UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10K
(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, 2004
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 1-8399
WORTHINGTON INDUSTRIES, INC.
Securities Registered Pursuant to Section 12(b) of the Act:
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
o
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 Registrants 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.
o
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
YES
x
NO
o
Based upon the closing price of the Common Shares on November 28, 2003, 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 (the only
common equity) held by non-affiliates of the Registrant as of such date was
approximately $983,340,000.
The number of Common Shares issued and outstanding as of August 5, 2004, was
87,309,123.
DOCUMENT INCORPORATED BY REFERENCE
Selected portions of the Registrants Proxy Statement to be furnished to
shareholders of the Registrant in connection with the Annual Meeting of
Shareholders to be held on September 30, 2004, are incorporated by reference
into Part III of this Form 10-K to the extent provided herein.
Ohio
31-1189815
(State or Other Jurisdiction of Incorporation or Organization)
(IRS Employer Identification No.)
200 Old Wilson Bridge Road, Columbus, Ohio
43085
(Address of Principal Executive Offices)
(Zip Code)
Registrants telephone number, including area code
(614) 438-3210
Title of Each Class
Name of Each Exchange on Which Registered
Common Shares, Without Par Value
New York Stock Exchange
TABLE OF CONTENTS
i
SAFE HARBOR STATEMENT
Selected statements contained in this Annual Report on Form 10-K , including, without limitation, in PART I Item 1. Business and PART II Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations, constitute forward-looking statements as that term is used in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based, in whole or in part, on managements beliefs, estimates, assumptions and currently available information and can often 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 estimated or expected earnings, charges, working capital, sales, operating results, earnings per share or the earnings impact of certain matters; | |||
| pricing trends for raw materials and finished goods; | |||
| anticipated capital expenditures and asset sales; | |||
| projected timing, results, costs, charges and expenditures related to asset transfers, facility dispositions, shutdowns and consolidations; | |||
| new products and markets; | |||
| expectations for the economy 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 and pricing, changes in product mix and market acceptance of products; | |||
| fluctuations in pricing, quality or availability of raw materials (particularly steel), supplies, utilities and other items required by operations; | |||
| effects of facility closures and the consolidation of operations; | |||
| the ability to realize price increases, cost savings and operational efficiencies on a timely basis; | |||
| the ability to integrate newly acquired businesses and achieve synergies therefrom; | |||
| the timing of and changes to matters related to the segregation of the retained and sold assets of the Decatur, Alabama, facility; | |||
| capacity levels and efficiencies within our facilities and within the industry as a whole; | |||
| financial difficulties of customers, suppliers, joint venture partners and others with whom we do business; | |||
| the effect of national, regional and worldwide economic conditions generally and within our major product markets, including a prolonged or substantial economic downturn; | |||
| the effect of adverse weather on facility and shipping operations; | |||
| changes in customer spending patterns and supplier choices and 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; | |||
| deviation of actual results from estimates and/or assumptions used by us in the application of our significant accounting policies; | |||
| level of imports and import prices in our markets; | |||
| the impact of governmental regulations, both in the United States and abroad; and | |||
| other risks described from time to time in filings with the Securities and Exchange Commission. |
Any forward-looking statements in this Form 10-K are based on current information as of the date of this Form 10-K, and we assume no obligation to correct or update any such statements in the future, except as required by applicable law.
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), is headquartered in Columbus, Ohio. Founded in 1955,
Worthington is primarily a diversified metal processing company, focused on
value-added steel processing and manufactured metal products such as metal
framing, pressure cylinders, automotive part stampings and, through joint
ventures, metal ceiling grid systems and laser welded blanks. Worthington
currently operates 44 manufacturing facilities worldwide and holds equity
positions in eight joint ventures, which operate an additional 17 manufacturing
facilities worldwide.
