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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 August 31, 2021

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 September 30, 2021, the number of Common Shares, without par value, issued and outstanding was 50,545,169.

 

 

 


 

 

TABLE OF CONTENTS

 

Safe Harbor Statement

 

ii

 

 

 

Part I.  Financial Information

 

 

 

 

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheets – August 31, 2021 and May 31, 2021

 

1

 

 

 

 

 

 

 

Consolidated Statements of Earnings – Three Months Ended August 31, 2021 and August 31, 2020

 

2

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income – Three Months Ended August 31, 2021 and August 31, 2020

 

3

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows – Three Months Ended August 31, 2021 and August 31, 2020

 

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

 

32

 

 

 

 

 

 

Item 4.

Controls and Procedures

 

32

 

 

 

Part II.  Other Information

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

32

 

 

 

 

 

 

Item 1A.

Risk Factors

 

   32

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

33

 

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities (Not applicable)

 

33

 

 

 

 

 

 

Item 4.

Mine Safety Disclosures (Not applicable)

 

33

 

 

 

 

 

 

Item 5.

Other Information (Not applicable)

 

33

 

 

 

 

 

 

Item 6.

Exhibits

 

34

 

 

 

Signatures

 

36

 

 

 

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 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;

 

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 the COVID-19 pandemic – the duration, extent and severity of which is impossible to predict, including the possibility of future resurgence in the spread of COVID-19 or variants thereof – and the availability and effectiveness 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 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 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;

ii

 


 

 

 

changing oil prices;

 

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;

 

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 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, labor shortages, 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 environmental laws and regulations or other actions of the United States Environmental Protection Agency or similar regulators which increase costs or limit our ability to use or sell certain products;

 

the impact of judicial rulings and governmental regulations, both in the United States and abroad, including those adopted by the United States Securities and Exchange Commission and other governmental agencies as contemplated by the Coronavirus Aid, Relief and Economic Security (CARES) Act, the Consolidated Appropriations Act, 2021, the American Rescue Plan Act of 2021, 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;

 

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 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, 2021.

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)

 

 

(Unaudited)

 

 

 

 

 

 

August 31,

 

 

May 31,

 

 

2021

 

 

2021

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

399,246

 

 

$

640,311

 

Receivables, less allowances of $466 and $608 at August 31, 2021

 

 

 

 

 

 

 

and May 31, 2021, respectively

 

718,368

 

 

 

639,964

 

Inventories:

 

 

 

 

 

 

 

Raw materials

 

327,463

 

 

 

266,208

 

Work in process

 

290,789

 

 

 

183,413

 

Finished products

 

124,156

 

 

 

115,133

 

Total inventories

 

742,408

 

 

 

564,754

 

Income taxes receivable

 

-

 

 

 

1,958

 

Assets held for sale

 

39,744

 

 

 

51,956

 

Prepaid expenses and other current assets

 

70,544

 

 

 

69,049

 

Total current assets

 

1,970,310

 

 

 

1,967,992

 

Investments in unconsolidated affiliates

 

259,132

 

 

 

233,126

 

Operating lease assets

 

93,616

 

 

 

35,101

 

Goodwill

 

375,196

 

 

 

351,056

 

Other intangible assets, net of accumulated amortization of $83,562 and

 

 

 

 

 

 

 

$80,513 at August 31, 2021 and May 31, 2021, respectively

 

270,223

 

 

 

240,387

 

Other assets

 

31,010

 

 

 

30,566

 

Property, plant and equipment:

 

 

 

 

 

 

 

Land

 

21,566

 

 

 

21,744

 

Buildings and improvements

 

270,723

 

 

 

271,196

 

Machinery and equipment

 

1,087,757

 

 

 

1,046,065

 

Construction in progress

 

59,962

 

 

 

53,903

 

Total property, plant and equipment

 

1,440,008

 

 

 

1,392,908

 

Less: accumulated depreciation

 

891,740

 

 

 

877,891

 

Total property, plant and equipment, net

 

548,268

 

 

 

515,017

 

Total assets

$

3,547,755

 

 

$

3,373,245

 

 

 

 

 

 

 

 

 

Liabilities and equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

653,377

 

 

$

567,392

 

Accrued compensation, contributions to employee benefit plans and

 

 

 

 

 

 

 

related taxes

 

91,521

 

 

 

137,698

 

Dividends payable

 

16,273

 

 

 

16,536

 

Other accrued items

 

51,710

 

 

 

52,250

 

Current operating lease liabilities

 

11,608

 

 

 

9,947

 

