SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended November 30, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
Commission File No. 1-8399
WORTHINGTON INDUSTRIES, INC.
----------------------------
(Exact name of Registrant as specified in its charter)
Ohio 31-1189815
- ------------------------------------------ ------------------------------------
(State of Incorporation) (IRS Employer Identification No.)
1205 Dearborn Drive, Columbus, Ohio 43085
- ------------------------------------------ ------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (614) 438-3210
------------------------------
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the Issuer's
classes of common stock as of the latest practicable date.
As of December 31, 2001, 85,400,225 of the Registrant's common shares,
without par value, were outstanding.
1
WORTHINGTON INDUSTRIES, INC.
INDEX
PAGE
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets -
November 30, 2001 and May 31, 2001.....................................................3
Condensed Consolidated Statements of Earnings -
Three and Six Months Ended November 30, 2001 and 2000..................................4
Condensed Consolidated Statements of Cash Flows -
Six Months Ended November 30, 2001 and 2000............................................5
Notes to Condensed Consolidated Financial Statements...................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.........................................10
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K......................................................16
SIGNATURES ......................................................................................16
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WORTHINGTON INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
NOV. 30, MAY 31,
2001 2001
---------- ----------
ASSETS (UNAUDITED) (AUDITED)
Current Assets
Cash and cash equivalents $ 819 $ 194
Accounts receivable, net 125,946 169,330
Inventories
Raw materials 94,660 102,051
Work in process 62,684 59,735
Finished products 71,829 65,720
---------- ----------
Total Inventories 229,173 227,506
Other current assets 45,870 52,689
---------- ----------
Total Current Assets 401,808 449,719
Investments in Unconsolidated Affiliates 63,991 58,638
Goodwill 76,023 76,439
Other Assets 56,015 54,317
Property, Plant and Equipment 1,227,244 1,201,190
Less Accumulated Depreciation 397,730 364,441
---------- ----------
Property, Plant and Equipment, net 829,514 836,749
---------- ----------
Total Assets $1,427,351 $1,475,862
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 189,949 $ 207,568
Notes payable 5,433 13,794
Current maturities of long-term debt 1,811 1,748
Other current liabilities 78,792 83,509
---------- ----------
Total Current Liabilities 275,985 306,619
Other Liabilities 69,448 69,396
Long-Term Debt 291,829 309,208
Deferred Income Taxes 144,259 140,974
Shareholders' Equity 645,830 649,665
---------- ----------
Total Liabilities and Shareholders' Equity $1,427,351 $1,475,862
========== ==========
See notes to condensed consolidated financial statements.
3
WORTHINGTON INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
------------------------- -------------------------
2001 2000 2001 2000
--------- --------- --------- ---------
Net sales $ 410,379 $ 457,369 $ 819,937 $ 941,593
Cost of goods sold 349,082 400,748 698,643 821,094
--------- --------- --------- ---------
Gross Margin 61,297 56,621 121,294 120,499
Selling, general & administrative expense 41,203 41,975 78,614 83,966
--------- --------- --------- ---------
Operating Income 20,094 14,646 42,680 36,533
Other income (expense):
Miscellaneous expense (1,655) (430) (1,128) (347)
Interest expense (5,688) (9,550) (11,185) (18,907)
Equity in net income of unconsolidated
affiliates 5,081 6,168 9,961 13,204
--------- --------- --------- ---------
Earnings Before Income Taxes 17,832 10,834 40,328 30,483
Income taxes 6,509 3,954 14,720 11,126
--------- --------- --------- ---------
Net Earnings $ 11,323 $ 6,880 $ 25,608 $ 19,357
========= ========= ========= =========
Average Common Shares Outstanding - Diluted 85,775 85,755 85,787 85,755
--------- --------- --------- ---------
Earnings Per Common Share - Basic & Diluted $ 0.13 $ 0.08 $ 0.30 $ 0.23
========= ========= ========= =========
Cash Dividends Declared Per Common Share $ 0.16 $ 0.16 $ 0.32 $ 0.32
========= ========= ========= =========
See notes to condensed consolidated financial statements.
