Worthington Industries(WOR) - 2024 Q3 - Quarterly Report

Commonly Used or Defined Terms This section defines key terms and abbreviations used throughout the financial report for clarity and consistency Safe Harbor Statement This statement outlines forward-looking statements and associated risks, cautioning readers about inherent uncertainties in future projections Use of Non-GAAP Financial Measures and Definitions This section explains the purpose and definitions of non-GAAP financial measures used by management to assess performance Adjusted EBITDA This section defines Adjusted EBITDA as a non-GAAP financial measure used by management to evaluate performance, plan financially, and determine incentive compensation. It excludes items not reflective of ongoing operations, such as impairment and restructuring charges, separation costs, loss on early extinguishment of debt, and pension settlement charges - Adjusted EBITDA is a non-GAAP measure used to evaluate performance, financial planning, and incentive compensation[18] - Exclusions from Adjusted EBITDA include impairment charges, restructuring activities, separation costs, loss on early extinguishment of debt, and pension settlement charges, as these are not considered part of ongoing operations[19] Part I. Financial Information This part presents the company's unaudited consolidated financial statements and management's discussion and analysis Item 1. Financial Statements This section presents the Company's unaudited consolidated financial statements, including balance sheets, statements of earnings, comprehensive income, and cash flows, along with condensed notes providing detailed explanations of accounting policies, significant transactions, and financial performance Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and equity at specific points in time Consolidated Balance Sheet Highlights (in thousands) | Metric | February 29, 2024 | May 31, 2023 | | :--------------------------------- | :------------------ | :------------- | | Total Current Assets | $691,111 | $1,868,337 | | Total Assets | $1,704,689 | $3,650,918 | | Total Current Liabilities | $202,288 | $717,558 | | Total Liabilities | $790,247 | $1,829,290 | | Total Equity | $914,442 | $1,821,628 | - Total assets significantly decreased from $3.65 billion to $1.70 billion, primarily due to the Separation of discontinued operations[23] Consolidated Statements of Earnings This section details the company's revenues, expenses, and net earnings over specific reporting periods Consolidated Statements of Earnings Highlights (in thousands, except per common share amounts) | Metric | Three Months Ended Feb 29, 2024 | Three Months Ended Feb 28, 2023 | | :------------------------------------------ | :------------------------------ | :------------------------------ | | Net Sales | $316,755 | $346,315 | | Gross Profit | $73,112 | $78,971 | | Operating Income (Loss) | $4,281 | $4,000 | | Net Earnings from Continuing Operations | $22,000 | $29,751 | | Net Earnings from Discontinued Operations | - | $20,507 | | Net Earnings Attributable to Controlling Interest | $22,000 | $46,325 | | Diluted EPS from Continuing Operations | $0.44 | $0.60 | | Diluted EPS from Discontinued Operations | - | $0.34 | | Diluted Net EPS Attributable to Controlling Interest | $0.44 | $0.94 | Consolidated Statements of Earnings Highlights (in thousands, except per common share amounts) | Metric | Nine Months Ended Feb 29, 2024 | Nine Months Ended Feb 28, 2023 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Net Sales | $926,902 | $1,049,694 | | Gross Profit | $206,020 | $229,428 | | Operating Income (Loss) | $(17,411) | $14,518 | | Net Earnings from Continuing Operations | $66,763 | $75,625 | | Net Earnings from Discontinued Operations | $83,106 | $59,382 | | Net Earnings Attributable to Controlling Interest | $142,409 | $126,625 | | Diluted EPS from Continuing Operations | $1.33 | $1.53 | | Diluted EPS from Discontinued Operations | $1.50 | $1.04 | | Diluted Net EPS Attributable to Controlling Interest | $2.83 | $2.57 | Consolidated Statements of Comprehensive Income This section presents net earnings and other comprehensive income components, reflecting total non-owner changes in equity Consolidated Statements of Comprehensive Income (in thousands) | Metric | Three Months Ended Feb 29, 2024 | Three Months Ended Feb 28, 2023 | | :------------------------------------------ | :------------------------------ | :------------------------------ | | Net Earnings | $22,000 | $50,258 | | Other Comprehensive Income (Loss), net of tax | $6,323 | $36,228 | | Comprehensive Income Attributable to Controlling Interest | $28,323 | $82,553 | Consolidated Statements of Comprehensive Income (in thousands) | Metric | Nine Months Ended Feb 29, 2024 | Nine Months Ended Feb 28, 2023 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Net Earnings | $149,869 | $135,007 | | Other Comprehensive Income (Loss), net of tax | $15,361 | $12,542 | | Comprehensive Income Attributable to Controlling Interest | $157,770 | $139,167 | Consolidated Statements of Cash Flows This section reports cash inflows and outflows from operating, investing, and financing activities Consolidated Statements of Cash Flows (in thousands) | Activity | Three Months Ended Feb 29, 2024 | Three Months Ended Feb 28, 2023 | | :------------------------------------------ | :------------------------------ | :------------------------------ | | Net cash provided by operating activities | $50,121 | $182,151 | | Net cash used by investing activities | $(18,664) | $(23,017) | | Net cash used by financing activities | $(235,053) | $(21,486) | | Increase (decrease) in cash and cash equivalents | $(203,596) | $137,648 | | Cash and cash equivalents at end of period | $227,310 | $267,244 | Consolidated Statements of Cash Flows (in thousands) | Activity | Nine Months Ended Feb 29, 2024 | Nine Months Ended Feb 28, 2023 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $244,806 | $396,130 | | Net cash used by investing activities | $(116,504) | $(53,733) | | Net cash used by financing activities | $(355,938) | $(109,638) | | Increase (decrease) in cash and cash equivalents | $(227,636) | $232,759 | | Cash and cash equivalents at end of period | $227,310 | $267,244 | - Cash flows related to discontinued operations have not been segregated and are included in the