Worthington Industries maintains an Internet website at
www.worthingtonindustries.com. (This uniform resource locator, or URL, is an
inactive textual reference only and is not intended to incorporate Worthington
Industries website into this Annual Report on Form 10-K.) We make available,
free of charge, on or through our website, our annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to
those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (the Exchange Act), as soon as reasonably
practicable after we electronically file such material with, or furnish it to,
the Securities and Exchange Commission (the SEC).
We report our operations in three principal business segments: Processed
Steel Products, Metal Framing and Pressure Cylinders. The Processed Steel
Products segment includes The Worthington Steel Company business unit
(Worthington Steel) and The Gerstenslager Company business unit
(Gerstenslager). The Metal Framing segment is comprised of the Dietrich
Industries, Inc. business unit (Dietrich). The Pressure Cylinders segment
consists of the Worthington Cylinder Corporation business unit (Worthington
Cylinders). Worthington holds equity positions in eight joint ventures,
further identified below under the subheading
Joint
Ventures
. Two of our
joint ventures are consolidated into our consolidated financial statements
which are included in Item 8. Financial Statements and Supplementary Data.
During the fiscal year ended May 31, 2004 (fiscal 2004), our Processed Steel
Products, Metal Framing and Pressure Cylinders segments served over 1,200,
2,400 and 3,450 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. Our reportable
business segments offer different products and services to the same customer
base.
On May 27, 2004, we signed an agreement to sell our Decatur facility and
its cold-rolling assets to Nucor Corporation (Nucor) for $82.0 million cash
while retaining the slitting and cut-to-length assets and net working capital.
The transaction closed effective as of August 1, 2004. For further discussion
on this matter, see Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations.
Processed Steel Products
Our Processed Steel Products segment consists of two business units,
Worthington Steel and Gerstenslager. For fiscal 2004, the fiscal year ended
May 31, 2003 (fiscal 2003), and the fiscal year ended May 31, 2002 (fiscal
2002), the percentage of consolidated net sales generated by our Processed
Steel Products segment was 57.7%, 60.5% and 64.9%, 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 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. Gerstenslagers
strength is its ability to handle a large number of past model service and
current model production automotive and heavy-duty truck body parts.
1
Our Processed Steel Products segment operates 10 manufacturing facilities
throughout the United States and one consolidated joint venture, Spartan Steel
Coating, LLC (Spartan). 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, container and aerospace markets.
During fiscal 2004, no single customer represented greater than 10% of net
sales for the segment.
Worthington Steel buys coils of 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:
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 enhances Worthingtons participation 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 own the steel used in our Gerstenslager
operations but occasionally process consigned material, similar to toll
processing. Gerstenslager processes a large number of past model service and
current model production automotive and heavy-duty truck parts, managing over
3,000 finished good part numbers and over 25,000 die/fixture sets.
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.
Our technical service and support for material testing and customer specific
applications enhance the quality of our products. 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, suppliers, and 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 materials, transportation and shipping costs,
and overall economic conditions in the United States and abroad.
2
On May 27, 2004, we entered into an agreement to sell our Decatur,
Alabama, facility and its cold rolling assets to Nucor Corporation. This
transaction closed on August 1, 2004. For further discussion on this matter,
see Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operation.
We use our Worthington Steel and Gerstenslager trade names in our
Processed Steel Products segment, and we use the unregistered trademark
CleanCoat in connection with our dry lubrication process. We intend to
continue the use of our intellectual property. The CleanCoat trademark is
important to our Processed Steel Products segment, but 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 2004, fiscal 2003 and fiscal 2002, the percentage of
consolidated net sales generated by our Metal Framing segment was 27.8%, 24.3%
and 17.5%, 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® Floor Systems, Spazzer® bars,
Clinch-On® metal corner bead and trim and Ultra Span® trusses through our
unconsolidated joint venture, Aegis Metal Framing, LLC (Aegis).
Our Metal Framing segment has 27 operating facilities located throughout
the United States. We believe that Dietrich is the largest national supplier
of metal framing products and supplies, supplying approximately halfAssumed to
be a 1.25-1.3B market. of the metal framing products sold in the United States.
