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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
or
For the transition period from ___________ to ___________
Commission File Number
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
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(Zip Code) |
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(Registrant’s telephone number, including area code) |
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(Former name, former address and former fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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.
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).
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.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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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
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 September 30, 2022, the number of Common Shares, without par value, issued and outstanding was
TABLE OF CONTENTS
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Item 1. |
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Consolidated Balance Sheets – August 31, 2022 and May 31, 2022 |
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Consolidated Statements of Earnings – Three Months Ended August 31, 2022 and 2021 |
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Consolidated Statements of Comprehensive Income – Three Months Ended August 31, 2022 and 2021 |
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Consolidated Statements of Cash Flows – Three Months Ended August 31, 2022 and 2021 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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30 |
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Item 4. |
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Item 5. |
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Item 6. |
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i
Safe Harbor Statement
Selected statements contained in this Quarterly Report on Form 10-Q (this “Form 10-Q”), including, without limitation, in “PART I – Item 2. – Management’s Discussion and Analysis of Financial Condition and Results of Operations,” constitute “forward-looking statements” as that term is used in the Private Securities Litigation Reform Act of 1995 (the “PSLRA”). 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,” “forecast,” “project,” or other similar words or phrases. These forward-looking statements include, without limitation, statements relating to:
Because they are based on beliefs, estimates and assumptions, forward-looking statements are inherently subject to risks and uncertainties that could cause actual results to differ materially from those projected. Any number of factors could affect actual results, including, without limitation, those that follow:
ii
iii
We note these factors for investors as contemplated by the PSLRA. 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 Form 10-Q are based on current information as of the date of this Form 10-Q, and we assume no obligation to correct or update any such statements in the future, except as required by applicable law.
iv
PART I. FINANCIAL INFORMATION
Item 1. – Financial Statements
WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
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(Unaudited) |
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August 31, |
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May 31, |
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2022 |
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2022 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
$ |
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$ |
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Receivables, less allowances of $ |
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and May 31, 2022, respectively |
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Inventories: |
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Raw materials |
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Work in process |
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Finished products |
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Total inventories |
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Income taxes receivable |
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Assets held for sale |
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Prepaid expenses and other current assets |
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Total current assets |
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Investments in unconsolidated affiliates |
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Operating lease assets |
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Goodwill |
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Other intangible assets, net of accumulated amortization of $ |
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$ |
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Other assets |
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Property, plant and equipment: |
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Land |
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Buildings and improvements |
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Machinery and equipment |
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Construction in progress |
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Total property, plant and equipment |
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Less: accumulated depreciation |
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Total property, plant and equipment, net |
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Total assets |
$ |
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$ |
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Liabilities and equity |
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Current liabilities: |
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Accounts payable |
$ |
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$ |
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Short-term borrowings |
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Accrued compensation, contributions to employee benefit plans and related taxes |
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Dividends payable |
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Other accrued items |
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Current operating lease liabilities |
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Income taxes payable |
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Current maturities of long-term debt |
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Total current liabilities |
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Other liabilities |
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Distributions in excess of investment in unconsolidated affiliate |
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Long-term debt |
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Noncurrent operating lease liabilities |
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Deferred income taxes, net |
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Total liabilities |
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Shareholders' equity - controlling interest |
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Noncontrolling interests |
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Total equity |
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Total liabilities and equity |
$ |
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$ |
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See condensed notes to consolidated financial statements.
1
WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
(Unaudited)
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Three Months Ended |
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August 31, |
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2022 |
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2021 |
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Net sales |
$ |
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$ |
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Cost of goods sold |
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Gross margin |
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Selling, general and administrative expense |
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Impairment of long-lived assets |
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- |
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Restructuring and other income, net |
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Operating income |
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Other income (expense): |
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Miscellaneous income (expense), net |
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Interest expense |
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Equity in net income of unconsolidated affiliates |
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Earnings before income taxes |
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Income tax expense |
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Net earnings |
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Net earnings attributable to noncontrolling interests |
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Net earnings attributable to controlling interest |
$ |
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$ |
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Basic |
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Weighted average common shares outstanding |
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Earnings per share attributable to controlling interest |
$ |
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$ |
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Diluted |
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Weighted average common shares outstanding |
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Earnings per share attributable to controlling interest |
$ |
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$ |
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Common shares outstanding at end of period |
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Cash dividends declared per share |
$ |
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$ |
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See condensed notes to consolidated financial statements.
2
WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
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Three Months Ended |
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August 31, |
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2022 |
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2021 |
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Net earnings |
$ |
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$ |
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Other comprehensive income (loss) |
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Foreign currency translation, net of tax |
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Pension liability adjustment, net of tax |
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- |
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Cash flow hedges, net of tax |
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Other comprehensive loss |
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( |
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Comprehensive income |
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Comprehensive income attributable to noncontrolling interests |
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Comprehensive income attributable to controlling interest |
$ |
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$ |
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See condensed notes to consolidated financial statements.
3
WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
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Three Months Ended |
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August 31, |
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2022 |
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2021 |
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Operating activities: |
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Net earnings |
$ |
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$ |
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Adjustments to reconcile net earnings to net cash (used) provided by operating activities: |
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Depreciation and amortization |
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Impairment of long-lived assets |
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- |
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Provision for (benefit from) deferred income taxes |
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Bad debt expense |
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Equity in net income of unconsolidated affiliates, net of distributions |
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Net gain on sale of assets |
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Stock-based compensation |
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Changes in assets and liabilities, net of impact of acquisitions: |
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Receivables |
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( |
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Inventories |
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( |
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Accounts payable |
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( |
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Accrued compensation and employee benefits |
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Income taxes payable |
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Other operating items, net |
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( |
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Net cash provided (used) by operating activities |
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Investing activities: |
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Investment in property, plant and equipment |
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Investment in non-marketable equity securities |
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- |
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Acquisitions, net of cash acquired |
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( |
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Proceeds from sale of investment in ArtiFlex |
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- |
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Proceeds from sale of assets, net of selling costs |
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Net cash used by investing activities |
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Financing activities: |
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Net repayments of short-term borrowings |
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- |
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Principal payments on long-term obligations |
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Proceeds from issuance of common shares, net of tax withholdings |
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( |
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( |
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Payments to noncontrolling interests |
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- |
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( |
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Repurchase of common shares |
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- |
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( |
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Dividends paid |
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( |
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( |
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Net cash used by financing activities |
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( |
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( |
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Increase (decrease) in cash and cash equivalents |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period |
$ |
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$ |
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See condensed notes to consolidated financial statements.
4
WORTHINGTON INDUSTRIES, INC.
CONDENSED Notes to Consolidated Financial Statements
(Unaudited)
Note A – Basis of Presentation
The consolidated financial statements include the accounts of Worthington Industries, Inc. and consolidated subsidiaries (collectively, “we,” “our,” “Worthington,” or the “Company”). Investments in unconsolidated affiliates are accounted for using the equity method. Significant intercompany accounts and transactions have been eliminated.
We own controlling interests in the following
These unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the SEC. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the U.S. (“U.S. GAAP”) for complete financial statements. In the opinion of management, all adjustments, which are of a normal and recurring nature except those which have been disclosed elsewhere in this Form 10-Q, necessary for a fair presentation of the consolidated financial statements for these interim periods, have been included. Operating results for the three months ended August 31, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending May 31, 2023 (“fiscal 2023”). 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, 2022 (“fiscal 2022”) of Worthington Industries, Inc. (the “2022 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.
