1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - Q
QUARTERLY REPORT UNDERPURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For QuarterThe Quarterly Period Ended: November 30, 1997August 31, 1998 Commission File No. 0-4016
WORTHINGTON INDUSTRIES, INC.
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(Exact name of Registrant as specified in its Charter)
DELAWAREOHIO 31-1189815
- ------------------------ ----------------------------------------------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
1205 Dearborn Drive, Columbus, Ohio 43085
- ----------------------------------- --------------
(Address of Principal Executive Offices) ----------
(Zip Code)
(614) 438-3210
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(Registrant's Telephone Number, Including Area Code)
Not Applicable
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(Former Name, Former Address and Former Fiscal Year,
If Changed From Last Report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. YES [X][ ] NO [ ]
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01Shares, without par value 96,819,510
-92,469,609
----------------------------------- ---------------------------- ------------------------------
Class Outstanding December 31, 1997
PageOctober 13, 1998
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WORTHINGTON INDUSTRIES, INC.
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheets -
November 30, 1997August 31, 1998 and May 31, 1997...........................31998...............................3
Consolidated Condensed Statements of Earnings -
Three and Six Months Ended November 30, 1997August 31, 1998 and 1996........51997....................5
Consolidated Condensed Statements of Cash Flows
SixThree Months Ended November 30, 1997August 31, 1998 and 1996..................61997....................6
Notes to Consolidated Condensed Financial Statements.........7
Management's Discussion and Analysis of
Results of Operations and Financial Condition................9Statements...........7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...............9
PART II. OTHER INFORMATION................................................13INFORMATION.................................................14
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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PART I. FINANCIAL INFORMATION
WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands, Except Per Share)
November 30August 31 May 31
1997 19971998 1998
----------- ---------
(Unaudited) (Audited)
ASSETS
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 6,30011,196 $ 7,2123,788
Accounts receivable - net 257,343 266,836269,016 310,155
Inventories
Raw materials 172,234 187,572180,110 172,920
Work in process and finished products 106,405 109,316140,491 115,991
---------- ----------
Total Inventories 278,639 296,888320,601 288,911
Income taxes receivable - 5,429
Prepaid expenses and other current assets 37,865 23,19240,758 34,712
---------- ----------
TOTAL CURRENT ASSETS 580,147 594,128641,571 642,995
Investment in Unconsolidated Affiliates 60,956 57,04064,496 61,694
Intangible Assets 96,690 98,132108,153 95,725
Other Assets 30,106 32,36534,746 33,025
Investment in Rouge 91,494 88,49446,497 75,745
Property, plant and equipment 1,189,108 1,036,6211,380,563 1,315,668
Less accumulated depreciation 373,554 345,594394,938 382,510
---------- ----------
Property, Plant and Equipment - net 815,554 691,027985,625 933,158
---------- ----------
TOTAL ASSETS $1,674,947 $1,561,186$1,881,088 $1,842,342
========== ==========
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WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands, Except Per Share)
November 30 May 31
1997 1997
----------- -----------
(Unaudited) (Audited)
LIABILITIES AND SHAREHOLDERS' EQUITY
August 31 May 31
1998 1998
----------- ----------
(Unaudited) (Audited)
CURRENT LIABILITIES
Accounts payable $ 121,370151,283 $ 117,910176,752
Notes payable 107,661 50,000257,868 136,600
Accrued compensation, contributions to
employee benefit plans and related taxes 37,785 38,05843,315 43,867
Dividends payable 12,587 12,57212,946 13,532
Other accrued items 36,047 20,24446,261 37,800
Income taxes 3,475 2,0265,234 -
Current maturities of long-term debt 2,463 5,984
----------- -----------4,892 1,480
---------- ----------
TOTAL CURRENT LIABILITIES 321,388 246,794521,799 410,031
Other Liabilities 16,657 18,83930,129 24,788
Long-Term Debt:
Conventional long-term debt 362,595 361,899368,726 363,870
Debt exchangeable for common stock 91,494 88,494
----------- -----------shares 46,497 75,745
---------- ----------
Total Long-Term Debt 454,089 450,393415,223 439,615
Deferred Income Taxes 120,657 120,765145,176 145,230
Minority Interest 26,142 8,87744,772 42,405
Shareholders' Equity
Common shares, $.01no par value 969926 968
Additional paid-in capital 115,557 114,052112,306 116,696
Unrealized loss on investment (5,556)(5,563) (5,563)
Foreign currency translation (2,417) (1,861)(3,068) (2,812)
Retained earnings 627,461 607,922
----------- -----------619,388 670,984
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 736,014 715,518
----------- -----------723,989 780,273
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,674,947 $ 1,561,186
=========== ===========$1,881,088 $1,842,342
========== ==========
See notes to consolidated condensed financial statements.