4
WORTHINGTON INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
NOVEMBER 30,
-------------------------
2001 2000
--------- ---------
OPERATING ACTIVITIES:
Net earnings $ 25,608 $ 19,357
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 34,406 35,848
Other adjustments (4,484) (6,563)
Changes in current assets and liabilities 13,562 120,001
--------- ---------
Net Cash Provided by Operating Activities 69,092 168,643
INVESTING ACTIVITIES:
Investment in property, plant and equipment, net (25,147) (32,697)
Proceeds from sale of assets 9,651 719
--------- ---------
Net Cash Used by Investing Activities (15,496) (31,978)
FINANCING ACTIVITIES:
Payments on short-term borrowings (8,361) (103,502)
Proceeds from long-term debt - 482
Principal payments on long-term debt (17,488) (1,228)
Repurchase of common shares - (737)
Dividends paid (27,323) (27,441)
Other 201 (3,841)
--------- ---------
Net Cash Used by Financing Activities (52,971) (136,267)
--------- ---------
Increase in cash and cash equivalents 625 398
Cash and cash equivalents at beginning of period 194 538
--------- ---------
Cash and Cash Equivalents at End of Period $ 819 $ 936
========= =========
See notes to condensed consolidated financial statements.
5
WORTHINGTON INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three and six months
ended November 30, 2001 are not necessarily indicative of the results that may
be expected for the fiscal year ending May 31, 2002 ("fiscal 2002"). For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Worthington Industries, Inc. 2001 Annual Report to
Shareholders and incorporated by reference in the Form 10-K of Worthington
Industries, Inc. for the fiscal year ended May 31, 2001.
NOTE B - INDUSTRY SEGMENT DATA
THREE MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
------------------------- ------------------------
IN THOUSANDS 2001 2000 2001 2000
--------- --------- --------- ---------
NET SALES:
Processed Steel Products $ 275,535 $ 306,578 $ 541,106 $ 624,691
Metal Framing 75,691 89,215 155,237 184,225
Pressure Cylinders 56,063 59,815 117,665 129,791
Other 3,090 1,761 5,929 2,886
--------- --------- --------- ---------
$ 410,379 $ 457,369 $ 819,937 $ 941,593
========= ========= ========= =========
OPERATING INCOME:
Processed Steel Products $ 14,903 $ 5,029 $ 28,441 $ 14,393
Metal Framing 3,261 7,414 9,827 16,441
Pressure Cylinders 2,521 3,172 4,338 8,485
Other (591) (969) 74 (2,786)
--------- --------- --------- ---------
$ 20,094 $ 14,646 $ 42,680 $ 36,533
========= ========= ========= =========
NOV. 30, MAY 31,
2001 2001
---------- ----------
TOTAL ASSETS:
Processed Steel Products $ 885,962 $ 908,090
Metal Framing 237,306 239,890
Pressure Cylinders 165,209 178,866
Other 138,873 149,016
---------- ----------
$1,427,351 $1,475,862
========== ==========
6
NOTE C - COMPREHENSIVE INCOME
The components of comprehensive income are summarized as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
----------------------- -----------------------
IN THOUSANDS 2001 2000 2001 2000
-------- -------- -------- --------
Net income $ 11,323 $ 6,880 $ 25,608 $ 19,357
Cash flow hedges (836) - (2,382) -
Foreign currency translation (423) (1,024) 99 (1,123)
Unrealized loss on investment (3) (14) (49) (52)
-------- -------- -------- --------
Total comprehensive income $ 10,061 $ 5,842 $ 23,276 $ 18,182
======== ======== ======== ========
NOTE D - RESTRUCTURING EXPENSE
During the quarter ended February 28, 2001, the Company recorded a
restructuring expense of $6,474,000, comprised of $4,474,000 for the write-down
of idled assets to net realizable value and $2,000,000 for severance and
employee related costs, including $500,000 for additional pension expenses. The
estimated net realizable value of the equipment being idled of $2,600,000 was
reclassified to other current assets as equipment held for sale. As of November
30, 2001, 151 of the planned 160 employee positions had been eliminated (110
through termination and 41 through attrition and retirement) and cash payments
totaling $1,096,000 had been made against the severance reserve. By the end of
the 2001 calendar year the Company had sold all of the idled equipment and
substantially completed the termination of all employees.