consolidated statements of cash flows[30] Condensed Notes to Consolidated Financial Statements This section provides detailed explanations of accounting policies, significant transactions, and financial performance Note A – Basis of Presentation This note details the basis of financial statement preparation, including the consolidation of subsidiaries and equity method for unconsolidated affiliates. It highlights the Separation of Worthington Steel as a discontinued operation and the recent acquisition of an 80% controlling interest in Halo - The Separation of the Steel Processing business was completed on December 1, 2023, as a tax-free distribution, making Worthington Steel an independent public company[35] - The Company entered into several agreements with Worthington Steel post-Separation, including a long-term Steel Supply Agreement, Trademark License Agreement, and Transition Services Agreement[36] - An 80% controlling interest in Halo was acquired on February 1, 2024, which is now part of the Consumer Products operating segment[34] Note B – Discontinued Operations This note provides financial details of the discontinued Steel Processing business (Worthington Steel) for prior periods. It clarifies that there were no discontinued operations for the three months ended February 29, 2024, due to the completion of the Separation - There were no discontinued operations for the three months ended February 29, 2024[40] Worthington Steel Financial Results (Nine Months Ended) | Metric | February 29, 2024 (in thousands) | February 28, 2023 (in thousands) | | :------------------------------------------ | :------------------------------- | :------------------------------- | | Net Sales | $1,670,027 | $2,637,834 | | Gross Profit | $188,296 | $189,515 | | Operating Income | $93,466 | $75,276 | | Net Earnings | $83,106 | $59,382 | | Net Earnings Attributable to Controlling Interest | $75,646 | $51,000 | Note C – Inventory This note details inventory-related charges recognized during fiscal 2024, including a lower of cost or net realizable value adjustment for propane tanks and a recall reserve for mini helium tanks - Recognized a $1,900 thousand charge related to propane tanks due to higher transportation costs, attributed to the Building Products segment[45] - Booked a $3,000 thousand reserve for the estimated net realizable value of impacted inventory from a recall of Balloon Time® mini helium tanks, attributed to the Consumer Products segment[46] Note D – Investments in Unconsolidated Affiliates This note outlines the Company's equity method investments in unconsolidated affiliates, including ClarkDietrich, WAVE, and Workhorse. It details distributions received, including excess distributions from WAVE classified as investing activities, and a gain from the sale of Workhorse's Brazil operations - The Company holds equity method investments in ClarkDietrich (25%), WAVE (50%), and Workhorse (20%)[47] - Received total distributions of $144,317 thousand from unconsolidated affiliates during the nine months ended February 29, 2024[48] - A pre-tax gain of $2,780 thousand was recognized from the sale of Workhorse's operations in Brazil[48] Combined Financial Information for Unconsolidated Affiliates (Continuing Operations, in thousands) | Metric | February 29, 2024 | May 31, 2023 | | :-------------------- | :------------------ | :------------- | | Total Assets | $985,425 | $1,034,255 | | Total Liabilities | $819,387 | $601,338 | | Equity | $166,038 | $331,917 | Note E – Impairment of Long-Lived Assets This note reports an impairment charge of $484 thousand recognized during the third quarter of fiscal 2023 for certain assets at a Building Products facility. It also discusses the challenging market conditions for the Sustainable Energy Solutions business but maintains a positive long-term outlook - An impairment charge of $484 thousand was recognized in the third quarter of fiscal 2023 for certain assets at a Building Products facility[53] - The Sustainable Energy Solutions business continues to operate in a challenging market due to economic conditions in Europe and slow adoption of hydrogen/CNG transportation applications[54] Note F – Restructuring and Other Expense, Net This note details the Company's restructuring activities, which primarily involve employee severance and facility realignments. It reports a remaining liability of $586 thousand as of February 29, 2024, expected to be paid within the next 12 months - The total liability associated with restructuring activities was $586 thousand at February 29, 2024, primarily for early retirement and severance[55] - This liability is expected to be paid within the next 12 months[55] Note G – Contingent Liabilities and Commitments This note states that the Company is involved in various legal actions but management believes the outcomes will not significantly affect its consolidated financial position or future results of operations. Environmental issues are also not expected to have a material effect - Management believes the outcome of current legal actions will not significantly affect the Company's consolidated financial position or future results of operations[57] - Environmental issues are not expected to have a material effect on capital expenditures, financial position, or future results[57] Note H – Guarantees This note discloses a residual value guarantee for an aircraft operating lease with a maximum obligation of approximately $15.8 million at February 29, 2024. It also mentions $12.1 million in outstanding stand-by letters of credit, with the likelihood of payment for the guarantee deemed not probable - The Company has guaranteed a residual value of approximately $15,796 thousand for an aircraft operating lease at February 29, 2024[58] - The likelihood of payment for the aircraft lease guarantee is estimated as not probable, so no amount has been recognized[58] - Outstanding stand-by letters of credit totaled $12,137 thousand at February 29, 2024[59] Note I – Debt and Receivables Securitization This note summarizes the Company's long-term debt, including the redemption of the 2026 Notes and 2024 Notes. It also details the amended Credit Facility, which provides $500 million in available borrowing capacity, and the termination of the AR Facility Long-Term Debt Outstanding (in thousands) | Debt Type | February 29, 2024 | May 