Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 2024
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 ENTERPRISES, 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 West 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:
On January 6, 2025, the number of common shares, without par value, of the registrant issued and outstanding was 50,044,032.
TABLE OF CONTENTS
Commonly Used or Defined Terms
ii
Cautionary Note Regarding Forward-Looking Statements
iii
Use of Non-GAAP Financial Measures and Definitions
1
Part I. Financial Information
Item 1.
Financial Statements
Consolidated Balance Sheets – November 30, 2024 and May 31, 2024
4
Consolidated Statements of Earnings – Three Months and Six Months Ended November 30, 2024 and 2023
5
Consolidated Statements of Comprehensive Income – Three Months and Six Months Ended November 30, 2024 and 2023
6
Consolidated Statements of Cash Flows – Three Months and Six Months Ended November 30, 2024 and 2023
7
Condensed Notes to Consolidated Financial Statements (Unaudited)
8
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
24
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
36
Item 4.
Controls and Procedures
Part II. Other Information
Legal Proceedings
37
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
38
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
Signatures
39
i
COMMONLY USED OR DEFINED TERMS
References in this Form 10-Q to “we,” “our,” “us” or the “Company” are collectively to Worthington Enterprises and its consolidated subsidiaries. In addition, the following terms, when used in this Form 10-Q, have the meanings set forth below:
Term
Definition
ABI
Architecture Billings Index
AOCI
Accumulated other comprehensive income (loss)
ASU
Accounting Standards Update
Board
Board of Directors of Worthington Enterprises, Inc.
CARES Act
Coronavirus Aid, Relief and Economic Security Act
CEO
Chief Executive Officer
ClarkDietrich
Clarkwestern Dietrich Building Systems LLC
CODM
Chief Operating Decision Maker
common shares
The common shares, no par value, of Worthington Enterprises
COVID-19
The novel coronavirus disease first known to originate in December 2019
CPI
U.S. Core Consumer Price Index
Credit Facility
Our $500,000,000 unsecured revolving credit facility with a group of lenders
EBIT
Earnings before interest and taxes
EPS
Earnings per common share
equity income
Equity in net income of unconsolidated affiliates
ETR
Effective income tax rate
Exchange Act
Securities Exchange Act of 1934, as amended
FASB
Financial Accounting Standards Board
Form 10-Q
Our Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2024
fiscal 2024
Our fiscal year ended May 31, 2024
fiscal 2025
Our fiscal year ended May 31, 2025
second quarter of fiscal 2024
Our fiscal quarter ended November 30, 2023
second quarter of fiscal 2025
Our fiscal quarter ended November 30, 2024
GAAP
U.S. generally accepted accounting principles
GDP
U.S. gross domestic product
Halo
WH Products, LLC
HMI
The National Association of Home Builders/Wells Fargo Housing Market Index
LIRA
Leading Indicator of Remodeling Activity
MD&A
N.M.
Not meaningful
OCI
Other comprehensive income (loss)
PSLRA
Private Securities Litigation Reform Act of 1995, as amended
Ragasco
Hexagon Ragasco AS
SEC
Securities and Exchange Commission
Separation
The separation of our former steel processing business, effective December 1, 2023
SG&A
Selling, general and administrative expenses
SOFR
Secured Overnight Financing Rate
U.S.
United States of America
WAVE
Worthington Armstrong Venture
Workhorse
Taxi Workhorse Holdings, LLC
Worthington Enterprises
Worthington Enterprises, Inc. (formerly known as Worthington Industries, Inc.)
Worthington Steel
Worthington Steel, Inc.
2024 Form 10-K
Our Annual Report on Form 10-K for fiscal 2024 as filed with the SEC on July 30, 2024
2026 Notes
The senior unsecured notes that we issued on April 15, 2014, in the principal amount of $250,000,000, which bore interest at a rate of 4.55%, were scheduled to mature on April 15, 2026, and were paid in full on July 28, 2023.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Selected statements contained in this Form 10-Q, including, without limitation, in MD&A and in “Note E – Contingent Liabilities and Commitments,” constitute “forward-looking statements,” as that term is used in the PSLRA. We wish to take advantage of the safe harbor provisions included in the PSLRA. Forward-looking statements reflect our current expectations, estimates or projections concerning future results or events. These statements are often identified by the use of forward-looking words or phrases such as “believe,” “expect,” “anticipate,” “may,” “could,” “should,” “would,” “intend,” “plan,” “will,” “likely,” “estimate,” “project,” “position,” “strategy,” “target,” “aim,” “seek,” “foresee,” and similar words or phrases. These forward-looking statements include, without limitation, statements relating to:
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:
We note these risk factors for investors as contemplated by the PSLRA. Forward-looking statements should be construed in the light of such risks. It is impossible to predict or identify all potential risk factors. Consequently, readers should not consider the foregoing list to be a complete set of all potential risks and uncertainties. Readers are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date made. We do not undertake, and hereby disclaim, any obligation to update any forward-looking statements, whether as a result of new information, future developments or otherwise, except as required by applicable law.
iv
USE OF NON-GAAP FINANCIAL MEASURES AND DEFINITIONS
(In thousands, except per common share amounts)
NON-GAAP FINANCIAL MEASURES. This Form 10-Q includes certain financial measures that are not calculated and presented in accordance with GAAP. Non-GAAP financial measures typically exclude items that management believes are not reflective of, and thus should not be included when evaluating the performance of our ongoing operations. Management uses these non-GAAP financial measures to evaluate ongoing performance, engage in financial and operational planning, and determine incentive compensation. Management believes these non-GAAP financial measures provide useful supplemental information regarding the performance of our ongoing operations and should not be considered as an alternative to the comparable GAAP financial measure. Additionally, management believes these non-GAAP financial measures allow for meaningful comparisons and analysis of trends in our business and enables investors to evaluate our operations and future prospects in the same manner as management.
The following provides an explanation of each non-GAAP financial measure presented in this Form 10-Q:
Adjusted operating income (loss) is defined as operating income (loss) excluding the items listed below, to the extent naturally included in operating income (loss).
Adjusted diluted EPS from continuing operations is defined as adjusted net earnings from continuing operations divided by diluted weighted-average shares outstanding.
Adjusted EBITDA from continuing operations is the measure by which we evaluate segment performance and our overall profitability. EBITDA is defined as earnings before interest, taxes, depreciation, and amortization. Adjusted EBITDA from continuing operations excludes additional items including, but not limited to, those listed below, as well as other items that management believes are not reflective of, and thus should not be included when evaluating the performance of our ongoing operations. Adjusted EBITDA from continuing operations also excludes stock-based compensation due to its non-cash nature, which is consistent with how management assesses operating performance and determines incentive compensation. At the segment level, adjusted EBITDA from continuing operations includes expense allocations for centralized corporate back-office functions that exist to support the day-to-day business operations. Public company and other governance costs are held at the corporate level within the unallocated corporate and other category.
Adjusted EBITDA from continuing operations margin is calculated by dividing adjusted EBITDA from continuing operations by net sales.
EXCLUSIONS FROM NON-GAAP FINANCIAL MEASURES
Management believes it is useful to exclude the following items from its non-GAAP financial measures for its own and investors’ assessment of the business for the reasons identified below. Additionally, management may exclude other items from the non-GAAP financial measures that do not occur in the ordinary course of our ongoing business operations and note them in the reconciliation from earnings before income taxes from continuing operations to the non-GAAP financial measure adjusted EBITDA from continuing operations.
The following provides a reconciliation of non-GAAP financial measures, including adjusted operating income, adjusted earnings before income taxes, adjusted income tax expense (benefit), adjusted net earnings from continuing operations attributable to controlling interest, and adjusted diluted EPS from continuing operations attributable to controlling interest, from their most comparable GAAP measure for the three and six months ended November 30, 2024 and 2023.
