<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10 - Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 31,1999
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period from __________________ to __________________
Commission File No. 0-4016
WORTHINGTON INDUSTRIES, INC.
----------------------------
(Exact name of Registrant as specified in its Charter)
OHIO 31-1189815
- --------------------------------------- ---------------------------------
(State of Incorporation) (IRS Employer Identification No.)
1205 Dearborn Drive, Columbus, Ohio 43085
- --------------------------------------- ---------------------------------
Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (614) 438-3210
-----------------------------
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 / /
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
As of September 30, 1999, 89,112,853 shares of the Issuer's common
stock, without par value, were outstanding.
1
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WORTHINGTON INDUSTRIES, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets -
August 31, 1999 and May 31, 1999...................................3
Condensed Consolidated Statements of Earnings -
Three Months Ended August 31, 1999 and 1998........................5
Condensed Consolidated Statements of Cash Flows -
Three Months Ended August 31, 1999 and 1998........................6
Notes to Condensed Consolidated Financial Statements...............7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................8
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...........17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..............................17
SIGNATURES.....................................................................18
</TABLE>
2
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WORTHINGTON INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
ASSETS
<TABLE>
<CAPTION>
August 31, May 31,
1999 1999
---------- ----------
(Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 7,054 $ 7,641
Accounts receivable, net 254,756 281,706
Inventories
Raw materials 170,792 163,277
Work in process and finished products 117,961 93,733
---------- ----------
Total Inventories 288,753 257,010
Investment in Rouge 43,497 52,497
Other current assets 11,547 25,401
---------- ----------
TOTAL CURRENT ASSETS 605,607 624,255
Property, plant and equipment 1,141,515 1,131,761
Less accumulated depreciation 274,097 260,414
---------- ----------
Property, Plant and Equipment, net 867,418 871,347
Other Assets 194,914 191,349
---------- ----------
TOTAL ASSETS $1,667,939 $1,686,951
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
3
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WORTHINGTON INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
August 31, May 31,
1999 1999
---------- ----------
(Unaudited) (Audited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 171,839 $ 161,264
Notes payable 101,909 122,277
Current maturities of long-term debt 3,249 5,234
Debt exchangeable for common stock 43,497 52,497
Other current liabilities 120,831 86,453
---------- ----------
TOTAL CURRENT LIABILITIES 441,325 427,725
Long-Term Debt 364,172 365,802
Other Liabilities 79,472 79,331
Deferred Income Taxes 96,607 124,444
Shareholders' Equity 686,363 689,649
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,667,939 $1,686,951
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
4
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WORTHINGTON INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In Thousands, Except Per Share)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
August 31,
----------------------
1999 1998
--------- ---------
<S> <C> <C>
Net sales $ 462,911 $ 409,280
Cost of goods sold 379,736 347,602
--------- ---------
GROSS MARGIN 83,175 61,678
Selling, general & administrative expense 41,879 32,072
--------- ---------
OPERATING INCOME 41,296 29,606
Other income (expense):
Miscellaneous income 962 2,362
Interest expense (10,215) (8,943)
Equity in net income of unconsolidated affiliates 6,770 5,055
--------- ---------
EARNINGS BEFORE INCOME TAXES 38,813 28,080
Income taxes 14,555 10,390
--------- ---------
EARNINGS FROM CONTINUING OPERATIONS 24,258 17,690
Discontinued Operations, net of taxes -- (1,316)
Cumulative Effect of Accounting Change,
net of taxes -- (7,836)
--------- ---------
NET EARNINGS $ 24,258 $ 8,538
========= =========
AVERAGE COMMON SHARES OUTSTANDING - DILUTED 89,953 95,871
EARNINGS PER COMMON SHARE - BASIC & DILUTED
Earnings From Continuing Operations $ 0.27 $ 0.18
Discontinued Operations, net of taxes -- (0.01)
Cumulative Effect of Accounting Change,
net of taxes -- (0.08)
--------- ---------
NET EARNINGS $ 0.27 $ 0.09
========= =========
CASH DIVIDENDS DECLARED PER COMMON SHARE $ 0.15 $ 0.14
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
5
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WORTHINGTON INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
August 31,
1999 1998
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 24,258 $ 8,538
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 17,251 18,641
Other adjustments 422 2,249
Changes in current assets and liabilities 20,249 (2,259)
--------- ---------
Net Cash Provided By Operating Activities 62,180 27,169
INVESTING ACTIVITIES
Investment in property, plant and equipment, net (13,914) (48,862)
Acquisitions, net of cash acquired -- (26,718)
Proceeds from sale of assets 523 2,759
--------- ---------
Net Cash Used By Investing Activities (13,391) (72,821)
FINANCING ACTIVITIES
Proceeds from (payments on) short-term borrowings (20,368) 121,268
Proceeds from long-term debt 86 2,550
Principal payments on long-term debt (3,798) (1,609)
Repurchase of common shares (11,597) (59,422)
Dividends paid (13,492) (13,532)
Other (207) 3,805
--------- ---------
Net Cash Provided (Used) By Financing Activities (49,376) 53,060
--------- ---------
Increase (decrease) in cash and cash equivalents (587) 7,408
Cash and cash equivalents at beginning of period 7,641 3,788
--------- ---------
Cash and cash equivalents at end of period $ 7,054 $ 11,196
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
6
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WORTHINGTON INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three months ended
August 31, 1999 are not necessarily indicative of the results that may be
expected for the year ended May 31, 2000. For further information, refer to the
consolidated financial statements and footnotes thereto included in Worthington
Industries, Inc.'s Annual Report to Shareholders and incorporated by reference
in its 1999 Form 10-K.