Income taxes payable

 

39,477

 

 

 

3,620

 

Current maturities of long-term debt

 

291

 

 

 

458

 

Total current liabilities

 

864,257

 

 

 

787,901

 

Other liabilities

 

78,008

 

 

 

82,824

 

Distributions in excess of investment in unconsolidated affiliate

 

92,917

 

 

 

99,669

 

Long-term debt

 

706,130

 

 

 

710,031

 

Noncurrent operating lease liabilities

 

83,827

 

 

 

27,374

 

Deferred income taxes, net

 

115,984

 

 

 

113,751

 

Total liabilities

 

1,941,123

 

 

 

1,821,550

 

Shareholders' equity - controlling interest

 

1,453,343

 

 

 

1,398,193

 

Noncontrolling interests

 

153,289

 

 

 

153,502

 

Total equity

 

1,606,632

 

 

 

1,551,695

 

Total liabilities and equity

$

3,547,755

 

 

$

3,373,245

 

 

See condensed notes to consolidated financial statements.

 

 

1


 

 

 

WORTHINGTON INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share amounts)

(Unaudited)

 

 

Three Months Ended

August 31,

 

 

2021

 

 

2020

 

Net sales

$

1,110,818

 

 

$

702,909

 

Cost of goods sold

 

891,444

 

 

 

589,551

 

Gross margin

 

219,374

 

 

 

113,358

 

Selling, general and administrative expense

 

95,851

 

 

 

82,196

 

Impairment of long-lived assets

 

-

 

 

 

9,924

 

Restructuring and other (income) expense, net

 

(12,274

)

 

 

1,848

 

Incremental expenses related to Nikola gains

 

-

 

 

 

49,511

 

Operating income (loss)

 

135,797

 

 

 

(30,121

)

Other income (expense):

 

 

 

 

 

 

 

Miscellaneous income, net

 

630

 

 

 

452

 

Interest expense

 

(7,718

)

 

 

(7,590

)

Equity in net income of unconsolidated affiliates

 

52,916

 

 

 

23,634

 

Gains on investment in Nikola

 

-

 

 

 

796,141

 

Earnings before income taxes

 

181,625

 

 

 

782,516

 

Income tax expense

 

40,150

 

 

 

163,778

 

Net earnings

 

141,475

 

 

 

618,738

 

Net earnings attributable to noncontrolling interests

 

8,984

 

 

 

2,063

 

Net earnings attributable to controlling interest

$

132,491

 

 

$

616,675

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

50,852

 

 

 

54,070

 

Earnings per share attributable to controlling interest

$

2.61

 

 

$

11.41

 

 

 

 

 

 

 

 

 

Diluted

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

51,865

 

 

 

54,942

 

Earnings per share attributable to controlling interest

$

2.55

 

 

$

11.22

 

 

 

 

 

 

 

 

 

Common shares outstanding at end of period

 

50,438

 

 

 

53,362

 

 

 

 

 

 

 

 

 

Cash dividends declared per share

$

0.28

 

 

$

0.25

 

 

See condensed notes to consolidated financial statements.

 

 

2


 

 

 

WORTHINGTON INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

 

Three Months Ended

August 31,

 

 

2021

 

 

2020

 

Net earnings

$

141,475

 

 

$

618,738

 

Other comprehensive (loss) income

 

 

 

 

 

 

 

Foreign currency translation, net of tax

 

(3,975

)

 

 

8,308

 

Pension liability adjustment, net of tax

 

-

 

 

 

372

 

Cash flow hedges, net of tax

 

(299

)

 

 

2,562

 

Other comprehensive (loss) income

 

(4,274

)

 

 

11,242

 

Comprehensive income

 

137,201

 

 

 

629,980

 

Comprehensive income attributable to noncontrolling interests

 

8,984

 

 

 

2,063

 

Comprehensive income attributable to controlling interest

$

128,217

 

 

$

627,917

 

 

See condensed notes to consolidated financial statements.

