<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended: November 30, 1998 Commission File No. 0-4016
WORTHINGTON INDUSTRIES, INC.
----------------------------------------------------
(Exact name of Registrant as specified in its Charter)
OHIO 31-1189815
- ------------------------- ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
1205 Dearborn Drive, Columbus, Ohio 43085
- ---------------------------------------- ------------
(Address of Principal Executive Offices) (Zip Code)
(614) 438-3210
-------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Not Applicable
---------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
If Changed From Last Report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. YES[X] NO[ ]
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date.
Common Shares, without par value 92,486,504
- ----------------------------------- --------------------------------
Class Outstanding December 8, 1998
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WORTHINGTON INDUSTRIES, INC.
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheets -
November 30, 1998 and May 31, 1998...............................3
Consolidated Condensed Statements of Earnings -
Three and Six Months Ended November 30, 1998 and 1997............5
Consolidated Condensed Statements of Cash Flows
Six Months Ended November, 1998 and 1997.........................6
Notes to Consolidated Condensed Financial Statements.............7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................10
PART II. OTHER INFORMATION...................................................17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
2
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WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands, Except Per Share)
ASSETS
<TABLE>
<CAPTION>
November 30, May 31,
1998 1998
---- ----
(Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $22,788 $3,788
Accounts receivable - net 281,292 310,155
Inventories
Raw materials 179,443 172,920
Work in process and finished products 131,239 115,991
---------- ----------
Total Inventories 310,682 288,911
Income taxes receivable - 5,429
Prepaid expenses and other current assets 34,766 34,712
---------- ----------
TOTAL CURRENT ASSETS 649,528 642,995
Investment in Unconsolidated Affiliates 64,282 61,694
Intangible Assets 108,264 95,725
Other Assets 30,460 33,025
Investment in Rouge 49,497 75,745
Property, plant and equipment 1,345,412 1,315,668
Less accumulated depreciation 377,682 382,510
---------- ----------
Property, Plant and Equipment - net 967,730 933,158
---------- ----------
TOTAL ASSETS $1,869,761 $1,842,342
========== ==========
</TABLE>
3
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WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands, Except Per Share)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
November 30, May 31,
1998 1998
------------ ----------
(Unaudited) (Audited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $163,980 $176,752
Notes payable 221,721 136,600
Accrued compensation, contributions to
employee benefit plans and related taxes 45,804 43,867
Dividends payable 12,947 13,532
Other accrued items 43,573 37,800
Income taxes 12,039 -
Current maturities of long-term debt 5,081 1,480
---------- ----------
TOTAL CURRENT LIABILITIES 505,145 410,031
Other Liabilities 30,981 24,788
Long-Term Debt:
Conventional long-term debt 366,074 363,870
Debt exchangeable for common shares 49,497 75,745
---------- ----------
Total Long-Term Debt 415,571 439,615
Deferred Income Taxes 139,934 145,230
Minority Interest 44,043 42,405
Shareholders' Equity
Common shares, without par value 113,394 -
Common shares, $.01 par value - 968
Additional paid-in capital - 116,696
Unrealized loss on investment (5,563) (5,563)
Foreign currency translation (2,491) (2,812)
Retained earnings 628,747 670,984
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 734,087 780,273
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,869,761 $1,842,342
========== ==========
</TABLE>
See notes to consolidated condensed financial statements.
