WORTHINGTON INDUSTRIES INC [WOR] Filings

10-Q 1 wor-20221130.htm 10-Q 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 30, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission File Number 001-08399

WORTHINGTON INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)


Ohio		31-1189815
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

200 Old Wilson Bridge Road, Columbus, Ohio		43085
(Address of principal executive offices)		(Zip Code)

(614) 438-3210

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Shares, Without Par Value	WOR	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. On December 30, 2022, the number of Common Shares, without par value, issued and outstanding was 49,707,649.

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Safe Harbor Statement			ii

Part I. Financial Information

	Item 1.	Financial Statements

		Consolidated Balance Sheets – November 30, 2022 and May 31, 2022	1

		Consolidated Statements of Earnings – Three Months and Six Months Ended November 30, 2022 and 2021	2

		Consolidated Statements of Comprehensive Income – Three Months and Six Months Ended November 30, 2022 and 2021	3

		Consolidated Statements of Cash Flows – Three Months and Six Months Ended November 30, 2022 and 2021	4
		Condensed Notes to Consolidated Financial Statements	5

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34

	Item 4.	Controls and Procedures	34

Part II. Other Information

	Item 1.	Legal Proceedings	35

	Item 1A.	Risk Factors	35

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35

	Item 3.	Defaults Upon Senior Securities (Not applicable)	35

	Item 4.	Mine Safety Disclosures (Not applicable)	35

	Item 5.	Other Information (Not applicable)	35

	Item 6.	Exhibits	36

Signatures			38

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Safe Harbor Statement

Selected statements contained in this Quarterly Report on Form 10-Q (this “Form 10-Q”), including, without limitation, in “PART I – Item 2. – Management’s Discussion and Analysis of Financial Condition and Results of Operations,” constitute “forward-looking statements” as that term is used in the Private Securities Litigation Reform Act of 1995 (the “PSLRA”). Forward-looking statements reflect our current expectations, estimates or projections concerning future results or events. These statements are often identified by the use of forward-looking words or phrases such as “believe,” “expect,” “anticipate,” “may,” “could,” “should,” “would,” “intend,” “plan,” “will,” “likely,” “estimate,” “project,” “positioned,” “strategy,” “targets,” “aims,” “seek,” “foresee,” or other similar words or phrases. These forward-looking statements include, without limitation, statements relating to:

•

the ever-changing effects of the novel coronavirus (“COVID-19”) pandemic and the various responses of governmental and nongovernmental authorities thereto (such as fiscal stimulus packages, quarantines, shut downs and other restrictions on travel and commercial, social or other activities) on economies (local, national and international) and markets, and on our customers, counterparties, employees and third-party service providers;

•

future or expected cash positions, liquidity and ability to access financial markets and capital;

•

outlook, strategy or business plans;

•

the intended separation of the Company’s Steel Processing business (the “Separation”), see Note A – Basis of Presentation for additional information related to the Separation;

•

the timing and method of the Separation;

•

the anticipated benefits of the Separation;

•

the expected financial and operational performance of, and future opportunities for, each of the two independent, publicly-traded companies following the Separation;

•

the tax treatment of the Separation transaction;

•

the leadership of each of the two independent, publicly-traded companies following the Separation;

•

future or expected growth, growth potential, forward momentum, performance, competitive position, sales, volumes, cash flows, earnings, margins, balance sheet strengths, debt, financial condition or other financial measures;

•

pricing trends for raw materials and finished goods and the impact of pricing changes;

•

the ability to improve or maintain margins;

•

expected demand or demand trends for the Company or its markets;

•

additions to product lines and opportunities to participate in new markets;

•

expected benefits from transformation and innovation efforts;

•

the ability to improve performance and competitive position at the Company’s operations;

•

anticipated working capital needs, capital expenditures and asset sales;

•

anticipated improvements and efficiencies in costs, operations, sales, inventory management, sourcing and the supply chain and the results thereof;

•

projected profitability potential;

•

the ability to make acquisitions and the projected timing, results, benefits, costs, charges and expenditures related to acquisitions, joint ventures, headcount reductions and facility dispositions, shutdowns and consolidations;

•

projected capacity and the alignment of operations with demand;

•

the ability to operate profitably and generate cash in down markets;

•

the ability to capture and maintain market share and to develop or take advantage of future opportunities, customer initiatives, new businesses, new products and new markets;

•

expectations for Company and customer inventories, jobs and orders;

•

expectations for the economy and markets or improvements therein;

•

expectations for generating improving and sustainable earnings, earnings potential, margins or shareholder value;

•

effects of judicial rulings; and

•

other non-historical matters.

