Worthington Industries(WOR) - 2025 Q4 - Annual Report

Part I Business Worthington Enterprises is a leading designer and manufacturer of consumer and building products, operating through two main segments and recently separated its steel processing business - The company operates under two reportable segments: Consumer Products and Building Products, founded in 1955 and formerly known as Worthington Industries, Inc[31] - On December 1, 2023, the company completed the separation of its former steel processing business into Worthington Steel, Inc. (NYSE: WS), with its results now reported as discontinued operations for all prior periods[33][34] - The company's strategy is rooted in the Worthington Business System, applying lean techniques and a disciplined approach to capital deployment, operational optimization, and strategic investments[32][36] - Key strategic developments include the acquisition of Elgen (HVAC components, June 2025), Ragasco (composite propane cylinders, June 2024), and an 80% stake in Halo (outdoor cooking, February 2024), along with a joint venture for its Sustainable Energy Solutions business with Hexagon in May 2024[39][40][41][42] Segment Net Sales Contribution | Segment | FY2025 Net Sales % | FY2024 Net Sales % | FY2023 Net Sales % | | :--- | :--- | :--- | :--- | | Consumer Products | 43% | 40% | 39% | | Building Products | 57% | 50% | 51% | - The company's primary raw materials are steel, aluminum, copper, and propane, with a steel supply agreement with the newly separated Worthington Steel[64][65] - As of May 31, 2025, the company had approximately 3,400 employees, with its human capital strategy centered on a "people-first" culture, talent development, safety, and diversity, equity, and inclusion[72][73][74][75][76] Risk Factors The company faces numerous risks from operations, the recent steel business separation, and general economic conditions, including market cyclicality, raw material volatility, and cybersecurity threats - Business & Operational Risks: The company's sales are heavily concentrated in the consumer products and construction end markets, making it vulnerable to economic downturns, inflation, and reduced consumer confidence[79] - Raw Material Risks: Operating results can be adversely affected by volatility in the price and availability of raw materials, particularly steel, aluminum, zinc, copper, and helium, with potential inability to pass all cost increases to customers[81][82][83] - Customer and Competition Risks: The loss of a key customer could have an adverse effect, and the company faces intense competition on price, quality, and delivery from a variety of domestic and foreign competitors[85][91] - Technology Risks: The company is subject to information system security risks, including cybersecurity breaches, and acknowledges risks associated with its increasing reliance on AI technologies, such as potential system failures, data privacy issues, and an evolving regulatory landscape[96][97][98] - Separation Risks: The company may not realize the anticipated benefits of the Separation from Worthington Steel, and there is a risk that the transaction could fail to qualify as a tax-free reorganization, resulting in significant tax liabilities for the company and its shareholders[116][117][118] - Shareholder Influence: John P. McConnell, former Executive Chairman, beneficially owns approximately 35% of outstanding common shares, giving him significant influence in matters requiring a shareholder vote, including those requiring a 75% supermajority[108] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[129] Cybersecurity Worthington Enterprises maintains a comprehensive cybersecurity risk management program overseen by the Audit Committee, focusing on threat identification, prevention, and response - The company has an enterprise risk management program that includes cybersecurity, with oversight provided by the Audit Committee, which receives quarterly updates from the CIO and CISO[130][132] - The cybersecurity program includes threat and vulnerability management, employee education, identity and access controls, continuous monitoring by a Security Operation Center, incident response exercises, and a risk management program for critical third-party vendors[134] - The company has an AI governance council to review and evaluate the risks of AI technology[134] - During fiscal 2025, the company states that risks from cybersecurity threats have not materially affected, and are not reasonably likely to materially affect, its strategy, results of operations, or financial condition[136] Properties The company's principal offices are in Columbus, Ohio, with over 4 million square feet of owned or leased manufacturing space, considered well-maintained and sufficient Number of Facilities by Segment (Owned & Leased) | Segment/Venture | Total Facilities | Owned | Leased | | :--- | :--- | :--- | :--- | | Operating Segments | | | | | Consumer Products | 4 | 2 | 2 | | Building Products | 10 | 7 | 3 | | Consolidated JV | | | | | Halo | 1 | 0 | 1 | | Unconsolidated JVs | | | | | ClarkDietrich | 15 | 2 | 13 | | Sustainable Energy Solutions | 3 | 3 | 0 | | WAVE | 7 | 2 | 5 | | Workhorse | 3 | 0 | 3 | | Total | 43 | 16 | 27 | Legal Proceedings The company is involved in various legal proceedings but does not expect a material adverse effect on its financial position or results - The company does not believe that any current legal proceedings, individually or in aggregate, will have a material adverse effect on its business, financial position, results of operation or cash flows[140] Mine Safety Disclosures This item is not applicable to the company - Not applicable[141] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Worthington Enterprises' common shares trade on the NYSE