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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended May 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _____________
Commission File No. 1-8399
WORTHINGTON INDUSTRIES, INC.
----------------------------
(Exact name of Registrant as specified in its Charter)
Ohio 31-1189815
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(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
1205 Dearborn Drive, Columbus, Ohio 43085
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (614) 438-3210
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Securities Registered Pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE
ON WHICH REGISTERED
Common Shares, Without Par Value New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: NONE
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Based upon the closing price of the Common Shares on August 1, 2002, as reported
on the New York Stock Exchange composite tape (as reported by The Wall Street
Journal), the aggregate market value of the Common Shares held by non-affiliates
of the Registrant as of such date was approximately $1,198,743,875.
The number of Common Shares issued and outstanding as of August 1, 2002, was
85,596,365.
DOCUMENTS INCORPORATED BY REFERENCE
Selected portions of the Registrant's 2002 Proxy Statement, to be furnished to
shareholders of the Registrant in connection with the Annual Meeting of
Shareholders to be held on September 26, 2002, are incorporated by reference
into Part III of this Form 10-K to the extent provided herein.
TABLE OF CONTENTS
Safe Harbor Statement............................................................................................ii
Part I.
Item 1. Business........................................................................................1
Item 2. Properties......................................................................................6
Item 3. Legal Proceedings...............................................................................7
Item 4. Submission of Matters to a Vote of Security Holders.............................................7
Supplemental
Item. Executive Officers of the Registrant............................................................8
Part II.
Item 5. Market For Registrant's Common Equity and Related Shareholder Matters..........................10
Item 6. Selected Financial Data........................................................................11
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................................................12
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.....................................20
Item 8. Financial Statements and Supplementary Data....................................................21
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure...........................................................................42
Part III.
Item 10. Directors and Executive Officers of the Registrant.............................................42
Item 11. Executive Compensation.........................................................................42
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Shareholder Matters............................................................................42
Item 13. Certain Relationships and Related Transactions.................................................43
Part IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...............................43
Signatures ...........................................................................................44
Index to Exhibits ..........................................................................................E-1
i
SAFE HARBOR STATEMENT
Selected statements contained in this Annual Report on Form 10-K
constitute "forward-looking statements" as used in Private Securities Litigation
Reform Act of 1995. Such forward-looking statements are based, in whole or in
part, on management's beliefs, estimates, assumptions and currently available
information and can be identified by the words "will", "may", "designed to",
"outlook", "believes", "should", "plans", "expects", intends", "estimates" and
similar expressions. These forward-looking statements include, without
limitation, statements relating to:
- future sales, operating results and earnings per share;
- projected capacity levels and operating locations;
- pricing trends for raw materials and finished goods;
- anticipated capital expenditures;
- projected timing, results, costs, charges and expenditures
related to plant shutdowns & consolidations;
- new products and markets; and
- other non-historical trends.
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;
- fluctuations in pricing, quality or availability of raw
materials, particularly steel;
- effects of plant closures and the consolidation of operations and
our ability to realize expected cost savings and operational
efficiencies on a timely basis;
- our ability to integrate newly acquired businesses with current
businesses;
- capacity restraints and efficiencies within our facilities and
within the industry as a whole;
- financial difficulties of customers, suppliers and others with
whom we do business;
- the effect of national, regional and worldwide economic
conditions within our major product markets as well as generally;
- risks associated with doing business internationally, including
economical, political and social instability and foreign currency
exposure;
- acts of war and terrorist activities;
- the ability to improve processes and business practices to keep
pace with the economic, competitive and technological
environment;
- the impact of governmental regulations, both in the United States
and abroad; and
- other risks described from time to time in our filings with the
Securities and Exchange Commission.
ii
PART I
ITEM 1. - BUSINESS
GENERAL OVERVIEW
Worthington Industries, Inc., an Ohio corporation (individually the
"Registrant" or "Worthington Industries" or, together with its subsidiaries,
"Worthington"), headquartered in Columbus, Ohio, is a leading diversified metal
processing company. We focus on value-added steel processing and manufactured
metal products such as automotive past model service stampings, pressure
cylinders and metal framing and, through joint ventures, metal ceiling grid
systems and laser welded blanks. Worthington was founded in 1955 and has grown
from a single steel slitting line into a diversified metal processor, which as
of May 31, 2002, operated 43 facilities worldwide and held equity positions in
seven joint ventures, which operated 16 facilities worldwide.
For the fiscal year ended May 31, 2002 ("fiscal 2002"), our operations
are reported principally in three business segments: Processed Steel Products,
Metal Framing and Pressure Cylinders. The Processed Steel Products segment
includes the Worthington Steel business unit ("Worthington Steel") and the
Gerstenslager business unit ("Gerstenslager"). The Metal Framing segment is
comprised of the Dietrich Metal Framing business unit ("Dietrich") and the
Pressure Cylinders segment consists of the Worthington Cylinder business unit
("Worthington Cylinders"). In addition, we hold an equity position in seven
joint ventures, which are described below, two of which are consolidated into
our consolidated financial statements included in "Item 8. - Financial
Statements and Supplementary Data." During fiscal 2002, our Processed Steel
Products, Metal Framing and Pressure Cylinders segments served over 1,200, 3,700
and 2,400 customers, respectively, located primarily in the United States.
Foreign sales account for less than 10% of consolidated net sales and are
comprised primarily of sales to customers in Canada and Europe. No single
customer accounts for over 10% of our consolidated net sales.
In January 2002, we announced a consolidation plan (the "Consolidation
Plan") that impacts eight operating facilities across our three business
segments. The Consolidation Plan calls for the closure of the Malvern,
Pennsylvania, and Jackson, Michigan, Processed Steel Products locations, the
Fredericksburg, Virginia, Metal Framing operation and the Claremore, Oklahoma,
and two Itu, Brazil, Pressure Cylinders locations. We will move the
Fredericksburg Metal Framing operations into the Worthington Steel Rock Hill
facility. Finally, operations at the Worthington Steel Louisville, Kentucky,
facility will be restructured to reduce overhead costs. A more detailed
discussion of the Consolidation Plan is contained in "Item 7. - Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Results of Operations" within this Form 10-K.
In February 2002, Dietrich joined with MiTek Industries, Inc. ("MiTek")
to form Aegis Metal Framing, LLC ("Aegis"), an unconsolidated joint venture in
which we have a 60% interest and MiTek has a 40% interest. Aegis combines the
manufacturing and distribution capabilities of our Metal Framing segment with
the software, engineering and marketing functions of MiTek's Metal Framing
Systems division. A more detailed discussion of our Aegis joint venture is
contained below in "Item 1. - Business - Metal Framing" and "Item 7. -
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations."
On July 31, 2002, Worthington acquired all of the outstanding capital
stock of Unimast Incorporated ("Unimast") from WHX Corporation for approximately
$113 million in cash plus the assumption of approximately $9 million of debt.
Our acquisition of Unimast adds capacity for our existing products, broadens our
current product line to include Unimast's complementary products and introduces
new products to the Metal Framing segment, including metal corner bead and trim
and vinyl construction accessories. Together with its subsidiaries, Unimast
operates 10 facilities and, for the calendar year ended December 31, 2001,
produced revenue of approximately $230 million. The operations of Unimast and
its subsidiaries will be reported in our Metal Framing segment. See "Item - 1. -
Business - Metal Framing." See also, "Item 8. - Financial Statements and
Supplementary Data - Notes to Consolidated Financial Statements - Note Q -
Subsequent Event."
PROCESSED STEEL PRODUCTS
Our Processed Steel Products segment consists of two business units,
Worthington Steel and Gerstenslager. For fiscal 2002, the fiscal year ended May
31, 2001 ("fiscal 2001") and the fiscal year ended May 31, 2000 ("fiscal 2000"),
the percentage of sales from continuing operations generated by our Processed
Steel Products segment was 64.9%, 64.9% and 65.6%, respectively.
Both Worthington Steel and Gerstenslager are intermediate processors of
flat-rolled steel. Worthington Steel occupies a niche in the steel industry by
focusing on products requiring exact specifications. These products typically
cannot be supplied as efficiently by steel mills, metal service centers or steel
end users. We believe that Worthington Steel is one of the largest independent
flat-rolled steel processors in the United States. Gerstenslager is a leading
independent supplier of automotive quality exterior body panels to the North
American automotive original equipment and past model service markets. It is
unique in its ability to handle a large number of low volume past model service
automotive body parts. Our newest Processed Steel Products facility, a
Gerstenslager facility, is located in Clyde, Ohio, and began production in
October 2001.
As of May 31, 2002, our Processed Steel Products segment operated 14
facilities, including Spartan Steel Coating, L.L.C., our consolidated joint
venture with Rouge Steel Company. Giving effect to the Consolidation Plan,
Processed Steel Products will operate 11 facilities, as the Malvern,
Pennsylvania, and Jackson, Michigan, plants will be closed and the Rock Hill,
South Carolina, facility will become a Metal Framing facility. A more detailed
discussion of the Consolidation Plan is set forth below in "Item 7. -
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations." Our Processed Steel Products facilities are
concentrated in the Michigan, Ohio and Indiana market. We serve over 1,200
customers from these facilities, principally in the automotive, construction,
lawn and garden, hardware, furniture, office equipment, electrical control,
tubing, leisure and recreation, appliance, farm implement, HVAC and container
markets.
Worthington Steel buys coils of wide, open-tolerance steel from major
integrated steel mills and mini-mills and processes them to the precise type,
thickness, length, width, shape, temper and surface quality required by customer
specifications. Our computer-aided processing capabilities include, among
others:
- pickling, a chemical process using an acidic solution to remove
surface oxide which develops on hot-rolled steel;
- slitting, which cuts steel to specific widths;
- cutting-to-length, which flattens steel and cuts it to exact
lengths;
- roller leveling, a method of applying pressure to achieve precise
flatness tolerances for steel which is cut into exact lengths;
- cold reduction, which achieves close tolerances of thickness and
temper by rolling;
- edge rolling, which conditions the edges of the steel by
imparting round, smooth or knurled edges;
- configured blanking, by which steel is cut into specific shapes;
- CleanCoat(TM), a dry lubrication process;
- hot-dipped galvanizing, which coats steel with zinc and zinc
alloys through a hot-dipped process; and
- annealing, a thermal process that changes the hardness and
certain metallurgical characteristics of steel.
