net earnings |
|
| - |
|
|
| - |
|
|
| 54,942 |
|
|
| 54,942 |
|
|
| 2,016 |
|
|
| 56,958 |
|
Other comprehensive loss |
|
| - |
|
|
| (5,745 | ) |
|
| - |
|
|
| (5,745 | ) |
|
| (17 | ) |
|
| (5,762 | ) |
Common shares issued, net of withholding tax |
|
| (4,091 | ) |
|
| - |
|
|
| - |
|
|
| (4,091 | ) |
|
| - |
|
|
| (4,091 | ) |
Common shares in NQ plans |
|
| 152 |
|
|
| - |
|
|
| - |
|
|
| 152 |
|
|
| - |
|
|
| 152 |
|
Stock-based compensation |
|
| 4,838 |
|
|
| - |
|
|
| - |
|
|
| 4,838 |
|
|
| - |
|
|
| 4,838 |
|
ASC 606 transition adjustment |
|
| - |
|
|
| - |
|
|
| 1,174 |
|
|
| 1,174 |
|
|
| 570 |
|
|
| 1,744 |
|
Purchases and retirement of common shares |
|
| (4,003 | ) |
|
| - |
|
|
| (32,849 | ) |
|
| (36,852 | ) |
|
| - |
|
|
| (36,852 | ) |
Cash dividends declared |
|
| - |
|
|
| - |
|
|
| (13,668 | ) |
|
| (13,668 | ) |
|
| - |
|
|
| (13,668 | ) |
Dividends to noncontrolling interest |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (2,320 | ) |
|
| (2,320 | ) |
Balance at August 31, 2018 |
| $ | 292,488 |
|
| $ | (20,325 | ) |
| $ | 647,356 |
|
| $ | 919,519 |
|
| $ | 117,855 |
|
| $ | 1,037,374 |
|
Net earnings |
|
| - |
|
|
| - |
|
|
| 34,002 |
|
|
| 34,002 |
|
|
| 3,790 |
|
|
| 37,792 |
|
Other comprehensive loss |
|
| - |
|
|
| (11,245 | ) |
|
| - |
|
|
| (11,245 | ) |
|
| (55 | ) |
|
| (11,300 | ) |
Common shares issued, net of withholding tax |
|
| (658 | ) |
|
| - |
|
|
| - |
|
|
| (658 | ) |
|
| - |
|
|
| (658 | ) |
Common shares in NQ plans |
|
| 306 |
|
|
| - |
|
|
| - |
|
|
| 306 |
|
|
| - |
|
|
| 306 |
|
Stock-based compensation |
|
| 3,730 |
|
|
| - |
|
|
| - |
|
|
| 3,730 |
|
|
| - |
|
|
| 3,730 |
|
Purchases and retirement of common shares |
|
| (7,540 | ) |
|
| - |
|
|
| (56,041 | ) |
|
| (63,581 | ) |
|
| - |
|
|
| (63,581 | ) |
Cash dividends declared |
|
| - |
|
|
| - |
|
|
| (13,401 | ) |
|
| (13,401 | ) |
|
| - |
|
|
| (13,401 | ) |
Dividends to noncontrolling interest |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (4,007 | ) |
|
| (4,007 | ) |
Balance at November 30, 2018 |
| $ | 288,326 |
|
| $ | (31,570 | ) |
| $ | 611,916 |
|
| $ | 868,672 |
|
| $ | 117,583 |
|
| $ | 986,255 |
|
14
The following table summarizestables summarize the changes in accumulated other comprehensive loss for the periodperiods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
| |||||||||||||||||
|
| Foreign |
|
| Pension |
|
|
|
|
|
| Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
| ||||
|
| Currency |
|
| Liability |
|
| Cash Flow |
|
| Comprehensive |
|
| Foreign |
|
| Pension |
|
|
|
|
|
| Other |
| |||||||
|
| Translation |
|
| Adjustment |
|
| Hedges |
|
| Loss |
|
| Currency |
|
| Liability |
|
| Cash Flow |
|
| Comprehensive |
| ||||||||
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Translation |
|
| Adjustment |
|
| Hedges |
|
| Loss |
| ||||
Balance as of May 31, 2018 |
| $ | (4,987 | ) |
| $ | (16,071 | ) |
| $ | 6,478 |
|
| $ | (14,580 | ) | ||||||||||||||||
Balance as of May 31, 2019 |
| $ | (19,639 | ) |
| $ | (17,856 | ) |
| $ | (5,969 | ) |
| $ | (43,464 | ) | ||||||||||||||||
Other comprehensive income (loss) before reclassifications |
|
| (8,813 | ) |
|
| 48 |
|
|
| (4,495 | ) |
|
| (13,260 | ) |
|
| 2,948 |
|
|
| 79 |
|
|
| (5,975 | ) |
|
| (2,948 | ) |
Reclassification adjustments to income (a) |
|
| - |
|
|
| - |
|
|
| (4,942 | ) |
|
| (4,942 | ) |
|
| 8,496 |
|
|
| 1,342 |
|
|
| 6,666 |
|
|
| 16,504 |
|
Income taxes |
|
| - |
|
|
| (108 | ) |
|
| 2,209 |
|
|
| 2,101 |
| ||||||||||||||||
Balance as of February 28, 2019 |
| $ | (13,800 | ) |
| $ | (16,131 | ) |
| $ | (750 | ) |
| $ | (30,681 | ) | ||||||||||||||||
Income tax effect |
|
| - |
|
|
| (313 | ) |
|
| (117 | ) |
|
| (430 | ) | ||||||||||||||||
Balance as of November 30, 2019 |
| $ | (8,195 | ) |
| $ | (16,748 | ) |
| $ | (5,395 | ) |
| $ | (30,338 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
| |
|
| Foreign |
|
| Pension |
|
|
|
|
|
| Other |
| |||
|
| Currency |
|
| Liability |
|
| Cash Flow |
|
| Comprehensive |
| ||||
(in thousands) |
| Translation |
|
| Adjustment |
|
| Hedges |
|
| Loss |
| ||||
Balance as of May 31, 2018 |
| $ | (4,987 | ) |
| $ | (16,071 | ) |
| $ | 6,478 |
|
| $ | (14,580 | ) |
Other comprehensive loss before reclassifications |
|
| (10,261 | ) |
|
| - |
|
|
| (4,530 | ) |
|
| (14,791 | ) |
Reclassification adjustments to income (a) |
|
| - |
|
|
| - |
|
|
| (4,063 | ) |
|
| (4,063 | ) |
Income tax effect |
|
| - |
|
|
| (97 | ) |
|
| 1,961 |
|
|
| 1,864 |
|
Balance as of November 30, 2018 |
| $ | (15,248 | ) |
| $ | (16,168 | ) |
| $ | (154 | ) |
| $ | (31,570 | ) |
| (a) | The statement of earnings |
(1) | Foreign currency translation – result of $7,454,000 related to the sale of our cryogenics business in Turkey; and $1,042,000 related to the impairment of our Nisshin joint venture. |
(2) | Pension liability adjustment – result of the settlement of certain participant balances within the pension plan maintained by WAVE. |
(3) | Cash flow hedges |
NOTE KL – Stock-Based Compensation
Non-Qualified Stock Options
During the ninesix months ended February 28,November 30, 2019, we granted non-qualified stock options covering a total of 95,600100,700 common shares under our stock-based compensation plans. The weighted average option price of $42.86$38.91 per share was equal to the market price of the underlying common shares at the grant date. The fair value of these stock options, based on the Black-Scholes option-
14
pricingoption-pricing model, calculated at the grant date, was $12.55$10.21 per share. The calculated pre-tax stock-based compensation expense for these stock options is $1,200,000$1,029,000 and will be recognized on a straight-line basis over the three-year vesting period, net of any forfeitures. The following assumptions were used to value these stock options:
Dividend yield |
|
| 2.42 | % |
Expected volatility |
|
| 33.10 | % |
Risk-free interest rate |
|
| 1.86 | % |
Expected term (years) |
|
| 6.0 |
|
Expected volatility is based on the historical volatility of our common shares and the risk-free interest rate is based on the U.S. Treasury strip rate for the expected term of the stock options. The expected term was developed using historical exercise experience.
Service-Based Restricted Common Shares
During the ninesix months ended February 28,November 30, 2019, we granted an aggregate of 360,175230,600 service-based restricted common shares under our stock-based compensation plans. The fair value of these restricted common shares was equal to the weighted average closing market price of the underlying common shares on the respective dates of grant, or $41.10$37.57 per share. The calculated pre-tax stock-based compensation expense for these restricted common shares is $14,802,000$8,665,000 and will be recognized on a straight-line basis over the three-year service-based vesting period, generally three-years, net of any forfeitures.
15
Market-Based Restricted Common Shares
On September 28, 2018,25, 2019, we granted an aggregate of 225,00050,000 restricted common shares to twoa key employeesemployee under one of our stock-based compensation plans. Vesting of these restricted common share awards is contingent upon the price of our common shares reaching $65.00 per share and remaining at or above that price for 90 consecutive days during the five-year period following the date of grant and the completion of a five-year service vesting period. The grant-date fair value of these restricted common shares, as determined by a Monte Carlo simulation model, was $23.38$14.31 per share. The following assumptions were used to determine the grant-date fair value and the derived service period for these restricted common shares:
Dividend yield |
|
|
| % |
Expected volatility |
|
|
| % |
Risk-free interest rate |
|
|
| % |
The calculated pre-tax stock-based compensation expense for these restricted common shares is $5,261,000$716,000 and will be recognized on a straight-line basis over the five-year service vesting period, net of any forfeitures.
Performance Share Awards
We have awarded performance shares to certain key employees under our stock-based compensation plans. These performance shares are earned based on the level of achievement with respect to corporate targets for cumulative corporate economic value added, earnings per share growth and, in the case of business unit executives, business unit operating income targets for the three-year periods ending May 31, 2019, 2020, 2021 and 2021.2022. These performance share awards will be paid, to the extent earned, in common shares of the CompanyWorthington Industries, Inc. in the fiscal quarter following the end of the applicable three-year performance period. The fair values of our performance shares are determined by the closing market prices of the underlying common shares at the respective grant dates of the performance shares and the pre-tax stock-based compensation expense is based on our periodic assessment of the probability of the targets being achieved and our estimate of the number of common shares that will ultimately be issued. During the nine six months ended February 28,November 30, 2019, we granted performance share awards covering an aggregate of 58,20055,500 common shares (at target levels). The calculated pre-tax stock-based compensation expense for these performance shares is $2,494,000.$2,160,000. The ultimate pre-tax stock-based compensation expense to be recognized over the three-year performance period will vary based on our periodic assessment of the probability of the targets being achieved.
NOTE LM – Income Taxes
Income tax expense for the ninesix months ended February 28,November 30, 2019 and 2018 reflected estimated annual effective income tax rates of 23.3%24.8% and 10.3%23.4%, respectively. The annual effective income tax rates 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 primarily a result of our WSP, Spartan, and TWB consolidated joint ventures. The earnings attributable to the noncontrolling interests in WSP, Spartan and TWB’s U.S. operations do not generate tax expense to Worthington since the investors in WSP, Spartan and TWB’s U.S. operations are taxed directly based on the earnings attributable to them. The tax expense of TWB’s wholly-owned foreign corporations is reported in our consolidated tax expense. Management is required to estimate the annual effective income tax
15
rate based upon its forecast of annual pre-tax income for domestic and foreign operations. Our actual effective income tax rate for fiscal 20192020 could be materially different from the forecasted rate as of February 28,November 30, 2019.
On December 22, 2017, the U.S. government enacted tax reform, the Tax Cuts and Jobs Act (the “TCJA”), which made comprehensive changes to U.S. federal income tax laws by moving from a global to a modified territorial tax regime. The TCJA lowered the U.S. corporate income tax rate from 35% to 21% in calendar year 2018 along with the elimination of certain deductions and credits, and a one-time “deemed repatriation” of accumulated foreign earnings. We recognized a provisional income tax benefit of $38,200,000 related to the re-measurement of deferred tax assets and liabilities and a provisional income tax expense of $6,900,000 for the one-time mandatory deemed repatriation tax during fiscal 2018. During the second quarter of fiscal 2019, we finalized the accounting for the TCJA and we made no material adjustments to these provisional amounts.16
NOTE MN – Earnings per Share
The following table sets forth the computation of basic and diluted earnings per share attributable to controlling interest for the periods presented:
| Three Months Ended February 28, |
|
| Nine Months Ended February 28, |
| Three Months Ended November 30, |
|
| Six Months Ended November 30, |
| ||||||||||||||||||||
(in thousands, except per share amounts) | 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||||||
Numerator (basic & diluted): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to controlling interest - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income available to common shareholders | $ | 26,773 |
|
| $ | 79,088 |
|
| $ | 115,717 |
|
| $ | 164,025 |
| $ | 52,086 |
|
| $ | 34,002 |
|
| $ | 47,310 |
|
| $ | 88,944 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share attributable to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
controlling interest - weighted average common shares |
| 56,478 |
|
|
| 60,383 |
|
|
| 57,650 |
|
|
| 61,451 |
|
| 55,059 |
|
|
| 57,716 |
|
|
| 55,150 |
|
|
| 58,226 |
|
Effect of dilutive securities |
| 1,496 |
|
|
| 1,962 |
|
|
| 1,739 |
|
|
| 2,056 |
|
| 1,013 |
|
|
| 1,622 |
|
|
| 1,055 |
|
|
| 1,787 |
|
Denominator for diluted earnings per share attributable to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
controlling interest - adjusted weighted average common shares |
| 57,974 |
|
|
| 62,345 |
|
|
| 59,389 |
|
|
| 63,507 |
|
| 56,072 |
|
|
| 59,338 |
|
|
| 56,205 |
|
|
| 60,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share attributable to controlling interest | $ | 0.47 |
|
| $ | 1.31 |
|
| $ | 2.01 |
|
| $ | 2.67 |
| $ | 0.95 |
|
| $ | 0.59 |
|
| $ | 0.86 |
|
| $ | 1.53 |
|
Diluted earnings per share attributable to controlling interest | $ | 0.46 |
|
| $ | 1.27 |
|
| $ | 1.95 |
|
| $ | 2.58 |
| $ | 0.93 |
|
| $ | 0.57 |
|
| $ | 0.84 |
|
| $ | 1.48 |
|
Stock options covering 309,133405,433 and 91,933223,372 common shares for the three months ended February 28,November 30, 2019 and 2018, respectively, and 316,079391,563 and 81,087152,256 common shares for the ninesix months ended February 28,November 30, 2019 and 2018, respectively, have been excluded from the computation of diluted earnings per share because the effect of their inclusion would have been “anti-dilutive”anti-dilutive for those periods.
16
17
Effective November 1, 2019, the Company deconsolidated substantially all of the net assets of the Engineered Cabs business, which has historically been treated as a separate reporting segment. The deconsolidated net assets included its two primary manufacturing facilities located in Greeneville, Tennessee and Watertown, South Dakota. The remaining non-core assets of the Engineered Cabs business, including the fabricated products facility in Stow, Ohio, and the steel packaging facility in Greensburg, Indiana, were retained. The retained Engineered Cabs assets no longer qualify as a separate operating or reportable segment. Accordingly, the activity related to our former Engineered Cabs operating segment has been reported in the “Other” category. Segment information reported in previous periods has been restated to conform to this new presentation.