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WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(In Thousands Except Per Share)
(Unaudited)
Three Months Ended
Six Months Ended
November 30 November 30
----------- -----------August 31,
--------------------------
1998 1997
1996 1997 1996
---- ---- ---- ------------ --------
Net sales $ 520,320 $ 458,349 $ 1,020,747 $ 888,641$409,280 $387,561
Cost of goods sold 447,529 392,661 876,625 759,598
----------- ----------- ----------- -----------347,602 326,386
-------- --------
GROSS MARGIN 72,791 65,688 144,122 129,04361,678 61,175
Selling, general & administrative expense 37,008 29,689 69,440 56,557
----------- ----------- ----------- -----------32,072 25,602
-------- --------
OPERATING INCOME 35,783 35,999 74,682 72,48629,606 35,573
Other income (expense):
Miscellaneous income (expense) 685 302 477 7292,362 (208)
Interest expense (6,876) (3,290) (13,654) (7,237)(8,943) (6,778)
Equity in net income of unconsolidated
affiliates 5,170 3,153 9,375 5,768
----------- ----------- ----------- -----------5,055 4,701
-------- --------
EARNINGS BEFORE INCOME TAXES 34,762 36,164 70,880 71,74628,080 33,288
Income taxes 12,862 13,497 26,226 27,118
----------- ----------- ----------- -----------10,390 12,317
-------- --------
EARNINGS FROM CONTINUING OPERATIONS 17,690 20,971
Discontinued Operations:
INCOME (LOSS) FROM OPERATIONS, NET OF TAXES (1,316) 1,783
-------- --------
NET EARNINGS $ 21,90016,374 $ 22,667 $ 44,654 $ 44,628
=========== =========== =========== ===========22,754
======== ========
AVERAGE COMMON SHARES OUTSTANDING 96,784 96,510 96,761 96,51195,750 96,739
EARNINGS PER COMMON SHARE $.23 $.23 $.46 $.46
---- ---- ---- ----- BASIC & DILUTED
EARNINGS FROM CONTINUING OPERATIONS $ .18 $ .22
EARNINGS FROM DISCONTINUED OPERATIONS, NET OF TAXES (.01) .02
-------- --------
NET EARNINGS $ .17 $ .24
======== ========
CASH DIVIDENDS DECLARED
PER COMMON SHARE $.13 $.12 $.26 $.24
---- ---- ---- ----$ .14 $ .13
-------- --------
See notes to consolidated condensed financial statements.
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WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands, Unaudited)
SixThree Months Ended
November 30
-----------August 31,
-------------------------
1998 1997
1996
---- ------------ --------
OPERATING ACTIVITIES
Net earnings $ 44,65416,374 $ 44,62822,754
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 30,264 24,12618,641 14,922
Deferred income taxes (108) (108)(54) (54)
Equity in undistributed net income of unconsolidated affiliates (4,289) (1,616)(3,460) 881
Minority interest in net loss of consolidated subsidiary (16)(1,473) -
Net gain on sale of assets (600) -
Changes in assets and liabilities:
Current assets 12,835 (11,460)16,578 12,445
Other assets 2,212 (843)(1,339) 3,698
Current liabilities 20,439 (17,448)(17,532) 16,328
Other liabilities (2,182) (671)
--------- ---------34 486
-------- --------
Net Cash Provided By Operating Activities 103,809 36,60827,169 71,460
INVESTING ACTIVITIES
Investment in property, plant and equipment, net (153,295) (78,582)(48,862) (74,436)
Acquisitions, net of cash acquired (8,380)
--------- ---------(26,718) -
Proceeds from sale of assets 2,759 -
-------- --------
Net Cash Used By Investing Activities (153,295) (86,962)(72,821) (74,436)
FINANCING ACTIVITIES
Proceeds from (payments on) short-term borrowings 57,661 33,500121,268 1,300
Proceeds from long-term debt 2,267 28,4592,550 1,900
Principal payments on long-term debt (5,092) (8,689)(1,609) (4,441)
Proceeds from issuance of common shares 1,607 1,268(34) 615
Proceeds from minority interest 17,2813,839 10,561
Repurchase of common shares (1,211)(59,422) -
Dividends paid (25,150) (21,800)
--------- ---------(13,532) (12,572)
-------- --------
Net Cash Provided (Used) By Financing Activities 48,574 31,527
--------- ---------
Decrease53,060 (2,637)
-------- --------
Increase (decrease) in cash and cash equivalents (912) (18,827)7,408 (5,613)
Cash and cash equivalents at beginning of period 3,788 7,212
17,580
--------- ----------------- --------
Cash and cash equivalents at end of period $ 6,30011,196 $ 1,247
========= =========1,599
======== ========
See notes to consolidated condensed financial statements.
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WORTHINGTON INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - MANAGEMENT'S OPINION
--------------------
In the opinion of management, the accompanying unaudited
consolidated condensed financial statements contain all adjustments
(consisting of those of a normal recurring nature) necessary to present
fairly the financial position of Worthington Industries, Inc. and
Subsidiaries (the Company) as of November 30, 1997August 31, 1998 and May 31, 1997;1998; the
results of operations for the three and six months ended November 30,August 31, 1998 and
1997, and
1996, and cash flows for the sixthree months ended November 30, 1997August 31, 1998 and
1996.1997.
The accounting policies followed by the Company are set forth
in Note A to the consolidated financial statements in the 19971998
Worthington Industries, Inc. Annual Report to Shareholders which is
included in the Company's 19971998 Form 10-K.
NOTE B - INCOME TAXES
------------
The income tax rate is based on statutory federal and state
rates, and an estimate of annual earnings adjusted for the permanent
differences between reported earnings and taxable income.
NOTE C - EARNINGS PER SHARE
------------------
Earnings per common share for the three and six months ended
November 30, 1997 and 1996 are based on the weighted average common
shares outstanding during each of the respective periods.
NOTE D -C- RESULTS OF OPERATIONS
---------------------
The results of operations for the three and six months ended November 30, 1997August
31, 1998 are not necessarily indicative of the results to be expected
for the full year.
NOTE E - INVOLUNTARY CONVERSION OF ASSETS
--------------------------------
On August 14, 1997,D- ACQUISITION
In June, 1998, the Company experiencedacquired the stock of Jos. Heiser
vormals J. Winter's Sohn, Gmbh (Heiser) for approximately $27 million
(net of cash acquired) plus $7.3 million of debt assumed, in a fire at its steel
processing facilitybusiness
combination accounted for as a purchase. Based in Monroe, Ohio.Gaming, Austria,
Heiser is Europe's leading producer of high pressure industrial gas
cylinders. The fire significantly damagedresults of operations for Heiser are included in the
pickling areafinancial statements of the facility and caused less extensive damage toCompany since the remainderdate of acquisition.