Note B – Inventory
Due to the recent decline in steel pricing, the net realizable value of our inventory was lower than the cost reflected in our records at August 31, 2022. Accordingly, we recorded a lower of cost or net realizable value adjustment during the first quarter of fiscal 2023 totaling $
Note C – Revenue Recognition
The following table summarizes net sales by operating segment and product class for the periods presented:
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Three Months Ended |
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August 31, |
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(in thousands) |
2022 |
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2021 |
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Steel Processing |
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Direct |
$ |
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$ |
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Toll |
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Total |
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Consumer Products (1) |
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Building Products (1) |
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Sustainable Energy Solutions (1) |
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Total |
$ |
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$ |
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(1)
5
The following table summarizes the over time revenue for the periods presented:
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Three Months Ended |
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August 31, |
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(in thousands) |
2022 |
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2021 |
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Steel Processing - toll |
$ |
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$ |
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The following table summarizes the unbilled receivables at the dates indicated:
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August 31, |
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May 31, |
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(in thousands) |
Balance Sheet Classification |
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2022 |
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2022 |
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Unbilled receivables |
Receivables |
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$ |
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$ |
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There were
We have elected the optional exemption, which allows for the exclusion of the amounts for remaining performance obligations that are a part of contracts with an expected duration of one year or less. As of August 31, 2022, there were
Note D – Investments in Unconsolidated Affiliates
Investments in affiliated companies that we do not control, either through majority ownership or otherwise, are accounted for using the equity method. At August 31, 2022, we held noncontrolling investments in the following affiliated companies: Clarkwestern Dietrich Building Systems LLC (“ClarkDietrich”) (
On August 3, 2022, the Company sold its
We received distributions from unconsolidated affiliates totaling $
We use the “cumulative earnings” approach for determining cash flow presentation of distributions from our unconsolidated joint ventures. Distributions received are included in our consolidated statements of cash flows as operating activities, unless the cumulative distributions received, less distributions received in prior periods that were determined to be returns of investment, exceed our portion of the cumulative equity in the net earnings of the joint venture, in which case the excess distributions are deemed to be returns of the investment and are classified as investing activities in our consolidated statements of cash flows.
6
The following tables summarize combined financial information for our unconsolidated affiliates as of the dates, and for the periods presented:
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August 31, |
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May 31, |
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(in thousands) |
2022 |
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2022 |
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Cash and cash equivalents |
$ |
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$ |
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Other current assets |
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Noncurrent assets |
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Total assets |
$ |
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$ |
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Current liabilities |
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Short-term borrowings |
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Current maturities of long-term debt |
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Long-term debt |
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Other noncurrent liabilities |
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Equity |
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Total liabilities and equity |
$ |
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$ |
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Three Months Ended |
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August 31, |
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(in thousands) |
2022 |
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2021 |
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Net sales |
$ |
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$ |
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Gross margin |
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Operating income |
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Depreciation and amortization |
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Interest expense |
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Income tax expense |
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Net earnings |
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Note E – Impairment of Long-Lived Assets
Impairment of Long-Lived Assets
During the first quarter of fiscal 2023, we committed to plans to liquidate certain fixed assets at our toll processing facility in Cleveland, Ohio. As all of the criteria for classification of assets held for sale were met during the current quarter, the net assets have been presented separately as assets held for sale in our consolidated balance sheet as of August 31, 2022. In accordance with the applicable accounting guidance, the net assets were recorded at the lower of net book value or fair market value less costs to sell. As a result, a pre-tax impairment of $
Note F – Restructuring and Other 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.
7
A progression of the liabilities associated with our restructuring activities, combined with a reconciliation to the restructuring and other income, net financial statement caption, in our consolidated statement of earnings for the three months ended August 31, 2022 is summarized below:
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Balance, as of |
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Balance, as of |
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(in thousands) |
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May 31, 2022 |
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Income |
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Payments |
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Adjustments |
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August 31, 2022 |
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Early retirement and severance |
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$ |
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$ |
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$ |
( |
) |
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$ |
- |
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$ |
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Facility exit and other costs |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
- |
|
|
$ |
|
|||
Net gain on sale of assets (1) |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||||
Restructuring and other income, net |
|
|
|
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
||||
The total liability associated with our restructuring activities as of August 31, 2022 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.
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. We had in place $
8
Note I – Debt
We also maintain a revolving trade accounts receivable securitization facility (the “AR Facility”). Pursuant to the terms of the AR Facility, certain of our subsidiaries sell or contribute all of their eligible accounts receivable and other related assets without recourse, on a revolving basis, to WRC, a wholly-owned, consolidated, bankruptcy-remote indirect subsidiary. In turn, WRC sells, on a revolving basis, up to $
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 |
|
|||||||||||||||||||||
|
August 31, 2022 |
|
|
August 31, 2021 |
|
||||||||||||||||||
|
Before-Tax |
|
|
Tax |
|
|
Net-of-Tax |
|
|
Before-Tax |
|
|
Tax |
|
|
Net-of-Tax |
|
||||||
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Foreign currency translation |
$ |
( |
) |
|
|
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
( |
) |
|
$ |
( |
) |
Pension liability adjustment |
|
|
|
|
( |
) |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
||
Cash flow hedges |
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Other comprehensive income (loss) |
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Note K – Changes in Equity
The following tables summarize the changes in equity by component and in total for the periods presented:
|
|
Controlling Interest |
|
|
|
|
|
|
|
|||||||||||||||
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Additional |
|
|
Comprehensive |
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
||||||
|
|
Paid-in |
|
|
Loss, |
|
|
Retained |
|
|
|
|
|
controlling |
|
|
|
|
||||||
(in thousands) |
|
Capital |
|
|
Net of Tax |
|
|
Earnings |
|
|
Total |
|
|
Interests |
|
|
Total |
|
||||||
Balance at May 31, 2022 |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other comprehensive loss |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
Common shares issued, net of withholding tax |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