The following table presents summarized financial information for our reportable segments as of the dates, and for the periods presented:
| Three Months Ended February 28, |
|
| Nine Months Ended February 28, |
| Three Months Ended November 30, |
|
| Six Months Ended November 30, |
| ||||||||||||||||||||
(in thousands) | 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||||||
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steel Processing | $ | 555,871 |
|
| $ | 518,113 |
|
| $ | 1,851,401 |
|
| $ | 1,599,994 |
| $ | 516,937 |
|
| $ | 635,043 |
|
| $ | 1,040,312 |
|
| $ | 1,295,530 |
|
Pressure Cylinders |
| 290,690 |
|
|
| 295,506 |
|
|
| 885,490 |
|
|
| 866,179 |
|
| 290,136 |
|
|
| 294,447 |
|
|
| 594,532 |
|
|
| 594,800 |
|
Engineered Cabs |
| 27,817 |
|
|
| 27,055 |
|
|
| 83,798 |
|
|
| 89,405 |
| |||||||||||||||
Other |
| 3 |
|
|
| 983 |
|
|
| 25 |
|
|
| 5,582 |
|
| 20,564 |
|
|
| 28,736 |
|
|
| 48,652 |
|
|
| 56,003 |
|
Total net sales | $ | 874,381 |
|
| $ | 841,657 |
|
| $ | 2,820,714 |
|
| $ | 2,561,160 |
| $ | 827,637 |
|
| $ | 958,226 |
|
| $ | 1,683,496 |
|
| $ | 1,946,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steel Processing | $ | 10,166 |
|
| $ | 31,125 |
|
| $ | 74,842 |
|
| $ | 105,127 |
| $ | 17,172 |
|
| $ | 25,016 |
|
| $ | 23,340 |
|
| $ | 64,676 |
|
Pressure Cylinders |
| 18,953 |
|
|
| 17,530 |
|
|
| 48,444 |
|
|
| 52,663 |
|
| 15,647 |
|
|
| 14,758 |
|
|
| 45,270 |
|
|
| 29,491 |
|
Engineered Cabs |
| (3,787 | ) |
|
| (4,083 | ) |
|
| (11,469 | ) |
|
| (6,031 | ) | |||||||||||||||
Other |
| 645 |
|
|
| (1,809 | ) |
|
| 935 |
|
|
| (14,712 | ) |
| (701 | ) |
|
| (3,910 | ) |
|
| (51,080 | ) |
|
| (7,392 | ) |
Total operating income | $ | 25,977 |
|
| $ | 42,763 |
|
| $ | 112,752 |
|
| $ | 137,047 |
| $ | 32,118 |
|
| $ | 35,864 |
|
| $ | 17,530 |
|
| $ | 86,775 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of goodwill and long-lived assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Impairment of long-lived assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Steel Processing | $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
Pressure Cylinders |
| - |
|
|
| - |
|
|
| 2,381 |
|
|
| 964 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,381 |
|
Engineered Cabs |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
| |||||||||||||||
Other |
| - |
|
|
| - |
|
|
| - |
|
|
| 7,325 |
|
| - |
|
|
| - |
|
|
| 40,601 |
|
|
| - |
|
Total impairment of goodwill and long-lived assets | $ | - |
|
| $ | - |
|
| $ | 2,381 |
|
| $ | 8,289 |
| |||||||||||||||
Total impairment of long-lived assets | $ | - |
|
| $ | - |
|
| $ | 40,601 |
|
| $ | 2,381 |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and other expense (income), net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steel Processing | $ | - |
|
| $ | (3 | ) |
| $ | (9 | ) |
| $ | (10,059 | ) | $ | - |
|
| $ | - |
|
| $ | (26 | ) |
| $ | (9 | ) |
Pressure Cylinders |
| (11,176 | ) |
|
| - |
|
|
| (11,701 | ) |
|
| 2,365 |
|
| - |
|
|
| 402 |
|
|
| - |
|
|
| (525 | ) |
Engineered Cabs |
| - |
|
|
| - |
|
|
| - |
|
|
| (78 | ) | |||||||||||||||
Other |
| - |
|
|
| - |
|
|
| - |
|
|
| 379 |
|
| (50 | ) |
|
| - |
|
|
| 431 |
|
|
| - |
|
Total restructuring and other income, net | $ | (11,176 | ) |
| $ | (3 | ) |
| $ | (11,710 | ) |
| $ | (7,393 | ) | |||||||||||||||
Total restructuring and other expense (income), net | $ | (50 | ) |
| $ | 402 |
|
| $ | 405 |
|
| $ | (534 | ) |
| February 28, |
|
| May 31, |
| November 30, |
|
| May 31, |
| ||||
(in thousands) | 2019 |
|
| 2018 |
| 2019 |
|
| 2019 |
| ||||
Total assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steel Processing | $ | 949,265 |
|
| $ | 999,238 |
| $ | 868,597 |
|
| $ | 924,966 |
|
Pressure Cylinders |
| 1,117,303 |
|
|
| 1,147,268 |
|
| 1,143,256 |
|
|
| 1,123,115 |
|
Engineered Cabs |
| 66,934 |
|
|
| 66,456 |
| |||||||
Other |
| 433,791 |
|
|
| 408,825 |
|
| 397,108 |
|
|
| 462,715 |
|
Total assets | $ | 2,567,293 |
|
| $ | 2,621,787 |
| $ | 2,408,961 |
|
| $ | 2,510,796 |
|
NOTE OP – Acquisitions
Heidtman Steel Products, Inc.
On October 7, 2019, we acquired the Cleveland, Ohio-based operating net assets, excluding working capital, of Heidtman for cash consideration of $29,593,000. The acquired net assets are being managed and reported as a component of our Steel Processing operating segment.
18
The information included herein has been prepared based on the preliminary allocation of the purchase price using estimates of the fair value and useful lives of the assets acquired. The purchase price allocation is subject to further adjustment until all pertinent information regarding the assets acquired is fully evaluated by the Company, including but not limited to, the fair value accounting.
The assets acquired and liabilities assumed were recognized at their acquisition-date fair values, with goodwill representing the excess of the purchase price over the fair value of the net identifiable assets acquired. A customer list intangible asset was identified and valued and will be amortized over the estimated useful life of 10 years.
The purchase price includes the fair values of other assets that were not identifiable, not separately recognizable under accounting rules (e.g., assembled workforce) or of immaterial value. The purchase price also includes strategic and synergistic benefits (investment value) specific to us, which resulted in a purchase price in excess of the fair value of the identifiable net assets. This additional investment value resulted in goodwill, which is expected to be deductible for income tax purposes.
The following table summarizes the consideration paid and the 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 third-party valuation specialists, and are subject to change within the measurement period as valuations are finalized. The primary areas of preliminary purchase price allocation subject to change relate to the valuation of the acquired tangible assets (including finance lease assets), identification and valuation of intangible assets acquired and residual goodwill.
(in thousands) |
|
|
|
|
Customer list |
| $ | 2,900 |
|
Property, plant and equipment |
|
| 7,515 |
|
Finance lease assets |
|
| 8,000 |
|
Other assets |
|
| 725 |
|
Net identifiable assets |
|
| 19,140 |
|
Goodwill |
|
| 10,453 |
|
Purchase price |
| $ | 29,593 |
|
NOTE Q – Derivative Instruments and Hedging Activities
We utilize derivative financial instruments to manage exposure to certain risks related to our ongoing operations. The primary risks managed through the use of derivative instruments include interest rate risk, foreign currency exchange rate risk and commodity price risk. While certain of our derivative instruments are designated as hedging instruments, we also enter into derivative instruments that are designed to hedge a risk, but are not designated as hedging instruments and, therefore, do not qualify for hedge accounting. These derivative instruments are adjusted to current fair value through earnings (loss) 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-
17
ratefixed-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 foreign currency exchange rate fluctuations. The translation of foreign currencies into U.S. dollars also subjects us to exposure related to fluctuating foreign currency exchange rates; however, derivative instruments are not used to manage this risk.
Commodity Price Risk Management – We are exposed to changes in the price of certain commodities, including steel, natural gas, zinc and other raw materials, and our utility requirements. Our objective is to reduce earnings and cash flow volatility associated with forecasted purchases and sales of these commodities to allow management to focus its attention on business operations. Accordingly, we enter into derivative contracts to manage the associated price risk.
We are exposed to counterparty credit risk on all of our derivative instruments. Accordingly, we have established and maintain strict counterparty credit guidelines. We have credit support agreements in place with certain counterparties to limit our credit exposure. These agreements require either party to post cash collateral if its cumulative market position exceeds a predefined liability threshold. Amounts posted to the margin accounts accrue interest at market rates and are required to be refunded in the period in which the cumulative market position falls below the required threshold. We do not have significant exposure to any one counterparty, and management believes the risk of loss is remote and, in any event, would not be material.
19
Refer to "NOTE PR – Fair Value" for additional information regarding the accounting treatment for our derivative instruments, as well as how fair value is determined.
The following table summarizes the fair value of our derivative instruments and the respective lines in which they were recorded in the consolidated balance sheet at February 28,November 30, 2019:
|
| Asset Derivatives |
|
| Liability Derivatives |
|
| Asset Derivatives |
|
| Liability Derivatives |
| ||||||||||||
|
| Balance |
|
|
|
|
| Balance |
|
|
|
|
| Balance |
|
|
|
|
| Balance |
|
|
|
|
|
| Sheet |
| Fair |
|
| Sheet |
| Fair |
|
| Sheet |
| Fair |
|
| Sheet |
| Fair |
| ||||
(in thousands) |
| Location |
| Value |
|
| Location |
| Value |
|
| Location |
| Value |
|
| Location |
| Value |
| ||||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts |
| Receivables |
| $ | 57 |
|
| Accounts payable |
| $ | 1,679 |
|
| Receivables |
| $ | 9 |
|
| Accounts payable |
| $ | 4,569 |
|
|
| Other assets |
|
| 6 |
|
| Other liabilities |
|
| - |
|
| Other assets |
|
| - |
|
| Other liabilities |
|
| 451 |
|
Totals |
|
|
| $ | 63 |
|
|
|
| $ | 1,679 |
|
|
|
| $ | 9 |
|
|
|
| $ | 5,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts |
| Receivables |
| $ | 789 |
|
| Accounts payable |
| $ | 933 |
|
| Receivables |
| $ | 953 |
|
| Accounts payable |
| $ | 1,487 |
|
|
| Other assets |
|
| 74 |
|
| Other liabilities |
|
| - |
|
| Other assets |
|
| 7 |
|
| Other liabilities |
|
| 223 |
|
|
|
|
|
| 863 |
|
|
|
|
| 933 |
|
|
|
|
| 960 |
|
|
|
|
| 1,710 |
|
Foreign currency exchange contracts |
| Receivables |
|
| - |
|
| Accounts payable |
|
| 15 |
|
| Receivables |
|
| - |
|
| Accounts payable |
|
| 75 |
|
Totals |
|
|
| $ | 863 |
|
|
|
| $ | 948 |
|
|
|
| $ | 960 |
|
|
|
| $ | 1,785 |
|
Total derivative instruments |
|
|
| $ | 926 |
|
|
|
| $ | 2,627 |
|
|
|
| $ | 969 |
|
|
|
| $ | 6,805 |
|
The amounts in the table above reflect the fair value of the Company’s derivative instruments on a net basis.basis at November 30, 2019. Had these amounts been recognized on a gross basis, the impact would have been a $938,000$581,000 increase in receivables with a corresponding increase in accounts payable.
18
The following table summarizes the fair value of our derivative instruments and the respective lines in which they were recorded in the consolidated balance sheet at May 31, 2018:2019:
|
| Asset Derivatives |
|
| Liability Derivatives |
|
| Asset Derivatives |
|
| Liability Derivatives |
| ||||||||||||
|
| Balance |
|
|
|
|
| Balance |
|
|
|
|
| Balance |
|
|
|
|
| Balance |
|
|
|
|
|
| Sheet |
| Fair |
|
| Sheet |
| Fair |
|
| Sheet |
| Fair |
|
| Sheet |
| Fair |
| ||||
(in thousands) |
| Location |
| Value |
|
| Location |
| Value |
|
| Location |
| Value |
|
| Location |
| Value |
| ||||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts |
| Receivables |
| $ | 6,385 |
|
| Accounts payable |
| $ | - |
|
| Receivables |
| $ | 5 |
|
| Accounts payable |
| $ | 8,383 |
|
|
| Other assets |
|
| 68 |
|
| Other liabilities |
|
| - |
|
| Other assets |
|
| - |
|
| Other liabilities |
|
| 201 |
|
Totals |
|
|
| $ | 6,453 |
|
|
|
| $ | - |
|
|
|
| $ | 5 |
|
|
|
| $ | 8,584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts |
| Receivables |
| $ | 4,749 |
|
| Accounts payable |
| $ | 613 |
|
| Receivables |
| $ | 2,347 |
|
| Accounts payable |
| $ | 3,568 |
|
|
| Other assets |
|
| 221 |
|
| Other liabilities |
|
| 158 |
|
| Other assets |
|
| 62 |
|
| Other liabilities |
|
| 66 |
|
|
|
|
|
| 4,970 |
|
|
|
|
| 771 |
|
|
|
|
| 2,409 |
|
|
|
|
| 3,634 |
|
Foreign currency exchange contracts |
| Receivables |
|
| - |
|
| Accounts payable |
|
| 75 |
|
| Receivables |
|
| - |
|
| Accounts payable |
|
| 20 |
|
Totals |
|
|
| $ | 4,970 |
|
|
|
| $ | 846 |
|
|
|
| $ | 2,409 |
|
|
|
| $ | 3,654 |
|
Total derivative instruments |
|
|
| $ | 11,423 |
|
|
|
| $ | 846 |
|
|
|
| $ | 2,414 |
|
|
|
| $ | 12,238 |
|
The amounts in the table above reflect the fair value of the Company’s derivative instruments on a net basis.basis at May 31, 2019. Had these amounts been recognized on a gross basis, the impact would have been a $351,000$220,000 increase in receivables with a corresponding increase in accounts payable.
Cash Flow Hedges
We enter into derivative instruments to hedge our exposure to changes in cash flows attributable to commodity price fluctuations associated with certain forecasted transactions. These derivative instruments are designated and qualify as cash flow hedges. Accordingly, the effective portionThe earnings effects of the gain or loss on thethese derivative instrument is reported as a component of AOCI and reclassified into earningsinstruments are presented in the same statement of earnings line associated withitems as the forecasted transaction and in the same period during whichearnings effects of the hedged transaction affects earnings. The ineffective portionitems. For derivatives designated as cash flow hedges, the Company assesses hedge effectiveness both at the onset of the gain or loss onhedge and at regular intervals throughout the life of the derivative instrument is recognized in earnings immediately.instrument.
20
The following table summarizes our cash flow hedges outstanding at February 28,November 30, 2019:
|
| Notional |
|
|
|
| Notional |
|
|
| ||
(in thousands) |
| Amount |
|
| Maturity Date |
| Amount |
|
| Maturity Date | ||
Commodity contracts |
| $ | 22,760 |
|
| March 2019 - June 2020 |
| $ | 40,824 |
|
| December 2019 - June 2021 |
19
The following table summarizes the gain (loss) recognized in OCI and the gain (loss) reclassified from AOCI into net earnings for derivative instruments designated as cash flow hedges for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
| Location of |
|
|
|
| ||||||||||
|
|
|
|
|
| Location of |
|
|
|
|
| Gain |
| Gain |
| |||||||||||
|
|
|
|
|
| Gain (Loss) |
| Gain (Loss) |
|
| (Ineffective |
| (Ineffective |
| ||||||||||||
|
| Gain (Loss) |
|
| Reclassified |
| Reclassified |
|
| Portion) |
| Portion) |
| |||||||||||||
|
| Recognized |
|
| from |
| from |
|
| and Excluded |
| and Excluded |
| |||||||||||||
|
| in OCI |
|
| AOCI |
| AOCI |
|
| from |
| from |
| |||||||||||||
|
| (Effective |
|
| (Effective |
| (Effective |
|
| Effectiveness |
| Effectiveness |
|
| Gain (Loss) |
|
| Location of Gain (Loss) |
| Gain (Loss) Reclassified |
| |||||
(in thousands) |
| Portion) |
|
| Portion) |
| Portion) |
|
| Testing |
| Testing |
|
| Recognized in OCI |
|
| Reclassified from AOCI into Net Earnings |
| from AOCI into Net Earnings |
| |||||
For the three months |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
ended February 28, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
For the three months ended November 30, 2019: |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Commodity contracts |
| $ | 35 |
|
| Cost of goods sold |
| $ | 931 |
|
| Cost of goods sold |
| $ | - |
|
| $ | 10 |
|
| Cost of goods sold |
| $ | (4,228 | ) |
Interest rate contracts |
|
| - |
|
| Interest expense |
|
| (41 | ) |
| Interest expense |
|
| - |
|
|
| (326 | ) |
| Interest expense |
|
| (7 | ) |
Foreign currency exchange contracts |
|
| - |
|
| Miscellaneous income, net |
|
| (11 | ) |
| Miscellaneous income, net |
|
| - |
|
|
| - |
|
| Miscellaneous income, net |
|
| (97 | ) |
Totals |
| $ | 35 |
|
|
|
| $ | 879 |
|
|
|
| $ | - |
|
| $ | (316 | ) |
|
|
| $ | (4,332 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
ended February 28, 2018: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Commodity contracts |
| $ | 2,429 |
|
| Cost of goods sold |
| $ | 3,195 |
|
| Cost of goods sold |
| $ | - |
| ||||||||||
Interest rate contracts |
|
| 21 |
|
| Interest expense |
|
| (34 | ) |
| Interest expense |
|
| - |
| ||||||||||
Totals |
| $ | 2,450 |
|
|
|
| $ | 3,161 |
|
|
|
| $ | - |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
For the nine months |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
ended February 28, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
For the three months ended November 30, 2018: |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Commodity contracts |
| $ | (4,495 | ) |
| Cost of goods sold |
| $ | 5,039 |
|
| Cost of goods sold |
| $ | - |
|
| $ | (4,499 | ) |
| Cost of goods sold |
| $ | 1,565 |
|
Interest rate contracts |
|
| - |
|
| Interest expense |
|
| (122 | ) |
| Interest expense |
|
| - |
|
|
| - |
|
| Interest expense |
|
| (34 | ) |
Foreign currency exchange contracts |
|
| - |
|
| Miscellaneous income, net |
|
| 25 |
|
| Miscellaneous income, net |
|
| - |
|
|
| - |
|
| Miscellaneous income, net |
|
| 36 |
|
Totals |
| $ | (4,495 | ) |
|
|
| $ | 4,942 |
|
|
|
| $ | - |
|
| $ | (4,499 | ) |
|
|
| $ | 1,567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
ended February 28, 2018: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
For the six months ended November 30, 2019: |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Commodity contracts |
| $ | 8,243 |
|
| Cost of goods sold |
| $ | 13,000 |
|
| Cost of goods sold |
| $ | - |
|
| $ | (5,649 | ) |
| Cost of goods sold |
| $ | (6,520 | ) |
Interest rate contracts |
|
| 3,119 |
|
| Interest expense |
|
| (425 | ) |
| Interest expense |
|
| - |
|
|
| (326 | ) |
| Interest expense |
|
| (127 | ) |
Foreign currency exchange contracts |
|
| - |
|
| Miscellaneous income, net |
|
| (19 | ) | ||||||||||||||||
Totals |
| $ | 11,362 |
|
|
|
| $ | 12,575 |
|
|
|
| $ | - |
|
| $ | (5,975 | ) |
|
|
| $ | (6,666 | ) |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
For the six months ended November 30, 2018: |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Commodity contracts |
| $ | (4,530 | ) |
| Cost of goods sold |
| $ | 4,108 |
| ||||||||||||||||
Interest rate contracts |
|
| - |
|
| Interest expense |
|
| (81 | ) | ||||||||||||||||
Foreign currency exchange contracts |
|
| - |
|
| Miscellaneous income, net |
|
| 36 |
| ||||||||||||||||
Totals |
| $ | (4,530 | ) |
|
|
| $ | 4,063 |
|
The estimated net amount of the losses recognized in AOCI at February 28,November 30, 2019 expected to be reclassified into net earnings within the succeeding twelve months is $1,486,000$5,916,000 (net of tax of $484,000)$1,863,000). This amount was computed using the fair value of the cash flow hedges at February 28,November 30, 2019, and will change before actual reclassification from OCI to net earnings during the fiscal years ending May 31, 20192020 and May 31, 2020.2021.
