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, 1997 Commission File No. 0-4016
WORTHINGTON INDUSTRIES, INC.
___________________________________________________________
(Exact name of Registrant as specified in its Charter)
DELAWARE 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
________________________________________________________
(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 96,624,973
____________________________ __________________________
Class Outstanding March 31, 1997
Page 1 of 12
WORTHINGTON INDUSTRIES, INC.
INDEX
Page
PART I. Financial Information
Consolidated Condensed Balance Sheets -
February 28, 1997 and May 31, 1996.........................................3
Consolidated Condensed Statements of Earnings -
Three and Nine Months Ended February 28, 1997 and February 29, 1996........4
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended February 28, 1997 and February 29, 1996..................5
Notes to Consolidated Condensed Financial Statements.......................6
Management's Discussion and Analysis of
Results of Operations and Financial Condition..............................8
PART II. Other Information..................................................12
-2-
PART I. FINANCIAL INFORMATION
WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands, Except Per Share)
February 28 May 31
1997 1996
ASSETS (Unaudited) (Audited)
Current Assets
Cash and cash equivalents $ 2,763 $ 17,580
Accounts receivable - net 270,108 244,256
Raw materials 185,151 130,839
Work in process and finished products 101,081 85,320
----------- -----------
Inventories 286,232 216,159
Prepaid expenses and other current assets 21,205 27,109
----------- -----------
Total Current Assets 580,308 505,104
Investment in Unconsolidated Affiliates 46,598 138,212
Intangible Assets 98,747 65,256
Other Assets 127,189 29,800
Property, plant and equipment 989,535 848,775
Less accumulated depreciation 336,406 304,723
----------- -----------
Property, Plant and Equipment - net 653,129 544,052
----------- -----------
Total Assets $ 1,505,971 $ 1,282,424
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 97,389 $ 88,718
Notes payable 142,100
Accrued compensation, contributions to
employee benefit plans and related taxes 36,116 39,217
Dividends payable 11,591 10,901
Other accrued items 19,947 18,454
Income taxes 6,625 7,820
Current maturities of long-term debt 1,980 2,475
----------- -----------
Total Current Liabilities 315,748 167,585
Other Liabilities 18,949 17,912
Long-Term Debt 360,913 315,522
Deferred Income Taxes 112,092 114,087
Shareholders' Equity
Common shares, $.01 par value 966 965
Additional paid-in capital 108,401 106,079
Unrealized loss on investment (3,126)
Foreign currency translation (1,593) (1,437)
Retained earnings 593,621 561,711
----------- -----------
Total Shareholders' Equity 698,269 667,318
----------- -----------
Total Liabilities and Shareholders' Equity $ 1,505,971 $ 1,282,424
=========== ===========
See notes to consolidated condensed financial statements.
-3-
WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(In Thousands Except Per Share)
(Unaudited)
Three Months Ended Nine Months Ended
Feb. 28 Feb. 29 Feb. 28 Feb. 29
1997 1996 1997 1996
--------- --------- ----------- -----------
Net sales $ 486,551 $ 386,454 $ 1,375,192 $ 1,107,966
Cost of goods sold 418,312 325,226 1,177,910 939,399
--------- --------- ----------- -----------
Gross Margin 68,239 61,228 197,282 168,567
Selling, general & administrative expense 33,166 25,861 89,723 69,735
--------- --------- ----------- -----------
Operating Income 35,073 35,367 107,559 98,832
Other income (expense):
Miscellaneous income 354 478 1,083 908
Interest expense (4,386) (1,919) (11,623) (4,795)
Equity in net income of unconsolidated
affiliates 3,525 4,683 9,293 24,561
--------- --------- ----------- -----------
Earnings Before Income Taxes 34,566 38,609 106,312 119,506
Income taxes 12,749 14,550 39,867 45,111
--------- --------- ----------- -----------
Net Earnings $ 21,817 $ 24,059 $ 66,445 $ 74,395
========= ========= =========== ===========
Average Common Shares Outstanding 96,570 96,452 96,530 96,485
Earnings Per Common Share $ .23 $ .25 $ .69 $ .77
--------- --------- ----------- -----------
Cash Dividends Declared
Per Common Share $ .12 $ .11 $ .36 $ .33
--------- --------- ----------- -----------
See notes to consolidated condensed financial statements.