NOTE E - GOODWILL
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible
Assets, effective June 2001. SFAS No. 141 requires the use of the purchase
method of accounting for any business combinations initiated after June 30, 2001
and further clarifies the criteria to recognize intangible assets separately
from goodwill. Under SFAS No. 142, goodwill and indefinite-lived intangible
assets are no longer amortized but are reviewed for impairment. The adoption of
SFAS No. 142 eliminated approximately $360,000 and $720,000 of amortization
expense, respectively, for the three and six month periods ended November 30,
2001. Since the adoption of SFAS No. 142 was not material to the Company's
results of operations, the transitional pro forma disclosures are not presented.
During the six months ended November 30, 2001, the Company performed the
required impairment tests of goodwill. No impairments were indicated. The annual
impairment test will be performed during the fourth quarter of fiscal 2002.
7
Goodwill by segment is summarized as follows:
NOV. 30, MAY 31,
IN THOUSANDS 2001 2001
------- -------
Processed Steel Products $ - $ 17
Metal Framing 57,752 57,752
Pressure Cylinders 17,705 18,104
Other 566 566
------- -------
$76,023 $76,439
======= =======
The goodwill related to Processed Steel Products was written off upon the
adoption of SFAS No. 142. The change in the goodwill balance for Pressure
Cylinders relates to foreign currency translation adjustments.
NOTE F - DERIVATIVES
In June 2001, the Company adopted SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. The Statement requires
derivatives to be carried on the balance sheet at fair value. Derivatives that
are not hedges must be adjusted to fair value through income. If the derivative
is a hedge, depending on the nature of the hedge, changes in the fair value of
the derivative will either be offset against the change in fair value of the
hedged assets, liabilities or firm commitments through earnings, or recognized
in other comprehensive income until the hedged item is recognized in earnings.
The change in a derivative's fair value related to the ineffective portion of a
hedge, if any, will be immediately recognized in earnings. Adoption of SFAS No.
133 resulted in an immaterial cumulative effect adjustment to miscellaneous
expense and an unfavorable adjustment to other comprehensive income of
$1,928,000, net of tax.
Commodity Swap Contracts: The Company is exposed to market risk for
price fluctuations on purchases of steel, natural gas, zinc, nickel and other
raw materials and utility requirements. To limit this exposure, the Company
negotiates the best prices for its commodities and competitively prices its
products and services to reflect the fluctuations in commodity market prices. To
a limited extent, the Company has entered into commodity derivative instruments
(cash flow hedges) to hedge purchases of steel and zinc. The steel hedges mature
at various dates through January 2003, and the zinc hedges mature at various
dates through December 2003. Ineffectiveness has been immaterial for fiscal
2002. The majority of the losses in other comprehensive income will be
reclassified to earnings within 12 months as the commodities are purchased.
Foreign Currency Swap Contracts: The translation of the Company's
foreign operations from local currencies to the U.S. dollar subjects the Company
to exposure related to fluctuating exchange rates. The Company does not use
derivative instruments to manage this risk. However, the Company does make
limited use of forward contracts to manage its exposure on certain intercompany
loans with foreign affiliates. The hedges are 100% effective against the amounts
recorded in the foreign affiliates' foreign currency translation balances in
other comprehensive income.