31, 2023 | | :------------------------------------------ | :------------------ | :------------- | | 2024 Notes | - | $150,000 | | 2026 Notes | - | $243,623 | | 4.30% senior notes due August 1, 2032 | $200,000 | $200,000 | | 2.06% Series A senior note due August 23, 2031 | $39,654 | $39,226 | | 2.40% Series B senior notes due August 23, 2034 | $59,427 | $58,786 | | Other | $267 | $528 | | Total Debt, net | $297,962 | $689,982 | - The 2026 Notes ($243,623 thousand) were redeemed in full on July 28, 2023, resulting in a non-cash loss of $1,534 thousand[63] - The Credit Facility was amended and restated on September 27, 2023, extending maturity to September 27, 2028, with $500,000 thousand available for use at February 29, 2024[64] Note J – Other Comprehensive Income (Loss) This note provides a summary of the tax effects on each component of Other Comprehensive Income (OCI), including foreign currency translation, pension liability adjustments, and cash flow hedges, for both the three and nine-month periods Other Comprehensive Income (Loss) (Three Months Ended, Net-of-Tax, in thousands) | Component | February 29, 2024 | February 28, 2023 | | :--------------------------- | :------------------ | :------------------ | | Foreign currency translation | $(700) | $1,563 | | Pension liability adjustment | $6,805 | $323 | | Cash flow hedges | $218 | $34,342 | | Total OCI (Loss) | $6,323 | $36,228 | Other Comprehensive Income (Loss) (Nine Months Ended, Net-of-Tax, in thousands) | Component | February 29, 2024 | February 28, 2023 | | :--------------------------- | :------------------ | :------------------ | | Foreign currency translation | $1,643 | $(7,680) | | Pension liability adjustment | $6,802 | $3,180 | | Cash flow hedges | $6,916 | $17,042 | | Total OCI (Loss) | $15,361 | $12,542 | Note K – Changes in Equity This note summarizes the changes in equity by component, including net earnings, other comprehensive income, common shares issued, stock-based compensation, cash dividends, and the significant impact of the Worthington Steel Separation on equity balances - Total equity decreased from $1,821,628 thousand at May 31, 2023, to $914,442 thousand at February 29, 2024[23] - The Separation of Worthington Steel resulted in a decrease of $1,030,899 thousand in total equity[71] - Net earnings attributable to controlling interest for the nine months ended February 29, 2024, was $142,409 thousand[25] Note L – Stock-Based Compensation This note details the adjustments made to outstanding share-based awards due to the Worthington Steel Separation. It also summarizes the activity for non-qualified stock options, service-based restricted common shares, and performance share awards granted during the nine months ended February 29, 2024 - Outstanding share-based awards were adjusted in connection with the Separation to preserve their intrinsic value[76] - 58 non-qualified stock options were granted during the nine months ended February 29, 2024, with a weighted average fair value of $25.61 per share[81] - 214 service-based restricted common shares were granted, with a fair value of $64.57 per share, vesting over three years[83] - 113 performance share awards were granted, earned based on corporate targets for economic value added, EPS growth, and business unit adjusted EBITDA[85][88] Note M – Income Taxes This note reports the estimated annual effective income tax rates for the nine months ended February 29, 2024, and February 28, 2023. It highlights that the current year's tax expense was impacted by certain discrete tax items triggered by the Separation - The estimated annual effective income tax rate for the nine months ended February 29, 2024, was 30.8%, up from 22.6% in the prior year[89] - Income tax expense in the current year was impacted by discrete tax items related to the Separation, primarily non-deductible transaction costs[89] Note N – Earnings per Share This note provides the computation of basic and diluted Earnings Per Share (EPS) attributable to controlling interest for continuing operations for the three and nine-month periods, showing a decrease in diluted EPS for both periods compared to the prior year EPS from Continuing Operations (Three Months Ended) | Metric | February 29, 2024 | February 28, 2023 | | :------------------------------------------ | :------------------ | :------------------ | | Basic EPS | $0.45 | $0.61 | | Diluted EPS | $0.44 | $0.60 | EPS from Continuing Operations (Nine Months Ended) | Metric | February 29, 2024 | February 28, 2023 | | :------------------------------------------ | :------------------ | :------------------ | | Basic EPS | $1.36 | $1.56 | | Diluted EPS | $1.33 | $1.53 | Note O – Segment Operations This note describes the Company's three operating segments: Consumer Products, Building Products, and Sustainable Energy Solutions, following the reclassification of the Steel Processing business as discontinued operations. It provides summarized financial information for each segment, with performance evaluated based on adjusted EBITDA - The Company operates under three segments: Consumer Products, Building Products, and Sustainable Energy Solutions, after the Steel Processing business was reclassified as discontinued operations[92] - Segment operating performance is evaluated on the basis of adjusted EBITDA[97] Adjusted EBITDA by Segment (Three Months Ended, in millions) | Segment | February 29, 2024 | February 28, 2023 | Change | | :--------------------------- | :------------------ | :------------------ | :----- | | Consumer Products | $25.6 | $21.1 | +$4.5 | | Building Products | $53.1 | $58.1 | -$5.0 | | Sustainable Energy Solutions | $(2.7) | $0.2 | -$2.9 | | Total Adjusted EBITDA | $66.9 | $70.2 | -$3.3 | Adjusted EBITDA by Segment (Nine Months Ended, in millions) | Segment | February 29, 2024 | February 28, 2023 | Change | | :--------------------------- | :------------------ | :------------------ | :----- | | Consumer Products | $52.5 | $67.8 | -$15.3 | | Building Products | $158.5 | $157.5 | +$1.0 | | Sustainable Energy Solutions | $(6.4) | $2.9 | -$9.3 | | Total Adjusted EBITDA | $187.8 | $212.3 | -$24.5 | Note P – Acquisitions This note details the acquisition of an 80% controlling interest in Halo on February 1, 2024, for $9.4 million, integrating it into the Consumer Products segment. It also provides the final valuation details