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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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☒
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QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended August 31, 2020
or
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☐
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TRANSITION
REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the transition period from ___________ to ___________
Commission file number 001-08399
WORTHINGTON INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
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Ohio
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31-1189815
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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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200 Old Wilson Bridge Road, Columbus, Ohio
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43085
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(Address of principal executive offices)
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(Zip Code)
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(614) 438-3210
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(Registrant’s telephone number, including area code)
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Not Applicable
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(Former name, former address and former fiscal year, if changed
since last report)
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Securities registered pursuant to Section 12(b) of the Act:
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Title of each
class
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Trading Symbol
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Name of each exchange on
which registered
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Common Shares, Without Par Value
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WOR
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New York Stock Exchange
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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
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☒
|
|
Accelerated filer
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☐
|
|
Non-accelerated filer
|
☐
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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 September 30, 2020, the number of Common
Shares, without par value, issued and outstanding was
54,375,748.
TABLE OF CONTENTS
i
Safe Harbor
Statement
Selected statements contained in this Quarterly Report on Form
10-Q, including, without limitation, in “PART I – Item 2. –
Management’s Discussion and Analysis of Financial Condition and
Results of Operations,” constitute “forward-looking statements” as
that term is used in the Private Securities Litigation Reform Act
of 1995 (the “Act”). Forward-looking statements reflect
our current expectations, estimates or projections concerning
future results or events. These statements are often
identified by the use of forward-looking words or phrases such as
“believe,” “expect,” “anticipate,” “may,” “could,” “intend,”
“estimate,” “plan,” “foresee,” “likely,” “will,” “should” or other
similar words or phrases. These forward-looking
statements include, without limitation, statements relating to:
|
|
•
|
the
impacts from the Novel Coronavirus (“COVID-19”) and the actions
taken by governmental authorities and others related thereto,
including our ability to continue operating facilities in
connection therewith, to cut variable costs, or to eventually
recall furloughed workers;
|
|
|
•
|
future
or expected cash positions, liquidity and ability to access
financial markets and capital;
|
|
|
•
|
outlook, strategy
or business plans;
|
|
|
•
|
future
or expected growth, growth potential, forward momentum,
performance, competitive position, sales, volumes, cash flows,
earnings, margins, balance sheet strengths, debt, financial
condition or other financial measures;
|
|
|
•
|
pricing trends for
raw materials and finished goods and the impact of pricing
changes;
|
|
|
•
|
the
ability to improve or maintain margins;
|
|
|
•
|
expected demand or
demand trends for us or our markets;
|
|
|
•
|
additions to
product lines and opportunities to participate in new
markets;
|
|
|
•
|
expected benefits
from Transformation and innovation efforts;
|
|
|
•
|
the
ability to improve performance and competitive position at our
operations;
|
|
|
•
|
anticipated
working capital needs, capital expenditures and asset
sales;
|
|
|
•
|
anticipated
improvements and efficiencies in costs, operations, sales,
inventory management, sourcing and the supply chain and the results
thereof;
|
|
|
•
|
projected
profitability potential;
|
|
|
•
|
the
ability to make acquisitions and the projected timing, results,
benefits, costs, charges and expenditures related to acquisitions,
joint ventures, headcount reductions and facility dispositions,
shutdowns and consolidations;
|
|
|
•
|
projected capacity
and the alignment of operations with demand;
|
|
|
•
|
the
ability to operate profitably and generate cash in down
markets;
|
|
|
•
|
the
ability to capture and maintain market share and to develop or take
advantage of future opportunities, customer initiatives, new
businesses, new products and new markets;
|
|
|
•
|
expectations for
Company and customer inventories, jobs and orders;
|
|
|
•
|
expectations for
the economy and markets or improvements therein;
|
|
|
•
|
expectations for
generating improving and sustainable earnings, earnings potential,
margins or shareholder value;
|
|
|
•
|
effects of
judicial rulings; and
|
|
|
•
|
other
non-historical 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:
|
|
•
|
the
risks, uncertainties and impacts related to COVID-19 and other
actual or potential public health emergencies and actions taken by
governmental authorities or others in connection therewith,
their potential impacts related to the ability and costs to
continue to operate facilities and their potential to exacerbate
other risks;
|
|
|
•
|
the
effect of national, regional and global economic conditions
generally and within major product markets, including significant
economic disruptions from COVID-19 and the actions taken
therewith;
|
|
|
•
|
the
effect of conditions in national and worldwide financial markets
and with respect to the ability of financial institutions to
provide capital;
|
|
|
•
|
the
impact of tariffs, the adoption of trade restrictions affecting our
products or suppliers, a United States withdrawal from or
significant renegotiation of trade agreements, the occurrence of
trade wars, the closing of border crossings, and other changes in
trade regulations or relationships;
|
|
|
•
|
lower
oil prices as a factor in demand for products;
|
|
|
•
|
product demand and
pricing;
|
|
|
•
|
changes in product
