Fair Value | 6 Months Ended |
Nov. 30, 2014 |
Fair Value | NOTE P – Fair Value |
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is an exit price concept that assumes an orderly transaction between willing market participants and is required to be based on assumptions that market participants would use in pricing an asset or a liability. Current accounting guidance establishes a three-tier fair value hierarchy as a basis for considering such assumptions and for classifying the inputs used in the valuation methodologies. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair values are as follows: |
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Level 1 | | – | | Observable prices in active markets for identical assets and liabilities. | | | | | | | | | | | | |
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Level 2 | | – | | Observable inputs other than quoted prices in active markets for identical assets and liabilities. | | | | | | | | | | | | |
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Level 3 | | – | | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. | | | | | | | | | | | | |
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Recurring Fair Value Measurements |
At November 30, 2014, our financial assets and liabilities measured at fair value on a recurring basis were as follows: |
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(in thousands) | | Quoted Prices | | | Significant | | | Significant | | | Totals | |
in Active | Other | Unobservable |
Markets | Observable | Inputs |
(Level 1) | Inputs | (Level 3) |
| (Level 2) | |
Assets | | | | | | | | | | | | | | | | |
Derivative contracts (1) | | $ | - | | | $ | 337 | | | $ | - | | | $ | 337 | |
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Total assets | | $ | - | | | $ | 337 | | | $ | - | | | $ | 337 | |
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Liabilities | | | | | | | | | | | | | | | | |
Derivative contracts (1) | | $ | - | | | $ | 6,324 | | | $ | - | | | $ | 6,324 | |
Contingent consideration obligation (2) | | | - | | | | - | | | | 3,979 | | | | 3,979 | |
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Total liabilities | | $ | - | | | $ | 6,324 | | | $ | 3,979 | | | $ | 10,303 | |
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At May 31, 2014, our financial assets and liabilities measured at fair value on a recurring basis were as follows: |
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(in thousands) | | Quoted Prices | | | Significant | | | Significant | | | Totals | |
in Active | Other | Unobservable |
Markets | Observable | Inputs |
(Level 1) | Inputs | (Level 3) |
| (Level 2) | |
Assets | | | | | | | | | | | | | | | | |
Derivative contracts (1) | | $ | - | | | $ | 1,284 | | | $ | - | | | $ | 1,284 | |
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Total assets | | $ | - | | | $ | 1,284 | | | $ | - | | | $ | 1,284 | |
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Liabilities | | | | | | | | | | | | | | | | |
Derivative contracts (1) | | $ | - | | | $ | 4,475 | | | $ | - | | | $ | 4,475 | |
Contingent consideration obligation (2) | | | - | | | | - | | | | 404 | | | | 404 | |
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Total liabilities | | $ | - | | | $ | 4,475 | | | $ | 404 | | | $ | 4,879 | |
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-1 | The fair value of our derivative contracts is based on the present value of the expected future cash flows considering the risks involved, including non-performance risk, and using discount rates appropriate for the respective maturities. Market observable, Level 2 inputs are used to determine the present value of the expected future cash flows. Refer to “Note O – Derivative Instruments and Hedging Activities” for additional information regarding our use of derivative instruments. | | | | | | | | | | | | | | | |
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-2 | The fair value of the Company’s contingent consideration obligations is determined using a probability weighted cash flow approach based on management’s projections of future cash flows of the acquired businesses. The fair value measurements are based on significant inputs not observable in the market and thus represent Level 3 measurements. | | | | | | | | | | | | | | | |
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Non-Recurring Fair Value Measurements |
At November 30, 2014, our financial assets and liabilities measured at fair value on a non-recurring basis were as follows: |
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(in thousands) | | Quoted Prices | | | Significant | | | Significant | | | Totals | |
in Active | Other | Unobservable |
Markets | Observable | Inputs |
(Level 1) | Inputs | (Level 3) |
| (Level 2) | |
Assets | | | | | | | | | | | | | | | | |
Long-lived assets held for sale (1) | | $ | - | | | $ | 21,821 | | | $ | - | | | $ | 21,821 | |
Long-lived assets held and used (2) | | | - | | | | 3,750 | | | | - | | | | 3,750 | |
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Total assets | | $ | - | | | $ | 25,571 | | | $ | - | | | $ | 25,571 | |
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-1 | During the fourth quarter of fiscal 2014, management committed to a plan to sell certain non-core Steel Processing assets. As all of the criteria for classification as assets held for sale were met, the net assets of this business, which consist of net working capital and property, plant and equipment, have been presented separately as assets held for sale in our consolidated balance sheets as of November 30, 2014 and May 31, 2014. In accordance with the applicable accounting guidance, the net assets were recorded at the lower of net book value or fair value less costs to sell as of May 31, 2014. As a result of changes in facts and circumstances related to the planned sale during fiscal 2015, the Company reassessed the fair value of this business and determined that additional impairment charges of $3,050,000 were required for the six months ended November 30, 2014. Fair value of $19,402,000 was determined based on market prices for similar assets. | | | | | | | | | | | | | | | |