NOTE B- INDUSTRY SEGMENT DATA
<TABLE>
<CAPTION>
Three Months Ended
August 31,
----------------------------------
($000) 1999 1998
--------------- ----------------
<S> <C> <C>
NET SALES:
Processed Steel Products $300,404 $253,102
Metal Framing 88,487 91,507
Pressure Cylinders 73,040 63,048
Other 980 1,623
=============== ================
$462,911 $409,280
=============== ================
OPERATING INCOME:
Processed Steel Products $23,761 $15,107
Metal Framing 10,602 6,696
Pressure Cylinders 8,202 7,918
Other (1,269) (115)
=============== ================
$41,296 $29,606
=============== ================
</TABLE>
NOTE C- COMPREHENSIVE INCOME
Total comprehensive income was $22,398 and $8,282 for the three months ended
August 31, 1999 and 1998, respectively.
7
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WORTHINGTON INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements contained in this Form 10-Q, as filed with the SEC,
including, without limitation, the Management's Discussion and Analysis that
follows, constitute "forward looking statements" that are based on management's
beliefs, estimates, assumptions and currently available information. Such
forward looking statements include, without limitation, statements relating to
future operating results, growth, stock appreciation, plant start-ups,
capabilities, the impact of year 2000 and other non-historical information.
Because they are based on beliefs, estimates and assumptions, forward looking
statements are inherently subject to risks and uncertainties that could cause
actual results to differ materially from those projected. Any number of factors
could affect actual results, including, without limitation, product demand,
changes in product mix and market acceptance of products; changes in pricing or
availability of raw material, particularly steel; capacity restraints and
efficiencies; conditions in major product markets; delays in construction or
equipment supply; inherent risks of international development, including foreign
currency risks; the ability to improve processes and business practices to keep
pace with the economic, competitive and technological environment; year 2000
issues; general economic conditions, business environment and the impact of
governmental regulations, both in the United States and abroad; and other risks
described from time to time in filings with the Securities and Exchange
Commission.
OVERVIEW
Worthington Industries, Inc. (the "Company") is a diversified steel
processor that focuses on value-added steel processing and metals related
businesses. It operates 39 wholly-owned facilities worldwide, principally in
three reportable business segments: Processed Steel Products, Metal Framing, and
Pressure Cylinders. The Company also holds equity positions in seven joint
ventures, which operate 14 facilities worldwide.
RESULTS
For the first quarter ended August 31, 1999 (the "first quarter") of
the fiscal year ending May 31, 2000 ("fiscal 2000"), sales increased 13% to
$462.9 million from $409.3 million for the comparable quarter of the fiscal year
ended May 31, 1999 ("fiscal 1999"). Earnings from continuing operations for the
first quarter increased 37% to $24.3 million from $17.7 million in the
comparable quarter of fiscal 1999. Earnings per share from continuing operations
increased 50% to $0.27 for the first quarter of fiscal 2000 from $0.18 in the
comparable quarter of fiscal 1999 as a result of increased earnings and a
reduced share count.
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The following table presents selected consolidated sales and earnings
data and percentage changes:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
AUGUST 31, PERIOD
DOLLARS IN MILLIONS, ------------------------ TO PERIOD
EXCEPT PER SHARE DATA 1999 1998 CHANGE
------- ------- -----------
<S> <C> <C> <C>
Sales $ 462.9 $ 409.3 13%
Net Earnings:
Continuing Operations $ 24.3 $ 17.7 37%
Discontinued Operations - (1.3)
Accounting Change - (7.8)
Net Earnings per Share (Diluted):
Continuing Operations $ 0.27 $ 0.18 50%
Discontinued Operations - (0.01)
Accounting Change - (0.08)
</TABLE>
RESULTS FROM CONTINUING OPERATIONS
The following discussion and analysis of financial condition and
results of operations of the Company should be read in conjunction with the
Condensed Consolidated Financial Statements of the Company included elsewhere in
this report. The Company's Form 10-K, as filed with the SEC for the fiscal year
ended May 31, 1999, includes additional information about the Company, its
operations and its financial position, and should be read in conjunction with
this Quarterly Report on Form 10-Q.
