WORTHINGTON ENTERPRISES, INC. Selected statements contained in this "Item 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations" constitute "forward-looking statements" as that term is used in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based, in whole or in part, on management's beliefs, estimates, assumptions and currently available information. For a more detailed discussion of what constitutes a forward-looking statement and of some of the factors that could cause actual results to differ materially from such forward-looking statements, please refer to the "Safe Harbor Statement" in the beginning of this Quarterly Report on Form 10-Q (this "Form 10-Q") and "Part I - Item 1A. - Risk Factors" of the Annual Report on Form 10-K for the fiscal year endedMay 31, 2021 ("fiscal 2021") ofWorthington Industries, Inc. (the "Form 10-K"). Unless otherwise indicated, all Note references contained in this Part I - Item 2. refer to the Condensed Notes to Consolidated Financial Statements included in "Part I - Item 1. - Financial Statements" of this Form 10-Q.
Introduction
The following discussion and analysis of market and industry trends, business developments, and the results of operations and financial position ofWorthington Industries, Inc. , together with its subsidiaries (collectively, "we," "our," "Worthington," or the "Company"), should be read in conjunction with our consolidated financial statements and notes thereto included in "Part I - Item 1. - Financial Statements" of this Quarterly Report on Form 10-Q. The Form 10-K includes additional information about Worthington, our operations and our consolidated financial position and should be read in conjunction with this Form 10-Q. Our operations are managed principally on a products and services basis. Segment information is prepared on the same basis that our management reviews financial information for operational decision-making purposes. Factors used to identify reportable operating segments include the nature of the products and services provided by each business, the management reporting structure, the similarity of economic characteristics and certain quantitative measures, as prescribed by authoritative accounting guidance. EffectiveJune 1, 2021 , we reorganized the management structure of our Pressure Cylinders business to better align around the end markets which it served. As a result, these operations have been redefined under three new reportable operating segments: Consumer Products, Building Products and Sustainable Energy Solutions. These new reportable segments are in addition to our Steel Processing operating segment. Concurrent with the change in reportable operating segments, we revised our prior period financial information to reflect comparable information for the new segment structure. A discussion of each of these new reportable operating segments is included below: 23 --------------------------------------------------------------------------------
Reportable
Segments Description
Consumer The Consumer Products reportable segment is comprised of brands
Products that offer market-leading products in the tools, outdoor living
and celebrations end markets with brands that include Coleman®,
Bernzomatic®, Balloon Time®, Mag Torch®, General®,
Garden-Weasel®, Pactool International®, Hawkeye™ and
Worthington Pro-Grade™. This market sector includes
propane-filled cylinders for torches, camping stoves and other
applications, certain propane gas (LPG) cylinders, hand-held
torches, Balloon Time® helium-filled balloon kits, and
specialized hand tools and instruments. These products are sold
primarily to mass merchandisers, retailers and distributors.
LPG cylinders, which hold fuel for barbeque grills and
recreational vehicle equipment, are also sold through cylinder
exchangers.
Building The Building Products reportable segment includes refrigerant
Products and LPG cylinders, well water and expansion tanks, and other
specialty products. Cylinders in this market sector are
generally sold to gas producers, and distributors. Refrigerant
gas cylinders are used to hold refrigerant gases for
commercial, residential, and automotive air conditioning and
refrigeration systems. LPG cylinders hold fuel for residential
and light commercial heating systems, industrial forklifts and
commercial/residential cooking (the latter, generally outside
North America ).Well water tanks and expansion tanks are used in
the residential market with the latter also sold into
commercial markets. Specialty products include a variety of
fire suppression and chemical tanks.
Sustainable The Sustainable Energy Solutions reportable segment, which is
Energy Solutions primarily based in Europe , includes on-board fueling systems
and services, as well as gas containment solutions and services
for storage, transport and distribution of industrial gases. It
includes high pressure and acetylene cylinders for life support
cylinders and alternative fuel cylinders used to hold
compressed natural gas (CNG) and hydrogen for automobiles,
buses, and light-duty trucks.
Other Divested businesses historically reported within Pressure
Cylinders but no longer included in the Company's management
structure are presented within the "Other" category, on a
historical basis, through the date of disposal. For the periods
presented, these include the following: Structural Composites
Industries, LLC (until March 2021 ); Oil & Gas Equipment (until
January 2021 ); and Cryogenic Storage and Cryo-Science (until
October 2020 ). The Other category also includes the results of
our former Engineered Cabs operating segment, on a historical
basis, through the date of disposition (November 1, 2019 ) as
well as certain income and expense items not allocated to our
operating segments.