Worthington Steel also "toll processes" steel for steel mills, large
end users, service centers and other processors. Toll processing is different
from our typical steel processing because the mill or end user retains title to
the steel and has the responsibility for selling the end product. Toll
processing enables Worthington to participate in the market for wide sheet steel
and large standard orders, which is a market generally served by steel mills
rather than by intermediate steel processors.
Gerstenslager stamps, assembles, primes and packages exterior
automotive body parts and panels. We primarily purchase the steel used in our
Gerstenslager operations but occasionally process consigned material, similar to
toll processing. Gerstenslager processes a large number of low volume past model
service parts, managing over 3,000 finished good part numbers and over 25,000
die/fixture sets for component parts on past and current year automobile and
truck production models.
2
The Processed Steel Products industry is fragmented and highly
competitive. We compete with many other independent intermediate processors and,
with respect to automotive stamping, captive processors owned by the automotive
companies, independent tier one suppliers of current model components and a
number of smaller competitors. We compete primarily on the basis of product
quality, our ability to meet delivery requirements and price. The quality of our
products is enhanced by our technical service and support for material testing
and customer specific applications. However, we have not quantified the extent
to which our technical service capability has improved our competitive position.
See "Item 1 - Business - Technical Services." We believe that our ability to
meet tight delivery schedules is, in part, based on the proximity of our
facilities to customers and to one another. Again, we have not quantified the
extent to which plant location has impacted our competitive position. Our
processed steel products are priced competitively, primarily based on market
factors including, among other things, the cost and availability of raw
material, transportation and shipping costs and overall economic conditions in
the United States and abroad.
Other than our "Worthington Steel" trade name, the only other
intellectual property of importance to the Processed Steel Products segment is
the unregistered trademark "CleanCoat", which is used in connection with our dry
lubrication process. While the CleanCoat mark is important to the Processed
Steel Products segment, we do not consider it material.
METAL FRAMING
Our Metal Framing segment consists of one business unit, Dietrich,
which designs and produces metal framing components and systems and related
accessories for the commercial and residential construction markets within the
United States. For fiscal 2002, fiscal 2001 and fiscal 2000, the percentage of
sales from continuing operations generated by Dietrich was 17.5%, 18.9% and
17.9%, respectively.
Our Metal Framing products include steel studs and track, floor and
wall system components, roof trusses and other metal framing accessories. Some
of our specific products include TradeReady(R) Floor Systems, Spazzer(R) bars
and, through Aegis, SureSpan(R) and Ultra-Span(R) trusses. As of May 31, 2002,
our Metal Framing segment had 19 operating facilities in 15 states. Pursuant to
the Consolidation Plan, the Fredericksburg, Virginia, facility will be closed
and its operations moved to Rock Hill, South Carolina. A more detailed
discussion of the Consolidation Plan is set forth below in "Item 7. -
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations." Dietrich's production facilities are
located throughout the country. We believe that Dietrich is the largest supplier
on a national basis of metal framing products and supplies, supplying
approximately 33% of the metal framing products sold in the United States. We
have over 3,700 customers, primarily consisting of wholesale distributors and
commercial and residential building contractors.
During fiscal 2001, we expanded our Metal Framing segment by acquiring
the assets of Studco of Hawaii, Inc. located in Kapolei, Hawaii and by starting
up operations at our 63,000 square foot facility in Renton, Washington. In
February 2002, Dietrich and MiTek joined to form Aegis. Aegis combines
Dietrich's manufacturing and distribution capabilities with MiTek's software,
engineering and marketing functions. Aegis offers light gauge metal component
manufacturers and contractors design, estimating and management software, a full
line of metal framing products and integrated engineering services. As part of
the venture, we purchased MiTek's rollforming assets and contracted with Aegis
as its exclusive manufacturer. Additional discussion of our Aegis joint venture
is contained below in "Item 7. - Management's Discussion and Analysis of
Financial Condition and Results of Operations - Results of Operations."
In addition, our July 2002 acquisition of Unimast further expanded our
Metal Framing segment. Incorporating Unimast into our Metal Framing segment adds
capacity for our existing products, broadens our current product line to include
Unimast's complementary products and introduces new products to the segment,
including metal corner bead and trim and vinyl construction accessories.
Currently, Unimast and its subsidiaries serve the construction industry from 10
facilities. See "Item 1. - Business - General," "Item 2. - Properties - Metal
Framing" and "Item 8. - Financial Statements and Supplementary Data - Notes to
Consolidated Financial Statements - Note Q - Subsequent Event."
3
The light gauge metal framing industry is very competitive. We compete
with one other national competitor, five large regional competitors and numerous
small, more localized competitors. We compete primarily on the basis of quality,
service and price. Similar to our Processed Steel Products segment, the
proximity of our facilities to our customers and their project sites provides us
with a service advantage and impacts our freight and shipping costs. Our
products are transported almost exclusively by common carrier. Again, we have
not quantified the extent to which facility location has impacted our
competitive position.
In addition to our trade name, "Dietrich Metal Framing", we use the
registered trademarks "Spazzer(R)" and "TradeReady(R)". The "Spazzer(R)"
trademark is used in connection with wall component products that are the
subject of two United States patents, three pending United States patent
applications and several pending foreign applications. The trademark
"TradeReady(R)" is used in connection with floor system products that are the
subject of two United States patents, two foreign patents, two pending United
States patent applications and four pending foreign patent applications. The
Aegis joint venture uses the trademarks SureSpan(R) and Ultra-Span(R) in
connection with certain patents for propriety roof trusses. Although the
"Spazzer(R)" and "TradeReady(R)" trademarks are important to our Metal Framing
segment, neither is considered material.
PRESSURE CYLINDERS
Our Pressure Cylinders segment consists of one business unit,
Worthington Cylinders. For fiscal 2002, fiscal 2001 and fiscal 2000, the
percentage of sales from continuing operations generated by Worthington
Cylinders was 16.8%, 15.8% and 16.2%, respectively.
Worthington Cylinders, as of May 31, 2002, operated eight manufacturing
facilities located in Alabama, Ohio and Oklahoma domestically, and in Austria,
Canada and Portugal and operated one joint venture, Worthington Cylinders, a.s.,
in the Czech Republic. As a result of the Consolidation Plan, we discontinued
operations at two Pressure Cylinders joint venture plants in Itu, Brazil, and
are closing our Claremore, Oklahoma, facility.
Our Pressure Cylinders segment produces a diversified line of pressure
cylinders, including portable low-pressure liquefied petroleum gas ("LPG") and
refrigerant gas cylinders and high-pressure industrial/specialty gas cylinders.
Our LPG cylinders are sold to manufacturers, distributors and/or mass
merchandisers and are used for gas barbecue grills, camping equipment,
residential heating systems, industrial forklifts and commercial/residential
cooking (outside North America). Refrigerant cylinders are sold primarily to
major refrigerant gas producers and distributors and are used to hold
refrigerant gases for commercial and residential air conditioning and
refrigeration systems and for automotive air conditioning systems.
Industrial/specialty gas high-pressure cylinders are sold primarily to gas
producers and distributors and are used as containers for gases for: cutting and
welding metals; breathing (medical, diving and firefighting); semiconductor
production; beverage delivery; and compressed natural gas systems. Worthington
Cylinders also produces recovery tanks for refrigerant gases and non-refillable
cylinders for helium balloon kits. While a large percentage of our cylinder
sales are made to major accounts, Worthington Cylinders has over 3,000
customers.
Worthington Cylinders' primary low-pressure cylinder products are steel
cylinders with refrigerant gas capacities of 15 to 1,000 lbs. and steel and
aluminum cylinders with liquid propane gas capacities of 4-1/4 to 420 lbs. In
the United States, our high-pressure and low-pressure cylinders are manufactured
in accordance with U. S. Department of Transportation safety requirements.
Outside the United States, we manufacture cylinders according to European Union
specifications, as well as various other international requirements and
standards. Low-pressure cylinders are produced by precision stamping, drawing
and welding component parts to customer specifications. They are then tested,
painted and packaged as required. Our high-pressure cylinders are manufactured
by several processes, including deep drawing, tube spinning and billet pierce
technology.
Worthington Cylinders has two principal domestic competitors and
several smaller foreign competitors in its major low-pressure cylinder markets
and we believe that we have the largest domestic market share. In our
high-pressure cylinder market we compete against two principal domestic
competitors, one of which has a larger domestic market share than ours. We
believe that we have the leading market share of the European industrial gas
cylinder business and the non-refillable refrigerant cylinder business. As with
our other segments, we compete on the basis of service, price and quality.
4
Our Pressure Cylinders segment uses the trade name "Worthington
Cylinders" to conduct business and the registered trademark "Balloon Time(R)" to
market our low-pressure helium balloon kits. Although this intellectual property
is important to the Pressure Cylinders segment, it is not considered material.
SEGMENT FINANCIAL DATA
Financial information for our segments is provided below in "Item 8. -
Financial Statements and Supplementary Data - Notes to Consolidated Financial
Statements - Note H - Industry Segment Data."
FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS
Foreign operations and exports represent less than 10% of our
production and sales. Selected information about our foreign operations is set
forth below in "Item 8. - Financial Statements and Supplementary Data - Notes to
Consolidated Financial Statements - Note A - Summary of Significant Accounting
Policies - Risks and Uncertainties."
