WORTHINGTON ENTERPRISES, INC. (WOR) FY 2022 MD&A

Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations

Selected statements contained in this “Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations” constitute forward-looking statements, as that term is used in the PSLRA. Such forward-looking statements are based, in whole or in part, on management’s beliefs, estimates, assumptions and currently available information. For a more detailed discussion of what constitutes a forward-looking statement and of some of the factors that could cause actual results to differ materially from such forward-looking statements, please refer to the “Safe Harbor Statement” in the beginning of this Form 10-K and “Part I - Item 1A. - Risk Factors” of this Form 10-K.

Introduction

As of May 31, 2022, excluding our joint ventures, we operated 28 manufacturing facilities worldwide, principally in four operating segments, which correspond with our reportable business segments: Steel Processing, Consumer Products, Building Products and Sustainable Energy Solutions.

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We also held equity positions in nine joint ventures, which operated 48 manufacturing facilities worldwide, including 15 facilities which were operated by joint ventures in which we held a controlling interest as of May 31, 2022. Four of these joint ventures are consolidated within Steel Processing with the equity owned by the other joint venture member(s) shown as noncontrolling interests in our consolidated balance sheets, and the other joint venture member(s)’ portion of net earnings and other comprehensive income shown as net earnings or comprehensive income attributable to noncontrolling interests in our consolidated statements of earnings and our consolidated statements of comprehensive income, respectively. The remaining five joint ventures are unconsolidated and accounted for using the equity method.

Effective June 1, 2021, the beginning of fiscal 2022, we reorganized the management structure of our legacy Pressure Cylinders segment to better align around its end markets. As a result, these operations have been separated into three new reportable operating segments: Consumer Products, Building Products and Sustainable Energy Solutions. These new reportable segments are in addition to our Steel Processing operating segment. Concurrent with the change in reportable operating segments, we revised our prior period financial information to reflect comparable information for the new segment structure. A discussion of each of these new reportable operating segments is included below:

Recent Business Developments

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Effective June 1, 2021, the start of fiscal 2022, our legacy Pressure Cylinders segment was divided into three new reportable segments: Consumer Products, Building Products and Sustainable Energy Solutions.

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On June 8, 2021, we acquired certain assets of Shiloh’s U.S. BlankLight® business, a provider of laser welded solutions, for approximately $104.5 million. The acquisition included three facilities that expand the capacity and capabilities of our consolidated joint venture, TWB and its laser welded products business and an additional blanking facility that supports the core operations of our Steel Processing segment.

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On June 9, 2021, our consolidated joint venture WSP, sold the remaining assets of its Canton, Michigan, facility for approximately $20 million, resulting in a pre-tax gain of $12.2 million within restructuring and other income, net. Additionally, on May 2, 2022, we purchased the non-controlling 49% interest in Worthington Taylor, the entity which owned the assets of WSP’s former Taylor, Michigan facility, for approximately $6.8 million. Worthington Taylor is now one of our wholly owned subsidiaries. WSP continues to operate one location in Jackson, Michigan.

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On August 20, 2021, we amended and restated our existing multi-year, revolving credit facility, extending the final maturity to August 20, 2026. The aggregate commitments available under the amended and restated revolving credit facility remained at $500 million.

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On December 1, 2021, we acquired all of the issued and outstanding capital stock of Tempel, a leading global manufacturer of precision motor and transformer laminations for the electrical steel market. The purchase price consisted of cash consideration of approximately $272.2 million, net of cash acquired, plus the assumption of certain long-term liabilities. Tempel, which operates as part of our Steel Processing business segment, employs approximately 1,500 people, and is headquartered in Chicago, Illinois, with additional manufacturing locations in Burlington, Canada, Changzhou, China, Chennai, India and Monterrey, Mexico.

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On May 19, 2022, we established a revolving trade accounts receivable securitization facility allowing us to borrow up to $175.0 million. Refer to “Note I - Debt and Receivables Securitization” for additional information.

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On June 2, 2022, we acquired Level5 Tools, a leading provider of drywall tools and related accessories. The purchase price was approximately $55.0 million, subject to post-closing adjustments, with a potential earnout payment of up to $25.0 million based on performance through 2024.

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On June 22, 2022, the Board of Directors of Worthington Industries (the “Board”) declared a quarterly dividend of $0.31 per share payable on September 29, 2022 to shareholders of record on September 15, 2022, an increase of $0.03 per share.