4
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WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(In Thousands Except Per Share)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
November 30, November 30,
----------------------------- --------------------------
1998 1997 1998 1997
--------- ---------- --------- --------
<S> <C> <C> <C> <C>
Net sales $436,428 $392,690 $845,708 $780,251
Cost of goods sold 367,258 334,967 714,860 661,353
-------- ------- ------- -------
GROSS MARGIN 69,170 57,723 130,848 118,898
Selling, general & administrative expense 35,320 29,433 67,392 55,035
-------- ------ ------ ------
OPERATING INCOME 33,850 28,290 63,456 63,863
Other income (expense):
Miscellaneous income 961 685 3,323 477
Interest expense (11,743) (6,876) (20,686) (13,654)
Equity in net income of unconsolidated
affiliates 6,072 4,958 11,127 9,659
-------- ------ ------ ------
EARNINGS BEFORE INCOME TAXES 29,140 27,057 57,220 60,345
Income taxes 10,781 10,011 21,171 22,328
-------- ------- ------ -------
EARNINGS FROM CONTINUING
OPERATIONS 18,359 17,046 36,049 38,017
DISCONTINUED OPERATIONS, NET OF TAXES 3,948 4,854 2,632 6,637
-------- ----- ----- -----
NET EARNINGS $22,307 $21,900 $38,681 $44,654
======== ======= ======= =======
AVERAGE COMMON SHARES OUTSTANDING 92,474 96,784 94,121 96,762
EARNINGS PER COMMON SHARE - BASIC & DILUTED
- -------------------------------------------
EARNINGS FROM CONTINUING
OPERATIONS $.20 $.18 $.38 $.39
DISCONTINUED OPERATIONS, NET OF TAXES .04 .05 .03 .07
NET EARNINGS $.24 $.23 $.41 $.46
==== ==== ==== ====
CASH DIVIDENDS DECLARED
PER COMMON SHARE $.14 $.13 $.28 $.26
---- ---- ---- ----
</TABLE>
See notes to consolidated condensed financial statements.
5
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WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
November 30,
-----------------------
1998 1997
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $38,681 $44,654
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 39,054 30,264
Deferred income taxes (83) (108)
Equity in undistributed net income of unconsolidated affiliates (4,522) (4,289)
Minority interest in net loss of consolidated subsidiary (2,202) (16)
Net gain on sale of assets (4,283) -
Changes in assets and liabilities:
Current assets 7,088 12,835
Other assets 2,417 2,212
Current liabilities 5,194 20,439
Other liabilities 886 (2,182)
--- ----------
Net Cash Provided By Operating Activities 82,230 103,809
INVESTING ACTIVITIES
Investment in property, plant and equipment, net (84,980) (153,295)
Acquisitions, net of cash acquired (26,718) -
Proceeds from sale of assets 46,802 -
------ ---------
Net Cash Used By Investing Activities (64,896) (153,295)
FINANCING ACTIVITIES
Proceeds from short-term borrowings 85,121 57,661
Proceeds from long-term debt 2,600 2,267
Principal payments on long-term debt (4,122) (5,092)
Proceeds from issuance of common shares 128 1,607
Proceeds from minority interest 3,839 17,281
Repurchase of common shares (59,422) -
Dividends paid (26,478) (25,150)
-------- --------
Net Cash Provided By Financing Activities 1,666 48,574
----- ------
Increase (decrease) in cash and cash equivalents 19,000 (912)
Cash and cash equivalents at beginning of period 3,788 7,212
----- -----
Cash and cash equivalents at end of period $22,788 $6,300
======= ======
</TABLE>
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
--------------------
In the opinion of management, the accompanying unaudited
consolidated condensed financial statements contain all adjustments
(consisting of those of a normal recurring nature) necessary to present
fairly the financial position of Worthington Industries, Inc. and
Subsidiaries (the Company) as of November 30, 1998 and May 31, 1998;
the results of operations for the three and six months ended November
30, 1998 and 1997, and the cash flows for the six months ended November
30, 1998 and 1997.
The accounting policies followed by the Company are set forth
in Note A to the consolidated financial statements in the 1998
Worthington Industries, Inc. Annual Report to Shareholders which is
included in the Company's 1998 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 - RESULTS OF OPERATIONS
---------------------
The results of operations for the three and six months ended
November 30, 1998 are not necessarily indicative of the results to be
expected for the full year.