We have over 2,400 customers, primarily consisting of wholesale distributors,
commercial and residential
building contractors, and big box material retailers. During fiscal 2004, two
customers represented 26% of net sales for the segment, while no other customer
represented more than 4% of net sales for the segment.
The light gauge metal framing industry is very competitive. We compete
with 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. We have not quantified the
extent to which facility location has impacted our competitive position.
Dietrich uses the registered trademarks Spazzer®, TradeReady® and
Clinch-On®. The Spazzer® trademark is used in connection with wall
component products that are the subject of two United States patents, four
pending United States patent applications and several pending foreign patent
applications. The trademark TradeReady® is used in connection with floor
system products that are the subject of two United States patents, three
foreign patents, three pending United States patent applications and five
pending foreign patent applications. The Clinch-On® trademark is used in
connection with corner bead and metal trim products for gypsum wallboard that
are subject to United States patents. Aegis, an unconsolidated joint venture,
uses the Ultra-Span® registered trademark in connection with certain patents
for proprietary roof trusses. We intend to continue to use and renew each of
our registered trademarks. Dietrich also has a number of other patents and
trade names relating to specialized products. Although trademarks, trade names
and patents are important to our Metal Framing segment, none is considered
material.
Pressure Cylinders
Our Pressure Cylinders segment consists of one business unit, Worthington
Cylinders. For fiscal 2004, fiscal 2003, and fiscal 2002, the percentage of
consolidated net sales generated by Worthington Cylinders was 13.8%, 14.5% and
16.8%, respectively.
Worthington Cylinders operates six manufacturing facilities, three in Ohio
and one each in Austria, Canada and Portugal. The segment also operates one
consolidated joint venture, Worthington Cylinders a.s., in the Czech Republic.
3
Our Pressure Cylinders segment produces a diversified line of pressure
cylinders, including low-pressure liquefied petroleum gas (LPG) and
refrigerant gas cylinders, and high-pressure and industrial/specialty gas
cylinders. Our LPG cylinders are sold to manufacturers, distributors and/or
mass merchandisers and are used for gas barbecue grills, recreational vehicle
equipment, residential heating systems, industrial forklifts and
commercial/residential cooking (the latter, generally 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. High-pressure and industrial/specialty gas cylinders are
sold primarily to gas producers and distributors as containers for gases used
in: 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, air reservoirs for truck and trailer original equipment manufacturers,
and non-refillable cylinders for Balloon Time® helium kits. While a large
percentage of our cylinder sales are made to major accounts, Worthington
Cylinders has over 3,450 customers. During fiscal 2004, one customer
represented 9% of net sales for the segment, while no other single customer
represented more than 6% of net sales for the segment.
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 LPG capacities of 4-1/4 to 420 lbs. In the United
States and Canada, our high-pressure and low-pressure cylinders are
manufactured in accordance with U.S. Department of Transportation and Transport
Canada safety requirements, respectively. Outside the United States and
Canada, 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 piercing.
Worthington Cylinders has two principal domestic competitors and several
smaller foreign competitors in its major low-pressure cylinder markets; however
we believe that we have the largest domestic market share. In our
high-pressure cylinder market, we compete against two principal domestic
competitors and nine European competitors. We believe that we have the leading
market share of the European industrial gas cylinder market and the European
non-refillable refrigerant cylinder market. As with our other segments, we
compete on the basis of service, price and quality.
Our Pressure Cylinders segment uses the trade name Worthington Cylinders
to conduct business and the registered trademark Balloon Time® to market our
low-pressure helium balloon kits. We intend to continue to use and renew our
registered trademark. We also hold domestic and foreign patents applicable to
the non-refillable valve used for our refrigerant cylinders. This intellectual
property is important to our Pressure Cylinders segment, but is not considered
material.