Market & Industry Overview

We sell our products and services to a diverse customer base and a broad range of end markets. The breakdown of our net sales by end market for fiscal 2022 and fiscal 2021 is illustrated in the following chart:

The automotive industry is one of the largest consumers of flat-rolled steel, and thus the largest end market for our Steel Processing operating segment. Approximately 50% of the net sales of our Steel Processing operating segment are to the automotive market. North American vehicle production, primarily by the Detroit Three automakers, has a considerable impact on the activity within this operating segment. The majority of the net sales of our Serviacero Worthington and ArtiFlex joint ventures are also to the automotive end market.

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Approximately 18% of the net sales of our Steel Processing operating segment are to the construction market. The construction market is also the predominant end market for our WAVE and ClarkDietrich unconsolidated joint ventures. While the market price of steel significantly impacts these businesses, there are other key indicators that are meaningful in analyzing construction market demand, including U.S. gross domestic product (“GDP”), the Dodge Index of construction contracts and, in the case of ClarkDietrich, trends in the relative price of framing lumber and steel.

Substantially all of the net sales of our Consumer Products, Building Products and Sustainable Energy Solutions operating segments and approximately 32% of the net sales of our Steel Processing operating segment are to other markets such as agricultural, appliance, consumer products, heavy-truck, industrial products, and lawn and garden. Given the many different products that make up these net sales and the wide variety of end markets, it is very difficult to detail the key market indicators that drive this portion of our business. However, we believe that the trend in U.S. GDP growth is a good economic indicator for analyzing the demand of these end markets.

We use the following information to monitor our costs and demand in our major end markets:

1 2021/2020 figures based on revised actuals 2 CRU Hot-Rolled Index; period average 3 IHS Global 4 LME Zinc; period average 5 NYMEX Henry Hub Natural Gas; period average 6 Energy Information Administration; period average

U.S. GDP growth rate trends are generally indicative of the strength in demand and, in many cases, pricing for our products. A year-over-year increase in U.S. GDP growth rates is indicative of a stronger economy, which generally increases demand and pricing for our products. Conversely, decreasing U.S. GDP growth rates generally indicate a weaker economy. Changes in U.S. GDP growth rates can also signal changes in conversion costs related to production and in SG&A expenses.

The market price of hot-rolled steel is one of the most significant factors impacting our selling prices and operating results. When steel prices fall, we typically have higher-priced material flowing through cost of goods sold, while selling prices compress to what the market will bear, negatively impacting our results. On the other hand, in a rising price environment, our results are generally favorably impacted, as lower-priced material purchased in previous periods flows through cost of goods sold, while our selling prices increase at a faster pace to cover current replacement costs.

The following table presents the average quarterly market price per ton of hot-rolled steel during fiscal 2022, fiscal 2021 and fiscal 2020:

1
CRU Hot-Rolled Index

Sales to one Steel Processing customer in the automotive industry represented 13.0% of our consolidated net sales during fiscal 2022. While our automotive business is largely driven by the production schedules of the Detroit Three automakers, our customer base is much broader and includes other domestic manufacturers and many of their suppliers. During fiscal 2022, vehicle production for the Detroit Three automakers and the North American vehicle production were down 9% and 10%, respectively.

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Certain other commodities, such as copper, zinc, natural gas and diesel fuel, represent a significant portion of our cost of goods sold, both directly through our plant operations and indirectly through transportation and freight expense.

Results of Operations

Fiscal 2022 Compared to Fiscal 2021

The following table presents consolidated operating results for the periods indicated:

Net Sales and Volume

The following table provides a breakdown of consolidated net sales by reportable operating segment, along with the respective percentage of the total of each, for the periods presented.

The following table provides volume by reportable operating segment for the periods presented.

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Steel Processing – Net sales increased $1.9 billion over fiscal 2021 to $3.9 billion. The increase was driven primarily by higher average selling prices, and, to a lesser extent, the impact of acquisitions completed in fiscal 2022. The mix of direct versus toll tons processed was 51% to 49% in fiscal 2022, compared to 48% to 52% in the prior fiscal year. The shift in mix towards direct tons was driven primarily by softness at the Samuel joint venture, and, to a lesser extent, direct tons shipped by acquired businesses in fiscal 2022.

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Consumer Products – Net sales increased 21.5%, or $112.8 million, over fiscal 2021 to $636.5 million. The increase was driven by higher average selling prices and higher volume, including contributions from the acquisition of General Tools & Instruments Company LLC (“GTI”) in the third quarter of fiscal 2021.

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Building Products – Net sales increased 34.8%, or $139.8 million, over fiscal 2021 to $541.8 million . The increase was driven by higher average selling prices, and to a lesser extent, higher volume.

