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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 February 29, 2020

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

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  

On March 31, 2020, the number of Common Shares, without par value, issued and outstanding was 55,547,291.

 

 

 


TABLE OF CONTENTS

 

Safe Harbor Statement

 

ii

 

 

 

Part I.  Financial Information

 

 

 

 

 

 

 

 

Item 1.

Financial Statements (Unaudited)

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheets –February 29, 2020 and May 31, 2019

 

1

 

 

 

 

 

 

 

Consolidated Statements of Earnings –Three and Nine Months Ended February 29, 2020 and February 28, 2019

 

2

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income –Three and Nine Months Ended February 29, 2020 and February 28, 2019

 

3

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows –Three and Nine Months Ended February 29, 2020 and February 28, 2019

 

4

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements

 

5

 

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

28

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

42

 

 

 

 

 

 

Item 4.

Controls and Procedures

 

42

 

 

 

Part II.  Other Information

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

43

 

 

 

 

 

 

Item 1A.

Risk Factors

 

43

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

44

 

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities (Not applicable)

 

44

 

 

 

 

 

 

Item 4.

Mine Safety Disclosures (Not applicable)

 

44

 

 

 

 

 

 

Item 5.

Other Information (Not applicable)

 

44

 

 

 

 

 

 

Item 6.

Exhibits

 

45

 

 

 

Signatures

 

46

 

 

 

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 COVID-19 and the actions taken by governmental authorities and others related thereto, including the ability of the Company to continue operating facilities in connection therewith, to cut variable costs, or to eventually recall furloughed workers;

 

future or expected cash positions, liquidity or 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 or other actual or potential public health emergencies and actions taken by governmental authorities or others in connection therewith including risks, uncertainties and impacts related to the ability and costs to continue to operate facilities;

 

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 in connection 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;

 

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

ii

 


 

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 the Company 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 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, 2019 and in “PART II – Item 1A. – Risk Factors” of this Quarterly Report on Form 10-Q.

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)

 

 

February 29,

 

 

May 31,

 

 

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

103,430

 

 

$

92,363

 

Receivables, less allowances of $1,678 and $1,150 at February 29, 2020

 

 

 

 

 

 

 

and May 31, 2019, respectively

 

472,741

 

 

 

501,944

 

Inventories:

 

 

 

 

 

 

 

Raw materials

 

177,400

 

 

 

268,607

 

Work in process

 

91,585

 

 

 

113,848

 

Finished products

 

107,886

 

 

 

101,825

 

Total inventories

 

376,871

 

 

 

484,280

 

Income taxes receivable

 

11,152

 

 

 

10,894

 

Assets held for sale

 

14,032

 

 

 

6,924

 

Prepaid expenses and other current assets

 

74,974

 

 

 

69,508

 

Total current assets

 

1,053,200

 

 

 

1,165,913

 

Investments in unconsolidated affiliates

 

222,724

 

 

 

214,930

 

Operating lease assets

 

35,230

 

 

 

-

 

Goodwill

 

321,128

 

 

 

334,607

 

Other intangible assets, net of accumulated amortization of $89,763 and

 

 

 

 

 

 

 

$87,759 at February 29, 2020 and May 31, 2019, respectively

 

191,052

 

 

 

196,059

 

Other assets

 

33,479

 

 

 

20,623

 

Property, plant and equipment:

 

 

 

 

 

 

 

Land

 

24,212

 

 

 

23,996

 

Buildings and improvements

 

294,307

 

 

 

310,112

 

Machinery and equipment

 

1,057,947

 

 

 

1,049,068

 

Construction in progress

 

51,223

 

 

 

49,423

 

Total property, plant and equipment

 

1,427,689

 

 

 

1,432,599

 

Less: accumulated depreciation

 

855,419

 

 

 

853,935

 

Total property, plant and equipment, net

 

572,270

 

 

 

578,664

 

Total assets

$

2,429,083

 

 

$

2,510,796

 

 

 

 

 

 

 

 

 

Liabilities and equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

361,356

 

 

$

393,517

 

