UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended: February 28, 1994 Commission File No. 0-4016
WORTHINGTON INDUSTRIES, INC.
(Exact name of Registrant as specified in its Charter)
DELAWARE
(State of Incorporation)
31-1189815
(I.R.S. Employer Identification No.)
1205 Dearborn Drive, Columbus, Ohio 43085
(Address of Principal Executive Offices) (Zip Code)
(614) 438-3210
(Registrant's Telephone Number, Including Area Code)
Not Applicable
(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, $.01 par value 90,546,732
Class Outstanding March 31, 1994
Page 1 of 12 pages
WORTHINGTON INDUSTRIES, INC.
INDEX
Page
PART I. Financial Information
Consolidated Condensed Balance Sheets -
February 28, 1994 and May 31, 1993. . . . . . . . . . . . . .3
Consolidated Condensed Statements of Earnings -
Three and Nine Months Ended February 28, 1994 and 1993 . . .4
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended February 28, 1994 and 1993. . . . . . . . .5
Notes to Consolidated Condensed Financial Statements. . . . .6
Management's Discussion and Analysis of
Results of Operations and Financial Condition . . . . . . . .9
PART II. Other Information. . . . . . . . . . . . . . . . . . . . . 12
PART I. FINANCIAL INFORMATION
WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands Except Per Share)
(Unaudited)
February 28 May 31
1994 1993
ASSETS
Current Assets
Cash and cash equivalents $20,977 $16,691
Short-term investments 132 898
Accounts receivable - net 170,804 168,855
Inventories
Raw materials 104,543 100,239
Work in process and finished products 62,214 58,748
166,757 158,987
Prepaid expenses and other current assets 24,148 18,082
Total Current Assets 382,818 363,513
Investment in Equity Affiliates 29,492 17,945
Other Assets 23,359 19,359
Property, plant and equipment 523,788 488,921
Less accumulated depreciation 218,317 195,529
Property, Plant and Equipment - net 305,471 293,392
Total Assets $741,140 $694,209
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $88,045 $90,461
Notes payable 6,000
Accrued compensation, contributions to
employee benefit plans and related taxes 30,630 34,546
Dividends payable 8,145 7,810
Other accrued items 9,061 8,974
Income taxes 13,569 3,996
Current maturities of long-term debt 1,163 1,165
Total Current Liabilities 156,613 146,952
Accrued Pension Cost 547 507
Long-Term Debt 54,577 55,626
Deferred Income Taxes 54,210 52,936
Shareholders' Equity
Common shares, $.01 par value 905 601
Additional paid-in capital 84,475 81,250
Minimum pension liability (1,674) (230)
Retained earnings 391,487 356,567
Total Shareholders' Equity 475,193 438,188
Total Liabilities and Shareholders' Equity $741,140 $694,209
See notes to consolidated condensed financial statements.
WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(In Thousands Except Per Share)
(Unaudited)
Three Months Ended Nine Months Ended
February 28 February 28
1994 1993 1994 1993
Net sales $323,130 $275,821 $908,914 $787,177
Cost of goods sold 274,951 232,547 773,615 667,701
Gross Margin 48,179 43,274 135,299 119,476
Selling, general and
administrative expense 18,299 17,793 51,881 49,125
Operating Income 29,880 25,481 83,418 70,351
Interest income 248 221 609 364
Interest expense (697) (840) (2,076) (2,665)
Equity in net income
(loss) of unconsolidated
affiliates 1,862 (1,001) 12,639 2,525
Earnings Before
Income Taxes 31,293 23,861 94,590 70,575
Income taxes 11,553 8,829 35,540 26,113
Net Earnings $19,740 $15,032 $59,050 $44,462
Average Common
Shares Outstanding 90,473 89,884 90,324 89,577
Earnings Per Common
Share $0.22 $0.17 $0.65 $0.50
Cash Dividends
Declared Per Common
Share $0.09 $0.08 $0.27 $0.24
See notes to consolidated condensed financial statements.
WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Nine Months Ended
February 28
1994 1993
OPERATING ACTIVITIES
Net Earnings $59,050 $44,462
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 24,568 21,894
Equity in net income of unconsol. affil. (12,639) (2,525)
Provision for deferred income taxes 8,788 752
Changes in assets and liabilities:
Decrease (increase) in:
Short-term investments 766 46
Accounts receivable (1,949) (691)
Inventories (7,770) (11,395)
Other currents assets (6,066) (5,646)
Investment in of equity affiliates (352) (4,521)
Other assets (4,000) (2,776)
Increase (decrease) in:
Accounts payable and accrued expenses (3,851) 5,342
Accrued pension cost 40 (981)
Net Cash Provided By Operating Activities 56,585 43,961
INVESTING ACTIVITIES
Net Cash Invested in Property,
Plant and Equipment (36,647) (20,188)
FINANCING ACTIVITIES
Net proceeds from short-term borrowings 6,000
Principal payments on long-term debt (1,051) (2,183)
Proceeds from issuance of common shares 3,531 6,300
Repurchase of common shares (27) (2,279)
Dividends paid (24,105) (21,518)
Net Cash Used By Financing Activities (15,652) (19,680)
Increase in cash
and cash equivalents 4,286 4,093
Cash and cash equivalents
at beginning of period 16,691 4,996
Cash and cash equivalents
at end of period $20,977 $9,089
See notes to consolidated condensed financial statements.
