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 November 30, 2019February 29, 2020
or
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to ___________
Commission file number 001-08399
WORTHINGTON INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Ohio |
| 31-1189815 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
|
|
|
200 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 ☒
On DecemberMarch 31, 2019,2020, the number of Common Shares, without par value, issued and outstanding was 56,067,068.55,547,291.
TABLE OF CONTENTS
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| Item 1. |
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| Consolidated Balance Sheets |
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| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Item 1. |
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i
Safe Harbor Statement
Selected statements contained in this Quarterly Report on Form 10-Q, including, without limitation, in “PART I – Item 2. – Management’s Discussion and Analysis of Financial Condition and Results of Operations,” constitute “forward-looking statements” as that term is used in the Private Securities Litigation Reform Act of 1995 (the “Act”). Forward-looking statements reflect our current expectations, estimates or projections concerning future results or events. These statements are often identified by the use of forward-looking words or phrases such as “believe,” “expect,” “anticipate,” “may,” “could,” “intend,” “estimate,” “plan,” “foresee,” “likely,” “will,” “should” or other similar words or phrases. These forward-looking statements include, without limitation, statements relating to:
• | the impacts from COVID-19 and the actions taken by governmental authorities and others related thereto, including the ability of the Company to continue operating facilities in connection therewith, to cut variable costs, or to eventually recall furloughed workers; |
• | future or expected cash positions, liquidity or ability to access financial markets and capital; |
| • | 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; |
| • | pricing trends for raw materials and finished goods and the impact of pricing changes; |
| • | the ability to improve or maintain margins; |
| • | expected demand or demand trends for us or our markets; |
| • | additions to product lines and opportunities to participate in new markets; |
| • | expected benefits from Transformation and innovation efforts; |
| • | the ability to improve performance and competitive position at our operations; |
| • | anticipated working capital needs, capital expenditures and asset sales; |
| • | anticipated improvements and efficiencies in costs, operations, sales, inventory management, sourcing and the supply chain and the results thereof; |
| • | projected profitability potential; |
| • | 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; |
| • | projected capacity and the alignment of operations with demand; |
| • | the ability to operate profitably and generate cash in down markets; |
| • | the ability to capture and maintain market share and to develop or take advantage of future opportunities, customer initiatives, new businesses, new products and new markets; |
| • | expectations for Company and customer inventories, jobs and orders; |
| • | expectations for the economy and markets or improvements therein; |
| • | expectations for generating improving and sustainable earnings, earnings potential, margins or shareholder value; |
| • | effects of judicial rulings; and |
| • | other non-historical matters. |
Because they are based on beliefs, estimates and assumptions, forward-looking statements are inherently subject to risks and uncertainties that could cause actual results to differ materially from those projected. Any number of factors could affect actual results, including, without limitation, those that follow:
| • | the risks, uncertainties and impacts related to COVID-19 or other actual or potential public health emergencies and actions taken by governmental authorities or others in connection therewith including risks, uncertainties and impacts related to the ability and costs to continue to operate facilities; |
• | the effect of national, regional and global economic conditions generally and within major product markets, including |
| • | the effect of conditions in national and worldwide financial |
| • | 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; |
ii
| • | 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 cost savings and operational, sales and sourcing improvements and efficiencies, and other expected benefits from Transformation initiatives, on a timely basis; |
| • | the overall success of, and the ability to integrate, newly-acquired businesses and joint ventures, maintain and develop their customers, and achieve synergies and other expected benefits and cost savings therefrom; |
| • | capacity levels and efficiencies, within facilities, within major product markets and within the industries in which 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; |
| • | 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; |
| • | 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 our significant accounting policies; |
| • | 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 |
| • | 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; |
| • | 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, 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. FINANCIAL INFORMATION
Item 1. – Financial Statements
WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
| November 30, |
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| May 31, |
| February 29, |
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| May 31, |
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| 2019 |
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| 2019 |
| 2020 |
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| 2019 |
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Assets |
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Current assets: |
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Cash and cash equivalents | $ | 72,260 |
|
| $ | 92,363 |
| $ | 103,430 |
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| $ | 92,363 |
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Receivables, less allowances of $1,407 and $1,150 at November 30, 2019 |
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Receivables, less allowances of $1,678 and $1,150 at February 29, 2020 |
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and May 31, 2019, respectively |
| 477,228 |
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| 501,944 |
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| 472,741 |
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| 501,944 |
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Inventories: |
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Raw materials |
| 190,310 |
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| 268,607 |
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| 177,400 |
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| 268,607 |
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Work in process |
| 82,400 |
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| 113,848 |
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| 91,585 |
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| 113,848 |
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Finished products |
| 107,077 |
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| 101,825 |
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| 107,886 |
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| 101,825 |
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Total inventories |
| 379,787 |
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| 484,280 |
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| 376,871 |
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| 484,280 |
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Income taxes receivable |
| 12,557 |
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| 10,894 |
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| 11,152 |
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| 10,894 |
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Assets held for sale |
| 1,731 |
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| 6,924 |
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| 14,032 |
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| 6,924 |
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Prepaid expenses and other current assets |
| 67,083 |
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| 69,508 |
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| 74,974 |
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| 69,508 |
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Total current assets |
| 1,010,646 |
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| 1,165,913 |
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| 1,053,200 |
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| 1,165,913 |
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Investments in unconsolidated affiliates |
| 225,791 |
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| 214,930 |
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| 222,724 |
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| 214,930 |
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Operating lease assets |
| 37,864 |
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| - |
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| 35,230 |
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| - |
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Goodwill |
| 341,850 |
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| 334,607 |
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| 321,128 |
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| 334,607 |
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Other intangible assets, net of accumulated amortization of $92,889 and |
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$87,759 at November 30, 2019 and May 31, 2019, respectively |
| 190,703 |
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| 196,059 |
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Other intangible assets, net of accumulated amortization of $89,763 and |
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$87,759 at February 29, 2020 and May 31, 2019, respectively |
| 191,052 |
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| 196,059 |
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Other assets |
| 33,612 |
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|
| 20,623 |
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| 33,479 |
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| 20,623 |
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Property, plant and equipment: |
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Land |
| 23,028 |
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| 23,996 |
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| 24,212 |
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| 23,996 |
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Buildings and improvements |
| 301,713 |
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| 310,112 |
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| 294,307 |
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| 310,112 |
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Machinery and equipment |
| 1,043,314 |
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| 1,049,068 |
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| 1,057,947 |
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| 1,049,068 |
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Construction in progress |
| 58,039 |
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| 49,423 |
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| 51,223 |
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| 49,423 |
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Total property, plant and equipment |
| 1,426,094 |
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| 1,432,599 |
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| 1,427,689 |
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| 1,432,599 |
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Less: accumulated depreciation |
| 857,599 |
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| 853,935 |
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| 855,419 |
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| 853,935 |
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Total property, plant and equipment, net |
| 568,495 |
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| 578,664 |
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| 572,270 |
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| 578,664 |
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Total assets | $ | 2,408,961 |
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| $ | 2,510,796 |
| $ | 2,429,083 |
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| $ | 2,510,796 |
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Liabilities and equity |
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Current liabilities: |
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Accounts payable | $ | 330,959 |
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| $ | 393,517 |
| $ | 361,356 |
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| $ | 393,517 |
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Accrued compensation, contributions to employee benefit plans and |
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related taxes |
| 62,932 |
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| 78,155 |
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| 53,787 |
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| 78,155 |
|
Dividends payable |
| 14,364 |
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|
| 14,431 |
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| 14,427 |
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|
| 14,431 |
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Other accrued items |
| 54,102 |
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| 59,810 |
|
| 48,797 |
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|
| 59,810 |
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Current operating lease liabilities |
| 11,201 |
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|
| - |
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| 10,757 |
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|
| - |
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Income taxes payable |
| 33 |
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|
| 1,164 |
|
| 423 |
|
|
| 1,164 |
|
Current maturities of long-term debt |
| 272 |
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|
| 150,943 |
|
| 296 |
|
|
| 150,943 |
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Total current liabilities |
| 473,863 |
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|
| 698,020 |
|
| 489,843 |
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|
| 698,020 |
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Other liabilities |
| 72,639 |
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|
| 69,976 |
|
| 71,815 |
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|
| 69,976 |
|
Distributions in excess of investment in unconsolidated affiliate |
| 97,243 |
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|
| 121,948 |
|
| 95,291 |
|
|
| 121,948 |
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Long-term debt |
| 698,531 |
|
|
| 598,356 |
|
| 698,552 |
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|
| 598,356 |
|
Noncurrent operating lease liabilities |
| 30,065 |
|
|
| - |
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| 27,841 |
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| - |
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Deferred income taxes, net |
| 77,877 |
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|
| 74,102 |
|
| 73,548 |
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|
| 74,102 |
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Total liabilities |
| 1,450,218 |
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|
| 1,562,402 |
|
| 1,456,890 |
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|
| 1,562,402 |
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Shareholders' equity - controlling interest |
| 835,891 |
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|
| 831,246 |
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| 821,495 |
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|
| 831,246 |
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Noncontrolling interests |
| 122,852 |
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|
| 117,148 |
|
| 150,698 |
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| 117,148 |
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Total equity |
| 958,743 |
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|
| 948,394 |
|
| 972,193 |
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|
| 948,394 |
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Total liabilities and equity | $ | 2,408,961 |
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| $ | 2,510,796 |
| $ | 2,429,083 |
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| $ | 2,510,796 |
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See notes to consolidated financial statements.
1
WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
(Unaudited)
| Three Months Ended November 30, |
|
| Six Months Ended November 30, |
| Three Months Ended |
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| Nine Months Ended |
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| 2019 |
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| 2018 |
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| 2019 |
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| 2018 |
| February 29, 2020 |
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| February 28, 2019 |
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| February 29, 2020 |
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| February 28, 2019 |
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Net sales | $ | 827,637 |
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| $ | 958,226 |
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| $ | 1,683,496 |
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| $ | 1,946,333 |
| $ | 763,996 |
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| $ | 874,381 |
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| $ | 2,447,492 |
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| $ | 2,820,714 |
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Cost of goods sold |
| 707,026 |
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| 837,292 |
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| 1,445,594 |
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| 1,682,402 |
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| 648,451 |
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| 784,360 |
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| 2,094,045 |
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| 2,466,762 |
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Gross margin |
| 120,611 |
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| 120,934 |
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| 237,902 |
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| 263,931 |
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| 115,545 |
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| 90,021 |
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| 353,447 |
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| 353,952 |
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Selling, general and administrative expense |
| 88,543 |
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| 84,668 |
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|
| 179,366 |
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|
| 175,309 |
|
| 80,928 |
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|
| 75,220 |
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|
| 260,294 |
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|
| 250,529 |
|
Impairment of long-lived assets |
| - |
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| - |
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|
| 40,601 |
|
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| 2,381 |
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Impairment of goodwill and long-lived assets |
| 34,627 |
|
|
| - |
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| 75,228 |
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| 2,381 |
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Restructuring and other expense (income), net |
| (50 | ) |
|
| 402 |
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| 405 |
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| (534 | ) |
| 1,376 |
|
|
| (11,176 | ) |
|
| 1,781 |
|
|
| (11,710 | ) |
Operating income |
| 32,118 |
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|
| 35,864 |
|
|
| 17,530 |
|
|
| 86,775 |
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Operating income (loss) |
| (1,386 | ) |
|
| 25,977 |
|
|
| 16,144 |
|
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| 112,752 |
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Other income (expense): |
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Miscellaneous income, net |
| 636 |
|
|
| 1,432 |
|
|
| 1,331 |
|
|
| 1,697 |
|
| 6,985 |
|
|
| 525 |
|
|
| 8,316 |
|
|
| 2,222 |
|
Interest expense |
| (7,315 | ) |
|
| (9,472 | ) |
|
| (16,795 | ) |
|
| (19,200 | ) |
| (7,362 | ) |
|
| (9,341 | ) |
|
| (24,157 | ) |
|
| (28,541 | ) |
Loss on extinguishment of debt |
| - |
|
|
| - |
|
|
| (4,034 | ) |
|
| - |
|
| - |
|
|
| - |
|
|
| (4,034 | ) |
|
| - |
|
Equity in net income of unconsolidated affiliates |
| 47,346 |
|
|
| 21,087 |
|
|
| 72,113 |
|
|
| 51,095 |
|
| 25,479 |
|
|
| 20,802 |
|
|
| 97,592 |
|
|
| 71,897 |
|
Earnings before income taxes |
| 72,785 |
|
|
| 48,911 |
|
|
| 70,145 |
|
|
| 120,367 |
|
| 23,716 |
|
|
| 37,963 |
|
|
| 93,861 |
|
|
| 158,330 |
|
Income tax expense |
| 15,863 |
|
|
| 11,119 |
|
|
| 15,678 |
|
|
| 25,617 |
|
| 4,828 |
|
|
| 8,415 |
|
|
| 20,506 |
|
|
| 34,032 |
|
Net earnings |
| 56,922 |
|
|
| 37,792 |
|
|
| 54,467 |
|
|
| 94,750 |
|
| 18,888 |
|
|
| 29,548 |
|
|
| 73,355 |
|
|
| 124,298 |
|
Net earnings attributable to noncontrolling interests |
| 4,836 |
|
|
| 3,790 |
|
|
| 7,157 |
|
|
| 5,806 |
|
| 3,577 |
|
|
| 2,775 |
|
|
| 10,734 |
|
|
| 8,581 |
|
Net earnings attributable to controlling interest | $ | 52,086 |
|
| $ | 34,002 |
|
| $ | 47,310 |
|
| $ | 88,944 |
| $ | 15,311 |
|
| $ | 26,773 |
|
| $ | 62,621 |
|
| $ | 115,717 |
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|
|
Basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding |
| 55,059 |
|
|
| 57,716 |
|
|
| 55,150 |
|
|
| 58,226 |
|
| 54,930 |
|
|
| 56,478 |
|
|
| 55,078 |
|
|
| 57,650 |
|
Earnings per share attributable to controlling interest | $ | 0.95 |
|
| $ | 0.59 |
|
| $ | 0.86 |
|
| $ | 1.53 |
| $ | 0.28 |
|
| $ | 0.47 |
|
| $ | 1.14 |
|
| $ | 2.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding |
| 56,072 |
|
|
| 59,338 |
|
|
| 56,205 |
|
|
| 60,013 |
|
| 55,898 |
|
|
| 57,974 |
|
|
| 56,164 |
|
|
| 59,389 |
|
Earnings per share attributable to controlling interest | $ | 0.93 |
|
| $ | 0.57 |
|
| $ | 0.84 |
|
| $ | 1.48 |
| $ | 0.27 |
|
| $ | 0.46 |
|
| $ | 1.11 |
|
| $ | 1.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding at end of period |
| 55,094 |
|
|
| 56,957 |
|
|
| 55,094 |
|
|
| 56,957 |
|
| 54,598 |
|
|
| 56,181 |
|
|
| 54,598 |
|
|
| 56,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per share | $ | 0.24 |
|
| $ | 0.23 |
|
| $ | 0.48 |
|
| $ | 0.46 |
| $ | 0.24 |
|
| $ | 0.23 |
|
| $ | 0.72 |
|
| $ | 0.69 |
|
See notes to consolidated financial statements.
2
WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
| Three Months Ended November 30, |
|
| Six Months Ended November 30, |
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| February 29, 2020 |
|
| February 28, 2019 |
|
| February 29, 2020 |
|
| February 28, 2019 |
| ||||||||
Net earnings | $ | 56,922 |
|
| $ | 37,792 |
|
| $ | 54,467 |
|
| $ | 94,750 |
| $ | 18,888 |
|
| $ | 29,548 |
|
| $ | 73,355 |
|
| $ | 124,298 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation |
| 6,662 |
|
|
| (6,638 | ) |
|
| 11,444 |
|
|
| (10,333 | ) |
| (576 | ) |
|
| 1,476 |
|
|
| 10,868 |
|
|
| (8,857 | ) |
Pension liability adjustment, net of tax |
| 95 |
|
|
| - |
|
|
| 1,108 |
|
|
| (97 | ) |
| 138 |
|
|
| 37 |
|
|
| 1,246 |
|
|
| (60 | ) |
Cash flow hedges, net of tax |
| 3,213 |
|
|
| (4,662 | ) |
|
| 574 |
|
|
| (6,632 | ) |
| 2,159 |
|
|
| (596 | ) |
|
| 2,733 |
|
|
| (7,228 | ) |
Other comprehensive income (loss) |
| 9,970 |
|
|
| (11,300 | ) |
|
| 13,126 |
|
|
| (17,062 | ) |
| 1,721 |
|
|
| 917 |
|
|
| 14,847 |
|
|
| (16,145 | ) |
Comprehensive income |
| 66,892 |
|
|
| 26,492 |
|
|
| 67,593 |
|
|
| 77,688 |
|
| 20,609 |
|
|
| 30,465 |
|
|
| 88,202 |
|
|
| 108,153 |
|
Comprehensive income attributable to noncontrolling interests |
| 4,836 |
|
|
| 3,735 |
|
|
| 7,157 |
|
|
| 5,734 |
|
| 3,577 |
|
|
| 2,803 |
|
|
| 10,734 |
|
|
| 8,537 |
|
Comprehensive income attributable to controlling interest | $ | 62,056 |
|
| $ | 22,757 |
|
| $ | 60,436 |
|
| $ | 71,954 |
| $ | 17,032 |
|
| $ | 27,662 |
|
| $ | 77,468 |
|
| $ | 99,616 |
|
See notes to consolidated financial statements.
3
WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Three Months Ended November 30, |
|
| Six Months Ended November 30, |
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| February 29, 2020 |
|
| February 28, 2019 |
|
| February 29, 2020 |
|
| February 28, 2019 |
| ||||||||
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings | $ | 56,922 |
|
| $ | 37,792 |
|
| $ | 54,467 |
|
| $ | 94,750 |
| $ | 18,888 |
|
| $ | 29,548 |
|
| $ | 73,355 |
|
| $ | 124,298 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
| 22,596 |
|
|
| 23,525 |
|
|
| 46,773 |
|
|
| 48,018 |
|
| 22,780 |
|
|
| 23,625 |
|
|
| 69,553 |
|
|
| 71,643 |
|
Impairment of long-lived assets |
| - |
|
|
| - |
|
|
| 40,601 |
|
|
| 2,381 |
| |||||||||||||||
Provision for deferred income taxes |
| 6,843 |
|
|
| 3,289 |
|
|
| 3,345 |
|
|
| 22,223 |
| |||||||||||||||
Impairment of goodwill and long-lived assets |
| 34,627 |
|
|
| - |
|
|
| 75,228 |
|
|
| 2,381 |
| |||||||||||||||
Provision for (benefit from) deferred income taxes |
| (5,006 | ) |
|
| (730 | ) |
|
| (1,661 | ) |
|
| 21,493 |
| |||||||||||||||
Bad debt expense |
| 143 |
|
|
| 32 |
|
|
| 311 |
|
|
| 253 |
|
| 273 |
|
|
| 201 |
|
|
| 584 |
|
|
| 454 |
|
Equity in net income of unconsolidated affiliates, net of distributions |
| (19,879 | ) |
|
| 14,182 |
|
|
| (14,797 | ) |
|
| 4,163 |
|
| (4,474 | ) |
|
| (865 | ) |
|
| (19,271 | ) |
|
| 3,298 |
|
Net (gain) loss on sale of assets |
| (17 | ) |
|
| (312 | ) |
|
| 601 |
|
|
| 2,403 |
| |||||||||||||||
Net gain on sale of assets |
| (5,838 | ) |
|
| (12,606 | ) |
|
| (5,237 | ) |
|
| (10,203 | ) | |||||||||||||||
Stock-based compensation |
| 3,280 |
|
|
| 3,456 |
|
|
| 7,275 |
|
|
| 6,612 |
|
| 2,725 |
|
|
| 1,143 |
|
|
| 10,000 |
|
|
| 7,755 |
|
Loss on extinguishment of debt |
| - |
|
|
| - |
|
|
| 4,034 |
|
|
| - |
|
| - |
|
|
| - |
|
|
| 4,034 |
|
|
| - |
|
Changes in assets and liabilities, net of impact of acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables |
| (5,456 | ) |
|
| 40,838 |
|
|
| 9,525 |
|
|
| 54,247 |
|
| 5,992 |
|
|
| 1,546 |
|
|
| 15,517 |
|
|
| 55,793 |
|
Inventories |
| 43,601 |
|
|
| 5,866 |
|
|
| 87,883 |
|
|
| (37,471 | ) |
| 3,024 |
|
|
| (1,054 | ) |
|
| 90,907 |
|
|
| (38,525 | ) |
Accounts payable |
| (20,743 | ) |
|
| (72,974 | ) |
|
| (57,977 | ) |
|
| (70,160 | ) |
| 29,630 |
|
|
| 19,002 |
|
|
| (28,347 | ) |
|
| (51,158 | ) |
Accrued compensation and employee benefits |
| 9,619 |
|
|
| 3,556 |
|
|
| (13,596 | ) |
|
| (27,378 | ) |
| (9,144 | ) |
|
| (11,391 | ) |
|
| (22,740 | ) |
|
| (38,769 | ) |
Other operating items, net |
| 7,251 |
|
|
| (14,546 | ) |
|
| 84 |
|
|
| (24,892 | ) |
| (6,156 | ) |
|
| 3,619 |
|
|
| (6,072 | ) |
|
| (21,273 | ) |
Net cash provided by operating activities |
| 104,160 |
|
|
| 44,704 |
|
|
| 168,529 |
|
|
| 75,149 |
|
| 87,321 |
|
|
| 52,038 |
|
|
| 255,850 |
|
|
| 127,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in property, plant and equipment |
| (28,381 | ) |
|
| (21,741 | ) |
|
| (50,555 | ) |
|
| (41,175 | ) |
| (21,219 | ) |
|
| (19,379 | ) |
|
| (71,774 | ) |
|
| (60,554 | ) |
Acquisitions |
| (29,283 | ) |
|
| - |
|
|
| (29,283 | ) |
|
| - |
|
| (500 | ) |
|
| - |
|
|
| (29,783 | ) |
|
| - |
|
Distributions from unconsolidated affiliate |
| - |
|
|
| 55,201 |
|
|
| - |
|
|
| 55,201 |
|
| - |
|
|
| 1,492 |
|
|
| - |
|
|
| 56,693 |
|
Proceeds from sale of assets |
| 23 |
|
|
| 170 |
|
|
| 9,199 |
|
|
| 20,447 |
|
| 119 |
|
|
| 27,843 |
|
|
| 9,318 |
|
|
| 48,290 |
|
Net cash provided (used) by investing activities |
| (57,641 | ) |
|
| 33,630 |
|
|
| (70,639 | ) |
|
| 34,473 |
|
| (21,600 | ) |
|
| 9,956 |
|
|
| (92,239 | ) |
|
| 44,429 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt, net of issuance costs |
| (134 | ) |
|
| - |
|
|
| 101,464 |
|
|
| - |
|
| - |
|
|
| - |
|
|
| 101,464 |
|
|
| - |
|
Principal payments on long-term obligations and debt redemption costs |
| (490 | ) |
|
| (371 | ) |
|
| (154,467 | ) |
|
| (801 | ) |
| (344 | ) |
|
| (303 | ) |
|
| (154,811 | ) |
|
| (1,104 | ) |
Payments for issuance of common shares, net of tax withholdings |
| (3,811 | ) |
|
| (658 | ) |
|
| (7,024 | ) |
|
| (4,749 | ) | |||||||||||||||
Proceeds from issuance of common shares, net of tax withholdings |
| 429 |
|
|
| 104 |
|
|
| (6,595 | ) |
|
| (4,645 | ) | |||||||||||||||
Payments to noncontrolling interests |
| (1,453 | ) |
|
| (4,007 | ) |
|
| (1,453 | ) |
|
| (6,327 | ) |
| - |
|
|
| - |
|
|
| (1,453 | ) |
|
| (6,327 | ) |
Repurchase of common shares |
| - |
|
|
| (63,581 | ) |
|
| (29,599 | ) |
|
| (100,433 | ) |
| (21,373 | ) |
|
| (28,587 | ) |
|
| (50,972 | ) |
|
| (129,020 | ) |
Dividends paid |
| (13,954 | ) |
|
| (13,533 | ) |
|
| (26,914 | ) |
|
| (26,252 | ) |
| (13,263 | ) |
|
| (13,119 | ) |
|
| (40,177 | ) |
|
| (39,371 | ) |
Net cash used by financing activities |
| (19,842 | ) |
|
| (82,150 | ) |
|
| (117,993 | ) |
|
| (138,562 | ) |
| (34,551 | ) |
|
| (41,905 | ) |
|
| (152,544 | ) |
|
| (180,467 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
| 26,677 |
|
|
| (3,816 | ) |
|
| (20,103 | ) |
|
| (28,940 | ) |
| 31,170 |
|
|
| 20,089 |
|
|
| 11,067 |
|
|
| (8,851 | ) |
Cash and cash equivalents at beginning of period |
| 45,583 |
|
|
| 96,843 |
|
|
| 92,363 |
|
|
| 121,967 |
|
| 72,260 |
|
|
| 93,027 |
|
|
| 92,363 |
|
|
| 121,967 |
|
Cash and cash equivalents at end of period | $ | 72,260 |
|
| $ | 93,027 |
|
| $ | 72,260 |
|
| $ | 93,027 |
| $ | 103,430 |
|
| $ | 113,116 |
|
| $ | 103,430 |
|
| $ | 113,116 |
|
See notes to consolidated financial statements.