mix, product substitution and market acceptance of our
products;
|
|
|
•
|
fluctuations in
the pricing, quality or availability of raw materials (particularly
steel), supplies, transportation, utilities and other items
required by operations;
|
ii
|
|
•
|
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, oil and gas, and other
industries in which we participate;
|
|
|
•
|
failure to
maintain appropriate levels of inventories;
|
|
|
•
|
financial
difficulties (including bankruptcy filings) of original equipment
manufacturers, end-users and customers, suppliers, joint venture
partners and others with whom we do business;
|
|
|
•
|
the
ability to realize targeted expense reductions from headcount
reductions, facility closures and other cost reduction
efforts;
|
|
|
•
|
the
ability to realize cost savings and operational, sales and sourcing
improvements and efficiencies, and other expected benefits from
Transformation initiatives, on a timely basis;
|
|
|
•
|
the
overall success of, and the ability to integrate, newly-acquired
businesses and joint ventures, maintain and develop their
customers, and achieve synergies and other expected benefits and
cost savings therefrom;
|
|
|
•
|
capacity levels
and efficiencies, within facilities, within major product markets
and within the industries in which we participate as a
whole;
|
|
|
•
|
the
effect of disruption in the business of suppliers, customers,
facilities and shipping operations due to adverse weather, casualty
events, equipment breakdowns, interruption in utility services,
civil unrest, international conflicts, terrorist activities or
other causes;
|
|
|
•
|
changes in
customer demand, inventories, spending patterns, product choices,
and supplier choices;
|
|
|
•
|
risks
associated with doing business internationally, including economic,
political and social instability, foreign currency exchange rate
exposure and the acceptance of our products in global
markets;
|
|
|
•
|
the
ability to improve and maintain processes and business practices to
keep pace with the economic, competitive and technological
environment;
|
|
|
•
|
deviation of
actual results from estimates and/or assumptions used by us in the
application of our significant accounting policies;
|
|
|
•
|
the
level of imports and import prices in our markets;
|
|
|
•
|
the
impact of judicial rulings and governmental regulations, both in
the United States and abroad, including those adopted by the United
States governmental agencies as contemplated by the Coronavirus
Aid, Relief and Economic Security (CARES) Act and the Dodd-Frank
Wall Street Reform and Consumer Protection Act of 2010;
|
|
|
•
|
the
effect of healthcare laws in the United States and potential
changes for such laws, especially in light of the COVID-19
pandemic, which may increase our healthcare and other costs and
negatively impact our operations and financial results;
|
|
|
•
|
the
effects of privacy and information security laws and standards;
and
|
|
|
•
|
other
risks described from time to time in the filings of Worthington
Industries, Inc. with the United States Securities and Exchange
Commission, including those described in “PART I – Item 1A. — Risk
Factors” of our Annual Report on Form 10-K for the fiscal year
ended May 31, 2020.
|
We note these factors for investors as contemplated by the
Act. It is impossible to predict or identify all
potential risk factors. Consequently, you should not
consider the foregoing list to be a complete set of all potential
risks and uncertainties. Any forward-looking statements
in this Quarterly Report on Form 10-Q are based on current
information as of the date of this Quarterly Report on Form 10-Q,
and we assume no obligation to correct or update any such
statements in the future, except as required by applicable law.
iii
PART
I. FINANCIAL INFORMATION
Item 1. –
Financial Statements
WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED
BALANCE SHEETS
(In thousands)
|
|
August 31,
|
|
|
May 31,
|
|
|
|
2020
|
|
|
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
650,068
|
|
|
$
|
147,198
|
|
|
Receivables, less allowances of $1,646 and $1,521 at August 31,
2020
|
|
|
|
|
|
|
|
|
and May 31, 2020, respectively
|
|
423,138
|
|
|
|
341,038
|
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Raw materials
|
|
163,762
|
|
|
|
234,629
|
|
|
Work in process
|
|
82,154
|
|
|
|
76,497
|
|
|
Finished products
|
|
73,562
|
|
|
|
93,975
|
|
|
Total inventories
|
|
319,478
|
|
|
|
405,101
|
|
|
Income taxes receivable
|
|
2,287
|
|
|
|
8,376
|
|
|
Assets held for sale
|
|
12,857
|
|
|
|
12,928
|
|
|
Investment in Nikola
|
|
287,630
|
|
|
|
-
|
|
|
Prepaid expenses and other current assets
|
|
70,999
|
|
|
|
68,538
|
|
|
Total current assets
|
|
1,766,457
|
|
|
|
983,179
|
|
|
Investments in unconsolidated affiliates
|
|
208,395
|
|
|
|
203,329
|
|
|
Operating lease assets
|
|
29,251
|
|
|
|
31,557
|
|
|
Goodwill
|
|
326,798
|
|
|
|
321,434
|
|
|
Other intangible assets, net of accumulated amortization of $94,877
and
|
|
|
|
|
|
|
|
|
$92,774 at August 31, 2020 and May 31, 2020, respectively
|
|
179,665
|
|
|
|
184,416
|
|
|
Other assets
|
|
34,541
|
|
|
|
34,956
|
|
|
Property, plant and equipment:
|
|
|
|
|
|
|
|
|
Land
|
|
24,572
|
|
|
|
24,197
|
|
|
Buildings and improvements
|
|
300,265
|
|
|
|
302,796
|
|
|
Machinery and equipment
|
|
1,079,899
|
|
|
|
1,055,139
|
|
|
Construction in progress
|
|
54,991
|
|
|
|
52,231
|
|
|
Total property, plant and equipment
|
|
1,459,727
|
|
|
|
1,434,363
|
|
|
Less: accumulated depreciation
|
|
873,781
|
|
|
|
861,719
|
|
|
Total property, plant and equipment, net
|
|
585,946
|
|
|
|
572,644
|
|
|
Total assets
|
$
|
3,131,053
|
|
|
$
|
2,331,515
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
294,172
|
|
|
$
|
247,017
|
|
|
Accrued compensation, contributions to employee benefit plans
and
|
|
|
|
|
|
|
|
|
related taxes
|
|
88,145
|
|
|
|
64,650
|
|
|
Dividends payable
|
|
14,808
|
|
|
|
14,648
|
|
|
Other accrued items
|
|
50,036
|
|
|
|
49,974
|
|
|
Current operating lease liabilities
|
|
10,251
|
|
|
|
10,851
|
|
|
Income taxes payable
|
|
84,612
|
|
|
|
949
|
|
|
Current maturities of long-term debt
|
|
160
|
|
|
|
149
|
|
|
Total current liabilities
|
|
542,184
|
|
|
|
388,238
|
|
|
Other liabilities
|
|
82,814
|
|
|
|
75,786
|
|
|
Distributions in excess of investment in unconsolidated
affiliate
|
|
101,865
|
|
|
|
103,837
|
|
|
Long-term debt
|
|
707,331
|
|
|
|
699,516
|
|
|
Noncurrent operating lease liabilities
|
|
23,880
|
|
|
|
25,763
|
|
|
Deferred income taxes, net
|
|
143,079
|
|
|
|
71,942
|
|
|
Total liabilities
|
|
1,601,153
|
|
|
|
1,365,082
|
|
|
Shareholders' equity - controlling interest
|
|
1,382,785
|
|
|
|
820,821
|
|
|
Noncontrolling interests
|
|
147,115
|
|
|
|
145,612
|
|
|
Total equity
|
|
1,529,900
|
|
|
|
966,433
|
|
|
Total liabilities and equity
|
$
|
3,131,053
|
|
|
$
|
2,331,515
|
|
See condensed notes to consolidated financial statements.