As of November 30, 2021 , we held equity positions in nine joint ventures. Four
of these joint ventures are consolidated within the Steel Processing segment
with the equity owned by the other joint venture member(s) shown as
noncontrolling interests in our consolidated balance sheets, and their portions
of net earnings and other comprehensive income 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. The remaining five of our joint
ventures are accounted for using the equity method.
Recent Business Developments
• On
Industries
for approximately
acquisition included three facilities that will expand the capacity and
capabilities of TWB's laser welded products business and an additional
blanking facility that will support the Company's core steel processing
operations.
• On
remaining assets of its
million, resulting in a pre-tax gain of
and other (income) expense, net. WSP continues to operate locations in
Jackson and Taylor, Michigan .
• On August 20, 2021 , the Company amended and restated its existing
multi-year, revolving credit facility, extending the final maturity to
restated revolving credit facility remain at $500 million .
• On
capital stock of
precision motor and transformer laminations for the electrical steel
market. The purchase price consisted of cash consideration of approximately
$275 million , after adjustments for estimated excess working capital and closing cash, plus the assumption of certain long-term liabilities. The purchase price is subject to post-closing 24
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adjustments and was funded primarily with existing cash and some borrowing
from our lines of credit.
Company's Steel Processing business segment, employs approximately 1,500
people and is headquartered in
manufacturing locations in
India andMonterrey, Mexico .
• During the first six months of fiscal 2022, the Company repurchased a total
of 1,235,000 of its common shares for
price of $59.57 .
• On
(the "Worthington Industries Board") declared a quarterly dividend of
per share payable on
2022.
Market & Industry Overview
We sell our products and services to a diverse customer base and a broad range
of end markets. The breakdown of net sales by end market for the second quarter
of each of fiscal 2022 and fiscal 2021 is illustrated in the following chart:
[[Image Removed]]
The automotive industry is one of the largest consumers of flat-rolled steel,
and thus the largest end market for our Steel Processing operating
segment. Approximately 52% of Steel Processing's net sales are to the automotive
market. North American vehicle production, primarily by Ford, General Motors and
Stellantis (the "Detroit Three automakers"), has a considerable impact on the
activity within this operating segment. The majority of the net sales of two of
our unconsolidated joint ventures, Serviacero Worthington and ArtiFlex , are also
to the automotive market.
Approximately 22% of the net sales of our Steel Processing operating segment are
to the construction market. The construction market is also the predominant end
market for two of our unconsolidated joint ventures: WAVE and
ClarkDietrich. While the market price of steel significantly impacts these
businesses, there are other key indicators that are meaningful in analyzing
construction market demand, including U.S. gross domestic product ("GDP"), the
Dodge Index of construction contracts and, in the case of ClarkDietrich, trends
in the relative price of framing lumber and steel.
Substantially all of the net sales of our Consumer Products, Building Products,
and Sustainable Energy Solutions operating segments, and approximately 26% of
the net sales of our Steel Processing operating segment, are to other markets
such as agricultural, appliance, consumer products, heavy truck, industrial
products, lawn and garden, and sustainable energy. Given the many different
products that make up these net sales and the wide variety of end markets, it is
very difficult to detail the key market indicators that drive these portions of
our business. However, we believe that the trend in U.S. GDP growth is a good
economic indicator for analyzing the demand of these end markets.
25
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We use the following information to monitor our costs and demand in our major
end markets:
Three Months Ended Six Months Ended
November 30, November 30,
2021 2020 Inc / (Dec) 2021 2020 Inc / (Dec)U.S. GDP (% growth (decline) year-over-year) 1 7.2 % (3.0 %) 10.2 % 7.7 % (3.4 %) 11.1 % Hot-Rolled Steel ($ per ton) 2$ 1,888 $ 625 $ 1,263 $ 1,825 $ 550 $ 1,275 Detroit Three Auto Build (000's vehicles) 3 1,481 1,868 (387 ) 2,856 3,718 (862 ) No. America Auto Build (000's vehicles) 3 3,170 4,076 (906 ) 6,413 7,834 (1,421 ) Zinc ($ per pound) 4$ 1.46 $ 1.11 $ 0.35 $ 1.41 $ 1.03 $ 0.38 Natural Gas ($ per mcf) 5$ 5.26 $ 2.64 $ 2.62 $ 4.47 $ 2.28 $ 2.19 On-Highway Diesel Fuel Prices ($ per gallon) 6$ 3.57 $ 2.41 $ 1.16 $ 3.45 $ 2.42 $ 1.03
