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:
On January 4, 2024, the number of common shares, without par value, of the Registrant issued and outstanding was
TABLE OF CONTENTS
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Item 1. |
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Consolidated Balance Sheets – November 30, 2023 and May 31, 2023 |
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Consolidated Statements of Earnings – Three Months and Six Months Ended November 30, 2023 and 2022 |
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Consolidated Statements of Cash Flows – Three Months and Six Months Ended November 30, 2023 and 2022 |
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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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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 the Company’s current expectations, estimates or projections concerning future results or events. These statements are often identified by the use of forward-looking words or phrases such as “believe,” “expect,” “anticipate,” “may,” “could,” “should,” “would,” “intend,” “plan,” “will,” “likely,” “estimate,” “project,” “position,” “strategy,” “target,” “aim,” “seek,” “foresee,” or other similar words or phrases. These forward-looking statements include, without limitation, statements relating to:
Because they are based on beliefs, estimates and assumptions, forward-looking statements are inherently subject to risks and uncertainties that could cause actual results to differ materially from those projected. Any number of factors could affect actual results, including, without limitation, those that follow:
ii
iii
The Company notes these risk factors for investors as contemplated by the PSLRA. Forward-looking statements should be construed in the light of such risks. It is impossible to predict or identify all potential risk factors. Consequently, readers should not consider the foregoing list to be a complete set of all potential risks and uncertainties. Readers are cautioned not to place undue reliance on any forward-looking statements. Any forward-looking statements in this Form 10-Q are based on current information as of the date of this Form 10-Q, and the Company does not undertake, and hereby disclaims, any obligation to correct or update any forward-looking statements, whether as a result of new information, future developments or otherwise, except as required by applicable law.
iv
EXPLANATORY NOTE
On December 1, 2023, Worthington Industries, Inc. completed the separation of its former Steel Processing business into an independent, publicly traded company: Worthington Steel, Inc. (“Worthington Steel”). Also on December 1, 2023, Worthington Industries, Inc. changed its name to Worthington Enterprises, Inc., with such entity referred to as “Worthington Enterprises” for all past, present and futures periods discussed in this Form 10-Q for the fiscal quarter ended November 30, 2023 (this “Form 10-Q”).
References in this Form 10-Q to “we,” “our,” “us” “Worthington,” or the “Company” are to Worthington Enterprises and its consolidated subsidiaries, which included Worthington Steel and the Steel Processing business through November 30, 2023, the end of our fiscal 2024 second quarter. Accordingly, the financial results of Worthington Enterprises prior to the Separation include our former Steel Processing business. Beginning with our fiscal 2024 third quarter, our historical results will be restated to reflect the operations of our former Steel Processing business as a discontinued operation in periods prior to the December 1, 2023 Separation.
1
PART I. FINANCIAL INFORMATION
Item 1. – Financial Statements
WORTHINGTON ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
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(Unaudited) |
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November 30, |
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May 31, |
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2023 |
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2023 |
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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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$ |
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Receivables, less allowances of $ |
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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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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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$ |
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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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$ |
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See condensed notes to consolidated financial statements.
2
WORTHINGTON ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per common share amounts)
(Unaudited)
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Three Months Ended |
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Six Months Ended |
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November 30, |
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November 30, |
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2023 |
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2022 |
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2023 |
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2022 |
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Net sales |
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$ |
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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 expense (income), net |
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Separation costs |
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Operating income (loss) |
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Other income (expense): |
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Miscellaneous income (expense), net |
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Loss on extinguishment of debt |
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- |
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- |
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- |
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Interest expense, net |
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( |
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( |
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( |
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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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$ |
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$ |
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Basic |
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Weighted average common shares outstanding |
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Earnings per common share attributable to controlling interest |
$ |
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$ |
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$ |
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$ |
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Diluted |
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Weighted average common shares outstanding |
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Earnings per common share attributable to controlling interest |
$ |
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$ |
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$ |
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$ |
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Common shares outstanding at end of period |
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Cash dividends declared per common share |
$ |
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$ |
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$ |
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$ |
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See condensed notes to consolidated financial statements.
3
WORTHINGTON ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
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Three Months Ended |
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Six Months Ended |
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November 30, |
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November 30, |
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2023 |
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2022 |
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2023 |
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2022 |
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Net earnings |
$ |
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$ |
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$ |
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$ |
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Other comprehensive income (loss), net of tax |
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Foreign currency translation |
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Pension liability adjustment |
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- |
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( |
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Cash flow hedges |
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( |
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Other comprehensive income (loss) |
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( |
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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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$ |
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$ |
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See condensed notes to consolidated financial statements.
4
WORTHINGTON ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
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Three Months Ended |
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Six Months Ended |
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November 30, |
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November 30, |
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2023 |
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2022 |
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2023 |
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2022 |
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Operating activities: |
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Net earnings |
$ |
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$ |
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$ |
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$ |
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Adjustments to reconcile net earnings to net cash provided by operating activities: |
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Depreciation and amortization |
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Impairment of long-lived assets |
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Provision for (benefit from) deferred income taxes |
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( |
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Loss on extinguishment of debt |
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- |
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- |
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Bad debt expense (income) |
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( |
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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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( |
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( |
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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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Inventories |
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Accounts payable |
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( |
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( |
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( |
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( |
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Accrued compensation and employee benefits |
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( |
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( |
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Income taxes payable |
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( |
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( |
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( |
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( |
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Other operating items, net |
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( |
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( |
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Net cash provided by operating activities |
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Investing activities: |
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Investment in property, plant and equipment |
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( |
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( |
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( |
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Proceeds from sale of assets, net of selling costs |
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Acquisitions, net of cash acquired |
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( |
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- |
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( |
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Investment in note receivable |
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- |
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- |
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( |
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- |
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Investment in non-marketable equity securities |
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( |
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( |
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( |
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( |
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Proceeds from the sale of investment in ArtiFlex, net of selling costs |
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- |
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- |
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- |
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Distribution from unconsolidated affiliate |
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- |
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- |
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Net cash used by investing activities |
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( |
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( |
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( |
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( |
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Financing activities: |
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Net proceeds from (repayments of) short-term borrowings |
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( |
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( |
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Principal payments on long-term obligations |
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- |
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( |
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( |
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( |
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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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( |
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( |
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Payments to noncontrolling interests |
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- |
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( |
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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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( |
) |
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( |
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Net cash provided (used) by financing activities |
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( |
) |
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( |
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( |
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Increase (decrease) in cash and cash equivalents |
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( |
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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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$ |
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$ |
|
See condensed notes to consolidated financial statements.
5
WORTHINGTON ENTERPRISES, INC.
CONDENSED Notes to Consolidated Financial Statements (UNAUDITED)
(In thousands, except per common share amounts)
Note A – Basis of Presentation
Basis of Presentation
These unaudited consolidated financial statements include the accounts of Worthington Enterprises and its consolidated subsidiaries. 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. (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the SEC. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, which are of a normal and recurring nature except those which have been disclosed elsewhere in this Form 10-Q, necessary for a fair presentation of the consolidated financial statements for these interim periods, have been included. Operating results for the second quarter of fiscal 2024 are not necessarily indicative of the results that may be expected for the fiscal year ending May 31, 2024 (“fiscal 2024”) or for any other fiscal quarter. For further information, refer to the consolidated financial statements and notes thereto included in the 2023 Form 10-K.
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.
The Separation of the Steel Processing Business
On December 1, 2023, we completed the Separation and Worthington Steel, comprised of our former Steel Processing business, became an independent, publicly traded company. To effectuate the Separation, we made a pro-rata distribution of all outstanding shares of Worthington Steel, which was tax-free to our shareholders for U.S. federal income tax purposes. Each holder of record of Worthington Enterprises common shares received one common share of Worthington Steel for every one common share of Worthington Enterprises held (the “Distribution”) as of the close of business on November 21, 2023 (the “Record Date”).
On November 30, 2023, in connection with the Separation, we entered into several agreements with Worthington Steel that govern the relationship between Worthington Steel and us following the Distribution, including a Separation and Distribution Agreement, Tax Matters Agreement, Employee Matters Agreement, and Transition Services Agreement.
Direct and incremental costs associated with the Separation are presented as a separate component of operating expense within the Separation costs caption in our consolidated statements of earnings and are held at the corporate level. Separation costs through the first six months of fiscal 2024 consisted primarily of third-party advisory fees and certain non-recurring employee-related costs totaling $
6
Note B – Inventory
During the second quarter of fiscal 2024, we initiated a recall with the Consumer Protection Safety Commission for our recently introduced Balloon Time® Mini helium tank. We have reserved for the estimated direct and incremental costs expected to be incurred to administer the recall program, which we expect to be immaterial due to the small population of tanks purchased by end consumers. However, we booked a reserve of approximately $
Note C – Revenue Recognition
The following table summarizes net sales by operating segment and product class within the Steel Processing operating segment for the periods presented:
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
November 30, |
|
|
November 30, |
|
||||||||||
(In thousands) |
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Steel Processing |
|
|
|
|
|
|
|
|
|
|
|
||||
Direct |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Toll |
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Consumer Products |
|
|
|
|
|
|
|
|
|
|
|
||||
Building Products |
|
|
|
|
|
|
|
|
|
|
|
||||
Sustainable Energy Solutions |
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other |
|
|
|
|
- |
|
|
|
|
|
|
- |
|
||
Total |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
With the exception of toll processing, net sales are recognized at the point in time the performance obligation is satisfied and control is transferred to the customer, typically upon shipment or delivery.