1
WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
(In thousands, except per share amounts)
(Unaudited)
|
|
Three Months Ended August 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
Net sales
|
$
|
702,909
|
|
|
$
|
855,859
|
|
|
Cost of goods sold
|
|
589,551
|
|
|
|
738,568
|
|
|
Gross margin
|
|
113,358
|
|
|
|
117,291
|
|
|
Selling, general and administrative expense
|
|
82,196
|
|
|
|
90,823
|
|
|
Impairment of long-lived assets
|
|
9,924
|
|
|
|
40,601
|
|
|
Restructuring and other expense, net
|
|
1,848
|
|
|
|
455
|
|
|
Incremental expenses related to Nikola gains
|
|
49,511
|
|
|
|
-
|
|
|
Operating loss
|
|
(30,121
|
)
|
|
|
(14,588
|
)
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Miscellaneous income, net
|
|
452
|
|
|
|
695
|
|
|
Interest expense
|
|
(7,590
|
)
|
|
|
(9,480
|
)
|
|
Equity in net income of unconsolidated affiliates
|
|
23,634
|
|
|
|
24,767
|
|
|
Gains on investment in Nikola
|
|
796,141
|
|
|
|
-
|
|
|
Loss on extinguishment of debt
|
|
-
|
|
|
|
(4,034
|
)
|
|
Earnings (loss) before income taxes
|
|
782,516
|
|
|
|
(2,640
|
)
|
|
Income tax expense (benefit)
|
|
163,778
|
|
|
|
(185
|
)
|
|
Net earnings (loss)
|
|
618,738
|
|
|
|
(2,455
|
)
|
|
Net earnings attributable to noncontrolling interests
|
|
2,063
|
|
|
|
2,321
|
|
|
Net earnings (loss) attributable to controlling interest
|
$
|
616,675
|
|
|
$
|
(4,776
|
)
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
Average common shares outstanding
|
|
54,070
|
|
|
|
55,241
|
|
|
Earnings (loss) per share attributable to controlling interest
|
$
|
11.41
|
|
|
$
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
Average common shares outstanding
|
|
54,942
|
|
|
|
55,241
|
|
|
Earnings (loss) per share attributable to controlling interest
|
$
|
11.22
|
|
|
$
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding at end of period
|
|
53,362
|
|
|
|
54,871
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per share
|
$
|
0.25
|
|
|
$
|
0.24
|
|
See condensed notes to consolidated financial statements.
2
WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
|
|
Three Months Ended August 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
Net earnings (loss)
|
$
|
618,738
|
|
|
$
|
(2,455
|
)
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Foreign currency translation, net of tax
|
|
8,308
|
|
|
|
4,782
|
|
|
Pension liability adjustment, net of tax
|
|
372
|
|
|
|
1,013
|
|
|
Cash flow hedges, net of tax
|
|
2,562
|
|
|
|
(2,639
|
)
|
|
Other comprehensive income
|
|
11,242
|
|
|
|
3,156
|
|
|
Comprehensive income
|
|
629,980
|
|
|
|
701
|
|
|
Comprehensive income attributable to noncontrolling interests
|
|
2,063
|
|
|
|
2,321
|
|
|
Comprehensive income (loss) attributable to controlling
interest
|
$
|
627,917
|
|
|
$
|
(1,620
|
)
|
See condensed notes to consolidated financial statements.