Three Months Ended November 30, 2024
Earnings
Income
Net Earnings
Diluted
Before
Tax
from
EPS -
Operating
Expense
Continuing
Taxes
(Benefit)
Operations (1)
Operations
$
3,521
37,109
9,100
28,260
0.56
Restructuring and other expense, net
2,620
(639
)
1,981
0.04
Non-GAAP
6,141
39,729
9,739
30,241
0.60
Three Months Ended November 30, 2023
(Loss)
(14,367
24,543
6,609
17,934
0.36
Corporate costs eliminated at Separation
9,671
(2,344
7,327
0.14
(1
-
Separation costs
7,056
(1,690
5,366
0.11
Gain on sale of assets in equity income
(2,780
662
(2,118
(0.04
2,366
38,496
9,982
28,514
0.57
Six Months Ended November 30, 2024
Diluted EPS -
(1,178
67,899
15,882
52,513
1.04
3,778
(928
2,850
0.06
2,600
71,677
16,810
55,363
1.10
Six Months Ended November 30, 2023
(21,692
60,333
15,569
44,764
0.89
19,343
(4,609
14,734
0.29
9,466
(2,256
7,210
0.15
Loss on extinguishment of debt
1,534
(366
1,168
0.02
7,123
87,902
22,139
65,763
1.31
——————————————————
2
The following table presents a reconciliation from the GAAP financial measure earnings before income taxes to the non-GAAP financial measure adjusted EBITDA from continuing operations for the periods presented.
Three Months Ended
Six Months Ended
November 30,
2024
2023
Earnings before income taxes (GAAP)
Plus: Net loss attributable to noncontrolling interest
251
496
Net earnings before income taxes attributable to controlling interest
37,360
68,395
Interest expense, net
1,033
472
1,522
1,546
EBIT (1)
38,393
25,015
69,917
61,879
Adjusted EBIT (1)
41,013
38,968
73,695
89,448
Depreciation and amortization
11,927
12,215
23,757
24,290
Stock-based compensation (2)
3,273
3,861
7,197
7,220
Adjusted EBITDA from continuing operations (non-GAAP)
56,213
55,044
104,649
120,958
Earnings before income taxes margin (GAAP)
13.5
%
8.2
12.8
9.9
Adjusted EBITDA margin from continuing operations (non-GAAP)
20.5
18.5
19.7
19.8
3
Item 1. – Financial Statements
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
May 31,
Assets
Current assets:
Cash and cash equivalents
193,805
244,225
Receivables, less allowances of $2,553 and $343, respectively
184,925
199,798
Inventories:
Raw materials
74,921
66,040
Work in process
10,577
11,668
Finished products
93,965
86,907
Total inventories
179,463
164,615
Income taxes receivable
9,417
17,319
Prepaid expenses and other current assets
35,389
47,936
Total current assets
602,999
673,893
Investments in unconsolidated affiliates
135,218
144,863
Operating lease assets
23,015
18,667
Goodwill
369,799
331,595
Other intangible assets, net of accumulated amortization of $89,638 and $83,242, respectively
244,102
221,071
Other assets
22,309
21,342
Property, plant and equipment:
Land
8,632
8,657
Buildings and improvements
129,684
123,478
Machinery and equipment
356,678
321,836
Construction in progress
27,330
24,504
Total property, plant and equipment
522,324
478,475
Less: accumulated depreciation
262,749
251,269
Total property, plant and equipment, net
259,575
227,206
Total assets
1,657,017
1,638,637
Liabilities and equity
Current liabilities:
Accounts payable
83,262
91,605
Accrued compensation, contributions to employee benefit plans and related taxes
28,499
41,974
Dividends payable
9,040
9,038
Other accrued items
42,357
29,061
Current operating lease liabilities
5,396
6,228
Income taxes payable
910
470
Total current liabilities
169,464
178,376
Other liabilities
60,305
62,243
Distributions in excess of investment in unconsolidated affiliate
110,763
111,905
Long-term debt
295,721
298,133
Noncurrent operating lease liabilities
18,090
12,818
Deferred income taxes, net
89,716
84,150
Total liabilities
744,059
747,625
Shareholders’ equity - controlling interest
911,321
888,879
Noncontrolling interests
1,637
2,133
Total equity
912,958
891,012
Total liabilities and equity
See condensed notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF EARNINGS
Net sales
274,046
298,229
531,354
610,147
Cost of goods sold
199,987
234,951
394,800
477,239
Gross profit
74,059
63,278
136,554
132,908
Selling, general and administrative expense
67,918
70,583
133,954
145,128
Operating income (loss)
Other income (expense):
Miscellaneous income, net
65
714
551
1,013
(1,534
(1,033
(472
(1,522
(1,546
34,556
38,668
70,048
84,092
Earnings before income taxes
Income tax expense
Net earnings from continuing operations
28,009
52,017
Net earnings from discontinued operations
10,233
83,106
Net earnings
28,167
127,870
Net earnings (loss) attributable to noncontrolling interests
(251
3,865
(496
7,461
Net earnings attributable to controlling interest
24,302
120,409
Amounts attributable to controlling interest:
6,368
75,645
Earnings per share from continuing operations - basic
1.06
0.91
Earnings per share from discontinued operations - basic
0.13
1.55
Net earnings per share attributable to controlling interest - basic
0.49
2.46
Earnings per share from continuing operations - diluted
Earnings per share from discontinued operations - diluted
1.51
Net earnings per share attributable to controlling interest - diluted
2.40
Weighted average common shares outstanding - basic
49,464
49,186
49,475
49,013
Weighted average common shares outstanding - diluted
50,138
50,042
50,264
50,102
Cash dividends declared per common share
0.17
0.32
0.34
0.64
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Other comprehensive income (loss), net of tax
Foreign currency translation
(3,276
897
(2,735
2,342
Pension liability adjustment
13
(3
Cash flow hedges
(57
13,549
(107
6,699
(3,320
14,446
(2,836
Comprehensive income
24,689
42,613
49,181
136,908
Comprehensive income (loss) attributable to noncontrolling interests
Comprehensive income attributable to controlling interest
24,940
38,748
49,677
129,447
CONSOLIDATED STATEMENTS OF CASH FLOWS
Operating activities:
Adjustments to reconcile net earnings to net cash provided by operating activities:
28,007
56,332
Impairment of long-lived assets
1,401
Provision for (benefit from) deferred income taxes
2,682
1,968
(2,855
(3,485
Bad debt (expense) income
2,069
345
2,061
(454
Equity in net income of unconsolidated affiliates, net of distributions
4,268
(4,129
7,721
6,096
Net gain on sale of assets
(508
(439
(526
(334
Stock-based compensation
5,937
6,175
9,862
10,691
Changes in assets and liabilities, net of impact of acquisitions:
Receivables
(18,636
76,704
9,530
67,861
Inventories
7,836
103,150
1,430
38,823
447
(75,373
(12,646
(75,095
Accrued compensation and employee benefits
(2,021
2,794
(13,466
(9,220
Other operating items, net
7,043
(32,379
13,314
(27,334
Net cash provided by operating activities
49,053
134,990
90,199
194,686
Investing activities:
Investment in property, plant and equipment
(15,161
(32,876
(24,790
(62,174
Acquisitions, net of cash acquired
731
(21,013
(88,156
Proceeds from sale of assets, net of selling costs
1,616
751
13,385
802
Investment in non-marketable equity securities
(40
(1,500
(2,040
(1,540
Investment in note receivable
(15,000
Excess distributions from unconsolidated affiliate
1,085
Net cash used by investing activities
(12,854
(53,553
(101,601
(97,840
Financing activities:
Dividends paid
(8,969
(17,333
(17,085
(33,058
Repurchase of common shares
(8,079
(14,882
Proceeds from issuance of common shares, net of tax withholdings
(3,893
(9,207
(7,051
(14,337
Net proceeds from short-term borrowings (1)
175,000
172,187
Principal payments on long-term obligations
(243,757
Payments to noncontrolling interests
(1,921
Net cash provided (used) by financing activities
(20,941
148,460
(39,018
(120,886
Increase (decrease) in cash and cash equivalents
15,258
229,897
(50,420
(24,040
Cash and cash equivalents at beginning of period
178,547
201,009
454,946
Cash and cash equivalents at end of period (2)
430,906
CONDENSED Notes to Consolidated Financial Statements (UNAUDITED)
(In thousands, except common share and per common share amounts)
Note A – Basis of Presentation
Basis of Presentation
These interim unaudited consolidated financial statements include the accounts of Worthington Enterprises and its consolidated subsidiaries. Significant intercompany accounts and transactions have been eliminated.