The following table summarizes the unbilled receivables at the dates indicated:
|
|
|
November 30, |
|
|
May 31, |
|
||
(In thousands) |
Balance Sheet Classification |
|
2023 |
|
|
2023 |
|
||
Unbilled receivables |
Receivables |
|
$ |
|
|
$ |
|
There were
7
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 and included the following at November 30, 2023: Clarkwestern Dietrich Building Systems LLC (“ClarkDietrich”) (
We also held a
During the second quarter of fiscal 2024, we recognized a pre-tax gain of $
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 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. During the second quarter of fiscal 2024, we classified $
The following tables summarize combined financial information for our unconsolidated affiliates as of the dates, and for the periods presented:
|
November 30, |
|
|
May 31, |
|
||
(In thousands) |
2023 |
|
|
2023 |
|
||
Cash and cash equivalents |
$ |
|
|
$ |
|
||
Other current assets |
|
|
|
|
|
||
Noncurrent assets |
|
|
|
|
|
||
Total assets |
$ |
|
|
$ |
|
||
|
|
|
|
|
|
||
Current liabilities |
|
|
|
|
|
||
Current maturities of long-term debt |
|
- |
|
|
|
|
|
Long-term debt |
|
|
|
|
|
||
Other noncurrent liabilities |
|
|
|
|
|
||
Equity |
|
|
|
|
|
||
Total liabilities and equity |
$ |
|
|
$ |
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||||
|
November 30, |
|
November 30, |
|
||||||||||
(In thousands) |
2023 |
|
|
2022 |
|
2023 |
|
|
2022 |
|
||||
Net sales |
$ |
|
|
$ |
|
$ |
|
|
$ |
|
||||
Gross margin |
|
|
|
|
|
|
|
|
|
|
||||
Operating income |
|
|
|
|
|
|
|
|
|
|
||||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
||||
Interest expense |
|
|
|
|
|
|
|
|
|
|
||||
Income tax expense |
|
|
|
|
|
|
|
|
|
|
||||
Net earnings |
|
|
|
|
|
|
|
|
|
|
8
Note E – Impairment of Long-Lived Assets
During the first quarter of fiscal 2023, we committed to plans to liquidate certain fixed assets at the Samuel joint venture’s toll processing facility in Cleveland, Ohio. 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 resulting in a pre-tax impairment charge of $
During the first quarter of fiscal 2024, we lowered our estimate of fair value less costs to sell to reflect the expected scrap value of the equipment, to $
Note F – Restructuring and Other Expenses (Income), Net
We consider restructuring activities to be programs whereby we fundamentally change our operations, such as divestitures, closing or consolidating facilities, employee severance (including rationalizing headcount or other significant changes in personnel), and realignment of existing operations (including changes to management structure in response to underlying performance and/or changing market conditions).
We made severance payments of $
Restructuring and other income, net for the six months ended November 30, 2022 of $
Note G – Contingent Liabilities and Commitments
Legal Proceedings
We are defendants in certain legal actions. In the opinion of management, the outcome of these actions, which is not clearly determinable at the present time, would not significantly affect our consolidated financial position or future results of operations. We also believe that environmental issues will not have a material effect on our capital expenditures, consolidated financial position or future results of operations.
Note H – Guarantees
We do not have guarantees that we believe are reasonably likely to have a material current or future effect on our consolidated financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. However, at November 30, 2023, we were party to an operating lease for an aircraft in which we have guaranteed a residual value at the termination of the lease on March 30, 2028. The maximum obligation under the terms of this guarantee was approximately $
At November 30, 2023, we also had in place $
9
Note I – Debt and Receivables Securitization
The following table summarizes our long-term debt and short-term borrowings outstanding at November 30, 2023 and May 31, 2023:
|
November 30, |
|
May 31, |
|
||
(In thousands) |
2023 |
|
2023 |
|
||
Short-term borrowings |
$ |
|
$ |
|
||
|
|
|
|
|||
|
- |
|
|
|
||
|
|
|
|
|||
|
|
|
|
|||
|
|
|
|
|||
Other |
|
|
|
|
||
Total debt |
|
|
|
|
||
Unamortized discount and debt issuance costs |
|
( |
) |
|
( |
) |
Total debt, net |
|
|
|
|
||
Less: current maturities and short-term borrowings |
|
|
|
|
||
Total long-term debt |
$ |
|
$ |
|
Maturities of long-term debt and short-term borrowings in fiscal 2024 year and the four fiscal years thereafter, are as follows:
(In thousands) |
|
|
|
2024 (1) |
$ |
|
|
2025 |
|
|
|
2026 |
|
- |
|
2027 |
|
- |
|
2028 |
|
- |
|
Thereafter |
|
|
|
Total |
$ |
|
|
Long-Term Debt
On April 15, 2014, we issued senior unsecured notes in the principal amount of $
Other Financing Arrangements
On November 30, 2023, Worthington Steel entered into a
10
On May 19, 2022, we entered into a five-year revolving trade accounts receivable securitization facility (“AR Facility”) that allowed for short-term borrowings of 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 |
|
|||||||||||||||||||||
|
November 30, 2023 |
|
|
November 30, 2022 |
|
||||||||||||||||||
(In thousands) |
Before-Tax |
|
|
Tax |
|
|
Net-of-Tax |
|
|
Before-Tax |
|
|
Tax |
|
|
Net-of-Tax |
|
||||||
Foreign currency translation |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Pension liability adjustment |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Cash flow hedges |
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
Other comprehensive income (loss) |
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
Six Months Ended |
|
|||||||||||||||||||||
|
November 30, 2023 |
|
|
November 30, 2022 |
|
||||||||||||||||||
(In thousands) |
Before-Tax |
|
|
Tax |
|
|
Net-of-Tax |
|
|
Before-Tax |
|
|
Tax |
|
|
Net-of-Tax |
|
||||||
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 |
|
|
Income (Loss), |
|
|
Retained |
|
|
|
|
|
controlling |
|
|
|
|
||||||
(In thousands) |
|
Capital |
|
|
Net of Tax |
|
|
Earnings |
|
|
Subtotal |
|
|
Interests |
|
|
Total |
|
||||||
Balance at May 31, 2023 |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Net earnings |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other comprehensive loss |
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
Common shares issued, net of withholding tax |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
Common shares in non-qualified plans |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|||
Stock-based compensation |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|||
Cash dividends declared |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
Dividends to noncontrolling interests |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Balance at August 31, 2023 |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Net earnings |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other comprehensive income |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|||
Common shares issued, net of withholding tax |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
Common shares in non-qualified plans |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|||
Stock-based compensation |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|||
Cash dividends declared |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
Balance at November 30, 2023 |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
11
|
|
Controlling Interest |
|
|
|
|
|
|
|
|||||||||||||||
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Additional |
|
|
Comprehensive |
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
||||||
|
|
Paid-in |
|
|
Income (Loss), |
|
|
Retained |
|
|
|
|
|
controlling |
|
|
|
|
||||||
(In thousands) |
|
Capital |
|
|
Net of Tax |
|
|
Earnings |
|
|
Subtotal |
|
|
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 |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Net earnings |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other comprehensive loss |
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
Common shares issued, net of withholding tax |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
Common shares in non-qualified plans |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|||
Stock-based compensation |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|||
Cash dividends declared |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
Dividends to noncontrolling interests |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Balance at November 30, 2022 |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
The following table summarizes the changes in accumulated OCI for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
||||
|
|
Foreign |
|
|
Pension |
|
|
|
|
|
Other |
|
||||
|
|
Currency |
|
|
Liability |
|
|
Cash Flow |
|
|
Comprehensive |
|
||||
(In thousands) |
|
Translation |
|
|
Adjustment |
|
|
Hedges |
|
|
Loss |
|
||||
Balance at May 31, 2023 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
Other comprehensive income before reclassifications |
|
|
|
|
|
- |
|
|
|
|
|
|
|
|||
Reclassification adjustments to net earnings (a) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Income tax effect |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Balance at November 30, 2023 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
||||
|
|
Foreign |
|
|
Pension |
|
|
|
|
|
Other |
|
||||
|
|
Currency |
|
|
Liability |
|
|
Cash Flow |
|
|
Comprehensive |
|
||||
(In thousands) |
|
Translation |
|
|
Adjustment |
|
|
Hedges |
|
|
Loss |
|
||||
Balance at May 31, 2022 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Other comprehensive loss before reclassifications |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Reclassification adjustments to net earnings (a)(b) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|||
Income tax effect |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
||
Balance at November 30, 2022 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
12
Note L – Stock-Based Compensation
Non-Qualified Stock Options
During the six months ended November 30, 2023, 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 the common shares and the risk-free interest rate is based on the U.S. Treasury strip rate for the expected term of the non-qualified stock options. The expected term was developed using historical exercise experience.
Service-Based Restricted Common Shares
During the six months ended November 30, 2023, we granted an aggregate of
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 (“adjusted EBIT”) target, in each case for the three-year periods ending May 31, 2024, 2025 and 2026. These performance share awards will be paid, to the extent earned, in common shares in the fiscal quarter following the end of the applicable three-year performance period. The fair values of our performance shares are determined by the closing market prices of the underlying common shares at the respective grant dates of the performance shares and the pre-tax stock-based compensation expense is based on our periodic assessment of the probability of the targets being achieved and our estimate of the number of common shares that will ultimately be issued. During the six months ended November 30, 2023, we granted performance share awards covering an aggregate of
Note M – Income Taxes
Income tax expense for the three months ended November 30, 2023 and November 30, 2022 reflected estimated annual effective income tax rates of
13
of annual pre-tax income for domestic and foreign operations. Our actual effective income tax rate for fiscal 2024 could be materially different from the forecasted rate as of November 30, 2023.