Segment Financial Data
Financial information for our segments is provided 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 consolidated net sales. Summary information about our foreign operations
is set forth in Item 8. Financial Statements and Supplementary Data Notes
to Consolidated Financial Statements Note A Summary of Significant
Accounting Policies Risks and Uncertainties. For fiscal 2004 and fiscal
2003, we had operations in North America and Europe and prior years also
included operations in South America. Net sales by geographic region are
provided in Item 8. Financial Statements and Supplementary Data Notes to
Consolidated Financial Statements Note H Industry Segment Data.
4
Suppliers
In fiscal 2004, we purchased over 3.5 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 to meet our production
schedules. Our raw materials are purchased in the open market on a negotiated
spot market basis at prevailing market prices, we also enter into long-term
contracts, some of which have fixed pricing. During fiscal 2004, our major
suppliers of steel were, in alphabetical order: Gallatin Steel Company;
International Steel Group; Ispat Inland, Inc.; North Star BlueScope Steel LLC;
Nucor Corporation; Severstal North America, Inc.; US Steel Corporation; and WCI
Steel, Inc. Alcoa Inc. was our primary aluminum supplier for our Pressure
Cylinders segment in fiscal 2004. 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. These 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.
Additionally, technical service personnel design and engineer metal framing
structures and provide sealed shop drawings to the building construction
markets. 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, Transport Canada and other associated agencies,
along with International Organization for Standardization (ISO), and customer
requirements. All design work complies with current local and national
building code requirements. Our ICBO (International Conference of Building
Officials) accredited product-testing laboratory supports these design efforts.
Employees
As of May 31, 2004, we employed approximately 6,700 employees in our
operations, excluding unconsolidated joint ventures, approximately 11% 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 six unconsolidated joint ventures.
Consolidated
Unconsolidated
5
See Item 8. Financial Statements and Supplementary Data Notes to
Consolidated Financial Statements Note J Investments in Unconsolidated
Affiliates for further information about Worthingtons participation in
unconsolidated joint ventures.
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 cost of
compliance or capital expenditures for environmental control facilities
required to meet environmental requirements will be material when compared with
our overall costs and capital expenditures and, accordingly, will not have a
material effect on our net earnings or competitive position.
Item 2. Properties
General
In October 2003, we moved our principal corporate offices, as well as the
corporate offices for Worthington Cylinders and Worthington Steel, into a
leased three-story office building in Columbus, Ohio. The prior corporate
office space on Dearborn Drive now accommodates our Information Technology and
Training Departments. As of May 31, 2004, we owned or leased a total of
approximately 10,250,000 square feet of space for our operations, of which
approximately 9,700,000 square feet is devoted to manufacturing, product
distribution and sales offices. Our major leases contain renewal options for
periods of up to ten years. For information concerning our rental obligations,
see the discussion of contractual obligations under Item 7. Managements
Discussion and Analysis of Financial Conditions and Results of Operations
Contractual Cash Obligations and Other Commercial Commitments as well as Item
8. Financial Statements and Supplementary Data Notes to Consolidated
Financial Statements Note L Operating Leases. We believe that our
distribution and office facilities are well maintained, are suitable and
provide adequate space for our operations.
Excluding our unconsolidated joint ventures, we have 44 manufacturing
facilities and two warehouses. All of our facilities are well maintained and
in good operating condition, and we believe they are sufficient to meet our
current needs.
Processed Steel Products
The Processed Steel Products segment operates 10 manufacturing facilities,
all of which are owned. These facilities are located in Alabama, Indiana,
Kentucky, Maryland, Michigan and Ohio (5). This segment also
6
maintains a
warehouse in Columbus, Ohio. This segment also includes Spartan, our
consolidated joint venture in Michigan.
Metal Framing
The Metal Framing segment operates 27 facilities. These facilities are
located in Arizona (2), California (2), Colorado, Florida (4), Georgia (2),
Hawaii, Illinois, Indiana (3), Kansas, Maryland, Massachusetts, New Jersey,
Ohio (3), South Carolina, Texas (2) and Washington. Of these facilities, 13
are leased and 14 are owned. This segment also leases administrative offices
in Pittsburgh and Blairsville, Pennsylvania.