Economic (Non-designated) Hedges
We enter into foreign currency exchange contracts to manage our foreign currency exchange rate exposure related to inter-company and financing transactions that do not meet the requirements for hedge accounting treatment. We also enter into certain commodity contracts that do not qualify for hedge accounting treatment. Accordingly, these derivative instruments are adjusted to current market value at the end of each period through net earnings.
20
The following table summarizes our economic (non-designated) derivative instruments outstanding at February 28,November 30, 2019:
|
| Notional |
|
|
|
| Notional |
|
|
| ||
(in thousands) |
| Amount |
|
| Maturity Date(s) |
| Amount |
|
| Maturity Date(s) | ||
Commodity contracts |
| $ | 14,567 |
|
| March 2019 - June 2020 |
| $ | 45,247 |
|
| December 2019 - September 2021 |
Foreign currency exchange contracts |
|
| 6,255 |
|
| March 2019 - May 2019 |
|
| 3,901 |
|
| December 2019 - March 2020 |
21
The following table summarizestables summarize the gain (loss) recognized in net earnings for economic (non-designated) derivative financial instruments for the periods presented:
|
|
|
| Gain (Loss) Recognized |
|
|
|
| Gain (Loss) Recognized |
| ||||||||||
|
|
|
| In Earnings for the |
|
|
|
| In Net Earnings for the |
| ||||||||||
|
| Location of Gain (Loss) |
| Three Months Ended February 28, |
|
| Location of Gain (Loss) |
| Three Months Ended November 30, |
| ||||||||||
(in thousands) |
| Recognized in Earnings |
| 2019 |
|
| 2018 |
|
| Recognized in Net Earnings |
| 2019 |
|
| 2018 |
| ||||
Commodity contracts |
| Cost of goods sold |
| $ | 73 |
|
| $ | 1,787 |
|
| Cost of goods sold |
| $ | (1,673 | ) |
| $ | (737 | ) |
Foreign currency exchange contracts |
| Miscellaneous income, net |
|
| (455 | ) |
|
| 32 |
|
| Miscellaneous income, net |
|
| 15 |
|
|
| (1,183 | ) |
Total |
|
|
| $ | (382 | ) |
| $ | 1,819 |
|
|
|
| $ | (1,658 | ) |
| $ | (1,920 | ) |
|
|
|
| Gain (Loss) Recognized |
|
|
|
| Loss Recognized |
| ||||||||||
|
|
|
| in Earnings for the |
|
|
|
| in Net Earnings for the |
| ||||||||||
|
| Location of Gain (Loss) |
| Nine Months Ended February 28, |
|
| Location of Loss |
| Six Months Ended November 30, |
| ||||||||||
(in thousands) |
| Recognized in Earnings |
| 2019 |
|
| 2018 |
|
| Recognized in Net Earnings |
| 2019 |
|
| 2018 |
| ||||
Commodity contracts |
| Cost of goods sold |
| $ | (2,861 | ) |
| $ | 4,035 |
|
| Cost of goods sold |
| $ | (3,916 | ) |
| $ | (2,934 | ) |
Foreign currency exchange contracts |
| Miscellaneous income, net |
|
| (3,144 | ) |
|
| (157 | ) |
| Miscellaneous income, net |
|
| (89 | ) |
|
| (2,689 | ) |
Total |
|
|
| $ | (6,005 | ) |
| $ | 3,878 |
|
|
|
| $ | (4,005 | ) |
| $ | (5,623 | ) |
The gain (loss) on the foreign currency exchange contract derivatives significantly offsets the gain (loss) on the hedged item.
NOTE PR – 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.
21
Recurring Fair Value Measurements
At February 28,November 30, 2019, our assets and liabilities measured at fair value on a recurring basis were as follows:
|
|
|
|
|
| Significant |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Significant |
|
|
|
|
|
|
|
|
| ||
|
| Quoted Prices |
|
| Other |
|
| Significant |
|
|
|
|
|
| Quoted Prices |
|
| Other |
|
| Significant |
|
|
|
|
| ||||||
|
| in Active |
|
| Observable |
|
| Unobservable |
|
|
|
|
|
| in Active |
|
| Observable |
|
| Unobservable |
|
|
|
|
| ||||||
|
| Markets |
|
| Inputs |
|
| Inputs |
|
|
|
|
|
| Markets |
|
| Inputs |
|
| Inputs |
|
|
|
|
| ||||||
(in thousands) |
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
|
| Totals |
|
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
|
| Totals |
| ||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments (1) |
| $ | - |
|
| $ | 926 |
|
| $ | - |
|
| $ | 926 |
|
| $ | - |
|
| $ | 969 |
|
| $ | - |
|
| $ | 969 |
|
Total assets |
| $ | - |
|
| $ | 926 |
|
| $ | - |
|
| $ | 926 |
|
| $ | - |
|
| $ | 969 |
|
| $ | - |
|
| $ | 969 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments (1) |
| $ | - |
|
| $ | 2,627 |
|
| $ | - |
|
| $ | 2,627 |
|
| $ | - |
|
| $ | 6,805 |
|
| $ | - |
|
| $ | 6,805 |
|
Total liabilities |
| $ | - |
|
| $ | 2,627 |
|
| $ | - |
|
| $ | 2,627 |
|
| $ | - |
|
| $ | 6,805 |
|
| $ | - |
|
| $ | 6,805 |
|
22
At May 31, 2018,2019, our assets and liabilities measured at fair value on a recurring basis were as follows:
|
|
|
|
|
| Significant |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Significant |
|
|
|
|
|
|
|
|
| ||
|
| Quoted Prices |
|
| Other |
|
| Significant |
|
|
|
|
|
| Quoted Prices |
|
| Other |
|
| Significant |
|
|
|
|
| ||||||
|
| in Active |
|
| Observable |
|
| Unobservable |
|
|
|
|
|
| in Active |
|
| Observable |
|
| Unobservable |
|
|
|
|
| ||||||
|
| Markets |
|
| Inputs |
|
| Inputs |
|
|
|
|
|
| Markets |
|
| Inputs |
|
| Inputs |
|
|
|
|
| ||||||
(in thousands) |
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
|
| Totals |
|
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
|
| Totals |
| ||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments (1) |
| $ | - |
|
| $ | 11,423 |
|
| $ | - |
|
| $ | 11,423 |
|
| $ | - |
|
| $ | 2,414 |
|
| $ | - |
|
| $ | 2,414 |
|
Total assets |
| $ | - |
|
| $ | 11,423 |
|
| $ | - |
|
| $ | 11,423 |
|
| $ | - |
|
| $ | 2,414 |
|
| $ | - |
|
| $ | 2,414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments (1) |
| $ | - |
|
| $ | 846 |
|
| $ | - |
|
| $ | 846 |
|
| $ | - |
|
| $ | 12,238 |
|
| $ | - |
|
| $ | 12,238 |
|
Total liabilities |
| $ | - |
|
| $ | 846 |
|
| $ | - |
|
| $ | 846 |
|
| $ | - |
|
| $ | 12,238 |
|
| $ | - |
|
| $ | 12,238 |
|
| (1) | The fair value of our derivative instruments is based on the present value of the expected future cash flows considering the risks involved, including non-performance risk, and using discount rates appropriate for the respective maturities. Market observable, Level 2 inputs are used to determine the present value of the expected future cash flows. Refer to “NOTE |
Non-Recurring Fair Value Measurements
At February 28,November 30, 2019, there were noour assets or liabilities measured at fair value on a non-recurring basis on our consolidated balance sheet.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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in unconsolidated affiliate (1) |
| $ | - |
|
| $ | - |
|
| $ | 13,623 |
|
|
| 13,623 |
|
Long-lived assets held and used (2) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Total assets |
| $ | - |
|
| $ | - |
|
| $ | 13,623 |
|
| $ | 13,623 |
|
23
At May 31, 2018,2019, 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 |
|
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
|
| Totals |
| ||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets held for sale (1) |
| $ | - |
|
| $ | 30,000 |
|
| $ | - |
|
| $ | 30,000 |
| ||||||||||||||||
Investment in unconsolidated affiliate (1) |
| $ | - |
|
| $ | 3,700 |
|
| $ | - |
|
| $ | 3,700 |
| ||||||||||||||||
Long-lived assets held for sale (3) |
|
| - |
|
|
| 7,000 |
|
|
| - |
|
|
| 7,000 |
| ||||||||||||||||
Long-lived assets held and used (4) |
|
| - |
|
|
| 1,238 |
|
|
| - |
|
|
| 1,238 |
| ||||||||||||||||
Total assets |
| $ | - |
|
| $ | 30,000 |
|
| $ | - |
|
| $ | 30,000 |
|
| $ | - |
|
| $ | 11,938 |
|
| $ | - |
|
| $ | 11,938 |
|
22
| 1) |
|
During the first quarter of fiscal 2019,2020, we determined our 10% minority ownership interest in our steel joint venture in China, Nisshin, was fully impaired based on the Company completed the saleestimated recoverability of the oil & gas equipment assets described above. In addition,related assets. During the Company loweredfourth quarter of fiscal 2019, we determined our 10% minority ownership interest in our Nisshin joint venture was other than temporarily impaired due to current and projected operating losses. As a result, the investment had been written down to its estimate of theestimated fair value of Worthington Aritas to $7,000,000,$3,700,000, resulting in an impairment charge of $4,017,000 within equity income of unconsolidated affiliates.
2) | During the first quarter of fiscal 2020, the Company identified an impairment indicator for the fabricated products business in Stow, Ohio within the former Engineered Cabs operating segment. As a result, fixed assets with a net book value of $1,469,000 and lease ROU assets with a net book value of $3,938,000 were deemed to be fully impaired and written off. |
3) | During the first quarter of fiscal 2019, changes in facts and circumstances related to the planned sale of our cryogenics business in Turkey, Worthington Aritas, resulted in our lowering the estimate of fair value less cost to sell to $7,000,000, generating an impairment charge of $2,381,000. |
4) | During the fourth quarter of fiscal 2019, in connection with the closure of the CNG fuel systems facility in Salt Lake City, Utah, long-lived assets consisting primarily of technology-related intangible assets and fixed assets were written down to their estimated fair value of $238,000, resulting in an impairment charge of $2,167,000. During the fourth quarter of fiscal 2019, certain long-lived assets at our consolidated joint venture, WSP, were written down to their estimated fair value of $1,000,000, resulting in an impairment charge of $3,269,000. |
The fair value of non-derivative financial instruments included in the carrying amounts of cash and cash equivalents, receivables, notes receivable, 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 $751,354,000$731,433,000 and $757,069,000$767,075,000 at February 28,November 30, 2019 and May 31, 2018,2019, respectively. The carrying amount of long-term debt, including current maturities, was $749,486,000$698,803,000 and $750,368,000$749,299,000 at February 28,November 30, 2019 and May 31, 2018,2019, respectively.
NOTE QS – Subsequent Events
On March 20,December 31, 2019, the BoardCompany contributed the recently acquired net assets of Directors of Worthington Industries, Inc. authorizedHeidtman to the repurchase of upSamuel joint venture in exchange for an incremental 31.75% ownership interest in the Samuel joint venture, bringing the Company’s total ownership interest to an additional 6,600,00063%. As a result of the Company’s common shares, increasingtransaction, the total numberCompany obtained a controlling interest in the Samuel joint venture, resulting in the consolidation of shares availableSamuel upon closing. The accounting for repurchase to 10,000,000.the transaction, including the revaluation of its previously held interest in Samuel, will be completed in the third quarter of fiscal 2020.
23
24
Item 2. – Management’s Discussion and Analysis ofof Financial Condition and Results of Operations
Selected statements contained in this “Item 2. – Management’s Discussion and Analysis of Financial Condition and Results of Operations” constitute “forward-looking statements” as that term is used in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based, in whole or in part, on management’s beliefs, estimates, assumptions and currently available information. For a more detailed discussion of what constitutes a forward-looking statement and of some of the factors that could cause actual results to differ materially from such forward-looking statements, please refer to the “Safe Harbor Statement” in the beginning of this Quarterly Report on Form 10-Q, “Part I – Item 1A. – Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended May 31, 20182019 and “PART II – Item 1A. – Risk Factors” of this Quarterly Report on Form 10-Q.
Introduction
The following discussion and analysis of market and industry trends, business developments, and the results of operations and financial position of Worthington Industries, Inc., together with its subsidiaries (collectively, “we,” “our,” “Worthington,” or the “Company”), should be read in conjunction with our consolidated financial statements and notes thereto included in “Item 1. – Financial Statements” of this Quarterly Report on Form 10-Q. Our Annual Report on Form 10-K for the fiscal year ended May 31, 20182019 (“fiscal 2018”2019”) includes additional information about Worthington, our operations and our consolidated financial position and should be read in conjunction with this Quarterly Report on Form 10-Q.
As of February 28,November 30, 2019, excluding our joint ventures, we operated 3228 manufacturing facilities worldwide, principally in threetwo operating segments, which correspond with our reportable business segments: Steel Processing and Pressure Cylinders and Engineered Cabs.Cylinders.
As of February 28,November 30, 2019, we held equity positions in nineten joint ventures, which operated 4948 manufacturing facilities worldwide.worldwide, including 26 facilities which were operated by joint ventures in which we held a 50% or greater ownership interest. Three of these joint ventures are consolidated with the equity owned by the other joint venture member(s) shown as noncontrolling interests in our consolidated balance sheets, and their portions of net earnings (loss) and other comprehensive income (loss) shown as net earnings or comprehensive income (loss) attributable to noncontrolling interests in our consolidated statements of earnings and consolidated statements of comprehensive income, respectively. The remaining sixseven of these joint ventures are accounted for using the equity method.
Overview
Operating income for the current quarter was down $16.7$3.8 million, or 39% from the comparable prior year quarter, despite benefitting from a 4% increase11%. Results in net sales and a net restructuring gain of $11.2 million. The Company’s resultsSteel Processing continued to be negatively impacted by fluctuatingdeclining steel prices, that have resultedwhich led to a $7.3 million swing from inventory holding gains to inventory holding losses from the ongoing steel tariffs, which have increased selling prices in Steel Processing but have created short-term margin pressure across most of our businesses. The run-up in steel prices that began during the latter part of fiscal 2018 continued into the firstsecond quarter of fiscal 2019 reaching a peakto the second quarter of $918 per tonfiscal 2020. Lower direct volume in July 2018, but have since receded to more normal levels. The recent decline in steel prices led to significant inventory holding lossesSteel Processing and lower volumes in the current quarter and also contributed to lower direct volume as customers delayed orders. The steel tariffs have also resultedindustrial products business in lower scrap prices relative to the cost of steel, which also had a negative impact on direct spreads.
Higher material prices have also put pressure on margins in our Pressure Cylinders businesses as costs for both steelwere partially offset by improved direct spreads and helium increased duringhigher toll volume in Steel Processing and higher volumes in the quarter. However, margins have begun to improve asconsumer products business and overall improvement in the result of recent increase to selling prices and other cost mitigation efforts undertaken by the Company.oil & gas equipment business in Pressure Cylinders results were also negatively impacted by a $13.0 million charge associated with a tank replacement program for certain composite hydrogen fuel tanks produced primarily between 2012 and 2015, as described further under Recent Business Developments.Cylinders.
Equity in net income of unconsolidated affiliates (“equity income”) for the current year second quarter increased $1.1$26.2 million over the comparable prior year quarter on a pre-tax gain of $23.1 million at WAVE related to the sale of its international operations. The remaining increase was primarily due primarily to higher contributionsa $5.4 million increase in equity income from WAVE, up $2.3 million,ClarkDietrich, driven by improved margins and increased volumes, partially offset by declines ata lower contribution from Serviacero Worthington and ArtiFlex.a $1.5 million loss related to our retained interest in the newly-formed Cabs joint venture, which consisted primarily of transaction-related expenses incurred at the new company as further described under Recent Business Developments. We received cash distributions from unconsolidated joint ventures of $21.4$27.5 million during the thirdsecond quarter of fiscal 2019.2020.
Recent Business Developments
During the third quarter of fiscal 2019, the Company repurchased a total of 800,000 common shares for $28.6 million at an average price of $35.72. During the first nine months of fiscal 2019, the Company repurchased a total of 3,100,000 common shares for $129.0 million.
• | During the first six months of fiscal 2020, the Company has repurchased a total of 750,000 common shares for $29.6 million at an average price of $39.45 per share. |
• | On July 26, 2019, the Company completed the sale of Worthington Aritas Basınçlı Kaplar Sanayi (“Worthington Aritas”), its Turkish manufacturer of cryogenic pressure vessels. The Company received cash proceeds, net of transaction costs, of $8.3 million resulting in a pre-tax restructuring loss of $0.5 million. |
On June 1, 2018, the Company announced certain organizational changes within Pressure Cylinders resulting in the consolidation of the alternative fuels business into the industrial products business unit.
• | On August 23, 2019, the Company issued a €36.7 million principal amount unsecured 1.56% Series A Senior Note due August 23, 2031 (the “2031 Note”) and €55.0 million aggregate principal amount of unsecured 1.90% Series B Senior Notes due August 23, 2034 (the “2034 Notes”), (collectively, the “Senior Notes”). The Senior Notes were issued in a private placement and the proceeds thereof were used in the redemption of $150.0 million of aggregate principal amount of 6.50% senior notes. Refer to “Item 1. – Financial Statements – Notes to Consolidated Financial Statements – NOTE I – Debt and Receivables Securitization” for more information on these transactions. |
24
25
Following the retirement of Mark Russell, President and Chief Operating Officer (“COO”), and John Lamprinakos, President of Steel Processing, Andy Rose was named President and Geoff Gilmore was named Executive Vice President and COO. Geoff will oversee both the Pressure Cylinders and Steel Processing businesses. Joe Hayek replaced Any Rose as Chief Financial Officer.