Note N – Earnings per Share
The following table sets forth the computation of basic and diluted earnings per common share attributable to controlling interest for the periods presented:
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
November 30, |
|
|
November 30, |
|
||||||||||
(In thousands, except per common share amounts) |
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Numerator (basic & diluted): |
|
|
|
|
|
|
|
|
|
|
|
||||
Net earnings attributable to controlling interest - |
|
|
|
|
|
|
|
|
|
|
|
||||
income available to common shareholders |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator for basic earnings per common share attributable to |
|
|
|
|
|
|
|
|
|
|
|
||||
controlling interest – weighted average common shares |
|
|
|
|
|
|
|
|
|
|
|
||||
Effect of dilutive securities |
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator for diluted earnings per common share attributable to |
|
|
|
|
|
|
|
|
|
|
|
||||
controlling interest – adjusted weighted average common shares |
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic earnings per common share attributable to controlling interest |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Diluted earnings per common share attributable to controlling interest |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Non-qualified stock options covering
Note O – Segment Operations
Our operations are managed principally on a products and services basis. Factors used to identify reportable segments include the nature of the products and services provided by each business, the management reporting structure, similarity of economic characteristics and certain quantitative measures, as prescribed by authoritative accounting guidance. As of November 30, 2023, our operations were organized under
Segment information is prepared on the same basis that our chief operating decision maker (“CODM”), as defined in the accounting literature, reviews financial information for operational decision-making purposes. Factors used to identify operating segments include the nature of the products and services provided by each business, the management reporting structure, the similarity of economic characteristics and certain quantitative measures, as prescribed by authoritative accounting guidance.
We have identified our Chief Executive Officer as our CODM. Our CODM assesses segment operating performance and allocates resources based on the profitability measure of adjusted EBIT. Adjusted EBIT excludes impairment and restructuring expense (income), but may also exclude other items, as described in the tables below, that management believes are not reflective of, and thus should not be included when evaluating the performance of our ongoing operations. Adjusted EBIT is a non-GAAP financial measure and is used by management to evaluate operating segment performance, engage in financial and operational planning and determine incentive compensation.
Impairment charges are excluded from adjusted EBIT because they do not occur in the ordinary course of our ongoing business operations, are inherently unpredictable in timing and amount, and are non-cash, so their exclusion facilitates the comparison of historical, current and forecasted financial results. Refer to “Note E – Impairment of Long-Lived Assets” for additional information.
Restructuring activities consist of established programs that are not part of our ongoing operations, such as divestitures, closing or consolidating facilities, employee severance (including rationalizing headcount or other significant changes in personnel), and realignment of existing operations (including changes to management structure in response to underlying performance and/or changing market conditions). Refer to “Note F – Restructuring and Other Expense (Income), Net” for additional information.
14
The following table presents summarized financial information for our reportable segments for the periods indicated.
|
Three Months Ended November 30, 2023 |
|
||||||||||||||||||||
(In thousands) |
Steel Processing |
|
|
Consumer Products |
|
|
Building Products |
|
Sustainable Energy Solutions |
|
|
Other |
|
|
Consolidated |
|
||||||
Net sales |
$ |
|
|
$ |
|
|
$ |
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Restructuring and other expense, net |
|
- |
|
|
|
- |
|
|
|
- |
|
|
- |
|
|
|
|
|
|
|
||
Separation costs |
|
- |
|
|
|
- |
|
|
|
- |
|
|
- |
|
|
|
|
|
|
|
||
Miscellaneous income (expense), net |
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||
Equity income |
|
|
|
|
- |
|
|
|
|
|
- |
|
|
|
|
|
|
|
||||
Adjusted EBIT (1) |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
Three Months Ended November 30, 2022 |
|
||||||||||||||||||||
(In thousands) |
Steel Processing |
|
|
Consumer Products |
|
|
Building Products |
|
Sustainable Energy Solutions |
|
|
Other |
|
|
Consolidated |
|
||||||
Net sales |
$ |
|
|
$ |
|
|
$ |
|
$ |
|
|
$ |
- |
|
|
$ |
|
|||||
Restructuring and other income, net |
|
( |
) |
|
|
- |
|
|
|
- |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
Separation costs |
|
- |
|
|
|
- |
|
|
|
- |
|
|
- |
|
|
|
|
|
|
|
||
Miscellaneous income (expense), net |
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|||||
Equity income |
|
|
|
|
- |
|
|
|
|
|
- |
|
|
|
( |
) |
|
|
|
|||
Adjusted EBIT (2) |
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Six Months Ended November 30, 2023 |
|
||||||||||||||||||||
(in thousands) |
Steel Processing |
|
|
Consumer Products |
|
|
Building Products |
|
Sustainable Energy Solutions |
|
|
Other |
|
|
Consolidated |
|
||||||
Net sales |
$ |
|
|
$ |
|
|
$ |
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Impairment of long-lived assets |
|
|
|
|
- |
|
|
|
- |
|
|
- |
|
|
|
- |
|
|
|
|
||
Restructuring and other expense, net |
|
- |
|
|
|
- |
|
|
|
- |
|
|
- |
|
|
|
|
|
|
|
||
Separation costs |
|
- |
|
|
|
- |
|
|
|
- |
|
|
- |
|
|
|
|
|
|
|
||
Miscellaneous income (expense), net |
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||
Loss on extinguishment of debt |
|
- |
|
|
|
- |
|
|
|
- |
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Equity income |
|
|
|
|
- |
|
|
|
|
|
- |
|
|
|
|
|
|
|
||||
Adjusted EBIT (3) |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
15
|
|
Six Months Ended November 30, 2022 |
|
||||||||||||||||||||
(in thousands) |
Steel Processing |
|
|
Consumer Products |
|
|
Building Products |
|
Sustainable Energy Solutions |
|
|
Other |
|
|
Consolidated |
|
||||||
Net sales |
$ |
|
|
$ |
|
|
$ |
|
$ |
|
|
$ |
- |
|
|
$ |
|
|||||
Impairment of long-lived assets |
|
|
|
|
- |
|
|
|
- |
|
|
- |
|
|
|
- |
|
|
|
|
||
Restructuring and other income, net |
|
( |
) |
|
|
- |
|
|
|
- |
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Separation costs |
|
- |
|
|
|
- |
|
|
|
- |
|
|
- |
|
|
|
|
|
|
|
||
Miscellaneous income (expense), net |
|
|
|
|
( |
) |
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|||
Equity income |
|
|
|
|
- |
|
|
|
|
|
- |
|
|
|
( |
) |
|
|
|
|||
Adjusted EBIT (4) |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
Total assets for each of our reportable segments at the dates indicated were as follows:
|
November 30, |
|
|
May 31, |
|
||
(In thousands) |
2023 |
|
|
2023 |
|
||
Total assets |
|
|
|
|
|
||
Steel Processing |
$ |
|
|
$ |
|
||
Consumer Products |
|
|
|
|
|
||
Building Products |
|
|
|
|
|
||
Sustainable Energy Solutions |
|
|
|
|
|
||
Other |
|
|
|
|
|
||
Total assets |
$ |
|
|
$ |
|
Note P – Acquisitions
Tempel Steel Europe GmbH
On November 16, 2023, the Company acquired Voestalpine Automotive Components Nagold GmbH & Co. KG, a facility in Nagold, Germany for net cash consideration of $
The information included herein has been prepared based on the preliminary allocation of the purchase price using estimates of the fair value and useful lives of the assets acquired. The purchase price allocation is subject to further adjustment until all pertinent information regarding the assets acquired is fully evaluated by the Company.
16
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 benefits specific to us, which resulted in a purchase price in excess of the fair value of the identifiable net assets. The goodwill resulting from the acquisition equaled approximately $
The results of operations have been included in our combined statements of earnings since the date of acquisition. Proforma results, including the acquired business since the beginning of fiscal 2023, would not be materially different from the reported results.
Level5 Tools, LLC
On June 2, 2022, we acquired 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 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) |
|
Trade name |
|
$ |
|
|
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 for income tax purposes.
17
The following table summarizes the consideration paid and the final fair value assigned to the assets and liabilities assumed at the acquisition date.
(In thousands) |
|
Preliminary |
|
|
Measurement |
|
|
Final |
|
|||
Cash and cash equivalents |
|
$ |
|
|
$ |
- |
|
|
$ |
|
||
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: 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.
18
Refer to “Note R – Fair Value” for additional information regarding the accounting treatment for our derivative financial instruments, as well as how fair value is determined.