for the Level5 acquisition from June 2022 - Acquired an 80% controlling interest in Halo on February 1, 2024, for total cash consideration of $9,386 thousand[104] - Halo, an asset-light business in outdoor cooking, is being operated as part of the Consumer Products operating segment[104] - The Halo acquisition resulted in goodwill of $8,294 thousand[109] - The final valuation for the Level5 acquisition (June 2022) was $59,472 thousand, with goodwill of $15,947 thousand[114] Note Q – Derivative Financial Instruments and Hedging Activities This note explains the Company's use of derivative financial instruments to manage exposure to interest rate, foreign currency exchange rate, and commodity price risks. It distinguishes between designated cash flow hedges and non-designated economic hedges, detailing their fair values and recognized gains/losses - The Company uses derivative financial instruments to manage interest rate risk, foreign currency exchange rate risk, and commodity price risk[116][117][118][119] Fair Value of Derivative Financial Instruments (in thousands) | Type | Feb 29, 2024 (Assets) | May 31, 2023 (Assets) | Feb 29, 2024 (Liabilities) | May 31, 2023 (Liabilities) | | :-------------------------- | :-------------------- | :-------------------- | :------------------------- | :------------------------- | | Designated Hedges | $1,090 | $20 | $115 | $4,339 | | Non-designated Hedges | $308 | $294 | $448 | $1,609 | | Total | $1,398 | $314 | $563 | $5,948 | Gain (Loss) from Cash Flow Hedges (Three Months Ended, in thousands) | Metric | Feb 29, 2024 (OCI) | Feb 28, 2023 (OCI) | Feb 29, 2024 (Net Earnings) | Feb 28, 2023 (Net Earnings) | | :------------------------------------------ | :----------------- | :----------------- | :-------------------------- | :-------------------------- | | Commodity contracts | $1,944 | $7,093 | $1,328 | $(4,858) | | Interest rate contracts | - | - | $52 | $(7) | | Foreign currency exchange contracts | - | $66 | - | $67 | | Total | $1,944 | $7,159 | $1,380 | $(4,798) | Note R – Fair Value This note defines fair value and outlines the three-tier fair value hierarchy (Level 1, 2, 3) used for recurring and non-recurring measurements. It provides fair value measurements for derivative financial instruments and long-term debt, noting that derivatives primarily use Level 2 observable inputs - Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between market participants[130] - The fair value hierarchy consists of Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[130][131] - Derivative financial instruments are measured at fair value using Level 2 inputs[133][135] - The fair value of long-term debt was $227,908 thousand at February 29, 2024, compared to its carrying amount of $297,962 thousand[139] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and results of operations, including market trends, business developments, and a detailed analysis of financial performance for the three and nine months ended February 29, 2024, compared to prior periods. It also covers liquidity, capital resources, and critical accounting estimates Introduction This introduction outlines the structure of the Management's Discussion and Analysis (MD&A) section, emphasizing that historical results have been restated to reflect the Steel Processing business as a discontinued operation following its Separation - The MD&A includes all operations, with the former Steel Processing business restated as a discontinued operation for periods prior to the December 1, 2023 Separation[142] Separation of the Steel Processing Business This section confirms the completion of the tax-free Separation of the Steel Processing business on December 1, 2023, into Worthington Steel, an independent public company. It also notes the Company's name change to Worthington Enterprises, Inc. and the receipt of a $150 million cash dividend from Worthington Steel - The Separation of the Steel Processing business was completed on December 1, 2023, as a tax-free distribution to shareholders[143] - Worthington Industries, Inc. changed its name to Worthington Enterprises, Inc. (WOR) following the Separation[143] - The Company received a one-time cash dividend of $150.0 million from Worthington Steel in connection with the Separation[143] Recent Business Developments This section highlights key recent business developments, including the redemption of the 2026 Notes and 2024 Notes, and the acquisition of an 80% ownership stake in Halo, an outdoor cooking solutions business - Redeemed the 2026 Notes on July 28, 2023, resulting in a non-cash loss of approximately $1.5 million[144] - Paid off the 2024 Notes in full on December 6, 2023, using proceeds from Worthington Steel[144] - Acquired an 80% ownership stake in Halo, an asset-light outdoor cooking business, for approximately $9.4 million on February 1, 2024[144] Trends and Factors Impacting our Performance This section discusses various trends and factors influencing the Company's performance, including end market conditions, competition, general economic indicators, and seasonality across its operating segments End Markets and Competition This sub-section describes the Company's diverse customer base and end markets, which include residential and non-residential construction, outdoor recreation, and renewable energy. It notes that competition is primarily based on price, product quality, and delivery capabilities - The Company serves diverse end markets including residential construction, non-residential construction, repair and remodel, general consumer, outdoor recreation, and renewable energy[145] - Competition is primarily based on price, product quality, and the ability to meet delivery requirements[145] - Sales to one customer within Consumer Products represented 12.4% of consolidated net sales during the third quarter of fiscal 2024[145] General Economic and Market Conditions This sub-section monitors macroeconomic trends such as U.S. GDP, ABI, and HMI. It highlights positive year-over-year growth in residential construction, a mixed near-term outlook for non-residential construction, expected near-term decline in repair and remodel spending, normalization in outdoor recreation, and a mixed but long-term positive outlook for renewable energy - Residential construction shows positive year-over-year growth, with new housing starts and permits