Worthington Industries, Inc. (NYSE:WOR) Q4 2022 Earnings Conference Call June 23, 2022 8:30 AM ET Company Participants Marcus Rogier - Treasurer and IR Officer Andy Rose - President and CEO Joe Hayek - CFO Conference Call Participants Martin Englert - Seaport Research Partners Phil Gibbs - KeyBanc Capital Markets John Tumazos - John Tumazos Very Independent Research Operator Good morning, and welcome to the Worthington Industries Fourth Quarter Fiscal 2022 Earnings Conference Call. All participants will be ...

Worthington Industries, Inc. (NYSE:WOR) Q3 2022 Earnings Conference Call March 23, 2022 8:30 AM ET Company Participants Marcus Rogier - Treasurer & Investor Relations Officer Andy Rose - President & Chief Executive Officer Joe Hayek - Chief Financial Officer Conference Call Participants Martin Englert - Seaport Research Partners Zane Wang - BNP John Tumazos - John Tumazos Very Independent Research Operator Good morning, and welcome to the Worthington Industries Third Quarter Fiscal 2022 Earnings Conference ...

Part I. Financial Information This section presents Worthington Industries, Inc.'s unaudited consolidated financial statements, including balance sheets, statements of earnings (loss), comprehensive income (loss), and cash flows, along with detailed notes on accounting policies, segment information, investments, and acquisitions [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) This section presents Worthington Industries, Inc.'s unaudited consolidated financial statements, including balance sheets, statements of earnings (loss), comprehensive income (loss), and cash flows for the periods ended November 30, 2021, and May 31, 2021 (for balance sheet) or November 30, 2020 (for income and cash flow statements) [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's assets, liabilities, and equity as of November 30, 2021, and May 31, 2021 **Consolidated Balance Sheets (in thousands):** | Item | November 30, 2021 (in thousands) | May 31, 2021 (in thousands) | | :------------------------------------ | :------------------ | :----------- | | **Assets** | | | | Cash and cash equivalents | $225,194 | $640,311 | | Receivables, net | $736,738 | $639,964 | | Total inventories | $839,588 | $564,754 | | Total current assets | $1,910,767 | $1,967,992 | | Investments in unconsolidated affiliates | $291,397 | $233,126 | | Goodwill | $370,191 | $351,056 | | Total property, plant and equipment, net | $551,634 | $515,017 | | **Total assets** | **$3,517,632** | **$3,373,245** | | **Liabilities and Equity** | | | | Accounts payable | $610,278 | $567,392 | | Total current liabilities | $820,158 | $787,901 | | Long-term debt | $701,892 | $710,031 | | Total liabilities | $1,884,541 | $1,821,550 | | Total equity | $1,633,091 | $1,551,695 | | **Total liabilities and equity** | **$3,517,632** | **$3,373,245** | [Consolidated Statements of Earnings (Loss)](index=6&type=section&id=Consolidated%20Statements%20of%20Earnings%20%28Loss%29) This section details the company's net sales, gross margin, operating income, and net earnings (loss) for the three and six months ended November 30, 2021 and 2020 **Consolidated Statements of Earnings (Loss) (in thousands, except per share amounts):** | Item | Three Months Ended Nov 30, 2021 (in thousands) | Three Months Ended Nov 30, 2020 (in thousands) | Six Months Ended Nov 30, 2021 (in thousands) | Six Months Ended Nov 30, 2020 (in thousands) | | :---------------------------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net sales | $1,232,861 | $731,092 | $2,343,679 | $1,434,001 | | Gross margin | $184,591 | $135,474 | $403,965 | $248,832 | | Operating income | $90,465 | $37,364 | $226,262 | $7,243 | | Equity in net income of unconsolidated affiliates | $60,218 | $25,631 | $113,134 | $49,265 | | Net earnings (loss) attributable to controlling interest | $110,301 | $(74,044) | $242,792 | $542,631 | | Basic Earnings (loss) per share attributable to controlling interest | $2.19 | $(1.40) | $4.80 | $10.14 | | Diluted Earnings (loss) per share attributable to controlling interest | $2.15 | $(1.40) | $4.71 | $9.97 | | Cash dividends declared per share | $0.28 | $0.25 | $0.56 | $0.50 | [Consolidated Statements of Comprehensive Income (Loss)](index=7&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20%28Loss%29) This section presents the company's net earnings (loss) and other comprehensive income (loss) for the three and six months ended November 30, 2021 and 2020 **Consolidated Statements of Comprehensive Income (Loss) (in thousands):** | Item | Three Months Ended Nov 30, 2021 (in thousands) | Three Months Ended Nov 30, 2020 (in thousands) | Six Months Ended Nov 30, 2021 (in thousands) | Six Months Ended Nov 30, 2020 (in thousands) | | :---------------------------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net earnings (loss) | $113,185 | $(68,512) | $254,660 | $550,226 | | Other comprehensive (loss) income | $(57,858) | $14,163 | $(62,132) | $25,406 | | Comprehensive income (loss) | $55,327 | $(54,349) | $192,528 | $575,632 | | Comprehensive income (loss) attributable to controlling interest | $52,443 | $(59,881) | $180,660 | $568,037 | [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section outlines the company's cash flows from operating, investing, and financing activities for the three and six months ended November 30, 2021 and 2020 **Consolidated Statements of Cash Flows (in thousands):** | Item | Three Months Ended Nov 30, 2021 (in thousands) | Three Months Ended Nov 30, 2020 (in thousands) | Six Months Ended Nov 30, 2021 (in thousands) | Six Months Ended Nov 30, 2020 (in thousands) | | :---------------------------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net cash (used) provided by operating activities | $(119,104) | $107,428 | $(168,916) | $224,816 | | Net cash (used) provided by investing activities | $(22,098) | $5,432 | $(124,088) | $460,420 | | Net cash used by financing activities | $(32,850) | $(49,798) | $(122,113) | $(119,304) | | (Decrease) increase in cash and cash equivalents | $(174,052) | $63,062 | $(415,117) | $565,932 | | Cash and cash equivalents at end of period | $225,194 | $713,130 | $225,194 | $713,130 | [Condensed Notes to Consolidated Financial Statements](index=9&type=section&id=Condensed%20Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed notes on the company's accounting policies, segment information, investments, acquisitions, and other financial disclosures [NOTE A – Basis of Presentation](index=9&type=section&id=NOTE%20A%20%E2%80%93%20Basis%20of%20Presentation) This note describes the basis for preparing the consolidated financial statements, including consolidation policies and accounting standards adopted - The consolidated financial statements include Worthington Industries, Inc. and its consolidated subsidiaries. Investments in unconsolidated affiliates are accounted for using the equity method[34](index=34&type=chunk) - The Company consolidates four joint ventures (Spartan Steel Coating, TWB Company, Worthington Samuel Coil Processing, and Worthington Specialty Processing) where it holds controlling interests, with noncontrolling interests reported separately[35](index=35&type=chunk) - These unaudited interim financial statements are prepared in accordance with U.S. GAAP and SEC instructions, and operating results for the three and six months ended November 30, 2021, are not necessarily indicative of the full fiscal year[36](index=36&type=chunk) - Effective June 1, 2021, the Company adopted ASU 2019-12, which simplifies income tax accounting, with no material impact on financial statements[38](index=38&type=chunk) [NOTE B – Revenue Recognition](index=10&type=section&id=NOTE%20B%20%E2%80%93%20Revenue%20Recognition) This note details the company's revenue recognition policies, including disaggregation of net sales by segment and product class **Net Sales by Reportable Segment and Product Class (in thousands):** | Segment/Product Class | Three Months Ended Nov 30, 2021 (in thousands) | Three Months Ended Nov 30, 2020 (in thousands) | Six Months Ended Nov 30, 2021 (in thousands) | Six Months Ended Nov 30, 2020 (in thousands) | | :------------------------------------ | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | **Steel Processing** | | | | | | Direct | $900,666 | $433,556 | $1,688,694 | $838,364 | | Toll | $37,176 | $35,167 | $71,958 | $61,379 | | Total Steel Processing | $937,842 | $468,723 | $1,760,652 | $899,743 | | Consumer Products | $140,793 | $117,513 | $288,576 | $251,135 | | Building Products | $121,125 | $93,989 | $235,868 | $182,092 | | Sustainable Energy Solutions | $33,101 | $34,023 | $58,583 | $61,880 | | Other | $- | $16,844 | $- | $39,151 | | **Total** | **$1,232,861** | **$731,092** | **$2,343,679** | **$1,434,001** | - Revenue is recognized at a point in time, except for toll processing revenue and historically, certain oil & gas equipment contracts, which are recognized over time[42](index=42&type=chunk) **Over Time Revenue (in thousands):** | Item | Three Months Ended Nov 30, 2021 (in thousands) | Three Months Ended Nov 30, 2020 (in thousands) | Six Months Ended Nov 30, 2021 (in thousands) | Six Months Ended Nov 30, 2020 (in thousands) | | :------------------------------------ | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Steel Processing - toll | $37,176 | $35,167 | $71,958 | $61,379 | | Certain oil & gas equipment contracts | $- | $4,367 | $- | $12,066 | | **Total over time revenue** | **$37,176** | **$39,534** | **$71,958** | **$73,445** | [NOTE C – Investment in Nikola](index=11&type=section&id=NOTE%20C%20%E2%80%93%20Investment%20in%20Nikola) This note outlines the company's historical investment in Nikola, including share sales, gains, and subsequent mark-to-market adjustments - In fiscal 2021, the Company sold or contributed all of its **19,048,020 Nikola common shares**, which were converted from an equity interest in the predecessor company[45](index=45&type=chunk) - During the first quarter of fiscal 2021, the Company recognized a **$796.1 million pre-tax gain** from Nikola, comprising **$508.5 million in realized gains** from share sales/contributions and **$287.6 million in unrealized mark-to-market gains**[46](index=46&type=chunk) - Incremental expenses of **$49.5 million** were recognized, including discretionary profit sharing/bonuses and a **$20.7 million charitable contribution** of Nikola shares[46](index=46&type=chunk) - In the second quarter of fiscal 2021, a **$143.8 million unrealized mark-to-market loss** was recorded due to a drop in Nikola's share price, reducing the year-to-date gain to **$652.4 million**[47](index=47&type=chunk) [NOTE D – Investments in Unconsolidated Affiliates](index=11&type=section&id=NOTE%20D%20%E2%80%93%20Investments%20in%20Unconsolidated%20Affiliates) This note describes the company's non-controlling investments in various affiliates, accounted for using the equity method, and their combined financial performance - The Company holds non-controlling investments in ArtiFlex Manufacturing, Clarkwestern Dietrich Building Systems, Serviacero Planos, Taxi Workhorse Holdings (Cabs), and Worthington Armstrong Venture (WAVE), accounted for using the equity method[48](index=48&type=chunk) - Distributions from unconsolidated affiliates totaled **$48.6 million** for the six months ended November 30, 2021[49](index=49&type=chunk) - Cumulative distributions from WAVE in excess of investment balance, amounting to **$94.8 million**, are shown as a separate liability on the consolidated balance sheet[49](index=49&type=chunk) **Combined Financial Information of Unconsolidated Affiliates (in thousands):** | Item | November 30, 2021 (in thousands) | May 31, 2021 (in thousands) | | :------------------------------------ | :------------------ | :----------- | | Total assets | $1,540,768 | $1,128,070 | | Total liabilities and equity | $1,540,768 | $1,128,070 | | Item | Three Months Ended Nov 30, 2021 (in thousands) | Three Months Ended Nov 30, 2020 (in thousands) | Six Months Ended Nov 30, 2021 (in thousands) | Six Months Ended Nov 30, 2020 (in thousands) | | :------------------------------------ | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net sales | $858,165 | $451,198 | $1,603,160 | $856,518 | | Net earnings | $173,915 | $60,943 | $312,803 | $117,516 | [NOTE E – Goodwill and Long-Lived Assets](index=12&type=section&id=NOTE%20E%20%E2%80%93%20Goodwill%20and%20Long-Lived%20Assets) This note provides a breakdown of goodwill by segment and details impairment charges related to long-lived assets in prior fiscal periods **Goodwill by Segment (in thousands):** | Segment | May 31, 2021 (in thousands) | Acquisitions & Adjustments (in thousands) | Translation Adjustments (in thousands) | November 30, 2021 (in thousands) | | :--------------------------- | :----------- | :------------------------- | :---------------------- | :---------------- | | Steel Processing | $20,218 | $24,859 | $- | $45,077 | | Consumer Products | $240,940 | $237 | $- | $241,177 | | Building Products | $72,273 | $- | $(4,073) | $68,200 | | Sustainable Energy Solutions | $17,625 | $- | $(1,888) | $15,737 | | **Total** | **$351,056** | **$25,096** | **$(5,961)** | **$370,191** | - Goodwill of the former Pressure Cylinders reporting unit was reallocated to new reporting units (Consumer Products, Building Products, Sustainable Energy Solutions) on a relative fair value basis, effective June 1, 2021[53](index=53&type=chunk) - No impairment charges were recorded in fiscal 2022. In fiscal 2021, impairment charges totaled **$1.441 million** for oil & gas equipment fixed assets and full impairment of customer list intangible assets due to COVID-19 impact[55](index=55&type=chunk)[56](index=56&type=chunk) - Additional fiscal 2021 impairment charges included **$4.333 million** for cryogenics property, plant and equipment and full impairment of related customer list intangible assets, **$1.423 million** for alternative fuel cylinders manufacturing line, and **$506,000** for Superior Tools business[57](index=57&type=chunk)[58](index=58&type=chunk) [NOTE F – Restructuring and Other Income, Net](index=13&type=section&id=NOTE%20F%20%E2%80%93%20Restructuring%20and%20Other%20Income%2C%20Net) This note outlines the company's restructuring activities, including facility closures and asset sales, and their financial impact - Restructuring activities involve fundamental changes to operations, such as facility closures, consolidations, or management realignments[59](index=59&type=chunk) **Restructuring Liabilities Progression (in thousands) for Six Months Ended Nov 30, 2021:** | Item | Balance, May 31, 2021 (in thousands) | Expense (Income) (in thousands) | Payments (in thousands) | Adjustments (in thousands) | Balance, Nov 30, 2021 (in thousands) | | :--------------------------- | :-------------------- | :--------------- | :------- | :---------- | :-------------------- | | Early retirement and severance | $771 | $(350) | $(172) | $(55) | $194 | | Facility exit and other costs | $449 | $(449) | $- | $- | $- | | **Total** | **$1,220** | **$(799)** | **$(172)** | **$(55)** | **$194** | | Net gain on sale of assets | | $(12,637) | | | | | Gain on lease buyout | | $(842) | | | | | **Restructuring and other income, net** | | **$(14,278)** | | | | - A pre-tax gain of **$12.2 million** resulted from the sale of WSP joint venture's Canton, Michigan facility on June 8, 2021[60](index=60&type=chunk) - A pre-tax gain of **$842,000** resulted from the buyout of an operating lease at the fabricated products business in Stow, Ohio on September 10, 2021[61](index=61&type=chunk) [NOTE G – Contingent Liabilities and Commitments](index=13&type=section&id=NOTE%20G%20%E2%80%93%20Contingent%20Liabilities%20and%20Commitments) This note addresses the company's legal actions and a reserve for a voluntary tank replacement program - Management believes the outcome of current legal actions will not significantly affect consolidated financial position or future results of operations[62](index=62&type=chunk) - A reserve of **$4.9 million** is held for estimated remaining direct costs related to a voluntary tank replacement program for SCI's composite hydrogen fuel tanks, expected to be paid within the next twelve months[64](index=64&type=chunk) [NOTE H – Guarantees](index=14&type=section&id=NOTE%20H%20%E2%80%93%20Guarantees) This note discusses the company's guarantees, including stand-by letters of credit and an aircraft operating lease residual value guarantee - The Company does not have guarantees likely to materially affect its financial condition or results[65](index=65&type=chunk) - Outstanding