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 ad-
justments (consisting of a normal recurring nature) necessary
to present fairly the financial position of Worthington
Industries, Inc. and Subsidiaries (the Company) as of
February 28, 1994 and May 31, 1993; the results of operations
for the three and nine months ended February 28, 1994 and
1993; and the cash flows for the nine months then ended.
The accounting policies followed by the Company are set
forth in Note A to the consolidated financial statements in
the 1993 Worthington Industries, Inc. Annual Report to Share-
holders which is incorporated by reference in the Company's
1993 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. The tax rate increased to 37.6% for the nine
month period ended February 28, 1994 from 37% for the same
period of the prior year reflecting the higher tax rates and
decreased deductions provided by the "Omnibus Budget
Reconciliation Act of 1993," which became law during August
1993. The full impact of the new law was offset somewhat by
permanent differences which became a larger percentage of pre-
tax earnings.
Note C - Earnings Per Share
Earnings per common share for the quarter and nine
months ended February 28, 1994 and 1993 are based on the
weighted average common shares outstanding during each of
the respective periods, after giving effect to the three-for-
two share split which was distributed on October 22, 1993.
Earnings per common share for the previous quarters, adjusted
for the share split and the restatement (see Note E), are as
follows: for the quarters ended August 31, 1993 and 1992,
$.22 and $.16, respectively, and for the quarters ended
November 30, 1993 and 1992, $.21 and $.17, respectively.
Note D - Contingent Liabilities
In March 1993, a trial court in Chicago, Illinois issued
a decision against the Company's subsidiary, Buckeye Steel
Castings Company ("Buckeye") in the amount of approximately
$5.8 million in damages, interest, and attorney's fees and
costs. The dispute involves the infringement of a patent,
which Buckeye believed to be invalid. The patent expired in
1989. Buckeye has appealed the judgment on various issues
which if successful would substantially reduce or eliminate
the amount of the judgment. Management and legal counsel are
presently unable to predict the outcome or to estimate the
amount of any liability Buckeye may ultimately have with
respect to this lawsuit.
The Company is a defendant in certain other legal
actions. In the opinion of management, the outcome of the
above and other actions, which is not clearly determinable at
the present time, would not significantly affect the Company's
consolidated financial position or future operations.
Note E - Investment in Equity Affiliates
The Company's investments in affiliated companies which
are not majority owned or controlled are accounted for using
the equity method. Investments carried at equity and the
percentage interest owned consist of Worthington Specialty
Processing (50%), London Industries, Inc.(60%), Worthington
Armstrong Venture (50%), TWB Company (50%) and Rouge Steel
Company (See Below).
During February 1994, the Company contracted to increase
its voting ownership in Rouge Steel Company. Accordingly, the
Company changed its method of carrying the investment from
cost to equity as required by generally accepted accounting
principles. The financial statements of prior years have been
restated back to December 1989, the date of the original
investment in Rouge. Certain reclassifications were made to
prior year's amounts to conform with the 1994 presentation.
The Company's equity in Rouge for the restatement periods
is shown at 25% interest. After Rouge's initial public
offering (IPO) which commenced March 29, 1994, the Company's
interest will be approximately 28%. The market value of the
Company's investment in Rouge at the IPO price of $22 per
share was approximately $132 million.
The effect of the change was to increase net income for
the quarter by $1.6 million ($.02 per share) and for the nine
months ended February 28, 1994 by $8.7 million ($.09 per
share). The effect on the prior year was to decrease net
income for the quarter by $.7 million ($.00 per share) and
increase net income for the nine months by $1.0 million ($.02
per share).
Financial information for affiliated companies accounted
for by the equity method is as follows:
Quarter Ended Nine Months Ended
February 28, February 28,
1994 1993 1994 1993
Net Sales $317,353 $249,219 $923,015 $773,353
Gross Margin 20,102 4,377 79,674 37,226
Net Income 8,283 (4,245) 50,832 7,728
Note F - Results of Operations
The results of operations for the three and nine months
ended February 28, 1994 and 1993 are not necessarily
indicative of the results to be expected for the full year.
WORTHINGTON INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the three months ended February 28, 1994, net sales
reached a third quarter record of $323.1 million, 17% higher than
the previous record set last year. Record net earnings of $19.7
million and earnings per share of $.22 bettered last year's amounts
by 31% and 29%, respectively.
Records were also set for the first nine months of fiscal
1994. Net sales reached $908.9 million, 15% higher than the
previous year. Net earnings of $59.1 million and earnings per
share of $.65 were 33% and 30% higher, respectively.
