UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended May 31, 2002
OR
[ ] 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
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(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
1205 Dearborn Drive, Columbus, Ohio 43085
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (614) 438-3210
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Securities Registered Pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE
ON WHICH REGISTERED
Common Shares, Without Par Value New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: NONE
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Based upon the closing price of the Common Shares on August 1, 2002, as reported
on the New York Stock Exchange composite tape (as reported by The Wall Street
Journal), the aggregate market value of the Common Shares held by non-affiliates
of the Registrant as of such date was approximately $1,198,743,875.
The number of Common Shares issued and outstanding as of August 1, 2002, was
85,596,365.
DOCUMENTS INCORPORATED BY REFERENCE
Selected portions of the Registrant's 2002 Proxy Statement, to be furnished to
shareholders of the Registrant in connection with the Annual Meeting of
Shareholders to be held on September 26, 2002, are incorporated by reference
into Part III of this Form 10-K to the extent provided herein.
TABLE OF CONTENTS
Safe Harbor Statement............................................................................................ii
Part I.
Item 1. Business........................................................................................1
Item 2. Properties......................................................................................6
Item 3. Legal Proceedings...............................................................................7
Item 4. Submission of Matters to a Vote of Security Holders.............................................7
Supplemental
Item. Executive Officers of the Registrant............................................................8
Part II.
Item 5. Market For Registrant's Common Equity and Related Shareholder Matters..........................10
Item 6. Selected Financial Data........................................................................11
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................................................12
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.....................................20
Item 8. Financial Statements and Supplementary Data....................................................21
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure...........................................................................42
Part III.
Item 10. Directors and Executive Officers of the Registrant.............................................42
Item 11. Executive Compensation.........................................................................42
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Shareholder Matters............................................................................42
Item 13. Certain Relationships and Related Transactions.................................................43
Part IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...............................43
Signatures ...........................................................................................44
Index to Exhibits ..........................................................................................E-1
i
SAFE HARBOR STATEMENT
Selected statements contained in this Annual Report on Form 10-K
constitute "forward-looking statements" as used in Private Securities Litigation
Reform Act of 1995. Such forward-looking statements are based, in whole or in
part, on management's beliefs, estimates, assumptions and currently available
information and can be identified by the words "will", "may", "designed to",
"outlook", "believes", "should", "plans", "expects", intends", "estimates" and
similar expressions. These forward-looking statements include, without
limitation, statements relating to:
- future sales, operating results and earnings per share;
- projected capacity levels and operating locations;
- pricing trends for raw materials and finished goods;
- anticipated capital expenditures;
- projected timing, results, costs, charges and expenditures
related to plant shutdowns & consolidations;
- new products and markets; and
- other non-historical trends.
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;
- fluctuations in pricing, quality or availability of raw
materials, particularly steel;
- effects of plant closures and the consolidation of operations and
our ability to realize expected cost savings and operational
efficiencies on a timely basis;
- our ability to integrate newly acquired businesses with current
businesses;
- capacity restraints and efficiencies within our facilities and
within the industry as a whole;
- financial difficulties of customers, suppliers and others with
whom we do business;
- the effect of national, regional and worldwide economic
conditions within our major product markets as well as generally;
- 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 impact of governmental regulations, both in the United States
and abroad; and
- other risks described from time to time in our filings with the
Securities and Exchange Commission.
ii
PART I
ITEM 1. - BUSINESS
GENERAL OVERVIEW
Worthington Industries, Inc., an Ohio corporation (individually the
"Registrant" or "Worthington Industries" or, together with its subsidiaries,
"Worthington"), headquartered in Columbus, Ohio, is a leading diversified metal
processing company. We focus on value-added steel processing and manufactured
metal products such as automotive past model service stampings, pressure
cylinders and metal framing and, through joint ventures, metal ceiling grid
systems and laser welded blanks. Worthington was founded in 1955 and has grown
from a single steel slitting line into a diversified metal processor, which as
of May 31, 2002, operated 43 facilities worldwide and held equity positions in
seven joint ventures, which operated 16 facilities worldwide.
For the fiscal year ended May 31, 2002 ("fiscal 2002"), our operations
are reported principally in three business segments: Processed Steel Products,
Metal Framing and Pressure Cylinders. The Processed Steel Products segment
includes the Worthington Steel business unit ("Worthington Steel") and the
Gerstenslager business unit ("Gerstenslager"). The Metal Framing segment is
comprised of the Dietrich Metal Framing business unit ("Dietrich") and the
Pressure Cylinders segment consists of the Worthington Cylinder business unit
("Worthington Cylinders"). In addition, we hold an equity position in seven
joint ventures, which are described below, two of which are consolidated into
our consolidated financial statements included in "Item 8. - Financial
Statements and Supplementary Data." During fiscal 2002, our Processed Steel
Products, Metal Framing and Pressure Cylinders segments served over 1,200, 3,700
and 2,400 customers, respectively, located primarily in the United States.
Foreign sales account for less than 10% of consolidated net sales and are
comprised primarily of sales to customers in Canada and Europe. No single
customer accounts for over 10% of our consolidated net sales.
In January 2002, we announced a consolidation plan (the "Consolidation
Plan") that impacts eight operating facilities across our three business
segments. The Consolidation Plan calls for the closure of the Malvern,
Pennsylvania, and Jackson, Michigan, Processed Steel Products locations, the
Fredericksburg, Virginia, Metal Framing operation and the Claremore, Oklahoma,
and two Itu, Brazil, Pressure Cylinders locations. We will move the
Fredericksburg Metal Framing operations into the Worthington Steel Rock Hill
facility. Finally, operations at the Worthington Steel Louisville, Kentucky,
facility will be restructured to reduce overhead costs. A more detailed
discussion of the Consolidation Plan is contained in "Item 7. - Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Results of Operations" within this Form 10-K.
In February 2002, Dietrich joined with MiTek Industries, Inc. ("MiTek")
to form Aegis Metal Framing, LLC ("Aegis"), an unconsolidated joint venture in
which we have a 60% interest and MiTek has a 40% interest. Aegis combines the
manufacturing and distribution capabilities of our Metal Framing segment with
the software, engineering and marketing functions of MiTek's Metal Framing
Systems division. A more detailed discussion of our Aegis joint venture is
contained below in "Item 1. - Business - Metal Framing" and "Item 7. -
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations."
On July 31, 2002, Worthington acquired all of the outstanding capital
stock of Unimast Incorporated ("Unimast") from WHX Corporation for approximately
$113 million in cash plus the assumption of approximately $9 million of debt.
Our acquisition of Unimast adds capacity for our existing products, broadens our
current product line to include Unimast's complementary products and introduces
new products to the Metal Framing segment, including metal corner bead and trim
and vinyl construction accessories. Together with its subsidiaries, Unimast
operates 10 facilities and, for the calendar year ended December 31, 2001,
produced revenue of approximately $230 million. The operations of Unimast and
its subsidiaries will be reported in our Metal Framing segment. See "Item - 1. -
Business - Metal Framing." See also, "Item 8. - Financial Statements and
Supplementary Data - Notes to Consolidated Financial Statements - Note Q -
Subsequent Event."
PROCESSED STEEL PRODUCTS
Our Processed Steel Products segment consists of two business units,
Worthington Steel and Gerstenslager. For fiscal 2002, the fiscal year ended May
31, 2001 ("fiscal 2001") and the fiscal year ended May 31, 2000 ("fiscal 2000"),
the percentage of sales from continuing operations generated by our Processed
Steel Products segment was 64.9%, 64.9% and 65.6%, respectively.
Both Worthington Steel and Gerstenslager are intermediate processors of
flat-rolled steel. Worthington Steel occupies a niche in the steel industry by
focusing on products requiring exact specifications. These products typically
cannot be supplied as efficiently by steel mills, metal service centers or steel
end users. We believe that Worthington Steel is one of the largest independent
flat-rolled steel processors in the United States. Gerstenslager is a leading
independent supplier of automotive quality exterior body panels to the North
American automotive original equipment and past model service markets. It is
unique in its ability to handle a large number of low volume past model service
automotive body parts. Our newest Processed Steel Products facility, a
Gerstenslager facility, is located in Clyde, Ohio, and began production in
October 2001.
As of May 31, 2002, our Processed Steel Products segment operated 14
facilities, including Spartan Steel Coating, L.L.C., our consolidated joint
venture with Rouge Steel Company. Giving effect to the Consolidation Plan,
Processed Steel Products will operate 11 facilities, as the Malvern,
Pennsylvania, and Jackson, Michigan, plants will be closed and the Rock Hill,
South Carolina, facility will become a Metal Framing facility. A more detailed
discussion of the Consolidation Plan is set forth below in "Item 7. -
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations." Our Processed Steel Products facilities are
concentrated in the Michigan, Ohio and Indiana market. We serve over 1,200
customers from these facilities, principally in the automotive, construction,
lawn and garden, hardware, furniture, office equipment, electrical control,
tubing, leisure and recreation, appliance, farm implement, HVAC and container
markets.
Worthington Steel buys coils of wide, open-tolerance steel from major
integrated steel mills and mini-mills and processes them to the precise type,
thickness, length, width, shape, temper and surface quality required by customer
specifications. Our computer-aided processing capabilities include, among
others:
- pickling, a chemical process using an acidic solution to remove
surface oxide which develops on hot-rolled steel;
- slitting, which cuts steel to specific widths;
- cutting-to-length, which flattens steel and cuts it to exact
lengths;
- roller leveling, a method of applying pressure to achieve precise
flatness tolerances for steel which is cut into exact lengths;
- cold reduction, which achieves close tolerances of thickness and
temper by rolling;
- edge rolling, which conditions the edges of the steel by
imparting round, smooth or knurled edges;
- configured blanking, by which steel is cut into specific shapes;
- CleanCoat(TM), a dry lubrication process;
- hot-dipped galvanizing, which coats steel with zinc and zinc
alloys through a hot-dipped process; and
- annealing, a thermal process that changes the hardness and
certain metallurgical characteristics of steel.
Worthington Steel also "toll processes" steel for steel mills, large
end users, service centers and other processors. Toll processing is different
from our typical steel processing because the mill or end user retains title to
the steel and has the responsibility for selling the end product. Toll
processing enables Worthington to participate in the market for wide sheet steel
and large standard orders, which is a market generally served by steel mills
rather than by intermediate steel processors.
Gerstenslager stamps, assembles, primes and packages exterior
automotive body parts and panels. We primarily purchase the steel used in our
Gerstenslager operations but occasionally process consigned material, similar to
toll processing. Gerstenslager processes a large number of low volume past model
service parts, managing over 3,000 finished good part numbers and over 25,000
die/fixture sets for component parts on past and current year automobile and
truck production models.
2
The Processed Steel Products industry is fragmented and highly
competitive. We compete with many other independent intermediate processors and,
with respect to automotive stamping, captive processors owned by the automotive
companies, independent tier one suppliers of current model components and a
number of smaller competitors. We compete primarily on the basis of product
quality, our ability to meet delivery requirements and price. The quality of our
products is enhanced by our technical service and support for material testing
and customer specific applications. However, we have not quantified the extent
to which our technical service capability has improved our competitive position.
See "Item 1 - Business - Technical Services." We believe that our ability to
meet tight delivery schedules is, in part, based on the proximity of our
facilities to customers and to one another. Again, we have not quantified the
extent to which plant location has impacted our competitive position. Our
processed steel products are priced competitively, primarily based on market
factors including, among other things, the cost and availability of raw
material, transportation and shipping costs and overall economic conditions in
the United States and abroad.
Other than our "Worthington Steel" trade name, the only other
intellectual property of importance to the Processed Steel Products segment is
the unregistered trademark "CleanCoat", which is used in connection with our dry
lubrication process. While the CleanCoat mark is important to the Processed
Steel Products segment, we do not consider it material.
METAL FRAMING
Our Metal Framing segment consists of one business unit, Dietrich,
which designs and produces metal framing components and systems and related
accessories for the commercial and residential construction markets within the
United States. For fiscal 2002, fiscal 2001 and fiscal 2000, the percentage of
sales from continuing operations generated by Dietrich was 17.5%, 18.9% and
17.9%, respectively.
Our Metal Framing products include steel studs and track, floor and
wall system components, roof trusses and other metal framing accessories. Some
of our specific products include TradeReady(R) Floor Systems, Spazzer(R) bars
and, through Aegis, SureSpan(R) and Ultra-Span(R) trusses. As of May 31, 2002,
our Metal Framing segment had 19 operating facilities in 15 states. Pursuant to
the Consolidation Plan, the Fredericksburg, Virginia, facility will be closed
and its operations moved to Rock Hill, South Carolina. A more detailed
discussion of the Consolidation Plan is set forth below in "Item 7. -
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations." Dietrich's production facilities are
located throughout the country. We believe that Dietrich is the largest supplier
on a national basis of metal framing products and supplies, supplying
approximately 33% of the metal framing products sold in the United States. We
have over 3,700 customers, primarily consisting of wholesale distributors and
commercial and residential building contractors.
During fiscal 2001, we expanded our Metal Framing segment by acquiring
the assets of Studco of Hawaii, Inc. located in Kapolei, Hawaii and by starting
up operations at our 63,000 square foot facility in Renton, Washington. In
February 2002, Dietrich and MiTek joined to form Aegis. Aegis combines
Dietrich's manufacturing and distribution capabilities with MiTek's software,
engineering and marketing functions. Aegis offers light gauge metal component
manufacturers and contractors design, estimating and management software, a full
line of metal framing products and integrated engineering services. As part of
the venture, we purchased MiTek's rollforming assets and contracted with Aegis
as its exclusive manufacturer. Additional discussion of our Aegis joint venture
is contained below in "Item 7. - Management's Discussion and Analysis of
Financial Condition and Results of Operations - Results of Operations."
In addition, our July 2002 acquisition of Unimast further expanded our
Metal Framing segment. Incorporating Unimast into our Metal Framing segment adds
capacity for our existing products, broadens our current product line to include
Unimast's complementary products and introduces new products to the segment,
including metal corner bead and trim and vinyl construction accessories.
Currently, Unimast and its subsidiaries serve the construction industry from 10
facilities. See "Item 1. - Business - General," "Item 2. - Properties - Metal
Framing" and "Item 8. - Financial Statements and Supplementary Data - Notes to
Consolidated Financial Statements - Note Q - Subsequent Event."
3
The light gauge metal framing industry is very competitive. We compete
with one other national competitor, five large regional competitors and numerous
small, more localized competitors. We compete primarily on the basis of quality,
service and price. Similar to our Processed Steel Products segment, the
proximity of our facilities to our customers and their project sites provides us
with a service advantage and impacts our freight and shipping costs. Our
products are transported almost exclusively by common carrier. Again, we have
not quantified the extent to which facility location has impacted our
competitive position.
In addition to our trade name, "Dietrich Metal Framing", we use the
registered trademarks "Spazzer(R)" and "TradeReady(R)". The "Spazzer(R)"
trademark is used in connection with wall component products that are the
subject of two United States patents, three pending United States patent
applications and several pending foreign applications. The trademark
"TradeReady(R)" is used in connection with floor system products that are the
subject of two United States patents, two foreign patents, two pending United
States patent applications and four pending foreign patent applications. The
Aegis joint venture uses the trademarks SureSpan(R) and Ultra-Span(R) in
connection with certain patents for propriety roof trusses. Although the
"Spazzer(R)" and "TradeReady(R)" trademarks are important to our Metal Framing
segment, neither is considered material.
PRESSURE CYLINDERS
Our Pressure Cylinders segment consists of one business unit,
Worthington Cylinders. For fiscal 2002, fiscal 2001 and fiscal 2000, the
percentage of sales from continuing operations generated by Worthington
Cylinders was 16.8%, 15.8% and 16.2%, respectively.
Worthington Cylinders, as of May 31, 2002, operated eight manufacturing
facilities located in Alabama, Ohio and Oklahoma domestically, and in Austria,
Canada and Portugal and operated one joint venture, Worthington Cylinders, a.s.,
in the Czech Republic. As a result of the Consolidation Plan, we discontinued
operations at two Pressure Cylinders joint venture plants in Itu, Brazil, and
are closing our Claremore, Oklahoma, facility.