Common shares in non-qualified plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Cash dividends declared |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
Balance at August 31, 2022 |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
9
|
|
Controlling Interest |
|
|
|
|
|
|
|
|||||||||||||||
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Additional |
|
|
Comprehensive |
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
||||||
|
|
Paid-in |
|
|
Income, |
|
|
Retained |
|
|
|
|
|
controlling |
|
|
|
|
||||||
(in thousands) |
|
Capital |
|
|
Net of Tax |
|
|
Earnings |
|
|
Total |
|
|
Interests |
|
|
Total |
|
||||||
Balance at May 31, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other comprehensive loss |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
Common shares issued, net of withholding tax |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
Common shares in non-qualified plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Purchases and retirement of common shares |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Cash dividends declared |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
Dividends to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||||
Balance at August 31, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
The following table summarizes the changes in accumulated other comprehensive income (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, 2022 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Other comprehensive loss before reclassifications |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Reclassification adjustments to net earnings (a) |
|
|
- |
|
|
|
|
|
|
( |
) |
|
|
|
||
Income tax effect |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
||
Balance as of August 31, 2022 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
||||
|
|
Foreign |
|
|
Pension |
|
|
|
|
|
Other |
|
||||
|
|
Currency |
|
|
Liability |
|
|
Cash Flow |
|
|
Comprehensive |
|
||||
(in thousands) |
|
Translation |
|
|
Adjustment |
|
|
Hedges |
|
|
Income |
|
||||
Balance as of May 31, 2021 |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||
Other comprehensive income (loss) before reclassifications |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Reclassification adjustments to net earnings (a) |
|
|
- |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Income tax effect |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Balance as of August 31, 2021 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||
10
Note L – Stock-Based Compensation
Non-Qualified Stock Options
During the three months ended August 31, 2022, we granted non-qualified stock options covering a total of
Dividend yield |
|
|
% |
|
Expected volatility |
|
|
% |
|
Risk-free interest rate |
|
|
% |
|
Expected term (years) |
|
|
|
Expected volatility is based on the historical volatility of Worthington 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 three months ended August 31, 2022, we granted an aggregate of
Market-Based Restricted Common Shares
On June 24, 2022, we granted
Dividend yield |
|
|
% |
|
Expected volatility |
|
|
% |
|
Risk-free interest rate |
|
|
% |
11
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, a business unit adjusted earnings before interest and taxes target, in each case for the three-year periods ending May 31, 2023, 2024 and 2025. 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 three months ended August 31, 2022, we granted performance share awards covering an aggregate of
Note M – Income Taxes
Note N – Earnings per Share
The following table sets forth the computation of basic and diluted earnings per share attributable to controlling interest for the periods presented:
|
Three Months Ended |
|
|||||
|
August 31, |
|
|||||
(in thousands, except per share amounts) |
2022 |
|
|
2021 |
|
||
Numerator (basic & diluted): |
|
|
|
|
|
||
Net earnings attributable to controlling interest - |
|
|
|
|
|
||
income available to common shareholders |
$ |
|
|
$ |
|
||
Denominator: |
|
|
|
|
|
||
Denominator for basic earnings per share attributable to |
|
|
|
|
|
||
controlling interest - weighted average common shares |
|
|
|
|
|
||
Effect of dilutive securities |
|
|
|
|
|
||
Denominator for diluted earnings per share attributable to |
|
|
|
|
|
||
controlling interest - adjusted weighted average common shares |
|
|
|
|
|
||
|
|
|
|
|
|
||
Basic earnings per share attributable to controlling interest |
$ |
|
|
$ |
|
||
Diluted earnings per share attributable to controlling interest |
$ |
|
|
$ |
|
||
Stock options covering an aggregate of
12
Note O – Segment Operations
The profit measure that the Company’s Chief Operating Decision Maker ("CODM") uses to assess segment performance and allocate resources is adjusted earnings (loss) before interest and taxes (“adjusted EBIT”). EBIT is calculated by adding interest expense and income tax expense to net earnings attributable to controlling interest. Adjusted EBIT excludes impairment and restructuring charges (gains), but may also exclude other items that management believes are not reflective of, and thus should not be included when evaluating, the performance of the Company’s ongoing operations. Adjusted EBIT is a non-GAAP financial measure and is used by management to evaluate segment performance, engage in financial and operational planning and determine incentive compensation because we believe that this financial measure provides additional perspective and, in some circumstances is more closely correlated to, the performance of the Company’s ongoing operations.
The following table presents summarized financial information for our reportable operating segments for the periods indicated.
|
Three Months Ended August 31, 2022 |
|
|||||||||||||||||||||
(in thousands) |
Steel Processing |
|
|
Consumer Products |
|
|
Building Products |
|
|
Sustainable Energy Solutions |
|
|
Other |
|
|
Consolidated |
|
||||||
Net sales |
$ |
1,038,880 |
|
|
$ |
188,703 |
|
|
$ |
150,323 |
|
|
$ |
30,759 |
|
|
$ |
- |
|
|
$ |
1,408,665 |
|
Impairment of long-lived assets |
|
312 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
312 |
|
Restructuring and other expense (income), net |
|
78 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,178 |
) |
|
|
(1,100 |
) |
Miscellaneous income (expense), net |
|
184 |
|
|
|
(35 |
) |
|
|
222 |
|
|
|
(86 |
) |
|
|
(5,371 |
) |
|
|
(5,086 |
) |
Equity in net income of unconsolidated affiliates |
|
1,770 |
|
|
|
- |
|
|
|
43,866 |
|
|
|
- |
|
|
|
(13,924 |
) |
|
|
31,712 |
|
Adjusted earnings (loss) before interest and taxes (1)(2) |
|
34,913 |
|
|
|
20,934 |
|
|
|
52,734 |
|
|
|
(1,393 |
) |
|
|
5,145 |
|
|
|
112,333 |
|
|
Three Months Ended August 31, 2021 |
|
|||||||||||||||||||||
(in thousands) |
Steel Processing |
|
|
Consumer Products |
|
|
Building Products |
|
|
Sustainable Energy Solutions |
|
|
Other |
|
|
Consolidated |
|
||||||
Net sales |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
|||||
Restructuring and other income, net |
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
Miscellaneous income (expense), net |
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
||||
Equity in net income of unconsolidated affiliates |
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
||||
Adjusted earnings before interest and taxes (3) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
||||
Total assets for each of our operating segments as of the dates indicated were as follows:
|
August 31, |
|
|
May 31, |
|
||
|
2022 |
|
|
2022 |
|
||
Total assets |
|
|
|
|
|
||
Steel Processing |
$ |
|
|
$ |
|
||
Consumer Products |
|
|
|
|
|
||
Building Products |
|
|
|
|
|
||
Sustainable Energy Solutions |
|
|
|
|
|
||
Other |
|
|
|
|
|
||
Total assets |
$ |
|
|
$ |
|
||
13
Note P – Acquisitions
Level5® Tools, LLC
On June 2, 2022, we acquired Level5® Tools, LLC ("Level5"), a leading provider of drywall tools and related accessories. The total purchase price was $
Level5 is being operated as part of the Consumer Products operating segment and its results have been included in our consolidated statements of earnings since the date of acquisition. Proforma results, including the acquired business since the beginning of fiscal 2022, would not be materially different from the reported results.
The information included herein has been based on the preliminary allocation of the purchase price using estimates of the fair value and useful lives of the assets acquired. The purchase price allocation is subject to further adjustment until all pertinent information regarding the assets acquired is fully evaluated by us, including but not limited to, the fair value accounting.
The assets acquired and liabilities assumed were recognized at their estimated acquisition-date fair values, with goodwill representing the excess of the purchase price over the fair value of the net identifiable assets acquired.
(in thousands) |
|
|
|
|
|
|
Category |
|
Amount |
|
|
Useful Life (Years) |
|
Tradename |
|
$ |
|
|
Indefinite |
|
Customer relationships |
|
|
|
|
||
Technological know-how |
|
|
|
|
||
Non-compete agreement |
|
|
|
|
||
Total acquired identifiable intangible assets |
|
$ |
|
|
|
|
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 will be deductible by us for income tax purposes.
14
(in thousands) |
|
Preliminary |
|
|
Cash and cash equivalents |
|
$ |
|
|
Accounts receivable |
|
|
|
|
Inventories |
|
|
|
|
Prepaid expenses |
|
|
|
|
Property, plant and equipment |
|
|
|
|
Intangible assets |
|
|
|
|
Operating lease assets |
|
|
|
|
Total identifiable assets |
|
|
|
|
Accounts payable |
|
|
( |
) |
Accrued expenses |
|
|
( |
) |
Current operating lease liabilities |
|
|
( |
) |
Noncurrent operating lease liabilities |
|
|
( |
) |
Net identifiable assets |
|
|
|
|
Goodwill |
|
|
|
|
Total purchase price |
|
|
|
|
Less: Fair value of earnout |
|
|
( |
) |
Plus: Estimated net working capital deficit |
|
|
|
|
Cash purchase price |
|
$ |
|
|
Note Q – Derivative Financial Instruments and Hedging Activities
We utilize derivative financial instruments to primarily manage exposure to certain risks related to our ongoing operations. The primary risks managed through the use of derivative financial instruments include interest rate risk, foreign currency exchange rate risk and commodity price risk. While certain of our derivative financial instruments are designated as hedging instruments, we also enter into derivative financial instruments that are designed to hedge a risk, but are not designated as hedging instruments and, therefore, do not qualify for hedge accounting. These derivative financial instruments are adjusted to current fair value through earnings at the end of each period.