8
NOTE G - RECENTLY ISSUED ACCOUNTING STANDARDS
In October 2001, the Financial Accounting Standards Board issued SFAS
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This
Statement establishes a single accounting model for the impairment or disposal
of long-lived assets. SFAS No. 144 is effective for fiscal years beginning after
December 15, 2001. Management does not expect the adoption of this Statement
will have a material impact on the financial position or results of operations
of the Company.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Selected statements contained in this Quarterly Report on Form 10-Q, as
filed with the Securities and Exchange Commission (the "SEC"), including,
without limitation, the Management's Discussion and Analysis that follows, that
are not historical fact, constitute "forward-looking statements" that are based
on management's beliefs, estimates, assumptions and currently available
information. These forward-looking statements include, without limitation,
statements relating to future sales and operating results, growth, stock
appreciation, projected capacity levels, pricing trends, anticipated capital
expenditures, plant start-ups, capabilities, new products and markets and other
non-historical information. Because they are based on beliefs, estimates and
assumptions, forward-looking statements are inherently subject to risks and
uncertainties that could cause actual results to differ materially from those
projected. Any number of factors could affect actual results, including, without
limitation, product demand, changes in product mix and market acceptance of
products; changes in pricing or availability of raw materials, particularly
steel; capacity restraints and efficiencies; conditions in major product
markets; delays in construction or equipment supply; financial difficulties of
customers, suppliers and others with whom we do business; the effect of
national, regional and worldwide economic conditions; risks associated with
doing business internationally, including economical, political and social
instability, and foreign currency exposure; acts of war and terrorist
activities; the ability to improve processes and business practices to keep pace
with the economic, competitive and technological environment; the business
environment and impact of governmental regulations, both in the United States
and abroad; and other risks described from time to time in filings with the SEC.
OVERVIEW
Worthington Industries, Inc. is a diversified steel processor that
focuses on value-added steel processing and metals-related businesses. We
operate 43 facilities worldwide, principally in three reportable business
segments: Processed Steel Products, Metal Framing and Pressure Cylinders. We
also hold equity positions in eight joint ventures, which as of November 30,
2001 operated 16 facilities worldwide.
RESULTS FROM OPERATIONS
The following discussion and analysis of financial condition and
results of operations should be read in conjunction with our Condensed
Consolidated Financial Statements included elsewhere in this report. Our Annual
Report on Form 10-K for the fiscal year ended May 31, 2001, includes additional
information about our company, our operations and our financial position, and
should be read in conjunction with this Quarterly Report on Form 10-Q.
SECOND QUARTER - FISCAL 2002 COMPARED TO FISCAL 2001
For the second quarter ended November 30, 2001 (the "second quarter")
of the fiscal year ending May 31, 2002 ("fiscal 2002"), net sales decreased 10%
or $47.0 million to $410.4 million from $457.4 million in the comparable quarter
of the fiscal year ended May 31, 2001 ("fiscal 2001"). The decrease in net sales
primarily was due to weaker demand within the Processed
10
Steel Products and Pressure Cylinders segments and competitive pricing pressure
in Metal Framing and Processed Steel Products. The following provides further
information on net sales by segment:
- Processed Steel Products. Net sales decreased 10% or $31.1
million to $275.5 million for the second quarter of fiscal
2002 from $306.6 million in the comparable quarter of fiscal
2001. The weak demand for steel resulted in lower direct
volumes and reduced sales by $20.5 million. In addition, lower
raw material costs and a shift in product mix to lower value
products caused direct selling prices to decline and reduced
sales by $11.9 million. A $3.2 million increase in toll
processing shipments helped offset the decrease in direct
sales.
- Metal Framing. Net sales of $75.7 million for the second
quarter of fiscal 2002 decreased 15% or $13.5 million from
$89.2 million in the comparable quarter of fiscal 2001. The
economic slowdown and the highly competitive commercial
construction market caused building products selling prices to
fall reducing sales by $13.0 million. In addition, the prior
year quarter included $2.9 million in sales related to our
stainless operation that was closed in December 2000. However,
increases in building products volumes increased sales by $2.4
million.
- Pressure Cylinders. Net sales decreased 6% or $3.7 million to
$56.1 million for the second quarter of fiscal 2002 from $59.8
million in the comparable quarter of fiscal 2001. Volume
decreases reduced sales by $6.3 million, reflecting the
slumping economy and the high inventory levels of certain
major customers. Most product lines were down, including the
two largest - liquefied petroleum gas (LPG) and refrigerant
cylinders. Higher selling prices increased sales by $2.4
million, partially offsetting the overall decrease.