Our Pressure Cylinders segment produces a diversified line of pressure
cylinders, including portable low-pressure liquefied petroleum gas ("LPG") and
refrigerant gas cylinders and high-pressure industrial/specialty gas cylinders.
Our LPG cylinders are sold to manufacturers, distributors and/or mass
merchandisers and are used for gas barbecue grills, camping equipment,
residential heating systems, industrial forklifts and commercial/residential
cooking (outside North America). Refrigerant cylinders are sold primarily to
major refrigerant gas producers and distributors and are used to hold
refrigerant gases for commercial and residential air conditioning and
refrigeration systems and for automotive air conditioning systems.
Industrial/specialty gas high-pressure cylinders are sold primarily to gas
producers and distributors and are used as containers for gases for: cutting and
welding metals; breathing (medical, diving and firefighting); semiconductor
production; beverage delivery; and compressed natural gas systems. Worthington
Cylinders also produces recovery tanks for refrigerant gases and non-refillable
cylinders for helium balloon kits. While a large percentage of our cylinder
sales are made to major accounts, Worthington Cylinders has over 3,000
customers.
Worthington Cylinders' primary low-pressure cylinder products are steel
cylinders with refrigerant gas capacities of 15 to 1,000 lbs. and steel and
aluminum cylinders with liquid propane gas capacities of 4-1/4 to 420 lbs. In
the United States, our high-pressure and low-pressure cylinders are manufactured
in accordance with U. S. Department of Transportation safety requirements.
Outside the United States, we manufacture cylinders according to European Union
specifications, as well as various other international requirements and
standards. Low-pressure cylinders are produced by precision stamping, drawing
and welding component parts to customer specifications. They are then tested,
painted and packaged as required. Our high-pressure cylinders are manufactured
by several processes, including deep drawing, tube spinning and billet pierce
technology.
Worthington Cylinders has two principal domestic competitors and
several smaller foreign competitors in its major low-pressure cylinder markets
and we believe that we have the largest domestic market share. In our
high-pressure cylinder market we compete against two principal domestic
competitors, one of which has a larger domestic market share than ours. We
believe that we have the leading market share of the European industrial gas
cylinder business and the non-refillable refrigerant cylinder business. As with
our other segments, we compete on the basis of service, price and quality.
4
Our Pressure Cylinders segment uses the trade name "Worthington
Cylinders" to conduct business and the registered trademark "Balloon Time(R)" to
market our low-pressure helium balloon kits. Although this intellectual property
is important to the Pressure Cylinders segment, it is not considered material.
SEGMENT FINANCIAL DATA
Financial information for our segments is provided below in "Item 8. -
Financial Statements and Supplementary Data - Notes to Consolidated Financial
Statements - Note H - Industry Segment Data."
FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS
Foreign operations and exports represent less than 10% of our
production and sales. Selected information about our foreign operations is set
forth below in "Item 8. - Financial Statements and Supplementary Data - Notes to
Consolidated Financial Statements - Note A - Summary of Significant Accounting
Policies - Risks and Uncertainties."
SUPPLIERS
In fiscal 2002, we purchased over three million tons of steel for use
as raw material for our Processed Steel Products, Pressure Cylinders and Metal
Framing segments. We purchase steel in large quantities at regular intervals
from major primary producers, both domestic and foreign. In our Processed Steel
Products segment, we primarily purchase and process steel based on specific
customer orders and do not typically purchase steel for inventory. Our Metal
Framing and Pressure Cylinders segments purchase steel according to our
production schedules. We purchase the majority of our raw materials in the open
market on a negotiated spot market basis at prevailing market prices, but we
also enter into long-term contracts, some of which have fixed or capped pricing.
During fiscal 2002, Worthington's major suppliers of steel were, in alphabetical
order, Bethlehem Steel Corporation, Gallatin Steel Company, Global Steel, Inland
Steel Company, NorthStar BHP Steel, Nucor Corporation, Rouge Industries, Inc.,
Steel Dynamics, Inc., USX Corporation and WCI Steel, Inc. In addition, our
primary aluminum supplier in fiscal 2002 for our Pressure Cylinders segment was
Alcoa, Inc. We believe that our supplier relationships are good.
TECHNICAL SERVICES
We employ a staff of engineers and other technical personnel and
maintain fully-equipped, modern laboratories to support our operations. The
facilities enable us to verify, analyze and document the physical, chemical,
metallurgical and mechanical properties of our raw materials and products.
Technical service personnel also work in conjunction with our sales force to
determine the types of flat-rolled steel required for our customers' particular
needs. In order to provide these services, we maintain a continuing program of
developmental engineering with respect to the characteristics and performance of
our products under varying conditions. Laboratory facilities also perform
metallurgical and chemical testing as dictated by the regulations of the U.S.
Department of Transportation and other associated agencies, along with I.S.O.
and customer requirements.
EMPLOYEES
As of May 31, 2002, Worthington employed approximately 6,600 employees
in its operations, excluding unconsolidated joint ventures, approximately 16% of
whom were covered by collective bargaining agreements. We believe that we have
good relationships with our employees.
JOINT VENTURES
As part of our strategy to selectively develop new products, markets
and technological capabilities and to expand our international presence while
mitigating the risks and costs associated with those activities, we participate
in two consolidated and five unconsolidated joint ventures.
Consolidated
- Spartan Steel Coating, L.L.C., a 52%-owned consolidated joint venture
with Rouge Steel, operates a cold-rolled, hot-dipped galvanizing
facility in Monroe, Michigan.
5
- Worthington Cylinders, a.s., a 51%-owned consolidated joint venture
with a local Czech Republic entrepreneur, operates a pressure cylinder
manufacturing facility in Hustopece, Czech Republic.
Unconsolidated
- Acerex S.A. de C.V., a 50%-owned joint venture with Hylsa S.A. de
C.V., is a steel processing company located in Monterrey, Mexico.
- Aegis Metal Framing, LLC, a 60%-owned joint venture with MiTek
Industries, Inc., headquartered in Chesterfield, Missouri, offers
light gauge metal component manufacturers and contractors design,
estimating and management software, a full line of metal framing
products and integrated professional engineering services.
- TWB Company, L.L.C. ("TWB"), a 33.3%-owned joint venture with
ThyssenKrupp Stahl, Rouge Steel, LTV Steel and Bethlehem Steel,
produces laser welded blanks for use in the auto industry for products
such as inner door frames. TWB operates facilities in Monroe,
Michigan; North Vernon, Indiana; and Saltillo, Mexico.
- Worthington Armstrong Venture ("WAVE"), a 50%-owned joint venture with
Armstrong World Industries, is one of the three leading global
manufacturers of suspended ceiling systems for concealed and lay-in
panel ceilings. WAVE operates facilities in Sparrows Point, Maryland;
Benton Harbor, Michigan; North Las Vegas, Nevada; Malvern,
Pennsylvania; Shanghai, China; Team Valley, United Kingdom;
Valenciennes, France; and Madrid, Spain.
- Worthington Specialty Processing, a 50%-owned general partnership with
USX Corporation in Jackson, Michigan, operates primarily as a toll
processor for USX Corporation.
See "Item 8. - Financial Statements and Supplementary Data - Notes to
Consolidated Financial Statements - Note J - Investment in Unconsolidated
Affiliates."
ENVIRONMENTAL REGULATION
Our manufacturing facilities, generally in common with those of similar
industries making similar products, are subject to many federal, state and local
requirements relating to the protection of the environment. We continually
examine ways to reduce emissions and waste and to decrease costs related to
environmental compliance. We do not anticipate that capital expenditures for
environmental control facilities required in order to meet environmental
requirements will be material when compared with our overall capital
expenditures and, accordingly, will not have a material effect on our earnings
or competitive position.
ITEM 2. - PROPERTIES
GENERAL
Worthington's corporate offices occupy approximately 169,000 sq. ft.
and are located at 1205 Dearborn Drive in Columbus, Ohio.
In fiscal 2002, excluding our joint ventures, we held fee or leasehold
interests in 52 manufacturing and warehouse facilities and three
administrative/office locations, totaling in excess of 9,200,000 sq. ft. We
owned 36 of those locations and maintained leases for the remaining 16. Leased
premises accounted for more than 1,039,000 sq. ft. All of our facilities are
well maintained and in good operating condition and we believe that they are
sufficient to meet our current needs.
In addition, at May 31, 2002, our joint ventures operated 16
manufacturing facilities, having, in the aggregate, approximately 2,081,129 sq.
ft. These facilities are located in Indiana, Maryland, Michigan, Missouri,
6
Nevada and Pennsylvania domestically, as well as in China, the Czech Republic,
France, Mexico, Spain and the United Kingdom. Of these locations, eight are
owned and eight are leased. See "Item 1. - Business - Joint Ventures."
PROCESSED STEEL PRODUCTS
At May 31, 2002, including our consolidated joint ventures, the
Processed Steel Products segment operated 14 manufacturing facilities, all of
which were owned. These facilities occupy more than 5,100,000 sq. ft. and are
located in Alabama, Indiana, Kentucky, Maryland, Michigan, Ohio, Pennsylvania
and South Carolina. This segment also maintains approximately 667,000 sq. ft. of
warehouse space, of which 305,000 sq. ft is leased. Pursuant to the
Consolidation Plan, the Processed Steel Products segment will close the Malvern,
Pennsylvania and Jackson, Michigan, locations and the Rock Hill facility will
operate as a Metal Framing facility. See "Item 1. - Business - General" and
"Item 7. - Management's Discussion and Analysis of Financial Condition and
Results of Operations - Results of Operations."
METAL FRAMING
At May 31, 2002, our Metal Framing segment operated 19 metal framing
and coil processing facilities in Arizona, California, Colorado, Florida,
Georgia, Hawaii, Indiana, Kansas, Massachusetts, Maryland, New Jersey, Ohio,
Texas, Virginia and Washington, occupying, in the aggregate, over 2,080,000 sq.
ft. Nine of these facilities are leased and range in size from 25,339 sq. ft. to
78,517 sq. ft. This segment also leases two administrative office locations, one
in Pittsburgh, Pennsylvania and one in Blairsville, Pennsylvania. Our recent
acquisition of Unimast has increased the number of manufacturing facilities in
this segment to 29. Unimast operates six metal framing facilities in Baytown,
Texas; Boonton, New Jersey; Joliet, Illinois; Goodyear, Arizona; McDonough,
Georgia; and Warren, Ohio; two steel corner bead and trim plants in Brooksville,
Florida and New Brighton, Minnesota; a vinyl construction accessories facility
in Miami, Florida; and a small steel processing facility in East Chicago,
Indiana. See "Item - 1. - Business - General," "- Metal Framing" and "Item 8. -
Financial Statements and Supplementary Data - Notes to Consolidated Financial
Statements - Note Q - Subsequent Event." Pursuant to the Consolidation Plan, the
Fredericksburg, Virginia facility will be closed and its business moved to Rock
Hill, South Carolina. A more detailed discussion of the Consolidation Plan is
set forth below in "Item 7. - Management's Discussion and Analysis of Financial
Condition and Results of Operations - Results of Operations."
PRESSURE CYLINDERS
Together with our consolidated joint ventures, the Pressure Cylinders
segment at May 31, 2002, operated nine manufacturing facilities. We own eight of
those facilities, which occupy, in the aggregate, approximately 960,000 sq. ft.
and are located in Alabama, Ohio and Oklahoma domestically, and in Austria,
Canada and Portugal. We lease only one of those facilities, our 55,000 sq. ft.
Citronelle, Alabama, facility, as well as a warehouse in each of Georgia,
Portugal and Canada, measuring approximately 100,000 sq. ft., 44,600 sq. ft. and
13,750 sq. ft., respectively. Pursuant to the Consolidation Plan, the Claremore,
Oklahoma, facility is being closed. A more detailed discussion of the
Consolidation Plan is set forth below in "Item 7. - Management's Discussion and
Analysis of Financial Condition and Results of Operations - Results of
Operations."
ITEM 3. - LEGAL PROCEEDINGS
Various legal actions arising in the ordinary course of business are
pending against Worthington. None of this pending litigation, individually or
collectively, is expected to have a material adverse effect on Worthington.
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
7
SUPPLEMENTAL ITEM. - EXECUTIVE OFFICERS OF THE REGISTRANT
The following table lists the names, positions held and ages of the Registrant's
executive officers:
PRESENT OFFICE
NAME AGE POSITION(S) WITH THE REGISTRANT HELD SINCE
---- --- ------------------------------- ----------
John H. McConnell 79 Chairman Emeritus & Founder 1996
John P. McConnell 48 Chairman & Chief Executive Officer 1996
John S. Christie 52 President & Chief Operating Officer 1999
John T. Baldwin 45 Vice President & Chief Financial Officer 1998
Edward A. Ferkany 65 President-The Worthington Steel Company 2001
Dale T. Brinkman 49 Vice President-Administration, General Counsel & 2000
Secretary
Ralph V. Roberts 55 Sr. Vice President-Marketing 2001
Virgil L. Winland 54 Sr. Vice President-Manufacturing 2001
Richard G. Welch 44 Controller 2000
John H. McConnell founded Worthington in 1955 and served as its Chief Executive
Officer until he retired in May 1993. Mr. McConnell also served as Chairman of
the Board of Directors from 1955 until September 1996, when he assumed the role
of Chairman Emeritus and Founder.
John P. McConnell has served as Worthington Industries' Chief Executive Officer
since June 1993. Mr. McConnell has served as a Director continuously since 1990
and Chairman of the Board of Directors since September 1996.
John S. Christie has served as President and Chief Operating Officer and a
Director of Worthington Industries since June 1999. Prior to that time, Mr.
Christie served as President of JMAC, Inc., a private investment company, from
1995 through 1999.
John T. Baldwin has served as Vice President and Chief Financial Officer of
Worthington Industries since December 1998 and as its Treasurer from August 1997
through December 1998. Before joining Worthington Industries, Mr. Baldwin served
as Assistant Treasurer of Tenneco, Inc. from 1994 through August 1997.
Edward A. Ferkany has served as President, The Worthington Steel Company since
January 2001. From June 1998 to January 2001, Mr. Ferkany served as Executive
Vice President of Worthington Industries and, prior to that time, from 1985
through 1998, Mr. Ferkany served as Group President-Processed Steel for
Worthington Industries.
Dale T. Brinkman has served as Vice President-Administration, General Counsel
and Secretary of Worthington Industries since September 2000. From December 1998
through September 2000, he served as Vice President-Administration, General
Counsel and Assistant Secretary for Worthington Industries. Prior to that time,
Mr. Brinkman served as Worthington Industries' General Counsel and Assistant
Secretary from 1982 through 1998.
Ralph V. Roberts has served as Senior Vice President-Marketing of Worthington
Industries since January 2001. From June 1998 through January 2001, he served as
President, The Worthington Steel Company. Prior to that time, Mr. Roberts served
as Worthington Industries' Vice President-Corporate Development from June 1997
through May 1998 and as President of WAVE from its formation in June 1992
through June 1997.
Virgil L. Winland has served as Senior Vice President-Manufacturing of
Worthington Industries since January 2001 and, prior to that time, from June
1996 through January 2001 as President, Worthington Cylinder Corporation.
8
Richard G. Welch has served as Controller of Worthington Industries since March
2000 and as its Assistant Controller from September 1999 to March 2000. Before
joining Worthington Industries, Mr. Welch served in various accounting and
financial reporting capacities with Time Warner Cable, a distributor of cable
programming, including as Assistant Controller from March 1999 through September
1999 and as an accounting director from September 1990 through March 1999.
Executive officers serve at the pleasure of the directors. John H. McConnell is
the father of John P. McConnell. There are no other family relationships among
the Registrant's executive officers or directors. No arrangements or
understandings exist pursuant to which any individual has been, or is to be,
selected as an executive officer.
9
PART II
ITEM 5. - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The common shares of Worthington Industries, Inc. ("Worthington
Industries") trade on the New York Stock Exchange ("NYSE") under the symbol
"WOR" and are listed in most newspapers as "WorthgtnInd". As of June 30, 2002,
Worthington Industries had 10,717 registered shareholders. The following table
sets forth (i) the low, high and closing prices for Worthington Industries'
common shares for each quarter of fiscal 2001 and 2002, and (ii) the cash
dividends per share paid on Worthington Industries' common shares during each
quarter of fiscal 2001 and fiscal 2002.