Interest Rate Risk Management – We are exposed to the impact of interest rate changes. Our objective is to manage the impact of interest rate changes on cash flows and the market value of our borrowings. We utilize a mix of debt maturities along with both fixed-rate and variable-rate debt to manage changes in interest rates. In addition, we enter into interest rate swaps and treasury locks to further manage our exposure to interest rate variations related to our borrowings and to lower our overall borrowing costs.
Foreign Currency Exchange Rate Risk Management – We conduct business in several major international currencies and are, therefore, subject to risks associated with changing foreign currency exchange rates. We enter into various contracts that change in value as foreign currency exchange rates change to manage this exposure. Such contracts limit exposure to both favorable and unfavorable currency exchange rate fluctuations. The translation of foreign currencies into U.S. dollars also subjects us to exposure related to fluctuating currency exchange rates; however, derivative financial instruments are not used to manage this risk.
Commodity Price Risk Management – We are exposed to changes in the price of certain commodities, including steel, natural gas, copper, zinc and other raw materials, and our utility requirements. Our objective is to reduce earnings and cash flow volatility associated with forecasted purchases and sales of these commodities to allow management to focus its attention on business operations. Accordingly, we enter into derivative financial instruments to manage the associated price risk.
We are exposed to counterparty credit risk on all of our derivative financial instruments. Accordingly, we have established and maintain strict counterparty credit guidelines. We have credit support agreements in place with certain counterparties to limit our credit exposure. These agreements require either party to post cash collateral if its cumulative market position exceeds a predefined liability threshold. Amounts posted to the margin accounts accrue interest at market rates and are required to be refunded in the period in which the cumulative market position falls below the required threshold. We do not have significant exposure to any one counterparty, and management believes the overall risk of loss is remote and, in any event, would not be material.
Refer to “Note R – Fair Value” for additional information regarding the accounting treatment for our derivative financial instruments, as well as how fair value is determined.
15
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 August 31, 2022:
|
|
Asset Derivatives |
|
|
Liability Derivatives |
|
||||||
|
|
Balance |
|
|
|
|
Balance |
|
|
|
||
|
|
Sheet |
|
Fair |
|
|
Sheet |
|
Fair |
|
||
(in thousands) |
|
Location |
|
Value |
|
|
Location |
|
Value |
|
||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
||
Commodity contracts |
|
Receivables |
|
$ |
|
|
Accounts payable |
|
$ |
|
||
|
|
Other assets |
|
|
- |
|
|
Other liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Foreign currency exchange contracts |
|
Other assets |
|
|
|
|
Accounts payable |
|
|
- |
|
|
Total |
|
|
|
$ |
|
|
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
||
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
||||
Commodity contracts |
|
Receivables |
|
$ |
|
|
Accounts payable |
|
$ |
|
||
|
|
Other assets |
|
|
|
|
Other liabilities |
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
||
Foreign currency exchange contracts |
|
Other assets |
|
|
- |
|
|
Accounts payable |
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
||
Total derivative instruments |
|
|
|
$ |
|
|
|
|
$ |
|
||
The amounts in the table above reflect the fair value of our derivative instruments on a net basis where allowable under master netting arrangements. Had these amounts been recognized on a gross basis, the impact would have been a $
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, 2022:
|
|
Asset Derivatives |
|
|
Liability Derivatives |
|
||||||
|
|
Balance |
|
|
|
|
Balance |
|
|
|
||
|
|
Sheet |
|
Fair |
|
|
Sheet |
|
Fair |
|
||
(in thousands) |
|
Location |
|
Value |
|
|
Location |
|
Value |
|
||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
||
Commodity contracts |
|
Receivables |
|
$ |
|
|
Accounts payable |
|
$ |
|
||
|
|
Other assets |
|
|
- |
|
|
Other liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Foreign currency exchange contracts |
|
Receivables |
|
|
- |
|
|
Accounts payable |
|
|
- |
|
|
|
Other assets |
|
|
- |
|
|
Other liabilities |
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
Total |
|
|
|
$ |
|
|
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
||
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
||||
Commodity contracts |
|
Receivables |
|
$ |
|
|
Accounts payable |
|
$ |
|
||
|
|
Other assets |
|
|
|
|
Other liabilities |
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
||
Foreign currency exchange contracts |
|
Receivables |
|
|
- |
|
|
Accounts payable |
|
|
|
|
Total |
|
|
|
$ |
|
|
|
|
$ |
|
||
Total derivative instruments |
|
|
|
$ |
|
|
|
|
$ |
|
||
The amounts in the table above reflect the fair value of our derivative instruments on a net basis where allowable under master netting arrangements. Had these amounts been recognized on a gross basis, the impact would have been a $
16
Cash Flow Hedges
We enter into derivative financial instruments to hedge our exposure to changes in cash flows attributable to commodity price fluctuations associated with certain forecasted transactions. These derivative financial instruments are designated and qualify as cash flow hedges. The earnings effects of these derivative financial instruments are presented in the same statement of earnings line items as the earnings effects of the hedged items. For derivative financial instruments designated as cash flow hedges, we assess hedge effectiveness both at the onset of the hedge and at regular intervals throughout the life of the derivative financial instruments.
The following table summarizes our cash flow hedges outstanding at August 31, 2022:
|
|
Notional |
|
|
|
|
(in thousands) |
|
Amount |
|
|
Maturity Date |
|
Commodity contracts |
|
|
|
|
- |
|
Foreign currency exchange contracts |
|
|
|
|
- |
|
The following table summarizes the gain (loss) recognized in OCI and the gain (loss) reclassified from AOCI into net earnings for derivative financial instruments designated as cash flow hedges for the periods presented:
(in thousands) |
|
Gain (Loss) |
|
|
Location of Gain (Loss) |
|
Gain (Loss) Reclassified |
|
||
For the three months ended August 31, 2022: |
|
|||||||||
Commodity contracts |
|
$ |
( |
) |
|
Cost of goods sold |
|
$ |
|
|
Interest rate contracts |
|
|
- |
|
|
Interest expense |
|
|
( |
) |
Foreign currency exchange contracts |
|
|
( |
) |
|
Net sales/Cost of goods sold |
|
|
|
|
Total |
|
$ |
( |
) |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
||
For the three months ended August 31, 2021: |
|
|||||||||
Commodity contracts |
|
$ |
|
|
Cost of goods sold |
|
$ |
|
||
Interest rate contracts |
|
|
- |
|
|
Interest expense |
|
|
( |
) |
Total |
|
$ |
|
|
|
|
$ |
|
||
The estimated net amount of the losses recognized in AOCI at August 31, 2022 expected to be reclassified into net earnings within the succeeding twelve months is $
Economic (Non-designated) Hedges
We enter into foreign currency exchange contracts to manage our foreign currency exchange rate exposure related to inter-company and financing transactions that do not meet the requirements for hedge accounting treatment. We also enter into certain commodity contracts that do not qualify for hedge accounting treatment. Accordingly, these derivative financial instruments are adjusted to current market value at the end of each period through earnings (loss).