We own an 80% controlling interest in Halo, which we acquired on February 1, 2024. Halo is 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 OCI are shown as net earnings or comprehensive income attributable to noncontrolling interests in our consolidated statements of earnings and consolidated statements of comprehensive income, respectively. Net earnings and total equity in periods prior to the Separation include the minority interest of Worthington Steel.
Investments in unconsolidated affiliates that we do not control are accounted for using the equity method with our proportionate share of income or loss recognized within equity income in our consolidated statements of earnings. See further discussion of our unconsolidated affiliates in “Note C – Investments in Unconsolidated Affiliates.”
These interim unaudited consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the SEC. Accordingly, they do not include all of the information and notes required by 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 Form 10-Q, necessary for a fair presentation of the consolidated financial statements for these interim periods, have been included. Operating results for the second quarter of fiscal 2025 are not necessarily indicative of the results that may be expected for the full fiscal year. For further information, refer to the consolidated financial statements and notes thereto included in the 2024 Form 10-K.
The preparation of consolidated financial statements in conformity with 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 materially from those estimates.
Separation of the Steel Processing Business
On December 1, 2023, we completed the spin-off of our former steel processing business into an independent publicly traded company, Worthington Steel, on a tax-free basis. Accordingly, the operating results and financial position, of the former steel processing business, except for the minority partner’s portion of noncontrolling interest and accumulated other comprehensive income, are reported as discontinued operations for all periods presented, as discussed in further detail in “Note B – Discontinued Operations.” All discussion within this Form 10-Q, including amounts, percentages and disclosures for all periods presented, reflect only our continuing operations unless otherwise noted.
In connection with the Separation, we entered into several agreements with Worthington Steel that govern our ongoing relationships, the most significant of which is the Steel Supply and Services Agreement. Other agreements include a Trademark License Agreement, a Transition Services Agreement, and certain long-term services agreements. Amounts under the Trademark License Agreement, Transition Services Agreement and long-term services agreements were not significant during the six months ended November 30, 2024.
Pursuant to the Steel Supply and Services Agreement, Worthington Steel manufactures and supplies to us, at reasonable market rates, certain flat rolled steel products, and will provide us with certain related support services such as design, engineering/technical services, price risk management, scrap management, steel purchasing, supply chain optimization and product rework services, and other services at our request that are ancillary to the supply of the flat rolled steel products. Purchases from Worthington Steel under the Steel Supply and Services Agreement for the three months and six months ended November 30, 2024, totaled $23,024 and $51,455, respectively, of which $5,977 was payable at November 30, 2024.
Revenue Recognition
We recognize all revenue at the point in time the performance obligation is satisfied and control of the product is transferred to the customer upon shipment or delivery.
We review our receivables on an ongoing basis to ensure that they are properly valued and collectible. The allowance for doubtful accounts is used to record the estimated risk of loss related to our customers’ inability to pay. This allowance is maintained at a level that we consider appropriate based on factors that affect collectability, such as the financial health of our customers, historical trends of charge-offs and recoveries and current economic and market conditions. Our allowance for doubtful accounts increased from $343 at May 31, 2024, to $2,553 at November 30, 2024, primarily due to a customer bankruptcy in Consumer Products.
Recently Issued Accounting Pronouncements
In November 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires the disaggregation of certain expense captions into specified categories in disclosures within the notes to the financial statements to provide enhanced transparency into the expense captions presented on the face of the income statement. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026 and interim periods beginning after December 15, 2027, with early adoption permitted, and may be applied either prospectively or retrospectively to financial statements issued for reporting periods after the effective date of ASU 2024-03 or retrospectively to any or all prior periods presented in the financial statements. We are currently evaluating the impact that the adoption of ASU 2024-03 will have on our related disclosures.
Note B – Discontinued Operations
The following table summarizes the financial results from the discontinued operations of Worthington Steel for the periods presented.
November 30, 2023
788,689
1,670,027
728,252
1,481,731
60,437
188,296
37,106
74,909
14,895
18,521
Operating income
8,436
93,465
305
1,017
(1,697
(3,706
Equity in net income of unconsolidated affiliate
12,735
10,822
103,511
589
20,405
Net earnings attributable to noncontrolling interest
As permitted under GAAP, the cash flows related to discontinued operations have not been segregated in our consolidated statements of cash flows. Accordingly, the consolidated statement of cash flows for the three and six months ended November 30, 2023 include the results from both continuing and discontinued operations and amounts for certain captions will not agree with respective data in the consolidated balance sheet.
9
The following table summarizes significant non-cash operating items and capital expenditures of discontinued operations included in the consolidated statement of cash flows for the periods presented.
Significant non-cash operating items:
15,793
32,043
Equity in income of unconsolidated affiliate, net of distributions
(3,777
(12,734
2,315
3,472
Significant investing activities:
(13,682
(33,457
Significant financing activities:
Net proceeds from short-term borrowings
Note C – Investments in Unconsolidated Affiliates
Investments in joint ventures that we do not control, either through majority ownership or otherwise, are unconsolidated and accounted for using the equity method. At November 30, 2024, we held investments in the following unconsolidated joint ventures: ClarkDietrich (25%); Sustainable Energy Solutions (49%); WAVE (50%); and Workhorse (20%).
We received distributions from unconsolidated affiliates totaling $77,769 during the six months ended November 30, 2024. We have received cumulative distributions from WAVE in excess of our investment balance, which resulted in a negative asset balance of $110,763 and $111,905 at November 30, 2024 and May 31, 2024, respectively. In accordance with the applicable accounting guidance, we have reclassified the negative balances to distributions in excess of investment in unconsolidated affiliate within our consolidated balance sheets. We will continue to record our equity in the net income of WAVE as a debit to the investment account, and if it becomes positive, it will again be shown as an asset on our consolidated balance sheets. If it becomes probable that any excess distribution may not be returned (upon joint venture liquidation or otherwise), we will immediately recognize any balance classified as a liability as income.
We use the cumulative earnings approach to determine the 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 exceed our share of the cumulative equity in the net earnings of the joint venture. In such cases, the excess distributions are considered returns of investment and are classified as investing activities in our consolidated statements of cash flows. No distributions exceeded our share in any of our unconsolidated joint ventures during the second quarter of fiscal 2025. During the second quarter of fiscal 2024, we classified $1,085 of dividends received from WAVE as an investing activity.
The following tables summarize combined financial information for our unconsolidated affiliates included in continuing operations as of the dates, and for the periods presented:
51,240
36,163
Other current assets
547,436
605,043
Noncurrent assets
372,466
360,261
971,142
1,001,467
Current liabilities
212,806
264,963
Current maturities of long-term debt
3,208
13,450
356,539
349,431
Other noncurrent liabilities
143,774
146,984
Equity
254,815
226,639
10
492,990
513,470
1,008,663
1,082,053
136,693
148,298
271,028
321,315
90,847
118,958
185,193
250,405
7,725
7,224
15,731
14,800
Interest expense
4,529
4,538
9,287
10,277
309
442
954
1,351
89,186
115,114
179,868
240,766
Note D – Restructuring and Other Expense, Net
We consider restructuring activities to be programs whereby we fundamentally change our operations, such as divestitures, closing or consolidating facilities, employee severance (including rationalizing headcount or making other significant changes in personnel), and realignment of existing operations (including changes to management structure in response to underlying performance and/or changing market conditions).
A progression of the liabilities associated with our restructuring activities, combined with a reconciliation to the restructuring and other expense, net financial statement caption in our consolidated statement of earnings for the six months ended November 30, 2024 is summarized below:
Balance at
May 31, 2024
Payments
November 30, 2024
Early retirement and severance
188
(1,068
137
Net loss on sale of assets
96
Stock-based compensation (1)
2,665
The total liability associated with our restructuring activities as of November 30, 2024 is expected to be paid in the next 12 months.
Note E – Contingent Liabilities and Commitments
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.
Note F – 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.
At November 30, 2024, we also had in place $9,500 of outstanding stand-by letters of credit issued to third-party service providers. The fair value of these guaranteed instruments, based on premiums paid, was not material and no amounts were drawn against them at November 30, 2024.
11
Note G – Debt
Our multi-year revolving Credit Facility is scheduled to mature on September 27, 2028. 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 overnight bank funding rate, the prime rate of PNC Bank, National Association or the adjusted daily simple SOFR. The applicable margin is determined by our total leverage ratio. There were no borrowings outstanding under the Credit Facility at November 30, 2024 or May 31, 2024, leaving $500,000 available for use.