The following table summarizes the fair value of our derivative financial instruments and the respective lines in which they were recorded in the consolidated balance sheet at November 30, 2023:
|
|
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 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
||
Subtotals |
|
|
|
$ |
|
|
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
||
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
||||
Commodity contracts |
|
Receivables |
|
$ |
|
|
Accounts payable |
|
$ |
|
||
|
|
Other assets |
|
|
- |
|
|
Other liabilities |
|
|
|
|
Subtotals |
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
||
Total derivative financial instruments |
|
|
|
$ |
|
|
|
|
$ |
|
The amounts in the table above reflect the fair value of our derivative financial instruments on a net basis where allowable under master netting arrangements. Had these amounts been recognized on a gross basis, the impact would have been a $
The following table summarizes the fair value of our derivative financial instruments and the respective lines in which they were recorded in the consolidated balance sheet at May 31, 2023:
|
|
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 |
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Subtotals |
|
|
|
$ |
|
|
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
||
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
||||
Commodity contracts |
|
Receivables |
|
$ |
|
|
Accounts payable |
|
$ |
|
||
|
|
Other assets |
|
|
- |
|
|
Other liabilities |
|
|
|
|
Subtotals |
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
||
Total derivative financial instruments |
|
|
|
$ |
|
|
|
|
$ |
|
19
The amounts in the table above reflect the fair value of our derivative financial instruments on a net basis where allowable under master netting arrangements. Had these amounts been recognized on a gross basis, the impact would have been a $
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 November 30, 2023:
|
|
Notional |
|
|
|
|
(In thousands) |
|
Amount |
|
|
Maturity Date |
|
Commodity 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 November 30, 2023: |
|
|||||||||
Commodity contracts |
|
$ |
|
|
Cost of goods sold |
|
$ |
( |
) |
|
Interest rate contracts |
|
|
- |
|
|
Interest expense, net |
|
|
|
|
Foreign currency exchange contracts |
|
|
( |
) |
|
Net sales/Cost of goods sold |
|
|
( |
) |
Total |
|
$ |
|
|
|
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
||
For the three months ended November 30, 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 six months ended November 30, 2023: |
|
|||||||||
Commodity contracts |
|
$ |
|
|
Cost of goods sold |
|
$ |
|
||
Interest rate contracts |
|
|
- |
|
|
Loss on extinguishment of debt |
|
|
( |
) |
Interest rate contracts |
|
|
- |
|
|
Interest expense, net |
|
|
|
|
Foreign currency exchange contracts |
|
|
( |
) |
|
Net sales/Cost of goods sold |
|
|
( |
) |
Total |
|
$ |
|
|
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
||
For the six months ended November 30, 2022: |
|
|||||||||
Commodity contracts |
|
$ |
( |
) |
|
Cost of goods sold |
|
$ |
( |
) |
Interest rate contracts |
|
|
- |
|
|
Interest expense |
|
|
( |
) |
Foreign currency exchange contracts |
|
|
|
|
Net sales/Cost of goods sold |
|
|
( |
) |
|
Total |
|
$ |
( |
) |
|
|
|
$ |
( |
) |
The estimated net amount of the gain recognized in AOCI at November 30, 2023 expected to be reclassified into net earnings within the succeeding twelve months is $
20
Economic (Non-designated) Hedges
We enter into foreign currency exchange contracts to manage our foreign currency exchange rate exposure related to inter-company and financing transactions that do not meet the requirements for hedge accounting treatment. We also enter into certain commodity contracts that do not qualify for hedge accounting treatment. Accordingly, these derivative financial instruments are adjusted to current market value at the end of each period through gain (loss) recognized in earnings.
The following table summarizes our economic (non-designated) derivative financial instruments outstanding at November 30, 2023:
|
|
Notional |
|
|
|
|
(In thousands) |
|
Amount |
|
|
Maturity Date(s) |
|
Commodity contracts |
|
$ |
|
|
- |
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 November 30, |
|
|||||
(In thousands) |
|
Recognized in Earnings |
|
2023 |
|
|
2022 |
|
||
Commodity contracts |
|
Cost of goods sold |
|
$ |
|
|
$ |
|
||
Foreign currency exchange contracts |
|
Miscellaneous income, net |
|
|
- |
|
|
|
( |
) |
Total |
|
|
|
$ |
|
|
$ |
|
|
|
|
|
Gain (Loss) Recognized |
|
|||||
|
|
|
|
in Earnings for the |
|
|||||
|
|
Location of Gain (Loss) |
|
Six Months Ended November 30, |
|
|||||
(In thousands) |
|
Recognized in Earnings |
|
2023 |
|
|
2022 |
|
||
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.
21
Recurring Fair Value Measurements
At November 30, 2023, our assets and liabilities measured at fair value on a recurring basis were as follows:
|
|
|
|
|
Significant |
|
|
|
|
|
|
|
||||
|
|
Quoted Prices |
|
|
Other |
|
|
Significant |
|
|
|
|
||||
|
|
in Active |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
||||
|
|
Markets |
|
|
Inputs |
|
|
Inputs |
|
|
|
|
||||
(In thousands) |
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Totals |
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivative financial instruments (1) |
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
||
Total assets |
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivative financial instruments (1) |
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
||
Total liabilities |
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
|
At May 31, 2023, our assets and liabilities measured at fair value on a recurring basis were as follows:
|
|
|
|
|
Significant |
|
|
|
|
|
|
|
||||
|
|
Quoted Prices |
|
|
Other |
|
|
Significant |
|
|
|
|
||||
|
|
in Active |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
||||
|
|
Markets |
|
|
Inputs |
|
|
Inputs |
|
|
|
|
||||
(In thousands) |
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Totals |
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivative financial instruments (1) |
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
||
Total assets |
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivative financial instruments (1) |
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
||
Total liabilities |
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
|
22
Non-Recurring Fair Value Measurements
At November 30, 2023, there were
At May 31, 2023, 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) |
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
||
Long-lived assets held and used (2) |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
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 December 1, 2023, we completed the Separation. The Board of Directors of Worthington Enterprises (the “Board”) approved the completion of the Separation on November 9, 2023, which was effected by the Distribution by Worthington Enterprises of all of the outstanding common stock of Worthington Steel on December 1, 2023 to Worthington Enterprises stockholders who held its common shares as of the close of business on the Record Date.
In connection with the Separation, we received a cash payment of $
23
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 PSLRA. Such forward-looking statements are based, in whole or in part, on management’s beliefs, estimates, assumptions and currently available information. For a more detailed discussion of what constitutes a forward-looking statement and of some of the factors that could cause actual results to differ materially from such forward-looking statements, please refer to the “Safe Harbor Statement” in the beginning of this Form 10-Q and “Part I – Item 1A. – Risk Factors” of the 2023 Form 10-K.
Unless otherwise indicated, all Note references contained in this “Part I – Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” refer to the Condensed Notes to Consolidated Financial Statements included in “Part I – Item 1. – Financial Statements” of this Form 10-Q.
Introduction
The following discussion and analysis of market and industry trends, business developments, and the results of our operations and financial position, should be read in conjunction with our consolidated financial statements and notes thereto included in “Part I – Item 1. – Financial Statements” of this Form 10-Q. The 2023 Form 10-K includes additional information about our business, operations and consolidated financial position and should be read in conjunction with this Form 10-Q. This MD&A is designed to provide a reader with material information relevant to an assessment of our financial condition and results of operations and to allow investors to view the Company from the perspective of management. The results of operations contained in this MD&A include all of our operations, including our former Steel Processing business. Beginning in the third quarter of fiscal 2024, our historical results will be restated to reflect the operations of Worthington Steel as a discontinued operation in periods prior to the December 1, 2023, Separation. This MD&A is divided into six main sections:
Separation of the Steel Processing Business
On December 1, 2023, we completed the Separation and Worthington Steel, comprised of our former Steel Processing business, became an independent, publicly traded company. The Separation of Worthington Steel from Worthington Enterprises, which is comprised of the Building Products, Consumer Products and Sustainable Energy Solutions businesses, was achieved through Worthington Enterprises’ pro rata distribution of 100% of the outstanding common shares of Worthington Steel to holders of record of Worthington Enterprises common shares as of the close of business on the Record Date. Each holder of record of Worthington Enterprises common shares received one common share of Worthington Steel for every one common share of Worthington Enterprises held at the close of business on the Record Date. In connection with the Separation, Worthington Steel made a cash distribution of $150 million to Worthington Enterprises. Following the completion of the Separation, Worthington Industries, Inc. changed its name to Worthington Enterprises, Inc. Worthington Enterprises’ common shares continue trading on the New York Stock Exchange (“NYSE”) under the ticker symbol “WOR.” On December 1, 2023, the common shares of Worthington Steel began trading on the NYSE under the ticker symbol “WS.”
24
Recent Business Developments
Trends and Factors Impacting our Performance
The industries in which we participate are fragmented and highly competitive. Given the broad base of products and services offered, specific competitors vary based on the target industry, product type, service type, size of program and geography. Competition is primarily on the basis of price, product quality and the ability to meet delivery requirements. Our products are priced competitively, primarily based on market factors, including, among other things, market pricing, the cost and availability of raw materials, transportation and shipping costs, and overall economic conditions in the U.S. and abroad.
General Economic and Market Conditions
We sell our products and services to a diverse customer base and a broad range of end markets. The breakdown of net sales by end market for the second quarter of each of fiscal 2024 and fiscal 2023 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. During the second quarter of fiscal 2024, approximately 53% of Steel Processing’s net sales were to the automotive market. North American vehicle production, primarily by Ford, General Motors and Stellantis North America (the “Detroit Three automakers”), has a considerable impact on the activity within the Steel Processing operating segment, including its unconsolidated joint venture, Serviacero Worthington.
During the second quarter of fiscal 2024, approximately 13% of the net sales of our Steel Processing operating segment were to the construction market. The construction market is also the predominant end market for our unconsolidated joint ventures within the 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 the U.S. gross domestic product (“U.S. GDP”), the Dodge Index of construction contracts and, in the case of ClarkDietrich, trends in the relative prices of framing lumber and steel.
During the second quarter of fiscal 2024, substantially all of the net sales of our Consumer Products, Building Products, and Sustainable Energy Solutions operating segments and approximately 34% of the net sales of our Steel Processing operating segment were to other
25
markets such as agricultural, appliance, consumer products, heavy-truck, industrial products, including the industrial electric motor, generator, and transformer end markets, and lawn and garden. Given the many different products that make up these net sales and the wide variety of end markets, it is very difficult to detail the key market indicators that drive these portions of our business. However, we believe that the trend in U.S. GDP growth is a good economic indicator for analyzing the demand of these end markets.