3
WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
|
Three Months Ended August 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
$
|
618,738
|
|
|
$
|
(2,455
|
)
|
|
Adjustments to reconcile net earnings (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
22,211
|
|
|
|
24,177
|
|
|
Impairment of long-lived assets
|
|
9,924
|
|
|
|
40,601
|
|
|
Provision for (benefit from) deferred income taxes
|
|
71,031
|
|
|
|
(3,498
|
)
|
|
Bad debt expense
|
|
94
|
|
|
|
168
|
|
|
Equity in net income of unconsolidated affiliates, net of
distributions
|
|
(6,757
|
)
|
|
|
5,082
|
|
|
Net loss on sale of assets
|
|
402
|
|
|
|
618
|
|
|
Stock-based compensation
|
|
4,856
|
|
|
|
3,995
|
|
|
Gains on investment in Nikola
|
|
(796,141
|
)
|
|
|
-
|
|
|
Charitable contribution of Nikola shares
|
|
20,653
|
|
|
|
-
|
|
|
Loss on extinguishment of debt
|
|
-
|
|
|
|
4,034
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Receivables
|
|
(82,194
|
)
|
|
|
14,981
|
|
|
Inventories
|
|
85,622
|
|
|
|
44,282
|
|
|
Accounts payable
|
|
47,154
|
|
|
|
(37,234
|
)
|
|
Accrued compensation and employee benefits
|
|
23,852
|
|
|
|
(23,215
|
)
|
|
Income taxes payable
|
|
83,664
|
|
|
|
10,556
|
|
|
Other operating items, net
|
|
14,279
|
|
|
|
(17,723
|
)
|
|
Net cash provided by operating activities
|
|
117,388
|
|
|
|
64,369
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
Investment in property, plant and equipment
|
|
(32,871
|
)
|
|
|
(22,174
|
)
|
|
Proceeds from sale of Nikola shares
|
|
487,859
|
|
|
|
-
|
|
|
Proceeds from sale of assets
|
|
-
|
|
|
|
9,176
|
|
|
Net cash provided (used) by investing activities
|
|
454,988
|
|
|
|
(12,998
|
)
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt, net of issuance costs
|
|
-
|
|
|
|
101,598
|
|
|
Principal payments on long-term obligations and debt redemption
costs
|
|
(97
|
)
|
|
|
(153,977
|
)
|
|
Payments for issuance of common shares, net of tax withholdings
|
|
(1,150
|
)
|
|
|
(3,213
|
)
|
|
Payments to noncontrolling interests
|
|
(560
|
)
|
|
|
-
|
|
|
Repurchase of common shares
|
|
(54,320
|
)
|
|
|
(29,599
|
)
|
|
Dividends paid
|
|
(13,379
|
)
|
|
|
(12,960
|
)
|
|
Net cash used by financing activities
|
|
(69,506
|
)
|
|
|
(98,151
|
)
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
502,870
|
|
|
|
(46,780
|
)
|
|
Cash and cash equivalents at beginning of period
|
|
147,198
|
|
|
|
92,363
|
|
|
Cash and cash equivalents at end of period
|
$
|
650,068
|
|
|
$
|
45,583
|
|
See condensed notes to consolidated financial statements.
4
WORTHINGTON INDUSTRIES, INC.
CONDENSED Notes to Consolidated Financial Statements
(Unaudited)
NOTE A – Basis of Presentation
The consolidated financial statements include the accounts of
Worthington Industries, Inc. and consolidated subsidiaries
(collectively, “we,” “our,” “Worthington,” or the
“Company”). Investments in unconsolidated affiliates are
accounted for using the equity method. Significant
intercompany accounts and transactions have been eliminated.
The Company owns controlling interests in the following four joint
ventures: Spartan Steel Coating, LLC (“Spartan”) (52%), TWB
Company, L.L.C. (“TWB”) (55%), Worthington Samuel Coil Processing
LLC (“Samuel” or “Samuel joint venture”) (63%), and Worthington
Specialty Processing (“WSP”) (51%). These joint ventures
are consolidated with the equity owned by the other joint venture
members shown as noncontrolling interests in our consolidated
balance sheets, and their portions of net earnings (loss) and other
comprehensive income (loss) (“OCI”) shown as net earnings or
comprehensive income attributable to noncontrolling interests in
our consolidated statements of earnings (loss) and consolidated
statements of comprehensive income (loss),
respectively. Investments in unconsolidated affiliates
are accounted for using the equity method. See further
discussion of our unconsolidated affiliates in “NOTE D –
Investments in Unconsolidated Affiliates”. On December
31, 2019, we acquired an additional 31.75% interest in Samuel,
increasing our ownership to a 63% controlling interest, with
Samuel’s results being consolidated within the Steel Processing
operating segment since the acquisition date.
These unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally
accepted in the United States of America (“U.S. GAAP”) for interim
financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X of the United States Securities and
Exchange Commission (the “SEC”). Accordingly, they do
not include all of the information and notes required by U.S. GAAP
for complete financial statements. In the opinion of management, all adjustments,
which are of a normal and recurring nature except those which have
been disclosed elsewhere in this Quarterly Report on
Form 10-Q, necessary for a fair presentation of the
consolidated financial statements for these interim periods, have
been included. Operating results for the three
months ended August 31, 2020 are not necessarily indicative of the
results that may be expected for the fiscal year ending May 31,
2021 (“fiscal 2021”). For further information, refer to the
consolidated financial statements and notes thereto included in the
Annual Report on Form 10-K for the fiscal year ended May 31, 2020
(“fiscal 2020”) of Worthington Industries, Inc. (the “2020 Form
10-K”).
The preparation of consolidated financial statements in conformity
with U.S. GAAP requires management to make estimates and
assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Actual
results could differ from those estimates.
Deconsolidation of Engineered Cabs: On November 1, 2019, we closed on
an agreement with an affiliate of Angeles Equity Partners,
LLC by which we contributed
substantially all of the net assets of the Company’s Engineered
Cabs business to a newly-formed joint venture, Taxi Workhorse
Holdings, LLC (the “Cabs joint venture”), in which the Company
retained a 20% noncontrolling interest. Immediately
following the contribution, the Cabs joint venture acquired the net
assets of Crenlo Cab Products, LLC (“Crenlo”). The
investment in the Cabs joint venture is accounted for under the
equity method, due to lack of control as more fully described in
“NOTE D – Investments in Unconsolidated Affiliates”.