MARKET PRICE
FISCAL 2001 -------------------------------- CASH
QUARTER ENDED LOW HIGH CLOSING DIVIDENDS
------------- --------- ----------- ---------- ------------
August 31, 2000 $10.00 $12.75 $10.46 $0.16
November 30, 2000 $ 8.44 $10.50 $ 9.19 $0.16
February 28, 2001 $ 6.44 $10.45 $ 9.85 $0.16
May 31, 2001 $ 9.00 $12.85 $11.50 $0.16
FISCAL 2002
QUARTER ENDED
-------------
August 31, 2001 $11.55 $14.77 $14.00 $0.16
November 30, 2001 $10.30 $14.80 $14.80 $0.16
February 28, 2002 $13.40 $15.20 $14.71 $0.16
May 31, 2002 $14.41 $16.20 $15.25 $0.16
10
ITEM 6. - SELECTED FINANCIAL DATA
YEAR ENDED MAY 31,
----------------------------------------------------------------------------------------------
IN THOUSANDS, EXCEPT PER SHARE 2002 2001 2000 1999 1998 1997
-------------- -------------- -------------- -------------- -------------- --------------
FINANCIAL RESULTS
Net sales $ 1,744,961 $ 1,826,100 $ 1,962,606 $ 1,763,072 $ 1,624,449 $ 1,428,346
Cost of goods sold 1,480,184 1,581,178 1,629,455 1,468,886 1,371,841 1,221,078
------------- ------------- ------------- ------------- ------------ -------------
Gross margin 264,777 244,922 333,151 294,186 252,608 207,268
Selling, general &
administrative expense 165,885 173,264 163,662 147,990 117,101 96,252
Restructuring expense 64,575 6,474 -- -- -- --
------------- ------------- ------------- ------------- ------------ -------------
Operating income 34,317 65,184 169,489 146,196 135,507 111,016
Miscellaneous income
(expense) (3,224) (928) 2,653 5,210 1,396 906
Nonrecurring loss (21,223) -- (8,553) -- -- --
Interest expense (22,740) (33,449) (39,779) (43,126) (25,577) (18,427)
Equity in net income of
unconsolidated
affiliates 23,110 25,201 26,832 24,471 19,316 13,959
------------- ------------- ------------- ------------- ------------ -------------
Earnings from continuing
operations before
income taxes 10,240 56,008 150,642 132,751 130,642 107,454
Income tax expense 3,738 20,443 56,491 49,118 48,338 40,844
------------- ------------- ------------- ------------- ------------ -------------
Earnings from continuing
operations 6,502 35,565 94,151 83,633 82,304 66,610
Discontinued operations,
net of taxes -- -- -- (20,885) 17,337 26,708
Extraordinary item,
net of taxes -- -- -- -- 18,771 --
Cumulative effect of
accounting change,
net of taxes -- -- -- (7,836) -- --
------------- ------------- ------------- ------------- ------------ -------------
Net earnings 6,502 35,565 94,151 54,912 118,412 93,318
Earnings per share
(diluted):
Continuing operations 0.08 0.42 1.06 0.90 0.85 0.69
Discontinued operations,
net of taxes -- -- -- (0.23) 0.18 0.27
Extraordinary item,
net of taxes -- -- -- -- 0.19 --
Cumulative effect of
accounting change,
net of taxes -- -- -- (0.08) -- --
------------- ------------- ------------- ------------- ------------ -------------
Net earnings 0.08 0.42 1.06 0.59 1.22 0.96
Continuing operations:
Depreciation and
amortization 68,887 70,582 70,997 64,087 41,602 34,150
Capital expenditures
(including
acquisitions and
investments)* 60,100 64,943 72,649 132,458 297,516 287,658
Cash dividends declared 54,677 54,762 53,391 52,343 51,271 45,965
Per share $ 0.64 $ 0.64 $ 0.61 $ 0.57 $ 0.53 $ 0.49
Average shares outstanding
(diluted) 85,929 85,623 88,598 93,106 96,949 96,841
FINANCIAL POSITION
Current assets $ 490,340 $ 449,719 $ 624,229 $ 624,255 $ 642,995 $ 594,128
Current liabilities 339,351 306,619 433,270 427,725 410,031 246,794
------------- ------------- ------------- ------------- ------------ -------------
Working capital 150,989 143,100 190,959 196,530 232,964 347,334
Net fixed assets 766,596 836,749 862,512 871,347 933,158 691,027
Total assets 1,457,314 1,475,862 1,673,873 1,686,951 1,842,342 1,561,186
Total debt** 295,613 324,750 525,072 493,313 501,950 417,883
Shareholders' equity 606,256 649,665 673,354 689,649 780,273 715,518
Per share 7.09 7.61 7.85 7.67 8.07 7.40
Total committed capital** $ 901,869 $ 974,415 $ 1,198,426 $ 1,182,962 $ 1,282,223 $ 1,133,401
Shares outstanding 85,512 85,375 85,755 89,949 96,657 96,711
- ------------------------------
All financial data include the results of The Gerstenslager Company, which was
acquired in February 1997 through a pooling of interests.
* Includes $113,000 of Worthington Industries, Inc. common shares exchanged
for shares of The Gerstenslager Company during the fiscal year ended May
31, 1997.
** Excludes Debt Exchangeable for Common Stock of Rouge Industries, Inc. of
$52,497, $75,745 and $88,494 at May 31, 1999, 1998 and 1997, respectively.
11
ITEM 7. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Selected statements contained in this Item 7. - Management's Discussion
and Analysis of Financial Condition and Results of Operations constitute
"forward-looking statements" as used in the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements are based, in whole or in part, on
management's beliefs, estimates, assumptions and currently available
information. For a more detailed discussion of what constitutes a
forward-looking statement and of some of the factors that could cause actual
results to differ materially from such forward-looking statements, please refer
to "Safe Harbor Statement" in the beginning of this Annual Report on Form 10-K.
OVERVIEW
Worthington Industries, Inc. is a diversified steel processor that
focuses on value-added steel processing and metals-related businesses. As of May
31, 2002, we operated 43 facilities worldwide, principally in three reportable
business segments: Processed Steel Products, Metal Framing and Pressure
Cylinders. We also hold equity positions in seven joint ventures, which as of
May 31, 2002, operated 16 facilities worldwide. The following discussion and
analysis of financial condition and results of operations should be read in
conjunction with our consolidated financial statements included in Item 8.
CRITICAL ACCOUNTING POLICIES
The discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. On an on-going basis, we evaluate our estimates,
including those related to our allowance for doubtful accounts, intangible
assets, accrued liabilities, income and other tax accruals, and contingencies
and litigation. We base our estimates on historical experience and on various
other assumptions that we believe to be reasonable under the circumstances.
These results form the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources.
Critical accounting policies are defined as those that are reflective of our
significant judgments and uncertainties that could potentially result in
materially different results under different assumptions and conditions.
Although actual results historically have not deviated significantly from those
determined using our estimates, as discussed below, our financial position or
results of operations could be materially different if we were to report under
different conditions or to use different assumptions in the application of such
policies. We believe the following accounting policies are the most critical to
us, in that they are the primary areas where financial information is subject to
the use of our estimates and assumptions, and the application of our judgment in
the preparation of our consolidated financial statements.
Allowance for Doubtful Accounts Receivable: Our allowance for doubtful
accounts is estimated to cover the risk of loss related to our accounts
receivable, including the risk associated with our retained interest in the pool
of receivables sold through our accounts receivable securitization ("AR
securitization") facility. This allowance is maintained at a level that we
consider appropriate based on historical and other factors that affect
collectibility. These factors include historical trends of charge-offs,
recoveries and credit losses; the careful monitoring of portfolio credit
quality; and current and projected economic and market conditions. General
weakness in the economy over the last few years has led to bankruptcy filings by
many of our customers. As mentioned above, we specifically monitor our credit
portfolio quality, which includes identification of customers that have or may
potentially file for bankruptcy, and make allowance adjustments accordingly. The
allowance for doubtful accounts receivable totaled $8.2 million and $9.2 million
at May 31, 2002 and 2001, respectively. While we believe our allowance for
doubtful accounts receivable is adequate, changes in economic conditions or any
weakness in the economy could adversely impact our future earnings.
Impairment of Long-Lived Assets: We review the carrying value of our
long-lived assets held and used and assets to be disposed of, including other
intangible assets, for impairment whenever events or changes in
12
circumstances indicate that the carrying amount may not be realizable. If an
evaluation is required, accounting standards require that if the sum of the
undiscounted future cash flows expected to result from a company's asset is less
than the reported value of the asset, an impairment charge must be recognized in
the financial statements. We recognized a $21.2 million loss during the year
ended May 31, 2002 ("fiscal 2002"), for the impairment of certain preferred
stock and subordinated debt described later in the document.
Effective June 1, 2001, we adopted Statement of Financial Accounting
Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets, which requires
that we review goodwill at least annually for impairment based on the fair value
method. Prior to June 1, 2001, we amortized goodwill over 40 years using the
straight-line method. Under SFAS No. 142, goodwill and identifiable intangible
assets deemed to have indefinite lives are no longer amortized but are subject
to impairment tests annually or more frequently if impairment indicators arise.
Other intangible assets continue to be amortized over their estimated useful
lives.
We use the present value technique in determining the estimated fair
value of the goodwill associated with each reporting entity. There are three
significant sets of values used to determine the fair value: estimated future
discounted cash flows, capitalization rate and tax rates. The estimated future
discounted cash flows used in the model are based on planned growth with an
assumed perpetual growth rate. The capitalization rate is based on our current
cost of capital for equity and debt. Tax rates are maintained at current levels.
Our impairment testing for fiscal 2002 resulted in an impairment write-off of
$0.6 million. We feel our assumptions are reasonable and our goodwill carrying
amounts of $75.4 million and $76.4 million at May 31, 2002 and 2001,
respectively, are properly valued.
Accounting for Derivatives and Other Contracts at Fair Value: We use
derivatives in the normal course of business to manage our exposure to
fluctuations in commodity prices and foreign currency rates. Significant
judgments and estimates are required to determine fair values in the absence of
quoted market values. These estimates are based upon valuation methodologies
deemed appropriate in the circumstances; however, the use of different
assumptions could affect the estimated fair values.
Restructuring Reserves: During fiscal 2002, we announced a
consolidation plan to improve profitability. This plan affects each of our
business segments as six facilities will be closed and two others will be
restructured. As part of the consolidation plan, we recorded a pre-tax
restructuring charge of $64.6 million, comprised of $48.2 million for the
write-down of idled assets to net realizable value, $11.8 million for severance
and employee related costs, and $4.6 million for other restructuring related
items. As of May 31, 2002, 230 employee positions had been eliminated (205
through termination and 25 through retirement and attrition), and cash payments
totaling $1.4 million had been made against the severance reserve. The estimated
net realizable value of the plant and equipment being idled of $6.7 million was
reclassified to other current assets as assets held for sale. We anticipate that
the termination of employees and the sale of the idled plant and equipment will
be substantially complete by February 2003.
We periodically evaluate a number of factors to determine the
appropriateness and reasonableness of our restructuring reserves. These
estimates involve a number of risks and uncertainties, some of which may be
beyond our control. Actual results may differ from our estimates and may require
adjustments to our restructuring reserves and operating results in future
periods.
The critical accounting policies discussed herein are not intended to
be a comprehensive list of all of our accounting policies. In many cases, the
accounting treatment of a particular transaction is specifically dictated by
accounting principles generally accepted in the United States, with no need for
our judgment in their application. There are also areas in which our judgment in
selecting an available alternative would not produce a materially different
result. Other accounting policies also have a significant effect on our
financial statements, and some of these policies require the use of estimates
and assumptions. Our significant accounting policies are discussed in Note A of
the Notes to Consolidated Financial Statements included in Item 8.
13
RESULTS OF OPERATIONS
The following table sets forth, for the fiscal years indicated,
consolidated net sales and operating income by segment and other financial
information:
2002 2001 2000
----------------------------------- ---------------------------------- ----------------------
% OF % % OF % % OF
IN MILLIONS, EXCEPT PER SHARE ACTUAL NET SALES CHANGE ACTUAL NET SALES CHANGE ACTUAL NET SALES
---------- ----------- ---------- --------- ----------- ----------- ---------- ----------
Net sales:
Processed Steel Products $1,132.7 64.9% -4% $1,184.9 64.9% -8% $1,287.9 65.6%
Metal Framing 306.0 17.5% -12% 346.0 18.9% -1% 350.6 17.9%
Pressure Cylinders 292.8 16.8% 1% 289.1 15.8% -9% 318.8 16.2%
Other 13.5 0.8% 6.1 0.4% 5.3 0.3%
-------- -------- --------
Total net sales 1,745.0 100.0% -4% 1,826.1 100.0% -7% 1,962.6 100.0%
Cost of goods sold 1,480.2 84.8% -6% 1,581.2 86.6% -3% 1,629.4 83.0%
-------- -------- --------
Gross margin 264.8 15.2% 8% 244.9 13.4% -27% 333.2 17.0%
Selling, general &
administrative expense 165.9 9.5% -4% 173.2 9.5% 6% 163.7 8.4%
Restructuring expense 64.6 3.7% 6.5 0.4% -- --
-------- -------- --------
Operating income*:
Processed Steel Products 13.6 1.2% -54% 29.3 2.5% -70% 96.8 7.5%
Metal Framing 19.1 6.2% -19% 23.7 6.9% -45% 43.2 12.3%
Pressure Cylinders 11.0 3.8% -43% 19.3 6.7% -44% 34.2 10.7%
Other (9.4) (7.1) (4.7)
-------- -------- --------
Total operating income 34.3 2.0% -47% 65.2 3.5% -62% 169.5 8.6%
Other income (expense):
Miscellaneous income
(expense) (3.3) (0.9) 2.7
Nonrecurring loss (21.2) -- (8.6)
Interest expense (22.7) -1.3% -32% (33.5) -1.8% -16% (39.8) -2.0%
Equity in net income of
unconsolidated affiliates 23.1 1.3% -8% 25.2 1.4% -6% 26.8 1.4%
-------- -------- --------
Earnings before taxes 10.2 0.6% -82% 56.0 3.0% -63% 150.6 7.7%
Income tax expense 3.7 0.2% -82% 20.4 1.1% -64% 56.4 2.9%
-------- -------- --------
Net earnings $ 6.5 0.4% -82% $ 35.6 1.9% -62% $ 94.2 4.8%
======== ======== ========
Average common shares
outstanding -
diluted 85.9 85.6 88.6
-------- -------- --------
Earnings per share -
diluted $ 0.08 $ 0.42 $ 1.06
======== ======== ========
- ------------------------------
* Fiscal 2002 includes restructuring charges of $64.6 million. Of that total,
amounts that relate to the operating segments are as follows: Processed
Steel Products - $52.1 million, Metal Framing - $0.9 million and Pressure
Cylinders - $10.7 million. Fiscal 2001 includes restructuring charges of
$6.5 million, all relating to the Processed Steel Products segment.
14
Our earnings for fiscal 2002 were impacted by two one-time charges: a
$64.6 million pre-tax restructuring expense and a $21.2 million pre-tax charge
to establish a reserve for the impairment of certain assets. In addition, fiscal
2001 was impacted by a $6.5 million pre-tax restructuring charge for the partial
shutdown of the Malvern, Pennsylvania, facility.
In January 2002, we announced a consolidation plan that included the
closing of six of our facilities, the restructuring of two others and a
workforce reduction of 542 employees. The eight facilities impacted by the
consolidation plan are included in our business segments as follows: Processed
Steel Products (4), Metal Framing (1) and Pressure Cylinders (3). In our
Processed Steel Products segment, we are closing our Malvern, Pennsylvania, and
Jackson, Michigan, facilities, and we are reducing overhead costs at our
facility in Louisville, Kentucky. The Rock Hill, South Carolina, facility will
become a Metal Framing location. The current Metal Framing facility in
Fredericksburg, Virginia, will be closed and its operations moved to Rock Hill.
In our Pressure Cylinders segment, we have discontinued the operations of two
partnerships in Itu, Brazil, and we are closing a production facility in
Claremore, Oklahoma.