For the first quarter of fiscal 2000, sales increased 13% to $462.9
million from $409.3 million in the comparable quarter of fiscal 1999. The
overall increase in sales was due to higher volumes, partially offset by lower
market-driven pricing in most of the Company's product lines. The Processed
Steel segment led the increase with new business and the return of sales missed
in the prior year period due to the General Motors strike. Metal Framing sales
were lower due to the sale of its garage door operations in fiscal 1999, despite
increased volumes in the core building products line. Pressure Cylinders sales
volumes increased in the liquefied petroleum gas (LPG) product line due to
expansion into the European market, and in the refrigerant product line due to
higher export sales.
Gross margin on sales increased to 18.0% for the first quarter of
fiscal 2000 from 15.1% in the comparable quarter of fiscal 1999. This
improvement was primarily due to favorable material costs reflected across all
segments. A gross margin summary follows:
9
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<TABLE>
<CAPTION>
THREE MONTHS ENDED
AUGUST 31, PERIOD
------------------------ TO PERIOD
DOLLARS IN MILLIONS 1999 1998 CHANGE
------- -------- ---------
<S> <C> <C> <C>
Gross Margin $ 83.2 $ 61.7 35%
% of Net Sales 18.0% 15.1%
</TABLE>
Selling, general, and administrative costs ("SG&A") increased 31% to
$41.9 million for the first quarter of fiscal 2000. SG&A increased to 9.0% of
sales for the first quarter of fiscal 2000 from 7.8% in the comparable quarter
of fiscal 1999. This increase is primarily due to the Year 2000 issue (discussed
below). Operating income increased 39% to $41.3 million for the first quarter of
fiscal 2000 from $29.6 million in the comparable quarter of fiscal 1999.
A summary of SG&A, operating income and percentage changes follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
AUGUST 31, PERIOD
------------------------ TO PERIOD
DOLLARS IN MILLIONS 1999 1998 CHANGE
------ ------ ---------
<S> <C> <C> <C>
SG&A $ 41.9 $ 32.1 31%
% of Sales 9.0% 7.8%
Operating Income $ 41.3 $ 29.6 39%
% of Sales 8.9% 7.2%
</TABLE>
Interest expense increased 14% to $10.2 million for the first quarter
of fiscal 2000 from $8.9 million in the comparable quarter of fiscal 1999. The
increase was due to lower capitalized interest, partially offset by lower
interest rates. Capitalized interest associated with the construction of capital
projects totaled $0.1 million during the first quarter of fiscal 2000, down from
$3.0 million in the comparable quarter of fiscal 1999. The higher capitalized
interest in the first quarter of fiscal 1999 was mainly due to financing the
construction of both the Decatur, Alabama and Monroe, Ohio facilities. Interest
rates on short-term unsecured notes payable decreased to 5.25% for the first
quarter of fiscal 2000, down from 5.77% for the comparable quarter of fiscal
1999. At August 31, 1999, approximately 78% of the Company's $469.3 million of
total debt (excluding debt exchangeable for common stock (the "DECS")) was at
fixed rates of interest. A summary of interest cost and percentage change
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
AUGUST 31, PERIOD
---------------------- TO PERIOD
DOLLARS IN MILLIONS 1999 1998 CHANGE
------ ------ ---------
<S> <C> <C> <C>
Interest Expense $ 10.2 $ 8.9 14%
Capitalized Interest 0.1 3.0
------ ------
Total Interest Cost $ 10.3 $ 11.9
</TABLE>
10
<PAGE> 11
Equity in net income of unconsolidated affiliates increased 34% to $6.8
million for the first quarter of fiscal 2000 from $5.1 million in the comparable
quarter of fiscal 1999. The Company's Worthington Armstrong Venture ("WAVE"),
TWB Company and Acerex joint ventures posted increases in sales and earnings.
Worthington Specialty Processing ("WSP") also posted profits for the quarter.
The effective tax rate was 37.5% for the first quarter of fiscal 2000,
up from 37.0% in fiscal 1999 due to increased business in higher-taxed foreign
and domestic locations, the result of divestiture and acquisition activity
concluded in fiscal 1999.