The Company’s contribution to the Cabs joint venture consisted of
the net assets of our primary Engineered Cabs manufacturing
facilities located in Greeneville, Tennessee and Watertown, South
Dakota. As a result of the contribution, an impairment
charge of $35,194,000 was recognized during the first quarter of
fiscal 2020 when the disposal group met the criteria as assets held
for sale. Certain non-core assets of the Engineered Cabs
business, including the fabricated products facility in Stow, Ohio,
and the steel packaging facility in Greensburg, Indiana, were
retained. Refer to “NOTE E – Impairment of Long-Lived
Assets” for additional information on the retained assets.
Upon closing of the transaction, the contributed net assets were
deconsolidated, resulting in a net gain of $258,000 during fiscal
2020, as summarized below:
5
|
(in thousands)
|
|
|
|
|
Retained investment (at fair value)
|
$
|
13,831
|
|
|
Contributed net assets (at carrying value)
|
|
13,394
|
|
|
Gain on deconsolidation
|
|
437
|
|
|
Less: deal costs
|
|
(179
|
)
|
|
Net gain on deconsolidation
|
$
|
258
|
|
Recently Adopted Accounting Standards
On June 1, 2020, the Company adopted Accounting Standards Update
(“ASU”) 2016-13, Financial
Instruments – Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments and additional
related ASUs which introduced an expected credit loss model for
impairment of financial assets measured at amortized cost,
including trade receivables. The model replaces the
probable, incurred loss model for those assets and broadens the
information an entity must consider when developing its expected
credit loss estimate for assets measured at amortized
cost. The adoption of the new accounting standard did
not have a material impact on the Company’s consolidated financial
position, results of operations or cash flows. Additionally, there have been no
changes to our significant accounting policies as disclosed in our
2020 Form 10-K as a result of the adoption of this new accounting
guidance.
NOTE B – Revenue Recognition
The following tables summarize net sales by product class and by
timing of revenue recognition for the periods presented:
|
(in thousands)
|
Three months ended August 31,
|
|
|
Reportable segments by product class:
|
2020
|
|
|
2019
|
|
|
Steel Processing
|
|
|
|
|
|
|
|
|
Direct
|
$
|
404,808
|
|
|
$
|
493,646
|
|
|
Toll
|
|
26,212
|
|
|
|
29,729
|
|
|
Total
|
|
431,020
|
|
|
|
523,375
|
|
|
|
|
|
|
|
|
|
|
|
Pressure Cylinders
|
|
|
|
|
|
|
|
|
Consumer products
|
|
132,782
|
|
|
|
119,480
|
|
|
Industrial products
|
|
128,225
|
|
|
|
152,618
|
|
|
Oil & gas equipment
|
|
9,897
|
|
|
|
32,298
|
|
|
Total
|
|
270,904
|
|
|
|
304,396
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
Engineered Cabs
|
|
985
|
|
|
|
28,066
|
|
|
Other
|
|
-
|
|
|
|
22
|
|
|
Total
|
|
985
|
|
|
|
28,088
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
702,909
|
|
|
$
|
855,859
|
|
We recognize revenue at a point in time, with the exception of the
toll processing revenue stream and certain contracts within the oil
& gas equipment revenue streams, which are recognized over
time. The following table summarizes the over time revenue for the
periods presented:
|
|
Three months ended August 31,
|
|
|
(in thousands)
|
2020
|
|
|
2019
|
|
|
Steel Processing - toll
|
$
|
26,212
|
|
|
$
|
29,729
|
|
|
Pressure Cylinders - certain oil & gas equipment contracts
|
|
7,699
|
|
|
|
30,008
|
|
|
Total over time revenue
|
$
|
33,911
|
|
|
$
|
59,737
|
|
6
The following table summarizes the unbilled receivables and
contract assets for the periods indicated:
|
|
|
|
August 31,
|
|
|
May 31,
|
|
|
(in thousands)
|
Balance Sheet Classification
|
|
2020
|
|
|
2020
|
|
|
Unbilled receivables
|
Receivables
|
|
$
|
4,325
|
|
|
$
|
5,552
|
|
|
Contract assets
|
Prepaid and other current assets
|
|
$
|
5,114
|
|
|
$
|
4,127
|
|
The Company has elected the optional exemption, which allows for
the exclusion of the amounts for remaining performance obligations
that are part of contracts with an expected duration of one year or
less. There are no unsatisfied or partially satisfied
performance obligations related to contracts with an expected
duration greater than one year.
NOTE C – Investment in Nikola
On June 3, 2020 (the “Effective Date”), Nikola Corporation
(“Nikola”) became a public company through a reverse merger with a
subsidiary of VectoIQ Acquisition Corporation, a NASDAQ listed
publicly traded company. At the Effective Date, the
Company owned 19,048,020 shares of Nikola common
stock. During the first quarter of fiscal 2021, the
Company recognized a $796,141,000 pre-tax gain consisting of
$508,511,000 of realized gains from the sale or contribution of
12,000,000 of its Nikola shares, and an unrealized mark-to-market
gain of $287,630,000 related to the shares the Company continues to
own. The Company also recognized in operating income
$49,511,000 of incremental expenses related to the Nikola gains,
$28,858,000 for discretionary profit sharing and bonus expenses and
$20,653,000 for the contribution of 500,000 shares of Nikola common
stock to the Worthington Industries Foundation to establish a
charitable endowment focused on the communities in which it
operates. The 7,048,020 shares of Nikola common stock
that the Company continues to own are subject to a lock-up
agreement that restricts our ability to sell, transfer or otherwise
monetize these shares until early December 2020. Going
forward, the value of these shares will change according to the
fluctuations in the market price of the stock and the change in fair value of this investment will be
reflected in the statement of earnings as an unrealized gain or
loss.