The following table summarizes our economic (non-designated) derivative financial instruments outstanding at August 31, 2022:
|
|
Notional |
|
|
|
|
(in thousands) |
|
Amount |
|
|
Maturity Date(s) |
|
Commodity contracts |
|
$ |
|
|
- |
|
17
The following table summarizes the gain (loss) recognized in earnings for economic (non-designated) derivative financial instruments for the periods presented:
|
|
|
|
Gain (Loss) Recognized |
|
|||||
|
|
|
|
In Earnings for the |
|
|||||
|
|
Location of Gain (Loss) |
|
Three Months Ended August 31, |
|
|||||
(in thousands) |
|
Recognized in Earnings |
|
2022 |
|
|
2021 |
|
||
Commodity contracts |
|
Cost of goods sold |
|
$ |
( |
) |
|
$ |
|
|
Foreign currency exchange contracts |
|
Miscellaneous income, net |
|
|
- |
|
|
|
|
|
Total |
|
|
|
$ |
( |
) |
|
$ |
|
|
Note R – Fair Value
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is an exit price concept that assumes an orderly transaction between willing market participants and is required to be based on assumptions that market participants would use in pricing an asset or a liability. Current accounting guidance establishes a three-tier fair value hierarchy as a basis for considering such assumptions and for classifying the inputs used in the valuation methodologies. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair values are as follows:
Level 1 – Observable prices in active markets for identical assets and liabilities.
Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the assets and liabilities, either directly or indirectly.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities.
Recurring Fair Value Measurements
At August 31, 2022, our assets and liabilities measured at fair value on a recurring basis were as follows:
|
|
|
|
|
Significant |
|
|
|
|
|
|
|
||||
|
|
Quoted Prices |
|
|
Other |
|
|
Significant |
|
|
|
|
||||
|
|
in Active |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
||||
|
|
Markets |
|
|
Inputs |
|
|
Inputs |
|
|
|
|
||||
(in thousands) |
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Totals |
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivative financial instruments (1) |
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
||
Total assets |
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivative financial instruments (1) |
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
||
Total liabilities |
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
||
At May 31, 2022, our assets and liabilities measured at fair value on a recurring basis were as follows:
|
|
|
|
|
Significant |
|
|
|
|
|
|
|
||||
|
|
Quoted Prices |
|
|
Other |
|
|
Significant |
|
|
|
|
||||
|
|
in Active |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
||||
|
|
Markets |
|
|
Inputs |
|
|
Inputs |
|
|
|
|
||||
(in thousands) |
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Totals |
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivative financial instruments (1) |
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
||
Total assets |
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivative financial instruments (1) |
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
||
Total liabilities |
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
||
18
Non-Recurring Fair Value Measurements
At August 31, 2022, our assets measured at fair value on a non-recurring basis were as follows:
|
|
|
|
|
Significant |
|
|
|
|
|
|
|
||||
|
|
Quoted Prices |
|
|
Other |
|
|
Significant |
|
|
|
|
||||
|
|
in Active |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
||||
|
|
Markets |
|
|
Inputs |
|
|
Inputs |
|
|
|
|
||||
(in thousands) |
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Totals |
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Long-lived assets held for sale (1) |
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
||
Total assets |
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
||
At May 31, 2022, our assets measured at fair value on a non-recurring basis were as follows:
|
|
|
|
|
Significant |
|
|
|
|
|
|
|
||||
|
|
Quoted Prices |
|
|
Other |
|
|
Significant |
|
|
|
|
||||
|
|
in Active |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
||||
|
|
Markets |
|
|
Inputs |
|
|
Inputs |
|
|
|
|
||||
(in thousands) |
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Totals |
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Long-lived assets held for sale (1) |
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
||
Total assets |
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
||
The fair value of non-derivative financial instruments included in the carrying amounts of cash and cash equivalents, receivables, income taxes receivable, other assets, accounts payable, accrued compensation, contributions to employee benefit plans and related taxes, other accrued items, income taxes payable and other liabilities approximate carrying value due to their short-term nature. The fair value of long-term debt, including current maturities, based upon models utilizing market observable (Level 2) inputs and credit risk, was $
Note S – Subsequent Events
On September 29, 2022, the Company announced a plan to separate into two independent, publicly-traded companies – one company is expected to be comprised of the Company’s Steel Processing operating segment, and the other company is expected to be comprised of the Company’s Consumer Products, Building Products and Sustainable Energy Solutions operating segments. The Separation transaction is expected to be completed by early 2024, but is subject to certain conditions, including, among other things, general market conditions, finalization of the capital structure of the two companies, completion of steps necessary to qualify the Separation as a tax-free transaction, receipt of regulatory approvals and final approval from the Company’s Board of Directors.
19
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 Form 10-Q and “Part I – Item 1A. – Risk Factors” of the 2022 Form 10-K.
Unless otherwise indicated, all Note references contained in this Part I – Item 2. refer to the Condensed Notes to Consolidated Financial Statements included in “Part I – Item 1. – Financial Statements” of this Form 10-Q.
Introduction
The following discussion and analysis of market and industry trends, business developments, and the results of operations and financial position of Worthington Industries, Inc., together with its subsidiaries (collectively, “we,” “our,” “us”, “Worthington,” or the “Company”), should be read in conjunction with our consolidated financial statements and notes thereto included in “Part I – Item 1. – Financial Statements” of this Form 10-Q. The 2022 Form 10-K includes additional information about Worthington, our operations and our consolidated financial position and should be read in conjunction with this Form 10-Q.
Our operations are managed principally on a products and services basis. Segment information is prepared on the same basis that our management reviews financial information for operational decision-making purposes. Factors used to identify reportable operating segments include the nature of the products and services provided by each business, the management reporting structure, the similarity of economic characteristics and certain quantitative measures, as prescribed by authoritative accounting guidance.
As of August 31, 2022, we held equity positions in eight joint ventures. Four of these joint ventures are consolidated within the Steel Processing operating segment 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 and other comprehensive income shown as net earnings or comprehensive income attributable to noncontrolling interests in our consolidated statements of earnings and consolidated statements of comprehensive income, respectively. The remaining four of our joint ventures are accounted for using the equity method.
Recent Business Developments
20
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 first quarter of each of fiscal 2023 and fiscal 2022 is illustrated in the following chart:
The automotive industry is one of the largest consumers of flat-rolled steel, and thus the largest end market for our Steel Processing operating segment. Approximately 47% of Steel Processing’s net sales are to the automotive market. North American vehicle production, primarily by Ford, General Motors and Stellantis North America (the “Detroit Three automakers”), has a considerable impact on the activity within this operating segment. The majority of the net sales of one of our unconsolidated joint ventures, Serviacero Worthington, is also to the automotive market.
Approximately 17% of the net sales of our Steel Processing operating segment are to the construction market. The construction market is also the predominant end market for our unconsolidated joint ventures within our Building Products operating segment, 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 Consumer Products, Building Products, and Sustainable Energy Solutions operating segments and approximately 36% 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. 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 this portion of our business. However, we believe that the trend in U.S. GDP growth is a good economic indicator for analyzing the demand of these end markets.