Because they are based on beliefs, estimates and assumptions, forward-looking statements are inherently subject to risks and uncertainties that could cause actual results to differ materially from those projected. Any number of factors could affect actual results, including, without limitation, those that follow:

•

obtaining final approval of the Separation by the Worthington Industries, Inc. Board of Directors;

•

the uncertainty of obtaining regulatory approvals in connection with the Separation, including rulings from the Internal Revenue Service;

•

the ability to satisfy the necessary closing conditions to complete the Separation on a timely basis, or at all;

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•

the Company’s ability to successfully separate the two independent companies and realize the anticipated benefits of the Separation;

•

the risks, uncertainties and impacts related to the COVID-19 pandemic – the duration, extent and severity of which are impossible to predict, including the possibility of future resurgence in the spread of COVID-19 or variants thereof – and the availability, effectiveness and acceptance of vaccines, and other actual or potential public health emergencies and actions taken by governmental authorities or others in connection therewith;

•

the effect of national, regional and global economic conditions generally and within major product markets, including significant economic disruptions from COVID-19, the actions taken in connection therewith and the implementation of related fiscal stimulus packages;

•

the effect of conditions in national and worldwide financial markets, including inflation, increases in interest rates and economic recession, and with respect to the ability of financial institutions to provide capital;

•

the impact of tariffs, the adoption of trade restrictions affecting the Company’s products or suppliers, a United States (“U.S.”) withdrawal from or significant renegotiation of trade agreements, the occurrence of trade wars, the closing of border crossings, and other changes in trade regulations or relationships;

•

changing oil prices and/or supply;

•

product demand and pricing;

•

changes in product mix, product substitution and market acceptance of the Company’s products;

•

volatility or fluctuations in the pricing, quality or availability of raw materials (particularly steel), supplies, transportation, utilities, labor and other items required by operations (especially in light of the COVID-19 pandemic and Russia’s invasion of Ukraine);

•

effects of sourcing and supply chain constraints;

•

the outcome of adverse claims experience with respect to workers’ compensation, product recalls or product liability, casualty events or other matters;

•

effects of facility closures and the consolidation of operations;

•

the effect of financial difficulties, consolidation and other changes within the steel, automotive, construction and other industries in which the Company participates;

•

failure to maintain appropriate levels of inventories;

•

financial difficulties (including bankruptcy filings) of original equipment manufacturers, end-users and customers, suppliers, joint venture partners and others with whom the Company does business;

•

the ability to realize targeted expense reductions from headcount reductions, facility closures and other cost reduction efforts;

•

the ability to realize cost savings and operational, sales and sourcing improvements and efficiencies, and other expected benefits from transformation initiatives, on a timely basis;

•

the overall success of, and the ability to integrate, newly-acquired businesses and joint ventures, maintain and develop their customers, and achieve synergies and other expected benefits and cost savings therefrom;

•

capacity levels and efficiencies, within facilities, within major product markets and within the industries in which the Company participates as a whole;

•

the effect of disruption in the business of suppliers, customers, facilities and shipping operations due to adverse weather, casualty events, equipment breakdowns, labor shortages (especially in light of the COVID-19 pandemic), interruption in utility services, civil unrest, international conflicts (especially in light of Russia’s invasion of Ukraine), terrorist activities, or other causes;

•

changes in customer demand, inventories, spending patterns, product choices, and supplier choices;

•

risks associated with doing business internationally, including economic, political and social instability (especially in light of Russia’s invasion of Ukraine), foreign currency exchange rate exposure and the acceptance of the Company’s products in global markets;

•

the ability to improve and maintain processes and business practices to keep pace with the economic, competitive and technological environment;

•

the effect of inflation, interest rate increases and economic recession, which may negatively impact the Company’s operations and financial results;

•

deviation of actual results from estimates and/or assumptions used by the Company in the application of its significant accounting policies;

•

the level of imports and import prices in the Company’s markets;