4
WORTHINGTON INDUSTRIES, INC.
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”). They have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and 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,February 29, 2020, the Company owned controlling interests in the following 34 joint ventures: Spartan Steel Coating, LLC (“Spartan”) (52%), TWB Company, L.L.C. (“TWB”) (55%), Worthington Samuel Coil Processing LLC (“Samuel”) (63%), 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”. As more fully described in “NOTE P – Acquisitions,” on December 31, 2019, we acquired an additional 31.75% interest in Samuel, increasing our ownership to a 63% controlling interest, with Samuel’s results being consolidated within the Steel Processing operating segment since the acquisition date. The transaction resulted in a one-time net pre-tax gain of $6,055,000 within miscellaneous income in our consolidated statement of earnings for the three and nine months ended February 29, 2020.
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 sixnine months ended November 30, 2019February 29, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending May 31, 2020 (“fiscal 2020”)., particularly in light of the novel coronavirus (“COVID-19”) and its effects on the domestic and global economies. To limit the spread of COVID-19, governments have taken various actions including the issuance of stay-at-home orders and social distancing guidelines, causing some businesses to suspend operations and a reduction in demand for many products from direct or ultimate customers. Accordingly, businesses have adjusted, reduced or suspended operating activities. This has negatively impacted several of the markets we serve, including the North American automotive market, which shut down production in mid-March 2020. While a number of our plants are operating as essential businesses, some of our plants have suspended or cut back on operating levels and shifts, and additional suspensions and cutbacks may occur as the impacts from COVID-19 and related responses continue to develop. 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, 2019 (“fiscal 2019”) of Worthington Industries, Inc. (the “2019 Form 10-K”). and “Part II – Item 1A – Risk Factors” of this 10-Q.
Deconsolidation of Engineered Cabs: On November 1, 2019, we reachedclosed on an agreement with an affiliate of Angeles Equity Partners, LLC to contributeby which we contributed 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 investment 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 Goodwill and Long-Lived Assets” for additional information.
On November 1, 2019,5
Upon closing of the closing date,transaction, 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 statements 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, 2019, the Company adopted Accounting Standards Update 2016-02, Leases (“Topic 842”), which replaces most existing lease accounting guidance under U.S. GAAP. See “NOTE D – Leases” for additional information regarding the Company’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 under U.S. GAAP. The ASU is intended to simplify and clarify the accounting and disclosure requirements for hedging activities by more closely aligning the results of cash flow and fair value hedge accounting with the underlying risk management activities. The adoption of the standard had no current or historical impact on our consolidated financial position or results of operations. See “NOTE Q – Derivative Instruments and 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.
Reclassification
Certain prior period amounts have been reclassified within the operating section of the consolidated statements of cash flows for consistency with the current period presentation.
6
NOTE B – Revenue Recognition
The following tables summarize net sales by product class for the periods presented:
| Three Months Ended |
|
| Six Months Ended |
| |||||||||||||||||||||||||
| November 30, |
|
| November 30, |
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
(in thousands) | 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| February 29, 2020 |
|
| February 28, 2019 |
|
| February 29, 2020 |
|
| February 28, 2019 |
| ||||||||
Reportable segments by product class: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steel Processing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct | $ | 481,058 |
|
| $ | 602,010 |
|
| $ | 974,704 |
|
| $ | 1,228,872 |
| $ | 450,413 |
|
| $ | 527,970 |
|
| $ | 1,425,117 |
|
| $ | 1,756,842 |
|
Toll |
| 35,879 |
|
|
| 33,033 |
|
|
| 65,608 |
|
|
| 66,658 |
|
| 40,723 |
|
|
| 27,901 |
|
|
| 106,331 |
|
|
| 94,559 |
|
Total | $ | 516,937 |
|
| $ | 635,043 |
|
| $ | 1,040,312 |
|
| $ | 1,295,530 |
| $ | 491,136 |
|
| $ | 555,871 |
|
| $ | 1,531,448 |
|
| $ | 1,851,401 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pressure Cylinders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial products | $ | 130,334 |
|
| $ | 152,018 |
|
| $ | 282,952 |
|
| $ | 304,865 |
| $ | 129,042 |
|
| $ | 148,018 |
|
| $ | 411,994 |
|
| $ | 452,883 |
|
Consumer products |
| 128,065 |
|
|
| 117,194 |
|
|
| 247,545 |
|
|
| 234,017 |
|
| 113,258 |
|
|
| 118,006 |
|
|
| 360,803 |
|
|
| 352,023 |
|
Oil & gas equipment |
| 31,737 |
|
|
| 25,235 |
|
|
| 64,035 |
|
|
| 55,918 |
|
| 28,695 |
|
|
| 24,666 |
|
|
| 92,730 |
|
|
| 80,584 |
|
Total | $ | 290,136 |
|
| $ | 294,447 |
|
| $ | 594,532 |
|
| $ | 594,800 |
| $ | 270,995 |
|
| $ | 290,690 |
|
| $ | 865,527 |
|
| $ | 885,490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineered Cabs | $ | 20,550 |
|
| $ | 28,729 |
|
| $ | 48,616 |
|
| $ | 55,981 |
| $ | 1,830 |
|
| $ | 27,817 |
|
| $ | 50,446 |
|
| $ | 83,798 |
|
Other |
| 14 |
|
|
| 7 |
|
|
| 36 |
|
|
| 22 |
|
| 35 |
|
|
| 3 |
|
|
| 71 |
|
|
| 25 |
|
Total | $ | 20,564 |
|
| $ | 28,736 |
|
| $ | 48,652 |
|
| $ | 56,003 |
| $ | 1,865 |
|
| $ | 27,820 |
|
| $ | 50,517 |
|
| $ | 83,823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total | $ | 827,637 |
|
| $ | 958,226 |
|
| $ | 1,683,496 |
|
| $ | 1,946,333 |
| $ | 763,996 |
|
| $ | 874,381 |
|
| $ | 2,447,492 |
|
| $ | 2,820,714 |
|
6
We recognize revenue at a point in time, with the exception of the toll processing revenue stream and certain contracts within the oil & gas equipment revenue stream, which are recognized over time. The following table summarizes the over time revenue for the periods presented:
| Three Months Ended |
|
| Six Months Ended |
| |||||||||||||||||||||||||
| November 30, |
|
| November 30, |
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
(in thousands) | 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| February 29, 2020 |
|
| February 28, 2019 |
|
| February 29, 2020 |
|
| February 28, 2019 |
| ||||||||
Steel Processing - toll | $ | 35,879 |
|
| $ | 33,033 |
|
| $ | 65,608 |
|
| $ | 66,658 |
| $ | 40,723 |
|
| $ | 27,901 |
|
| $ | 106,331 |
|
| $ | 94,559 |
|
Pressure Cylinders - certain oil & gas contracts |
| 27,531 |
|
|
| 17,482 |
|
|
| 57,539 |
|
|
| 28,801 |
|
| 25,885 |
|
|
| 20,559 |
|
|
| 83,424 |
|
|
| 49,360 |
|
Total over time revenue | $ | 63,410 |
|
| $ | 50,515 |
|
| $ | 123,147 |
|
| $ | 95,459 |
| $ | 66,608 |
|
| $ | 48,460 |
|
| $ | 189,755 |
|
| $ | 143,919 |
|
The following table summarizes the unbilled receivables and contract assets for the periods indicated:
(in thousands) | Balance Sheet Classification |
| November 30, 2019 |
|
| May 31, 2019 |
| Balance Sheet Classification |
| February 29, 2020 |
|
| May 31, 2019 |
| ||||
Unbilled receivables | Receivables |
| $ | 5,538 |
|
| $ | 5,366 |
| Receivables |
| $ | 5,764 |
|
| $ | 5,366 |
|
Contract assets | Prepaid and other current assets |
| $ | 8,460 |
|
| $ | 8,792 |
| Prepaid and other current assets |
| $ | 6,834 |
|
| $ | 8,792 |
|
7
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. At November 30, 2019,February 29, 2020, 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%), 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 relatesrelated 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 then 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 reachedclosed on an agreement with an affiliate of Angeles Equity Partners, LLC to contributeby which we contributed 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.
On December 31, 2019, the Company contributed the recently acquired operating net assets related to Heidtman Steel Products, Inc.’s Cleveland facility (“Heidtman”) 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%. The Samuel joint venture’s results have been consolidated within Steel Processing since that date. Refer to “NOTE P – Acquisitions” for additional information.
We received distributions from unconsolidated affiliates totaling $57,316,000$78,321,000 during the sixnine months ended November 30, 2019.February 29, 2020. 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 $97,243,000$95,291,000 at November 30, 2019.February 29, 2020. 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.
8
The following tables summarize combined financial information for our unconsolidated affiliates as of the dates, and for the periods presented:
| November 30, |
|
| May 31, |
| February 29, |
|
| May 31, |
| ||||
(in thousands) | 2019 |
|
| 2019 |
| 2020 |
|
| 2019 |
| ||||
Cash | $ | 31,641 |
|
| $ | 37,471 |
| $ | 33,002 |
|
| $ | 37,471 |
|
Other current assets |
| 633,772 |
|
|
| 594,959 |
|
| 611,784 |
|
|
| 594,959 |
|
Current assets for discontinued operations |
| - |
|
|
| 35,793 |
|
| - |
|
|
| 35,793 |
|
Noncurrent assets |
| 390,433 |
|
|
| 360,925 |
|
| 379,984 |
|
|
| 360,925 |
|
Total assets | $ | 1,055,846 |
|
| $ | 1,029,148 |
| $ | 1,024,770 |
|
| $ | 1,029,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities | $ | 202,450 |
|
| $ | 236,781 |
| $ | 163,758 |
|
| $ | 236,781 |
|
Current liabilities for discontinued operations |
| - |
|
|
| 9,610 |
|
| - |
|
|
| 9,610 |
|
Short-term borrowings |
| 1,965 |
|
|
| 15,162 |
|
| 3,437 |
|
|
| 15,162 |
|
Current maturities of long-term debt |
| 2,582 |
|
|
| 33,003 |
|
| 2,374 |
|
|
| 33,003 |
|
Long-term debt |
| 346,223 |
|
|
| 321,791 |
|
| 352,827 |
|
|
| 321,791 |
|
Other noncurrent liabilities |
| 42,144 |
|
|
| 18,192 |
|
| 47,107 |
|
|
| 18,192 |
|
Equity |
| 460,482 |
|
|
| 394,609 |
|
| 455,267 |
|
|
| 394,609 |
|
Total liabilities and equity | $ | 1,055,846 |
|
| $ | 1,029,148 |
| $ | 1,024,770 |
|
| $ | 1,029,148 |
|
| Three Months Ended November 30, |
|
| Six Months Ended November 30, |
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
(in thousands) | 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| February 29, 2020 |
|
| February 28, 2019 |
|
| February 29, 2020 |
|
| February 28, 2019 |
| ||||||||
Net sales | $ | 458,859 |
|
| $ | 480,716 |
|
| $ | 946,134 |
|
| $ | 979,261 |
| $ | 477,494 |
|
| $ | 440,186 |
|
| $ | 1,400,987 |
|
| $ | 1,385,399 |
|
Gross margin |
| 97,329 |
|
|
| 75,515 |
|
|
| 198,944 |
|
|
| 179,327 |
|
| 100,070 |
|
|
| 74,783 |
|
|
| 293,601 |
|
|
| 247,852 |
|
Operating income |
| 63,452 |
|
|
| 44,592 |
|
|
| 132,857 |
|
|
| 116,968 |
|
| 52,429 |
|
|
| 45,387 |
|
|
| 181,067 |
|
|
| 158,475 |
|
Depreciation and amortization |
| 7,538 |
|
|
| 6,581 |
|
|
| 14,627 |
|
|
| 13,058 |
|
| 8,482 |
|
|
| 6,138 |
|
|
| 23,109 |
|
|
| 19,368 |
|
Interest expense |
| 3,139 |
|
|
| 3,382 |
|
|
| 6,506 |
|
|
| 6,307 |
|
| 3,667 |
|
|
| 3,529 |
|
|
| 10,173 |
|
|
| 9,836 |
|
Income tax expense |
| 1,576 |
|
|
| 3,568 |
|
|
| 2,578 |
|
|
| 8,093 |
| |||||||||||||||
Income tax expense (benefit) |
| (614 | ) |
|
| 1,001 |
|
|
| 1,239 |
|
|
| 8,433 |
| |||||||||||||||
Net earnings from continuing operations |
| 104,431 |
|
|
| 36,523 |
|
|
| 165,572 |
|
|
| 101,417 |
|
| 54,806 |
|
|
| 40,196 |
|
|
| 169,430 |
|
|
| 141,613 |
|
Net earnings (loss) from discontinued operations |
| (3,990 | ) |
|
| 2,028 |
|
|
| (1,178 | ) |
|
| 3,712 |
| |||||||||||||||
Net earnings from discontinued operations |
| - |
|
|
| 1,001 |
|
|
| 49,770 |
|
|
| 4,713 |
| |||||||||||||||
Net earnings |
| 100,441 |
|
|
| 38,551 |
|
|
| 164,394 |
|
|
| 105,129 |
|
| 54,806 |
|
|
| 41,197 |
|
|
| 219,200 |
|
|
| 146,326 |
|
The amounts presented within the discontinued operations captions in the tables above reflect the international operations of our WAVE joint venture prior 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 continuingdiscontinued operations of $46,238,000, which is 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 Ceilings and Holding GmbH (“Knauf”), a family-owned manufacturer of building materials headquartered in Germany. Our portion of the net gain was $23,119,000 and has been recognized within equity in net income of unconsolidated affiliates.The Company corrected certain amounts in the above table during the quarter ended February 29, 2020, to reflect the international operations of our WAVE joint venture within discontinued operations prior to their sale on September 30, 2019. Those amounts were previously included in net sales, gross margin, operating income, and income tax expense for the three month and year-to-date periods ended February 28, 2019, August 31, 2019, and November 30, 2019. Additionally, the Company reclassified to discontinued operations $50,948,000 for the gain related to the sale of the WAVE international operations that was previously reported in net earnings from continuing operations for the three and six month periods ended November 30, 2019. The amounts reported in our consolidated financial statements were not impacted.
Worthington has invested and continues to invest in other companies which are generally pursuing innovative products. The amount invested by Worthington in these companies is generally smaller and accounted for using the cost method. One of these investments is in Nikola Corporation, a designer and manufacturer of electric and hydrogen trucks and powertrains, in which the Company owns approximately a 5-6% interest.
NOTE D – Leases
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 lease 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,
9
has not been restated and continues to be reported under the previous 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 the new standard resulted in the recognition of $42,200,000$42,200,000 of net operating lease ROU assets and $43,400,000$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 Company’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 leases do not include an implicit rate, we use our collateralized incremental borrowing rate based on the information available at the lease commencement date, in determining the present value of lease payments. Operating lease expense is recognized on a straight-line basis over the lease term and is included in cost of goods sold or selling, general and administrative expense depending on the underlying nature of the 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 account 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 index or rate.
During the second quarter of fiscal 2020, we entered into a non-cancellable financing lease agreement for land and a building which was paid as part of the cash consideration in connection with the acquisition of certain operating assets of Heidtman Steel Products, Inc. (“Heidtman”).Heidtman. Refer to “NOTE P – Acquisitions” for additional information. In the consolidated balance sheets, the financing leaseslease ROU assets are recorded in other assets and the current and long-term portion of the financing leaseslease ROU liabilities are recorded in other accrued items and other liabilities, respectively.
The components of lease expense were as follows:
(in thousands) |
| Three Months Ended November 30, 2019 |
|
| Six Months Ended November 30, 2019 |
|
| Three Months Ended February 29, 2020 |
|
| Nine Months Ended February 29, 2020 |
| ||||
Operating lease expense |
| $ | 2,880 |
|
| $ | 6,222 |
|
| $ | 3,067 |
|
| $ | 9,289 |
|
Financing lease expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of leased assets |
|
| 65 |
|
|
| 110 |
|
|
| 178 |
|
|
| 288 |
|
Interest on lease liabilities |
|
| 9 |
|
|
| 19 |
|
|
| 9 |
|
|
| 28 |
|
Total financing lease expense |
|
| 74 |
|
|
| 129 |
|
|
| 187 |
|
|
| 316 |
|
Short-term lease expense |
|
| 590 |
|
|
| 996 |
|
|
| 893 |
|
|
| 1,889 |
|
Variable lease expense |
|
| 150 |
|
|
| 304 |
|
|
| 147 |
|
|
| 451 |
|
Total lease expense |
| $ | 3,694 |
|
| $ | 7,651 |
|
| $ | 4,294 |
|
| $ | 11,945 |
|
During the first quarter of fiscal 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 Goodwill and Long-Lived Assets” for additional information.