• | On October 7, 2019, we acquired the Cleveland, Ohio-based operating net assets, excluding working capital, of Heidtman Steel Products, Inc. (“Heidtman”) for cash consideration of $29.6 million, which expanded the Company’s pickling and slitting capabilities. The acquired business is being managed as part of our Steel Processing operating segment. Refer to “Item 1. – Financial Statements – Notes to Consolidated Financial Statements – NOTE P – Acquisitions” for more information on this transaction. |
In September 2018, the Company received a cash distribution of $35.0 million from WAVE representing the primary portion of its share of the proceeds received by Armstrong World Industries, Inc. (“AWI”) in connection with the pending sale of the combined international operations of WAVE and AWI. The Company expects to receive total proceeds of approximately $45.0 million in connection with the sale transaction, subject to certain closing adjustments provided in the purchase agreement. Refer to “Item 1. – Financial Statements – Notes to Consolidated Financial Statements – NOTE C – Investments in Unconsolidated Affiliates” for more information on this pending sale.
• | On November 1, 2019, we reached an agreement with an affiliate of Angeles Equity Partners, LLC to contribute substantially all of the net assets of our Engineered Cabs business to a newly-formed joint venture, Taxi Workhorse Holdings, LLC (the “Cabs joint venture”), in which the Company retained a 20% noncontrolling interest. Certain non-core assets of the Engineered Cabs business, including the fabricated products facility in Stow, Ohio, and the steel packaging facility in Greensburg, Indiana, were retained. The retained Engineered Cabs assets no longer qualify as a separate operating or reportable segment. For additional information refer to “Item 1. – Financial Statements – Notes to Consolidated Financial Statements – NOTE A – Basis of Presentation” and “Item 1. – Financial Statements – Notes to Consolidated Financial Statements – NOTE O – Segment Operations”. |
In October 2018, the Company received a $25.0 million one-time special cash distribution from WAVE in connection with a financing transaction completed by WAVE in October 2018.
• | On December 17, 2019, the Worthington Industries, Inc. Board of Directors (the “Worthington Industries Board”) declared a quarterly dividend of $0.24 per share payable on March 27, 2020 to shareholders of record on March 13, 2020. |
On December 31, 2018, the Pressure Cylinders segment sold the operating assets and real property related to its solder business to an affiliate of Lincoln Electric Holdings, Inc. (“Lincoln”) for $26.5 million, and subsequently sold certain brazing assets to Lincoln for an additional $1.1 million, resulting in a pre-tax net restructuring gain of $11.3 million.
• | On December 19, 2019, the Company finalized an agreement to transfer the risks and rewards related to its 10% minority ownership interest in the Zhejiang Nisshin Worthington Precision Specialty Steel Co., Ltd. (“Nisshin”) joint venture in China to the other joint venture partners. Refer to “Item 1. – Financial Statements – Notes to Consolidated Financial Statements – NOTE C – Investments in Unconsolidated Affiliates” for more information on this transaction. |
In February 2019, our Structural Composite Industries, LLC subsidiary (“SCI”) agreed to participate in a tank replacement program for specific composite hydrogen fuel tanks, and recorded a $13.0 million charge to costs of goods sold to reflect our estimated costs of replacing these tanks. Refer to “Item 1. – Financial Statements – Notes to Consolidated Financial Statements – NOTE F – Contingent Liabilities and Commitments” for more information on the tank replacement program.
On March 20, 2019, the Board of Directors of Worthington Industries, Inc. (the “Worthington Industries Board”) authorized the repurchase of up to an additional 6,600,000 of the Company’s common shares, increasing the total number of shares available for repurchase to 10,000,000.
• | On December 31, 2019, the Company contributed the recently acquired net assets of Heidtman acquisition to the Samuel joint venture in exchange for an incremental 31.75% ownership interest in the Samuel joint venture, bringing our total ownership interest to 63%. Refer to “Item 1. – Financial Statements – Notes to Consolidated Financial Statements – NOTE S – Subsequent Events” for more information on this transaction. |
Market & Industry Overview
We sell our products and services to a diverse customer base and a broad range of end markets. The breakdown of net sales by end market for the thirdsecond quarter of each of fiscal 20192020 and fiscal 20182019 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 61%58% of Steel Processing’s net sales are to the automotive market. North American
26
vehicle production, primarily by Ford, General Motors and FCA US (the “Detroit Three automakers”), has a considerable impact on the activity within this operating segment. The majority of the net sales of three of our unconsolidated joint ventures are also to the automotive market.
25
Approximately 11%17% of the net sales of our Steel Processing operating segment and 33% of the net sales of our Engineered Cabs operating segment are to the construction market. The construction market is also the predominant end market for two of our unconsolidated joint ventures: WAVE and ClarkDietrich. While the market price of steel significantly impacts these businesses, there are other key indicators that are meaningful in analyzing construction market demand, including U.S. gross domestic product (“GDP”), the Dodge Index of construction contracts and, in the case of ClarkDietrich, trends in the relative price of framing lumber and steel.
Substantially all of the net sales of our Pressure Cylinders operating segment and approximately 28% and 67%25% of the net sales of our Steel Processing and Engineered Cabs operating segments, respectively,segment are to other markets such as consumer products, industrial products, lawn and garden, agriculture, oil & gas equipment, heavy truck, mining, forestry and appliance. 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 these businesses.
We use the following information to monitor costs and assess demand in our major end markets:
|
| Three Months Ended February 28, |
|
|
|
|
|
| Nine Months Ended February 28, |
|
|
|
|
|
| Three Months Ended November 30, |
|
|
|
|
|
| Six Months Ended November 30, |
|
|
|
|
| ||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| Inc / (Dec) |
|
| 2019 |
|
| 2018 |
|
| Inc / (Dec) |
|
| 2019 |
|
| 2018 |
|
| Inc / (Dec) |
|
| 2019 |
|
| 2018 |
|
| Inc / (Dec) |
| ||||||||||||
U.S. GDP (% growth year-over-year) 1 |
|
| 3.1 | % |
|
| 2.4 | % |
|
| 0.7 | % |
|
| 2.9 | % |
|
| 2.2 | % |
|
| 0.7 | % |
|
| 2.1 | % |
|
| 3.4 | % |
|
| -1.3 | % |
|
| 2.3 | % |
|
| 3.0 | % |
|
| -0.7 | % |
Hot-Rolled Steel ($ per ton) 2 |
| $ | 725 |
|
| $ | 674 |
|
| $ | 51 |
|
| $ | 820 |
|
| $ | 629 |
|
| $ | 191 |
|
| $ | 526 |
|
| $ | 836 |
|
| $ | (310 | ) |
| $ | 545 |
|
| $ | 868 |
|
| $ | (323 | ) |
Detroit Three Auto Build (000's vehicles) 3 |
|
| 1,973 |
|
|
| 2,050 |
|
|
| (77 | ) |
|
| 6,259 |
|
|
| 6,306 |
|
|
| (47 | ) |
|
| 1,895 |
|
|
| 2,191 |
|
|
| (296 | ) |
|
| 3,978 |
|
|
| 4,286 |
|
|
| (308 | ) |
No. America Auto Build (000's vehicles) 3 |
|
| 3,962 |
|
|
| 3,952 |
|
|
| 10 |
|
|
| 12,505 |
|
|
| 12,432 |
|
|
| 73 |
|
|
| 4,098 |
|
|
| 4,417 |
|
|
| (319 | ) |
|
| 8,216 |
|
|
| 8,543 |
|
|
| (327 | ) |
Zinc ($ per pound) 4 |
| $ | 1.16 |
|
| $ | 1.50 |
|
| $ | (0.34 | ) |
| $ | 1.20 |
|
| $ | 1.40 |
|
| $ | (0.20 | ) |
| $ | 1.09 |
|
| $ | 1.16 |
|
| $ | (0.07 | ) |
| $ | 1.11 |
|
| $ | 1.23 |
|
| $ | (0.12 | ) |
Natural Gas ($ per mcf) 5 |
| $ | 3.27 |
|
| $ | 2.86 |
|
| $ | 0.41 |
|
| $ | 3.17 |
|
| $ | 2.93 |
|
| $ | 0.24 |
|
| $ | 2.50 |
|
| $ | 3.37 |
|
| $ | (0.87 | ) |
| $ | 2.39 |
|
| $ | 3.13 |
|
| $ | (0.74 | ) |
On-Highway Diesel Fuel Prices ($ per gallon) 6 |
| $ | 3.03 |
|
| $ | 2.99 |
|
| $ | 0.04 |
|
| $ | 3.19 |
|
| $ | 2.79 |
|
| $ | 0.40 |
|
| $ | 3.04 |
|
| $ | 3.31 |
|
| $ | (0.27 | ) |
| $ | 3.05 |
|
| $ | 3.27 |
|
| $ | (0.22 | ) |
Crude Oil - WTI ($ per barrel) 6 |
| $ | 51.96 |
|
| $ | 61.33 |
|
| $ | (9.37 | ) |
| $ | 62.32 |
|
| $ | 53.56 |
|
| $ | 8.76 |
|
| $ | 55.47 |
|
| $ | 65.98 |
|
| $ | (10.51 | ) |
| $ | 55.54 |
|
| $ | 67.50 |
|
| $ | (11.96 | ) |
1 | 2018 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 |
U.S. GDP growth rate trends are generally indicative of the strength in demand and, in many cases, pricing for our products. A year-over-year increase in U.S. GDP growth rates is indicative of a stronger economy, which generally increases demand and pricing for our products. Conversely, decreasing U.S. GDP growth rates generally indicate a weaker economy. Changes in U.S. GDP growth rates can also signal changes in conversion costs related to production and in SG&A expense.
The market price of hot-rolled steel is one of the most significant factors impacting our selling prices and operating results. When steel prices fall, we typically have higher-priced material flowing through cost of goods sold, while selling prices compress to what the market will bear, negatively impacting our results. On the other hand, in a rising price environment, our results are generally favorably impacted, as lower-priced material purchased in previous periods flows through cost of goods sold, while our selling prices increase at a faster pace to cover current replacement costs.
The following table presents the average quarterly market price per ton of hot-rolled steel during fiscal 20192020 (first second, and thirdsecond quarters), fiscal 20182019 and fiscal 2017:2018:
|
| Fiscal Year |
|
| Fiscal Year |
| ||||||||||||||||||
(Dollars per ton 1 ) |
| 2019 |
|
| 2018 |
|
| 2017 |
| |||||||||||||||
(dollars per ton 1 ) |
| 2020 |
|
| 2019 |
|
| 2018 |
| |||||||||||||||
1st Quarter |
| $ | 900 |
|
| $ | 604 |
|
| $ | 617 |
|
| $ | 564 |
|
| $ | 900 |
|
| $ | 604 |
|
2nd Quarter |
| $ | 836 |
|
| $ | 608 |
|
| $ | 511 |
|
| $ | 526 |
|
| $ | 836 |
|
| $ | 608 |
|
3rd Quarter |
| $ | 725 |
|
| $ | 674 |
|
| $ | 608 |
|
| N/A |
|
| $ | 725 |
|
| $ | 674 |
| |
4th Quarter |
| N/A |
|
| $ | 860 |
|
| $ | 636 |
|
| N/A |
|
| $ | 672 |
|
| $ | 860 |
| ||
Annual Avg. |
| $ | 820 |
|
| $ | 687 |
|
| $ | 593 |
|
| $ | 545 |
|
| $ | 783 |
|
| $ | 687 |
|
| 1 | CRU Hot-Rolled Index, period average |
Sales to one Steel Processing customer in the automotive industry represented 13% of consolidated net sales during the second quarter of fiscal 2020. No single customer contributed more than 10% of our consolidated net sales during the thirdsecond quarter of fiscal 2019 or fiscal 2018.
27
2019. 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 thirdsecond quarter of fiscal 2019,2020, vehicle production for the Detroit Three automakers was down 4%,14% from fiscal 2019, while North American vehicle production as a whole was essentially flat relative to the comparable period in the prior year.down 7%.
26
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 manufacturing operations and indirectly through transportation and freight expense.
Results of Operations
ThirdSecond Quarter – Fiscal 20192020 Compared to Fiscal 20182019
Consolidated Operations
The following table presents consolidated operating results for the periods presented:
| Three Months Ended February 28, |
| Three Months Ended November 30, |
| ||||||||||||||||||||||||||||||||||
|
|
|
|
| % of |
|
|
|
|
|
| % of |
|
| Increase/ |
|
|
|
|
| % of |
|
|
|
|
|
| % of |
|
| Increase/ |
| ||||||
(In millions) | 2019 |
|
| Net sales |
|
| 2018 |
|
| Net sales |
|
| (Decrease) |
| ||||||||||||||||||||||||
(in millions) | 2019 |
|
| Net sales |
|
| 2018 |
|
| Net sales |
|
| (Decrease) |
| ||||||||||||||||||||||||
Net sales | $ | 874.4 |
|
|
| 100.0 | % |
| $ | 841.7 |
|
|
| 100.0 | % |
| $ | 32.7 |
| $ | 827.6 |
|
|
| 100.0 | % |
| $ | 958.2 |
|
|
| 100.0 | % |
| $ | (130.6 | ) |
Cost of goods sold |
| 784.4 |
|
|
| 89.7 | % |
|
| 714.7 |
|
|
| 84.9 | % |
|
| 69.7 |
|
| 707.0 |
|
|
| 85.4 | % |
|
| 837.3 |
|
|
| 87.4 | % |
|
| (130.3 | ) |
Gross margin |
| 90.0 |
|
|
| 10.3 | % |
|
| 127.0 |
|
|
| 15.1 | % |
|
| (37.0 | ) |
| 120.6 |
|
|
| 14.6 | % |
|
| 120.9 |
|
|
| 12.6 | % |
|
| (0.3 | ) |
Selling, general and administrative expense |
| 75.2 |
|
|
| 8.6 | % |
|
| 84.3 |
|
|
| 10.0 | % |
|
| (9.1 | ) |
| 88.5 |
|
|
| 10.7 | % |
|
| 84.6 |
|
|
| 8.8 | % |
|
| 3.9 |
|
Restructuring and other income, net |
| (11.2 | ) |
|
| -1.3 | % |
|
| - |
|
|
| 0.0 | % |
|
| 11.2 |
| |||||||||||||||||||
Restructuring and other expense |
| - |
|
|
| 0.0 | % |
|
| 0.4 |
|
|
| 0.0 | % |
|
| 0.4 |
| |||||||||||||||||||
Operating income |
| 26.0 |
|
|
| 3.0 | % |
|
| 42.7 |
|
|
| 5.1 | % |
|
| (16.7 | ) |
| 32.1 |
|
|
| 3.9 | % |
|
| 35.9 |
|
|
| 3.7 | % |
|
| (3.8 | ) |
Miscellaneous income, net |
| 0.5 |
|
|
| 0.1 | % |
|
| 1.6 |
|
|
| 0.2 | % |
|
| (1.1 | ) |
| 0.8 |
|
|
| 0.1 | % |
|
| 1.3 |
|
|
| 0.1 | % |
|
| (0.5 | ) |
Interest expense |
| (9.3 | ) |
|
| -1.1 | % |
|
| (9.8 | ) |
|
| -1.2 | % |
|
| (0.5 | ) |
| (7.3 | ) |
|
| -0.9 | % |
|
| (9.5 | ) |
|
| -1.0 | % |
|
| (2.2 | ) |
Equity in net income of unconsolidated affiliates (1) |
| 20.8 |
|
|
| 2.4 | % |
|
| 19.7 |
|
|
| 2.3 | % |
|
| 1.1 |
|
| 47.3 |
|
|
| 5.7 | % |
|
| 21.1 |
|
|
| 2.2 | % |
|
| 26.2 |
|
Income tax benefit (expense) |
| (8.4 | ) |
|
| -1.0 | % |
|
| 24.1 |
|
|
| 2.9 | % |
|
| 32.5 |
| |||||||||||||||||||
Income tax expense |
| (15.9 | ) |
|
| -1.9 | % |
|
| (11.1 | ) |
|
| -1.2 | % |
|
| 4.8 |
| |||||||||||||||||||
Net earnings |
| 29.6 |
|
|
| 3.4 | % |
|
| 78.3 |
|
|
| 9.3 | % |
|
| (48.7 | ) |
| 57.0 |
|
|
| 6.9 | % |
|
| 37.7 |
|
|
| 3.9 | % |
|
| 19.3 |
|
Net earnings (loss) attributable to noncontrolling interests |
| 2.8 |
|
|
| 0.3 | % |
|
| (0.8 | ) |
|
| -0.1 | % |
|
| 3.6 |
| |||||||||||||||||||
Net earnings attributable to noncontrolling interests |
| 4.9 |
|
|
| 0.6 | % |
|
| 3.7 |
|
|
| 0.4 | % |
|
| 1.2 |
| |||||||||||||||||||
Net earnings attributable to controlling interest | $ | 26.8 |
|
|
| 3.1 | % |
| $ | 79.1 |
|
|
| 9.4 | % |
| $ | (52.3 | ) | $ | 52.1 |
|
|
| 6.3 | % |
| $ | 34.0 |
|
|
| 3.5 | % |
| $ | 18.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Equity in net income by unconsolidated affiliate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WAVE | $ | 18.8 |
|
|
|
|
|
| $ | 16.5 |
|
|
|
|
|
| $ | 2.3 |
| $ | 41.8 |
|
|
|
|
|
| $ | 18.4 |
|
|
|
|
|
| $ | 23.4 |
|
ClarkDietrich |
| 1.8 |
|
|
|
|
|
|
| 1.5 |
|
|
|
|
|
|
| 0.3 |
|
| 4.9 |
|
|
|
|
|
|
| (0.5 | ) |
|
|
|
|
|
| 5.4 |
|
Serviacero Worthington |
| 0.5 |
|
|
|
|
|
|
| 1.3 |
|
|
|
|
|
|
| (0.8 | ) |
| 0.8 |
|
|
|
|
|
|
| 2.7 |
|
|
|
|
|
|
| (1.9 | ) |
ArtiFlex |
| (0.1 | ) |
|
|
|
|
|
| 0.7 |
|
|
|
|
|
|
| (0.8 | ) |
| 1.1 |
|
|
|
|
|
|
| 0.4 |
|
|
|
|
|
|
| 0.7 |
|
Other |
| (0.2 | ) |
|
|
|
|
|
| (0.3 | ) |
|
|
|
|
|
| 0.1 |
|
| (1.3 | ) |
|
|
|
|
|
| 0.1 |
|
|
|
|
|
|
| (1.4 | ) |
Total | $ | 20.8 |
|
|
|
|
|
| $ | 19.7 |
|
|
|
|
|
| $ | 1.1 |
| $ | 47.3 |
|
|
|
|
|
| $ | 21.1 |
|
|
|
|
|
| $ | 26.2 |
|
Net earnings attributable to controlling interest for the three months ended February 28,November 30, 2019 decreased $52.3increased $18.1 million fromover the comparable period in the prior year. Net sales and operating highlights for the thirdsecond quarter of fiscal 20192020 were as follows:
Net sales increased $32.7 million over the comparable period in the prior year. The increase was driven by higher average direct selling prices in Steel Processing, partially offset by lower direct volume in Steel Processing and the impact of current year divestitures in Pressure Cylinders.