This consolidation plan resulted in a pre-tax restructuring charge of
$64.6 million or $41.0 million after tax. Of this pre-tax charge, $11.8 million
represents a cash outlay for severance and employee related payments, and the
remainder represents the write-down of assets to their fair market value. Going
forward, we estimate this plan will improve our annual operating income by at
least $10 million, despite reducing sales by approximately $75 million.
Headcount reductions and reduced depreciation will account for annual savings of
approximately $6 million and approximately $4 million, respectively. See Note N
of the Notes to Consolidated Financial Statements in Item 8 for more
information.
In addition to the restructuring charge, we recognized a $21.2 million
pre-tax loss for the impairment of certain preferred stock and subordinated debt
we received as partial payment from four acquirers when we sold the assets of
our Custom Products and Cast Products business segments during the fiscal year
ended May 31, 1999. As economic conditions have deteriorated, each of the
issuers has encountered difficulty making scheduled payments under the terms of
the preferred stock and subordinated debt. The after-tax impact of the
impairment charge reduced net income for fiscal 2002 by $13.5 million.
In February 2002, we formed Aegis Metal Framing, LLC ("Aegis"), a joint
venture with MiTek Industries, Inc. ("MiTek"). Aegis combines the manufacturing
and distribution capabilities of our Metal Framing segment with the software,
engineering and marketing functions of MiTek's Metal Framing Systems division.
We invested $21.0 million plus certain of our assets for a 60% interest in the
joint venture and purchased the rollforming assets of MiTek for $1.1 million.
The equity method is used to account for the joint venture, as control of the
critical business decisions is equally shared with Mitek. Manufacturing is
contracted to our Metal Framing segment, which manufactures and sells the
product to Aegis.
Effective June 1, 2001, we adopted Statement of Financial Accounting
Standards ("SFAS") No. 141, Business Combinations, and SFAS No. 142, Goodwill
and Other Intangible Assets. SFAS No. 141 eliminates the pooling method of
business combinations while SFAS No. 142 eliminates the requirement to amortize
goodwill and indefinite-lived intangible assets. While there was no impact from
adopting SAFS No. 141, SFAS No. 142 increased after-tax income by approximately
$1.6 million for fiscal 2002. See Note O of the Notes to Consolidated Financial
Statements in Item 8 for more information.
We recorded a $6.5 million pre-tax restructuring charge during the
third quarter of fiscal 2001 when we closed a portion of our Malvern facility.
The result of this partial closure was a reduction in the workforce of 160
employees and the write-down to fair market value of the affected assets. The
after-tax impact of this charge reduced our fiscal 2001 income by $4.1 million.
This partial closure was completed by December 31, 2001.
15
FISCAL 2002 COMPARED TO FISCAL 2001
Net sales decreased 4% or $81.1 million to $1,745.0 million in fiscal
2002 from $1,826.1 million in fiscal 2001. This decline was due to weaker demand
within our Processed Steel Products and Pressure Cylinders segments and lower
selling prices in Metal Framing and Processed Steel Products.
Gross margin increased 8% or $19.9 million to $264.8 million in fiscal
2002 from $244.9 million in fiscal 2001. Much of the increase was due to higher
volumes during the fourth quarter, which improved gross margin by $8.1 million.
In addition, direct labor and manufacturing expenses declined $15.7 million,
including a $7.5 million reduction in utilities mainly from lower natural gas
cost, a $5.2 million decrease in compensation and benefits from headcount
reductions, and a $2.8 million decrease in repairs and maintenance expenses.
These factors increased gross margin as a percentage of net sales to 15.2% in
fiscal 2002 from 13.4% in fiscal 2001.
Selling, general and administrative costs ("SG&A") decreased 4% or $7.3
million to $165.9 million in fiscal 2002 from $173.2 million in fiscal 2001. The
reduction was due to numerous factors including a $5.8 million decrease in
professional expenses, a $2.5 million decrease in depreciation and amortization
due to lower capital spending and the elimination of goodwill amortization, a
$1.9 million gain on the sale of an airplane, a $3.7 million gain related to
legal settlements, and lower travel and entertainment expenses of $1.2 million.
The decrease was partly offset by a $6.2 million increase in bad debt expense
which, in anticipation of a settlement, included the write-down of a note
received from the sale of discontinued operations.
Operating income decreased 47% or $30.9 million to $34.3 million in
fiscal 2002 from $65.2 million in fiscal 2001. Excluding the effects of the
previously mentioned restructuring expense, operating income increased 38% or
$27.2 million to $98.9 million in fiscal 2002 from $71.7 million in fiscal 2001.
Interest expense decreased 32% or $10.8 million to $22.7 million in
fiscal 2002 from $33.5 million in fiscal 2001. This decline primarily was
attributable to lower average debt levels (due to increased use of our A/R
securitization facility and lower working capital requirements) and lower
average short-term interest rates. A/R securitization facility fees, which began
in November 2000 and were recorded as miscellaneous expense, increased $1.0
million to $4.1 million in fiscal 2002 from $3.1 million in fiscal 2001.
Equity in net income of unconsolidated affiliates decreased 8% or $2.1
million to $23.1 million in fiscal 2002 from $25.2 million in fiscal 2001. The
primary contributors to the decline were reduced sales and higher manufacturing
expenses at WSP and increased operating expenses at Acerex which led to lower
margins for those joint ventures.
Our effective tax rate of 36.5% in fiscal 2002 was unchanged from
fiscal 2001.
The following provides further information on net sales and operating
income by segment:
- Processed Steel Products. Net sales decreased 4% or $52.2 million
to $1,132.7 million in fiscal 2002 from $1,184.9 million in
fiscal 2001. Stronger demand during the third and fourth quarters
was not enough to overcome the weakness in the market early in
the year, resulting in reduced volumes. In addition, selling
prices declined due to lower raw material costs and a shift from
direct to toll processing. Direct shipments include sales of
material with a value-added processing charge, while toll
shipments contain only a value-added processing charge on
customer-owned material. Excluding the restructuring expense for
fiscal 2002 and fiscal 2001 of $52.1 million and $6.5 million,
respectively, operating income increased 84% or $29.9 million to
$65.7 million in fiscal 2002 from $35.8 million in fiscal 2001.
Improvement in the spread between direct selling prices and raw
material costs increased operating income by $12.4 million.
Further savings were achieved through a $7.5 million decrease in
compensation and benefits expense mainly due to a reduction in
the number of employees, a $6.5 million decrease in utilities
costs primarily due to lower natural gas expenses, a $2.8 million
reduction in professional fees, a $1.7 million gain related to a
legal settlement, and a $1.5 million reduction in repairs and
maintenance expenses. Lower volumes and higher bad debt expense
partially offset these savings and reduced
16
operating income by $5.5 million and $2.4 million, respectively.
The net impact of these factors was an increase in operating
income as a percentage of net sales to 5.8% in fiscal 2002 from
3.0% in fiscal 2001.
- Metal Framing. Net sales decreased 12% or $40.0 million to $306.0
million in fiscal 2002 from $346.0 million in fiscal 2001. The
decrease was due to the erosion of sales prices for core building
products combined with the elimination of the stainless product
line in December 2000. However, price increases instituted in the
fourth quarter have begun to restore pricing. Excluding the
restructuring expense for fiscal 2002 of $0.9 million, operating
income decreased 16% or $3.7 million to $20.0 million in fiscal
2002 from $23.7 million in fiscal 2001. The net impact of lower
average selling prices and lower raw materials cost was a $14.4
million reduction in operating income. Furthermore, increased
costs related to the new Hawaii and Washington facilities
contributed to a $1.8 million increase in manufacturing expense.
Higher volumes partially offset these decreases by $8.6 million.
As a result, operating income as a percentage of net sales
decreased to 6.6% in fiscal 2002 from 6.9% in fiscal 2001.
- Pressure Cylinders. Net sales increased 1% or $3.7 million to
$292.8 million in fiscal 2002 from $289.1 million in fiscal 2001.
The increase primarily was due to strong fourth quarter sales of
liquefied petroleum gas cylinders driven by new regulations in
many states requiring overfill protection devices on propane
tanks. Excluding the restructuring expense for fiscal 2002 of
$10.7 million, operating income increased 12% or $2.4 million to
$21.7 million in fiscal 2002 from $19.3 million in fiscal 2001.
Reduced utilities expense, lower supplies expense and higher
sales volumes improved operating income by $1.2 million, $1.0
million and $0.9 million, respectively. Consequently, operating
income as a percentage of net sales increased to 7.4% in fiscal
2002 from 6.7% in fiscal 2001.
FISCAL 2001 COMPARED TO FISCAL 2000
Net sales decreased 7% or $136.5 million to $1,826.1 million in fiscal
2001 from $1,962.6 million in the fiscal year ended May 31, 2000 ("fiscal 2000")
due to lower demand within our Processed Steel Products and Pressure Cylinders
segments and reduced selling prices in Processed Steel Products and Metal
Framing. Higher volumes in Metal Framing partially offset these factors.
Gross margin decreased 27% or $88.3 million to $244.9 million in fiscal
2001 from $333.2 million in fiscal 2000. The majority of the decline occurred in
our Processed Steel Products segment due to lower volumes and the smaller spread
between direct average selling prices and raw material costs. These factors
decreased gross margin as a percentage of net sales to 13.4% in fiscal 2001 from
17.0% in fiscal 2000.
SG&A expense increased 6% or $9.5 million to $173.2 million in fiscal
2001 from $163.7 million in fiscal 2000 due to higher compensation, bad debt and
health care expenses.
Operating income decreased 62% or $104.3 million in fiscal 2001 to
$65.2 million from $169.5 million in fiscal 2001. Excluding the effects of the
previously mentioned restructuring expenses, operating income decreased 58% or
$97.8 million to $71.7 million in fiscal 2001 from $169.5 million in fiscal
2000.
Interest expense decreased 16% or $6.3 million to $33.5 million in
fiscal 2001 from $39.8 million in fiscal 2000. Since we paid off the DECS
liability during the fourth quarter of fiscal 2000, there was no comparable
interest expense during fiscal 2001. In addition, we reduced short-term debt
(see description in "Liquidity and Capital Resources"). However, higher average
short-term interest rates partially offset these factors. A/R securitization
facility fees of $3.1 million in fiscal 2001 were recorded as miscellaneous
expense.
Equity in net income of unconsolidated affiliates decreased 6% or $1.6
million to $25.2 million in fiscal 2001 from $26.8 million in fiscal 2000.
Higher raw material costs at TWB and lower sales at WSP led to lower margins at
those joint ventures. Increases in sales and operating income at the Acerex and
WAVE joint ventures partly negated the overall decline.
17
Our effective tax rate decreased to 36.5% in fiscal 2001 from 37.5% in
fiscal 2000 primarily due to ongoing state and local tax planning initiatives.
The following provides further information on net sales and operating
income by segment:
- Processed Steel Products. Net sales decreased 8% or $103.0
million to $1,184.9 million in fiscal 2001 from $1,287.9 million
in fiscal 2000 primarily due to the general economic slowdown,
especially in the domestic automotive industry. The decrease in
net sales was principally attributable to declining direct
shipments from most plants and a decrease in toll processing
volume. However, our Monroe, Ohio, and Decatur, Alabama, plants
continued to increase direct volumes due to the new dry lube line
and market penetration, respectively. Excluding the restructuring
expense for fiscal 2001 of $6.5 million, operating income
decreased 63% or $61.0 million to $35.8 million in fiscal 2001
from $96.8 million in fiscal 2000 due to higher average raw
material prices, changes in sales mix to lower margin products,
and declining direct and toll processing volumes. Higher
manufacturing expenses and SG&A costs as a percentage of net
sales resulted in operating income as a percentage of net sales
of 3.0% in fiscal 2001 compared to 7.5 % in fiscal 2000.
- Metal Framing. Net sales decreased 1% or $4.6 million to $346.0
million in fiscal 2001 from $350.6 million in fiscal 2000 due to
erosion of selling prices throughout the year brought on by
intense competition. Nevertheless, strong demand for building
products led to higher volumes, thus offsetting much of the
negative impact due to pricing. Operating income decreased 45% or
$19.5 million to $23.7 million in fiscal 2001 from $43.2 million
in fiscal 2000. Sales volume increases were overshadowed by price
competition and higher raw material costs, decreasing operating
income as a percentage of net sales to 6.9% in fiscal 2001 from
12.3% in fiscal 2000.
- Pressure Cylinders. Net sales decreased 9% or $29.7 million to
$289.1 million in fiscal 2001 from $318.8 million in fiscal 2000.
The primary reason for the decrease was the weakening demand in
all product lines due to the slowing economy and stiff
competition in the European market. A strong United States dollar
also resulted in lower reported sales from our international
operations. Operating income decreased 44% or $14.9 million to
$19.3 million in fiscal 2001 from $34.2 million in fiscal 2000.
Reductions in sales volumes and the start-up of a new
non-refillable refrigerant production line in Portugal were the
major factors leading to the decrease in operating income as a
percentage of net sales to 6.7% in fiscal 2001 from 10.7% in
fiscal 2000.
LIQUIDITY AND CAPITAL RESOURCES
In fiscal 2002, we generated $135.3 million in cash from operating
activities, representing a $186.2 million decrease from fiscal 2001. The
decrease primarily was due to the initial sale of accounts receivable as part of
the A/R securitization facility in November 2000 (see description below) and the
prior year reduction in inventory levels.
Our significant investing and financing activities during fiscal 2002
included disbursing $54.7 million in dividends to shareholders, spending $39.1
million on capital additions, investing $21.0 million in the Aegis joint
venture, and retiring $20.9 million in long-term debt. These transactions were
funded by the cash flows from our operations and $10.5 million in proceeds from
the sale of assets (including $7.5 million for an airplane and $2.4 million for
certain Malvern assets).
Capital spending during fiscal 2002 included the following: $17.8
million in our Processed Steel Products segment primarily to complete the
construction of the Clyde, Ohio, facility; $13.8 million in our Metal Framing
segment which included spending for rollforming machinery, the Washington
facility, and engineering software development; $4.8 million in the Pressure
Cylinders segment partly for a new hydraulic press in Westerville; and $2.7
million in Other, mainly in our steel pallet business, to complete the
installation of welding equipment.
18
In November 2000, we entered into a $120.0 million revolving A/R
securitization facility which was expanded to $190.0 million in May 2001.
Pursuant to the terms of the facility, certain of our subsidiaries sell their
accounts receivable, on a revolving basis, to Worthington Receivables
Corporation ("WRC"), a wholly-owned, bankruptcy-remote subsidiary which is
consolidated for financial reporting purposes. In turn, WRC sells, on a
revolving basis, undivided ownership interests in this pool of accounts
receivable to independent third parties. We retain an undivided interest in this
pool and are subject to risk of loss based on the collectibility of the
receivables from this retained interest. Because the amount eligible to be sold
excludes receivables past due, balances with foreign customers, concentrations
over limits with specific customers, and certain reserve amounts, we believe
additional risk of loss is minimal. Also because of these exclusions, no
discount occurs on the sale and no gain or loss is recorded; however, facility
fees of $4.1 million and $3.1 million were incurred for fiscal 2002 and 2001,
respectively. The book value of the retained portion approximates fair value. We
continue to service the accounts receivable. No servicing asset or liability has
been recognized, as our cost to service the accounts receivable is expected to
approximate the servicing income. As of May 31, 2002, a $100.0 million undivided
interest in this pool had been sold. The proceeds from these sales have been
used to reduce short-term borrowings.
Consolidated net working capital increased $7.9 million from May 31,
2001 to $151.0 million at May 31, 2002. The primary contributors to the increase
were higher accounts receivable due to strong sales during the fourth quarter of
fiscal 2002 and an increase in other current assets related to an increased
current deferred tax asset, partially offset by an increase in accounts payable
and other current liabilities due to restructuring related accruals.
During May 2002, we replaced our $190.0 million revolving credit
facility maturing May 2003 with $310.0 million in new facilities syndicated with
various banks. The new facilities, which will be used to finance the cash
requirements of our business operations, consist of a $155.0 million 364-day
revolving credit agreement maturing May 2003 and a $155.0 million five-year
revolving credit agreement maturing May 2007. There were no outstanding balances
under the facilities as of May 31, 2002.