1 2020 figures based on revised actuals 2CRU Hot-Rolled Index; period average
3IHS Global 4LME Zinc; period average 5NYMEX
average 6Energy
U.S. GDP growth rate trends are generally indicative of the strength in demand and, in many cases, pricing for our products. A year-over-year increase inU.S. GDP growth rates is indicative of a stronger economy, which generally increases demand and pricing for our products. Conversely, decreasingU.S. GDP growth rates generally indicate a weaker economy. Changes inU.S. GDP growth rates can also signal changes in conversion costs related to production and in selling, general and administrative expense. The market price of hot-rolled steel is one of the most significant factors impacting our selling prices and operating results. When steel prices fall, we typically have higher-priced material flowing through cost of goods sold, while selling prices compress to what the market will bear, negatively impacting our results. On the other hand, in a rising price environment, our results are generally favorably impacted, as lower-priced material purchased in previous periods flows through cost of goods sold, while our selling prices increase at a faster pace to cover current replacement costs. Based on the recent decline in steel prices, we expect to have meaningful inventory holding losses in the third quarter of fiscal 2022. The following table presents the average quarterly market price per ton of hot-rolled steel during fiscal 2022 (first and second quarters), fiscal 2021 and fiscal 2020: Fiscal Year (Dollars per ton 1 ) 2022 2021 2020 1st Quarter$ 1,762 $ 475 $ 564 2nd Quarter$ 1,888 $ 625 $ 526 3rd Quarter N/A$ 1,016 $ 571 4th Quarter N/A$ 1,358 $ 527 Annual Avg.$ 1,825 $ 869 $ 547 1 CRU Hot-Rolled Index; period average Sales to one Steel Processing customer in the automotive industry represented 15.6% and 13.8% of consolidated net sales during the second quarter of fiscal 2022 and fiscal 2021, respectively. While our automotive business is largely driven by the production schedules of the Detroit Three automakers, our customer base is much broader and includes other domestic manufacturers and many of their suppliers. During the second quarter of fiscal 2022, vehicle production for the Detroit Three automakers was down 21% from the first quarter of fiscal 2021, while North American vehicle production as a whole was down 22%. Certain other commodities, such as zinc, natural gas and diesel fuel, represent a significant portion of our cost of goods sold, both directly through our plant operations and indirectly through transportation and freight expense. 26 --------------------------------------------------------------------------------
Results of Operations
Second Quarter - Fiscal 2022 Compared to Fiscal 2021
The following discussion provides a review of results for the three months endedNovember 30, 2021 and 2020. Three Months Ended November 30, Increase/ (Dollars in millions) 2021 2020 (Decrease) Net sales$ 1,232.8 $ 731.1 $ 501.7 Operating income 90.5 37.4 53.1 Equity income 60.2 25.6 34.6 Net earnings (loss) attributable to controlling interest 110.3 (74.0 ) 184.3 Earnings (loss) per diluted share attributable to controlling interest 2.15 (1.40 ) 3.55 Net Sales and Volume
The following table provides the percentage of net sales by reportable operating
segment for the three months ended
Three Months Ended
November 30,
% of % of Increase/
(In millions) 2021 Net sales 2020 Net sales (Decrease)
Steel Processing $ 937.8 76.1 % $ 468.7 64.1 % $ 469.1
Consumer Products 140.8 11.4 % 117.5 16.1 % 23.3
Building Products 121.1 9.8 % 94.0 12.9 % 27.1
Sustainable Energy Solutions 33.1 2.7 % 34.0 4.7 % (0.9 )
Other - 0.0 % 16.9 2.3 % (16.9 )
Consolidated Net Sales $ 1,232.8 100.0 % $ 731.1 100.0 % $ 501.7 The following table provides volume by reportable business segment for the three
months ended
Three Months Ended
November 30,
Increase/
2021 2020 (Decrease)
Steel Processing (Tons) 1,067,589 1,023,979 43,610
Consumer Products (Units) 18,698,589 16,657,815 2,040,774
Building Products (Units) 2,565,025 2,264,576 300,449Sustainable Energy Solutions (Units) 155,001 247,289 (92,288 ) Other (Units)
- 11,066 (11,066 )
• Steel Processing - Net sales almost doubled over the prior year quarter to
average selling prices and, to a lesser extent, contributions from the
acquisition of the Shiloh Industries
• Consumer Products - Net sales increased 19.8%, or
prior year quarter. The increase was driven primarily by the acquisition of
and to a lesser extent, higher average selling prices.
• Building Products - Net sales increased 28.8%, or
prior year quarter. The increase was driven by higher average selling prices
(
unfavorable shift in product mix. Volume in the prior year quarter was at
depressed levels due to the impact of the COVID-19 pandemic.
