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, 20192020
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 ☒
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. On December 31, 2019,2020, the number of Common Shares, without par value, issued and outstanding was 56,067,068.was 52,201,138.
TABLE OF CONTENTS
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| Item 1. |
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| Consolidated Balance Sheets –November 30, |
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| Consolidated Statements of Cash Flows –Three and Six Months Ended November 30, |
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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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| Item 1A. |
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| Item 3. |
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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 the Novel Coronavirus (“COVID-19”) and the actions taken by governmental authorities and others related thereto, including our ability to continue operating facilities in connection therewith, or to cut variable costs; |
• | future or expected cash positions, liquidity and 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 |
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:follow:
| • | the risks, uncertainties and impacts related to COVID-19 and other actual or potential public health emergencies and actions taken by governmental authorities or others in connection therewith, their potential impacts related to the ability and costs to continue to operate facilities and their potential to exacerbate other risks; |
• | 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 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, especially in light of the COVID-19 pandemic, 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, |
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)
| (Unaudited) |
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| November 30, |
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| May 31, |
| November 30, |
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| May 31, |
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| 2019 |
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| 2019 |
| 2020 |
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| 2020 |
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Assets |
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Current assets: |
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Cash and cash equivalents | $ | 72,260 |
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| $ | 92,363 |
| $ | 713,130 |
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| $ | 147,198 |
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Receivables, less allowances of $1,407 and $1,150 at November 30, 2019 |
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and May 31, 2019, respectively |
| 477,228 |
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| 501,944 |
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Receivables, less allowances of $1,291 and $1,521 at November 30, 2020 |
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and May 31, 2020, respectively |
| 441,936 |
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| 341,038 |
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Inventories: |
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Raw materials |
| 190,310 |
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| 268,607 |
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| 152,824 |
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| 234,629 |
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Work in process |
| 82,400 |
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| 113,848 |
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| 82,747 |
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| 76,497 |
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Finished products |
| 107,077 |
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| 101,825 |
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| 68,872 |
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| 93,975 |
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Total inventories |
| 379,787 |
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| 484,280 |
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| 304,443 |
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| 405,101 |
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Income taxes receivable |
| 12,557 |
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| 10,894 |
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| 3,247 |
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| 8,376 |
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Assets held for sale |
| 1,731 |
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| 6,924 |
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| 12,893 |
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| 12,928 |
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Investment in Nikola |
| 143,850 |
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| - |
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Prepaid expenses and other current assets |
| 67,083 |
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| 69,508 |
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| 68,371 |
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| 68,538 |
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Total current assets |
| 1,010,646 |
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| 1,165,913 |
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| 1,687,870 |
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| 983,179 |
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Investments in unconsolidated affiliates |
| 225,791 |
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| 214,930 |
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| 209,952 |
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| 203,329 |
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Operating lease assets |
| 37,864 |
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| - |
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| 30,007 |
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| 31,557 |
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Goodwill |
| 341,850 |
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| 334,607 |
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| 320,014 |
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| 321,434 |
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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 $86,489 and |
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$92,774 at November 30, 2020 and May 31, 2020, respectively |
| 174,376 |
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| 184,416 |
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Other assets |
| 33,612 |
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| 20,623 |
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| 32,842 |
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| 34,956 |
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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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| 23,592 |
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| 24,197 |
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Buildings and improvements |
| 301,713 |
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| 310,112 |
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| 292,544 |
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| 302,796 |
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Machinery and equipment |
| 1,043,314 |
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| 1,049,068 |
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| 1,082,979 |
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| 1,055,139 |
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Construction in progress |
| 58,039 |
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| 49,423 |
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| 63,526 |
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| 52,231 |
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Total property, plant and equipment |
| 1,426,094 |
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| 1,432,599 |
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| 1,462,641 |
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| 1,434,363 |
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Less: accumulated depreciation |
| 857,599 |
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| 853,935 |
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| 890,317 |
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| 861,719 |
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Total property, plant and equipment, net |
| 568,495 |
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| 578,664 |
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| 572,324 |
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| 572,644 |
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Total assets | $ | 2,408,961 |
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| $ | 2,510,796 |
| $ | 3,027,385 |
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| $ | 2,331,515 |
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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 |
| $ | 337,976 |
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| $ | 247,017 |
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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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| 101,812 |
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| 64,650 |
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Dividends payable |
| 14,364 |
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| 14,431 |
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| 14,843 |
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| 14,648 |
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Other accrued items |
| 54,102 |
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| 59,810 |
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| 51,439 |
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| 49,974 |
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Current operating lease liabilities |
| 11,201 |
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|
| - |
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| 10,954 |
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| 10,851 |
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Income taxes payable |
| 33 |
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|
| 1,164 |
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| 39,990 |
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|
| 949 |
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Current maturities of long-term debt |
| 272 |
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| 150,943 |
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| 160 |
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| 149 |
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Total current liabilities |
| 473,863 |
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|
| 698,020 |
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| 557,174 |
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| 388,238 |
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Other liabilities |
| 72,639 |
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|
| 69,976 |
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| 85,105 |
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|
| 75,786 |
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Distributions in excess of investment in unconsolidated affiliate |
| 97,243 |
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| 121,948 |
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| 107,951 |
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| 103,837 |
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Long-term debt |
| 698,531 |
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| 598,356 |
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| 707,340 |
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| 699,516 |
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Noncurrent operating lease liabilities |
| 30,065 |
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| - |
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| 23,695 |
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| 25,763 |
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Deferred income taxes, net |
| 77,877 |
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| 74,102 |
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| 115,649 |
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|
| 71,942 |
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Total liabilities |
| 1,450,218 |
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|
| 1,562,402 |
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| 1,596,914 |
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|
| 1,365,082 |
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Shareholders' equity - controlling interest |
| 835,891 |
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| 831,246 |
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| 1,276,899 |
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| 820,821 |
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Noncontrolling interests |
| 122,852 |
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| 117,148 |
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| 153,572 |
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| 145,612 |
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Total equity |
| 958,743 |
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| 948,394 |
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| 1,430,471 |
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| 966,433 |
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Total liabilities and equity | $ | 2,408,961 |
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| $ | 2,510,796 |
| $ | 3,027,385 |
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| $ | 2,331,515 |
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See condensed notes to consolidated financial statements.
1
WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
(In thousands, except per share amounts)
(Unaudited)
| Three Months Ended November 30, |
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| Six Months Ended November 30, |
| Three Months Ended November 30, |
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| Six Months Ended November 30, |
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| 2019 |
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| 2018 |
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| 2019 |
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| 2018 |
| 2020 |
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| 2019 |
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| 2020 |
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| 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 |
| $ | 731,092 |
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| $ | 827,637 |
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| $ | 1,434,001 |
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| $ | 1,683,496 |
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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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| 595,618 |
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| 707,026 |
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| 1,185,169 |
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| 1,445,594 |
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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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| 135,474 |
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| 120,611 |
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|
| 248,832 |
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| 237,902 |
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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 |
|
| 82,129 |
|
|
| 88,543 |
|
|
| 164,325 |
|
|
| 179,366 |
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Impairment of long-lived assets |
| - |
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|
| - |
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|
| 40,601 |
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|
| 2,381 |
|
| 3,815 |
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|
| 0 |
|
|
| 13,739 |
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|
| 40,601 |
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Restructuring and other expense (income), net |
| (50 | ) |
|
| 402 |
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| 405 |
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| (534 | ) |
| 7,596 |
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| (50 | ) |
|
| 9,444 |
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|
| 405 |
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Incremental expenses related to Nikola gains |
| 4,570 |
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|
| 0 |
|
|
| 54,081 |
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| 0 |
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Operating income |
| 32,118 |
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|
| 35,864 |
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|
| 17,530 |
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|
| 86,775 |
|
| 37,364 |
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|
| 32,118 |
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|
| 7,243 |
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|
| 17,530 |
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Other income (expense): |
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Miscellaneous income, net |
| 636 |
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|
| 1,432 |
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|
| 1,331 |
|
|
| 1,697 |
|
| 376 |
|
|
| 636 |
|
|
| 827 |
|
|
| 1,331 |
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Interest expense |
| (7,315 | ) |
|
| (9,472 | ) |
|
| (16,795 | ) |
|
| (19,200 | ) |
| (7,548 | ) |
|
| (7,315 | ) |
|
| (15,138 | ) |
|
| (16,795 | ) |
Equity in net income of unconsolidated affiliates |
| 25,631 |
|
|
| 47,346 |
|
|
| 49,265 |
|
|
| 72,113 |
| |||||||||||||||
Gains (loss) on investment in Nikola |
| (143,780 | ) |
|
| 0 |
|
|
| 652,362 |
|
|
| 0 |
| |||||||||||||||
Loss on extinguishment of debt |
| - |
|
|
| - |
|
|
| (4,034 | ) |
|
| - |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (4,034 | ) |
Equity in net income of unconsolidated affiliates |
| 47,346 |
|
|
| 21,087 |
|
|
| 72,113 |
|
|
| 51,095 |
| |||||||||||||||
Earnings before income taxes |
| 72,785 |
|
|
| 48,911 |
|
|
| 70,145 |
|
|
| 120,367 |
| |||||||||||||||
Income tax expense |
| 15,863 |
|
|
| 11,119 |
|
|
| 15,678 |
|
|
| 25,617 |
| |||||||||||||||
Net earnings |
| 56,922 |
|
|
| 37,792 |
|
|
| 54,467 |
|
|
| 94,750 |
| |||||||||||||||
Earnings (loss) before income taxes |
| (87,957 | ) |
|
| 72,785 |
|
|
| 694,559 |
|
|
| 70,145 |
| |||||||||||||||
Income tax expense (benefit) |
| (19,445 | ) |
|
| 15,863 |
|
|
| 144,333 |
|
|
| 15,678 |
| |||||||||||||||
Net earnings (loss) |
| (68,512 | ) |
|
| 56,922 |
|
|
| 550,226 |
|
|
| 54,467 |
| |||||||||||||||
Net earnings attributable to noncontrolling interests |
| 4,836 |
|
|
| 3,790 |
|
|
| 7,157 |
|
|
| 5,806 |
|
| 5,532 |
|
|
| 4,836 |
|
|
| 7,595 |
|
|
| 7,157 |
|
Net earnings attributable to controlling interest | $ | 52,086 |
|
| $ | 34,002 |
|
| $ | 47,310 |
|
| $ | 88,944 |
| |||||||||||||||
Net earnings (loss) attributable to controlling interest | $ | (74,044 | ) |
| $ | 52,086 |
|
| $ | 542,631 |
|
| $ | 47,310 |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding |
| 55,059 |
|
|
| 57,716 |
|
|
| 55,150 |
|
|
| 58,226 |
|
| 52,988 |
|
|
| 55,059 |
|
|
| 53,532 |
|
|
| 55,150 |
|
Earnings per share attributable to controlling interest | $ | 0.95 |
|
| $ | 0.59 |
|
| $ | 0.86 |
|
| $ | 1.53 |
| |||||||||||||||
Earnings (loss) per share attributable to controlling interest | $ | (1.40 | ) |
| $ | 0.95 |
|
| $ | 10.14 |
|
| $ | 0.86 |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding |
| 56,072 |
|
|
| 59,338 |
|
|
| 56,205 |
|
|
| 60,013 |
|
| 52,988 |
|
|
| 56,072 |
|
|
| 54,439 |
|
|
| 56,205 |
|
Earnings per share attributable to controlling interest | $ | 0.93 |
|
| $ | 0.57 |
|
| $ | 0.84 |
|
| $ | 1.48 |
| |||||||||||||||
Earnings (loss) per share attributable to controlling interest | $ | (1.40 | ) |
| $ | 0.93 |
|
| $ | 9.97 |
|
| $ | 0.84 |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding at end of period |
| 55,094 |
|
|
| 56,957 |
|
|
| 55,094 |
|
|
| 56,957 |
|
| 52,754 |
|
|
| 55,094 |
|
|
| 52,754 |
|
|
| 55,094 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per share | $ | 0.24 |
|
| $ | 0.23 |
|
| $ | 0.48 |
|
| $ | 0.46 |
| $ | 0.25 |
|
| $ | 0.24 |
|
| $ | 0.50 |
|
| $ | 0.48 |
|
See condensed notes to consolidated financial statements.
2
WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
| Three Months Ended November 30, |
|
| Six Months Ended November 30, |
| ||||||||||
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
Net earnings | $ | 56,922 |
|
| $ | 37,792 |
|
| $ | 54,467 |
|
| $ | 94,750 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation |
| 6,662 |
|
|
| (6,638 | ) |
|
| 11,444 |
|
|
| (10,333 | ) |
Pension liability adjustment, net of tax |
| 95 |
|
|
| - |
|
|
| 1,108 |
|
|
| (97 | ) |
Cash flow hedges, net of tax |
| 3,213 |
|
|
| (4,662 | ) |
|
| 574 |
|
|
| (6,632 | ) |
Other comprehensive income (loss) |
| 9,970 |
|
|
| (11,300 | ) |
|
| 13,126 |
|
|
| (17,062 | ) |
Comprehensive income |
| 66,892 |
|
|
| 26,492 |
|
|
| 67,593 |
|
|
| 77,688 |
|
Comprehensive income attributable to noncontrolling interests |
| 4,836 |
|
|
| 3,735 |
|
|
| 7,157 |
|
|
| 5,734 |
|
Comprehensive income attributable to controlling interest | $ | 62,056 |
|
| $ | 22,757 |
|
| $ | 60,436 |
|
| $ | 71,954 |
|
| Three Months Ended November 30, |
|
| Six Months Ended November 30, |
| ||||||||||
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Net earnings (loss) | $ | (68,512 | ) |
| $ | 56,922 |
|
| $ | 550,226 |
|
| $ | 54,467 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation, net of tax |
| (1,051 | ) |
|
| 6,662 |
|
|
| 7,257 |
|
|
| 11,444 |
|
Pension liability adjustment, net of tax |
| (4 | ) |
|
| 95 |
|
|
| 368 |
|
|
| 1,108 |
|
Cash flow hedges, net of tax |
| 15,218 |
|
|
| 3,213 |
|
|
| 17,781 |
|
|
| 574 |
|
Other comprehensive income |
| 14,163 |
|
|
| 9,970 |
|
|
| 25,406 |
|
|
| 13,126 |
|
Comprehensive income (loss) |
| (54,349 | ) |
|
| 66,892 |
|
|
| 575,632 |
|
|
| 67,593 |
|
Comprehensive income attributable to noncontrolling interests |
| 5,532 |
|
|
| 4,836 |
|
|
| 7,595 |
|
|
| 7,157 |
|
Comprehensive income (loss) attributable to controlling interest | $ | (59,881 | ) |
| $ | 62,056 |
|
| $ | 568,037 |
|
| $ | 60,436 |
|
See condensed 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 November 30, |
|
| Six Months Ended November 30, |
| ||||||||||||||||||||
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings | $ | 56,922 |
|
| $ | 37,792 |
|
| $ | 54,467 |
|
| $ | 94,750 |
| |||||||||||||||
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net earnings (loss) | $ | (68,512 | ) |
| $ | 56,922 |
|
| $ | 550,226 |
|
| $ | 54,467 |
| |||||||||||||||
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Depreciation and amortization |
| 22,596 |
|
|
| 23,525 |
|
|
| 46,773 |
|
|
| 48,018 |
|
| 21,560 |
|
|
| 22,596 |
|
|
| 43,771 |
|
|
| 46,773 |
|
Impairment of long-lived assets |
| - |
|
|
| - |
|
|
| 40,601 |
|
|
| 2,381 |
|
| 3,815 |
|
|
| - |
|
|
| 13,739 |
|
|
| 40,601 |
|
Provision for deferred income taxes |
| 6,843 |
|
|
| 3,289 |
|
|
| 3,345 |
|
|
| 22,223 |
| |||||||||||||||
Bad debt expense |
| 143 |
|
|
| 32 |
|
|
| 311 |
|
|
| 253 |
| |||||||||||||||
Provision for (benefit from) deferred income taxes |
| (31,776 | ) |
|
| 6,843 |
|
|
| 39,255 |
|
|
| 3,345 |
| |||||||||||||||
Bad debt (income) expense |
| (159 | ) |
|
| 143 |
|
|
| (65 | ) |
|
| 311 |
| |||||||||||||||
Equity in net income of unconsolidated affiliates, net of distributions |
| (19,879 | ) |
|
| 14,182 |
|
|
| (14,797 | ) |
|
| 4,163 |
|
| 4,608 |
|
|
| (19,879 | ) |
|
| (2,149 | ) |
|
| (14,797 | ) |
Net (gain) loss on sale of assets |
| (17 | ) |
|
| (312 | ) |
|
| 601 |
|
|
| 2,403 |
|
| 7,271 |
|
|
| (17 | ) |
|
| 7,673 |
|
|
| 601 |
|
Stock-based compensation |
| 3,280 |
|
|
| 3,456 |
|
|
| 7,275 |
|
|
| 6,612 |
|
| 4,854 |
|
|
| 3,280 |
|
|
| 9,710 |
|
|
| 7,275 |
|
(Gains) loss on investment in Nikola |
| 143,780 |
|
|
| - |
|
|
| (652,362 | ) |
|
|
|
| |||||||||||||||
Charitable contribution of Nikola shares |
| - |
|
|
| - |
|
|
| 20,653 |
|
|
|
|
| |||||||||||||||
Loss on extinguishment of debt |
| - |
|
|
| - |
|
|
| 4,034 |
|
|
| - |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 4,034 |
|
Changes in assets and liabilities, net of impact of acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Receivables |
| (5,456 | ) |
|
| 40,838 |
|
|
| 9,525 |
|
|
| 54,247 |
|
| 3,580 |
|
|
| (5,456 | ) |
|
| (78,614 | ) |
|
| 9,525 |
|
Inventories |
| 43,601 |
|
|
| 5,866 |
|
|
| 87,883 |
|
|
| (37,471 | ) |
| 4,623 |
|
|
| 43,601 |
|
|
| 90,245 |
|
|
| 87,883 |
|
Accounts payable |
| (20,743 | ) |
|
| (72,974 | ) |
|
| (57,977 | ) |
|
| (70,160 | ) |
| 48,176 |
|
|
| (20,743 | ) |
|
| 95,330 |
|
|
| (57,977 | ) |
Accrued compensation and employee benefits |
| 9,619 |
|
|
| 3,556 |
|
|
| (13,596 | ) |
|
| (27,378 | ) |
| 13,960 |
|
|
| 9,619 |
|
|
| 37,812 |
|
|
| (13,596 | ) |
Income taxes payable |
| (44,623 | ) |
|
| (118 | ) |
|
| 39,041 |
|
|
| (1,132 | ) | |||||||||||||||
Other operating items, net |
| 7,251 |
|
|
| (14,546 | ) |
|
| 84 |
|
|
| (24,892 | ) |
| (3,729 | ) |
|
| 7,369 |
|
|
| 10,551 |
|
|
| 1,216 |
|
Net cash provided by operating activities |
| 104,160 |
|
|
| 44,704 |
|
|
| 168,529 |
|
|
| 75,149 |
|
| 107,428 |
|
|
| 104,160 |
|
|
| 224,816 |
|
|
| 168,529 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in property, plant and equipment |
| (28,381 | ) |
|
| (21,741 | ) |
|
| (50,555 | ) |
|
| (41,175 | ) |
| (16,073 | ) |
|
| (28,381 | ) |
|
| (48,944 | ) |
|
| (50,555 | ) |
Acquisitions |
| (29,283 | ) |
|
| - |
|
|
| (29,283 | ) |
|
| - |
| |||||||||||||||
Distributions from unconsolidated affiliate |
| - |
|
|
| 55,201 |
|
|
| - |
|
|
| 55,201 |
| |||||||||||||||
Proceeds from sale of Nikola shares |
| - |
|
|
| - |
|
|
| 487,859 |
|
|
|
|
| |||||||||||||||
Acquisitions, net of cash acquired |
| (75 | ) |
|
| (29,283 | ) |
|
| (75 | ) |
|
| (29,283 | ) | |||||||||||||||
Proceeds from sale of assets |
| 23 |
|
|
| 170 |
|
|
| 9,199 |
|
|
| 20,447 |
|
| 21,580 |
|
|
| 23 |
|
|
| 21,580 |
|
|
| 9,199 |
|
Net cash provided (used) by investing activities |
| (57,641 | ) |
|
| 33,630 |
|
|
| (70,639 | ) |
|
| 34,473 |
|
| 5,432 |
|
|
| (57,641 | ) |
|
| 460,420 |
|
|
| (70,639 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt, net of issuance costs |
| (134 | ) |
|
| - |
|
|
| 101,464 |
|
|
| - |
|
| - |
|
|
| (134 | ) |
|
| - |
|
|
| 101,464 |
|
Principal payments on long-term obligations and debt redemption costs |
| (490 | ) |
|
| (371 | ) |
|
| (154,467 | ) |
|
| (801 | ) |
| (96 | ) |
|
| (490 | ) |
|
| (193 | ) |
|
| (154,467 | ) |
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 |
| 2,294 |
|
|
| (3,811 | ) |
|
| 1,144 |
|
|
| (7,024 | ) | |||||||||||||||
Payments to noncontrolling interests |
| (1,453 | ) |
|
| (4,007 | ) |
|
| (1,453 | ) |
|
| (6,327 | ) |
| - |
|
|
| (1,453 | ) |
|
| (560 | ) |
|
| (1,453 | ) |
Repurchase of common shares |
| - |
|
|
| (63,581 | ) |
|
| (29,599 | ) |
|
| (100,433 | ) |
| (38,563 | ) |
|
| - |
|
|
| (92,883 | ) |
|
| (29,599 | ) |
Dividends paid |
| (13,954 | ) |
|
| (13,533 | ) |
|
| (26,914 | ) |
|
| (26,252 | ) |
| (13,433 | ) |
|
| (13,954 | ) |
|
| (26,812 | ) |
|
| (26,914 | ) |
Net cash used by financing activities |
| (19,842 | ) |
|
| (82,150 | ) |
|
| (117,993 | ) |
|
| (138,562 | ) |
| (49,798 | ) |
|
| (19,842 | ) |
|
| (119,304 | ) |
|
| (117,993 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
| 26,677 |
|
|
| (3,816 | ) |
|
| (20,103 | ) |
|
| (28,940 | ) |
| 63,062 |
|
|
| 26,677 |
|
|
| 565,932 |
|
|
| (20,103 | ) |
Cash and cash equivalents at beginning of period |
| 45,583 |
|
|
| 96,843 |
|
|
| 92,363 |
|
|
| 121,967 |
|
| 650,068 |
|
|
| 45,583 |
|
|
| 147,198 |
|
|
| 92,363 |
|
Cash and cash equivalents at end of period | $ | 72,260 |
|
| $ | 93,027 |
|
| $ | 72,260 |
|
| $ | 93,027 |
| $ | 713,130 |
|
| $ | 72,260 |
|
| $ | 713,130 |
|
| $ | 72,260 |
|
See condensed notes to consolidated financial statements.