Accrued compensation, contributions to employee benefit plans and

 

 

 

 

 

 

 

related taxes

 

53,787

 

 

 

78,155

 

Dividends payable

 

14,427

 

 

 

14,431

 

Other accrued items

 

48,797

 

 

 

59,810

 

Current operating lease liabilities

 

10,757

 

 

 

-

 

Income taxes payable

 

423

 

 

 

1,164

 

Current maturities of long-term debt

 

296

 

 

 

150,943

 

Total current liabilities

 

489,843

 

 

 

698,020

 

Other liabilities

 

71,815

 

 

 

69,976

 

Distributions in excess of investment in unconsolidated affiliate

 

95,291

 

 

 

121,948

 

Long-term debt

 

698,552

 

 

 

598,356

 

Noncurrent operating lease liabilities

 

27,841

 

 

 

-

 

Deferred income taxes, net

 

73,548

 

 

 

74,102

 

Total liabilities

 

1,456,890

 

 

 

1,562,402

 

Shareholders' equity - controlling interest

 

821,495

 

 

 

831,246

 

Noncontrolling interests

 

150,698

 

 

 

117,148

 

Total equity

 

972,193

 

 

 

948,394

 

Total liabilities and equity

$

2,429,083

 

 

$

2,510,796

 

 

See notes to consolidated financial statements.

 

 

1


WORTHINGTON INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share amounts)

(Unaudited)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

February 29,

2020

 

 

February 28,

2019

 

 

February 29,

2020

 

 

February 28,

2019

 

Net sales

$

763,996

 

 

$

874,381

 

 

$

2,447,492

 

 

$

2,820,714

 

Cost of goods sold

 

648,451

 

 

 

784,360

 

 

 

2,094,045

 

 

 

2,466,762

 

Gross margin

 

115,545

 

 

 

90,021

 

 

 

353,447

 

 

 

353,952

 

Selling, general and administrative expense

 

80,928

 

 

 

75,220

 

 

 

260,294

 

 

 

250,529

 

Impairment of goodwill and long-lived assets

 

34,627

 

 

 

-

 

 

 

75,228

 

 

 

2,381

 

Restructuring and other expense (income), net

 

1,376

 

 

 

(11,176

)

 

 

1,781

 

 

 

(11,710

)

Operating income (loss)

 

(1,386

)

 

 

25,977

 

 

 

16,144

 

 

 

112,752

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Miscellaneous income, net

 

6,985

 

 

 

525

 

 

 

8,316

 

 

 

2,222

 

Interest expense

 

(7,362

)

 

 

(9,341

)

 

 

(24,157

)

 

 

(28,541

)

Loss on extinguishment of debt

 

-

 

 

 

-

 

 

 

(4,034

)

 

 

-

 

Equity in net income of unconsolidated affiliates

 

25,479

 

 

 

20,802

 

 

 

97,592

 

 

 

71,897

 

Earnings before income taxes

 

23,716

 

 

 

37,963

 

 

 

93,861

 

 

 

158,330

 

Income tax expense

 

4,828

 

 

 

8,415

 

 

 

20,506

 

 

 

34,032

 

Net earnings

 

18,888

 

 

 

29,548

 

 

 

73,355

 

 

 

124,298

 

Net earnings attributable to noncontrolling interests

 

3,577

 

 

 

2,775

 

 

 

10,734

 

 

 

8,581

 

Net earnings attributable to controlling interest

$

15,311

 

 

$

26,773

 

 

$

62,621

 

 

$

115,717

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average common shares outstanding

 

54,930

 

 

 

56,478

 

 

 

55,078

 

 

 

57,650

 

Earnings per share attributable to controlling interest

$

0.28

 

 

$

0.47

 

 

$

1.14

 

 

$

2.01

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average common shares outstanding

 

55,898

 

 

 

57,974

 

 

 

56,164

 

 

 

59,389

 

Earnings per share attributable to controlling interest

$

0.27

 

 

$

0.46

 

 

$

1.11

 

 

$

1.95

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common shares outstanding at end of period

 

54,598

 

 

 

56,181

 

 

 

54,598

 

 

 

56,181

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per share

$

0.24

 

 

$

0.23

 

 

$

0.72

 

 

$

0.69

 

 

See notes to consolidated financial statements.