stand-by letters of credit totaled **$16.8 million** at November 30, 2021, with no amounts drawn[65](index=65&type=chunk) - The maximum obligation under an aircraft operating lease residual value guarantee was approximately **$18.9 million** at November 30, 2021[65](index=65&type=chunk) [NOTE I – Debt](index=14&type=section&id=NOTE%20I%20%E2%80%93%20Debt) This note describes the company's revolving credit facility, its terms, and current utilization - The Company maintains a **$500 million multi-year revolving credit facility**, amended on August 20, 2021, extending its maturity to August 20, 2026[66](index=66&type=chunk) - Borrowings under the Credit Facility can be at rates over Daily LIBOR, Prime Rate, or Overnight Bank Funding Rate, with the applicable margin determined by the Company's credit rating[66](index=66&type=chunk) - There were no borrowings or letters of credit outstanding under the Credit Facility at November 30, 2021[66](index=66&type=chunk) [NOTE J – Other Comprehensive (Loss) Income](index=14&type=section&id=NOTE%20J%20%E2%80%93%20Other%20Comprehensive%20%28Loss%29%20Income) This note presents the tax effects on components of other comprehensive income (loss), including foreign currency translation, pension liability, and cash flow hedges **Tax Effects on Components of OCI (in thousands) for Three Months Ended Nov 30:** | Item | Before-Tax 2021 (in thousands) | Tax 2021 (in thousands) | Net-of-Tax 2021 (in thousands) | Before-Tax 2020 (in thousands) | Tax 2020 (in thousands) | Net-of-Tax 2020 (in thousands) | | :--------------------------- | :-------------- | :------- | :-------------- | :-------------- | :------- | :-------------- | | Foreign currency translation | $(4,507) | $(365) | $(4,872) | $(1,027) | $(24) | $(1,051) | | Pension liability adjustment | $- | $- | $- | $(4) | $- | $(4) | | Cash flow hedges | $(68,677) | $15,691 | $(52,986) | $19,540 | $(4,322) | $15,218 | | **Total OCI** | **$(73,184)** | **$15,326** | **$(57,858)** | **$18,509** | **$(4,346)** | **$14,163** | **Tax Effects on Components of OCI (in thousands) for Six Months Ended Nov 30:** | Item | Before-Tax 2021 (in thousands) | Tax 2021 (in thousands) | Net-of-Tax 2021 (in thousands) | Before-Tax 2020 (in thousands) | Tax 2020 (in thousands) | Net-of-Tax 2020 (in thousands) | | :--------------------------- | :-------------- | :------- | :-------------- | :-------------- | :------- | :-------------- | | Foreign currency translation | $(8,124) | $(723) | $(8,847) | $6,581 | $676 | $7,257 | | Pension liability adjustment | $- | $- | $- | $484 | $(116) | $368 | | Cash flow hedges | $(68,876) | $15,591 | $(53,285) | $22,793 | $(5,012) | $17,781 | | **Total OCI** | **$(77,000)** | **$14,868** | **$(62,132)** | **$29,858** | **$(4,452)** | **$25,406** | [NOTE K – Changes in Equity](index=15&type=section&id=NOTE%20K%20%E2%80%93%20Changes%20in%20Equity) This note details the changes in the company's equity, including net earnings, other comprehensive income (loss), share repurchases, and dividends **Changes in Equity (in thousands) for Six Months Ended Nov 30, 2021:** | Item | Additional Paid-in Capital (in thousands) | Accumulated Other Comprehensive Income (Loss), Net of Tax (in thousands) | Retained Earnings (in thousands) | Total Controlling Interest (in thousands) | Noncontrolling Interests (in thousands) | Total Equity (in thousands) | | :------------------------------------ | :------------------------- | :-------------------------------------------------------- | :---------------- | :------------------------- | :----------------------- | :----------- | | Balance at May 31, 2021 | $282,790 | $45,387 | $1,070,016 | $1,398,193 | $153,502 | $1,551,695 | | Net earnings | $- | $- | $242,792 | $242,792 | $11,868 | $254,660 | | Other comprehensive loss | $- | $(62,132) | $- | $(62,132) | $- | $(62,132) | | Purchases and retirement of common shares | $(6,774) | $- | $(66,813) | $(73,587) | $- | $(73,587) | | Cash dividends declared | $- | $- | $(28,658) | $(28,658) | $- | $(28,658) | | Balance at November 30, 2021 | $279,205 | $(16,745) | $1,217,337 | $1,479,797 | $153,294 | $1,633,091 | **Changes in Equity (in thousands) for Six Months Ended Nov 30, 2020:** | Item | Additional Paid-in Capital (in thousands) | Accumulated Other Comprehensive Income (Loss), Net of Tax (in thousands) | Retained Earnings (in thousands) | Total Controlling Interest (in thousands) | Noncontrolling Interests (in thousands) | Total Equity (in thousands) | | :------------------------------------ | :------------------------- | :-------------------------------------------------------- | :---------------- | :------------------------- | :----------------------- | :----------- | | Balance at May 31, 2020 | $283,776 | $(35,217) | $572,262 | $820,821 | $145,612 | $966,433 | | Net earnings (loss) | $- | $- | $542,631 | $542,631 | $7,595 | $550,226 | | Other comprehensive income | $- | $25,406 | $- | $25,406 | $- | $25,406 | | Purchases and retirement of common shares | $(12,022) | $- | $(80,859) | $(92,883) | $- | $(92,883) | | Cash dividends declared | $- | $- | $(26,812) | $(26,812) | $- | $(26,812) | | Balance at November 30, 2020 | $279,801 | $(9,812) | $1,006,910 | $1,276,899 | $153,572 | $1,430,471 | **Changes in Accumulated Other Comprehensive Income (Loss) (in thousands) for Six Months Ended Nov 30, 2021:** | Item | Foreign Currency Translation (in thousands) | Pension Liability Adjustment (in thousands) | Cash Flow Hedges (in thousands) | Accumulated Other Comprehensive Income (Loss) (in thousands) | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------- | :-------------------------------------------- | | Balance as of May 31, 2021 | $1,779 | $(15,955) | $59,563 | $45,387 | | Other comprehensive income (loss) before reclassifications | $(8,124) | $- | $14,279 | $6,155 | | Reclassification adjustments to net earnings | $- | $- | $(83,155) | $(83,155) | | Income tax effect | $(723) | $- | $15,591 | $14,868 | | **Balance as of November 30, 2021** | **$(7,068)** | **$(15,955)** | **$6,278** | **$(16,745)** | [NOTE L – Stock-Based Compensation](index=17&type=section&id=NOTE%20L%20%E2%80%93%20Stock-Based%20Compensation) This note outlines the stock-based compensation granted, including non-qualified stock options, service-based restricted shares, and performance share awards - During the six months ended November 30, 2021, **54,500 non-qualified stock options** were granted with a weighted average exercise price of **$60.19 per share** and a fair value of **$19.73 per share**[76](index=76&type=chunk) - The calculated pre-tax stock-based compensation expense for these options is **$1.075 million**, to be recognized over a three-year vesting period[76](index=76&type=chunk) - An aggregate of **154,050 service-based restricted common shares** were granted, with a fair value of **$58.11 per share**, resulting in a calculated pre-tax compensation expense of **$9.048 million** over a three-year vesting period[78](index=78&type=chunk) - Performance share awards covering **36,400 common shares** (at target levels) were granted, with a calculated pre-tax compensation expense of **$2.191 million**, recognized over a three-year performance period based on corporate targets[80](index=80&type=chunk) [NOTE M – Income Taxes](index=18&type=section&id=NOTE%20M%20%E2%80%93%20Income%20Taxes) This note provides the estimated annual effective income tax rates for the six months ended November 30, 2021 and 2020 - Income tax expense for the six months ended November 30, 2021, and 2020, reflected estimated annual effective income tax rates of **22.8%** and **21.5%**, respectively[81](index=81&type=chunk) - The effective income tax rates exclude the impact of net earnings attributable to noncontrolling interests, primarily from consolidated joint ventures whose investors are taxed directly[81](index=81&type=chunk) [NOTE N – Earnings per Share](index=18&type=section&id=NOTE%20N%20%E2%80%93%20Earnings%20per%20Share) This note presents the computation of basic and diluted earnings per share, including weighted average common shares outstanding and dilutive securities **Computation of Basic and Diluted Earnings per Share (in thousands, except per share amounts):** | Item | Three Months Ended Nov 30, 2021 (in thousands) | Three Months Ended Nov 30, 2020 (in thousands) | Six