<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: February 28, 1999 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 91,849,127
- -------------------------------- --------------------------
Class Outstanding March 31, 1999
1
<PAGE> 2
WORTHINGTON INDUSTRIES, INC.
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheets -
February 28, 1999 and May 31, 1998............................. 3
Consolidated Condensed Statements of Earnings -
Three and Nine Months Ended February 28, 1999 and 1998......... 5
Consolidated Condensed Statements of Cash Flows
Nine Months Ended February 28, 1999 and 1998................... 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.................................................. 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
2
<PAGE> 3
WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands, Except Per Share)
<TABLE>
ASSETS
<CAPTION>
February 28, May 31,
1999 1998
------------ ---------
(Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 16,750 $ 3,788
Accounts receivable - net 294,278 310,155
Inventories
Raw materials 163,529 172,920
Work in process and finished products 132,030 115,991
---------- ----------
Total Inventories 295,559 288,911
Income taxes receivable -- 5,429
Prepaid expenses and other
current assets 37,272 34,712
---------- ----------
TOTAL CURRENT ASSETS 643,859 642,995
Investment in Unconsolidated Affiliates 66,406 61,694
Intangible Assets 106,905 95,725
Other Assets 40,792 33,025
Investment in Rouge 59,621 75,745
Property, plant and equipment 1,246,989 1,315,668
Less accumulated depreciation 318,806 382,510
---------- ----------
Property, Plant and Equipment - net 928,183 933,158
---------- ----------
TOTAL ASSETS $1,845,766 $1,842,342
========== ==========
</TABLE>
3
<PAGE> 4
WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands, Except Per Share)
<TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
February 28, May 31,
1999 1998
----------- ---------
(Unaudited) (Audited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 173,140 $ 176,752
Notes payable 161,099 136,600
Accrued compensation, contributions to
employee benefit plans and related taxes 35,737 43,867
Dividends payable 12,957 13,532
Other accrued items 86,995 37,800
Income taxes 31,035 --
Current maturities of long-term debt 4,588 1,480
---------- ----------
TOTAL CURRENT LIABILITIES 505,551 410,031
Other Liabilities 34,752 24,788
Long-Term Debt:
Conventional long-term debt 365,040 363,870
Debt exchangeable for common shares 59,621 75,745
---------- ----------
Total Long-Term Debt 424,661 439,615
Deferred Income Taxes 116,269 145,230
Minority Interest 43,378 42,405
Shareholders' Equity
Common shares, without par value,
at stated capital amount 113,964 --
Common shares, $.01 par value -- 968
Additional paid-in capital -- 116,696
Unrealized loss on investment (5,563) (5,563)
Foreign currency translation (5,258) (2,812)
Retained earnings 618,012 670,984
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 721,155 780,273
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,845,766 $1,842,342
========== ==========
</TABLE>
See notes to consolidated condensed financial statements.
4
<PAGE> 5
WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(In Thousands Except Per Share)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
February 28, February 28,
-------------------- ------------------------
1999 1998 1999 1998
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $422,074 $397,529 $1,267,782 $1,177,780
Cost of goods sold 349,737 338,176 1,064,597 999,529
-------- -------- ---------- ----------
GROSS MARGIN 72,337 59,353 203,185 178,251
Selling, general & administrative expense 37,246 28,709 104,638 83,744
-------- -------- ---------- ----------
OPERATING INCOME 35,091 30,644 98,547 94,507
Other income (expense):
Miscellaneous income 1,268 242 4,592 719
Interest expense (11,384) (5,816) (32,070) (19,470)
Equity in net income of unconsolidated
affiliates 5,336 4,805 16,463 14,464
-------- -------- ---------- ----------
EARNINGS BEFORE INCOME TAXES 30,311 29,875 87,532 90,220
Income taxes 11,216 11,054 32,387 33,382
-------- -------- ---------- ----------
EARNINGS FROM CONTINUING
OPERATIONS 19,095 18,821 55,145 56,838
DISCONTINUED OPERATIONS,
NET OF TAXES (16,870) 3,527 (14,238) 10,164
EXTRAORDINARY ITEM, NET OF TAXES -- 18,771 -- 18,771
-------- -------- ---------- ----------
NET EARNINGS $ 2,225 $ 41,119 $ 40,907 $ 85,773
======== ======== ========== ==========
AVERAGE COMMON SHARES OUTSTANDING 92,510 96,781 93,590 96,768
EARNINGS PER COMMON SHARE - BASIC & DILUTED
- -------------------------------------------
EARNINGS FROM CONTINUING
OPERATIONS $ .21 $ .19 $ .59 $ .59
DISCONTINUED OPERATIONS, NET OF TAXES (.19) .04 (.15) .10
EXTRAORDINARY ITEM, NET OF TAXES -- .19 -- .19
-------- -------- ---------- ----------
NET EARNINGS $ .02 $ .42 $ .44 $ .88
======== ======== ========== ==========
CASH DIVIDENDS DECLARED
PER COMMON SHARE $ .14 $ .13 $ .42 $ .39
-------- -------- ---------- ----------
</TABLE>
See notes to consolidated condensed financial statements.