Note H – Other Comprehensive Income (Loss)
The following table summarizes the tax effects on each component of OCI for the periods presented:
Before-Tax
Net-of-Tax
(2,902
(374
843
54
16
(54
17,390
(3,841
(2,940
(380
18,233
(3,787
(2,914
179
2,170
172
(119
12
8,578
(1,879
(3,024
10,748
(1,710
Note I – Changes in Equity
The following tables summarize the changes in equity by component and in total for the periods presented:
Controlling Interest
Additional
Paid-in
AOCI,
Retained
Noncontrolling
Capital
Net of Tax
Subtotal
Interests
Total
Balance at May 31, 2024
299,033
454
589,392
Net earnings (loss)
24,253
(245
24,008
Other comprehensive income
484
Common shares issued, net of withholding tax
(3,158
Common shares in non-qualified plans
32
6,216
Purchases and retirement of common shares
(884
(5,919
(6,803
Cash dividends declared
(8,550
Balance at August 31, 2024
301,239
938
599,176
901,353
1,888
903,241
Other comprehensive loss
56
5,539
(1,212
(6,867
(8,595
Balance at November 30, 2024
301,729
(2,382
611,974
Balance at May 31, 2023
290,799
(23,179
1,428,391
1,696,011
125,617
1,821,628
96,106
3,597
99,703
(5,408
(5,130
130
8,995
(16,081
Dividends to noncontrolling interests
Balance at August 31, 2023
294,794
(28,587
1,508,416
1,774,623
127,293
1,901,916
195
4,511
(16,061
Balance at November 30, 2023
290,293
(14,141
1,516,657
1,792,809
131,158
1,923,967
The following table summarizes the changes in AOCI for the periods presented:
Foreign
Pension
Currency
Liability
Cash Flow
Translation
Adjustment
Hedges
(669
(441
1,564
OCI before reclassifications
(758
(3,663
Reclassification adjustments to net earnings (1)
639
Income tax effect
(3,404
(435
1,457
(22,123
(1,730
674
12,947
15,117
(4,369
(19,781
(1,733
7,373
On March 20, 2019, the Board authorized the repurchase of up to 6,600,000 common shares. On March 24, 2021, the Board authorized the repurchase of up to an additional 5,618,464 common shares, increasing the total number of common shares then authorized for repurchase to 10,000,000 (net of previously repurchased common shares). During the six months ended November 30, 2024, we repurchased a total of 350,000 of our common shares under these authorizations leaving 5,715,000 common shares available for repurchase at November 30, 2024.
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.
Note J – Stock-Based Compensation
Non-Qualified Stock Options
During the six months ended November 30, 2024, we granted non-qualified stock options covering a total of 54,200 common shares under our stock-based compensation plans. The weighted average exercise price was $44.38 for the non-qualified stock options granted during the six months ended November 30, 2024, which was determined based on the closing market price of the underlying common shares at the respective grant date. The weighted average fair value of these non-qualified stock options, based on the Black-Scholes option-pricing model, calculated at the grant date, was $16.38 per share. The calculated pre-tax stock-based compensation expense for these non-qualified stock options was $888 and will be recognized on a straight-line basis over the three-year vesting period, net of any forfeitures. The weighted average fair value of stock options granted during the six months ended November 30, 2024 was based on the following assumptions:
Dividend yield
1.34
Expected volatility
36.90
Risk-free interest rate
3.97
Expected term (years)
6.0
Due to the impact of the Separation on the comparability to the historical prices of the common shares, we are unable to use the historical volatility of the common shares to determine the expected volatility. Accordingly, we use a comparable peer group to determine the expected volatility of the common shares. The risk-free interest rate is based on the U.S. Treasury strip rate for the expected term of the non-qualified stock options. The expected term was developed using historical exercise experience.
Service-Based Restricted Common Shares
During the six months ended November 30, 2024 we granted an aggregate of 289,820 service-based restricted common shares under our stock-based compensation plans, which generally cliff vest three years from the grant date. The fair value of these restricted common shares was equal to the weighted average closing market price of the underlying common shares on the grant date, or $44.89 per share. The calculated pre-tax stock-based compensation expense for these restricted common shares of $13,011 will be recognized on a straight-line basis over the three-year vesting period, net of any forfeitures.
Performance Share Awards
Outstanding performance share awards may be earned based on the level of achievement of corporate targets for cumulative corporate economic value added and EPS growth and, in the case of business unit executives, a business unit adjusted EBITDA from continuing operations target, in each case for the three-year periods ending May 31, 2025, 2026 and 2027. These performance share awards will be paid, to the extent earned, in common shares in the fiscal quarter following the end of the applicable three-year performance period. The fair values of our performance shares are determined by the closing market prices of the underlying common shares at the respective grant dates of the performance shares and the pre-tax stock-based compensation expense is based on our periodic assessment of the probability of the targets being achieved and our estimate of the number of common shares that will ultimately be issued. The ultimate pre-tax stock-based compensation expense to be recognized over the three-year performance period on all tranches will vary based on our periodic assessment of the probability of the targets being achieved. During the six months ended November 30, 2024, we granted performance share awards covering an aggregate of 42,100 common shares (at target levels). The calculated pre-tax stock-based compensation expense for these performance shares is $1,868 (at target levels). The ultimate pre-tax stock-based compensation expense to be recognized over the three-year performance period on all tranches will vary based on our periodic assessment of the probability of the targets being achieved.
Note K – Income Taxes
Income tax expense for the six months ended November 30, 2024 and November 30, 2023 reflected estimated annual ETRs of 24.1% and 25.7%, respectively. Management is required to estimate the annual ETR based upon its forecast of annual pre-tax income for domestic and foreign operations. Our actual ETR for fiscal 2025 could be materially different from the forecasted rate as of November 30, 2024.
14
Note L – Earnings per Share
The following table sets forth the computation of basic and diluted EPS attributable to controlling interest for the periods presented:
Numerator (basic & diluted):
Net earnings from continuing operations attributable to controlling interest
Denominator (shares in thousands):
Basic EPS from continuing operations - weighted average common shares
Effect of dilutive securities
856
789
1,089
Diluted EPS from continuing operations - weighted average common shares
Basic EPS from continuing operations
Diluted EPS from continuing operations
Stock options covering an aggregate of 110,950 and 38,932 common shares for the three months ended November 30, 2024 and November 30, 2023, respectively, and 90,391 and 32,892 for the six months ended November 30, 2024 and November 30, 2023, respectively, have been excluded from the computation of diluted EPS because the effect would have been antidilutive for those periods.
Note M – Segment Operations
Our operating segments reflect the way in which internally-reported financial information is regularly reviewed by the CODM to analyze performance, make decisions and allocate resources. We have identified our Chief Executive Officer as our CODM. Our CODM evaluates segment performance on the basis of adjusted EBITDA from continuing operations, as described in the “Use of Non-GAAP Financial Measures and Definitions” section. Factors used to identify operating segments include the nature of the products provided by each business, the management reporting structure, similarity of economic characteristics and certain quantitative measures, as prescribed by GAAP. Our operations are organized under two operating segments: Consumer Products and Building Products. Our former Sustainable Energy Solutions operating segment is presented within Unallocated Corporate and Other in periods prior to its deconsolidation on May 29, 2024. In periods subsequent to the deconsolidation transaction, our retained 49% interest is accounted for under the equity method of accounting, as discussed in “Note C – Investments in Unconsolidated Affiliates.” Unallocated Corporate and Other also includes certain assets and liabilities (e.g., public debt) held at the corporate level as well as general corporate expenses that are not directly attributable to our business operations and are administrative in nature, such as public company and other governance-related costs that benefit the organization as a whole.
15
The following tables present summarized financial information for our reportable segments and Unallocated Corporate and Other for the periods indicated. A reconciliation from the GAAP financial measure of earnings before income taxes to the non-GAAP financial measure of adjusted EBITDA from continuing operations is provided directly following the summarized information below.