Other information related to the Company’s leases, as of and for the six-monthnine-month period ended November 30, 2019,February 29, 2020, is provided below:
(dollars in thousands) |
| Operating Leases |
|
| Financing Leases |
|
| Operating Leases |
|
| Financing Leases |
| ||||
Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash flows |
| $ | 5,702 |
|
| $ | 19 |
|
| $ | 8,448 |
|
| $ | 28 |
|
Financing cash flows |
| $ | - |
|
| $ | 173 |
|
| $ | - |
|
| $ | 260 |
|
ROU assets obtained in exchange for lease liabilities |
| $ | 3,722 |
|
| $ | 8,028 |
|
| $ | 3,924 |
|
| $ | 11,968 |
|
Weighted-average remaining lease term (in years) |
|
| 5.45 |
|
| 3.12 |
|
|
| 5.36 |
|
| 2.87 |
| ||
Weighted-average discount rate |
|
| 3.44 | % |
|
| 3.23 | % |
|
| 3.46 | % |
|
| 3.23 | % |
910
Future minimum lease payments for non-cancelable leases having an initial or remaining term in excess of one year at November 30, 2019,February 29, 2020, were as follows:
(in thousands) | Operating Leases |
|
| Financing Leases |
| Operating Leases |
|
| Financing Leases |
| ||||
Year 1 | $ | 12,436 |
|
| $ | 384 |
| $ | 11,961 |
|
| $ | 384 |
|
Year 2 |
| 10,312 |
|
|
| 376 |
|
| 9,850 |
|
|
| 373 |
|
Year 3 |
| 8,014 |
|
|
| 369 |
|
| 7,595 |
|
|
| 329 |
|
Year 4 |
| 5,256 |
|
|
| 53 |
|
| 4,543 |
|
|
| - |
|
Year 5 |
| 3,265 |
|
|
| - |
|
| 3,043 |
|
|
| - |
|
Thereafter |
| 6,554 |
|
|
| - |
|
| 5,856 |
|
|
| - |
|
Total |
| 45,837 |
|
|
| 1,182 |
|
| 42,848 |
|
|
| 1,086 |
|
Less: imputed interest |
| (4,571 | ) |
|
| (56 | ) |
| (4,250 | ) |
|
| (48 | ) |
Present value of lease liabilities | $ | 41,266 |
|
| $ | 1,126 |
| $ | 38,598 |
|
| $ | 1,038 |
|
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 Goodwill and Long-Lived Assets
Fiscal 2020:
On February 12, 2020, the Company announced a plan to consolidate its oil & gas equipment manufacturing operations in Wooster, Ohio, into its existing manufacturing facility in Bremen, Ohio. The closure is expected to be complete by the end of fiscal 2020. As a result, the Company tested the long-lived assets of the combined asset group, consisting of fixed assets and customer list intangible assets with net book values of $14,274,000 and $6,577,000, respectively, for impairment. The book value of the fixed assets was determined to be in excess of fair value, resulting in an impairment charge of $4,679,000 during the third quarter of fiscal 2020. Additionally, the customer list intangible assets were deemed to be fully impaired and written off. Fair value of the fixed assets was determined using observable Level 2 inputs and the fair value of the customer list intangible assets was determined using unobservable Level 3 inputs. The land and building of the Wooster facility met the criteria for classification as assets held for sale and, accordingly, have been presented separately as assets held for sale in our consolidated balance sheet.
As a result of the impairment charges noted above, the Company also performed an interim goodwill impairment test of its oil & gas equipment reporting unit. The results of the analysis indicated that the fair value of the reporting unit no longer supported the book value of the corresponding goodwill, resulting in an impairment charge of $22,097,000 during the third quarter of fiscal 2020. The key assumptions used in the fair value calculation were projected cash flows and the discount rate, which represent unobservable, Level 3 inputs.
During the third quarter of fiscal 2020, the Company’s consolidated joint venture, WSP committed to a plan to sell the Canton, Michigan facility and some of the production equipment at that facility. The land and building related to the facility were determined to not be impaired and the book value of $6,312,000 has been presented separately as assets held for sale in the consolidated balance sheet. The production equipment was determined to be below fair market value therefore, the net assets were written down to their estimated fair value less cost to sell of $700,000 (determined using Level 2 inputs), resulting in an impairment charge of $1,274,000. These assets have also been presented separately as assets held for sale in the consolidated balance sheet at February 29, 2020.
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
11
recorded at the lower of net book value or fair value, less costs 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 $12,860,000 (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 thesethe remaining 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$3,938,000 were deemed to be fully impaired and written off during the first quarter ended August 31, 2019.
NOTE F – Restructuring and Other 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 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance, as of |
| |||||
(in thousands) |
| May 31, 2019 |
|
| (income) |
|
| Payments |
|
| Adjustments |
|
| November 30, 2019 |
|
| May 31, 2019 |
|
| Expense |
|
| Payments |
|
| Adjustments |
|
| February 29, 2020 |
| ||||||||||
Early retirement and severance |
| $ | 774 |
|
| $ | - |
|
| $ | (596 | ) |
| $ | (89 | ) |
| $ | 89 |
|
| $ | 774 |
|
| $ | 1,309 |
|
| $ | (860 | ) |
| $ | (89 | ) |
| $ | 1,134 |
|
Facility exit and other costs |
|
| 2 |
|
|
| (26 | ) |
|
| (56 | ) |
|
| 81 |
|
|
| 1 |
|
|
| 2 |
|
|
| 141 |
|
|
| (224 | ) |
|
| 81 |
|
|
| - |
|
|
| $ | 776 |
|
|
| (26 | ) |
| $ | (652 | ) |
| $ | (8 | ) |
| $ | 90 |
|
| $ | 776 |
|
|
| 1,450 |
|
| $ | (1,084 | ) |
| $ | (8 | ) |
| $ | 1,134 |
|
Net loss on sale of assets |
|
|
|
|
|
| 431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 331 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and other expense, net |
|
|
|
|
| $ | 405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 1,781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
During the sixnine months ended November 30, 2019,February 29, 2020, 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 |
• | In February 2020, the Company announced the closure of the Hermosillo, Mexico facility and an office in Sonata, Mexico, both operated by the Company’s consolidated joint venture, TWB. In connection with the closures, and a reduction in personnel at Puebla, Mexico, the Company recognized severance expense of $232,000. The closures are expected to be complete by the end of fiscal 2020 with total expected severance expense and facility exit costs estimated to be $672,000 and $70,000, respectively. |
• | In February 2020, the Company’s WSP joint venture committed to plans to close and sell the assets of its Canton, Michigan facility. In connection with the sale, the Company recognized severance expense of $310,000. The closure is expected to be complete by the end of fiscal 2020 with total expected severance expenses estimated to be $2,109,000. |
• | In the third quarter of fiscal 2020, the Company announced a plan to consolidate its oil & gas equipment manufacturing operations in Wooster, Ohio into its existing facility in Bremen, Ohio. In connection with the consolidation, the Company recognized $580,000 in severance expense. The closure of the Wooster facility is expected to be complete by the end of fiscal 2020 with total expected severance expense and facility exit costs estimated to be $2,273,000 and $500,000, respectively. |
12
| • | In connection with other non-significant restructuring activities, the Company recognized |
The total liability associated with our restructuring activities as of November 30, 2019February 29, 2020 is expected to be paid in the next twelve months.
NOTE G – Contingent Liabilities and Commitments
Legal Proceedings
We are defendants in certain legal actions. In the opinion of management, the outcome of these actions, which is not clearly determinable at the present time, would not significantly affect our consolidated financial position or future results of operations. We also believe that environmental issues will not have a material effect on our capital expenditures, consolidated financial position or future results of operations.
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. During the third quarter of fiscal 2020, a favorable adjustment was recorded related to lower than expected freight.
A progression of the liabilities recorded in connection with this matter during fiscal 2020 is summarized in the following table:
| Beginning |
|
|
|
|
|
|
|
|
|
| Ending |
| Beginning |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Ending |
| ||||
(in thousands) | Balance |
|
| Expense |
|
| Payments |
|
| Balance |
| Balance |
|
| Expense |
|
| Payments |
|
| Adjustments |
|
| Balance |
| |||||||||
Tank replacement costs | $ | 8,500 |
|
| $ | - |
|
| $ | (211 | ) |
| $ | 8,289 |
| $ | 8,500 |
|
| $ | - |
|
| $ | (1,211 | ) |
|
| (2,265 | ) |
| $ | 5,024 |
|
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 ninetwelve months. The actual costs incurred by the Company related to this matter may vary from the initial estimate.
NOTE H – Guarantees
We do not have guarantees that we believe are reasonably likely to have a material current or future effect on our consolidated financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. However, as of November 30, 2019,February 29, 2020, 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 $6,914,000$6,667,000 at November 30, 2019.February 29, 2020. 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 $12,800,000$15,300,000 of outstanding stand-by letters of credit issued to third-party service providers at November 30, 2019.February 29, 2020. NaN amounts were drawn against these stand-by letters of credit at November 30, 2019.February 29, 2020.
NOTE I – 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$128,000 at November 30, 2019February 29, 2020.
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.
13
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 0 borrowings outstanding under the Credit Facility at November 30, 2019.February 29, 2020. As discussed in “NOTE H – Guarantees,” we provided $12,800,000$15,300,000 in stand-by letters of credit for third-party beneficiaries as of November 30, 2019.February 29, 2020. While 0t drawn against at November 30, 2019, $450,000February 29, 2020, $450,000 of these letters of credit were issued against availability under the Credit Facility, leaving $499,550,000$499,550,000 available at November 30, 2019.February 29, 2020.
We also maintain a $50,000,000 revolving trade accounts receivable securitization facility (the “AR Facility”) that matures in. On January 2020. We are in13, 2020, the processCompany extended the maturity of evaluating our options for the AR Facility including renewingby one year to January 2021 and reduced the AR Facility at a lower capacity.borrowing capacity from $50,000,000 to $10,000,000. 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$10,000,000 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 November 30, 2019,February 29, 2020, 0 undivided ownership interests in this pool of accounts receivable had been sold.
NOTE J – Other Comprehensive Income (Loss)
The following table summarizes the tax effects on each component of OCI for the periods presented:
| Three months ended November 30, |
| Three Months Ended |
| ||||||||||||||||||||||||||||||||||||||||||
| 2019 |
|
| 2018 |
| February 29, 2020 |
|
| February 28, 2019 |
| ||||||||||||||||||||||||||||||||||||
| 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 | $ | 6,662 |
|
| $ | - |
|
| $ | 6,662 |
|
| $ | (6,638 | ) |
| $ | - |
|
| $ | (6,638 | ) | $ | (576 | ) |
| $ | - |
|
| $ | (576 | ) |
| $ | 1,476 |
|
| $ | - |
|
| $ | 1,476 |
|
Pension liability adjustment |
| 117 |
|
|
| (22 | ) |
|
| 95 |
|
|
| - |
|
|
| - |
|
|
| - |
|
| 176 |
|
|
| (38 | ) |
|
| 138 |
|
|
| 48 |
|
|
| (11 | ) |
|
| 37 |
|
Cash flow hedges |
| 4,016 |
|
|
| (803 | ) |
|
| 3,213 |
|
|
| (6,066 | ) |
|
| 1,404 |
|
|
| (4,662 | ) |
| 2,799 |
|
|
| (640 | ) |
|
| 2,159 |
|
|
| (844 | ) |
|
| 248 |
|
|
| (596 | ) |
Other comprehensive income (loss) | $ | 10,795 |
|
| $ | (825 | ) |
| $ | 9,970 |
|
| $ | (12,704 | ) |
| $ | 1,404 |
|
| $ | (11,300 | ) | |||||||||||||||||||||||
Other comprehensive income | $ | 2,399 |
|
| $ | (678 | ) |
| $ | 1,721 |
|
| $ | 680 |
|
| $ | 237 |
|
| $ | 917 |
|
| Nine Months Ended |
| |||||||||||||||||||||
| February 29, 2020 |
|
| February 28, 2019 |
| ||||||||||||||||||
| Before-Tax |
|
| Tax |
|
| Net-of-Tax |
|
| Before-Tax |
|
| Tax |
|
| Net-of-Tax |
| ||||||
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation | $ | 10,868 |
|
| $ | - |
|
| $ | 10,868 |
|
| $ | (8,857 | ) |
| $ | - |
|
| $ | (8,857 | ) |
Pension liability adjustment |
| 1,597 |
|
|
| (351 | ) |
|
| 1,246 |
|
|
| 48 |
|
|
| (108 | ) |
|
| (60 | ) |
Cash flow hedges |
| 3,490 |
|
|
| (757 | ) |
|
| 2,733 |
|
|
| (9,437 | ) |
|
| 2,209 |
|
|
| (7,228 | ) |
Other comprehensive income (loss) | $ | 15,955 |
|
| $ | (1,108 | ) |
| $ | 14,847 |
|
| $ | (18,246 | ) |
| $ | 2,101 |
|
| $ | (16,145 | ) |
1214
| Six months ended November 30, |
| |||||||||||||||||||||
| 2019 |
|
| 2018 |
| ||||||||||||||||||
| Before-Tax |
|
| Tax |
|
| Net-of-Tax |
|
| Before-Tax |
|
| Tax |
|
| Net-of-Tax |
| ||||||
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation | $ | 11,444 |
|
| $ | - |
|
| $ | 11,444 |
|
| $ | (10,333 | ) |
| $ | - |
|
| $ | (10,333 | ) |
Pension liability adjustment |
| 1,421 |
|
|
| (313 | ) |
|
| 1,108 |
|
|
| - |
|
|
| (97 | ) |
|
| (97 | ) |
Cash flow hedges |
| 691 |
|
|
| (117 | ) |
|
| 574 |
|
|
| (8,593 | ) |
|
| 1,961 |
|
|
| (6,632 | ) |
Other comprehensive income (loss) | $ | 13,556 |
|
| $ | (430 | ) |
| $ | 13,126 |
|
| $ | (18,926 | ) |
| $ | 1,864 |
|
| $ | (17,062 | ) |
NOTE K – Changes in Equity
The following tables summarize the changes in equity by component and in total for the periods presented:
|
| Controlling Interest |
|
|
|
|
|
|
|
|
|
| Controlling Interest |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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, 2019 |
| $ | 283,177 |
|
| $ | (43,464 | ) |
| $ | 591,533 |
|
| $ | 831,246 |
|
| $ | 117,148 |
|
| $ | 948,394 |
|
| $ | 283,177 |
|
| $ | (43,464 | ) |
| $ | 591,533 |
|
| $ | 831,246 |
|
| $ | 117,148 |
|
| $ | 948,394 |
|
Net earnings (loss) |
|
| - |
|
|
| - |
|
|
| (4,776 | ) |
|
| (4,776 | ) |
|
| 2,321 |
|
|
| (2,455 | ) |
|
| - |
|
|
| - |
|
|
| (4,776 | ) |
|
| (4,776 | ) |
|
| 2,321 |
|
|
| (2,455 | ) |
Other comprehensive income |
|
| - |
|
|
| 3,156 |
|
|
| - |
|
|
| 3,156 |
|
|
| - |
|
|
| 3,156 |
|
|
| - |
|
|
| 3,156 |
|
|
| - |
|
|
| 3,156 |
|
|
| - |
|
|
| 3,156 |
|
Common shares issued, net of withholding tax |
|
| (3,213 | ) |
|
| - |
|
|
| - |
|
|
| (3,213 | ) |
|
| - |
|
|
| (3,213 | ) |
|
| (3,213 | ) |
|
| - |
|
|
| - |
|
|
| (3,213 | ) |
|
| - |
|
|
| (3,213 | ) |
Common shares in NQ plans |
|
| 74 |
|
|
| - |
|
|
| - |
|
|
| 74 |
|
|
| - |
|
|
| 74 |
|
|
| 74 |
|
|
| - |
|
|
| - |
|
|
| 74 |
|
|
| - |
|
|
| 74 |
|
Stock-based compensation |
|
| 4,545 |
|
|
| - |
|
|
| - |
|
|
| 4,545 |
|
|
| - |
|
|
| 4,545 |
|
|
| 4,545 |
|
|
| - |
|
|
| - |
|
|
| 4,545 |
|
|
| - |
|
|
| 4,545 |
|
Purchases and retirement of common shares |
|
| (3,814 | ) |
|
| - |
|
|
| (25,785 | ) |
|
| (29,599 | ) |
|
| - |
|
|
| (29,599 | ) |
|
| (3,814 | ) |
|
| - |
|
|
| (25,785 | ) |
|
| (29,599 | ) |
|
| - |
|
|
| (29,599 | ) |
Cash dividends declared |
|
| - |
|
|
| - |
|
|
| (13,460 | ) |
|
| (13,460 | ) |
|
| - |
|
|
| (13,460 | ) |
|
| - |
|
|
| - |
|
|
| (13,460 | ) |
|
| (13,460 | ) |
|
| - |
|
|
| (13,460 | ) |
Balance at August 31, 2019 |
| $ | 280,769 |
|
| $ | (40,308 | ) |
| $ | 547,512 |
|
| $ | 787,973 |
|
| $ | 119,469 |
|
| $ | 907,442 |
|
| $ | 280,769 |
|
| $ | (40,308 | ) |
| $ | 547,512 |
|
| $ | 787,973 |
|
| $ | 119,469 |
|
| $ | 907,442 |
|
Net earnings |
|
| - |
|
|
| - |
|
|
| 52,086 |
|
|
| 52,086 |
|
|
| 4,836 |
|
|
| 56,922 |
|
|
| - |
|
|
| - |
|
|
| 52,086 |
|
|
| 52,086 |
|
|
| 4,836 |
|
|
| 56,922 |
|
Other comprehensive income |
|
| - |
|
|
| 9,970 |
|
|
| - |
|
|
| 9,970 |
|
|
| - |
|
|
| 9,970 |
|
|
| - |
|
|
| 9,970 |
|
|
| - |
|
|
| 9,970 |
|
|
| - |
|
|
| 9,970 |
|
Common shares issued, net of withholding tax |
|
| (3,811 | ) |
|
| - |
|
|
| - |
|
|
| (3,811 | ) |
|
| - |
|
|
| (3,811 | ) |
|
| (3,811 | ) |
|
| - |
|
|
| - |
|
|
| (3,811 | ) |
|
| - |
|
|
| (3,811 | ) |
Common shares in NQ plans |
|
| 239 |
|
|
| - |
|
|
| - |
|
|
| 239 |
|
|
| - |
|
|
| 239 |
|
|
| 239 |
|
|
| - |
|
|
| - |
|
|
| 239 |
|
|
| - |
|
|
| 239 |
|
Stock-based compensation |
|
| 2,880 |
|
|
| - |
|
|
| - |
|
|
| 2,880 |
|
|
| - |
|
|
| 2,880 |
|
|
| 2,880 |
|
|
| - |
|
|
| - |
|
|
| 2,880 |
|
|
| - |
|
|
| 2,880 |
|
Cash dividends declared |
|
| - |
|
|
| - |
|
|
| (13,446 | ) |
|
| (13,446 | ) |
|
| - |
|
|
| (13,446 | ) |
|
| - |
|
|
| - |
|
|
| (13,446 | ) |
|
| (13,446 | ) |
|
| - |
|
|
| (13,446 | ) |
Dividends to noncontrolling interest |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1,453 | ) |
|
| (1,453 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1,453 | ) |
|
| (1,453 | ) |
Balance at November 30, 2019 |
| $ | 280,077 |
|
| $ | (30,338 | ) |
| $ | 586,152 |
|
| $ | 835,891 |
|
| $ | 122,852 |
|
| $ | 958,743 |
|
| $ | 280,077 |
|
| $ | (30,338 | ) |
| $ | 586,152 |
|
| $ | 835,891 |
|
| $ | 122,852 |
|
| $ | 958,743 |
|
Net earnings |
|
| - |
|
|
| - |
|
|
| 15,311 |
|
|
| 15,311 |
|
|
| 3,577 |
|
|
| 18,888 |
| ||||||||||||||||||||||||
Other comprehensive income |
|
| - |
|
|
| 1,721 |
|
|
| - |
|
|
| 1,721 |
|
|
| - |
|
|
| 1,721 |
| ||||||||||||||||||||||||
Consolidation of Samuel |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 24,269 |
|
|
| 24,269 |
| ||||||||||||||||||||||||
Common shares issued, net of withholding tax |
|
| 429 |
|
|
| - |
|
|
| - |
|
|
| 429 |
|
|
| - |
|
|
| 429 |
| ||||||||||||||||||||||||
Common shares in NQ plans |
|
| 108 |
|
|
| - |
|
|
| - |
|
|
| 108 |
|
|
| - |
|
|
| 108 |
| ||||||||||||||||||||||||
Stock-based compensation |
|
| 2,834 |
|
|
| - |
|
|
| - |
|
|
| 2,834 |
|
|
| - |
|
|
| 2,834 |
| ||||||||||||||||||||||||
Purchases and retirement of common shares |
|
| (2,812 | ) |
|
| - |
|
|
| (18,561 | ) |
|
| (21,373 | ) |
|
| - |
|
|
| (21,373 | ) | ||||||||||||||||||||||||
Cash dividends declared |
|
| - |
|
|
| - |
|
|
| (13,426 | ) |
|
| (13,426 | ) |
|
| - |
|
|
| (13,426 | ) | ||||||||||||||||||||||||
Balance at February 29, 2020 |
| $ | 280,636 |
|
| $ | (28,617 | ) |
| $ | 569,476 |
|
| $ | 821,495 |
|
| $ | 150,698 |
|
| $ | 972,193 |
|
1315
|
| 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, 2018 |
| $ | 295,592 |
|
| $ | (14,580 | ) |
| $ | 637,757 |
|
| $ | 918,769 |
|
| $ | 117,606 |
|
| $ | 1,036,375 |
|
| $ | 295,592 |
|
| $ | (14,580 | ) |
| $ | 637,757 |
|
| $ | 918,769 |
|
| $ | 117,606 |
|
| $ | 1,036,375 |
|
Net earnings |
|
| - |
|
|
| - |
|
|
| 54,942 |
|
|
| 54,942 |
|
|
| 2,016 |
|
|
| 56,958 |
|
|
| - |
|
|
| - |
|
|
| 54,942 |
|
|
| 54,942 |
|
|
| 2,016 |
|
|
| 56,958 |
|
Other comprehensive loss |
|
| - |
|
|
| (5,745 | ) |