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Sustainable Energy Solutions – Net sales decreased $4.0 million, or 3.0%, from fiscal 2021 to $130.9 million. The decrease was driven by lower volume due to the May 31, 2021 divestiture of our former LPG business in Poland, which contributed $31.9 million to net sales in fiscal 2021, partially offset by higher selling prices.

Gross Margin

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Gross margin increased $75.8 million over fiscal 2021 to $714.8 million. The improvement was primarily driven by higher average selling prices across all of our businesses and contributions from acquisitions, partially offset by lower inventory holding gains and higher distribution and conversion costs. The decrease in gross margin as a percent of net sales was due to lower contributions from Steel Processing due to the impact of higher overall steel prices during fiscal 2022.

Selling, General and Administrative Expense

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SG&A expense increased $48.5 million over fiscal 2021 due primarily to the impact of acquisitions, and to a lesser extent, higher profit sharing and bonus expense to correspond with the increases in operating income and equity income over fiscal 2021.

Other Operating Costs

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Impairment charges totaled $3.1 million in fiscal 2022 compared to $13.7 million in fiscal 2021. Fiscal 2022 impairment charges related to the write down of certain production equipment at the Twinsburg, Ohio facility whose book value was determined to exceed fair market value less costs to sell. Fiscal 2021 impairment charges related primarily to divestitures of non-core businesses within our legacy Pressure Cylinders segment. Refer to "Note E - Goodwill and Other Long-Lived Assets" for additional information.

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Restructuring activity during fiscal 2022 resulted primarily from pre-tax gains from asset disposals within Steel Processing totaling $14.9 million. Restructuring activity in fiscal 2021 totaled $56.1 million and primarily resulted from losses recognized from the sale of non-core businesses within our legacy Pressure Cylinders operating segment in fiscal 2021. See “Note F – Restructuring and Other Expense (Income), Net” for additional information related to these divestitures.

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We previously held an investment in the common stock of Nikola Corporation (“Nikola”). Incremental expenses related to Nikola gains of $50.6 million in fiscal 2021 consisted of $30.0 million of increased profit sharing and bonus expenses related to the Nikola investment gains and $20.7 million for the contribution of 500,000 shares of Nikola common stock to the Worthington Industries Foundation in the first quarter of fiscal 2021. For additional information, refer to “Note C – Investment in Nikola”.

Equity Income

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Equity income increased $90.3 million over fiscal 2021 to $213.6 million on higher contributions across all of our unconsolidated joint ventures. Equity earnings at ClarkDietrich and Serviacero Worthington were up a combined $78.3 million on higher volume and the favorable impact of higher selling prices. We received cash distributions of $100.1 million from our unconsolidated joint ventures during fiscal 2022.

Other Income

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Gains on investment in Nikola totaled $655.1 million in fiscal 2021 and consisted of realized gains from the sale and charitable contribution of our Nikola shares. For additional information, refer to “Note C – Investments in Nikola”.

Adjusted EBIT

We evaluate segment performance based on adjusted earnings before interest and taxes (“adjusted EBIT”). EBIT is calculated by adding interest expense and income tax expense to net earnings attributable to controlling interest. Adjusted EBIT excludes impairment and restructuring charges (gains), but may also exclude other items that management believes are not reflective of, and thus should not be included when evaluating, the performance of our ongoing operations. Adjusted EBIT is a non-GAAP measure and is used by management to evaluate segment performance, engage in financial and operational planning and determine incentive compensation because we believe that this measure provides additional perspective and, in some circumstances is more closely correlated to, the performance of our ongoing operations.

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The following table provides a reconciliation of net earnings attributable to controlling interest to adjusted EBIT for the periods presented:

The following table provides a summary of adjusted EBIT by segment, along with the respective percentage of the total of each, for the periods presented.

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Steel Processing – Adjusted EBIT was down $4.9 million from fiscal 2021 to $203.3 million, as the favorable impact of acquisitions and higher average selling prices was more than offset by lower inventory holding gains, down an estimated $53.1 million from fiscal 2021.

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Consumer Products – Adjusted EBIT was up $19.4 million over fiscal 2021 to $94.3 million on improved volume and higher selling prices, slightly offset by higher manufacturing expenses.

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Building Products – Adjusted EBIT of $216.6 million was $98.7 million more than fiscal 2021, due primarily to higher equity earnings at ClarkDietrich and WAVE, up a combined $73.0 million on strong volume and the favorable impact of higher steel prices, partially offset by an increase in labor and material costs.

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Sustainable Energy Solutions – Adjusted EBIT reflected a loss of $6.3 million, unfavorable by $11.3 million when compared to fiscal 2021, on the combined impact of lower volume, and an unfavorable product mix. Volume in fiscal 2022 was also negatively impacted by the May 31, 2021, divestiture of our former LPG business in Poland.