4
WORTHINGTON INDUSTRIES, INC.
CONDENSED 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”). TheyInvestments in unconsolidated affiliates are accounted for using the equity method. Significant intercompany accounts and transactions have been eliminated.
The Company owns controlling interests in the following 4 joint ventures: Spartan Steel Coating, LLC (“Spartan”) (52%), TWB Company, L.L.C. (“TWB”) (55%), Worthington Samuel Coil Processing LLC (“Samuel” or “Samuel joint venture”) (63%), and Worthington Specialty Processing (“WSP”) (51%). These joint ventures are consolidated with the equity owned by the other joint venture members shown as noncontrolling interests in our consolidated balance sheets, and their portions of net earnings (loss) and other comprehensive income (loss) (“OCI”) shown as net earnings or comprehensive income attributable to noncontrolling interests in our consolidated statements of earnings (loss) and consolidated statements of comprehensive income (loss), respectively. Investments in unconsolidated affiliates are accounted for using the equity method. See further discussion of our unconsolidated affiliates in “NOTE D – Investments in Unconsolidated Affiliates”.
These unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the United States Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements.
At November 30, 2019, the Company owned controlling interests in the following 3 joint ventures: Spartan Steel Coating, LLC (“Spartan”) (52%), TWB Company, L.L.C. (“TWB”) (55%), and Worthington Specialty Processing (“WSP”) (51%). These joint ventures are consolidated in the Company’s financial statement, and the equity owned by the other joint venture members shown as noncontrolling interests in our consolidated balance sheets, and their portions of net earnings and other comprehensive income (“OCI”) shown as net earnings or comprehensive income attributable to noncontrolling interests in our consolidated statements of earnings and consolidated statements of comprehensive income, respectively. Investments in unconsolidated affiliates are accounted for using the equity method. See further discussion on unconsolidated affiliates in “NOTE C – Investments in Unconsolidated Affiliates”.
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. In the opinion of management, all adjustments, which are of a normal and recurring nature except those which have been disclosed elsewhere in this Quarterly Report on Form 10-Q, necessary for a fair presentation of the consolidated financial statements for these interim periods, have been included and significant intercompany accounts and transactions have been eliminated.
Operating results for the three and six months ended November 30, 20192020 are not necessarily indicative of the results that may be expected for the fiscal year ending May 31, 20202021 (“fiscal 2020”2021”). 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, 20192020 (“fiscal 2019”2020”) of Worthington Industries, Inc. (the “2019“2020 Form 10-K”).
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
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 CD – Investments in Unconsolidated Affiliates”.
The Company’s contribution to the Cabs joint venture consisted of the net assets of its two primary manufacturing facilities located in Greeneville, Tennessee and Watertown, South Dakota. In anticipation of the transaction for substantially all the net assets of the Engineered Cabs business, an impairment charge of $35,194,000 was recognized when the disposal group met the criteria as assets held for sale as of August 31, 2019. Certain non-core assets of the Engineered Cabs business, including the fabricated products facility in Stow, Ohio, and the steel packaging facility in Greensburg, Indiana, were retained. The Company is in the process of evaluating strategic alternatives for the retained assets. Refer to “NOTE E – Impairment of Long-Lived Assets” for additional information.
On November 1, 2019, the closing date, the contributed net assets were deconsolidated, resulting in a one-time net gain of $50,000 within restructuring and other expense (income), net in our consolidated 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, 2019,2020, the Company adopted Accounting Standards Update 2016-02,(“ASU”) 2016-13, LeasesFinancial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“Topic 842”),and additional related ASUs which introduced an expected credit loss model for impairment of financial assets measured at amortized cost, including trade receivables. The model replaces most existing lease accounting guidance under U.S. GAAP. See “NOTE D – Leases”the probable, incurred loss model for additionalthose assets and broadens the 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 Accountingan entity must consider when developing its expected credit loss estimate 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.assets measured at amortized cost. The adoption of the new accounting 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 dodid not expect the amended accounting guidance to have a material impact on our ongoingthe Company’s consolidated financial reporting.
Reclassification
Certain prior period amountsposition, results of operations or cash flows. Additionally, there have been reclassified within the operating sectionno significant changes to our accounting policies as disclosed in our 2020 Form 10-K as a result of the consolidated statementsadoption of cash flows for consistency with the current period presentation.this new accounting guidance.
5
NOTE B – Revenue Recognition
The following tables summarizetable summarizes net sales by product class for the periods presented:
| Three Months Ended |
|
| Six Months Ended |
| |||||||||||||||||||||||||
| November 30, |
|
| November 30, |
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
(in thousands) | 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| November 30, |
|
| November 30, |
| ||||||||||||||
Reportable segments by product class: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Steel Processing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct | $ | 481,058 |
|
| $ | 602,010 |
|
| $ | 974,704 |
|
| $ | 1,228,872 |
| $ | 433,556 |
|
| $ | 481,058 |
|
| $ | 838,364 |
|
| $ | 974,704 |
|
Toll |
| 35,879 |
|
|
| 33,033 |
|
|
| 65,608 |
|
|
| 66,658 |
|
| 35,167 |
|
|
| 35,879 |
|
|
| 61,379 |
|
|
| 65,608 |
|
Total | $ | 516,937 |
|
| $ | 635,043 |
|
| $ | 1,040,312 |
|
| $ | 1,295,530 |
|
| 468,723 |
|
|
| 516,937 |
|
|
| 899,743 |
|
|
| 1,040,312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pressure Cylinders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer products |
| 121,618 |
|
|
| 128,065 |
|
|
| 254,400 |
|
|
| 247,545 |
| |||||||||||||||
Industrial products | $ | 130,334 |
|
| $ | 152,018 |
|
| $ | 282,952 |
|
| $ | 304,865 |
|
| 134,020 |
|
|
| 130,334 |
|
|
| 262,245 |
|
|
| 282,952 |
|
Consumer products |
| 128,065 |
|
|
| 117,194 |
|
|
| 247,545 |
|
|
| 234,017 |
| |||||||||||||||
Oil & gas equipment |
| 31,737 |
|
|
| 25,235 |
|
|
| 64,035 |
|
|
| 55,918 |
|
| 6,646 |
|
|
| 31,737 |
|
|
| 16,543 |
|
|
| 64,035 |
|
Total | $ | 290,136 |
|
| $ | 294,447 |
|
| $ | 594,532 |
|
| $ | 594,800 |
|
| 262,284 |
|
|
| 290,136 |
|
|
| 533,188 |
|
|
| 594,532 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineered Cabs | $ | 20,550 |
|
| $ | 28,729 |
|
| $ | 48,616 |
|
| $ | 55,981 |
|
| 85 |
|
|
| 20,550 |
|
|
| 1,070 |
|
|
| 48,616 |
|
Other |
| 14 |
|
|
| 7 |
|
|
| 36 |
|
|
| 22 |
|
| - |
|
|
| 14 |
|
|
| - |
|
|
| 36 |
|
Total | $ | 20,564 |
|
| $ | 28,736 |
|
| $ | 48,652 |
|
| $ | 56,003 |
|
| 85 |
|
|
| 20,564 |
|
|
| 1,070 |
|
|
| 48,652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total | $ | 827,637 |
|
| $ | 958,226 |
|
| $ | 1,683,496 |
|
| $ | 1,946,333 |
| $ | 731,092 |
|
| $ | 827,637 |
|
| $ | 1,434,001 |
|
| $ | 1,683,496 |
|
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,streams, which are recognized over time. The following table summarizes the over time revenue for the periods presented:
| Three Months Ended |
|
| Six Months Ended |
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
| November 30, |
|
| November 30, |
| November 30, |
|
| November 30, |
| ||||||||||||||||||||
(in thousands) | 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Steel Processing - toll | $ | 35,879 |
|
| $ | 33,033 |
|
| $ | 65,608 |
|
| $ | 66,658 |
| $ | 35,167 |
|
| $ | 35,879 |
|
| $ | 61,379 |
|
| $ | 65,608 |
|
Pressure Cylinders - certain oil & gas contracts |
| 27,531 |
|
|
| 17,482 |
|
|
| 57,539 |
|
|
| 28,801 |
| |||||||||||||||
Pressure Cylinders - certain oil & gas equipment contracts |
| 4,367 |
|
|
| 27,531 |
|
|
| 12,066 |
|
|
| 57,539 |
| |||||||||||||||
Total over time revenue | $ | 63,410 |
|
| $ | 50,515 |
|
| $ | 123,147 |
|
| $ | 95,459 |
| $ | 39,534 |
|
| $ | 63,410 |
|
| $ | 73,445 |
|
| $ | 123,147 |
|
The following table summarizes the unbilled receivables and contract assets for the periods indicated:
|
|
| November 30, |
|
| May 31, |
| |||||||||||
(in thousands) | Balance Sheet Classification |
| November 30, 2019 |
|
| May 31, 2019 |
| Balance Sheet Classification |
| 2020 |
|
| 2020 |
| ||||
Unbilled receivables | Receivables |
| $ | 5,538 |
|
| $ | 5,366 |
| Receivables |
| $ | 4,937 |
|
| $ | 5,552 |
|
Contract assets | Prepaid and other current assets |
| $ | 8,460 |
|
| $ | 8,792 |
| Prepaid and other current assets |
| $ | 5,636 |
|
| $ | 4,127 |
|
We have elected the optional exemption, which allows for the exclusion of the amounts for remaining performance obligations that are part of contracts with an expected duration of one year or less. There are 0 unsatisfied or partially satisfied performance obligations related to contracts with an expected duration greater than one year.
NOTE C – Investment in Nikola
On June 3, 2020 (the “Effective Date”), Nikola Corporation (“Nikola”) became a public company through a reverse merger with a subsidiary of VectoIQ Acquisition Corporation, a NASDAQ listed publicly traded company. At the Effective Date, we owned 19,048,020 shares of Nikola common stock. During the first quarter of fiscal 2021, we recognized a $796,141,000 pre-tax gain consisting of $508,511,000 in realized gains from the sale of 11,500,000 of our Nikola shares and a charitable contribution of 500,000 of those shares, and an unrealized mark-to-market gain of $287,630,000 for the remaining 7,048,020 Nikola shares we continued to hold at August 31, 2020 when the market price was $40.81 per share. We also recognized $49,511,000 of incremental expenses in operating income related to the Nikola gains consisting of $28,858,000 for discretionary profit sharing and bonus expenses and $20,653,000 for the charitable contribution of the 500,000 Nikola shares to the Worthington Industries Foundation to establish a charitable endowment focused on the communities in which the Company operates.
During the second quarter of fiscal 2021, the market price of the Nikola shares dropped from $40.81 per share at August 31, 2020 to $20.41 per share at November 30, 2020, resulting in an unrealized mark-to-market loss of $143,780,000 for the 7,048,020 shares we held at quarter end, and reducing the pre-tax year-to-date realized and unrealized gain on the investment in Nikola to $652,362,000. In addition, during the second quarter, we recorded incremental expenses of $4,570,000 for discretionary bonuses related to the Nikola investment gain, which are subject to service requirements and required to be recognized as they are earned throughout fiscal 2021.
NOTE CD – 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, 2019,2020, the Company held investments in the following affiliated companies: ArtiFlex Manufacturing, LLC (“ArtiFlex”) (50%), the Cabs joint venture (20%), 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%), and 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 ownership interest in the Nisshin, its former joint venture in China. As a result, the Company evaluated its investment for potential impairment. The Companyimpairment and concluded the remaining book value of the investment was fully impaired, resulting in an impairment charge of $4,236,000$4,236,000 within equity in net income duringof unconsolidated affiliates in our consolidated statement of loss for 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,partners and from that point on, the Company hashad no further rights or obligations as it relatesrelated to the Nisshin joint venture.
During
On December 31, 2019, the second quarterCompany contributed the operating net assets, excluding working capital, of fiscal 2020,its Cleveland facility, (which the Company’s exploration of strategic alternatives relatingCompany had previously acquired on October 7, 2019 from Heidtman Steel Products, Inc.) to its investmentthe Samuel joint venture in ArtiFlex resultedexchange for an incremental 31.75% ownership interest in the needjoint venture. This increased our total ownership interest to evaluate this investment for potential impairment. Based on63% and the analysis performed, the Company concluded its investment was not impaired, as current and projected cash flows were deemed sufficient to recover the remaining book value of $54,566,000. However, it is possible the Company’s estimate of future cash flows could decline to a leveljoint venture’s results have been consolidated within Steel Processing since 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.time.
On November 1, 2019, we reachedclosed on an agreement with an affiliate of Angeles Equity Partners, LLC to contribute substantially all ofby which we contributed the net assets of our primary Engineered Cabs businessmanufacturing facilities located in Greeneville, Tennessee and Watertown, South Dakota to athe newly-formed Cabs joint venture, in which we retained a 20%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.
The Company’s contribution to the Cabs joint venture resulted in recognizing an impairment charge of $35,194,000 in the first quarter of fiscal 2020 when the disposal group met the criteria as assets held for sale. 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. Refer to “NOTE E – Impairment of Long-Lived Assets” for additional information on the retained assets.
7
Upon closing of the transaction, the contributed net assets were deconsolidated, resulting in a net gain of $258,000 during fiscal 2020, as summarized below:
(in thousands) |
|
|
|
Retained investment (at fair value) | $ | 13,831 |
|
Contributed net assets (at carrying value) |
| 13,394 |
|
Gain on deconsolidation |
| 437 |
|
Less: deal costs |
| (179 | ) |
Net gain on deconsolidation | $ | 258 |
|
We received distributions from unconsolidated affiliates totaling $57,316,000$47,116,000 during the six months ended November 30, 2019.2020. 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$107,951,000 at November 30, 2019.2020. 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.
The following tables summarize combined financial information for our unconsolidated affiliates as of the dates, and for the periods presented:
| November 30, |
|
| May 31, |
| November 30, |
|
| May 31, |
| ||||
(in thousands) | 2019 |
|
| 2019 |
| 2020 |
|
| 2020 |
| ||||
Cash | $ | 31,641 |
|
| $ | 37,471 |
| $ | 49,957 |
|
| $ | 68,730 |
|
Other current assets |
| 633,772 |
|
|
| 594,959 |
|
| 564,359 |
|
|
| 528,631 |
|
Current assets for discontinued operations |
| - |
|
|
| 35,793 |
| |||||||
Noncurrent assets |
| 390,433 |
|
|
| 360,925 |
|
| 391,547 |
|
|
| 399,731 |
|
Total assets | $ | 1,055,846 |
|
| $ | 1,029,148 |
| $ | 1,005,863 |
|
| $ | 997,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities | $ | 202,450 |
|
| $ | 236,781 |
| $ | 205,530 |
|
| $ | 174,709 |
|
Current liabilities for discontinued operations |
| - |
|
|
| 9,610 |
| |||||||
Short-term borrowings |
| 1,965 |
|
|
| 15,162 |
|
| - |
|
|
| 500 |
|
Current maturities of long-term debt |
| 2,582 |
|
|
| 33,003 |
|
| 10,700 |
|
|
| 37,542 |
|
Long-term debt |
| 346,223 |
|
|
| 321,791 |
|
| 314,730 |
|
|
| 346,690 |
|
Other noncurrent liabilities |
| 42,144 |
|
|
| 18,192 |
|
| 87,087 |
|
|
| 73,656 |
|
Equity |
| 460,482 |
|
|
| 394,609 |
|
| 387,816 |
|
|
| 363,995 |
|
Total liabilities and equity | $ | 1,055,846 |
|
| $ | 1,029,148 |
| $ | 1,005,863 |
|
| $ | 997,092 |
|
| Three Months Ended |
|
| Six Months Ended |
| |||||||||||||||||||||||||
| Three Months Ended November 30, |
|
| Six Months Ended November 30, |
| November 30, |
|
| November 30, |
| ||||||||||||||||||||
(in thousands) | 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Net sales | $ | 458,859 |
|
| $ | 480,716 |
|
| $ | 946,134 |
|
| $ | 979,261 |
| $ | 451,198 |
|
| $ | 453,288 |
|
| $ | 856,518 |
|
| $ | 923,493 |
|
Gross margin |
| 97,329 |
|
|
| 75,515 |
|
|
| 198,944 |
|
|
| 179,327 |
|
| 96,561 |
|
|
| 95,995 |
|
|
| 189,610 |
|
|
| 193,531 |
|
Operating income |
| 63,452 |
|
|
| 44,592 |
|
|
| 132,857 |
|
|
| 116,968 |
|
| 64,890 |
|
|
| 62,414 |
|
|
| 122,843 |
|
|
| 128,637 |
|
Depreciation and amortization |
| 7,538 |
|
|
| 6,581 |
|
|
| 14,627 |
|
|
| 13,058 |
|
| 8,672 |
|
|
| 7,538 |
|
|
| 16,402 |
|
|
| 14,627 |
|
Interest expense |
| 3,139 |
|
|
| 3,382 |
|
|
| 6,506 |
|
|
| 6,307 |
|
| 2,832 |
|
|
| 3,139 |
|
|
| 5,777 |
|
|
| 6,506 |
|
Income tax expense |
| 1,576 |
|
|
| 3,568 |
|
|
| 2,578 |
|
|
| 8,093 |
|
| 2,322 |
|
|
| 1,272 |
|
|
| 4,052 |
|
|
| 1,853 |
|
Net earnings from continuing operations |
| 104,431 |
|
|
| 36,523 |
|
|
| 165,572 |
|
|
| 101,417 |
|
| 60,943 |
|
|
| 53,483 |
|
|
| 117,516 |
|
|
| 114,624 |
|
Net earnings (loss) from discontinued operations |
| (3,990 | ) |
|
| 2,028 |
|
|
| (1,178 | ) |
|
| 3,712 |
| |||||||||||||||
Net earnings from discontinued operations |
| - |
|
|
| 46,958 |
|
|
| - |
|
|
| 49,770 |
| |||||||||||||||
Net earnings |
| 100,441 |
|
|
| 38,551 |
|
|
| 164,394 |
|
|
| 105,129 |
|
| 60,943 |
|
|
| 100,441 |
|
|
| 117,516 |
|
|
| 164,394 |
|
The amountsamount presented within the “Net earnings from discontinued operations captionsoperations” caption in the tablestable above reflectreflects 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 continuing operations of $46,238,000, subject to certain post-closing adjustments. The sale of these operations was closed as part of a broader transaction between the joint venture partner, Armstrong World Industries, Inc. (“AWI”), and Knauf Ceilings and Holding GmbH (“Knauf”), a family-owned manufacturer of building materials headquartered in Germany. OurIn September 2020, we received the final cash distribution of $2,950,000 for our portion of the net gain was $23,119,000 and has been recognized within equity in net income of unconsolidated affiliates.
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 asremaining proceeds of the effective date of the new standard. As such, comparative financial information for reporting periods beginning prior to June 1, 2019, has not been restated and 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 resultedsale. The Company corrected certain amounts in the recognition of $42,200,000 of net operating lease ROU assets and $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”). Refer to “NOTE P – Acquisitions” for additional information. In the consolidated balance sheets, the financing leases ROU assets are recorded in other assets and the current and long-term portion of the financing leases ROU liabilities are recorded in other accrued items and other liabilities, respectively.
The components of lease expense were as follows:
(in thousands) |
| Three Months Ended November 30, 2019 |
|
| Six Months Ended November 30, 2019 |
| ||
Operating lease expense |
| $ | 2,880 |
|
| $ | 6,222 |
|
Financing lease expense: |
|
|
|
|
|
|
|
|
Amortization of leased assets |
|
| 65 |
|
|
| 110 |
|
Interest on lease liabilities |
|
| 9 |
|
|
| 19 |
|
Total financing lease expense |
|
| 74 |
|
|
| 129 |
|
Short-term lease expense |
|
| 590 |
|
|
| 996 |
|
Variable lease expense |
|
| 150 |
|
|
| 304 |
|
Total lease expense |
| $ | 3,694 |
|
| $ | 7,651 |
|
During the 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 Long-Lived Assets” for additional information.