|
| - |
|
|
| (5,745 | ) |
|
| (17 | ) |
|
| (5,762 | ) |
|
| - |
|
|
| (5,745 | ) |
|
| - |
|
|
| (5,745 | ) |
|
| (17 | ) |
|
| (5,762 | ) |
Common shares issued, net of withholding tax |
|
| (4,091 | ) |
|
| - |
|
|
| - |
|
|
| (4,091 | ) |
|
| - |
|
|
| (4,091 | ) |
|
| (4,091 | ) |
|
| - |
|
|
| - |
|
|
| (4,091 | ) |
|
| - |
|
|
| (4,091 | ) |
Common shares in NQ plans |
|
| 152 |
|
|
| - |
|
|
| - |
|
|
| 152 |
|
|
| - |
|
|
| 152 |
|
|
| 152 |
|
|
| - |
|
|
| - |
|
|
| 152 |
|
|
| - |
|
|
| 152 |
|
Stock-based compensation |
|
| 4,838 |
|
|
| - |
|
|
| - |
|
|
| 4,838 |
|
|
| - |
|
|
| 4,838 |
|
|
| 4,838 |
|
|
| - |
|
|
| - |
|
|
| 4,838 |
|
|
| - |
|
|
| 4,838 |
|
ASC 606 transition adjustment |
|
| - |
|
|
| - |
|
|
| 1,174 |
|
|
| 1,174 |
|
|
| 570 |
|
|
| 1,744 |
|
|
| - |
|
|
| - |
|
|
| 1,174 |
|
|
| 1,174 |
|
|
| 570 |
|
|
| 1,744 |
|
Purchases and retirement of common shares |
|
| (4,003 | ) |
|
| - |
|
|
| (32,849 | ) |
|
| (36,852 | ) |
|
| - |
|
|
| (36,852 | ) |
|
| (4,003 | ) |
|
| - |
|
|
| (32,849 | ) |
|
| (36,852 | ) |
|
| - |
|
|
| (36,852 | ) |
Cash dividends declared |
|
| - |
|
|
| - |
|
|
| (13,668 | ) |
|
| (13,668 | ) |
|
| - |
|
|
| (13,668 | ) |
|
| - |
|
|
| - |
|
|
| (13,668 | ) |
|
| (13,668 | ) |
|
| - |
|
|
| (13,668 | ) |
Dividends to noncontrolling interest |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (2,320 | ) |
|
| (2,320 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (2,320 | ) |
|
| (2,320 | ) |
Balance at August 31, 2018 |
| $ | 292,488 |
|
| $ | (20,325 | ) |
| $ | 647,356 |
|
| $ | 919,519 |
|
| $ | 117,855 |
|
| $ | 1,037,374 |
|
| $ | 292,488 |
|
| $ | (20,325 | ) |
| $ | 647,356 |
|
| $ | 919,519 |
|
| $ | 117,855 |
|
| $ | 1,037,374 |
|
Net earnings |
|
| - |
|
|
| - |
|
|
| 34,002 |
|
|
| 34,002 |
|
|
| 3,790 |
|
|
| 37,792 |
|
|
| - |
|
|
| - |
|
|
| 34,002 |
|
|
| 34,002 |
|
|
| 3,790 |
|
|
| 37,792 |
|
Other comprehensive loss |
|
| - |
|
|
| (11,245 | ) |
|
| - |
|
|
| (11,245 | ) |
|
| (55 | ) |
|
| (11,300 | ) |
|
| - |
|
|
| (11,245 | ) |
|
| - |
|
|
| (11,245 | ) |
|
| (55 | ) |
|
| (11,300 | ) |
Common shares issued, net of withholding tax |
|
| (658 | ) |
|
| - |
|
|
| - |
|
|
| (658 | ) |
|
| - |
|
|
| (658 | ) |
|
| (658 | ) |
|
| - |
|
|
| - |
|
|
| (658 | ) |
|
| - |
|
|
| (658 | ) |
Common shares in NQ plans |
|
| 306 |
|
|
| - |
|
|
| - |
|
|
| 306 |
|
|
| - |
|
|
| 306 |
|
|
| 306 |
|
|
| - |
|
|
| - |
|
|
| 306 |
|
|
| - |
|
|
| 306 |
|
Stock-based compensation |
|
| 3,730 |
|
|
| - |
|
|
| - |
|
|
| 3,730 |
|
|
| - |
|
|
| 3,730 |
|
|
| 3,730 |
|
|
| - |
|
|
| - |
|
|
| 3,730 |
|
|
| - |
|
|
| 3,730 |
|
Purchases and retirement of common shares |
|
| (7,540 | ) |
|
| - |
|
|
| (56,041 | ) |
|
| (63,581 | ) |
|
| - |
|
|
| (63,581 | ) |
|
| (7,540 | ) |
|
| - |
|
|
| (56,041 | ) |
|
| (63,581 | ) |
|
| - |
|
|
| (63,581 | ) |
Cash dividends declared |
|
| - |
|
|
| - |
|
|
| (13,401 | ) |
|
| (13,401 | ) |
|
| - |
|
|
| (13,401 | ) |
|
| - |
|
|
| - |
|
|
| (13,401 | ) |
|
| (13,401 | ) |
|
| - |
|
|
| (13,401 | ) |
Dividends to noncontrolling interest |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (4,007 | ) |
|
| (4,007 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (4,007 | ) |
|
| (4,007 | ) |
Balance at November 30, 2018 |
| $ | 288,326 |
|
| $ | (31,570 | ) |
| $ | 611,916 |
|
| $ | 868,672 |
|
| $ | 117,583 |
|
| $ | 986,255 |
|
| $ | 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 |
|
14
The following tables summarize the changes in accumulated other comprehensive loss for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
| ||
|
| Foreign |
|
| Pension |
|
|
|
|
|
| Other |
|
| Foreign |
|
| Pension |
|
|
|
|
|
| Other |
| ||||||
|
| Currency |
|
| Liability |
|
| Cash Flow |
|
| Comprehensive |
|
| Currency |
|
| Liability |
|
| Cash Flow |
|
| Comprehensive |
| ||||||||
(in thousands) |
| Translation |
|
| Adjustment |
|
| Hedges |
|
| Loss |
|
| Translation |
|
| Adjustment |
|
| Hedges |
|
| Loss |
| ||||||||
Balance as of May 31, 2019 |
| $ | (19,639 | ) |
| $ | (17,856 | ) |
| $ | (5,969 | ) |
| $ | (43,464 | ) |
| $ | (19,640 | ) |
| $ | (17,855 | ) |
| $ | (5,969 | ) |
| $ | (43,464 | ) |
Other comprehensive income (loss) before reclassifications |
|
| 2,948 |
|
|
| 79 |
|
|
| (5,975 | ) |
|
| (2,948 | ) |
|
| 2,372 |
|
|
| 271 |
|
|
| (6,369 | ) |
|
| (3,726 | ) |
Reclassification adjustments to income (a) |
|
| 8,496 |
|
|
| 1,342 |
|
|
| 6,666 |
|
|
| 16,504 |
|
|
| 8,496 |
|
|
| 1,326 |
|
|
| 9,859 |
|
|
| 19,681 |
|
Income tax effect |
|
| - |
|
|
| (313 | ) |
|
| (117 | ) |
|
| (430 | ) |
|
| - |
|
|
| (351 | ) |
|
| (757 | ) |
|
| (1,108 | ) |
Balance as of November 30, 2019 |
| $ | (8,195 | ) |
| $ | (16,748 | ) |
| $ | (5,395 | ) |
| $ | (30,338 | ) | ||||||||||||||||
Balance as of February 29, 2020 |
| $ | (8,772 | ) |
| $ | (16,609 | ) |
| $ | (3,236 | ) |
| $ | (28,617 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
| ||
|
| Foreign |
|
| Pension |
|
|
|
|
|
| Other |
|
| Foreign |
|
| Pension |
|
|
|
|
|
| Other |
| ||||||
|
| Currency |
|
| Liability |
|
| Cash Flow |
|
| Comprehensive |
|
| Currency |
|
| Liability |
|
| Cash Flow |
|
| Comprehensive |
| ||||||||
(in thousands) |
| Translation |
|
| Adjustment |
|
| Hedges |
|
| Loss |
|
| Translation |
|
| Adjustment |
|
| Hedges |
|
| Loss |
| ||||||||
Balance as of May 31, 2018 |
| $ | (4,987 | ) |
| $ | (16,071 | ) |
| $ | 6,478 |
|
| $ | (14,580 | ) |
| $ | (4,987 | ) |
| $ | (16,071 | ) |
| $ | 6,478 |
|
| $ | (14,580 | ) |
Other comprehensive loss before reclassifications |
|
| (10,261 | ) |
|
| - |
|
|
| (4,530 | ) |
|
| (14,791 | ) | ||||||||||||||||
Other comprehensive income (loss) before reclassifications |
|
| (8,813 | ) |
|
| 48 |
|
|
| (4,495 | ) |
|
| (13,260 | ) | ||||||||||||||||
Reclassification adjustments to income (a) |
|
| - |
|
|
| - |
|
|
| (4,063 | ) |
|
| (4,063 | ) |
|
| - |
|
|
| - |
|
|
| (4,942 | ) |
|
| (4,942 | ) |
Income tax effect |
|
| - |
|
|
| (97 | ) |
|
| 1,961 |
|
|
| 1,864 |
|
|
| - |
|
|
| (108 | ) |
|
| 2,209 |
|
|
| 2,101 |
|
Balance as of November 30, 2018 |
| $ | (15,248 | ) |
| $ | (16,168 | ) |
| $ | (154 | ) |
| $ | (31,570 | ) | ||||||||||||||||
Balance as of February 28, 2019 |
| $ | (13,800 | ) |
| $ | (16,131 | ) |
| $ | (750 | ) |
| $ | (30,681 | ) |
| (a) | The statement of earnings classifications of amounts reclassified to income include: |
| (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 – disclosed in “NOTE Q – Derivative Instruments and Hedging Activities”. |
NOTE L – Stock-Based Compensation
Non-Qualified Stock Options
During the sixnine months ended November 30, 2019,February 29, 2020, we granted non-qualified stock options covering a total of 100,700 common shares under our stock-based compensation plans. The weighted average option price of $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-pricing model, calculated at the grant date, was $10.21 per share. The calculated pre-tax stock-based compensation expense for these stock options is $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 sixnine months ended November 30, 2019February 29, 2020, we granted an aggregate of 230,600244,850 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 $37.57$37.60 per share. The calculated pre-tax stock-based compensation expense for these restricted common shares is $8,665,000$9,205,000 and will be recognized on a straight-line basis over the service-based vesting period, generally three-years, net of any forfeitures.
15
Market-Based Restricted Common Shares
On September 25, 2019, we granted 50,000 restricted common shares to a key employee under one of our stock-based compensation plans. Vesting of thesethis restricted common share awardsaward 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 $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 |
|
| 2.69 | % |
Expected volatility |
|
| 34.90 | % |
Risk-free interest rate |
|
| 1.60 | % |
The calculated pre-tax stock-based compensation expense for these restricted common shares is $716,000 and will be recognized on a straight-line basis over the five-year service vesting period, net of any forfeitures.
17
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, 2020, 2021 and 2022. These performance share awards will be paid, to the extent earned, in common shares of Worthington Industries, Inc. in the fiscal quarter following the end of the applicable three-year performance period. The fair values of our performance shares are determined by the closing market prices of the underlying common shares at the respective grant dates of the performance shares and the pre-tax stock-based compensation expense is based on our periodic assessment of the probability of the targets being achieved and our estimate of the number of common shares that will ultimately be issued. During the sixnine months ended November 30, 2019February 29, 2020, we granted performance share awards covering an aggregate of 55,500 common shares (at target levels). The calculated pre-tax stock-based compensation expense for these performance shares is $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 M – Income Taxes
Income tax expense for the sixnine months ended November 30,February 29, 2020 and February 28, 2019 and 2018 reflected estimated annual effective income tax rates of 24.8%24.6% and 23.4%23.3%, 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 rate based upon its forecast of annual pre-tax income for domestic and foreign operations. Our actual effective income tax rate for fiscal 2020 could be materially different from the forecasted rate as of November 30, 2019.February 29, 2020.
16
NOTE N – 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 November 30, |
|
| Six Months Ended November 30, |
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
(in thousands, except per share amounts) | 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| February 29, 2020 |
|
| February 28, 2019 |
|
| February 29, 2020 |
|
| February 28, 2019 |
| ||||||||
Numerator (basic & diluted): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to controlling interest - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income available to common shareholders | $ | 52,086 |
|
| $ | 34,002 |
|
| $ | 47,310 |
|
| $ | 88,944 |
| $ | 15,311 |
|
| $ | 26,773 |
|
| $ | 62,621 |
|
| $ | 115,717 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share attributable to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
controlling interest - weighted average common shares |
| 55,059 |
|
|
| 57,716 |
|
|
| 55,150 |
|
|
| 58,226 |
|
| 54,930 |
|
|
| 56,478 |
|
|
| 55,078 |
|
|
| 57,650 |
|
Effect of dilutive securities |
| 1,013 |
|
|
| 1,622 |
|
|
| 1,055 |
|
|
| 1,787 |
|
| 968 |
|
|
| 1,496 |
|
|
| 1,086 |
|
|
| 1,739 |
|
Denominator for diluted earnings per share attributable to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
controlling interest - adjusted weighted average common shares |
| 56,072 |
|
|
| 59,338 |
|
|
| 56,205 |
|
|
| 60,013 |
|
| 55,898 |
|
|
| 57,974 |
|
|
| 56,164 |
|
|
| 59,389 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share attributable to controlling interest | $ | 0.95 |
|
| $ | 0.59 |
|
| $ | 0.86 |
|
| $ | 1.53 |
| $ | 0.28 |
|
| $ | 0.47 |
|
| $ | 1.14 |
|
| $ | 2.01 |
|
Diluted earnings per share attributable to controlling interest | $ | 0.93 |
|
| $ | 0.57 |
|
| $ | 0.84 |
|
| $ | 1.48 |
| $ | 0.27 |
|
| $ | 0.46 |
|
| $ | 1.11 |
|
| $ | 1.95 |
|
Stock options covering 405,433 and 223,372309,133 common shares for the three months ended November 30,February 29, 2020 and February 28, 2019, and 2018, respectively, and 391,563396,170 and 152,256316,079 common shares for the sixnine months ended November 30,February 29, 2020 and February 28, 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 for those periods.
17
NOTE O – Segment Operations
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
18
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 November 30, |
|
| Six Months Ended November 30, |
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
(in thousands) | 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| February 29, 2020 |
|
| February 28, 2019 |
|
| February 29, 2020 |
|
| February 28, 2019 |
| ||||||||
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steel Processing | $ | 516,937 |
|
| $ | 635,043 |
|
| $ | 1,040,312 |
|
| $ | 1,295,530 |
| $ | 491,136 |
|
| $ | 555,871 |
|
| $ | 1,531,448 |
|
| $ | 1,851,401 |
|
Pressure Cylinders |
| 290,136 |
|
|
| 294,447 |
|
|
| 594,532 |
|
|
| 594,800 |
|
| 270,995 |
|
|
| 290,690 |
|
|
| 865,527 |
|
|
| 885,490 |
|
Other |
| 20,564 |
|
|
| 28,736 |
|
|
| 48,652 |
|
|
| 56,003 |
|
| 1,865 |
|
|
| 27,820 |
|
|
| 50,517 |
|
|
| 83,823 |
|
Total net sales | $ | 827,637 |
|
| $ | 958,226 |
|
| $ | 1,683,496 |
|
| $ | 1,946,333 |
| $ | 763,996 |
|
| $ | 874,381 |
|
| $ | 2,447,492 |
|
| $ | 2,820,714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steel Processing | $ | 17,172 |
|
| $ | 25,016 |
|
| $ | 23,340 |
|
| $ | 64,676 |
| $ | 19,021 |
|
| $ | 10,166 |
|
| $ | 42,361 |
|
| $ | 74,842 |
|
Pressure Cylinders |
| 15,647 |
|
|
| 14,758 |
|
|
| 45,270 |
|
|
| 29,491 |
|
| (19,865 | ) |
|
| 18,953 |
|
|
| 25,405 |
|
|
| 48,444 |
|
Other |
| (701 | ) |
|
| (3,910 | ) |
|
| (51,080 | ) |
|
| (7,392 | ) |
| (542 | ) |
|
| (3,142 | ) |
|
| (51,622 | ) |
|
| (10,534 | ) |
Total operating income | $ | 32,118 |
|
| $ | 35,864 |
|
| $ | 17,530 |
|
| $ | 86,775 |
| |||||||||||||||
Total operating income (loss) | $ | (1,386 | ) |
| $ | 25,977 |
|
| $ | 16,144 |
|
| $ | 112,752 |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of long-lived assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Impairment of goodwill and long-lived assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Steel Processing | $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
| $ | 1,274 |
|
| $ | - |
|
| $ | 1,274 |
|
| $ | - |
|
Pressure Cylinders |
| - |
|
|
| - |
|
|
| - |
|
|
| 2,381 |
|
| 33,353 |
|
|
| - |
|
|
| 33,353 |
|
|
| 2,381 |
|
Other |
| - |
|
|
| - |
|
|
| 40,601 |
|
|
| - |
|
| - |
|
|
| - |
|
|
| 40,601 |
|
|
| - |
|
Total impairment of long-lived assets | $ | - |
|
| $ | - |
|
| $ | 40,601 |
|
| $ | 2,381 |
| |||||||||||||||
Total impairment of goodwill and long-lived assets | $ | 34,627 |
|
| $ | - |
|
| $ | 75,228 |
|
| $ | 2,381 |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and other expense (income), net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steel Processing | $ | - |
|
| $ | - |
|
| $ | (26 | ) |
| $ | (9 | ) | $ | 728 |
|
| $ | - |
|
| $ | 702 |
|
| $ | (9 | ) |
Pressure Cylinders |
| - |
|
|
| 402 |
|
|
| - |
|
|
| (525 | ) |
| 747 |
|
|
| (11,176 | ) |
|
| 747 |
|
|
| (11,701 | ) |
Other |
| (50 | ) |
|
| - |
|
|
| 431 |
|
|
| - |
|
| (99 | ) |
|
| - |
|
|
| 332 |
|
|
| - |
|
Total restructuring and other expense (income), net | $ | (50 | ) |
| $ | 402 |
|
| $ | 405 |
|
| $ | (534 | ) | $ | 1,376 |
|
| $ | (11,176 | ) |
| $ | 1,781 |
|
| $ | (11,710 | ) |
| November 30, |
|
| May 31, |
| February 29, |
|
| May 31, |
| ||||
(in thousands) | 2019 |
|
| 2019 |
| 2020 |
|
| 2019 |
| ||||
Total assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steel Processing | $ | 868,597 |
|
| $ | 924,966 |
| $ | 921,969 |
|
| $ | 924,966 |
|
Pressure Cylinders |
| 1,143,256 |
|
|
| 1,123,115 |
|
| 1,078,167 |
|
|
| 1,123,115 |
|
Other |
| 397,108 |
|
|
| 462,715 |
|
| 428,947 |
|
|
| 462,715 |
|
Total assets | $ | 2,408,961 |
|
| $ | 2,510,796 |
| $ | 2,429,083 |
|
| $ | 2,510,796 |
|
19
NOTE P – Acquisitions
Worthington Samuel Coil Processing LLC
On December 31, 2019, the Company contributed the recently acquired operating net assets of Heidtman’s Cleveland facility to the Samuel joint venture, in exchange for an incremental 31.75% interest in the joint venture, increasing its ownership to a 63% controlling interest. The Heidtman assets were contributed at their net book value of $30,061,000, of which $11,123,000 has been attributed to the noncontrolling interest. The transaction was accounted for as a step acquisition, which required the re-measurement of our previously held 31.25% ownership interest in the joint venture to fair value resulting a non-cash, net pre-tax gain of $6,055,000 within miscellaneous income, net in our consolidated statement of earnings for the three and nine months ended February 29, 2020. The acquired net assets became part of our Steel Products, Inc.Processing operating segment upon closing. In connection with the acquisition, the name of the joint venture was changed to Worthington Samuel Coil Processing LLC.
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. In connection with the acquisition of Samuel, we identified and valued the following identifiable intangible assets:
(in thousands) |
|
|
| |||
Category |
| Amount |
|
| Useful Life (Years) | |
Customer relationships |
| $ | 9,000 |
|
| 15 |
Trade name |
|
| 1,100 |
|
| Indefinite |
Total acquired identifiable intangible assets |
| $ | 10,100 |
|
|
|
The acquisition 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 acquisition price also includes strategic and synergistic benefits (investment value) specific to us, which resulted in an acquisition 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 transferred for our 63% controlling interest in Samuel and the fair value assigned to the assets acquired and liabilities assumed at the acquisition date:
(in thousands) |
| |||
Consideration Transferred: |
|
|
|
|
Assets contributed (37% of Heidtman net assets) |
| $ | 11,122 |
|
Capital contribution |
|
| 315 |
|
Fair value of previously held equity interest in Samuel |
|
| 10,948 |
|
Total consideration |
| $ | 22,385 |
|
|
|
|
|
|
Estimated Fair Value of Assets Acquired and Liabilities Assumed: |
|
|
|
|
Cash |
| $ | 694 |
|
Accounts receivable |
|
| 1,778 |
|
Inventories |
|
| 108 |
|
Prepaid expenses |
|
| 1,535 |
|
Intangible assets |
|
| 10,100 |
|
Property, plant and equipment |
|
| 19,459 |
|
Total identifiable assets |
|
| 33,674 |
|
Accounts payable |
|
| (766 | ) |
Accrued liabilities |
|
| (1,148 | ) |
Net identifiable assets |
|
| 31,760 |
|
Goodwill |
|
| 3,772 |
|
Net assets |
|
| 35,532 |
|
Noncontrolling interest |
|
| (13,147 | ) |
Total consideration |
| $ | 22,385 |
|
20
The fair value of each of our previously held equity interest and the noncontrolling interest were derived using a market approach. The minority discount to reflect management’s estimate of a control premium was immaterial.
Operating results of the Samuel joint venture have been included in our consolidated statements of earnings from the acquisition date forward. For periods prior to the acquisition date, our portion of equity in net income of Samuel was included within equity in net income of unconsolidated affiliates in our consolidated statements of earnings. Proforma results, including the acquired business since the beginning of fiscal 2019, would not be materially different than the reported results.