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Other – Adjusted EBIT was favorable by $19.1 million over fiscal 2020. The improvement was driven by the divestiture of non-accretive assets in fiscal 2021.

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Interest Expense

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Interest expense was $31.3 million in fiscal 2022, up $1.0 million from fiscal 2021 due to the impact of higher average debt levels associated with short-term borrowings.

Income Taxes

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Income tax expense decreased $61.3 million from fiscal 2021 due to the significant impact of the Nikola gains and associated expenses in the prior year, partially offset by higher core pre-tax earnings in fiscal 2022 and the impact of a $19.7 million discrete tax benefit realized in connection with the sale of the oil & gas equipment business in the prior year. Fiscal 2022 tax expense reflected an estimated annual effective income tax rate of 23.3% versus 19.6% in the prior year. For additional information regarding our income taxes, refer to “Note N – Income Taxes”.

Fiscal 2021 Compared to Fiscal 2020

The following table presents consolidated operating results for the periods indicated:

Net Sales and Volume

The following table provides a breakdown of consolidated net sales by reportable operating segment, along with the respective percentage of the total of each, for the periods presented.

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The following table provides volume by reportable operating segment for the periods presented.

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Steel Processing – Net sales increased $199.7 million over fiscal 2020. The increase was driven by the combined impact of higher average direct selling prices and higher volume, as both direct tons and toll tons processed increased over fiscal 2020, which had been negatively impacted by COVID-19. The mix of direct tons versus toll tons processed was 48% to 52% in both fiscal 2021 and fiscal 2020.

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Consumer Products – Net sales increased 16.6%, or $74.4 million, over fiscal 2020. The increase was driven primarily by higher volumes, which benefited from the January 29, 2021, acquisition of GTI and a shift in mix to higher priced LPG and helium tanks.

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Building Products – Net sales increased 4.9%, or $18.6 million, over fiscal 2020. The increase was driven by increased volume of refrigerant and heating tanks.

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Sustainable Energy Solutions – Net sales increased $12.8 million, or 10.5%, over fiscal 2020. The increase was primarily driven by higher volumes and, to a lesser extent, the favorable mix of higher priced composite cylinders and fuel systems.

Gross Margin

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Gross margin increased $195.7 million over fiscal 2020. The increase was driven primarily by improved direct spreads in our Steel Processing segment, which were up $152.8 million due to the favorable year-over-year impact of inventory holding gains and losses combined with mark-to-market gains on unqualified commodity hedges and arbitrage opportunities in fiscal 2021. The remaining increase was driven primarily by higher volume in the Consumer Products business. Inventory holding gains were estimated to be $75.0 million in fiscal 2021 compared to inventory holding losses of $20.3 million in fiscal 2020.

Selling, General and Administrative Expense

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SG&A expense increased $23.0 million over fiscal 2020. The increase was driven primarily by higher profit sharing and bonus expense as a result of the significant increase in earnings, partially offset by lower wages due to the reduction in workforce implemented in response to COVID-19. Overall, SG&A expense was 11.1% of consolidated net sales in fiscal 2021 compared to 10.7% in fiscal 2020.

Other Operating Costs

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Impairment charges totaled $13.7 million in fiscal 2021 compared to $82.7 million in fiscal 2020. Fiscal 2021 impairment charges related primarily to divestitures of non-core businesses within our legacy Pressure Cylinders segment. Fiscal 2020 impairment charges related primarily to the deconsolidation of our former Engineered Cabs business and the impairment of certain long-lived assets in our former oil & gas equipment business within our legacy Pressure Cylinders segment. For more information regarding these impairment charges, refer to "Note E - Goodwill and Other Long-lived Assets".

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Restructuring and other expense, net totaled $56.1 million and primarily resulted from losses recognized from the sale of non-core businesses within our legacy Pressure Cylinders segment in fiscal 2021. See “Note F – Restructuring and Other Expense (Income), Net” for additional information related to these divestitures.

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Incremental expenses related to Nikola gains of $50.6 million in fiscal 2021 consisted of $30.0 million of increased profit sharing and bonus expenses related to the Nikola investment gains and $20.7 million for the contribution of 500,000 shares of Nikola common stock to the Worthington Industries Foundation in the first quarter of fiscal 2021. For additional information, refer to “Note C – Investment in Nikola.”