The Company increased its ownership of Rouge Steel Company and
changed the method of reporting Rouge from the cost to the equity
method (See Note E, Notes to Consolidated Condensed Financial
Statements). Rouge is a billion dollar steel producer which had
its initial public(IPO) offering on March 29, 1994. The Company
owns approximately 28% of Rouge after the IPO.
The strength in the Company's businesses continues to come in
large part from the core operations, as steel processing and
pressure cylinders are producing strong sales and earnings growth.
Gross margin improved 11% for the quarter, less than the growth in
sales because of start-up inefficiencies on several new jobs for
custom plastics. Operating income improved 17% for the quarter,
in line with sales, as selling, general and administrative expenses
increased only 3%.
Interest expense declined for the quarter and nine months as
a lower average interest rate more than offset higher average debt
outstanding.
Income taxes increased more than earnings for the nine month
period, reflecting the higher tax rates and decreased deductions
provided by the "Omnibus Budget Reconciliation Act of 1993," which
passed in August. The effective tax rate rose to 37.6% for the
nine month period ended February 28, 1994 from 37% for the same
period of the prior year. The full effect of the law's increase
in tax rates was somewhat offset by permanent differences which
became a larger percentage of pre-tax earnings.
Sales and earnings for the processed steel products segment
for the three and nine month periods increased significantly above
those periods in the prior year. The steel processing operations
continued to gain market share and demand remained strong at most
of the locations. The results were achieved despite weather-
related shipping problems that occurred during the quarter. A
portion of the sales increases for both the three and nine month
periods was attributable to higher prices as increases from the
steel mills were generally passed through to customers. The nine
month comparison is also favorable as a strike at the Malvern,
Pennsylvannia plant depressed results for last year's first
quarter. Sales for the pressure cylinder business increased over
the third quarter and first nine months of last year. Earnings
rose at a higher rate. All product lines registered excellent
growth, particularly the largest lines, steel portables and non-
refillables. Customers were building inventory in anticipation of
a strong summer season.
Sales for the custom products segment increased for the
quarter and nine months, but earnings were lower. The plastics
operation has virtually replaced the sales lost when certain car
models were phased out during the summer, but earnings have
continued to lag due to start-up inefficiencies on the new jobs.
Sales volume has been helped by the increase in automobile
production. For the quarter and nine months, precision metal's
sales and earnings increased significantly. Results are tracking
the increased automotive production and productivity on the new
jobs continues to improve.
In the cast products segment, sales increased above the prior
year's third quarter and nine month periods; however, earnings for
the nine months are still behind. Led by strong demand for freight
railcars, steel castings rebounded from weak product demand in the
second quarter, which was impacted by the Midwest flooding, to post
record revenues for the third quarter. Quarterly earnings also
improved despite shipping problems caused by the severe winter
weather. See Note D to the Consolidated Condensed Financial
Statements concerning the contingent liability of the steel
castings operation with respect to certain patent litigation.
Equity in net income(loss) of unconsolidated affiliates
increased dramatically for the quarter and nine month periods.
This is largely as a result of the equity from Rouge Steel which
has benefitted from the present market environment for integrated
steel producers as demand and pricing are very favorable. Start-
up problems at TWB, that have effected the equity in affiliates,
have been largely overcome by the end of the quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial position has strengthened since fiscal
year-end. At February 28, 1994, working capital was $226.2 million
and the current ratio was 2.4:1. Long-term debt was 10% of total
capital.
During the nine months, the Company used $.7 million of its
cash position and $6 million of short-term borrowings to help fund
its cash needs. Cash was also provided by net earnings of $59.1
million and depreciation of $24.6 million expenses. Cash was used
to fund a $7.8 million increase in inventories, a $6.1 million
increase in other current assets, a $3.9 million decrease in
accounts payable and accrued expenses, a $36.6 million net cash
investment in capital expenditures, and $24.1 million of cash
dividends. Accounts payable and accrued expenses have decreased
since fiscal year-end, despite the higher inventory levels, as the
Company has aggressively pursued vendor prepayment discounts. The
increase in inventory occurred largely in the processed steel
products segment, where the amount of inventory rose in
anticipation of higher sales volumes in the fourth quarter and raw
material costs were up reflecting the price increases from the
steel mills.
Days sales in accounts receivable has improved since fiscal
year-end as has inventory turns despite the increased investment
in inventory.
The Company expects its operating results and cash from normal
operating activities to continue to improve during the fourth
quarter. The Company has $40 million in unsecured, short-term
lines of credit available at below the prime rate. Immediate
borrowing capacity plus cash generated from operations should be
more than sufficient to fund expected normal operating costs,
dividends, debt payments and capital expenditures for existing
businesses.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
A. Exhibits - None
B. Reports on Form 8-K.
A Current Report on Form 8-K dated February 28, 1994
was filed to report the acquisition of additional shares
of Rouge Steel Company and the Company's change in its
method of accounting for its investment from the cost to
the equity method.
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: April 13, 1994 By:/s/Donald G. Barger, Jr.
Donald G. Barger, Jr.
Vice President -
Chief Financial Officer