On May 31, 2002, our total debt was $295.6 million compared to $324.8
million at the end of fiscal 2001. Our debt to capital ratio of 32.8% at May 31,
2002, was slightly improved from the 33.3% ratio at the end of fiscal 2001.
On July 31, 2002, we acquired the stock of Unimast Incorporated and its
subsidiaries ("Unimast") for approximately $113 million in cash and
approximately $9 million of assumed indebtedness. We anticipate the majority of
this acquisition will be funded by proceeds from assets available for sale with
the remaining portion funded through our A/R securitization facility.
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 other 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.
RECENTLY ISSUED ACCOUNTING STANDARDS
In October 2001, the Financial Accounting Standards Board ("FASB")
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. We do not expect the adoption of this
Statement to have a material impact on our financial position or results of
operations.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. This Statement rescinds SFAS No. 4, Reporting Gains and Losses from
Extinguishment of Debt, and an amendment of that Statement, SFAS No. 64,
Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements; rescinds SFAS
No. 44, Accounting for
19
Intangible Assets of Motor Carriers; amends SFAS No. 13, Accounting for Leases,
to eliminate an inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications that
have economic effects that are similar to sale-leaseback transactions; and
amends other existing authoritative pronouncements to make various technical
corrections, clarify meanings or describe their applicability under changed
conditions. SFAS No. 145 is effective for fiscal years beginning after May 15,
2002. We do not expect the adoption of this Statement to have a material impact
on our financial position or results of operations.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. This Statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force Issue No. 94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). SFAS No. 146 is effective
for exit or disposal activities that are initiated after December 31, 2002. We
do not expect the adoption of this Statement to have a material impact on our
financial position or results of operations.
ENVIRONMENTAL
We believe environmental issues will not have a material effect on
capital expenditures, future results of operations or financial position.
INFLATION
The effects of inflation on our operations were not significant during
the periods presented in the Consolidated Financial Statements.
ITEM 7A. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, we are exposed to various market
risks. We continually monitor these risks and regularly develop appropriate
strategies to manage them. Accordingly, from time to time, we may enter into
certain derivative financial and commodity instruments. These instruments are
used to mitigate market exposure and are not used for trading or speculative
purposes.
INTEREST RATE RISK
At May 31, 2002, our long-term debt was comprised primarily of
fixed-rate instruments. Therefore, the fair value of this debt is sensitive to
fluctuations in interest rates. We would not expect that a 1% increase in
interest rates would materially impact the fair value of our long-term debt, our
results of operations or cash flows absent an election to repurchase or retire
all or a portion of the fixed-rate debt at prices above carrying value.
FOREIGN CURRENCY RISK
The translation of our foreign operations from their local currencies
to the U.S. dollar subjects us to exposure related to fluctuating exchange
rates. We do not use derivative instruments to manage this risk. However, we do
make limited use of forward contracts to manage our exposure to certain
intercompany loans with our foreign affiliates. At May 31, 2002, the difference
between the contract and book value was not material to our financial position,
results of operations or cash flows. We do not expect that a 10% change in the
exchange rate to the U.S. dollar forward rate would materially impact our
financial position, results of operations or cash flows.
COMMODITY PRICE RISK
We are 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, we negotiate the best prices for our
commodities and competitively price our products and services to reflect the
fluctuations in commodity market prices. To a limited extent, we have entered
into commodity derivative instruments (cash flow hedges) to hedge purchases of
steel, natural gas and zinc. At May 31, 2002, these positions were not material
to our financial position, results of operations or cash flows.
20
ITEM 8. - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
MAY 31,
---------------------------
DOLLARS IN THOUSANDS 2002 2001
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 496 $ 194
Accounts receivable, less allowances of $8,215 and
$9,166 at May 31, 2002 and 2001 197,240 169,330
Inventories
Raw materials 103,763 102,051
Work in process 60,566 59,735
Finished products 55,621 65,720
----------- -----------
219,950 227,506
Deferred income taxes 43,538 21,407
Prepaid expenses and other current assets 29,116 31,282
----------- -----------
Total current assets 490,340 449,719
Investments in unconsolidated affiliates 91,759 58,638
Goodwill 75,400 76,439
Other assets 33,219 54,317
Property, plant and equipment
Land 24,933 25,085
Buildings and improvements 259,054 244,834
Machinery and equipment 921,600 883,160
Construction in progress 19,821 48,111
----------- -----------
1,225,408 1,201,190
Less accumulated depreciation 458,812 364,441
----------- -----------
766,596 836,749
----------- -----------
Total assets $ 1,457,314 $ 1,475,862
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 233,181 $ 207,568
Notes payable 5,281 13,794
Accrued compensation, contributions to employee
benefit plans and related taxes 37,202 39,329
Dividends payable 13,683 13,660
Other accrued items 45,428 28,560
Income taxes 3,494 1,960
Current maturities of long-term debt 1,082 1,748
----------- -----------
Total current liabilities 339,351 306,619
Other liabilities 32,514 19,860
Long-term debt 289,250 309,208
Deferred income taxes 148,726 140,974
Contingent liabilities and commitments - Note G -- --
Minority interest 41,217 49,536
Shareholders' equity:
Preferred shares, without par value; authorized - 1,000,000 shares;
issued and outstanding - none -- --
Common shares, without par value; authorized - 150,000,000 shares;
issued and outstanding, 2002 - 85,512,225 shares, 2001 - 85,375,425 shares -- --
Additional paid-in capital 111,484 109,685
Cumulative other comprehensive loss, net of taxes of $2,214 and $4,349
at May 31, 2002 and 2001 (5,055) (8,024)
Retained earnings 499,827 548,004
----------- -----------
606,256 649,665
----------- -----------
Total liabilities and shareholders' equity $ 1,457,314 $ 1,475,862
=========== ===========
See notes to consolidated financial statements.
21
CONSOLIDATED STATEMENTS OF EARNINGS
YEAR ENDED MAY 31,
--------------------------------------------------
IN THOUSANDS, EXCEPT PER SHARE 2002 2001 2000
-------------- -------------- --------------
Net sales $ 1,744,961 $ 1,826,100 $ 1,962,606
Cost of goods sold 1,480,184 1,581,178 1,629,455
----------- ----------- -----------
Gross margin 264,777 244,922 333,151
Selling, general & administrative expense 165,885 173,264 163,662
Restructuring expense 64,575 6,474 --
----------- ----------- -----------
Operating income 34,317 65,184 169,489
Other income (expense):
Miscellaneous income (expense) (3,224) (928) 2,653
Nonrecurring loss (21,223) -- (8,553)
Interest expense (22,740) (33,449) (39,779)
Equity in net income of unconsolidated affiliates 23,110 25,201 26,832
----------- ----------- -----------
Earnings before income taxes 10,240 56,008 150,642
Income tax expense 3,738 20,443 56,491
----------- ----------- -----------
Net earnings $ 6,502 $ 35,565 $ 94,151
=========== =========== ===========
Average common shares outstanding (basic) 85,408 85,590 88,411
Average common shares outstanding (diluted) 85,929 85,623 88,598
----------- ----------- -----------
Earnings per share - basic & diluted $ 0.08 $ 0.42 $ 1.06
=========== =========== ===========
See notes to consolidated financial statements.
22
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THREE YEARS ENDED MAY 31
CUMULATIVE
OTHER
COMMON STOCK ADDITIONAL COMPREHENSIVE
------------------------------ PAID-IN LOSS, NET OF RETAINED
DOLLARS IN THOUSANDS, EXCEPT SHARES AMOUNT CAPITAL TAX EARNINGS TOTAL
PER SHARE -------------- -------------- -------------- ------------------ -------------- --------------
Balance at June 1, 1999 89,949,274 $ -- $ 111,474 $ (8,484) $ 586,659 $ 689,649
Comprehensive income:
Net income -- -- -- -- 94,151 94,151
Unrealized gain on
investment 5,616 5,616
Foreign currency
translation -- -- -- (2,938) -- (2,938)
------------
Total comprehensive
income 96,829
------------
Common shares issued 358,203 -- 4,018 -- -- 4,018
Purchase and retirement
of common shares (4,552,952) -- (5,720) -- (58,020) (63,740)
Cash dividends declared
($0.61 per share) -- -- -- -- (53,391) (53,391)
Other -- -- 4 -- (15) (11)
------------- ------------- ------------- --------------- ------------- ------------
Balance at May 31, 2000 85,754,525 -- 109,776 (5,806) 569,384 673,354
Comprehensive income:
Net income -- -- -- -- 35,565 35,565
Unrealized gain on
investment -- -- -- 1 -- 1
Foreign currency
translation -- -- -- (2,219) -- (2,219)
------------
Total comprehensive
income 33,347
------------
Purchase and retirement
of common shares (379,100) -- (485) -- (2,184) (2,669)
Cash dividends declared
($0.64 per share) -- -- -- -- (54,762) (54,762)
Other -- -- 394 -- 1 395
------------- ------------- ------------- --------------- ------------- ------------
Balance at May 31, 2001 85,375,425 -- 109,685 (8,024) 548,004 649,665
Comprehensive income:
Net income -- -- -- -- 6,502 6,502
Unrealized loss on
investment -- -- -- (45) -- (45)
Foreign currency
translation -- -- -- 3,967 -- 3,967
Minimum pension
liability -- -- -- (32) -- (32)
Cash flow hedges -- -- -- (921) -- (921)
------------
Total comprehensive
income 9,471
------------
Common shares issued 136,800 -- 1,799 -- -- 1,799
Cash dividends declared
($0.64 per share) -- -- -- -- (54,677) (54,677)
Other -- -- -- -- (2) (2)
------------- ------------- ------------- --------------- ------------- ------------
Balance at May 31, 2002 85,512,225 $ -- $ 111,484 $ (5,055) $ 499,827 $ 606,256
============= ============= ============= =============== ============= ============
See notes to consolidated financial statements.
23
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED MAY 31,
-------------------------------------------------
DOLLARS IN THOUSANDS 2002 2001 2000
-------------- -------------- --------------
OPERATING ACTIVITIES:
Net earnings $ 6,502 $ 35,565 $ 94,151
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization 68,887 70,582 70,997
Restructuring expense 64,575 6,474 --
Provision for deferred income taxes (16,721) 9,077 (16,345)
Nonrecurring loss 21,223 -- 8,553
Equity in undistributed net income (loss) of unconsolidated (8,929) (10,119) 13,262
affiliates
Minority interest in net income (loss) of consolidated (332) 1,464 2,699
subsidiaries
Net loss on sale of assets 1,002 84 --
Changes in assets and liabilities:
Accounts receivable (32,276) 132,497 (17,413)
Inventories 7,556 63,886 (29,106)
Prepaid expenses and other current assets (6,521) 4,314 1,264
Other assets 1,171 (449) (15,957)
Accounts payable and accrued expenses 24,946 14,804 30,631
Other liabilities 4,174 (6,725) (3,826)
--------- --------- ---------
Net cash provided by operating activities 135,257 321,454 138,910
INVESTING ACTIVITIES:
Investment in property, plant and equipment, net (39,100) (62,900) (71,541)
Acquisitions, net of cash acquired -- (2,043) (1,108)
Investment in unconsolidated affiliate (21,000) -- --
Proceeds from sale of assets 10,459 1,030 2,672
--------- --------- ---------
Net cash used by investing activities (49,641) (63,913) (69,977)
FINANCING ACTIVITIES:
Proceeds from (payments on) short-term borrowings (8,513) (146,401) 37,917
Proceeds from long-term debt -- 2,064 --
Principal payments on long-term debt (20,872) (50,643) (5,597)
Proceeds from issuance of common shares 1,628 -- 4,018
Proceeds from (payments to) minority interest (2,902) (4,677) 3,790
Repurchase of common shares -- (3,406) (63,003)
Dividends paid (54,655) (54,822) (53,161)
--------- --------- ---------
Net cash used by financing activities (85,314) (257,885) (76,036)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents 302 (344) (7,103)
Cash and cash equivalents at beginning of year 194 538 7,641
--------- --------- ---------
Cash and cash equivalents at end of year $ 496 $ 194 $ 538
========= ========= =========
See notes to consolidated financial statements.
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation: The consolidated financial statements include the
accounts of Worthington Industries, Inc. and subsidiaries (the "Company").
Spartan Steel Coating, L.L.C. (owned 52%), Worthington S.A. (owned 52%),
Worthington Tank, Ltda. (owned 65%), and Worthington Gastec, a.s. (owned 51%)
are fully consolidated with the equity owned by the respective partners shown as
minority interest on the balance sheet and their portion of net income or loss
included in miscellaneous income or expense. Investments in unconsolidated
affiliates are accounted for using the equity method. Significant intercompany
accounts and transactions are eliminated. Certain reclassifications were made to
prior year amounts to conform to the 2002 presentation.
Use of Estimates: The preparation of financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
Cash and Cash Equivalents: The Company considers all highly liquid
investments purchased with a maturity of three months or less to be cash
equivalents.
Inventories: Inventories are valued at the lower of cost or market.
With the exception of steel coil inventories, which are accounted for using the
specific identification method, cost is determined using the first-in, first-out
method or standard costing which approximates the first-in, first out method for
all inventories.
Derivative Financial Instruments: The Company does not engage in
currency or commodity speculation and generally enters into forward contracts
and swaps only to hedge specific foreign currency or commodity transactions.
Gains or losses from these contracts offset gains or losses of the assets,
liabilities or transactions being hedged. The amount of these contracts
outstanding and the adjustments marked-to-market are not material.
In June 2001, the Company adopted Statement of Financial Accounting
Standards ("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.
Fair Value of Financial Instruments: The non-derivative financial
instruments included in the carrying amounts of cash and cash equivalents,
receivables, other assets, and payables approximate fair values. The fair value
of long-term debt based upon quoted market prices was $280,573,000 and
$280,543,000 at May 31, 2002 and 2001, respectively.
Risks and Uncertainties: The Company, including unconsolidated
affiliates, operates 59 production facilities in 22 states and 10 countries. The
Company's largest markets are the automotive and automotive supply markets,
which comprise approximately one-third of the Company's sales. Foreign
operations and exports represent less than 10% of the Company's production and
sales. Approximately 16% of the Company's labor force is covered by collective
bargaining agreements. All significant labor contracts expire over one year from
May 31, 2002. The concentration of credit risks from financial instruments
related to the markets served by the Company is not expected to have a material
adverse effect on the Company's consolidated financial position, cash flows or
future results of operations.
25
Property and Depreciation: Property, plant and equipment are carried at
cost and depreciated using the straight-line method. Depreciation expense was
$68,734,000 for the fiscal year ended May 31, 2002 ("fiscal 2002"), $66,386,000
for the fiscal year ended May 31, 2001 ("fiscal 2001"), and $66,847,000 for the
fiscal year ended May 31, 2000 ("fiscal 2000"). Accelerated depreciation methods
are used for income tax purposes.
Capitalized Interest: Interest is capitalized in connection with
construction of qualified assets. Under this policy, the Company capitalized
interest of $358,000 in fiscal 2002, $1,905,000 in fiscal 2001 and $750,000 in
fiscal 2000.
Stock-Based Compensation: The Company has elected to follow the
accounting provisions of Accounting Principles Board Opinion No. 25 (APB 25),
Accounting for Stock Issued to Employees, for stock-based compensation and to
furnish the pro forma disclosures required under SFAS No. 123, Accounting for
Stock-Based Compensation. See Note F for pro forma disclosures required by SFAS
No. 123 and for additional information on the Company's stock options.
Revenue Recognition: Revenue is recognized upon shipment of goods if
evidence of an arrangement exists, pricing is fixed and determinable, and
collectibility is probable. In circumstances where the collection of payment is
highly questionable at the time of shipment, recognition of revenue is deferred
until payment is collected. The Company provides for expected returns based on
experience and current customer activities.
Advertising Expense: The Company expenses advertising costs as
incurred. Advertising expense was $2,095,000, $2,314,000 and $2,059,000 for
fiscal 2002, fiscal 2001 and fiscal 2000, respectively.