PROCESSED STEEL PRODUCTS
Processed Steel Products sales increased 19% to $300.4 million for the
quarter ended August 31, 1999 from $253.1 million in the comparable quarter of
fiscal 1999. The increase in sales is due to new business at the Delta, Ohio
plant and the Decatur, Alabama and Spartan Steel facilities, combined with the
recovery of prior period sales missed by other facilities during last year's
General Motors strike. The increase occurred despite lower steel selling prices
compared to the prior period. Operating income increased 57% to $23.8 million
for the quarter ended August 31, 1999 from $15.1 million in the same quarter of
fiscal 1999, due to higher volumes and lower material costs, partially offset by
the Company's Year 2000 costs. The following table sets forth the Processed
Steel Products segment's sales, operating income and percentage changes:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
AUGUST 31, PERIOD
------------------------- TO PERIOD
DOLLARS IN MILLIONS 1999 1998 CHANGE
------- ------- ---------
<S> <C> <C> <C>
Sales $ 300.4 $ 253.1 19%
Operating Income $ 23.8 $ 15.1 57%
% Sales 7.9% 6.0%
</TABLE>
METAL FRAMING
Metal Framing sales decreased 3% to $88.5 million for the first quarter
of fiscal 2000 from $91.5 million in the comparable quarter of fiscal 1999, due
to the sale of its garage door operations in fiscal 1999. A strong commercial
building products market for the metal-framed wall product line resulted in
higher sales volumes, offset by slightly lower market pricing. Initial shipments
of the new roof truss and floor joist product lines have begun in the
residential construction market. Operating income increased 58% to $10.6 million
for the first quarter of fiscal 2000 from $6.7 million in the comparable quarter
of fiscal 1999. Operating income increased due to higher volumes at an improved
operating margin of 12.0% as a result of lower material costs and increased
manufacturing efficiencies, partially offset by the Company's Year 2000 costs.
The following table sets forth the Metal Framing segment's sales and operating
income and percentage changes:
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<TABLE>
<CAPTION>
THREE MONTHS ENDED
AUGUST 31, PERIOD
------------------------ TO PERIOD
DOLLARS IN MILLIONS 1999 1998 CHANGE
------ ------ ---------
<S> <C> <C> <C>
Sales $ 88.5 $ 91.5 -3%
Operating Income $ 10.6 $ 6.7 58%
% Sales 12.0% 7.3%
</TABLE>
PRESSURE CYLINDERS
Pressure Cylinders sales increased 16% to $73.0 million for the first
quarter of fiscal 2000 from $63.0 million in the comparable quarter of fiscal
1999. This increase was due to volume growth from the LPG business expansion in
Europe and higher refrigerant export sales, partially offset by lower pricing
due to competition in domestic markets. Operating income increased 4% to $8.2
million for the first quarter of fiscal 2000 from $7.9 million in the comparable
quarter of fiscal 1999 due to higher volumes. Operating margins declined from
the comparable quarter of fiscal 1999 to 11.2% due to the Company's Year 2000
costs.
The Company acquired three European businesses in fiscal 1999. These
acquisitions contributed to the increased sales during the quarter and offer
significant future growth opportunities for the segment given their full product
offerings and geographic coverage throughout Europe.
The following table sets forth the Pressure Cylinders segment's sales,
operating income and percentage changes:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
AUGUST 31, PERIOD
------------------------ TO PERIOD
DOLLARS IN MILLIONS 1999 1998 CHANGE
------ ------ ---------
<S> <C> <C> <C>
Sales $ 73.0 $ 63.0 16%
Operating Income $ 8.2 $ 7.9 4%
% Sales 11.2% 12.6%
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents were $7.1 million at August 31,
1999, a decrease of $0.5 million from May 31, 1999. For the first quarter of
fiscal 2000, the Company generated $62.2 million in cash from operating
activities, an increase from $27.2 million in the comparable quarter of fiscal
1999. The higher operating cash flow in fiscal 2000 is due to improved operating
results and a decrease in net working capital requirements for the Company's
continuing operations.
The $62.2 million of net cash from operating activities for the first
quarter of fiscal 2000 provided the resources needed to pay shareholders $13.5
million in dividends, invest $13.9 million in capital projects, and finance the
repurchase of $11.6 million of the
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Company's common stock. Capital investments for the quarter included amounts for
expanding the Processed Steel segment's annealing capacity at the Decatur,
Alabama plant and adding the ability to apply a dry film lubricant at the
Monroe, Ohio facility. The expenditures also provided for continuing
implementation of the Pressure Cylinders segment's new business information
system, and for the further development of the Metal Framing segment's
structural design software.
Net working capital decreased $32.2 million from May 31, 1999 to $164.3
million on August 31, 1999. Current assets decreased $18.6 million to $605.6
million on August 31, 1999 and current liabilities increased $13.6 million to
$441.3 million on August 31, 1999. Accounts receivable decreased due to lower
Pressure Cylinders segment sales during the first quarter. Inventories and
accounts payable both increased, due to the Processed Steel segment's
replenishment of low inventory levels and anticipated sales increases over the
next quarter. Other current liabilities increased due to first quarter taxes
payable and reclassifications from other current assets and long-term
liabilities of deferred taxes totaling $17.7 million related to the DECS
liability (described below), maturing in March 2000. Current notes payable
declined by $20.4 million during the first quarter to $101.9 million.
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 $300 million revolving credit facility with a group of
commercial banks. The $300 million revolving credit facility includes a $190
million tranche expiring May 2003 and a $110 million, 365 day facility expiring
September 2000. At August 31, 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 management's opinion, 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
August 31, 1999 was $43.5 million, as compared to $52.5 million at May 31,1999,
the result of a decrease in the value of the Rouge common stock.