Gross margin decreased $37.0 million from the comparable period in the prior year. The decrease was primarily due to lower direct spreads in Steel Processing, down $21.2 million from the prior year, due in part to significant inventory holding losses over the prior year period, and a $13.0 million charge associated with the tank replacement program in Pressure Cylinders, as discussed in “Item 1. – Financial Statements – Notes to Consolidates Financial Statements – NOTE F – Contingent Liabilities and Commitments”.
Restructuring and other income, net totaled $11.2 million in the current period and resulted primarily from a net gain related to the sale of the solder business and certain brazing assets in our Pressure Cylinders business. For additional information regarding the Company’s restructuring activities, refer to “Item 1. – Financial Statements – Notes to Consolidated Financial Statements – NOTE E – Restructuring and Other Income, Net”.
SG&A expense decreased $9.1 million from the comparable period in the prior year. The decrease was due primarily to lower profit sharing and bonus accruals as a result of lower pre-tax earnings. Overall, SG&A expense was 8.6% of consolidated net sales compared to 10.0% in the comparable period of the prior year.
27
• | Gross margin decreased $0.3 million from the comparable quarter in the prior year. The negative impact of estimated inventory holding losses versus holding gains in the comparable quarter in the prior year and lower direct volume in Steel Processing were nearly offset by higher direct spreads in Steel Processing and improvements at Pressure Cylinders. |
• | SG&A expense increased $3.9 million over the comparable quarter in the prior year. An increase in wages was partially offset by lower benefits. Overall, SG&A expense was 10.7% of consolidated net sales compared to 8.8% in the comparable quarter of the prior year. |
• | Interest expense decreased $2.2 million from the comparable quarter in the prior year. The decrease was due primarily to lower average debt |
28
• | Equity income increased $26.2 million over the comparable quarter in the prior year, due primarily to a $23.1 million pre-tax gain related to the sale of WAVE’s international operations and a $5.4 million increase in equity income from ClarkDietrich, driven by improved margins and increased volumes, partially offset by a lower contribution from Serviacero Worthington. Equity income in the current quarter was also negatively impacted by a $1.5 million loss related to our retained interest in the newly-formed Cabs joint venture, which consisted primarily of transaction-related expenses incurred at the new company. We received cash distributions of $27.5 million from our unconsolidated affiliates during the current quarter. For additional information regarding our unconsolidated affiliates, refer to “Item 1. – Financial Statements – Notes to Consolidated Financial Statements – NOTE C – Investments in Unconsolidated Affiliates”. |
Equity income increased $1.1 million over the comparable period in the prior year, due primarily to higher contributions from WAVE which were $2.3 million higher than the prior year quarter primarily due to price increases, partially offset by declines at Serviacero Worthington and ArtiFlex. We received cash distributions of $21.4 million from our unconsolidated affiliates during the quarter. For additional information regarding our unconsolidated affiliates, refer to “Item 1. – Financial Statements – Notes to Consolidated Financial Statements – NOTE C – Investments in Unconsolidated Affiliates”.
Income tax expense was $8.4 million in the current quarter versus an income tax benefit of $24.1 million in the comparable period in the prior year. The change was due primarily to the impact of the Tax Cuts and Jobs Act (“TCJA”) which resulted in a one-time tax benefit of $38.8 million. Discrete items in the current quarter reduced income tax expense by $1.2 million. The current quarter expense was calculated using an estimated annual effective income tax rate of 23.3% versus 10.3% in the prior year quarter. For additional information regarding the Company’s income taxes refer to “Item 1. – Financial Statements – Notes to Consolidated Financial Statements – NOTE L – Income Taxes”.
• | Income tax expense was $15.9 million in the current quarter compared to $11.1 million in the prior year quarter. The increase was due primarily to higher earnings associated with the $23.1 million gain recognized from WAVE. The current quarter expense was calculated using an estimated annual effective income tax rate of 24.8% versus 23.4% in the prior year quarter. For additional information regarding the Company’s income taxes refer to “Item 1. – Financial Statements – Notes to Consolidated Financial Statements – NOTE M – Income Taxes”. |
Segment Operations
Steel Processing
The following table presents a summary of operating results for our Steel Processing operating segment for the periods presented:
| Three Months Ended February 28, |
| Three Months Ended November 30, |
| ||||||||||||||||||||||||||||||||||
|
|
|
|
| % of |
|
|
|
|
|
| % of |
|
| Increase/ |
|
|
|
|
| % of |
|
|
|
|
|
| % of |
|
| Increase/ |
| ||||||
(Dollars in millions) | 2019 |
|
| Net sales |
|
| 2018 |
|
| Net sales |
|
| (Decrease) |
| ||||||||||||||||||||||||
(dollars in millions) | 2019 |
|
| Net sales |
|
| 2018 |
|
| Net sales |
|
| (Decrease) |
| ||||||||||||||||||||||||
Net sales | $ | 555.9 |
|
|
| 100.0 | % |
| $ | 518.1 |
|
|
| 100.0 | % |
| $ | 37.8 |
| $ | 516.9 |
|
|
| 100.0 | % |
| $ | 635.0 |
|
|
| 100.0 | % |
| $ | (118.1 | ) |
Cost of goods sold |
| 516.1 |
|
|
| 92.8 | % |
|
| 456.0 |
|
|
| 88.0 | % |
|
| 60.1 |
|
| 462.3 |
|
|
| 89.4 | % |
|
| 576.0 |
|
|
| 90.7 | % |
|
| (113.7 | ) |
Gross margin |
| 39.8 |
|
|
| 7.2 | % |
|
| 62.1 |
|
|
| 12.0 | % |
|
| (22.3 | ) |
| 54.6 |
|
|
| 10.6 | % |
|
| 59.0 |
|
|
| 9.3 | % |
|
| (4.4 | ) |
Selling, general and administrative expense |
| 29.6 |
|
|
| 5.3 | % |
|
| 31.0 |
|
|
| 6.0 | % |
|
| (1.4 | ) |
| 37.5 |
|
|
| 7.3 | % |
|
| 34.0 |
|
|
| 5.4 | % |
|
| 3.5 |
|
Operating income | $ | 10.2 |
|
|
| 1.8 | % |
| $ | 31.1 |
|
|
| 6.0 | % |
| $ | (20.9 | ) | $ | 17.1 |
|
|
| 3.3 | % |
| $ | 25.0 |
|
|
| 3.9 | % |
| $ | (7.9 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Material cost | $ | 430.8 |
|
|
|
|
|
| $ | 365.4 |
|
|
|
|
|
| $ | 65.4 |
| $ | 370.8 |
|
|
|
|
|
| $ | 482.9 |
|
|
|
|
|
| $ | (112.1 | ) |
Tons shipped (in thousands) |
| 840 |
|
|
|
|
|
|
| 890 |
|
|
|
|
|
|
| (50 | ) |
| 1,005 |
|
|
|
|
|
|
| 951 |
|
|
|
|
|
|
| 54 |
|
Net sales and operating highlights for the thirdsecond quarter of fiscal 20192020 were as follows:
Net sales increased $37.8 million over the comparable period in the prior year, driven by higher average direct selling prices, which increased net sales by $67.1 million, partially offset by lower direct volume. The mix of direct versus toll tons processed was 57% to 43% in both the current and prior year quarters.
• | Net sales decreased $118.1 million from the comparable quarter in the prior year, driven by lower average selling prices, which decreased net sales by $79.5 million from the prior year quarter, and lower direct volumes, which decreased net sales by $43.0 million. Higher toll volume increased net sales by $4.4 million. The mix of direct versus toll tons processed was 49% to 51% compared to 56% to 44% in the prior year quarter. The change in mix in the current period quarter is due primarily to additional toll volume resulting from the October 7, 2019 acquisition of Heidtman. |
Operating income decreased $20.9 million from the comparable period in the prior year on lower direct spreads, down $21.2 million from the prior year, due in part to significant inventory holding losses, combined with lower direct volume. Direct spreads have also been negatively impacted by lower scrap prices relative to the cost of steel resulting from the steel tariffs.
• | Operating income decreased $7.9 million from the comparable quarter in the prior year due to the unfavorable impact of estimated inventory holding losses and lower direct volume, partially offset by improved direct spreads and higher toll volume. |
28
29
The following table presents a summary of operating results for our Pressure Cylinders operating segment for the periods presented:
| Three Months Ended February 28, |
| Three Months Ended November 30, |
| ||||||||||||||||||||||||||||||||||
|
|
|
|
| % of |
|
|
|
|
|
| % of |
|
| Increase/ |
|
|
|
|
| % of |
|
|
|
|
|
| % of |
|
| Increase/ |
| ||||||
(Dollars in millions) | 2019 |
|
| Net sales |
|
| 2018 |
|
| Net sales |
|
| (Decrease) |
| ||||||||||||||||||||||||
(dollars in millions) | 2019 |
|
| Net sales |
|
| 2018 |
|
| Net sales |
|
| (Decrease) |
| ||||||||||||||||||||||||
Net sales | $ | 290.7 |
|
|
| 100.0 | % |
| $ | 295.5 |
|
|
| 100.0 | % |
| $ | (4.8 | ) | $ | 290.1 |
|
|
| 100.0 | % |
| $ | 294.4 |
|
|
| 100.0 | % |
| $ | (4.3 | ) |
Cost of goods sold |
| 240.4 |
|
|
| 82.7 | % |
|
| 231.4 |
|
|
| 78.3 | % |
|
| 9.0 |
|
| 225.7 |
|
|
| 77.8 | % |
|
| 234.5 |
|
|
| 79.7 | % |
|
| (8.8 | ) |
Gross margin |
| 50.3 |
|
|
| 17.3 | % |
|
| 64.1 |
|
|
| 21.7 | % |
|
| (13.8 | ) |
| 64.4 |
|
|
| 22.2 | % |
|
| 59.9 |
|
|
| 20.3 | % |
|
| 4.5 |
|
Selling, general and administrative expense |
| 42.5 |
|
|
| 14.6 | % |
|
| 46.5 |
|
|
| 15.7 | % |
|
| (4.0 | ) |
| 48.7 |
|
|
| 16.8 | % |
|
| 44.7 |
|
|
| 15.2 | % |
|
| 4.0 |
|
Restructuring and other income, net |
| (11.2 | ) |
|
| -3.9 | % |
|
| - |
|
|
| 0.0 | % |
|
| 11.2 |
| |||||||||||||||||||
Restructuring and other expense |
| - |
|
|
| 0.0 | % |
|
| 0.4 |
|
|
| 0.1 | % |
|
| 0.4 |
| |||||||||||||||||||
Operating income | $ | 19.0 |
|
|
| 6.5 | % |
| $ | 17.6 |
|
|
| 6.0 | % |
| $ | 1.4 |
| $ | 15.7 |
|
|
| 5.4 | % |
| $ | 14.8 |
|
|
| 5.0 | % |
| $ | 0.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Material cost | $ | 135.2 |
|
|
|
|
|
| $ | 132.9 |
|
|
|
|
|
| $ | 2.3 |
| $ | 127.1 |
|
|
|
|
|
| $ | 133.5 |
|
|
|
|
|
| $ | (6.4 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Units shipped by principal class of products: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Consumer products |
| 18,675,057 |
|
|
|
|
|
|
| 16,980,934 |
|
|
|
|
|
|
| 1,694,123 |
| |||||||||||||||||||
Industrial products |
| 2,932,923 |
|
|
|
|
|
|
| 3,162,063 |
|
|
|
|
|
|
| (229,140 | ) | |||||||||||||||||||
Oil & gas equipment |
| 376 |
|
|
|
|
|
|
| 314 |
|
|
|
|
|
|
| 62 |
| |||||||||||||||||||
Total Pressure Cylinders |
| 21,608,356 |
|
|
|
|
|
|
| 20,143,311 |
|
|
|
|
|
|
| 1,465,045 |
| |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales by principal class of products: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer products | $ | 118.0 |
|
|
|
|
|
| $ | 114.2 |
|
|
|
|
|
| $ | 3.8 |
| $ | 128.0 |
|
|
|
|
|
| $ | 117.2 |
|
|
|
|
|
| $ | 10.8 |
|
Industrial products |
| 148.0 |
|
|
|
|
|
|
| 158.3 |
|
|
|
|
|
|
| (10.3 | ) |
| 130.4 |
|
|
|
|
|
|
| 152.0 |
|
|
|
|
|
|
| (21.6 | ) |
Oil & gas equipment |
| 24.7 |
|
|
|
|
|
|
| 23.0 |
|
|
|
|
|
|
| 1.7 |
|
| 31.7 |
|
|
|
|
|
|
| 25.2 |
|
|
|
|
|
|
| 6.5 |
|
Total Pressure Cylinders | $ | 290.7 |
|
|
|
|
|
| $ | 295.5 |
|
|
|
|
|
| $ | (4.8 | ) | $ | 290.1 |
|
|
|
|
|
| $ | 294.4 |
|
|
|
|
|
| $ | (4.3 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Units shipped by principal class of products: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Consumer products |
| 17,718,604 |
|
|
|
|
|
|
| 17,684,889 |
|
|
|
|
|
|
| 33,715 |
| |||||||||||||||||||
Industrial products |
| 3,576,129 |
|
|
|
|
|
|
| 4,254,510 |
|
|
|
|
|
|
| (678,381 | ) | |||||||||||||||||||
Oil & gas equipment |
| 319 |
|
|
|
|
|
|
| 580 |
|
|
|
|
|
|
| (261 | ) | |||||||||||||||||||
Total Pressure Cylinders |
| 21,295,052 |
|
|
|
|
|
|
| 21,939,979 |
|
|
|
|
|
|
| (644,927 | ) |
Net sales and operating highlights for the thirdsecond quarter of fiscal 20192020 were as follows:
Net sales decreased $4.8 million from the comparable period in the prior year, due primarily to the impact of divestitures of $11.7 million and lower volume in the industrial products business, partially offset by higher average selling prices and higher volumes in the consumer products business.
• | Net sales decreased $4.3 million from the comparable quarter in the prior year, due to the impact of divestitures and lower volumes in the industrial products business on weaker demand in the European market, partially offset by higher volumes in both the consumer products and oil & gas equipment businesses. |
Operating income of $19.0 million increased $1.4 million over the comparable period in the prior year. The increase was the result of an $11.2 million net restructuring gain, primarily related to the sale of the Company’s solder business and certain brazing assets, combined with improvements in the oil & gas business, which were almost offset by the $13.0 million charge for the tank replacement program and the impact of lower volumes in the industrial products business and increased input costs in the consumer products business.
Engineered Cabs
The following table presents a summary of operating results for our Engineered Cabs operating segment for the periods presented:
| Three Months Ended February 28, |
| |||||||||||||||||
|
|
|
|
| % of |
|
|
|
|
|
| % of |
|
| Increase/ |
| |||
(In millions) | 2019 |
|
| Net sales |
|
| 2018 |
|
| Net sales |
|
| (Decrease) |
| |||||
Net sales | $ | 27.8 |
|
|
| 100.0 | % |
| $ | 27.0 |
|
|
| 100.0 | % |
| $ | 0.8 |
|
Cost of goods sold |
| 27.4 |
|
|
| 98.6 | % |
|
| 26.7 |
|
|
| 98.9 | % |
|
| 0.7 |
|
Gross margin |
| 0.4 |
|
|
| 1.4 | % |
|
| 0.3 |
|
|
| 1.1 | % |
|
| 0.1 |
|
Selling, general and administrative expense |
| 4.2 |
|
|
| 15.1 | % |
|
| 4.4 |
|
|
| 16.3 | % |
|
| (0.2 | ) |
Operating loss | $ | (3.8 | ) |
|
| -13.7 | % |
| $ | (4.1 | ) |
|
| -15.2 | % |
| $ | 0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Material cost | $ | 12.3 |
|
|
|
|
|
| $ | 12.9 |
|
|
|
|
|
| $ | (0.6 | ) |
29
Net sales and operating highlights for the third quarter of fiscal 2019 were as follows:
Net sales increased $0.8 million over the comparable period in the prior year on higher average selling prices partially offset by lower volume from the final exit of lower margin business.
Operating loss of $3.8 million was $0.3 million less than the comparable period in the prior year primarily due to lower profit sharing and bonus accruals.