27
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• Sustainable Energy Solutions - Net sales decreased$0.9 million , or 2.7%,
from the prior year quarter. The decrease was driven by lower volume, which
was negatively impacted by the
Petroleum Gas ("LPG") business inPoland , as well as the ongoing semi-conductor chip shortage. Gross Margin Three Months Ended November 30, % of % of Increase/ (In millions) 2021 Net sales 2020 Net sales (Decrease) Gross Margin$ 184.6 15.0 %$ 135.5 18.5 %$ 49.1
• Gross margin increased
million. The improvement over the prior year quarter was primarily due to
improved spreads in Steel Processing and, to a lesser extent, higher overall
volume across all operating segments except Sustainable Energy Solutions.
Selling, General and Administrative Expense
Three Months Ended
November 30,
% of % of Increase/
(In millions) 2021 Net sales 2020 Net sales (Decrease)
Selling, general and administrative
expense $ 96.1 7.8 % $ 82.1 11.2 % $ 14.0 • SG&A expense increased
increase was driven primarily by higher profit sharing and bonus expense to
correspond with the increase in earnings over the prior year quarter.
Other Operating Costs
Three Months Ended
November 30,
Increase/
(In millions) 2021 2020 (Decrease)
Impairment of long-lived assets $ - $ 3.8 $ (3.8 )
Restructuring and other (income) expense, net (2.0 ) 7.6 (9.6 )
Incremental expenses related to Nikola gains - 4.6 (4.6 )
• There were no impairment charges recorded in the second quarter of fiscal2022. Impairment charges in the prior year quarter related primarily to the
Company's former cryogenics business in
October 2020 . • Restructuring activity during the three months endedNovember 30, 2021
related primarily to the Company's exit from the former Cabs facility
located in
restructuring and other (income) expense, net. Restructuring activity in the
prior year quarter primarily resulted from a
within the historical Pressure Cylinders segment on the sale of the former
cryogenics business previously operated out of Theodore, Alabama .
• Incremental expenses related to Nikola gains of $4.6 million in the prioryear quarter consisted of discretionary profit sharing and bonus expenses
related to the Company's investment in Nikola.
28
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Equity Income
Three Months Ended
November 30,
Increase/
(In millions) 2021 2020 (Decrease)
WAVE $ 22.4 $ 17.3 $ 5.1
ClarkDietrich 27.5 5.4 22.1
Serviacero Worthington 8.8 1.9 6.9
ArtiFlex 1.8 1.2 0.6
Other (0.3 ) (0.2 ) (0.1 )
Total Equity Income
• Equity income increased
million. The increase was driven by higher contributions from ClarkDietrich,
WAVE, and Serviacero Worthington, up a total of $34.1 million due to the
favorable actions taken by management to address higher steel prices
combined with strong volume. The Company received cash distributions of
$28.9 million from unconsolidated joint ventures during the current quarter.
Other Income
Three Months Ended
November 30,
Increase/
(In millions) 2021 2020 (Decrease)
Miscellaneous income, net $ 1.0 $ 0.4 $ 0.6 Gains (loss) on investment in Nikola - (143.8 ) 143.8
• During the prior year quarter, the Company recognized a pre-tax loss of
drop in the share price of Nikola common stock during the three months ended
November 30, 2020 . Adjusted EBIT We evaluate segment performance based on adjusted earnings before interest and taxes ("EBIT"). In general, adjusted EBIT excludes impairment and restructuring charges (gains), but may also exclude other items that management believes are not reflective of, and thus should not be included when evaluating, the performance of the Company's ongoing operations. Adjusted EBIT is a non-GAAP measure and is used by management to evaluate segment performance, engage in financial and operational planning and determine incentive compensation because we believe that this measure provides additional perspective and, in some circumstances is more closely correlated to, the performance of the Company's ongoing operations. Refer to "Note O - Segment Operations" for additional information regarding our reportable operating segments. 29
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The following table provides a reconciliation of consolidated net earnings
(loss) attributable to controlling interest to adjusted EBIT for the periods
presented:
Three Months Ended
November 30,
(In millions) 2021 2020
Net earnings (loss) attributable to controlling interest $ 110.3 $ (74.0 )
Interest expense 7.3 7.5
Income tax expense (benefit) 31.2 (19.4 )
Earnings (loss) before interest and taxes $ 148.8 $ (85.9 )
Impairment of long-lived assets - 3.8
Restructuring and other (income) expense, net (1) (1.9 )
7.4
Incremental expenses related to Nikola gains -
4.6
Loss on investment in Nikola -
143.8
Adjusted earnings before interest and taxes (1)
The following table provides a summary of adjusted EBIT by segment for the
periods presented.