At August 31, 1999, the Company's total debt (excluding the DECS) was
$469.3 million compared to $493.3 million at the end of fiscal 1999. Total debt
to committed capital (excluding the DECS) decreased to 40.6% versus 41.7% at the
prior fiscal year end.
During the first quarter of fiscal 2000, the Company repurchased
approximately 848,000 common shares. Approximately 6.6 million shares remain
available for repurchase under the Board of Directors' authorization. The timing
and amount of any future repurchases will be at the Company's discretion and
will depend upon market conditions and the Company's operating performance and
liquidity. Any repurchase will also be subject to the covenants contained in the
Company's credit facilities as well as its other debt instruments.
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<PAGE> 14
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.
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
Most initiatives related to year 2000 issues have been completed 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 equipment manufacturers and significant suppliers. In addition,
this team assessed 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
14
<PAGE> 15
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 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
operations. The Remediation and Testing phase has been completed for identified
items that may materially impact domestic operations and is in various stages of
progress for identified items that may materially impact foreign operations. The
following table summarizes the status on October 15, 1999 of the year 2000
remediation efforts on identified items that may materially impact the results
of operations of the Company as a whole:
<TABLE>
<CAPTION>
--- ESTIMATED CURRENT COMPLETION PERCENT AND MONTH OF EXPECTED COMPLETION ---
Inventory and Assessment Remediation and Testing
---------------------------------------------------------------------------
Area % Complete Expected Completion % Complete Expected Completion
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
IT Hardware & Software:
Financial 100% Complete 98% Early November 1999
Non-Financial 100% Complete 98% Early November 1999
Non-IT Hardware and Software 100% Complete 100% Complete
Third-Party Systems* 100% Complete * *
Products N/A N/A N/A N/A
</TABLE>
* The Company has initiated communications with significant suppliers relative
to their systems to confirm their plans to become year 2000 ready and assess
the potential impact of non-ready significant suppliers' systems on the
Company's operations. Initial contingency plans for potential disruptions
caused by non-ready significant suppliers' systems that could materially
impact operations of the Company have been completed. The Company will
continue to monitor the systems of significant suppliers.
15
<PAGE> 16
COSTS
As of August 31, 1999, cumulative expenditures for year 2000 issues
totaling approximately $14.1 million have been charged to expense in continuing
operations. Of this amount approximately $4.0 million was charged to expense for
first quarter of fiscal 2000. An additional $2.2 million in capital expenditures
has been incurred on these projects as of August 31, 1999. The Company currently
projects additional expenses in its efforts to resolve year 2000 issues of $3.6
million. An additional $1.2 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 discontinued operations becoming year
2000 ready has been transferred by contract to the companies who acquired those
businesses.
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 has used all commercially reasonable efforts to complete
critical year 2000 projects. 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.
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 plans for worst case scenarios are in place.
While possible, the Company does not currently believe the advent of
the year 2000 will have a material impact on the future results of operations or
the financial position of the Company.
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
16
<PAGE> 17
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.
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
23, 1999. In connection with the meeting, proxies were solicited. Following are
the voting results on proposals considered and voted upon.
1. All nominees for the election to the Class of Directors whose term expires in
2002 were elected by the shareholders who were present or represented by proxy.
<TABLE>
<CAPTION>
VOTES FOR
THE ELECTION VOTES WITHHOLDING
OF DIRECTOR AUTHORITY TO VOTE
------------- -----------------
<S> <C> <C>
John S. Christie 76,637,297 1,470,191
Michael J. Endres 76,652,270 1,455,219
Peter Karmanos, Jr. 76,101,765 2,005,724
John H. McConnell 76,695,690 1,411,799
</TABLE>
2. The selection of Ernst & Young LLP as auditors of the Company for the fiscal
year ending May 31, 2000 was ratified by the following vote:
FOR: 77,746,055 AGAINST: 105,239 ABSTAIN: 256,194
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibits:
4 Amendment to Second Amended and Restated Loan Agreement, dated
as of August 13, 1999, between Worhtington Industries, Inc.,
The Bank of Nova Scotia, PNC Bank, National Association, Bank
of America, N.A., Wachovia Bank, N.A., Bank One, Michigan,
Bank One, N.A., and National City Bank.
27 Financial Data Schedule
Reports on Form 8-K:
There were no reports on Form 8-K during the three months ended August
31, 1999.
17
<PAGE> 18
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: October 14, 1999 By:/s/John T. Baldwin
---------------- -----------------------------------------
John T. Baldwin
Vice President & Chief Financial Officer
(On behalf of the Registrant and as Principal
Financial Officer)
18
<PAGE> 1
Exhibit 4
AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AGREEMENT
WORTHINGTON INDUSTRIES, INC. ("Borrower"), and THE BANK OF NOVA SCOTIA
AND PNC BANK, NATIONAL ASSOCIATION, as Agents for the Lenders (collectively,
"Agents"), and the Lenders, as such term is defined in the Second Amended and
Restated Loan Agreement, hereby agree as follows:
1. RECITALS.
---------
1.1 As of October 14, 1998, Borrower, Agents, and Lenders entered into a
Second Amended and Restated Loan Agreement (the "Loan Agreement").