Pressure Cylinders
The Pressure Cylinders segment operates six fully-owned, manufacturing
facilities. These facilities are located in Ohio (3), Austria, Canada and
Portugal. This segment also operates an owned, consolidated joint venture
facility in the Czech Republic and leases a manufacturing facility in Portugal.
Joint Ventures
Our joint ventures operate 17 manufacturing facilities, including those
mentioned above. These facilities are located in Ohio, Indiana, Maryland,
Michigan (4), Missouri, Nevada, and Pennsylvania domestically, and in China,
the Czech Republic, France, Mexico (2), Spain and the United Kingdom. Ten of
these facilities are leased, and seven are owned, three of which are subject to
mortgages in favor of the joint ventures lender. See Item 1. Business
Joint Ventures.
Item 3. Legal Proceedings
Various legal actions, which generally have arisen 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
Registrants executive officers as of May 31, 2004:
John P. McConnell has served as Worthington Industries Chief Executive
Officer since June 1993, as a director of Worthington Industries continuously
since 1990 and as Chairman of the Board since September 1996.
John S. Christie has served as President, Chief Operating Officer and a
director of Worthington Industries continuously since June 1999. He became
interim Chief Financial Officer of Worthington Industries in September 2003 and
President and Chief Financial Officer in January 2004.
Dale T. Brinkman has served as Vice President-Administration and General
Counsel of Worthington Industries since 1998. He has also been Secretary of
Worthington Industries since 2000 and served as Assistant Secretary from 1982
to 2000.
Joe W. Harden has served as President, The Worthington Steel Company since
February 2003. From February 1999 through February 2003, Mr. Harden served as
President of Buckeye Steel Castings Company in Columbus, Ohio, which filed a
voluntary petition under the Federal Bankruptcy Act in December 2002.
Edmund L. Ponko, Jr. has served as President, Dietrich Industries, Inc.
since June 2001. From 1981 through June 2001, he served Dietrich Industries,
Inc. in various positions.
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 of The Worthington Steel Company. Prior to that
time, Mr. Roberts served Worthington Industries in various positions including
Vice President-Corporate Development and President of our WAVE joint venture.
George P. Stoe has served as President, Worthington Cylinder Corporation
since January 2003. Mr. Stoe served as President of Zinc Corporation of
America, the nations largest zinc producer, located in Monaca, Pennsylvania,
from November 2000 until December 2002. From April 1999 to November 2000, he
served as President of Wise Alloys, LLC, a rolling mill and cast house beverage
can recycling and coating operation.
Virgil L. Winland has served as Senior Vice President-Manufacturing of
Worthington Industries since January 2001. He has served in various positions
with Worthington Industries since 1971, including President of Worthington
Cylinder Corporation from June 1996 through January 2001.
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 Assistant Controller from March 1999 through
September 1999.
Randal I. Rombeiro has served as Treasurer of Worthington Industries since
November 2002 and as Assistant Treasurer from 1999 through November 2002.
Before joining Worthington Industries, Mr. Rombeiro served as Assistant
Treasurer with Mettler-Toledo International, Inc., a global supplier of
precision instruments and services, from 1998 to 1999.
Executive officers serve at the pleasure of the directors. There are no
family relationships among the Registrants 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.
PART II
Item 5. Market for Registrants Common Equity, Related Shareholder Matters
and Issuer Purchases of Equity Securities
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, 2004,
Worthington Industries had 8,718 registered shareholders. The following table
sets forth (i) the low, high and closing prices for Worthington Industries
common shares for each quarter of fiscal 2003 and fiscal 2004, and (ii) the
cash dividends per share paid on Worthington Industries common shares during
each quarter of fiscal 2003 and fiscal 2004.
Dividend Policy
Dividends are declared at the discretion of the Board of Directors.