During the second quarter of fiscal 2015, management committed to a plan to sell certain non-core Engineered Cabs assets. As all of the criteria for classification as assets held for sale were met, the net assets of the business have been presented separately as assets held for sale in our consolidated balance sheets as of November 30, 2014. In accordance with the applicable accounting guidance, the net assets were recorded at the lower of net book value or fair value less costs to sell, resulting in an impairment charge of $2,389,000 during the three months ended November 30, 2014. Fair value of $2,419,000 was determined based on market prices for similar assets. |
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-2 | During the second quarter of fiscal 2015, we determined that indicators of impairment were present at the Company’s aluminum high-pressure cylinder business in New Albany, Mississippi, due to current and projected operating losses. Recoverability of the identified asset group was tested using future cash flow projections based on management’s long-range estimates of market conditions. The sum of these undiscounted future cash flows was less than the net book value of the asset group. In accordance with the applicable accounting guidance, the net assets were written down to their fair value of $3,750,000, resulting in an impairment charge of $3,221,000 during the three months ended November 30, 2014. | | | | | | | | | | | | | | | |
During the second quarter of fiscal 2015, we determined that indicators of impairment were present at the Company’s military construction business. Recoverability of the identified asset group was tested using future cash flow projections based on management’s long-range estimates of market conditions. The sum of these undiscounted future cash flows was less than the net book value of the asset group. In accordance with the applicable accounting guidance, the net assets were written down to their fair value, resulting in an impairment charge of $1,179,000 during the three months ended November 30, 2014, which represents the remaining book value of the asset group. |
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During the fourth quarter of fiscal 2014, management committed to a plan to sell the Company’s 60%-owned consolidated joint venture in India, Worthington Nitin Cylinders. As all of the criteria for classification as assets held for sale were met, the net assets of the business were presented separately as assets held for sale in our consolidated balance sheet as of May 31, 2014. In accordance with the applicable accounting guidance, the net assets were recorded at the lower of net book value or fair value less costs to sell as of May 31, 2014. As a result of changes in facts and circumstances related to the planned sale of Worthington Nitin Cylinders during the second quarter of fiscal 2015, the Company reassessed the fair value of the business and determined that the remaining book value should be written off resulting in an impairment charge of $6,346,000. |
At May 31, 2014, our assets measured at fair value on a non-recurring basis were categorized as follows: |
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(in thousands) | | Quoted Prices | | | Significant | | | Significant | | | Totals | |
in Active | Other | Unobservable |
Markets | Observable | Inputs |
(Level 1) | Inputs | (Level 3) |
| (Level 2) | |
Assets | | | | | | | | | | | | | | | | |
Long-lived assets held for sale (1) | | $ | - | | | $ | 25,040 | | | $ | - | | | $ | 25,040 | |
Long-lived assets held and used (2) | | | - | | | | 7,034 | | | | - | | | | 7,034 | |
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Total assets | | $ | - | | | $ | 32,074 | | | $ | - | | | $ | 32,074 | |
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-1 | During the fourth quarter of fiscal 2014, management committed to a plan to sell the Company’s 60%-owned consolidated joint venture in India, Worthington Nitin Cylinders. In accordance with the applicable accounting guidance, the net assets were recorded at the lower of net book value or fair value less costs to sell. As the fair value of the asset group, or $5,925,000, was lower than its net book value, an impairment charge of $18,959,000 was recognized within impairment of long-lived assets in our fiscal 2014 consolidated statement of earnings. The portion of this impairment loss attributable to the noncontrolling interest, or $7,583,000, was recorded within net earnings attributable to noncontrolling interest in our fiscal 2014 consolidated statement of earnings. | | | | | | | | | | | | | | | |
During the fourth quarter of fiscal 2014, management committed to plans to sell certain non-core Steel Processing assets. In accordance with the applicable accounting guidance, the net assets were recorded at the lower of net book value or fair value less costs to sell. As the fair value of the asset group, or $19,115,000, was lower than its net book value, an impairment charge of $7,141,000 was recognized within impairment of long-lived assets in our fiscal 2014 consolidated statement of earnings. |
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-2 | During the fourth quarter of fiscal 2014, we determined that indicators of impairment were present at the Company’s aluminum high-pressure cylinder business in New Albany, Mississippi, due to current and projected operating losses. Recoverability of the identified asset group was tested using future cash flow projections based on management’s long-range estimates of market conditions. The sum of these undiscounted future cash flows was less than the net book value of the asset group. In accordance with the applicable accounting guidance, the net assets were written down to their fair value of $7,034,000, resulting in an impairment charge of $1,412,000 within impairment of long-lived assets in our fiscal 2014 consolidated statement of earnings. | | | | | | | | | | | | | | | |
The fair value of non-derivative financial instruments included in the carrying amounts of cash and cash equivalents, receivables, notes receivable, income taxes receivable, other assets, accounts payable, short-term borrowings, accrued compensation, contributions to employee benefit plans and related taxes, other accrued items, income taxes payable and other liabilities approximate carrying value due to their short-term nature. The fair value of long-term debt, including current maturities, based upon models utilizing market observable (Level 2) inputs and credit risk, was $711,589,000 and $674,488,000 at November 30, 2014 and May 31, 2014, respectively. The carrying amount of long-term debt, including current maturities, was $674,874,000 and $655,963,000 at November 30, 2014 and May 31, 2014, respectively. |