Goodwill in the amount of $12.9 million resulting from the purchase is
being amortized using the straight-line method over 40 years. Proforma
results including Heiser since the beginning of the plant. The Company has shifted as much business as
possible to its other locations, with the remainder being sent to third
party processors. Blanking operations have resumed with slitting
expected to return within a few months, and pickling in lessearliest period
presented would not be materially different than one
year.actual results.
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WORTHINGTON INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
The Company carries both property damage and business
interruption insurance and as a result, management does not expectNOTE E- COMPREHENSIVE INCOME
In June 1997, the fire to have a material adverse impact on the Company's financial
results. The total loss from business interruption, extra expenses and
property damage is expected to be around $75 million. The Company will
record the expected insurance recovery for business interruption and
extra expenses as a receivable, netted with amounts advanced by the
insurance company. The estimated lost net benefit from the business
interruption insurance for theFinancial Standards Accounting Board issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" which requires separate reporting period, which approximates the
operating income which would have resulted had the fire not occurred
thru November 30, 1997 was approximately $4,000,000 and wasof certain
items affecting shareholders' equity outside of those included in
arriving at net salesearnings. The statement is effective for periods
beginning in fiscal 1999 and other revenues.
NOTE F - DEBT
----
On December 9, 1997, the Company issued $150 million of 6.7%
Notes due 2009. The proceeds were used to pay down $90 million of the
revolving credit facility (leaving $140 million available) and to pay
$60 million of other debt. The Notes were issued against the $450
million shelf registration.requires disclosing comprehensive income
for interim periods which is shown below.
Three Months Ended August 31
----------------------------
1998 1997
---- ----
Comprehensive Income:
Net Income $16,374 $22,754
Other Comprehensive Income (Loss), net of tax:
Unrealized Gain on Investment -- 4,031
Foreign Currency Translation (256) --
------- -------
Other Comprehensive Income (Loss) (256) 4,031
------- -------
Comprehensive Income $16,118 $26,785
======= =======
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WORTHINGTON INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The secondDISCONTINUED OPERATIONS
As a result of the decision of the Company to divest its subsidiaries,
Worthington Custom Plastics, Worthington Precision Metals and Buckeye Steel
Castings Company, the Custom Products and Cast Products segments of the Company
have been restated as Discontinued Operations. Accordingly, the Company's
Continuing Operations consist of only the Processed Steel Products segment and
its equity in joint ventures. During the quarter, the Company sold its scrap
recycling business, I.H. Schlezinger, Inc. and reached agreements to sell the
Worthington Precision Metals business and the garage door division of the metal
framing business.
RESULTS
For the first quarter ended August 31, 1998, sales increased 6% to
$409.3 million. Earnings from continuing operations were a record$17.7 million compared
to $21.0 million for the Company. For the three
months ended November 30, 1997, net sales of $520.3 million were 14% higher than
in last year's second quarter. Net earnings were $21.9 million, down 3% from
last year. Earnings per share were $.23, even with the previous year.
Sales for the first six months results were a record. For the six
months ended November 30, 1997, net sales of $1.02 billion were 15% higher than
in last year's first six months. Net earnings were $44.7 millionquarter and earnings per share
from continuing operations were $.46, both even with$.18 versus $.22 last year. Discontinued
operations had a net loss for the quarter of $1.3 million, down 174% from last
year. Net earnings and net earnings per share, which include the Company's
discontinued operations, were $16.4 million and $.17 respectively, compared to
$22.8 million and $.24 for the previous year.
Sales increasesRESULTS FROM CONTINUING OPERATIONS
Overall for the first quarter, and six months were achieveddemand in most of the Company's
continuing product lines was stronger in fiscal 1999 than in fiscal 1998,
reflected in increased sales for all segments. Increased earnings forlines of business. Profit margins from
continuing operations were down, however, as a result of the strike at General
Motors and startup costs relating to the ramp-up of the Decatur and Spartan
operations. The Company estimates the impact of those items was $.05 per share
on continuing operations. The impact of the startup costs will continue to be
felt through fiscal 1999. For the first quarter, and six months for processed steel
products were offset by lower results for custom products and cast products.
Grossgross margin was up 11% for the quarter and 12% for the six months, and as a percentage of
sales was 14.0% for the quarter(14.3% last year)15.1% in fiscal 1999 and 14.1%
for the six months (14.5% last year). Material, labor and overhead costs were
higher for the quarter and six months due to the inclusion of acquired
operations15.8% in the current year amounts and the startup of the Delta steel
processing plant. The material cost component of cost of goods sold, primarily
in steel processing, contributed to most of the increase in costs.
Selling, general and administrative expense increased 25% for the
quarter and 23% for the six months due mostly to the startup of the Delta and
Decatur steel processing plants and the inclusion of expenses for acquired
operations in the current year. As1998. Operating income as a percent
of sales this expense was 7.1% for
the quarter (6.5% last year) and 6.8% for the six months (6.4% last year).
Operating income was 1% lower for the quarter and 3% higher for the six months.
As a percentage of sales, operating income was 6.9% for the quarter (7.9% last
year) and 7.3% for the six months (8.2% last year).
Interest expense increased 109% for the three months and 89% yeardecreased to date. Average debt outstanding increased due to the high level of capital
expenditures and the average interest rate increased over last year.7.2% in fiscal 1999 from 9.2% in fiscal 1998. The Company
capitalized interest of $1,786,000 ($1,968,000 last year) during the quarter and
$3,255,000 ($2,897,000 last year) for the six months.
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Equity in net income of unconsolidated affiliates was up 64% for the
quarter and 63% for the six months. Equity from Worthington Armstrong Venture,
TWB and Acerex were up significantly for each period.
Income taxes decreased 5% for the three month period and 3% for the six
months as the effective tax rate was lower (37.0% for the quarter and
year-to-date compared to last year's 37.3% for the quarter and 37.8%
year-to-date) due to lower state taxes.
