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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended: November 30, 1997 Commission File No. 0-4016
WORTHINGTON INDUSTRIES, INC.
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(Exact name of Registrant as specified in its Charter)
DELAWARE 31-1189815
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(State of Incorporation) (I.R.S. Employer Identification No.)
1205 Dearborn Drive, Columbus, Ohio 43085
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(Address of Principal Executive Offices) (Zip Code)
(614) 438-3210
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(Registrant's Telephone Number, Including Area Code)
Not Applicable
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(Former Name, Former Address and Former Fiscal Year,
If Changed From Last Report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 par value 96,819,510
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Class Outstanding December 31, 1997
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WORTHINGTON INDUSTRIES, INC.
INDEX
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PART I. FINANCIAL INFORMATION
Consolidated Condensed Balance Sheets -
November 30, 1997 and May 31, 1997...........................3
Consolidated Condensed Statements of Earnings -
Three and Six Months Ended November 30, 1997 and 1996........5
Consolidated Condensed Statements of Cash Flows
Six Months Ended November 30, 1997 and 1996..................6
Notes to Consolidated Condensed Financial Statements.........7
Management's Discussion and Analysis of
Results of Operations and Financial Condition................9
PART II. OTHER INFORMATION................................................13
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PART I. FINANCIAL INFORMATION
WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands, Except Per Share)
November 30 May 31
1997 1997
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(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 6,300 $ 7,212
Accounts receivable - net 257,343 266,836
Inventories
Raw materials 172,234 187,572
Work in process and finished products 106,405 109,316
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Total Inventories 278,639 296,888
Prepaid expenses and other current assets 37,865 23,192
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TOTAL CURRENT ASSETS 580,147 594,128
Investment in Unconsolidated Affiliates 60,956 57,040
Intangible Assets 96,690 98,132
Other Assets 30,106 32,365
Investment in Rouge 91,494 88,494
Property, plant and equipment 1,189,108 1,036,621
Less accumulated depreciation 373,554 345,594
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Property, Plant and Equipment - net 815,554 691,027
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TOTAL ASSETS $1,674,947 $1,561,186
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WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands, Except Per Share)
November 30 May 31
1997 1997
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(Unaudited) (Audited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 121,370 $ 117,910
Notes payable 107,661 50,000
Accrued compensation, contributions to
employee benefit plans and related taxes 37,785 38,058
Dividends payable 12,587 12,572
Other accrued items 36,047 20,244
Income taxes 3,475 2,026
Current maturities of long-term debt 2,463 5,984
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TOTAL CURRENT LIABILITIES 321,388 246,794
Other Liabilities 16,657 18,839
Long-Term Debt:
Conventional long-term debt 362,595 361,899
Debt exchangeable for common stock 91,494 88,494
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Total Long-Term Debt 454,089 450,393
Deferred Income Taxes 120,657 120,765
Minority Interest 26,142 8,877
Shareholders' Equity
Common shares, $.01 par value 969 968
Additional paid-in capital 115,557 114,052
Unrealized loss on investment (5,556) (5,563)
Foreign currency translation (2,417) (1,861)
Retained earnings 627,461 607,922
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TOTAL SHAREHOLDERS' EQUITY 736,014 715,518
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,674,947 $ 1,561,186
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See notes to consolidated condensed financial statements.
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WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(In Thousands Except Per Share)
(Unaudited)
Three Months Ended Six Months Ended
November 30 November 30
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1997 1996 1997 1996
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Net sales $ 520,320 $ 458,349 $ 1,020,747 $ 888,641
Cost of goods sold 447,529 392,661 876,625 759,598
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GROSS MARGIN 72,791 65,688 144,122 129,043
Selling, general & administrative expense 37,008 29,689 69,440 56,557
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OPERATING INCOME 35,783 35,999 74,682 72,486
Other income (expense):
Miscellaneous income (expense) 685 302 477 729
Interest expense (6,876) (3,290) (13,654) (7,237)
Equity in net income of unconsolidated
affiliates 5,170 3,153 9,375 5,768
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EARNINGS BEFORE INCOME TAXES 34,762 36,164 70,880 71,746
Income taxes 12,862 13,497 26,226 27,118
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NET EARNINGS $ 21,900 $ 22,667 $ 44,654 $ 44,628
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AVERAGE COMMON SHARES OUTSTANDING 96,784 96,510 96,761 96,511
EARNINGS PER COMMON SHARE $.23 $.23 $.46 $.46
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CASH DIVIDENDS DECLARED
PER COMMON SHARE $.13 $.12 $.26 $.24
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See notes to consolidated condensed financial statements.