Other information related to the Company’s leases, as of andtable above for the six-month periodthree and six months ended November 30, 2019, is provided below:
(dollars in thousands) |
| Operating Leases |
|
| Financing Leases |
| ||
Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
|
|
|
|
|
Operating cash flows |
| $ | 5,702 |
|
| $ | 19 |
|
Financing cash flows |
| $ | - |
|
| $ | 173 |
|
ROU assets obtained in exchange for lease liabilities |
| $ | 3,722 |
|
| $ | 8,028 |
|
Weighted-average remaining lease term (in years) |
|
| 5.45 |
|
| 3.12 |
| |
Weighted-average discount rate |
|
| 3.44 | % |
|
| 3.23 | % |
9
Future minimum lease payments for non-cancelable leases having an initial or remaining term in excessto reflect the international operations of one year at Novemberour WAVE joint venture within discontinued operations prior to their sale on September 30, 2019, as those amounts were as follows:
(in thousands) | Operating Leases |
|
| Financing Leases |
| ||
Year 1 | $ | 12,436 |
|
| $ | 384 |
|
Year 2 |
| 10,312 |
|
|
| 376 |
|
Year 3 |
| 8,014 |
|
|
| 369 |
|
Year 4 |
| 5,256 |
|
|
| 53 |
|
Year 5 |
| 3,265 |
|
|
| - |
|
Thereafter |
| 6,554 |
|
|
| - |
|
Total |
| 45,837 |
|
|
| 1,182 |
|
Less: imputed interest |
| (4,571 | ) |
|
| (56 | ) |
Present value of lease liabilities | $ | 41,266 |
|
| $ | 1,126 |
|
As previously disclosedincluded in our 2019 Form 10-K, under the prior accounting guidance, future minimum lease payments for non-cancelablenet sales, gross margin, operating leases having an initial or remaining term in excess of one year at May 31, 2019, were as follows:income, and income tax expense.
(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 |
|
8
NOTE E – Impairment of Long-Lived Assets
Fiscal 2021: During the second quarter of fiscal 2021, we identified an impairment indicator related to the oil & gas equipment operations in Tulsa, Oklahoma due to the economic impact of the COVID-19 pandemic and related market softness. As a result, we tested the long-lived assets consisting of fixed and customer list intangible assets with net book values of $7,375,000 and $2,374,000, respectively, for impairment. The fair value of the fixed assets was determined to be $5,934,000 (using observable Level 2 inputs) resulting in an impairment charge of $1,441,000. Additionally, the customer list intangible assets were deemed to be fully impaired (using unobservable Level 3 inputs) and written off.
During the first quarter of fiscal 2021, we recorded impairment charges totaling $9,924,000 as impairment indicators were identified as follows:
• | The future undiscounted cash flows of the cryogenics business primarily operated out of the Theodore, Alabama facility did not support its book value. As a result, property, plant and equipment with a carrying value of $13,526,000 were written down to their estimated fair value of $9,193,000 (determined using Level 2 inputs), resulting in an impairment charge of $4,333,000. Additionally, the customer list intangible assets with a carrying value of $3,662,000 were deemed to be fully impaired (using unobservable Level 3 inputs) and written off. These assets were subsequently sold in October 2020 (refer to “NOTE F – Restructuring and Other Expense, Net” for additional information on this sale). |
• | We decided to discontinue our operation of the manufacturing line for alternative fuel cylinders at the Jefferson, Ohio facility. As a result, long-lived assets with a carrying value of $1,823,000 were written down to their estimated fair market value of $400,000 (determined using Level 2 inputs), resulting in an impairment charge of $1,423,000. |
• | The Company recognized a $506,000 impairment charge related to the Superior Tools business that was acquired as part of Magna Industries, Inc. in fiscal 2019 and subsequently sold. |
Fiscal 2020: During the first quarter of fiscal 2020, the Companywe 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 andas of August 31, 2019, those net assets were presented separately as assets held for sale in our consolidated balance sheet as of August 31, 2019. In accordance with the applicable accounting guidance, such net assets were 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.sell. The book value of the disposal group exceeded its estimated fair market value of $12,860,000 (determined using Level 2 inputs), which resultedresulting in the recordingan impairment charge 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 CompanyWe also identified an impairment indicator for the long-lived assets of the Engineered Cabs fabricated products business as the planned sale willwould have an adverse impact on the manner and extent in which these assets arewere used. As a result, fixed assets with a net book value of $1,469,000 and lease ROU assets with a net book value of $3,938,000 were deemed to be fully impaired and written off during the first quarter ended August 31, 2019.of fiscal 2020.
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.
10In October 2020, the Pressure Cylinders business completed the sale of its cryogenic and hydrogen trailer business, including the Theodore, Alabama manufacturing site, and the cryo-science and microbulk storage unit business. In connection with these transactions, the Company realized net cash proceeds of $21,223,000 after working capital adjustments, which generated a pre-tax loss of $7,072,000, primarily related to allocated goodwill.
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 six-month period presented:
|
| Balance, as of |
|
| Expense |
|
|
|
|
|
|
|
|
|
| Balance, as of |
| |||
(in thousands) |
| May 31, 2019 |
|
| (income) |
|
| Payments |
|
| Adjustments |
|
| November 30, 2019 |
| |||||
Early retirement and severance |
| $ | 774 |
|
| $ | - |
|
| $ | (596 | ) |
| $ | (89 | ) |
| $ | 89 |
|
Facility exit and other costs |
|
| 2 |
|
|
| (26 | ) |
|
| (56 | ) |
|
| 81 |
|
|
| 1 |
|
|
| $ | 776 |
|
|
| (26 | ) |
| $ | (652 | ) |
| $ | (8 | ) |
| $ | 90 |
|
Net loss on sale of assets |
|
|
|
|
|
| 431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and other expense, net |
|
|
|
|
| $ | 405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
During the six months ended November 30, 2019, the following actions were taken related to the Company’s restructuring activities:2020:
|
|
|
|
|
|
|
| Balance, as of |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance, as of |
| ||
(in thousands) |
| May 31, 2020 |
|
| Expense |
|
| Payments |
|
| Adjustments |
|
| November 30, 2020 |
| |||||
Early retirement and severance |
| $ | 6,536 |
|
| $ | 1,227 |
|
| $ | (5,637 | ) |
| $ | (99 | ) |
| $ | 2,027 |
|
Facility exit and other costs |
|
| 156 |
|
|
| 1,145 |
|
|
| (1,222 | ) |
|
| 74 |
|
|
| 153 |
|
|
| $ | 6,692 |
|
| $ | 2,372 |
|
| $ | (6,859 | ) |
| $ | (25 | ) |
| $ | 2,180 |
|
Net loss on sale of assets |
|
|
|
|
|
| 7,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and other expense, net |
|
|
|
|
| $ | 9,444 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The total liability associated with our restructuring activities as of November 30, 20192020 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.
A progressionAs of November 30, 2020, the liabilities recorded in connection withCompany has a reserve of $4,948,000 related to this matter, during fiscal 2020which is summarized inour best estimate of the following table:
| Beginning |
|
|
|
|
|
|
|
|
|
| Ending |
| ||
(in thousands) | Balance |
|
| Expense |
|
| Payments |
|
| Balance |
| ||||
Tank replacement costs | $ | 8,500 |
|
| $ | - |
|
| $ | (211 | ) |
| $ | 8,289 |
|
We believe these liabilities are sufficient to absorb our remaining direct costs related to the replacement program, which are expected to be paid in the next ninesix months. The actual costscost 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, 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 at November 30, 2019. Based on current facts and circumstances, we have estimated the likelihood of payment pursuant to this guarantee is not probable and, therefore, no amount has been recognized in our consolidated financial statements.
11
We also had in place $12,800,000$15,050,000 of outstanding stand-by letters of credit issued to third-party service providers at November 30, 2019.2020. NaN amounts were drawn against these stand-by letters of creditthem at November 30, 2019.2020.
10
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 at November 30, 2019.
The Senior Notes were issued in a private placement and the proceeds thereof were used to redeem $150,000,000 aggregate principal amount of unsecured 6.50% senior notes that were set to mature on April 15, 2020 (the “2020 Notes”). The 2020 Notes were redeemed in full on August 30, 2019. In connection with the early redemption, the Company recognized a loss on extinguishment of debt of $4,034,000, which has been presented separately in our consolidated statements of earnings.
We maintain a $500,000,000 multi-year revolving credit facility (the “Credit Facility”) with a group of lenders which matures in February 2023. Borrowings under the Credit Facility have maturities of up to one year. We have the option to borrow at rates equal to an applicable margin over the LIBOR, Prime Rate or Overnight Bank Funding Rate. The applicable margin is determined by our credit rating. There were 0 borrowings or letters of credit outstanding under the Credit Facility at November 30, 2019. As discussed in “NOTE H – Guarantees,” we provided $12,800,000 in stand-by letters of credit for third-party beneficiaries as of November 30, 2019. While 0t drawn against at November 30, 2019, $450,000 of these letters of credit were issued against availability under the Credit Facility, leaving $499,550,000 available at November 30, 2019.
We also maintain a $50,000,000 revolving trade accounts receivable securitization facility (the “AR Facility”) that matures in January 2020. We are in the process of evaluating our options for the AR Facility including renewing the AR Facility at a lower capacity. Pursuant to the terms of the AR Facility, certain of our subsidiaries sell their accounts receivable without recourse, on a revolving basis, to Worthington Receivables Corporation (“WRC”), a wholly-owned, consolidated, bankruptcy-remote subsidiary. In turn, WRC may sell without recourse, on a revolving basis, up to $50,000,000 of undivided ownership interests in this pool of accounts receivable to a third-party bank. We retain an undivided interest in this pool and are subject to risk of loss based on the collectability of the receivables from this retained interest. Because the amount eligible to be sold excludes receivables more than 90 days past due, receivables offset by an allowance for doubtful accounts due to bankruptcy or other cause, concentrations over certain limits with specific customers and certain reserve amounts, we believe additional risk of loss is minimal. As of November 30, 2019, 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 November 30, |
| ||||||||||||||||||||||||||||||||||||||||||
| 2019 |
|
| 2018 |
| 2020 |
|
| 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 | ) | $ | (1,027 | ) |
|
| (24 | ) |
| $ | (1,051 | ) |
| $ | 6,662 |
|
| $ | - |
|
| $ | 6,662 |
|
Pension liability adjustment |
| 117 |
|
|
| (22 | ) |
|
| 95 |
|
|
| - |
|
|
| - |
|
|
| - |
|
| (4 | ) |
|
| - |
|
|
| (4 | ) |
|
| 117 |
|
|
| (22 | ) |
|
| 95 |
|
Cash flow hedges |
| 4,016 |
|
|
| (803 | ) |
|
| 3,213 |
|
|
| (6,066 | ) |
|
| 1,404 |
|
|
| (4,662 | ) |
| 19,540 |
|
|
| (4,322 | ) |
|
| 15,218 |
|
|
| 4,016 |
|
|
| (803 | ) |
|
| 3,213 |
|
Other comprehensive income (loss) | $ | 10,795 |
|
| $ | (825 | ) |
| $ | 9,970 |
|
| $ | (12,704 | ) |
| $ | 1,404 |
|
| $ | (11,300 | ) | |||||||||||||||||||||||
Other comprehensive income | $ | 18,509 |
|
| $ | (4,346 | ) |
| $ | 14,163 |
|
| $ | 10,795 |
|
| $ | (825 | ) |
| $ | 9,970 |
|
12
| Six months ended November 30, |
| Six months ended November 30, |
| ||||||||||||||||||||||||||||||||||||||||||
| 2019 |
|
| 2018 |
| 2020 |
|
| 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 | $ | 11,444 |
|
| $ | - |
|
| $ | 11,444 |
|
| $ | (10,333 | ) |
| $ | - |
|
| $ | (10,333 | ) | $ | 6,581 |
|
|
| 676 |
|
| $ | 7,257 |
|
| $ | 11,444 |
|
| $ | - |
|
| $ | 11,444 |
|
Pension liability adjustment |
| 1,421 |
|
|
| (313 | ) |
|
| 1,108 |
|
|
| - |
|
|
| (97 | ) |
|
| (97 | ) |
| 484 |
|
|
| (116 | ) |
|
| 368 |
|
|
| 1,421 |
|
|
| (313 | ) |
|
| 1,108 |
|
Cash flow hedges |
| 691 |
|
|
| (117 | ) |
|
| 574 |
|
|
| (8,593 | ) |
|
| 1,961 |
|
|
| (6,632 | ) |
| 22,793 |
|
|
| (5,012 | ) |
|
| 17,781 |
|
|
| 691 |
|
|
| (117 | ) |
|
| 574 |
|
Other comprehensive income (loss) | $ | 13,556 |
|
| $ | (430 | ) |
| $ | 13,126 |
|
| $ | (18,926 | ) |
| $ | 1,864 |
|
| $ | (17,062 | ) | |||||||||||||||||||||||
Other comprehensive income | $ | 29,858 |
|
| $ | (4,452 | ) |
| $ | 25,406 |
|
| $ | 13,556 |
|
| $ | (430 | ) |
| $ | 13,126 |
|
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 |
| ||||||||||||||||||||||||
Balance at May 31, 2020 |
| $ | 283,776 |
|
| $ | (35,217 | ) |
| $ | 572,262 |
|
| $ | 820,821 |
|
| $ | 145,612 |
|
| $ | 966,433 |
| ||||||||||||||||||||||||
Net earnings |
|
| 0 |
|
|
| 0 |
|
|
| 616,675 |
|
|
| 616,675 |
|
|
| 2,063 |
|
|
| 618,738 |
| ||||||||||||||||||||||||
Other comprehensive income |
|
| 0 |
|
|
| 11,242 |
|
|
| 0 |
|
|
| 11,242 |
|
|
| 0 |
|
|
| 11,242 |
| ||||||||||||||||||||||||
Common shares issued, net of withholding tax |
|
| (1,150 | ) |
|
| 0 |
|
|
| 0 |
|
|
| (1,150 | ) |
|
| 0 |
|
|
| (1,150 | ) | ||||||||||||||||||||||||
Common shares in NQ plans |
|
| 90 |
|
|
| 0 |
|
|
| 0 |
|
|
| 90 |
|
|
| 0 |
|
|
| 90 |
| ||||||||||||||||||||||||
Stock-based compensation |
|
| 3,022 |
|
|
| 0 |
|
|
| 0 |
|
|
| 3,022 |
|
|
| 0 |
|
|
| 3,022 |
| ||||||||||||||||||||||||
Purchases and retirement of common shares |
|
| (7,536 | ) |
|
| 0 |
|
|
| (46,784 | ) |
|
| (54,320 | ) |
|
| 0 |
|
|
| (54,320 | ) | ||||||||||||||||||||||||
Cash dividends declared |
|
| 0 |
|
|
| 0 |
|
|
| (13,595 | ) |
|
| (13,595 | ) |
|
| 0 |
|
|
| (13,595 | ) | ||||||||||||||||||||||||
Dividends to noncontrolling interest |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (560 | ) |
|
| (560 | ) | ||||||||||||||||||||||||
Balance at August 31, 2020 |
| $ | 278,202 |
|
| $ | (23,975 | ) |
| $ | 1,128,558 |
|
| $ | 1,382,785 |
|
| $ | 147,115 |
|
| $ | 1,529,900 |
| ||||||||||||||||||||||||
Net earnings (loss) |
|
| - |
|
|
| - |
|
|
| (4,776 | ) |
|
| (4,776 | ) |
|
| 2,321 |
|
|
| (2,455 | ) |
|
| 0 |
|
|
| 0 |
|
|
| (74,044 | ) |
|
| (74,044 | ) |
|
| 5,532 |
|
|
| (68,512 | ) |
Other comprehensive income |
|
| - |
|
|
| 3,156 |
|
|
| - |
|
|
| 3,156 |
|
|
| - |
|
|
| 3,156 |
|
|
| 0 |
|
|
| 14,163 |
|
|
| 0 |
|
|
| 14,163 |
|
|
| 0 |
|
|
| 14,163 |
|
Common shares issued, net of withholding tax |
|
| (3,213 | ) |
|
| - |
|
|
| - |
|
|
| (3,213 | ) |
|
| - |
|
|
| (3,213 | ) |
|
| 2,294 |
|
|
| 0 |
|
|
| 0 |
|
|
| 2,294 |
|
|
| 0 |
|
|
| 2,294 |
|
Common shares in NQ plans |
|
| 74 |
|
|
| - |
|
|
| - |
|
|
| 74 |
|
|
| - |
|
|
| 74 |
|
|
| 292 |
|
|
| 0 |
|
|
| 0 |
|
|
| 292 |
|
|
| 0 |
|
|
| 292 |
|
Stock-based compensation |
|
| 4,545 |
|
|
| - |
|
|
| - |
|
|
| 4,545 |
|
|
| - |
|
|
| 4,545 |
|
|
| 3,499 |
|
|
| 0 |
|
|
| 0 |
|
|
| 3,499 |
|
|
| 0 |
|
|
| 3,499 |
|
Purchases and retirement of common shares |
|
| (3,814 | ) |
|
| - |
|
|
| (25,785 | ) |
|
| (29,599 | ) |
|
| - |
|
|
| (29,599 | ) |
|
| (4,486 | ) |
|
| 0 |
|
|
| (34,077 | ) |
|
| (38,563 | ) |
|
| 0 |
|
|
| (38,563 | ) |
Contribution to Samuel joint venture |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 925 |
|
|
| 925 |
| ||||||||||||||||||||||||
Cash dividends declared |
|
| - |
|
|
| - |
|
|
| (13,460 | ) |
|
| (13,460 | ) |
|
| - |
|
|
| (13,460 | ) |
|
| 0 |
|
|
| 0 |
|
|
| (13,527 | ) |
|
| (13,527 | ) |
|
| 0 |
|
|
| (13,527 | ) |
Balance at August 31, 2019 |
| $ | 280,769 |
|
| $ | (40,308 | ) |
| $ | 547,512 |
|
| $ | 787,973 |
|
| $ | 119,469 |
|
| $ | 907,442 |
| ||||||||||||||||||||||||
Net earnings |
|
| - |
|
|
| - |
|
|
| 52,086 |
|
|
| 52,086 |
|
|
| 4,836 |
|
|
| 56,922 |
| ||||||||||||||||||||||||
Other comprehensive income |
|
| - |
|
|
| 9,970 |
|
|
| - |
|
|
| 9,970 |
|
|
| - |
|
|
| 9,970 |
| ||||||||||||||||||||||||
Common shares issued, net of withholding tax |
|
| (3,811 | ) |
|
| - |
|
|
| - |
|
|
| (3,811 | ) |
|
| - |
|
|
| (3,811 | ) | ||||||||||||||||||||||||
Common shares in NQ plans |
|
| 239 |
|
|
| - |
|
|
| - |
|
|
| 239 |
|
|
| - |
|
|
| 239 |
| ||||||||||||||||||||||||
Stock-based compensation |
|
| 2,880 |
|
|
| - |
|
|
| - |
|
|
| 2,880 |
|
|
| - |
|
|
| 2,880 |
| ||||||||||||||||||||||||
Cash dividends declared |
|
| - |
|
|
| - |
|
|
| (13,446 | ) |
|
| (13,446 | ) |
|
| - |
|
|
| (13,446 | ) | ||||||||||||||||||||||||
Dividends to noncontrolling interest |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1,453 | ) |
|
| (1,453 | ) | ||||||||||||||||||||||||
Balance at November 30, 2019 |
| $ | 280,077 |
|
| $ | (30,338 | ) |
| $ | 586,152 |
|
| $ | 835,891 |
|
| $ | 122,852 |
|
| $ | 958,743 |
| ||||||||||||||||||||||||
Balance at November 30, 2020 |
| $ | 279,801 |
|
| $ | (9,812 | ) |
| $ | 1,006,910 |
|
| $ | 1,276,899 |
|
| $ | 153,572 |
|
| $ | 1,430,471 |
|
13
|
| Controlling Interest |
|
|
|
|
|
|
|
|
|
| Controlling Interest |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
| Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Additional |
|
| Comprehensive |
|
|
|
|
|
|
|
|
|
| Non- |
|
|
|
|
|
| Additional |
|
| Comprehensive |
|
|
|
|
|
|
|
|
|
| Non- |
|
|
|
|
| ||||||
|
| Paid-in |
|
| Loss, |
|
| Retained |
|
|
|
|
|
| controlling |
|
|
|
|
|
| Paid-in |
|
| Loss, |
|
| Retained |
|
|
|
|
|
| controlling |
|
|
|
|
| ||||||||
(in thousands) |
| Capital |
|
| Net of Tax |
|
| Earnings |
|
| Total |
|
| Interests |
|
| Total |
|
| Capital |
|
| Net of Tax |
|
| Earnings |
|
| Total |
|
| Interests |
|
| Total |
| ||||||||||||
Balance at May 31, 2018 |
| $ | 295,592 |
|
| $ | (14,580 | ) |
| $ | 637,757 |
|
| $ | 918,769 |
|
| $ | 117,606 |
|
| $ | 1,036,375 |
| ||||||||||||||||||||||||
Net earnings |
|
| - |
|
|