U.S. GDP growth rate trends are generally indicative of the strength in demand and, in many cases, pricing for our products. A year-over-year increase in U.S. GDP growth rates is generally indicative of a stronger economy, which generally increases demand and pricing for our products. Conversely, declining U.S. GDP growth rates generally indicate a weaker economy, which generally decreases demand and pricing for our products. Changes in U.S. GDP growth rates can also signal changes in conversion costs related to production and in selling, general, and administrative expense (“SG&A”).
Inflation and government deficits and debt remain at high levels. While inflation has moderated recently, a period of sustained inflation could pressure our margins in future periods. In response to the concerns over inflation risk in the broader U.S. economy, the U.S. Federal Reserve increased its benchmark interest rate significantly during fiscal 2022 and fiscal 2023. Interest rates may remain high in fiscal 2024. Adverse economic conditions resulting from inflationary pressures, U.S. Federal Reserve actions, including continued high interest rates and/or increases in interest rates, geopolitical issues or otherwise are difficult to predict and may have a material adverse impact on our business, results of operations and financial condition. Please see Part I, Item 1A. “Risk Factors” on our 2023 Form 10-K for an additional discussion of risks and potential risks of inflation and adverse economic conditions on our business, financial condition and results of operations.
We use the following information to monitor our costs and demand in our major end markets:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||||||||||
|
|
November 30, |
|
|
November 30, |
|
||||||||||||||||||
|
|
2023 |
|
|
2022 (1) |
|
|
Inc/ (Dec) |
|
|
2023 |
|
|
2022 (1) |
|
|
Inc/ (Dec) |
|
||||||
U.S. GDP (% growth year-over-year) |
|
|
2.8 |
% |
|
|
1.8 |
% |
|
|
1.0 |
% |
|
|
2.5 |
% |
|
|
1.8 |
% |
|
|
0.7 |
% |
Hot-Rolled Steel ($ per ton) (2) |
|
$ |
747 |
|
|
$ |
742 |
|
|
$ |
5 |
|
|
$ |
813 |
|
|
$ |
860 |
|
|
$ |
(47 |
) |
Detroit Three Auto Build (000's vehicles) (3) |
|
|
1,558 |
|
|
|
1,742 |
|
|
|
(184 |
) |
|
|
3,328 |
|
|
|
3,471 |
|
|
|
(143 |
) |
No. America Auto Build (000's vehicles) (3) |
|
|
3,914 |
|
|
|
3,737 |
|
|
|
177 |
|
|
|
7,890 |
|
|
|
7,375 |
|
|
|
515 |
|
Zinc ($ per pound) (4) |
|
$ |
1.14 |
|
|
$ |
1.36 |
|
|
$ |
(0.22 |
) |
|
$ |
1.11 |
|
|
$ |
1.46 |
|
|
$ |
(0.35 |
) |
Natural Gas ($ per mcf) (5) |
|
$ |
2.96 |
|
|
$ |
6.77 |
|
|
$ |
(3.81 |
) |
|
$ |
2.77 |
|
|
$ |
7.32 |
|
|
$ |
(4.55 |
) |
On-Highway Diesel Fuel Prices ($ per gallon) (6) |
|
$ |
4.44 |
|
|
$ |
5.15 |
|
|
$ |
(0.71 |
) |
|
$ |
4.23 |
|
|
$ |
5.29 |
|
|
$ |
(1.06 |
) |
|
Sales to one Steel Processing customer in the automotive industry represented 11.1% and 12.3% of consolidated net sales during the second quarter of fiscal 2024 and the second quarter of fiscal 2023, respectively. While our automotive business is largely driven by the production schedules of the Detroit Three automakers, our customer base is much broader and includes other domestic manufacturers and many of their suppliers. During the second quarter of fiscal 2024, vehicle production for the Detroit Three automakers was down 11% due to the United Auto Workers Strike while overall North American vehicle production was up 5%.
Sales for most of our products are generally strongest in our fiscal fourth quarter when our facilities operate at seasonal peaks. Historically, sales have been weaker in our fiscal third quarter, primarily due to reduced seasonal activity in the building and construction industry, as well as customer plant shutdowns due to holidays, particularly in the automotive industry. We do not believe backlog is a significant indicator of our business.
Impact of Raw Material Prices
Our principal raw material is flat-rolled steel, which we purchase from multiple primary steel producers. 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. Steel prices declined throughout most of fiscal 2023 before increasing significantly in the fourth quarter on
26
production cuts at major steel mills and the replenishing of inventories in major end markets, then decreased again in the first and second quarters of fiscal 2024. The decline in steel prices in fiscal 2024 resulted in estimated inventory holding losses of $19.3 million during the six months ended November 30, 2023.
The following table presents the average quarterly market price per ton of hot-rolled steel during fiscal 2024 (first and second quarter), fiscal 2023 and fiscal 2022:
|
|
Fiscal Year |
|
|||||||||
(Dollars per ton) (1) |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|||
1st Quarter |
|
$ |
879 |
|
|
$ |
978 |
|
|
$ |
1,762 |
|
2nd Quarter |
|
$ |
747 |
|
|
$ |
742 |
|
|
$ |
1,888 |
|
3rd Quarter |
|
N/A |
|
|
$ |
720 |
|
|
$ |
1,421 |
|
|
4th Quarter |
|
N/A |
|
|
$ |
1,116 |
|
|
$ |
1,280 |
|
|
Annual Avg. |
|
$ |
813 |
|
|
$ |
889 |
|
|
$ |
1,588 |
|
|
No matter how efficient, our operations, which use steel as a raw material, create some amount of scrap. The expected price of scrap compared to the price of the steel raw material is factored into pricing. Generally, as the price of steel increases, the price of scrap increases by a similar amount. When increases in scrap prices do not keep pace with the increases in the price of the steel raw material, it can have a negative impact on our margins. We refer to this effect as the “scrap gap,” which has narrowed in recent years from historically high levels, including quarter-over-quarter declines in the current period.
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
Second Quarter – Fiscal 2024 Compared to Fiscal 2023
The following discussion provides a review of results for the three months ended November 30, 2023 and November 30, 2022.
|
|
Three Months Ended |
|
|||||||||
|
|
November 30, |
|
|||||||||
(In millions, except per common share amounts) |
|
2023 |
|
|
2022 |
|
|
Increase/ |
|
|||
Net sales |
|
$ |
1,086.9 |
|
|
$ |
1,175.5 |
|
|
$ |
(88.6 |
) |
Operating loss |
|
|
(5.9 |
) |
|
|
(7.0 |
) |
|
|
1.1 |
|
Equity income |
|
|
42.4 |
|
|
|
36.9 |
|
|
|
5.5 |
|
Net earnings attributable to controlling interest |
|
|
24.3 |
|
|
|
16.2 |
|
|
|
8.1 |
|
Earnings per diluted common share attributable to controlling interest |
|
$ |
0.49 |
|
|
$ |
0.33 |
|
|
$ |
0.16 |
|
Net Sales and Volume
The following table provides a breakdown of our consolidated net sales by operating segment, along with the respective percentage of the consolidated net sales of each, for the periods indicated.
|
|
Three Months Ended |
|
|||||||||||||||||
|
|
November 30, |
|
|||||||||||||||||
|
|
|
|
|
% of |
|
|
|
|
|
% of |
|
|
Increase/ |
|
|||||
(In millions) |
|
2023 |
|
|
Net sales |
|
|
2022 |
|
|
Net sales |
|
|
(Decrease) |
|
|||||
Steel Processing |
|
$ |
788.7 |
|
|
|
72.6 |
% |
|
$ |
841.9 |
|
|
|
71.6 |
% |
|
$ |
(53.2 |
) |
Consumer Products |
|
|
147.7 |
|
|
|
13.6 |
% |
|
|
153.8 |
|
|
|
13.1 |
% |
|
|
(6.1 |
) |
Building Products |
|
|
123.0 |
|
|
|
11.3 |
% |
|
|
141.7 |
|
|
|
12.1 |
% |
|
|
(18.7 |
) |
Sustainable Energy Solutions |
|
|
27.5 |
|
|
|
2.5 |
% |
|
|
38.1 |
|
|
|
3.2 |
% |
|
|
(10.6 |
) |
Consolidated Net Sales |
|
$ |
1,086.9 |
|
|
|
100.0 |
% |
|
$ |
1,175.5 |
|
|
|
100.0 |
% |
|
$ |
(88.6 |
) |
27
The following table provides volume by operating segment for the periods presented.
|
|
Three Months Ended |
|
|||||||||
|
|
November 30, |
|
|||||||||
|
|
|
|
|
|
|
|
Increase/ |
|
|||
|
|
2023 |
|
|
2022 |
|
|
(Decrease) |
|
|||
Steel Processing (Tons) |
|
|
958,736 |
|
|
|
925,434 |
|
|
|
33,302 |
|
Consumer Products (Units) |
|
|
16,885,517 |
|
|
|
16,583,326 |
|
|
|
302,191 |
|
Building Products (Units) |
|
|
2,392,515 |
|
|
|
2,367,770 |
|
|
|
24,745 |
|
Sustainable Energy Solutions (Units) |
|
|
114,063 |
|
|
|
155,687 |
|
|
|
(41,624 |
) |
Gross margin
|
|
Three Months Ended |
|
|||||||||||||||||
|
|
November 30, |
|
|||||||||||||||||
|
|
|
|
|
% of |
|
|
|
|
|
% of |
|
|
Increase/ |
|
|||||
(In millions) |
|
2023 |
|
|
Net sales |
|
|
2022 |
|
|
Net sales |
|
|
(Decrease) |
|
|||||
Gross Margin |
|
$ |
123.7 |
|
|
|
11.4 |
% |
|
$ |
105.8 |
|
|
|
9.0 |
% |
|
$ |
17.9 |
|
Gross margin increased $17.9 million over the comparable period in the prior year to $123.7 million, largely driven by lower estimated inventory holding losses in Steel Processing, down $18.3 million from the prior year quarter.