Unallocated
Consumer
Building
Reportable
Corporate and
Products
Segments
Other
116,748
157,298
Capital expenditures
5,789
4,348
10,137
5,024
15,161
4,296
6,496
10,792
1,135
514
2,106
Equity income
34,294
262
Adjusted EBITDA from continuing operations
15,484
47,185
62,669
(6,456
119,389
151,303
270,692
27,537
4,194
6,987
11,181
21,695
32,876
4,112
5,927
10,039
2,176
35,176
3,492
12,674
45,809
58,483
(3,439
234,343
297,011
10,733
8,057
18,790
6,000
24,790
8,595
12,867
21,462
2,295
803
2,975
70,940
(892
33,259
86,914
120,173
(15,524
236,742
317,231
553,973
56,174
5,727
12,257
17,984
44,190
62,174
8,104
11,925
20,029
4,261
80,219
3,873
26,889
105,442
132,331
(11,373
Total assets for each of our reportable segments at the dates indicated were as follows:
Consumer Products
574,568
557,826
Building Products
764,911
672,723
Total reportable segments
1,339,479
1,230,549
Unallocated Corporate and Other
317,538
408,088
Total assets of continuing operations
17
Note N – Acquisitions
On June 3, 2024, we acquired Ragasco, a leading global manufacturer of composite propane cylinders based in Norway. The total purchase price, after adjustment for final working capital, consisted of cash consideration of $101,424, of which $11,343 was on deposit at May 31, 2024, and contingent consideration in the form of an earnout agreement with an estimated acquisition date fair value of $7,139. The earnout agreement provides for additional cash consideration of up to $14,000 should certain earnings targets be met through calendar year 2024. Ragasco operates as part of the Building Products operating segment and its results have been included in our consolidated statements of earnings since the date of acquisition. Pro forma results, including the acquired business since the beginning of fiscal 2023, would not be materially different from reported results.
The assets acquired and liabilities assumed were recognized at their estimated acquisition-date fair values, with goodwill representing the excess of the purchase price over the fair value of the net identifiable assets acquired. The purchase price includes the fair values of other assets that were not identifiable, not separately recognizable under accounting rules (e.g., assembled workforce) or of immaterial value. The purchase price also includes strategic and synergistic benefits (i.e., investment value) specific to us, which resulted in a purchase price in excess of the fair value of the identifiable net assets. This additional investment value resulted in goodwill, which is not expected to be deductible for income tax purposes.
The assets acquired and liabilities assumed were recognized at their estimated acquisition-date fair values, with goodwill representing the excess of the purchase price over the fair value of the net identifiable assets acquired. In connection with the acquisition of Ragasco, we identified and valued the following intangible assets:
Useful Life
Category
Amount
(Years)
Trade name
4,379
Technological know-how
14,659
Customer relationships
12,660
Total acquired identifiable intangible assets
31,698
The following table summarizes the consideration paid and the final fair value assigned to the assets and liabilities assumed at the acquisition date.
Measurement
Preliminary
Period
Final
Valuation
Adjustments
1,925
Accounts receivable
8,554
Inventory
16,403
990
Property, plant and equipment
27,325
8,834
Deferred income taxes
365
Intangible assets
32,840
(1,142
Total identifiable assets
97,236
96,094
(4,885
Current operating lease liability
(980
Accrued expenses
(6,344
Noncurrent operating lease liability
(7,886
(9,226
(8,975
(100
Net identifiable assets
67,815
(891
66,924
40,748
891
41,639
Total purchase price
108,563
Less: Fair value of earnout
7,139
Cash purchase price
101,424
18
Note O – Derivative Financial Instruments and Hedging Activities
We primarily utilize derivative financial instruments to manage exposure to certain risks related to our ongoing operations. The primary risks managed through the use of derivative financial instruments include interest rate risk, foreign currency exchange risk and commodity price risk. While certain of our derivative financial instruments are designated as hedging instruments, we also enter into derivative financial instruments that are designed to hedge a risk, but are not designated as hedging instruments and therefore do not qualify for hedge accounting. These derivative financial instruments are adjusted to current fair value through earnings at the end of each period.
Interest Rate Risk Management - We are exposed to the impact of interest rate changes. Our objective is to manage the impact of interest rate changes on cash flows and the market value of our borrowings. We utilize a mix of debt maturities along with both fixed-rate and variable-rate debt to manage changes in interest rates. In addition, we enter into interest rate swaps to further manage our exposure to interest rate variations related to our borrowings and to lower our overall borrowing costs.
Foreign Currency Exchange Rate Risk Management - We conduct business in several major international currencies and are, therefore, subject to risks associated with changing foreign currency exchange rates. We enter into various contracts that change in value as foreign currency exchange rates change to manage this exposure. Such contracts limit exposure to both favorable and unfavorable foreign currency exchange rate fluctuations. The translation of foreign currencies into U.S. dollars also subjects us to exposure related to fluctuating foreign currency exchange rates; however, derivative financial instruments are not used to manage this risk.
Commodity Price Risk Management – We are exposed to changes in the price of certain commodities, including steel, natural gas, copper, zinc, aluminum and other raw materials, and our utility requirements. Our objective is to reduce earnings and cash flow volatility associated with forecasted purchases and sales of these commodities to allow management to focus its attention on business operations. Accordingly, we enter into derivative financial instruments to manage the associated price risk.
We are exposed to counterparty credit risk on all of our derivative financial instruments. Accordingly, we have established and maintain strict counterparty credit guidelines. We have credit support agreements in place with certain counterparties to limit our credit exposure. These agreements require either party to post cash collateral if its cumulative market position exceeds a predefined liability threshold. Amounts posted to the margin accounts accrue interest at market rates and are required to be refunded in the period in which the cumulative market position falls below the required threshold. We do not have significant exposure to any one counterparty and management believes the risk of loss is remote and, in any event, would not be material.
Refer to “Note P – Fair Value Measurements” for additional information regarding the accounting treatment for our derivative financial instruments, as well as how fair value is determined. The following table summarizes the fair value of our derivative financial instruments and the respective lines in which they were recorded in the consolidated balance sheet at November 30, 2024 and May 31, 2024:
Fair Value of Assets
Fair Value of Liabilities
Balance
Sheet
Location
Derivatives designated as hedging instruments:
Commodity contracts
762
601
44
83
41
21
104
Derivatives not designated as hedging instruments:
74
319
45
69
Foreign currency exchange contracts
689
1,248
734
1,317
Total derivative financial instruments
877
920
778
1,421
19
The amounts in the table above reflect the fair value of our derivative financial instruments on a net basis where allowed under master netting arrangements. Had these amounts been recognized on a gross basis, the impact would have been an increase in receivables with a corresponding increase in accounts payable of $616 and $391 at November 30, 2024 and May 31, 2024, respectively.
Cash Flow Hedges
We enter into derivative financial instruments to hedge our exposure to changes in cash flows attributable to interest rate and commodity price fluctuations associated with certain forecasted transactions. These derivative financial instruments are designated and qualify as cash flow hedges. Accordingly, the effective portion of the gain or loss on each of these derivative financial instruments is reported as a component of OCI and reclassified into earnings in the same line associated with the forecasted transaction and in the same period during which the hedged transaction affects earnings.
The following table summarizes our cash flow hedges outstanding at November 30, 2024:
Notional
Maturity Date(s)
11,597
December 2024 - December 2025
The following table summarizes the gain (loss) recognized in OCI and the gain (loss) reclassified from AOCI into net earnings for derivative financial instruments designated as cash flow hedges for the periods presented:
Location of
Gain (Loss)
Reclassified
Recognized
Reclassified from AOCI
from AOCI
in OCI
into Net Earnings
For the three months ended November 30, 2024:
(360
(357
Interest rate contracts
51
(306
For the three months ended November 30, 2023:
2,019
(1,583
52
(34
(97
1,985
(1,628
For the six months ended November 30, 2024:
(742
103
For the six months ended November 30, 2023:
1,608
(2,252
(641
(11
(44
1,597
(2,854
The estimated amount of net gains recognized in AOCI at November 30, 2024, expected to be reclassified into net earnings within the succeeding 12 months is $380 (net of tax of $157). This amount was computed using the fair value of the cash flow hedges at November 30, 2024, and will change before actual reclassification from OCI to net earnings during the fiscal years ending May 31, 2025 and May 31, 2026.