| - |
|
|
| 54,942 |
|
|
| 54,942 |
|
|
| 2,016 |
|
|
| 56,958 |
| ||||||||||||||||||||||||
Other comprehensive loss |
|
| - |
|
|
| (5,745 | ) |
|
| - |
|
|
| (5,745 | ) |
|
| (17 | ) |
|
| (5,762 | ) | ||||||||||||||||||||||||
Balance at May 31, 2019 |
| $ | 283,177 |
|
| $ | (43,464 | ) |
| $ | 591,533 |
|
| $ | 831,246 |
|
| $ | 117,148 |
|
| $ | 948,394 |
| ||||||||||||||||||||||||
Net earnings (loss) |
|
| 0 |
|
|
| 0 |
|
|
| (4,776 | ) |
|
| (4,776 | ) |
|
| 2,321 |
|
|
| (2,455 | ) | ||||||||||||||||||||||||
Other comprehensive income |
|
| 0 |
|
|
| 3,156 |
|
|
| 0 |
|
|
| 3,156 |
|
|
| 0 |
|
|
| 3,156 |
| ||||||||||||||||||||||||
Common shares issued, net of withholding tax |
|
| (4,091 | ) |
|
| - |
|
|
| - |
|
|
| (4,091 | ) |
|
| - |
|
|
| (4,091 | ) |
|
| (3,213 | ) |
|
| 0 |
|
|
| 0 |
|
|
| (3,213 | ) |
|
| 0 |
|
|
| (3,213 | ) |
Common shares in NQ plans |
|
| 152 |
|
|
| - |
|
|
| - |
|
|
| 152 |
|
|
| - |
|
|
| 152 |
|
|
| 74 |
|
|
| 0 |
|
|
| 0 |
|
|
| 74 |
|
|
| 0 |
|
|
| 74 |
|
Stock-based compensation |
|
| 4,838 |
|
|
| - |
|
|
| - |
|
|
| 4,838 |
|
|
| - |
|
|
| 4,838 |
|
|
| 4,545 |
|
|
| 0 |
|
|
| 0 |
|
|
| 4,545 |
|
|
| 0 |
|
|
| 4,545 |
|
ASC 606 transition adjustment |
|
| - |
|
|
| - |
|
|
| 1,174 |
|
|
| 1,174 |
|
|
| 570 |
|
|
| 1,744 |
| ||||||||||||||||||||||||
Purchases and retirement of common shares |
|
| (4,003 | ) |
|
| - |
|
|
| (32,849 | ) |
|
| (36,852 | ) |
|
| - |
|
|
| (36,852 | ) |
|
| (3,814 | ) |
|
| 0 |
|
|
| (25,785 | ) |
|
| (29,599 | ) |
|
| 0 |
|
|
| (29,599 | ) |
Cash dividends declared |
|
| - |
|
|
| - |
|
|
| (13,668 | ) |
|
| (13,668 | ) |
|
| - |
|
|
| (13,668 | ) |
|
| 0 |
|
|
| 0 |
|
|
| (13,460 | ) |
|
| (13,460 | ) |
|
| 0 |
|
|
| (13,460 | ) |
Dividends to noncontrolling interest |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (2,320 | ) |
|
| (2,320 | ) | ||||||||||||||||||||||||
Balance at August 31, 2018 |
| $ | 292,488 |
|
| $ | (20,325 | ) |
| $ | 647,356 |
|
| $ | 919,519 |
|
| $ | 117,855 |
|
| $ | 1,037,374 |
| ||||||||||||||||||||||||
Balance at August 31, 2019 |
| $ | 280,769 |
|
| $ | (40,308 | ) |
| $ | 547,512 |
|
| $ | 787,973 |
|
| $ | 119,469 |
|
| $ | 907,442 |
| ||||||||||||||||||||||||
Net earnings |
|
| - |
|
|
| - |
|
|
| 34,002 |
|
|
| 34,002 |
|
|
| 3,790 |
|
|
| 37,792 |
|
|
| 0 |
|
|
| 0 |
|
|
| 52,086 |
|
|
| 52,086 |
|
|
| 4,836 |
|
|
| 56,922 |
|
Other comprehensive loss |
|
| - |
|
|
| (11,245 | ) |
|
| - |
|
|
| (11,245 | ) |
|
| (55 | ) |
|
| (11,300 | ) |
|
| 0 |
|
|
| 9,970 |
|
|
| 0 |
|
|
| 9,970 |
|
|
| 0 |
|
|
| 9,970 |
|
Common shares issued, net of withholding tax |
|
| (658 | ) |
|
| - |
|
|
| - |
|
|
| (658 | ) |
|
| - |
|
|
| (658 | ) |
|
| (3,811 | ) |
|
| 0 |
|
|
| 0 |
|
|
| (3,811 | ) |
|
| 0 |
|
|
| (3,811 | ) |
Common shares in NQ plans |
|
| 306 |
|
|
| - |
|
|
| - |
|
|
| 306 |
|
|
| - |
|
|
| 306 |
|
|
| 239 |
|
|
| 0 |
|
|
| 0 |
|
|
| 239 |
|
|
| 0 |
|
|
| 239 |
|
Stock-based compensation |
|
| 3,730 |
|
|
| - |
|
|
| - |
|
|
| 3,730 |
|
|
| - |
|
|
| 3,730 |
|
|
| 2,880 |
|
|
| 0 |
|
|
| 0 |
|
|
| 2,880 |
|
|
| 0 |
|
|
| 2,880 |
|
Purchases and retirement of common shares |
|
| (7,540 | ) |
|
| - |
|
|
| (56,041 | ) |
|
| (63,581 | ) |
|
| - |
|
|
| (63,581 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Cash dividends declared |
|
| - |
|
|
| - |
|
|
| (13,401 | ) |
|
| (13,401 | ) |
|
| - |
|
|
| (13,401 | ) |
|
| 0 |
|
|
| 0 |
|
|
| (13,446 | ) |
|
| (13,446 | ) |
|
| 0 |
|
|
| (13,446 | ) |
Dividends to noncontrolling interest |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (4,007 | ) |
|
| (4,007 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (1,453 | ) |
|
| (1,453 | ) |
Balance at November 30, 2018 |
| $ | 288,326 |
|
| $ | (31,570 | ) |
| $ | 611,916 |
|
| $ | 868,672 |
|
| $ | 117,583 |
|
| $ | 986,255 |
| ||||||||||||||||||||||||
Balance at November 30, 2019 |
| $ | 280,077 |
|
| $ | (30,338 | ) |
| $ | 586,152 |
|
| $ | 835,891 |
|
| $ | 122,852 |
|
| $ | 958,743 |
|
14
The following tables summarize the changes in accumulated other comprehensive loss for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
| |
|
| Foreign |
|
| Pension |
|
|
|
|
|
| Other |
| |||
|
| Currency |
|
| Liability |
|
| Cash Flow |
|
| Comprehensive |
| ||||
(in thousands) |
| Translation |
|
| Adjustment |
|
| Hedges |
|
| Loss |
| ||||
Balance as of May 31, 2020 |
| $ | (9,142 | ) |
| $ | (21,886 | ) |
| $ | (4,189 | ) |
| $ | (35,217 | ) |
Other comprehensive income before reclassifications |
|
| 6,581 |
|
|
| 484 |
|
|
| 16,765 |
|
|
| 23,830 |
|
Reclassification adjustments to income (a) |
|
| 0 |
|
|
| 0 |
|
|
| 6,028 |
|
|
| 6,028 |
|
Income tax effect |
|
| 676 |
|
|
| (116 | ) |
|
| (5,013 | ) |
|
| (4,453 | ) |
Balance as of November 30, 2020 |
| $ | (1,885 | ) |
| $ | (21,518 | ) |
| $ | 13,591 |
|
| $ | (9,812 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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 | ) |
| $ | (19,639 | ) |
| $ | (17,856 | ) |
| $ | (5,969 | ) |
| $ | (43,464 | ) |
Other comprehensive income (loss) before reclassifications |
|
| 2,948 |
|
|
| 79 |
|
|
| (5,975 | ) |
|
| (2,948 | ) |
|
| 2,948 |
|
|
| 79 |
|
|
| (5,975 | ) |
|
| (2,948 | ) |
Reclassification adjustments to income (a) |
|
| 8,496 |
|
|
| 1,342 |
|
|
| 6,666 |
|
|
| 16,504 |
|
|
| 8,496 |
|
|
| 1,342 |
|
|
| 6,666 |
|
|
| 16,504 |
|
Income tax effect |
|
| - |
|
|
| (313 | ) |
|
| (117 | ) |
|
| (430 | ) |
|
| 0 |
|
|
| (313 | ) |
|
| (117 | ) |
|
| (430 | ) |
Balance as of November 30, 2019 |
| $ | (8,195 | ) |
| $ | (16,748 | ) |
| $ | (5,395 | ) |
| $ | (30,338 | ) |
| $ | (8,195 | ) |
| $ | (16,748 | ) |
| $ | (5,395 | ) |
| $ | (30,338 | ) |
(a) The statement of earnings (loss) classification of amounts reclassified to income include:
(1) Foreign currency translation – result of $7,454,000 related to the sale of the cryogenics business in Turkey; and $1,042,000 related to the impairment of Nisshin, the Company’s former joint venture in China.
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
| |
|
| Foreign |
|
| Pension |
|
|
|
|
|
| Other |
| |||
|
| Currency |
|
| Liability |
|
| Cash Flow |
|
| Comprehensive |
| ||||
(in thousands) |
| Translation |
|
| Adjustment |
|
| Hedges |
|
| Loss |
| ||||
Balance as of May 31, 2018 |
| $ | (4,987 | ) |
| $ | (16,071 | ) |
| $ | 6,478 |
|
| $ | (14,580 | ) |
Other comprehensive loss before reclassifications |
|
| (10,261 | ) |
|
| - |
|
|
| (4,530 | ) |
|
| (14,791 | ) |
Reclassification adjustments to income (a) |
|
| - |
|
|
| - |
|
|
| (4,063 | ) |
|
| (4,063 | ) |
Income tax effect |
|
| - |
|
|
| (97 | ) |
|
| 1,961 |
|
|
| 1,864 |
|
Balance as of November 30, 2018 |
| $ | (15,248 | ) |
| $ | (16,168 | ) |
| $ | (154 | ) |
| $ | (31,570 | ) |
|
|
|
|
|
|
|
(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 P – Derivative Instruments and Hedging Activities”. |
NOTE L – Stock-Based Compensation
Non-Qualified Stock Options
During the six months ended November 30, 2019,2020, we granted non-qualified stock options covering a total of 100,700116,300 common shares under our stock-based compensation plans. The weighted average optionexercise price of $38.91$36.93 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$10.43 per share. The calculated pre-tax stock-based compensation expense for these stock options is $1,029,000$1,213,000 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 |
|
|
| % |
Expected volatility |
|
|
| % |
Risk-free interest rate |
|
|
| % |
Expected term (years) |
|
| 6.0 |
|
Expected volatility is based on the historical volatility of ourWorthington Industries, Inc.’s 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 six months ended November 30, 20192020, we granted an aggregate of 230,600341,650 service-based restricted common shares under our stock-based compensation plans.plans, which generally vest three years after their grant date. The fair value of these restricted common shares was equal to the weighted average closing market price of the underlying common shares on the respective datesdate of grant, or $37.57$37.89 per share. The calculated pre-tax stock-based compensation expense for these restricted common shares is $8,665,000$12,946,000 and will be recognized on a straight-line basis over the three-yearservice-based vesting period, generally three-years, net of any forfeitures.period.
1513
Market-Based Restricted Common Shares
On SeptemberJune 25, 2019,2020, we granted 50,000an aggregate of 45,000 restricted common shares to athree key employeeemployees under one of our stock-based compensation plans. Vesting of these restricted common share awards is contingent upon the price of ourWorthington Industries, Inc.’s 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-yearthree-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$20.87 per share. The following assumptions were used to determine the grant-date fair value and the derived service period for these restricted common shares:
Dividend yield |
|
|
| % |
Expected volatility |
|
|
| % |
Risk-free interest rate |
|
|
| % |
The calculated pre-tax stock-based compensation expense for these restricted common shares is $716,000$939,000 and will be recognized on a straight-line basis over the five-yearthree-year service vesting period, net of any forfeitures.period.
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 targetstarget, in each case for the three-year periods ending May 31, 2020, 2021, 2022 and 2022.2023. 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 six months ended November 30, 20192020, we granted performance share awards covering an aggregate of 55,50065,400 common shares (at target levels). The calculated pre-tax stock-based compensation expense for these performance shares is $2,160,000.$2,415,000. The ultimate pre-tax stock-based compensation expense to be recognized over the three-year performance period on all tranches will vary based on our periodic assessment of the probability of the targets being achieved.
NOTE M – Income Taxes
Income tax expense for the six months ended November 30, 20192020 and 20182019 reflected estimated annual effective income tax rates of 24.8%21.5% and 23.4%24.8%, 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.earnings (loss). Net earnings attributable to noncontrolling interests are primarily a result of our WSP, Spartan, Samuel and TWB consolidated joint ventures. The earnings attributable to the noncontrolling interests in WSP, Spartan, Samuel and TWB’s U.S. operations do not generate tax expense to Worthington since the investors in WSP, Spartan, Samuel 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 income tax expense.expense (benefit). 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 20202021 could be materially different from the forecasted rate as of November 30, 2019.2020.
1614
NOTE N – Earnings (Loss) per Share
The following table sets forth the computation of basic and diluted earnings (loss) per share attributable to controlling interest for the periods presented:
| Three Months Ended November 30, |
|
| Six Months Ended November 30, |
| Three Months Ended November 30, |
|
| Six Months Ended November 30, |
| ||||||||||||||||||||
(in thousands, except per share amounts) | 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Numerator (basic & diluted): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to controlling interest - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
income available to common shareholders | $ | 52,086 |
|
| $ | 34,002 |
|
| $ | 47,310 |
|
| $ | 88,944 |
| |||||||||||||||
Net earnings (loss) attributable to controlling interest - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
income (loss) available to common shareholders | $ | (74,044 | ) |
| $ | 52,086 |
|
| $ | 542,631 |
|
| $ | 47,310 |
| |||||||||||||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share attributable to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Denominator for basic earnings (loss) per share attributable to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
controlling interest - weighted average common shares |
| 55,059 |
|
|
| 57,716 |
|
|
| 55,150 |
|
|
| 58,226 |
|
| 52,988 |
|
|
| 55,059 |
|
|
| 53,532 |
|
|
| 55,150 |
|
Effect of dilutive securities |
| 1,013 |
|
|
| 1,622 |
|
|
| 1,055 |
|
|
| 1,787 |
|
| - |
|
|
| 1,013 |
|
|
| 907 |
|
|
| 1,055 |
|
Denominator for diluted earnings per share attributable to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Denominator for diluted earnings (loss) per share attributable to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
controlling interest - adjusted weighted average common shares |
| 56,072 |
|
|
| 59,338 |
|
|
| 56,205 |
|
|
| 60,013 |
| $ | 52,988 |
|
| $ | 56,072 |
|
|
| 54,439 |
|
|
| 56,205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share attributable to controlling interest | $ | 0.95 |
|
| $ | 0.59 |
|
| $ | 0.86 |
|
| $ | 1.53 |
| |||||||||||||||
Diluted earnings per share attributable to controlling interest | $ | 0.93 |
|
| $ | 0.57 |
|
| $ | 0.84 |
|
| $ | 1.48 |
| |||||||||||||||
Basic earnings (loss) per share attributable to controlling interest | $ | (1.40 | ) |
| $ | 0.95 |
|
| $ | 10.14 |
|
| $ | 0.86 |
| |||||||||||||||
Diluted earnings (loss) per share attributable to controlling interest | $ | (1.40 | ) |
| $ | 0.93 |
|
| $ | 9.97 |
|
| $ | 0.84 |
|
Stock options covering an aggregate of 405,433 and 223,372 common shares for the three months ended November 30, 2019, and 2018, respectively,492,011 and 391,563 and 152,256 common shares for the six months ended November 30, 20192020 and 2018,2019, 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. All potentially dilutive shares (stock options and restricted common shares covering an aggregate of 1,030,835 common shares) have been excluded from the computation of diluted loss per share for the three months ended November 30, 2020, because the effect would have been anti-dilutive due to the overall net loss for the period.
1715
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 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 November 30, |
|
| Six Months Ended November 30, |
| ||||||||||||||||||||
(in thousands) | 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steel Processing | $ | 516,937 |
|
| $ | 635,043 |
|
| $ | 1,040,312 |
|
| $ | 1,295,530 |
| $ | 468,723 |
|
| $ | 516,937 |
|
| $ | 899,743 |
|
| $ | 1,040,312 |
|
Pressure Cylinders |
| 290,136 |
|
|
| 294,447 |
|
|
| 594,532 |
|
|
| 594,800 |
|
| 262,284 |
|
|
| 290,136 |
|
|
| 533,188 |
|
|
| 594,532 |
|
Other |
| 20,564 |
|
|
| 28,736 |
|
|
| 48,652 |
|
|
| 56,003 |
|
| 85 |
|
|
| 20,564 |
|
|
| 1,070 |
|
|
| 48,652 |
|
Total net sales | $ | 827,637 |
|
| $ | 958,226 |
|
| $ | 1,683,496 |
|
| $ | 1,946,333 |
| $ | 731,092 |
|
| $ | 827,637 |
|
| $ | 1,434,001 |
|
| $ | 1,683,496 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steel Processing | $ | 17,172 |
|
| $ | 25,016 |
|
| $ | 23,340 |
|
| $ | 64,676 |
| $ | 37,824 |
|
| $ | 17,172 |
|
| $ | 51,441 |
|
| $ | 23,340 |
|
Pressure Cylinders |
| 15,647 |
|
|
| 14,758 |
|
|
| 45,270 |
|
|
| 29,491 |
|
| 3,305 |
|
|
| 15,647 |
|
|
| 11,947 |
|
|
| 45,270 |
|
Other |
| (701 | ) |
|
| (3,910 | ) |
|
| (51,080 | ) |
|
| (7,392 | ) |
| (322 | ) |
|
| (1,919 | ) |
|
| (1,081 | ) |
|
| (47,051 | ) |
Segment operating income |
| 40,807 |
|
|
| 30,900 |
|
|
| 62,307 |
|
|
| 21,559 |
| |||||||||||||||
Unallocated corporate and other |
| 1,127 |
|
|
| 1,218 |
|
|
| (983 | ) |
|
| (4,029 | ) | |||||||||||||||
Incremental expenses related to Nikola gains |
| (4,570 | ) |
|
| - |
|
|
| (54,081 | ) |
|
| - |
| |||||||||||||||
Total operating income | $ | 32,118 |
|
| $ | 35,864 |
|
| $ | 17,530 |
|
| $ | 86,775 |
| $ | 37,364 |
|
| $ | 32,118 |
|
| $ | 7,243 |
|
| $ | 17,530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of long-lived assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steel Processing | $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
| |||||||||||||||
Pressure Cylinders |
| - |
|
|
| - |
|
|
| - |
|
|
| 2,381 |
| $ | 3,815 |
|
| $ | - |
|
|
| 13,739 |
|
|
| - |
|
Other |
| - |
|
|
| - |
|
|
| 40,601 |
|
|
| - |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 40,601 |
|
Total impairment of long-lived assets | $ | - |
|
| $ | - |
|
| $ | 40,601 |
|
| $ | 2,381 |
| $ | 3,815 |
|
| $ | - |
|
| $ | 13,739 |
|
| $ | 40,601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and other expense (income), net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steel Processing | $ | - |
|
| $ | - |
|
| $ | (26 | ) |
| $ | (9 | ) | $ | 375 |
|
| $ | - |
|
| $ | 1,846 |
|
| $ | (26 | ) |
Pressure Cylinders |
| - |
|
|
| 402 |
|
|
| - |
|
|
| (525 | ) |
| 7,257 |
|
|
| - |
|
|
| 7,571 |
|
|
| - |
|
Other |
| (50 | ) |
|
| - |
|
|
| 431 |
|
|
| - |
|
| (36 | ) |
|
| (50 | ) |
|
| 27 |
|
|
| 431 |
|
Total restructuring and other expense (income), net | $ | (50 | ) |
| $ | 402 |
|
| $ | 405 |
|
| $ | (534 | ) | $ | 7,596 |
|
| $ | (50 | ) |
| $ | 9,444 |
|
| $ | 405 |
|
| November 30, |
|
| May 31, |
| November 30, |
|
| May 31, |
| ||||
(in thousands) | 2019 |
|
| 2019 |
| 2020 |
|
| 2020 |
| ||||
Total assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steel Processing | $ | 868,597 |
|
| $ | 924,966 |
| $ | 886,578 |
|
| $ | 821,657 |
|
Pressure Cylinders |
| 1,143,256 |
|
|
| 1,123,115 |
|
| 1,016,404 |
|
|
| 1,104,603 |
|
Other |
| 397,108 |
|
|
| 462,715 |
|
| 1,124,403 |
|
|
| 405,255 |
|
Total assets | $ | 2,408,961 |
|
| $ | 2,510,796 |
| $ | 3,027,385 |
|
| $ | 2,331,515 |
|
(1) | The material changes in total assets primarily relate to the Company’s investment in Nikola. For additional information, refer to “NOTE C – Investment in Nikola”. |
For purposes of measuring segment operating income (loss), certain income and expense items, including product liability and healthcare reserves recorded by our corporate office and the incremental expenses related to Nikola gains are not allocated to operating segments, but are shown as reconciling items to the total operating income. See “NOTE C – Investment in Nikola” for additional information on the incremental expenses related to Nikola gains.
NOTE P – Acquisitions
Heidtman Steel Products, Inc.