SUPPLIERS
In fiscal 2002, we purchased over three million tons of steel for use
as raw material for our Processed Steel Products, Pressure Cylinders and Metal
Framing segments. We purchase steel in large quantities at regular intervals
from major primary producers, both domestic and foreign. In our Processed Steel
Products segment, we primarily purchase and process steel based on specific
customer orders and do not typically purchase steel for inventory. Our Metal
Framing and Pressure Cylinders segments purchase steel according to our
production schedules. We purchase the majority of our raw materials in the open
market on a negotiated spot market basis at prevailing market prices, but we
also enter into long-term contracts, some of which have fixed or capped pricing.
During fiscal 2002, Worthington's major suppliers of steel were, in alphabetical
order, Bethlehem Steel Corporation, Gallatin Steel Company, Global Steel, Inland
Steel Company, NorthStar BHP Steel, Nucor Corporation, Rouge Industries, Inc.,
Steel Dynamics, Inc., USX Corporation and WCI Steel, Inc. In addition, our
primary aluminum supplier in fiscal 2002 for our Pressure Cylinders segment was
Alcoa, Inc. We believe that our supplier relationships are good.
TECHNICAL SERVICES
We employ a staff of engineers and other technical personnel and
maintain fully-equipped, modern laboratories to support our operations. The
facilities enable us to verify, analyze and document the physical, chemical,
metallurgical and mechanical properties of our raw materials and products.
Technical service personnel also work in conjunction with our sales force to
determine the types of flat-rolled steel required for our customers' particular
needs. In order to provide these services, we maintain a continuing program of
developmental engineering with respect to the characteristics and performance of
our products under varying conditions. Laboratory facilities also perform
metallurgical and chemical testing as dictated by the regulations of the U.S.
Department of Transportation and other associated agencies, along with I.S.O.
and customer requirements.
EMPLOYEES
As of May 31, 2002, Worthington employed approximately 6,600 employees
in its operations, excluding unconsolidated joint ventures, approximately 16% of
whom were covered by collective bargaining agreements. We believe that we have
good relationships with our employees.
JOINT VENTURES
As part of our strategy to selectively develop new products, markets
and technological capabilities and to expand our international presence while
mitigating the risks and costs associated with those activities, we participate
in two consolidated and five unconsolidated joint ventures.
Consolidated
- Spartan Steel Coating, L.L.C., a 52%-owned consolidated joint venture
with Rouge Steel, operates a cold-rolled, hot-dipped galvanizing
facility in Monroe, Michigan.
5
- Worthington Cylinders, a.s., a 51%-owned consolidated joint venture
with a local Czech Republic entrepreneur, operates a pressure cylinder
manufacturing facility in Hustopece, Czech Republic.
Unconsolidated
- Acerex S.A. de C.V., a 50%-owned joint venture with Hylsa S.A. de
C.V., is a steel processing company located in Monterrey, Mexico.
- Aegis Metal Framing, LLC, a 60%-owned joint venture with MiTek
Industries, Inc., headquartered in Chesterfield, Missouri, offers
light gauge metal component manufacturers and contractors design,
estimating and management software, a full line of metal framing
products and integrated professional engineering services.
- TWB Company, L.L.C. ("TWB"), a 33.3%-owned joint venture with
ThyssenKrupp Stahl, Rouge Steel, LTV Steel and Bethlehem Steel,
produces laser welded blanks for use in the auto industry for products
such as inner door frames. TWB operates facilities in Monroe,
Michigan; North Vernon, Indiana; and Saltillo, Mexico.
- Worthington Armstrong Venture ("WAVE"), a 50%-owned joint venture with
Armstrong World Industries, is one of the three leading global
manufacturers of suspended ceiling systems for concealed and lay-in
panel ceilings. WAVE operates facilities in Sparrows Point, Maryland;
Benton Harbor, Michigan; North Las Vegas, Nevada; Malvern,
Pennsylvania; Shanghai, China; Team Valley, United Kingdom;
Valenciennes, France; and Madrid, Spain.
- Worthington Specialty Processing, a 50%-owned general partnership with
USX Corporation in Jackson, Michigan, operates primarily as a toll
processor for USX Corporation.
See "Item 8. - Financial Statements and Supplementary Data - Notes to
Consolidated Financial Statements - Note J - Investment in Unconsolidated
Affiliates."
ENVIRONMENTAL REGULATION
Our manufacturing facilities, generally in common with those of similar
industries making similar products, are subject to many federal, state and local
requirements relating to the protection of the environment. We continually
examine ways to reduce emissions and waste and to decrease costs related to
environmental compliance. We do not anticipate that capital expenditures for
environmental control facilities required in order to meet environmental
requirements will be material when compared with our overall capital
expenditures and, accordingly, will not have a material effect on our earnings
or competitive position.
ITEM 2. - PROPERTIES
GENERAL
Worthington's corporate offices occupy approximately 169,000 sq. ft.
and are located at 1205 Dearborn Drive in Columbus, Ohio.
In fiscal 2002, excluding our joint ventures, we held fee or leasehold
interests in 52 manufacturing and warehouse facilities and three
administrative/office locations, totaling in excess of 9,200,000 sq. ft. We
owned 36 of those locations and maintained leases for the remaining 16. Leased
premises accounted for more than 1,039,000 sq. ft. All of our facilities are
well maintained and in good operating condition and we believe that they are
sufficient to meet our current needs.
In addition, at May 31, 2002, our joint ventures operated 16
manufacturing facilities, having, in the aggregate, approximately 2,081,129 sq.
ft. These facilities are located in Indiana, Maryland, Michigan, Missouri,
6
Nevada and Pennsylvania domestically, as well as in China, the Czech Republic,
France, Mexico, Spain and the United Kingdom. Of these locations, eight are
owned and eight are leased. See "Item 1. - Business - Joint Ventures."
PROCESSED STEEL PRODUCTS
At May 31, 2002, including our consolidated joint ventures, the
Processed Steel Products segment operated 14 manufacturing facilities, all of
which were owned. These facilities occupy more than 5,100,000 sq. ft. and are
located in Alabama, Indiana, Kentucky, Maryland, Michigan, Ohio, Pennsylvania
and South Carolina. This segment also maintains approximately 667,000 sq. ft. of
warehouse space, of which 305,000 sq. ft is leased. Pursuant to the
Consolidation Plan, the Processed Steel Products segment will close the Malvern,
Pennsylvania and Jackson, Michigan, locations and the Rock Hill facility will
operate as a Metal Framing facility. See "Item 1. - Business - General" and
"Item 7. - Management's Discussion and Analysis of Financial Condition and
Results of Operations - Results of Operations."
METAL FRAMING
At May 31, 2002, our Metal Framing segment operated 19 metal framing
and coil processing facilities in Arizona, California, Colorado, Florida,
Georgia, Hawaii, Indiana, Kansas, Massachusetts, Maryland, New Jersey, Ohio,
Texas, Virginia and Washington, occupying, in the aggregate, over 2,080,000 sq.
ft. Nine of these facilities are leased and range in size from 25,339 sq. ft. to
78,517 sq. ft. This segment also leases two administrative office locations, one
in Pittsburgh, Pennsylvania and one in Blairsville, Pennsylvania. Our recent
acquisition of Unimast has increased the number of manufacturing facilities in
this segment to 29. Unimast operates six metal framing facilities in Baytown,
Texas; Boonton, New Jersey; Joliet, Illinois; Goodyear, Arizona; McDonough,
Georgia; and Warren, Ohio; two steel corner bead and trim plants in Brooksville,
Florida and New Brighton, Minnesota; a vinyl construction accessories facility
in Miami, Florida; and a small steel processing facility in East Chicago,
Indiana. See "Item - 1. - Business - General," "- Metal Framing" and "Item 8. -
Financial Statements and Supplementary Data - Notes to Consolidated Financial
Statements - Note Q - Subsequent Event." Pursuant to the Consolidation Plan, the
Fredericksburg, Virginia facility will be closed and its business moved to Rock
Hill, South Carolina. A more detailed discussion of the Consolidation Plan is
set forth below in "Item 7. - Management's Discussion and Analysis of Financial
Condition and Results of Operations - Results of Operations."
PRESSURE CYLINDERS
Together with our consolidated joint ventures, the Pressure Cylinders
segment at May 31, 2002, operated nine manufacturing facilities. We own eight of
those facilities, which occupy, in the aggregate, approximately 960,000 sq. ft.
and are located in Alabama, Ohio and Oklahoma domestically, and in Austria,
Canada and Portugal. We lease only one of those facilities, our 55,000 sq. ft.
Citronelle, Alabama, facility, as well as a warehouse in each of Georgia,
Portugal and Canada, measuring approximately 100,000 sq. ft., 44,600 sq. ft. and
13,750 sq. ft., respectively. Pursuant to the Consolidation Plan, the Claremore,
Oklahoma, facility is being closed. A more detailed discussion of the
Consolidation Plan is set forth below in "Item 7. - Management's Discussion and
Analysis of Financial Condition and Results of Operations - Results of
Operations."
ITEM 3. - LEGAL PROCEEDINGS
Various legal actions arising in the ordinary course of business are
pending against Worthington. None of this pending litigation, individually or
collectively, is expected to have a material adverse effect on Worthington.
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
7
SUPPLEMENTAL ITEM. - EXECUTIVE OFFICERS OF THE REGISTRANT
The following table lists the names, positions held and ages of the Registrant's
executive officers:
PRESENT OFFICE
NAME AGE POSITION(S) WITH THE REGISTRANT HELD SINCE
---- --- ------------------------------- ----------
John H. McConnell 79 Chairman Emeritus & Founder 1996
John P. McConnell 48 Chairman & Chief Executive Officer 1996
John S. Christie 52 President & Chief Operating Officer 1999
John T. Baldwin 45 Vice President & Chief Financial Officer 1998
Edward A. Ferkany 65 President-The Worthington Steel Company 2001
Dale T. Brinkman 49 Vice President-Administration, General Counsel & 2000
Secretary
Ralph V. Roberts 55 Sr. Vice President-Marketing 2001
Virgil L. Winland 54 Sr. Vice President-Manufacturing 2001
Richard G. Welch 44 Controller 2000
John H. McConnell founded Worthington in 1955 and served as its Chief Executive
Officer until he retired in May 1993. Mr. McConnell also served as Chairman of
the Board of Directors from 1955 until September 1996, when he assumed the role
of Chairman Emeritus and Founder.