Heidtman Cleveland
On October 7, 2019, we acquired the Cleveland, Ohio-based operating net assets related to Heidtman’s Cleveland facility, excluding working capital, of Heidtman for cash consideration of $29,593,000. The acquired net assets are beingwere managed and reported as a component of our Steel Processing operating segment.segment until their contribution to the Samuel joint venture on December 31, 2019.
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 estimated acquisition-date fair values, with goodwill representing the excess of the purchase price over the fair value of the net identifiable assets acquired. AIn connection with the acquisition, 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 final 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.
date:
|
| Preliminary |
|
| Measurement |
|
| Final |
| |||||||
|
| Valuation |
|
| Period |
|
| Valuation |
| |||||||
(in thousands) |
|
|
|
|
| November 30, 2019 |
|
| Adjustments |
|
| February 29, 2020 |
| |||
Customer list |
| $ | 2,900 |
|
| $ | 2,900 |
|
| $ | (100 | ) |
| $ | 2,800 |
|
Property, plant and equipment |
|
| 7,515 |
|
|
| 7,515 |
|
|
| (1,411 | ) |
|
| 6,104 |
|
Finance lease assets |
|
| 8,000 |
|
|
| 8,000 |
|
|
| 3,940 |
|
|
| 11,940 |
|
Other assets |
|
| 725 |
|
|
| 725 |
|
|
| - |
|
|
| 725 |
|
Net identifiable assets |
|
| 19,140 |
|
|
| 19,140 |
|
|
| 2,429 |
|
|
| 21,569 |
|
Goodwill |
|
| 10,453 |
|
|
| 10,453 |
|
|
| (2,429 | ) |
|
| 8,024 |
|
Purchase price |
| $ | 29,593 |
|
| $ | 29,593 |
|
| $ | - |
|
| $ | 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-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.
21
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 R – 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 November 30, 2019:February 29, 2020:
|
| 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 |
| $ | 9 |
|
| Accounts payable |
| $ | 4,569 |
|
| Receivables |
| $ | - |
|
| Accounts payable |
| $ | 3,230 |
|
|
| Other assets |
|
| - |
|
| Other liabilities |
|
| 451 |
|
| Other assets |
|
| - |
|
| Other liabilities |
|
| 597 |
|
Totals |
|
|
| $ | 9 |
|
|
|
| $ | 5,020 |
|
|
|
| $ | - |
|
|
|
| $ | 3,827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts |
| Receivables |
| $ | 953 |
|
| Accounts payable |
| $ | 1,487 |
|
| Receivables |
| $ | 881 |
|
| Accounts payable |
| $ | 3,596 |
|
|
| Other assets |
|
| 7 |
|
| Other liabilities |
|
| 223 |
|
| Other assets |
|
| - |
|
| Other liabilities |
|
| 243 |
|
|
|
|
|
| 960 |
|
|
|
|
| 1,710 |
|
|
|
|
| 881 |
|
|
|
|
| 3,839 |
|
Foreign currency exchange contracts |
| Receivables |
|
| - |
|
| Accounts payable |
|
| 75 |
|
| Receivables |
|
| - |
|
| Accounts payable |
|
| 7 |
|
Totals |
|
|
| $ | 960 |
|
|
|
| $ | 1,785 |
|
|
|
| $ | 881 |
|
|
|
| $ | 3,846 |
|
Total derivative instruments |
|
|
| $ | 969 |
|
|
|
| $ | 6,805 |
|
|
|
| $ | 881 |
|
|
|
| $ | 7,673 |
|
The amounts in the table above reflect the fair value of the Company’s derivative instruments on a net basis at November 30, 2019.February 29, 2020. Had these amounts been recognized on a gross basis, the impact would have been a $581,000$704,000 increase in receivables with a corresponding increase in accounts payable.
22
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, 2019:
|
| Asset Derivatives |
|
| Liability Derivatives |
| ||||||
|
| Balance |
|
|
|
|
| Balance |
|
|
|
|
|
| Sheet |
| Fair |
|
| Sheet |
| Fair |
| ||
(in thousands) |
| Location |
| Value |
|
| Location |
| Value |
| ||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts |
| Receivables |
| $ | 5 |
|
| Accounts payable |
| $ | 8,383 |
|
|
| Other assets |
|
| - |
|
| Other liabilities |
|
| 201 |
|
Totals |
|
|
| $ | 5 |
|
|
|
| $ | 8,584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts |
| Receivables |
| $ | 2,347 |
|
| Accounts payable |
| $ | 3,568 |
|
|
| Other assets |
|
| 62 |
|
| Other liabilities |
|
| 66 |
|
|
|
|
|
| 2,409 |
|
|
|
|
| 3,634 |
|
Foreign currency exchange contracts |
| Receivables |
|
| - |
|
| Accounts payable |
|
| 20 |
|
Totals |
|
|
| $ | 2,409 |
|
|
|
| $ | 3,654 |
|
Total derivative instruments |
|
|
| $ | 2,414 |
|
|
|
| $ | 12,238 |
|
The amounts in the table above reflect the fair value of the Company’s derivative instruments on a net basis at May 31, 2019. Had these amounts been recognized on a gross basis, the impact would have been a $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. The earnings effects of these derivative instruments are presented in the same statement of earnings line items as the earnings effects of the hedged items. For derivatives designated as cash flow hedges, the Company assesses hedge effectiveness both at the onset of the hedge and at regular intervals throughout the life of the derivative instrument.
20
The following table summarizes our cash flow hedges outstanding at November 30, 2019:February 29, 2020:
|
| Notional |
|
|
|
| Notional |
|
|
| ||
(in thousands) |
| Amount |
|
| Maturity Date |
| Amount |
|
| Maturity Date | ||
Commodity contracts |
| $ | 40,824 |
|
| December 2019 - June 2021 |
| $ | 44,506 |
|
| March 2020 - December 2021 |
23
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:
|
| Gain (Loss) |
|
| Location of Gain (Loss) |
| Gain (Loss) Reclassified |
|
| Gain (Loss) |
|
| Location of Gain (Loss) |
| Gain (Loss) Reclassified |
| ||||
(in thousands) |
| Recognized in OCI |
|
| Reclassified from AOCI into Net Earnings |
| from AOCI into Net Earnings |
|
| Recognized in OCI |
|
| Reclassified from AOCI into Net Earnings |
| from AOCI into Net Earnings |
| ||||
For the three months ended November 30, 2019: |
|
|
|
|
|
|
|
|
|
| ||||||||||
For the three months ended February 29, 2020: |
|
|
|
|
|
|
|
|
|
| ||||||||||
Commodity contracts |
| $ | 10 |
|
| Cost of goods sold |
| $ | (4,228 | ) |
| $ | (394 | ) |
| Cost of goods sold |
| $ | (3,464 | ) |
Interest rate contracts |
|
| (326 | ) |
| Interest expense |
|
| (7 | ) |
|
| - |
|
| Interest expense |
|
| 271 |
|
Foreign currency exchange contracts |
|
| - |
|
| Miscellaneous income, net |
|
| (97 | ) |
|
| - |
|
| Miscellaneous income, net |
|
| - |
|
Totals |
| $ | (316 | ) |
|
|
| $ | (4,332 | ) |
| $ | (394 | ) |
|
|
| $ | (3,193 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended November 30, 2018: |
|
|
|
|
|
|
|
|
|
| ||||||||||
For the three months ended February 28, 2019: |
|
|
|
|
|
|
|
|
|
| ||||||||||
Commodity contracts |
| $ | (4,499 | ) |
| Cost of goods sold |
| $ | 1,565 |
|
| $ | 35 |
|
| Cost of goods sold |
| $ | 931 |
|
Interest rate contracts |
|
| - |
|
| Interest expense |
|
| (34 | ) |
|
| - |
|
| Interest expense |
|
| (41 | ) |
Foreign currency exchange contracts |
|
| - |
|
| Miscellaneous income, net |
|
| 36 |
|
|
| - |
|
| Miscellaneous income, net |
|
| (11 | ) |
Totals |
| $ | (4,499 | ) |
|
|
| $ | 1,567 |
|
| $ | 35 |
|
|
|
| $ | 879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended November 30, 2019: |
|
|
|
|
|
|
|
|
|
| ||||||||||
For the nine months ended February 29, 2020: |
|
|
|
|
|
|
|
|
|
| ||||||||||
Commodity contracts |
| $ | (5,649 | ) |
| Cost of goods sold |
| $ | (6,520 | ) |
| $ | (6,043 | ) |
| Cost of goods sold |
| $ | (9,984 | ) |
Interest rate contracts |
|
| (326 | ) |
| Interest expense |
|
| (127 | ) |
|
| (326 | ) |
| Interest expense |
|
| 144 |
|
Foreign currency exchange contracts |
|
| - |
|
| Miscellaneous income, net |
|
| (19 | ) |
|
| - |
|
| Miscellaneous income, net |
|
| (19 | ) |
Totals |
| $ | (5,975 | ) |
|
|
| $ | (6,666 | ) |
| $ | (6,369 | ) |
|
|
| $ | (9,859 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended November 30, 2018: |
|
|
|
|
|
|
|
|
|
| ||||||||||
For the nine months ended February 28, 2019: |
|
|
|
|
|
|
|
|
|
| ||||||||||
Commodity contracts |
| $ | (4,530 | ) |
| Cost of goods sold |
| $ | 4,108 |
|
| $ | (4,495 | ) |
| Cost of goods sold |
| $ | 5,039 |
|
Interest rate contracts |
|
| - |
|
| Interest expense |
|
| (81 | ) |
|
| - |
|
| Interest expense |
|
| (122 | ) |
Foreign currency exchange contracts |
|
| - |
|
| Miscellaneous income, net |
|
| 36 |
|
|
| - |
|
| Miscellaneous income, net |
|
| 25 |
|
Totals |
| $ | (4,530 | ) |
|
|
| $ | 4,063 |
|
| $ | (4,495 | ) |
|
|
| $ | 4,942 |
|
The estimated net amount of the losses recognized in AOCI at November 30, 2019February 29, 2020 expected to be reclassified into net earnings within the succeeding twelve months is $5,916,000$3,648,000 (net of tax of $1,863,000)$1,194,000). This amount was computed using the fair value of the cash flow hedges at November 30, 2019,February 29, 2020, and will change before actual reclassification from OCI to net earnings during the fiscal years ending May 31, 2020 and May 31, 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.
The following table summarizes our economic (non-designated) derivative instruments outstanding at November 30, 2019:February 29, 2020:
|
| Notional |
|
|
|
| Notional |
|
|
| ||
(in thousands) |
| Amount |
|
| Maturity Date(s) |
| Amount |
|
| Maturity Date(s) | ||
Commodity contracts |
| $ | 45,247 |
|
| December 2019 - September 2021 |
| $ | 35,581 |
|
| March 2020 - September 2021 |
Foreign currency exchange contracts |
|
| 3,901 |
|
| December 2019 - March 2020 |
|
| 5,642 |
|
| March 2020 |
21
The following tables 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 Net Earnings for the |
|
|
|
| In Net Earnings for the |
| ||||||||||
|
| Location of Gain (Loss) |
| Three Months Ended November 30, |
|
| Location of Gain (Loss) |
| Three Months Ended |
| ||||||||||
(in thousands) |
| Recognized in Net Earnings |
| 2019 |
|
| 2018 |
|
| Recognized in Net Earnings |
| February 29, 2020 |
|
| February 28, 2019 |
| ||||
Commodity contracts |
| Cost of goods sold |
| $ | (1,673 | ) |
| $ | (737 | ) |
| Cost of goods sold |
| $ | (2,223 | ) |
| $ | 73 |
|
Foreign currency exchange contracts |
| Miscellaneous income, net |
|
| 15 |
|
|
| (1,183 | ) |
| Miscellaneous income, net |
|
| 66 |
|
|
| (455 | ) |
Total |
|
|
| $ | (1,658 | ) |
| $ | (1,920 | ) |
|
|
| $ | (2,157 | ) |
| $ | (382 | ) |
24
|
|
|
| Loss Recognized |
|
|
|
| Loss Recognized |
| ||||||||||
|
|
|
| in Net Earnings for the |
|
|
|
| in Net Earnings for the |
| ||||||||||
|
| Location of Loss |
| Six Months Ended November 30, |
|
| Location of Loss |
| Nine Months Ended |
| ||||||||||
(in thousands) |
| Recognized in Net Earnings |
| 2019 |
|
| 2018 |
|
| Recognized in Net Earnings |
| February 29, 2020 |
|
| February 28, 2019 |
| ||||
Commodity contracts |
| Cost of goods sold |
| $ | (3,916 | ) |
| $ | (2,934 | ) |
| Cost of goods sold |
| $ | (6,139 | ) |
| $ | (2,861 | ) |
Foreign currency exchange contracts |
| Miscellaneous income, net |
|
| (89 | ) |
|
| (2,689 | ) |
| Miscellaneous income, net |
|
| (23 | ) |
|
| (3,144 | ) |
Total |
|
|
| $ | (4,005 | ) |
| $ | (5,623 | ) |
|
|
| $ | (6,162 | ) |
| $ | (6,005 | ) |
NOTE R – Fair Value
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is an exit price concept that assumes an orderly transaction between willing market participants and is required to be based on assumptions that market participants would use in pricing an asset or a liability. Current accounting guidance establishes a three-tier fair value hierarchy as a basis for considering such assumptions and for classifying the inputs used in the valuation methodologies. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair values are as follows:
Level 1 – Observable prices in active markets for identical assets and liabilities.
Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the assets and liabilities, either directly or indirectly.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities.
Recurring Fair Value Measurements
At November 30, 2019,February 29, 2020, 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) |
| $ | - |
|
| $ | 969 |
|
| $ | - |
|
| $ | 969 |
|
| $ | - |
|
| $ | 881 |
|
| $ | - |
|
| $ | 881 |
|
Total assets |
| $ | - |
|
| $ | 969 |
|
| $ | - |
|
| $ | 969 |
|
| $ | - |
|
| $ | 881 |
|
| $ | - |
|
| $ | 881 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments (1) |
| $ | - |
|
| $ | 6,805 |
|
| $ | - |
|
| $ | 6,805 |
|
| $ | - |
|
| $ | 7,673 |
|
| $ | - |
|
| $ | 7,673 |
|
Total liabilities |
| $ | - |
|
| $ | 6,805 |
|
| $ | - |
|
| $ | 6,805 |
|
| $ | - |
|
| $ | 7,673 |
|
| $ | - |
|
| $ | 7,673 |
|
22
At May 31, 2019, our assets and liabilities measured at fair value on a recurring basis were as follows:
|
|
|
|
|
| Significant |
|
|
|
|
|
|
|
|
| |
|
| Quoted Prices |
|
| Other |
|
| Significant |
|
|
|
|
| |||
|
| in Active |
|
| Observable |
|
| Unobservable |
|
|
|
|
| |||
|
| Markets |
|
| Inputs |
|
| Inputs |
|
|
|
|
| |||
(in thousands) |
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
|
| Totals |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments (1) |
| $ | - |
|
| $ | 2,414 |
|
| $ | - |
|
| $ | 2,414 |
|
Total assets |
| $ | - |
|
| $ | 2,414 |
|
| $ | - |
|
| $ | 2,414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments (1) |
| $ | - |
|
| $ | 12,238 |
|
| $ | - |
|
| $ | 12,238 |
|
Total liabilities |
| $ | - |
|
| $ | 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 |
25
observable, Level 2 inputs are used to determine the present value of the expected future cash flows. Refer to “NOTE Q – Derivative Instruments and Hedging Activities” for additional information regarding our use of derivative instruments. |
Non-Recurring Fair Value Measurements
At November 30, 2019,February 29, 2020, 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in unconsolidated affiliate (1) |
| $ | - |
|
| $ | - |
|
| $ | 13,623 |
|
|
| 13,623 |
|
| $ | - |
|
| $ | - |
|
| $ | 13,623 |
|
| $ | 13,623 |
|
Long-lived assets held and used (2) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
| ||||||||||||||||
Long-lived assets held for sale (2) |
|
| - |
|
|
| 4,084 |
|
|
| - |
|
|
| 4,084 |
| ||||||||||||||||
Long-lived assets held and used (3) |
|
| - |
|
|
| 6,211 |
|
|
| - |
|
|
| 6,211 |
| ||||||||||||||||
Total assets |
| $ | - |
|
| $ | - |
|
| $ | 13,623 |
|
| $ | 13,623 |
|
| $ | - |
|
| $ | 10,295 |
|
| $ | 13,623 |
|
| $ | 23,918 |
|
23
At May 31, 2019, our assets measured at fair value on a non-recurring basis were as follows:
|
|
|
|
|
| Significant |
|
|
|
|
|
|
|
|
| |
|
| Quoted Prices |
|
| Other |
|
| Significant |
|
|
|
|
| |||
|
| in Active |
|
| Observable |
|
| Unobservable |
|
|
|
|
| |||
|
| Markets |
|
| Inputs |
|
| Inputs |
|
|
|
|
| |||
(in thousands) |
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
|
| Totals |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
| $ | - |
|
| $ | 11,938 |
|
| $ | - |
|
| $ | 11,938 |
|
| 1) | On November 1, 2019, in connection with the contribution of substantially all of the net assets of the Engineered Cabs business to |
During the first quarter of fiscal 2020, we determined our 10% minority ownership interest in our steelNisshin joint venture in China, Nisshin, was fully impaired based on the estimated recoverability of the related assets. During the fourth 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 estimated fair value of $3,700,000, resulting in an impairment charge of $4,017,000 within equity income of unconsolidated affiliates.
| 2) | During the third quarter of fiscal 2020, the Company’s consolidated joint venture, WSP committed to plans to sell its Canton, Michigan facility and some of the production equipment at that facility. In accordance with the applicable accounting guidance, certain production equipment was recorded at the lower of net book value or fair value less costs to sell. The book value of the WSP production equipment exceeded the estimated fair value of $700,000, resulting in an impairment charge of $1,274,000. |
During the third quarter of fiscal 2020, in connection with the closure of the oil & gas operations in Wooster, Ohio, fixed assets consisting of land and a building written down to their estimated fair market value of $3,384,000
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 third quarter of fiscal 2020, in connection with the closure of the oil & gas operations in Wooster, Ohio, customer list intangible assets were determined to be fully impaired and written off. In addition, the remaining fixed assets at Wooster, Ohio were written down to their estimated fair value of $6,211,000. |
During the third quarter of fiscal 2020, the Company identified an impairment indicator for our oil & gas equipment business and performed an interim impairment test of the reporting unit. In accordance with the applicable accounting guidance, the book value of the corresponding goodwill was written off, resulting in an impairment charge of $22,097,000.
At May 31, 2019, our assets measured at fair value on a non-recurring basis were as follows:
|
|
|
|
|
| Significant |
|
|
|
|
|
|
|
|
| |
|
| Quoted Prices |
|
| Other |
|
| Significant |
|
|
|
|
| |||
|
| in Active |
|
| Observable |
|
| Unobservable |
|
|
|
|
| |||
|
| Markets |
|
| Inputs |
|
| Inputs |
|
|
|
|
| |||
(in thousands) |
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
|
| Totals |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in unconsolidated affiliate (1) |
| $ | - |
|
| $ | 3,700 |
|
| $ | - |
|
| $ | 3,700 |
|
Long-lived assets held for sale (2) |
|
| - |
|
|
| 7,000 |
|
|
| - |
|
|
| 7,000 |
|
Long-lived assets held and used (3) |
|
| - |
|
|
| 1,238 |
|
|
| - |
|
|
| 1,238 |
|
Total assets |
| $ | - |
|
| $ | 11,938 |
|
| $ | - |
|
| $ | 11,938 |
|
1) | During the fourth 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 estimated fair value of $3,700,000, resulting in an impairment charge of $4,017,000 within equity income of unconsolidated affiliates. |
|
| 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 |
|
| 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 |
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 $731,433,000$769,047,000 and $767,075,000 at November 30, 2019February 29, 2020 and May 31, 2019, respectively. The carrying amount of long-term debt, including current maturities, was $698,803,000$698,848,000 and $749,299,000 at November 30, 2019February 29, 2020 and May 31, 2019, respectively.
NOTE S – Subsequent Events
On December 31, 2019, the Company contributed the recently acquired net assets of Heidtman to the Samuel joint venture in exchange for an incremental 31.75% ownership interest in the Samuel joint venture, bringing the Company’s total ownership interest to 63%. As a result of the transaction, the Company obtained a controlling interest in the Samuel joint venture, resulting in the consolidation of Samuel upon closing. The accounting for the transaction, including the revaluation of its previously held interest in Samuel, will be completed in the third quarter of fiscal 2020.
2427
Item 2. – Management’s Discussion and Analysis of Financial Condition and Results of Operations
Selected statements contained in this “Item 2. – Management’s Discussion and Analysis of Financial Condition and Results of Operations” constitute “forward-looking statements” as that term is used in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based, in whole or in part, on management’s beliefs, estimates, assumptions and currently available information. For a more detailed discussion of what constitutes a forward-looking statement and of some of the factors that could cause actual results to differ materially from such forward-looking statements, please refer to the “Safe Harbor Statement” in the beginning of this Quarterly Report on Form 10-Q, “Part I – Item 1A. – Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended May 31, 2019 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, 2019 (“fiscal 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 November 30, 2019,February 29, 2020, excluding our joint ventures, we operated 2827 manufacturing facilities worldwide, principally in two operating segments, which correspond with our reportable business segments: Steel Processing and Pressure Cylinders.
As of November 30, 2019,February 29, 2020, we held equity positions in tennine joint ventures, which operated 4849 manufacturing facilities worldwide, including 2630 facilities which were operated by joint ventures in which we held a 50% or greater ownership interest. ThreeFour 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 attributable to noncontrolling interests in our consolidated statements of earnings and consolidated statements of comprehensive income, respectively. The remaining sevenfive of these joint ventures are accounted for using the equity method.