NOTE D - SHAREHOLDER'S EQUITY AND COMMON STOCK
-------------------------------------
On October 13, 1998, Worthington Industries, Inc., a Delaware
corporation (Worthington Delaware) was merged with and into Worthington
Industries, Inc., an Ohio corporation (Worthington Ohio) and a
wholly-owned subsidiary of Worthington Delaware. Each share of common
stock, par value $.01 per share, of Worthington Delaware was converted
into one common share, without par value, of Worthington Ohio.
7
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NOTE E - ACQUISITION
-----------
In June, 1998, the Company acquired the stock of Jos. Heiser
vormals J. Winter's Sohn, Gmbh (Worthington Heiser) for approximately
$27 million (net of cash acquired) plus $7.3 million of debt assumed,
in a business combination accounted for as a purchase. Based in Gaming,
Austria, Worthington Heiser is Europe's leading producer of high
pressure industrial gas cylinders. The results of operations for
Worthington Heiser are included in the financial statements of the
Company since the date of acquisition. Goodwill in the amount of $12.9
million resulting from the purchase is being amortized using the
straight-line method over 40 years. Proforma results including
Worthington Heiser since the beginning of the earliest period presented
would not be materially different than actual results.
NOTE F - COMPREHENSIVE INCOME
--------------------
In June 1997, the Financial Standards Accounting Board issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" which requires separate reporting of certain
items affecting shareholders' equity outside of those included in
arriving at net earnings. The statement is effective for periods
beginning in fiscal 1999 and requires disclosing comprehensive income
for interim periods which is shown below.
<TABLE>
<CAPTION>
Three Months Six Months
------------ ----------
Ended November 30,
------------------
($000) 1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Comprehensive Income:
Net Income $22,307 $21,900 $38,681 $44,654
Other Comprehensive Income (Loss),
net of tax:
Unrealized Gain (Loss) on Investment - (4,026) - 5
Foreign Currency Translation 577 (556) 321 (556)
--- ----- --- -----
Other Comprehensive Income (Loss) 577 (4,582) 321 (551)
--- ------- --- -----
Comprehensive Income $22,884 $17,318 $39,002 $44,103
======= ======= ======= =======
</TABLE>
8
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NOTE G - DISCONTINUED OPERATIONS
-----------------------
On October 30, 1998, the Company completed the sale of its
Worthington Precision Metals subsidiary as part of the previously
announced decision to sell its Custom Products and Cast Products
segments. The subsidiary was sold for approximately $42 million.
Summarized operating results of this subsidiary included in the
Discontinued Operations amount on the Company's consolidated income
statement follow:
<TABLE>
<CAPTION>
Three Months Six Months
------------ ----------
Ended November 30,
------------------
($000) 1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income from operations before income
taxes $609 $441 $129 $938
Income Taxes 226 163 48 347
---- ---- ---- ----
Net Income from Operations 383 278 81 591
---- ---- ---- ----
Net Loss on Sale, net of taxes of $5,055 (1,806) - (1,806) -
------- ---- ------- ----
Net Income (Loss) from
Discontinued Operations ($1,423) $278 $(1,725) $591
======== ==== ======== ====
Earnings Per Common Share -
Basic & Diluted:
Net Income from Operations $ - $ - $ - $.01
Net Loss on Sale (.02) - (.02) -
----- ----- ------ ----
Net Income (Loss) from
Discontinued Operations ($.02) $ - $ (.02) $.01
====== ===== ====== ====
</TABLE>
9
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WORTHINGTON INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DISCONTINUED OPERATIONS
As a result of the decision of the Company to divest its subsidiaries,
Worthington Custom Plastics, Worthington Precision Metals and Buckeye Steel
Castings Company, the Custom Products and Cast Products segments of the Company
have been restated as Discontinued Operations. Accordingly, the Company's
Continuing Operations consist of only its steel processing business, which
consists of the Worthington Steel Company and the metals related businesses
including Worthington Cylinder Corporation, Dietrich Industries, Inc., and The
Gerstenslager Company, and its equity interest in a number of joint ventures in
steel processing and other metals related markets. During the second quarter
ended November 30, 1998, the Company sold the Worthington Precision Metals
business and its interest in the London Industries joint venture.