John P. McConnell has served as Worthington Industries' Chief Executive Officer
since June 1993. Mr. McConnell has served as a Director continuously since 1990
and Chairman of the Board of Directors since September 1996.
John S. Christie has served as President and Chief Operating Officer and a
Director of Worthington Industries since June 1999. Prior to that time, Mr.
Christie served as President of JMAC, Inc., a private investment company, from
1995 through 1999.
John T. Baldwin has served as Vice President and Chief Financial Officer of
Worthington Industries since December 1998 and as its Treasurer from August 1997
through December 1998. Before joining Worthington Industries, Mr. Baldwin served
as Assistant Treasurer of Tenneco, Inc. from 1994 through August 1997.
Edward A. Ferkany has served as President, The Worthington Steel Company since
January 2001. From June 1998 to January 2001, Mr. Ferkany served as Executive
Vice President of Worthington Industries and, prior to that time, from 1985
through 1998, Mr. Ferkany served as Group President-Processed Steel for
Worthington Industries.
Dale T. Brinkman has served as Vice President-Administration, General Counsel
and Secretary of Worthington Industries since September 2000. From December 1998
through September 2000, he served as Vice President-Administration, General
Counsel and Assistant Secretary for Worthington Industries. Prior to that time,
Mr. Brinkman served as Worthington Industries' General Counsel and Assistant
Secretary from 1982 through 1998.
Ralph V. Roberts has served as Senior Vice President-Marketing of Worthington
Industries since January 2001. From June 1998 through January 2001, he served as
President, The Worthington Steel Company. Prior to that time, Mr. Roberts served
as Worthington Industries' Vice President-Corporate Development from June 1997
through May 1998 and as President of WAVE from its formation in June 1992
through June 1997.
Virgil L. Winland has served as Senior Vice President-Manufacturing of
Worthington Industries since January 2001 and, prior to that time, from June
1996 through January 2001 as President, Worthington Cylinder Corporation.
8
Richard G. Welch has served as Controller of Worthington Industries since March
2000 and as its Assistant Controller from September 1999 to March 2000. Before
joining Worthington Industries, Mr. Welch served in various accounting and
financial reporting capacities with Time Warner Cable, a distributor of cable
programming, including as Assistant Controller from March 1999 through September
1999 and as an accounting director from September 1990 through March 1999.
Executive officers serve at the pleasure of the directors. John H. McConnell is
the father of John P. McConnell. There are no other family relationships among
the Registrant's executive officers or directors. No arrangements or
understandings exist pursuant to which any individual has been, or is to be,
selected as an executive officer.
9
PART II
ITEM 5. - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The common shares of Worthington Industries, Inc. ("Worthington
Industries") trade on the New York Stock Exchange ("NYSE") under the symbol
"WOR" and are listed in most newspapers as "WorthgtnInd". As of June 30, 2002,
Worthington Industries had 10,717 registered shareholders. The following table
sets forth (i) the low, high and closing prices for Worthington Industries'
common shares for each quarter of fiscal 2001 and 2002, and (ii) the cash
dividends per share paid on Worthington Industries' common shares during each
quarter of fiscal 2001 and fiscal 2002.
MARKET PRICE
FISCAL 2001 -------------------------------- CASH
QUARTER ENDED LOW HIGH CLOSING DIVIDENDS
------------- --------- ----------- ---------- ------------
August 31, 2000 $10.00 $12.75 $10.46 $0.16
November 30, 2000 $ 8.44 $10.50 $ 9.19 $0.16
February 28, 2001 $ 6.44 $10.45 $ 9.85 $0.16
May 31, 2001 $ 9.00 $12.85 $11.50 $0.16
FISCAL 2002
QUARTER ENDED
-------------
August 31, 2001 $11.55 $14.77 $14.00 $0.16
November 30, 2001 $10.30 $14.80 $14.80 $0.16
February 28, 2002 $13.40 $15.20 $14.71 $0.16
May 31, 2002 $14.41 $16.20 $15.25 $0.16
10
ITEM 6. - SELECTED FINANCIAL DATA
YEAR ENDED MAY 31,
----------------------------------------------------------------------------------------------
IN THOUSANDS, EXCEPT PER SHARE 2002 2001 2000 1999 1998 1997
-------------- -------------- -------------- -------------- -------------- --------------
FINANCIAL RESULTS
Net sales $ 1,744,961 $ 1,826,100 $ 1,962,606 $ 1,763,072 $ 1,624,449 $ 1,428,346
Cost of goods sold 1,480,184 1,581,178 1,629,455 1,468,886 1,371,841 1,221,078
------------- ------------- ------------- ------------- ------------ -------------
Gross margin 264,777 244,922 333,151 294,186 252,608 207,268
Selling, general &
administrative expense 165,885 173,264 163,662 147,990 117,101 96,252
Restructuring expense 64,575 6,474 -- -- -- --
------------- ------------- ------------- ------------- ------------ -------------
Operating income 34,317 65,184 169,489 146,196 135,507 111,016
Miscellaneous income
(expense) (3,224) (928) 2,653 5,210 1,396 906
Nonrecurring loss (21,223) -- (8,553) -- -- --
Interest expense (22,740) (33,449) (39,779) (43,126) (25,577) (18,427)
Equity in net income of
unconsolidated
affiliates 23,110 25,201 26,832 24,471 19,316 13,959
------------- ------------- ------------- ------------- ------------ -------------
Earnings from continuing
operations before
income taxes 10,240 56,008 150,642 132,751 130,642 107,454
Income tax expense 3,738 20,443 56,491 49,118 48,338 40,844
------------- ------------- ------------- ------------- ------------ -------------
Earnings from continuing
operations 6,502 35,565 94,151 83,633 82,304 66,610
Discontinued operations,
net of taxes -- -- -- (20,885) 17,337 26,708
Extraordinary item,
net of taxes -- -- -- -- 18,771 --
Cumulative effect of
accounting change,
net of taxes -- -- -- (7,836) -- --
------------- ------------- ------------- ------------- ------------ -------------
Net earnings 6,502 35,565 94,151 54,912 118,412 93,318
Earnings per share
(diluted):
Continuing operations 0.08 0.42 1.06 0.90 0.85 0.69
Discontinued operations,
net of taxes -- -- -- (0.23) 0.18 0.27
Extraordinary item,
net of taxes -- -- -- -- 0.19 --
Cumulative effect of
accounting change,
net of taxes -- -- -- (0.08) -- --
------------- ------------- ------------- ------------- ------------ -------------
Net earnings 0.08 0.42 1.06 0.59 1.22 0.96
Continuing operations:
Depreciation and
amortization 68,887 70,582 70,997 64,087 41,602 34,150
Capital expenditures
(including
acquisitions and
investments)* 60,100 64,943 72,649 132,458 297,516 287,658
Cash dividends declared 54,677 54,762 53,391 52,343 51,271 45,965
Per share $ 0.64 $ 0.64 $ 0.61 $ 0.57 $ 0.53 $ 0.49
Average shares outstanding
(diluted) 85,929 85,623 88,598 93,106 96,949 96,841
FINANCIAL POSITION
Current assets $ 490,340 $ 449,719 $ 624,229 $ 624,255 $ 642,995 $ 594,128
Current liabilities 339,351 306,619 433,270 427,725 410,031 246,794
------------- ------------- ------------- ------------- ------------ -------------
Working capital 150,989 143,100 190,959 196,530 232,964 347,334
Net fixed assets 766,596 836,749 862,512 871,347 933,158 691,027
Total assets 1,457,314 1,475,862 1,673,873 1,686,951 1,842,342 1,561,186
Total debt** 295,613 324,750 525,072 493,313 501,950 417,883
Shareholders' equity 606,256 649,665 673,354 689,649 780,273 715,518
Per share 7.09 7.61 7.85 7.67 8.07 7.40
Total committed capital** $ 901,869 $ 974,415 $ 1,198,426 $ 1,182,962 $ 1,282,223 $ 1,133,401
Shares outstanding 85,512 85,375 85,755 89,949 96,657 96,711
- ------------------------------
All financial data include the results of The Gerstenslager Company, which was
acquired in February 1997 through a pooling of interests.
* Includes $113,000 of Worthington Industries, Inc. common shares exchanged
for shares of The Gerstenslager Company during the fiscal year ended May
31, 1997.
** Excludes Debt Exchangeable for Common Stock of Rouge Industries, Inc. of
$52,497, $75,745 and $88,494 at May 31, 1999, 1998 and 1997, respectively.
11
ITEM 7. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Selected statements contained in this Item 7. - Management's Discussion
and Analysis of Financial Condition and Results of Operations constitute
"forward-looking statements" as used in the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements are based, in whole or in part, on
management's beliefs, estimates, assumptions and currently available
information. For a more detailed discussion of what constitutes a
forward-looking statement and of some of the factors that could cause actual
results to differ materially from such forward-looking statements, please refer
to "Safe Harbor Statement" in the beginning of this Annual Report on Form 10-K.
OVERVIEW
Worthington Industries, Inc. is a diversified steel processor that
focuses on value-added steel processing and metals-related businesses. As of May
31, 2002, we operated 43 facilities worldwide, principally in three reportable
business segments: Processed Steel Products, Metal Framing and Pressure
Cylinders. We also hold equity positions in seven joint ventures, which as of
May 31, 2002, operated 16 facilities worldwide. The following discussion and
analysis of financial condition and results of operations should be read in
conjunction with our consolidated financial statements included in Item 8.