Three Months Ended
November 30,
Increase/
(In millions) 2021 2020 (Decrease)
Steel Processing 71.9 34.4 37.5
Consumer Products 17.6 17.4 0.2
Building Products 54.7 26.0 28.7
Sustainable Energy Solutions 0.8 1.5 (0.7 )
Other 1.9 (5.6 ) 7.5
Total Adjusted EBIT $ 146.9 $ 73.7 73.2
• Steel Processing - Adjusted EBIT was up
quarter to
contribution of equity income from Serviacero Worthington, which was up
million due to the favorable impact of higher steel prices. Direct spreads
in the current quarter benefited from significant inventory holding gains,
estimated to be
inventory holding gains in the prior year quarter, partially offset by a
higher gap in the current quarter between the cost of steel and scrap
prices. The mix of direct versus toll tons processed was 47% to 53% in the
current quarter, compared to 48% to 52% in the prior year quarter.
• Consumer Products - Adjusted EBIT was up
quarter to
offset the impact of higher net sales.
• Building Products - Adjusted EBIT of
than the prior year quarter, due primarily to higher equity earnings at
ClarkDietrich and WAVE, up
impact of higher steel prices. Operating income was up
combined impact of higher volume and higher average selling prices,
partially offset by an increase in labor and material costs. Volume in the
prior year quarter had been at depressed levels due to the COVID-19
pandemic.
• Sustainable Energy Solutions - Adjusted EBIT was
volume and an unfavorable product mix. Both volume and mix in the current
quarter were negatively impacted by the effect the ongoing semi-conductor
chip shortage had on this segment's customers in the transportation
business. Volume in the current quarter was also negatively impacted by the
May 31, 2021 , divestiture of theLiquified Petroleum Gas business inPoland . This business continues to evolve as it transitions to serve the global hydrogen ecosystem and adjacent sustainable energies. 30
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Interest Expense
Three Months Ended
November 30,
Increase/
(In millions) 2021 2020 (Decrease)
Interest Expense $ 7.3 $ 7.5 $ (0.2 ) • Interest expense of
compared to $7.5 million in the prior year quarter, primarily due to
favorable exchange rates on our euro-denominated debt.
Income Taxes
Three Months Ended
November 30,
Effective Tax Effective Tax Increase/
(In millions) 2021 Rate 2020 Rate (Decrease)
Income tax expense (benefit) $ 31.2 22.8 % $ (19.4 ) 21.5 % $ 50.6 • Income tax expense was
income tax benefit of
was driven by higher pre-tax earnings in the current quarter and the impact
of the unrealized mark-to-market loss related to the Company's investment in
Nikola in the prior year quarter. Tax expense in the current quarter
reflected an estimated annual effective rate of 22.8% compared to 21.5% for
the prior year quarter. For additional information regarding the Company's
income taxes, refer to "NOTE M - Income Taxes".
Six Months Year-to-date - Fiscal 2022 Compared to Fiscal 2021
The following discussion provides a review of results for the six months endedNovember 30, 2021 and 2020. Six Months Ended November 30, Increase/ (Dollars in millions) 2021 2020 (Decrease) Net sales$ 2,343.7 $ 1,434.0 $ 909.7 Operating income 226.3 7.3 219.0 Equity income 113.1 49.2 63.9 Net earnings attributable to controlling interest 242.8 542.7 (299.9 ) Earnings per diluted share attributable to controlling interest 4.71 9.97 (5.26 ) Net Sales and Volume
The following table provides the percentage of net sales by reportable operating
segment for the six months ended
Six Months Ended
November 30,
% of % of Increase/
(In millions) 2021 Net sales 2020 Net sales (Decrease)
Steel Processing $ 1,760.7 75.1 % $ 899.7 62.7 % $ 861.0
Consumer Products 288.6 12.3 % 251.1 17.5 % 37.5
Building Products 235.9 10.1 % 182.1 12.7 % 53.8
Sustainable Energy Solutions 58.6 2.5 % 61.9 4.3 % (3.3 )
Other - 0.0 % 39.2 2.7 % (39.2 )
Consolidated Net Sales $ 2,343.8 100.0 % $ 1,434.0 100.0 % $ 909.8
31
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The following table provides volume by reportable business segment for the six
months ended
Six Months Ended
November 30,
Increase/
2021 2020 (Decrease)
Steel Processing (Tons) 2,129,877 1,952,423 177,454
Consumer Products (Units) 40,086,729 35,478,377 4,608,352
Building Products (Units) 5,450,736 4,986,611 464,125
Sustainable Energy Solutions (Units) 285,677 437,197 (151,520 )
Other (Units) - 21,626 (21,626 )
• Steel Processing - Net sales almost doubled over the prior year period to
and contributions from the acquisition of the Shiloh Industries U.S.
BlankLight® business on June 8, 2021 .