On October 7, 2019, we acquired the Cleveland, Ohio-based operating net assets, excluding working capital, of Heidtman for cash consideration of $29,593,000. The acquired net assets are being managed and reported as a component of our Steel Processing operating segment.
18
The information included herein has been prepared based on the preliminary allocation of the purchase price using estimates of the fair value and useful lives of the assets acquired. The purchase price allocation is subject to further adjustment until all pertinent information regarding the assets acquired is fully evaluated by the Company, including but not limited to, the fair value accounting.
The assets acquired and liabilities assumed were recognized at their acquisition-date fair values, with goodwill representing the excess of the purchase price over the fair value of the net identifiable assets acquired. A customer list intangible asset was identified and valued and will be amortized over the estimated useful life of 10 years.
The purchase price includes the fair values of other assets that were not identifiable, not separately recognizable under accounting rules (e.g., assembled workforce) or of immaterial value. The purchase price also includes strategic and synergistic benefits (investment value) specific to us, which resulted in a purchase price in excess of the fair value of the identifiable net assets. This additional investment value resulted in goodwill, which is expected to be deductible for income tax purposes.
The following table summarizes the consideration paid and the fair value assigned to the assets acquired and liabilities assumed at the acquisition date. These amounts reflect various preliminary fair value estimates and assumptions, including preliminary work performed by third-party valuation specialists, and are subject to change within the measurement period as valuations are finalized. The primary areas of preliminary purchase price allocation subject to change relate to the valuation of the acquired tangible assets (including finance lease assets), identification and valuation of intangible assets acquired and residual goodwill.
(in thousands) |
|
|
|
|
Customer list |
| $ | 2,900 |
|
Property, plant and equipment |
|
| 7,515 |
|
Finance lease assets |
|
| 8,000 |
|
Other assets |
|
| 725 |
|
Net identifiable assets |
|
| 19,140 |
|
Goodwill |
|
| 10,453 |
|
Purchase price |
| $ | 29,593 |
|
NOTE Q – Derivative Instruments and Hedging Activities
We utilize derivative financial instruments to manage exposure to certain risks related to our ongoing operations. The primary risks managed through the use of derivative instruments include interest rate risk, foreign currency exchange rate risk and commodity price risk. While certain of our derivative instruments are designated as hedging instruments, we also enter into derivative instruments that are designed to hedge a risk, but are not designated as hedging instruments and, therefore, do not qualify for hedge accounting. These derivative instruments are adjusted to current fair value through earnings (loss) at the end of each period.
16
Interest Rate Risk Management – We are exposed to the impact of interest rate changes. Our objective is to manage the impact of interest rate changes on cash flows and the market value of our borrowings. We utilize a mix of debt maturities along with both fixed-rate and variable-rate debt to manage changes in interest rates. In addition, we enter into interest rate swaps and treasury locks to further manage our exposure to interest rate variations related to our borrowings and to lower our overall borrowing costs.
Foreign Currency Exchange Rate Risk Management – We conduct business in several major international currencies and are, therefore, subject to risks associated with changing foreign currency exchange rates. We enter into various contracts that change in value as foreign currency exchange rates change to manage this exposure. Such contracts limit exposure to both favorable and unfavorable 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 RQ – 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, 2019:2020:
|
| 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 |
| $ | 13,991 |
|
| Accounts payable |
| $ | - |
|
|
| Other assets |
|
| - |
|
| Other liabilities |
|
| 451 |
|
| Other assets |
|
| 156 |
|
| Other liabilities |
|
| - |
|
Totals |
|
|
| $ | 9 |
|
|
|
| $ | 5,020 |
|
|
|
| $ | 14,147 |
|
|
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts |
| Receivables |
| $ | 953 |
|
| Accounts payable |
| $ | 1,487 |
|
| Receivables |
| $ | 9,708 |
|
| Accounts payable |
| $ | 1,803 |
|
|
| Other assets |
|
| 7 |
|
| Other liabilities |
|
| 223 |
|
| Other assets |
|
| 201 |
|
| Other liabilities |
|
| 86 |
|
|
|
|
|
| 960 |
|
|
|
|
| 1,710 |
|
|
|
|
| 9,909 |
|
|
|
|
| 1,889 |
|
Foreign currency exchange contracts |
| Receivables |
|
| - |
|
| Accounts payable |
|
| 75 |
|
| Receivables |
|
| - |
|
| Accounts payable |
|
| 13 |
|
Long term foreign currency exchange contracts |
| Other assets |
|
| - |
|
| Other liabilities |
|
| 49 |
| ||||||||||||
Totals |
|
|
| $ | 960 |
|
|
|
| $ | 1,785 |
|
|
|
|
| - |
|
|
|
|
| 62 |
|
Total derivative instruments |
|
|
| $ | 969 |
|
|
|
| $ | 6,805 |
|
|
|
| $ | 24,056 |
|
|
|
| $ | 1,951 |
|
The amounts in the table above reflect the fair value of the Company’s derivative instruments on a net basis at November 30, 2019.basis. Had these amounts been recognized on a gross basis, the impact would have been a $581,000$2,427,000 increase in receivables with a corresponding increase in accounts payable.
17
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, 2019:2020:
|
| 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 |
| $ | 5 |
|
| Accounts payable |
| $ | 8,383 |
|
| Receivables |
| $ | - |
|
| Accounts payable |
| $ | 4,294 |
|
|
| Other assets |
|
| - |
|
| Other liabilities |
|
| 201 |
|
| Other assets |
|
| 79 |
|
| Other liabilities |
|
| 479 |
|
Totals |
|
|
| $ | 5 |
|
|
|
| $ | 8,584 |
|
|
|
| $ | 79 |
|
|
|
| $ | 4,773 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts |
| Receivables |
| $ | 2,347 |
|
| Accounts payable |
| $ | 3,568 |
|
| Receivables |
| $ | - |
|
| Accounts payable |
| $ | 3,826 |
|
|
| Other assets |
|
| 62 |
|
| Other liabilities |
|
| 66 |
|
| Other assets |
|
| 96 |
|
| Other liabilities |
|
| 178 |
|
|
|
|
|
| 2,409 |
|
|
|
|
| 3,634 |
|
|
|
|
| 96 |
|
|
|
|
| 4,004 |
|
Foreign currency exchange contracts |
| Receivables |
|
| - |
|
| Accounts payable |
|
| 20 |
|
| Receivables |
|
| 6 |
|
| Accounts payable |
|
| - |
|
Totals |
|
|
| $ | 2,409 |
|
|
|
| $ | 3,654 |
|
|
|
| $ | 102 |
|
|
|
| $ | 4,004 |
|
Total derivative instruments |
|
|
| $ | 2,414 |
|
|
|
| $ | 12,238 |
|
|
|
| $ | 181 |
|
|
|
| $ | 8,777 |
|
The amounts in the table above reflect the fair value of the Company’s derivative instruments on a net basis at May 31, 2019.basis. Had these amounts been recognized on a gross basis, the impact would have been a $220,000$1,780,000 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 (loss) 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, 2019:2020:
|
| Notional |
|
|
|
| Notional |
|
|
| ||
(in thousands) |
| Amount |
|
| Maturity Date |
| Amount |
|
| Maturity Date | ||
Commodity contracts |
| $ | 40,824 |
|
| December 2019 - June 2021 |
| $ | 73,689 |
|
| December 2020 - March 2022 |
The following table summarizes the gain (loss) recognized in OCI and the gain (loss)loss reclassified from AOCI into net earnings (loss) 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 Loss |
| 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, 2020: |
|
|
|
|
|
|
|
|
|
| ||||||||||
Commodity contracts |
| $ | 16,381 |
|
| Cost of goods sold |
| $ | (2,690 | ) | ||||||||||
Interest rate contracts |
|
| - |
|
| Interest expense |
|
| (470 | ) | ||||||||||
Totals |
| $ | 16,381 |
|
|
|
| $ | (3,160 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||
For the three months ended November 30, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts |
| $ | 10 |
|
| Cost of goods sold |
| $ | (4,228 | ) |
| $ | 10 |
|
| Cost of goods sold |
| $ | (4,228 | ) |
Interest rate contracts |
|
| (326 | ) |
| Interest expense |
|
| (7 | ) |
|
| (326 | ) |
| Interest expense |
|
| (7 | ) |
Foreign currency exchange contracts |
|
| - |
|
| Miscellaneous income, net |
|
| (97 | ) | ||||||||||
Foreign currency contracts |
|
| - |
|
| Miscellaneous income, net |
|
| (97 | ) | ||||||||||
Totals |
| $ | (316 | ) |
|
|
| $ | (4,332 | ) |
| $ | (316 | ) |
|
|
| $ | (4,332 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended November 30, 2018: |
|
|
|
|
|
|
|
|
|
| ||||||||||
For the six months |
|
|
|
|
|
|
|
|
|
| ||||||||||
ended November 30, 2020: |
|
|
|
|
|
|
|
|
|
| ||||||||||
Commodity contracts |
| $ | (4,499 | ) |
| Cost of goods sold |
| $ | 1,565 |
|
| $ | 16,765 |
|
| Cost of goods sold |
| $ | (5,331 | ) |
Interest rate contracts |
|
| - |
|
| Interest expense |
|
| (34 | ) |
|
| - |
|
| Interest expense |
|
| (697 | ) |
Foreign currency exchange contracts |
|
| - |
|
| Miscellaneous income, net |
|
| 36 |
| ||||||||||
Totals |
| $ | (4,499 | ) |
|
|
| $ | 1,567 |
|
| $ | 16,765 |
|
|
|
| $ | (6,028 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended November 30, 2019: |
|
|
|
|
|
|
|
|
|
| ||||||||||
For the six months |
|
|
|
|
|
|
|
|
|
| ||||||||||
ended November 30, 2019: |
|
|
|
|
|
|
|
|
|
| ||||||||||
Commodity contracts |
| $ | (5,649 | ) |
| Cost of goods sold |
| $ | (6,520 | ) |
| $ | (5,649 | ) |
| Cost of goods sold |
| $ | (6,520 | ) |
Interest rate contracts |
|
| (326 | ) |
| Interest expense |
|
| (127 | ) |
|
| (326 | ) |
| Interest expense |
|
| (127 | ) |
Foreign currency exchange contracts |
|
| - |
|
| Miscellaneous income, net |
|
| (19 | ) | ||||||||||
Foreign currency contracts |
|
| - |
|
| Miscellaneous income, net |
|
| (19 | ) | ||||||||||
Totals |
| $ | (5,975 | ) |
|
|
| $ | (6,666 | ) |
| $ | (5,975 | ) |
|
|
| $ | (6,666 | ) |
|
|
|
|
|
|
|
|
|
|
| ||||||||||
For the six months ended November 30, 2018: |
|
|
|
|
|
|
|
|
|
| ||||||||||
Commodity contracts |
| $ | (4,530 | ) |
| Cost of goods sold |
| $ | 4,108 |
| ||||||||||
Interest rate contracts |
|
| - |
|
| Interest expense |
|
| (81 | ) | ||||||||||
Foreign currency exchange contracts |
|
| - |
|
| Miscellaneous income, net |
|
| 36 |
| ||||||||||
Totals |
| $ | (4,530 | ) |
|
|
| $ | 4,063 |
|
The estimated net amount of the losses recognized in AOCI at November 30, 20192020 expected to be reclassified into net earnings (loss) within the succeeding twelve months is $5,916,000$12,557,000 (net of tax of $1,863,000)$3,470,000). This amount was computed using the fair value of the cash flow hedges at November 30, 2019,2020, and will change before actual reclassification from OCI to net earnings (loss) during the fiscal years ending May 31, 20202021 and May 31, 2021.2022.
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.earnings (loss).
The following table summarizes our economic (non-designated) derivative instruments outstanding at November 30, 2019:2020:
|
| Notional |
|
|
|
| Notional |
|
|
| ||
(in thousands) |
| Amount |
|
| Maturity Date(s) |
| Amount |
|
| Maturity Date(s) | ||
Commodity contracts |
| $ | 45,247 |
|
| December 2019 - September 2021 |
| $ | 51,909 |
|
| December 2020 - April 2022 |
Foreign currency exchange contracts |
|
| 3,901 |
|
| December 2019 - March 2020 |
|
| 9,068 |
|
| December 2020 - July 2021 |
21
The following tables summarizetable summarizes the gain (loss)loss recognized in net earnings (loss) for economic (non-designated) derivative financial instruments for the periods presented:
|
|
|
| Gain (Loss) Recognized |
| |||||
|
|
|
| In Earnings (Loss) for the |
| |||||
|
| Location of Gain (Loss) |
| Three Months Ended November 30, |
| |||||
(in thousands) |
| Recognized in Earnings (Loss) |
| 2020 |
|
| 2019 |
| ||
Commodity contracts |
| Cost of goods sold |
| $ | 8,905 |
|
| $ | (1,673 | ) |
Foreign currency exchange contracts |
| Miscellaneous income, net |
|
| 1 |
|
|
| 15 |
|
Total |
|
|
| $ | 8,906 |
|
| $ | (1,658 | ) |
|
|
|
| Gain (Loss) Recognized |
| |||||
|
|
|
| In Net Earnings for the |
| |||||
|
| Location of Gain (Loss) |
| Three Months Ended November 30, |
| |||||
(in thousands) |
| Recognized in Net Earnings |
| 2019 |
|
| 2018 |
| ||
Commodity contracts |
| Cost of goods sold |
| $ | (1,673 | ) |
| $ | (737 | ) |
Foreign currency exchange contracts |
| Miscellaneous income, net |
|
| 15 |
|
|
| (1,183 | ) |
Total |
|
|
| $ | (1,658 | ) |
| $ | (1,920 | ) |
|
|
|
| Loss Recognized |
|
|
|
| Gain (Loss) Recognized |
| ||||||||||
|
|
|
| in Net Earnings for the |
|
|
|
| in Earnings for the |
| ||||||||||
|
| Location of Loss |
| Six Months Ended November 30, |
|
| Location of Gain (Loss) |
| Six Months Ended November 30, |
| ||||||||||
(in thousands) |
| Recognized in Net Earnings |
| 2019 |
|
| 2018 |
|
| Recognized in Earnings |
| 2020 |
|
| 2019 |
| ||||
Commodity contracts |
| Cost of goods sold |
| $ | (3,916 | ) |
| $ | (2,934 | ) |
| Cost of goods sold |
| $ | 12,198 |
|
| $ | (3,916 | ) |
Foreign currency exchange contracts |
| Miscellaneous income, net |
|
| (89 | ) |
|
| (2,689 | ) |
| Miscellaneous income, net |
|
| (73 | ) |
|
| (89 | ) |
Total |
|
|
| $ | (4,005 | ) |
| $ | (5,623 | ) |
|
|
| $ | 12,125 |
|
| $ | (4,005 | ) |
NOTE RQ – Fair Value
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is an exit price concept that assumes an orderly transaction between willing market participants and is required to be based on assumptions that market participants would use in pricing an asset or a liability. Current accounting guidance establishes a three-tier fair value hierarchy as a basis for considering such assumptions and for classifying the inputs used in the valuation methodologies. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair values are as follows:
Level 1 – Observable prices in active markets for identical assets and liabilities.
Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the assets and liabilities, either directly or indirectly.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities.
Recurring Fair Value Measurements
At November 30, 2019,2020, 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 |
|
| $ | - |
|
| $ | 24,056 |
|
| $ | - |
|
| $ | 24,056 |
|
Investment in Nikola (2) |
|
| 143,850 |
|
|
| - |
|
|
| - |
|
|
| 143,850 |
| ||||||||||||||||
Total assets |
| $ | - |
|
| $ | 969 |
|
| $ | - |
|
| $ | 969 |
|
| $ | 143,850 |
|
| $ | 24,056 |
|
| $ | - |
|
| $ | 167,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments (1) |
| $ | - |
|
| $ | 6,805 |
|
| $ | - |
|
| $ | 6,805 |
|
| $ | - |
|
| $ | 1,951 |
|
| $ | - |
|
| $ | 1,951 |
|
Total liabilities |
| $ | - |
|
| $ | 6,805 |
|
| $ | - |
|
| $ | 6,805 |
|
| $ | - |
|
| $ | 1,951 |
|
| $ | - |
|
| $ | 1,951 |
|
22
At May 31, 2019,2020, 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) |
| $ | - |
|
| $ | 2,414 |
|
| $ | - |
|
| $ | 2,414 |
|
| $ | - |
|
| $ | 181 |
|
| $ | - |
|
| $ | 181 |
|
Total assets |
| $ | - |
|
| $ | 2,414 |
|
| $ | - |
|
| $ | 2,414 |
|
| $ | - |
|
| $ | 181 |
|
| $ | - |
|
| $ | 181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments (1) |
| $ | - |
|
| $ | 12,238 |
|
| $ | - |
|
| $ | 12,238 |
|
| $ | - |
|
| $ | 8,777 |
|
| $ | - |
|
| $ | 8,777 |
|
Total liabilities |
| $ | - |
|
| $ | 12,238 |
|
| $ | - |
|
| $ | 12,238 |
|
| $ | - |
|
| $ | 8,777 |
|
| $ | - |
|
| $ | 8,777 |
|
| (1) | The fair value of our derivative instruments is based on the present value of the expected future cash flows considering the risks involved, including non-performance risk, and using discount rates appropriate for the respective maturities. Market observable, Level 2 inputs are used to determine the present value of the expected future cash flows. Refer to “NOTE |
(2) | The fair value of the investment in Nikola is based on the share price of Nikola common stock at November 30, 2020. |
Non-Recurring Fair Value Measurements
At November 30, 2019,2020, 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 |
| ||||||||||||||||
Long-lived assets held and used (2) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
| ||||||||||||||||
Long-lived assets held and used (1) |
| $ | - |
|
| $ | 6,334 |
|
| $ | - |
|
| $ | 6,334 |
| ||||||||||||||||
Total assets |
| $ | - |
|
| $ | - |
|
| $ | 13,623 |
|
| $ | 13,623 |
|
| $ | - |
|
| $ | 6,334 |
|
| $ | - |
|
| $ | 6,334 |
|
(1) | Comprised of our oil & gas equipment assets in Tulsa, Oklahoma with an estimated fair value of $5,934,000, and our alternative fuel cylinders assets at the Jefferson, Ohio facility with an estimated fair market value of $400,000. Refer to “NOTE E – Impairment of Long-Lived Assets” for additional information. |
23
At May 31, 2019,2020, 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) |
| $ | - |
|
| $ | 3,700 |
|
| $ | - |
|
| $ | 3,700 |
|
| $ | - |
|
| $ | - |
|
| $ | 13,623 |
|
| $ | 13,623 |
|
Long-lived assets held for sale |
|
| - |
|
|
| 7,000 |
|
|
| - |
|
|
| 7,000 |
|
|
| - |
|
|
| 4,084 |
|
|
| - |
|
|
| 4,084 |
|
Long-lived assets held and used |
|
| - |
|
|
| 1,238 |
|
|
| - |
|
|
| 1,238 |
|
|
| - |
|
|
| 6,477 |
|
|
| 2,800 |
|
|
| 9,277 |
|
Total assets |
| $ | - |
|
| $ | 11,938 |
|
| $ | - |
|
| $ | 11,938 |
|
| $ | - |
|
| $ | 10,561 |
|
| $ | 16,423 |
|
| $ | 26,984 |
|
|
| On November 1, 2019, in connection with the contribution of substantially all of the net assets of the Engineered Cabs business to |
| During the third quarter of fiscal 2020, we committed to a plan to sell the Canton, Michigan facility of our consolidated WSP joint venture and some of the production equipment at that facility. In accordance with the applicable accounting guidance this production equipment was written down to its estimated fair value of $700,000. |
During the firstthird quarter of fiscal 2020, we determined our 10% minority ownership interest in our steel joint venture in China, Nisshin, was fully impaired based onconnection with the estimated recoverabilityclosure of the related assets. During the fourth quarteroil & gas equipment manufacturing operations in Wooster, Ohio, fixed assets consisting of fiscal 2019, we determined our 10% minority ownership interest in our Nisshin joint venture was other than temporarily impaired due to currentland and projected operating losses. As a result, the investment had beenbuilding were written down to itstheir estimated fair market value of $3,700,000, resulting in an impairment charge of $4,017,000 within equity income of unconsolidated affiliates.
$3,384,000.
|
|
|
|
|
| During the fourth quarter of |
In May 2020, the Company committed to a plan to shut down the packaging solutions business in Greensburg, Indiana. As a result, long-lived assets were written down to their estimated fair market value of $266,000.
During the third quarter of fiscal 2020, in connection with the closure of the oil & gas equipment manufacturing operations in Wooster, Ohio, the fixed assets at Wooster, Ohio were written down to their then estimated fair market value of $6,211,000.
The fair value of non-derivative financial instruments included in the carrying amounts of cash and cash equivalents, receivables, notes receivable, income taxes receivable, other assets, accounts payable, accrued compensation, contributions to employee benefit plans and related taxes,
21
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$799,064,000 and $767,075,000$740,678,000 at November 30, 20192020 and May 31, 2019,2020, respectively. The carrying amount of long-term debt, including current maturities, was $698,803,000$707,500,000 and $749,299,000$699,665,000 at November 30, 20192020 and May 31, 2019,2020, 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.
2422
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 and “Part I – Item 1A. – Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended May 31, 2019 and “PART II2020.