5
<PAGE> 6
WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
February 28,
-----------------------
1999 1998
-------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 40,907 $ 85,773
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 58,757 45,513
Deferred income taxes (23,590) 10,862
Equity in undistributed net income of unconsolidated affiliates (7,340) (5,755)
Minority interest in net loss of consolidated subsidiary (2,867) (106)
Net loss on sale of assets 21,744 --
Extraordinary gain -- (29,795)
Changes in assets and liabilities:
Current assets (24,607) (29,492)
Other assets 1,054 (2,664)
Current liabilities 26,872 57,970
Other liabilities 656 (1,622)
-------- ---------
Net Cash Provided By Operating Activities 91,586 130,684
INVESTING ACTIVITIES
Investment in property, plant and equipment, net (96,098) (219,728)
Acquisitions, net of cash acquired (26,718) --
Proceeds from property insurance -- 38,683
Proceeds from sale of assets 117,056 --
-------- ---------
Net Cash Used By Investing Activities (5,760) (181,045)
FINANCING ACTIVITIES
Proceeds from short-term borrowings 24,499 5,700
Proceeds from long-term debt 2,600 152,829
Principal payments on long-term debt (5,649) (96,550)
Proceeds from issuance of common shares 694 1,846
Proceeds from minority interest 3,840 26,400
Repurchase of common shares (59,422) (2,192)
Dividends paid (39,426) (37,737)
-------- ---------
Net Cash Provided (Used) By Financing Activities (72,864) 50,296
-------- ---------
Increase (decrease) in cash and cash equivalents 12,962 (65)
Cash and cash equivalents at beginning of period 3,788 7,212
-------- ---------
Cash and cash equivalents at end of period $ 16,750 $ 7,147
======== =========
</TABLE>
See notes to consolidated condensed financial statements
6
<PAGE> 7
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 February 28, 1999 and May 31, 1998,
the results of operations for the three and nine months ended February
28, 1999 and 1998, and the cash flows for the nine months ended
February 28, 1999 and 1998.
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 nine months ended
February 28, 1999 are not necessarily indicative of the results to be
expected for the full year.