RESULTS
For the quarter ended November 30, 1998, sales increased 11% to $436.4
million. Earnings from continuing operations were $18.4 million compared to
$17.0 million for the previous year's second quarter and earnings per share from
continuing operations were $.20 versus $.18 last year. Earnings from
discontinued operations for the quarter were $3.9 million, down 19% from last
year. Net earnings and net earnings per share, which include the Company's
discontinued operations, were $22.3 million and $.24 respectively, compared to
$21.9 million and $.23 for the second quarter of the previous year.
For the first six months, sales increased 8% to $845.7 million.
Earnings from continuing operations were $36.0 million compared to $38.0 million
for the previous year's first six months and earnings per share from continuing
operations were $.38 versus $.39 last year. Earnings from discontinued
operations for the first six months were $2.6 million, down 60% from last year.
Net earnings and net earnings per share, which include the Company's
discontinued operations, were $38.7 million and $.41 respectively, compared to
$44.7 million and $.46 for the first six months of the previous year.
RESULTS FROM CONTINUING OPERATIONS
Overall for the quarter and six months ended November 30, 1998, demand
for most product lines for continuing operations was stronger in fiscal 1999
than in fiscal 1998. Sales were up for all lines of business for the quarter and
six months, except for the metal framing business where sales were essentially
even for the quarter. Operating income was up for the quarter and flat for six
months. For the quarter, favorable market share growth, the gain on the sale of
the garage door operations in the metal framing
10
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business and favorable raw material costs were partially offset by the expected
impact from the two steel processing facility start-ups (described below),
estimated by the Company to be $.05 per share. For the six months, the second
quarter favorable results were offset by the first quarter unfavorable impact of
the two facility start-ups and the General Motors strike. The estimated combined
impact on continuing operations of the start-ups and strike was $.05 and $.10
per share for the quarter and six months, respectively. The impact from the
start-ups will continue to be felt throughout fiscal 1999.
Gross margin as a percent of net sales was 15.8% (14.7% last year) for
the quarter and 15.5% (15.2% last year) for six months. This improved
performance was due to a more profitable sales mix and lower raw material costs.
The fire at the Monroe, Ohio facility (discussed below) did not materially
impact margins due to recoveries under business interruption insurance, which
approximated the lost operating income which would have resulted had the fire
not occurred. In the first quarter, $1.6 million of business interruption
insurance recovery was included in net sales. The last of the operations
affected by the fire, pickling, resumed early in the second quarter. A final
insurance settlement is likely in the third quarter.
Operating income as a percent of net sales was 7.8% (7.2% last year)
for the quarter and 7.5% (8.2% last year) for six months. The improved
performance for the quarter was driven by gross margin improvement, partially
offset by relatively higher selling, general and administrative (SG&A) costs for
the quarter and six months. SG&A as a percent of net sales was 8.1% (7.5% last
year) for the quarter and 8.0% (7.1% last year) for six months. The SG&A as a
percent of net sales increase is driven by the negative impact of overhead
without corresponding sales levels at the two start-up facilities and the impact
of the Year 2000 issue (described below).
Steel processing sales increased and operating income declined for the
quarter and six months. Additional sales during the quarter were driven by the
continued ramp-up of the Delta, Ohio facility and the recent start-ups at the
Decatur, Alabama and Spartan Steel facilities. The Decatur, Alabama facility
produced its first commercially saleable cold rolled coils in August 1998.
Spartan Steel, the Company's hot dipped galvanizing joint venture with Rouge
Industries in Monroe, Michigan, commenced operations in the fourth quarter of
fiscal 1998. Overall sales growth for the first six months was driven by the
start-ups, partially offset by first quarter lost sales due to the General
Motors strike. For the quarter, operating income in steel processing was lower
due to the impact of the start-ups, partially offset by favorable raw material
costs. For the six months, results also reflect the negative impact of the
General Motors strike.
