Worthington Industries(WOR) - 2024 Q2 - Quarterly Report

FORM 10-Q Filing Information Provides essential filing details for Worthington Enterprises, Inc., including registrant information and common shares outstanding Registrant Information Worthington Enterprises, Inc. (WOR) is registered in Ohio, headquartered in Columbus, and is a large accelerated filer on the NYSE, having filed all required SEC reports in the past 12 months - Worthington Enterprises, Inc. (WOR), registered in Ohio and headquartered in Columbus, is a large accelerated filer on the NYSE[2] - The company has filed all required SEC reports in the past 12 months and electronically submitted all interactive data files[2] Common Shares Outstanding As of January 4, 2024, Worthington Enterprises, Inc. had 49,994,385 common shares outstanding - As of January 4, 2024, the company had 49,994,385 common shares outstanding[3] TABLE OF CONTENTS SAFE HARBOR STATEMENT Contains forward-looking statements and outlines various risks and uncertainties that could impact actual results Forward-Looking Statements This section includes forward-looking statements reflecting current expectations, estimates, or projections regarding future results or events, as defined by the Private Securities Litigation Reform Act of 1995 - Forward-looking statements cover expectations regarding cash position, liquidity, business plans, separation benefits, financial and operational performance, growth, pricing trends, market demand, product line expansion, transformation efforts, capital expenditures, cost efficiencies, profitability, M&A, market share, economic expectations, and the impact of laws and regulations[14] Risks and Uncertainties Forward-looking statements are inherently subject to risks and uncertainties that could cause actual results to differ materially from projections - Actual results may vary due to factors including regulatory approvals, realization of separation benefits, financial market conditions (inflation, rising interest rates, recession), COVID-19 impact, trade policy changes, commodity price fluctuations, product demand and pricing, supply chain constraints, legal proceedings, environmental regulations, tax law changes, and cybersecurity risks[15][16][18] EXPLANATORY NOTE Explains the recent separation of the Steel Processing business and its implications for financial reporting Separation of Steel Processing Business Worthington Industries, Inc. completed the separation of its Steel Processing business on December 1, 2023, forming Worthington Steel, Inc., and subsequently renamed Worthington Enterprises, Inc - Worthington Industries, Inc. completed the separation of its Steel Processing business on December 1, 2023, forming Worthington Steel, Inc., and was renamed Worthington Enterprises, Inc.[21] - Financial results in this report include the Steel Processing business prior to separation; historical results will be restated from the third quarter of fiscal 2024 to reflect Steel Processing as a discontinued operation[22] PART I. FINANCIAL INFORMATION Presents the company's financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures Item 1. Financial Statements This section provides Worthington Enterprises, Inc.'s consolidated balance sheets, statements of earnings, comprehensive income, and cash flows, along with condensed notes to the financial statements Consolidated Balance Sheets As of November 30, 2023, total assets slightly decreased to $3,584.1 million, total liabilities decreased to $1,660.2 million, and total equity increased to $1,924.0 million Consolidated Balance Sheets Key Data (Millions of US dollars) | Metric | Nov 30, 2023 | May 31, 2023 | | :--- | :--- | :--- | | Total Assets | 3,584.1 | 3,650.9 | | Total Liabilities | 1,660.2 | 1,829.3 | | Total Equity | 1,924.0 | 1,821.6 | | Cash and Cash Equivalents | 430.9 | 454.9 | | Accounts Receivable | 640.8 | 692.9 | | Inventory | 576.4 | 608.0 | | Short-term Borrowings | 175.0 | 2.8 | | Long-term Debt | 298.5 | 689.7 | - As of November 30, 2023, total assets decreased by 1.8%, total liabilities decreased by 9.2%, and total equity increased by 5.6% year-over-year[24] Consolidated Statements of Earnings For the three months ended November 30, 2023, net sales decreased by 7.5%, gross margin increased by 17.0%, and net earnings