increasing[147] - The Housing Market Index (HMI) for February 2024 reached its highest level since August 2023, indicating improving builder sentiment[147] - Non-residential construction spending shows consistent year-over-year growth, but the near-term outlook is mixed due to on-hold projects and delayed bids[148] - Spending on home improvement (Repair and Remodel) is expected to decline in the near term, but the long-term outlook remains strong[148] - Outdoor recreation participation is normalizing to pre-pandemic levels, while the long-term fundamentals in the outdoor category remain strong[149] - The renewable energy market has a mixed near-term outlook, especially in Europe, but strong long-term fundamentals driven by unprecedented investment and clean energy mandates[150] Seasonality This sub-section explains the typical seasonal sales patterns for each operating segment: Consumer Products sales are stronger in the third and fourth fiscal quarters, Building Products in the first and fourth quarters, and Sustainable Energy Solutions typically sees greater sales in the fourth fiscal quarter - Consumer Products sales tend to be stronger in the third and fourth quarters of the fiscal year[151] - Building Products sales are generally stronger in the first and fourth quarters of the fiscal year[151] - Sustainable Energy sales are typically at greater levels during the fiscal fourth quarter[151] - Post-pandemic market dynamics, including customer destocking, have temporarily impacted demand for some products[151] Results of Operations This section provides a detailed analysis of the Company's financial performance for the three and nine months ended February 29, 2024, compared to the corresponding prior periods. It covers key financial metrics such as net sales, gross profit, operating expenses, equity income, and adjusted EBITDA, highlighting the impact of the Steel Processing Separation and other business developments Third Quarter – Fiscal 2024 Compared to Fiscal 2023 This sub-section provides a detailed comparison of financial results for the three months ended February 29, 2024, and February 28, 2023, covering net sales, gross profit, SG&A, other operating items, interest expense, equity income, income taxes, and adjusted EBITDA Net Sales and Volume This section analyzes changes in net sales and sales volume across segments for the three-month period Consolidated Net Sales by Segment (Three Months Ended, in millions) | Segment | February 29, 2024 | February 28, 2023 | Increase/(Decrease) | % Inc/(Dec) | | :--------------------------- | :------------------ | :------------------ | :------------------ | :---------- | | Consumer Products | $133.2 | $130.7 | $2.5 | 1.9% | | Building Products | $148.2 | $183.8 | $(35.6) | (19.4%) | | Sustainable Energy Solutions | $35.4 | $31.8 | $3.6 | 11.3% | | Consolidated Net Sales | $316.8 | $346.3 | $(29.5) | (8.5%) | - Consumer Products net sales increased by 1.9% due to higher volume, partially offset by lower average selling prices[157] - Building Products net sales decreased by 19.4% primarily due to an unfavorable shift in product mix[157] - Sustainable Energy Solutions net sales increased by 11.3% due to higher volume[157] Gross Profit This section examines the factors influencing the company's gross profit performance for the three-month period Gross Profit (Three Months Ended, in millions) | Metric | February 29, 2024 | February 28, 2023 | Increase/(Decrease) | | :--------------------------- | :------------------ | :------------------ | :------------------ | | Gross Profit | $73.1 | $79.0 | $(5.9) | - Gross profit decreased by $5.9 million, driven by lower contributions from Building Products (down $10.2 million) and Sustainable Energy Solutions (down $3.3 million), partially offset by improvements in Consumer Products (up $5.4 million)[158] SG&A This section details changes in selling, general, and administrative expenses for the three-month period SG&A (Three Months Ended, in millions) | Metric | February 29, 2024 | February 28, 2023 | Increase/(Decrease) | | :--------------------------- | :------------------ | :------------------ | :------------------ | | SG&A | $65.1 | $71.4 | $(6.3) | - SG&A decreased by $6.3 million, or 8.8%, primarily due to the elimination of $10.4 million in corporate costs post-Separation, partially offset by higher healthcare and other benefit-related costs[159] Other Operating Items This section reviews non-recurring or specific operating charges and income affecting the three-month results Other Operating Items (Three Months Ended, in millions) | Metric | February 29, 2024 | February 28, 2023 | Increase/(Decrease) | | :------------------------------------------ | :------------------ | :------------------ | :------------------ | | Impairment of long-lived assets | - | $0.5 | $(0.5) | | Restructuring and other expense, net | $0.7 | $0.8 | $(0.1) | | Separation costs | $3.0 | $2.3 | $0.7 | - Impairment of long-lived assets in Q3 FY23 was due to changes in the intended use of certain fixed assets at a Building Products facility[160] - Separation costs increased to $3.0 million, reflecting direct and incremental costs incurred in connection with the Separation[160] Miscellaneous Expense (Income), Net This section details the net impact of various non-core expenses and income on the three-month financial results Miscellaneous Expense (Income), Net (Three Months Ended, in millions) | Metric | February 29, 2024 | February 28, 2023 | Increase/(Decrease) | | :------------------------------------------ | :------------------ | :------------------ | :------------------ | | Miscellaneous expense (income), net | $7.0 | $(0.2) | $7.2 | - Miscellaneous expense, net was unfavorable by $7.2 million, primarily due to an $8.1 million pension settlement charge to annuitize the remaining projected benefit obligation of The Gerstenslager Company Bargaining Unit Employees' Pension Plan[162] Interest Expense, Net This section analyzes the company's net interest expense, reflecting borrowing costs and interest income for the period Interest Expense, Net (Three Months Ended, in millions) | Metric | February 29, 2024 | February 28, 2023 | Increase/(Decrease) | | :--------------------------- | :------------------ | :------------------ | :------------------ | | Interest expense, net | $0.1 | $4.2 | $(4.1) | - Interest