NOTE D – Investments in Unconsolidated Affiliates
Investments in affiliated companies that we do not control, either
through majority ownership or otherwise, are accounted for using
the equity method. At August 31, 2020, the Company held
investments in the following affiliated
companies: ArtiFlex Manufacturing, LLC (“ArtiFlex”)
(50%), the Cabs joint venture (20%), Clarkwestern Dietrich Building
Systems LLC (“ClarkDietrich”) (25%), Serviacero Planos, S. de R. L.
de C.V. (“Serviacero Worthington”) (50%), and Worthington Armstrong
Venture (“WAVE”) (50%).
During the first quarter of fiscal 2020, the Company began the
process of exploring the potential exit of its ownership interest
in Nisshin, its former joint venture in
China. As a result, the
Company evaluated its investment for potential impairment and
concluded the remaining book value of the investment was fully
impaired, resulting in an impairment charge of $4,236,000
within equity in net income of unconsolidated affiliates in our
consolidated statement of loss for the three months ended August
31, 2019. On December 19,
2019, the Company finalized an agreement to transfer the risks and
rewards related to its 10% interest to the other joint venture
partners. As a result, from that point on the Company has no
further rights or obligations related to the Nisshin joint
venture.
On December 31, 2019, the Company contributed the operating net
assets, excluding working capital, of its Cleveland facility,
(which the Company had previously acquired on October 7, 2019 from
Heidtman Steel Products, Inc.) to the Samuel joint venture in
exchange for an incremental 31.75% ownership interest in the joint
venture. This increased our total ownership interest to
63% and the joint venture’s results have been consolidated within
Steel Processing since that time.
On November 1, 2019, we closed on an agreement with an affiliate of
Angeles Equity Partners, LLC by which we contributed substantially
all of the net assets of our Engineered Cabs business to a
newly-formed joint venture, in which we retained a 20%
noncontrolling interest. Immediately following the
contribution, the Cabs joint venture acquired the net assets of
Crenlo. Our contribution to the Cabs joint venture
consisted of the net assets of our primary Engineered Cabs
manufacturing facilities located in Greeneville, Tennessee and
Watertown, South Dakota. Our investment in the Cabs
joint venture is accounted for under the equity method, due to lack
of control.
We received distributions from unconsolidated affiliates totaling
$16,877,000 during the three months ended August 31,
2020. We have received cumulative distributions from
WAVE in excess of our investment balance, which resulted in an
amount recorded within other liabilities on our consolidated
balance sheets of $101,865,000 at August 31, 2020. In
accordance with the applicable accounting guidance, we reclassified
the negative investment balance to the liabilities section of our
consolidated balance sheet. We will continue to record
our equity in the net income of WAVE as a debit to the investment
account, and if the investment balance becomes positive, it will
again be shown as an asset on our consolidated balance
sheet. If it becomes probable that any excess
7
distribution may not be returned (upon joint venture liquidation or
otherwise), we will recognize any negative investment balance
classified as a liability as income immediately.
We use the “cumulative earnings” approach for determining cash flow
presentation of distributions from our unconsolidated joint
ventures. Distributions received are included in our
consolidated statements of cash flows as operating activities,
unless the cumulative distributions received, less distributions
received in prior periods that were determined to be returns of
investment, exceed our portion of the cumulative equity in the net
earnings of the joint venture, in which case the excess
distributions are deemed to be returns of the investment and are
classified as investing activities in our consolidated statements
of cash flows.
The following tables summarize combined financial information for
our unconsolidated affiliates as of the dates, and for the periods
presented:
|
|
August 31,
|
|
|
May 31,
|
|
|
(in thousands)
|
2020
|
|
|
2020
|
|
|
Cash
|
$
|
45,319
|
|
|
$
|
68,730
|
|
|
Other current assets
|
|
541,267
|
|
|
|
528,631
|
|
|
Noncurrent assets
|
|
396,757
|
|
|
|
399,731
|
|
|
Total assets
|
$
|
983,343
|
|
|
$
|
997,092
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
$
|
185,271
|
|
|
$
|
174,709
|
|
|
Short-term borrowings
|
|
-
|
|
|
|
500
|
|
|
Current maturities of long-term debt
|
|
19,097
|
|
|
|
37,542
|
|
|
Long-term debt
|
|
327,246
|
|
|
|
346,690
|
|
|
Other noncurrent liabilities
|
|
71,333
|
|
|
|
73,656
|
|
|
Equity
|
|
380,396
|
|
|
|
363,995
|
|
|
Total liabilities and equity
|
$
|
983,343
|
|
|
$
|
997,092
|
|
|
|
Three Months Ended August 31,
|
|
|
(in thousands)
|
2020
|
|
|
2019
|
|
|
Net sales
|
$
|
405,320
|
|
|
$
|
470,205
|
|
|
Gross margin
|
|
93,049
|
|
|
|
97,536
|
|
|
Operating income
|
|
57,953
|
|
|
|
66,223
|
|
|
Depreciation and amortization
|
|
7,730
|
|
|
|
7,089
|
|
|
Interest expense
|
|
2,945
|
|
|
|
3,367
|
|
|
Income tax expense
|
|
1,730
|
|
|
|
581
|
|
|
Net earnings from continuing operations
|
|
56,573
|
|
|
|
61,141
|
|
|
Net earnings from discontinued operations
|
|
-
|
|
|
|
2,812
|
|
|
Net earnings
|
|
56,573
|
|
|
|
63,953
|
|
The amount presented within the “Net earnings from discontinued
operations” caption in the table above reflects the international
operations of our WAVE joint venture prior to their sale on
September 30, 2019. The sale was part of a broader transaction
between the joint venture partner, Armstrong World Industries, Inc.