20
Net Investment Hedges
We have designated our Euro-denominated debt held in the U.S. with an initial notional amount of €91,700 ($99,479) as a non-derivative net investment hedge of our foreign operations in Portugal. Accordingly, the foreign currency effects resulting from the remeasurement of this debt have been deferred in AOCI as an offset to the translation of our net investment in Portugal. A remeasurement gain of $4,329 and $2,494 was deferred in AOCI during the three months and six months ended November 30, 2024. There was no foreign currency gain (loss) recognized in AOCI for the non-derivative instruments designated as net investment hedges in the prior year.
Economic (Non-designated) Hedges
We enter into foreign currency exchange contracts to manage our foreign currency exchange rate exposure related to inter-company and financing transactions that do not meet the requirements for hedge accounting treatment. We also enter into certain commodity contracts that do not qualify for hedge accounting treatment. Accordingly, these derivative financial instruments are adjusted to current market value at the end of each period through gain (loss) recognized in earnings.
The following table summarizes our economic (non-designated) derivative financial instruments outstanding at November 30, 2024:
982
December 2024 - October 2025
64,712
December 2024 - January 2025
The following table summarizes the gain (loss) recognized in earnings for economic (non-designated) derivative financial instruments for the periods presented:
Recognized in Earnings
Location of Gain (Loss)
398
571
(489
(91
Gain
Location of Gain
371
1,414
558
929
Note P – Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is an exit price concept that assumes an orderly transaction between willing market participants and is required to be based on assumptions that market participants would use in pricing an asset or a liability. Current accounting guidance establishes a three-tier fair value hierarchy as a basis for considering such assumptions and for classifying the inputs used in the valuation methodologies. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair values are as follows:
Recurring Fair Value Measurements
At November 30, 2024, our assets and liabilities measured at fair value on a recurring basis were as follows:
(Level 1)
(Level 2)
(Level 3)
Totals
Assets (1)
Derivative financial instruments
Liabilities (1)
At May 31, 2024, our assets and liabilities measured at fair value on a recurring basis were as follows:
22
Non-Recurring Fair Value Measurements
At November 30, 2024, there were no assets measured at fair value on a non-recurring basis on our consolidated balance sheet.
At May 31, 2024, our assets measured at fair value on a non-recurring basis were as follows:
Investment in note receivable (1)
5,000
Investment in unconsolidated affiliate (2)
31,367
36,367
The fair value of non-derivative financial instruments included in the carrying amounts of cash and cash equivalents, receivables, income taxes receivable, other assets, accounts payable, accrued compensation, contributions to employee benefit plans and related taxes, other accrued items, income taxes payable and other liabilities approximate carrying value due to their short-term nature. The fair value of long-term debt, including current maturities, based upon models utilizing market observable (Level 2) inputs and credit risk, was $265,577 and $257,866 at November 30, 2024 and May 31, 2024, respectively. The carrying amount of long-term debt, including current maturities, was $295,721 and $298,133 at November 30, 2024 and May 31, 2024, respectively.
23
Item 2. – Management’s Discussion and Analysis of Financial Condition and Results of Operations
Unless otherwise indicated, all Note references contained in this MD&A refer to the Condensed Notes to Consolidated Financial Statements included in “Part I – Item 1. – Financial Statements” of this Form 10-Q. All amounts are presented in millions except common share and per common share amounts.
Introduction
The following discussion and analysis of market and industry trends, business developments, and the results of our operations and financial position should be read in conjunction with our consolidated financial statements and notes thereto included in “Part I – Item 1. – Financial Statements” of this Form 10-Q. The 2024 Form 10-K includes additional information about our business, operations and consolidated financial position and should be read in conjunction with this Form 10-Q. This MD&A is designed to provide a reader with material information relevant to an assessment of our financial condition and results of operations and to allow investors to view the Company from the perspective of management. The results of operations contained in this MD&A include all of our operations, including our former steel processing business. Our historical results have been restated to reflect the operations of Worthington Steel as a discontinued operation in periods prior to the December 1, 2023 Separation as discussed in “Note A – Basis of Presentation.” This MD&A is divided into five main sections:
Recent Business Developments
Trends and Factors Impacting our Performance
The following trends and factors have contributed to the results of our consolidated operations, and we anticipate that they will continue to affect our future results.
Key Indicators
We actively monitor publicly available macroeconomic trends that provide insight into the activity in our end markets and raw material pricing trends that provide insight into our cost of goods sold. These trends include, but are not limited to, the ABI, the Dodge Momentum Index, the HMI, hot-rolled and cold-rolled steel prices, retail sales, state and local government spending, interest rate environment and inflation metrics. Selected key indicators are presented below.
Increase/
(Dollars and units in millions)
(Decrease)
U.S. Residential Construction spend (1)(3)
918,113
889,691
28,422
U.S. Non-residential Construction Spend (1)(3)
1,234,468
1,200,999
33,469
Hot-Rolled Steel ($ per ton) (2)
690
747
Cold-Rolled Steel ($ per ton) (2)
978
Existing Home Sales (units) (1)(3)
4.2
3.9
0.3
Authorized Housing Permits (units) (1)(3)
1.5
U.S. Private Housing Starts (units) (1)(3)
1.3
(0.2
U.S. Core CPI (4)
3.30
4.02
(0.72
%)
46.0
34.0
12.0
49.6
45.3
4.3
Dodge Momentum Index
191.5
179.2
12.3
30-Year Fixed mortgage rates (1)
6.81
7.22
(0.41
End Markets and Competition
We offer a wide range of products and services to a diverse customer base across various end markets, primarily in the U.S., including the residential and non-residential construction markets, repair and remodeling, which drive demand for our building products offerings, as well as the tools, outdoor living, and celebrations end markets, which drive demand for our consumer products offerings. Given the range of products and services we provide, our competitors vary by industry, product type, service type, program size, and geography. Competition is primarily based on price, product quality, brand recognition, product innovation, and customer service. Sales to one customer in the Consumer Products operating segment accounted for 12.9% of our consolidated net sales in the second quarter of fiscal 2025.
Residential Construction: The near-term outlook for U.S. residential construction spend remains cautiously optimistic, growing a modest 3.0% year-over-year in November 2024. The year-over-year growth, however, continues to follow the trend of the overall inflationary rate rather than organic growth, as housing starts and authorized permits remain flat indicating that both builders and potential buyers remain cautious in their spending approach. The HMI was up 12 points year-over-year in November 2024 to 46.0, highlighting resilience in this end market, despite persistent macro-economic challenges, including high mortgage rates, elevated home prices, and increasing material and labor costs. Although there are short-term challenges posed by higher interest rates and inflation that have impacted demand and affordability for consumers, we are optimistic that the underlying fundamentals of the U.S. residential housing market remains sound due to favorable demographics and a chronic undersupply of homes and we remain well-positioned to take advantage of these positive long-term trends.
25
Non-residential Construction: The near-term outlook for U.S. non-residential construction remains mixed. The November 2024 ABI was 49.6, indicating that the share of firms that reported declining billings was essentially equal to the share of firms that reported increasing billings. Despite declining interest rates and softening inflation, firms remain hesitant to start new projects, especially as some developers wait until the full scope of President-elect Trump's legislative agenda comes into better focus. While up year-over-year, the Dodge Momentum Index decreased 2.3% from October 2024 representing a moderate pullback in the number of projects planned. Some of this pullback is attributed to a decline in planned data center projects as well as weaker activity in healthcare, recreational, and religious projects. Despite the recent pullback in activity, there is optimism in market conditions as the planning queue remains strong and potential further rate cuts in calendar year 2025 have the potential to spur additional activity.
Repair and Remodel / Tools: Spending on home improvement has declined year-over-year through November 2024 due to multi-decade lows in existing home sales, driven by elevated interest rates, rising prices and supply constraints. Despite the recent pullback in repair and remodel spend, the October 2024 LIRA Report by the Joint Center for Housing Studies at Harvard University forecasts 1.2 percent of annual growth in home renovation and maintenance expenditures, rising to $477.1 billion through the third quarter of 2025. This projected growth comes as the average 30-year fixed mortgage rate decreased to 6.81% at November 30, 2024, from 7.22% at November 30, 2023, with further rate reductions expected over the medium to long-term as the U.S. Federal Reserve works to balance growth while keeping prices stable. However, it remains uncertain how far rates need to fall to entice home buyers to enter the market or leave their existing, lower fixed-rate mortgages.