NOTE D - SHAREHOLDERS' 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
<PAGE> 8
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 produces high pressure industrial gas
cylinders. The results of operations for 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 Nine Months
------------ -----------
Ended February 28,
------------------
($000) 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Comprehensive Income:
Net Income $ 2,225 $ 41,119 $ 40,907 $ 85,773
Other Comprehensive Income (Loss),
net of tax:
Unrealized Gain on Investment -- -- -- 7
Foreign Currency Translation (2,767) (80) (2,446) (636)
-------- -------- -------- --------
Other Comprehensive Income (Loss) (2,767) (80) (2,446) (629)
-------- -------- -------- --------
Comprehensive Income (Loss) $ (542) $ 41,039 $ 38,461 $ 85,144
======== ======== ======== ========
</TABLE>
8
<PAGE> 9
NOTE G - DISCONTINUED OPERATIONS
-----------------------
As part of the previously announced decision to sell its
Custom Products and Cast Products segments, the Company completed the
sale of its Worthington Precision Metals subsidiary for approximately
$42 million on October 30, 1998. On February 10, 1999, the Company
completed the sale of its Buckeye Steel Castings business for
approximately $85 million. In addition, on February 26, 1999, a
definitive agreement was signed for the sale of the assets of
Worthington Custom Plastics in North Carolina, South Carolina and
Kentucky. The Company reserved $35 million after taxes for estimated
losses resulting from sales of discontinued operations. Summarized
results of the Discontinued Operations amount on the Company's
consolidated income statement follow:
<TABLE>
<CAPTION>
Three Months Nine Months
------------ -----------
Ended February 28,
------------------
($000) 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income from operations before income
taxes $ 1,198 $5,598 $ 7,779 $16,133
Income Taxes 443 2,107 2,878 5,969
-------- ------ -------- -------
Net Income from Operations 755 3,527 4,901 10,164
-------- ------ -------- -------
Net Loss on Sales (26,139) -- (22,427) --
Income Taxes (8,514) -- (3,288) --
-------- ------ -------- -------
Net Loss on Sales, net of taxes (17,625) -- (19,139) --
-------- ------ -------- -------
Net Income (Loss) from
Discontinued Operations $(16,870) $3,527 $(14,238) $10,164
======== ====== ======== =======
Earnings Per Common Share -
Basic & Diluted:
Net Income from Operations $ .00 $ .04 $ .05 $ .10
Net Loss on Sale (.19) -- (.20) --
-------- ------ -------- -------
Net Income (Loss) from
Discontinued Operations $ (.19) $ .04 $ (.15) $ .10
======== ====== ======== =======
</TABLE>
9
<PAGE> 10
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 reflected 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 third quarter ended February 28, 1999, the Company sold the
Buckeye Steel Castings business (Buckeye Steel) and signed a definitive
agreement for the sale of the assets of Worthington Custom Plastics in North
Carolina, South Carolina and Kentucky (Non-Automotive Plastics business). The
Company recorded an after-tax loss of $17.6 million in the third quarter
reflecting a gain from the sale of Buckeye Steel and a reserve for estimated
losses resulting from the pending sales of discontinued operations.
RESULTS
For the quarter ended February 28, 1999, sales increased 6% to $422.1
million. Earnings from continuing operations were $19.1 million compared to
$18.8 million for the previous year's third quarter and earnings per share from
continuing operations were $.21 versus $.19 last year. The loss from
discontinued operations was $16.9 million compared to earnings of $3.5 million
last year. Net earnings and net earnings per share before the prior year
extraordinary item were $2.2 million and $.02 respectively, compared to $22.3
million and $.23 for the third quarter of the previous year.
For the first nine months, sales increased 8% to $1,267.8 million.
Earnings from continuing operations were $55.1 million compared to $56.8 million
for the previous year's first nine months and earnings per share from continuing
operations were $.59, even with last year. The loss from discontinued operations
was $14.2 million compared to earnings of $10.2 million last year. Net earnings
and net earnings per share before the prior year extraordinary item were $40.9
million and $.44, respectively, compared to $67.0 million and $.69 for the first
nine months of the previous year.
10
<PAGE> 11
RESULTS FROM CONTINUING OPERATIONS
Overall for the quarter and nine months ended February 28, 1999, sales
increased due to the steel processing facility start-ups, Worthington Heiser,
and stronger demand for most product lines for continuing operations. Operating
income was up for the quarter and nine months. For the quarter, favorable market
share growth and raw material costs were partially offset by the impact of
startup losses from the two steel processing facilities (described below),
estimated by the Company to be $.06 per share. For the nine months, the second
and third quarter favorable results were partially offset by the General Motors
strike in the first quarter and the unfavorable impact of the two facility
start-ups. The estimated combined impact on continuing operations of the
start-ups and strike was $.06 and $.16 per share for the quarter and nine
months, respectively.
Gross margin as a percent of net sales was 17.1% (14.9% last year) for
the quarter and 16.0% (15.1% last year) for nine months. This improved
performance was due to lower raw material costs. The fire at the Monroe, Ohio
facility (discussed below) did not materially impact margins in the nine months
due to recoveries under business interruption insurance approximating the lost
operating income which would have resulted had the fire not occurred. In the
third quarter, $3.9 million of business interruption was recorded in net sales.