Capitalized terms used herein and not otherwise defined will have the
meanings given such terms in the Loan Agreement.
1.2 Borrower, Agents, and Lenders desire to amend the Loan Agreement
pursuant to this Amendment to Second Amended and Restated Loan Agreement
(the "Amendment").
2. AMENDMENT.
----------
2.1 Amend Sections 1.1.13 and 1.1.13.1 of the Loan Agreement to provide as
follows:
1.1.13 "Applicable Margin" will mean (in basis points):
1.1.13.1 as to Revolving Loans that bear interest at the Euro-Rate,
initially 20 basis points; provided that such rate will be adjusted as
follows based on Borrower's Senior Unsecured Debt Rating and
Borrower's Ratio each as determined as of the end of the Borrower's
previous quarter:
<TABLE>
<CAPTION>
SENIOR UNSECURED APPLICABLE MARGIN APPLICABLE MARGIN APPLICABLE MARGIN
DEBT RATING WHERE RATIO IS GREATER WHERE RATIO IS GREATER WHERE RATIO IS LESS
THAN OR EQUAL TO 55% THAN OR EQUAL TO 50% 50%
BUT LESS THAN 55%
<S> <C> <C> <C>
greater than or equal to A/A2 20.0 18.5 17.0
A-/A3 22.5 20.0 18.5
BBB+/Baa1 25.0 22.5 20.0
BBB/Baa2 25.0 25.0 22.5
less than BBB/Baa2 25.0 25.0 25.0
</TABLE>
The Applicable Margin as to Revolving Loans that bear interest at the
Euro-Rate will be adjusted as of the first day of the fiscal quarter
based upon the Senior Unsecured Debt Rating as determined by
Administrative Agent. In the event that Borrower's Senior Unsecured
Debt Rating by Moody's Investor Service, Inc. is different from the
rating received from Standard & Poors Ratings Service, a
<PAGE> 2
division of McGraw-Hill Companies, Inc. ("Standard & Poors"), the
higher of the two ratings will control. Such adjustments will apply to
all outstanding Revolving Loans that bear interest at the Euro-Rate
and to any such Advances made or converted on or after such date.
2.2 Amend Section 1.1.14 of the Loan Agreement effective September 30,
1999 to provide as follows:
1.1.14 "Applicable Secondary Revolving Credit Margin" will mean as to
Secondary Revolving Credit Loans that bear interest at the Euro-Rate,
initially 21.5 basis points; provided that such rate will be adjusted
as follows based on Borrower's Senior Unsecured Debt Rating and
Borrower's Ratio each as determined as of the end of the Borrower's
previous quarter:
<TABLE>
<CAPTION>
SENIOR UNSECURED APPLICABLE MARGIN APPLICABLE MARGIN APPLICABLE MARGIN
DEBT RATING WHERE RATIO IS GREATER WHERE RATIO IS GREATER WHERE RATIO IS LESS
THAN OR EQUAL TO 55% THAN OR EQUAL TO 50% 50%
BUT LESS THAN 55%
<S> <C> <C> <C>
greater than or equal to A/A2 21.5 20.0 18.5
A-/A3 24.0 21.5 20.0
BBB+/Baa1 26.5 24.0 21.5
BBB/Baa2 26.5 26.5 24.0
less than BBB/Baa2 26.5 26.5 26.5
</TABLE>
The Applicable Secondary Revolving Credit Margin as to Secondary
Revolving Credit Loans that bear interest at the Euro-Rate will be
adjusted as of the first day of the fiscal quarter based upon the
Senior Unsecured Debt Rating as determined by Administrative Agent. In
the event that Borrower's Senior Unsecured Debt Rating by Moody's
Investor Service, Inc. is different from the rating received from
Standard & Poors Ratings Service, a division of McGraw-Hill Companies,
Inc. ("Standard & Poors"), the higher of the two ratings will control.
Such adjustments will apply to all outstanding Secondary Revolving
Credit Loans that bear interest at the Euro-Rate and to any such
Advances made or converted on or after such date.
2.3 Add a new Section 1.1.92A to the Loan Agreement that provides as
follows:
1.1.92A "Ratio" will mean the ratio of Borrower's Consolidated
Indebtedness to Capitalization Ratio.
2.4 Amend Section 1.1.110 of the Loan Agreement to change "September 30,
1999" to "September 28, 2000", effective September 30, 1999.