attributable to controlling interest grew by 49.8% Consolidated Statements of Earnings Key Data (Millions of US dollars, except per share amounts) | Metric | Three Months Ended Nov 30, 2023 | Three Months Ended Nov 30, 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | 1,086.9 | 1,175.5 | -7.5% | | Cost of Sales | 963.2 | 1,069.8 | -10.0% | | Gross Margin | 123.7 | 105.8 | 17.0% | | Operating Income (Loss) | (5.9) | (7.0) | 15.7% (Loss narrowed) | | Equity in Net Income of Unconsolidated Affiliates | 42.4 | 36.9 | 15.2% | | Net Earnings Attributable to Controlling Interest | 24.3 | 16.2 | 49.8% | | Diluted Earnings Per Share | 0.49 | 0.33 | 48.5% | Consolidated Statements of Earnings Key Data (Millions of US dollars, except per share amounts) | Metric | Six Months Ended Nov 30, 2023 | Six Months Ended Nov 30, 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | 2,280.2 | 2,584.2 | -11.8% | | Cost of Sales | 1,959.0 | 2,309.1 | -15.2% | | Gross Margin | 321.2 | 275.1 | 16.7% | | Operating Income | 71.8 | 59.7 | 20.3% | | Equity in Net Income of Unconsolidated Affiliates | 96.8 | 68.6 | 41.1% | | Net Earnings Attributable to Controlling Interest | 120.4 | 80.3 | 49.9% | | Diluted Earnings Per Share | 2.40 | 1.63 | 47.2% | Consolidated Statements of Comprehensive Income For the three months ended November 30, 2023, comprehensive income significantly increased to $42.6 million, driven by other comprehensive income from cash flow hedges Consolidated Statements of Comprehensive Income Key Data (Millions of US dollars) | Metric | Three Months Ended Nov 30, 2023 | Three Months Ended Nov 30, 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Net Earnings | 28.2 | 19.5 | 44.6% | | Other Comprehensive Income (Loss) | 14.4 | (3.2) | Significant Increase | | Comprehensive Income | 42.6 | 16.3 | 161.3% | | Comprehensive Income Attributable to Controlling Interest | 38.7 | 13.0 | 197.7% | Consolidated Statements of Comprehensive Income Key Data (Millions of US dollars) | Metric | Six Months Ended Nov 30, 2023 | Six Months Ended Nov 30, 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Net Earnings | 127.9 | 84.7 | 50.9% | | Other Comprehensive Income (Loss) | 9.0 | (23.7) | Significant Increase | | Comprehensive Income | 136.9 | 61.1 | 124.1% | | Comprehensive Income Attributable to Controlling Interest | 129.4 | 56.6 | 128.6% | Consolidated Statements of Cash Flows For the six months ended November 30, 2023, cash provided by operating activities slightly decreased, while cash used in investing activities significantly increased due to capital expenditures and acquisitions Consolidated Statements of Cash Flows Key Data (Millions of US dollars) | Metric | Three Months Ended Nov 30, 2023 | Three Months Ended Nov 30, 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | 135.0 | 132.9 | 1.6% | | Net Cash Used in Investing Activities | (53.6) | (0.9) | Significant Increase | | Net Cash Provided by (Used in) Financing Activities | 148.5 | (38.2) | Significant Increase | | Net Increase (Decrease) in Cash and Cash Equivalents | 229.9 | 93.8 | 145.1% | | Cash and Cash Equivalents, End of Period | 430.9 | 129.6 | 232.5% | Consolidated Statements of Cash Flows Key Data (Millions of US dollars) | Metric | Six Months Ended Nov 30, 2023 | Six Months Ended Nov 30, 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | 194.7 | 214.0 | -9.0% | | Net Cash Used in Investing Activities | (97.8) | (30.7) | Significant Increase | | Net Cash Used in Financing Activities | (120.9) | (88.2) | -37.1% | | Net Increase (Decrease) in Cash and Cash Equivalents | (24.0) | 95.1 | Significant Decrease | | Cash and Cash Equivalents, End of Period | 430.9 | 129.6 | 232.5% | Condensed Notes to Consolidated Financial Statements This section provides detailed notes to the consolidated financial statements, covering accounting basis, the Steel Processing business separation, inventory, revenue recognition, and other critical financial information Note A – Basis of Presentation This note outlines the basis for preparing the consolidated financial statements, including Worthington Enterprises and its subsidiaries, and details the December 1, 2023, Steel Processing business separation - Consolidated statements include Worthington Enterprises and its subsidiaries, with controlling interests in joint ventures like Spartan (52%), TWB (55%), and Samuel (63%)[35] - On December 1, 2023, the company completed the Steel Processing business separation, making Worthington Steel an independent public company and renaming Worthington Industries, Inc. to Worthington Enterprises, Inc.