expense, net was nominal in Q3 FY24, down $4.1 million from Q3 FY23, due to lower average debt levels from the redemption of the 2026 Notes and higher interest income[162] Equity Income This section reports the company's share of earnings from its unconsolidated equity method investments Equity Income (Three Months Ended, in millions) | Affiliate | February 29, 2024 | February 28, 2023 | Increase/(Decrease) | | :--------------------------- | :------------------ | :------------------ | :------------------ | | WAVE | $26.0 | $18.9 | $7.1 | | ClarkDietrich | $17.8 | $18.9 | $(1.1) | | ArtiFlex | - | $(0.3) | $0.3 | | Workhorse | $(0.6) | $(0.4) | $(0.2) | | Total Equity Income | $43.2 | $37.1 | $6.1 | - Equity Income increased by $6.1 million, primarily driven by higher profitability at WAVE due to higher volume and gross margin improvement[163] Income Taxes This section details the company's income tax expense and effective tax rate for the three-month period Income Tax Expense (Three Months Ended, in millions) | Metric | February 29, 2024 | Effective Tax Rate | February 28, 2023 | Effective Tax Rate | Increase/(Decrease) | | :--------------------------- | :------------------ | :----------------- | :------------------ | :----------------- | :------------------ | | Income tax expense | $18.5 | 30.8% | $7.4 | 22.6% | $11.1 | - Income tax expense increased by $11.1 million, primarily due to $9.2 million of one-time discrete tax charges related to the Separation[164] Adjusted EBITDA This section presents the company's adjusted EBITDA performance by segment for the three-month period Adjusted EBITDA by Segment (Three Months Ended, in millions) | Segment | February 29, 2024 | February 28, 2023 | Increase/(Decrease) | | :--------------------------- | :------------------ | :------------------ | :------------------ | | Consumer Products | $25.6 | $21.1 | $4.5 | | Building Products | $53.1 | $58.1 | $(5.0) | | Sustainable Energy Solutions | $(2.7) | $0.2 | $(2.9) | | Unallocated Corporate and Other | $(9.1) | $(9.2) | $0.1 | | Total Adjusted EBITDA | $66.9 | $70.2 | $(3.3) | - Consolidated Adjusted EBITDA decreased by $3.3 million, with Consumer Products showing an increase of $4.5 million, while Building Products decreased by $5.0 million and Sustainable Energy Solutions saw a $2.9 million unfavorable change[168][169] Nine Months Year-to-Date - Fiscal 2024 compared to Fiscal 2023 This sub-section provides a detailed comparison of financial results for the nine months ended February 29, 2024, and February 28, 2023, covering net sales, gross profit, SG&A, other operating items, interest expense, equity income, income taxes, and adjusted EBITDA Net Sales and Volume This section analyzes changes in net sales and sales volume across segments for the nine-month period Consolidated Net Sales by Segment (Nine Months Ended, in millions) | Segment | February 29, 2024 | February 28, 2023 | Increase/(Decrease) | % Inc/(Dec) | | :--------------------------- | :------------------ | :------------------ | :------------------ | :---------- | | Consumer Products | $369.9 | $406.5 | $(36.6) | (9.0%) | | Building Products | $465.4 | $542.5 | $(77.1) | (14.2%) | | Sustainable Energy Solutions | $91.6 | $100.7 | $(9.1) | (9.0%) | | Consolidated Net Sales | $926.9 | $1,049.7 | $(122.8) | (11.7%) | - Consumer Products net sales decreased by 9.0% primarily due to lower volumes driven by destocking at retail customers[174] - Building Products net sales decreased by 14.2% due to an unfavorable shift in product mix and lower volumes[174] - Sustainable Energy Solutions net sales decreased by 9.0% due to an unfavorable shift in product mix and lower volumes[174] Gross Profit This section examines the factors influencing the company's gross profit performance for the nine-month period Gross Profit (Nine Months Ended, in millions) | Metric | February 29, 2024 | February 28, 2023 | Increase/(Decrease) | | :--------------------------- | :------------------ | :------------------ | :------------------ | | Gross Profit | $206.0 | $229.4 | $(23.4) | - Gross profit decreased by $23.4 million, primarily due to lower overall volume and an unfavorable shift in product mix[175] SG&A This section details changes in selling, general, and administrative expenses for the nine-month period SG&A (Nine Months Ended, in millions) | Metric | February 29, 2024 | February 28, 2023 | Increase/(Decrease) | | :--------------------------- | :------------------ | :------------------ | :------------------ | | SG&A | $210.3 | $211.2 | $(0.9) | - SG&A decreased by $0.9 million, or 0.4%, but was up $10.9 million excluding the impact of corporate costs eliminated post-Separation, primarily due to higher healthcare and other benefit-related costs and higher wages[176] Other Operating Items This section reviews non-recurring or specific operating charges and income affecting the nine-month results Other Operating Items (Nine Months Ended, in millions) | Metric | February 29, 2024 | February 28, 2023 | Increase/(Decrease) | | :------------------------------------------ | :------------------ | :------------------ | :------------------ | | Impairment of long-lived assets | - | $0.5 | $(0.5) | | Restructuring and other expense (income), net | $0.7 | $(0.4) | $1.1 | | Separation costs | $12.5 | $3.6 | $8.9 | - Separation costs increased significantly to $12.5 million, reflecting direct and incremental costs incurred in connection with the Separation[177] Miscellaneous Expense, Net This section details the net impact of various non-core expenses and income on the nine-month financial results Miscellaneous Expense, Net (Nine Months Ended, in millions) | Metric | February 29, 2024 | February 28, 2023 | Increase/(Decrease) | | :--------------------------- | :------------------ | :------------------ | :------------------ | | Miscellaneous expense, net | $6.0 | $4.5 | $1.5 | - Miscellaneous expense increased by $1.5 million, primarily due to an $8.1 million pre-tax non-cash pension settlement charge in the current year, compared to a $4.8 million charge in the prior year[179] Loss on Extinguishment of Debt This section reports the loss incurred from the early extinguishment of debt during the nine-month period Loss on Extinguishment of Debt (Nine Months Ended, in millions) | Metric | February 29, 2024 | February 28, 2023 | Increase/(Decrease) | | :------------------------------------------ | :------------------ | :------------------ | :------------------ | | Loss on extinguishment of debt | $1.5 | - | $1.5 | - A $1.5 million loss on extinguishment of debt resulted from the early redemption of the 2026 Notes on July 28, 2023[179] Interest Expense, Net This section analyzes the company's net interest expense, reflecting borrowing costs and interest income for the period Interest Expense, Net (Nine Months Ended, in millions) | Metric | February 29, 2024 | February 28, 2023 | Increase/(Decrease) | | :--------------------------- | :------------------ | :------------------ | :------------------ | | Interest expense, net | $1.6 | $15.7 | $(14.1) | - Interest expense, net was favorable by $14.1 million, driven primarily by lower average debt levels due to the redemption of the 2024 Notes and 2026 Notes, and higher interest income[180] Equity Income This section reports the company's share of earnings from its unconsolidated equity method investments Equity Income (Nine Months Ended, in millions) | Affiliate | February 29, 2024 | February 28, 2023 | Increase/(Decrease) | | :--------------------------- | :------------------ | :------------------ | :------------------ | | WAVE | $75.8 | $61.7 | $14.1 | | ClarkDietrich | $48.3 | $55.1 | $(6.8) | | ArtiFlex | - | $(13.7) | $13.7 | | Workhorse | $3.3 | $(1.1) | $4.4 | | Total Equity Income | $127.4 | $102.0 | $25.4 | - Equity Income increased by $25.4 million, primarily due to the absence of the $16.1 million loss from the ArtiFlex sale in the prior year and higher contributions from WAVE (up $14.1 million), partially offset by a decline at ClarkDietrich (down $6.8 million)[181] Income Taxes This section details the company's income tax expense and effective tax rate for the nine-month period Income Tax Expense (Nine Months Ended, in millions) | Metric | February 29, 2024 | Effective Tax Rate | February 28, 2023 | Effective Tax Rate | Increase/(Decrease) | | :--------------------------- | :------------------ | :----------------- | :------------------ | :----------------- | :------------------ | | Income tax expense | $34.0 | 30.8% | $20.7 | 22.6% | $13.3 | - Income tax expense increased by $13.3 million, primarily driven by $9.2 million of one-time discrete tax charges related to the Separation[182] Adjusted EBITDA This section presents the company's adjusted EBITDA performance by segment for the nine-month period Adjusted EBITDA by Segment (Nine Months Ended, in millions) | Segment | February 29, 2024 | February 28, 2023 | Increase/(Decrease) | | :--------------------------- | :------------------ | :------------------ | :------------------ | | Consumer Products | $52.5 | $67.8 | $(15.3) | | Building Products | $158.5 | $157.5 | $1.0 | | Sustainable Energy Solutions | $(6.4) | $2.9 | $(9.3) | | Unallocated Corporate and Other | $(16.8) | $(15.9) | $(0.9) | | Total Adjusted EBITDA | $187.8 | $212.3 | $(24.5) | - Consolidated Adjusted EBITDA decreased by $24.5 million. Consumer Products was down $15.3 million due to lower volumes, while Sustainable Energy Solutions saw a $9.3 million decline due to low volumes[186] Liquidity and Capital Resources This section discusses the Company's cash flows, borrowing capacity, and strategies for managing liquidity and capital structure. It highlights significant activities such as debt redemptions, dividend payments, and the impact of the Worthington Steel Separation on cash flows - During the nine months ended February 29, 2024, the Company generated $244.8 million of cash from operating activities[187] - The Company redeemed the 2024 Notes and 2026 Notes for an aggregate of $393.9 million and paid $48.9 million in common share dividends[187] - The Credit Facility had $500.0 million available for use at February 29, 2024, with no outstanding borrowings[188] Consolidated Cash Flows (Nine Months Ended, in millions) | Activity | 2024 | 2023 | | :------------------------------------------ | :----- | :----- | | Net cash provided by operating activities | $244.8 | $396.1 | | Net cash used by investing activities | $(116.5) | $(53.7) | | Net cash used by financing activities | $(355.9) | $(109.6) | | Increase (decrease) in cash and cash equivalents | $(227.6) | $232.8 | Operating Activities This sub-section explains that net cash provided by operating activities decreased during the nine months ended February 29, 2024, primarily due to increased net operating working capital requirements and lower dividends received from unconsolidated affiliates - Net cash provided by operating activities was $244.8 million during the nine months ended February 29, 2024, down from $396.1 million in the prior year[192] - The decrease was primarily due to an $86.7 million increase in net operating working capital requirements and a $21.9 million decrease in dividends from unconsolidated affiliates[192] Investing Activities This sub-section details that net cash used by investing activities increased, driven by capital expenditures, investment in notes receivable, and acquisitions (Halo and Voestalpine). The prior year included proceeds from asset sales that partially offset investing uses - Net cash used by investing activities was $116.5 million during the nine months ended February 29, 2024, compared to $53.7 million in the prior year[193] - Current period uses included $72.2 million in capital expenditures, $14.9 million in notes receivable, and $29.7 million for acquisitions (Halo and Voestalpine)[193] - Prior period uses included the $56.1 million Level5 acquisition and $68.7 million in capital expenditures, partially offset by $71.3 million from asset sales[193] Financing Activities This sub-section indicates that net cash used by financing activities increased significantly, primarily due to the net distribution to Worthington Steel, the redemption of the 2026 and 2024 Notes, and ongoing dividend payments - Net cash used by financing activities was $355.9 million during the nine months ended February 29, 2024, up from $109.6 million in the prior year[195] - This change was primarily due to a $68.0 million net distribution to Worthington Steel and the redemption of the 2026 Notes ($243.8 million) and 2024 Notes ($150.0 million)[195][190] - The Board declared a quarterly dividend of $0.16 per common share on March 20, 2024[195] - As of February 29, 2024, 6.1 million