Selling, general and administrative expense
|
|
Three Months Ended |
|
|||||||||||||||||
|
|
November 30, |
|
|||||||||||||||||
|
|
|
|
|
% of |
|
|
|
|
|
% of |
|
|
Increase/ |
|
|||||
(In millions) |
|
2023 |
|
|
Net sales |
|
|
2022 |
|
|
Net sales |
|
|
(Decrease) |
|
|||||
Selling, general and administrative expense |
|
$ |
107.7 |
|
|
|
9.9 |
% |
|
$ |
107.8 |
|
|
|
9.2 |
% |
|
$ |
(0.1 |
) |
Other operating items
|
|
Three Months Ended |
|
|||||||||
|
|
November 30, |
|
|||||||||
|
|
|
|
|
|
|
|
Increase/ |
|
|||
(In millions) |
|
2023 |
|
|
2022 |
|
|
(Decrease) |
|
|||
Restructuring and other income, net |
|
|
- |
|
|
|
4.3 |
|
|
|
(4.3 |
) |
Separation costs |
|
|
21.9 |
|
|
|
9.2 |
|
|
|
12.7 |
|
28
Interest expense, net
|
|
Three Months Ended |
|
|||||||||
|
|
November 30, |
|
|||||||||
|
|
|
|
|
|
|
|
Increase/ |
|
|||
(In millions) |
|
2023 |
|
|
2022 |
|
|
(Decrease) |
|
|||
Interest expense, net |
|
$ |
2.2 |
|
|
$ |
7.6 |
|
|
$ |
(5.4 |
) |
Equity income
|
|
Three Months Ended |
|
|||||||||
|
|
November 30, |
|
|||||||||
|
|
|
|
|
|
|
|
Increase/ |
|
|||
(In millions) |
|
2023 |
|
|
2022 |
|
|
(Decrease) |
|
|||
WAVE |
|
$ |
21.4 |
|
|
$ |
19.0 |
|
|
$ |
2.4 |
|
ClarkDietrich |
|
|
13.7 |
|
|
|
16.1 |
|
|
|
(2.4 |
) |
Serviacero Worthington |
|
|
3.8 |
|
|
|
1.9 |
|
|
|
1.9 |
|
Workhorse |
|
|
3.5 |
|
|
|
(0.2 |
) |
|
|
3.7 |
|
Total Equity Income |
|
$ |
42.4 |
|
|
$ |
36.8 |
|
|
$ |
5.6 |
|
Income Taxes
|
|
Three Months Ended |
|
|||||||||||||||||
|
|
November 30, |
|
|||||||||||||||||
|
|
|
|
|
Effective |
|
|
|
|
|
Effective |
|
|
Increase/ |
|
|||||
(In millions) |
|
2023 |
|
|
Tax Rate |
|
|
2022 |
|
|
Tax Rate |
|
|
(Decrease) |
|
|||||
Income tax expense |
|
$ |
7.2 |
|
|
|
23.4 |
% |
|
$ |
4.1 |
|
|
|
23.7 |
% |
|
$ |
3.1 |
|
29
Adjusted EBIT
We evaluate operating performance on the basis of adjusted EBIT. EBIT, a non-GAAP financial measure, is calculated by adding interest expense and income tax expense to net earnings attributable to controlling interest. Adjusted EBIT excludes impairment and restructuring expense (income), but may also exclude other items, as described below, that management believes are not reflective of, and thus should not be included when evaluating the performance of our ongoing operations. Adjusted EBIT is a non-GAAP financial measure and is used by management to evaluate operating performance, engage in financial and operational planning and determine incentive compensation because we believe that this financial measure provides additional perspective on the performance of our ongoing operations. Additionally, management believes these non-GAAP financial measures provide useful information to investors because they allow for meaningful comparisons and analysis of trends in our businesses and enable investors to evaluate operations and future prospects in the same manner as management.
The following table provides a reconciliation of net earnings attributable to controlling interest (the most comparable GAAP financial measure) to adjusted EBIT for the periods presented:
|
|
Three Months Ended |
|
|||||
|
|
November 30, |
|
|||||
(In millions) |
|
2023 |
|
|
2022 |
|
||
Net earnings attributable to controlling interest |
|
$ |
24.3 |
|
|
$ |
16.2 |
|
Interest expense, net |
|
|
2.2 |
|
|
|
7.6 |
|
Income tax expense |
|
|
7.2 |
|
|
|
4.1 |
|
EBIT |
|
|
33.7 |
|
|
|
27.9 |
|
Incremental expense related to Level5 earnout (1) |
|
|
- |
|
|
|
0.5 |
|
Restructuring and other income, net (2) |
|
|
- |
|
|
|
(2.3 |
) |
Separation costs (3) |
|
|
21.9 |
|
|
|
9.2 |
|
Gain on sale of assets in equity income (4) |
|
|
(2.8 |
) |
|
|
- |
|
Adjusted EBIT |
|
$ |
52.8 |
|
|
$ |
35.3 |
|
|
The following table provides a summary of adjusted EBIT by reportable segment for the periods presented.
|
|
Three Months Ended |
|
|||||||||||||||||
|
|
November 30, |
|
|||||||||||||||||
|
|
|
|
|
% of Adjusted |
|
|
|
|
|
% of Adjusted |
|
|
Increase/ |
|
|||||
(In millions) |
|
2023 |
|
|
EBIT |
|
|
2022 |
|
|
EBIT |
|
|
(Decrease) |
|
|||||
Steel Processing |
|
$ |
6.8 |
|
|
|
12.9 |
% |
|
$ |
(17.2 |
) |
|
|
(48.7 |
%) |
|
$ |
24.0 |
|
Consumer Products |
|
|
9.5 |
|
|
|
18.0 |
% |
|
|
13.5 |
|
|
|
38.2 |
% |
|
|
(4.0 |
) |
Building Products |
|
|
40.3 |
|
|
|
76.3 |
% |
|
|
41.2 |
|
|
|
116.7 |
% |
|
|
(0.9 |
) |
Sustainable Energy Solutions |
|
|
(2.6 |
) |
|
|
(5.0 |
%) |
|
|
1.1 |
|
|
|
3.1 |
% |
|
|
(3.7 |
) |
Other |
|
|
(1.2 |
) |
|
|
(2.2 |
%) |
|
|
(3.3 |
) |
|
|
(9.3 |
%) |
|
|
2.1 |
|
Total Adjusted EBIT |
|
$ |
52.8 |
|
|
|
100.0 |
% |
|
$ |
35.3 |
|
|
|
100.0 |
% |
|
$ |
17.5 |
|
30
Six Months Year-to-Date – Fiscal 2024 compared to Fiscal 2023
The following discussion provides a review of results for the six months ended November 30, 2023 and November 30, 2022.
|
|
Six Months Ended |
|
|||||||||
|
|
November 30, |
|
|||||||||
(In millions, except per common share amounts) |
|
2023 |
|
|
2022 |
|
|
Increase/ |
|
|||
Net sales |
|
$ |
2,280.2 |
|
|
$ |
2,584.2 |
|
|
$ |
(304.0 |
) |
Operating income |
|
|
71.8 |
|
|
|
59.7 |
|
|
|
12.1 |
|
Equity income |
|
|
96.8 |
|
|
|
68.6 |
|
|
|
28.2 |
|
Net earnings attributable to controlling interest |
|
|
120.4 |
|
|
|
80.3 |
|
|
|
40.1 |
|
Earnings per diluted common share attributable to controlling interest |
|
$ |
2.40 |
|
|
$ |
1.63 |
|
|
|
0.77 |
|
Net Sales and Volume
The following table provides a breakdown of our consolidated net sales by operating segment, along with the respective percentage of the consolidated net sales of each, for the periods indicated.
|
|
Six Months Ended |
|
|||||||||||||||||
|
|
November 30, |
|
|||||||||||||||||
|
|
|
|
|
% of |
|
|
|
|
|
% of |
|
|
Increase/ |
|
|||||
(In millions) |
|
2023 |
|
|
Net sales |
|
|
2022 |
|
|
Net sales |
|
|
(Decrease) |
|
|||||
Steel Processing |
|
$ |
1,670.0 |
|
|
|
73.2 |
% |
|
$ |
1,880.8 |
|
|
|
72.8 |
% |
|
$ |
(210.8 |
) |
Consumer Products |
|
|
297.2 |
|
|
|
13.0 |
% |
|
|
342.5 |
|
|
|
13.3 |
% |
|
|
(45.3 |
) |
Building Products |
|
|
256.8 |
|
|
|
11.3 |
% |
|
|
292.0 |
|
|
|
11.3 |
% |
|
|
(35.2 |
) |
Sustainable Energy Solutions |
|
|
56.2 |
|
|
|
2.5 |
% |
|
|
68.9 |
|
|
|
2.6 |
% |
|
|
(12.7 |
) |
Consolidated Net Sales |
|
$ |
2,280.2 |
|
|
|
100.0 |
% |
|
$ |
2,584.2 |
|
|
|
100.0 |
% |
|
$ |
(304.0 |
) |
The following table provides volume by reportable operating segment for the periods presented.