On August 14, 1997, the Company experienced a fire at the Monroe, Ohio,
steel processing facility. The fire destroyed the pickling area of the facility
and caused extensive damage to other parts of the plant. The Company shifted a
significant amount of the business to other locations, with the remainder sent
to third party processors. Blanking returned to operation in September 1997,
slitting returned in March 1998, and pickling resumed in September 1998. The
Company has increased both pickling and storage capacity at this facility beyond
its pre-fire capabilities.
11
<PAGE> 12
Pressure cylinder sales and operating income were up over fiscal 1998's
second quarter and six months due to increased volume in most product lines. The
cylinder business showed strong growth in international sales during the first
half of the year, both through exports and the acquisition of Jos. Heiser
vormals J. Winter's Sohn, GmbH (Worthington Heiser) in June 1998. Based in
Gaming, Austria, Worthington Heiser is Europe's leading producer of high
pressure cylinders.
Metal framing sales for the quarter were essentially even as continued
growth in the building products line was offset by lower sales from the Aurora,
Ohio stainless facility due to a labor dispute. For the six months, sales
increased due to the building products sales growth. Operating income increased
for the quarter and six months reflecting the increased sales volume in the
building products line, lower material costs, and the gain on sale of the garage
door operations, lessened by the impact from the Aurora labor dispute.
Automotive body panel sales and operating income increased for the
quarter and six months reflecting additional volume.
Interest expense increased 71% to $11.7 million for the second quarter
and increased 52% to $20.7 million for the first six months as a result of
higher debt levels. Average debt outstanding (excluding DECS) totaled $612
million ($445 million last year) for the quarter and $547 million ($445 million
last year) for six months. Debt levels rose in fiscal 1999 to fund capital
spending, including the construction of the Decatur and the Spartan facilities,
and the acquisition of Worthington Heiser, partially offset by proceeds from
divestitures, primarily the Metals business. At November 30, 1998, approximately
63% of the Company's total debt (excluding DECS) was at fixed rates of interest.
During September 1998, the Company unwound $100 million of interest rate swap
agreements that were in place at August 31, 1998. Capitalized interest totaled
$0.7 million ($1.8 million last year) for the quarter and $3.7 million ($3.3
million last year) for six months as projects came on-line.
Equity in net income of unconsolidated affiliates increased 18% and 15%
for the quarter and first six months, respectively. WAVE continued to be the
major contributor to income by posting increases in earnings for the quarter and
six months. TWB also contributed to the increased income for the quarter and six
months, while WSP's contribution was essentially flat for the quarter and six
months.
The effective tax rate for the second quarter and first six months of
fiscal 1999 remained at 37%.
RESULTS FROM DISCONTINUED OPERATIONS
Sales from discontinued operations for the quarter were $122.3 million,
down 4% from last year. Sales increased 34% for Cast Products due to significant
rail car volume improvement. However, the improvement was more than offset by a
15% decline from Custom Products due to softer sales volumes and the October
divestiture of the Metals business. Earnings from discontinued operations for
the quarter were $3.9 million, down
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19% from last year. Excluding the $1.8 million after-tax loss on the sale of the
Metals business, net income from the operations was up 19%.
Sales from discontinued operations for the six months were $218.9
million, down 9% from last year. The decline in sales is primarily due to a 21%
decline in Custom Products sales driven by the impact from the first quarter
strike at General Motors and the October divestiture of the Metals business.