CRITICAL ACCOUNTING POLICIES
The discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. On an on-going basis, we evaluate our estimates,
including those related to our allowance for doubtful accounts, intangible
assets, accrued liabilities, income and other tax accruals, and contingencies
and litigation. We base our estimates on historical experience and on various
other assumptions that we believe to be reasonable under the circumstances.
These results form the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources.
Critical accounting policies are defined as those that are reflective of our
significant judgments and uncertainties that could potentially result in
materially different results under different assumptions and conditions.
Although actual results historically have not deviated significantly from those
determined using our estimates, as discussed below, our financial position or
results of operations could be materially different if we were to report under
different conditions or to use different assumptions in the application of such
policies. We believe the following accounting policies are the most critical to
us, in that they are the primary areas where financial information is subject to
the use of our estimates and assumptions, and the application of our judgment in
the preparation of our consolidated financial statements.
Allowance for Doubtful Accounts Receivable: Our allowance for doubtful
accounts is estimated to cover the risk of loss related to our accounts
receivable, including the risk associated with our retained interest in the pool
of receivables sold through our accounts receivable securitization ("AR
securitization") facility. This allowance is maintained at a level that we
consider appropriate based on historical and other factors that affect
collectibility. These factors include historical trends of charge-offs,
recoveries and credit losses; the careful monitoring of portfolio credit
quality; and current and projected economic and market conditions. General
weakness in the economy over the last few years has led to bankruptcy filings by
many of our customers. As mentioned above, we specifically monitor our credit
portfolio quality, which includes identification of customers that have or may
potentially file for bankruptcy, and make allowance adjustments accordingly. The
allowance for doubtful accounts receivable totaled $8.2 million and $9.2 million
at May 31, 2002 and 2001, respectively. While we believe our allowance for
doubtful accounts receivable is adequate, changes in economic conditions or any
weakness in the economy could adversely impact our future earnings.
Impairment of Long-Lived Assets: We review the carrying value of our
long-lived assets held and used and assets to be disposed of, including other
intangible assets, for impairment whenever events or changes in
12
circumstances indicate that the carrying amount may not be realizable. If an
evaluation is required, accounting standards require that if the sum of the
undiscounted future cash flows expected to result from a company's asset is less
than the reported value of the asset, an impairment charge must be recognized in
the financial statements. We recognized a $21.2 million loss during the year
ended May 31, 2002 ("fiscal 2002"), for the impairment of certain preferred
stock and subordinated debt described later in the document.
Effective June 1, 2001, we adopted Statement of Financial Accounting
Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets, which requires
that we review goodwill at least annually for impairment based on the fair value
method. Prior to June 1, 2001, we amortized goodwill over 40 years using the
straight-line method. Under SFAS No. 142, goodwill and identifiable intangible
assets deemed to have indefinite lives are no longer amortized but are subject
to impairment tests annually or more frequently if impairment indicators arise.
Other intangible assets continue to be amortized over their estimated useful
lives.
We use the present value technique in determining the estimated fair
value of the goodwill associated with each reporting entity. There are three
significant sets of values used to determine the fair value: estimated future
discounted cash flows, capitalization rate and tax rates. The estimated future
discounted cash flows used in the model are based on planned growth with an
assumed perpetual growth rate. The capitalization rate is based on our current
cost of capital for equity and debt. Tax rates are maintained at current levels.
Our impairment testing for fiscal 2002 resulted in an impairment write-off of
$0.6 million. We feel our assumptions are reasonable and our goodwill carrying
amounts of $75.4 million and $76.4 million at May 31, 2002 and 2001,
respectively, are properly valued.
Accounting for Derivatives and Other Contracts at Fair Value: We use
derivatives in the normal course of business to manage our exposure to
fluctuations in commodity prices and foreign currency rates. Significant
judgments and estimates are required to determine fair values in the absence of
quoted market values. These estimates are based upon valuation methodologies
deemed appropriate in the circumstances; however, the use of different
assumptions could affect the estimated fair values.
Restructuring Reserves: During fiscal 2002, we announced a
consolidation plan to improve profitability. This plan affects each of our
business segments as six facilities will be closed and two others will be
restructured. As part of the consolidation plan, we recorded a pre-tax
restructuring charge of $64.6 million, comprised of $48.2 million for the
write-down of idled assets to net realizable value, $11.8 million for severance
and employee related costs, and $4.6 million for other restructuring related
items. As of May 31, 2002, 230 employee positions had been eliminated (205
through termination and 25 through retirement and attrition), and cash payments
totaling $1.4 million had been made against the severance reserve. The estimated
net realizable value of the plant and equipment being idled of $6.7 million was
reclassified to other current assets as assets held for sale. We anticipate that
the termination of employees and the sale of the idled plant and equipment will
be substantially complete by February 2003.
We periodically evaluate a number of factors to determine the
appropriateness and reasonableness of our restructuring reserves. These
estimates involve a number of risks and uncertainties, some of which may be
beyond our control. Actual results may differ from our estimates and may require
adjustments to our restructuring reserves and operating results in future
periods.
The critical accounting policies discussed herein are not intended to
be a comprehensive list of all of our accounting policies. In many cases, the
accounting treatment of a particular transaction is specifically dictated by
accounting principles generally accepted in the United States, with no need for
our judgment in their application. There are also areas in which our judgment in
selecting an available alternative would not produce a materially different
result. Other accounting policies also have a significant effect on our
financial statements, and some of these policies require the use of estimates
and assumptions. Our significant accounting policies are discussed in Note A of
the Notes to Consolidated Financial Statements included in Item 8.
13
RESULTS OF OPERATIONS
The following table sets forth, for the fiscal years indicated,
consolidated net sales and operating income by segment and other financial
information:
2002 2001 2000
----------------------------------- ---------------------------------- ----------------------
% OF % % OF % % OF
IN MILLIONS, EXCEPT PER SHARE ACTUAL NET SALES CHANGE ACTUAL NET SALES CHANGE ACTUAL NET SALES
---------- ----------- ---------- --------- ----------- ----------- ---------- ----------
Net sales:
Processed Steel Products $1,132.7 64.9% -4% $1,184.9 64.9% -8% $1,287.9 65.6%
Metal Framing 306.0 17.5% -12% 346.0 18.9% -1% 350.6 17.9%
Pressure Cylinders 292.8 16.8% 1% 289.1 15.8% -9% 318.8 16.2%
Other 13.5 0.8% 6.1 0.4% 5.3 0.3%
-------- -------- --------
Total net sales 1,745.0 100.0% -4% 1,826.1 100.0% -7% 1,962.6 100.0%
Cost of goods sold 1,480.2 84.8% -6% 1,581.2 86.6% -3% 1,629.4 83.0%
-------- -------- --------
Gross margin 264.8 15.2% 8% 244.9 13.4% -27% 333.2 17.0%
Selling, general &
administrative expense 165.9 9.5% -4% 173.2 9.5% 6% 163.7 8.4%
Restructuring expense 64.6 3.7% 6.5 0.4% -- --
-------- -------- --------
Operating income*:
Processed Steel Products 13.6 1.2% -54% 29.3 2.5% -70% 96.8 7.5%
Metal Framing 19.1 6.2% -19% 23.7 6.9% -45% 43.2 12.3%
Pressure Cylinders 11.0 3.8% -43% 19.3 6.7% -44% 34.2 10.7%
Other (9.4) (7.1) (4.7)
-------- -------- --------
Total operating income 34.3 2.0% -47% 65.2 3.5% -62% 169.5 8.6%
Other income (expense):
Miscellaneous income
(expense) (3.3) (0.9) 2.7
Nonrecurring loss (21.2) -- (8.6)
Interest expense (22.7) -1.3% -32% (33.5) -1.8% -16% (39.8) -2.0%
Equity in net income of
unconsolidated affiliates 23.1 1.3% -8% 25.2 1.4% -6% 26.8 1.4%
-------- -------- --------
Earnings before taxes 10.2 0.6% -82% 56.0 3.0% -63% 150.6 7.7%
Income tax expense 3.7 0.2% -82% 20.4 1.1% -64% 56.4 2.9%
-------- -------- --------
Net earnings $ 6.5 0.4% -82% $ 35.6 1.9% -62% $ 94.2 4.8%
======== ======== ========
Average common shares
outstanding -
diluted 85.9 85.6 88.6
-------- -------- --------
Earnings per share -
diluted $ 0.08 $ 0.42 $ 1.06
======== ======== ========
- ------------------------------
* Fiscal 2002 includes restructuring charges of $64.6 million. Of that total,
amounts that relate to the operating segments are as follows: Processed
Steel Products - $52.1 million, Metal Framing - $0.9 million and Pressure
Cylinders - $10.7 million. Fiscal 2001 includes restructuring charges of
$6.5 million, all relating to the Processed Steel Products segment.
14
Our earnings for fiscal 2002 were impacted by two one-time charges: a
$64.6 million pre-tax restructuring expense and a $21.2 million pre-tax charge
to establish a reserve for the impairment of certain assets. In addition, fiscal
2001 was impacted by a $6.5 million pre-tax restructuring charge for the partial
shutdown of the Malvern, Pennsylvania, facility.
In January 2002, we announced a consolidation plan that included the
closing of six of our facilities, the restructuring of two others and a
workforce reduction of 542 employees. The eight facilities impacted by the
consolidation plan are included in our business segments as follows: Processed
Steel Products (4), Metal Framing (1) and Pressure Cylinders (3). In our
Processed Steel Products segment, we are closing our Malvern, Pennsylvania, and
Jackson, Michigan, facilities, and we are reducing overhead costs at our
facility in Louisville, Kentucky. The Rock Hill, South Carolina, facility will
become a Metal Framing location. The current Metal Framing facility in
Fredericksburg, Virginia, will be closed and its operations moved to Rock Hill.
In our Pressure Cylinders segment, we have discontinued the operations of two
partnerships in Itu, Brazil, and we are closing a production facility in
Claremore, Oklahoma.