[36] - Direct and incremental separation costs, primarily third-party consulting and employee-related costs, totaled $28.0 million for the first six months of fiscal 2024, recognized as "Separation costs" in the consolidated statements of earnings[38][87] Note B – Inventory This note discloses a $3.0 million inventory reserve recorded in the second quarter of fiscal 2024 due to the Balloon Time® Mini helium tank recall, impacting the Consumer Products segment's cost of sales - In the second quarter of fiscal 2024, the company recorded an inventory reserve of approximately $3.0 million due to the Balloon Time® Mini helium tank recall, charged to the Consumer Products segment's cost of sales[40] Note C – Revenue Recognition This note summarizes net sales by operating segment and product category, with most revenue recognized when control transfers to the customer, typically upon shipment or delivery Net Sales by Operating Segment (Millions of US dollars) | Operating Segment | Three Months Ended Nov 30, 2023 | Three Months Ended Nov 30, 2022 | Six Months Ended Nov 30, 2023 | Six Months Ended Nov 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Steel Processing | 788.7 | 841.9 | 1,670.0 | 1,880.8 | | Consumer Products | 147.7 | 153.8 | 297.2 | 342.5 | | Building Products | 123.0 | 141.7 | 256.8 | 292.0 | | Sustainable Energy Solutions | 27.5 | 38.1 | 56.2 | 68.9 | | Total | 1,086.9 | 1,175.5 | 2,280.2 | 2,584.2 | - Net sales, excluding tolling, are recognized when performance obligations are satisfied and control transfers to the customer, typically upon shipment or delivery[42] Note D – Investments in Unconsolidated Affiliates This note lists the company's equity method investments in unconsolidated affiliates, including ClarkDietrich, Serviacero Worthington, Workhorse, and WAVE, from which it received $104.0 million in dividends - The company holds equity interests in unconsolidated affiliates such as ClarkDietrich (25%), Serviacero Worthington (50%), Workhorse (20%), and WAVE (50%), accounted for using the equity method[44] - For the six months ended November 30, 2023, the company received total dividends of $104.0 million from unconsolidated affiliates[46] - In the second quarter of fiscal 2024, the company recognized a pre-tax gain of $2.8 million from Workhorse's sale of its Brazilian operations[45] Note E – Impairment of Long-Lived Assets In the first quarter of fiscal 2024, the company recognized a $1.4 million pre-tax impairment charge due to a plan to liquidate certain fixed assets at the Samuel joint venture's Cleveland tolling facility - In the first quarter of fiscal 2024, the company recognized a pre-tax impairment charge of $1.4 million due to a plan to liquidate fixed assets at the Samuel joint venture[50] Note F – Restructuring and Other Expenses (Income), Net For the six months ended November 30, 2023, the company incurred $0.1 million in severance costs related to prior restructuring plans, with no restructuring liabilities remaining at period-end - For the six months ended November 30, 2023, the company paid $0.1 million in severance costs, with no restructuring liabilities at period-end[51] - In the prior year period, net restructuring and other income was $5.4 million, primarily from the sale of remaining real estate from the former Oil & Gas Equipment business and the sale of WSP, which generated a $3.9 million pre-tax gain[52] Note G – Contingent Liabilities and Commitments Management believes that current legal proceedings and environmental matters will not materially impact the company's consolidated financial position or future operating results - Management believes that current legal proceedings and environmental matters will not materially impact the company's consolidated financial position or future operating results[53] Note H – Guarantees As of November 30, 2023, the company's maximum obligation for an aircraft operating lease residual value guarantee was approximately $16.1 million, with no amounts drawn on standby letters of credit - As of November 30, 