The processed steel products segment posted record sales for both
periods as all lines of business increased sales. Operating income was up
significantly for both periods and margin percentages equal to last year. Last
year's results were up for both periods from fiscal 1996 as the effect of
automotive strikes were more than offset by increased profitability at pressure
cylinders and metal framing. Steel processing sales improved from last year at
the majority of the plants despite summer strikes, shutdowns in the automotive
and appliance markets and a fire at
the Monroe, Ohio plant. New sales from the
start-up of the Delta, Ohio plant contributed the largest increase. Steel
processing operating income was up for the quarter and down for the six month
period. Second quarter's profitability was supported by the Delta's startup and
some margin improvements. Steel processing had lowerfacility (discussed below) did not materially impact margins
in the first six
months and poor volume at the Malvern, PA plant.
On August 14, 1997, the Company experienced a fire at its steel
processing facility in Monroe. The fire significantly damaged the pickling area
of the facility and caused less extensive damagedue to the remainder of the plant.
The Company has shifted as much business as possible to its other locations,
with the remainder being sent to third party processors. Blanking is now back in
operation, while slitting is expected to return within a few months and pickling
in around one year. The estimated net benefit from therecoveries under business interruption insurance, which approximatesapproximated the
lost operating income which would have resulted had the fire not occurred thru November 30, 1997 was approximately
$4,000,000 andoccurred. For
the three months ended August 31, 1998, $1.6 million of business interruption
insurance recovery was included in net sales and other revenues.
Pressure cylinders'sales.
Steel processing sales were up forflat compared to fiscal 1998's first
quarter. Additional sales generated by Delta, Decatur and Spartan were offset by
the quartereffect of
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the General Motors strike and the lost sales at Monroe. Operating income in
steel processing was lower due to product mix;
however, the changestrike and start-up losses at Decatur and
Spartan offset by the profit contribution from the Delta plant. In June 1998,
the Company purchased Jos. Heiser vormals J. Winter's Sohn, Gmbh (Heiser) for
approximately $27 million (net of cash acquired) plus $7.3 million of debt
assumed. Based in mix resulted in lower operating income. For the six
monthsGaming, Austria, Heiser is Europe's leading producer of high
pressure industrial gas cylinders. Pressure cylinders sales and operating income
were up over fiscal 1998's first quarter due to increased volume from market
share gains. The metal framing business increasedin most product
lines and the acquisition of Heiser. Both sales and operating income due
withincreased
for the metal framing operation, reflecting higher volume andoverall selling prices due to improved market conditionsprices. Sales
and operating efficiency gains. The autoincome from the automotive body panel business continuedwere up in the
first quarter, reflecting additional volume and a favorable shift in product mix
to contribute
significantlyservice parts versus those sold to original equipment manufacturers (OEMs).
On August 14, 1997, the segment'sCompany experienced a fire at the Monroe, Ohio,
facility. The fire destroyed the pickling area of the facility and caused
extensive damage to other parts of the plant. The Company shifted a significant
amount of the business to other locations, with the remainder sent to third
party processors. Blanking returned to operation in September 1997, and slitting
returned in March 1998. Pickling resumed in September 1998. The Company has
increased operating incomeboth pickling and storage capacity at this facility beyond its
pre-fire capabilities.
For the first quarter, selling, general and administrative (SG&A)
expense as a percentage of sales was 7.8% in fiscal 1999 and 6.6% in 1998. The
SG&A percentage increased in the first quarter of fiscal 1999 because of the
overhead costs incurred at the Decatur and Spartan facilities without
corresponding sales levels. Because of restating for discontinued operations,
all corporate overhead costs have been reflected in the results from continuing
operations.
Quarterly interest expense of $8.9 million increased 32% over first
quarter of fiscal 1998 as a result of higher debt levels. Average debt
outstanding for the quarter was $656 million in fiscal 1999 and six month periods. Increased volume continued due$512 million in
1998. Debt levels rose in fiscal 1999 to strong demand for its
automotive replacement parts.
Sales forfund capital spending, including the
custom products segmentconstruction of the Decatur and the Spartan facilities, and the acquisition of
Heiser. At August 31, 1998, approximately 43% of the Company's total debt
(excluding DECS) was at fixed rates of interest. During September 1998, the
Company unwound $100,000,000 of interest rate swap agreements that were upin place
at August 31, 1998. Capitalized interest for the first quarter totaled $3.0
million in fiscal 1999 and six months; however, operating$1.5 million in 1998.
Equity in net income of unconsolidated affiliates increased 8% in the
first quarter of fiscal 1999. WAVE continued to be the major contributor to
joint venture equity by posting increases in sales and earnings. WSP and TWB
also contributed to the increased equity. Acerex's equity was lower for both periods. Last year'sdown, due to the
recent drop in the value of the peso.
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resultsThe effective tax rate for each period improved overthe first quarter of fiscal 1996 due to higher volume for
automotive contracts and improvement1999 remained at
newer, non-automotive plants. The
Plastics37%.
RESULTS FROM DISCONTINUED OPERATIONS
First quarter fiscal 1999 sales from discontinued operations increased sales for both periodsof $97
million were down 14% from 1998, primarily due to the acquisition of
PMI in December 1996. Operating incomestrike at General Motors.
Sales increased for Cast Products but this was loweroffset by a sales decrease for
both periods because of the
summer strikes and shutdowns in the automotive and appliance sectors and the end
of a major automotive contract. During August, the plastics operation formed a
strategic alliance with a German plastics company, Troester Systeme und
Komponenten, opening up opportunities for global growth without additional
capital investment. Precision Metals profits increased above last year's second
quarter and six months on sales that were flatCustom Products. The Cast Products increase was due to significant rail car
volume improvement. Net earnings for the first quarter and slightly
lower fordecreased to a loss of
$1.3 million in fiscal 1999 from the six month period.