Worthington Industries paid quarterly dividends of $0.16 per share in fiscal
2004. The Board of Directors reviews the dividend quarterly and establishes
the dividend rate based upon Worthingtons financial condition, results of
operations, capital requirements, current and projected cash flows, business
prospects and other factors which they may deem relevant. While Worthington
Industries has paid a dividend every quarter since becoming a public company in
1968, there is no guarantee that this will continue in the future.
9
Item 6. - Selected Financial Data
10
11
Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operations
Selected statements contained in this Item 7.
Managements 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 managements 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 the Safe Harbor Statement in the beginning of this Annual Report on Form
10-K.
Overview
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. Financial Statements and Supplementary Data.
Worthington Industries, Inc., together with its subsidiaries, is a
diversified metal processing company that focuses on value-added steel
processing and manufactured metal products. As of May 31, 2004, we operated 44
facilities worldwide, principally in three reportable business segments:
Processed Steel Products, Metal Framing and Pressure Cylinders. We also held
equity positions in eight joint ventures, which operated 17 facilities
worldwide as of May 31, 2004.
The results of our operations are mainly driven by two factors, demand and
spread. While increased volumes positively impacted operating income during
the fiscal year ended May 31, 2004 (fiscal 2004), spread, or the difference
between the cost of the raw material and the selling price of the finished
product, was the main reason for the improvement in the results this year
compared to the prior year, with most of the benefit occurring in the fourth
quarter. Generally, our operations are favorably impacted in a rising
steel-price environment (which typically occurs when demand is increasing), as
we are able to raise our selling prices due to the increased cost of steel
while lower-priced inventory on hand flows through cost of goods sold.
However, the opposite may occur when steel prices fall.
While pricing in the steel industry historically has been unpredictable,
the industry experienced unprecedented steel price increases during the second
half of fiscal 2004 for three main reasons. First, the Peoples Republic of
China experienced strong growth in steel production, which required more raw
materials. This contributed to U.S. shortages in the supply of steel scrap and
coke, two key materials used in the manufacture of steel. Thus, prices soared
for these commodities, in turn raising the cost of steel. Second, the weakened
U.S. dollar and higher transportation costs made foreign steel more expensive
than domestic steel, thereby reducing the supply of imports to the U.S.
Finally, the consolidation of the steel industry reduced the availability of
steel. Because of these conditions, obtaining steel was challenging, but our
long-term relationships with the mills were advantageous.
We strive to manage the peaks and valleys associated with rapid changes in
steel pricing by effectively controlling inventory. This has been a critical
focus for the last several years. With inventory levels consistently under 60
days during fiscal 2004, we reduced some of the benefit we might have realized
in the year. We intend to continue to manage our inventory to reduce the
negative impact from the downside of this cycle.
Our focus over the last several years has been to improve our return on
capital by investing in growth markets and products, consolidating facilities,
and divesting non-strategic assets or those that were not delivering
appropriate returns. Our plant consolidation plan, announced during January
2002, was substantially completed in fiscal 2004, and resulted in closed
facilities and approximately $12.0 million in annualized savings. We also
completed the integration of Unimast Incorporated (together with its
subsidiaries, Unimast), acquired in July 2002, into our Metal Framing
segment, which is expected to generate future savings.
On May 27, 2004, we signed an agreement to sell our Decatur, Alabama,
steel-processing facility and its cold-rolling assets to Nucor Corporation
(Nucor) for $82.0 million cash while retaining the slitting and cut-to-length
assets and net working capital associated with this facility. This transaction
closed effective as of August 1, 2004.
12
Equity income from our six unconsolidated joint ventures was up
significantly in fiscal 2004. All six joint ventures increased net income,
including record years for WAVE, TWB, Acerex and Aegis. Joint venture income
has been a consistent and significant contributor to our profitability.
Collectively, the unconsolidated joint ventures generated $604.2 million in
annual sales, which are not reflected in our consolidated sales. More
importantly, over the last three years, our aggregate annual return on the
investment in these joint ventures has averaged 36%. The joint ventures are
also a source of cash to us, with aggregate annual distributions averaging more
than $20.0 million over the same time period. Because of our success with
joint ventures, we are regularly looking for additional opportunities where we
can bring together complementary skill sets and minimize our risk and capital
requirements.