under 'WOR', with a history of quarterly dividends and recent share repurchases, leaving 5.365 million shares available - The company's common shares trade on the New York Stock Exchange (NYSE) under the symbol 'WOR'[152] - The company has paid a dividend every quarter since becoming a public company in 1968, but there is no guarantee this will continue, with the Board reviewing the dividend quarterly[153] Issuer Purchases of Equity Securities (Q4 FY2025) | Period | Total Shares Purchased | Average Price Paid | Shares Purchased as Part of Program | Maximum Shares Remaining for Purchase | | :--- | :--- | :--- | :--- | :--- | | Mar 2025 | 1,119 | $41.74 | - | 5,565,000 | | Apr 2025 | 154,097 | $47.64 | 152,000 | 5,413,000 | | May 2025 | 48,084 | $54.06 | 48,000 | 5,365,000 | | Total | 203,300 | $47.81 | 200,000 | 5,365,000 | Management's Discussion and Analysis of Financial Condition and Results of Operations In fiscal 2025, net sales from continuing operations decreased 7.4% to $1.15 billion, while gross profit increased 11.9% to $319.0 million, and adjusted EBITDA rose to $263.5 million, with $209.7 million in operating cash flow Fiscal 2025 vs. 2024 Consolidated Results (Continuing Operations) | Metric | Fiscal 2025 | Fiscal 2024 | Change | Change % | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $1,153.8 M | $1,245.7 M | ($91.9 M) | (7.4%) | | Gross Profit | $319.0 M | $285.0 M | $34.0 M | 11.9% | | Operating Loss | ($10.7 M) | ($73.5 M) | $62.8 M | N/A | | Net Earnings from Cont. Ops. | $96.1 M | $35.2 M | $60.9 M | 173.0% | | Diluted EPS from Cont. Ops. | $1.92 | $0.70 | $1.22 | 174.3% | | Adjusted EBITDA from Cont. Ops. | $263.5 M | $251.0 M | $12.5 M | 5.0% | - The decrease in consolidated net sales was primarily due to the deconsolidation of the former Sustainable Energy Solutions operating segment on May 29, 2024, though net sales for the two reportable segments (Consumer and Building Products) increased by 3.5% year-over-year[191][195] - Gross margin improved to 27.6% in FY2025 from 22.9% in FY2024, driven by favorable product mix in both segments, contributions from the Ragasco acquisition, and the deconsolidation of the lower-margin Sustainable Energy Solutions business[192] - Equity income decreased by $22.9 million to $144.8 million, largely due to margin compression and lower contributions from the ClarkDietrich joint venture[198][199] - The company recognized a $50.1 million impairment charge in fiscal 2025 related to the write-down of intangible assets associated with its GTI business[196] Cash Flow Summary (in millions) | Activity | Fiscal 2025 | Fiscal 2024 | Fiscal 2023 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $209.7 | $290.0 | $625.4 | | Net cash used by investing activities | ($135.1) | ($140.8) | ($71.8) | | Net cash used by financing activities | ($68.8) | ($359.9) | ($133.1) | - Key uses of cash in fiscal 2025 included $95.0 million for the Ragasco acquisition, $50.6 million in capital expenditures, $33.9 million in dividends, and $30.9 million for share repurchases[205] - The company maintains a $500.0 million revolving credit facility, which was undrawn as of May 31, 2025, providing significant liquidity[208][217] Quantitative and Qualitative Disclosures About Market Risk The company manages market risks from interest rates, foreign currency, and commodity prices through debt structure, forward contracts, and derivatives, with minimal interest rate exposure in FY25 - Interest Rate Risk: Exposure is primarily from borrowing activities, managed with a mix of fixed and variable rate debt, with a hypothetical 100 basis point rate increase having no impact in fiscal 2025 as the variable-rate Credit Facility was undrawn[239] - Foreign Currency Exchange Risk: The company uses forward contracts to manage transactional exposure and has designated its Euro-denominated debt as a non-derivative hedge of its net investment in its Portuguese operations[242] - Commodity Price Risk: The company is exposed to price fluctuations in steel, natural gas, copper, zinc, and other raw materials, managing a portion of this exposure using derivative financial instruments[243] Fair Value of Outstanding Derivative Contracts (in millions) | Contract Type | Fair Value (Net Liability) FY2025 | Fair Value (Net Liability) FY2024 | | :--- | :--- | :--- | | Commodity contracts | ($0.0) M | $0.5 M | | Foreign currency exchange contracts | ($6.9) M | ($1.2) M | | Total | ($6.4) M | ($0.5) M | Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements and notes, with KPMG LLP providing an unqualified opinion, noting sufficiency of audit evidence over equity in unconsolidated affiliates as a critical audit matter Report of Independent Registered Public Accounting Firm KPMG LLP issued an unqualified opinion on the consolidated financial statements and internal control over financial reporting, identifying sufficiency of audit evidence over equity in net income of unconsolidated affiliates as a critical audit matter - The auditor, KPMG LLP, issued an unqualified opinion, stating the financial statements are presented fairly in all material respects[251] - KPMG also issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of May 31, 2025[252] - A Critical Audit Matter was identified concerning the "Sufficiency of audit evidence over equity in net income of unconsolidated affiliates," totaling $144.8 million in fiscal 2025, requiring subjective auditor judgment due to the nature and structure of the affiliates[256][257] Consolidated Financial Statements The consolidated financial statements show total assets of $1.70 billion and equity of $938.2 million as of May 31, 2025, with fiscal 2025 net sales of $1.15 billion and operating cash flow of $209.7 million Consolidated Balance Sheet Highlights (in