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WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands, Unaudited)
Six Months Ended
November 30
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1997 1996
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OPERATING ACTIVITIES
Net earnings $ 44,654 $ 44,628
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 30,264 24,126
Deferred income taxes (108) (108)
Equity in undistributed net income of unconsolidated affiliates (4,289) (1,616)
Minority interest in net loss of consolidated subsidiary (16)
Changes in assets and liabilities:
Current assets 12,835 (11,460)
Other assets 2,212 (843)
Current liabilities 20,439 (17,448)
Other liabilities (2,182) (671)
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Net Cash Provided By Operating Activities 103,809 36,608
INVESTING ACTIVITIES
Investment in property, plant and equipment, net (153,295) (78,582)
Acquisitions, net of cash acquired (8,380)
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Net Cash Used By Investing Activities (153,295) (86,962)
FINANCING ACTIVITIES
Proceeds from (payments on) short-term borrowings 57,661 33,500
Proceeds from long-term debt 2,267 28,459
Principal payments on long-term debt (5,092) (8,689)
Proceeds from issuance of common shares 1,607 1,268
Proceeds from minority interest 17,281
Repurchase of common shares (1,211)
Dividends paid (25,150) (21,800)
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Net Cash Provided By Financing Activities 48,574 31,527
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Decrease in cash and cash equivalents (912) (18,827)
Cash and cash equivalents at beginning of period 7,212 17,580
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Cash and cash equivalents at end of period $ 6,300 $ 1,247
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See notes to consolidated condensed financial statements.
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WORTHINGTON INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - MANAGEMENT'S OPINION
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In the opinion of management, the accompanying unaudited
consolidated condensed financial statements contain all adjustments
(consisting of a normal recurring nature) necessary to present fairly
the financial position of Worthington Industries, Inc. and Subsidiaries
(the Company) as of November 30, 1997 and May 31, 1997; the results of
operations for the three and six months ended November 30, 1997 and
1996, and cash flows for the six months ended November 30, 1997 and
1996.
The accounting policies followed by the Company are set forth
in Note A to the consolidated financial statements in the 1997
Worthington Industries, Inc. Annual Report to Shareholders which is
included in the Company's 1997 Form 10-K.
NOTE B - INCOME TAXES
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The income tax rate is based on statutory federal and state
rates, and an estimate of annual earnings adjusted for the permanent
differences between reported earnings and taxable income.
NOTE C - EARNINGS PER SHARE
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Earnings per common share for the three and six months ended
November 30, 1997 and 1996 are based on the weighted average common
shares outstanding during each of the respective periods.
NOTE D - RESULTS OF OPERATIONS
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The results of operations for the three and six months ended
November 30, 1997 are not necessarily indicative of the results to be
expected for the full year.
NOTE E - INVOLUNTARY CONVERSION OF ASSETS
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On August 14, 1997, the Company experienced a fire at its steel
processing facility in Monroe, Ohio. The fire significantly damaged the
pickling area of the facility and caused less extensive damage to the
remainder of the plant. The Company has shifted as much business as
possible to its other locations, with the remainder being sent to third
party processors. Blanking operations have resumed with slitting
expected to return within a few months, and pickling in less than one
year.
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WORTHINGTON INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
The Company carries both property damage and business
interruption insurance and as a result, management does not expect the
fire to have a material adverse impact on the Company's financial
results. The total loss from business interruption, extra expenses and
property damage is expected to be around $75 million. The Company will
record the expected insurance recovery for business interruption and
extra expenses as a receivable, netted with amounts advanced by the
insurance company. The estimated lost net benefit from the business
interruption insurance for the reporting period, which approximates the
operating income which would have resulted had the fire not occurred
thru November 30, 1997 was approximately $4,000,000 and was included
in net sales and other revenues.
NOTE F - DEBT
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On December 9, 1997, the Company issued $150 million of 6.7%
Notes due 2009. The proceeds were used to pay down $90 million of the
revolving credit facility (leaving $140 million available) and to pay
$60 million of other debt. The Notes were issued against the $450
million shelf registration.