Equity Income

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Equity income increased $8.5 million over fiscal 2020 to $123.3 million. The increase was primarily driven by higher contributions from ClarkDietrich and Serviacero Worthington, where results benefited from rising steel prices, partially offset by a decline in equity income at WAVE due to a $23.1 million gain in fiscal 2020 related to the sale of WAVE’s international operations. We received cash distributions from our unconsolidated joint ventures of $91.0 million in fiscal 2021. For additional financial information regarding our unconsolidated affiliates, refer to “Note D – Investments in Unconsolidated Affiliates”.

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Other Income

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Miscellaneous income, net decreased $6.9 million from fiscal 2020 when we recognized a $6.1 million gain to remeasure our previously held equity interest in Samuel, which was consolidated effective December 31, 2019.

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Gains on investment in Nikola totaled $655.1 million in fiscal 2021 and consisted of realized gains from the sale and charitable contribution of our Nikola shares. For additional information, refer to “Note C – Investment in Nikola”.

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In connection with the early redemption of the 2020 Notes, a loss on extinguishment of debt of $4.0 million was recognized and presented separately in our consolidated statement of earnings for fiscal 2020.

Adjusted EBIT

The following table provides a reconciliation of consolidated net earnings attributable to controlling interest to adjusted EBIT for the periods presented:

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The following table provides a summary of adjusted EBIT by segment, along with the respective percentage of the total of each, for the periods presented.

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Steel Processing – Adjusted EBIT was up $168.5 million over fiscal 2020 to $208.2 million driven primarily by improved direct spreads, which benefitted from an estimated $95.3 million increase in inventory holding gains over fiscal 2020, and higher equity earnings at Serviacero Worthington, up $14.7 million over fiscal 2020, on the combined impact of higher average selling prices and higher volume. The remaining increase was primarily driven by mark-to-market gains on unqualified commodity hedges and arbitrage opportunities in fiscal 2021.

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Consumer Products – Adjusted EBIT was up $9.5 million over fiscal 2020 to $74.9 million on the combined impact of higher volume and improved product mix.

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Building Products – Adjusted EBIT was up $13.3 million over fiscal 2020 to $117.9 million on improvements in both operating income and higher equity earnings at ClarkDietrich, up $7.4 million on the favorable impact of higher selling prices and improved volume. The improvement in operating income over the prior year was driven primarily by the favorable impact of higher selling prices.

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Sustainable Energy Solutions – Adjusted EBIT of $5.0 million was flat versus prior year as the favorable impact of higher volume was offset by higher manufacturing expenses.

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Other – Adjusted EBIT was a loss of $10.5 million, $3.4 million higher than the loss incurred in fiscal 2020 due to higher operating losses generated from divested business which historically reported within our legacy Pressure Cylinders segment.

Interest Expense

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Interest expense was $30.3 million in fiscal 2021, compared to $31.6 million in fiscal 2020. The decrease was due primarily to lower average interest rates resulting from the debt refinancing transactions completed at the end of the first quarter of fiscal 2020.

Income Taxes

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Income tax expense increased $150.0 million from fiscal 2020 due to the significant increase in pre-tax income driven by the Nikola gains partially offset by losses generated from the sale of the oil & gas equipment and our former Poland cylinders businesses. These losses and a favorable change in the mix of earnings were the primary reasons for the decrease in the estimated annual effective tax rate to 19.6% from 25.1% in fiscal 2020. For additional information regarding our income taxes, refer to “Note N – Income Taxes”.

Liquidity and Capital Resources

During fiscal 2022, we generated $70.1 million of cash from operating activities, invested $94.6 million in property, plant and equipment, spent a combined $376.7 million to acquire Shiloh’s U.S. BlankLight® business and Tempel, and received $39.9 million in proceeds from assets sold. Additionally, we acquired 3,235,000 of the common shares at a cost of $180.2 million and paid dividends of $57.2 million on the common shares. The following table summarizes our consolidated cash flows for the periods presented.

We believe we have access to adequate resources to meet the needs of our existing businesses for normal operating costs, mandatory capital expenditures, debt redemptions, dividend payments, and working capital, to the extent not funded by cash provided by operating activities, for at least 12 months and for the foreseeable future thereafter. These resources include cash and cash equivalents and unused committed lines of credit. These committed lines of credit had a total of $518.6 million of borrowing capacity available to be drawn as of July 29, 2022.

Although we do not currently anticipate a need, we believe that we could access the financial markets to be in a position to sell long-term debt or equity securities. However, supply chain disruptions caused by the COVID-19 pandemic and softening economic conditions could create uncertainty and volatility in the financial markets, which may impact our ability to access capital and the terms under which we can do so. As the impact of the COVID-19 pandemic on the economy and our operations is evolving, we will continue to review our discretionary spending and other variable costs as well as our liquidity needs.