We formed our newest joint venture during fiscal 2004. On June 27, 2003,
Worthington Steel joined with Bainbridge Steel, LLC (Bainbridge), an
affiliate of Viking Industries LLC, a qualified minority business enterprise
(MBE), to create Viking & Worthington Steel Enterprise, LLC (VWS), an
unconsolidated joint venture in which Worthington Steel has a 49% interest and
Bainbridge has a 51% interest. VWS purchased substantially all of the
assets of Valley City Steel, LLC in Valley City, Ohio, for approximately $5.7
million. Bainbridge manages the operations of the joint venture, and
Worthington Steel provides assistance in operations, selling and marketing.
VWS operates as an MBE.
Results of Operations
Fiscal 2004 Compared to Fiscal 2003
Consolidated Operations
The following table presents our consolidated operating results for the
fiscal years indicated:
Net earnings increased $11.6 million to $86.8 million in fiscal 2004, from
$75.2 million for the year ended May 31, 2003 (fiscal 2003). Fiscal 2004
diluted earnings per share increased $0.13 to $1.00 per share from $0.87 per
share in fiscal 2003.
13
Net sales increased 7%, or $159.2 million, to $2,379.1 million in fiscal
2004 from $2,219.9 million in fiscal 2003. In the second half of fiscal 2004,
we raised our selling prices to meet the dramatic increase in steel prices.
This accounted for approximately 60% of the year-over-year increase in sales.
The remaining increase was primarily due to an increase in volumes in Metal
Framing caused by the acquisition of Unimast, which closed July 31, 2002, and
contributed two additional months of sales in fiscal 2004 compared to fiscal
2003.
Gross margin increased 24%, or $72.5 million, to $375.4 million in fiscal
2004 from $302.9 million in fiscal 2003. Favorable pricing accounted for $64.5
million of the increase with higher volumes contributing an additional $26.6
million. These increases were partially offset by an $18.6 million increase in
direct labor and manufacturing expenses due to higher profit sharing and the
addition of Unimast. Collectively, these factors increased gross margin as a
percentage of net sales to 15.8% in fiscal 2004 from 13.6% in fiscal 2003.
Selling, general and administrative (SG&A) expense remained a consistent
8.2% of net sales. In total, SG&A expense increased $13.1 million, to $195.8
million in fiscal 2004 from $182.7 million in fiscal 2003. This was mainly due
to a $6.3 million increase in profit sharing expense, which was up
significantly due to record earnings. In addition, the acquisition of Unimast,
an increase in bad debt expense and higher professional fees contributed to the
increase. The increase in bad debt expense is a result of higher receivables
balances, and the increase in professional fees is related to our
implementation of a new enterprise resource planning system. For more
information on the system implementation, see the discussion on capital
spending in the Liquidity and Capital Resources section.
Impairment charges and other for fiscal 2004 includes a $67.4 million
pre-tax charge in fiscal 2004 for the impairment of certain assets and other
related costs at the Decatur, Alabama, steel-processing facility and a $2.0
million pre-tax charge in fiscal 2004 for the impairment of certain assets
related to the European operations of Pressure Cylinders. In fiscal 2003, a
favorable adjustment of $5.6 million was made to the fiscal 2002 plant
consolidation restructuring charge. Refer to Item 8. Financial Statements
and Supplementary Data Notes to Consolidated Financial Statements Note N
Impairment Charges and Restructuring Expense for more information.
Miscellaneous expense decreased $5.6 million from fiscal 2003 due in part
to a $3.6 million gain from the settlement of a hedge position with the Enron
bankruptcy estate. In addition, lower usage of the accounts receivable
securitization facility during fiscal 2004 resulted in a $1.7 million reduction
in related fees.