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WORTHINGTON INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
The second quarter sales were a record for the Company. For the three
months ended November 30, 1997, net sales of $520.3 million were 14% higher than
in last year's second quarter. Net earnings were $21.9 million, down 3% from
last year. Earnings per share were $.23, even with the previous year.
Sales for the first six months results were a record. For the six
months ended November 30, 1997, net sales of $1.02 billion were 15% higher than
in last year's first six months. Net earnings were $44.7 million and earnings
per share were $.46, both even with the previous year.
Sales increases for the quarter and six months were achieved for all
segments. Increased earnings for the quarter and six months for processed steel
products were offset by lower results for custom products and cast products.
Gross margin was up 11% for the quarter and 12% for the six months, and
as a percentage of sales was 14.0% for the quarter(14.3% last year) and 14.1%
for the six months (14.5% last year). Material, labor and overhead costs were
higher for the quarter and six months due to the inclusion of acquired
operations in the current year amounts and the startup of the Delta steel
processing plant. The material cost component of cost of goods sold, primarily
in steel processing, contributed to most of the increase in costs.
Selling, general and administrative expense increased 25% for the
quarter and 23% for the six months due mostly to the startup of the Delta and
Decatur steel processing plants and the inclusion of expenses for acquired
operations in the current year. As a percent of sales, this expense was 7.1% for
the quarter (6.5% last year) and 6.8% for the six months (6.4% last year).
Operating income was 1% lower for the quarter and 3% higher for the six months.
As a percentage of sales, operating income was 6.9% for the quarter (7.9% last
year) and 7.3% for the six months (8.2% last year).
Interest expense increased 109% for the three months and 89% year to
date. Average debt outstanding increased due to the high level of capital
expenditures and the average interest rate increased over last year. The Company
capitalized interest of $1,786,000 ($1,968,000 last year) during the quarter and
$3,255,000 ($2,897,000 last year) for the six months.
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Equity in net income of unconsolidated affiliates was up 64% for the
quarter and 63% for the six months. Equity from Worthington Armstrong Venture,
TWB and Acerex were up significantly for each period.
Income taxes decreased 5% for the three month period and 3% for the six
months as the effective tax rate was lower (37.0% for the quarter and
year-to-date compared to last year's 37.3% for the quarter and 37.8%
year-to-date) due to lower state taxes.
The processed steel products segment posted record sales for both
periods as all lines of business increased sales. Operating income was up
significantly for both periods and margin percentages equal to last year. Last
year's results were up for both periods from fiscal 1996 as the effect of
automotive strikes were more than offset by increased profitability at pressure
cylinders and metal framing. Steel processing sales improved from last year at
the majority of the plants despite summer strikes, shutdowns in the automotive
and appliance markets and a fire at the Monroe, Ohio plant. New sales from the
start-up of the Delta, Ohio plant contributed the largest increase. Steel
processing operating income was up for the quarter and down for the six month
period. Second quarter's profitability was supported by the Delta's startup and
some margin improvements. Steel processing had lower margins in the first six
months and poor volume at the Malvern, PA plant.
On August 14, 1997, the Company experienced a fire at its steel
processing facility in Monroe. The fire significantly damaged the pickling area
of the facility and caused less extensive damage to the remainder of the plant.
The Company has shifted as much business as possible to its other locations,
with the remainder being sent to third party processors. Blanking is now back in
operation, while slitting is expected to return within a few months and pickling
in around one year. The estimated net benefit from the business interruption
insurance, which approximates the lost operating income which would have
resulted had the fire not occurred thru November 30, 1997 was approximately
$4,000,000 and was included in net sales and other revenues.
Pressure cylinders' sales were up for the quarter due to product mix;
however, the change in mix resulted in lower operating income. For the six
months sales and operating income were up due to increased volume from market
share gains. The metal framing business increased sales and operating income due
with higher volume and selling prices due to improved market conditions and
operating efficiency gains. The auto body panel business continued to contribute
significantly to the segment's increased operating income for the quarter and
six month periods. Increased volume continued due to strong demand for its
automotive replacement parts.
Sales for the custom products segment were up for the first quarter and
six months; however, operating income was lower for both periods. Last year's
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results for each period improved over fiscal 1996 due to higher volume for
automotive contracts and improvement at newer, non-automotive plants. The
Plastics operations increased sales for both periods due to the acquisition of
PMI in December 1996. Operating income was lower for both periods because of the
summer strikes and shutdowns in the automotive and appliance sectors and the end
of a major automotive contract. During August, the plastics operation formed a
strategic alliance with a German plastics company, Troester Systeme und
Komponenten, opening up opportunities for global growth without additional
capital investment. Precision Metals profits increased above last year's second
quarter and six months on sales that were flat for the quarter and slightly
lower for the six month period.