(“AWI”), and Knauf Ceilings and Holding GmbH (“Knauf”), a
family-owned manufacturer of building materials headquartered in
Germany. As of August 31, 2020, WAVE has a $5,900,000
receivable from AWI ($2,950,000 of which is Worthington’s portion),
related to the remaining proceeds of the sale which are subject to
post-closing adjustments as provided by the purchase
agreement. In September 2020, we received a cash
distribution for the full amount of the remaining proceeds of the
sale. The Company corrected certain amounts in the table
above for the three months ended August 31, 2019, to reflect the
international operations of our WAVE joint venture within
discontinued operations prior to their sale on September 30, 2019,
as those amounts were previously included in net sales, gross
margin, operating income, and income tax
expense.
NOTE E – Impairment of Long-Lived Assets
Fiscal
2021: During the first quarter of fiscal 2021,
management determined indicators of impairment were present with
regard to the cryogenics business primarily operated out of
Theodore, Alabama with European distribution in
Austria. As a result, property, plant and equipment with
a carrying value of $13,526,000 were written down to their
estimated fair value of $9,193,000 (determined using Level 2
inputs), resulting in an impairment charge of
$4,333,000. Additionally, the customer list intangible
assets with a carrying value of $3,662,000 were deemed to be fully
impaired and written off. The fair value of the customer
list intangible assets was determined using unobservable Level 3
inputs.
8
During the first quarter of fiscal 2021, the Company decided to
discontinue its operation of the manufacturing line for alternative
fuel cylinders at the Jefferson, Ohio facility. As a
result, long-lived assets with a carrying value of $1,823,000 were
written down to their estimated fair market value of $400,000
(determined using Level 2 inputs), resulting in an impairment
charge of $1,423,000.
During the first quarter of fiscal 2021, the Company recognized a
$506,000 impairment charge related to the Superior Tools business
that was acquired as part of Magna Industries, Inc. in fiscal 2019
and subsequently sold.
Fiscal
2020: During the first quarter of fiscal 2020,
the Company committed to plans to sell substantially all of the net
assets of its Engineered Cabs business with the exception of the
fabricated products facility in Stow, Ohio, and the steel packaging
facility in Greensburg, Indiana. As the disposal group
met the criteria for classification as assets held for sale as of
August 31, 2019, those net assets were presented separately as
assets held for sale in our consolidated balance sheet as of August
31, 2019. In accordance with the applicable accounting
guidance, such net assets were recorded at the lower of net book
value or fair value less costs to sell. The book value
of the disposal group exceeded its estimated fair market value of
$12,860,000 (determined using Level 2 inputs), resulting in an
impairment charge of $35,194,000 during the three months ended
August 31, 2019. Included in the impairment charge were
lease ROU assets with a net book value of $905,000 that were deemed
fully impaired and written off. The Company also
identified an impairment indicator for the long-lived assets of the
fabricated products business as the planned sale would have an
adverse impact on the manner and extent in which these assets were
used. As a result, fixed assets with a net book value of
$1,469,000 and lease ROU assets with a net book value of $3,938,000
were deemed to be fully impaired and written off during the first
quarter of fiscal 2020.
NOTE F – Restructuring and Other Expense, Net
We consider restructuring activities to be programs whereby we
fundamentally change our operations, such as closing and
consolidating manufacturing facilities or moving manufacturing of a
product to another location. Restructuring activities
may also involve substantial realignment of the management
structure of a business unit in response to changing market
conditions.
A progression of the liabilities associated with our restructuring
activities, combined with a reconciliation to the restructuring and
other expense, net financial statement caption, in our consolidated
statement of earnings is summarized below for the period
presented:
|
|
|
Balance, as of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, as of
|
|
|
(in thousands)
|
|
May 31, 2020
|
|
|
Expense
|
|
|
Payments
|
|
|
Adjustments
|
|
|
August 31, 2020
|
|
|
Early retirement and severance
|
|
$
|
6,536
|
|
|
$
|
1,033
|
|
|
$
|
(3,675
|
)
|
|
$
|
(102
|
)
|
|
$
|
3,792
|
|
|
Facility exit and other costs
|
|
|
156
|
|
|
|
815
|
|
|
|
(214
|
)
|
|
|
22
|
|
|
|
779
|
|
|
|
|
$
|
6,692
|
|
|
$
|
1,848
|
|
|
$
|
(3,889
|
)
|
|
$
|
(80
|
)
|
|
$
|
4,571
|
|
The total liability associated with our restructuring activities as
of August 31, 2020 is expected to be paid in the next twelve
months.
NOTE G – Contingent Liabilities and Commitments
Legal Proceedings
We are defendants in certain legal actions. In the
opinion of management, the outcome of these actions, which is not
clearly determinable at the present time, would not significantly
affect our consolidated financial position or future results of
operations. We also believe that environmental issues
will not have a material effect on our capital expenditures,
consolidated financial position or future results of
operations.