We use the following information to monitor our costs and demand in our major end markets:
|
|
Three Months Ended |
|
|
|||||||||
|
|
August 31, |
|
|
|||||||||
|
|
2022 |
|
|
2021 |
|
|
Inc / (Dec) |
|
|
|||
U.S. GDP (% growth (decline) year-over-year) 1 |
|
|
2.3 |
% |
|
|
3.9 |
% |
|
|
(1.6 |
%) |
|
Hot-Rolled Steel ($ per ton) 2 |
|
$ |
978 |
|
|
$ |
1,762 |
|
|
$ |
(784 |
) |
|
Detroit Three Auto Build (000's vehicles) 3 |
|
|
1,761 |
|
|
|
1,374 |
|
|
|
386 |
|
|
No. America Auto Build (000's vehicles) 3 |
|
|
3,628 |
|
|
|
3,243 |
|
|
|
384 |
|
|
Zinc ($ per pound) 4 |
|
$ |
1.55 |
|
|
$ |
1.35 |
|
|
$ |
0.20 |
|
|
Natural Gas ($ per mcf) 5 |
|
$ |
7.87 |
|
|
$ |
3.68 |
|
|
$ |
4.19 |
|
|
On-Highway Diesel Fuel Prices ($ per gallon) 6 |
|
$ |
5.42 |
|
|
$ |
3.33 |
|
|
$ |
2.09 |
|
|
1 2021 figures based on revised actuals 2CRU Hot-Rolled Index; period average 3IHS Global 4LME Zinc; period average 5NYMEX Henry Hub Natural Gas; period average 6Energy Information Administration; period average
21
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, declining 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 selling, general and administrative (”SG&A”) expenses.
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 2023 (first quarter), fiscal 2022 and fiscal 2021:
|
|
Fiscal Year |
|
|||||||||
(Dollars per ton 1 ) |
|
2023 |
|
|
2022 |
|
|
2021 |
|
|||
1st Quarter |
|
$ |
978 |
|
|
$ |
1,762 |
|
|
$ |
475 |
|
2nd Quarter |
|
N/A |
|
|
$ |
1,888 |
|
|
$ |
625 |
|
|
3rd Quarter |
|
N/A |
|
|
$ |
1,421 |
|
|
$ |
1,016 |
|
|
4th Quarter |
|
N/A |
|
|
$ |
1,280 |
|
|
$ |
1,358 |
|
|
Annual Avg. |
|
$ |
978 |
|
|
$ |
1,588 |
|
|
$ |
869 |
|
1 CRU Hot-Rolled Index; period average
Sales to one Steel Processing customer in the automotive industry represented 11.2% and 13.8% of consolidated net sales during the first quarter of fiscal 2023 and fiscal 2022, respectively. While our automotive business is largely driven by the production schedules of the Detroit Three automakers, our customer base is much broader and includes other domestic manufacturers and many of their suppliers. During the first quarter of fiscal 2023, vehicle production for the Detroit Three automakers and the North American vehicle production were up 28% and 12%, respectively, from the first quarter of fiscal 2022.
Certain other commodities, such as zinc, natural gas and diesel fuel, represent a significant portion of our cost of goods sold, both directly through our plant operations and indirectly through transportation and freight expense.
Results of Operations
First Quarter – Fiscal 2023 Compared to Fiscal 2022
The following discussion provides a review of results for the periods indicated.
|
Three Months Ended |
|
|||||||||
|
August 31, |
|
|||||||||
(In millions, except per share amounts) |
2022 |
|
|
2021 |
|
|
Increase/ |
|
|||
Net sales |
$ |
1,408.7 |
|
|
$ |
1,110.8 |
|
|
$ |
297.9 |
|
Operating income |
|
66.7 |
|
|
|
135.8 |
|
|
|
(69.1 |
) |
Equity income |
|
31.7 |
|
|
|
52.9 |
|
|
|
(21.2 |
) |
Net earnings attributable to controlling interest |
|
64.1 |
|
|
|
132.5 |
|
|
|
(68.4 |
) |
Earnings per diluted share attributable to controlling interest |
|
1.30 |
|
|
|
2.55 |
|
|
|
(1.25 |
) |
22
Net Sales and Volume
The following table provides a breakdown of our consolidated net sales by reportable operating segment, along with the respective percentage of the total consolidated net sales of each, for the periods indicated.
|
Three Months Ended |
|
|
|||||||||||||||||
|
August 31, |
|
|
|||||||||||||||||
|
|
|
|
% of |
|
|
|
|
|
% of |
|
|
Increase/ |
|
|
|||||
(In millions) |
2022 |
|
|
Net sales |
|
|
2021 |
|
|
Net sales |
|
|
(Decrease) |
|
|
|||||
Steel Processing |
$ |
1,038.9 |
|
|
|
73.7 |
% |
|
$ |
822.8 |
|
|
|
74.1 |
% |
|
$ |
216.1 |
|
|
Consumer Products |
|
188.7 |
|
|
|
13.4 |
% |
|
|
147.8 |
|
|
|
13.3 |
% |
|
|
40.9 |
|
|
Building Products |
|
150.3 |
|
|
|
10.7 |
% |
|
|
114.7 |
|
|
|
10.3 |
% |
|
|
35.6 |
|
|
Sustainable Energy Solutions |
|
30.8 |
|
|
|
2.2 |
% |
|
|
25.5 |
|
|
|
2.3 |
% |
|
|
5.3 |
|
|
Consolidated Net Sales |
$ |
1,408.7 |
|
|
|
100.0 |
% |
|
$ |
1,110.8 |
|
|
|
100.0 |
% |
|
$ |
297.9 |
|
|
The following table provides volume by reportable operating segment for the periods presented.