 

 

2


WORTHINGTON INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

February 29,

2020

 

 

February 28,

2019

 

 

February 29,

2020

 

 

February 28,

2019

 

Net earnings

$

18,888

 

 

$

29,548

 

 

$

73,355

 

 

$

124,298

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation

 

(576

)

 

 

1,476

 

 

 

10,868

 

 

 

(8,857

)

Pension liability adjustment, net of tax

 

138

 

 

 

37

 

 

 

1,246

 

 

 

(60

)

Cash flow hedges, net of tax

 

2,159

 

 

 

(596

)

 

 

2,733

 

 

 

(7,228

)

Other comprehensive income (loss)

 

1,721

 

 

 

917

 

 

 

14,847

 

 

 

(16,145

)

Comprehensive income

 

20,609

 

 

 

30,465

 

 

 

88,202

 

 

 

108,153

 

Comprehensive income attributable to noncontrolling interests

 

3,577

 

 

 

2,803

 

 

 

10,734

 

 

 

8,537

 

Comprehensive income attributable to controlling interest

$

17,032

 

 

$

27,662

 

 

$

77,468

 

 

$

99,616

 

 

See notes to consolidated financial statements.

 

 

3


WORTHINGTON INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

February 29,

2020

 

 

February 28,

2019

 

 

February 29,

2020

 

 

February 28,

2019

 

Operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

$

18,888

 

 

$

29,548

 

 

$

73,355

 

 

$

124,298

 

Adjustments to reconcile net earnings to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

22,780

 

 

 

23,625

 

 

 

69,553

 

 

 

71,643

 

Impairment of goodwill and long-lived assets

 

34,627

 

 

 

-

 

 

 

75,228

 

 

 

2,381

 

Provision for (benefit from) deferred income taxes

 

(5,006

)

 

 

(730

)

 

 

(1,661

)

 

 

21,493

 

Bad debt expense

 

273

 

 

 

201

 

 

 

584

 

 

 

454

 

Equity in net income of unconsolidated affiliates, net of distributions

 

(4,474

)

 

 

(865

)

 

 

(19,271

)

 

 

3,298

 

Net gain on sale of assets

 

(5,838

)

 

 

(12,606

)

 

 

(5,237

)

 

 

(10,203

)

Stock-based compensation

 

2,725

 

 

 

1,143

 

 

 

10,000

 

 

 

7,755

 

Loss on extinguishment of debt

 

-

 

 

 

-

 

 

 

4,034

 

 

 

-

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Receivables

 

5,992

 

 

 

1,546

 

 

 

15,517

 

 

 

55,793

 

Inventories

 

3,024

 

 

 

(1,054

)

 

 

90,907

 

 

 

(38,525

)

Accounts payable

 

29,630

 

 

 

19,002

 

 

 

(28,347

)

 

 

(51,158

)

Accrued compensation and employee benefits

 

(9,144

)

 

 

(11,391

)

 

 

(22,740

)

 

 

(38,769

)

Other operating items, net

 

(6,156

)

 

 

3,619

 

 

 

(6,072

)

 

 

(21,273

)

Net cash provided by operating activities

 

87,321

 

 

 

52,038

 

 

 

255,850

 

 

 

127,187

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in property, plant and equipment

 

(21,219

)

 

 

(19,379

)

 

 

(71,774

)

 

 

(60,554

)

Acquisitions

 

(500

)

 

 

-

 

 

 

(29,783

)

 

 

-

 

Distributions from unconsolidated affiliate

 

-

 

 

 

1,492

 

 

 

-

 

 

 

56,693

 

Proceeds from sale of assets

 

119

 

 

 

27,843

 

 

 

9,318

 

 

 

48,290

 

Net cash provided (used) by investing activities

 

(21,600

)

 

 

9,956

 

 

 

(92,239

)