Sales for the cast products segment sales were higher than in lastprevious year's second quarter and first six months; however, operating$1.8 million of income was lower due
to lower selling prices, higher material costs and production
inefficiencies. Last year's results were lower than in fiscal 1996 because of
lower volume and the resulting decreases in production efficiencies and coverage
of fixed costs.decrease at Custom Products noted above.
LIQUIDITY AND CAPITAL RESOURCES
At November 30, 1997,During the three months ended August 31, 1998, total assets increased
slightly to $1.9 billion, primarily reflecting the Company's current ratio was 1.8:1, down from
2.4:1 at May 31, 1997, mostly due to anincreased
investment in property, plant and equipment and a $32 million increase in
notes andinventory offset by a $41 decrease in accounts payable.
Total debt as a percentage of total committed capital (total debt and
shareholder's equity), both excluding DECS, increased to 39% from 37% at May 31,
1997. Working capital was $258.8receivable. Capital investments
totaled $76 million 35% offor the Company's total net worth,
down from 49% at May 31, 1997. As a percentage of annualized sales, average
working capital was 14.8%, down from 18.4%three months, including $27 million for last year's first six months.
During the six months, the Company's cash position decreased by $.9
million. Cash provided by operating activities was $103.8 million, up from $36.6
million last year. Capital expenditures of $153.3 million and dividends paid of
$25.2 millionHeiser
acquisition. The most significant projects were funded mostly from cash provided from operations, short-term
borrowings and proceeds from minority interest investment. Capital expenditures
were up 95% over last year and will continue at high levels throughout the
fiscal year with the construction of the Decatur, Alabama, steel
processing plant, and fundingthe rebuild of the Spartan Steel joint venture.
At November 30, 1997, $140 millionMonroe, Ohio, facility. Accounts
receivable decreased in line with the Company's normal sales decline from the
fourth quarter of the $190previous year to the first quarter of the new fiscal year.
Inventory increased mostly due to the higher levels needed to support the Delta
and Decatur startups.
Current liabilities increased by $112 million during the quarter to
$522 million, primarily due to a $121 million increase in notes payable.
Accordingly, the current ratio at August 31, 1998 was 1.2 to 1 versus 1.6 to 1
at May 31, 1998.
The Company uses short-term uncommitted lines of credit extended by
various commercial banks to finance its business operations. Maturities on these
borrowings typically range from one to ninety days. To ensure liquidity, the
Company maintains a revolving credit facility with a group of commercial banks.
During October 1998, the Company increased the amount of the revolving credit
facility to $300 million from $190 million. The $110 million increase in
commitments was unused.extended by the existing bank group and expires in September
1999. Previously existing commitments totalling $190 million continue to expire
in May 2003. At August 31, 1998, there were no outstanding borrowings under the
revolving credit facility.
In March 1997, Debt Exchangeable for Common Stock (DECS), payable in
Rouge stock, was issued by the Company. In the opinion of the Company, it is
appropriate to examine the Company's debt without the DECS, since the Company
may satisfy the DECS with currently owned Rouge stock. The DECS value as of
August 31, 1998 was $46.5 million due to a decrease in the value of the Rouge
common stock.
At August 31, 1998, the Company's total debt (excluding the DECS) was
$631 million compared to $502 million (excluding the DECS) at the end of fiscal
1998. As a
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result, total debt to committed capital increased to 47% (excluding the DECS)
versus fiscal year end's 39% (excluding the DECS). Debt was incurred primarily
to finance the Company's capital investments in property, plant and equipment
and the Heiser acquisition, and to repurchase stock. During the quarter, the
Company repurchased approximately 4.2 million shares of stock for $59 million
and the Board of Directors increased the repurchase authorization by 10 million
additional shares.
Cash provided by operating activities of $27 million was down from $71
million in fiscal 1998, primarily due to increased working capital requirements.
On December 9, 1997, the Company issued $150 million of 6.7% notes due
2009 againstoff of the $450 million "shelf" registration established in May 1996. The Company expects its operating results and cash from normal
operating activities1996,
substantially depleting the shelf. As there were no plans to improve duringissue any of the
remainder of the fiscal year.
Additional borrowings may be needed to support anticipated capital expenditures.
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Immediatethis "shelf" registration, it was deregistered by post effective
amendment in June 1998.
The Company's immediate borrowing capacity, plusin addition to cash
generated from operations, should be more than sufficient to fund expected
normal operating cash needs,costs, dividends, debt payments and capital expenditures for
existing businesses. TheWhile there are no specific needs at this time, the Company
will
continue to considerregularly considers long-term debt issuance as an alternative depending on
financial market conditions.
ENVIRONMENTAL
The Company believes environmental issues will not have a material
effect on capital expenditures, consolidated financial position, future results
or operations.
IMPACT OF YEAR 2000
The Company has completed anis currently conducting a detailed assessment regarding modifications of itsall
information technology (IT) and non-information technology (non-IT) hardware and
software so that its computer systems will function properly with respectregard to datesyear 2000 issues. Non-IT components include embedded
technology in the year 2000manufacturing plants in equipment-related hardware and
thereafter. The total Year 2000 project cost is estimated at
approximately $1.8 million ($.6 million incurred to date), the remaining amount
will be evenly expensed between now and the estimated completion date in the
fourth calendar quarter of 1998.software, as well as communication systems.
The Company believes, that withis not materially reliant on third party systems (e.g.
electronic data interchange) to conduct business. In addition, the
modifications to existing software, the Year 2000 Issue will not pose
significant operational problems. The Company has
initiated communications with significant vendors and customers to confirm their
plans to become Yearyear 2000 compliantready and assess any possible risk to or effects toon
the Company's operations. The vendor and customer responses are being evaluated
and incorporated into the current detailed assessment.