Operating income as a percent of net sales was 8.3% (7.7% last year)
for the quarter and 7.8% (8.0% last year) for nine 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.
SG&A as a percent of net sales was 8.8% (7.2% last year) for the quarter and
8.3% (7.1% last year) for nine months. The SG&A as a percent of net sales
increase is due to the impact of the Year 2000 issue (described below) and the
negative impact of overhead without corresponding sales levels at the two
start-up facilities.
For steel processing, sales increased and operating income declined for
the quarter and nine months. Additional sales during the quarter were driven by
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 nine 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 and partially offset by favorable
raw material costs. For the nine months, results also reflect the negative
impact of the General Motors strike.
11
<PAGE> 12
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. The Company has reached a final settlement with its
insurance provider.
Pressure cylinder sales and operating income were up over fiscal 1998's
third quarter and nine months due to increased volume in most product lines. The
cylinder business showed strong growth in international sales during the first
nine months of the year through the acquisition of Jos. Heiser vormals J.
Winter's Sohn, GmbH (Worthington Heiser) in June 1998. Based in Gaming, Austria,
Worthington Heiser produces high pressure cylinders.
Metal framing sales for the quarter were essentially even as continued
lower sales from stainless products and the sale of the garage door operations
during the second quarter offset growth in building products. Stainless product
sales began to recover mid-quarter as the Aurora, Ohio labor dispute was
settled. For the nine months, sales increased due to the building products sales
volume growth. Operating income increased for the quarter and nine months
reflecting the increased sales volume, lower net material costs, and the gain on
sale of the garage door operations, and decreased by the impact from the Aurora
labor dispute.
Interest expense increased 96% to $11.4 million for the third quarter
and increased 65% to $32.1 million for the first nine months. Average debt
outstanding (excluding DECS) totaled $562 million ($476 million last year) for
the quarter and $516 million ($449 million last year) for nine months. Debt
levels rose in fiscal 1999 to fund capital spending, including the construction
of the Decatur and Spartan facilities, the acquisition of Worthington Heiser and
share repurchases. This increase was partially offset by proceeds from
divestitures, primarily the Buckeye Steel Castings and Metals businesses. At
February 28, 1999, approximately 69% of the Company's total debt (excluding
DECS) was at fixed rates of interest. Capitalized interest totaled $0.1 million
($3.9 million last year) for the quarter and $3.7 million ($7.1 million last
year) for nine months.
Equity in net income of unconsolidated affiliates increased 11% and 14%
for the quarter and first nine months, respectively. WAVE continued to be a
strong contributor to income by posting increases in earnings for the quarter
and nine months. TWB also contributed to the increased income for the quarter
and nine months, while WSP's contribution was down for the quarter and nine
months, primarily due to lower volumes.
12
<PAGE> 13
The effective tax rate for the third quarter and first nine months of
fiscal 1999 remained at 37%.
RESULTS FROM DISCONTINUED OPERATIONS
Sales from discontinued operations for the quarter were $92.8 million,
down 23% from last year. Sales decreased 20% for Cast Products due to the sale
of the business on February 10, 1999. A 25% decline from Custom Products was due
to lower sales volumes and the October 1998 divestiture of the Precision Metals
business. Results from discontinued operations amounted to a $16.9 million loss
compared to earnings of $3.5 million last year. Excluding the after-tax loss of
$17.6 million recorded for the actual and pending sales of discontinued
businesses, net income from the discontinued operations was approximately $.7
million.
Sales from discontinued operations for the nine months were $311.7
million, down 14% from last year. The decline in sales is primarily due to a 25%
decline in Custom Products sales due to the impact of the first quarter strike
at General Motors and the October 1998 divestiture of the Metals business.
Partially offsetting this unfavorable performance was a 13% increase in Cast
Products sales, due to significant improvement in rail car volume during the
first half of the fiscal year. Results from discontinued operations amounted to
a $14.2 million loss compared to earnings of $10.2 million last year. Excluding
the after-tax loss of $19.1 million recorded for the actual and pending sales of
discontinued businesses, net income from the discontinued operations was $4.9
million, down 52%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents were $17 million at February
28, 1999, an increase of $13 million over May 31, 1998. During the first nine
months, the Company generated $92 million in cash from operating activities down
from $131 million during the first nine months of fiscal 1998. The decrease from
the prior year is primarily due to higher levels of interest and lower operating
results from discontinued operations. For the nine months ended February
28,1999, higher inventory levels were needed to support the Decatur start up and
higher income taxes payable were related to the sale of discontinued businesses.