Unless otherwise indicated, all Note references contained in this Part I – Item 1A.2. refer to the Notes to the Consolidated Financial Statements included in “Part I – Risk Factors”Item 1. – Financial Statements” of this Quarterly Report on Form 10-Q.10-Q (this “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“Part I – 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, 20192020 (“fiscal 2019”2020”) 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, 2019,2020, excluding our joint ventures, we operated 2823 manufacturing facilities worldwide, principally in two operating segments, which correspond with our reportable business segments: Steel Processing and Pressure Cylinders.
As of November 30, 2019,2020, we held equity positions in tennine joint ventures, which operated 4847 manufacturing facilities worldwide, including 26 facilities which were operated by joint ventures in which we held a 50% or greater ownership interest. Threeworldwide. Four 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 (loss) and consolidated statements of comprehensive income (loss), respectively. The remaining sevenfive of these joint ventures are accounted for using the equity method.
Overview
The Company generated a net loss of $74.0 million, or $(1.40) per share, in the second quarter of fiscal 2021 driven largely by a net pre-tax loss of $148.4 million, or $(2.18) per share, related to the Company’s investment in Nikola Corporation (“Nikola”), as discussed under Recent Business Developments below. Operating income for the current quarter was down $3.8$37.4 million, or 11%. Results in Steel Processing continued to be negatively impacted by declining steel prices, which led to a $7.3an increase of $5.3 million swing from inventory holding gains to inventory holding losses fromover the second quarterprior year quarter. The impact of fiscal 2019 to the second quarter of fiscal 2020. Lower direct volume in Steel Processinghigher gross margin and lower volumes in the industrial products business in Pressure Cylinders wereSG&A expense was partially offset by improved direct spreads$11.4 million of impairment and higher toll volume in Steel Processingrestructuring charges and higher volumes in$4.6 million of profit sharing and bonus expenses related to the consumer products business and overall improvement in the oil & gas equipment business in Pressure Cylinders.Nikola investment gains.
Equity in net income of unconsolidated affiliates (“equity income”) for the current year second quarter increased $26.2decreased $21.7 million overfrom the comparable prior year quarter, onas the prior year quarter includes a pre-tax gain of $23.1 million at WAVEpre-tax gain related to the sale of itsWAVE’s international operations. The remaining increase wasExcluding the gain in the prior year quarter, equity income increased $1.4 million, primarily due to a $5.4 million increase in equity income from ClarkDietrich, driven by improved margins and increased volumes, partially offset by a lower contributionhigher contributions 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.Worthington. We received cash distributions from unconsolidated joint ventures of $27.5$30.2 million during the second quarter of fiscal 2020.2021.
Recent Business Developments
| • |
|
| • |
|
| • |
|
2523
|
|
|
|
|
|
|
|
|
|
|
|
|
Market & Industry Overview
We sell our products and services to a diverse customer base and a broad range of end markets. The breakdown of net sales by end market for the second quarter of each of fiscal 20202021 and fiscal 20192020 is illustrated in the following chart:
Consolidated Net Sales by Market 50% 25% 0% 37% 36% Automotive 18% 18% Industrial 19% 14% Consumer products 11% 10% Construction 5% 4% Agriculture 3% 4% Oil & gas 7% 14% Other FY21 Q1 FY20 Q1
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% 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%18% 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%23% of the net sales of our Steel Processing operating segment, are to other markets such as agricultural, appliance, consumer products, heavy truck, industrial products, lawn and garden, agriculture,and oil & gas equipment, heavy truck, mining, forestry and appliance.equipment. Given the many different products that make up these net sales and the wide variety of end markets, it is very difficult to detail the key market indicators that drive these portions of our business. However, we believe that the trend in U.S. GDP growth is a good economic indicator for analyzing the demand of these businesses.end markets.
We use the following information to monitor our costs and assess demand in our major end markets:
|
| Three Months Ended November 30, |
|
|
|
|
|
| Six Months Ended November 30, |
|
|
|
|
|
| Three Months Ended November 30, |
|
|
|
|
|
| Six Months Ended November 30, |
|
|
|
|
| ||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| Inc / (Dec) |
|
| 2019 |
|
| 2018 |
|
| Inc / (Dec) |
|
| 2020 |
|
| 2019 |
|
| Inc / (Dec) |
|
| 2020 |
|
| 2019 |
|
| Inc / (Dec) |
| ||||||||||||
U.S. GDP (% growth year-over-year) 1 |
|
| 2.1 | % |
|
| 3.4 | % |
|
| -1.3 | % |
|
| 2.3 | % |
|
| 3.0 | % |
|
| -0.7 | % |
|
| -4.9 | % |
|
| 2.2 | % |
|
| -7.1 | % |
|
| -5.4 | % |
|
| 2.3 | % |
|
| -7.7 | % |
Hot-Rolled Steel ($ per ton) 2 |
| $ | 526 |
|
| $ | 836 |
|
| $ | (310 | ) |
| $ | 545 |
|
| $ | 868 |
|
| $ | (323 | ) |
| $ | 625 |
|
| $ | 526 |
|
| $ | 99 |
|
| $ | 550 |
|
| $ | 545 |
|
| $ | 5 |
|
Detroit Three Auto Build (000's vehicles) 3 |
|
| 1,895 |
|
|
| 2,191 |
|
|
| (296 | ) |
|
| 3,978 |
|
|
| 4,286 |
|
|
| (308 | ) |
|
| 1,868 |
|
|
| 1,879 |
|
|
| (11 | ) |
|
| 3,718 |
|
|
| 3,928 |
|
|
| (210 | ) |
No. America Auto Build (000's vehicles) 3 |
|
| 4,098 |
|
|
| 4,417 |
|
|
| (319 | ) |
|
| 8,216 |
|
|
| 8,543 |
|
|
| (327 | ) |
|
| 4,076 |
|
|
| 4,091 |
|
|
| (15 | ) |
|
| 7,834 |
|
|
| 8,173 |
|
|
| (339 | ) |
Zinc ($ per pound) 4 |
| $ | 1.09 |
|
| $ | 1.16 |
|
| $ | (0.07 | ) |
| $ | 1.11 |
|
| $ | 1.23 |
|
| $ | (0.12 | ) |
| $ | 1.11 |
|
| $ | 1.09 |
|
| $ | 0.02 |
|
| $ | 1.03 |
|
| $ | 1.11 |
|
| $ | (0.08 | ) |
Natural Gas ($ per mcf) 5 |
| $ | 2.50 |
|
| $ | 3.37 |
|
| $ | (0.87 | ) |
| $ | 2.39 |
|
| $ | 3.13 |
|
| $ | (0.74 | ) |
| $ | 2.64 |
|
| $ | 2.50 |
|
| $ | 0.14 |
|
| $ | 2.28 |
|
| $ | 2.39 |
|
| $ | (0.11 | ) |
On-Highway Diesel Fuel Prices ($ per gallon) 6 |
| $ | 3.04 |
|
| $ | 3.31 |
|
| $ | (0.27 | ) |
| $ | 3.05 |
|
| $ | 3.27 |
|
| $ | (0.22 | ) |
| $ | 2.41 |
|
| $ | 3.04 |
|
| $ | (0.63 | ) |
| $ | 2.42 |
|
| $ | 3.05 |
|
| $ | (0.63 | ) |
Crude Oil - WTI ($ per barrel) 6 |
| $ | 55.47 |
|
| $ | 65.98 |
|
| $ | (10.51 | ) |
| $ | 55.54 |
|
| $ | 67.50 |
|
| $ | (11.96 | ) |
| $ | 39.99 |
|
| $ | 55.47 |
|
| $ | (15.48 | ) |
| $ | 40.22 |
|
| $ | 55.54 |
|
| $ | (15.32 | ) |
1 |
|
24
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 20202021 (first and second quarters), fiscal 20192020 and fiscal 2018:2019:
|
| Fiscal Year |
|
| Fiscal Year |
| ||||||||||||||||||
(dollars per ton 1 ) |
| 2020 |
|
| 2019 |
|
| 2018 |
| |||||||||||||||
(Dollars per ton 1 ) |
| 2021 |
|
| 2020 |
|
| 2019 |
| |||||||||||||||
1st Quarter |
| $ | 564 |
|
| $ | 900 |
|
| $ | 604 |
|
| $ | 475 |
|
| $ | 564 |
|
| $ | 900 |
|
2nd Quarter |
| $ | 526 |
|
| $ | 836 |
|
| $ | 608 |
|
| $ | 625 |
|
| $ | 526 |
|
| $ | 836 |
|
3rd Quarter |
| N/A |
|
| $ | 725 |
|
| $ | 674 |
|
| N/A |
|
| $ | 571 |
|
| $ | 725 |
| ||
4th Quarter |
| N/A |
|
| $ | 672 |
|
| $ | 860 |
|
| N/A |
|
| $ | 527 |
|
| $ | 672 |
| ||
Annual Avg. |
| $ | 545 |
|
| $ | 783 |
|
| $ | 687 |
|
| $ | 550 |
|
| $ | 547 |
|
| $ | 783 |
|
| 1 | CRU Hot-Rolled Index, period average |
Sales to one Steel Processing customer in the automotive industry represented 13%12% and 17% of consolidated net sales during the second quarter of fiscal 2020. No single customer contributed more than 10% of consolidated net sales during the second quarter of2021 and fiscal
27
2019. 2020, 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 second quarter of fiscal 2020,2021, vehicle production for the Detroit Three automakers was down 14%1% from fiscal 2019,2020, while North American vehicle production as a whole was down 7%.flat.
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 manufacturingplant operations and indirectly through transportation and freight expense.
25
Results of Operations
Second Quarter – Fiscal 20202021 Compared to Fiscal 20192020
Consolidated Operations
The following table presents consolidated operating results for the periods presented:
| Three Months Ended November 30, |
| Three Months Ended November 30, |
| ||||||||||||||||||||||||||||||||||
|
|
|
|
| % of |
|
|
|
|
|
| % of |
|
| Increase/ |
|
|
|
|
| % of |
|
|
|
|
|
| % of |
|
| Increase/ |
| ||||||
(in millions) | 2019 |
|
| Net sales |
|
| 2018 |
|
| Net sales |
|
| (Decrease) |
| ||||||||||||||||||||||||
(In millions) | 2020 |
|
| Net sales |
|
| 2019 |
|
| Net sales |
|
| (Decrease) |
| ||||||||||||||||||||||||
Net sales | $ | 827.6 |
|
|
| 100.0 | % |
| $ | 958.2 |
|
|
| 100.0 | % |
| $ | (130.6 | ) | $ | 731.1 |
|
|
| 100.0 | % |
| $ | 827.6 |
|
|
| 100.0 | % |
| $ | (96.5 | ) |
Cost of goods sold |
| 707.0 |
|
|
| 85.4 | % |
|
| 837.3 |
|
|
| 87.4 | % |
|
| (130.3 | ) |
| 595.6 |
|
|
| 81.5 | % |
|
| 707.0 |
|
|
| 85.4 | % |
|
| (111.4 | ) |
Gross margin |
| 120.6 |
|
|
| 14.6 | % |
|
| 120.9 |
|
|
| 12.6 | % |
|
| (0.3 | ) |
| 135.5 |
|
|
| 18.5 | % |
|
| 120.6 |
|
|
| 14.6 | % |
|
| 14.9 |
|
Selling, general and administrative expense |
| 88.5 |
|
|
| 10.7 | % |
|
| 84.6 |
|
|
| 8.8 | % |
|
| 3.9 |
|
| 82.1 |
|
|
| 11.2 | % |
|
| 88.5 |
|
|
| 10.7 | % |
|
| (6.4 | ) |
Restructuring and other expense |
| - |
|
|
| 0.0 | % |
|
| 0.4 |
|
|
| 0.0 | % |
|
| 0.4 |
| |||||||||||||||||||
Impairment of long-lived assets |
| 3.8 |
|
|
| 0.5 | % |
|
| - |
|
|
| 0.0 | % |
|
| 3.8 |
| |||||||||||||||||||
Restructuring and other expense, net |
| 7.6 |
|
|
| 1.0 | % |
|
| - |
|
|
| 0.0 | % |
|
| 7.6 |
| |||||||||||||||||||
Incremental expenses related to Nikola gains |
| 4.6 |
|
|
| 0.6 | % |
|
| - |
|
|
| 0.0 | % |
|
| 4.6 |
| |||||||||||||||||||
Operating income |
| 32.1 |
|
|
| 3.9 | % |
|
| 35.9 |
|
|
| 3.7 | % |
|
| (3.8 | ) |
| 37.4 |
|
|
| 5.1 | % |
|
| 32.1 |
|
|
| 3.9 | % |
|
| 5.3 |
|
Miscellaneous income, net |
| 0.8 |
|
|
| 0.1 | % |
|
| 1.3 |
|
|
| 0.1 | % |
|
| (0.5 | ) |
| 0.4 |
|
|
| 0.1 | % |
|
| 0.8 |
|
|
| 0.1 | % |
|
| (0.4 | ) |
Interest expense |
| (7.3 | ) |
|
| -0.9 | % |
|
| (9.5 | ) |
|
| -1.0 | % |
|
| (2.2 | ) |
| (7.5 | ) |
|
| -1.0 | % |
|
| (7.3 | ) |
|
| -0.9 | % |
|
| 0.2 |
|
Equity in net income of unconsolidated affiliates (1) |
| 47.3 |
|
|
| 5.7 | % |
|
| 21.1 |
|
|
| 2.2 | % |
|
| 26.2 |
|
| 25.6 |
|
|
| 3.5 | % |
|
| 47.3 |
|
|
| 5.7 | % |
|
| (21.7 | ) |
Income tax expense |
| (15.9 | ) |
|
| -1.9 | % |
|
| (11.1 | ) |
|
| -1.2 | % |
|
| 4.8 |
| |||||||||||||||||||
Net earnings |
| 57.0 |
|
|
| 6.9 | % |
|
| 37.7 |
|
|
| 3.9 | % |
|
| 19.3 |
| |||||||||||||||||||
Loss on investment in Nikola |
| (143.8 | ) |
|
| -19.7 | % |
|
| - |
|
|
| 0.0 | % |
|
| 143.8 |
| |||||||||||||||||||
Income tax benefit (expense) |
| 19.4 |
|
|
| 2.7 | % |
|
| (15.9 | ) |
|
| -1.9 | % |
|
| 35.3 |
| |||||||||||||||||||
Net earnings (loss) |
| (68.5 | ) |
|
| -9.4 | % |
|
| 57.0 |
|
|
| 6.9 | % |
|
| (125.5 | ) | |||||||||||||||||||
Net earnings attributable to noncontrolling interests |
| 4.9 |
|
|
| 0.6 | % |
|
| 3.7 |
|
|
| 0.4 | % |
|
| 1.2 |
|
| 5.5 |
|
|
| 0.8 | % |
|
| 4.9 |
|
|
| 0.6 | % |
|
| 0.6 |
|
Net earnings attributable to controlling interest | $ | 52.1 |
|
|
| 6.3 | % |
| $ | 34.0 |
|
|
| 3.5 | % |
| $ | 18.1 |
| |||||||||||||||||||
Net earnings (loss) attributable to controlling interest | $ | (74.0 | ) |
|
| -10.1 | % |
| $ | 52.1 |
|
|
| 6.3 | % |
| $ | (126.1 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Equity in net income by unconsolidated affiliate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WAVE | $ | 41.8 |
|
|
|
|
|
| $ | 18.4 |
|
|
|
|
|
| $ | 23.4 |
| $ | 17.3 |
|
|
|
|
|
| $ | 41.8 |
|
|
|
|
|
| $ | (24.5 | ) |
ClarkDietrich |
| 4.9 |
|
|
|
|
|
|
| (0.5 | ) |
|
|
|
|
|
| 5.4 |
|
| 5.4 |
|
|
|
|
|
|
| 4.9 |
|
|
|
|
|
|
| 0.5 |
|
Serviacero Worthington |
| 0.8 |
|
|
|
|
|
|
| 2.7 |
|
|
|
|
|
|
| (1.9 | ) |
| 1.9 |
|
|
|
|
|
|
| 0.8 |
|
|
|
|
|
|
| 1.1 |
|
ArtiFlex |
| 1.1 |
|
|
|
|
|
|
| 0.4 |
|
|
|
|
|
|
| 0.7 |
|
| 1.2 |
|
|
|
|
|
|
| 1.1 |
|
|
|
|
|
|
| 0.1 |
|
Other |
| (1.3 | ) |
|
|
|
|
|
| 0.1 |
|
|
|
|
|
|
| (1.4 | ) |
| (0.2 | ) |
|
|
|
|
|
| (1.3 | ) |
|
|
|
|
|
| 1.1 |
|
Total | $ | 47.3 |
|
|
|
|
|
| $ | 21.1 |
|
|
|
|
|
| $ | 26.2 |
| $ | 25.6 |
|
|
|
|
|
| $ | 47.3 |
|
|
|
|
|
| $ | (21.7 | ) |
Net earnings attributable to controlling interest for the three months ended November 30, 2019 increased $18.1 million over the comparable period in the prior year. Net sales and operatingOperating highlights for the second quarter of fiscal 20202021 were as follows:
| • | Net sales decreased |
|
|
|
|
| • |
|
• | SG&A expense decreased |
• | Impairment of long-lived assets totaled $3.8 million in the current quarter, related to the write-down of certain assets in the oil and gas equipment business in Pressure Cylinders. For additional information, refer to “NOTE E – Impairment of Long-Lived Assets”. |
• | Restructuring and other expense, net totaled $7.6 million and primarily resulted from a pre-tax loss within Pressure Cylinders on the combined sale of the cryogenics business primarily operated out of Theodore, Alabama. For additional information regarding the Company’s restructuring activities, refer to “NOTE F – Restructuring and Other Expense, Net”. |
2826
| • |
|
• | Interest expense increased |
• | Equity income decreased $21.7 million from the comparable quarter in the prior year, as the prior year quarter includes a $23.1 million pre-tax gain related to the sale of WAVE’s international |
| • | Loss on investment in Nikola totaled $143.8 million and resulted from writing down the 7,048,020 shares of Nikola common stock that the Company continued to own at November 30, 2020 to the market value. For additional information, refer to “NOTE C – Investment in Nikola”. |
• | Income tax |
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 November 30, |
| ||||||||||||||||||||||||||||||||||
|
|
|
|
| % of |
|
|
|
|
|
| % of |
|
| Increase/ |
|
|
|
|
| % of |
|
|
|
|
|
| % of |
|
| Increase/ |
| ||||||
(dollars in millions) | 2019 |
|
| Net sales |
|
| 2018 |
|
| Net sales |
|
| (Decrease) |
| ||||||||||||||||||||||||
(Dollars in millions) | 2020 |
|
| Net sales |
|
| 2019 |
|
| Net sales |
|
| (Decrease) |
| ||||||||||||||||||||||||
Net sales | $ | 516.9 |
|
|
| 100.0 | % |
| $ | 635.0 |
|
|
| 100.0 | % |
| $ | (118.1 | ) | $ | 468.7 |
|
|
| 100.0 | % |
| $ | 516.9 |
|
|
| 100.0 | % |
| $ | (48.2 | ) |
Cost of goods sold |
| 462.3 |
|
|
| 89.4 | % |
|
| 576.0 |
|
|
| 90.7 | % |
|
| (113.7 | ) |
| 391.7 |
|
|
| 83.6 | % |
|
| 462.3 |
|
|
| 89.4 | % |
|
| (70.6 | ) |
Gross margin |
| 54.6 |
|
|
| 10.6 | % |
|
| 59.0 |
|
|
| 9.3 | % |
|
| (4.4 | ) |
| 77.0 |
|
|
| 16.4 | % |
|
| 54.6 |
|
|
| 10.6 | % |
|
| 22.4 |
|
Selling, general and administrative expense |
| 37.5 |
|
|
| 7.3 | % |
|
| 34.0 |
|
|
| 5.4 | % |
|
| 3.5 |
|
| 38.8 |
|
|
| 8.3 | % |
|
| 37.5 |
|
|
| 7.3 | % |
|
| 1.3 |
|
Restructuring and other expense, net |
| 0.4 |
|
|
| 0.1 | % |
|
| - |
|
|
| 0.0 | % |
|
| 0.4 |
| |||||||||||||||||||
Operating income | $ | 17.1 |
|
|
| 3.3 | % |
| $ | 25.0 |
|
|
| 3.9 | % |
| $ | (7.9 | ) | $ | 37.8 |
|
|
| 8.1 | % |
| $ | 17.1 |
|
|
| 3.3 | % |
| $ | 20.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Material cost | $ | 370.8 |
|
|
|
|
|
| $ | 482.9 |
|
|
|
|
|
| $ | (112.1 | ) | $ | 313.3 |
|
|
|
|
|
| $ | 370.8 |
|
|
|
|
|
| $ | (57.5 | ) |
Tons shipped (in thousands) |
| 1,005 |
|
|
|
|
|
|
| 951 |
|
|
|
|
|
|
| 54 |
|
| 1,024 |
|
|
|
|
|
|
| 1,005 |
|
|
|
|
|
|
| 19 |
|
Net sales and operatingOperating highlights for the second quarter of fiscal 20202021 were as follows:
| • | Net sales decreased |
| • | Operating income |
2927
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 November 30, |
| ||||||||||||||||||||||||||||||||||
|
|
|
|
| % of |
|
|
|
|
|
| % of |
|
| Increase/ |
|
|
|
|
| % of |
|
|
|
|
|
| % of |
|
| Increase/ |
| ||||||
(dollars in millions) | 2019 |
|
| Net sales |
|
| 2018 |
|
| Net sales |
|
| (Decrease) |
| ||||||||||||||||||||||||
(Dollars in millions) | 2020 |
|
| Net sales |
|
| 2019 |
|
| Net sales |
|
| (Decrease) |
| ||||||||||||||||||||||||
Net sales | $ | 290.1 |
|
|
| 100.0 | % |
| $ | 294.4 |
|
|
| 100.0 | % |
| $ | (4.3 | ) | $ | 262.2 |
|
|
| 100.0 | % |
| $ | 290.1 |
|
|
| 100.0 | % |
| $ | (27.9 | ) |
Cost of goods sold |
| 225.7 |
|
|
| 77.8 | % |
|
| 234.5 |
|
|
| 79.7 | % |
|
| (8.8 | ) |
| 203.2 |
|
|
| 77.5 | % |
|
| 225.7 |
|
|
| 77.8 | % |
|
| (22.5 | ) |
Gross margin |
| 64.4 |
|
|
| 22.2 | % |
|
| 59.9 |
|
|
| 20.3 | % |
|
| 4.5 |
|
| 59.0 |
|
|
| 22.5 | % |
|
| 64.4 |
|
|
| 22.2 | % |
|
| (5.4 | ) |
Selling, general and administrative expense |
| 48.7 |
|
|
| 16.8 | % |
|
| 44.7 |
|
|
| 15.2 | % |
|
| 4.0 |
|
| 44.6 |
|
|
| 17.0 | % |
|
| 48.7 |
|
|
| 16.8 | % |
|
| (4.1 | ) |
Restructuring and other expense |
| - |
|
|
| 0.0 | % |
|
| 0.4 |
|
|
| 0.1 | % |
|
| 0.4 |
| |||||||||||||||||||
Impairment of long-lived assets |
| 3.8 |
|
|
| 1.4 | % |
|
| - |
|
|
| 0.0 | % |
|
| 3.8 |
| |||||||||||||||||||
Restructuring and other expense, net |
| 7.3 |
|
|
| 2.8 | % |
|
| - |
|
|
| 0.0 | % |
|
| 7.3 |
| |||||||||||||||||||
Operating income | $ | 15.7 |
|
|
| 5.4 | % |
| $ | 14.8 |
|
|
| 5.0 | % |
| $ | 0.9 |
| $ | 3.3 |
|
|
| 1.3 | % |
| $ | 15.7 |
|
|
| 5.4 | % |
| $ | (12.4 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Material cost | $ | 127.1 |
|
|
|
|
|
| $ | 133.5 |
|
|
|
|
|
| $ | (6.4 | ) | $ | 108.9 |
|
|
|
|
|
| $ | 127.1 |
|
|
|
|
|
| $ | (18.2 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units shipped by principal class of products: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer products |
| 18,675,057 |
