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, 1996 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 than the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. YES __X__ NO_____
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 par value 90,898,234
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Class Outstanding December 31, 1996
Page 1 of 10
<PAGE>
WORTHINGTON INDUSTRIES, INC.
INDEX
PAGE
PART I. Financial Information
Consolidated Condensed Balance Sheets -
November 30, 1996 and May 31, 1996.............................3
Consolidated Condensed Statements of Earnings -
Three and Six Months Ended November 30, 1996 and 1995 .........4
Consolidated Condensed Statements of Cash Flows -
Six Months Ended November 30, 1996 and 1995....................5
Notes to Consolidated Condensed Financial Statements...........6
Management's Discussion and Analysis of
Results of Operations and Financial Condition..................7
PART II. Other Information...............................................10
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<PAGE>
PART I. FINANCIAL INFORMATION
WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands, Except Per Share)
November 30 May 31
1996 1996
----------- ---------
ASSETS (Unaudited) (Audited)
Current Assets
Cash and cash equivalents $ 342 $ 19,029
Accounts receivable - net 214,240 224,956
Raw materials 150,245 128,884
Work in process and finished products 83,654 79,141
----------- -----------
Inventories 233,899 208,025
Prepaid expenses and other current assets 25,592 24,031
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Total Current Assets 474,073 476,041
Investment in Unconsolidated Affiliates 37,735 138,212
Intangible Assets 68,921 65,256
Other Assets 160,320 28,280
Property, plant and equipment 867,721 793,274
Less accumulated depreciation 299,999 280,938
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Property, Plant and Equipment - net 567,722 512,336
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Total Assets $ 1,308,771 $ 1,220,125
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 69,644 $ 82,178
Notes payable 33,500
Accrued compensation, contributions to
employee benefit plans and related taxes 30,963 33,234
Dividends payable 10,902 10,901
Other accrued items 14,983 17,652
Income taxes 3,819 5,829
Current maturities of long-term debt 2,034 1,475
----------- -----------
Total Current Liabilities 165,845 151,269
Other Liabilities 17,046 17,912
Long-Term Debt 326,236 298,742
Deferred Income Taxes 122,683 112,662
Shareholders' Equity
Common shares, $.01 par value 909 908
Additional paid-in capital 107,300 105,869
Unrealized gain on investment 18,811
Foreign currency translation (1,435) (1,437)
Retained earnings 551,376 534,200
----------- -----------
Total Shareholders' Equity 676,961 639,540
----------- -----------
Total Liabilities and Shareholders' Equity $ 1,308,771 $ 1,220,125
=========== ===========
See notes to consolidated condensed financial statements.
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<PAGE>
<TABLE>
WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(In Thousands, Except Per Share)
(Unaudited)
Three Months Ended Six Months Ended
November 30 November 30
------------------ ----------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales $ 429,250 $ 354,544 $ 831,821 $ 680,280
Cost of goods sold 369,047 301,533 713,943 580,264
--------- --------- --------- ---------
Gross Margin 60,203 53,011 117,878 100,016
Selling, general & administrative expense 28,063 21,499 53,287 41,368
--------- --------- --------- ---------
Operating Income 32,140 31,512 64,591 58,648
Other income (expense):
Miscellaneous income 299 139 723 386
Interest expense (3,172) (1,234) (6,897) (2,641)
Equity in net income of unconsolidated
affiliates - Joint Ventures 3,153 1,894 5,768 3,108
Equity in net income of unconsolidated
affiliates - Rouge 9,548 16,770
--------- --------- --------- ---------
Earnings Before Income Taxes 32,420 41,859 64,185 76,271
Income taxes 11,903 15,671 24,069 28,575
--------- --------- --------- ---------
Net Earnings $ 20,517 $ 26,188 $ 40,116 $ 47,696
========= ========= ========= =========
Average Common Shares Outstanding 90,835 90,748 90,836 90,817
Earnings Per Common Share $ .23 $ .29 $ .44 $ .53
--------- --------- --------- ---------
Cash Dividends Declared
Per Common Share $ .12 $ .11 $ .24 $ .22
--------- --------- --------- ---------
See notes to consolidated condensed financial statements.