 

 

44,429

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from long-term debt, net of issuance costs

 

-

 

 

 

-

 

 

 

101,464

 

 

 

-

 

Principal payments on long-term obligations and debt redemption costs

 

(344

)

 

 

(303

)

 

 

(154,811

)

 

 

(1,104

)

Proceeds from issuance of common shares, net of tax withholdings

 

429

 

 

 

104

 

 

 

(6,595

)

 

 

(4,645

)

Payments to noncontrolling interests

 

-

 

 

 

-

 

 

 

(1,453

)

 

 

(6,327

)

Repurchase of common shares

 

(21,373

)

 

 

(28,587

)

 

 

(50,972

)

 

 

(129,020

)

Dividends paid

 

(13,263

)

 

 

(13,119

)

 

 

(40,177

)

 

 

(39,371

)

Net cash used by financing activities

 

(34,551

)

 

 

(41,905

)

 

 

(152,544

)

 

 

(180,467

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

31,170

 

 

 

20,089

 

 

 

11,067

 

 

 

(8,851

)

Cash and cash equivalents at beginning of period

 

72,260

 

 

 

93,027

 

 

 

92,363

 

 

 

121,967

 

Cash and cash equivalents at end of period

$

103,430

 

 

$

113,116

 

 

$

103,430

 

 

$

113,116

 

 

See notes to consolidated financial statements.

 

 

4


WORTHINGTON INDUSTRIES, INC.

Notes to Consolidated Financial Statements

(Unaudited)

 

 

NOTE A – Basis of Presentation

The unaudited consolidated financial statements include the accounts of Worthington Industries, Inc. and consolidated subsidiaries (collectively, “we,” “our,” “Worthington,” or the “Company”).  They have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and 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.  

At February 29, 2020, the Company owned 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”) (63%), and Worthington Specialty Processing (“WSP”) (51%).  These joint ventures are consolidated in the Company’s financial statement, and the equity owned by the other joint venture members shown as noncontrolling interests in our consolidated balance sheets, and their 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 on unconsolidated affiliates in “NOTE C – Investments in Unconsolidated Affiliates”.  As more fully described in “NOTE P – Acquisitions,” 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.  The transaction resulted in a one-time net pre-tax gain of $6,055,000 within miscellaneous income in our consolidated statement of earnings for the three and nine months ended February 29, 2020.

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.  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 and significant intercompany accounts and transactions have been eliminated.

Operating results for the three and nine months ended February 29, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending May 31, 2020 (“fiscal 2020”), particularly in light of the novel coronavirus (“COVID-19”) and its effects on the domestic and global economies. To limit the spread of COVID-19, governments have taken various actions including the issuance of stay-at-home orders and social distancing guidelines, causing  some businesses to suspend operations and a reduction in demand for many products from direct or ultimate customers.  Accordingly, businesses have adjusted, reduced or suspended operating activities.  This has negatively impacted several of the markets we serve, including the North American automotive market, which shut down production in mid-March 2020.  While a number of our plants are operating as essential businesses, some of our plants have suspended or cut back on operating levels and shifts, and additional suspensions and cutbacks may occur as the impacts from COVID-19 and related responses continue to develop.  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, 2019 (“fiscal 2019”) of Worthington Industries, Inc. (the “2019 Form 10-K”) and “Part II – Item 1A – Risk Factors” of this 10-Q.

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 C – Investments in Unconsolidated Affiliates”.

The Company’s contribution to the Cabs joint venture consisted of the net assets of its two primary manufacturing facilities located in Greeneville, Tennessee and Watertown, South Dakota.  In anticipation of the transaction for substantially all the net assets of the Engineered Cabs business, an impairment charge of $35,194,000 was recognized when the disposal group met the criteria as assets held for sale as of August 31, 2019.  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.  The Company is in the process of evaluating strategic alternatives for the retained assets.  Refer to “NOTE E – Impairment of Goodwill and Long-Lived Assets” for additional information.