 

 

3


 

 

 

WORTHINGTON INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

Three Months Ended

August 31,

 

 

2021

 

 

2020

 

Operating activities:

 

 

 

 

 

 

 

Net earnings

$

141,475

 

 

$

618,738

 

Adjustments to reconcile net earnings to net cash (used) provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

22,064

 

 

 

22,211

 

Impairment of long-lived assets

 

-

 

 

 

9,924

 

Provision for deferred income taxes

 

1,366

 

 

 

71,031

 

Bad debt expense

 

179

 

 

 

94

 

Equity in net income of unconsolidated affiliates, net of distributions

 

(33,218

)

 

 

(6,757

)

Net (gain) loss on sale of assets

 

(12,706

)

 

 

402

 

Stock-based compensation

 

3,303

 

 

 

4,856

 

Gains on investment in Nikola

 

-

 

 

 

(796,141

)

Charitable contribution of Nikola shares

 

-

 

 

 

20,653

 

Changes in assets and liabilities, net of impact of acquisitions:

 

 

 

 

 

 

 

Receivables

 

(31,868

)

 

 

(82,194

)

Inventories

 

(163,682

)

 

 

85,622

 

Accounts payable

 

46,668

 

 

 

47,154

 

Accrued compensation and employee benefits

 

(46,177

)

 

 

23,852

 

Income taxes payable

 

35,857

 

 

 

83,664

 

Other operating items, net

 

(13,073

)

 

 

14,279

 

Net cash (used) provided by operating activities

 

(49,812

)

 

 

117,388

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

Investment in property, plant and equipment

 

(23,925

)

 

 

(32,871

)

Acquisitions, net of cash acquired

 

(104,750

)

 

 

-

 

Proceeds from sale of assets, net

 

26,685

 

 

 

-

 

Proceeds from sale of Nikola shares

 

-

 

 

 

487,859

 

Net cash (used) provided by investing activities

 

(101,990

)

 

 

454,988

 

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

Principal payments on long-term obligations and debt redemption costs

 

(392

)

 

 

(97

)

Proceeds from issuance of common shares, net of tax withholdings

 

(4,091

)

 

 

(1,150

)

Payments to noncontrolling interests

 

(9,197

)

 

 

(560

)

Repurchase of common shares

 

(60,885

)

 

 

(54,320

)

Dividends paid

 

(14,698

)

 

 

(13,379

)

Net cash used by financing activities

 

(89,263

)

 

 

(69,506

)

 

 

 

 

 

 

 

 

(Decrease) increase in cash and cash equivalents

 

(241,065

)

 

 

502,870

 

Cash and cash equivalents at beginning of period

 

640,311

 

 

 

147,198

 

Cash and cash equivalents at end of period

$

399,246

 

 

$

650,068

 

 

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, L.L.C. (“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 the other joint venture members’ portions of net earnings and other comprehensive income (“OCI”) shown as net earnings or comprehensive income attributable to noncontrolling interests in our consolidated statements of earnings and consolidated statements of comprehensive income, 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”.

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, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending May 31, 2022 (“fiscal 2022”). 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, 2021 (“fiscal 2021”) of Worthington Industries, Inc. (the “2021 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.

The Company’s operations are managed principally on a products and services basis.  Segment information is prepared on the same basis that the Chief Operating Decision Maker (“CODM”) reviews financial information for operational decision-making purposes.  See further discussion in “NOTE O – Segment Operations”.

Recently Adopted Accounting Standards

On June 1, 2021, the Company adopted ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes, eliminates certain exceptions within Topic 740 and clarifies certain aspects of the current guidance to promote consistency among reporting entities. The adoption of the accounting standard did not have a material impact on the Company’s consolidated financial position, results of operations, or cash flows.

5


 

 

NOTE B – Revenue Recognition

The following table summarizes net sales by reportable segment and product class for the periods presented:

 

Three Months Ended

August 31,

 

(in thousands)

2021

 

 

2020

 

Steel Processing

 

 

 

 

 

 

 

Direct

$

788,028

 

 

$

404,808

 

Toll

 

34,782

 

 

 

26,212

 

Total

 

822,810

 

 

 

431,020

 

 

 

 

 

 

 

 

 

Consumer Products (1)

 

147,783

 

 

 

133,622

 

Building Products (1)

 

114,743

 

 

 

88,103

 

Sustainable Energy Solutions (1)

 

25,482

 

 

 

27,857

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Oil & Gas Equipment

 

-

 

 

 

9,897

 

Engineered Cabs

 

-

 

 

 

985

 

Other

 

-

 

 

 

11,425

 

Total

 

-

 

 

 

22,307

 

 

 

 

 

 

 

 

 

Total

$

1,110,818

 

 

$

702,909

 

 

 

 

 

 

 

 

 

(1) The products contained within each of these reportable segments have similar production processes, require substantially the same raw materials, use similar equipment and serve similar purposes. Therefore, we believe the products within each of these segments are appropriately combined for purposes of the disclosure requirements prescribed by ASC 280 and ASC 606.  See NOTE O - Segment Operations for information regarding the reorganization of our pressure cylinders business and the resulting new reportable segments.