Sales for the cast products segment sales were higher than in last
year's second quarter and first six months; however, operating income was lower
due to lower selling prices, higher material costs and production
inefficiencies. Last year's results were lower than in fiscal 1996 because of
lower volume and the resulting decreases in production efficiencies and coverage
of fixed costs.
LIQUIDITY AND CAPITAL RESOURCES
At November 30, 1997, the Company's current ratio was 1.8:1, down from
2.4:1 at May 31, 1997, mostly due to an increase in notes and accounts payable.
Total debt as a percentage of total committed capital (total debt and
shareholder's equity), both excluding DECS, increased to 39% from 37% at May 31,
1997. Working capital was $258.8 million, 35% of the Company's total net worth,
down from 49% at May 31, 1997. As a percentage of annualized sales, average
working capital was 14.8%, down from 18.4% for last year's first six months.
During the six months, the Company's cash position decreased by $.9
million. Cash provided by operating activities was $103.8 million, up from $36.6
million last year. Capital expenditures of $153.3 million and dividends paid of
$25.2 million were funded mostly from cash provided from operations, short-term
borrowings and proceeds from minority interest investment. Capital expenditures
were up 95% over last year and will continue at high levels throughout the
fiscal year with the construction of the Decatur, Alabama steel processing plant
and funding of the Spartan Steel joint venture.
At November 30, 1997, $140 million of the $190 million revolving credit
facility was unused. On December 9, 1997, the Company issued $150 million of
6.7% notes due 2009 against the $450 million "shelf" registration established in
May 1996. The Company expects its operating results and cash from normal
operating activities to improve during the remainder of the fiscal year.
Additional borrowings may be needed to support anticipated capital expenditures.
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Immediate borrowing capacity plus cash generated from operations should be more
than sufficient to fund expected normal operating cash needs, dividends, debt
payments and capital expenditures for existing businesses. The Company will
continue to consider long-term debt issuance as an alternative depending on
financial market conditions.
IMPACT OF YEAR 2000
The Company has completed an assessment regarding modifications of its software
so that its computer systems will function properly with respect to dates in the
year 2000 and thereafter. The total Year 2000 project cost is estimated at
approximately $1.8 million ($.6 million incurred to date), the remaining amount
will be evenly expensed between now and the estimated completion date in the
fourth calendar quarter of 1998. The Company believes, that with the
modifications to existing software, the Year 2000 Issue will not pose
significant operational problems. The Company has initiated communications with
significant vendors and customers to confirm their plans to become Year 2000
compliant and assess any possible risk or effects to the Company's operations.
The Company believes their systems will be properly converted and sufficiently
compliant as to not materially affect operations.
FORWARD-LOOKING INFORMATION
The Company wishes to take advantage of the Safe Harbor provisions
included in the Private Securities Litigation Reform Act of 1995 (the "Act").
Statements by the Company relating to future revenues and cash, growth, or plant
start-ups or capabilities and other statements which are not historical
information constitute "forward looking statements" within the meaning of the
Act. All forward looking statements are subject to risks and uncertainties which
could cause actual results to differ from those projected. Factors that could
cause actual results to differ materially include, but are not limited to, the
following: general economic conditions; conditions in the Company's major
markets; competitive factors and pricing pressures; product demand and changes
in product mix; changes in pricing or availability of raw material, particularly
steel; delays in construction or equipment supply; and other risks described
from time to time in the Company's filings with the Securities and Exchange
Commission.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A. Exhibits - Exhibit 4 Second Supplemental Indenture dated as of December
12, 1997 between the Company and PNC Bank, National Association, as
Trustee Exhibit 27 Financial Data Schedule
B. Reports on Form 8-K. There were no reports on Form 8-K during the three
months ended November 30, 1997.
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WORTHINGTON INDUSTRIES, INC.
Date: January 13, 1998 By: /s/ Donald G. Barger, Jr.
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Donald G. Barger, Jr.
Vice President-Chief Financial Officer
By: /s/ Michael R. Sayre
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Michael R. Sayre
Controller
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