Environmental Costs: Environmental costs are capitalized if the costs
extend the life of the property, increase its capacity, and/or mitigate or
prevent contamination from future operations. Costs related to environmental
contamination treatment and clean-up are charged to expense.
Statements of Cash Flows: Supplemental cash flow information for the
years ended May 31 is as follows:
IN THOUSANDS 2002 2001 2000
-------------- -------------- --------------
Interest paid $23,485 $34,887 $41,634
Income taxes paid, net of refunds 14,371 42,069 22,821
Nonrecurring Loss: During January 2002, the Company recognized a
$21,223,000 loss for the impairment of assets received in connection with the
fiscal 1999 sale of certain discontinued operations. During fiscal 1999, the
Company sold all of the assets of its Custom Products and Cast Products business
segments for aggregate proceeds of $194,000,000 in cash and $30,000,000 in
preferred stock and subordinated debt issued by four acquirers. As economic
conditions have deteriorated, each of the issuers has encountered difficulty
making scheduled payments under the terms of the preferred stock and
subordinated debt. The Company will continue to review these assets for
impairment indicators and potential write-downs in value.
During March 1997, the Company issued $92,994,000 of three-year notes
exchangeable into Class A Common Stock of Rouge Industries, Inc. ("Rouge") (the
"DECS"). On March 1, 2000, the Company retired the DECS notes in exchange for
the Rouge shares held by the Company. Prior to the exchange, the Company's
investment in Rouge was classified as an "available-for-sale" security with
adjustments to market value being recorded, net of tax, to shareholders' equity.
While it was outstanding, the DECS liability fluctuated in proportion to the
market value of the Rouge shares. Because it was the Company's intention to
settle the DECS using the Rouge shares, a net of tax adjustment to shareholder's
equity was made for the net change both in stock value and the carrying amount
of the DECS liability while it was outstanding. The previously unrealized loss
on the investment in Rouge was realized when the Company exchanged the Rouge
shares for the DECS, resulting in an $8,553,000 pre-tax loss in fiscal 2000.
26
Recently Issued Accounting Standards: In October 2001, the Financial
Accounting Standards Board ("FASB") 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 to have a material impact on the
Company's financial position or results of operations.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. This Statement rescinds SFAS No. 4, Reporting Gains and Losses from
Extinguishment of Debt, and an amendment of that Statement, SFAS No. 64,
Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements; rescinds SFAS
No. 44, Accounting for Intangible Assets of Motor Carriers; amends SFAS No. 13,
Accounting for Leases, to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions; and amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. SFAS No. 145 is effective
for fiscal years beginning after May 15, 2002. Management does not expect the
adoption of this Statement to have a material impact on the Company's financial
position or results of operations.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. This Statement addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force Issue No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring). SFAS No. 146 is effective for exit
or disposal activities that are initiated after December 31, 2002. Management
does not expect the adoption of this Statement to have a material impact on the
Company's financial position or results of operations.
NOTE B - SHAREHOLDERS' EQUITY
Preferred Shares: The Company's Amended Articles of Incorporation
authorize two classes of preferred shares and their relative voting rights. The
Board of Directors is empowered to determine the issue prices, dividend rates,
amounts payable upon liquidation, and other terms of the preferred shares when
issued. No preferred shares are issued or outstanding.
Comprehensive Income: The components of other comprehensive income
(loss) and related tax effects for the years ended May 31 were as follows:
IN THOUSANDS 2002 2001 2000
-------------- -------------- --------------
Other comprehensive income (loss):
Unrealized gain (loss) on investment,
net of tax of $0, $0 and $(3,024)
in 2002, 2001 and 2000 $ (45) $ 1 $ 5,616
Foreign currency translation, net of tax of
$(2,136), $1,195 and $1,582 in 2002, 2001 and 2000 3,967 (2,219) (2,938)
Minimum pension liability, net of tax of $0 in 2002 (32) -- --
Cash flow hedges, net of tax of $495 in 2002 (921) -- --
------- ------- -------
Other comprehensive income (loss) $ 2,969 $(2,218) $ 2,678
======= ======= =======
The components of cumulative other comprehensive loss, net of tax, at
May 31 were as follows:
IN THOUSANDS 2002 2001
--------- ----------
Unrealized gain on investment $ 9 $ 54
Foreign currency translation (4,111) (8,078)
Minimum pension liability (32) --
Cash flow hedges (921) --
------- -------
Cumulative other comprehensive loss $(5,055) $(8,024)
======= =======
27
NOTE C - DEBT
Debt at May 31 is summarized as follows:
IN THOUSANDS 2002 2001
--------- ---------
Short-term notes payable $ 5,281 $ 13,794
7.125% senior notes due May 15, 2006 142,409 158,500
6.700% senior notes due December 1, 2009 145,000 145,000
Other 2,923 7,456
-------- --------
Total debt 295,613 324,750
Less current maturities and short-term notes payable 6,363 15,542
-------- --------
Total long-term debt $289,250 $309,208
======== ========
Short-term notes payable represent notes payable to banks. Bank notes
with Brazilian banks were $2,909,000 and $956,000 at May 31, 2002 and 2001,
respectively, with a weighted average interest rate of 21.98% for fiscal 2002
and 23.86% for fiscal 2001. The weighted average interest rate for all other
bank notes was 4.78% for fiscal 2002 and 5.96% for fiscal 2001. During May 2002,
the Company replaced its $190,000,000 revolving credit facility maturing May
2003 with $310,000,000 in new facilities syndicated with various banks. The full
$310,000,000 is available to the Company. The new facilities consist of a
$155,000,000 364-day revolving credit agreement maturing May 2003 and a
$155,000,000 five-year revolving credit agreement maturing May 2007. The Company
pays commitment fees on the unused credit amount under the facilities. Interest
rates on borrowings under the facilities and related fees are determined by the
Company's senior unsecured long-term debt ratings as assigned by Standard &
Poor's Ratings Services and Moody's Investors Service. There were no outstanding
balances under the facilities at May 31, 2002. The covenants in the facilities
include, among others, maintenance of a debt-to-total capitalization ratio of
not more than 55% and maintenance of a debt-to-EBITDA (Earnings Before Interest,
Taxes, Depreciation and Amortization) ratio of not more than 3.75 times through
February 2003, declining periodically thereafter to 3.00 times in May 2005. The
Company was in compliance with all covenants under the facilities at May 31,
2002.
During fiscal 2002 and 2001, the Company entered into open-market
transactions to repurchase portions of the 7.125% Notes due 2006 and the 6.700%
Notes due 2009. The total amounts of each issue repurchased through May 31, 2002
were $57,591,000 and $5,000,000, respectively.
During fiscal 2002, the Company retired "Other" debt of $4,030,000
representing various industrial development revenue bonds. At May 31, 2002, the
Company's remaining "Other" debt represented debt from foreign operations with a
weighted average interest rate of 3.49%. During fiscal 2001, the Company prepaid
$7,305,000 of floating rate notes due 2011. In conjunction with the prepayment,
the Company terminated certain interest rate swap agreements that effectively
converted the interest rate on the floating rate notes to a 5.91% fixed rate.
The Company recorded a $392,000 loss during fiscal 2001 to reflect the
termination of the interest rate swap agreements. At May 31, 2002, the Company
was not a party to any interest rate swap agreements or other interest rate
derivatives.
Principal payments due on long-term debt in the next five fiscal years
and the remaining years thereafter are as follows (in thousands):
2003 $ 1,082
2004 1,003
2005 757
2006 142,490
2007 --
Thereafter 145,000
-----------
Total $ 290,332
===========
28
NOTE D - INCOME TAXES
Income taxes for the years ended May 31 were as follows:
IN THOUSANDS 2002 2001 2000
---------- --------- ---------
Current:
Federal $ 19,142 $ 6,740 $ 66,070
State and local 2,051 1,126 4,078
Foreign (734) 3,500 2,688
Deferred:
Federal (14,570) 8,998 (16,514)
State (2,151) 79 169
-------- -------- --------
$ 3,738 $ 20,443 $ 56,491
======== ======== ========
The components of the Company's deferred tax assets and liabilities as
of May 31 were as follows:
IN THOUSANDS 2002 2001
--------- ---------
Deferred tax assets:
Accounts receivable $ 8,104 $ 4,078
Inventory 4,671 4,551
Accrued expenses 6,698 8,337
Restructuring expenses 18,502 --
Income taxes 4,746 4,094
Other 817 347
--------- ---------
43,538 21,407
Deferred tax liabilities:
Property, plant, and equipment 135,238 129,688
Undistributed earnings of unconsolidated affiliates 14,597 13,512
Other (1,109) (2,226)
--------- ---------
148,726 140,974
--------- ---------
Net deferred tax liability $ 105,188 $ 119,567
========= =========
The reasons for the difference between the effective income tax rate
and the statutory federal income tax rate were as follows:
2002 2001 2000
-------------- -------------- --------------
Federal statutory rate 35.0% 35.0% 35.0%
State and local income taxes, net of federal tax benefit (0.6) 1.4 1.8
Foreign and other 2.1 0.1 0.7
-------------- -------------- --------------
Effective tax rate 36.5% 36.5% 37.5%
============== ============== ==============
NOTE E - EMPLOYEE BENEFIT PLANS
The Company provides pension benefits to employees through deferred
profit sharing or defined benefit plans. Most employees are covered by
contributory deferred profit sharing plans. Company contributions to the defined
contribution plans generally are determined as a percentage of the Company's
pre-tax income before profit sharing. The defined benefit plans are
non-contributory pension plans which cover certain employees based on age and
length of service. Company contributions to these plans exceeded ERISA's minimum
funding requirements for fiscal 2002.
29
The following table summarizes the components of net periodic pension
cost for the defined benefit and contribution plans for the years ended May 31:
IN THOUSANDS 2002 2001 2000
--------- -------- --------
Defined benefit plans:
Service cost $ 934 $ 922 $ 827
Interest cost 1,333 1,242 1,051
Actual loss (return) on plan assets 287 1,092 (1,109)
Net amortization and deferral (1,218) (2,135) 177
------- ------- -------
Net pension cost on defined benefit plans 1,336 1,121 946
Defined contribution plans 6,735 5,676 6,418
------- ------- -------
Total pension cost $ 8,071 $ 6,797 $ 7,364
======= ======= =======
The following actuarial assumptions were used for the Company's defined
benefit pension plans:
2002 2001 2000
-------------- -------------- --------------
Weighted average discount rate 7.00% 7.43% 7.47%
Weighted average expected long-term rate of return 8.36% 8.32% 8.31%
In addition to and as part of its consolidation plan, the Company
recognized a $4,242,000 net curtailment loss in fiscal 2002 (see Note N). The
loss primarily resulted from the recognition of prior service cost related to
employees to be terminated.
The following table summarizes amounts recognized in the Company's
consolidated balance sheets and the funded status for defined benefit pension
plans at May 31:
IN THOUSANDS 2002 2001
---------- --------
Change in benefit obligation
Benefit obligation, beginning of year $ 17,605 $ 14,891
Service cost 934 922
Interest cost 1,333 1,242
Amendments -- 1,108
Curtailment (325) --
Actuarial loss 922 114
Benefits paid (714) (672)
-------- --------
Benefit obligation, end of year 19,755 17,605
-------- --------
Change in plan assets
Fair value, beginning of year 14,520 14,767
Actual loss on plan assets (287) (1,092)
Company contributions 6,338 1,425
Benefits paid (714) (580)
-------- --------
Fair value, end of year 19,857 14,520
-------- --------
Funded (underfunded) status 102 (3,085)
Unrecognized net actuarial loss (gain) 1,618 (1,385)
Unrecognized prior service cost 1,709 3,161
Unrecognized transition obligation (asset) (11) 65
Minimum pension liability -- (1,857)
-------- --------
Prepaid (accrued) benefit cost $ 3,418 $ (3,101)
======== ========
30
Plans with benefit obligations in excess of fair value of plan assets:
Projected benefit obligation $ -- $ 16,816
Fair value of plan assets -- 13,469
----------- ---------
Funded status $ -- $ (3,347)
=========== =========
Plan assets consist principally of listed equity securities and fixed
income instruments.
NOTE F - STOCK OPTIONS
Under its employee stock option plan, the Company may grant incentive
stock options to purchase common shares at not less than 100% of market value at
date of grant. Under its non-employee director stock option plan, the Company
may grant non-qualified stock options at a price determined by the Compensation
and Stock Option Committee. Generally, stock options vest and become exercisable
at the rate of 20% per year beginning one year from date of grant and expire ten
years thereafter.
The following table summarizes the stock option plans' activities for
the years ended May 31:
2002 2001 2000
----------------------- ----------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
STOCK AVERAGE STOCK AVERAGE STOCK AVERAGE
IN THOUSANDS, EXCEPT PER SHARE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
---------- ----------- ----------- ---------- ----------- -----------
Outstanding, beginning of year 5,839 $13.07 4,336 $14.90 3,907 $15.04
Granted 12 11.05 1,851 9.30 1,006 12.75
Exercised (137) 12.10 -- -- (358) 9.25
Forfeited (297) 13.90 (348) 15.77 (219) 17.29
--------- --------- ---------
Outstanding, end of year 5,417 13.05 5,839 13.07 4,336 14.90
========= ========= =========
Exercisable at end of year 2,735 14.92 2,005 16.34 1,474 17.68
========= ========= =========
The following table summarizes information for stock options
outstanding and exercisable at May 31, 2002:
OUTSTANDING EXERCISABLE
------------------------------------------- --------------------------
WEIGHTED
WEIGHTED AVERAGE WEIGHTED
AVERAGE REMAINING AVERAGE
EXERCISE CONTRACTUAL EXERCISE
IN THOUSANDS, EXCEPT PER SHARE NUMBER PRICE LIFE NUMBER PRICE
------------- ------------- --------------- ------------ ------------
Exercise prices between
$ 9.00 and $13.00 4,169 $11.32 5.0 1,653 $12.06
$14.38 and $21.38 1,248 18.82 4.1 1,082 19.28
Under APB 25, the Company does not recognize compensation expense
related to stock options, as no stock options are granted at a price below the
market price on the day of grant.
31
Pro Forma Information: Pro forma information regarding net income and
earnings per share is required by SFAS No. 123. This information is required to
be determined as if the Company had accounted for its stock options granted
after December 31, 1994 under the fair value method prescribed by that
Statement. The weighted average fair value of stock options granted in fiscal
2002, 2001 and 2000 was $2.89, $2.27 and $2.84, respectively, based on the
Black-Scholes option-pricing model with the following weighted average
assumptions:
2002 2001 2000
-------------- --------------- --------------
Assumptions used:
Dividend yield 4.55% 6.38% 4.25%
Expected volatility 23.00% 23.00% 23.00%
Risk-free interest rate 4.38% 3.61% 5.96%
Expected lives (years) 5 5 5
Had compensation cost for the Company's stock option plans been
determined based on the fair value at the grant date for awards in 2002, 2001
and 2000 consistent with the provisions of SFAS No. 123, the Company's net
earnings and earnings per share would have been as presented in the following
table:
IN THOUSANDS, EXCEPT PER SHARE 2002 2001 2000
-------------- --------------- --------------
Pro forma net earnings $ 5,072 $ 34,199 $ 92,708
Pro forma earnings per share (basic) 0.06 0.40 1.05
Pro forma earnings per share (diluted) 0.06 0.40 1.05
The fair value of each stock option grant was estimated on the date of
grant using the Black-Scholes option-pricing model with the above weighted
average assumptions used for grants. Because the Company's stock options have
characteristics significantly different from those of traded stock options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in the Company's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its stock
options.
NOTE G - CONTINGENT LIABILITIES AND COMMITMENTS
The Company is a defendant in certain legal actions. In the opinion of
management, the outcome of these actions, which is not clearly determinable at
the present time, would not significantly affect the Company's consolidated
financial position or future results of operations. The Company believes that
environmental issues will not have a material effect on capital expenditures,
consolidated financial position or future results of operations.