This consolidation plan resulted in a pre-tax restructuring charge of
$64.6 million or $41.0 million after tax. Of this pre-tax charge, $11.8 million
represents a cash outlay for severance and employee related payments, and the
remainder represents the write-down of assets to their fair market value. Going
forward, we estimate this plan will improve our annual operating income by at
least $10 million, despite reducing sales by approximately $75 million.
Headcount reductions and reduced depreciation will account for annual savings of
approximately $6 million and approximately $4 million, respectively. See Note N
of the Notes to Consolidated Financial Statements in Item 8 for more
information.
In addition to the restructuring charge, we recognized a $21.2 million
pre-tax loss for the impairment of certain preferred stock and subordinated debt
we received as partial payment from four acquirers when we sold the assets of
our Custom Products and Cast Products business segments during the fiscal year
ended May 31, 1999. As economic conditions have deteriorated, each of the
issuers has encountered difficulty making scheduled payments under the terms of
the preferred stock and subordinated debt. The after-tax impact of the
impairment charge reduced net income for fiscal 2002 by $13.5 million.
In February 2002, we formed Aegis Metal Framing, LLC ("Aegis"), a joint
venture with MiTek Industries, Inc. ("MiTek"). Aegis combines the manufacturing
and distribution capabilities of our Metal Framing segment with the software,
engineering and marketing functions of MiTek's Metal Framing Systems division.
We invested $21.0 million plus certain of our assets for a 60% interest in the
joint venture and purchased the rollforming assets of MiTek for $1.1 million.
The equity method is used to account for the joint venture, as control of the
critical business decisions is equally shared with Mitek. Manufacturing is
contracted to our Metal Framing segment, which manufactures and sells the
product to Aegis.
Effective June 1, 2001, we adopted Statement of Financial Accounting
Standards ("SFAS") No. 141, Business Combinations, and SFAS No. 142, Goodwill
and Other Intangible Assets. SFAS No. 141 eliminates the pooling method of
business combinations while SFAS No. 142 eliminates the requirement to amortize
goodwill and indefinite-lived intangible assets. While there was no impact from
adopting SAFS No. 141, SFAS No. 142 increased after-tax income by approximately
$1.6 million for fiscal 2002. See Note O of the Notes to Consolidated Financial
Statements in Item 8 for more information.
We recorded a $6.5 million pre-tax restructuring charge during the
third quarter of fiscal 2001 when we closed a portion of our Malvern facility.
The result of this partial closure was a reduction in the workforce of 160
employees and the write-down to fair market value of the affected assets. The
after-tax impact of this charge reduced our fiscal 2001 income by $4.1 million.
This partial closure was completed by December 31, 2001.
15
FISCAL 2002 COMPARED TO FISCAL 2001
Net sales decreased 4% or $81.1 million to $1,745.0 million in fiscal
2002 from $1,826.1 million in fiscal 2001. This decline was due to weaker demand
within our Processed Steel Products and Pressure Cylinders segments and lower
selling prices in Metal Framing and Processed Steel Products.
Gross margin increased 8% or $19.9 million to $264.8 million in fiscal
2002 from $244.9 million in fiscal 2001. Much of the increase was due to higher
volumes during the fourth quarter, which improved gross margin by $8.1 million.
In addition, direct labor and manufacturing expenses declined $15.7 million,
including a $7.5 million reduction in utilities mainly from lower natural gas
cost, a $5.2 million decrease in compensation and benefits from headcount
reductions, and a $2.8 million decrease in repairs and maintenance expenses.
These factors increased gross margin as a percentage of net sales to 15.2% in
fiscal 2002 from 13.4% in fiscal 2001.
Selling, general and administrative costs ("SG&A") decreased 4% or $7.3
million to $165.9 million in fiscal 2002 from $173.2 million in fiscal 2001. The
reduction was due to numerous factors including a $5.8 million decrease in
professional expenses, a $2.5 million decrease in depreciation and amortization
due to lower capital spending and the elimination of goodwill amortization, a
$1.9 million gain on the sale of an airplane, a $3.7 million gain related to
legal settlements, and lower travel and entertainment expenses of $1.2 million.
The decrease was partly offset by a $6.2 million increase in bad debt expense
which, in anticipation of a settlement, included the write-down of a note
received from the sale of discontinued operations.
Operating income decreased 47% or $30.9 million to $34.3 million in
fiscal 2002 from $65.2 million in fiscal 2001. Excluding the effects of the
previously mentioned restructuring expense, operating income increased 38% or
$27.2 million to $98.9 million in fiscal 2002 from $71.7 million in fiscal 2001.
Interest expense decreased 32% or $10.8 million to $22.7 million in
fiscal 2002 from $33.5 million in fiscal 2001. This decline primarily was
attributable to lower average debt levels (due to increased use of our A/R
securitization facility and lower working capital requirements) and lower
average short-term interest rates. A/R securitization facility fees, which began
in November 2000 and were recorded as miscellaneous expense, increased $1.0
million to $4.1 million in fiscal 2002 from $3.1 million in fiscal 2001.
Equity in net income of unconsolidated affiliates decreased 8% or $2.1
million to $23.1 million in fiscal 2002 from $25.2 million in fiscal 2001. The
primary contributors to the decline were reduced sales and higher manufacturing
expenses at WSP and increased operating expenses at Acerex which led to lower
margins for those joint ventures.
Our effective tax rate of 36.5% in fiscal 2002 was unchanged from
fiscal 2001.
The following provides further information on net sales and operating
income by segment:
- Processed Steel Products. Net sales decreased 4% or $52.2 million
to $1,132.7 million in fiscal 2002 from $1,184.9 million in
fiscal 2001. Stronger demand during the third and fourth quarters
was not enough to overcome the weakness in the market early in
the year, resulting in reduced volumes. In addition, selling
prices declined due to lower raw material costs and a shift from
direct to toll processing. Direct shipments include sales of
material with a value-added processing charge, while toll
shipments contain only a value-added processing charge on
customer-owned material. Excluding the restructuring expense for
fiscal 2002 and fiscal 2001 of $52.1 million and $6.5 million,
respectively, operating income increased 84% or $29.9 million to
$65.7 million in fiscal 2002 from $35.8 million in fiscal 2001.
Improvement in the spread between direct selling prices and raw
material costs increased operating income by $12.4 million.
Further savings were achieved through a $7.5 million decrease in
compensation and benefits expense mainly due to a reduction in
the number of employees, a $6.5 million decrease in utilities
costs primarily due to lower natural gas expenses, a $2.8 million
reduction in professional fees, a $1.7 million gain related to a
legal settlement, and a $1.5 million reduction in repairs and
maintenance expenses. Lower volumes and higher bad debt expense
partially offset these savings and reduced
16
operating income by $5.5 million and $2.4 million, respectively.
The net impact of these factors was an increase in operating
income as a percentage of net sales to 5.8% in fiscal 2002 from
3.0% in fiscal 2001.
- Metal Framing. Net sales decreased 12% or $40.0 million to $306.0
million in fiscal 2002 from $346.0 million in fiscal 2001. The
decrease was due to the erosion of sales prices for core building
products combined with the elimination of the stainless product
line in December 2000. However, price increases instituted in the
fourth quarter have begun to restore pricing. Excluding the
restructuring expense for fiscal 2002 of $0.9 million, operating
income decreased 16% or $3.7 million to $20.0 million in fiscal
2002 from $23.7 million in fiscal 2001. The net impact of lower
average selling prices and lower raw materials cost was a $14.4
million reduction in operating income. Furthermore, increased
costs related to the new Hawaii and Washington facilities
contributed to a $1.8 million increase in manufacturing expense.
Higher volumes partially offset these decreases by $8.6 million.
As a result, operating income as a percentage of net sales
decreased to 6.6% in fiscal 2002 from 6.9% in fiscal 2001.
- Pressure Cylinders. Net sales increased 1% or $3.7 million to
$292.8 million in fiscal 2002 from $289.1 million in fiscal 2001.
The increase primarily was due to strong fourth quarter sales of
liquefied petroleum gas cylinders driven by new regulations in
many states requiring overfill protection devices on propane
tanks. Excluding the restructuring expense for fiscal 2002 of
$10.7 million, operating income increased 12% or $2.4 million to
$21.7 million in fiscal 2002 from $19.3 million in fiscal 2001.
Reduced utilities expense, lower supplies expense and higher
sales volumes improved operating income by $1.2 million, $1.0
million and $0.9 million, respectively. Consequently, operating
income as a percentage of net sales increased to 7.4% in fiscal
2002 from 6.7% in fiscal 2001.
FISCAL 2001 COMPARED TO FISCAL 2000
Net sales decreased 7% or $136.5 million to $1,826.1 million in fiscal
2001 from $1,962.6 million in the fiscal year ended May 31, 2000 ("fiscal 2000")
due to lower demand within our Processed Steel Products and Pressure Cylinders
segments and reduced selling prices in Processed Steel Products and Metal
Framing. Higher volumes in Metal Framing partially offset these factors.
Gross margin decreased 27% or $88.3 million to $244.9 million in fiscal
2001 from $333.2 million in fiscal 2000. The majority of the decline occurred in
our Processed Steel Products segment due to lower volumes and the smaller spread
between direct average selling prices and raw material costs. These factors
decreased gross margin as a percentage of net sales to 13.4% in fiscal 2001 from
17.0% in fiscal 2000.
SG&A expense increased 6% or $9.5 million to $173.2 million in fiscal
2001 from $163.7 million in fiscal 2000 due to higher compensation, bad debt and
health care expenses.
Operating income decreased 62% or $104.3 million in fiscal 2001 to
$65.2 million from $169.5 million in fiscal 2001. Excluding the effects of the
previously mentioned restructuring expenses, operating income decreased 58% or
$97.8 million to $71.7 million in fiscal 2001 from $169.5 million in fiscal
2000.