Partially offsetting this unfavorable performance was a 34% increase in Cast
Products sales due to significant improvement in rail car volume. Earnings from
discontinued operations for the first six months were $2.6 million, down 60%
from last year. Excluding the $1.8 million after-tax loss on the sale of the
Metals business, net income from the operations was down 33%.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended November 30, 1998, total assets increased
slightly to $1.9 billion, primarily reflecting the Company's increased
investment in property, plant and equipment and a $22 million increase in
inventory offset by a $29 million decrease in accounts receivable. Capital
investments included $85 million ($81 million, net of Rouge Industries' capital
investment in Spartan Steel) for the six months and $27 million for the
Worthington Heiser acquisition. The most significant projects were the Decatur,
Alabama steel processing plant, and the rebuild of the Monroe, Ohio facility.
Accounts receivable decreased in line with the Company's normal sales profile
from the fourth quarter of the previous year. Inventory increased mostly due to
the higher levels needed to support the Decatur start-up.
Current liabilities increased by $95 million during the six months to
$505 million, primarily due to an $85 million increase in notes payable
(described below). Accordingly, the current ratio at November 30, 1998 was 1.3
to 1 versus 1.6 to 1 at May 31, 1998.
The Company uses short-term uncommitted lines of credit extended by
various commercial banks to finance its business operations. Maturities on these
borrowings typically range from one to ninety days. To ensure liquidity, the
Company maintains a revolving credit facility with a group of commercial banks.
During October 1998, the Company increased the amount of the revolving credit
facility to $300 million from $190 million. The $110 million increase in
commitments was extended by the existing bank group and expires in September
1999. Previously existing commitments totaling $190 million continue to expire
in May 2003. At November 30, 1998, there were no outstanding borrowings under
the revolving credit facility.
In March 1997, Debt Exchangeable for Common Stock (DECS), payable in
Rouge stock, was issued by the Company. In the opinion of the Company, it is
appropriate to examine the Company's debt without the DECS, since the Company
may satisfy the DECS with currently owned Rouge stock. The DECS value as of
November 30, 1998 was $49.5 million, down from $75.7 million at May 31,1998 due
to a decrease in the value of the Rouge common stock.
13
<PAGE> 14
At November 30, 1998, the Company's total debt (excluding the DECS) was
$593 million compared to $502 million (excluding the DECS) at the end of fiscal
1998. As a result, total debt to committed capital increased to 46% (excluding
the DECS) versus fiscal year end's 39% (excluding the DECS). Along with the
divestiture proceeds, additional debt (primarily notes payable) was incurred and
used to finance the Company's capital investments in property, plant and
equipment, the Worthington Heiser acquisition, and stock repurchases. During the
first quarter, the Company repurchased approximately 4.2 million shares of stock
for $59 million and the Board of Directors increased the repurchase
authorization by 10 million additional shares.
Cash provided by operating activities for the first six months totaled
$82 million, down from $104 million in fiscal 1998, primarily due to increased
working capital requirements.
The Company's immediate borrowing capacity, in addition to cash
generated from operations, should be more than sufficient to fund expected
normal operating costs, dividends, debt payments and capital expenditures for
existing businesses. While there are no specific needs at this time, the Company
regularly considers long-term debt issuance an alternative depending on
financial market conditions.
ENVIRONMENTAL
The Company believes environmental issues will not have a material
effect on capital expenditures, consolidated financial position, future results
or operations.
IMPACT OF YEAR 2000
Year 2000 issues occur in computerized systems when only two digits are
used to identify the year in a date instead of four (i.e., the years 1900 and
2000 are both represented as "00") and the two-digit years are used for
decision-making in the operation of those systems. As the year 2000 approaches,
the use of two-digit years in computer hardware or software, or any other
equipment reliant on embedded computer chip technology, could result in computer
system or equipment failures, potentially leading to business and manufacturing
disruptions.
Several initiatives related to year 2000 issues have been started in
the Company's businesses. The Company formed a year 2000 project team, comprised
of business and technical representatives from across the Company and external
consultants, to assess and resolve year 2000 issues, including the year 2000
readiness of its significant suppliers and customers. Inventories and
assessments of the Company's mainframe systems, as well as the information
technology (IT) and non-information technology (non-IT) hardware and software at
eight of the Company's representative manufacturing sites, have been completed
by the project team and are the basis for the discussion below. The project team
is continuing the inventory and assessment process at the remaining Company
sites and is estimating completion of the process by the end of the third fiscal
quarter.