Months Ended Nov 30, 2021 (in thousands) | Six Months Ended Nov 30, 2020 (in thousands) | | :---------------------------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net earnings (loss) attributable to controlling interest | $110,301 | $(74,044) | $242,792 | $542,631 | | Weighted average common shares outstanding (Basic) | 50,381 | 52,988 | 50,618 | 53,532 | | Effect of dilutive securities | 833 | - | 914 | 907 | | Weighted average common shares outstanding (Diluted) | 51,214 | 52,988 | 51,532 | 54,439 | | Basic earnings (loss) per share | $2.19 | $(1.40) | $4.80 | $10.14 | | Diluted earnings (loss) per share | $2.15 | $(1.40) | $4.71 | $9.97 | - Stock options and restricted common shares were excluded from diluted EPS computation when their effect would be anti-dilutive, particularly during periods of net loss[83](index=83&type=chunk) [NOTE O – Segment Operations](index=19&type=section&id=NOTE%20O%20%E2%80%93%20Segment%20Operations) This note details the company's reportable operating segments, their reorganization, product offerings, and summarized financial performance - Effective June 1, 2021, the Pressure Cylinders business was reorganized into three new reportable operating segments: Consumer Products, Building Products, and Sustainable Energy Solutions, in addition to the existing Steel Processing segment[85](index=85&type=chunk) - The Consumer Products segment offers market-leading brands in tools, outdoor living, and celebrations, including propane cylinders, torches, and helium kits, sold primarily to mass merchandisers and retailers[86](index=86&type=chunk) - The Building Products segment includes refrigerant and LPG cylinders, well water and expansion tanks, and other specialty products, sold mainly to gas producers and distributors[87](index=87&type=chunk) - The Sustainable Energy Solutions segment, primarily based in Europe, focuses on on-board fueling systems, gas containment solutions for industrial gases, and alternative fuel cylinders for CNG and hydrogen[88](index=88&type=chunk) - Segment performance is assessed using adjusted earnings (loss) before interest and taxes (EBIT), a non-GAAP measure that generally excludes impairment and restructuring charges[90](index=90&type=chunk) **Summarized Financial Information for Reportable Segments (in thousands) for Three Months Ended Nov 30:** | Item | Steel Processing 2021 (in thousands) | Consumer Products 2021 (in thousands) | Building Products 2021 (in thousands) | Sustainable Energy Solutions 2021 (in thousands) | Other 2021 (in thousands) | Consolidated 2021 (in thousands) | | :------------------------------------ | :-------------------- | :--------------------- | :--------------------- | :-------------------------------- | :--------- | :------------------ | | Net sales | $937,842 | $140,793 | $121,125 | $33,101 | $- | $1,232,861 | | Adjusted earnings before interest and taxes | $71,925 | $17,584 | $54,718 | $796 | $1,893 | $146,916 | | Item | Steel Processing 2020 (in thousands) | Consumer Products 2020 (in thousands) | Building Products 2020 (in thousands) | Sustainable Energy Solutions 2020 (in thousands) | Other 2020 (in thousands) | Consolidated 2020 (in thousands) | | :------------------------------------ | :-------------------- | :--------------------- | :--------------------- | :-------------------------------- | :--------- | :------------------ | | Net sales | $468,723 | $117,513 | $93,989 | $34,023 | $16,844 | $731,092 | | Adjusted earnings (loss) before interest and taxes | $34,381 | $17,432 | $25,964 | $1,534 | $(5,633) | $73,678 | **Summarized Financial Information for Reportable Segments (in thousands) for Six Months Ended Nov 30:** | Item | Steel Processing 2021 (in thousands) | Consumer Products 2021 (in thousands) | Building Products 2021 (in thousands) | Sustainable Energy Solutions 2021 (in thousands) | Other 2021 (in thousands) | Consolidated 2021 (in thousands) | | :------------------------------------ | :-------------------- | :--------------------- | :--------------------- | :-------------------------------- | :--------- | :------------------ | | Net sales | $1,760,652 | $288,576 | $235,868 | $58,583 | $- | $2,343,679 | | Adjusted earnings (loss) before interest and taxes | $179,617 | $38,140 | $103,471 | $(1,760) | $1,479 | $320,947 | | Item | Steel Processing 2020 (in thousands) | Consumer Products 2020 (in thousands) | Building Products 2020 (in thousands) | Sustainable Energy Solutions 2020 (in thousands) | Other 2020 (in thousands) | Consolidated 2020 (in thousands) | | :------------------------------------ | :-------------------- | :--------------------- | :--------------------- | :-------------------------------- | :--------- | :------------------ | | Net sales | $899,743 | $251,135 | $182,092 | $61,880 | $39,151 | $1,434,001 | | Adjusted earnings (loss) before interest and taxes | $48,557 | $41,341 | $49,337 | $973 | $(13,461) | $126,747 | **Total Assets for Reportable Segments (in thousands):** | Segment | November 30, 2021 (in thousands) | May 31, 2021 (in thousands) | | :--------------------------- | :------------------ | :----------- | | Steel Processing | $1,858,313 | $1,359,598 | | Consumer Products | $547,132 | $541,028 | | Building Products | $615,755 | $664,113 | | Sustainable Energy Solutions | $118,834 | $169,550 | | Other | $377,598 | $638,956 | | **Total assets** | **$3,517,632** | **$3,373,245** | [NOTE P – Acquisitions](index=21&type=section&id=NOTE%20P%20%E2%80%93%20Acquisitions) This note describes the acquisition of Shiloh Industries' U.S. BlankLight® business, including the purchase price allocation and acquired intangible assets - On June 8, 2021, the Company's Steel Processing segment, along with its TWB Company joint venture, acquired certain assets of Shiloh Industries' U.S. BlankLight® business for approximately **$104.8 million**[99](index=99&type=chunk) - The acquisition included three laser welding facilities for TWB and one blanking facility for core Steel Processing operations, with approximately **$20 million of goodwill** related to TWB[100](index=100&type=chunk) **Acquired Identifiable Intangible Assets from Shiloh Acquisition (in thousands):** | Category | Amount (in thousands) | Useful Life (Years) | | :------------------------------------ | :------- | :------------------ | | Customer relationships | $34,500 | 15-20 | | Non-compete agreement | $290 | 3 | | In-process research & development | $1,300 | Indefinite | | **Total acquired identifiable intangible assets** | **$36,090** | | **Shiloh Acquisition Purchase Price Allocation (in thousands):** | Item | Preliminary Valuation (in thousands) | Measurement Adjustments (in thousands) | Revised Valuation (in thousands) | | :------------------------------------ | :-------------------- | :---------------------- | :---------------- | | Total identifiable assets | $182,808 | $1,810 | $184,618 | | Net identifiable assets | $78,081 | $1,810 | $79,891 | | Goodwill | $26,669 | $(1,810) | $24,859 | | **Purchase price** | **$104,750** | **$-** | **$104,750** | [NOTE Q – Derivative Instruments and Hedging Activities](index=22&type=section&id=NOTE%20Q%20%E2%80%93%20Derivative%20Instruments%20and%20Hedging%20Activities) This note explains the company's use of derivative financial instruments to manage market risks and their fair value and impact on comprehensive income - The Company uses derivative financial instruments to manage exposure to interest rate risk, foreign currency exchange rate risk, and commodity price risk[106](index=106&type=chunk) **Fair Value of Derivative Instruments (in thousands) at November 30, 2021:** | Item | Asset Fair Value (in thousands) | Liability Fair Value (in thousands) | | :------------------------------------ | :--------------- | :------------------- | | Derivatives designated as hedging instruments | $660 | $7,275 | | Derivatives not designated as hedging instruments | $8,928 | $7,851 | | **Total derivative instruments** | **$9,588** | **$15,126** | **Cash Flow Hedges Outstanding (in thousands) at November 30, 2021:** | Item | Notional Amount (in thousands) | Maturity Date | | :------------------------------------ | :-------------- | :---------------------------- | | Commodity contracts | $221,292 | December 2021 - December 2022 | | Foreign currency exchange contracts | $6,082 | December 