-4-
WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands, Unaudited)
Nine Months Ended
Feb. 28 Feb. 29
1997 1996
------- -------
Operating Activities
Net earnings $ 66,445 $ 74,395
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 40,209 30,054
Deferred income taxes (312) 6,652
Equity in undistributed net income
of unconsolidated affiliates (5,141) (21,477)
Changes in assets and liabilities:
Current assets (64,696) 34,914
Other assets (647) (945)
Current liabilities (6,348) (3,001)
Other liabilities 1,232 (191)
--------- ---------
Net Cash Provided By Operating Activities 30,742 120,401
Investing Activities
Investment in property, plant and equipment, net (124,679) (87,397)
Acquisitions, net of cash acquired (69,942) (169,391)
Investment in unconsolidated affiliates (5,424) (8,310)
--------- ---------
Net Cash Used By Investing Activities (200,045) (265,098)
Financing Activities
Proceeds from (payments on) short-term borrowings 142,100 155,600
Proceeds from long-term debt 63,469 45,550
Principal payments on long-term debt (19,326) (18,660)
Proceeds from issuance of common shares 2,156 2,275
Repurchase of common shares (1,211) (4,024)
Dividends paid (32,702) (29,975)
--------- ---------
Net Cash Provided By Financing Activities 154,486 150,766
--------- ---------
Increase (decrease) in cash and cash equivalents (14,817) 6,069
Cash and cash equivalents at beginning of period 17,580 1,893
--------- ---------
Cash and cash equivalents at end of period $ 2,763 $ 7,962
========= =========
See notes to consolidated condensed financial statements.
-5-
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 a normal recurring nature) necessary to present fairly
the financial position of Worthington Industries, Inc. and Subsidiaries
(the Company) as of February 28, 1997 and May 31, 1996; the results of
operations for the three and nine months ended February 28, 1997 and
February 29, 1996, and cash flows for the nine months ended February 28,
1997 and February 29, 1996.
The accounting policies followed by the Company are set forth in
Note A to the consolidated financial statements in the 1996 Worthington
Industries, Inc. Annual Report to Shareholders which is incorporated by
reference in the Company's 1996 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 nine months ended
February 28, 1997 and February 29, 1996 are based on the weighted
average common shares outstanding during each of the respective periods.
Note D - Results of Operations
The results of operations for the three and nine months ended
February 28, 1997 are not necessarily indicative of the results to be
expected for the full year.
Note E - Accounting Change
During the first quarter ended August 31, 1996, the Company took
certain steps relative to its investment in Rouge Steel which resulted
in the Company accounting for this investment on the cost method instead
of the equity method. As a result, after May 31, 1996, the Company's
equity share of Rouge earnings is no longer included in reported
earnings or earnings per share. The investment in Rouge common stock has
been reclassified to other assets and adjusted to market value as an
"available-for-sale" security with a net of tax adjustment to
shareholder's equity.
-6-
Note F - Acquisitions
On December 3, 1996, the Company acquired the net assets of
Plastics Manufacturing, Inc. (PMI) in a business combination accounted
for as a purchase. PMI is a manufacturer of plastic injection molded and
thermoformed parts. The results of operations for PMI are included in
the financial statements of the Company since the date of acquisition.
Proforma results including PMI since the beginning of the earliest
period presented would not be materially different than actual results.
During February 1997, the Company acquired The Gerstenslager
Company (Gerstenslager) in a business combination accounted for as a
pooling of interests. Gerstenslager was primarily owned by JMAC, Inc.,
an investment company which John H. McConnell, Chairman Emeritus and
John P. McConnell, Chairman and CEO of the Company, are the principle
shareholders, is a producer of aftermarket automotive body panels in the
United States. All of the stock of Gerstenslager was exchanged for
5,675,000 shares of the Company. The Board of Directors of the Company
received an opinion from an independent party attesting to the fairness
of this consideration. All financial statements of the Company have been
restated to include Gerstenslager. Sales and net income for
Gerstenslager for the periods presented are as follows:
Three Months Ended Nine Months Ended
Feb. 28 Feb. 29 Feb. 28 Feb. 29
($000) 1997 1996 1997 1996
------ -------- -------- -------- -------
Net sales $32,533 $26,230 $89,353 $67,462
Net income $ 2,973 $ 3,163 $ 7,485 $ 5,803
Note G - Subsequent Event
During March 1997, the Company issued approximately $93 million
of three year notes exchangeable into Class A Common Stock of Rouge
Steel Company in the form of DECS (SM) (Debt Exchangeable for Common
Stock (SM)). The DECS have an interest rate of 7.25% and are due March
1, 2000. At maturity, holders of the DECS will receive in exchange for
the principle amount of the notes, shares of Rouge Steel held by the
Company (or at the Company's option, cash in lieu of the shares). It is
the Company's intention to settle the majority of the DECS using Rouge
shares. The number of Rouge shares (or the amount of cash to be paid)
will be based upon the price of Rouge Steel Class A Common Stock shortly
before the maturity of the DECS. If the value of Rouge stock increases
to a certain point the DECS liability would increase, partially
offsetting the market value increase in the stock included in other
assets. Because the stock is considered an "available for sale" security
a net of tax adjustment to shareholder's equity will be made for the net
change both in stock value and the carrying amount of the DECS
liability. The Company used the net proceeds from the DECS offering to
pay down short-term notes payable and to partially fund the Spartan
Steel joint venture.