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<PAGE> 15
The Company has utilized both internal and external resources to
inventory, assess, remediate, test, and re-deploy mainframe software to make it
year 2000 ready. These mainframe projects are estimated to be over 70% complete.
Although remediation steps have been taken at certain of the Company's sites,
further efforts are necessary to determine year 2000 readiness of non-mainframe
IT systems and non-IT hardware and software. The Company estimates that over 50%
of the non-mainframe hardware and software has been inspected. The Company has
initiated communications with significant suppliers and customers to confirm
their plans to become year 2000 ready and assess the possible impact on the
Company's operations. While this assessment is not complete, the Company
presently believes it is not materially reliant on third party systems (e.g.
electronic data interchange) to conduct business.
To date, approximately $1.2 million has been expended to resolve
mainframe year 2000 issues and an additional $1.6 million has been expended by
the project team to assess remaining mainframe and non-mainframe hardware and
software year 2000 issues. The assessment work to date has provided the project
team with information that is currently being used to develop a detailed
remediation plan for remaining issues. It is possible that significant
additional expenditures will be necessary. However, the project team remediation
plan must be substantially prepared before meaningful estimates of additional
expenditures can be made. The Company anticipates that it will be able to make
initial estimates of the additional expenditures for its year 2000 readiness
efforts by the end of the third fiscal quarter.
While possible, the Company does not currently believe that year 2000
issues or expenditures will have a material adverse impact on the results of
operations or the financial position of the Company. Projects already
anticipated for business reasons may be implemented sooner, if they will
simultaneously resolve year 2000 issues. A portion of the Year 2000 expenditures
will be capitalized under generally accepted accounting principles. Existing
internal resources are being re-deployed to perform year 2000 activities. The
Company will use all commercially reasonable efforts to complete all critical
year 2000 projects before January 1, 2000. The Company recognizes the need for
analyses of worst case scenarios and contingency planning and will be able to
plan for contingencies once the detailed remediation plan is complete. It
estimates that those contingency plans will also be in place before January 1,
2000.
THE YEAR 2000 STATEMENTS CONTAINED HEREIN ARE YEAR 2000 READINESS
DISCLOSURES (as defined under the Year 2000 Information and Readiness Act) and
shall be treated as such for all purposes permissible under such Act. These
statements are based on management's analysis of all information obtained to
date and use what management believes to be reasonable assumptions in estimating
costs, project timing, and the occurrence of future events. There can be no
assurance that actual costs will not exceed any stated estimates, that all
possible year 2000 issues will be resolved by the stated times, or that there
will be no adverse impact on the Company due to system failures caused by either
internal or external year 2000 issues.
15
<PAGE> 16
EURO-CURRENCY
The European Union's new common currency is scheduled to be introduced
on January 1, 1999. The Company expects no material impact to its results from
operations or financial condition as a result of this change, due to the
Company's limited overseas operations.
SAFE HARBOR STATEMENT
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 growth, stock
appreciation, plant start-ups, capabilities, the impact of year 2000 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; year 2000 issues; and other risks described from time to time
in the Company's filings with the Securities and Exchange Commission.
16
<PAGE> 17
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A. Exhibits.
Exhibit 27 Financial Data Schedule
B. Reports on Form 8-K. There were no reports on Form 8-K during the
three months ended November 30, 1998.
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: December 22, 1998 By:/s/John T. Baldwin
----------------- ------------------
John T. Baldwin
Vice President & Chief Financial Officer
By:/s/Michael R. Sayre
-------------------
Michael R. Sayre
Controller
17
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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TO SUCH FINANCIAL STATEMENTS.
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<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> NOV-30-1998
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<SECURITIES> 0
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