</TABLE>
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<PAGE>
WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands, Unaudited)
Six Months Ended
November 30
1996 1995
------ ------
Operating Activities
Net earnings $ 40,116 $ 47,696
Adjustments to reconcile net earnings to
net cash provided (used) by operating activities:
Depreciation and amortization 24,065 18,482
Deferred income taxes (108) 5,763
Equity in undistributed net income of
unconsolidated affiliates (1,616) (19,576)
Changes in assets and liabilities:
Current assets (12,544) 52,675
Other assets (1,188) 1,364
Current liabilities (21,505) (8,472)
Other liabilities (671) (584)
-------- --------
Net Cash Provided By Operating Activities 26,549 97,348
Investing Activities
Investment in property, plant and equipment, net (75,913) (45,277)
Acquisitions, net of cash acquired (8,380)
Investment in unconsolidated affiliates (8,290)
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Net Cash Used By Investing Activities (84,293) (53,567)
Financing Activities
Proceeds from (payments on) short-term borrowings 33,500 (38,200)
Proceeds from long-term debt 28,459 43,000
Principal payments on long-term debt (1,159) (13,330)
Proceeds from issuance of common shares 1,268 1,618
Repurchase of common shares (1,211) (4,024)
Dividends paid (21,800) (19,992)
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Net Cash Provided (Used) By Financing Activities 39,057 (30,928)
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Increase (decrease) in cash and cash equivalents (18,687) 12,853
Cash and cash equivalents at beginning of period 19,029 2,003
-------- --------
Cash and cash equivalents at end of period $ 342 $ 14,856
======== ========
See notes to consolidated condensed financial statements.
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<PAGE>
WORTHINGTON INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note A - MANAGEMENT'S OPINION
In the opinion of management, the accompanying unaudited
consolidated condensed financial statements contain all adjustments
(consisting of a normal recurring nature) necessary to present fairly
the financial position of Worthington Industries, Inc. and Subsidiaries
(the Company) as of November 30, 1996 and May 31, 1996, the results of
operations for the three and six months ended November 30, 1996 and
1995, and cash flows for the six months ended November 30, 1996 and
1995.
The accounting policies followed by the Company are set forth in
Note A to the consolidated financial statements in the 1996 Worthington
Industries, Inc. Annual Report to Shareholders which is incorporated by
reference in the Company's 1996 Form 10-K.
Note B - INCOME TAXES
The income tax rate is based on statutory federal and state
rates, and an estimate of annual earnings adjusted for the permanent
differences between reported earnings and taxable income.
Note C - EARNINGS PER SHARE
Earnings per common share for the three and six months ended
November 30, 1996 and 1995 are based on the weighted average common
shares outstanding during each of the respective periods.
Note D - RESULTS OF OPERATIONS
The results of operations for the three and six months ended
November 30, 1996 and 1995 are not necessarily indicative of the results
to be expected for the full year.
Note E - ACCOUNTING CHANGE
During the first quarter ended August 31, 1996, the Company took
certain steps relative to its investment in Rouge Steel, which resulted
in the Company accounting for this investment on the cost method instead
of the equity method. As a result, after May 31, 1996, the Company's
equity share of Rouge earnings is no longer included in reported
earnings or earnings per share. The investment in Rouge common stock has
been reclassified to other assets and adjusted to market value as an
"available-for-sale" security with a net of tax adjustment to
shareholders' equity.
Note F - SUBSEQUENT EVENT
On December 3, 1996, the Company purchased the net assets of
Plastics Manufacturing, Inc. (PMI). The acquisition will be recorded
as a purchase under generally accepted accounting principles.
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<PAGE>
WORTHINGTON INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Sales for the three months ended November 30,1996 were a record $429.3
million, 21% higher than last year's second quarter. Net earnings were $20.5
million and earnings per share were $.23. Comparisons with last year's first
quarter are discussed below.
Sales for the six months ended November 30,1996 were a record $831.8
million, 22% higher than last year's first six months. Net earnings were $40.1
million and earnings per share were $.44. Comparisons with last year's first six
months are discussed below.
During the first quarter ended August 31, 1996, the Company took certain
steps relative to its investment in Rouge Steel, which resulted in the Company
accounting for this investment on the cost method instead of the equity method.
