10-Q 1 wor-20221130.htm 10-Q 10-Q
December 31, 2022December 31, 2022falseDecember 31, 2023December 31, 2022--05-31January 31, 20230000108516July 31, 2023December 31, 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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

or

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

For the transition period from ___________ to ___________

Commission File Number 001-08399

WORTHINGTON INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

Ohio

 

31-1189815

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

200 Old Wilson Bridge Road, Columbus, Ohio

 

43085

(Address of principal executive offices)

 

(Zip Code)

 

(614) 438-3210

(Registrant’s telephone number, including area code)

 

Not Applicable

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

 

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

 

Title of each class

Trading Symbol(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.

 


 

TABLE OF CONTENTS

 

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

 

 

i


Table of Contents

 

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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Table of Contents

 

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.

iv


Table of Contents

 

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.

1


Table of Contents

 

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.

2


Table of Contents

 

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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Table of Contents

 

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

)