|
|
Six Months Ended |
|
|||||||||
|
|
November 30, |
|
|||||||||
|
|
|
|
|
|
|
|
Increase/ |
|
|||
|
|
2023 |
|
|
2023 |
|
|
(Decrease) |
|
|||
Steel Processing (Tons) |
|
|
1,958,394 |
|
|
|
1,900,083 |
|
|
|
58,311 |
|
Consumer Products (Units) |
|
|
33,954,462 |
|
|
|
38,966,668 |
|
|
|
(5,012,206 |
) |
Building Products (Units) |
|
|
5,163,973 |
|
|
|
5,289,933 |
|
|
|
(125,960 |
) |
Sustainable Energy Solutions (Units) |
|
|
220,369 |
|
|
|
288,820 |
|
|
|
(68,451 |
) |
31
Gross margin
|
|
Six Months Ended |
|
|||||||||||||||||
|
|
November 30, |
|
|||||||||||||||||
|
|
|
|
|
% of |
|
|
|
|
|
% of |
|
|
Increase/ |
|
|||||
(In millions) |
|
2023 |
|
|
Net sales |
|
|
2022 |
|
|
Net sales |
|
|
(Decrease) |
|
|||||
Gross Margin |
|
$ |
321.2 |
|
|
|
14.1 |
% |
|
$ |
275.1 |
|
|
|
10.6 |
% |
|
$ |
46.1 |
|
Selling, general and administrative expense
|
|
Six Months Ended |
|
|||||||||||||||||
|
|
November 30, |
|
|||||||||||||||||
|
|
|
|
|
% of |
|
|
|
|
|
% of |
|
|
Increase/ |
|
|||||
(In millions) |
|
2023 |
|
|
Net sales |
|
|
2022 |
|
|
Net sales |
|
|
(Decrease) |
|
|||||
Selling, general and administrative expense |
|
$ |
220.0 |
|
|
|
9.6 |
% |
|
$ |
211.3 |
|
|
|
8.2 |
% |
|
$ |
8.7 |
|
Other operating items
|
|
Six Months Ended |
|
|||||||||
|
|
November 30, |
|
|||||||||
|
|
|
|
|
|
|
|
Increase/ |
|
|||
(In millions) |
|
2023 |
|
|
2022 |
|
|
(Decrease) |
|
|||
Impairment of long-lived assets |
|
$ |
1.4 |
|
|
$ |
0.3 |
|
|
$ |
1.1 |
|
Restructuring and other income, net |
|
|
- |
|
|
|
5.4 |
|
|
|
(5.4 |
) |
Separation costs |
|
|
28.0 |
|
|
|
9.2 |
|
|
|
18.8 |
|
Miscellaneous income (expense), net
|
|
Six Months Ended |
|
|||||||||
|
|
November 30, |
|
|||||||||
|
|
|
|
|
|
|
|
Increase/ |
|
|||
(In millions) |
|
2023 |
|
|
2022 |
|
|
(Decrease) |
|
|||
Miscellaneous income (expense), net |
|
$ |
2.0 |
|
|
$ |
(3.7 |
) |
|
$ |
5.7 |
|
32
Loss on extinguishment of debt
|
|
Six Months Ended |
|
|||||||||
|
|
November 30, |
|
|||||||||
|
|
|
|
|
|
|
|
Increase/ |
|
|||
|
|
2023 |
|
|
2022 |
|
|
(Decrease) |
|
|||
Loss on extinguishment of debt |
|
$ |
1.5 |
|
|
$ |
- |
|
|
$ |
1.5 |
|
Interest expense, net
|
|
Six Months Ended |
|
|||||||||
|
|
November 30, |
|
|||||||||
|
|
|
|
|
|
|
|
Increase/ |
|
|||
(In millions) |
|
2023 |
|
|
2022 |
|
|
(Decrease) |
|
|||
Interest expense, net |
|
$ |
5.3 |
|
|
$ |
16.2 |
|
|
$ |
(10.9 |
) |
Equity Income
|
|
Six Months Ended |
|
|||||||||
|
|
November 30, |
|
|||||||||
|
|
|
|
|
|
|
|
Increase/ |
|
|||
(In millions) |
|
2023 |
|
|
2022 |
|
|
(Decrease) |
|
|||
WAVE |
|
$ |
49.7 |
|
|
$ |
42.8 |
|
|
$ |
6.9 |
|
ClarkDietrich |
|
|
30.5 |
|
|
|
36.2 |
|
|
|
(5.7 |
) |
Serviacero Worthington |
|
|
12.7 |
|
|
|
3.7 |
|
|
|
9.0 |
|
ArtiFlex |
|
|
- |
|
|
|
(13.4 |
) |
|
|
13.4 |
|
Workhorse |
|
|
3.9 |
|
|
|
(0.7 |
) |
|
|
4.6 |
|
Total Equity Income |
|
$ |
96.8 |
|
|
$ |
68.6 |
|
|
$ |
28.2 |
|
33
Income Taxes
|
|
Six Months Ended |
|
|||||||||||||||||
|
|
November 30, |
|
|||||||||||||||||
|
|
|
|
|
Effective |
|
|
|
|
|
Effective |
|
|
Increase/ |
|
|||||
(In millions) |
|
2023 |
|
|
Tax Rate |
|
|
2022 |
|
|
Tax Rate |
|
|
(Decrease) |
|
|||||
Income tax expense |
|
$ |
36.0 |
|
|
|
23.4 |
% |
|
$ |
23.6 |
|
|
|
23.7 |
% |
|
$ |
12.4 |
|
Adjusted EBIT
The following table provides a reconciliation of consolidated net earnings attributable to controlling interest to adjusted EBIT for the periods presented:
|
|
Six Months Ended |
|
|||||
|
|
November 30, |
|
|||||
(In millions) |
|
2023 |
|
|
2022 |
|
||
Net earnings attributable to controlling interest |
|
$ |
120.4 |
|
|
$ |
80.3 |
|
Interest expense, net |
|
|
5.3 |
|
|
|
16.2 |
|
Income tax expense |
|
|
36.0 |
|
|
|
23.6 |
|
EBIT |
|
|
161.7 |
|
|
|
120.1 |
|
Incremental expense related to Level5 earnout (1) |
|
|
- |
|
|
|
1.1 |
|
Impairment of long-lived assets (2) |
|
|
0.9 |
|
|
|
0.2 |
|
Restructuring and other income, net (3) |
|
|
- |
|
|
|
(3.6 |
) |
Separation costs (4) |
|
|
28.0 |
|
|
|
9.2 |
|
Loss on extinguisment of debt (5) |
|
|
1.5 |
|
|
|
- |
|
Pension settlement charge (6) |
|
|
- |
|
|
|
4.8 |
|
Gain on sale of assets in equity income (7) |
|
|
(2.8 |
) |
|
|
- |
|
Loss on sale of investment in ArtiFlex (8) |
|
|
- |
|
|
|
15.8 |
|
Adjusted EBIT |
|
$ |
189.3 |
|
|
$ |
147.6 |
|
|
|
|
|
|
|
|
|
34
The following table provides a summary of adjusted EBIT by reportable segment for the periods presented.
|
|
Six Months Ended |
|
|||||||||||||||||
|
|
November 30, |
|
|||||||||||||||||
|
|
|
|
|
% of Adjusted |
|
|
|
|
|
% of Adjusted |
|
|
Increase/ |
|
|||||
(In millions) |
|
2023 |
|
|
EBIT |
|
|
2022 |
|
|
EBIT |
|
|
(Decrease) |
|
|||||
Steel Processing |
|
$ |
84.8 |
|
|
|
44.8 |
% |
|
$ |
17.7 |
|
|
|
12.0 |
% |
|
$ |
67.1 |
|
Consumer Products |
|
|
18.5 |
|
|
|
9.8 |
% |
|
|
34.4 |
|
|
|
23.3 |
% |
|
|
(15.9 |
) |
Building Products |
|
|
94.3 |
|
|
|
49.8 |
% |
|
|
94.0 |
|
|
|
63.7 |
% |
|
|
0.3 |
|
Sustainable Energy Solutions |
|
|
(7.3 |
) |
|
|
(3.9 |
%) |
|
|
(0.3 |
) |
|
|
(0.2 |
%) |
|
|
(7.0 |
) |
Other |
|
|
(1.0 |
) |
|
|
(0.5 |
%) |
|
|
1.8 |
|
|
|
1.2 |
% |
|
|
(2.8 |
) |
Total Adjusted EBIT |
|
|
189.3 |
|
|
|
100.0 |
% |
|
|
147.6 |
|
|
|
100.0 |
% |
|
$ |
41.7 |
|
Liquidity and Capital Resources
During the six months ended November 30, 2023, we generated $135.0 million of cash from operating activities and invested $32.9 million in property, plant and equipment and $15.0 million in a note receivable. We also received cash proceeds of $175.0 million in the form of short-term borrowings tied to the Worthington Steel Credit Facility, which was used to fund a $150.0 million cash distribution to Worthington Enterprises on December 1, 2023 in connection with the Separation. Additionally, we repaid $243.8 million to redeem the 2026 Notes and paid dividends of $17.3 million.
|
|
Six Months Ended |
|
|||||
|
|
November 30, |
|
|||||
(In millions) |
|
2023 |
|
|
2022 |
|
||
Net cash provided by operating activities |
|
$ |
194.7 |
|
|
$ |
214.0 |
|
Net cash used by investing activities |
|
|
(97.8 |
) |
|
|
(30.7 |
) |
Net cash provided (used) by financing activities |
|
|
(120.9 |
) |
|
|
(88.2 |
) |
Increase (decrease) in cash and cash equivalents |
|
|
(24.0 |
) |
|
|
95.1 |
|
Cash and cash equivalents at beginning of period |
|
|
454.9 |
|
|
|
34.5 |
|
Cash and cash equivalents at end of period |
|
$ |
430.9 |
|
|
$ |
129.6 |
|
We believe that the available borrowing capacity of the Credit Facility 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. Our resources include cash and cash equivalents and unused committed lines of credit. There were no borrowings outstanding under the Credit Facility at November 30, 2023, leaving up to $500.0 million available for use.