Outdoor Living / Celebrations: Spending in the outdoor living and celebrations end markets is predominantly influenced by macroeconomic conditions affecting the general consumer (i.e., consumer spending), which have been adversely impacted by continued economic uncertainty, elevated interest rates, and lower than average housing turnover. However, the recent headwinds created by the combination of higher prices and higher interest rates should abate as prices stabilize and rates fall from their recent peak levels. While inflation has consistently dropped from its peak of 9.1% in June 2022, overall consumer demand continues to be adversely affected by a general moderation in consumer spending on non-essential items, driven by the combination of tighter monetary policy and persistently higher prices – the November 2024 Core CPI increased 3.30% relative to November 2023. We expect our consumers, who are price sensitive, to maintain a cautious posture in the near term as a result.
General Economic and Market Conditions
GDP growth rate trends are generally indicative of the underlying demand trends and, in many cases, pricing for our products. Increasing. GDP growth rates, which are an indication of a strengthening economy, typically drive higher demand for our products. Conversely, declining GDP growth rates usually indicate a weaker economy potentially reducing demand for many of our products. Fluctuations in GDP growth rates can affect conversion costs related to production and SG&A.
The macroeconomic and geopolitical outlook remains complex and evolving. Although the U.S. economy continues to grow at a modest pace, prolonged inflationary pressures have negatively impacted discretionary spending, reducing demand for certain of our products and services. Recent rate cuts by the U.S. Federal Reserve, including 0.50% in September 2024 and an additional 0.25% in November 2024, are expected to alleviate some of this pressure in the near-term by reducing borrowing costs and stimulating spending, particularly in the U.S. residential and non-residential construction end markets. However, the extent and magnitude of future rate cuts will be predicated on price stability and the Federal Reserve’s ability to lower the core CPI, currently at 3.30%, down to its target of 2%. In addition to inflation, consumer spending habits and demand for our products and services are influenced by prevailing global economic conditions, the costs of basic necessities and other goods, employment levels, salaries and wage rates, and prevailing interest rates. Additionally, consumer purchasing patterns are generally affected by consumers’ disposable income, credit availability, and debt levels.
Seasonality
Historically, sales tend to be stronger in the third and fourth quarters of our fiscal year for our Consumer Products businesses when our facilities perform at seasonal peaks, matching consumer demand. Sales in our Building Products businesses are generally stronger in the first and fourth quarters of our fiscal year due to weather conditions, customer business cycles, and the timing of renovation and new construction projects.
26
Results of Operations
Second Quarter – Fiscal 2025 Compared to Fiscal 2024
The following discussion provides a review of results for the three months ended November 30, 2024 and November 30, 2023:
(In millions, except per common share amounts)
GAAP Financial Measures
274.0
298.2
(24.2
3.5
(14.4
17.9
37.1
24.5
12.6
28.3
10.4
34.6
38.7
(4.1
EPS from continuing operations - diluted
0.20
Non-GAAP Financial Measures (1)
Adjusted operating income
6.1
2.4
3.7
56.2
55.0
1.2
Adjusted EPS from continuing operations - diluted
0.03
Net Sales and Volume
The following table provides a breakdown of our consolidated net sales by operating segment for the periods indicated:
Increase
(Dollars in millions)
116.7
119.4
(2.7
(2.3
157.3
151.3
4.0
270.7
3.3
27.5
(27.5
Consolidated
(8.1
The following table provides volume by operating segment for the periods presented:
(Volume in units)
16,419,957
15,931,049
488,908
3.1
3,328,513
3,346,983
(18,470
(0.6
19,748,470
19,278,032
470,438
114,063
(114,063
19,392,095
356,375
1.8
27
Gross Profit
Gross
Margin
74.1
27.0
63.3
21.2
10.8
% of
Net Sales
67.9
24.8
70.6
23.7
Other Operating Items
2.6
7.1
(7.1
Interest Expense, Net
1.0
0.5
28
Equity Income
WAVE (1)
24.6
21.4
3.2
ClarkDietrich (1)
9.7
13.7
(4.0
Other (2)
(3.2
38.6
Income Taxes
Annual
Estimated
9.1
24.1
6.6
25.7
2.5
Adjusted EBITDA from Continuing Operations
The following table provides a summary of adjusted EBITDA from continuing operations by reportable segment, a non-GAAP financial measure, along with the respective percentage of the total of each reportable segment. See the “Use of Non-GAAP Financial Measures and Definitions” section preceding Part I, Item 1 of this Form 10-Q for additional information regarding our use of non-GAAP financial measures. A reconciliation from earnings before income taxes to adjusted EBITDA from continuing operations is provided in “Note M – Segment Operations.”
% Increase/
15.5
13.3
12.7
10.6
2.8
22.0
47.2
30.0
45.8
30.3
1.4
62.7
22.9
58.5
21.6
7.2
(6.5
(3.4
(3.1
8.8
55.1
1.1
2.0
29
Six Months Year-to-Date - Fiscal 2025 Compared to Fiscal 2024
The following discussion provides a review of results for the six months ended November 30, 2024 and November 30, 2023:
531.4
610.1
(78.7
Operating loss
(1.2
(21.7
60.3
7.6
52.5
44.8
7.7
70.0
84.1
(14.1
(4.5
104.6
121.0
(16.4
(0.21
234.3
236.7
(2.4
(1.0
297.0
317.2
(20.2
(6.4
531.3
553.9
(22.6
(56.2
(78.8
(12.9
32,590,513
31,962,632
627,881
6,422,630
7,155,803
(733,173
(10.2
39,013,143
39,118,435
(105,292
(0.3
220,369
(220,369
39,338,804
(325,661
(0.8
30
136.6
132.9
21.8
134.0
25.2
145.1
23.8
(11.1
31
3.8
9.5
(9.5
Loss on Extinguishment of Debt
(1.5
49.7
30.5
(12.0
(0.9
(4.8
70.1
(14.0
15.9
15.6
33.3
14.2
26.9
11.4
6.4
86.9
29.3
105.4
33.2
(18.5
(17.6
120.2
22.6
132.3
23.9
(12.1
(9.1
(15.6
(11.4
(4.2
(36.8
120.9
(16.3
(13.5
33
Liquidity and Capital Resources
During the six months ended November 30, 2024, we generated $90.2 million of cash from operating activities, invested $24.8 million in property, plant and equipment, spent $88.2 million to acquire Ragasco, and received $11.4 million for the sale of 51% of our former Sustainable Energy Solutions operating segment. Additionally, we paid $14.9 million to repurchase 350,000 common shares and paid dividends of $17.1 million on the common shares during the six months ended November 30, 2024.
The following table summarizes our consolidated cash flows for the periods presented:
(In millions)
90.2
194.7
(101.6
(97.8
Net cash used by financing activities
(39.0
(120.9
Decrease in cash and cash equivalents
(50.4
(24.0
244.2
454.9
Cash and cash equivalents at end of period
193.8
430.9
Activity related to our discontinued operations has not been segregated in our consolidated statements of cash flows. See “Note B – Discontinued Operations” for a summarization of significant non-cash items related to discontinued operations.
We believe we have access to adequate resources 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, for at least 12 months and for the foreseeable future thereafter. These resources include cash and cash equivalents and unused committed lines of credit under our Credit Facility, which had a total of $500.0 million of borrowing capacity available to be drawn as of November 30, 2024.
Although we do not currently anticipate a need, we believe that we could access the financial markets to sell long-term debt or equity securities. However, the continuation of uncertain economic conditions, including those caused by a high interest rate environment, could create volatility in the financial markets, which may impact our ability to access capital and the terms under which we can do so.
We routinely monitor current operational requirements, financial market conditions, and credit relationships and we may choose to seek additional capital by issuing new debt and/or equity securities to strengthen our liquidity or capital structure. Should we seek additional capital, there can be no assurance that we would be able to obtain such additional capital on terms acceptable to us, if at all, and such additional equity or debt financing could dilute the interests of our existing shareholders and/or increase our interest costs. We may also from time to time seek to retire or repurchase our outstanding debt through cash purchases, in open-market purchases, privately-negotiated transactions or otherwise. Such repurchases, if any, will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.