We routinely monitor current operational requirements, financial market conditions, and credit relationships and we may choose to seek additional capital by issuing new debt and/or equity securities to strengthen our liquidity or capital structure. However, should we seek such additional capital, there can be no assurance that we would be able to obtain such additional capital on terms acceptable to us, if at all, and such additional equity or debt financing could dilute the interests of our existing shareholders and/or increase our interest costs.

Operating Activities

Our business is cyclical and cash flows from operating activities may fluctuate during the year and from year to year due to economic and industry conditions. We rely on cash and short-term borrowings to meet cyclical increases in working capital needs. These needs generally rise during periods of increased economic activity or increasing raw material prices, requiring higher levels of inventory and accounts receivable. During economic slowdowns or periods of decreasing raw material costs, working capital needs generally decrease as a result of the reduction of inventories and accounts receivable. Rising steel prices during the first half of the fiscal year led to a $257.6 million increase in operating working capital (accounts receivable, inventory and accounts payable) during fiscal 2022.

Net cash provided by operating activities was $70.1 million during fiscal 2022 compared to $274.4 million in fiscal 2021. The decrease was primarily due to a $179.8 million increase in operating working capital requirements over fiscal 2021, mainly driven by higher average steel prices.

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Investing Activities

Net cash used by investing activities was $438.2 million during fiscal 2022 compared to net cash provided by investing activities of $468.5 million in fiscal 2021. Net cash provided by investing activities in fiscal 2021 resulted primarily from proceeds from the sale of our shares of Nikola common stock, which totaled $634.4 million, partially offset by a $129.6 million cash outflow related to the acquisitions of GTI and PTEC Pressure Technology GmbH. Net cash used by investing activities in fiscal 2022 resulted primarily from cash paid for acquired companies in fiscal 2022, partially offset by $39.9 million of proceeds from asset sales. During fiscal 2022, we spent $104.5 million to acquire the net assets of Shiloh’s U.S. BlankLight ® business and $272.2 million to acquire the outstanding equity interests in Tempel.

Capital expenditures reflect cash used for investment in property, plant and equipment and is presented below by reportable business segment (this information excludes cash flows related to acquisition and divestiture activity):

Investment activities are largely discretionary and future investment activities could be reduced significantly, or eliminated, as economic conditions warrant. We assess acquisition opportunities as they arise, and any such opportunities may require additional financing. There can be no assurance, however, that any such opportunities will arise, that any such acquisition opportunities will be consummated, or that any needed additional financing will be available on satisfactory terms if required.

Financing Activities

Net cash used by financing activities was $237.7 million in fiscal 2022 compared to $249.8 million in fiscal 2021. During fiscal 2022, we paid $180.2 million to repurchase 3,235,000 of the common shares, paid dividends of $57.2 million on the common shares and borrowed a total of $41.7 million under existing short-term credit facilities. During fiscal 2021, we paid $192.1 million to repurchase 4,018,464 of the common shares and paid dividends of $53.0 million on the common shares.

Long-term debt – Our senior unsecured long-term debt is rated “investment grade” by both Moody’s Investors Service, Inc. and Standard & Poor’s Ratings Group. We typically use the net proceeds from long-term debt for acquisitions, refinancing of outstanding debt, capital expenditures and general corporate purposes. As of May 31, 2022, we were in compliance with the covenants in our long-term debt agreements. Our long-term debt agreements do not include ratings triggers or material adverse change provisions.

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Short-term borrowings – Our short-term debt agreements do not include ratings triggers or material adverse change provisions. As of May 31, 2022, we were in compliance with the covenants in our short-term debt agreements.

We maintain a $500.0 million multi-year revolving credit facility (the “Credit Facility”) with a group of lenders that matures in August 2026. Borrowings under the Credit Facility have maturities of up to one year. We have the option to borrow at rates equal to an applicable margin over the Daily LIBOR, the Prime Rate of PNC Bank, National Association, or the Overnight Bank Funding Rate. The applicable margin is determined by our credit rating. There were no borrowings outstanding under the Credit Facility at May 31, 2022.

As discussed in “Note H – Guarantees,” we had in place $16.6 million in outstanding letters of credit for third-party beneficiaries as of May 31, 2022. No amounts were drawn against at May 31, 2022, and the fair value of these guarantee instruments, based on premiums paid, was not material.