2023, the company's maximum obligation for an aircraft operating lease residual value guarantee was approximately $16.1 million, though payment likelihood is uncertain[54] - The company holds $12.1 million in standby letters of credit, with no amounts drawn[55] Note I – Debt and Receivables Securitization This note details the company's debt structure, showing total debt decreased to $625.3 million as of November 30, 2023, following the redemption of 4.55% Senior Notes due 2026 Debt Overview (Millions of US dollars) | Metric | Nov 30, 2023 | May 31, 2023 | | :--- | :--- | :--- | | Short-term Borrowings | 175.0 | 2.8 | | 4.60% Senior Notes (due 2024) | 150.0 | 150.0 | | 4.55% Senior Notes (due 2026) | - | 243.6 | | 4.30% Senior Notes (due 2032) | 200.0 | 200.0 | | Other Long-term Debt | 70.3 | 98.5 | | Total Debt | 625.3 | 694.9 | | Net Long-term Debt | 298.5 | 689.7 | - The company redeemed its 4.55% Senior Notes due 2026 on July 28, 2023, resulting in a $1.5 million non-cash loss[59] - Worthington Steel entered into a $550.0 million senior secured revolving credit facility prior to the separation, drawing $175.0 million[60] Note J – Other Comprehensive Income (Loss) For the three months ended November 30, 2023, net other comprehensive income was $14.4 million, primarily driven by a positive impact from cash flow hedges, a significant improvement from the prior year's loss Components of Other Comprehensive Income (Loss) (Millions of US dollars) | Metric | Three Months Ended Nov 30, 2023 (After-tax) | Three Months Ended Nov 30, 2022 (After-tax) | | :--- | :--- | :--- | | Foreign Currency Translation | 0.9 | 0.9 | | Pension Liability Adjustment | - | (0.1) | | Cash Flow Hedges | 13.5 | (4.0) | | Other Comprehensive Income (Loss) | 14.4 | (3.2) | Components of Other Comprehensive Income (Loss) (Millions of US dollars) | Metric | Six Months Ended Nov 30, 2023 (After-tax) | Six Months Ended Nov 30, 2022 (After-tax) | | :--- | :--- | :--- | | Foreign Currency Translation | 2.3 | (9.2) | | Pension Liability Adjustment | - | 2.9 | | Cash Flow Hedges | 6.7 | (17.3) | | Other Comprehensive Income (Loss) | 9.0 | (23.7) | Note K – Changes in Equity As of November 30, 2023, shareholders' equity attributable to controlling interest increased to $1,792.8 million, primarily due to net earnings and stock option incentives, partially offset by cash dividends and share repurchases Changes in Shareholders' Equity Attributable to Controlling Interest (Millions of US dollars) | Metric | May 31, 2023 | Nov 30, 2023 | | :--- | :--- | :--- | | Shareholders' Equity Attributable to Controlling Interest | 1,696.0 | 1,792.8 | | Net Earnings | 96.1 (as of Aug 31) + 24.3 (as of Nov 30) | - | | Other Comprehensive Income (Loss) | (5.4) (as of Aug 31) + 14.4 (as of Nov 30) | - | | Cash Dividends | (16.1) (as of Aug 31) + (16.1) (as of Nov 30) | - | | Stock-based Compensation | 9.0 (as of Aug 31) + 4.5 (as of Nov 30) | - | Note L – Stock-Based Compensation For the six months ended November 30, 2023, the company granted 54 non-qualified stock options and 176 service-based restricted common shares, with an estimated pre-tax stock-based compensation expense of $3.2 million for performance share awards - For the six months ended November 30, 2023, the company granted 54 non-qualified stock options with an exercise price of $69.47 per share and a fair value of $25.95 per share[72] - 176 service-based restricted common shares were granted with a fair value of $65.97 per share, resulting in $11.6 million in pre-tax stock-based compensation expense[74] - 47 performance share awards (at target level) were granted, with an estimated pre-tax stock-based compensation expense of $3.2 million[75] Note M – Income Taxes For the three months ended November 30, 2023, income tax expense was $7.2 million with an effective tax rate of 23.4%, an increase primarily due to higher pre-tax earnings Income Tax Expense and Effective Tax Rate (Millions of US dollars) | Metric | Three Months Ended Nov 30, 2023 | Three Months Ended Nov 30, 2022 | | :--- | :--- | :--- | | Income Tax Expense | 7.2 | 4.1 | | Effective Tax Rate | 23.4% | 23.7% | Income Tax Expense and Effective Tax Rate (Millions of US dollars) | Metric | Six Months Ended Nov 30, 2023 | Six Months Ended Nov 30, 2022 | | :--- | :--- | :--- | | Income Tax