 

 

 

 

We recognize revenue at a point in time, with the exception of the toll processing revenue stream and, on a historical basis, certain contracts within the oil & gas equipment revenue stream, which are recognized over time. The following table summarizes the over time revenue for the periods presented:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

August 31,

 

 

(in thousands)

2021

 

 

2020

 

 

Steel Processing - toll

$

34,782

 

 

$

26,212

 

 

Certain oil & gas equipment contracts

 

-

 

 

 

7,699

 

 

Total over time revenue

$

34,782

 

 

$

33,911

 

 

 

The following table summarizes the unbilled receivables and contract assets(1) at the dates indicated:

 

 

 

 

August 31,

 

 

May 31,

 

(in thousands)

Balance Sheet Classification

 

2021

 

 

2021

 

Unbilled receivables

Receivables

 

$

5,196

 

 

$

5,317

 

 

 

 

 

 

 

 

 

 

 

(1) There were no contract assets at either of the dates indicated above.

 

 

 

6


 

 

 

We have elected the optional exemption, which allows for the exclusion of the amounts for remaining performance obligations that are a part of contracts with an expected duration of one year or less.  As of August 31, 2021, there were 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.  Prior to the Effective Date, the Company held an equity interest in the predecessor company, which was converted to 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 7,048,000 Nikola shares the Company continued to own at August 31, 2020.  The Company also recognized in operating income $49,511,000 of incremental expenses related to the Nikola gains, comprised of $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 the Company operates.   

 

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, 2021, the Company held investments in the following affiliated companies:  ArtiFlex Manufacturing, LLC (“ArtiFlex”) (50%), Clarkwestern Dietrich Building Systems LLC (“ClarkDietrich”) (25%), Serviacero Planos, S. de R. L. de C.V. (“Serviacero Worthington”) (50%), Taxi Workhorse Holdings, LLC (“Cabs”) (20%), and Worthington Armstrong Venture (“WAVE”) (50%).  

 

We received distributions from unconsolidated affiliates totaling $19,697,000 during the three months ended August 31, 2021.  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 sheet of $92,917,000 at August 31, 2021.  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 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)

2021

 

 

2021

 

Cash

$

19,289

 

 

$

11,651

 

Other current assets

 

977,260

 

 

 

733,834

 

Noncurrent assets

 

381,177

 

 

 

382,585

 

Total assets

$

1,377,726

 

 

$

1,128,070

 

 

 

 

 

 

 

 

 

Current liabilities

$

333,144

 

 

$

232,626

 

Short-term borrowings

 

7,007

 

 

 

1,155

 

Current maturities of long-term debt

 

68,485

 

 

 

30,209

 

Long-term debt

 

304,512

 

 

 

311,871

 

Other noncurrent liabilities

 

104,933

 

 

 

92,209

 

Equity

 

559,645

 

 

 

460,000

 

Total liabilities and equity

$

1,377,726

 

 

$

1,128,070

 

7


 

 

 

 

 

Three Months Ended

August 31,

 

(in thousands)

2021

 

 

2020

 

Net sales

$

744,995

 

 

$

405,320

 

Gross margin

 

189,674

 

 

 

93,049

 

Operating income

 

145,988

 

 

 

57,953

 

Depreciation and amortization

 

3,215

 

 

 

7,730

 

Interest expense

 

2,461

 

 

 

2,945

 

Income tax expense

 

7,896

 

 

 

1,730

 

Net earnings

 

138,888

 

 

 

56,573

 

 

NOTE E – Goodwill and Long-Lived Assets

Goodwill

The following table summarizes the changes in the carrying amount of goodwill by segment and in total:

 

(in thousands)

 

Steel Processing

 

 

Consumer Products (1)

 

 

Building Products (1)

 

 

Sustainable Energy Solutions (1)

 

 

Total

 

Balance at May 31, 2021

 

$

20,218

 

 

$

240,940

 

 

$

72,273

 

 

$

17,625

 

 

$

351,056

 

Acquisitions and purchase accounting adjustments

 

 

26,669

 

 

 

237

 

 

 

-

 

 

 

-

 

 

 

26,906

 

Translation adjustments

 

 

-

 

 

 

 

 

 

 

(1,915

)

 

 

(851

)

 

 

(2,766

)

Balance at August 31, 2021

 

$

46,887

 

 

$

241,177

 

 

$

70,358

 

 

$

16,774

 

 

$

375,196

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) In connection with the realignment of the Company's pressure cylinders business, as discussed further in Note O - Segment Operations, the goodwill of our former Pressure Cylinders reporting unit was allocated to the new reporting units on a relative fair value basis.