-7-
WORTHINGTON INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the three months ended February 28, 1997, net sales of $486.6
million were 26% higher than in last year's third quarter. Net earnings were
$21.8 million and earnings per share were $.23. Comparisons with last year's
third quarter are discussed below. These results and results from comparable
periods in fiscal 1996 include Gerstenslager, which was acquired in February
1997 through a pooling of interests.
For the first nine months of fiscal 1997, net sales were $1.375 billion,
24% higher than in the same period last year. Net earnings were $66.4 million
and earnings per share were $.69. Comparisons with last year's first nine
month's are discussed below.
During the first quarter ended August 31, 1996, the Company took certain
steps relative to its investment in Rouge Steel, which resulted in the Company
accounting for this investment on the cost method instead of the equity method.
As a result, after May 31, 1996, the Company's equity share of Rouge's earnings
is no longer included in reported earnings or earnings per share. The Company
believes that to appropriately compare periods, fiscal 1996 results should be
adjusted to eliminate the impact of Rouge equity earnings.
In the third quarter of fiscal 1996, Rouge contributed $.02 to the
Company's reported earnings per share of $.25, and the steel, plastics, castings
and joint venture businesses contributed $.23 per share. This year's third
quarter earnings per share of $.23 (which does not include Rouge equity earnings
because of the accounting change), were equal to last year's results, excluding
Rouge, of $.23 per share.
In the first nine months of fiscal 1996, Rouge contributed $.13 to the
Company's reported earnings per share of $.77, and the steel, plastics, castings
and joint venture businesses contributed $.64 per share. This year's first nine
months earnings per share of $.69 (which does not include Rouge equity earnings
because of the accounting change), were 8% higher than last year's results,
excluding Rouge, of $.64 per share.
The sales increase for the quarter was driven by volume increases in
steel processing, automotive body panels and cylinders, and the acquisitions of
the metal framing business, PMI and SCM Technologies. The sales increase for the
nine months principally reflects the inclusion of the metal framing business and
PMI and volume increases in automotive body panels and cylinders. Earnings for
the quarter were impacted by weaker than expected results in the metal framing
business and the Malvern steel processing facility offset by improvement in
cylinders and plastics. For the nine months, earnings increases for automotive
body panels, cylinders and plastics offset lower results from cast products.
-8-
Gross margin was up 11% for the quarter and 17% for the nine months.
Gross margin as a percentage of sales for the quarter was 14.0% (15.8% last
year) and for the nine months was 14.3% (15.2% last year). Material, labor and
overhead costs were higher for the quarter and nine months due to the inclusion
of the metal framing business for the full periods and only one month last year.
The acquisition of PMI also increased costs for the quarter.
Selling, general and administrative expense increased 28% for the
quarter and 29% for the nine months due mostly to the inclusion of expenses for
acquisitions in the current year and not in the prior year. As a percent of
sales, this expense for the quarter was 6.8% (6.7% last year) and for the nine
months was 6.5% (6.3% last year). Operating income was 1% lower for the quarter
and 9% higher for the nine month period. As a percentage of sales, operating
income was 7.2% for the quarter (9.2% last year) and 7.8% for the nine months
(8.9% last year).
Interest expense increased 129% for the three months and 142% for the
nine months. Average debt outstanding increased due to the acquisitions of the
metal framing business and PMI, and higher levels of capital expenditures. The
Company capitalized interest of $2,027,000 ($410,000 last year) during the
quarter and $4,924,000 ($1,420,000 last year) for the nine months. Overall,
interest expense is expected to continue to increase as the Company continues to
fund its growth through debt financing.
Equity in net income of unconsolidated affiliates was down 25% for the
quarter and 62% for the nine months because of the elimination of equity
earnings from the investment in Rouge due to the accounting change discussed
above. Excluding Rouge, equity in net income from unconsolidated affiliates was
up 99% for the quarter and 90% year-to-date. Equity from Worthington Armstrong
Venture and Acerex were up significantly for both periods on increased volume.
Income taxes decreased more than pre-tax earnings for both the three and
nine month periods as the effective tax rate was 36.9% and 37.5%, respectively,
due to lower state taxes.