Expense | 36.0 | 23.6 | | Effective Tax Rate | 23.4% | 23.7% | Note N – Earnings per Share This note presents the calculation of basic and diluted earnings per share attributable to controlling interest, both of which increased to $0.49 for the three months ended November 30, 2023 Earnings Per Share (US dollars) | Metric | Three Months Ended Nov 30, 2023 | Three Months Ended Nov 30, 2022 | | :--- | :--- | :--- | | Basic Earnings Per Share | 0.49 | 0.33 | | Diluted Earnings Per Share | 0.49 | 0.33 | Earnings Per Share (US dollars) | Metric | Six Months Ended Nov 30, 2023 | Six Months Ended Nov 30, 2022 | | :--- | :--- | :--- | | Basic Earnings Per Share | 2.46 | 1.66 | | Diluted Earnings Per Share | 2.40 | 1.63 | Note O – Segment Operations This note provides operating segment information by product and service, with segment performance and resource allocation evaluated by the CEO based on Adjusted EBIT - The company operates in four reportable segments: Steel Processing, Consumer Products, Building Products, and Sustainable Energy Solutions[80] - The Chief Operating Decision Maker evaluates segment performance and allocates resources based on Adjusted EBIT, which excludes non-recurring items like impairment and restructuring charges[82][83] Adjusted EBIT by Reportable Segment (Millions of US dollars) | Reportable Segment | Three Months Ended Nov 30, 2023 | Three Months Ended Nov 30, 2022 | | :--- | :--- | :--- | | Steel Processing | 6.8 | (17.2) | | Consumer Products | 9.5 | 13.5 | | Building Products | 40.3 | 41.2 | | Sustainable Energy Solutions | (2.6) | 1.1 | | Other | (1.1) | (3.3) | | Total Adjusted EBIT | 52.8 | 35.3 | Adjusted EBIT by Reportable Segment (Millions of US dollars) | Reportable Segment | Six Months Ended Nov 30, 2023 | Six Months Ended Nov 30, 2022 | | :--- | :--- | :--- | | Steel Processing | 84.8 | 17.7 | | Consumer Products | 18.5 | 34.4 | | Building Products | 94.3 | 94.0 | | Sustainable Energy Solutions | (7.3) | (0.3) | | Other | (1.0) | 1.9 | | Total Adjusted EBIT | 189.3 | 147.6 | Note P – Acquisitions This note discloses the company's acquisition activities, including the $21.0 million cash acquisition of Tempel Steel Europe GmbH in November 2023 and the $59.3 million acquisition of Level5 Tools, LLC in June 2022 - On November 16, 2023, the company acquired Tempel Steel Europe GmbH for $21.0 million in cash, allocating $12.3 million to property, plant, and equipment, $9.1 million to net working capital, and recognizing approximately $0.6 million in goodwill[92][93] - On June 2, 2022, the company acquired Level5 Tools, LLC for $59.3 million, including $2.0 million in contingent consideration, and recognized $15.9 million in goodwill[94][99] Level5 Tools, LLC Acquired Intangible Assets (Millions of US dollars) | Category | Amount | Useful Life (Years) | | :--- | :--- | :--- | | Trade Names | 13.5 | Indefinite | | Customer Relationships | 13.3 | 10 | | Technical Know-how | 6.5 | 20 | | Non-compete Agreements | 0.3 | 3 | | Total | 33.6 | | Note Q – Derivative Financial Instruments and Hedging Activities This note describes the company's use of derivative financial instruments, including interest rate swaps, foreign currency forward contracts, and commodity contracts, to manage various market risks - The company uses derivative financial instruments, including interest rate swaps, foreign currency forward contracts, and commodity contracts, to manage interest rate, foreign exchange rate, and commodity price risks[101][102][103] Fair Value of Derivative Financial Instruments (Millions of US dollars) - Nov 30, 2023 | Category | Asset Fair Value | Liability Fair Value | | :--- | :--- | :--- | | Designated as Hedging Instruments | 12.5 | 3.7 | | Not Designated as Hedging Instruments | 2.5 | 2.6 | | Total | 15.0 | 6.4 | - As of November 30, 2023, net gains from cash flow hedges expected to be reclassified from other comprehensive income to net earnings within the next twelve months totaled $7.7 million (after-tax)[111] Note R – Fair Value This note defines fair value and categorizes inputs into three levels, noting that all recurring fair value measurements for assets and liabilities, primarily derivatives, use Level 2 inputs - Fair value measurements are categorized into three levels: Level 1 (quoted prices in active markets), Level 