To secure access to facilities used to regenerate acid used in certain
steel processing locations, the Company has entered into unconditional purchase
obligations with a third party which require the Company to deliver certain
quantities of acid for processing annually through the year 2019. In addition,
the Company is required to pay for freight and utilities used in processing its
acid. The aggregate amount of required future payments at May 31, 2002 is as
follows (in thousands):
2003 $ 4,395
2004 4,395
2005 4,395
2006 4,395
2007 4,395
Thereafter 52,745
-------
Total $74,720
=======
The Company may not terminate the unconditional purchase obligations
without assuming or otherwise repaying certain debt of the supplier, based on
the fair market value of the facility. At May 31, 2002, $32,456,000 of such debt
was outstanding.
32
NOTE H - INDUSTRY SEGMENT DATA
The Company's operations include three reportable segments (Processed
Steel Products, Metal Framing and Pressure Cylinders). Factors used to identify
these segments include the products and services provided by each segment as
well as the management reporting structure used by the Company. A discussion of
each segment is outlined below.
Processed Steel Products: This segment consists of two business units,
The Worthington Steel Company ("Worthington Steel") and The Gerstenslager
Company ("Gerstenslager"). Both are intermediate processors of flat-rolled
steel. This segment's processing capabilities include blanking, cold-rolling,
dry lubricating, configured blanking, cutting-to-length, edging, hot-dipped
galvanizing, hydrogen annealing, nickel plating, painting, pickling, slitting,
stamping, tension leveling, and zinc/nickel coating. Worthington Steel sells to
customers principally in the automotive, lawn and garden, construction,
hardware, furniture, office equipment, electrical control, leisure and
recreation, appliance, farm implement, HVAC, and aerospace markets.
Gerstenslager supplies automotive aftermarket body panels within the United
States primarily to domestic and transplant automotive and heavy duty truck
manufacturers.
Metal Framing: This segment consists of one business unit, Dietrich
Industries, Inc. ("Dietrich"), which produces metal framing products for the
commercial and residential construction markets in the United States. Dietrich's
customers primarily consist of wholesale distributors and commercial and
residential building contractors.
Pressure Cylinders: This segment consists of one business unit,
Worthington Cylinder Corporation ("Worthington Cylinders"). Worthington
Cylinders produces a diversified line of pressure cylinder vessels, including
liquefied petroleum gas ("LPG") cylinders, refrigerant cylinders, and
industrial/specialty gas cylinders. LPG cylinders are used for gas barbecue
grills, camping equipment, residential heating systems, industrial forklifts,
and commercial/residential cooking (outside North America). Refrigerant
cylinders are used to hold refrigerant gases for commercial and residential air
conditioning and refrigeration systems and for automotive air conditioning
systems. Industrial/specialty gas cylinders are used as containers for gases for
the following: cutting and welding metals; breathing (medical, diving and
firefighting); semiconductor production; beverage delivery; and compressed
natural gas systems. Worthington Cylinders also produces recycle and recovery
tanks for refrigerant gases and non-refillable cylinders for helium balloon
kits.
The accounting policies of the operating segments are described in Note
A. The Company evaluates segment performance based on operating income.
Inter-segment sales are not material.
33
Summarized financial information for the Company's reportable segments
is shown in the following table. The "Other" category includes corporate related
items, results of immaterial operations, and income and expense not allocable to
the reportable segments.
IN MILLIONS 2002 2001 2000
---------- ---------- ----------
NET SALES
Processed Steel Products $ 1,132.7 $ 1,184.9 $ 1,287.9
Metal Framing 306.0 346.0 350.6
Pressure Cylinders 292.8 289.1 318.8
Other 13.5 6.1 5.3
---------- ---------- ----------
Total $ 1,745.0 $ 1,826.1 $ 1,962.6
========== ========== ==========
OPERATING INCOME
Processed Steel Products $ 13.6 $ 29.3 $ 96.8
Metal Framing 19.1 23.7 43.2
Pressure Cylinders 11.0 19.3 34.2
Other (9.4) (7.1) (4.7)
---------- ---------- ----------
Total $ 34.3 $ 65.2 $ 169.5
========== ========== ==========
DEPRECIATION AND AMORTIZATION
Processed Steel Products $ 45.3 $ 46.2 $ 48.0
Metal Framing 10.0 10.6 9.4
Pressure Cylinders 9.8 10.1 10.4
Other 3.8 3.7 3.2
---------- ---------- ----------
Total $ 68.9 $ 70.6 $ 71.0
========== ========== ==========
TOTAL ASSETS
Processed Steel Products $ 903.3 $ 908.1 $ 1,049.6
Metal Framing 244.3 239.9 256.5
Pressure Cylinders 154.0 178.9 215.9
Other 155.7 149.0 151.9
---------- ---------- ----------
Total $ 1,457.3 $ 1,475.9 $ 1,673.9
========== ========== ==========
CAPITAL EXPENDITURES
Processed Steel Products $ 17.8 $ 31.0 $ 31.2
Metal Framing 13.8 15.1 11.0
Pressure Cylinders 4.8 9.8 12.4
Other 2.7 7.0 16.9
---------- ---------- ----------
Total $ 39.1 $ 62.9 $ 71.5
========== ========== ==========
NOTE I - RELATED PARTY TRANSACTIONS
The Company purchases from and sells to affiliated companies certain
raw materials and services at prevailing market prices. Sales to affiliated
companies for fiscal 2002, 2001 and 2000 totaled $25,321,000, $36,063,000 and
$31,359,000, respectively. Accounts receivable related to these transactions
were $681,000 and $3,671,000 at May 31, 2002 and 2001, respectively. Accounts
payable to affiliated companies were $31,111,000 and $23,427,000 at May 31, 2002
and 2001, respectively.
34
NOTE J - INVESTMENTS IN UNCONSOLIDATED AFFILIATES
The Company's investments in affiliated companies, which are not
majority-owned and not controlled, are accounted for using the equity method.
These equity investments and the percentage interest owned consist of
Worthington Armstrong Venture (50%), TWB Company, L.L.C. (33%), Acerex S.A. de
C.V. (50%), Worthington Specialty Processing (50%) and Aegis Metal Framing
(60%).
The Company received dividends from unconsolidated affiliates totaling
$12,500,000 and $15,082,000 in 2002 and 2001, respectively.
Financial information for affiliated companies accounted for using the
equity method as of, and for, the years ended May 31 was as follows:
IN THOUSANDS 2002 2001 2000
-------------- --------------- --------------
Current assets $ 151,655 $ 125,938 $ 120,619
Noncurrent assets 156,730 124,263 129,699
Current liabilities 66,160 54,772 55,220
Noncurrent liabilities 54,672 66,156 85,568
Net sales 420,222 417,057 377,630
Gross margin 81,913 84,825 89,931
Net income 47,457 51,335 55,921
The Company's share of undistributed earnings of unconsolidated
affiliates was $23,919,000 at May 31, 2002.
NOTE K - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
YEAR ENDED MAY 31,
----------------------------------------------
DOLLARS IN THOUSANDS, EXCEPT PER SHARE 2002 2001 2000
----------- ----------- -----------
Numerator (basic & diluted):
Net earnings - income available to common
shareholders $ 6,502 $ 35,565 $ 94,151
Denominator:
Denominator for basic earnings per share - weighted
average shares 85,408,200 85,590,089 88,410,804
Effect of dilutive securities - stock options 520,541 33,288 187,009
----------- ----------- -----------
Denominator for diluted earnings per share - adjusted
weighted average shares 85,928,741 85,623,377 88,597,813
=========== =========== ===========
Basic earnings per share $ 0.08 $ 0.42 $ 1.06
Diluted earnings per share
0.08 0.42 1.06
Stock options covering 1,298,094, 4,143,873 and 1,559,315 common shares
for fiscal 2002, fiscal 2001 and fiscal 2000 have been excluded from the
computation of diluted earnings per share because the effect would have been
antidilutive for those periods.
35
NOTE L - OPERATING LEASES
The Company leases certain property and equipment from third parties
under non-cancelable operating lease agreements. Rent expense under operating
leases was $7,732,000 in fiscal 2002, $4,969,000 in fiscal 2001 and $3,210,000
in fiscal 2000. Future minimum lease payments for non-cancelable operating
leases having an initial or remaining term in excess of one year at May 31,
2002, are as follows (in thousands):
2003 $ 5,219
2004 4,241
2005 3,417
2006 1,421
2007 1,010
Thereafter 3,685
-------
Total $18,993
=======
NOTE M - SALE OF ACCOUNTS RECEIVABLE
On November 30, 2000, the Company and certain of its subsidiaries
entered into a $120,000,000 revolving trade receivables securitization facility.
In May 2001, this facility was expanded to include other subsidiaries and was
increased to $190,000,000. Pursuant to the terms of the facility, these
subsidiaries sell their accounts receivable, on a revolving basis, to a
wholly-owned, bankruptcy-remote subsidiary of the Company, Worthington
Receivables Corporation ("WRC"), which is consolidated for financial reporting
purposes. In turn, WRC sells, on a revolving basis, up to $190,000,000 undivided
ownership interest in the purchased accounts receivable to independent third
parties. The Company retains an undivided interest in this pool and is subject
to risk of loss based on the collectibility of the receivables from this
retained interest. Because the amount eligible to be sold excludes receivables
past due, balances with foreign customers, concentrations over limits with
specific customers, and certain reserve amounts, the Company believes additional
risk of loss is minimal. Also because of these exclusions, no discount occurs on
the sale and no gain or loss is recorded; however, facility fees of $4,082,000
and $3,110,000 were incurred during fiscal 2002 and 2001, respectively. The book
value of the retained portion approximates fair value. The Company continues to
service the accounts receivable. No servicing asset or liability has been
recognized as the Company's cost to service the accounts receivable is expected
to approximate the servicing income.
As of May 31, 2002, WRC had sold $100,000,000 of undivided ownership
interest in accounts receivable. The proceeds from the sale were reflected as a
reduction of accounts receivable on the consolidated balance sheets and as
operating cash flows in the consolidated statements of cash flows. The sale
proceeds were used to pay down short-term debt.
NOTE N - RESTRUCTURING EXPENSE
During the quarter ended February 28, 2002, the Company announced a
consolidation plan to improve profitability. This plan affects each of the
Company's business segments as six facilities will be closed and two others will
be restructured. As part of the consolidation plan, the Company recorded a
$64,575,000 pre-tax restructuring expense. The restructuring expense includes a
write-down to fair value of certain property and equipment, severance and
employee related costs, and other items. Of this expense, all but $11,842,000
for severance and employee related costs are non-cash charges. The severance and
employee related costs are due to the elimination of 542 administrative,
production and other employee positions. As of May 31, 2002, 230 employee
positions had been eliminated (205 through termination and 25 through retirement
and attrition), and severance of $1,427,000 was paid. The consolidation process
should be substantially completed by January 2003.
36
The components of the restructuring charge are summarized as follows:
AMOUNT BALANCE
CHARGED OTHER MAY 31,
IN THOUSANDS TO INCOME PAYMENTS CREDITS 2002
-------------- -------------- -------------- --------------
Property and equipment $48,245 $ (155) $ -- $48,090
Severance and employee related 11,842 (1,438) -- 10,404
Other items 4,488 (244) -- 4,244
------- ------- ------ -------
Total $64,575 $(1,837) $ -- $62,738
======= ======= ====== =======
The sales of the affected plants will be transferred to other Company
locations except for the sales of the Itu, Brazil, facility and the painted and
coated products of the Malvern, Pennsylvania, facility. Net sales for the
products that will not be transferred were $42,363,000, $65,484,000 and
$70,385,000 for fiscal 2002, 2001 and 2000, respectively. The related operating
income (loss) for these products was $(5,314,000), $(14,528,000) and $643,000
for fiscal 2002, 2001 and 2000, respectively.
During the quarter ended February 28, 2001, the Company recorded a
pre-tax restructuring expense of $6,474,000 for the partial shutdown of the
Malvern facility. The Company has sold all of the idled equipment and settled
the termination liabilities for approximately the costs that were accrued.
NOTE O - GOODWILL
The Company adopted 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. During the six months ended November 30, 2001, the
Company performed the required initial impairment tests of goodwill. No
impairments were then indicated. The annual impairment test was performed during
the fourth quarter of fiscal 2002, and goodwill of $566,000 was written off as a
result.
The impact of the adoption of SFAS No. 142 for the years ended May 31
is summarized as follows:
IN THOUSANDS, EXCEPT PER SHARE 2002 2001 2000
-------------- -------------- --------------
Net earnings as reported $ 6,502 $ 35,565 $ 94,151
Add back: goodwill amortization after-tax -- 1,581 1,429
------------- ------------ ---------
Adjusted net earnings $ 6,502 $ 37,146 $ 95,580
============= ============ =========
Earnings per common share as reported -
basic & diluted $ 0.08 $ 0.42 $ 1.06
Goodwill amortization after-tax
-- 0.01 0.02
------------- ------------ ---------
Adjusted earnings per common share -
basic & diluted $ 0.08 $ 0.43 $ 1.08
============= ============ =========
37
Goodwill by segment is summarized as follows at May 31:
IN THOUSANDS 2002 2001
-------------- --------------
Processed Steel Products $ -- $ 17
Metal Framing 57,752 57,752
Pressure Cylinders 17,648 18,104
Other -- 566
------------- -----------
$ 75,400 $ 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 and the shutdown
of the Brazil operations. The reduction in Other goodwill was a result of the
annual impairment test.
NOTE P - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of
operations for the years ended May 31:
THREE MONTHS ENDED
---------------------------------------------------------------------
IN THOUSANDS, EXCEPT PER SHARE AUGUST 31 NOVEMBER 30 FEBRUARY 28 MAY 31
---------------- ---------------- ---------------- ----------------
2002
Net sales $ 409,558 $ 410,379 $ 405,740 $ 519,284
Gross margin 59,997 61,297 50,851 92,632
Net earnings 14,285 11,323 (45,865) 26,759
Earnings per share (diluted) $ 0.17 $ 0.13 $ (0.53) $ 0.31
2001
Net sales $ 484,224 $ 457,369 $ 418,717 $ 465,790
Gross margin 63,878 56,621 53,583 70,840
Net earnings 12,477 6,880 1,778 14,430
Earnings per share (diluted) $ 0.15 $ 0.08 $ 0.02 $ 0.17
Results for the quarter ended February 28, 2002 include a pre-tax
restructuring expense of $64,575,000 ($0.48 per share, net of tax) and a pre-tax
charge to establish a reserve for the impairment of certain assets of
$21,223,000 ($0.15 per share, net of tax). Results for the quarter ended
February 28, 2001 include a pre-tax restructuring expense of $6,474,000 ($0.04
per share, net of tax).
NOTE Q - SUBSEQUENT EVENT
On July 31, 2002, Worthington Industries, Inc. acquired the stock of
Unimast Incorporated and its subsidiaries ("Unimast"), a wholly-owned subsidiary
of WHX Corporation, for approximately $113,000,000 in cash and approximately
$9,000,000 of assumed indebtedness. Unimast manufactures construction steel
products, including light gauge steel framing, plastering steel and trim
accessories, and serves the construction industry from ten locations. Their
revenues for the year ended December 31, 2001 were approximately $230 million.
Unimast will be included in the Company's Metal Framing segment.
38
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Worthington Industries, Inc.
We have audited the accompanying consolidated balance sheet of
Worthington Industries, Inc. and subsidiaries as of May 31, 2002, and the
related consolidated statements of earnings, shareholders' equity, and cash
flows for the year then ended. In connection with our audit of the consolidated
financial statements, we also have audited the financial statement schedule of
valuation and qualifying accounts. These consolidated financial statements and
the financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and the financial statement schedule based on our audit.
We conducted our audit in accordance with auditing standards
generally accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Worthington
Industries, Inc. and subsidiaries as of May 31, 2002, and the results of their
operations and their cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States of America. Also
in our opinion, the related financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
-----------------------------------
KPMG LLP
Columbus, Ohio
June 18, 2002
39
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Worthington Industries, Inc.
We have audited the accompanying consolidated balance sheet of
Worthington Industries, Inc. and subsidiaries as of May 31, 2001, and the
related consolidated statements of earnings, shareholders' equity, and cash
flows for each of the two years in the period ended May 31, 2001. Our audits
also included the financial statement schedule listed in Item 14(a)(2) and 14(d)
as of and for the two years in the period ended May 31, 2001. These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Worthington Industries, Inc. and subsidiaries at May 31, 2001, and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended May 31, 2001 in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
/s/ ERNST & YOUNG LLP
-------------------------------------
Ernst & Young LLP
Columbus, Ohio
June 15, 2001
40
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
WORTHINGTON INDUSTRIES, INC. AND SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------------------------------------
COL. A. COL. B. COL. C COL. D. COL. E.