• Consumer Products - Net sales increased 14.9%, or
prior year period. The increase was driven primarily by higher volume due,
in large part, to the acquisition of
in the third quarter of fiscal 2021.
• Building Products - Net sales increased 29.5%, or
prior year period. The increase was driven by higher average selling prices
(
were at depressed levels in the prior year period due to the COVID-19
pandemic.
• Sustainable Energy Solutions - Net sales decreased
from the prior year period. The decrease was driven primarily by lower
volume, which was negatively impacted by the
LPG business in Poland as well as the ongoing semi-conductor chip shortage.
Gross Margin
Six Months Ended
November 30,
% of % of Increase/
(In millions) 2021 Net sales 2020 Net sales (Decrease)
Gross Margin $ 404.0 17.2 % $ 248.8 17.4 % $ 155.2 • Gross margin increased
million. The improvement over the prior year period was primarily due to
improved spreads in Steel Processing and, to a lesser extent, higher overall
volume across all operating segments except Sustainable Energy Solutions.
Selling, General and Administrative Expense
Six Months Ended
November 30,
% of % of Increase/
(In millions) 2021 Net sales 2020 Net sales (Decrease)
Selling, general and administrative
expense $ 192.0 8.2 % $ 164.3 11.5 % $ 27.7 • SG&A expense increased
increase was driven primarily by higher profit sharing and bonus expense to
correspond with the increase in operating income over the prior year period.
32
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Other Operating Costs
Six Months Ended
November 30,
Increase/
(In millions) 2021 2020 (Decrease)
Impairment of long-lived assets $ - $ 13.7 $ (13.7 )
Restructuring and other (income) expense, net (14.3 ) 9.4 (23.7 )
Incremental expenses related to Nikola gains - 54.1 (54.1 )
• There were no impairment charges recorded during the current period.
Impairment charges in the prior year period related primarily to the
write-down of certain assets in the Company's former cryogenics and oil and
gas businesses.
• Restructuring activity during the six months ended November 30, 2021 ,related primarily to the divestiture of the WSP joint venture's facilities
in
restructuring and other (income) expense, net and our exit from the former
Cabs facility located in
million within restructuring and other (income) expense, net. Restructuring
activity in the prior year period primarily resulted from a
pre-tax loss within the historical Pressure Cylinders segment on the sale of
the former cryogenics business previously operated out of
and severance expense in connection with the reduction in workforce in Steel
Processing related to the impact of COVID-19.
• Incremental expenses related to Nikola gains of
related to the Nikola gains and $20.6 million for the contribution of
500,000 shares of Nikola common stock to the Worthington Industries
Foundation .
Equity Income
Six Months Ended
November 30,
Increase/
(In millions) 2021 2020 (Decrease)
WAVE $ 48.1 $ 35.0 $ 13.1
ClarkDietrich 44.8 10.3 34.5
Serviacero Worthington 18.1 3.2 14.9
ArtiFlex 3.0 1.1 1.9
Other (0.9 ) (0.4 ) (0.5 )
Total Equity Income
• Equity income increased
million. The increase was driven by higher contributions from ClarkDietrich,
WAVE, and Serviacero Worthington, up a combined
volume and the favorable impact of higher steel prices. The Company received
cash distributions of
during the current year period.
Other Income
Six Months Ended
November 30 ,
Increase/
(In millions) 2021 2020 (Decrease)
Miscellaneous income, net
• Gains on investment in Nikola totaled
million of realized gains from the sale and charitable contribution of the
Company's Nikola shares in the first quarter of fiscal 2021 combined with a
$143.8 million 33
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unrealized gain related to the 7,048,020 shares of Nikola common stock the
Company continued to own at November 30, 2020 .
Adjusted EBIT
The following table provides a reconciliation of consolidated net earnings
(loss) attributable to controlling interest to adjusted EBIT for the periods
presented:
Six Months Ended
November 30,
(In millions) 2021 2020
Net earnings attributable to controlling interest
15.0 15.1
Income tax expense 71.4 144.3
Earnings before interest and taxes $ 329.2 $ 702.0
Impairment of long-lived assets - 13.7
Restructuring and other (income) expense, net (1) (8.3 ) 9.3 Incremental expenses related to Nikola gains
- 54.1
Gains on investment in Nikola - (652.4 )
Adjusted earnings before interest and taxes (1)
The following table provides a summary of adjusted EBIT by segment for the
periods presented.