5


Upon closing of the transaction, the contributed net assets were deconsolidated, resulting in a one-time net gain of $50,000 within restructuring and other expense (income), net in our consolidated statements of earnings for the three months ended November 30, 2019, as summarized below.

 

(in thousands)

 

 

 

Retained investment (at fair value)

$

13,623

 

Contributed net assets (at carrying value)

 

13,394

 

Gain on deconsolidation

 

229

 

Less: deal costs

 

(179

)

Net gain on deconsolidation

$

50

 

  In accordance with the applicable accounting guidance, our minority ownership interest in the Cabs joint venture was recorded at fair value as of the closing date.  The Company’s estimate of fair value was based on a preliminary valuation of the net assets of the Cabs joint venture.  For additional information regarding the fair value of our minority ownership interest in the Cabs joint venture, refer to “NOTE R – Fair Value”.

Recently Adopted Accounting Standards

On June 1, 2019, the Company adopted Accounting Standards Update 2016-02, Leases (“Topic 842”), which replaces most existing lease accounting guidance under U.S. GAAP.  See “NOTE D – Leases” for additional information regarding the Company’s adoption of Topic 842, including newly-required disclosures. 

On June 1, 2019, the Company adopted ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“Topic 815”), which amended the existing hedge accounting guidance under U.S. GAAP.  The ASU is intended to simplify and clarify the accounting and disclosure requirements for hedging activities by more closely aligning the results of cash flow and fair value hedge accounting with the underlying risk management activities.  The adoption of the standard had no current or historical impact on our consolidated financial position or results of operations.   See “NOTE Q – Derivative Instruments and Hedging Activities” for additional information.

Recently Issued Accounting Standards

In June 2016, amended accounting guidance was issued related to the measurement of credit losses on financial instruments. The amended accounting guidance changes the impairment model for most financial assets to require measurement and recognition of expected credit losses for financial assets held.  The amended accounting guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.  We are in the process of evaluating the effect this amended accounting guidance will have on our consolidated financial position and results of operations; however, we do not expect the amended accounting guidance to have a material impact on our ongoing financial reporting.  

Reclassification

Certain prior period amounts have been reclassified within the operating section of the consolidated statements of cash flows for consistency with the current period presentation.

6


NOTE B – Revenue Recognition

The following tables summarize net sales by product class for the periods presented:

 

Three Months Ended

 

 

Nine Months Ended

 

(in thousands)

February 29,

2020

 

 

February 28,

2019

 

 

February 29,

2020

 

 

February 28,

2019

 

Reportable segments by product class:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Steel Processing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct

$

450,413

 

 

$

527,970

 

 

$

1,425,117

 

 

$

1,756,842

 

Toll

 

40,723

 

 

 

27,901

 

 

 

106,331

 

 

 

94,559

 

Total

$

491,136

 

 

$

555,871

 

 

$

1,531,448

 

 

$

1,851,401

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pressure Cylinders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Industrial products

$

129,042

 

 

$

148,018

 

 

$

411,994

 

 

$

452,883

 

Consumer products

 

113,258

 

 

 

118,006

 

 

 

360,803

 

 

 

352,023

 

Oil & gas equipment

 

28,695

 

 

 

24,666

 

 

 

92,730

 

 

 

80,584

 

Total

$

270,995

 

 

$

290,690

 

 

$

865,527

 

 

$

885,490

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Engineered Cabs

$

1,830

 

 

$

27,817

 

 

$

50,446

 

 

$

83,798

 

Other

 

35

 

 

 

3

 

 

 

71

 

 

 

25

 

Total

$

1,865

 

 

$

27,820

 

 

$

50,517

 

 

$

83,823

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

$

763,996

 

 

$

874,381

 

 

$

2,447,492

 

 

$

2,820,714

 

 

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 stream, which are recognized over time.  The following table summarizes the over time revenue for the periods presented:

 

 

Three Months Ended

 

 

Nine Months Ended

 

(in thousands)

February 29,

2020

 

 

February 28,

2019

 

 

February 29,

2020

 

 

February 28,

2019

 

Steel Processing - toll

$

40,723

 

 

$

27,901