•

the impact of environmental laws and regulations or the actions of the U.S. Environmental Protection Agency or similar regulators which increase costs or limit the Company’s ability to use or sell certain products;

•

the impact of increasing environmental, greenhouse gas emission and sustainability considerations or regulations;

iii

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•

the impact of judicial rulings and governmental regulations, both in the U.S. and abroad, including those adopted by the U.S. Securities and Exchange Commission (the “SEC”) and other governmental agencies as contemplated by the Coronavirus Aid, Relief and Economic Security (CARES) Act, the Consolidated Appropriations Act, 2021, the American Rescue Act of 2021, and the Dodd-Frank Wall Street Reform and the Consumer Protection Act of 2010;

•

the effect of healthcare laws in the U.S. and potential changes for such laws, especially in light of the COVID-19 pandemic, which may increase the Company’s healthcare and other costs and negatively impact the Company’s operations and financial results;

•

the effects of tax laws in the U.S. and potential changes for such laws, which may increase the Company’s costs and negatively impact the Company’s operations and financial results;

•

cyber security risks;

•

the effects of privacy and information security laws and standards; and

•

other risks described from time to time in the filings of Worthington Industries, Inc. with the SEC, including those described in “PART I – Item 1A. — Risk Factors” of the Annual Report on Form 10-K of Worthington Industries, Inc. for the fiscal year ended May 31, 2022.

We note these factors for investors as contemplated by the PSLRA. It is impossible to predict or identify all potential risk factors. Consequently, you should not consider the foregoing list to be a complete set of all potential risks and uncertainties. Any forward-looking statements in this Form 10-Q are based on current information as of the date of this Form 10-Q, and we assume no obligation to correct or update any such statements in the future, except as required by applicable law.

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PART I. FINANCIAL INFORMATION

Item 1. – Financial Statements

WORTHINGTON INDUSTRIES, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)


	(Unaudited)
	November 30,		May 31,
	2022		2022
Assets
Current assets:
Cash and cash equivalents	$	129,596	$	34,485
Receivables, less allowances of $2,679 and $1,292 at November 30, 2022
and May 31, 2022, respectively		694,668		857,493
Inventories:
Raw materials		304,692		323,609
Work in process		159,772		255,019
Finished products		190,160		180,512
Total inventories		654,624		759,140
Income taxes receivable		19,834		20,556
Assets held for sale		5,191		20,318
Prepaid expenses and other current assets		98,873		93,661
Total current assets		1,602,786		1,785,653
Investments in unconsolidated affiliates		240,859		327,381
Operating lease assets		103,488		98,769
Goodwill		412,971		401,469
Other intangible assets, net of accumulated amortization of $102,561 and
$93,973 at November 30, 2022 and May 31, 2022, respectively		322,934		299,017
Other assets		25,439		34,394
Property, plant and equipment:
Land		49,644		51,483
Buildings and improvements		302,999		303,269
Machinery and equipment		1,223,841		1,196,806
Construction in progress		60,673		59,363
Total property, plant and equipment		1,637,157		1,610,921
Less: accumulated depreciation		954,974		914,581
Total property, plant and equipment, net		682,183		696,340
Total assets	$	3,390,660	$	3,643,023

Liabilities and equity
Current liabilities:
Accounts payable	$	481,273	$	668,438
Short-term borrowings		4,935		47,997
Accrued compensation, contributions to employee benefit plans and related taxes		86,998		117,530
Dividends payable		17,663		15,988
Other accrued items		58,046		70,125
Current operating lease liabilities		11,719		11,618
Income taxes payable		-		300
Current maturities of long-term debt		257		265
Total current liabilities		660,891		932,261
Other liabilities		115,688		115,991
Distributions in excess of investment in unconsolidated affiliate		91,643		81,149
Long-term debt		693,453		696,345
Noncurrent operating lease liabilities		93,513		88,183
Deferred income taxes, net		96,180		115,132
Total liabilities		1,751,368		2,029,061
Shareholders' equity - controlling interest		1,513,393		1,480,752
Noncontrolling interests		125,899		133,210
Total equity		1,639,292		1,613,962
Total liabilities and equity	$	3,390,660	$	3,643,023

See condensed notes to consolidated financial statements.