As a result, after May 31, 1996, the Company's equity share of Rouge earnings is
no longer included in reported earnings or earnings per share. The Company
believes that to appropriately compare periods, fiscal 1996 results should be
adjusted to eliminate the impact of Rouge equity earnings.
In the second quarter of fiscal 1996, Rouge contributed $.07 to the
Company's reported earnings per share of $.29, and the steel, plastics, castings
and joint venture businesses contributed $.22 per share. This year's second
quarter earnings per share of $.23 (which does not include Rouge equity earnings
because of the accounting change), were 5% higher than last year's results,
excluding Rouge, of $.22 per share.
In the first six months of fiscal 1996, Rouge contributed $.12 to the
Company's reported earnings per share of $.53, and the steel, plastics, castings
and joint venture businesses contributed $.41 per share. This year's first six
months earnings per share of $.44 (which does not include Rouge equity earnings
because of the accounting change), were 7% higher than last year's results,
excluding Rouge, of $.41 per share.
The sales increase for the quarter and six months principally reflects
the inclusion of the metal framing business in this year's results. Gross margin
was up 14% for the quarter and 18% year-to-date. Gross margin as a percentage of
sales for the quarter was 14.0% (15.0% last year) and for the six months was
14.2% (14.7% last year). The lower gross profit margins were due mostly to the
inclusion of the metal framing business, reduced margins in cast products and
higher profit-sharing. Selling, general and administrative expense increased 31%
for the quarter and 29% for the six months because of higher profit-sharing and
the inclusion of the metal framing business expenses this year. As a percentage
of sales for the quarter, this expense was 6.5% (6.1% last year) and for the six
months was 6.4% (6.1% last year). Operating income was 2% higher for the quarter
and 10% higher year-to-date due to better performances in the custom products
segment and the addition of the metal framing business. As a percentage of
sales, operating income for the quarter was 7.5% (8.9% last year) and for the
six months 7.8% (8.6% last year).
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<PAGE>
Interest expense increased 1-1/2 times for the three months and six
months. Average debt rose because of increased borrowings to acquire the metal
framing business and to support higher levels of capital expenditures. The
average interest rate decreased to 5.8% from 6.7% last year. Interest of
$1,968,000 was capitalized during the quarter and $2,897,000 year-to-date.
Overall, interest expense will increase as the Company continues to fund its
growth through debt financing.
Equity in net income of unconsolidated affiliates was down approximately
70% for the quarter and year-to-date because of the elimination of equity
earnings from the investment in Rouge due to the accounting change discussed
above. Excluding Rouge, equity from unconsolidated affiliates was up 66% for the
quarter and 86% year-to-date. Worthington Armstrong Venture was up
significantly, principally due to increased demand.
The effective income tax rate decreased to 36.7% from 37.4% last year
for the second quarter due to a decrease in state taxes and remained at 37.5%
for the six months.
The processed steel products segment posted record sales with the
inclusion of the metal framing business this year. Earnings were up for the
quarter and six months as the effect of the automotive strikes were more than
offset by pressure cylinders and metal framing profits. Steel processing
shipments were up slightly for the quarter but earnings decreased due to the
strikes and start-up of the new nickel line at the Malvern plant. Pressure
cylinders had record sales for the second quarter and six months because of
increased non-refillable refrigerant volume and the June 1996 purchase of SCM
Technologies which designs, engineers and manufactures high pressure industrial,
medical, halon and electronic gas cylinders. SCM, which is located just outside
Windsor, Ontario, will enable the Company to increase its penetration in the
high pressure cylinder market.
The custom products segment continued to post record sales and earnings
during the quarter. The plastics operation benefited from higher volume in its
automotive contracts and improvement at its newer, non-automotive plants. During
December, the Company purchased the assets of Plastics Manufacturing, Inc.
(PMI). PMI, based in Harrisburg, North Carolina, is one of the largest
manufacturers of plastic injection molded and thermoformed parts in the
Southeastern United States. PMI primarily serves the business equipment,
commercial airline and medical industries. Precision metals increased sales and
operating income above last year for both periods.