-2-
<PAGE> 3
2.5 Amend Section 2.11.2.1 of the Loan Agreement to provide as follows:
2.11.2.1 REVOLVING CREDIT FACILITY FEE. Borrower will pay to
Administrative Agent for the account of Revolving Credit Lenders a
Revolving Credit Facility Fee (in basis points) from and including the
Closing Date to the Termination Date, computed based on the Senior
Unsecured Debt Rating and Borrower's Ratio; provided that, in the
event that Borrower's Senior Unsecured Debt Rating by Moody's Investor
Service, Inc. is different from the rating received from Standard &
Poors Corporation, the higher of the two ratings will control, which
rating and Ratio will be determined as of the end of the previous
fiscal quarter and at the applicable rate set forth below multiplied
by the Total Revolving Credit Commitment, such fee to be payable
quarterly in arrears on last day of each fiscal quarter of Borrower
and upon the Termination Date and to be shared by Revolving Credit
Lenders in their Ratable Portions:
<TABLE>
<CAPTION>
SENIOR UNSECURED APPLICABLE MARGIN APPLICABLE MARGIN APPLICABLE MARGIN
DEBT RATING WHERE RATIO IS GREATER WHERE RATIO IS GREATER WHERE RATIO IS LESS
THAN OR EQUAL TO 55% THAN OR EQUAL TO 50% 50%
BUT LESS THAN 55%
<S> <C> <C> <C>
greater than or equal to A/A2 10.0 9.0 8.0
A-/A3 12.5 10.0 9.0
BBB+/Baa1 15.0 12.5 10.0
BBB/Baa2 15.0 15.0 12.5
less than BBB/Baa2 15.0 15.0 15.0
</TABLE>
2.6 Amend Section 2.11.2.2 of the Loan Agreement effective September 30,
1999 to provide as follows:
2.6.1.1 SECONDARY REVOLVING CREDIT FACILITY FEE. Borrower will pay to
Administrative Agent for the account of Secondary Revolving Credit
Lenders a Secondary Revolving Credit Facility Fee (in basis points)
from and including the Closing Date to the Secondary Revolving Credit
Termination Date, computed based on the Senior Unsecured Debt Rating
and Borrower's Ratio; provided that, in the event that Borrower's
Senior Unsecured Debt Rating by Moody's Investor Service, Inc. is
different from the rating received from Standard & Poors Corporation,
the higher of the two ratings will control, which rating will be
determined as of the end of the previous fiscal quarter at the
applicable rate set forth below multiplied by the Total Secondary
Revolving Credit Commitment, such fee to be payable quarterly in
arrears on last day of each fiscal quarter of Borrower and upon the
Secondary Revolving Credit Termination Date and to be shared by
Secondary Revolving Credit Lenders in their Ratable Portions:
<TABLE>
<CAPTION>
SENIOR UNSECURED APPLICABLE MARGIN APPLICABLE MARGIN APPLICABLE MARGIN
DEBT RATING WHERE RATIO IS GREATER WHERE RATIO IS GREATER WHERE RATIO IS LESS
THAN OR EQUAL TO 55% THAN OR EQUAL TO 50% 50%
BUT LESS THAN 55%
<S> <C> <C> <C>
greater than or equal to A/A2 10.0 9.0 8.0
</TABLE>
-3-
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
A-/A3 12.5 10.0 9.0
BBB+/Baa1 15.0 12.5 10.0
BBB/Baa2 15.0 15.0 12.5
less than BBB/Baa2 15.0 15.0 15.0
</TABLE>
2.7 Effective September 30, 1999, amend Section 2.11.2.3 of the Loan
Agreement to change "five basis points" to "ten basis points".
2.8 Amend Section 6.4 of the Loan Agreement to provide as follows:
6.4 CONSOLIDATED INDEBTEDNESS TO CAPITALIZATION. Borrower will not
permit the ratio of Borrower's Consolidated Indebtedness to Borrower's
Capitalization to be greater than the following percentages as
calculated at the end of the each of the following fiscal quarters:
(i) 60% for each fiscal quarter ending August 31, 1999, November 30,
1999, February 29, 2000 and May 31, 2000; (ii) 55% for each fiscal
quarter ending August 31, 2000, November 30, 2000, February 28, 2001
and May 31, 2001; and (iii) 50% calculated as of each August 31,
November 30, February 28 (or 29, as applicable), and May 31,
thereafter for so long as any of the Loans remain outstanding.
Except as otherwise specifically provided herein, such amendments will
be effective as of August 13, 1999.
3. REPRESENTATIONS AND WARRANTIES. To induce Agents and Lenders to enter
into this Amendment, Borrower represents and warrants as follows:
3.1 The representations and warranties of Borrower contained in Section 4
of the Loan Agreement are deemed to have been made again on and as of
the date of execution of this Amendment and will apply to this
Amendment.
3.2 No Event of Default (as such term is defined in Section 7 of the Loan
Agreement) or event or condition which with the lapse of time or
giving of notice or both would constitute an Event of Default exists
on the date hereof.
3.3 The person executing this Amendment and the loan documents to be
executed in connection herewith is a duly elected and acting officer
of Borrower and is duly authorized by the Board of Directors of
Borrower to execute and deliver such documents on behalf of Borrower.