|
Three Months Ended |
|
|||||||||
|
August 31, |
|
|||||||||
|
|
|
|
|
|
|
Increase/ |
|
|||
|
2022 |
|
|
2021 |
|
|
(Decrease) |
|
|||
Steel Processing (Tons) |
|
974,649 |
|
|
|
1,062,288 |
|
|
|
(87,639 |
) |
Consumer Products (Units) |
|
22,383,341 |
|
|
|
21,388,140 |
|
|
|
995,201 |
|
Building Products (Units) |
|
2,922,163 |
|
|
|
2,885,711 |
|
|
|
36,452 |
|
Sustainable Energy Solutions (Units) |
|
133,133 |
|
|
|
130,676 |
|
|
|
2,457 |
|
Gross Margin
|
Three Months Ended |
|
|||||||||||||||||
|
August 31, |
|
|||||||||||||||||
|
|
|
|
% of |
|
|
|
|
|
% of |
|
|
Increase/ |
|
|||||
(In millions) |
2022 |
|
|
Net sales |
|
|
2021 |
|
|
Net sales |
|
|
(Decrease) |
|
|||||
Gross Margin |
$ |
169.4 |
|
|
|
12.0 |
% |
|
$ |
219.4 |
|
|
|
19.8 |
% |
|
$ |
(50.0 |
) |
23
Selling, General and Administrative Expense
|
Three Months Ended |
|
|||||||||||||||||
|
August 31, |
|
|||||||||||||||||
|
|
|
|
% of |
|
|
|
|
|
% of |
|
|
Increase/ |
|
|||||
(In millions) |
2022 |
|
|
Net sales |
|
|
2021 |
|
|
Net sales |
|
|
(Decrease) |
|
|||||
Selling, general and administrative expense |
$ |
103.4 |
|
|
|
7.3 |
% |
|
$ |
95.9 |
|
|
|
8.6 |
% |
|
$ |
7.5 |
|
Other Operating Costs
|
Three Months Ended |
|
|||||||||
|
August 31, |
|
|||||||||
|
|
|
|
|
|
|
Increase/ |
|
|||
(In millions) |
2022 |
|
|
2021 |
|
|
(Decrease) |
|
|||
Impairment of long-lived assets |
$ |
0.3 |
|
|
$ |
- |
|
|
$ |
0.3 |
|
Restructuring and other income, net |
|
(1.1 |
) |
|
|
(12.3 |
) |
|
|
(11.2 |
) |
Equity Income
|
Three Months Ended |
|
|||||||||
|
August 31, |
|
|||||||||
|
|
|
|
|
|
|
Increase/ |
|
|||
(In millions) |
2022 |
|
|
2021 |
|
|
(Decrease) |
|
|||
WAVE |
$ |
23.8 |
|
|
$ |
25.7 |
|
|
$ |
(1.9 |
) |
ClarkDietrich |
|
20.1 |
|
|
|
17.3 |
|
|
|
2.8 |
|
Serviacero Worthington |
|
1.8 |
|
|
|
9.3 |
|
|
|
(7.5 |
) |
ArtiFlex |
|
(13.4 |
) |
|
|
1.2 |
|
|
|
(14.6 |
) |
Workhorse |
|
(0.5 |
) |
|
|
(0.6 |
) |
|
|
0.1 |
|
Total Equity Income |
$ |
31.7 |
|
|
$ |
52.9 |
|
|
$ |
(21.2 |
) |
24
Other income (expense)
|
Three Months Ended |
|
|||||||||
|
August 31, |
|
|||||||||
|
|
|
|
|
|
|
Increase/ |
|
|||
(In millions) |
2022 |
|
|
2021 |
|
|
(Decrease) |
|
|||
Miscellaneous income (expense), net |
$ |
(5.1 |
) |
|
$ |
0.6 |
|
|
$ |
(5.7 |
) |
Adjusted EBIT
We evaluate operating segment performance based on adjusted earnings before interest and taxes (“adjusted EBIT”). EBIT is calculated by adding interest expense and income tax expense to net earnings attributable to controlling interest. Adjusted EBIT excludes impairment and restructuring charges (gains), but may also exclude other items that management believes are not reflective of, and thus should not be included when evaluating, the performance of our ongoing operations. Adjusted EBIT is a non-GAAP measure and is used by management to evaluate segment performance, engage in financial and operational planning and determine incentive compensation because we believe that this measure provides additional perspective and, in some circumstances is more closely correlated to, the performance of our ongoing operations.
The following table provides a reconciliation of consolidated net earnings attributable to controlling interest to adjusted EBIT for the periods presented:
|
Three Months Ended |
|
|||||
|
August 31, |
|
|||||
(In millions) |
2022 |
|
|
2021 |
|
||
Net earnings attributable to controlling interest |
$ |
64.1 |
|
|
$ |
132.5 |
|
Interest expense |
|
8.6 |
|
|
|
7.7 |
|
Income tax expense |
|
19.5 |
|
|
|
40.2 |
|
Earnings before interest and taxes |
$ |
92.2 |
|
|
$ |
180.4 |
|
Incremental expense related to Level5 earnout |
|
0.5 |
|
|
|
- |
|
Impairment of long-lived assets (1) |
|
0.1 |
|
|
|
- |
|
Restructuring and other income, net (1) |
|
(1.1 |
) |
|
|
(6.3 |
) |
Pension settlement charge |
|
4.8 |
|
|
|
- |
|
Loss on sale of investment in ArtiFlex |
|
15.8 |
|
|
|
- |
|
Adjusted earnings before interest and taxes |
$ |
112.3 |
|
|
$ |
174.1 |
|
(1) Excludes the impact of the noncontrolling interests.
The following table provides a summary of adjusted EBIT by segment for the periods presented.
|
Three Months Ended |
|
|||||||||
|
August 31, |
|
|||||||||
|
|
|
|
|
|
|
Increase/ |
|
|||
(In millions) |
2022 |
|
|
2021 |
|
|
(Decrease) |
|
|||
Steel Processing |
$ |
34.9 |
|
|
$ |
107.7 |
|
|
$ |
(72.8 |
) |
Consumer Products |
|
20.9 |
|
|
|
20.6 |
|
|
|
0.3 |
|
Building Products |
|
52.7 |
|
|
|
48.7 |
|
|
|
4.0 |
|
Sustainable Energy Solutions |
|
(1.4 |
) |
|
|
(2.6 |
) |
|
|
1.2 |
|
Other |
|
5.1 |
|
|
|
(0.4 |
) |
|
|
5.5 |
|
Total Adjusted EBIT |
$ |
112.3 |
|
|
$ |
174.0 |
|
|
$ |
(61.7 |
) |
25
Interest Expense
|
Three Months Ended |
|
|||||||||
|
August 31, |
|
|||||||||
|
|
|
|
|
|
|
Increase/ |
|
|||
(In millions) |
2022 |
|
|
2021 |
|
|
(Decrease) |
|
|||
Interest Expense |
$ |
8.6 |
|
|
$ |
7.7 |
|
|
$ |
0.9 |
|
Income Taxes
|
Three Months Ended |
|
|||||||||||||||||
|
August 31, |
|
|||||||||||||||||
(In millions) |
2022 |
|
|
Effective Tax Rate |
|
|
2021 |
|
|
Effective Tax Rate |
|
|
Increase/ |
|
|||||
Income tax expense |
$ |
19.5 |
|
|
|
23.9 |
% |
|
$ |
40.2 |
|
|
|
23.3 |
% |
|
$ |
(20.7 |
) |
Liquidity and Capital Resources
During the three months ended August 31, 2022, we generated $81.0 million of cash from operating activities, invested $21.5 million in property, plant and equipment, spent $56.1 million to acquire Level5, and received $42.1 million of cash proceeds from the sale of our equity investment in ArtiFlex and related real property. Additionally, we repaid $32.4 million of borrowings outstanding under the AR Facility and paid dividends of $13.9 million on Worthington Industries, Inc.’s common shares. The following table summarizes our consolidated cash flows for the periods presented:
|
Three Months Ended |
|
|||||
|
August 31, |
|
|||||
(in millions) |
2022 |
|
|
2021 |
|
||
Net cash provided (used) by operating activities |
$ |
81.0 |
|
|
$ |
(49.8 |
) |
Net cash used by investing activities |
|
(29.8 |
) |
|
|
(102.0 |
) |
Net cash used by financing activities |
|
(49.9 |
) |
|
|
(89.3 |
) |
Increase (decrease) in cash and cash equivalents |
|
1.3 |
|
|
|
(241.1 |
) |
Cash and cash equivalents at beginning of period |
|
34.5 |
|
|
|
640.3 |
|
Cash and cash equivalents at end of period |
$ |
35.8 |
|
|
$ |
399.2 |
|
26
We believe that the available borrowing capacity of our committed line of credit is sufficient to meet the needs of our existing businesses for normal operating costs, mandatory capital expenditures, debt redemptions, dividend payments, and working capital, to the extent not funded by cash provided by operating activities, for at least 12 months and for the foreseeable future thereafter.
Although we do not currently anticipate a need, we believe that we could access the financial markets to be in a position to sell long-term debt or equity securities. However, lingering supply chain disruptions and other challenges caused by the COVID-19 pandemic and softening economic conditions 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 such challenges on the economy and our operations is evolving, we will continue to review our discretionary spending and other variable costs as well as our liquidity needs.