2021 - March 2023 | **Gain (Loss) Recognized in OCI and Reclassified from AOCI into Net Earnings (in thousands) for Six Months Ended Nov 30, 2021:** | Item | Recognized in OCI (in thousands) | Reclassified from AOCI into Net Earnings (in thousands) | | :------------------------------------ | :---------------- | :--------------------------------------- | | Commodity contracts | $14,218 | $83,165 | | Interest rate contracts | $- | $(13) | | Foreign currency exchange contracts | $61 | $3 | | **Total** | **$14,279** | **$83,155** | - The estimated net amount of gains in AOCI expected to be reclassified into net earnings within the next twelve months is **$6.2 million** (net of tax)[117](index=117&type=chunk) [NOTE R – Fair Value](index=25&type=section&id=NOTE%20R%20%E2%80%93%20Fair%20Value) This note defines fair value measurement, its hierarchy, and provides recurring fair value measurements for derivative instruments and long-term debt - Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction, classified into a three-tier hierarchy (Level 1, 2, 3) based on observability of inputs[123](index=123&type=chunk)[124](index=124&type=chunk) **Recurring Fair Value Measurements (in thousands) at November 30, 2021:** | Item | Level 1 (in thousands) | Level 2 (in thousands) | Level 3 (in thousands) | Totals (in thousands) | | :--------------------------- | :------ | :------ | :------ | :------ | | Assets: Derivative instruments | $- | $9,588 | $- | $9,588 | | Liabilities: Derivative instruments | $- | $15,126 | $- | $15,126 | - The fair value of derivative instruments is based on the present value of expected future cash flows using market observable, Level 2 inputs[128](index=128&type=chunk) - The fair value of long-term debt (including current maturities) was **$771.9 million** at November 30, 2021, compared to a carrying amount of **$702.2 million**[129](index=129&type=chunk) [NOTE S – Subsequent Events](index=26&type=section&id=NOTE%20S%20%E2%80%93%20Subsequent%20Events) This note discloses the acquisition of Tempel Steel Company subsequent to the reporting period, including its purchase price and integration into the Steel Processing segment - On December 1, 2021, the Company acquired Tempel Steel Company for **$275 million** plus assumed long-term liabilities, funded primarily with cash on hand and credit lines[130](index=130&type=chunk) - Tempel Steel, a manufacturer of precision motor and transformer laminations, will operate as part of the Steel Processing segment and has manufacturing locations in the U.S., Canada, China, India, and Mexico[130](index=130&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides a detailed discussion and analysis of the Company's financial condition, results of operations, and market trends for the three and six months ended November 30, 2021, compared to the prior year [Introduction](index=27&type=section&id=Introduction) This introduction outlines the basis of the discussion, including forward-looking statements, segment management, and joint venture accounting - The discussion includes forward-looking statements based on management's beliefs, estimates, and assumptions, subject to risks outlined in the Safe Harbor Statement and Form 10-K[131](index=131&type=chunk) - Operations are managed on a products and services basis, with segment information prepared for operational decision-making[134](index=134&type=chunk) - Effective June 1, 2021, the Pressure Cylinders business was reorganized into three new reportable segments: Consumer Products, Building Products, and Sustainable Energy Solutions, with prior period financial information revised for comparability[135](index=135&type=chunk) - The Company holds equity positions in nine joint ventures, four of which are consolidated within the Steel Processing segment, and five are accounted for using the equity method[137](index=137&type=chunk) [Recent Business Developments](index=28&type=section&id=Recent%20Business%20Developments) This section highlights key corporate actions, including acquisitions, asset sales, credit facility amendments, share repurchases, and dividend declarations - On June 8, 2021, the Company acquired certain assets of Shiloh Industries' U.S. BlankLight® business for approximately **$104.8 million**, expanding laser welded products and steel processing capabilities[138](index=138&type=chunk) - On June 9, 2021, the WSP joint venture sold its Canton, Michigan facility for approximately **$20 million**, resulting in a **$12.1 million pre-tax gain**[138](index=138&type=chunk) - The Company amended its **$500 million revolving credit facility** on August 20, 2021, extending the maturity to August 20, 2026[139](index=139&type=chunk) - On December 1, 2021, the Company acquired Tempel Steel Company for approximately **$275 million**, a manufacturer of precision motor and transformer laminations, to be part of the Steel Processing segment[139](index=139&type=chunk)[141](index=141&type=chunk) - During the first six months of fiscal 2022, the Company repurchased **1,235,000 common shares** for **$73.6 million**[141](index=141&type=chunk) - On December 16, 2021, the Board declared a quarterly dividend of **$0.28 per share**, payable March 29, 2022[141](index=141&type=chunk) [Market & Industry Overview](index=29&type=section&id=Market%20%26%20Industry%20Overview) This section analyzes the key end markets for the company's segments, including automotive and construction, and the impact of economic indicators and steel prices - The automotive industry is the largest end market for the Steel Processing segment, accounting for approximately **52% of its net sales**, with North American vehicle production significantly impacting activity[142](index=142&type=chunk) - Approximately **22% of Steel Processing's net sales** are to the construction market, which is also the predominant end market for joint ventures WAVE and ClarkDietrich[143](index=143&type=chunk) - U.S. GDP growth rate trends are a good economic indicator for demand and pricing across various end markets, including agricultural, appliance, consumer products, and sustainable energy[144](index=144&type=chunk)[147](index=147&type=chunk) **Key Market Indicators:** | Indicator | Three Months Ended Nov 30, 2021 | Three Months Ended Nov 30, 2020 | Six Months Ended Nov 30, 2021 | Six Months Ended Nov 30, 2020 | | :------------------------------------ | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | U.S. GDP (% growth year-over-year) | 7.2% | (3.0%) | 7.7% | (3.4%) | | Hot-Rolled Steel ($ per ton) | $1,888 | $625 | $1,825 | $550 | | Detroit Three Auto Build (000's vehicles) | 1,481 | 1,868 | 2,856 | 3,718 | | No. America Auto Build (000's vehicles) | 3,170 | 4,076 | 6,413 | 7,834 | | Zinc ($ per pound) | $1.46 | $1.11 | $1.41 | $1.03 | | Natural Gas ($ per mcf) | $5.26 | $2.64 | $4.47 | $2.28 | | On-Highway Diesel Fuel Prices ($ per gallon) | $3.57 | $2.41 | $3.45 | $2.42 | - The market price of hot-rolled steel significantly impacts selling prices and operating results; a rising price environment generally benefits results, while falling prices lead to inventory holding losses[148](index=148&type=chunk) - The Company expects meaningful inventory holding losses in the third quarter of fiscal 2022 due to the recent decline in steel prices[148](index=148&type=chunk) [Results of Operations](index=31&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance, including net sales, operating income, and net earnings, for the second quarter and six months year-to-date, comparing fiscal 2022 to fiscal 2021 [Second Quarter – Fiscal 2022 Compared to Fiscal 2021](index=31&type=section&id=Second%20Quarter%20%E2%80%93%20Fiscal%202022%20Compared%20to%20Fiscal%202021) This section compares the company's financial performance for the second quarter of fiscal 2022 against the same period in fiscal 2021, highlighting key drivers of change **Key Financial Highlights (Dollars in millions):** | Item | 2021 (in millions) | 2020 (in millions) | Increase/ (Decrease) (in millions) | | :---------------------------------------------------- | :--- | :--- | :------------------- | | Net sales | $1,232.8 | $731.1 | $501.7 | | Operating income | $90.5 | $37.4 | $53.1 | | Equity income | $60.2 | $25.6 | $34.6 | | Net earnings (loss) attributable to controlling interest | $110.3 | $(74.0) | $184.3 | | Earnings (loss) per diluted share attributable to controlling interest | $2.15 | $(1.40) | $3.55 | **Net Sales by Segment (In millions):** | Segment | 2021 (in millions) | % of Net sales 2021 | 2020 (in millions) | % of Net sales 2020 | Increase/ (Decrease) (in millions) | | :--------------------------- | :--- | :------------------ | :--- | :------------------ | :------------------- | | Steel Processing | $937.8 | 76.1% | $468.7 | 64.1% | $469.1 | | Consumer Products | $140.8 | 11.4% | $117.5 | 16.1% | $23.3 | | Building Products | $121.1 | 9.8% | $94.0 | 12.9% | $27.1 | | Sustainable Energy Solutions | $33.1 | 2.7% | $34.0 | 4.7% | $(0.9) | | Other | $- | 0.0% | $16.9 | 2.3% | $(16.9) | | **Consolidated Net Sales** | **$1,232.8** | **100.0%** | **$731.1** | **100.0%** | **$501.7** | **Volume by Segment:** | Segment | 2021 | 2020 | Increase/ (Decrease) | | :--------------------------- | :--------- | :--------- | :------------------- | | Steel Processing (Tons) | 1,067,589 | 1,023,979 | 43,610 | | Consumer Products (Units) | 18,698,589 | 16,657,815 | 2,040,774 | | Building Products (Units) | 2,565,025 | 2,264,576 | 300,449 | | Sustainable Energy Solutions (Units) | 155,001 | 247,289 | (92,288) | | Other (Units) | - | 11,066 | (11,066) | - Steel Processing net sales almost doubled due to higher average selling prices and contributions from the Shiloh Industries U.S. BlankLight® acquisition[154](index=154&type=chunk) - Consumer Products net sales increased **19.8%** (**$23.3 million**) driven by the acquisition of General Tools & Instruments Company LLC and higher average selling prices[155](index=155&type=chunk) - Building Products net sales increased **28.8%** (**$27.1 million**) due to higher average selling prices (**$21.8 million**) and higher volume (**$11.9 million**), recovering from COVID-19 depressed levels[155](index=155&type=chunk) - Sustainable Energy Solutions net sales decreased **2.7%** (**$0.9 million**) due to lower volume, impacted by the divestiture of the Poland LPG business and the ongoing semi-conductor chip shortage[156](index=156&type=chunk) - Gross margin increased **$49.1 million** to **$184.6 million**, primarily due to improved spreads in Steel Processing and higher overall volume[156](index=156&type=chunk) - SG&A expense increased **$14.0 million**, mainly due to higher profit sharing and bonus expense corresponding with increased earnings[157](index=157&type=chunk) - No impairment charges were recorded in Q2 fiscal 2022, compared to **$3.8 million** in the prior year quarter related to the former cryogenics business[158](index=158&type=chunk) - Restructuring activity in Q2 fiscal 2022 generated a **$1.8 million pre-tax gain** from exiting the former Cabs facility, contrasting with a **$7.6 million pre-tax loss** in the prior year from the cryogenics business sale[159](index=159&type=chunk) - Equity income increased **$34.6 million** to **$60.2 million**, driven by higher contributions from ClarkDietrich, WAVE, and Serviacero Worthington due to favorable steel prices and strong volume[160](index=160&type=chunk) - The prior year quarter included a **$143.8 million pre-tax loss** on investment in Nikola due to mark-to-market losses[161](index=161&type=chunk) **Adjusted EBIT Reconciliation (Dollars in millions):** | Item | 2021 (in millions) | 2020 (in millions) | | :---------------------------------------------------- | :--- | :--- | | Net earnings (loss) attributable to controlling interest | $110.3 | $(74.0) | | Interest expense | $7.3 | $7.5 | | Income tax expense (benefit) | $31.2 | $(19.4) | | Earnings (loss) before interest and taxes | $148.8 | $(85.9) | | Impairment of long-lived assets | $- | $3.8 | | Restructuring and other (income) expense, net | $(1.9) | $7.4 | | Incremental expenses related to Nikola gains | $- | $4.6 | | Loss on investment in Nikola | $- | $143.8 | | **Adjusted earnings before interest and taxes** | **$146.9** | **$73.7** | **Adjusted EBIT by Segment (In millions):** | Segment | 2021 (in millions) | 2020 (in millions) | Increase/ (Decrease) (in millions) | | :--------------------------- | :--- | :--- | :------------------- | | Steel Processing | $71.9 | $34.4 | $37.5 | | Consumer Products | $17.6 | $17.4 | $0.2 | | Building Products | $54.7 | $26.0 | $28.7 | | Sustainable Energy Solutions | $0.8 | $1.5 | $(0.7) | | Other | $1.9 | $(5.6) | $7.5 | | **Total Adjusted EBIT** | **$146.9** | **$73.7** | **$73.2** | - Steel Processing Adjusted EBIT increased **$37.5 million** due to improved operating results, higher equity income from Serviacero Worthington, and **$42.1 million in inventory holding gains**[165](index=165&type=chunk) - Building Products Adjusted EBIT increased **$28.7 million**, primarily from higher equity earnings at ClarkDietrich and WAVE (**$27.2 million**) due to strong volume and higher steel prices[166](index=166&type=chunk) - Sustainable Energy Solutions Adjusted EBIT decreased **$0.7 million** due to lower volume and unfavorable product mix, impacted by the semi-conductor chip shortage and the Poland LPG business divestiture[167](index=167&type=chunk) - Interest expense slightly decreased by **$0.2 million** to **$7.3 million**, mainly due to favorable exchange rates on euro-denominated debt[168](index=168&type=chunk) - Income tax expense was **$31.2 million** (**22.8% effective rate**) compared to a **$19.4 million benefit** (**21.5% effective rate**) in the prior year, driven by higher pre-tax earnings and the Nikola investment loss impact[168](index=168&type=chunk) [Six Months Year-to-date – Fiscal 2022 Compared to Fiscal 2021](index=35&type=section&id=Six%20Months%20Year-to-date%20%E2%80%93%20Fiscal%202022%20Compared%20to%20Fiscal%202021) This section compares the company's year-to-date financial performance for the first six months of fiscal 2022 against the same period in fiscal 2021, detailing key financial changes **Key Financial Highlights (Dollars in millions):** | Item | 2021 (in millions) | 2020 (in millions) | Increase/ (Decrease) (in millions) | | :---------------------------------------------------- | :--- | :--- | :------------------- | | Net sales | $2,343.7 | $1,434.0 | $909.7 | | Operating income | $226.3 | $7.3 | $219.0 | | Equity income | $113.1 | $49.2 | $63.9 | | Net earnings attributable to controlling interest | $242.8 | $542.7 | $(299.9) | | Earnings per diluted share attributable to controlling interest | $4.71 | $9.97 | $(5.26) | **Net Sales by Segment (In millions):** | Segment | 2021 (in millions) | % of Net sales 2021 | 2020 (in millions) | % of Net sales 2020 | Increase/ (Decrease) (in millions) | | :--------------------------- | :--- | :------------------ | :--- | :------------------ | :------------------- | | Steel Processing | $1,760.7 | 75.1% | $899.7 | 62.7% | $861.0 | | Consumer Products | $288.6 | 12.3% | $251.1 | 17.5% | $37.5 | | Building Products | $235.9 | 10.1% | $182.1 | 12.7% | $53.8 | | Sustainable Energy Solutions | $58.6 | 2.5% | $61.9 | 4.3% | $(3.3) | | Other | $- | 0.0% | $39.2 | 2.7% | $(39.2) | | **Consolidated Net Sales** | **$2,343.8** | **100.0%** | **$1,434.0** | **100.0%** | **$909.8** | **Volume by Segment:** | Segment | 2021 | 2020 | Increase/ (Decrease) | | :--------------------------- | :--------- | :--------- | :------------------- | | Steel Processing (Tons) | 2,129,877 | 1,952,423 | 177,454 | | Consumer Products (Units) | 40,086,729 | 35,478,377 | 4,608,352 | | Building Products (Units) | 5,450,736 | 4,986,611 | 464,125 | | Sustainable Energy Solutions (Units) | 285,677 | 437,197 | (151,520) | | Other (Units) | - | 21,626 | (21,626) | - Steel Processing net sales almost doubled due to higher average selling prices and the Shiloh Industries U.S. BlankLight® acquisition[173](index=173&type=chunk) - Consumer Products net sales increased **14.9%** (**$37.5 million**) primarily due to higher volume from the General Tools & Instruments Company LLC acquisition[173](index=173&type=chunk) - Building Products net sales increased **29.5%** (**$53.8 million**) driven by higher average selling prices (**$37.8 million**) and higher volume (**$16.0 million**), recovering from COVID-19 impacts[173](index=173&type=chunk) - Sustainable Energy Solutions net sales decreased **5.3%** (**$3.3 million**) due to lower volume, impacted by the Poland LPG business divestiture