2 (observable inputs), and Level 3 (unobservable inputs)[116][117] Recurring Fair Value Measurements (Millions of US dollars) - Nov 30, 2023 | Category | Level 2 Inputs | Total | | :--- | :--- | :--- | | Derivative Financial Instrument Assets | 15.0 | 15.0 | | Derivative Financial Instrument Liabilities | 6.4 | 6.4 | - As of November 30, 2023, the fair value of long-term debt was $391.9 million, compared to a carrying value of $448.8 million[125] Note S – Subsequent Events This note discloses significant post-reporting period events, including the December 1, 2023, completion of the Steel Processing business separation and the subsequent redemption of $150.0 million in senior unsecured notes - On December 1, 2023, the company completed the Steel Processing business separation, with Worthington Steel paying $150.0 million in cash to Worthington Enterprises[126][127] - On December 6, 2023, the company used the cash received to fully redeem its $150.0 million senior unsecured notes due 2024[127] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's discussion and analysis of the company's financial condition and operating results, covering the Steel Processing business separation, recent developments, performance-impacting trends, and liquidity Introduction This introduction emphasizes that the MD&A should be read in conjunction with the consolidated financial statements and highlights the future restatement of historical results to reflect the Steel Processing business as a discontinued operation - The MD&A will restate historical results from the third quarter of fiscal 2024 to reflect the Steel Processing business as a discontinued operation[130] Separation of the Steel Processing Business This section reiterates the December 1, 2023, completion of the Steel Processing business separation, forming Worthington Steel, Inc., and the subsequent renaming of Worthington Industries, Inc. to Worthington Enterprises, Inc - On December 1, 2023, the company completed the separation of its Steel Processing business, making Worthington Steel an independent public company[131] - The separation was completed by a pro rata distribution of Worthington Steel common shares, with Worthington Steel paying $150.0 million in cash to Worthington Enterprises[131] - Worthington Industries, Inc. was renamed Worthington Enterprises, Inc., and its common stock continues to trade on the NYSE under the symbol "WOR"[131] Recent Business Developments This section outlines recent significant business developments, including the termination of a $175.0 million accounts receivable securitization facility and the redemption of senior notes - On June 29, 2023, the company terminated its accounts receivable securitization financing facility, which allowed for borrowings up to $175.0 million[132] - On July 28, 2023, the company redeemed its Senior Notes due 2026, resulting in a non-cash loss of approximately $1.5 million[132] - On December 6, 2023, the company used the $150.0 million cash distribution from Worthington Steel to fully repay its Senior Notes due 2024[132] Trends and Factors Impacting our Performance This section analyzes market and economic trends affecting the company's performance, including demand from diverse end markets, macroeconomic conditions, and raw material price fluctuations - Company product sales are driven by demand from automotive (Steel Processing's largest end market, accounting for 53% of its net sales), construction (Building Products' primary end market), and other diversified end markets[134][135] - Macroeconomic conditions, such as inflation, interest rates, and US GDP growth, significantly impact product demand and pricing[137][138] - Declining steel prices in fiscal 2024 resulted in an estimated $19.3 million inventory holding loss for the six months ended November 30, 2023[143] Key Market Indicators | Metric | Three Months Ended Nov 30, 2023 | Three Months Ended Nov 30, 2022 | Change | | :--- | :--- | :--- | :--- | | US GDP (% YoY Growth) | 2.8% | 1.8% | 1.0% | | Hot Rolled Steel ($/ton) | 747 | 742 | 5 | | Detroit Big 3 Auto Production (Thousands of Units) | 1,558 | 1,742 | (184) | | North American Auto Production (Thousands of Units) | 3,914 | 3,737 | 177 | | Zinc ($/lb) | 1.14 | 1.36 | (0.22) | | Natural Gas ($/mcf) | 2.96 | 6.77 | (3.81) | | On-Highway