Over the last two years, the Company believes theirhas utilized both internal and
external resources to modify, replace, and test mainframe software to make it
year 2000 ready. These year 2000 projects are at varying stages of completion.
Some systems have been or are currently being replaced with year 2000 ready
systems for business reasons and some mainframe code updates have been or are
currently being
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implemented. A comprehensive review of these projects is also being performed as
part of the detailed assessment in progress. In fiscal 1998, approximately $1
million was expended to remediate year 2000 issues. This amount excludes the
cost of year 2000 ready hardware and software recently implemented by the
Company.
Since this assessment is in progress, the estimated total cost to
remediate all year 2000 issues is not readily determinable. Preliminary
estimates to update mainframe codes were approximately $2 million. This figure
will be properly convertedrevised as a result of the current assessment. The assessment is
expected to be completed in November 1998. Year 2000 projects to date have
inspected approximately 50% of the software and sufficiently
complianthardware potentially not ready
for the year 2000 (i.e., those systems not recently replaced with year 2000
ready systems.)
In summary, while the Company continues its efforts to evaluate and
remediate year 2000 issues, the final assessment is not complete. The Company
expects no material impact to its results from operations or financial condition
as a result of year 2000 issues. The scope of contingency planning will hinge
upon the results of the current assessment.
EURO-CURRENCY
The European Union's new common currency is scheduled to not materially affectbe introduced
on January 1, 1999. The Company expects no material impact to its results from
operations or financial condition as a result of this change, due to the
Company's limited overseas operations.
FORWARD-LOOKING INFORMATIONSAFE HARBOR STATEMENT
The Company wishes to take advantage of the Safe Harbor provisions
included in the Private Securities Litigation Reform Act of 1995 (the "Act").
Statements by the Company relating to future revenues and cash, growth, orstock
appreciation, plant start-ups, or capabilities, the impact of year 2000 and other
statements which are not historical information constitute "forward looking
statements" within the meaning of the Act. All forward looking statements are
subject to risks and uncertainties which could cause actual results to differ
from those projected. Factors that could cause actual results to differ
materially include, but are not limited to, the following: general economic
conditions; conditions in the Company's major markets; competitive factors and
pricing pressures; product demand and changes in product mix; changes in pricing
or availability of raw material, particularly steel; delays in construction or
equipment supply; year 2000 issues; and other risks described from time to time
in the Company's filings with the Securities and Exchange Commission.
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
The information provided under Item 5 of this report is incorporated
herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Registrant's Annual Meeting of Shareholders was held on September
24, 1998. In connection with the meeting, proxies were solicited. Following are
the voting results on proposals considered and voted upon.
1. All nominees for the election to the Class of Directors whose term
expires in 2001 were elected by the shareholders who were present or represented
by proxy.
VOTES FOR
THE ELECTION AUTHORITY TO
OF DIRECTOR VOTE WITHHELD
----------- -------------
John P. McConnell 81,045,644 978,767
Robert B. McCurry 80,913,729 1,110,682
Gerald B. Mitchell 81,039,134 985,277
Mary Schiavo 80,997,394 1,027,017
2. The proposal which provided, among other things, for the change of
the Company's state of incorporation from Delaware to Ohio through a merger of
the Company into Worthington Industries, Inc., an Ohio corporation and a
wholly-owned subsidiary of the Company, and for related changes to the Company's
organizational documents was approved by the following vote:
FOR: 69,529,770 AGAINST: 2,338,033
ABSTAIN: 279,775 BROKER NON-VOTES: 9,876,834
3. The selection of Ernst & Young LLP as auditors of the Company for
the fiscal year ending May 31, 1999 was ratified by the following vote:
FOR: 81,710,478 AGAINST: 115,034 ABSTAIN: 198,899
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ITEM 5. OTHER INFORMATION
On October 13, 1998, Worthington Industries, Inc., a Delaware
corporation("Worthington Delaware"), was merged (the "Merger") with and into
Worthington Industries, Inc., an Ohio corporation and a wholly-owned subsidiary
of Worthington Delaware ("Worthington Ohio"). Each share of common stock, par
value $0.01 per share (the "Worthington Delaware Shares"), of Worthington
Delaware was converted into one common share, without par value (the
"Worthington Ohio Common Shares"), of Worthington Ohio. By virtue of the Merger,
Worthington Ohio has succeeded to all the business, properties, assets and
liabilities of Worthington Delaware and the directors, officers and employees of
Worthington Delaware have become directors, officers and employees of
Worthington Ohio. Pursuant to Rule 12g-3(a) under the Securities Exchange Act of
1934 (the "Exchange Act"), the Worthington Ohio Common Shares are deemed to be
registered under the Exchange Act.
In addition, Worthington Ohio assumed all of the obligations of
Worthington Delaware under the Indenture, dated as of May 15, 1996, as
supplemented, of Worthington Delaware to PNC Bank, National Association
(formerly known as PNC Bank, Ohio, National Association), and the debt
securities issued thereunder.
The following paragraphs summarize the material attributes of the
Worthington Ohio Common Shares. The statements with respect to the Worthington
Ohio Common Shares are brief summaries of the provisions of the Amended Articles
of Incorporation (the "Articles") of Worthington Ohio and the Code of
Regulations (the "Regulations") of Worthington Ohio, which are filed as exhibits
hereto. The following statements are qualified in their entirety by reference to
the Articles and the Regulations.
GENERAL
The Articles authorize 150,000,000 Worthington Ohio Common Shares,
500,000 Class A Preferred Shares, without par value, and 500,000 Class B
Preferred Shares, without par value (collectively, the "Preferred Shares"). As
of October 13, 1998, the effective date of the Merger, 92,469,609 Worthington
Ohio Common Shares were issued and outstanding and there were no Preferred
Shares issued. The Articles authorize the Board of Directors of Worthington Ohio
to issue the Preferred Shares in one or more series and to establish the
designations, preferences and rights of each such series. Until changed by the
Worthington Ohio shareholders, each Class A Preferred Share will have one vote
and each Class B Preferred Share will have ten votes on each matter submitted to
holders of the Preferred Shares.