and the semi-conductor chip shortage[174](index=174&type=chunk) - Gross margin increased **$155.2 million** to **$404.0 million**, primarily due to improved spreads in Steel Processing and higher overall volume[174](index=174&type=chunk) - SG&A expense increased **$27.7 million**, mainly due to higher profit sharing and bonus expense corresponding with increased operating income[175](index=175&type=chunk) - No impairment charges were recorded in the current period, compared to **$13.7 million** in the prior year related to cryogenics and oil and gas businesses[176](index=176&type=chunk) - Restructuring activity in the current period generated a **$12.1 million pre-tax gain** from the WSP joint venture's Canton facility divestiture and a **$1.8 million pre-tax gain** from exiting the former Cabs facility[177](index=177&type=chunk) - Equity income increased **$63.9 million** to **$113.1 million**, driven by higher contributions from ClarkDietrich, WAVE, and Serviacero Worthington due to strong volume and favorable steel prices[179](index=179&type=chunk) - Gains on investment in Nikola totaled **$652.3 million** in the prior year period, including **$508.5 million realized gains** and **$143.8 million unrealized gain**[180](index=180&type=chunk)[181](index=181&type=chunk) **Adjusted EBIT Reconciliation (Dollars in millions):** | Item | 2021 (in millions) | 2020 (in millions) | | :---------------------------------------------------- | :--- | :--- | | Net earnings attributable to controlling interest | $242.8 | $542.6 | | Interest expense | $15.0 | $15.1 | | Income tax expense | $71.4 | $144.3 | | Earnings before interest and taxes | $329.2 | $702.0 | | Impairment of long-lived assets | $- | $13.7 | | Restructuring and other (income) expense, net | $(8.3) | $9.3 | | Incremental expenses related to Nikola gains | $- | $54.1 | | Gains on investment in Nikola | $- | $(652.4) | | **Adjusted earnings before interest and taxes** | **$320.9** | **$126.7** | **Adjusted EBIT by Segment (In millions):** | Segment | 2021 (in millions) | 2020 (in millions) | Increase/ (Decrease) (in millions) | | :--------------------------- | :--- | :--- | :------------------- | | Steel Processing | $179.6 | $48.6 | $131.0 | | Consumer Products | $38.1 | $41.3 | $(3.2) | | Building Products | $103.5 | $49.3 | $54.2 | | Sustainable Energy Solutions | $(1.8) | $1.0 | $(2.8) | | Other | $1.5 | $(13.5) | $15.0 | | **Total Adjusted EBIT** | **$320.9** | **$126.7** | **$194.2** | - Steel Processing Adjusted EBIT increased **$131.0 million** due to improved operating results, higher equity income from Serviacero Worthington, and **$89.1 million in inventory holding gains** (compared to **$6.6 million losses** in prior year)[184](index=184&type=chunk) - Building Products Adjusted EBIT increased **$54.2 million**, primarily from higher equity earnings at ClarkDietrich and WAVE (**$47.7 million**) due to strong volume and higher steel prices[185](index=185&type=chunk) - Sustainable Energy Solutions Adjusted EBIT reflected a loss of **$1.8 million**, a **$2.8 million unfavorable change**, due to lower volume and unfavorable product mix, impacted by the semi-conductor chip shortage and Poland LPG business divestiture[186](index=186&type=chunk) - Interest expense slightly decreased by **$0.1 million** to **$15.0 million**, mainly due to favorable exchange rates on euro-denominated debt[187](index=187&type=chunk) - Income tax expense decreased **$72.9 million** to **$71.4 million** (**22.8% effective rate**) from **$144.3 million** (**21.5% effective rate**) in the prior year, due to the impact of Nikola gains and associated expenses in the prior year[187](index=187&type=chunk) [Liquidity and Capital Resources](index=39&type=section&id=Liquidity%20and%20Capital%20Resources) This section analyzes the company's cash flows, investments, financing activities, debt compliance, and dividend policy - During the six months ended November 30, 2021, the Company invested **$48.2 million** in property, plant and equipment, and **$104.8 million** for the Shiloh Industries U.S. BlankLight® business acquisition[188](index=188&type=chunk) **Consolidated Cash Flows (in millions):** | Item | November 30, 2021 (in millions) | November 30, 2020 (in millions) | | :---------------------------------------------------- | :------------------ | :------------------ | | Net cash (used) provided by operating activities | $(168.9) | $224.8 | | Net cash (used) provided by investing activities | $(124.1) | $460.4 | | Net cash used by financing activities | $(122.1) | $(119.3) | | (Decrease) increase in cash and cash equivalents | $(415.1) | $565.9 | | Cash and cash equivalents at end of period | $225.2 | $713.1 | - Net cash used by operating activities was **$168.9 million**, a **$393.7 million decrease** from the prior year, primarily due to a **$490.4 million increase** in operating working capital requirements driven by higher steel prices[193](index=193&type=chunk) - Net cash used by investing activities was **$124.1 million**, compared to **$460.4 million provided** in the prior year, which included **$487.9 million from Nikola share sales**. The current period reflects the **$104.8 million Shiloh acquisition**[194](index=194&type=chunk) - Net cash used by financing activities was **$122.1 million**, including **$73.6 million for share repurchases** and **$29.3 million for dividends**[196](index=196&type=chunk) - The Company was in compliance with all short-term and long-term financial debt covenants as of November 30, 2021[196](index=196&type=chunk) - The Board declared a quarterly dividend of **$0.28 per common share** on December 16, 2021, maintaining the rate from the previous quarter[197](index=197&type=chunk) - As of November 30, 2021, **8,065,000 common shares** remained available for repurchase under existing authorizations[198](index=198&type=chunk) - The Company's dividend policy is discretionary, reviewed quarterly by the Board, and based on financial condition, results, capital requirements, and cash flows[200](index=200&type=chunk) - There are no material contractual or regulatory restrictions on dividend payments, but future payments are not guaranteed[200](index=200&type=chunk) - Contractual cash obligations and other commercial commitments have not materially changed from those disclosed in the Form 10-K[201](index=201&type=chunk) - The Company does not have guarantees or other off-balance sheet financing arrangements likely to have a material current or future effect on its financial condition[202](index=202&type=chunk) - Critical accounting policies, involving significant judgments and estimates, have not significantly changed from those discussed in the Form 10-K[203](index=203&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=41&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section states that there have been no material changes to the Company's market risks from those disclosed in its Annual Report on Form 10-K - Market risks have not materially changed from those disclosed in "Part II – Item 7A. – Quantitative and Qualitative Disclosures About Market Risk" of the Form 10-K[204](index=204&type=chunk) [Item 4. Controls and Procedures](index=41&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details the Company's evaluation of its disclosure controls and procedures and reports on any changes in internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=41&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures as of November 30, 2021 - Management, including the principal executive and financial officers, concluded that the Company's disclosure controls and procedures were effective at a reasonable assurance level as of November 30, 2021[206](index=206&type=chunk) [Changes in Internal Control Over Financial Reporting](index=42&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) This section reports that no material changes occurred in internal control over financial reporting during the quarter ended November 30, 2021 - There were no changes in internal control over financial reporting during the quarter ended November 30, 2021, that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[208](index=208&type=chunk) Part II. Other Information This section covers other required disclosures including legal proceedings, risk factors, equity security sales, and a list of exhibits [Item 1. Legal Proceedings](index=42&type=section&id=Item%201.