• | Operating income of $15.7 million increased $0.9 million over the comparable quarter in the prior year. The increase was primarily the result of higher volumes in the consumer products business and overall improvements in the oil & gas equipment business which more than offset the unfavorable impact of lower volumes in the industrial products business. |
Other
The Other category includes certain income and expense items not allocated to our operating segments, including costs associated with our captive insurance company.product liability and healthcare reserves. The Other category also includes the results of ourthe former Worthington Energy Innovations, LLC (“WEI”)Engineered Cabs operating segment, on a historical basis, through March 31, 2018.November 1, 2019, when substantially all the net assets were deconsolidated. The following table presents a summary of operating results for the Other Categorycategory for the periods indicated:presented:
| Three Months Ended February 28, |
| Three Months Ended November 30, |
| ||||||||||||||||||||||||||||||||||
|
|
|
|
| % of |
|
|
|
|
|
| % of |
|
| Increase/ |
|
|
|
|
| % of |
|
|
|
|
|
| % of |
|
| Increase/ |
| ||||||
(In millions) | 2019 |
|
| Net sales |
|
| 2018 |
|
| Net sales |
|
| (Decrease) |
| ||||||||||||||||||||||||
(in millions) | 2019 |
|
| Net sales |
|
| 2018 |
|
| Net sales |
|
| (Decrease) |
| ||||||||||||||||||||||||
Net sales | $ | - |
|
|
| - |
|
| $ | 1.0 |
|
|
| 100.0 | % |
| $ | (1.0 | ) | $ | 20.6 |
|
|
| 100.0 | % |
| $ | 28.7 |
|
|
| 100.0 | % |
| $ | (8.1 | ) |
Cost of goods sold |
| 0.5 |
|
|
| - |
|
|
| 0.4 |
|
|
| 40.0 | % |
|
| 0.1 |
|
| 19.0 |
|
|
| 92.2 | % |
|
| 26.7 |
|
|
| 93.0 | % |
|
| (7.7 | ) |
Gross margin (loss) |
| (0.5 | ) |
|
| - |
|
|
| 0.6 |
|
|
| 60.0 | % |
|
| (1.1 | ) | |||||||||||||||||||
Gross margin |
| 1.6 |
|
|
| 7.8 | % |
|
| 2.0 |
|
|
| 7.0 | % |
|
| (0.4 | ) | |||||||||||||||||||
Selling, general and administrative expense |
| (1.1 | ) |
|
| - |
|
|
| 2.4 |
|
|
| 240.0 | % |
|
| (3.5 | ) |
| 2.4 |
|
|
| 11.7 | % |
|
| 5.9 |
|
|
| 20.6 | % |
|
| (3.5 | ) |
Operating income (loss) | $ | 0.6 |
|
|
| - |
|
| $ | (1.8 | ) |
|
| -180.0 | % |
| $ | 2.4 |
| |||||||||||||||||||
Restructuring and other income |
| (0.1 | ) |
|
| -0.5 | % |
|
| - |
|
|
| 0.0 | % |
|
| 0.1 |
| |||||||||||||||||||
Operating loss | $ | (0.7 | ) |
|
| -3.4 | % |
| $ | (3.9 | ) |
|
| -13.6 | % |
| $ | 3.2 |
|
30
Operating highlights for the thirdsecond quarter of fiscal 20192020 were as follows:
Operating income of $0.6 million represented an improvement of $2.4 million from the $1.8 million operating loss for the comparable period in the prior year when there was higher SG&A expense due to an increase in non-allocated corporate costs.
• | Net sales decreased $8.1 million from the comparable period in the prior year due to the deconsolidation of substantially all the net assets of our former Engineered Cabs operating segment effective November 1, 2019. For additional information on the deconsolidation, refer to “Item 1. – Financial Statements – Notes to Consolidated Financial Statements – NOTE A – Basis of Presentation”. |
• | Operating loss of $0.7 million represented an improvement of $3.2 million from the comparable period in the prior year primarily due to favorable adjustments to topside healthcare reserves and lower losses at Engineered Cabs as a result of the deconsolidation as of November 1, 2019. |
30
NineSix Months Year-to-Date – Fiscal 20192020 Compared to Fiscal 20182019
Consolidated Operations
The following table presents consolidated operating results for the periods indicated:presented:
| Nine Months Ended February 28, |
| Six Months Ended November 30, |
| ||||||||||||||||||||||||||||||||||
|
|
|
|
| % of |
|
|
|
|
|
| % of |
|
| Increase/ |
|
|
|
|
| % of |
|
|
|
|
|
| % of |
|
| Increase/ |
| ||||||
(In millions) | 2019 |
|
| Net sales |
|
| 2018 |
|
| Net sales |
|
| (Decrease) |
| ||||||||||||||||||||||||
(in millions) | 2019 |
|
| Net sales |
|
| 2018 |
|
| Net sales |
|
| (Decrease) |
| ||||||||||||||||||||||||
Net sales | $ | 2,820.7 |
|
|
| 100.0 | % |
| $ | 2,561.2 |
|
|
| 100.0 | % |
| $ | 259.5 |
| $ | 1,683.5 |
|
|
| 100.0 | % |
| $ | 1,946.3 |
|
|
| 100.0 | % |
| $ | (262.8 | ) |
Cost of goods sold |
| 2,466.7 |
|
|
| 87.4 | % |
|
| 2,161.3 |
|
|
| 84.4 | % |
|
| 305.4 |
|
| 1,445.6 |
|
|
| 85.9 | % |
|
| 1,682.4 |
|
|
| 86.4 | % |
|
| (236.8 | ) |
Gross margin |
| 354.0 |
|
|
| 12.6 | % |
|
| 399.9 |
|
|
| 15.6 | % |
|
| (45.9 | ) |
| 237.9 |
|
|
| 14.1 | % |
|
| 263.9 |
|
|
| 13.6 | % |
|
| (26.0 | ) |
Selling, general and administrative expense |
| 250.5 |
|
|
| 8.9 | % |
|
| 262.0 |
|
|
| 10.2 | % |
|
| (11.5 | ) |
| 179.4 |
|
|
| 10.7 | % |
|
| 175.2 |
|
|
| 9.0 | % |
|
| 4.2 |
|
Impairment of goodwill and long-lived assets |
| 2.4 |
|
|
| 0.1 | % |
|
| 8.3 |
|
|
| 0.3 | % |
|
| (5.9 | ) |
| 40.6 |
|
|
| 2.4 | % |
|
| 2.4 |
|
|
| 0.1 | % |
|
| 38.2 |
|
Restructuring and other income, net |
| (11.7 | ) |
|
| -0.4 | % |
|
| (7.4 | ) |
|
| -0.3 | % |
|
| 4.3 |
| |||||||||||||||||||
Restructuring and other expense (income), net |
| 0.4 |
|
|
| 0.0 | % |
|
| (0.5 | ) |
|
| 0.0 | % |
|
| (0.9 | ) | |||||||||||||||||||
Operating income |
| 112.8 |
|
|
| 4.0 | % |
|
| 137.0 |
|
|
| 5.3 | % |
|
| (24.2 | ) |
| 17.5 |
|
|
| 1.0 | % |
|
| 86.8 |
|
|
| 4.5 | % |
|
| (69.3 | ) |
Miscellaneous income, net |
| 2.1 |
|
|
| 0.1 | % |
|
| 3.2 |
|
|
| 0.1 | % |
|
| (1.1 | ) |
| 1.4 |
|
|
| 0.1 | % |
|
| 1.6 |
|
|
| 0.1 | % |
|
| (0.2 | ) |
Interest expense |
| (28.5 | ) |
|
| -1.0 | % |
|
| (28.6 | ) |
|
| -1.1 | % |
|
| (0.1 | ) |
| (16.8 | ) |
|
| -1.0 | % |
|
| (19.2 | ) |
|
| -1.0 | % |
|
| (2.4 | ) |
Loss on extinguishment of debt |
| (4.0 | ) |
|
| -0.2 | % |
|
| - |
|
|
| 0.0 | % |
|
| (4.0 | ) | |||||||||||||||||||
Equity in net income of unconsolidated affiliates (1) |
| 71.9 |
|
|
| 2.5 | % |
|
| 63.5 |
|
|
| 2.5 | % |
|
| 8.4 |
|
| 72.1 |
|
|
| 4.3 | % |
|
| 51.1 |
|
|
| 2.6 | % |
|
| 21.0 |
|
Income tax expense |
| (34.0 | ) |
|
| -1.2 | % |
|
| (7.1 | ) |
|
| -0.3 | % |
|
| 26.9 |
|
| (15.7 | ) |
|
| -0.9 | % |
|
| (25.6 | ) |
|
| -1.3 | % |
|
| (9.9 | ) |
Net earnings |
| 124.3 |
|
|
| 4.4 | % |
|
| 168.0 |
|
|
| 6.6 | % |
|
| (43.7 | ) |
| 54.5 |
|
|
| 3.2 | % |
|
| 94.7 |
|
|
| 4.9 | % |
|
| (40.2 | ) |
Net earnings attributable to noncontrolling interests |
| 8.6 |
|
|
| 0.3 | % |
|
| 4.0 |
|
|
| 0.2 | % |
|
| 4.6 |
|
| 7.2 |
|
|
| 0.4 | % |
|
| 5.8 |
|
|
| 0.3 | % |
|
| 1.4 |
|
Net earnings attributable to controlling interest | $ | 115.7 |
|
|
| 4.1 | % |
| $ | 164.0 |
|
|
| 6.4 | % |
| $ | (48.3 | ) | $ | 47.3 |
|
|
| 2.8 | % |
| $ | 88.9 |
|
|
| 4.6 | % |
| $ | (41.6 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Equity in net income by unconsolidated affiliate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WAVE | $ | 59.2 |
|
|
|
|
|
| $ | 52.5 |
|
|
|
|
|
| $ | 6.7 |
| $ | 65.7 |
|
|
|
|
|
| $ | 40.4 |
|
|
|
|
|
| $ | 25.3 |
|
ClarkDietrich |
| 4.8 |
|
|
|
|
|
|
| 2.6 |
|
|
|
|
|
|
| 2.2 |
|
| 9.0 |
|
|
|
|
|
|
| 3.0 |
|
|
|
|
|
|
| 6.0 |
|
Serviacero Worthington |
| 6.8 |
|
|
|
|
|
|
| 5.8 |
|
|
|
|
|
|
| 1.0 |
|
| 1.6 |
|
|
|
|
|
|
| 6.3 |
|
|
|
|
|
|
| (4.7 | ) |
ArtiFlex |
| 1.1 |
|
|
|
|
|
|
| 3.0 |
|
|
|
|
|
|
| (1.9 | ) |
| 1.3 |
|
|
|
|
|
|
| 1.2 |
|
|
|
|
|
|
| 0.1 |
|
Other |
| - |
|
|
|
|
|
|
| (0.4 | ) |
|
|
|
|
|
| 0.4 |
|
| (5.5 | ) |
|
|
|
|
|
| 0.2 |
|
|
|
|
|
|
| (5.7 | ) |
Total | $ | 71.9 |
|
|
|
|
|
| $ | 63.5 |
|
|
|
|
|
| $ | 8.4 |
| $ | 72.1 |
|
|
|
|
|
| $ | 51.1 |
|
|
|
|
|
| $ | 21.0 |
|
Net earnings attributable to controlling interest for the ninesix months ended February 28,November 30, 2019 decreased $48.3$41.6 million from the comparable period in the prior year. Net sales and operating highlights for the ninesix months ended February 28,November 30, 2019 were as follows:
Net sales increased $259.5 million over the comparable period in the prior year. The increase was driven by higher average selling prices in Steel Processing, which increased net sales by $247.6 million. The remaining increase was driven primarily by the combination of higher average selling prices and a favorable product mix in Pressure Cylinders, partially offset by lower volume at both Pressure Cylinders and Engineered Cabs.
Gross margin decreased $45.9 million from the comparable period in the prior year. The decrease was primarily due to lower direct spreads in Steel Processing and a lower overall contribution from Pressure Cylinders as a result of costs associated with the tank replacement program, lower volume in the industrial products business and higher material and conversion costs in the consumer products business. Higher conversion costs and lower scrap prices relative to the price of steel, resulting from the ongoing steel tariffs, continued to have a negative impact on direct spreads.
SG&A expense decreased $11.5 million from the comparable prior year period. The decrease was driven by lower profit sharing and bonus accruals as a result of lower pre-tax earnings.
Impairment and restructuring activity combined to increase operating income by $10.2 million over the comparable period in the prior year. The increase was driven by the net restructuring gain realized in the current year, primarily as a result of the sale of the solder business and certain brazing assets within Pressure Cylinders, partially offset by lower impairment charges. Current year impairment charges of $2.4 million related to the Company’s cryogenics business in Turkey, which is in the process of being sold. Impairment charges in the prior year period related primarily to the former WEI operating segment, which was sold in fiscal 2018.
• | Net sales decreased $262.8 million from the comparable period in the prior year. The decrease was driven primarily by lower direct volume and lower average direct selling prices in Steel Processing due to a decline in the market price of steel, and lower volume in the industrial products business in Pressure Cylinders, partially offset by an early termination of a customer take-or-pay contract in Pressure Cylinders which effectively accelerated the recognition of $14.2 million of related sales in future quarters into the first half of fiscal 2020. |
31
• | SG&A expense increased $4.2 million over the comparable prior year period. The increase was driven primarily by higher wages. |
• | Impairment of long-lived assets totaled $40.6 million in the six months ended November 30, 2019 due to the write-down of certain assets in Engineered Cabs to their estimated fair market value prior to being contributed to the newly-formed Cabs joint venture. For additional information refer to “Item 1. – Financial Statements – Notes to Consolidated Financial Statements – NOTE E – Impairment of Long-Lived Assets”. |
• | Interest expense decreased $2.4 million from the comparable period in the prior year. The decrease was due primarily to lower average debt levels and lower average interest rates resulting from the debt refinancing transactions completed in the first quarter of fiscal 2020. |
• | Equity income increased |
31
|
Income tax expense increased $26.9 million from the comparable period in the prior year due primarily to the impact of discrete items, partially offset by lower earnings and a lower statutory federal corporate income tax rate associated with the TCJA. The TCJA lowered the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018. The current period tax expense was calculated using an estimated annual effective income tax rate of 23.3% versus 10.3% in the prior year comparable period. Discrete items in the nine months ended February 28, 2019 decreased income tax expense by $3.3 million, including $2.4 million associated with share-based payment awards. Discrete items in the prior comparable period included (i) a provisional income tax benefit of $41.1 million for the re-measurement of deferred tax assets and liabilities and a provisional income tax expense of $6.8 million for the one-time mandatory deemed repatriation tax, both of which were associated with the TCJA, (ii) a net benefit of $3.8 million related to the AMTROL acquisition, and (iii) a $3.2 million benefit associated with share-based payment awards. For additional information regarding the Company’s income taxes refer to “Item 1. – Financial Statements – Notes to Consolidated Financial Statements – NOTE L – Income Taxes”.
• | Income tax expense decreased $9.9 million from the comparable period in the prior year resulting primarily from lower core earnings and the impairment charges in Engineered Cabs partially offset by the gain recognized from the sale of WAVE’s international operations. The net impact of these two discrete items was a reduction in current year tax expense of $2.9 million. The current period tax expense was calculated using an estimated annual effective income tax rate of 24.8% versus 23.4% in the prior year comparable period. For additional information regarding the Company’s income taxes refer to “Item 1. – Financial Statements – Notes to Consolidated Financial Statements – NOTE M – Income Taxes”. |
Segment Operations
Steel Processing
The following table presents a summary of operating results for our Steel Processing operating segment for the periods indicated:presented:
| Nine Months Ended February 28, |
| Six Months Ended November 30, |
| ||||||||||||||||||||||||||||||||||
|
|
|
|
| % of |
|
|
|
|
|
| % of |
|
| Increase/ |
|
|
|
|
| % of |
|
|
|
|
|
| % of |
|
| Increase/ |
| ||||||
(Dollars in millions) | 2019 |
|
| Net sales |
|
| 2018 |
|
| Net sales |
|
| (Decrease) |
| ||||||||||||||||||||||||
(dollars in millions) | 2019 |
|
| Net sales |
|
| 2018 |
|
| Net sales |
|
| (Decrease) |
| ||||||||||||||||||||||||
Net sales | $ | 1,851.4 |
|
|
| 100.0 | % |
| $ | 1,600.0 |
|
|
| 100.0 | % |
| $ | 251.4 |
| $ | 1,040.3 |
|
|
| 100.0 | % |
| $ | 1,295.5 |
|
|
| 100.0 | % |
| $ | (255.2 | ) |
Cost of goods sold |
| 1,672.9 |
|
|
| 90.4 | % |
|
| 1,403.9 |
|
|
| 87.7 | % |
|
| 269.0 |
|
| 944.0 |
|
|
| 90.7 | % |
|
| 1,156.8 |
|
|
| 89.3 | % |
|
| (212.8 | ) |
Gross margin |
| 178.5 |
|
|
| 9.6 | % |
|
| 196.1 |
|
|
| 12.3 | % |
|
| (17.6 | ) |
| 96.3 |
|
|
| 9.3 | % |
|
| 138.7 |
|
|
| 10.7 | % |
|
| (42.4 | ) |
Selling, general and administrative expense |
| 103.7 |
|
|
| 5.6 | % |
|
| 101.1 |
|
|
| 6.3 | % |
|
| 2.6 |
|
| 73.0 |
|
|
| 7.0 | % |
|
| 74.0 |
|
|
| 5.7 | % |
|
| (1.0 | ) |
Restructuring and other income, net |
| - |
|
|
| 0.0 | % |
|
| (10.1 | ) |
|
| -0.6 | % |
|
| (10.1 | ) | |||||||||||||||||||
Operating income | $ | 74.8 |
|
|
| 4.0 | % |
| $ | 105.1 |
|
|
| 6.6 | % |
| $ | (30.3 | ) | $ | 23.3 |
|
|
| 2.2 | % |
| $ | 64.7 |
|
|
| 5.0 | % |
| $ | (41.4 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Material cost | $ | 1,391.8 |
|
|
|
|
|
| $ | 1,124.9 |
|
|
|
|
|
| $ | 266.9 |
| $ | 767.2 |
|
|
|
|
|
| $ | 961.0 |
|
|
|
|
|
| $ | (193.8 | ) |
Tons shipped (in thousands) |
| 2,774 |
|
|
|
|
|
|
| 2,780 |
|
|
|
|
|
|
| (6 | ) |
| 1,896 |
|
|
|
|
|
|
| 1,934 |
|
|
|
|
|
|
| (38 | ) |
Net sales and operating highlights for the ninesix months ended February 28,November 30, 2019 were as follows:
Net sales increased $251.4 million over the comparable period in the prior year driven by higher average selling prices, which increased net sales by $247.6 million, and higher tolling volume. The mix of direct versus toll tons processed was 57% to 43% in both the current and prior year periods.