The Worthington Ohio Common Shares are designated Nasdaq National
Market securities.
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VOTING RIGHTS
Quorum for Meetings of Shareholders
The Regulations provide that the holders of one-third of the voting
power of Worthington Ohio must be present in person or by proxy to constitute a
quorum at a meeting of shareholders called by the Board of Directors. Otherwise,
the holders of a majority of the voting power of Worthington Ohio must be
present in order to constitute a quorum.
General Voting Rights
Each Worthington Ohio Common Share entitles the holder thereof to one
vote for the election of directors and for all other matters submitted to the
shareholders of Worthington Ohio for their consideration.
The Regulations provide that all elections of directors will be
determined by a plurality of the votes cast. Except as otherwise required by
law, the Articles or the Regulations, any other matter submitted to the
shareholders for their vote will be decided by the vote of the holders of a
majority of the votes entitled to be cast by the holders of all then outstanding
voting shares, present in person or by proxy, and entitled to vote with respect
to such matter.
Special Vote Requirements
The Articles require the affirmative vote of the holders of 75% of the
outstanding shares of Worthington Ohio entitled to vote generally in the
election of directors (the "Voting Stock") to adopt amendments to the provisions
of the Articles addressing the classification of the Board of Directors, the
fixing of the number of directors, the advance notification of shareholder
nominations, the removal of directors and the filing of vacancies, the calling
of special meetings of shareholders, the requirement that shareholders take
actions at a meeting, the vote required for approval of business combinations
with 15% shareholders (must also include the affirmative vote of the holders of
a majority of the outstanding Voting Stock excluding the 15% shareholder in
question), the factors to be considered by the directors in evaluating
significant corporate transactions and the required vote for the amendment of
the Articles and the Regulations. Other amendments must be approved by the
affirmative vote of the holders of a majority of the outstanding Voting Stock.
The Articles require the affirmative vote of the holders of 75% of the
outstanding Voting Stock to approve an amendment, alteration, change or repeal
of the Regulations unless it has been approved by three-fourths of the
authorized number of directors, in which case the required affirmative vote is a
majority of the outstanding Voting Stock.
Articles SEVENTH of the Articles (the "Supermajority Voting
Provisions") provides that Business Combinations (as defined below) between
Worthington Ohio, or a subsidiary thereof, and a Substantial Shareholder (as
defined below) require the affirmative vote of the holders of not less than 75%
of the Voting Stock; provided that such affirmative vote must include the
affirmative vote of a majority of all then
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outstanding shares of Voting Stock not beneficially owned by the Substantial
Shareholder. Three-fourths of the authorized number of directors may, in all
such cases, determine not to require such supermajority vote, but only if a
majority of the directors in office and acting upon such matter are "Continuing
Directors" (as defined). Such determination may be made either before or after
any Substantial Shareholder in question achieves such status.
A "Substantial Shareholder" generally is defined as the "beneficial
owner" (as defined) of 15% or more of the outstanding shares of Voting Stock. A
Substantial Shareholder does not include Worthington Ohio, any subsidiary
thereof, any employee benefit plan thereof, the trustees of any such plan or any
affiliate of Worthington Ohio owning in excess of 10% of the outstanding
Worthington Delaware Shares on August 3, 1998.
A "Business Combination" subject to the Supermajority Voting Provisions
includes: a merger or consolidation involving Worthington Ohio, or any
subsidiary thereof, and a Substantial Shareholder; a sale, lease or other
disposition of a "substantial part" of the assets of Worthington Ohio or any
subsidiary thereof (that is, assets constituting in excess of 10% of the book
value of the total consolidated assets of Worthington Ohio) to a Substantial
Shareholder; an issuance of equity securities of Worthington Ohio to a
Substantial Shareholder for consideration aggregating $25,000,000 or more; a
liquidation or dissolution of Worthington Ohio (if as of the record date for the
determination of shareholders entitled to vote with respect thereto, any person
is a Substantial Shareholder); and a reclassification or recapitalization of
securities (including any reverse stock split) of Worthington Ohio or any
subsidiary thereof or a reorganization, in any case having the effect, directly
or indirectly, of increasing the percentage interest of a Substantial
Shareholder in any class of equity securities of Worthington Ohio or such
subsidiary.
A "Continuing Director" is defined as any individual serving as a
director of Worthington Ohio on October 13, 1998, or any individual elected or
appointed prior to the time the Substantial Shareholder in question acquires
such status, or an individual designated as a Continuing Director (prior to his
or her initial election or appointment) by three-fourths of the authorized
number of directors, but only if a majority thereof then consists of Continuing
Directors.
Worthington Ohio has opted out of Section 1701.831 of the Ohio Revised
Code (the "Ohio Control Share Acquisition Statute") and Chapter 1704 of the Ohio
Revised Code (the "Merger Moratorium Statute").
NOMINATION PROCEDURE; NUMBER OF DIRECTORS; CLASSIFIED BOARD
The Regulations provide that a shareholder nomination for election to
the Board of Directors must be made in writing and must be received at the
principal executive offices of Worthington Ohio not less than 14 days nor more
than 50 days prior to any meeting of shareholders called for the election of
directors; however, if less than 21
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days' notice of the meeting is given to the shareholders, such nomination must
be so received not later than the close of business on the seventh day following
the day on which the notice of the meeting was mailed. The notification must
contain the following information to the extent known to the notifying
shareholder: (a) the name, age, business address and residence address of each
proposed nominee; (b) the principal occupation of each proposed nominee; (c) the
number of shares of Worthington Ohio beneficially owned by the proposed nominee
and by the notifying shareholder; (d) the name and address of the notifying
shareholder; and (e) any other information required to be disclosed with respect
to a nominee for election as a director in proxy solicitations pursuant to
Regulation 14A under the Exchange Act or any successor statute, rule or
provision. Nominations which the chairman of the meeting determines are not made
in accordance with the Regulations would be disregarded.