Interest expense decreased 16% or $6.3 million to $33.5 million in
fiscal 2001 from $39.8 million in fiscal 2000. Since we paid off the DECS
liability during the fourth quarter of fiscal 2000, there was no comparable
interest expense during fiscal 2001. In addition, we reduced short-term debt
(see description in "Liquidity and Capital Resources"). However, higher average
short-term interest rates partially offset these factors. A/R securitization
facility fees of $3.1 million in fiscal 2001 were recorded as miscellaneous
expense.
Equity in net income of unconsolidated affiliates decreased 6% or $1.6
million to $25.2 million in fiscal 2001 from $26.8 million in fiscal 2000.
Higher raw material costs at TWB and lower sales at WSP led to lower margins at
those joint ventures. Increases in sales and operating income at the Acerex and
WAVE joint ventures partly negated the overall decline.
17
Our effective tax rate decreased to 36.5% in fiscal 2001 from 37.5% in
fiscal 2000 primarily due to ongoing state and local tax planning initiatives.
The following provides further information on net sales and operating
income by segment:
- Processed Steel Products. Net sales decreased 8% or $103.0
million to $1,184.9 million in fiscal 2001 from $1,287.9 million
in fiscal 2000 primarily due to the general economic slowdown,
especially in the domestic automotive industry. The decrease in
net sales was principally attributable to declining direct
shipments from most plants and a decrease in toll processing
volume. However, our Monroe, Ohio, and Decatur, Alabama, plants
continued to increase direct volumes due to the new dry lube line
and market penetration, respectively. Excluding the restructuring
expense for fiscal 2001 of $6.5 million, operating income
decreased 63% or $61.0 million to $35.8 million in fiscal 2001
from $96.8 million in fiscal 2000 due to higher average raw
material prices, changes in sales mix to lower margin products,
and declining direct and toll processing volumes. Higher
manufacturing expenses and SG&A costs as a percentage of net
sales resulted in operating income as a percentage of net sales
of 3.0% in fiscal 2001 compared to 7.5 % in fiscal 2000.
- Metal Framing. Net sales decreased 1% or $4.6 million to $346.0
million in fiscal 2001 from $350.6 million in fiscal 2000 due to
erosion of selling prices throughout the year brought on by
intense competition. Nevertheless, strong demand for building
products led to higher volumes, thus offsetting much of the
negative impact due to pricing. Operating income decreased 45% or
$19.5 million to $23.7 million in fiscal 2001 from $43.2 million
in fiscal 2000. Sales volume increases were overshadowed by price
competition and higher raw material costs, decreasing operating
income as a percentage of net sales to 6.9% in fiscal 2001 from
12.3% in fiscal 2000.
- Pressure Cylinders. Net sales decreased 9% or $29.7 million to
$289.1 million in fiscal 2001 from $318.8 million in fiscal 2000.
The primary reason for the decrease was the weakening demand in
all product lines due to the slowing economy and stiff
competition in the European market. A strong United States dollar
also resulted in lower reported sales from our international
operations. Operating income decreased 44% or $14.9 million to
$19.3 million in fiscal 2001 from $34.2 million in fiscal 2000.
Reductions in sales volumes and the start-up of a new
non-refillable refrigerant production line in Portugal were the
major factors leading to the decrease in operating income as a
percentage of net sales to 6.7% in fiscal 2001 from 10.7% in
fiscal 2000.
LIQUIDITY AND CAPITAL RESOURCES
In fiscal 2002, we generated $135.3 million in cash from operating
activities, representing a $186.2 million decrease from fiscal 2001. The
decrease primarily was due to the initial sale of accounts receivable as part of
the A/R securitization facility in November 2000 (see description below) and the
prior year reduction in inventory levels.
Our significant investing and financing activities during fiscal 2002
included disbursing $54.7 million in dividends to shareholders, spending $39.1
million on capital additions, investing $21.0 million in the Aegis joint
venture, and retiring $20.9 million in long-term debt. These transactions were
funded by the cash flows from our operations and $10.5 million in proceeds from
the sale of assets (including $7.5 million for an airplane and $2.4 million for
certain Malvern assets).
Capital spending during fiscal 2002 included the following: $17.8
million in our Processed Steel Products segment primarily to complete the
construction of the Clyde, Ohio, facility; $13.8 million in our Metal Framing
segment which included spending for rollforming machinery, the Washington
facility, and engineering software development; $4.8 million in the Pressure
Cylinders segment partly for a new hydraulic press in Westerville; and $2.7
million in Other, mainly in our steel pallet business, to complete the
installation of welding equipment.
18
In November 2000, we entered into a $120.0 million revolving A/R
securitization facility which was expanded to $190.0 million in May 2001.
Pursuant to the terms of the facility, certain of our subsidiaries sell their
accounts receivable, on a revolving basis, to Worthington Receivables
Corporation ("WRC"), a wholly-owned, bankruptcy-remote subsidiary which is
consolidated for financial reporting purposes. In turn, WRC sells, on a
revolving basis, undivided ownership interests in this pool of accounts
receivable to independent third parties. We retain an undivided interest in this
pool and are subject to risk of loss based on the collectibility of the
receivables from this retained interest. Because the amount eligible to be sold
excludes receivables past due, balances with foreign customers, concentrations
over limits with specific customers, and certain reserve amounts, we believe
additional risk of loss is minimal. Also because of these exclusions, no
discount occurs on the sale and no gain or loss is recorded; however, facility
fees of $4.1 million and $3.1 million were incurred for fiscal 2002 and 2001,
respectively. The book value of the retained portion approximates fair value. We
continue to service the accounts receivable. No servicing asset or liability has
been recognized, as our cost to service the accounts receivable is expected to
approximate the servicing income. As of May 31, 2002, a $100.0 million undivided
interest in this pool had been sold. The proceeds from these sales have been
used to reduce short-term borrowings.
Consolidated net working capital increased $7.9 million from May 31,
2001 to $151.0 million at May 31, 2002. The primary contributors to the increase
were higher accounts receivable due to strong sales during the fourth quarter of
fiscal 2002 and an increase in other current assets related to an increased
current deferred tax asset, partially offset by an increase in accounts payable
and other current liabilities due to restructuring related accruals.
During May 2002, we replaced our $190.0 million revolving credit
facility maturing May 2003 with $310.0 million in new facilities syndicated with
various banks. The new facilities, which will be used to finance the cash
requirements of our business operations, consist of a $155.0 million 364-day
revolving credit agreement maturing May 2003 and a $155.0 million five-year
revolving credit agreement maturing May 2007. There were no outstanding balances
under the facilities as of May 31, 2002.
On May 31, 2002, our total debt was $295.6 million compared to $324.8
million at the end of fiscal 2001. Our debt to capital ratio of 32.8% at May 31,
2002, was slightly improved from the 33.3% ratio at the end of fiscal 2001.
On July 31, 2002, we acquired the stock of Unimast Incorporated and its
subsidiaries ("Unimast") for approximately $113 million in cash and
approximately $9 million of assumed indebtedness. We anticipate the majority of
this acquisition will be funded by proceeds from assets available for sale with
the remaining portion funded through our A/R securitization facility.
We expect to continue to assess acquisition opportunities as they
arise. Additional financing may be required if we decide to make additional
acquisitions. There can be no assurance, however, that any such opportunities
will arise, that any such acquisitions will be consummated, or that any needed
additional financing will be available on satisfactory terms when required.
Absent any other acquisitions, we anticipate that cash flows from operations and
unused short-term borrowing capacity should be more than sufficient to fund
expected normal operating costs, dividends, working capital, and capital
expenditures for our existing businesses.
RECENTLY ISSUED ACCOUNTING STANDARDS
In October 2001, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets. This Statement establishes a single accounting model for the impairment
or disposal of long-lived assets. SFAS No. 144 is effective for fiscal years
beginning after December 15, 2001. We do not expect the adoption of this
Statement to have a material impact on our financial position or results of
operations.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. This Statement rescinds SFAS No. 4, Reporting Gains and Losses from
Extinguishment of Debt, and an amendment of that Statement, SFAS No. 64,
Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements; rescinds SFAS
No. 44, Accounting for
19
Intangible Assets of Motor Carriers; amends SFAS No. 13, Accounting for Leases,
to eliminate an inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications that
have economic effects that are similar to sale-leaseback transactions; and
amends other existing authoritative pronouncements to make various technical
corrections, clarify meanings or describe their applicability under changed
conditions. SFAS No. 145 is effective for fiscal years beginning after May 15,
2002. We do not expect the adoption of this Statement to have a material impact
on our financial position or results of operations.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. This Statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force Issue No. 94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). SFAS No. 146 is effective
for exit or disposal activities that are initiated after December 31, 2002. We
do not expect the adoption of this Statement to have a material impact on our
financial position or results of operations.
ENVIRONMENTAL
We believe environmental issues will not have a material effect on
capital expenditures, future results of operations or financial position.
INFLATION
The effects of inflation on our operations were not significant during
the periods presented in the Consolidated Financial Statements.
ITEM 7A. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, we are exposed to various market
risks. We continually monitor these risks and regularly develop appropriate
strategies to manage them. Accordingly, from time to time, we may enter into
certain derivative financial and commodity instruments. These instruments are
used to mitigate market exposure and are not used for trading or speculative
purposes.
INTEREST RATE RISK
At May 31, 2002, our long-term debt was comprised primarily of
fixed-rate instruments. Therefore, the fair value of this debt is sensitive to
fluctuations in interest rates. We would not expect that a 1% increase in
interest rates would materially impact the fair value of our long-term debt, our
results of operations or cash flows absent an election to repurchase or retire
all or a portion of the fixed-rate debt at prices above carrying value.
FOREIGN CURRENCY RISK
The translation of our foreign operations from their local currencies
to the U.S. dollar subjects us to exposure related to fluctuating exchange
rates. We do not use derivative instruments to manage this risk. However, we do
make limited use of forward contracts to manage our exposure to certain
intercompany loans with our foreign affiliates. At May 31, 2002, the difference
between the contract and book value was not material to our financial position,
results of operations or cash flows. We do not expect that a 10% change in the
exchange rate to the U.S. dollar forward rate would materially impact our
financial position, results of operations or cash flows.