• | Net sales decreased $255.2 million from the comparable period in the prior year, driven by lower direct volumes and lower average direct selling prices, which decreased net sales by $136.9 million and $117.3 million, respectively. The mix of direct versus toll tons processed was 52% to 48% compared to 57% to 43% in the comparable period of fiscal 2019. The change in mix in the current period is due primarily to additional toll volume resulting from the October 7, 2019 acquisition of Heidtman. |
Operating income decreased $30.3 million from the comparable period in the prior year when the sale of the Company’s former stainless steel business, Precision Specialty Metals, Inc. (“PSM”) real estate resulted in a net restructuring gain of $10.1 million. Excluding the restructuring gain, operating income was down $20.2 million from the comparable period in the prior year, driven primarily by lower direct spreads, down approximately $21.2 million due to higher freight and conversion costs as well as the impact of lower scrap prices relative to the price of steel as a result of the ongoing steel tariffs.
• | Operating income decreased $41.4 million from the comparable period in the prior year, driven primarily by lower direct spreads, down approximately $28.8 million as declining steel prices resulted in significant estimated inventory holding losses in the current period compared to holding gains in the prior year period. |
32
The following table presents a summary of operating results for our Pressure Cylinders operating segment for the periods indicated:presented:
| Nine Months Ended February 28, |
| Six Months Ended November 30, |
| ||||||||||||||||||||||||||||||||||
|
|
|
|
| % of |
|
|
|
|
|
| % of |
|
| Increase/ |
|
|
|
|
| % of |
|
|
|
|
|
| % of |
|
| Increase/ |
| ||||||
(Dollars in millions) | 2019 |
|
| Net sales |
|
| 2018 |
|
| Net sales |
|
| (Decrease) |
| ||||||||||||||||||||||||
(dollars in millions) | 2019 |
|
| Net sales |
|
| 2018 |
|
| Net sales |
|
| (Decrease) |
| ||||||||||||||||||||||||
Net sales | $ | 885.5 |
|
|
| 100.0 | % |
| $ | 866.2 |
|
|
| 100.0 | % |
| $ | 19.3 |
| $ | 594.5 |
|
|
| 100.0 | % |
| $ | 594.8 |
|
|
| 100.0 | % |
| $ | (0.3 | ) |
Cost of goods sold |
| 712.3 |
|
|
| 80.4 | % |
|
| 671.9 |
|
|
| 77.6 | % |
|
| 40.4 |
|
| 454.0 |
|
|
| 76.4 | % |
|
| 471.9 |
|
|
| 79.3 | % |
|
| (17.9 | ) |
Gross margin |
| 173.2 |
|
|
| 19.6 | % |
|
| 194.3 |
|
|
| 22.4 | % |
|
| (21.1 | ) |
| 140.5 |
|
|
| 23.6 | % |
|
| 122.9 |
|
|
| 20.7 | % |
|
| 17.6 |
|
Selling, general and administrative expense |
| 134.1 |
|
|
| 15.1 | % |
|
| 138.3 |
|
|
| 16.0 | % |
|
| (4.2 | ) |
| 95.2 |
|
|
| 16.0 | % |
|
| 91.5 |
|
|
| 15.4 | % |
|
| 3.7 |
|
Impairment of long-lived assets |
| 2.4 |
|
|
| 0.3 | % |
|
| 1.0 |
|
|
| 0.1 | % |
|
| 1.4 |
|
| - |
|
|
| 0.0 | % |
|
| 2.4 |
|
|
| 0.4 | % |
|
| (2.4 | ) |
Restructuring and other (income) expense, net |
| (11.7 | ) |
|
| -1.3 | % |
|
| 2.3 |
|
|
| 0.3 | % |
|
| 14.0 |
| |||||||||||||||||||
Restructuring and other income |
| - |
|
|
| 0.0 | % |
|
| (0.5 | ) |
|
| -0.1 | % |
|
| (0.5 | ) | |||||||||||||||||||
Operating income | $ | 48.4 |
|
|
| 5.5 | % |
| $ | 52.7 |
|
|
| 6.1 | % |
| $ | (4.3 | ) | $ | 45.3 |
|
|
| 7.6 | % |
| $ | 29.5 |
|
|
| 5.0 | % |
| $ | 15.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Material cost | $ | 407.4 |
|
|
|
|
|
| $ | 383.5 |
|
|
|
|
|
| $ | 23.9 |
| $ | 254.0 |
|
|
|
|
|
| $ | 272.2 |
|
|
|
|
|
| $ | (18.2 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Units shipped by principal class of products: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Consumer products |
| 35,573,447 |
|
|
|
|
|
|
| 34,709,912 |
|
|
|
|
|
|
| 863,535 |
| |||||||||||||||||||
Industrial products |
| 6,217,378 |
|
|
|
|
|
|
| 7,231,559 |
|
|
|
|
|
|
| (1,014,181 | ) | |||||||||||||||||||
Oil & gas equipment |
| 1,219 |
|
|
|
|
|
|
| 938 |
|
|
|
|
|
|
| 281 |
| |||||||||||||||||||
Total Pressure Cylinders |
| 41,792,044 |
|
|
|
|
|
|
| 41,942,409 |
|
|
|
|
|
|
| (150,365 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales by principal class of products: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer products | $ | 352.0 |
|
|
|
|
|
| $ | 346.1 |
|
|
|
|
|
| $ | 5.9 |
| $ | 247.5 |
|
|
|
|
|
| $ | 234.0 |
|
|
|
|
|
| $ | 13.5 |
|
Industrial products |
| 452.9 |
|
|
|
|
|
|
| 447.4 |
|
|
|
|
|
|
| 5.5 |
|
| 283.0 |
|
|
|
|
|
|
| 304.9 |
|
|
|
|
|
|
| (21.9 | ) |
Oil & gas equipment |
| 80.6 |
|
|
|
|
|
|
| 72.7 |
|
|
|
|
|
|
| 7.9 |
|
| 64.0 |
|
|
|
|
|
|
| 55.9 |
|
|
|
|
|
|
| 8.1 |
|
Total Pressure Cylinders | $ | 885.5 |
|
|
|
|
|
| $ | 866.2 |
|
|
|
|
|
| $ | 19.3 |
| $ | 594.5 |
|
|
|
|
|
| $ | 594.8 |
|
|
|
|
|
| $ | (0.3 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Units shipped by principal class of products: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Consumer products |
| 52,428,516 |
|
|
|
|
|
|
| 53,537,812 |
|
|
|
|
|
|
| (1,109,296 | ) | |||||||||||||||||||
Industrial products |
| 10,807,688 |
|
|
|
|
|
|
| 12,163,264 |
|
|
|
|
|
|
| (1,355,576 | ) | |||||||||||||||||||
Oil & gas equipment |
| 1,257 |
|
|
|
|
|
|
| 2,002 |
|
|
|
|
|
|
| (745 | ) | |||||||||||||||||||
Total Pressure Cylinders |
| 63,237,461 |
|
|
|
|
|
|
| 65,703,078 |
|
|
|
|
|
|
| (2,465,617 | ) |
Net sales and operating highlights for the ninesix months ended February 28,November 30, 2019 were as follows:
Net sales increased $19.3 million over the comparable period in the prior year. The increase was driven by higher average selling prices and favorable product mix across all the businesses.
• | Net sales decreased $0.3 million from the comparable period in the prior year. The decrease was driven primarily by the impact of divestitures, which decreased net sales by $23.6 million, and lower volumes in the industrial products business, partially offset by the impact of an early termination of a customer take-or-pay contract within the industrial products business, which effectively accelerated $14.2 million of related sales in future quarters into the current period, and higher volume in both the consumer products and oil & gas equipment business. |
Operating income decreased $4.3 million from the comparable period in the prior year. The decrease was driven by the $13.0 million charge related to the tank replacement program, lower volumes and higher input costs in the industrial products business and higher input and conversion costs in the consumer products business, partially offset by a net restructuring gain of $11.7 million primarily related to the sale of the Company’s solder business and certain brazing assets and improvements in the oil & gas equipment business.
Engineered Cabs
The following table presents a summary of operating results for our Engineered Cabs operating segment for the periods indicated:
| Nine Months Ended February 28, |
| |||||||||||||||||
|
|
|
|
| % of |
|
|
|
|
|
| % of |
|
| Increase/ |
| |||
(In millions) | 2019 |
|
| Net sales |
|
| 2018 |
|
| Net sales |
|
| (Decrease) |
| |||||
Net sales | $ | 83.8 |
|
|
| 100.0 | % |
| $ | 89.4 |
|
|
| 100.0 | % |
| $ | (5.6 | ) |
Cost of goods sold |
| 82.1 |
|
|
| 98.0 | % |
|
| 82.6 |
|
|
| 92.4 | % |
|
| (0.5 | ) |
Gross margin |
| 1.7 |
|
|
| 2.0 | % |
|
| 6.8 |
|
|
| 7.6 | % |
|
| (5.1 | ) |
Selling, general and administrative expense |
| 13.2 |
|
|
| 15.8 | % |
|
| 12.9 |
|
|
| 14.4 | % |
|
| 0.3 |
|
Restructuring and other income |
| - |
|
|
| 0.0 | % |
|
| (0.1 | ) |
|
| -0.1 | % |
|
| 0.1 |
|
Operating loss | $ | (11.5 | ) |
|
| -13.7 | % |
| $ | (6.0 | ) |
|
| -6.7 | % |
| $ | (5.5 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Material cost | $ | 37.2 |
|
|
|
|
|
| $ | 42.1 |
|
|
|
|
|
| $ | (4.9 | ) |
• | Operating income increased $15.8 million over the comparable period in the prior year driven primarily by the benefit from the customer take-or-pay contract termination, which accelerated the recognition of future pre-tax earnings of $11.5 million into the current period, combined with higher volumes in both the consumer products and the oil & gas equipment businesses, partially offset by the unfavorable impact of lower volumes in the industrial products business. |
33
Net sales and operating highlights for the nine months ended February 28, 2019 were as follows:
Net sales decreased $5.6 million from the comparable period in the prior year on lower volume following the final exit of lower margin business, partially offset by higher average selling prices.
Operating loss increased $5.5 million over the comparable period in the prior year primarily due to lower volume following the final exit of lower margin business and start-up costs associated with a new fabricated products operation.
Other
The Other category includes certain income and expense items not allocated to our operating segments, including costs associated with our captive insurance company.product liability and healthcare reserves. The Other category also includes the results of ourthe former WEIEngineered Cabs operating segment, on a historical basis, through March 31, 2018.November 1, 2019, when substantially all the net assets were deconsolidated. The following table presents a summary of operating results for the Other Category for the periods indicated:presented:
| Nine Months Ended February 28, |
| Six Months Ended November 30, |
| ||||||||||||||||||||||||||||||||||
|
|
|
|
| % of |
|
|
|
|
|
| % of |
|
| Increase/ |
|
|
|
|
| % of |
|
|
|
|
|
| % of |
|
| Increase/ |
| ||||||
(In millions) | 2019 |
|
| Net sales |
|
| 2018 |
|
| Net sales |
|
| (Decrease) |
| ||||||||||||||||||||||||
(in millions) | 2019 |
|
| Net sales |
|
| 2018 |
|
| Net sales |
|
| (Decrease) |
| ||||||||||||||||||||||||
Net sales | $ | - |
|
|
| - |
|
| $ | 5.6 |
|
|
| 100.0 | % |
| $ | (5.6 | ) | $ | 48.7 |
|
|
| 100.0 | % |
| $ | 56.0 |
|
|
| 100.0 | % |
| $ | (7.3 | ) |
Cost of goods sold |
| (0.6 | ) |
|
| - |
|
|
| 2.9 |
|
|
| 51.8 | % |
|
| (3.5 | ) |
| 47.6 |
|
|
| 97.7 | % |
|
| 53.7 |
|
|
| 95.9 | % |
|
| (6.1 | ) |
Gross margin |
| 0.6 |
|
|
| - |
|
|
| 2.7 |
|
|
| 48.2 | % |
|
| (2.1 | ) |
| 1.1 |
|
|
| 2.3 | % |
|
| 2.3 |
|
|
| 4.1 | % |
|
| (1.2 | ) |
Selling, general and administrative expense |
| (0.3 | ) |
|
| - |
|
|
| 9.7 |
|
|
| 173.2 | % |
|
| (10.0 | ) |
| 11.2 |
|
|
| 23.0 | % |
|
| 9.7 |
|
|
| 17.3 | % |
|
| 1.5 |
|
Impairment of goodwill and long-lived assets |
| - |
|
|
| - |
|
|
| 7.3 |
|
|
| 130.4 | % |
|
| (7.3 | ) | |||||||||||||||||||
Impairment of long-lived assets |
| 40.6 |
|
|
| 83.4 | % |
|
| - |
|
|
| 0.0 | % |
|
| 40.6 |
| |||||||||||||||||||
Restructuring and other expense |
| - |
|
|
| - |
|
|
| 0.4 |
|
|
| 7.1 | % |
|
| (0.4 | ) |
| 0.4 |
|
|
| 0.8 | % |
|
| - |
|
|
| 0.0 | % |
|
| 0.4 |
|
Operating income (loss) | $ | 0.9 |
|
|
| - |
|
| $ | (14.7 | ) |
|
| -262.5 | % |
| $ | 15.6 |
| |||||||||||||||||||
Operating loss | $ | (51.1 | ) |
|
| -104.9 | % |
| $ | (7.4 | ) |
|
| -13.2 | % |
| $ | (43.7 | ) |
Operating highlights for the ninesix months ended February 28,November 30, 2019 were as follows:
• | Net sales decreased $7.3 million from the comparable period in the prior year. The decrease was driven by the deconsolidation of Engineered Cabs. For additional information on the deconsolidation, refer to “Item 1. – Financial Statements – Notes to Consolidated Financial Statements – NOTE A – Basis of Presentation”. |
| • | Operating loss of $51.1 million was $43.7 million higher than the comparable period in the prior year, primarily driven by impairment charges of $40.6 million to write-down certain assets at Engineered Cabs to their estimated fair value in the first quarter of fiscal 2020 and the deconsolidation of Engineered Cabs. For additional information on the deconsolidation and impairment, refer to “Item 1. – Financial Statements – Notes to Consolidated Financial Statements – NOTE A – Basis of Presentation” and “Item 1. – Financial Statements – Notes to Consolidated Financial Statements – NOTE E – Impairment of Long-Lived Assets”, respectively. |
Liquidity and Capital Resources
During the ninesix months ended February 28,November 30, 2019, we generated $127.2$168.5 million of cash from operating activities, received $48.3 million in proceeds from asset sales, net of selling costs, invested $60.6$50.6 million in property, plant and equipment, received $56.7and paid $29.6 million in excess distributionsto acquire certain operating assets of Heidtman. Additionally, we used $101.5 million of net proceeds from WAVE,the issuance of long-term debt to redeem $150.0 million of senior unsecured notes, acquired 750,000 of our common shares at a total cost of $29.6 million, and paid dividends of $39.4 million on our common shares. Additionally, we paid $129.0 million to repurchase 3,100,000 of our common shares.$26.9 million. The following table summarizes our consolidated cash flows for the periods presented:
| Nine Months Ended February 28, |
| Six Months Ended November 30, |
| ||||||||||
(in millions) | 2019 |
|
| 2018 |
| 2019 |
|
| 2018 |
| ||||
Net cash provided by operating activities | $ | 127.2 |
|
| $ | 202.6 |
| $ | 168.5 |
|
| $ | 75.1 |
|
Net cash provided (used) by investing activities |
| 44.4 |
|
|
| (323.6 | ) |
| (70.6 | ) |
|
| 34.5 |
|
Net cash used by financing activities |
| (180.5 | ) |
|
| (9.7 | ) |
| (118.0 | ) |
|
| (138.6 | ) |
Decrease in cash and cash equivalents |
| (8.9 | ) |
|
| (130.7 | ) |
| (20.1 | ) |
|
| (29.0 | ) |
Cash and cash equivalents at beginning of period |
| 122.0 |
|
|
| 278.1 |
|
| 92.4 |
|
|
| 122.0 |
|
Cash and cash equivalents at end of period | $ | 113.1 |
|
| $ | 147.4 |
| $ | 72.3 |
|
| $ | 93.0 |
|
We believe we have access to adequate resources to meet the needs of our existing businesses for normal operating costs, mandatory capital expenditures, debt redemptions, dividend payments, and working capital. These resources include cash and cash equivalents, cash provided by operating activities and unused lines of credit. We also believe that we have adequate access to the financial markets to allow us to be in a position to sell long-term debt or equity securities. However, uncertainty and volatility in the financial markets may impact our ability to access capital and the terms under which we can do so.