%20Legal%20Proceedings) This section addresses the Company's involvement in legal actions, stating that none are expected to have a material adverse effect on its financial position or results - Various legal actions are pending against the Company, but none are expected to have a material adverse effect on its consolidated financial position, results of operations, or cash flows[209](index=209&type=chunk) [Item 1A. Risk Factors](index=42&type=section&id=Item%201A.%20Risk%20Factors) This section refers to the detailed discussion of risk factors in the Company's Annual Report on Form 10-K, noting no significant changes - The Company's risk factors have not changed significantly from those disclosed in "PART I – Item 1A. – Risk Factors" of the Annual Report on Form 10-K for the fiscal year ended May 31, 2021[210](index=210&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=42&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section provides information on the Company's common share repurchases during the quarter and the remaining authorization for future repurchases **Common Share Repurchases (Quarter Ended November 30, 2021):** | Period | Total Number of Common Shares Purchased | Average Price Paid per Common Share | Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Common Shares that May Yet Be Purchased Under the Plans or Programs | | :------------------- | :------------------------------------ | :---------------------------------- | :-------------------------------------------------------- | :------------------------------------------------------------------------------------ | | September 1-30, 2021 | 65,000 | $53.55 | 65,000 | 8,235,000 | | October 1-31, 2021 | 170,000 | $54.39 | 170,000 | 8,065,000 | | November 1-30, 2021 | - | - | - | 8,065,000 | | **Total** | **235,000** | **$54.03** | **235,000** | | - As of November 30, 2021, **8,065,000 common shares** remained available for repurchase under existing authorizations[212](index=212&type=chunk) [Item 3. Defaults Upon Senior Securities](index=43&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is not applicable to the Company for the reporting period - This item is not applicable[214](index=214&type=chunk) [Item 4. Mine Safety Disclosures](index=43&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the Company for the reporting period - This item is not applicable[214](index=214&type=chunk) [Item 5. Other Information](index=43&type=section&id=Item%205.%20Other%20Information) This item is not applicable to the Company for the reporting period - This item is not applicable[214](index=214&type=chunk) [Item 6. Exhibits](index=44&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of the Form 10-Q, including agreements, corporate documents, certifications, and XBRL data files - Exhibits include the Equity Purchase Agreement for Tempel Steel Company, Amended Articles of Incorporation, Code of Regulations, Rule 13a-14(a)/15d-14(a) Certifications, Certifications of Principal Executive/Financial Officer Pursuant to 18 U.S.C. Section 1350, and various Inline XBRL Taxonomy Extension Documents[216](index=216&type=chunk)[217](index=217&type=chunk)[218](index=218&type=chunk)[219](index=219&type=chunk)[220](index=220&type=chunk)[221](index=221&type=chunk)[222](index=222&type=chunk)[223](index=223&type=chunk)[224](index=224&type=chunk)[225](index=225&type=chunk)[226](index=226&type=chunk) [Signatures](index=45&type=section&id=Signatures) This section contains the signature of the authorized officer, Joseph B. Hayek, Vice President and Chief Financial Officer, certifying the filing of the report - The report was signed on January 10, 2022, by Joseph B. Hayek, Vice President and Chief Financial Officer, on behalf of Worthington Industries, Inc[229](index=229&type=chunk)

Worthington Industries, Inc. (NYSE:WOR) Q2 2022 Earnings Conference Call December 16, 2021 2:00 PM ET Company Participants Marcus Rogier - IR & Treasurer Joe Hayek - VP & CFO Andy Rose - President & CEO Conference Call Participants Phil Gibbs - KeyBanc Capital Markets John Tumazos - John Tumazos Very Independent Research Tristan Gresser - BNP Paribas Operator Good afternoon, and welcome to the Worthington Industries Second Quarter Fiscal 2022 Earnings Conference Call. All participants will be able to list ...

Financial Data and Key Metrics Changes - The company reported earnings of $2.55 per share in Q1 2022 compared to $11.22 in the prior year quarter, with a record adjusted earnings of $2.46 per share versus $0.64 in the prior year quarter [7] - Consolidated net sales increased to $1.1 billion from $703 million in Q1 of last year, driven by higher steel prices and increased volumes [8] - Gross profit rose to $219 million from $113 million year-over-year, with gross margin increasing to 19.7% from 16.1% [8] Business Line Data and Key Metrics Changes - In Steel Processing, net sales nearly doubled to $823 million from $431 million, with total shipped tons up 14% year-over-year [9] - Consumer Products saw net sales of $148 million, up 10.6% from the prior year, but EBIT decreased to $21 million from $24 million due to higher labor and input costs [11] - Building Products generated net sales of $115 million, up 30% from $88 million, with EBIT increasing to $49 million from $23.4 million [12] - Sustainable Energy Solutions reported net sales of $25 million, down from $28 million, with a negative EBIT of $3 million due to low volumes [13] Market Data and Key Metrics Changes - Demand across major end markets, including automotive, construction, heavy truck, and agriculture, remained solid, although automotive shipments were impacted by semiconductor shortages [9] - The company experienced pre-tax inventory holding gains of $47 million compared to losses of $7 million in the prior year [10] Company Strategy and Development Direction - The company is focused on leveraging its transformation playbook, new product development, and M&A to drive above-market growth and higher returns on capital [17] - The M&A environment is challenging due to elevated purchase multiples and unpredictable earnings analysis, but the company remains open to compelling targets [17] Management's Comments on Operating Environment and Future Outlook - The operating environment is challenging due to rising steel prices, supply chain issues, and labor shortages, but demand levels are good across almost all end markets [16] - The company expects significant working capital increases to subside in the next quarters if steel prices stabilize [14] Other Important Information - The company ended Q1 with $399 million in cash and $706 million in funded debt, maintaining a balanced approach to capital allocation [15] - A dividend of $0.28 per share was declared for the quarter, payable in December 2021 [15] Q&A Session Summary Question: Inventory holding gains in Steel Processing - Management anticipates significant inventory holding gains again in the current quarter, but not as high as in Q1 [20][21] Question: Automotive supply chain conditions - Supply chains remain backed up, with dealer inventories still very light and demand exceeding available cars [24][25] Question: Impact of scrap gap - The scrap gap has widened significantly, impacting the company, but management is working to offset this through various strategies [22][35] Question: Acquisition contributions - The Shiloh acquisition is expected to be accretive and aligns well with the company's focus on lightweighting in automotive [37] Question: Future margin expectations - Margins in Consumer Products are expected to normalize, while Building Products may see a lag in pricing adjustments [39] Question: Liquidity position - The company has nearly $400 million in cash and $500 million available on its revolver, maintaining a strong liquidity position [41] Question: Substitution between steel and wood - While there is some substitution between wood and steel, the market dynamics remain established, and significant changes are not anticipated [44] Question: Flat-rolled steel prices outlook - Management does not foresee a structural change in flat-rolled steel prices, emphasizing the need for low stable prices for better business performance [71][72]