Overview
Operating incomeloss for the current quarter was down $3.8$1.3 million, or 11%. Results in Steel Processing continuedcompared to beoperating income of $26.0 million for the comparable prior year quarter, a decrease of $27.3 million. The current quarter was negatively impacted by declining steel prices, which led$36.0 million of impairment and restructuring charges primarily associated with the oil & gas equipment business within Pressure Cylinders, compared to a $7.3net restructuring gain of $11.2 million swing from inventory holding gains to inventory holding losses from the second quarter of fiscal 2019 to the second quarter of fiscal 2020. Lower direct volume in Steel Processing and lower volumes in the industrial products businessprior year quarter. Excluding the impact of impairment and restructuring activity, operating income was up $19.9 million due to an improvement in Pressure Cylinders were partially offsetgross margin which was driven by improvedhigher direct spreads and higher toll volume in Steel Processing andcombined with higher volumes in the consumer products business and overall improvement in the oil & gas equipment business incontributions from Pressure Cylinders.Cylinders, which was partially offset by higher SG&A expense.
Equity in net income of unconsolidated affiliates (“equity income”) for the current year secondthird quarter increased $26.2$4.7 million over the comparable prior year quarter, primarily 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 to a $5.4 million increase in equity incomehigher contributions from ClarkDietrich, driven by improved marginsArtiFlex and increased volumes, partially offset by a lower contribution from Serviacero Worthington and 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.WAVE. We received cash distributions from unconsolidated joint ventures of $27.5$21.0 million during the secondthird quarter of fiscal 2020.
In March 2020, the World Health Organization categorized the novel coronavirus (“COVID-19”) as a pandemic, and it continues to spread throughout the United States and other countries across the world. To limit the spread of COVID-19, governments have taken various actions including the issuance of stay-at-home orders and social distancing guidelines, causing some businesses to suspend operations and a reduction in demand for many products from direct or ultimate customers. Accordingly, businesses have adjusted, reduced or suspended operating activities. This has negatively impacted several of the markets we serve, including the North American automotive market, which shut down production in mid-March 2020. While a number of our plants are operating as essential businesses, some of our plants have suspended or cut back on operating levels and shifts, and additional suspensions and cutbacks may occur as the impacts from COVID-19 and related responses continue to develop.
As a result of curtailed operations, we have taken action in some locations to reduce the work force mostly through furloughs, although reductions in some positions are expected to be permanent. We will continue to review if and when additional such actions may be appropriate throughout the Company. The hope is to begin calling back furloughed workers when and if the country and businesses begin to return to some semblance of normal and demand increases to more normal levels.
While we expect the effects of the pandemic and the related responses to negatively impact our results of operations, cash flows and financial position, the uncertainty over the duration and severity of the economic and operational impacts of COVID-19 means we cannot reasonably estimate the related financial impact at this time.
28
Recent Business Developments
|
|
| • | 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 |
| • | On August 23, 2019, two of the |
|
25
| • | On September 30, 2019, Worthington Armstrong Venture (“WAVE”) completed the sale of its international operations to Knauf Ceilings and Holding GmbH (“Knauf”), as part of the broader transaction between Knauf and Armstrong World Industries, |
| • | On October 7, 2019, we acquired the |
| • | On November 1, 2019, we |
| • | On December |
|
|
| • | On December 31, 2019, the Company contributed the recently acquired operating net assets |
• | On February 12, 2020, the Company announced a plan to consolidate its oil & gas equipment manufacturing operations in Wooster, Oho, into its existing facility in Bremen, Ohio, resulting in pre-tax impairment and restructuring charges of $33.9 million. For additional information refer to “Item 1. – Financial Statements – Notes to Consolidated Financial Statements – NOTE E – Impairment of Goodwill and Long-Lived Assets” and “Item 1. – Financial Statements – Notes to Consolidated Financial Statements – NOTE F – Restructuring and Other Expense (Income), Net”. |
29
• | On March 18, 2020, the Company’s Worthington Specialty Processing (“WSP”) joint venture announced a plan to consolidate its manufacturing operations in Canton, Michigan into its existing facilities in Jackson and Taylor, Michigan, resulting in pre-tax impairment and restructuring charges of $1.6 million. For additional information refer to “Item 1. – Financial Statements – Notes to Consolidated Financial Statements – NOTE E – Impairment of Goodwill and Lon-Lived Assets” and “Item 1. – Financial Statements – Notes to Consolidated Financial Statements – NOTE F – Restructuring and Other Expense (Income), Net”. |
• | On March 25, 2020, the Worthington Industries, Inc. Board of Directors (the “Worthington Industries Board”) declared a quarterly dividend of $0.24 per share payable on June 29, 2020 to shareholders of record on June 15, 2020. |
• | During the first nine months of fiscal 2020, the Company repurchased a total of 1,300,000 common shares for $50.9 million at an average price of $39.19 per share. |
Market & Industry Overview
Due to COVID-19 and the actions taken by governmental authorities and others related thereto, some of the information provided in this “Market & Industry Overview” section could be substantially different in the fourth quarter of fiscal 2020.
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 secondthird quarter of each of fiscal 2020 and fiscal 2019 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 58%56% 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.
Approximately 17% of the net sales of our Steel Processing operating segment are to the construction market. The construction market is also the predominant end market for two of our unconsolidated joint ventures: WAVE and ClarkDietrich. While the market price of steel significantly impacts these businesses, there are other key indicators that are meaningful in analyzing construction market demand, including U.S. gross domestic product (“GDP”), the Dodge Index of construction contracts and, in the case of ClarkDietrich, trends in the relative price of framing lumber and steel.
Substantially all of the net sales of our Pressure Cylinders operating segment and approximately 25%27% of the net sales of our Steel Processing operating 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.
30
We use the following information to monitor costs and assess demand in our major end markets:
|
| Three Months Ended November 30, |
|
|
|
|
|
| Six Months Ended November 30, |
|
|
|
|
|
| Three Months Ended |
|
|
|
|
|
| Nine Months Ended |
|
|
|
|
| ||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| Inc / (Dec) |
|
| 2019 |
|
| 2018 |
|
| Inc / (Dec) |
|
| February 29, 2020 |
|
| February 28, 2019 |
|
| Inc / (Dec) |
|
| February 29, 2020 |
|
| February 28, 2019 |
|
| Inc / (Dec) |
| ||||||||||||
U.S. GDP (% growth year-over-year) 1 |
|
| 2.1 | % |
|
| 3.4 | % |
|
| -1.3 | % |
|
| 2.3 | % |
|
| 3.0 | % |
|
| -0.7 | % |
|
| 2.2 | % |
|
| 3.2 | % |
|
| -1.0 | % |
|
| 2.3 | % |
|
| 2.9 | % |
|
| -0.6 | % |
Hot-Rolled Steel ($ per ton) 2 |
| $ | 526 |
|
| $ | 836 |
|
| $ | (310 | ) |
| $ | 545 |
|
| $ | 868 |
|
| $ | (323 | ) |
| $ | 571 |
|
| $ | 725 |
|
| $ | (154 | ) |
| $ | 554 |
|
| $ | 820 |
|
| $ | (266 | ) |
Detroit Three Auto Build (000's vehicles) 3 |
|
| 1,895 |
|
|
| 2,191 |
|
|
| (296 | ) |
|
| 3,978 |
|
|
| 4,286 |
|
|
| (308 | ) |
|
| 1,921 |
|
|
| 1,931 |
|
|
| (10 | ) |
|
| 5,849 |
|
|
| 6,218 |
|
|
| (369 | ) |
No. America Auto Build (000's vehicles) 3 |
|
| 4,098 |
|
|
| 4,417 |
|
|
| (319 | ) |
|
| 8,216 |
|
|
| 8,543 |
|
|
| (327 | ) |
|
| 3,870 |
|
|
| 3,891 |
|
|
| (21 | ) |
|
| 12,043 |
|
|
| 12,436 |
|
|
| (393 | ) |
Zinc ($ per pound) 4 |
| $ | 1.09 |
|
| $ | 1.16 |
|
| $ | (0.07 | ) |
| $ | 1.11 |
|
| $ | 1.23 |
|
| $ | (0.12 | ) |
| $ | 1.05 |
|
| $ | 1.16 |
|
| $ | (0.11 | ) |
| $ | 1.09 |
|
| $ | 1.20 |
|
| $ | (0.11 | ) |
Natural Gas ($ per mcf) 5 |
| $ | 2.50 |
|
| $ | 3.37 |
|
| $ | (0.87 | ) |
| $ | 2.39 |
|
| $ | 3.13 |
|
| $ | (0.74 | ) |
| $ | 2.07 |
|
| $ | 3.27 |
|
| $ | (1.20 | ) |
| $ | 2.28 |
|
| $ | 3.17 |
|
| $ | (0.89 | ) |
On-Highway Diesel Fuel Prices ($ per gallon) 6 |
| $ | 3.04 |
|
| $ | 3.31 |
|
| $ | (0.27 | ) |
| $ | 3.05 |
|
| $ | 3.27 |
|
| $ | (0.22 | ) |
| $ | 3.01 |
|
| $ | 3.03 |
|
| $ | (0.02 | ) |
| $ | 3.03 |
|
| $ | 3.19 |
|
| $ | (0.16 | ) |
Crude Oil - WTI ($ per barrel) 6 |
| $ | 55.47 |
|
| $ | 65.98 |
|
| $ | (10.51 | ) |
| $ | 55.54 |
|
| $ | 67.50 |
|
| $ | (11.96 | ) |
| $ | 56.01 |
|
| $ | 51.96 |
|
| $ | 4.05 |
|
| $ | 55.70 |
|
| $ | 62.32 |
|
| $ | (6.62 | ) |
1 |
|
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 2020 (first, second and secondthird quarters), fiscal 2019 and fiscal 2018:
|
| Fiscal Year |
|
| Fiscal Year |
| ||||||||||||||||||
(dollars per ton 1 ) |
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2018 |
| ||||||
1st Quarter |
| $ | 564 |
|
| $ | 900 |
|
| $ | 604 |
|
| $ | 564 |
|
| $ | 900 |
|
| $ | 604 |
|
2nd Quarter |
| $ | 526 |
|
| $ | 836 |
|
| $ | 608 |
|
| $ | 526 |
|
| $ | 836 |
|
| $ | 608 |
|
3rd Quarter |
| N/A |
|
| $ | 725 |
|
| $ | 674 |
|
| $ | 571 |
|
| $ | 725 |
|
| $ | 674 |
| |
4th Quarter |
| N/A |
|
| $ | 672 |
|
| $ | 860 |
|
| N/A |
|
| $ | 672 |
|
| $ | 860 |
| ||
Annual Avg. |
| $ | 545 |
|
| $ | 783 |
|
| $ | 687 |
|
| $ | 554 |
|
| $ | 783 |
|
| $ | 687 |
|
| 1 | CRU Hot-Rolled Index, period average |
Sales to one Steel Processing customer in the automotive industry represented 13%10.2% and 14.1% of consolidated net sales during the secondthird quarter of fiscal 2020. No single customer contributed more than 10% of consolidated net sales during the second quarter of2020 and fiscal
27
2019. 2019, respectively. While our automotive business is largely driven by the production schedules of the Detroit Three automakers, our customer base is much broader and includes other domestic manufacturers and many of their suppliers. During the secondthird quarter of fiscal 2020, vehicle production for the Detroit Three automakers was down 14% from fiscal 2019, whileand North American vehicle production as a whole was down 7%.were essentially flat relative to the comparable period in the prior year.
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.
31
Results of Operations
SecondThird Quarter – Fiscal 2020 Compared to Fiscal 2019
Consolidated Operations
The following table presents consolidated operating results for the periods presented:
| Three Months Ended November 30, |
| Three Months Ended |
| ||||||||||||||||||||||||||||||||||
|
|
|
|
| % of |
|
|
|
|
|
| % of |
|
| Increase/ |
| February 29, |
|
| % of |
|
| February 28, |
|
| % of |
|
| Increase/ |
| ||||||||
(in millions) | 2019 |
|
| Net sales |
|
| 2018 |
|
| Net sales |
|
| (Decrease) |
| 2020 |
|
| Net sales |
|
| 2019 |
|
| Net sales |
|
| (Decrease) |
| ||||||||||
Net sales | $ | 827.6 |
|
|
| 100.0 | % |
| $ | 958.2 |
|
|
| 100.0 | % |
| $ | (130.6 | ) | $ | 764.0 |
|
|
| 100.0 | % |
| $ | 874.4 |
|
|
| 100.0 | % |
| $ | (110.4 | ) |
Cost of goods sold |
| 707.0 |
|
|
| 85.4 | % |
|
| 837.3 |
|
|
| 87.4 | % |
|
| (130.3 | ) |
| 648.4 |
|
|
| 84.9 | % |
|
| 784.4 |
|
|
| 89.7 | % |
|
| (136.0 | ) |
Gross margin |
| 120.6 |
|
|
| 14.6 | % |
|
| 120.9 |
|
|
| 12.6 | % |
|
| (0.3 | ) |
| 115.6 |
|
|
| 15.1 | % |
|
| 90.0 |
|
|
| 10.3 | % |
|
| 25.6 |
|
Selling, general and administrative expense |
| 88.5 |
|
|
| 10.7 | % |
|
| 84.6 |
|
|
| 8.8 | % |
|
| 3.9 |
|
| 80.9 |
|
|
| 10.6 | % |
|
| 75.2 |
|
|
| 8.6 | % |
|
| 5.7 |
|
Restructuring and other expense |
| - |
|
|
| 0.0 | % |
|
| 0.4 |
|
|
| 0.0 | % |
|
| 0.4 |
| |||||||||||||||||||
Operating income |
| 32.1 |
|
|
| 3.9 | % |
|
| 35.9 |
|
|
| 3.7 | % |
|
| (3.8 | ) | |||||||||||||||||||
Impairment of goodwill and long-lived assets |
| 34.6 |
|
|
| 4.5 | % |
|
| - |
|
|
| 0.0 | % |
|
| 34.6 |
| |||||||||||||||||||
Restructuring and other expense (income), net |
| 1.4 |
|
|
| 0.2 | % |
|
| (11.2 | ) |
|
| -1.3 | % |
|
| (12.6 | ) | |||||||||||||||||||
Operating income (loss) |
| (1.3 | ) |
|
| -0.2 | % |
|
| 26.0 |
|
|
| 3.0 | % |
|
| (27.3 | ) | |||||||||||||||||||
Miscellaneous income, net |
| 0.8 |
|
|
| 0.1 | % |
|
| 1.3 |
|
|
| 0.1 | % |
|
| (0.5 | ) |
| 6.9 |
|
|
| 0.9 | % |
|
| 0.5 |
|
|
| 0.1 | % |
|
| 6.4 |
|
Interest expense |
| (7.3 | ) |
|
| -0.9 | % |
|
| (9.5 | ) |
|
| -1.0 | % |
|
| (2.2 | ) |
| (7.4 | ) |
|
| -1.0 | % |
|
| (9.3 | ) |
|
| -1.1 | % |
|
| (1.9 | ) |
Equity in net income of unconsolidated affiliates (1) |
| 47.3 |
|
|
| 5.7 | % |
|
| 21.1 |
|
|
| 2.2 | % |
|
| 26.2 |
|
| 25.5 |
|
|
| 3.3 | % |
|
| 20.8 |
|
|
| 2.4 | % |
|
| 4.7 |
|
Income tax expense |
| (15.9 | ) |
|
| -1.9 | % |
|
| (11.1 | ) |
|
| -1.2 | % |
|
| 4.8 |
|
| (4.8 | ) |
|
| -0.6 | % |
|
| (8.4 | ) |
|
| -1.0 | % |
|
| (3.6 | ) |
Net earnings |
| 57.0 |
|
|
| 6.9 | % |
|
| 37.7 |
|
|
| 3.9 | % |
|
| 19.3 |
|
| 18.9 |
|
|
| 2.5 | % |
|
| 29.6 |
|
|
| 3.4 | % |
|
| (10.7 | ) |
Net earnings attributable to noncontrolling interests |
| 4.9 |
|
|
| 0.6 | % |
|
| 3.7 |
|
|
| 0.4 | % |
|
| 1.2 |
|
| 3.5 |
|
|
| 0.5 | % |
|
| 2.8 |
|
|
| 0.3 | % |
|
| 0.7 |
|
Net earnings attributable to controlling interest | $ | 52.1 |
|
|
| 6.3 | % |
| $ | 34.0 |
|
|
| 3.5 | % |
| $ | 18.1 |
| $ | 15.4 |
|
|
| 2.0 | % |
| $ | 26.8 |
|
|
| 3.1 | % |
| $ | (11.4 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Equity in net income by unconsolidated affiliate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WAVE | $ | 41.8 |
|
|
|
|
|
| $ | 18.4 |
|
|
|
|
|
| $ | 23.4 |
| $ | 20.1 |
|
|
|
|
|
| $ | 18.8 |
|
|
|
|
|
| $ | 1.3 |
|
ClarkDietrich |
| 4.9 |
|
|
|
|
|
|
| (0.5 | ) |
|
|
|
|
|
| 5.4 |
|
| 4.9 |
|
|
|
|
|
|
| 1.8 |
|
|
|
|
|
|
| 3.1 |
|
Serviacero Worthington |
| 0.8 |
|
|
|
|
|
|
| 2.7 |
|
|
|
|
|
|
| (1.9 | ) |
| 0.8 |
|
|
|
|
|
|
| 0.5 |
|
|
|
|
|
|
| 0.3 |
|
ArtiFlex |
| 1.1 |
|
|
|
|
|
|
| 0.4 |
|
|
|
|
|
|
| 0.7 |
|
| 1.7 |
|
|
|
|
|
|
| (0.1 | ) |
|
|
|
|
|
| 1.8 |
|
Other |
| (1.3 | ) |
|
|
|
|
|
| 0.1 |
|
|
|
|
|
|
| (1.4 | ) |
| (2.0 | ) |
|
|
|
|
|
| (0.2 | ) |
|
|
|
|
|
| (1.8 | ) |
Total | $ | 47.3 |
|
|
|
|
|
| $ | 21.1 |
|
|
|
|
|
| $ | 26.2 |
| $ | 25.5 |
|
|
|
|
|
| $ | 20.8 |
|
|
|
|
|
| $ | 4.7 |
|
Net earnings attributable to controlling interest for the three months ended November 30, 2019 increased $18.1February 29, 2020 decreased $11.4 million overfrom the comparable period in the prior year. Net sales and operating highlights for the secondthird quarter of fiscal 2020 were as follows:
| • | Net sales decreased |
| • | Gross margin |
| • | SG&A expense increased |
| • | Impairment and restructuring activity combined to reduce operating income by $22.0 million driven primarily by $33.4 million related to the current quarter write-down of certain oil & gas equipment assets within Pressure Cylinders, compared to an $11.2 million net restructuring gain in the comparable prior year period primarily related to the sale of the Company’s solder business and certain brazing assets. For additional information regarding the current period impairment charges, refer to “Item 1. – Financial Statements – Notes to Consolidated Financial Statements – NOTE E – Impairment of Goodwill and Long-Lived Assets”. |
32
• | Interest expense decreased |
28
| • | Equity income increased |
| • | Income tax expense was |
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 November 30, |
| Three Months Ended |
| ||||||||||||||||||||||||||||||||||
|
|
|
|
| % of |
|
|
|
|
|
| % of |
|
| Increase/ |
| February 29, |
|
| % of |
|
| February 28, |
|
| % of |
|
| Increase/ |
| ||||||||
(dollars in millions) | 2019 |
|
| Net sales |
|
| 2018 |
|
| Net sales |
|
| (Decrease) |
| 2020 |
|
| Net sales |
|
| 2019 |
|
| Net sales |
|
| (Decrease) |
| ||||||||||
Net sales | $ | 516.9 |
|
|
| 100.0 | % |
| $ | 635.0 |
|
|
| 100.0 | % |
| $ | (118.1 | ) | $ | 491.1 |
|
|
| 100.0 | % |
| $ | 555.9 |
|
|
| 100.0 | % |
| $ | (64.8 | ) |
Cost of goods sold |
| 462.3 |
|
|
| 89.4 | % |
|
| 576.0 |
|
|
| 90.7 | % |
|
| (113.7 | ) |
| 434.1 |
|
|
| 88.4 | % |
|
| 516.1 |
|
|
| 92.8 | % |
|
| (82.0 | ) |
Gross margin |
| 54.6 |
|
|
| 10.6 | % |
|
| 59.0 |
|
|
| 9.3 | % |
|
| (4.4 | ) |
| 57.0 |
|
|
| 11.6 | % |
|
| 39.8 |
|
|
| 7.2 | % |
|
| 17.2 |
|
Selling, general and administrative expense |
| 37.5 |
|
|
| 7.3 | % |
|
| 34.0 |
|
|
| 5.4 | % |
|
| 3.5 |
|
| 36.0 |
|
|
| 7.3 | % |
|
| 29.6 |
|
|
| 5.3 | % |
|
| 6.4 |
|
Impairment of long-lived assets |
| 1.3 |
|
|
| 0.3 | % |
|
| - |
|
|
| 0.0 | % |
|
| 1.3 |
| |||||||||||||||||||
Restructuring and other expense |
| 0.7 |
|
|
| 0.1 | % |
|
| - |
|
|
| 0.0 | % |
|
| 0.7 |
| |||||||||||||||||||
Operating income | $ | 17.1 |
|
|
| 3.3 | % |
| $ | 25.0 |
|
|
| 3.9 | % |
| $ | (7.9 | ) | $ | 19.0 |
|
|
| 3.9 | % |
| $ | 10.2 |
|
|
| 1.8 | % |
| $ | 8.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Material cost | $ | 370.8 |
|
|
|
|
|
| $ | 482.9 |
|
|
|
|
|
| $ | (112.1 | ) | $ | 342.6 |
|
|
|
|
|
| $ | 430.8 |
|
|
|
|
|
| $ | (88.2 | ) |
Tons shipped (in thousands) |
| 1,005 |
|
|
|
|
|
|
| 951 |
|
|
|
|
|
|
| 54 |
|
| 1,140 |
|
|
|
|
|
|
| 840 |
|
|
|
|
|
|
| 300 |
|
Net sales and operating highlights for the secondthird quarter of fiscal 2020 were as follows:
| • | Net sales decreased |
| • | Operating income |
2933
Pressure Cylinders
The following table presents a summary of operating results for our Pressure Cylinders operating segment for the periods presented:
| Three Months Ended November 30, |