During fiscal 2022, we established a revolving trade accounts receivable securitization facility (the “AR Facility”) allowing us to borrow up to $175.0 million. Pursuant to the terms or the AR Facility, certain of our subsidiaries sell their accounts receivable without recourse, on a revolving basis, to Worthington Receivables Company ("WRC"), a wholly-owned, consolidated, bankruptcy-remote indirect subsidiary. In turn, WRC sells, on a revolving basis, up to $175.0 million of undivided ownership interests in this pool of accounts receivable to a third-party bank. We retain an undivided interest in this pool and are subject to risk of loss based on the collectability of the receivables from this retained interest. Because the amount eligible to be sold excludes receivables more than 120 days past due, receivables offset by an allowance for doubtful accounts due to bankruptcy or other cause, concentrations over certain limits with specific customers and certain reserve amounts, we believe additional risk of loss is minimal. As of May 31, 2022, borrowings outstanding under the AR Facility totaled $43.5 million, leaving $131.5 million available for future use.

Common shares – During fiscal 2022, we declared dividends totaling $1.12 per common share at a quarterly rate of $0.28 per common share. During fiscal 2021, we declared dividends totaling $1.03 per common share ($0.25 per common share during the first three quarters of fiscal 2021 and $0.28 per common share for the fourth quarter of fiscal 2021). Dividends paid on the common shares totaled $57.2 million in fiscal 2022 compared to $53.0 million during fiscal 2021. On June 22, 2022, the Worthington Industries Board declared a quarterly dividend of $0.31 per common share for the first quarter of fiscal 2023. The dividend is payable on September 29, 2022 to shareholders of record on September 15, 2022.

On March 20, 2019, the Board authorized the repurchase of up to 6,600,000 of the common shares. On March 24, 2021, the Board authorized the repurchase of up to an additional 5,618,464 of the common shares. These common shares may be purchased from time to time, with consideration given to the market price of the common shares, the nature of other investment opportunities, cash flows from operations, general economic conditions and other relevant considerations. Repurchases may be made on the open market or through privately negotiated transactions. The total number of common shares available for repurchase under these authorizations at May 31, 2022 was 6,065,000.

During fiscal 2022 and fiscal 2021, we repurchased 3,235,000 and 4,018,464 common shares under the authorizations described above, having an aggregate cost of $180.2 million and $192.1 million, respectively.

Dividend Policy

We currently have no material contractual or regulatory restrictions on the payment of dividends. Dividends are declared at the discretion of the Board. The Board reviews the dividend quarterly and establishes the dividend rate based upon our financial condition, results of operations, capital requirements, current and projected cash flows, business prospects and other relevant factors. While we have paid a dividend every quarter since becoming a public company in 1968, there is no guarantee that payments of dividends will continue in the future.

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Recently Issued Accounting Standards

In June 2016, amended accounting guidance was issued related to the measurement of credit losses on financial instruments. The amended accounting guidance changes the impairment model for most financial assets to require measurement and recognition of expected credit losses for financial assets held. The amended accounting guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The adoption of this new accounting standard update in fiscal 2021 did not have a material impact on our consolidated financial position, results of operations, or cash flows. Additionally, there have been no changes to our significant accounting policies as disclosed in this 2021 Form 10-K as a result of the adoption of this new accounting guidance.

Environmental

We do not believe that compliance with environmental laws has or will have a material effect on our capital expenditures, future results of operations or financial position or competitive position.

Inflation

Inflation has accelerated and government deficits and debt levels remain at high levels in many major markets. In the U.S. inflation rose at an annual rate of 8.6% in May 2022. The effects of inflation on our operations were significant during fiscal 2022 and impacted our selling prices and input costs. The effects of inflation are expected to have a continued impact in fiscal 2023.

Critical Accounting Policies

The discussion and analysis of our consolidated financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. We continually evaluate our estimates, including those related to our valuation of receivables, inventories, intangible assets, accrued liabilities, income and other tax accruals and contingencies and litigation. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. These results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Critical accounting policies are defined as those that reflect our significant judgments and uncertainties that could potentially result in materially different results under different assumptions and conditions. Although actual results historically have not deviated significantly from those determined using our estimates, as discussed below, our consolidated financial position or results of operations could be materially different if we were to report under different conditions or to use different assumptions in the application of such policies. We believe the following accounting policies are the most critical to us, as these are the primary areas where financial information is subject to our estimates, assumptions and judgment in the preparation of our consolidated financial statements.

Impairment of Definite-Lived Long-Lived Assets: We review the carrying value of our long-lived assets, including intangible assets with finite useful lives, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable. Impairment testing involves a comparison of the sum of the undiscounted future cash flows of the asset or asset group to its respective carrying amount. If the sum of the undiscounted future cash flows exceeds the carrying amount, then no impairment exists. If the carrying amount exceeds the sum of the undiscounted future cash flows, then a second step is performed to determine the amount of impairment, if any, to be recognized. An impairment loss is recognized to the extent that the carrying amount of the asset or asset group exceeds its fair value.