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, the continuation of soft economic conditions and an uncertain interest rate environment could create volatility in the financial markets, which may impact our ability to access capital and the terms under which we can do so.
35
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. Should we seek additional capital, there can be no assurance that we would be able to obtain such additional capital on terms acceptable to us, if at all, and such additional equity or debt financing could dilute the interests of our existing shareholders and/or increase our interest costs. We may also from time to time seek to retire or repurchase our outstanding debt through cash purchases, in open-market purchases, privately-negotiated transactions or otherwise. Such repurchases, if any, will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved in any such transaction may or may not be material. To facilitate our post-separation capital structure, on July 28, 2023, we redeemed in full our 2026 Notes for $243.8 million. Subsequent to quarter-end, we finalized our post-separation capital structure by redeeming an additional $150.0 million of long-term debt, as further discussed in “Note S – Subsequent Events.”
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 $194.7 million during the six months ended November 30, 2023, down $19.3 million from the comparable period in the prior year. The change was due primarily to a $36.8 million change in net operating working capital (accounts receivable, inventories, and accounts payable) requirements over the comparable prior year period, mainly driven by fluctuations in steel prices and lagging price indices.
Investing Activities
Net cash used by investing activities was $97.8 million during the six months ended November 30, 2023, compared to $30.7 million during the prior year period. Net cash used by investing activities in the current year period resulted primarily from capital expenditures of $62.2 million, a $15.0 million investment in a note receivable, and the November 15, 2023 purchase of the Voestalpine business for cash consideration of $21.0 million, net of cash acquired. Net cash used by investing activities in the prior year period 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 $46.0 million, partially offset by combined cash proceeds of $71.6 million from the sale of our equity investment in ArtiFlex, and the sale of the remaining facility of our former operating joint venture, WSP.
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 $120.9 million during the six months ended November 30, 2023 compared to $88.2 million in the prior year period. The change was primarily due to $172.2 million of net proceeds of short-term borrowings and the repayment of $243.8 million of long-term debt associated with the redemption of the 2026 Notes in July 2023 and net repayments of $43.1 million of short-term borrowings in the six months ended November 30, 2022.
Common shares – On December 19, 2023, Worthington Enterprises’ Board of Directors declared a quarterly dividend of $0.16 per share payable on March 29, 2024, to shareholders of record on March 15, 2024.
On March 20, 2019, the Board authorized the repurchase of up to 6.6 million common shares.
On March 24, 2021, the Board authorized the repurchase of up to an additional 5.6 million common shares, increasing the total number of common shares then authorized for repurchase to 10.0 million. As of November 30, 2023, 6.1 million common shares remained available for repurchase under these two authorizations.
The common shares may be repurchased under these authorizations from time to time, with consideration given to the market price of the common shares, the nature of other investment opportunities, cash flows from operations, general economic conditions and other relevant considerations. Repurchases may be made on the open market or through privately negotiated transactions.
36
Long-term debt and short-term borrowings – As of November 30, 2023, we were in compliance with the financial covenants of our short-term and long-term debt agreements. Our debt agreements do not include credit rating triggers or material adverse change provisions. There were no borrowings under our Credit Facility at November 30, 2023, leaving the full borrowing capacity of $500.0 million available for use.
Dividend Policy
We currently have no material contractual or regulatory restrictions on the payment of dividends. Dividends are declared at the discretion of the Board. The Board reviews the dividend quarterly and establishes the dividend rate based upon our consolidated financial condition, results of operations, capital requirements, current and projected cash flows, business prospects, and other relevant factors. While we have paid a dividend every quarter since becoming a public company in 1968, there is no guarantee that payments of dividends will continue in the future.
Critical Accounting Estimates
The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. We continually evaluate our estimates, including those related to our valuation of receivables, inventories, intangible assets, accrued liabilities, income and other tax accruals, contingencies and litigation, and business combinations. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. These results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Critical accounting policies are defined as those that reflect our significant judgments and uncertainties that could potentially result in materially different results under different assumptions and conditions. Although actual results historically have not deviated significantly from those determined using our estimates, our consolidated financial position or results of operations could be materially different if we were to report under different conditions or to use different assumptions in the application of such policies. Our critical accounting policies have not significantly changed from those discussed in “Part II – Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates” of the 2023 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 2023 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 Enterprises files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including Worthington Enterprises’ 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 Enterprises’ principal executive officer and principal financial officer, performed an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Form 10-Q (the quarterly period ended November 30, 2023). Based on that evaluation, Worthington Enterprises’ principal executive officer and principal financial officer have concluded that such disclosure controls and procedures were effective at a reasonable assurance level as of the end of the quarterly period covered by this Form 10-Q.
Changes in Internal Control Over Financial Reporting
There were no changes that occurred during the period covered by this Form 10-Q (the quarterly period ended November 30, 2023) 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.
37
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 2023 Form 10-K, as filed with the SEC on July 31, 2023, and available at www.sec.gov or at www.worthingtonenterprises.com, we included a detailed discussion of our risk factors. Our risk factors have not changed significantly from those disclosed in the 2023 Form 10-K. These risk factors should be read carefully in connection with evaluating our business and investments in the common shares and in connection with the forward-looking statements and other information contained in this Form 10-Q. Any of the risks described in the 2023 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 2023 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
Unregistered Sales of Equity Securities
There were no equity securities of Worthington Enterprises sold by Worthington Enterprises during the six months ended November 30, 2023, that were not registered under the Securities Act of 1933, as amended.
Issuer Purchases of Equity Securities
Common shares withheld to cover tax withholding obligations in connection with the vesting of restricted common shares are treated as common share repurchases. Those withheld common shares are not considered common share repurchases under an authorized common share repurchase plan. The table below provides information regarding common shares withheld from our employees to satisfy minimum statutory tax withholding obligations arising from the vesting of restricted common shares. The presentation of the table below and related footnote represents full common share amounts.
|
|
|
|
|
|
|
|
Total Number of |
|
|
|
|
||||
|
|
|
|
|
|
|
|
Common Shares |
|
|
|
|
||||
|
|
|
|
|
|
|
|
Purchased as |
|
|
Maximum Number of |
|
||||
|
|
Total Number |
|
|
Average Price |
|
|
Part of Publicly |
|
|
Common Shares that |
|
||||
|
|
of Common |
|
|
Paid per |
|
|
Announced |
|
|
May Yet Be |
|
||||
|
Shares |
|
|
Common |
|
|
Plans or |
|
|
Purchased Under the |
|
|||||
Period |
|
Purchased |
|
|
Share |
|
|
Programs |
|
|
Plans or Programs (1) |
|
||||
September 1-30, 2023 |
|
140,488 |
|
|
$ |
69.28 |
|
|
|
- |
|
|
|
6,065,000 |
|
|
October 1-31, 2023 |
|
23 |
|
|
|
61.55 |
|
|
|
- |
|
|
|
6,065,000 |
|
|
November 1-30, 2023 |
|
198 |
|
|
|
66.34 |
|
|
|
- |
|
|
|
6,065,000 |
|
|
Total |
|
|
140,709 |
|
|
$ |
69.16 |
|
|
|
- |
|
|
|
|
|
38
Item 3. – Defaults Upon Senior Securities
Not applicable.
Item 4. – Mine Safety Disclosures
Not applicable.
Item 5. – Other Information
No response required.
39
Item 6. – Exhibits
Exhibit No. |
|
Description |
|
|
|
2.1 |
|
|
|
|
|
3.1 |
|
|
|
|
|
3.2 |
|
|
|
|
|
4.1 |
|
|
|
|
|
4.2 |
|
|
|
|
|
4.3 |
|
|
|
|
|
4.4 |
|
|
|
|
|
10.1 |
|
|
|
|
|
10.2 |
|
|
|
|
|
10.3 |
|
|
|
|
|
10.4 |
|
|
|
|
|
10.5 |
|
40
Exhibit No. |
|
Description |
|
|
|
10.6 |
|
|
|
|
|
31.1 |
|
Rule 13a - 14(a) / 15d - 14(a) Certifications (Principal Executive Officer) * |
|
|
|
31.2 |
|
Rule 13a - 14(a) / 15d - 14(a) Certifications (Principal Financial Officer) * |
|
|
|
32.1 |
|
|
|
|
|
32.2 |
|
|
|
|
|
101.INS |
|
XBRL Instance Document – the instance document does not appear in the Interactive Date File because its XBRL tags are embedded within the Inline XBRL document. |
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document # |
|
|
|
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document # |
|
|
|
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document # |
|
|
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document # |
|
|
|
101.DEF |
|
Inline XBRL Taxonomy Definition Linkbase Document # |
|
|
|
104 |
|
Cover Page Interactive Data File – the cover page from this Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2023, formatted in Inline XBRL (is included within the Exhibit 101 attachments). |
* Filed herewith.
** Furnished herewith.
Indicates a management contract or compensatory plan or arrangement.
+ Certain portions of this document that constitute confidential information have been redacted in accordance with Regulation S-K, Item 601(b)(10).
# Attached as Exhibit 101 to this Form 10-Q of Worthington Enterprises are the following documents formatted in Inline XBRL (Extensible Business Reporting Language):
41
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
WORTHINGTON ENTERPRISES, INC. |
|
|
|
Date: January 9, 2024 |
By: |
/s/ Joseph B. Hayek |
|
|
Joseph B. Hayek, |
|
|
Vice President and Chief Financial Officer |
|
|
(On behalf of the Registrant as Duly Authorized Officer and as Principal Financial Officer) |
42