- ------------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION Balance at Additions Deductions - Balance at End of
Beginning of ------------------------------------- Describe Period
Period Charged to Costs Charged to Other
and Expenses Accounts -
Describe
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended May 31, 2002:
Deducted from asset accounts:
Allowance for possible
losses on trade accounts
receivable $9,166,000 $10,287,000 $215,000 (A) $11,453,000 (B) $8,215,000
============ ============ ============= ================ ===========
Year Ended May 31, 2001:
Deducted from asset accounts:
Allowance for possible
losses on trade accounts
receivable $3,879,000 $5,431,000 $795,000 (A) $ 939,000 (B) $9,166,000
============ ============ ============= ================ ===========
Year Ended May 31, 2000:
Deducted from asset accounts:
Allowance for possible
losses on trade accounts
receivable $4,209,000 $1,842,000 ($409,000) (A) $ 1,763,000 (B) $3,879,000
============ ============ ============= ================ ===========
Note A - Miscellaneous amounts.
Note B - Uncollectible accounts charged to the allowance.
41
ITEM 9. - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Required information reported in the Annual Report on Form 10-K for the
fiscal year ended May 31, 2001.
PART III
ITEM 10. - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
In accordance with General Instruction G(3) of Form 10-K, the
information required by this Item 10 with respect to the identification of
directors is incorporated herein by reference to the material under the heading
"Election of Directors" contained in the Registrant's 2002 Proxy Statement for
the September 26, 2002 Annual Meeting of Shareholders (the "Proxy Statement").
The information regarding executive officers required by Item 401 of Regulation
S-K is included in Part I hereof under the heading "Supplemental Item. -
Executive Officers of the Registrant." The information required by Item 405 of
Regulation S-K is incorporated herein by reference to the material under the
heading "Voting Securities and Principal Holders - Section 16(a) Beneficial
Ownership Reporting Compliance" in the Proxy Statement.
ITEM 11. - EXECUTIVE COMPENSATION
In accordance with General Instruction G(3) of Form 10-K, the
information required by this Item 11 is incorporated herein by reference to the
information contained in the Proxy Statement under the headings "Election of
Directors--Compensation of Directors" and "Executive Compensation."
ITEM 12. - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED SHAREHOLDER MATTERS
In accordance with General Instruction G(3) of Form 10-K, the
information required by this Item 12 with respect to the security ownership of
certain beneficial owners and management is incorporated herein by reference to
the material contained in the Proxy Statement under the headings "Voting
Securities and Principal Holders -- Security Ownership of Certain Beneficial
Owners and Management."
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of May 31, 2002, with
respect to compensation plans under which common shares of Worthington
Industries are authorized for issuance. These compensation plans include: (i)
the Worthington Industries, Inc. 1990 Stock Option Plan; (ii) the Worthington
Industries, Inc. 1997 Long-Term Incentive Plan; and (iii) the Worthington
Industries, Inc. 2000 Stock Option Plan for Non-Employee Directors. All of these
plans were approved by our shareholders.
NUMBER OF SHARES
REMAINING AVAILABLE FOR
NUMBER OF SHARES TO BE WEIGHTED AVERAGE FUTURE ISSUANCE UNDER
ISSUED UPON EXERCISE OF EXERCISE PRICE OF EQUITY COMPENSATION
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, PLANS (EXCLUDING SHARES
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN COLUMN (a))
- ------------------- ----------------------- --------------------- -------------------------
(a) (b) (c)
----------------------- --------------------- -------------------------
Equity compensation 5,417,000 $13.05 3,682,000
plans approved by
shareholders
ITEM 13. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In accordance with General Instruction G(3) of Form 10-K, the
information required by this Item 13 is incorporated herein by reference to the
information for John H. McConnell and John P. McConnell under the
42
heading "Security Ownership of Certain Beneficial Owners and Management" in the
Proxy Statement and by reference to the material set forth under the caption
"Related Party Transactions" in the Proxy Statement.
PART IV
ITEM 14. - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Form 10-K:
(1) Consolidated Financial Statements:
Consolidated Balance Sheets as of May 31, 2002 and 2001
Consolidated Statements of Earnings for the years ended May 31,
2002, 2001 and 2000
Consolidated Statements of Shareholders' Equity for the years ended
May 31, 2002, 2001 and 2000
Consolidated Statements of Cash Flows for years ended May 31,
2002, 2001 and 2000
Notes to Consolidated Financial Statements
Independent Auditors' Report (KPMG LLP)
Independent Auditors' Report (Ernst & Young LLP)
(2) Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts
All other financial statement schedules are omitted because they are
not required or the information required has been presented in the
aforementioned financial statements.
(3) Listing of Exhibits:
The exhibits listed on the "Index to Exhibits" beginning on page E-1
of this Form 10-K are filed with this Form 10-K or incorporated by
reference noted in the "Index to Exhibits." The "Index to Exhibits"
specifically identifies each management contract or compensatory plan
required to be filed as an exhibit to this Form 10-K.
(b) No reports on Form 8-K were filed during the last quarter of fiscal 2002.
(c) The exhibits listed on the "Index to Exhibits" beginning on page E-1 of
this report are filed with this Form 10-K or incorporated by reference as
noted in the "Index to Exhibits."
(d) The Financial Statement Schedule listed in Item 14(a)(2) is filed herewith.
43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: August 21, 2002 By: /s/ John P. McConnell
------------------------------------
John P. McConnell
Chairman & Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
SIGNATURE DATE TITLE
--------- ---- -----
/s/ John P. McConnell August 21, 2002 Director, Chairman &
- ------------------------------------ Chief Executive Officer
John P. McConnell
* * Director, Chairman Emeritus
- ------------------------------------ & Founder
John H. McConnell
* * Director, President &
- ------------------------------------ Chief Operating Officer
John S. Christie
/s/ John T. Baldwin August 21, 2002 Vice President & Chief
- ------------------------------------ Financial Officer
John T. Baldwin
/s/ Richard G. Welch August 21, 2002 Controller
- ------------------------------------
Richard G. Welch
* * Director
- ------------------------------------
John B. Blystone
* * Director
- ------------------------------------
William S. Dietrich, II
* * Director
- ------------------------------------
Michael J. Endres
* * Director
- ------------------------------------
Peter Karmanos, Jr.
* * Director
- ------------------------------------
John R. Kasich
* * Director
- ------------------------------------
Sidney A. Ribeau
* * Director
- ------------------------------------
Mary Fackler Schiavo
*By: /s/ John P. McConnell Date: August 21, 2002
--------------------------------------------
John P. McConnell
Attorney-In-Fact
44
INDEX TO EXHIBITS
Exhibit Description Location
- ---------------- ---------------------------------------- ------------------------------------------------
2 Stock Purchase Agreement, dated as of Filed herewith
June 24, 2002, between Worthington
Industries, Inc. and WHX Corporation
(excluding exhibits and schedules)
3(a) Amended Articles of Incorporation of Incorporated by reference to Exhibit 3(a) of the
Worthington Industries, Inc., as filed Registrant's Quarterly Report on Form 10-Q for
with Ohio secretary of State on the quarter ended August 31, 1998
October 13, 1998
3(b) Code of Regulations of Worthington Incorporated by reference to Exhibit 3(b) of the
Industries, Inc., as amended through Registrant's Quarterly Report on Form 10-Q for
September 28, 2000 for SEC reporting the quarter ended August 31, 2000
compliance purposes only
4(a) Form of Indenture, dated as of May 15, Incorporated by reference to Exhibit 4(a) of the
1996, between Worthington Industries, Registrant's Annual Report on Form 10-K for
Inc. and PNC Bank, Ohio, National fiscal year ended May 31, 1997
Association, as Trustee, relating to
up to $450,000,000 of debt securities
4(b) Form of 7-1/8% Note due May 15, 2006 Incorporated by reference to Exhibit 4(b) of the
Registrant's Annual Report on Form 10-K for
fiscal year ended May 31, 1997
4(c) First Supplemental Indenture, dated as Incorporated by reference to Exhibit 4(c) of the
of February 27, 1997, between Registrant's Annual Report on Form 10-K for
Worthington Industries, Inc. and PNC fiscal year ended May 31, 1997
Bank, Ohio, National Association, as
Trustee
4(d) Agreement to furnish instruments Filed herewith
defining rights of holders of
long-term debt
4(e) Form of 6.7% Note due December 1, 2009 Incorporated by reference to Exhibit 4(f) of the
Registrant's Annual Report on Form 10-K for the
fiscal year ended May 31, 1998
4(f) Second Supplemental Indenture, dated Incorporated by reference to Exhibit 4(g) of the
as of December 12, 1997, between Registrant's Annual Report on Form 10-K for the
Worthington Industries, Inc. and PNC fiscal year ended May 31, 1998
Bank, Ohio, National Association, as
Trustee
E-1
4(g) Third Supplemental Indenture, dated as Incorporated by reference to Exhibit 4(h) of the
of October 13, 1998, among Worthington Registrant's Annual Report on Form 10-K for
Industries, Inc., a Delaware fiscal year ended May 31, 1999
corporation, Worthington Industries,
Inc., an Ohio corporation, and PNC
Bank, National Association (formerly
known as PNC Bank, Ohio, National
Association)
4(h) Fourth Supplemental Indenture, dated Filed herewith
as of May 10, 2002, among Worthington
Industries, Inc. and J.P. Morgan Trust
Company, National Association, as
successor trustee to Chase Manhattan
Trust Company, National Association
(successor Trustee to PNC Bank,
National Association, formerly known
as PNC Bank, Ohio, National
Association)
4(i)(i) $155,000,000 364-Day Revolving Credit Filed herewith
Agreement, dated as of May 10, 2002,
among Worthington Industries, Inc.,
the Lenders from time to time party
thereto, PNC Bank, National
Association, as Swingline Lender and
Administrative Agent and First Union
Securities, Inc. and PNC Capital
Markets, Inc. as Co-Syndication Agents
and Co-Lead Arrangers
4(i)(ii) Form of Revolving Note issued by Filed herewith
Worthington Industries, Inc. to the
various Lenders from time to time
party to that certain $155,000,000
364-Day Revolving Credit Agreement,
dated as of May 10, 2002
4(i)(iii) Swingline Note, dated May 10, 2002, Filed herewith
issued by Worthington Industries, Inc.
to PNC Bank, National Association, as
Administrative Agent and Swingline
Lender under that certain $155,000,000
364-Day Revolving Credit Agreement,
dated as of May 10, 2002
E-2
4(j)(i) $155,000,000 Five-Year Revolving Filed herewith
Credit Agreement, dated as of May 10,
2002, among Worthington Industries,
Inc., the Lenders from time to time
party thereto, PNC Bank, National
Association, as Issuing Lender,
Swingline Lender and Administrative
Agent and First Union Securities, Inc.
and PNC Capital Markets, Inc. as
Co-Syndication Agents and Co-Lead
Arrangers
4(j)(ii) Form of Revolving Note issued by Filed herewith
Worthington Industries, Inc. to the
various Lenders from time to time
party to that certain $155,000,000
Five-Year Revolving Credit Agreement,
dated as of May 10, 2002
4(j)(iii) Swingline Note, dated May 10, 2002 Filed herewith
issued by Worthington Industries, Inc.
to PNC Bank, National Association, as
Administrative Agent, Issuing Lender
and Swingline Lender under that
certain $155,000,000 Five-Year
Revolving Credit Agreement, dated as
of May 10, 2002
4(k) Pledge Agreement, dated as of May 10, Filed herewith
2002, by Worthington Industries, Inc.
in favor of Wells Fargo Bank
Minnesota, National Association, as
Collateral Agent for the Secured
Parties as defined in the Trust
Agreement (See Exhibit 4(l) below)
4(l) Trust Agreement, dated as of May 10, Filed herewith
2002, among Worthington Industries,
Inc., J.P. Morgan Trust Company,
National Association (successor to
Chase Manhattan Trust Company, N.A.),
as Public Debt Trustee, Wells Fargo
Bank Minnesota, National Association,
as Collateral Agent, PNC Bank,
National Association, as
Administrative Agent, and Wells Fargo
Bank Minnesota, National Association,
as Trustee
E-3
10(a) 1990 Stock Option Plan, as Amended* Incorporated by reference to Exhibit 10(b) of the
Registrant's Annual Report on Form 10-K for the
fiscal year ended May 31, 1999
10(b) Executive Deferred Compensation Plan, Incorporated hereby by reference to Exhibit 10(c)
as Amended and Restated effective June of the Registrant's Annual Report on Form 10-K
1, 2000* for fiscal year ended May 31, 2000
10(c) Deferred Compensation Plan for Incorporated hereby by reference to Exhibit 10(d)
Directors, as Amended and Restated, of the Registrant's Annual Report on Form 10-K
effective June 1, 2000* for fiscal year ended May 31, 2000
10(d) 1997 Long-Term Incentive Plan* Incorporated by reference to Exhibit 10(e) of the
Registrant's Annual Report on Form 10-K for the
fiscal year ended May 31, 1997
10(e) Non-Qualified Deferred Compensation Incorporated hereby by reference to Exhibit 10(f)
Plan* of the Registrant's Annual Report on Form 10-K
for fiscal year ended May 31, 2000
10(f) 2000 Stock Option Plan for Incorporated by reference to Exhibit 10(g) of the
Non-Employee Directors* Registrant's Quarterly Report on Form 10-Q for
the fiscal quarter ended August 31, 2001
10(g)(i) Receivables Purchase Agreement, dated Incorporated hereby by reference to Exhibit
as of November 30, 2000, among 10(h)(i) of the Registrant's Annual Report on
Worthington Receivables Corporation, Form 10-K for fiscal year ended May 31, 2001
Worthington Industries, Inc., as
Servicer, members of various purchaser
groups from time to time party thereto
and PNC Bank, National Association, as
Administrator
10(g)(ii) Amendment No. 1 to Receivables Incorporated hereby by reference to Exhibit
Purchase Agreement, dated as of 10(h)(ii) of the Registrant's Annual Report on
May 18, 2001, among Worthington Form 10-K for fiscal year ended May 31, 2001
Receivables Corporation, Worthington
Industries, Inc., members of various
purchaser groups from time to time
party thereto and PNC Bank, National
Association
10(g)(iii) Purchase and Sale Agreement, dated as Incorporated hereby by reference to Exhibit
of November 30, 2000, between the 10(h)(iii) of the Registrant's Annual Report on
various originators listed therein and Form 10-K for fiscal year ended May 31, 2001.
Worthington Receivables Corporation
10(g)(iv) Amendment No. 1, dated as of May 18, Incorporated hereby by reference to Exhibit
2001, to Purchase and Sale Agreement, 10(h)(iv) of the Registrant's Annual Report on
dated as of November 30, 2000 between Form 10-K for fiscal year ended May 31, 2001.
the various originators listed therein
and Worthington Receivables Corporation
E-4
10(g)(v) Assumption and Transfer Agreement, Filed herewith
dated October 25, 2001, among
Worthington Receivables Corporation,
Fifth Third Bank as a purchaser, a
related committed purchaser and an
agent, Market Street Funding
Corporation, as a purchaser and PNC
Bank, National Association, as agent
for Market Street and as administrator
10(g)(vi) Assumption and Transfer Agreement, Filed herewith
dated April 24, 2002, among
Worthington Receivables Corporation,
Liberty Street Funding Corp., as a
purchaser and a related committed
purchaser, The Bank of Nova Scotia, as
Agent for Liberty Street Purchasers,
Market Street Funding Corporation, as
a purchaser and PNC Bank, National
Association, as agent for Market
Street and as administrator
21 Subsidiaries of Worthington Filed herewith
Industries, Inc.
23(a) Consent of Ernst & Young LLP Filed herewith
23(b) Consent of KPMG LLP Filed herewith
24 Powers of Attorney Filed herewith
99 Certifications of CEO & CFO under Filed herewith
Section 906 of the Sarbanes-Oxley Act
of 2002
*Management Compensation Plan
E-5