|
|
|
|
|
|
| 16,980,934 |
|
|
|
|
|
|
| 1,694,123 |
|
| 15,915,466 |
|
|
|
|
|
|
| 18,675,057 |
|
|
|
|
|
|
| (2,759,591 | ) |
Industrial products |
| 2,932,923 |
|
|
|
|
|
|
| 3,162,063 |
|
|
|
|
|
|
| (229,140 | ) |
| 3,265,076 |
|
|
|
|
|
|
| 2,932,923 |
|
|
|
|
|
|
| 332,153 |
|
Oil & gas equipment |
| 376 |
|
|
|
|
|
|
| 314 |
|
|
|
|
|
|
| 62 |
|
| 204 |
|
|
|
|
|
|
| 376 |
|
|
|
|
|
|
| (172 | ) |
Total Pressure Cylinders |
| 21,608,356 |
|
|
|
|
|
|
| 20,143,311 |
|
|
|
|
|
|
| 1,465,045 |
|
| 19,180,746 |
|
|
|
|
|
|
| 21,608,356 |
|
|
|
|
|
|
| (2,427,610 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales by principal class of products: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer products | $ | 128.0 |
|
|
|
|
|
| $ | 117.2 |
|
|
|
|
|
| $ | 10.8 |
| $ | 121.6 |
|
|
|
|
|
| $ | 128.0 |
|
|
|
|
|
| $ | (6.4 | ) |
Industrial products |
| 130.4 |
|
|
|
|
|
|
| 152.0 |
|
|
|
|
|
|
| (21.6 | ) |
| 134.0 |
|
|
|
|
|
|
| 130.4 |
|
|
|
|
|
|
| 3.6 |
|
Oil & gas equipment |
| 31.7 |
|
|
|
|
|
|
| 25.2 |
|
|
|
|
|
|
| 6.5 |
|
| 6.6 |
|
|
|
|
|
|
| 31.7 |
|
|
|
|
|
|
| (25.1 | ) |
Total Pressure Cylinders | $ | 290.1 |
|
|
|
|
|
| $ | 294.4 |
|
|
|
|
|
| $ | (4.3 | ) | $ | 262.2 |
|
|
|
|
|
| $ | 290.1 |
|
|
|
|
|
| $ | (27.9 | ) |
Net sales and operatingOperating highlights for the second quarter of fiscal 20202021 were as follows:
| • | Net sales decreased |
| • | Operating income of |
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 of the net assets were deconsolidated. The following table presents a summary of the operating results for the Other categoryCategory for the periods presented:
| Three Months Ended November 30, |
| Three Months Ended November 30, |
| ||||||||||||||||||||||||||||||||||
|
|
|
|
| % of |
|
|
|
|
|
| % of |
|
| Increase/ |
|
|
|
|
| % of |
|
|
|
|
|
| % of |
|
| Increase/ |
| ||||||
(in millions) | 2019 |
|
| Net sales |
|
| 2018 |
|
| Net sales |
|
| (Decrease) |
| ||||||||||||||||||||||||
(In millions) | 2020 |
|
| Net sales |
|
| 2019 |
|
| Net sales |
|
| (Decrease) |
| ||||||||||||||||||||||||
Net sales | $ | 20.6 |
|
|
| 100.0 | % |
| $ | 28.7 |
|
|
| 100.0 | % |
| $ | (8.1 | ) | $ | 0.1 |
|
|
| 100.0 | % |
| $ | 20.6 |
|
|
| 100.0 | % |
| $ | (20.5 | ) |
Cost of goods sold |
| 19.0 |
|
|
| 92.2 | % |
|
| 26.7 |
|
|
| 93.0 | % |
|
| (7.7 | ) |
| 0.7 |
|
|
| 700.0 | % |
|
| 19.0 |
|
|
| 92.2 | % |
|
| (18.3 | ) |
Gross margin |
| 1.6 |
|
|
| 7.8 | % |
|
| 2.0 |
|
|
| 7.0 | % |
|
| (0.4 | ) | |||||||||||||||||||
Gross margin (loss) |
| (0.6 | ) |
|
| -600.0 | % |
|
| 1.6 |
|
|
| 7.8 | % |
|
| (2.2 | ) | |||||||||||||||||||
Selling, general and administrative expense |
| 2.4 |
|
|
| 11.7 | % |
|
| 5.9 |
|
|
| 20.6 | % |
|
| (3.5 | ) |
| (0.1 | ) |
|
| -100.0 | % |
|
| 3.6 |
|
|
| 17.5 | % |
|
| (3.7 | ) |
Restructuring and other income |
| (0.1 | ) |
|
| -0.5 | % |
|
| - |
|
|
| 0.0 | % |
|
| 0.1 |
| |||||||||||||||||||
Restructuring and other income, net |
| (0.1 | ) |
|
| -100.0 | % |
|
| (0.1 | ) |
|
| -0.5 | % |
|
| 0.0 |
| |||||||||||||||||||
Operating loss | $ | (0.7 | ) |
|
| -3.4 | % |
| $ | (3.9 | ) |
|
| -13.6 | % |
| $ | 3.2 |
| $ | (0.4 | ) |
|
| -400.0 | % |
| $ | (1.9 | ) |
|
| -9.2 | % |
| $ | (1.5 | ) |
30
Operating highlights for the second quarter of fiscal 20202021 were as follows:
| • | Net sales and operating loss decreased $20.5 million and $1.5 million, respectively, from the comparable period in the prior year due to the deconsolidation of substantially all of the net assets of our former Engineered Cabs operating segment effective November 1, 2019. For additional information on the deconsolidation, refer to “NOTE A – Basis of Presentation”. |
Six Months Year-to-Date – Fiscal 2021 Compared to Fiscal 2020
Consolidated Operations
The following table presents consolidated operating results for the periods presented:
| Six Months Ended November 30, |
| |||||||||||||||||
|
|
|
|
| % of |
|
|
|
|
|
| % of |
|
| Increase/ |
| |||
(In millions) | 2020 |
|
| Net sales |
|
| 2019 |
|
| Net sales |
|
| (Decrease) |
| |||||
Net sales | $ | 1,434.0 |
|
|
| 100.0 | % |
| $ | 1,683.5 |
|
|
| 100.0 | % |
| $ | (249.5 | ) |
Cost of goods sold |
| 1,185.1 |
|
|
| 82.6 | % |
|
| 1,445.6 |
|
|
| 85.9 | % |
|
| (260.5 | ) |
Gross margin |
| 248.9 |
|
|
| 17.4 | % |
|
| 237.9 |
|
|
| 14.1 | % |
|
| 11.0 |
|
Selling, general and administrative expense |
| 164.4 |
|
|
| 11.5 | % |
|
| 179.4 |
|
|
| 10.7 | % |
|
| (15.0 | ) |
Impairment of long-lived assets |
| 13.7 |
|
|
| 1.0 | % |
|
| 40.6 |
|
|
| 2.4 | % |
|
| (26.9 | ) |
Restructuring and other expense, net |
| 9.4 |
|
|
| 0.7 | % |
|
| 0.4 |
|
|
| 0.0 | % |
|
| 9.0 |
|
Incremental expenses related to Nikola gains |
| 54.1 |
|
|
| 3.8 | % |
|
| - |
|
|
| 0.0 | % |
|
| 54.1 |
|
Operating income |
| 7.3 |
|
|
| 0.5 | % |
|
| 17.5 |
|
|
| 1.0 | % |
|
| (10.2 | ) |
Miscellaneous income, net |
| 1.0 |
|
|
| 0.1 | % |
|
| 1.4 |
|
|
| 0.1 | % |
|
| (0.4 | ) |
Interest expense |
| (15.1 | ) |
|
| -1.1 | % |
|
| (16.8 | ) |
|
| -1.0 | % |
|
| (1.7 | ) |
Equity in net income of unconsolidated affiliates (1) |
| 49.2 |
|
|
| 3.4 | % |
|
| 72.1 |
|
|
| 4.3 | % |
|
| (22.9 | ) |
Gains on investment in Nikola |
| 652.3 |
|
|
| 45.5 | % |
|
| - |
|
|
| 0.0 | % |
|
| 652.3 |
|
Loss on extinguishment of debt |
| - |
|
|
| 0.0 | % |
|
| (4.0 | ) |
|
| -0.2 | % |
|
| (4.0 | ) |
Income tax expense |
| (144.4 | ) |
|
| -10.1 | % |
|
| (15.7 | ) |
|
| -0.9 | % |
|
| 128.7 |
|
Net earnings |
| 550.3 |
|
|
| 38.4 | % |
|
| 54.5 |
|
|
| 3.2 | % |
|
| 495.8 |
|
Net earnings attributable to noncontrolling interests |
| 7.6 |
|
|
| 0.5 | % |
|
| 7.2 |
|
|
| 0.4 | % |
|
| 0.4 |
|
Net earnings attributable to controlling interest | $ | 542.7 |
|
|
| 37.8 | % |
| $ | 47.3 |
|
|
| 2.8 | % |
| $ | 495.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Equity in net income by unconsolidated affiliate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WAVE | $ | 35.0 |
|
|
|
|
|
| $ | 65.7 |
|
|
|
|
|
| $ | (30.7 | ) |
ClarkDietrich |
| 10.3 |
|
|
|
|
|
|
| 9.0 |
|
|
|
|
|
|
| 1.3 |
|
Serviacero Worthington |
| 3.2 |
|
|
|
|
|
|
| 1.6 |
|
|
|
|
|
|
| 1.6 |
|
ArtiFlex |
| 1.1 |
|
|
|
|
|
|
| 1.3 |
|
|
|
|
|
|
| (0.2 | ) |
Other |
| (0.4 | ) |
|
|
|
|
|
| (5.5 | ) |
|
|
|
|
|
| 5.1 |
|
Total | $ | 49.2 |
|
|
|
|
|
| $ | 72.1 |
|
|
|
|
|
| $ | (22.9 | ) |
Operating highlights for the six months ended November 30, 2020 were as follows:
• | Net sales decreased |
• | Gross margin increased $11.0 million over the comparable period in the prior year. The increase was primarily due to improved direct spreads in Steel Processing, up $19.4 million from the prior year period, driven by lower inventory holding losses and arbitrage gains, combined with lower manufacturing expenses, driven largely by reductions in workforce in response to COVID-19. The overall increase in Steel Processing was partially offset by the combination of an $11.5 million |
29
benefit recognized in the prior year quarter related to the cancellation of a customer take-or-pay contract within the industrial products business and lower volumes in the oil and gas equipment business within Pressure Cylinders. |
• | SG&A expense decreased $15.0 million from the comparable period in the prior year. The decrease was driven primarily by lower wages and benefits, driven by the reduction in workforce related to COVID-19 that was implemented in the fourth quarter of fiscal 2020 and first quarter of fiscal 2021, and the impact of the deconsolidation of the former Engineered Cabs business in the prior year. Overall, SG&A expense was 11.5% of consolidated net sales compared to 10.7% in the comparable period in the prior year, primarily the result of the lower period sales. |
• | Impairment of long-lived assets totaled $13.7 million in the current period, primarily due to charges in Pressure Cylinders of $8.0 million to write-down certain assets in the cryogenics business and $3.8 million to write-down certain assets in the oil and gas equipment business. Impairment charges in the prior year period totaled $40.6 million to write-down certain assets in the former Engineered Cabs business. For additional information, refer to “NOTE E – Impairment of Long-Lived Assets”. |
• | Restructuring and other expense, net totaled $9.4 million and primarily resulted from a $7.1 million pre-tax loss within Pressure Cylinders on the sale of the cryogenics business primarily operated out of Theodore, Alabama and severance expense in connection with the reduction in workforce in Steel Processing related to the continued impact of COVID-19. For additional information regarding the Company’s restructuring activities, refer to “NOTE F – Restructuring and Other Expense, Net”. |
• | Incremental expenses related to Nikola gains of $54.1 million consisted of $33.5 million of increased profit sharing and bonus expenses related to the Nikola investment gains and $20.6 million for the contribution of 500,000 shares of Nikola common stock to the Worthington Industries Foundation in the first quarter of fiscal 2021. The Company expects to incur additional bonus expense related to the Nikola gains of approximately $4.0 million, which will be recognized evenly over the remainder of fiscal 2021. For additional information, refer to “NOTE C – Investment in Nikola”. |
• | Interest expense decreased $1.7 million from the comparable period in the prior year. The decrease was due primarily to lower average interest rates resulting from the debt refinancing transactions completed in the first quarter of fiscal 2020. |
• | Equity income decreased $22.9 million from the comparable period in the prior year, as the prior year included a $23.1 million pre-tax gain related to the sale of WAVE’s international operations and a $4.2 million impairment charge to write-off the Company’s investment in its former steel processing joint venture in China. WAVE’s contribution to equity income, excluding the pre-tax gain, was down $7.6 million on decreased volumes and higher partner allocations. We received cash distributions of $47.1 million from our unconsolidated affiliates during the current year period. For additional information regarding our unconsolidated affiliates, refer to “NOTE D – Investments in Unconsolidated Affiliates”. |
30
• | Gains on investment in Nikola totaled $652.3 million and consisted of $508.5 million of realized gains from the sale and charitable contribution of the Company’s Nikola shares in the first quarter of fiscal 2021 combined with a $143.8 million unrealized gain related to the 7,048,020 shares of Nikola common stock the Company continued to own at November 30, 2020. |
• | Income tax expense increased $128.7 million from the comparable period in the prior year primarily due to the impact of the Nikola gains and associated expenses and the previously explained impairment and restructuring charges. The current period tax expense was calculated using an estimated annual effective income tax rate of 21.5% versus 24.8% in the prior year comparable period. For additional information regarding the Company’s income taxes, refer to “NOTE M – Income Taxes”. |
Segment Operations
Steel Processing
The following table presents a summary of operating results for our Steel Processing operating segment for the periods presented:
| Six Months Ended November 30, |
| |||||||||||||||||
|
|
|
|
| % of |
|
|
|
|
|
| % of |
|
| Increase/ |
| |||
(Dollars in millions) | 2020 |
|
| Net sales |
|
| 2019 |
|
| Net sales |
|
| (Decrease) |
| |||||
Net sales | $ | 899.7 |
|
|
| 100.0 | % |
| $ | 1,040.3 |
|
|
| 100.0 | % |
| $ | (140.6 | ) |
Cost of goods sold |
| 772.0 |
|
|
| 85.8 | % |
|
| 944.0 |
|
|
| 90.7 | % |
|
| (172.0 | ) |
Gross margin |
| 127.7 |
|
|
| 14.2 | % |
|
| 96.3 |
|
|
| 9.3 | % |
|
| 31.4 |
|
Selling, general and administrative expense |
| 74.4 |
|
|
| 8.3 | % |
|
| 73.0 |
|
|
| 7.0 | % |
|
| 1.4 |
|
Restructuring and other expense |
| 1.9 |
|
|
| 0.2 | % |
|
| - |
|
|
| 0.0 | % |
|
| 1.9 |
|
Operating income | $ | 51.4 |
|
|
| 5.7 | % |
| $ | 23.3 |
|
|
| 2.2 | % |
| $ | 28.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Material cost | $ | 618.9 |
|
|
|
|
|
| $ | 767.2 |
|
|
|
|
|
| $ | (148.3 | ) |
Tons shipped (in thousands) |
| 1,952 |
|
|
|
|
|
|
| 1,896 |
|
|
|
|
|
|
| 56 |
|
Operating highlights for the six months ended November 30, 2020 were as follows:
• | Net sales decreased $140.6 million from the comparable period in the prior year, driven by lower average selling prices and lower direct volumes, which decreased net sales by $100.2 million and $41.1 million, respectively. The mix of direct versus toll tons processed was 49% to 51% compared to 52% and 48% in the comparable prior year period. The change in mix in fiscal 2021 was driven primarily by the consolidation of the Samuel joint venture. |
• | Operating income increased $28.1 million over the comparable period in the prior year, as the decrease in lower average selling prices and direct volumes was more than offset by improved spreads and lower manufacturing expenses, driven largely by reductions in workforce in response to COVID-19. The improvement in spreads was largely driven by the lower inventory holding losses estimated to be $6.6 million in the current period compared to $14.9 million in the comparable period of the prior year, and arbitrage gains in the current quarter. |
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, |
| |||||||||||||||||
|
|
|
|
| % of |
|
|
|
|
|
| % of |
|
| Increase/ |
| |||
(Dollars in millions) | 2020 |
|
| Net sales |
|
| 2019 |
|
| Net sales |
|
| (Decrease) |
| |||||
Net sales | $ | 533.1 |
|
|
| 100.0 | % |
| $ | 594.5 |
|
|
| 100.0 | % |
| $ | (61.4 | ) |
Cost of goods sold |
| 411.8 |
|
|
| 77.2 | % |
|
| 454.0 |
|
|
| 76.4 | % |
|
| (42.2 | ) |
Gross margin |
| 121.3 |
|
|
| 22.8 | % |
|
| 140.5 |
|
|
| 23.6 | % |
|
| (19.2 | ) |
Selling, general and administrative expense |
| 88.1 |
|
|
| 16.5 | % |
|
| 95.2 |
|
|
| 16.0 | % |
|
| (7.1 | ) |
Impairment of long-lived assets |
| 13.7 |
|
|
| 2.6 | % |
|
| - |
|
|
| 0.0 | % |
|
| 13.7 |
|
Restructuring and other expense |
| 7.6 |
|
|
| 1.4 | % |
|
| - |
|
|
| 0.0 | % |
|
| 7.6 |
|
Operating income | $ | 11.9 |
|
|
| 2.2 | % |
| $ | 45.3 |
|
|
| 7.6 | % |
| $ | (33.4 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Material cost | $ | 224.6 |
|
|
|
|
|
| $ | 254.0 |
|
|
|
|
|
| $ | (29.4 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales by principal class of products: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer products | $ | 254.4 |
|
|
|
|
|
| $ | 247.5 |
|
|
|
|
|
| $ | 6.9 |
|
Industrial products |
| 262.2 |
|
|
|
|
|
|
| 283.0 |
|
|
|
|
|
|
| (20.8 | ) |
Oil & gas equipment |
| 16.5 |
|
|
|
|
|
|
| 64.0 |
|
|
|
|
|
|
| (47.5 | ) |
Total Pressure Cylinders | $ | 533.1 |
|
|
|
|
|
| $ | 594.5 |
|
|
|
|
|
| $ | (61.4 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units shipped by principal class of products: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer products |
| 33,772,607 |
|
|
|
|
|
|
| 35,573,447 |
|
|
|
|
|
|
| (1,800,840 | ) |
Industrial products |
| 7,150,881 |
|
|
|
|
|
|
| 6,217,378 |
|
|
|
|
|
|
| 933,503 |
|
Oil & gas equipment |
| 323 |
|
|
|
|
|
|
| 1,219 |
|
|
|
|
|
|
| (896 | ) |
Total Pressure Cylinders |
| 40,923,811 |
|
|
|
|
|
|
| 41,792,044 |
|
|
|
|
|
|
| (868,233 | ) |
Operating highlights for the six months ended November 30, 2020 were as follows:
• | Net sales decreased $61.4 million from the comparable period in the prior year, primarily due to lower volumes in the oil and gas equipment business and the early termination of a customer take-or-pay contract within the industrial products business, effectively accelerating $14.2 million of future planned sales into the prior year quarter. |
• | Operating income decreased $33.4 million from the comparable period in the prior year, when the impact of the take-or-pay contract cancellation contributed $11.5 million of gross margin. The remaining decline was primarily due to $21.3 million of current period impairment and restructuring charges, as discussed further in “NOTE E – Impairment of Long-Lived Assets” and “NOTE F – Restructuring and Other Expenses, Net”. |
Other
The Other category includes the results of the former Engineered Cabs operating segment, on a historical basis through November 1, 2019, when substantially all of the net assets were deconsolidated. The following table presents a summary of the operating results for the Other Category for the periods indicated:
| Six Months Ended November 30, |
| |||||||||||||||||
|
|
|
|
| % of |
|
|
|
|
|
| % of |
|
| Increase/ |
| |||
(In millions) | 2020 |
|
| Net sales |
|
| 2019 |
|
| Net sales |
|
| (Decrease) |
| |||||
Net sales | $ | 1.1 |
|
|
| 100.0 | % |
| $ | 48.7 |
|
|
| 100.0 | % |
| $ | (47.6 | ) |
Cost of goods sold |
| 1.3 |
|
|
| 118.2 | % |
|
| 47.6 |
|
|
| 97.7 | % |
|
| (46.3 | ) |
Gross margin (loss) |
| (0.2 | ) |
|
| -18.2 | % |
|
| 1.1 |
|
|
| 2.3 | % |
|
| (1.3 | ) |
Selling, general and administrative expense |
| 0.9 |
|
|
| 81.8 | % |
|
| 7.2 |
|
|
| 14.8 | % |
|
| (6.3 | ) |
Impairment of goodwill and long-lived assets |
| - |
|
|
| 0.0 | % |
|
| 40.6 |
|
|
| 83.4 | % |
|
| (40.6 | ) |
Restructuring and other expense |
| - |
|
|
| 0.0 | % |
|
| 0.4 |
|
|
| 0.8 | % |
|
| (0.4 | ) |
Operating loss | $ | (1.1 | ) |
|
| -100.0 | % |
| $ | (47.1 | ) |
|
| -96.7 | % |
| $ | (46.0 | ) |
Operating highlights for the six months ended November 30, 2020 were as follows:
• | Net sales decreased $47.6 million from the comparable period in the prior year due to the deconsolidation of substantially all the net assets of our former Engineered Cabs operating segment effective November 1, 2019. For additional information on the deconsolidation, refer to |
| • | Operating loss of |
Six 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, |
| |||||||||||||||||
|
|
|
|
| % of |
|
|
|
|
|
| % of |
|
| Increase/ |
| |||
(in millions) | 2019 |
|
| Net sales |
|
| 2018 |
|
| Net sales |
|
| (Decrease) |
| |||||
Net sales | $ | 1,683.5 |
|
|
| 100.0 | % |