Subject to the rights of any holders of Preferred Shares, the number of
directors may be determined by the affirmative vote of shareholders holding 75%
of the outstanding voting power or by the affirmative vote of a majority of the
whole authorized number of directors. The number of directors may not be fewer
than three or more than eighteen.
The Board of Directors of Worthington Ohio is divided into three
classes. The election of each class of directors constitutes a separate
election. Directors serve for terms of three years and until their respective
successors are duly elected and qualified, or until their earlier resignation,
removal from office or death. As a result of the classification of the
Worthington Ohio Board, a minimum of two annual meetings of shareholders will be
necessary for a majority of the Board members to stand for election.
ADVANCE NOTIFICATION OF SHAREHOLDER PROPOSALS
The Regulations provide that a shareholder must give advance notice of
any proposal relating to business to be conducted at a meeting. To be timely, a
shareholder's notice must be received at the principal executive offices of
Worthington Ohio not less than 30 days prior to the meeting; however, if less
than 40 days' notice of the meeting is given or made to the shareholders, such
notice must be received no later than the close of business on the tenth day
following the day on which the notice of the meeting was mailed. The
shareholder's notice must set forth in writing as to each matter the shareholder
proposes to bring before the meeting: (1) a brief description of the business to
be brought before the meeting and the reasons for conducting such business at
the meeting; (2) the name and address, as they appear on Worthington Ohio's
books, of the shareholder of record proposing such business; (3) the class and
number of shares of Worthington Ohio that are beneficially owned by such
shareholder; and (4) any material interest of the shareholder in such proposal.
A shareholder will also be required to comply with all applicable requirements
of the Exchange Act and the rules and regulations thereunder governing
shareholder proposals. The determination as to whether the notice provisions
have been met will be made by the chairman of the
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meeting. This provision applies only to new business and not to other reports of
officers, directors or committees of the Board of Directors.
REMOVAL OF DIRECTORS AND FILLING OF VACANCIES
Subject to the rights of holders of Preferred Shares, a director may be
removed from office, with or without cause, by the affirmative vote of the
holders of 75% of the outstanding Voting Stock or for cause, by the affirmative
vote of three-fourths of the directors then in office. Subject to the rights of
holders of Preferred Shares, vacancies in the Board of Directors and any
newly-created directorships resulting from any increase in the number of
directors may be filled by the affirmative vote of a majority of the directors
then in office.
PRE-EMPTIVE RIGHTS
Shareholders of Worthington Ohio do not have pre-emptive rights.
REPURCHASES
Worthington Ohio has the right to repurchase, if and when any
shareholder desires to sell, or on the happening of any event is required to
sell, shares previously issued. However, Worthington Ohio may not repurchase
shares if immediately thereafter its assets would be less than its liabilities
plus its stated capital, if any, or if Worthington Ohio is insolvent or would be
rendered insolvent by such a purchase.
DIVIDEND RIGHTS
Worthington Ohio may pay dividends in an amount which does not exceed
the combination of the surplus of Worthington Ohio and the difference between
(a) the reduction in surplus that results from the immediate recognition of the
transition obligation under Statement of Financial Accounting Standards No. 106
("SFAS No. 106") issued by the Financial Accounting Standards Board and (b) the
aggregate amount of the transition obligation that would have been recognized as
of the date of the declaration of a dividend or distribution if Worthington Ohio
had elected to amortize its recognition of the transition obligation under SFAS
No. 106. No dividend may be paid to the holders of Common Shares in violation of
the rights of holders of Preferred Shares or when Worthington Ohio is insolvent
or there is reasonable ground to believe that by such payment it would be
rendered insolvent. Worthington Ohio must notify its shareholders if a dividend
is paid out of capital surplus.
LIQUIDATION RIGHTS
In the event of any dissolution, liquidation or winding up of the
affairs of Worthington Ohio, the holders of Worthington Ohio Common Shares will
be entitled, after payment or provision for payment in full of the debts and
other liabilities of Worthington Ohio and the amounts to which the holders of
Preferred Shares would be entitled, to share ratably in the remaining assets of
Worthington Ohio available for distribution to its shareholders to the exclusion
of the Preferred Shares (unless otherwise provided by the Board of Directors in
any resolution providing for the issue of a series of Class A Preferred Shares
or of Class B Preferred Shares).
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A. Exhibits -Exhibits.
Exhibit 4 Second Supplemental Indenture2 Agreement of Merger, dated as of December
12, 1997August
20, 1998, between Worthington Industries,
Inc., the CompanyDelaware corporation and
PNC Bank, National Association, as
TrusteeWorthington Industries, Inc., the Ohio
corporation
Exhibit 3(a) Amended Articles of Incorporation
Exhibit 3(b) Code of Regulations
Exhibit 27 Financial Data Schedule
B. Reports on Form 8-K. There were no reports on Form 8-K during
the three months ended November 30, 1997.August 31, 1998.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WORTHINGTON INDUSTRIES, INC.
Date: January 13,October 14, 1998 By: /s/ Donald G. Barger, Jr./s/ JOHN P. MCCONNELL
---------------- -----------------------------------------
Donald G. Barger, Jr.
Vice President-Chief Financial Officer-----------------------
John P. McConnell
Chairman & CEO
By: /s/ Michael/s/ MICHAEL R. Sayre
----------------------------------------SAYRE
-----------------------
Michael R. Sayre
Controller
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