Six Months Ended
November 30,
Increase/
(In millions) 2021 2020 (Decrease)
Steel Processing $ 179.6 $ 48.6 $ 131.0
Consumer Products 38.1 41.3 (3.2 )
Building Products 103.5 49.3 54.2
Sustainable Energy Solutions (1.8 ) 1.0 (2.8 )
Other 1.5 (13.5 ) 15.0
Total Adjusted EBIT $ 320.9 $ 126.7 194.2
• Steel Processing - Adjusted EBIT was up
period to
contribution of equity income from Serviacero Worthington, which was up
spreads in the current year period benefited from significant inventory
holding gains, estimated to be
losses in the prior year period of
higher gap in the current year period between the cost of steel and scrap
prices. The mix of direct versus toll tons processed was 48% to 52% in the
current year period, compared to 49% to 51% in the prior year period.
• Consumer Products - Adjusted EBIT was down
period to
offset the impact of higher net sales.
• Building Products - Adjusted EBIT of
than the prior year period, due primarily to higher equity earnings at
ClarkDietrich and WAVE, up
impact of higher steel prices. Operating income was up
combined impact of higher volume and higher average selling prices,
partially offset by an increase in labor and material costs. Volume in the
prior year period had been at depressed levels due to the COVID-19 pandemic.
• Sustainable Energy Solutions - Adjusted EBIT reflected a loss of$1.8
million, unfavorable by
on the combined impact of lower volume, and an unfavorable product mix. Both
volume and mix in the current period were negatively impacted by the ongoing
semi-conductor chip shortage. Volume in the current period was also
negatively impacted by the
Poland . 34
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Interest Expense
Six Months Ended
November 30,
Increase/
(In millions) 2021 2020 (Decrease)
Interest Expense $ 15.0 $ 15.1 $ (0.1 ) • Interest expense of
slightly, compared to
to favorable exchange rates on our euro-denominated debt.
Income Taxes
Six Months Ended
November 30,
Effective Tax Effective Tax Increase/
(In millions) 2021 Rate 2020 Rate (Decrease)
Income tax expense $ 71.4 22.8 % $ 144.3 21.5 % $ (72.9 ) • Income tax expense decreased
prior year due to the impact of the Nikola gains and associated expenses in
the prior year period, partially offset by higher pre-tax earnings in the
current year period. The current year period tax expense reflected an
estimated annual effective income tax rate of 22.8% versus 21.5% in theprior year period. For additional information regarding the Company's income
taxes, refer to "NOTE M - Income Taxes".
Liquidity and Capital Resources
During the six months endedNovember 30, 2021 we invested$48.2 million in property, plant and equipment and paid$104.8 million to acquire certain assets of the Shiloh IndustriesU.S BlankLight ® business. Additionally,Worthington Industries, Inc. acquired 1,235,000 of its common shares at a cost of$73.6 million and paid dividends of$29.3 million onWorthington Industries, Inc.'s common shares. The following table summarizes our consolidated cash flows for the periods presented: Six Months Ended November 30, (in millions) 2021 2020
Net cash (used) provided by operating activities
(122.1 ) (119.3 )
(Decrease) increase in cash and cash equivalents (415.1 ) 565.9
Cash and cash equivalents at beginning of period 640.3 147.2
Cash and cash equivalents at end of period
As disclosed previously in "NOTE S - Subsequent Events", the Company closed its acquisition ofTempel Steel Company onDecember 1, 2021 , for approximately$275 million , which was funded primarily with existing cash and some borrowing from our lines of credit. Following the acquisition, we continue to believe that the available borrowing capacity of our committed lines of credit is sufficient to meet the needs of our existing businesses for normal operating costs, mandatory capital expenditures, debt redemptions, dividend payments, and working capital, to the extent not funded by cash provided by operating activities. Although we do not currently anticipate a need, we also believe that we could access the financial markets to be in a position to sell long-term debt or equity securities to strengthen our liquidity or capital resources. However, the COVID-19 pandemic, supply chain issues, labor shortages and other national and global economic conditions, could create uncertainty and volatility in the financial markets which may impact our ability to obtain such additional capital on terms acceptable to us, if at all, and such debt financing or additional equity could increase our interest cost and/or dilute the interests of our existing shareholders. 35
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Operating Activities Our business is cyclical and cash flows from operating activities may fluctuate during the year and from year to year due to economic and industry conditions. We rely on cash and short-term borrowings to meet cyclical increases in working capital needs. These needs generally rise during periods of increased economic activity or increasing raw material prices, requiring higher levels of inventory and accounts receivable. During economic slowdowns, or periods of decreasing raw material costs, working capital needs generally decrease as a result of the reduction of inventories and accounts receivable. Net cash used by operating activities was$168.9 million during the six months endedNovember 30, 2021 , a decrease of$393.7 million from the net cash provided by operating activities in the prior year period. This decrease was primarily due to a$490.4 million increase in operating working capital (accounts receivable, inventory, and accounts payable) requirements over the prior year-to-date period, mainly driven by higher steel prices.