The $92 million of net cash from operating activities and the sale
proceeds of $117 million in the first nine months provided most of the resources
needed to dividend $39 million to share owners, fund investing activities, and
repurchase $59 million of the Company's common stock (described below).
Investing activities included capital projects of $96 million ($92 million, net
of Rouge Industries' capital investment in Spartan Steel) and $27 million for
the Worthington Heiser acquisition. The most significant capital projects were
the Decatur, Alabama steel processing plant, and the rebuild of the Monroe, Ohio
facility.
13
<PAGE> 14
On February 28, 1999, the Company's current assets, which include
discontinued operations, were even with the end of fiscal 1998. Current
liabilities increased by $96 million during the nine months to $506 million. The
increase in current liabilities was primarily due to a $50 million accrual
established for losses on the pending sale of the Non-Automotive Plastics
business, a $31 million increase in income taxes payable due to completed sales
of discontinued businesses, and a $24 million increase in notes payable.
Accordingly, the current ratio at February 28, 1999 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, unless extended. The $190 million of previously existing commitments
expire in May 2003. At February 28, 1999, 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 liability as of
February 28, 1999 was $59.6 million, down from $75.7 million at May 31,1998 due
to a decrease in the value of the Rouge common stock.
At February 28, 1999, the Company's total debt (excluding the DECS) was
$531 million compared to $502 million at the end of fiscal 1998. Total debt to
committed capital (excluding the DECS) increased to 42% versus 39% at prior
fiscal year end. Along with cash from operations and proceeds from discontinued
businesses, additional debt (primarily notes payable) was incurred and used to
finance the Company's investments.
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.
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, 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.
14
<PAGE> 15
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
calculating or 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. In the discussion below, information technology (IT)
generally refers to hardware and software that processes information used to
manage the business. Non-information technology (non-IT) generally refers to
hardware and software used to control specific manufacturing processes on the
plant floor, such as programmable controllers, or to serve basic administrative
needs, such as telephone systems, copiers, or facsimile machines.
State of Readiness
Several initiatives related to year 2000 issues have been on going 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 remaining year 2000 issues, including the year
2000 readiness of its equipment manufacturers and significant suppliers. In
addition, this team will be assessing the possible impact of significant
customers who may not be year 2000 ready. The project team is using a two-phase
approach at all continuing operations to accomplish its objectives. The phases
are:
Inventory and Assessment - A physical inventory of all IT and non-IT
hardware and software is taken by a trained inventory team, including such
information as manufacturers and model numbers. Each item on the physical
inventory is reviewed for both known problems for particular vendors and models
and for potential problems based on internal and external expertise. Those
inventory items identified as having or possibly posing a year 2000 issue are
further grouped for remediation planning.
Remediation and Testing - The groups of inventory items are prioritized
in the following classifications based on the expected impact to operations if
they are not remediated by year 2000: 1) those that will immediately and
materially impact operations; 2) those that will materially impact operations
within a relatively short time frame; 3) those that could eventually have a
material impact on operations; and 4) those not expected to have a material
impact on operations. In priority order, items with known year 2000 issues are
repaired, replaced, or retired as expected to resolve the issue. Items with
possible year 2000 issues that are not retired are tested in priority
15
<PAGE> 16
order for possible issues and repaired or replaced as further expected to
resolve the issue. After remediation, items are tested in an actual or simulated
production environment, verified as remediated, and re-deployed into production.
Contingency planning is a formal part of this process.
Both phases are audited for process quality by an independent group
staffed with both internal and external subject matter experts.
