Worthington Industries(WOR) - 2021 Q1 - Quarterly Report

Part I. Financial Information Item 1. Financial Statements (Unaudited) Unaudited financial statements for the quarter ended August 31, 2020, show a significant increase in net earnings to $618.7 million, primarily driven by a $796.1 million pre-tax gain on the investment in Nikola Corporation Consolidated Balance Sheets As of August 31, 2020, total assets were $3.13 billion, a significant increase from $2.33 billion at May 31, 2020, primarily due to increased cash and a $287.6 million investment in Nikola Consolidated Balance Sheet Highlights (in thousands) | Account | August 31, 2020 | May 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $650,068 | $147,198 | | Investment in Nikola | $287,630 | $0 | | Total current assets | $1,766,457 | $983,179 | | Total assets | $3,131,053 | $2,331,515 | | Liabilities & Equity | | | | Total current liabilities | $542,184 | $388,238 | | Total liabilities | $1,601,153 | $1,365,082 | | Total equity | $1,529,900 | $966,433 | Consolidated Statements of Earnings (Loss) For the three months ended August 31, 2020, the company reported net earnings attributable to controlling interest of $616.7 million, primarily due to a $796.1 million pre-tax gain on the Nikola investment, despite a decrease in net sales to $702.9 million Statement of Earnings Highlights (in thousands, except per share data) | Metric | Three Months Ended Aug 31, 2020 | Three Months Ended Aug 31, 2019 | | :--- | :--- | :--- | | Net sales | $702,909 | $855,859 | | Operating loss | $(30,121) | $(14,588) | | Gains on investment in Nikola | $796,141 | $0 | | Net earnings (loss) attributable to controlling interest | $616,675 | $(4,776) | | Diluted earnings (loss) per share | $11.22 | $(0.09) | - The company incurred $49.5 million in incremental expenses related to the Nikola gains, which contributed to the operating loss[13] Consolidated Statements of Cash Flows For the three months ended August 31, 2020, net cash provided by operating activities was $117.4 million, with investing activities providing $455.0 million, primarily from Nikola share sales, leading to a $502.9 million increase in cash and cash equivalents Cash Flow Summary (in thousands) | Activity | Three Months Ended Aug 31, 2020 | Three Months Ended Aug 31, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $117,388 | $64,369 | | Net cash provided (used) by investing activities | $454,988 | $(12,998) | | Net cash used by financing activities | $(69,506) | $(98,151) | | Increase (decrease) in cash | $502,870 | $(46,780) | - Investing activities were significantly impacted by $487.9 million in proceeds from the sale of Nikola shares[18] Condensed Notes to Consolidated Financial Statements The notes detail a $796.1 million pre-tax gain from the Nikola investment, decreased sales across segments, and $9.9 million in impairment charges, with a subsequent sale of the cryogenic and hydrogen trailer business - The company recognized a $796.1 million pre-tax gain on its Nikola investment, comprising $508.5 million in realized gains and a $287.6 million unrealized mark-to-market gain, partially offset by $49.5 million in related incremental expenses[33] - Impairment charges of $9.9 million were recognized in Q1 FY2021, primarily related to the cryogenics business and the discontinuation of an alternative fuel cylinders manufacturing line[42][44] - On October 13, 2020, the company sold its cryogenic and hydrogen trailer business for $10 million, expecting to generate a loss of approximately $4 million[105] Net Sales by Reportable Segment (in thousands) | Segment | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Steel Processing | $431,020 | $523,375 | | Pressure Cylinders | $270,904 | $304,396 | | Other | $985 | $28,088 | | Total net sales | $702,909 | $855,859 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the first quarter net earnings of $616.7 million primarily to the net pre-tax gain of $746.6 million from its Nikola investment, despite an 18% decline in net sales to $702.9 million Results of Operations Consolidated net sales for Q1 FY2021 decreased by $153.0 million year-over-year due to lower selling prices, reduced volumes, and deconsolidation, while net earnings were significantly boosted by the $796.1 million gain on the Nikola investment - Net sales decreased by $153.0 million YoY, driven by lower average selling prices, lower direct volume in Steel Processing, and the deconsolidation of the Engineered Cabs business[127] - Impairment charges totaled $9.9 million in the current quarter, compared to $40.6 million in the prior-year quarter which was related to the former Engineered Cabs business[130] - Equity income from unconsolidated affiliates decreased by $1.2 million to $23.6 million, mainly due to a $6.2 million decline in WAVE's contribution[134] Segment Operations In Q1 FY2021, Steel Processing net sales fell by $92.4 million but operating income rose to $13.6 million on improved spreads, while Pressure Cylinders' net sales decreased by $33.5 million and operating income dropped sharply to $8.6 million due to prior-year benefits and current-quarter charges Segment Operating Income (in millions) | Segment | Q1 FY2021 | Q1 FY2020 | | :--- | :--- | :--- | | Steel Processing | $13.6 | $6.2 | | Pressure Cylinders | $8.6 | $29.6 | | Other | $(0.7) | $(45.2) | - Steel Processing's operating income increased by $7.4 million despite lower sales, driven by improved spreads and lower conversion costs, with inventory holding losses at $6.8 million, down from $8.4 million YoY[139] - Pressure Cylinders' operating income fell by $21.0 million, as the prior year benefited from a $12.8 million gain from a take-or-pay contract cancellation, while the current quarter included $10.2 million in impairment and restructuring charges[141] Liquidity and Capital Resources The company's liquidity strengthened significantly, with cash and cash equivalents increasing by $502.9 million to $650.1 million at quarter-end, primarily due to $487.9 million in proceeds from selling Nikola shares - Cash and cash equivalents increased to $650.1 million, largely due to $487.9 million in proceeds from the sale of Nikola shares[145][146] - During the quarter, the company repurchased 1,460,484 of its common shares for $54.3 million[145] - The Board of Directors declared a quarterly dividend of $0.25 per share, an increase from $0.24 in the prior year[156] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company states that its market risks have not changed significantly from those disclosed in its Annual Report on Form 10-K for the fiscal year ended May 31, 2020 - There were no significant changes to market risks compared to the disclosures in the fiscal 2020 Form 10-K[162] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of August 31, 2020, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of August 31, 2020, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective[164] - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[165] Part II. Other Information Item 1. Legal Proceedings The company is involved in various legal actions arising in the ordinary course of business but does not expect any pending litigation to have a material adverse effect on its financial position, results, or cash flows - Pending litigation is not expected to have a material adverse effect on the company's financial condition or results of operations[166] Item 1A. Risk Factors There have been no significant changes to the company's risk factors from those disclosed in its Annual Report on Form 10-K for the fiscal year ended May 31, 2020 - The company's risk factors have not changed significantly from those disclosed in the 2020 Form 10-K[167] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the quarter ended August 31, 2020, the company repurchased 1,516,985 common shares at an average price of $37.20 per share, with 1,460,484 shares repurchased under publicly announced plans Share Repurchases for the Quarter Ended August 31, 2020 | Period | Total Shares Purchased | Average Price Paid | Shares Purchased Under Plan | | :--- | :--- | :--- | :--- | | June 2020 | 56,501 | $37.94 | 0 | | July 2020 | 1,417,321 | $37.13 | 1,417,321 | | August 2020 | 43,163 | $38.68 | 43,163 | | Total | 1,516,985 | $37.20 | 1,460,484 | - At the end of the quarter, 6,239,516 common shares were still available for repurchase under the company's authorized plans[168] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and CFO, various corporate governance and compensation-related documents, and XBRL interactive data files