Gross margin on sales increased to 14.9% for the second quarter of
fiscal 2002 from 12.4% for the comparable quarter of fiscal 2001. The depressed
margin in the prior year quarter was the result of higher priced steel and the
inability to increase sales prices. The improvement in the quarter reflects a
relationship between sales prices and material cost which is closer to
historical levels.
Selling, general and administrative ("SG&A") expense decreased 2% or
$0.8 million to $41.2 million for the second quarter of fiscal 2002 from $42.0
million in the comparable quarter of fiscal 2001. This decrease primarily was
due to a $1.7 million favorable legal settlement, a $1.2 million decrease in
professional fees, a $0.5 million decrease in travel & entertainment expenses
and the elimination of $0.4 million of goodwill amortization resulting from the
adoption of SFAS No. 142. This was partially offset by a $3.3 million increase
in bad debt expense reflecting the current economic environment.
Operating income increased 37% or $5.5 million to $20.1 million for the
second quarter of fiscal 2002 from $14.6 million in the comparable quarter of
fiscal 2001. In spite of the overall decrease in net sales, the increase in
operating income was driven by higher margins in the Processed Steel Products
segment. The following provides further information on operating income by
segment:
11
- Processed Steel Products. Operating income of $14.9 million
for the second quarter of fiscal 2002 increased 196% or $9.9
million from $5.0 million in the comparable quarter of fiscal
2001. As mentioned above, the spread between the selling price
and purchase price of steel was depressed in the prior year
quarter. In fiscal 2002, the spread returned to a more
historically normal level on a per ton basis. This improvement
was driven mainly by lower raw material prices and increased
operating income by $9.0 million. Additional savings were
achieved through a $4.5 million decrease in compensation and
benefits expense due to a reduction of 461 employees and lower
expenses due to a $1.7 million legal settlement. Lower volumes
and higher bad debt expense reduced operating income $6.1
million and $1.5 million, respectively.
- Metal Framing. Operating income decreased 56% or $4.2 million
to $3.3 million for the second quarter of fiscal 2002 from
$7.4 million in the comparable quarter of fiscal 2001.
Competitive pressure on the sales price overshadowed an 11%
decrease in the cost of raw material reducing operating income
by $6.3 million. Increased operating costs due to the new
Hawaii and Washington facilities further reduced operating
income by $0.6 million. However, increased volume partially
offset the decreases by $3.4 million.
- Pressure Cylinders. Operating income decreased 21% or $0.7
million to $2.5 million for the second quarter of fiscal 2002
from $3.2 million in the comparable quarter of fiscal 2001.
Despite a $2.9 million improvement in the spread between the
sales price and the cost of raw material, the previously
mentioned depressed sales volumes more than offset the
improvement reducing operating income by $3.9 million.
Interest expense decreased 40% or $3.9 million to $5.7 million for the
second quarter of fiscal 2002 from $9.6 million in the comparable quarter of
fiscal 2001 primarily due to a $121.5 million reduction in debt (see description
in "Liquidity and Capital Resources"). At November 30, 2001, approximately 98%
of our $299.1 million of consolidated debt was at fixed rates of interest.
Equity in net income of unconsolidated affiliates decreased 18% or $1.1
million to $5.1 million for the second quarter of fiscal 2002 from $6.2 million
in the comparable quarter of fiscal 2001. Most of this decline was attributable
to the decrease in sales at WAVE and WSP and the increase in operating expenses
at WAVE.
Our effective tax rate for the second quarter of fiscal 2002 and fiscal
2001 was 36.5%.
YEAR-TO-DATE - FISCAL 2002 COMPARED TO FISCAL 2001
For the first six months of fiscal 2002, net sales decreased 13% or
$121.7 million to $819.9 million from $941.6 million in the comparable period of
fiscal 2001. This decline primarily was volume driven within the Processed Steel
Products and Pressure Cylinders segments and was impacted by lower selling
prices in Metal Framing and Processed Steel Products. The following provides
further information on net sales by segment:
12
- Processed Steel Products. Net sales decreased 13% or $83.6
million to $541.1 million for the first six months of fiscal
2002 from $624.7 million in the comparable period of fiscal
2001. The weak demand for steel resulted in lower direct
volumes and reduced sales by $55.9 million. In addition, lower
raw material costs and a shift in the product mix to lower
value added products reduced direct selling prices, which
decreased sales by $29.0 million. However, an increase in toll
processing volumes partially negated the decrease in direct
sales by $5.3 million.