| Three Months Ended |
| ||||||||||||||||||||||||||||||||||
|
|
|
|
| % of |
|
|
|
|
|
| % of |
|
| Increase/ |
| February 29, |
|
| % of |
|
| February 28, |
|
| % of |
|
| Increase/ |
| ||||||||
(dollars in millions) | 2019 |
|
| Net sales |
|
| 2018 |
|
| Net sales |
|
| (Decrease) |
| 2020 |
|
| Net sales |
|
| 2019 |
|
| Net sales |
|
| (Decrease) |
| ||||||||||
Net sales | $ | 290.1 |
|
|
| 100.0 | % |
| $ | 294.4 |
|
|
| 100.0 | % |
| $ | (4.3 | ) | $ | 271.0 |
|
|
| 100.0 | % |
| $ | 290.7 |
|
|
| 100.0 | % |
| $ | (19.7 | ) |
Cost of goods sold |
| 225.7 |
|
|
| 77.8 | % |
|
| 234.5 |
|
|
| 79.7 | % |
|
| (8.8 | ) |
| 211.4 |
|
|
| 78.0 | % |
|
| 240.4 |
|
|
| 82.7 | % |
|
| (29.0 | ) |
Gross margin |
| 64.4 |
|
|
| 22.2 | % |
|
| 59.9 |
|
|
| 20.3 | % |
|
| 4.5 |
|
| 59.6 |
|
|
| 22.0 | % |
|
| 50.3 |
|
|
| 17.3 | % |
|
| 9.3 |
|
Selling, general and administrative expense |
| 48.7 |
|
|
| 16.8 | % |
|
| 44.7 |
|
|
| 15.2 | % |
|
| 4.0 |
|
| 45.4 |
|
|
| 16.8 | % |
|
| 42.5 |
|
|
| 14.6 | % |
|
| 2.9 |
|
Restructuring and other expense |
| - |
|
|
| 0.0 | % |
|
| 0.4 |
|
|
| 0.1 | % |
|
| 0.4 |
| |||||||||||||||||||
Operating income | $ | 15.7 |
|
|
| 5.4 | % |
| $ | 14.8 |
|
|
| 5.0 | % |
| $ | 0.9 |
| |||||||||||||||||||
Impairment of goodwill and long-lived assets |
| 33.4 |
|
|
| 12.3 | % |
|
| - |
|
|
| 0.0 | % |
|
| 33.4 |
| |||||||||||||||||||
Restructuring and other (income) expense, net |
| 0.7 |
|
|
| 0.3 | % |
|
| (11.2 | ) |
|
| -3.9 | % |
|
| (11.9 | ) | |||||||||||||||||||
Operating income (loss) | $ | (19.9 | ) |
|
| -7.3 | % |
| $ | 19.0 |
|
|
| 6.5 | % |
| $ | (38.9 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Material cost | $ | 127.1 |
|
|
|
|
|
| $ | 133.5 |
|
|
|
|
|
| $ | (6.4 | ) | $ | 119.3 |
|
|
|
|
|
| $ | 135.2 |
|
|
|
|
|
| $ | (15.9 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units shipped by principal class of products: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer products |
| 18,675,057 |
|
|
|
|
|
|
| 16,980,934 |
|
|
|
|
|
|
| 1,694,123 |
|
| 14,096,440 |
|
|
|
|
|
|
| 17,718,604 |
|
|
|
|
|
|
| (3,622,164 | ) |
Industrial products |
| 2,932,923 |
|
|
|
|
|
|
| 3,162,063 |
|
|
|
|
|
|
| (229,140 | ) |
| 3,284,605 |
|
|
|
|
|
|
| 3,576,129 |
|
|
|
|
|
|
| (291,524 | ) |
Oil & gas equipment |
| 376 |
|
|
|
|
|
|
| 314 |
|
|
|
|
|
|
| 62 |
|
| 274 |
|
|
|
|
|
|
| 319 |
|
|
|
|
|
|
| (45 | ) |
Total Pressure Cylinders |
| 21,608,356 |
|
|
|
|
|
|
| 20,143,311 |
|
|
|
|
|
|
| 1,465,045 |
|
| 17,381,319 |
|
|
|
|
|
|
| 21,295,052 |
|
|
|
|
|
|
| (3,913,733 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales by principal class of products: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer products | $ | 128.0 |
|
|
|
|
|
| $ | 117.2 |
|
|
|
|
|
| $ | 10.8 |
| $ | 113.3 |
|
|
|
|
|
| $ | 118.0 |
|
|
|
|
|
| $ | (4.7 | ) |
Industrial products |
| 130.4 |
|
|
|
|
|
|
| 152.0 |
|
|
|
|
|
|
| (21.6 | ) |
| 129.0 |
|
|
|
|
|
|
| 148.0 |
|
|
|
|
|
|
| (19.0 | ) |
Oil & gas equipment |
| 31.7 |
|
|
|
|
|
|
| 25.2 |
|
|
|
|
|
|
| 6.5 |
|
| 28.7 |
|
|
|
|
|
|
| 24.7 |
|
|
|
|
|
|
| 4.0 |
|
Total Pressure Cylinders | $ | 290.1 |
|
|
|
|
|
| $ | 294.4 |
|
|
|
|
|
| $ | (4.3 | ) | $ | 271.0 |
|
|
|
|
|
| $ | 290.7 |
|
|
|
|
|
| $ | (19.7 | ) |
Net sales and operating highlights for the secondthird quarter of fiscal 2020 were as follows:
| • | Net sales decreased |
| • | Operating loss for the current quarter was $19.9 million, compared to operating income of |
34
Other
The Other category includes certain income and expense items not allocated to our operating segments, including product liability and healthcare reserves. The Other category also includes the results of the former Engineered Cabs operating segment, on a historical basis, through 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 presented:
| Three Months Ended November 30, |
| Three Months Ended |
| ||||||||||||||||||||||||||||||||||
|
|
|
|
| % of |
|
|
|
|
|
| % of |
|
| Increase/ |
| February 29, |
|
| % of |
|
| February 28, |
|
| % of |
|
| Increase/ |
| ||||||||
(in millions) | 2019 |
|
| Net sales |
|
| 2018 |
|
| Net sales |
|
| (Decrease) |
| 2020 |
|
| Net sales |
|
| 2019 |
|
| Net sales |
|
| (Decrease) |
| ||||||||||
Net sales | $ | 20.6 |
|
|
| 100.0 | % |
| $ | 28.7 |
|
|
| 100.0 | % |
| $ | (8.1 | ) | $ | 1.8 |
|
|
| 100.0 | % |
| $ | 27.8 |
|
|
| 100.0 | % |
| $ | (26.0 | ) |
Cost of goods sold |
| 19.0 |
|
|
| 92.2 | % |
|
| 26.7 |
|
|
| 93.0 | % |
|
| (7.7 | ) |
| 2.9 |
|
|
| 161.1 | % |
|
| 27.8 |
|
|
| 100.0 | % |
|
| (24.9 | ) |
Gross margin |
| 1.6 |
|
|
| 7.8 | % |
|
| 2.0 |
|
|
| 7.0 | % |
|
| (0.4 | ) | |||||||||||||||||||
Gross loss |
| (1.1 | ) |
|
| -61.1 | % |
|
| - |
|
|
| 0.0 | % |
|
| (1.1 | ) | |||||||||||||||||||
Selling, general and administrative expense |
| 2.4 |
|
|
| 11.7 | % |
|
| 5.9 |
|
|
| 20.6 | % |
|
| (3.5 | ) |
| (0.5 | ) |
|
| -27.8 | % |
|
| 3.1 |
|
|
| 11.2 | % |
|
| (3.6 | ) |
Restructuring and other income |
| (0.1 | ) |
|
| -0.5 | % |
|
| - |
|
|
| 0.0 | % |
|
| 0.1 |
|
| (0.1 | ) |
|
| -5.6 | % |
|
| - |
|
|
| 0.0 | % |
|
| 0.1 |
|
Operating loss | $ | (0.7 | ) |
|
| -3.4 | % |
| $ | (3.9 | ) |
|
| -13.6 | % |
| $ | 3.2 |
| $ | (0.5 | ) |
|
| -27.8 | % |
| $ | (3.1 | ) |
|
| -11.2 | % |
| $ | 2.6 |
|
30
Operating highlights for the secondthird quarter of fiscal 2020 were as follows:
| • | Net sales decreased |
| • | Operating loss of |
Six35
Nine Months Year-to-Date – Fiscal 2020 Compared to Fiscal 2019
Consolidated Operations
The following table presents consolidated operating results for the periods presented:
| Six Months Ended November 30, |
| Nine Months Ended |
| ||||||||||||||||||||||||||||||||||
|
|
|
|
| % of |
|
|
|
|
|
| % of |
|
| Increase/ |
| February 29, |
|
| % of |
|
| February 28, |
|
| % of |
|
| Increase/ |
| ||||||||
(in millions) | 2019 |
|
| Net sales |
|
| 2018 |
|
| Net sales |
|
| (Decrease) |
| 2020 |
|
| Net sales |
|
| 2019 |
|
| Net sales |
|
| (Decrease) |
| ||||||||||
Net sales | $ | 1,683.5 |
|
|
| 100.0 | % |
| $ | 1,946.3 |
|
|
| 100.0 | % |
| $ | (262.8 | ) | $ | 2,447.5 |
|
|
| 100.0 | % |
| $ | 2,820.7 |
|
|
| 100.0 | % |
| $ | (373.2 | ) |
Cost of goods sold |
| 1,445.6 |
|
|
| 85.9 | % |
|
| 1,682.4 |
|
|
| 86.4 | % |
|
| (236.8 | ) |
| 2,094.0 |
|
|
| 85.6 | % |
|
| 2,466.7 |
|
|
| 87.4 | % |
|
| (372.7 | ) |
Gross margin |
| 237.9 |
|
|
| 14.1 | % |
|
| 263.9 |
|
|
| 13.6 | % |
|
| (26.0 | ) |
| 353.5 |
|
|
| 14.4 | % |
|
| 354.0 |
|
|
| 12.6 | % |
|
| (0.5 | ) |
Selling, general and administrative expense |
| 179.4 |
|
|
| 10.7 | % |
|
| 175.2 |
|
|
| 9.0 | % |
|
| 4.2 |
|
| 260.3 |
|
|
| 10.6 | % |
|
| 250.5 |
|
|
| 8.9 | % |
|
| 9.8 |
|
Impairment of goodwill and long-lived assets |
| 40.6 |
|
|
| 2.4 | % |
|
| 2.4 |
|
|
| 0.1 | % |
|
| 38.2 |
|
| 75.2 |
|
|
| 3.1 | % |
|
| 2.4 |
|
|
| 0.1 | % |
|
| 72.8 |
|
Restructuring and other expense (income), net |
| 0.4 |
|
|
| 0.0 | % |
|
| (0.5 | ) |
|
| 0.0 | % |
|
| (0.9 | ) |
| 1.8 |
|
|
| 0.1 | % |
|
| (11.7 | ) |
|
| -0.4 | % |
|
| (13.5 | ) |
Operating income |
| 17.5 |
|
|
| 1.0 | % |
|
| 86.8 |
|
|
| 4.5 | % |
|
| (69.3 | ) |
| 16.2 |
|
|
| 0.7 | % |
|
| 112.8 |
|
|
| 4.0 | % |
|
| (96.6 | ) |
Miscellaneous income, net |
| 1.4 |
|
|
| 0.1 | % |
|
| 1.6 |
|
|
| 0.1 | % |
|
| (0.2 | ) |
| 8.3 |
|
|
| 0.3 | % |
|
| 2.1 |
|
|
| 0.1 | % |
|
| 6.2 |
|
Interest expense |
| (16.8 | ) |
|
| -1.0 | % |
|
| (19.2 | ) |
|
| -1.0 | % |
|
| (2.4 | ) |
| (24.2 | ) |
|
| -1.0 | % |
|
| (28.5 | ) |
|
| -1.0 | % |
|
| (4.3 | ) |
Loss on extinguishment of debt |
| (4.0 | ) |
|
| -0.2 | % |
|
| - |
|
|
| 0.0 | % |
|
| (4.0 | ) |
| (4.0 | ) |
|
| -0.2 | % |
|
| - |
|
|
| 0.0 | % |
|
| (4.0 | ) |
Equity in net income of unconsolidated affiliates (1) |
| 72.1 |
|
|
| 4.3 | % |
|
| 51.1 |
|
|
| 2.6 | % |
|
| 21.0 |
|
| 97.6 |
|
|
| 4.0 | % |
|
| 71.9 |
|
|
| 2.5 | % |
|
| 25.7 |
|
Income tax expense |
| (15.7 | ) |
|
| -0.9 | % |
|
| (25.6 | ) |
|
| -1.3 | % |
|
| (9.9 | ) |
| (20.5 | ) |
|
| -0.8 | % |
|
| (34.0 | ) |
|
| -1.2 | % |
|
| (13.5 | ) |
Net earnings |
| 54.5 |
|
|
| 3.2 | % |
|
| 94.7 |
|
|
| 4.9 | % |
|
| (40.2 | ) |
| 73.4 |
|
|
| 3.0 | % |
|
| 124.3 |
|
|
| 4.4 | % |
|
| (50.9 | ) |
Net earnings attributable to noncontrolling interests |
| 7.2 |
|
|
| 0.4 | % |
|
| 5.8 |
|
|
| 0.3 | % |
|
| 1.4 |
|
| 10.7 |
|
|
| 0.4 | % |
|
| 8.6 |
|
|
| 0.3 | % |
|
| 2.1 |
|
Net earnings attributable to controlling interest | $ | 47.3 |
|
|
| 2.8 | % |
| $ | 88.9 |
|
|
| 4.6 | % |
| $ | (41.6 | ) | $ | 62.7 |
|
|
| 2.6 | % |
| $ | 115.7 |
|
|
| 4.1 | % |
| $ | (53.0 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Equity in net income by unconsolidated affiliate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WAVE | $ | 65.7 |
|
|
|
|
|
| $ | 40.4 |
|
|
|
|
|
| $ | 25.3 |
| $ | 85.8 |
|
|
|
|
|
| $ | 59.2 |
|
|
|
|
|
| $ | 26.6 |
|
ClarkDietrich |
| 9.0 |
|
|
|
|
|
|
| 3.0 |
|
|
|
|
|
|
| 6.0 |
|
| 13.9 |
|
|
|
|
|
|
| 4.8 |
|
|
|
|
|
|
| 9.1 |
|
Serviacero Worthington |
| 1.6 |
|
|
|
|
|
|
| 6.3 |
|
|
|
|
|
|
| (4.7 | ) |
| 2.4 |
|
|
|
|
|
|
| 6.8 |
|
|
|
|
|
|
| (4.4 | ) |
ArtiFlex |
| 1.3 |
|
|
|
|
|
|
| 1.2 |
|
|
|
|
|
|
| 0.1 |
|
| 3.0 |
|
|
|
|
|
|
| 1.1 |
|
|
|
|
|
|
| 1.9 |
|
Other |
| (5.5 | ) |
|
|
|
|
|
| 0.2 |
|
|
|
|
|
|
| (5.7 | ) |
| (7.5 | ) |
|
|
|
|
|
| - |
|
|
|
|
|
|
| (7.5 | ) |
Total | $ | 72.1 |
|
|
|
|
|
| $ | 51.1 |
|
|
|
|
|
| $ | 21.0 |
| $ | 97.6 |
|
|
|
|
|
| $ | 71.9 |
|
|
|
|
|
| $ | 25.7 |
|
Net earnings attributable to controlling interest for the sixnine months ended November 30, 2019February 29, 2020 decreased $41.6$53.0 million from the comparable period in the prior year. Net sales and operating highlights for the sixnine months ended November 30, 2019February 29, 2020 were as follows:
| • | Net sales decreased |
| • | Gross margin decreased |
31
| • | SG&A expense increased |
| • | Impairment of goodwill and long-lived assets |
36
| • | Interest expense decreased |
| • | Equity income increased |
| • | Income tax expense decreased |
Segment Operations
Steel Processing
The following table presents a summary of operating results for our Steel Processing operating segment for the periods presented:
| Six Months Ended November 30, |
| Nine Months Ended |
| ||||||||||||||||||||||||||||||||||
|
|
|
|
| % of |
|
|
|
|
|
| % of |
|
| Increase/ |
| February 29, |
|
| % of |
|
| February 28, |
|
| % of |
|
| Increase/ |
| ||||||||
(dollars in millions) | 2019 |
|
| Net sales |
|
| 2018 |
|
| Net sales |
|
| (Decrease) |
| 2020 |
|
| Net sales |
|
| 2019 |
|
| Net sales |
|
| (Decrease) |
| ||||||||||
Net sales | $ | 1,040.3 |
|
|
| 100.0 | % |
| $ | 1,295.5 |
|
|
| 100.0 | % |
| $ | (255.2 | ) | $ | 1,531.4 |
|
|
| 100.0 | % |
| $ | 1,851.4 |
|
|
| 100.0 | % |
| $ | (320.0 | ) |
Cost of goods sold |
| 944.0 |
|
|
| 90.7 | % |
|
| 1,156.8 |
|
|
| 89.3 | % |
|
| (212.8 | ) |
| 1,378.1 |
|
|
| 90.0 | % |
|
| 1,672.9 |
|
|
| 90.4 | % |
|
| (294.8 | ) |
Gross margin |
| 96.3 |
|
|
| 9.3 | % |
|
| 138.7 |
|
|
| 10.7 | % |
|
| (42.4 | ) |
| 153.3 |
|
|
| 10.0 | % |
|
| 178.5 |
|
|
| 9.6 | % |
|
| (25.2 | ) |
Selling, general and administrative expense |
| 73.0 |
|
|
| 7.0 | % |
|
| 74.0 |
|
|
| 5.7 | % |
|
| (1.0 | ) |
| 109.0 |
|
|
| 7.1 | % |
|
| 103.7 |
|
|
| 5.6 | % |
|
| 5.3 |
|
Impairment of long-lived assets |
| 1.3 |
|
|
| 0.1 | % |
|
| - |
|
|
| 0.0 | % |
|
| 1.3 |
| |||||||||||||||||||
Restructuring and other expense |
| 0.7 |
|
|
| 0.0 | % |
|
| - |
|
|
| 0.0 | % |
|
| (0.7 | ) | |||||||||||||||||||
Operating income | $ | 23.3 |
|
|
| 2.2 | % |
| $ | 64.7 |
|
|
| 5.0 | % |
| $ | (41.4 | ) | $ | 42.3 |
|
|
| 2.8 | % |
| $ | 74.8 |
|
|
| 4.0 | % |
| $ | (32.5 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Material cost | $ | 767.2 |
|
|
|
|
|
| $ | 961.0 |
|
|
|
|
|
| $ | (193.8 | ) | $ | 1,109.8 |
|
|
|
|
|
| $ | 1,391.8 |
|
|
|
|
|
| $ | (282.0 | ) |
Tons shipped (in thousands) |
| 1,896 |
|
|
|
|
|
|
| 1,934 |
|
|
|
|
|
|
| (38 | ) |
| 3,036 |
|
|
|
|
|
|
| 2,774 |
|
|
|
|
|
|
| 262 |
|
Net sales and operating highlights for the sixnine months ended November 30, 2019February 29, 2020 were as follows:
| • | Net sales decreased |
| • | Operating income decreased |
3237
Pressure Cylinders
The following table presents a summary of operating results for our Pressure Cylinders operating segment for the periods presented:
| Six Months Ended November 30, |
| Nine Months Ended |
| ||||||||||||||||||||||||||||||||||
|
|
|
|
| % of |
|
|
|
|
|
| % of |
|
| Increase/ |
| February 29, |
|
| % of |
|
| February 28, |
|
| % of |
|
| Increase/ |
| ||||||||
(dollars in millions) | 2019 |
|
| Net sales |
|
| 2018 |
|
| Net sales |
|
| (Decrease) |
| 2020 |
|
| Net sales |
|
| 2019 |
|
| Net sales |
|
| (Decrease) |
| ||||||||||
Net sales | $ | 594.5 |
|
|
| 100.0 | % |
| $ | 594.8 |
|
|
| 100.0 | % |
| $ | (0.3 | ) | $ | 865.5 |
|
|
| 100.0 | % |
| $ | 885.5 |
|
|
| 100.0 | % |
| $ | (20.0 | ) |
Cost of goods sold |
| 454.0 |
|
|
| 76.4 | % |
|
| 471.9 |
|
|
| 79.3 | % |
|
| (17.9 | ) |
| 665.4 |
|
|
| 76.9 | % |
|
| 712.3 |
|
|
| 80.4 | % |
|
| (46.9 | ) |
Gross margin |
| 140.5 |
|
|
| 23.6 | % |
|
| 122.9 |
|
|
| 20.7 | % |
|
| 17.6 |
|
| 200.1 |
|
|
| 23.1 | % |
|
| 173.2 |
|
|
| 19.6 | % |
|
| 26.9 |
|
Selling, general and administrative expense |
| 95.2 |
|
|
| 16.0 | % |
|
| 91.5 |
|
|
| 15.4 | % |
|
| 3.7 |
|
| 140.6 |
|
|
| 16.2 | % |
|
| 134.1 |
|
|
| 15.1 | % |
|
| 6.5 |
|
Impairment of long-lived assets |
| - |
|
|
| 0.0 | % |
|
| 2.4 |
|
|
| 0.4 | % |
|
| (2.4 | ) | |||||||||||||||||||
Restructuring and other income |
| - |
|
|
| 0.0 | % |
|
| (0.5 | ) |
|
| -0.1 | % |
|
| (0.5 | ) | |||||||||||||||||||
Impairment of goodwill and long-lived assets |
| 33.4 |
|
|
| 3.9 | % |
|
| 2.4 |
|
|
| 0.3 | % |
|
| 31.0 |
| |||||||||||||||||||
Restructuring and other (income) expense, net |
| 0.7 |
|
|
| 0.1 | % |
|
| (11.7 | ) |
|
| -1.3 | % |
|
| (12.4 | ) | |||||||||||||||||||
Operating income | $ | 45.3 |
|
|
| 7.6 | % |
| $ | 29.5 |
|
|
| 5.0 | % |
| $ | 15.8 |
| $ | 25.4 |
|
|
| 2.9 | % |
| $ | 48.4 |
|
|
| 5.5 | % |
| $ | (23.0 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Material cost | $ | 254.0 |
|
|
|
|
|
| $ | 272.2 |
|
|
|
|
|
| $ | (18.2 | ) | $ | 373.3 |
|
|
|
|
|
| $ | 407.4 |
|
|
|
|
|
| $ | (34.1 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units shipped by principal class of products: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer products |
| 35,573,447 |
|
|
|
|
|
|
| 34,709,912 |
|
|
|
|
|
|
| 863,535 |
|
| 49,669,887 |
|
|
|
|
|
|
| 52,428,516 |
|
|
|
|
|
|
| (2,758,629 | ) |
Industrial products |
| 6,217,378 |
|
|
|
|
|
|
| 7,231,559 |
|
|
|
|
|
|
| (1,014,181 | ) |
| 9,501,983 |
|
|
|
|
|
|
| 10,807,688 |
|
|
|
|
|
|
| (1,305,705 | ) |
Oil & gas equipment |
| 1,219 |
|
|
|
|
|
|
| 938 |
|
|
|
|
|
|
| 281 |
|
| 1,493 |
|
|
|
|
|
|
| 1,257 |
|
|
|
|
|
|
| 236 |
|
Total Pressure Cylinders |
| 41,792,044 |
|
|
|
|
|
|
| 41,942,409 |
|
|
|
|
|
|
| (150,365 | ) |
| 59,173,363 |
|
|
|
|
|
|
| 63,237,461 |
|
|
|
|
|
|
| (4,064,098 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
Net sales by principal class of products: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer products | $ | 247.5 |
|
|
|
|
|
| $ | 234.0 |
|
|
|
|
|
| $ | 13.5 |
| $ | 360.8 |
|
|
|
|
|
| $ | 352.0 |
|
|
|
|
|
| $ | 8.8 |
|
Industrial products |
| 283.0 |
|
|
|
|
|
|
| 304.9 |
|
|
|
|
|
|
| (21.9 | ) |
| 412.0 |
|
|
|
|
|
|
| 452.9 |
|
|
|
|
|
|
| (40.9 | ) |
Oil & gas equipment |
| 64.0 |
|
|
|
|
|
|
| 55.9 |
|
|
|
|
|
|
| 8.1 |
|
| 92.7 |
|
|
|
|
|
|
| 80.6 |
|
|
|
|
|
|
| 12.1 |
|
Total Pressure Cylinders | $ | 594.5 |
|
|
|
|
|
| $ | 594.8 |
|
|
|
|
|
| $ | (0.3 | ) | $ | 865.5 |
|
|
|
|
|
| $ | 885.5 |
|
|
|
|
|
| $ | (20.0 | ) |
Net sales and operating highlights for the sixnine months ended November 30, 2019February 29, 2020 were as follows:
| • | Net sales decreased |
| • | Operating income |
3338
Other
The Other category includes certain income and expense items not allocated to our operating segments, including product liability and healthcare reserves. The Other category also includes the results of the former Engineered Cabs operating segment, on a historical basis, through 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 presented:
| Six Months Ended November 30, |
| Nine Months Ended |
| ||||||||||||||||||||||||||||||||||
|
|
|
|
| % of |
|
|
|
|
|
| % of |
|
| Increase/ |
| February 29, |
|
| % of |
|
| February 28, |
|
| % of |
|
| Increase/ |
| ||||||||
(in millions) | 2019 |
|
| Net sales |
|
| 2018 |
|
| Net sales |
|
| (Decrease) |
| 2020 |
|
| Net sales |
|
| 2019 |
|
| Net sales |
|
| (Decrease) |
| ||||||||||
Net sales | $ | 48.7 |
|
|
| 100.0 | % |
| $ | 56.0 |
|
|
| 100.0 | % |
| $ | (7.3 | ) | $ | 50.5 |
|
|
| 100.0 | % |
| $ | 83.8 |
|
|
| 100.0 | % |
| $ | (33.3 | ) |
Cost of goods sold |
| 47.6 |
|
|
| 97.7 | % |
|
| 53.7 |
|
|
| 95.9 | % |
|
| (6.1 | ) |
| 50.5 |
|
|
| 100.0 | % |
|
| 81.5 |
|
|
| 97.3 | % |
|
| (31.0 | ) |
Gross margin |
| 1.1 |
|
|
| 2.3 | % |
|
| 2.3 |
|
|
| 4.1 | % |
|
| (1.2 | ) |
| - |
|
|
| 0.0 | % |
|
| 2.3 |
|
|
| 2.7 | % |
|
| (2.3 | ) |
Selling, general and administrative expense |
| 11.2 |
|
|
| 23.0 | % |
|
| 9.7 |
|
|
| 17.3 | % |
|
| 1.5 |
|
| 10.7 |
|
|
| 21.2 | % |
|
| 12.8 |
|
|
| 15.3 | % |
|
| (2.1 | ) |
Impairment of long-lived assets |
| 40.6 |
|
|
| 83.4 | % |
|
| - |
|
|
| 0.0 | % |
|
| 40.6 |
|
| 40.6 |
|
|
| 80.4 | % |
|
| - |
|
|
| 0.0 | % |
|
| 40.6 |
|
Restructuring and other expense |
| 0.4 |
|
|
| 0.8 | % |
|
| - |
|
|
| 0.0 | % |
|
| 0.4 |
|
| 0.3 |
|
|
| 0.6 | % |
|
| - |
|
|
| 0.0 | % |
|
| 0.3 |
|
Operating loss | $ | (51.1 | ) |
|
| -104.9 | % |
| $ | (7.4 | ) |
|
| -13.2 | % |
| $ | (43.7 | ) | $ | (51.6 | ) |
|
| -102.2 | % |
| $ | (10.5 | ) |
|
| -12.5 | % |
| $ | (41.1 | ) |
Operating highlights for the sixnine months ended November 30, 2019February 29, 2020 were as follows:
| • | Net sales decreased |
| • | Operating loss of |
Liquidity and Capital Resources
During the sixnine months ended November 30, 2019,February 29, 2020, we generated $168.5$255.8 million of cash from operating activities, invested $50.6$71.8 million in property, plant and equipment, and paid $29.6 million to acquire certain operating assets of Heidtman. Additionally, we used $101.5 million of net proceeds from the issuance of long-term debt to redeem $150.0 million of senior unsecured notes, acquired 750,0001,300,000 of our common shares at a total cost of $29.6$50.9 million, and paid dividends of $26.9$40.2 million. The following table summarizes our consolidated cash flows for the periods presented:
| Six Months Ended November 30, |
| Nine Months Ended |
| ||||||||||
(in millions) | 2019 |
|
| 2018 |
| February 29, 2020 |
|
| February 28, 2019 |
| ||||
Net cash provided by operating activities | $ | 168.5 |
|
| $ | 75.1 |
| $ | 255.8 |
|
| $ | 127.2 |
|
Net cash provided (used) by investing activities |
| (70.6 | ) |
|
| 34.5 |
|
| (92.2 | ) |
|
| 44.4 |
|
Net cash used by financing activities |
| (118.0 | ) |
|
| (138.6 | ) |
| (152.5 | ) |
|
| (180.5 | ) |
Decrease in cash and cash equivalents |
| (20.1 | ) |
|
| (29.0 | ) | |||||||
Increase (decrease) in cash and cash equivalents |
| 11.1 |
|
|
| (8.9 | ) | |||||||
Cash and cash equivalents at beginning of period |
| 92.4 |
|
|
| 122.0 |
|
| 92.4 |
|
|
| 122.0 |
|
Cash and cash equivalents at end of period | $ | 72.3 |
|
| $ | 93.0 |
| $ | 103.5 |
|
| $ | 113.1 |
|
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.capital, to the extent not funded by cash provided by operating activities. These resources include cash and cash equivalents cash provided by operating activities and unused committed lines of credit. We alsoThese committed lines of credit had a total of $509.6 million of borrowing capacity available to be drawn as of April 9, 2020.
Although we do not currently anticipate a need, we believe that we have adequatecould access to the financial markets to allow us to be in a position to sell long-term debt or equity securities. However, COVID-19 could create uncertainty and volatility in the financial markets which may impact our ability to access capital and the terms under which we can do so. As the impact of the COVID-19 pandemic on the economy and our operations is fluid and evolves, we will continue to assess cuts to discretionary spending and other variable costs as well as our liquidity needs.
3439
Operating Activities
Our business is cyclical and cash flows from operating activities may fluctuate during the year and from year to year due to economic 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 $168.5$255.8 million during the sixnine months ended November 30, 2019February 29, 2020 compared to $75.1$127.2 million in the comparable period of fiscal 2019. The increase in net cash provided by operating activities was driven primarily by lower 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$92.2 million during the sixnine months ended November 30, 2019February 29, 2020 compared to net cash provided by investing activities of $34.5$44.4 million in the comparable prior year period. The change from the prior year period was driven primarily by $55.2$56.7 million in excess distributions from WAVE received during the first sixnine months of fiscal 2019. We received $9.3 million in proceeds from asset sales, net of selling costs, primarily from the sale of the cryogenics business in Turkey compared to $48.3 million in proceeds from asset sales, net of selling costs, in the comparable period in the prior year. We also paid $29.6 million in the current year to acquire certain operating assets of Heidtman and receivedinvested $11.2 million lessmore in proceeds from the sale of assets.property, plant and equipment.
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 $118.0$152.5 million during the sixnine months ended November 30, 2019February 29, 2020 compared to $138.6$180.5 million in the comparable prior year period. During the sixnine months ended November 30, 2019,February 29, 2020, the Company paid $154.0 million to redeem the $150.0 aggregate principal amount of unsecured senior notes. The redemption was funded in part by the issuance of euro-denominated unsecured Senior Notes, which resulted in net cash proceeds of $101.5 million. The net cash effect of these items was partially offset by $70.8a decrease of $78.0 million in lower share repurchases in the current period.
Long-term debt and short-term borrowings – As of November 30, 2019,February 29, 2020, 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 November 30, 2019February 29, 2020 were unchanged from those reported as of May 31, 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 secondthird quarter of fiscal 2020 compared to $0.23 per common share for the secondthird quarter of fiscal 2019. Dividends paid on our common shares totaled $26.9$40.2 million and $26.3$39.4 million during the sixnine months ended November 30,February 29, 2020 and February 28, 2019, and 2018, respectively. On December 17, 2019,March 25, 2020, the Worthington Industries Board declared a quarterly dividend of $0.24 per share payable on March 27,June 29, 2020, to shareholders of record on March 13,June 15, 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. The total number of common shares available tofor repurchase at November 30, 2019February 29, 2020 was 8,250,000.7,700,000.
3540
Dividend Policy
We currently have no material contractual or regulatory restrictions on the payment of dividends. Dividends are declared at the discretion of the Worthington Industries Board. The Worthington Industries Board reviews the dividend quarterly and establishes the dividend rate based upon our consolidated financial condition, results of operations, capital requirements, current and projected cash flows, business prospects, and other relevant factors. While we have paid a dividend every quarter since becoming a public company in 1968, there is no guarantee that payments will continue in the future.
Contractual Cash Obligations and Other Commercial Commitments
Our contractual cash obligations and other commercial commitments have not 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 2019 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 November 30, 2019,February 29, 2020, 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 $6.9$6.7 million at November 30, 2019.February 29, 2020. 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 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.
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 accounting policies are defined as those that reflect our significant judgments and uncertainties that could potentially result in materially different results under different assumptions and conditions. Although actual results historically have not deviated significantly from those determined using our estimates, our consolidated financial position or results of operations could be materially different if we were to report under different conditions or to use different assumptions in the application of such policies. Our critical accounting policies have not significantly changed from those discussed in “Part II – Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” of our 2019 Form 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 thesethe remaining 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, 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 Goodwill and Long-Lived Assets”.
3641
During the second quarter of fiscal 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 then 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.
On February 12, 2020, the Company announced a plan to consolidate its oil & gas equipment manufacturing operations in Wooster, Ohio into its existing manufacturing facility in Bremen, Ohio. The closure is expected to be complete by the end of fiscal 2020. As a result, the Company tested the long-lived assets of the combined asset group, consisting of fixed assets and customer list intangible assets with a net book value of $14.3 million and $6.6 million, respectively, for impairment. The book value of the fixed assets was determined to be in excess of fair value, resulting in an impairment charge of $4.7 million during the third quarter of fiscal 2020. Additionally, the customer list intangible assets were deemed fully impaired and written off. Fair value of the fixed assets was determined using observable Level 2 inputs and the fair value of the customer list intangible assets was determined using unobservable Level 3 inputs. The land and building of the Wooster facility met the criteria for assets held for sale and, accordingly, have been presented as assets held for sale in the consolidated balance sheet. For additional information, refer to “Item 1. – Financial Statements – Notes to Consolidated Financial Statements – NOTE E – Impairment of Goodwill and Long-Lived Assets”.
As a result of the impairment charges noted above, the Company also performed an interim goodwill impairment test of the oil & gas reporting unit. The results of the analysis indicated that the fair value of the reporting unit no longer supported the book value of the corresponding goodwill, resulting in an impairment charge of $22.1 million during the third quarter of fiscal 2020. The key assumptions used in the fair value calculation were projected cash flows and the discount rate, which represent unobservable Level 3 inputs. For additional information, refer to “Item 1. – Financial Statements – Notes to Consolidated Financial Statements – NOTE E – Impairment of Goodwill and Long-Lived Assets”.
During the third quarter of fiscal 2020, the Company’s consolidated joint venture, WSP committed to a plan to sell the Canton, Michigan facility and some of the production equipment at that facility. As the disposal group met the criteria for classification as assets held for sale as of February 29, 2020, 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 $8.9 million exceeded the estimated fair market value (determined using Level 2 inputs), resulting in an impairment charge of $1.3 million. For additional information, refer to “Item 1. – Financial Statements – Notes to Consolidated Financial Statements – NOTE E – Impairment of Goodwill and Long-Lived Assets”.
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 2019 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 November 30, 2019)February 29, 2020). 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 November 30, 2019)February 29, 2020) 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.
42
PART II. OTHER INFORMATION
Item 1. – Legal Proceedings
Various legal actions, which generally have arisen in the ordinary course of business, are pending against the Company. None of this pending litigation, individually or collectively, is expected to have a material adverse effect on our consolidated financial position, results of operations or cash flows.
Item 1A. – Risk Factors
There are certain risks and uncertainties in our business that could cause our actual results to differ materially from those anticipated. In “PART I – Item 1A. – Risk Factors” of our 2019 Form 10-K, as filed with the U.S. Securities and Exchange Commission on July 30, 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 2019 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 2019 Form 10-K as well as any of the risks described below could materially affect our business, consolidated financial condition or future results and the actual outcome of matters as to which forward-looking statements are made. The risk factors described in our 2019 Form 10-K and the risks described below are not the only risks we face. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, also may materially adversely affect our business, consolidated financial condition and/or future results.
The novel coronavirus (COVID-19) and other possible pandemics and similar outbreaks, could result in material adverse effects on our business, financial position, results of operations and cash flows. The novel coronavirus (“COVID-19”) pandemic, and the various governmental, industry and consumer actions related thereto, are having and could continue to have negative impacts on our business and have created or could create conditions in our other risk factors noted above. These impacts include, without limitation potential significant volatility or decreases in the demand for our products, changes in customer and consumer behavior and preferences, disruptions in or closures of our manufacturing operations or those of our customers and suppliers, disruptions within our supply chain, limitations on our employees’ ability to work and travel, potential financial difficulties of customers and suppliers, significant changes in economic or political conditions, and related financial and commodity volatility, including volatility in raw material and other input costs.
It is uncertain what the impact of various legislation and other responses being taken in the United States and other countries will have on the economy, international trade, our industries, our businesses and the businesses of our customers and suppliers.
Despite our efforts to manage the impacts, the degree to which COVID-19 and related actions ultimately impact our business, financial position, results of operations and cash flows will depend on factors beyond our control including the duration, spread and severity of the outbreak, the actions taken to contain COVID-19 and mitigate its public health effects, the impact on the U.S. and global economies and demand for our products, and how quickly and to what extent normal economic and operating conditions resume.
Risks related to actions with respect to international trade by the U.S. government and foreign governments. The U.S. federal government has altered U.S. international trade policy and has indicated its intention to renegotiate or terminate, certain existing trade agreements and treaties with foreign governments. Most recently, the U.S. federal government has renegotiated the North American Free Trade Agreement (“NAFTA”) with Mexico and Canada. While the renegotiated form of NAFTA has yet to be fully implemented, the U.S. federal government’s potential decision to withdraw or materially modify NAFTA or other existing trade
37
agreements or treaties may adversely impact our business, customers and/or suppliers by disrupting trade and commercial transactions and/or adversely affecting the U.S. economy or specific portions thereof.
Further, it is uncertain what impact COVID-19 and the reactions of governmental authorities and others thereto will have on international trade and what impact any changes in international trade will have on the economy or on the businesses of the Company and those of its customers and its suppliers.
43
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 November 30, 2019:February 29, 2020:
|
|
|
|
|
|
|
|
| Total Number of |
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Common Shares |
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Purchased as |
|
| Maximum Number of |
| ||
| Total Number |
|
| Average Price |
|
| Part of Publicly |
|
| Common Shares that |
| ||||
| of Common |
|
| Paid per |
|
| Announced |
|
| May Yet Be |
| ||||
| Shares |
|
| Common |
|
| Plans or |
|
| Purchased Under the |
| ||||
Period | Purchased |
|
| Share |
|
| Programs |
|
| Plans or Programs (1) |
| ||||
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 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total Number of |
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Common Shares |
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Purchased as |
|
| Maximum Number of |
| ||
| Total Number |
|
| Average Price |
|
| Part of Publicly |
|
| Common Shares that |
| ||||
| of Common |
|
| Paid per |
|
| Announced |
|
| May Yet Be |
| ||||
| Shares |
|
| Common |
|
| Plans or |
|
| Purchased Under the |
| ||||
Period | Purchased |
|
| Share |
|
| Programs |
|
| Plans or Programs (1) |
| ||||
December 1- 31, 2019 |
| - |
|
| $ | - |
|
|
| - |
|
|
| 8,250,000 |
|
January 1- 31, 2020 |
| 368,557 |
|
|
| 39.05 |
|
|
| 368,557 |
|
|
| 7,881,443 |
|
February 1- 29, 2020 |
| 181,443 |
|
|
| 38.41 |
|
|
| 181,443 |
|
|
| 7,700,000 |
|
Total |
| 550,000 |
|
| $ | 38.84 |
|
|
| 550,000 |
|
|
|
|
|
(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. 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 the total number of common shares then available for repurchase to 10,000,000. The numbers shown in this column represent, as of the end of each period, the maximum number of common shares that were available for repurchase under these authorizations. A total of |
|
|
Item 3. – Defaults Upon Senior Securities
Not applicable.
Item 4. – Mine Safety Disclosures
Not applicable.
Item 5. – Other Information
Not applicable.
3844
Item 6. – Exhibits
Exhibit No. |
| Description |
|
|
|
|
|
|
3.1 |
| Amended Articles of Incorporation of Worthington Industries, Inc., as filed with the Ohio Secretary of State on October 13, 1998 (Incorporated herein by reference to Exhibit 3(a) to the Quarterly Report on Form 10-Q of Worthington Industries, Inc. for the quarterly period ended August 31, 1998 (SEC File No. 0-4016)) P |
|
|
|
3.2 |
| |
|
|
|
10.1 |
| |
|
|
|
10.2 |
| |
|
|
|
31.1 |
| Rule 13a - 14(a) / 15d - 14(a) Certifications (Principal Executive Officer) * |
|
|
|
31.2 |
| Rule 13a - 14(a) / 15d - 14(a) Certifications (Principal Financial Officer) * |
|
|
|
32.1 |
| |
|
|
|
32.2 |
| |
|
|
|
101.INS |
| XBRL Instance Document – the instance document does not appear in the Interactive Date File because its XBRL tags are embedded within the Inline XBRL document. |
|
|
|
101.SCH |
| Inline XBRL Taxonomy Extension Schema Document # |
|
|
|
101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document # |
|
|
|
101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document # |
|
|
|
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document # |
|
|
|
101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document # |
|
|
|
104 |
| Cover Page Interactive Data File – the cover page from this Quarterly Report on Form 10-Q for the quarterly period ended |
* | Filed herewith. |
** | Furnished herewith. |
# | 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. |
3945
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
| WORTHINGTON INDUSTRIES, INC. |
|
|
|
Date: | By: | /s/ Joseph B. Hayek |
|
| Joseph B. Hayek, |
|
| Vice President and Chief Financial Officer |
|
| (On behalf of the Registrant as Duly Authorized Officer and as Principal Financial Officer) |
|
|
|
4046