common shares remained available for repurchase under authorized plans[196] Dividend Policy This sub-section states that the Board of Directors reviews and establishes the quarterly dividend rate based on the Company's financial condition, results of operations, capital requirements, and cash flows. There are no material contractual or regulatory restrictions on dividend payments - Dividends are declared quarterly at the discretion of the Board, based on financial condition, operations, capital requirements, and cash flows[198] - There are no material contractual or regulatory restrictions on the payment of dividends[198] Critical Accounting Estimates This section reaffirms that the Company's critical accounting policies, which involve significant judgments and assumptions (e.g., valuation of receivables, inventories, intangible assets, accrued liabilities, income taxes, contingencies, and business combinations), have not significantly changed from those discussed in the 2023 Form 10-K - Critical accounting policies, involving significant judgments and uncertainties, have not significantly changed from the 2023 Form 10-K[199] - Estimates are made for valuation of receivables, inventories, intangible assets, accrued liabilities, income and other tax accruals, contingencies and litigation, and business combinations[199] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there have been no material changes to the Company's market risks from those previously disclosed in the 2023 Form 10-K - Market risks have not materially changed from those disclosed in the 2023 Form 10-K[200] Item 4. Controls and Procedures This section details the evaluation of the Company's disclosure controls and procedures and reports on any changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures This sub-section reports that management, under the supervision of the principal executive and financial officers, concluded that the Company's disclosure controls and procedures were effective at a reasonable assurance level as of February 29, 2024 - Disclosure controls and procedures were evaluated and concluded to be effective at a reasonable assurance level as of February 29, 2024[202] Changes in Internal Control Over Financial Reporting This sub-section states that there were no changes in the Company's internal control over financial reporting during the quarter ended February 29, 2024, that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting - No material changes occurred in internal control over financial reporting during the quarter ended February 29, 2024[203] Part II. Other Information This part includes legal proceedings, risk factors, equity security sales, and other required disclosures Item 1. Legal Proceedings This section states that the Company is involved in various judicial and administrative proceedings in the ordinary course of business, but management does not believe these will have a material adverse effect on its business, financial position, results of operation, or cash flows - The Company is involved in various legal proceedings, but management does not believe they will have a material adverse effect on its business or financial results[205] Item 1A. Risk Factors This section indicates that the Company's risk factors have not significantly changed from those disclosed in the 2023 Form 10-K. It advises readers to carefully review these risks, as they could materially affect the business and financial condition - Risk factors have not significantly changed from those disclosed in the 2023 Form 10-K[206] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports on the Company's equity security transactions, including the absence of unregistered sales and details of common shares withheld for tax obligations, which are not part of the authorized share repurchase program Unregistered Sales of Equity Securities This section confirms no unregistered equity securities were sold during the reporting period - No equity securities of Worthington Enterprises were sold that were not registered under the Securities Act of 1933 during the nine months ended February 29, 2024[207] Issuer Purchases of Equity Securities This section details common shares purchased by the issuer, including those withheld for tax obligations Common Shares Withheld for Tax Obligations (Three Months Ended Feb 29, 2024) | Period | Total Number of Common Shares Purchased | Average Price Paid per Common Share | | :------------------ | :------------------------------------ | :---------------------------------- | | December 1-31, 2023 | 23,602 | $51.17 | | January 1-31, 2024 | 50 | $57.04 | | February 1-29, 2024 | 336 | $62.19 | | Total | 23,988 | $65.72 | - Common shares withheld to cover tax withholding obligations are not considered part of the authorized common share repurchase plan[208] - As of February 29, 2024, 6.1 million common shares remained available for repurchase under existing authorizations[209] Item 3. Defaults Upon Senior Securities This section states that there are no applicable defaults upon senior securities - Not applicable[211] Item 4. Mine Safety Disclosures This section states that there are no applicable mine safety disclosures - Not applicable[211] Item 5. Other Information This section reports that no director or officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter ended February 29, 2024 - No director or officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter ended February 29, 2024[211] Item 6. Exhibits This section provides a comprehensive list of all exhibits filed with the Form 10-Q, including various agreements related to the Worthington Steel Separation, corporate governance documents, and certifications - Exhibits include the Separation and Distribution Agreement, Amended Articles of Incorporation, Credit Agreement, and various other agreements and certifications[213][215] - XBRL Instance Document and Taxonomy Extension Schema are attached as Exhibit 101[215] Signatures This section contains the official certifications and signatures for the Form 10-Q report Signatures This section contains the official signatures for the Form 10-Q report, confirming its submission pursuant to the Securities Exchange Act of 1934 - The report was signed by Joseph B. Hayek, Vice President and Chief Financial Officer, on behalf of Worthington Enterprises, Inc. on April 9, 2024[217]