The processed steel products segment posted record sales for both
periods due to the inclusion of the metal framing business and increased volume
for auto body panels and cylinders. Steel processing shipments improved from
both periods last year; however, operating margins were lower due to weak
performance at the Malvern, Pennsylvania plant, which is replacing its
electro-zinc plating line with added nickel plating capacity, and the start-up
of the Delta, Ohio facility. Pressure cylinder's sales and operating income for
-9-
both periods were up because of increased volume for heating tanks and high
pressure cylinders and the acquisition of SCM. During the quarter, the Company
formed a joint venture with three major gas distributors in Brazil to produce
pressure cylinders in that country. The metal framing business, although it
contributed to the increased sales and operating income for the segment, had
weaker than expected results due to selling price pressure and increased raw
material costs. The auto body panel business experienced increased volume for
both periods and contributed higher operating income for the nine months.
Sales and operating income for the custom products segment were up for
both the third quarter and nine months. The plastics operation increased sales
and earnings as it benefited from higher volume on its automotive contracts and
the acquisition of PMI. Precision Metals profits increased above last year for
the quarter, but remained lower for the nine months.
The cast products segment continues to suffer from lower volume as both
sales and operating income were down for the quarter and nine months. Higher
industrial casting volume was more than offset by lower railroad and mass
transit sales.
LIQUIDITY AND CAPITAL RESOURCES
At February 28, 1997, the Company's current ratio was 1.8:1, down from
3.0:1 at May 31, 1996, due to an increase in short-term debt of $142 million.
Long-term debt as a percentage of total capital increased to 34% from 32% and
total debt to capital increased to 42% from 32% as the Company continued its
planned growth mostly with debt financing. Working capital was $264.6 million,
38% of the Company's total net worth, down from 51% at May 31, 1996 mainly due
to a $142 million increase in short-term debt.
During the nine months, the Company's cash position decreased by $14.8
million. Cash provided by operating activities was $30.7 million. Cash flow from
earnings increased compared to last year's nine months; however, a $64.7 million
increase in inventories reduced cash provided by operations below last year.
Inventory levels have increased in anticipation of pending raw material price
increases and to support the higher sales levels. Capital expenditures,
investments in affiliates and amounts spent for acquisitions of $200 million and
dividends paid of $32.7 million were funded in part from $142 million of
short-term debt and an increase in net long-term debt of $44 million. Capital
expenditures were up 42% over last year and will continue at high levels with
the construction of the Decatur, Alabama steel processing plant, the new nickel
plating line at the Malvern plant, and funding of the Spartan Steel joint
venture.
-10-
The Company expects its operating results and cash from normal
operating activities to improve during the fourth quarter. As in the first nine
months of the year, additional borrowings may be needed to support anticipated
capital expenditures. Uncommitted short-term lines of credit were used to
finance the PMI acquisition. Immediate borrowing capacity plus cash generated
from operations will be more than sufficient to fund expected normal operating
cash needs, dividends, debt payments and capital expenditures for existing
businesses.
During March 1997, the Company issued approximately $93 million
of three year notes exchangeable into Class A Common Stock of Rouge Steel
Company in the form of DECS (SM) (Debt Exchangeable for Common Stock (SM)). The
Company used the net proceeds from the DECS offering to pay down short-term
notes payable and to partially fund the Spartan Steel joint venture. Since the
DECS obligation can be settled with either Rouge stock, cash or a combination of
both, for debt/capitalization purposes the Company does not consider the DECS as
debt. These securities were issued as a part of the $450 million "shelf"
registration filed during fiscal 1996, of which $157 million remains unissued at
February 28, 1997.
FORWARD-LOOKING INFORMATION
This document contains various forward-looking statements based
on assumptions made by and information currently available to management. When
used in this document, the words "expect," "believe," "estimate," "project" and
similar expressions are intended to identify forward-looking statements. The
Company wishes to ensure that such statements are accompanied by meaningful
cautionary statements pursuant to the safe harbor established in the Private
Securities Litigation Reform Act of 1995. Such statements are subject to certain
risks, uncertainties and assumptions including those identified in this section.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those expected, believed, estimated or projected. Additionally, new risk factors
may emerge from time to time and management cannot predict such risk factors,
nor can it assess the impact, if any, of such risk factors on the Company's
business or the extent to which any factor, or combination of factors, may cause
actual results to differ materially from those projected in any forward-looking
statements.
-11-
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
A. Exhibits - Exhibit 27 Financial Data Schedule
B. Reports on Form 8-K. There were no reports on Form 8-K during the three
months ended February 28, 1997.
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 14, 1997 By: /s/Donald G. Barger, Jr.
__________________________________
Donald G. Barger, Jr.
Vice President-Chief Financial Officer
By: /s/Michael R. Sayre
__________________________________
Michael R. Sayre
Controller
-12-