Diesel Price ($/gallon) | 4.44 | 5.15 | (0.71) | Results of Operations This section provides a detailed analysis of the company's operating results for the second quarter and six months of fiscal 2024, highlighting changes in net sales, gross margin, and net earnings Second Quarter – Fiscal 2024 Compared to Fiscal 2023 In the second quarter of fiscal 2024, net sales decreased by 7.5% to $1,086.9 million, while gross margin increased by 17.0% to $123.7 million, and net earnings attributable to controlling interest grew by 49.8% Fiscal 2024 Second Quarter Key Financial Data (Millions of US dollars, except per share amounts) | Metric | 2023 | 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | 1,086.9 | 1,175.5 | -7.5% | | Operating Loss | (5.9) | (7.0) | 15.7% (Loss narrowed) | | Equity in Net Income of Unconsolidated Affiliates | 42.4 | 36.9 | 15.2% | | Net Earnings Attributable to Controlling Interest | 24.3 | 16.2 | 49.8% | | Diluted Earnings Per Share | 0.49 | 0.33 | 48.5% | - Gross margin increased by 17.0% to $123.7 million, primarily due to an $18.3 million reduction in inventory holding losses in the Steel Processing business[154] - Adjusted EBIT was $52.8 million, a 49.6% increase, with the Steel Processing business's Adjusted EBIT improving by $24.0 million from ($17.2) million to $6.8 million[164] Six Months Year-to-Date – Fiscal 2024 compared to Fiscal 2023 For the six months ended November 30, 2023, net sales decreased by 11.8% to $2,280.2 million, while gross margin increased by 16.7% to $321.2 million, and net earnings attributable to controlling interest grew by 49.9% Fiscal 2024 Six Months Key Financial Data (Millions of US dollars, except per share amounts) | Metric | 2023 | 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | 2,280.2 | 2,584.2 | -11.8% | | Operating Income | 71.8 | 59.7 | 20.3% | | Equity in Net Income of Unconsolidated Affiliates | 96.8 | 68.6 | 41.1% | | Net Earnings Attributable to Controlling Interest | 120.4 | 80.3 | 49.9% | | Diluted Earnings Per Share | 2.40 | 1.63 | 47.2% | - Gross margin increased by 16.7% to $321.2 million, primarily due to a significant reduction in inventory holding losses in the Steel Processing business from $54.6 million to $19.3 million in the prior year period[172] - Adjusted EBIT was $189.3 million, a 28.2% increase, driven by favorable direct spread in the Steel Processing business and a $9.0 million increase in Serviacero equity earnings[184] Liquidity and Capital Resources This section discusses the company's liquidity and capital resources, including cash flows from operating, investing, and financing activities, and its available revolving credit facility Cash Flow Overview (Millions of US dollars) | Metric | Six Months Ended Nov 30, 2023 | Six Months Ended Nov 30, 2022 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | 194.7 | 214.0 | | Net Cash Used in Investing Activities | (97.8) | (30.7) | | Net Cash Used in Financing Activities | (120.9) | (88.2) | | Net Increase (Decrease) in Cash and Cash Equivalents | (24.0) | 95.1 | | Cash and Cash Equivalents, End of Period | 430.9 | 129.6 | - The company has a $500.0 million undrawn revolving credit facility, deemed sufficient to meet operating needs for the next 12 months and beyond[187] - The company redeemed $243.8 million of 2026 notes in July 2023 and $150.0 million of 2024 notes post-period to optimize its capital structure after the separation[189] - As of November 30, 2023, 6.1 million common shares remained available for repurchase under the authorized repurchase program[195] Critical Accounting Estimates This section reiterates the critical accounting estimates and assumptions required for preparing consolidated financial statements, including accounts receivable, inventory, intangible assets, and income taxes - Key accounting estimates include accounts receivable, inventory, intangible assets, accrued liabilities, income and other tax accruals, contingencies and litigation, and business combination valuations[198] - Management's estimates are based on historical experience and reasonable assumptions, but actual results may differ materially from these estimates[198] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that the company's market risks have not materially changed since the disclosure in the fiscal 2023 