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 arise 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 provided by operating activities was $90.2 million during the six months ended November 30, 2024, down from $194.7 million from the prior year period. The decrease was primarily due to lower net earnings in the current year period driven by the Separation and a $26.2 million decrease in dividends from unconsolidated joint ventures.
34
Investing Activities
Net cash used by investing activities was $101.6 million during the six months ended November 30, 2024 compared to $97.8 million from the prior year period. Net cash used by investing activities during the six months ended November 30, 2024 was driven primarily by the acquisition of Ragasco and capital expenditures partially offset by proceeds from the sale of 51% of the nominal share capital of our former Sustainable Energy Solutions operating segment on May 29, 2024.
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 any such opportunities may require additional financing. However, there can be no assurance 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 $39.0 million during the six months ended November 30, 2024, compared to $120.9 million in the prior year period. During the six months ended November 30, 2024, we paid $14.9 million to repurchase 350,000 common shares and paid dividends of $17.1 million on the common shares. During the six months ended November 30, 2023, we received $172.2 million in net proceeds of short-term borrowings and repaid $243.8 million of long-term debt associated with the redemption of the 2026 Notes.
Common shares – On December 24, 2024, the Board declared a quarterly dividend of $0.17 per common share payable on March 28, 2025, to shareholders of record at the close of business on March 14, 2025. During the second quarter of fiscal 2024, we declared dividends totaling $0.32 per common share under our pre-Separation capital structure.
On March 20, 2019, the Board authorized the repurchase of up to 6,600,000 common shares.
On March 24, 2021, the Board authorized the repurchase of up to an additional 5,618,464 common shares, increasing the total number of common shares then authorized for repurchase to 10,000,000. As of November 30, 2024, 5,715,000 common shares remained available for repurchase under these two authorizations.
The common shares may be repurchased under these authorizations 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.
Long-term debt and short-term borrowings – As of November 30, 2024, we were in compliance with the financial covenants of our short-term and long-term debt agreements. Our debt agreements do not include credit rating triggers or material adverse change provisions. There were no outstanding borrowings drawn against the Credit Facility at November 30, 2024, leaving the full borrowing capacity of $500.0 million available for future use.
35
Dividend Policy
We currently have no material contractual or regulatory restrictions on the payment of dividends. Dividends are declared at the discretion of the Board. The 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 of dividends will continue in the future.
Critical Accounting Estimates
The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements and related disclosure, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to use judgment and 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, current trends and other factors that we believe to be relevant and reasonable under the circumstances at the time the estimate was made. 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. We believe that our estimates, assumptions, and judgments are reasonable in that they were based on information available when the estimates, assumptions and judgments were made. However, because future events and their effects cannot be determined with certainty, actual results could differ materially from those implied by our assumptions and estimates. 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 Estimates” of the 2024 Form 10-K.
Item 3. – Quantitative and Qualitative Disclosures About Market Risk
Market risks have not materially changed from those disclosed in “Part II – Item 7A. – Quantitative and Qualitative Disclosures About Market Risk” of the 2024 Form 10-K.
Item 4. – Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to provide reasonable assurance that information required to be disclosed in the reports that Worthington Enterprises files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including Worthington Enterprises’ principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Management, under the supervision of and with the participation of Worthington Enterprises’ principal executive officer and principal financial officer, performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Form 10-Q. Based on that evaluation, Worthington Enterprises’ principal executive officer and principal financial officer have concluded that such disclosure controls and procedures were designed at the reasonable assurance level and were effective at a reasonable assurance level as of the end of the quarterly period covered by this Form 10-Q.
Changes in Internal Control Over Financial Reporting
There were no changes that occurred during the period covered by this Form 10-Q in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. – Legal Proceedings
We are involved in various judicial and administrative proceedings, as both plaintiff and defendant, arising in the ordinary course of business. We do not believe that any such proceedings, individually and in the aggregate, will have a material adverse effect on our business, financial position, results of operation or cash flows.
Item 1A. – Risk Factors
There are certain risks and uncertainties in our business that could cause our actual results to differ materially from those anticipated. In “PART I – Item 1A. – Risk Factors” of the 2024 Form 10-K, we included a detailed discussion of our risk factors. Our risk factors have not changed significantly from those disclosed in the 2024 Form 10-K. Those risk factors should be read carefully in connection with evaluating our business and investments in the common shares and in connection with the forward-looking statements and other information contained in this Form 10-Q. Any of the risks described in the 2024 Form 10-K could materially affect our business, consolidated financial condition or future results and the actual outcome of matters as to which forward-looking statements are made. The risk factors described in the 2024 Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, also may materially adversely affect our business, consolidated financial condition and/or future results.
Item 2. – Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
There were no equity securities of Worthington Enterprises sold by Worthington Enterprises during the six months ended November 30, 2024 that were not registered under the Securities Act of 1933, as amended.
Issuer Purchases of Equity Securities
Common shares withheld to cover tax withholding obligations in connection with the vesting of restricted common shares are treated as common share purchases for purposes of the following table. However, those withheld common shares are not considered common share repurchases under an authorized common share repurchase plan or program. The total number of common shares purchased, as indicated in the table below, include (1) common shares withheld from our employees to satisfy minimum statutory tax withholding obligations arising from the vesting of restricted common shares and (2) common shares repurchased as part of publicly announced plans or programs.
Maximum Number of
Total Number of Common
Common Shares that
Total Number of
Average Price
Shares Purchased as Part
May Yet Be
Common Shares
Paid per
of Publicly Announced
Purchased Under the
Purchased
Common Share
Plans or Programs
Plans or Programs (1)
September 1-30, 2024
53,528
42.74
6,035,000
October 1-31, 2024
203,526
40.39
200,000
5,915,000
November 1-30, 2024
45,005
38.82
5,715,000
302,059
40.65
Item 3. – Defaults Upon Senior Securities
Not applicable.
Item 4. – Mine Safety Disclosures
Item 5. – Other Information
During the quarter ended November 30, 2024, no director or officer (as defined under Rule 16a-1 of the Exchange Act) adopted or terminated any Rule 10b5-1 trading arrangements or any non-Rule 10b5-1 trading arrangements (in each case, as defined in Item 408(a) of Regulation S-K).
Item 6. – Exhibits
Incorporated by Reference
Exhibit No.
Exhibit Description
Form
Exhibit
Filing Date
2.1
Separation and Distribution Agreement, dated November 30, 2023, between Worthington Enterprises, Inc. and Worthington Steel, Inc.
8-K
12/05/2023
Amended Articles of Incorporation of Worthington Enterprises, Inc. [This document represents the articles of incorporation of Worthington Enterprises, Inc. in compiled form incorporating all amendments.]
10-Q
01/09/2024
Code of Regulations of Worthington Enterprises, Inc. [This document represents the code of regulations of Worthington Enterprises, Inc. in compiled form incorporating all amendments.]
3(b)
10/16/2000
10.1
Letter Agreement between Worthington Enterprises, Inc. and B. Andrew Rose†
10/08/2024
31.1
Rule 13a - 14(a)/15d - 14(a) Certifications (Principal Executive Officer)*
31.2
Rule 13a - 14(a)/15d - 14(a) Certifications (Principal Financial Officer)*
32.1
Section 1350 Certification of Principal Executive Officer**
32.2
Section 1350 Certification of Principal Financial Officer**
101
Interactive Data Files Pursuant to Rule 405 of Regulation S-T, formatted in Inline XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets at November 30, 2024 and May 31, 2024; (ii) Consolidated Statements of Earnings for the six months ended November 30, 2024 and November 30, 2023; (iii) Consolidated Statements of Comprehensive Income for the six months ended November 30, 2024 and November 30, 2023; (iv) Consolidated Statements of Cash Flows for the six months ended November 30, 2024 and November 30, 2023 and (v) Condensed Notes to Consolidated Financial Statements.*
The cover page from this Quarterly Report on Form 10-Q for the quarter ended November 30, 2024, formatted in Inline XBRL and included in Exhibit 101.*
* Filed herewith.
** Furnished herewith.
† Indicates a management contract or compensatory plan or arrangement.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: January 10, 2025
By:
/s/ Colin J. Souza
Colin J. Souza,
Vice President and Chief Financial Officer
(On behalf of the registrant as Duly Authorized Officer and as Principal Financial Officer)