The cast products segment results were lower than in last year's second
quarter and first six months. Improved industrial volume was more than offset by
lower demand for freight railcars. Operating income was also lower due to the
decrease in volume and the resulting decreases in production efficiencies and
coverage of fixed costs.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At November 30, 1996, the Company's current ratio was 2.9:1, down from
3.2:1 at May 31, 1996. Long-term debt was 33% of total capital. Working capital
was $308.2 million, 46% of the Company's total net worth, down from 51% at
fiscal 1996 year-end.
During the six months ended November 30, 1996, the Company's cash
position decreased by $18.7 million. Cash provided by operations of $26.5
million, consisting mostly of cash from earnings, was offset by a $34.0 million
increase in some working capital items. The working capital increase occurred
principally due to higher inventory in anticipation of higher sales volume in
the second half of the year. Capital expenditures and investments in
acquisitions of $84.3 million and dividends paid of $21.8 million were funded by
cash from operations, $18.7 million of beginning cash and $60.8 million of
additional net borrowings.
The Company expects its operating results and cash from normal operating
activities to improve during the year. The Company has a $150 million committed,
revolving credit agreement (the "Revolver"), of which $45 million was unused at
November 30, 1996. However, as in the first six months of the year, borrowings
may be needed to support additional anticipated capital expenditures.
Uncommitted short-term lines of credit were used to finance the PMI acquisition.
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 intends to offer $75 to $100 million of three year notes
exchangeable into Class A Common Stock of Rouge Steel Company in the form of
DECS (SM) (Debt Exchangeable for Common Stock (SM)). At maturity, holders of the
DECS will receive in exchange for the principle amount of the notes, shares of
Rouge Steel held by the Company (or at the Company's option, cash in lieu of the
shares). The number of Rouge shares (or the amount of cash) will be based upon
the price of Rouge Steel Class A Common Stock shortly before the maturity of the
DECS. The Company plans to use the proceeds from the DECS offering to pay down
borrowings under the Revolver, to finance the investment in the galvanizing
joint venture with Rouge or to finance other growth opportunities.
-9-
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The Registrant's Annual Meeting of Shareholders was held on September 19, 1996.
In connection with the meeting, proxies were solicited. Following are the voting
results on proposals considered and voted upon.
1. All nominees for Class of Directors whose term expires in 1999 were elected
by the stockholders who were present or represented by proxy.
Votes for Votes
the Election Withholding Shares
of Director Authority to Vote Not Voted
------------ ----------------- ---------
Pete A. Klisares 74,649,741 820,332 15,356,087
Donal H. Malenick 74,613,550 856,524 15,356,087
John H. McConnell 74,673,230 796,843 15,356,087
James Petropoulos 74,518,211 951,862 15,356,087
2. The appointment of Ernst & Young LLP as the Registrant's independent
auditors for the year ending May 31, 1997 was ratified by a majority of the
votes entitled to be cast by the stockholders who were present or
represented by proxy.
For: 75,258,859 Against: 63,776 Abstain: 147,439 Not Voted: 15,356,087
Item 6. Exhibits and Reports on Form 8-K.
A. Exhibits - Exhibit 27 Financial Data Schedule
B. Reports on Form 8-K. There were no reports on Form 8-K during the three
months ended November 30, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WORTHINGTON INDUSTRIES, INC.
Date: January 13, 1997 By: /s/Donald G. Barger, Jr.
_________________________________________
Donald G. Barger, Jr.
Vice President-Chief Financial Officer
By: /s/Michael R. Sayre
_________________________________________
Michael R. Sayre
Controller
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS ON FORM 10Q AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> NOV-30-1996
<EXCHANGE-RATE> 1
<CASH> 342
<SECURITIES> 0
<RECEIVABLES> 217,397
<ALLOWANCES> 3,157
<INVENTORY> 233,899
<CURRENT-ASSETS> 474,073
<PP&E> 867,721
<DEPRECIATION> 299,999
<TOTAL-ASSETS> 1,308,771
<CURRENT-LIABILITIES> 165,845
<BONDS> 326,236
0
0
<COMMON> 909
<OTHER-SE> 676,052
<TOTAL-LIABILITY-AND-EQUITY> 1,308,771
<SALES> 831,821
<TOTAL-REVENUES> 831,821
<CGS> 713,943
<TOTAL-COSTS> 713,943
<OTHER-EXPENSES> 53,287
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</TABLE>