Form 10-K report - The company's market risks have not materially changed since the disclosure in the fiscal 2023 Form 10-K report[199] Item 4. Controls and Procedures This section describes the company's disclosure controls and procedures and internal controls, which management concluded were effective at a reasonable assurance level as of November 30, 2023 - As of November 30, 2023, the company's disclosure controls and procedures were effective at a reasonable assurance level[201] - No material changes occurred in the internal control report during the reporting period[202] PART II. OTHER INFORMATION Provides additional information including legal proceedings, risk factors, equity security sales, and a list of exhibits Item 1. Legal Proceedings This section discloses the company's involvement in various legal and administrative proceedings, which management believes will not materially adversely affect its business or financial condition - The company is involved in various legal and administrative proceedings, which management believes will not materially adversely affect its business, financial condition, results of operations, or cash flows[203] Item 1A. Risk Factors This section states that the company's risk factors have not materially changed since the fiscal 2023 Form 10-K report, advising investors to review those risks - The company's risk factors have not materially changed since the disclosure in the fiscal 2023 Form 10-K report[204] - Investors should carefully read the risk factors in the fiscal 2023 Form 10-K report, as these risks could materially adversely affect the company's business, consolidated financial condition, or future results[204] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports no sales of unregistered equity securities for the six months ended November 30, 2023, and details issuer repurchases primarily for tax withholding obligations related to restricted stock vesting - For the six months ended November 30, 2023, the company did not sell any unregistered equity securities[205] - The company's repurchased equity securities were primarily common shares withheld to satisfy tax withholding obligations related to restricted common stock vesting[206] Issuer Purchases of Equity Securities (Number of Common Shares) | Period | Total Number of Shares Purchased | Average Price Paid Per Share ($) | Maximum Number of Shares That May Yet Be Purchased Under the Plan or Program | | :--- | :--- | :--- | :--- | | Sep 1-30, 2023 | 140,488 | 69.28 | 6,065,000 | | Oct 1-31, 2023 | 23 | 61.55 | 6,065,000 | | Nov 1-30, 2023 | 198 | 66.34 | 6,065,000 | | Total | 140,709 | 69.16 | | - As of November 30, 2023, 6.1 million common shares remained available for repurchase under the authorized repurchase program, with no fixed expiration date[207] Item 3. Defaults Upon Senior Securities This section states that it is not applicable Item 4. Mine Safety Disclosures This section states that it is not applicable Item 5. Other Information This section states that no response is required Item 6. Exhibits This section lists various exhibits filed with the Form 10-Q report, including separation and distribution agreements, corporate charters, credit agreements, and certification documents - Exhibits include the Separation and Distribution Agreement, Amended and Restated Certificate of Incorporation, Credit Agreement, Note Purchase Agreement, Transition Services Agreement, Tax Matters Agreement, Employee Matters Agreement, Trademark License Agreement, WBS License Agreement, and Steel Supply Agreement[210][211][212][213][214][217][218][219][220][221][223] - Also included are certifications from the Chief Executive Officer and Chief Financial Officer, along with XBRL instance, taxonomy extension schema, presentation linkbase, label linkbase, calculation linkbase, and definition linkbase documents[223][224][225] SIGNATURES Confirms the official signing of the report by Worthington Enterprises, Inc. through its Vice President and Chief Financial Officer Signature This report was officially signed by Joseph B. Hayek, Vice President and Chief Financial Officer of Worthington Enterprises, Inc., on January 9, 2024 - This report was signed by Joseph B. Hayek, Vice President and Chief Financial Officer of Worthington Enterprises, Inc., on January 9, 2024[227]