- Metal Framing. Net sales of $155.2 million for the first six
months of fiscal 2002 decreased 16% or $29.0 million from
$184.2 million in the comparable period of fiscal 2001. The
erosion of sales prices for core building products, brought on
by weak demand and strong competition, resulted in a $23.8
million reduction in net sales. The elimination of the
stainless product line in December 2000 also reduced net sales
by $6.0 million in the current year.
- Pressure Cylinders. Net sales decreased 9% or $12.1 million to
$117.7 million for the first six months of fiscal 2002 from
$129.8 million in the comparable period of fiscal 2001. Lower
volumes, largely due to weak domestic demand for LPG
cylinders, resulted in a $13.2 million reduction in net sales.
Gross margin on sales increased to 14.8% for the first six months of
fiscal 2002 from 12.8% in the comparable period of fiscal 2001. Higher priced
steel and the inability to increase sales prices caused the depressed margin in
the prior year period. As mentioned earlier, the improvement in the first six
months of fiscal 2002 is more representative of our historical relationship
between sales prices and material cost.
SG&A expense decreased 6% or $5.4 million to $78.6 million for the
first six months of fiscal 2002 from $84.0 million in the comparable period of
fiscal 2001. The main reasons for the reduction were lower professional fees of
$2.7 million, a $1.9 million gain on the sale of an airplane, lower depreciation
and amortization of $1.8 million due to less spending and the elimination of
goodwill amortization, a $1.7 million gain related to a legal settlement and
lower travel & entertainment expenses of $0.7 million. The decrease was
partially offset by a $3.8 million increase in bad debt expense.
Operating income increased 17% or $6.2 million to $42.7 million for the
first six months of fiscal 2002 from $36.5 million in the comparable period of
fiscal 2001. Most of this increase is attributable to improved margins in
Processed Steel Products even with the overall decrease in net sales. The
following provides further information on operating income by segment:
- Processed Steel Products. Operating income increased 98% or
$14.0 million to $28.4 million for the first six months of
fiscal 2002 from $14.4 million in the comparable period of
fiscal 2001. Improvement in the spread between the selling
price and the cost of raw material increased operating income
by $22.7 million. Additional savings were achieved through a
$5.7 million decrease in compensation and benefits expense due
to a reduction of 461 employees, lower expenses due to a $1.7
million legal settlement, lower utilities costs (mainly
natural gas) of $1.7 million and lower repair
13
& maintenance expenses of $1.1 million. Lower volumes and
higher bad debt expense reduced operating income $18.5 million
and $2.3 million, respectively.
- Metal Framing. Operating income decreased 40% or $6.6 million
to $9.8 million for the first six months of fiscal 2002 from
$16.4 million in the comparable period of fiscal 2001. The net
impact of lower selling prices and a 19% decline in raw
materials pricing reduced operating income by $10.4 million.
Furthermore, increased expenses related to the new Hawaii and
Washington facilities contributed to a $0.9 million increase
in manufacturing expense. However, increased volumes partially
offset these decreases by $4.8 million.
- Pressure Cylinders. Operating income decreased 49% or $4.2
million to $4.3 million for the first six months of fiscal
2002 from $8.5 million in the comparable period of fiscal
2001. Lower overall sales volumes, in particular the LPG
product line, and higher bad debt expense reduced operating
income by $7.1 million and $1.4 million, respectively. These
decreases were partially offset by a $1.8 million increase in
the spread between the selling price and the cost of raw
materials, caused mainly by lower raw material prices, and
lower compensation and benefits expenses of $1.8 million due
to a reduction of 122 employees.
Interest expense decreased 41% or $7.7 million to $11.2 million for the
first six months of fiscal 2002 from $18.9 million in the comparable period of
fiscal 2001 primarily due to the previously mentioned reduction in debt (see
description in "Liquidity and Capital Resources"). Additionally, our average
interest rate on short-term unsecured notes payable was 3.87% for the first six
months of fiscal 2002 compared to 6.84% for the first six months of fiscal 2001.