34
Our business is cyclical and cash flows from operating activities may fluctuate during the year and from year to year due to economic conditions. We rely on cash and short-term borrowings to meet cyclical increases in working capital needs. These needs generally rise during periods of increased economic activity or increasing raw material prices due to 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 $127.2$168.5 million during the ninesix months ended February 28,November 30, 2019 compared to $202.6$75.1 million in the comparable period of fiscal 2018.2019. The decreaseincrease in net cash provided by operating activities was driven primarily by changes inlower working capital needs due to declining steel prices and lower volumes partially offset by the impact of lower net earnings.
Investing Activities
Net cash used by investing activities was $70.6 million during the six months ended November 30, 2019 compared to net cash provided by investing activities was $44.4 million during the nine months ended February 28, 2019 compared to a net cash outflow of $323.6$34.5 million in the comparable prior year period. The change from the prior year period was driven primarily by the acquisition of AMTROL on June 2, 2017, which reduced cash by $285.0 million, net of cash acquired. We received $48.3$55.2 million in proceedsexcess distributions from asset sales, netWAVE received during the first six months of selling costs, primarilyfiscal 2019. We also paid $29.6 million in the current year to acquire certain operating assets of Heidtman and received $11.2 million less in proceeds from the sale of two oil & gas equipment manufacturing facilities and the solder business and certain brazing assets compared to $16.7 million in proceeds from asset sales, net of selling costs, in the comparable period in the prior year. We also received $56.7 million of excess distributions from WAVE during the first nine months of fiscal 2019 driven by a $35.0 million special distribution related to the pending sale of the international operations and a $25.0 million special distribution in connection with a financing transaction.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 acquisitions will be consummated, or that any needed additional financing will be available on satisfactory terms when required.
Financing Activities
Net cash used by financing activities was $180.5$118.0 million during the ninesix months ended February 28,November 30, 2019 compared to $9.7$138.6 million in the comparable prior year period. During the six months ended November 30, 2019, the Company paid $154.0 million to redeem the $150.0 aggregate principal amount of unsecured senior notes. The change from the prior year periodredemption was driven primarilyfunded in part by the issuance of $200.0 million aggregate principal amounteuro-denominated unsecured Senior Notes, which resulted in net cash proceeds of senior unsecured notes on July 28, 2017,$101.5 million. The net cash effect of these items was partially offset by $70.8 million in lower share repurchases in the current year.period.
Long-term debt and short-term borrowings – As of February 28,November 30, 2019, we were in compliance with our short-term and long-term financial debt covenants. Our debt agreements do not include credit rating triggers or material adverse change provisions.Our credit ratings at February 28,November 30, 2019 were unchanged from those reported as of May 31, 2018.2019.
On August 23, 2019, two of our European subsidiaries issued a €36,700,000 principal amount unsecured 1.56% Series A Senior Note due August 23, 2031 (the “2031 Note”) and €55,000,000 aggregate principal amount of unsecured 1.90% Series B Senior Notes due August 23, 2034 (the “2034 Notes”), (collectively, the “Senior Notes”). The Senior Notes were issued in a private placement and as discussed above, the proceeds thereof were used in the refinancing of existing indebtedness of the Company and its consolidated subsidiaries. Refer to “Item 1. – Financial Statements – Notes to Consolidated Financial Statements – NOTE I – Debt and Receivables Securitization” of this Quarterly Report on Form 10-Q for more information.
Common shares – The Worthington Industries Board declared a quarterly dividend of $0.24 per common share for the second quarter of fiscal 2020 compared to $0.23 per common share for the thirdsecond quarter of fiscal 2019 compared to $0.21 per common share for the third quarter of fiscal 2018.2019. Dividends paid on our common shares totaled $39.4$26.9 million and $38.8$26.3 million during the ninesix months ended February 28,November 30, 2019 and 2018, respectively. On March 20,December 17, 2019, the Worthington Industries Board declared a quarterly dividend of $0.23$0.24 per share payable on June 28, 2019,March 27, 2020, to shareholders of record on June 14, 2019.March 13, 2020.
On September 27, 2017, the Worthington Industries Board authorized the repurchase of up to 6,828,855 of the outstanding common shares of Worthington Industries, Inc., and on March 20, 2019, the Worthington Industries Board authorized the repurchase of up to an additional 6,600,000 of outstanding common shares. These common shares may be repurchased from time to time with consideration given to the market price of the common shares, the nature of other investment opportunities, cash flows from operations, general economic conditions and other relevant considerations. Repurchases may be made on the open market or through privately negotiated transactions. As of February 28, 2019, 3,400,000 shares remained available for repurchase. On March 20, 2019, the Worthington Industries Board authorized the repurchase of up to an additional 6,600,000 of the Company’s common shares, increasing theThe total number of common shares available forto repurchase to 10,000,000.at November 30, 2019 was 8,250,000.
35
Dividend Policy
We currently have no material contractual or regulatory restrictions on the payment of dividends. Dividends are declared at the discretion of the Worthington Industries Board. The Worthington Industries Board reviews the dividend quarterly and establishes the dividend rate based upon our consolidated financial condition, results of operations, capital requirements, current and projected cash flows, business prospects, and other relevant factors. While we have paid a dividend every quarter since becoming a public company in 1968, there is no guarantee that payments will continue in the future.
35
Contractual Cash Obligations and Other Commercial Commitments
Our contractual cash obligations and other commercial commitments have not changed significantly from those disclosed in “Part II – Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Contractual Cash Obligations and Other Commercial Commitments” of our 20182019 Form 10-K.
Off-Balance Sheet Arrangements
We do not have guarantees or other off-balance sheet financing arrangements that we believe are reasonably likely to have a material current or future effect on our consolidated financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. However, as of February 28,November 30, 2019, we were party to an operating lease for an aircraft in which we have guaranteed a residual value at the termination of the lease. The maximum obligation under the terms of this guarantee was approximately $7.6$6.9 million at February 28,November 30, 2019. Based on current facts and circumstances, we have estimated the likelihood of payment pursuant to this guarantee is not probable and, therefore, no amounts have been recognized in our consolidated financial statements.
Recently Issued Accounting Standards
In February 2016, new accounting guidance was issued that replaces most existing lease accounting guidance under U.S. GAAP. Among other changes, the new accounting guidance requires that leased assets and liabilities be recognized on the balance sheet by lessees for those leases classified as operating leases under previous accounting guidance. The new accounting guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted, and the change is to be applied using a modified retrospective approach as of the beginning of the earliest period presented. In July 2018, the FASB issued additional accounting standard updates clarifying certain provisions, as well as providing for a second transition method allowing entities to initially apply the standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance sheet of retained earnings. The scoping and diagnostic phases of the implementation of this new accounting guidance have been completed. We are continuing to evaluate the components and criteria of existing leases and reviewing contracts and agreements to identify items that may meet the definition of a lease under the new accounting guidance. We have procured a third-party software to track and manage our leases and are getting ready to start the process of importing lease data into the software. While we are in the process of evaluating the effect this new accounting guidance will have on the presentation of our consolidated financial statements and related disclosures, the adoption is anticipated to have a material impact on the Company’s consolidated balance sheets with the addition of right-of-use assets, offset by the associated liabilities; however, we do not expect it to have a material impact on the consolidated statements of earnings..
In June 2016, amended accounting guidance was issued related to the measurement of credit losses on financial instruments. The amended accounting guidance changes the impairment model for most financial assets to require measurement and recognition of expected credit losses for financial assets held. The amended accounting guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We are in the process of evaluating the effect this amended accounting guidance will have on our consolidated financial position and results of operations; however, we do not expect the amended accounting guidance to have a material impact on our ongoing financial reporting.
In August 2017, amended accounting guidance was issued that modifies hedge accounting by making more hedge strategies eligible for hedge accounting, amending presentation and disclosure requirements, and changing how companies assess effectiveness. The intent is to simplify application of hedge accounting and increase transparency of information about an entity’s risk management activities. The amended accounting guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. It is to be applied using a modified retrospective transition approach for cash flow and net investment hedges existing at the date of adoption. The presentation and disclosure guidance is only required prospectively. Early adoption is permitted. We are in the process of evaluating the effect this amended accounting guidance will have on our consolidated financial position and results of operations; however, we do not expect the amended accounting guidance to have a material impact on our ongoing financial reporting.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. We continually evaluate our estimates, including those related to our valuation of receivables, inventories, intangible assets, accrued liabilities, income and other tax accruals, and contingencies and litigation. 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
36
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. Except for the accounting policy for revenue recognition that was updated as a result of adopting Topic 606, ourOur 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” of our 2018 2019Form 10-K.
During the first quarter of fiscal 2020, the Company committed to plans to sell substantially all of the net assets of its Engineered Cabs business with the exception of the fabricated products facility in Stow, Ohio, and the steel packaging facility in Greensburg, Indiana. As of August 31, 2019, the disposal group met the criteria for classification as assets held for sale and the net assets were recorded at the lower of net book value or fair value, less cost to sell, and presented separately as assets held for sale in our consolidated balance sheet. The book value of the disposal group exceeded its estimated fair market value of $12.9 million (determined using Level 2 inputs) and resulted in the recording of a $35.2 million impairment charge during the first quarter of fiscal 2020. Included in the impairment charge were lease ROU assets with a net book value of $0.9 million that were deemed fully impaired and written off. The Company also identified an impairment indicator for the long-lived assets of the Engineered Cabs fabricated products business as the planned sale will have an adverse impact on the manner and extent in which these assets are used, resulting in an impairment charge of $5.4 million during the first quarter of fiscal 2020. On November 1, 2019, the assets of the disposal group were contributed to the Cabs joint venture. For additional information on the adoption and impact of Topic 606 referrefer to “Item 1. – Financial Statements – Notes to Consolidated Financial Statements – NOTE BA – Revenue Recognition”Basis of this Quarterly Report on Form 10-Q.Presentation” and “Item 1. – Financial Statements – Notes to Consolidated Financial Statements – NOTE E – Impairment of Long-Lived Assets”.
As a result of changes in36
During the facts and circumstances related to the planned sale of the Company’s cryogenics business in Turkey, Worthington Aritas, the Company lowered its estimate of fair value less cost to sell, to $7.0 million, resulting in an impairment charge of $2.4 million during the firstsecond quarter of fiscal 2019. 2020, the Company’s exploration of strategic alternatives related to its investment in ArtiFlex resulted in the need to evaluate this investment for potential impairment. Based on the analysis performed, the Company concluded its investment was not impaired, as current and projected cash flows were deemed sufficient to recover the remaining book value of $54.6 million. However, it is possible the Company’s estimate of future cash flows could decline to a level that no longer supports the current book value of the investment. Factors which could have an adverse impact on the current cash flow projections, include, but are not limited to deteriorating market conditions as well as potential outcomes that may result from management’s review of strategic alternatives.
Item 3. – Quantitative and Qualitative Disclosures About Market Risk
Market risks have not changed significantly from those disclosed in “Part II – Item 7A. – Quantitative and Qualitative Disclosures About Market Risk” of our 20182019 Form 10-K.
Item 4. – Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures [as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)] that are designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Management, with the participation of our principal executive officer and our principal financial officer, performed an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q (the quarterly period ended February 28,November 30, 2019). Based on that evaluation, our principal executive officer and our principal financial officer have concluded that such disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period covered by this Quarterly Report on Form 10-Q.
Changes in Internal Control Over Financial Reporting
There were no changes that occurred during the period covered by this Quarterly Report on Form 10-Q (the quarterly period ended February 28,November 30, 2019) 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.
Various legal actions, which generally have arisen in the ordinary course of business, are pending against the Company. None of this pending litigation, individually or collectively, is expected to have a material adverse effect on our consolidated financial position, results of operations or cash flows.
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 our 20182019 Form 10-K, as filed with the U.S. Securities and Exchange Commission on July 30, 2018,2019, and available at www.sec.gov or at www.worthingtonindustries.com, we included a detailed discussion of our risk factors. Other than as noted below, our risk factors have not changed significantly from those disclosed in our 20182019 Form 10-K. These risk factors should be read carefully in connection with evaluating our business and in connection with the forward-looking statements and other information contained in this Quarterly Report on Form 10-Q. Any of the risks described in our 20182019 Form 10-K could materially affect our business, consolidated financial condition or future results and the actual outcome of matters as to which forward-looking statements are made. The risk factors described in our 20182019 Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, also may materially adversely affect our business, consolidated financial condition and/or future results.
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Risks related to actions with respect to international trade by the U.S. government and foreign governments. The U.S. federal government has altered its approach toU.S. international trade policy and in some cases has renegotiated or is attemptingindicated its intention to renegotiate or potentially terminate, certain existing bilateral or multi-lateral trade agreements and treaties with foreign countries, includinggovernments. Most recently, the U.S. federal government has renegotiated the North American Free Trade Agreement (“NAFTA”). In addition, with Mexico and Canada. While the renegotiated form of NAFTA has yet to be fully implemented, the U.S. government has initiatedfederal government’s potential decision to withdraw or is considering imposing tariffs on certain foreign goods, including steel. Related to this action, certain foreign governments, including Canada, China, the European Union and Mexico have initiated or are considering imposing tariffs on certain U.S. goods. It remains unclear what additional actions the U.S. government or foreign governments will or will not take with respect to tariffs,materially modify NAFTA or other internationalexisting trade agreements and policies. A trade war or other governmental action related to tariffs or international trade
37
agreements or policies has the potential totreaties may adversely impact demand for our products, our costs,business, customers and/or suppliers by disrupting trade and commercial transactions and/or adversely affecting the U.S. economy or certain sectors thereof and, thus, to adversely impact our businesses.specific portions thereof.
Item 2. – Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information about purchases made by, or on behalf of, Worthington Industries, Inc. or any “affiliated purchaser” (as defined in Rule 10b-18(a) (3) under the Securities Exchange Act of 1934, as amended) of common shares of Worthington Industries, Inc. during each month of the quarterly period ended February 28,November 30, 2019:
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|
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|
|
|
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| Total Number of |
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|
|
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| |
|
|
|
|
|
|
|
|
| Common Shares |
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Purchased as |
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| Maximum Number of |
| ||
| Total Number |
|
| Average Price |
|
| Part of Publicly |
|
| Common Shares that |
| ||||
| of Common |
|
| Paid per |
|
| Announced |
|
| May Yet Be |
| ||||
| Shares |
|
| Common |
|
| Plans or |
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| Purchased Under the |
| ||||
Period | Purchased |
|
| Share |
|
| Programs |
|
| Plans or Programs (1) |
| ||||
December 1- 31, 2019 |
| 328,000 |
|
| $ | 34.99 |
|
|
| 328,000 |
|
|
| 3,872,000 |
|
January 1- 31, 2019 |
| 472,000 |
|
|
| 36.22 |
|
|
| 472,000 |
|
|
| 3,400,000 |
|
February 1- 28, 2019 |
| - |
|
|
| - |
|
|
| - |
|
|
| 3,400,000 |
|
Total |
| 800,000 |
|
| $ | 35.72 |
|
|
| 800,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total Number of |
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|
|
|
| |
|
|
|
|
|
|
|
|
| Common Shares |
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|
|
|
| |
|
|
|
|
|
|
|
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| Purchased as |
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| 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 |
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| Purchased Under the |
| ||||
Period | Purchased |
|
| Share |
|
| Programs |
|
| Plans or Programs (1) |
| ||||
September 1-30, 2019 (2) |
| 7,117 |
|
| $ | 38.94 |
|
|
| - |
|
|
| 8,250,000 |
|
October 1-31, 2019 |
| - |
|
|
| - |
|
|
| - |
|
|
| 8,250,000 |
|
November 1-30, 2019 |
| - |
|
|
| - |
|
|
| - |
|
|
| 8,250,000 |
|
Total |
| 7,117 |
|
| $ | 38.94 |
|
|
| - |
|
|
|
|
|
(1) | On September 27, 2017, the Worthington Industries Board authorized the repurchase of up to 6,828,855 of the outstanding common shares of Worthington Industries, Inc. |
(2) | Includes an aggregate of 7,117 common shares surrendered by employees in September 2019 to satisfy tax withholding obligations upon the vesting of restricted common shares. These common shares were not counted against the share repurchase authorizations in effect throughout the second quarter of fiscal 2020 and discussed in footnote (1) above. |
Item 3. – Defaults Upon Senior Securities
Not applicable.
Item 4. – Mine Safety Disclosures
Not applicable.
Not applicable.
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Exhibit No. |
| Description |
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3.1 |
| Amended Articles of Incorporation of Worthington Industries, Inc., as filed with the Ohio Secretary of State on October 13, 1998 |
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3.2 |
| |
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10.1 |
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10.2 |
| |
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31.1 |
| Rule 13a - 14(a) / 15d - 14(a) Certifications (Principal Executive Officer) * |
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31.2 |
| Rule 13a - 14(a) / 15d - 14(a) Certifications (Principal Financial Officer) * |
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32.1 |
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32.2 |
| |
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101.INS |
| XBRL Instance Document |
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101.SCH |
| Inline XBRL Taxonomy Extension Schema Document # |
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101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document # |
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101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document # |
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101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document # |
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101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document # |
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|
104 | Cover Page Interactive Data File – the cover page from this Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2019, formatted in Inline XBRL (included within the Exhibit 101 attachments). |
* | Filed herewith. |
** | Furnished herewith. |
# | Attached as Exhibit 101 to this Quarterly Report on Form 10-Q of Worthington Industries, Inc. are the following documents formatted in Inline XBRL (Extensible Business Reporting Language): |
| (i) | Consolidated Balance Sheets at |
| (ii) | Consolidated Statements of Earnings for the three and |
| (iii) | Consolidated Statements of Comprehensive Income for the three and |
| (iv) | Consolidated Statements of Cash Flows for the three and |
| (v) | Notes to Consolidated Financial Statements. |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| WORTHINGTON INDUSTRIES, INC. |
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Date: | By: | /s/ Joseph B. Hayek |
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| Joseph B. Hayek, |
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| Vice President and Chief Financial Officer |
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| (On behalf of the Registrant as Duly Authorized Officer and as Principal Financial Officer) |
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