COMMODITY PRICE RISK
We are exposed to market risk for price fluctuations on purchases of
steel, natural gas, zinc, nickel, and other raw materials and utility
requirements. To limit this exposure, we negotiate the best prices for our
commodities and competitively price our products and services to reflect the
fluctuations in commodity market prices. To a limited extent, we have entered
into commodity derivative instruments (cash flow hedges) to hedge purchases of
steel, natural gas and zinc. At May 31, 2002, these positions were not material
to our financial position, results of operations or cash flows.
20
ITEM 8. - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
MAY 31,
---------------------------
DOLLARS IN THOUSANDS 2002 2001
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 496 $ 194
Accounts receivable, less allowances of $8,215 and
$9,166 at May 31, 2002 and 2001 197,240 169,330
Inventories
Raw materials 103,763 102,051
Work in process 60,566 59,735
Finished products 55,621 65,720
----------- -----------
219,950 227,506
Deferred income taxes 43,538 21,407
Prepaid expenses and other current assets 29,116 31,282
----------- -----------
Total current assets 490,340 449,719
Investments in unconsolidated affiliates 91,759 58,638
Goodwill 75,400 76,439
Other assets 33,219 54,317
Property, plant and equipment
Land 24,933 25,085
Buildings and improvements 259,054 244,834
Machinery and equipment 921,600 883,160
Construction in progress 19,821 48,111
----------- -----------
1,225,408 1,201,190
Less accumulated depreciation 458,812 364,441
----------- -----------
766,596 836,749
----------- -----------
Total assets $ 1,457,314 $ 1,475,862
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 233,181 $ 207,568
Notes payable 5,281 13,794
Accrued compensation, contributions to employee
benefit plans and related taxes 37,202 39,329
Dividends payable 13,683 13,660
Other accrued items 45,428 28,560
Income taxes 3,494 1,960
Current maturities of long-term debt 1,082 1,748
----------- -----------
Total current liabilities 339,351 306,619
Other liabilities 32,514 19,860
Long-term debt 289,250 309,208
Deferred income taxes 148,726 140,974
Contingent liabilities and commitments - Note G -- --
Minority interest 41,217 49,536
Shareholders' equity:
Preferred shares, without par value; authorized - 1,000,000 shares;
issued and outstanding - none -- --
Common shares, without par value; authorized - 150,000,000 shares;
issued and outstanding, 2002 - 85,512,225 shares, 2001 - 85,375,425 shares -- --
Additional paid-in capital 111,484 109,685
Cumulative other comprehensive loss, net of taxes of $2,214 and $4,349
at May 31, 2002 and 2001 (5,055) (8,024)
Retained earnings 499,827 548,004
----------- -----------
606,256 649,665
----------- -----------
Total liabilities and shareholders' equity $ 1,457,314 $ 1,475,862
=========== ===========
See notes to consolidated financial statements.
21
CONSOLIDATED STATEMENTS OF EARNINGS
YEAR ENDED MAY 31,
--------------------------------------------------
IN THOUSANDS, EXCEPT PER SHARE 2002 2001 2000
-------------- -------------- --------------
Net sales $ 1,744,961 $ 1,826,100 $ 1,962,606
Cost of goods sold 1,480,184 1,581,178 1,629,455
----------- ----------- -----------
Gross margin 264,777 244,922 333,151
Selling, general & administrative expense 165,885 173,264 163,662
Restructuring expense 64,575 6,474 --
----------- ----------- -----------
Operating income 34,317 65,184 169,489
Other income (expense):
Miscellaneous income (expense) (3,224) (928) 2,653
Nonrecurring loss (21,223) -- (8,553)
Interest expense (22,740) (33,449) (39,779)
Equity in net income of unconsolidated affiliates 23,110 25,201 26,832
----------- ----------- -----------
Earnings before income taxes 10,240 56,008 150,642
Income tax expense 3,738 20,443 56,491
----------- ----------- -----------
Net earnings $ 6,502 $ 35,565 $ 94,151
=========== =========== ===========
Average common shares outstanding (basic) 85,408 85,590 88,411
Average common shares outstanding (diluted) 85,929 85,623 88,598
----------- ----------- -----------
Earnings per share - basic & diluted $ 0.08 $ 0.42 $ 1.06
=========== =========== ===========
See notes to consolidated financial statements.
22
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THREE YEARS ENDED MAY 31
CUMULATIVE
OTHER
COMMON STOCK ADDITIONAL COMPREHENSIVE
------------------------------ PAID-IN LOSS, NET OF RETAINED
DOLLARS IN THOUSANDS, EXCEPT SHARES AMOUNT CAPITAL TAX EARNINGS TOTAL
PER SHARE -------------- -------------- -------------- ------------------ -------------- --------------
Balance at June 1, 1999 89,949,274 $ -- $ 111,474 $ (8,484) $ 586,659 $ 689,649
Comprehensive income:
Net income -- -- -- -- 94,151 94,151
Unrealized gain on
investment 5,616 5,616
Foreign currency
translation -- -- -- (2,938) -- (2,938)
------------
Total comprehensive
income 96,829
------------
Common shares issued 358,203 -- 4,018 -- -- 4,018
Purchase and retirement
of common shares (4,552,952) -- (5,720) -- (58,020) (63,740)
Cash dividends declared
($0.61 per share) -- -- -- -- (53,391) (53,391)
Other -- -- 4 -- (15) (11)
------------- ------------- ------------- --------------- ------------- ------------
Balance at May 31, 2000 85,754,525 -- 109,776 (5,806) 569,384 673,354
Comprehensive income:
Net income -- -- -- -- 35,565 35,565
Unrealized gain on
investment -- -- -- 1 -- 1
Foreign currency
translation -- -- -- (2,219) -- (2,219)
------------
Total comprehensive
income 33,347
------------
Purchase and retirement
of common shares (379,100) -- (485) -- (2,184) (2,669)
Cash dividends declared
($0.64 per share) -- -- -- -- (54,762) (54,762)
Other -- -- 394 -- 1 395
------------- ------------- ------------- --------------- ------------- ------------
Balance at May 31, 2001 85,375,425 -- 109,685 (8,024) 548,004 649,665
Comprehensive income:
Net income -- -- -- -- 6,502 6,502
Unrealized loss on
investment -- -- -- (45) -- (45)
Foreign currency
translation -- -- -- 3,967 -- 3,967
Minimum pension
liability -- -- -- (32) -- (32)
Cash flow hedges -- -- -- (921) -- (921)
------------
Total comprehensive
income 9,471
------------
Common shares issued 136,800 -- 1,799 -- -- 1,799
Cash dividends declared
($0.64 per share) -- -- -- -- (54,677) (54,677)
Other -- -- -- -- (2) (2)
------------- ------------- ------------- --------------- ------------- ------------
Balance at May 31, 2002 85,512,225 $ -- $ 111,484 $ (5,055) $ 499,827 $ 606,256
============= ============= ============= =============== ============= ============
See notes to consolidated financial statements.
23
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED MAY 31,
-------------------------------------------------
DOLLARS IN THOUSANDS 2002 2001 2000
-------------- -------------- --------------
OPERATING ACTIVITIES:
Net earnings $ 6,502 $ 35,565 $ 94,151
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization 68,887 70,582 70,997
Restructuring expense 64,575 6,474 --
Provision for deferred income taxes (16,721) 9,077 (16,345)
Nonrecurring loss 21,223 -- 8,553
Equity in undistributed net income (loss) of unconsolidated (8,929) (10,119) 13,262
affiliates
Minority interest in net income (loss) of consolidated (332) 1,464 2,699
subsidiaries
Net loss on sale of assets 1,002 84 --
Changes in assets and liabilities:
Accounts receivable (32,276) 132,497 (17,413)
Inventories 7,556 63,886 (29,106)
Prepaid expenses and other current assets (6,521) 4,314 1,264
Other assets 1,171 (449) (15,957)
Accounts payable and accrued expenses 24,946 14,804 30,631
Other liabilities 4,174 (6,725) (3,826)
--------- --------- ---------
Net cash provided by operating activities 135,257 321,454 138,910
INVESTING ACTIVITIES:
Investment in property, plant and equipment, net (39,100) (62,900) (71,541)
Acquisitions, net of cash acquired -- (2,043) (1,108)
Investment in unconsolidated affiliate (21,000) -- --
Proceeds from sale of assets 10,459 1,030 2,672
--------- --------- ---------
Net cash used by investing activities (49,641) (63,913) (69,977)
FINANCING ACTIVITIES:
Proceeds from (payments on) short-term borrowings (8,513) (146,401) 37,917
Proceeds from long-term debt -- 2,064 --
Principal payments on long-term debt (20,872) (50,643) (5,597)
Proceeds from issuance of common shares 1,628 -- 4,018
Proceeds from (payments to) minority interest (2,902) (4,677) 3,790
Repurchase of common shares -- (3,406) (63,003)
Dividends paid (54,655) (54,822) (53,161)
--------- --------- ---------
Net cash used by financing activities (85,314) (257,885) (76,036)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents 302 (344) (7,103)
Cash and cash equivalents at beginning of year 194 538 7,641
--------- --------- ---------
Cash and cash equivalents at end of year $ 496 $ 194 $ 538
========= ========= =========
See notes to consolidated financial statements.
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation: The consolidated financial statements include the
accounts of Worthington Industries, Inc. and subsidiaries (the "Company").
Spartan Steel Coating, L.L.C. (owned 52%), Worthington S.A. (owned 52%),
Worthington Tank, Ltda. (owned 65%), and Worthington Gastec, a.s. (owned 51%)
are fully consolidated with the equity owned by the respective partners shown as
minority interest on the balance sheet and their portion of net income or loss
included in miscellaneous incom