 

There was no goodwill associated with the Other segment at August 31, 2021, or May 31, 2021.  We have recognized accumulated goodwill impairment charges within the Other segment totaling $198,290,000 as of August 31, 2021.

 

Impairment of Long-Lived Assets

Fiscal 2022: None.

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.  

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.

8


 

 

NOTE F – Restructuring and Other Income, Net

We consider restructuring activities to be programs whereby we fundamentally change our operations, such as closing and consolidating manufacturing facilities or moving manufacturing of a product to another location.  Restructuring activities may also involve substantial realignment of the management structure of a business unit in response to changing market conditions.

A progression of the liabilities associated with our restructuring activities, combined with a reconciliation to the restructuring and other income, net financial statement caption, in our consolidated statement of earnings for the three months ended August 31, 2021 is summarized below:

 

 

 

Balance, as of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, as of

 

(in thousands)

 

May 31, 2021

 

 

Expense

 

 

Payments

 

 

Adjustments

 

 

August 31, 2021

 

Early retirement and severance

 

$

771

 

 

$

5

 

 

$

(201

)

 

$

-

 

 

$

575

 

Facility exit and other costs

 

 

449

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

449

 

 

 

$

1,220

 

 

$

5

 

 

$

(201

)

 

$

-

 

 

$

1,024

 

Net gain on sale of assets

 

 

 

 

 

 

(12,279

)

 

 

 

 

 

 

 

 

 

 

 

 

Restructuring and other income, net

 

 

 

 

 

$

(12,274

)

 

 

 

 

 

 

 

 

 

 

 

 

 

The net gain on sale of assets during the three months ended August 31, 2021, related primarily to the sale of our WSP joint venture’s facility in Canton, Michigan.

 

The total liability associated with our restructuring activities as of August 31, 2021 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 former Structural Composites Industries, LLC subsidiary (“SCI”) agreed to participate in a tank replacement program for specific design sizes of SCI’s 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, 2021, the Company has a reserve of $4,864,000 for the estimated remaining direct costs related to the replacement program, which are expected to be paid in the next twelve months.  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 $17,350,000 of outstanding stand-by letters of credit issued to third-party service providers at August 31, 2021.  No amounts were drawn against them at August 31, 2021.  We are also party to an operating lease for an aircraft in which we have guaranteed a residual value at the termination of the lease.  The maximum obligation under the terms of this guarantee was approximately $19,217,000 at August 31, 2021.

 

9


 

 

 

NOTE I – Debt

We maintain a $500,000,000 multi-year revolving credit facility (the “Credit Facility”) with a group of lenders.  On August 20, 2021, the Company amended and restated the Credit Facility, extending the final maturity from February 16, 2023 to August 20, 2026 while keeping in place the $500,000,000 aggregate commitments under the Credit Facility. 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 Daily LIBOR Rate, the Prime Rate of PNC Bank, National Association or the Overnight Bank Funding Rate.  The Credit Facility contains customary LIBOR benchmark replacement language.  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, 2021.

NOTE J – Other Comprehensive (Loss) Income

The following table summarizes the tax effects on each component of OCI for the periods presented:

 

 

Three Months Ended

 

 

August 31, 2021

 

 

August 31, 2020

 

 

Before-Tax

 

 

Tax

 

 

Net-of-Tax

 

 

Before-Tax

 

 

Tax

 

 

Net-of-Tax

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation

$

(3,617

)

 

 

(358

)

 

$

(3,975

)

 

$

7,608

 

 

 

700

 

 

$

8,308

 

Pension liability adjustment

 

-

 

 

 

-

 

 

 

-

 

 

 

488

 

 

 

(116

)

 

 

372

 

Cash flow hedges

 

(199

)

 

 

(100

)

 

 

(299

)

 

 

3,253

 

 

 

(691

)

 

 

2,562

 

Other comprehensive (loss) income

$

(3,816

)

 

$

(458

)

 

$

(4,274

)

 

$

11,349

 

 

$

(107

)

 

$

11,242

 

 

 

NOTE K – Changes in Equity

The following tables summarize the changes in equity by component and in total for the periods presented:

 

 

 

Controlling Interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Comprehensive

 

 

 

 

 

 

 

 

 

 

Non-

 

 

 

 

 

 

 

Paid-in

 

 

Income,

 

 

Retained

 

 

 

 

 

 

controlling

 

 

 

 

 

(in thousands)

 

Capital