Equity in net income of unconsolidated affiliates decreased 25% or
$3.2 million to $10.0 million for the first six months of fiscal 2002 from $13.2
million in the comparable period of fiscal 2001. The main reasons for the
decrease were lower sales at WAVE, WSP and TWB and higher operating expenses at
each joint venture.
Our effective tax rate was 36.5% for the first six months of fiscal
2002 and fiscal 2001.
LIQUIDITY AND CAPITAL RESOURCES
For the first six months of fiscal 2002, we generated $69.1 million in
cash from operating activities, representing a $99.5 million decrease from the
comparable period of fiscal 2001. The decrease primarily was due to the
magnitude of the initial sale of accounts receivable in the prior year (see
description below).
Our investing and financing activities during the first six months of
fiscal 2002 included disbursing $27.3 million in dividends to shareholders,
investing $25.1 million in capital projects and retiring $17.5 million of
long-term debt. These transactions were funded by the cash flows from our
operations and $9.7 million in proceeds from the sale of assets ($7.5 million
for the corporate jet and $2.1 million for the Malvern assets).
14
Capital spending during the first six months of fiscal 2002 included
the following: $11.7 million in our Processed Steel Products segment mainly to
complete the construction of the Clyde facility; $8.2 million in our Metal
Framing segment with spending for the Hawaii and Washington facilities and for
the Design Group; $3.5 million in the Pressure Cylinders segment partly for the
new pressline in Westerville; and $1.8 million mainly in our steel pallet
business for the continued installation of welding equipment.
In November 2000, we entered into a $120.0 million revolving trade
receivables securitization ("TRS") facility with a commercial bank which was
expanded to $190.0 million in May 2001. Under the TRS facility, certain of our
subsidiaries sell their accounts receivable, on a revolving basis, to
Worthington Receivables Corporation ("WRC"), a wholly-owned, bankruptcy-remote
subsidiary. WRC then sells undivided ownership interests in those accounts
receivable to independent third parties. As of November 30, 2001, $110.0 million
of accounts receivable had been sold. The proceeds from these sales have been
used to reduce short-term borrowings.
Consolidated net working capital declined $17.3 million from May 31,
2001 to $125.8 million at November 30, 2001. The decrease was primarily the
result of a reduction in accounts receivable due to lower sales in all segments,
partially offset by a decrease in accounts payable and short-term notes.
We maintain a $190.0 million revolving credit facility (the "Revolver")
with a group of commercial banks, which expires in May 2003, to finance the cash
requirements of our business operations. We had no outstanding borrowings under
the Revolver at November 30, 2001. We also have short-term uncommitted lines of
credit extended by various commercial banks available as needed. Outstanding
borrowings under these uncommitted lines at November 30, 2001 were $5.4 million.
At November 30, 2001, our total debt was $299.1 million compared to
$324.8 million at the end of fiscal 2001 primarily due to the previously
mentioned retirement of long-term debt. As a result, our debt to capital ratio
decreased to 31.7% from 33.3% at the end of fiscal 2001.
From time to time, we engage in discussions with respect to selected
acquisitions, and we expect to continue to assess acquisition opportunities as
they arise. Additional financing may be required if we decide to make additional
acquisitions. There can be no assurance, however, that any such opportunities
will arise, that any such acquisitions will be consummated or that any needed
additional financing will be available on satisfactory terms when required.
Absent any acquisitions, we anticipate that cash flows from operations and
unused short-term borrowing capacity should be more than sufficient to fund
expected normal operating costs, dividends, working capital, and capital
expenditures for our existing businesses.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibits:
None
Reports on Form 8-K:
No reports on Form 8-K were filed during the fiscal quarter ended
November 30, 2001.
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 9, 2002 By: /s/ John T. Baldwin
------------------ ----------------------------------------
John T. Baldwin
Vice President & Chief Financial Officer
(On behalf of the Registrant and as
Principal Financial Officer)
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