| $ | 1,946.3 |
|
|
| 100.0 | % |
| $ | (262.8 | ) |
Cost of goods sold |
| 1,445.6 |
|
|
| 85.9 | % |
|
| 1,682.4 |
|
|
| 86.4 | % |
|
| (236.8 | ) |
Gross margin |
| 237.9 |
|
|
| 14.1 | % |
|
| 263.9 |
|
|
| 13.6 | % |
|
| (26.0 | ) |
Selling, general and administrative expense |
| 179.4 |
|
|
| 10.7 | % |
|
| 175.2 |
|
|
| 9.0 | % |
|
| 4.2 |
|
Impairment of goodwill and long-lived assets |
| 40.6 |
|
|
| 2.4 | % |
|
| 2.4 |
|
|
| 0.1 | % |
|
| 38.2 |
|
Restructuring and other expense (income), net |
| 0.4 |
|
|
| 0.0 | % |
|
| (0.5 | ) |
|
| 0.0 | % |
|
| (0.9 | ) |
Operating income |
| 17.5 |
|
|
| 1.0 | % |
|
| 86.8 |
|
|
| 4.5 | % |
|
| (69.3 | ) |
Miscellaneous income, net |
| 1.4 |
|
|
| 0.1 | % |
|
| 1.6 |
|
|
| 0.1 | % |
|
| (0.2 | ) |
Interest expense |
| (16.8 | ) |
|
| -1.0 | % |
|
| (19.2 | ) |
|
| -1.0 | % |
|
| (2.4 | ) |
Loss on extinguishment of debt |
| (4.0 | ) |
|
| -0.2 | % |
|
| - |
|
|
| 0.0 | % |
|
| (4.0 | ) |
Equity in net income of unconsolidated affiliates (1) |
| 72.1 |
|
|
| 4.3 | % |
|
| 51.1 |
|
|
| 2.6 | % |
|
| 21.0 |
|
Income tax expense |
| (15.7 | ) |
|
| -0.9 | % |
|
| (25.6 | ) |
|
| -1.3 | % |
|
| (9.9 | ) |
Net earnings |
| 54.5 |
|
|
| 3.2 | % |
|
| 94.7 |
|
|
| 4.9 | % |
|
| (40.2 | ) |
Net earnings attributable to noncontrolling interests |
| 7.2 |
|
|
| 0.4 | % |
|
| 5.8 |
|
|
| 0.3 | % |
|
| 1.4 |
|
Net earnings attributable to controlling interest | $ | 47.3 |
|
|
| 2.8 | % |
| $ | 88.9 |
|
|
| 4.6 | % |
| $ | (41.6 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Equity in net income by unconsolidated affiliate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WAVE | $ | 65.7 |
|
|
|
|
|
| $ | 40.4 |
|
|
|
|
|
| $ | 25.3 |
|
ClarkDietrich |
| 9.0 |
|
|
|
|
|
|
| 3.0 |
|
|
|
|
|
|
| 6.0 |
|
Serviacero Worthington |
| 1.6 |
|
|
|
|
|
|
| 6.3 |
|
|
|
|
|
|
| (4.7 | ) |
ArtiFlex |
| 1.3 |
|
|
|
|
|
|
| 1.2 |
|
|
|
|
|
|
| 0.1 |
|
Other |
| (5.5 | ) |
|
|
|
|
|
| 0.2 |
|
|
|
|
|
|
| (5.7 | ) |
Total | $ | 72.1 |
|
|
|
|
|
| $ | 51.1 |
|
|
|
|
|
| $ | 21.0 |
|
Net earnings attributable to controlling interest for the six months ended November 30, 2019 decreased $41.6 million from the comparable period in the prior year. Net sales and operating highlights for the six months ended November 30, 2019 were as follows:
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
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, |
| |||||||||||||||||
|
|
|
|
| % of |
|
|
|
|
|
| % of |
|
| Increase/ |
| |||
(dollars in millions) | 2019 |
|
| Net sales |
|
| 2018 |
|
| Net sales |
|
| (Decrease) |
| |||||
Net sales | $ | 1,040.3 |
|
|
| 100.0 | % |
| $ | 1,295.5 |
|
|
| 100.0 | % |
| $ | (255.2 | ) |
Cost of goods sold |
| 944.0 |
|
|
| 90.7 | % |
|
| 1,156.8 |
|
|
| 89.3 | % |
|
| (212.8 | ) |
Gross margin |
| 96.3 |
|
|
| 9.3 | % |
|
| 138.7 |
|
|
| 10.7 | % |
|
| (42.4 | ) |
Selling, general and administrative expense |
| 73.0 |
|
|
| 7.0 | % |
|
| 74.0 |
|
|
| 5.7 | % |
|
| (1.0 | ) |
Operating income | $ | 23.3 |
|
|
| 2.2 | % |
| $ | 64.7 |
|
|
| 5.0 | % |
| $ | (41.4 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Material cost | $ | 767.2 |
|
|
|
|
|
| $ | 961.0 |
|
|
|
|
|
| $ | (193.8 | ) |
Tons shipped (in thousands) |
| 1,896 |
|
|
|
|
|
|
| 1,934 |
|
|
|
|
|
|
| (38 | ) |
Net sales and operating highlights for the six months ended November 30, 2019 were as follows:
|
|
|
|
32
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, |
| |||||||||||||||||
|
|
|
|
| % of |
|
|
|
|
|
| % of |
|
| Increase/ |
| |||
(dollars in millions) | 2019 |
|
| Net sales |
|
| 2018 |
|
| Net sales |
|
| (Decrease) |
| |||||
Net sales | $ | 594.5 |
|
|
| 100.0 | % |
| $ | 594.8 |
|
|
| 100.0 | % |
| $ | (0.3 | ) |
Cost of goods sold |
| 454.0 |
|
|
| 76.4 | % |
|
| 471.9 |
|
|
| 79.3 | % |
|
| (17.9 | ) |
Gross margin |
| 140.5 |
|
|
| 23.6 | % |
|
| 122.9 |
|
|
| 20.7 | % |
|
| 17.6 |
|
Selling, general and administrative expense |
| 95.2 |
|
|
| 16.0 | % |
|
| 91.5 |
|
|
| 15.4 | % |
|
| 3.7 |
|
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 | ) |
Operating income | $ | 45.3 |
|
|
| 7.6 | % |
| $ | 29.5 |
|
|
| 5.0 | % |
| $ | 15.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Material cost | $ | 254.0 |
|
|
|
|
|
| $ | 272.2 |
|
|
|
|
|
| $ | (18.2 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units shipped by principal class of products: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer products |
| 35,573,447 |
|
|
|
|
|
|
| 34,709,912 |
|
|
|
|
|
|
| 863,535 |
|
Industrial products |
| 6,217,378 |
|
|
|
|
|
|
| 7,231,559 |
|
|
|
|
|
|
| (1,014,181 | ) |
Oil & gas equipment |
| 1,219 |
|
|
|
|
|
|
| 938 |
|
|
|
|
|
|
| 281 |
|
Total Pressure Cylinders |
| 41,792,044 |
|
|
|
|
|
|
| 41,942,409 |
|
|
|
|
|
|
| (150,365 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales by principal class of products: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer products | $ | 247.5 |
|
|
|
|
|
| $ | 234.0 |
|
|
|
|
|
| $ | 13.5 |
|
Industrial products |
| 283.0 |
|
|
|
|
|
|
| 304.9 |
|
|
|
|
|
|
| (21.9 | ) |
Oil & gas equipment |
| 64.0 |
|
|
|
|
|
|
| 55.9 |
|
|
|
|
|
|
| 8.1 |
|
Total Pressure Cylinders | $ | 594.5 |
|
|
|
|
|
| $ | 594.8 |
|
|
|
|
|
| $ | (0.3 | ) |
Net sales and operating highlights for the six months ended November 30, 2019 were as follows:
|
|
|
|
33
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, |
| |||||||||||||||||
|
|
|
|
| % of |
|
|
|
|
|
| % of |
|
| Increase/ |
| |||
(in millions) | 2019 |
|
| Net sales |
|
| 2018 |
|
| Net sales |
|
| (Decrease) |
| |||||
Net sales | $ | 48.7 |
|
|
| 100.0 | % |
| $ | 56.0 |
|
|
| 100.0 | % |
| $ | (7.3 | ) |
Cost of goods sold |
| 47.6 |
|
|
| 97.7 | % |
|
| 53.7 |
|
|
| 95.9 | % |
|
| (6.1 | ) |
Gross margin |
| 1.1 |
|
|
| 2.3 | % |
|
| 2.3 |
|
|
| 4.1 | % |
|
| (1.2 | ) |
Selling, general and administrative expense |
| 11.2 |
|
|
| 23.0 | % |
|
| 9.7 |
|
|
| 17.3 | % |
|
| 1.5 |
|
Impairment of long-lived assets |
| 40.6 |
|
|
| 83.4 | % |
|
| - |
|
|
| 0.0 | % |
|
| 40.6 |
|
Restructuring and other expense |
| 0.4 |
|
|
| 0.8 | % |
|
| - |
|
|
| 0.0 | % |
|
| 0.4 |
|
Operating loss | $ | (51.1 | ) |
|
| -104.9 | % |
| $ | (7.4 | ) |
|
| -13.2 | % |
| $ | (43.7 | ) |
Operating highlights for the six months ended November 30, 2019 were as follows:
|
|
|
|
Liquidity and Capital Resources
During the six months ended November 30, 2019,2020, we received $487.9 million of pre-tax proceeds from the sale of Nikola shares, generated $168.5$224.8 million of cash from operating activities, invested $50.6$48.9 million in property, plant and equipment and paid $29.6dividends of $26.8 million on Worthington Industries, Inc.’s common shares. Additionally, we paid $92.9 million to acquire certain operating assetsrepurchase 2,318,464 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 750,000 of ourWorthington Industries, Inc.’s common shares at a total cost of $29.6 million, and paid dividends of $26.9 million.shares. The following table summarizes our consolidated cash flows for the periods presented:
| Six Months Ended November 30, |
| Six Months Ended November 30, |
| ||||||||||
(in millions) | 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
| ||||
Net cash provided by operating activities | $ | 168.5 |
|
| $ | 75.1 |
| $ | 224.8 |
|
| $ | 168.5 |
|
Net cash provided (used) by investing activities |
| (70.6 | ) |
|
| 34.5 |
|
| 460.4 |
|
|
| (70.6 | ) |
Net cash used by financing activities |
| (118.0 | ) |
|
| (138.6 | ) |
| (119.3 | ) |
|
| (118.0 | ) |
Decrease in cash and cash equivalents |
| (20.1 | ) |
|
| (29.0 | ) | |||||||
Increase (decrease) in cash and cash equivalents |
| 565.9 |
|
|
| (20.1 | ) | |||||||
Cash and cash equivalents at beginning of period |
| 92.4 |
|
|
| 122.0 |
|
| 147.2 |
|
|
| 92.4 |
|
Cash and cash equivalents at end of period | $ | 72.3 |
|
| $ | 93.0 |
| $ | 713.1 |
|
| $ | 72.3 |
|
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
33
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 $500.0 million of borrowing capacity available to be drawn as of November 30, 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 evolving, we will continue to review our discretionary spending and other variable costs as well as our liquidity needs.
34
We routinely monitor current operational requirements, financial market conditions, and credit relationships and we may choose to seek additional capital by issuing new debt and/or equity securities to strengthen our liquidity or capital structure. However, should we seek additional capital, there can be no assurance that we would be able to obtain such additional capital on terms acceptable to us, if at all, and such additional equity or debt financing could dilute the interests of our existing shareholders and/or increase our interest costs.
Operating Activities
Our business is cyclical and cash flows from operating activities may fluctuate during the year and from year to year due to economic and industry conditions. We rely on cash and short-term borrowings to meet cyclical increases in working capital needs. These needs generally rise during periods of increased economic activity or increasing raw material prices, due torequiring 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$224.8 million during the six months ended November 30, 20192020 compared to $75.1$168.5 million in the comparable periodquarter of fiscal 2019.2020. The $56.3 million increase in net cash provided by operating activities was driven primarily by lowerimproved operating results and changes in working capital needs due to declining steel prices and lower volumes partially offset by the impact of lower net earnings.capital.
Investing Activities
Net cash usedprovided by investing activities was $70.6$460.4 million during the six months ended November 30, 20192020 compared to net cash providedused by investing activities of $34.5$70.6 million in the comparable prior year period. The change from the prior year periodquarter was driven primarily by $55.2$487.9 million in excess distributionsof proceeds received from WAVE receivedthe sale of Nikola shares. We made capital expenditures of $48.9 million during the first six months of fiscal 2019. We also paid $29.62021 compared to $50.6 million induring the first six months of fiscal 2020. In the current year to acquire certain operating assets of Heidtman andperiod, we received $11.2$21.6 million less in net proceeds from asset sales, primarily from the sale of assets.the cryogenics business primarily operated out of Theodore, Alabama. In the prior year period, we received $9.2 million in net proceeds from asset sales, primarily from the sale of the Company’s cryogenics business in Turkey.
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 acquisitionsacquisition opportunities will be consummated, or that any needed additional financing will be available on satisfactory terms whenif required.
Financing Activities
Net cash used by financing activities was $118.0$119.3 million during the six months ended November 30, 20192020 compared to $138.6$118.0 million in the comparable prior year periodquarter. DuringThe increase was driven by the six months ended November 30, 2019,fact the Company had paid $154.0 million to redeem the $150.0 million aggregate principal amount of unsecured senior notes.notes in the prior year quarter. The redemption was funded in part by the issuance of euro-denominated unsecured Senior Notes, which resulted in net cash proceeds of $101.5$101.6 million. The net cash effect of these items was partiallymore than offset by $70.8the increase of $63.3 million in lowerpaid for common share repurchases in the current period.
Long-term debt and short-term borrowings – As of November 30, 2019,2020, 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, 20192020 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.2020.
Common shares – The Worthington Industries, Inc. Board of Directors (the “Worthington Industries Board”) declared a quarterly dividend of $0.25 per common share for the second quarter of fiscal 2021 compared to $0.24 per common share for the second quarter of fiscal 2020 compared to $0.23 per common share for the second quarter of fiscal 2019.2020. Dividends paid on ourWorthington Industries, Inc.’s common shares totaled $26.9$26.8 million and $26.3$26.9 million during the six months ended November 30, 20192020 and 2018,2019, respectively. On December 17, 2019,2020, the Worthington Industries Board declared a quarterly dividend for the third quarter of $0.24fiscal 2021 of $0.25 per share payable on March 27, 2020,29, 2021, to shareholders of record on March 13, 2020.15, 2021.
34
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 Worthington Industries, Inc.’s 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 under the March 20, 2019 authorization at November 30, 20192020 was 8,250,000.5,381,536.
35
Dividend Policy
We currently have no material contractual or regulatory restrictions on the payment of dividends. Dividends are declared at the discretion of the Worthington Industries Board. The Worthington Industries Board reviews the dividend quarterly and establishes the dividend rate based upon our consolidated financial condition, results of operations, capital requirements, current and projected cash flows, business prospects, and other relevant factors. While we have paid a dividend every quarter since becoming a public company in 1968, there is no guarantee that payments will continue in the future.
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 20192020 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, 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 million at November 30, 2019. Based on current facts and circumstances, we have estimated the likelihood of payment pursuant to this guarantee is not probable and, therefore, no amounts have been recognized in our consolidated financial statements.
Recently Issued Accounting Standards
In 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 20192020 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 these assets are used, resulting in an impairment charge of $5.4 million during the first quarter of fiscal 2020. On November 1, 2019, the assets of the disposal group were contributed to the Cabs joint venture. For additional information refer to “Item 1. – Financial Statements – Notes to Consolidated Financial Statements – NOTE A – Basis of Presentation” and “Item 1. – Financial Statements – Notes to Consolidated Financial Statements – NOTE E – Impairment of Long-Lived Assets”.
36
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 current and projected cash flows were deemed sufficient to recover the remaining book value of $54.6 million. However, it is possible the Company’s estimate of future cash flows could decline to a level that no longer supports the current book value of the investment. Factors which could have an adverse impact on the current cash flow projections, include, but are not limited to deteriorating market conditions as well as potential outcomes that may result from management’s review of strategic alternatives.
Item 3. – Quantitative and Qualitative Disclosures About Market Risk
Market risks have not changed significantly from those disclosed in “Part II – Item 7A. – Quantitative and Qualitative Disclosures About Market Risk” of our 20192020 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 U.S. 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)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.
35
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)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.
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 20192020 Form 10-K, as filed with the U.S. Securities and Exchange Commission on July 30, 2019,2020, 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, ourOur risk factors have not changed significantly from those disclosed in our 20192020 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 20192020 Form 10-K could materially affect our business, consolidated financial condition or future results and the actual outcome of matters as to which forward-looking statements are made. The risk factors described in our 20192020 Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, also may materially adversely affect our business, consolidated financial condition and/or future results.
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.
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, 2019:2020:
|
|
|
|
|
|
|
|
| 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) |
| ||||
September 1-30, 2020 |
| 252,525 |
|
| $ | 39.95 |
|
|
| 252,525 |
|
|
| 5,986,991 |
|
October 1-31, 2020 (2) |
| 584,551 |
|
|
| 46.90 |
|
|
| 553,147 |
|
|
| 5,433,844 |
|
November 1-30, 2020 (3) |
| 86,411 |
|
|
| 49.61 |
|
|
| 52,308 |
|
|
| 5,381,536 |
|
Total |
| 923,487 |
|
| $ | 45.26 |
|
|
| 857,980 |
|
|
|
|
|
(1) |
|
(2) | Includes an aggregate of |
(3) | Includes an aggregate of 34,103 common shares surrendered by employees in November 2020 to satisfy tax withholding obligations upon the vesting of restricted common shares. These common shares were not counted against the share repurchase authorization in effect during the second quarter of fiscal 2021 and discussed in footnote (1) above. |
Item 3. – Defaults Upon Senior Securities
Not applicable.
36
Item 4. – Mine Safety Disclosures
Not applicable.
Item 5. – Other Information
Not applicable.
38
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 November 30, |
* | 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 November 30, |
| (ii) | Consolidated Statements of Earnings (Loss) for the three and six months ended November 30, |
| (iii) | Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended November 30, |
| (iv) | Consolidated Statements of Cash Flows for the three and six months ended November 30, |
| (v) | Condensed Notes to Consolidated Financial Statements. |
39
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: January | 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) |
|
|
|
4039