Impairment of Indefinite-Lived Long-Lived Assets: Goodwill and intangible assets with indefinite lives are not amortized, but instead are tested for impairment annually, during the fourth quarter, or more frequently if events or changes in circumstances indicate that impairment may be present. Application of goodwill impairment testing involves judgment, including but not limited to, the identification of reporting units and estimation of the fair value of each reporting unit. A reporting unit is defined as an operating segment or one level below an operating segment. With the exception of Steel Processing, we test goodwill at the operating segment level as we have determined that the characteristics of the reporting units within each operating segment are similar and allow for their aggregation in accordance with the applicable accounting guidance. For Steel Processing, we have determined that Tempel and TWB are stand-alone reporting units.

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For goodwill and indefinite lived intangible assets, we test for impairment by first evaluating qualitative factors including macroeconomic conditions, industry and market considerations, cost factors, and overall financial performance. If there are no concerns raised from this evaluation, no further testing is performed. If, however, our qualitative analysis indicates it is more likely than not that the fair value is less than the carrying amount, a quantitative analysis is performed. The quantitative analysis compares the fair value of each reporting unit or indefinite-lived intangible asset to the respective carrying amount, and an impairment loss is recognized in our consolidated statements of earnings equivalent to the excess of the carrying amount over the fair value. Fair value is determined based on discounted cash flows or appraised values, as appropriate. Either way, our policy is to perform a quantitative analysis of each reporting unit every three to five years.

Impairment of Equity Method Investments: We review our equity method investments for impairment whenever events or changes in circumstances indicate that the carrying value of the investment might not be recoverable. Events and circumstances can include, but are not limited to: evidence we do not have the ability to recover the carrying value; the inability of the investee to sustain earnings; the current fair value of the investment is less than the carrying value; and other investors cease to provide support or reduce their financial commitment to the investee. If the fair value of the investment is less than the carrying value, and the investment will not recover in the near term, then other-than-temporary impairment may exist. When the loss in value of an investment is determined to be other-than-temporary, we recognize an impairment in the period the conclusion is made.

Strategic Investments: From time to time we may make investments in both privately and publicly held equity securities in which we do not have a controlling interest or significant influence. Investments are recorded at fair value and changes in fair value for equity securities are reported in the consolidated statement of earnings. We elected to record equity securities without readily determinable fair values at cost, less impairment, plus or minus subsequent adjustments for observable price changes in orderly transactions for the identical or a similar investment of the same issuer.

Income Taxes: In accordance with the authoritative accounting guidance, we account for income taxes using the asset and liability method. The asset and liability method requires the recognition of deferred tax assets and liabilities for expected future tax consequences of temporary differences that currently exist between the tax basis and financial reporting basis of our assets and liabilities. We evaluate the deferred tax assets to determine whether it is more likely than not that some, or a portion, of the deferred tax assets will not be realized, and provide a valuation allowance as appropriate.

In accordance with accounting literature related to uncertainty in income taxes, tax benefits from uncertain tax positions that are recognized in the consolidated financial statements are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.

We have reserves for income taxes and associated interest and penalties that may become payable in future years as a result of audits by taxing authorities. It is our policy to record these in income tax expense. While we believe the positions taken on previously filed tax returns are appropriate, we have established the tax and interest reserves in recognition that various taxing authorities may challenge our positions. These reserves are analyzed periodically, and adjustments are made as events occur to warrant adjustment to the reserves, such as lapsing of applicable statutes of limitations, conclusion of tax audits, additional exposure based on current calculations, identification of new issues, and release of administrative guidance or court decisions affecting a particular tax issue.

Business Combinations: We account for business combinations using the acquisition method of accounting, which requires that once control is obtained, all the assets acquired and liabilities assumed are recorded at their respective fair values at the date of acquisition. The determination of fair values of identifiable assets and liabilities requires significant judgments and estimates and the use of valuation techniques when market value is not readily available. For the valuation of intangible assets acquired in a business combination, we typically use an income approach. The purchase price allocated to the intangible assets is based on unobservable assumptions, inputs and estimates, including but not limited to, forecasted revenue growth rates, projected expenses, discount rates, customer attrition rates, royalty rates, and useful lives, among others. The excess of the purchase price over the fair values of identifiable assets acquired and liabilities assumed is recorded as goodwill. During the measurement period, which is up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

The critical accounting policies discussed herein are not intended to represent a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. GAAP, with a lesser need for our judgment in their application. There are also areas in which our judgment in selecting an available alternative would not produce a materially different result.

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