3.4 Borrower and each Subsidiary of Borrower, if any, have reviewed the
areas within each of its businesses and operations that could be
adversely affected by, and have developed or are developing a detailed
plan and timeline to address in a timely manner the risk that certain
computer applications used by Borrower and each
-4-
<PAGE> 5
Subsidiary of Borrower may be unable to recognize and perform properly
date sensitive functions involving dates prior to and after December
31, 1999 (the "Year 2000 Problem"). The Year 2000 Problem will not
result in any material adverse change to Borrower or any Subsidiary of
Borrower.
4. CONDITIONS. Agents' and each Lender's consent to this Amendment is
subject to the following conditions:
4.1 Documentation Agent will have been furnished copies,
certified by the Secretary or assistant Secretary of
Borrower, of resolutions of the Board of Directors of
Borrower authorizing the execution of this Amendment, the
Exhibits hereto and all other documents executed in
connection herewith.
4.2 The representations and warranties of Borrower in SECTION 3
herein will be true.
4.3 Borrower shall pay Administrative Agent the sum of $44,000,
which fee will be distributed by Administrative Agent to
Lenders on a pro rata basis, plus all expenses and
attorneys' fees incurred by Agents in connection with the
preparation, execution, and delivery of this Amendment and
related documents.
5. GENERAL.
5.1 Except as expressly modified herein, the Loan Agreement, as
amended, is and remains in full force and effect.
5.2 Nothing contained herein will be construed as waiving any
default or Event of Default under the Loan Agreement or will
affect or impair any right, power or remedy of Lender under
or with respect to the Loan, the Loan Agreement, as amended,
or any agreement or instrument guaranteeing, securing or
otherwise relating to any of the Loan.
5.3 This Amendment will be binding upon and inure to the benefit
of Borrower, Agents, and Lenders and their respective
successors and assigns.
5.4 All representations, warranties and covenants made by
Borrower herein will survive the execution and delivery of
this Amendment.
5.5 This Amendment will in all respects be governed and
construed in accordance with the laws of the State of Ohio.
-5-
<PAGE> 6
Dated as of August 13, 1999.
WORTHINGTON INDUSTRIES, INC.,
as Borrower
By: /s/ Gregory P. Youngblood
-------------------------------------
Print Name: Gregory P. Youngblood
-----------------------------
Title: Treasurer
----------------------------------
THE BANK OF NOVA SCOTIA,
on its own behalf as Lender and as
Administrative Agent
By: /s/ F.C.H. Ashby
-------------------------------------
Print Name: F.C.H. Ashby
-----------------------------
Title: Senior Manager Loan Operations
----------------------------------
PNC BANK, NATIONAL
ASSOCIATION,
on its own behalf as Lender and as
Documentation Agent,
By: /s/ David B. Gookin
-------------------------------------
Print Name: David B. Gookin
-----------------------------
Title: Vice President
----------------------------------
BANK OF AMERICA, N.A.,
as Lender
By: /s/ Valerie C. Mills
-------------------------------------
Print Name: Valerie C. Mills
-----------------------------
Title: Managing Director
----------------------------------
-6-
<PAGE> 7
WACHOVIA BANK, N.A.,
as Lender
By: /s/ Bradford L. Watkins
-------------------------------
Print Name: Bradford L. Watkins
-----------------------
Title: Vice President
----------------------------
BANK ONE, MICHIGAN,
as Lender
By: /s/ Michael R. Zaksheske
-------------------------------
Print Name: Michael R. Zaksheske
-----------------------
Title: Vice President
----------------------------
BANK ONE, N.A.,
as Lender
By: /s/ Thomas E. Redmond
-------------------------------
Print Name: Thomas E. Redmond
-----------------------
Title: Vice President
----------------------------
NATIONAL CITY BANK,
as Lender
By: /s/ William J. Whitley
-------------------------------
Print Name: William J. Whitley
-----------------------
Title: Senior Vice President
----------------------------
-7-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE THREE MONTH PERIOD
ENDED AUGUST 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-START> JUN-01-1999
<PERIOD-END> AUG-31-1999
<EXCHANGE-RATE> 1
<CASH> 7,054
<SECURITIES> 0
<RECEIVABLES> 259,528
<ALLOWANCES> 4,772
<INVENTORY> 288,753
<CURRENT-ASSETS> 605,607
<PP&E> 1,141,515
<DEPRECIATION> 274,097
<TOTAL-ASSETS> 1,667,939
<CURRENT-LIABILITIES> 441,325
<BONDS> 364,172
0
0
<COMMON> 0
<OTHER-SE> 686,363
<TOTAL-LIABILITY-AND-EQUITY> 1,667,939
<SALES> 462,911
<TOTAL-REVENUES> 462,911
<CGS> 379,736
<TOTAL-COSTS> 379,736
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,215
<INCOME-PRETAX> 38,813
<INCOME-TAX> 14,555
<INCOME-CONTINUING> 24,258
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,258
<EPS-BASIC> .27
<EPS-DILUTED> .27
</TABLE>