thousands) | Account | May 31, 2025 | May 31, 2024 | | :--- | :--- | :--- | | Total Current Assets | $685,370 | $673,893 | | Total Assets | $1,695,152 | $1,638,637 | | Total Current Liabilities | $196,842 | $178,376 | | Long-Term Debt | $302,868 | $298,133 | | Total Liabilities | $756,915 | $747,625 | | Total Shareholders' Equity | $938,237 | $891,012 | Consolidated Statement of Earnings Highlights (in thousands) | Account | FY 2025 | FY 2024 | FY 2023 | | :--- | :--- | :--- | :--- | | Net Sales | $1,153,762 | $1,245,703 | $1,418,496 | | Gross Profit | $319,035 | $285,019 | $323,588 | | Operating Income (Loss) | ($10,715) | ($73,459) | $29,819 | | Net Earnings from Cont. Ops. | $94,970 | $34,980 | $125,751 | | Diluted EPS from Cont. Ops. | $1.92 | $0.70 | $2.55 | Notes to Consolidated Financial Statements The notes detail the Worthington Steel separation, deconsolidation of Sustainable Energy Solutions, $144.8 million in equity income from unconsolidated JVs, $50.1 million impairment charges, debt structure, and recent acquisitions - Note B - Discontinued Operations: The results of the separated Worthington Steel business are presented, with net sales for this discontinued operation totaling $1.67 billion in fiscal 2024 and $3.50 billion in fiscal 2023[325] - Note C - Investments in Unconsolidated Affiliates: The company holds investments in four JVs: ClarkDietrich (25%), WAVE (50%), Sustainable Energy Solutions (49%), and Workhorse (20%), which generated total equity income of $144.8 million in fiscal 2025[328][198] - Note D - Goodwill and Other Long-Lived Assets: A pre-tax impairment charge of $50.1 million was recorded in Q4 FY2025 on intangible assets of the GTI business, and in FY2024, a $32.2 million impairment charge was recorded related to the deconsolidation of the Sustainable Energy Solutions business[340][341] - Note H - Debt: As of May 31, 2025, total long-term debt was $302.9 million, with the company also maintaining a $500 million revolving credit facility, which was undrawn[349][355] - Note P - Acquisitions: The company acquired Ragasco on June 3, 2024, for a total purchase price of $108.6 million, which added $41.6 million to goodwill, and an 80% interest in Halo on February 1, 2024, for $9.6 million[416][420][421] - Note T - Related Party Transactions: Following the Separation, the company has a Steel Supply and Services Agreement with Worthington Steel, with purchases under this agreement totaling $113.4 million in fiscal 2025[459] - Note U - Subsequent Events: On June 18, 2025, after the fiscal year-end, the company acquired Elgen, a provider of HVAC parts, for approximately $93.0 million[461] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure This item is not applicable to the company - Not applicable[464] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of May 31, 2025, excluding the recently acquired Ragasco - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of May 31, 2025[466] - Management concluded that the company's internal control over financial reporting was effective as of May 31, 2025, with the independent auditor, KPMG LLP, also issuing an unqualified opinion on the effectiveness of internal controls[472][473] - Management's assessment of internal control over financial reporting excluded the operations of Ragasco, which was acquired in fiscal 2025[469] - There were no changes in internal control over financial reporting during the fourth quarter of fiscal 2025 that have materially affected, or are reasonably likely to materially affect, internal controls[467] Other Information No director or officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the fourth quarter of fiscal 2025 - No director or officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter ended May 31, 2025[484] Part III Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the 2025 Proxy Statement - The information required by this item is incorporated by reference from the registrant's definitive Proxy Statement for its 2025 Annual Meeting of Shareholders[488] Executive Compensation Information regarding executive compensation is incorporated by reference from the 2025 Proxy Statement - The information required by this item is incorporated by reference from the registrant's definitive Proxy Statement for its 2025 Annual Meeting of Shareholders[492] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership is incorporated by reference from the 2025 Proxy Statement - The information required by this item is incorporated by reference from the registrant's definitive Proxy Statement for its 2025 Annual Meeting of Shareholders[493] Certain Relationships and Related Transactions, and Director Independence Information regarding related transactions and director independence is incorporated by reference from the 2025 Proxy Statement - The information required by this item is incorporated by reference from the registrant's definitive Proxy Statement for its 2025 Annual Meeting of Shareholders[494] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the 2025 Proxy Statement - The information required by this item is incorporated by reference from the registrant's definitive Proxy Statement for its 2025 Annual Meeting of Shareholders[495] Part IV Exhibits and Financial Statement Schedules This section lists the consolidated financial statements, financial statement schedule II, and a comprehensive list of exhibits, including governance documents and material contracts - This section lists the consolidated financial statements, financial statement schedules, and exhibits filed with the Form 10-K[497][498][499] - The audited financial statements of the unconsolidated affiliate, ClarkDietrich, are attached as Exhibit 99.2[502] Form 10-K Summary The company has not provided a summary for this item - None[500]