Voluntary Tank Replacement Program
In February 2019, our Structural Composites Industries, LLC
subsidiary (“SCI”) agreed to participate in a tank replacement
program for specific design sizes of its composite hydrogen fuel
tanks, which are integrated into a customer’s hydrogen fuel cells
used to fuel material handling equipment, primarily rider pallet
jacks in warehouses. As of August 31, 2020, the Company
has a reserve of $4,950,000 related to this matter, which we
believe is sufficient to absorb our remaining direct costs related
to the replacement program. The actual cost incurred by
the Company related to this matter may vary from the initial
estimate.
NOTE H – Guarantees
We do not have guarantees that we believe are reasonably likely to
have a material current or future effect on our consolidated
financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or
capital resources. We had in place $15,050,000 of outstanding
stand-by letters of credit issued to third-party service providers
at August 31, 2020. No amounts were drawn against them
at August 31, 2020.
9
NOTE I – Debt
On August 23, 2019, two of our European subsidiaries issued a
€36,700,000 principal amount unsecured 1.56% Series A Senior Note
due August 23, 2031 (the “2031 Note”) and €55,000,000 aggregate
principal amount of unsecured 1.90% Series B Senior Notes due
August 23, 2034 (the “2034 Notes”), (collectively, the “Senior
Notes”). The 2031 Note is to be repaid in the principal
amount of €30,000,000, together with accrued interest, on August
23, 2029, with the remaining €6,700,000 principal amount payable on
August 23, 2031, together with accrued interest. The
2034 Notes are to be repaid in the aggregate principal amount of
€23,300,000, together with accrued interest, on August 23, 2031,
with the remaining €31,700,000 aggregate principal amount payable
on August 23, 2034, together with accrued interest. Debt
issue costs of $134,000 were incurred in connection with the
issuance of the Senior Notes and have been recorded on the
consolidated balance sheets within long-term debt as a
contra-liability. They will be amortized, through
interest expense, in our consolidated statements of earnings (loss)
over the term of the respective Senior Notes. The
unamortized portion of the debt issuance costs was $123,000 at
August 31, 2020.
The Senior Notes were issued in a private placement and the
proceeds thereof were used in the redemption of $150,000,000
aggregate principal amount of unsecured 6.50% senior notes that
were set to mature on April 15, 2020 (the “2020
Notes”). The 2020 Notes were redeemed in full on August
30, 2019. In connection with the early redemption, the
Company recognized a loss of $4,034,000, which has been presented
separately in our consolidated statements of earnings (loss).
We maintain a $500,000,000 multi-year
revolving credit facility (the “Credit Facility”) with a group of
lenders which matures in February 2023. Borrowings under
the Credit Facility have maturities of up to one
year. We have the option to borrow at rates equal to an
applicable margin over the LIBOR, Prime Rate or Overnight Bank
Funding Rate. The applicable margin is determined by our
credit rating. There were no borrowings or letters of
credit outstanding under the Credit Facility at August 31,
2020.
NOTE J – Other Comprehensive Income
The following table summarizes the tax effects on each component of
OCI for the periods presented:
|
|
Three months ended August 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
Before-Tax
|
|
|
Tax
|
|
|
Net-of-Tax
|
|
|
Before-Tax
|
|
|
Tax
|
|
|
Net-of-Tax
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
$
|
7,608
|
|
|
|
700
|
|
|
$
|
8,308
|
|
|
$
|
4,782
|
|
|
$
|
-
|
|
|
$
|
4,782
|
|
|
Pension liability adjustment
|
|
488
|
|
|
|
(116
|
)
|
|
|
372
|
|
|
|
1,304
|
|
|
|
(291
|
)
|
|
|
1,013
|
|
|
Cash flow hedges
|
|
3,253
|
|
|
|
(691
|
)
|
|
|
2,562
|
|
|
|
(3,325
|
)
|
|
|
686
|
|
|
|
(2,639
|
)
|
|
Other comprehensive income
|
$
|
11,349
|
|
|
$
|
(107
|
)
|
|
$
|
11,242
|
|
|
$
|
2,761
|
|
|
$
|
395
|
|
|
$
|
3,156
|
|
NOTE K – Changes in Equity
The following tables summarize the changes in equity by component
and in total for the periods presented:
|
|
|
Controlling Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Comprehensive
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
Paid-in
|
|
|
Loss,
|
|
|
Retained
|
|
|
|
|
|
|
controlling
|
|
|
|
|
|
|
(in thousands)
|
|
Capital
|
|
|
Net of Tax
|
|
|
Earnings
|
|
|
Total
|
|
|
Interests
|
|
|
Total
|
|
|
Balance at May 31, 2020
|
|
$
|
283,776
|
|
|
$
|
(35,217
|
)
|
|
$
|
572,262
|
|
|
$
|
820,821
|
|
|
$
|
145,612
|
|
|
$
|
966,433
|
|
|
Net earnings
|
|
|
-
|
|
|
|
-
|
|
|
|
616,675
|
|
|
|
616,675
|
|
|
|
2,063
|
|
|
|
618,738
|
|
|
Other comprehensive income
|
|
|
-
|
|
|
|
11,242
|
|
|
|
-
|
|
|
|
11,242
|
|
|
|
-
|
|
|
|
11,242
|
|
|
Common shares issued, net of withholding tax
|
|
|
(1,150
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,150
|
)
|
|
|
-
|
|
|
|
(1,150
|
)
|
|
Common shares in NQ plans
|
|
|
90
|
|
|
|
-
|
|
|
|