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WORTHINGTON INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended						Six Months Ended
	November 30,						November 30,
	2022			2021			2022			2021
Net sales	$	1,175,541		$	1,232,861		$	2,584,206		$	2,343,679
Cost of goods sold		1,069,778			1,048,270			2,309,069			1,939,714
Gross margin		105,763			184,591			275,137			403,965
Selling, general and administrative expense		107,813			96,130			211,261			191,981
Impairment of long-lived assets		-			-			312			-
Restructuring and other income, net		(4,282	)		(2,004	)		(5,382	)		(14,278	)
Separation costs		9,246			-			9,246			-
Operating income (loss)		(7,014	)		90,465			59,700			226,262
Other income (expense):
Miscellaneous income (expense), net		1,405			1,040			(3,681	)		1,670
Interest expense		(7,612	)		(7,312	)		(16,210	)		(15,030	)
Equity in net income of unconsolidated affiliates		36,857			60,218			68,569			113,134
Earnings before income taxes		23,636			144,411			108,378			326,036
Income tax expense		4,131			31,226			23,629			71,376
Net earnings		19,505			113,185			84,749			254,660
Net earnings attributable to noncontrolling interests		3,287			2,884			4,449			11,868
Net earnings attributable to controlling interest	$	16,218		$	110,301		$	80,300		$	242,792

Basic
Weighted average common shares outstanding		48,558			50,381			48,518			50,618
Earnings per share attributable to controlling interest	$	0.33		$	2.19		$	1.66		$	4.80

Diluted
Weighted average common shares outstanding		49,330			51,214			49,293			51,532
Earnings per share attributable to controlling interest	$	0.33		$	2.15		$	1.63		$	4.71

Common shares outstanding at end of period		48,572			50,334			48,572			50,334

Cash dividends declared per share	$	0.31		$	0.28		$	0.62		$	0.56

See condensed notes to consolidated financial statements.

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WORTHINGTON INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)


	Three Months Ended						Six Months Ended
	November 30,						November 30,
	2022			2021			2022			2021
Net earnings	$	19,505		$	113,185		$	84,749		$	254,660
Other comprehensive income (loss)
Foreign currency translation, net of tax		858			(4,872	)		(9,243	)		(8,847	)
Pension liability adjustment, net of tax		(82	)		-			2,857			-
Cash flow hedges, net of tax		(4,000	)		(52,986	)		(17,300	)		(53,285	)
Other comprehensive loss		(3,224	)		(57,858	)		(23,686	)		(62,132	)
Comprehensive income		16,281			55,327			61,063			192,528
Comprehensive income attributable to noncontrolling interests		3,287			2,884			4,449			11,868
Comprehensive income attributable to controlling interest	$	12,994		$	52,443		$	56,614		$	180,660

See condensed notes to consolidated financial statements.

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WORTHINGTON INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Three Months Ended						Six Months Ended
	November 30,						November 30,
	2022			2021			2022			2021
Operating activities:
Net earnings	$	19,505		$	113,185		$	84,749		$	254,660
Adjustments to reconcile net earnings to net cash provided (used) by operating activities:
Depreciation and amortization		28,354			21,090			56,355			43,154
Impairment of long-lived assets		-			-			312			-
Provision for (benefit from) deferred income taxes		(3,617	)		1,309			(14,673	)		2,675
Bad debt expense		1,098			335			1,440			514
Equity in net income of unconsolidated affiliates, net of distributions		18,352			(31,274	)		61,197			(64,492	)
Net gain on sale of assets		(4,265	)		(496	)		(5,034	)		(13,202	)
Stock-based compensation		4,547			4,248			8,783			7,551
Changes in assets and liabilities, net of impact of acquisitions:
Receivables		119,674			(89,817	)		157,093			(121,685	)
Inventories		72,293			(97,182	)		113,460			(260,864	)
Accounts payable		(100,535	)		(47,594	)		(202,116	)		(926	)
Accrued compensation and employee benefits		3,336			14,358			(30,532	)		(31,819	)
Income taxes payable		(7,629	)		(22,922	)		(300	)		12,935
Other operating items, net		(18,172	)		15,656			(16,755	)		2,583
Net cash provided (used) by operating activities		132,941			(119,104	)		213,979			(168,916	)