The Inventory and Assessment phase has been completed at all continuing
operations. The Remediation and Testing phase is in progress. The following
table summarizes the status on March 31, 1999, of the year 2000 remediation
efforts on identified items that may materially impact operations:
<TABLE>
------ Estimated Current Completion % and Month of Expected Completion --------
<CAPTION>
Inventory and Assessment Remediation and Testing
Area % Expected % Expected
Complete Completion Complete Completion
<S> <C> <C> <C> <C>
IT Hardware and Software:
Financial 100% Complete 90% May 1999
Non-Financial 100% Complete 30% Sep 1999
Non-IT Hardware and Software 100% Complete 30% Sep 1999
Third-Party Systems* 60% Jul 1999 * *
Products N/A N/A N/A N/A
</TABLE>
* The Company has initiated communications with significant suppliers and
selected customers to confirm their plans to become year 2000 ready and assess
the potential impact of non-ready third-party systems on the Company's
operations. The Company estimates contingency planning for potential disruptions
caused by non-ready third-party systems that could materially impact operations
will be completed by October 1999.
16
<PAGE> 17
Costs
To date, approximately $3.9 million net of tax savings ($2.2 million in
the third quarter) has been expensed related to year 2000 issues in continuing
operations. An additional $.4 million in capital expenditures has been incurred
on these projects. The Company currently projects additional expenses in its
efforts to resolve year 2000 issues of $12 million net of tax savings. An
additional $6 million in capital expenditures is currently projected by the
Company to result from these efforts. Year 2000 expenditures are expected to be
funded through operating cash flow.
Responsibility for the costs of becoming year 2000 ready for those
businesses sold to date has been transferred to the acquiring companies. Year
2000 projects are on-going in the remaining discontinued operations and are
currently not expected to have a material adverse impact on the consolidated
results of the Company.
The Company has elected to delay certain IT projects and re-direct the
internal resources to year 2000 projects to minimize year 2000 related costs.
The Company expects no material adverse consequences due to the re-direction of
these resources.
Risks and Contingency Planning
The Company is using all commercially reasonable efforts and expects to
complete critical year 2000 projects by September 1999. However, there can be no
assurance that all systems on which the Company relies will be year 2000 ready.
Worst case scenarios include the possible shutting down of an entire
operation for an extended period of time. Historically, the business losses from
such events have been mitigated through the use of other company-owned
facilities with similar manufacturing capabilities. However, this is not
possible for all products the Company manufactures. In the event of the shut
down of an operation, orders may be serviced from inventories or alternate
manufacturing sites for short periods of time. An extended shut down may result
in the out-sourcing of some manufacturing to third parties or an actual loss of
business.
In addition, the formal remediation process includes the identification
of year 2000 issues that could have a material impact on operations as well as
contingency planning for such issues. This process is expected to minimize risks
to the Company. Additional contingency planning for worst case scenarios is in
progress and expected to be completed by November 1999.
While possible, the Company does not currently believe the advent of
the year 2000 will have a material impact on the results of operations or the
financial position of the Company.
17
<PAGE> 18
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.
EURO-CURRENCY
The European Union's new common currency was introduced on January 1,
1999. The Company expects no material impact to its results from operations or
financial condition 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.
18
<PAGE> 19
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 February 28, 1999.
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: April 12, 1999 By:/s/John T. Baldwin
-------------- -------------------------
John T. Baldwin
Vice President & CFO
By:/s/Michael R. Sayre
-------------------------
Michael R. Sayre
Controller
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> FEB-28-1999
<EXCHANGE-RATE> 1
<CASH> 16,750
<SECURITIES> 0
<RECEIVABLES> 298,606
<ALLOWANCES> 4,328
<INVENTORY> 295,559
<CURRENT-ASSETS> 643,859
<PP&E> 1,246,989
<DEPRECIATION> 318,806
<TOTAL-ASSETS> 1,845,766
<CURRENT-LIABILITIES> 505,551
<BONDS> 424,661
0
0
<COMMON> 0
<OTHER-SE> 721,155
<TOTAL-LIABILITY-AND-EQUITY> 1,845,766
<SALES> 1,267,782
<TOTAL-REVENUES> 1,267,782
<CGS> 1,064,597
<TOTAL-COSTS> 1,064,597
<OTHER-EXPENSES> 104,638
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,070
<INCOME-PRETAX> 87,532
<INCOME-TAX> 32,387
<INCOME-CONTINUING> 55,145
<DISCONTINUED> (14,238)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,907
<EPS-PRIMARY> .44
<EPS-DILUTED> .44
</TABLE>