Investing Activities
Net cash used by investing activities was$124.1 million during the six months endedNovember 30, 2021 compared to net cash provided by investing activities of$460.4 million in the prior year period. Net cash provided by investing activities in the prior year period resulted primarily from proceeds from the sale of Nikola shares which totaled$487.9 million . Net cash used by investing activities in the current year period resulted primarily from the purchase of the Shiloh IndustriesU.S BlankLight ® business onJune 8, 2021 , for$104.8 million . Capital expenditures in the current year period totaled$48.2 million , a decrease of$0.7 million from the prior year period. Investment activities are largely discretionary, and future investment activities could be reduced significantly, or eliminated, as economic conditions warrant. We assess acquisition opportunities as they arise, and such opportunities may require additional financing. There can be no assurance, however, that any such opportunities will arise, that any such acquisition opportunities will be consummated, or that any needed additional financing will be available on satisfactory terms if required.
Financing Activities
Net cash used by financing activities was$122.1 million during the six months endedNovember 30, 2021 compared to$119.3 million in the prior year period. During the six months endedNovember 30, 2021 ,Worthington Industries, Inc. paid$73.6 million to repurchase 1,235,000 ofWorthington Industries, Inc.'s common shares and paid dividends of$29.3 million onWorthington Industries, Inc.'s common shares. During the six months endedNovember 30, 2020 , we paid$92.9 million to repurchase 2,318,464 ofWorthington Industries, Inc.'s common shares and paid dividends of$26.8 million onWorthington Industries, Inc.'s common shares. Long-term debt and short-term borrowings - As ofNovember 30, 2021 , we were in compliance with our short-term and long-term financial debt covenants. Our debt agreements do not include credit rating triggers or material adverse change provisions. Our credit ratings atNovember 30, 2021 were unchanged from those reported as ofMay 31, 2021 . Common shares - OnSeptember 29, 2021 , theWorthington Industries, Inc. Board of Directors (the "Worthington Industries Board") declared a quarterly dividend of$0.28 per common share payable onDecember 29, 2021 , to shareholders of record onDecember 15, 2021 . This represented a$0.03 per common share increase over the dividend paid in the prior year quarter. OnDecember 16, 2021 , the Worthington Industries Board declared a quarterly dividend for the third quarter of fiscal 2022 of$0.28 per share payable onMarch 29, 2022 , to shareholders of record onMarch 15, 2022 . OnMarch 20, 2019 , the Worthington Industries Board authorized the repurchase of up to 6,600,000 ofWorthington Industries, Inc.'s outstanding common shares. These common shares may be repurchased from time to time with consideration given to the market price of the common shares, the nature of other investment opportunities, cash flows from operations, general economic conditions and other relevant considerations. Repurchases may be made on the open market or through privately negotiated transactions. OnMarch 24, 2021 , the Worthington Industries Board authorized the repurchase of up to an additional 5,618,464 ofWorthington Industries, Inc.'s common shares, increasing the total number of common shares then authorized for repurchase to 10,000,000. As ofNovember 30, 2021 , 8,065,000 common shares remained available for repurchase under these authorizations. 36
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Dividend Policy We currently have no material contractual or regulatory restrictions on the payment of dividends. Dividends are declared at the discretion of the Worthington Industries Board. The Worthington Industries Board reviews the dividend quarterly and establishes the dividend rate based upon our consolidated financial condition, results of operations, capital requirements, current and projected cash flows, business prospects, and other relevant factors. While we have paid a dividend every quarter since becoming a public company in 1968, there is no guarantee that payments will continue in the future.
Contractual Cash Obligations and Other Commercial Commitments
Our contractual cash obligations and other commercial commitments have not materially changed from those disclosed in "Part II - Item 7. - Management's Discussion and Analysis of Financial Condition and Results of Operations - Contractual Cash Obligations and Other Commercial Commitments" of the Form 10-K.
Off-Balance Sheet Arrangements
We do not have guarantees or other off-balance sheet financing arrangements 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. Critical Accounting Policies The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance withU.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. We continually evaluate our estimates, including those related to our valuation of receivables, inventories, intangible assets, accrued liabilities, income and other tax accruals, contingencies and litigation, and business combinations. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. These results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Critical accounting policies are defined as those that reflect our significant judgments and uncertainties that could potentially result in materially different results under different assumptions and conditions. Although actual results historically have not deviated significantly from those determined using our estimates, our consolidated financial position or results of operations could be materially different if we were to report under different conditions or to use different assumptions in the application of such policies. Our critical accounting policies have not significantly changed from those discussed in "Part II - Item 7. - Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies" of the Form 10-K.
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