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 such additional capital, there can be no assurance that we would be able to obtain such additional capital on terms acceptable to us, if at all, and such additional equity or debt financing could dilute the interests of our existing shareholders and/or increase our interest costs.
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, requiring higher levels of inventory and accounts receivable. During economic slowdowns, or periods of decreasing raw material costs, working capital needs generally decrease as a result of the reduction of inventories and accounts receivable.
Net cash provided by operating activities was $81.0 million during the three months ended August 31, 2022, a difference of $130.8 million from the net cash used by operating activities in the prior year period. This change was primarily due to a $125.9 million decrease in operating working capital (accounts receivable, inventory, and accounts payable) requirements over the prior year quarter, mainly driven by lower average steel prices.
Investing Activities
Net cash used by investing activities was $29.8 million during the three months ended August 31, 2022 compared to $102.0 million in the prior year quarter. Net cash used by investing activities in the prior year quarter resulted primarily from cash used to acquire certain assets of the Shiloh Industries’ U.S BlankLight ® business on June 8, 2021, for $104.8 million. Net cash used by investing activities in the current year quarter resulted primarily from the purchase of the Level5 business on June 2, 2022, for $56.1 million, net of cash acquired, and capital expenditures of $21.4 million, partially offset by combined cash proceeds of $47.9 million from the sale of our equity investment in ArtiFlex and other long-lived assets, including the related real property that was owned by Worthington and leased to ArtiFlex.
Investment activities are largely discretionary, and future investment activities could be reduced significantly, or eliminated, as economic conditions warrant. We assess acquisition opportunities as they arise, and such opportunities may require additional financing. There can be no assurance, however, that any such opportunities will arise, that any such acquisition opportunities will be consummated, or that any needed additional financing will be available on satisfactory terms if required.
Financing Activities
Net cash used by financing activities was $49.9 million during the three months ended August 31, 2022 compared to $89.3 million in the prior year quarter. The change was primarily due to $32.4 million net repayments of short-term borrowings.
Long-term debt and short-term borrowings – As of August 31, 2022, we were in compliance with the financial covenants of our short-term and long-term financial debt agreements. Our debt agreements do not include credit rating triggers or material adverse change provisions. During the first quarter of fiscal 2023, our credit rating was upgraded from Baa3 to Baa2 by Moody’s Investors Service, Inc. Short-term borrowings consisted of $11.2 million drawn against our AR Facility, leaving $163.8 million available for future use. This is in addition to $500.0 million of short-term borrowing capacity available under our multi-year revolving credit facility.
Common shares – On September 28, 2022, the Worthington Industries Board declared a quarterly dividend of $0.31 per share payable on December 29, 2022, to shareholders of record on December 15, 2022.
27
On March 20, 2019, the Worthington Industries Board authorized the repurchase of up to 6,600,000 of Worthington Industries, Inc.’s outstanding common shares (the “common shares”).
On March 24, 2021, the Worthington Industries Board authorized the repurchase of up to an additional 5,618,464 common shares, increasing the total number of common shares then authorized for repurchase to 10,000,000. As of August 31, 2022, 6,065,000 common shares remained available for repurchase under these authorizations.
The common shares available for repurchase under the authorizations currently in effect 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.
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.
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, contingencies and litigation, and business combinations. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. These results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Critical accounting policies are defined as those that reflect our significant judgments and uncertainties that could potentially result in materially different results under different assumptions and conditions. Although actual results historically have not deviated significantly from those determined using our estimates, our consolidated financial position or results of operations could be materially different if we were to report under different conditions or to use different assumptions in the application of such policies. Our critical accounting policies have not significantly changed from those discussed in “Part II – Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” of the 2022 Form 10-K.
Item 3. – Quantitative and Qualitative Disclosures About Market Risk
Market risks have not materially changed from those disclosed in “Part II – Item 7A. – Quantitative and Qualitative Disclosures About Market Risk” of the 2022 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 Worthington Industries, Inc. files or submits 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 Worthington Industries, Inc.’s principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Management, under the supervision of and with the participation of Worthington Industries, Inc.’s principal executive officer and principal financial officer, performed an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Form 10-Q (the quarterly period ended August 31, 2022). Based on that evaluation, Worthington Industries’ principal executive officer and principal financial officer have concluded that such disclosure controls and procedures were effective at a reasonable assurance level as of the end of the quarterly period covered by this Form 10-Q.
28
Changes in Internal Control Over Financial Reporting
There were no changes that occurred during the period covered by this Form 10-Q (the quarterly period ended August 31, 2022) 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
We are involved in various judicial and administrative proceedings, as both plaintiff and defendant, arising in the ordinary course of business. We do not believe that any such proceedings will have a material adverse effect on our business, financial position, results of operation or cash flows.
Item 1A. – Risk Factors
There are certain risks and uncertainties in our business that could cause our actual results to differ materially from those anticipated. In “PART I – Item 1A. – Risk Factors” of the 2022 Form 10-K, as filed with the U.S. Securities and Exchange Commission on August 1, 2022, and available at www.sec.gov or at www.worthingtonindustries.com, we included a detailed discussion of our risk factors. Our risk factors have not changed significantly from those disclosed in the 2022 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 Form 10-Q. Any of the risks described in the 2022 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 the 2022 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.
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 Exchange Act, as amended) of common shares of Worthington Industries, Inc. during each month of the quarterly period ended August 31, 2022:
|
|
|
|
|
|
|
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) |
|
||||
June 1-30, 2022 (2) |
|
9,145 |
|
|
$ |
44.73 |
|
|
|
- |
|
|
|
6,065,000 |
|
July 1-31, 2022 |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
6,065,000 |
|
August 1-31, 2022 |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
6,065,000 |
|
Total |
|
9,145 |
|
|
$ |
44.73 |
|
|
|
- |
|
|
|
|
|
The common shares available for repurchase under the authorizations currently in effect 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.
29
Item 3. – Defaults Upon Senior Securities
Not applicable.
Item 4. – Mine Safety Disclosures
Not applicable.
Item 5. – Other Information
Not applicable.
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Item 6. – Exhibits
Exhibit No. |
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Description |
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2.1 |
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3.1 |
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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 |
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3.2 |
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10.1 |
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10.2 |
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10.3 |
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10.4 |
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31.1 |
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Rule 13a - 14(a) / 15d - 14(a) Certifications (Principal Executive Officer) * |
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31.2 |
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Rule 13a - 14(a) / 15d - 14(a) Certifications (Principal Financial Officer) * |
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32.1 |
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32.2 |
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101.INS |
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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. |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document # |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document # |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document # |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document # |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document # |
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104 |
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Cover Page Interactive Data File – the cover page from this Quarterly Report on Form 10-Q for the quarterly period ended August 31, 2022, formatted in Inline XBRL (included within the Exhibit 101 attachments). |
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* Filed herewith.
** Furnished herewith.
† The Disclosure Schedules and Exhibits referenced in the Equity Interest Purchase Agreement have been omitted pursuant to Item 601(a)(5) of SEC Regulation S-K. Worthington Industries, Inc. will supplementally furnish a copy of any of the omitted Disclosure Schedules and Exhibits to the Securities and Exchange Commission on a confidential basis upon request.
# 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):
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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.
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WORTHINGTON INDUSTRIES, INC. |
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Date: October 11, 2022 |
By: |
/s/ Joseph B. Hayek |
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Joseph B. Hayek, |
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Vice President and Chief Financial Officer |
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(On behalf of the Registrant as Duly Authorized Officer and as Principal Financial Officer) |
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33