A nonrecurring loss of $5.4 million was recognized in fiscal 2003 for
potential liabilities relating to certain workers compensation claims of
Buckeye Steel Castings Company (Buckeye Steel) for the period prior to its
sale by Worthington in fiscal 1999, when a Worthington guaranty was in place.
Interest expense decreased 10%, or $2.6 million, to $22.2 million in
fiscal 2004 from $24.8 million in fiscal 2003 due to lower average debt
balances and lower average interest rates.
Equity in net income of unconsolidated affiliates increased 37%, or $11.1
million, to $41.1 million in fiscal 2004 from $30.0 million in fiscal 2003.
The main reasons for the increase were higher net sales and margins at each of
our six unconsolidated affiliates. WAVE, TWB, Acerex and Aegis all had record
years.
Our effective tax rate was 31.9% for fiscal 2004. During fiscal 2004, a
$7.7 million credit was recorded to income tax expense, comprised of a $6.3
million credit for the favorable resolution of certain tax audits and a $1.4
million credit for an adjustment to deferred taxes. Excluding this $7.7
million credit, the effective tax rate was 38.0%. This increase from 36.5% in
fiscal 2003 was due to higher state and local tax rates and a change in our mix
of income.
14
Segment Operations
Processed Steel Products
Our Processed Steel Products segment represents approximately 60% of
consolidated net sales. Its results are significantly impacted by the
automotive industry, which accounts for approximately 60% of its net sales, and
the steel pricing environment. With the Big 3 automotive production volumes
down from fiscal 2003, our volumes have decreased as well. However, the
increased demand for steel in the latter part of fiscal 2004 led to higher
steel prices and an environment that enabled us to significantly improve the
spread between our selling prices and material costs, which resulted in a 14%
increase in our gross margin.
On May 27, 2004, we signed an agreement to sell our Decatur, Alabama,
steel-processing facility and its cold-rolling assets to Nucor for $82.0
million cash (the Decatur Sale Transaction). This transaction closed as of
August 1, 2004. The Decatur assets sold include the land and buildings, the
four-stand tandem cold mill, the temper mill, the pickle line and the annealing
furnaces. The sale excluded the slitting and cut-to-length assets and net
working capital. We will continue to serve customers requiring
steel-processing services in our core business of slitting and
cutting-to-length at the current site under a long-term building lease with
Nucor. Both companies are working closely to provide current customers a
seamless transition and uninterrupted supply. The repositioning of our efforts
to serve the growing southeastern market will now enable us to focus on our
core value-added processing strengths supported by a supply relationship with
Nucor, one of our countrys strongest steel producers.
As a result of the sale agreement, we recorded a $67.4 million pre-tax
charge during our fourth quarter ended May 31, 2004, primarily for the
impairment of assets at the Decatur facility. All but an estimated $0.8
million of the pre-tax charge was non-cash. An additional pre-tax charge,
estimated at $5.7 million, mainly relating to contract termination costs will
be recognized during the first quarter of fiscal 2005 ending August 31, 2004.
The following table presents a summary of operating results for the
Processed Steel Products segment for the fiscal years indicated:
Operating income decreased $63.0 million, to $18.0 million in fiscal 2004
from $81.0 million in fiscal 2003. The decline was due to the $67.4 million
impairment and other charge for the Decatur sale transaction recorded in fiscal
2004 versus the $8.7 million restructuring credit recorded in fiscal 2003.
Excluding the effect of the impairment charges and other line item from each
year, operating income increased $13.1 million, to $85.4 million in fiscal 2004
from $72.3 million in fiscal 2003. A $28.1 million favorable impact to
operating income resulted from an increase in the spread between selling prices
and material costs, as higher average selling prices were matched against
lower-cost inventory. This, however, was reduced by an $8.0 million increase
in SG&A expense, a $5.2 million increase in labor and manufacturing expenses
and a slight decrease in volume, primarily as a result of a drop in tolling
tons. SG&A expense as a percentage of net sales increased to 6.5% in fiscal
2004 from 6.0% in fiscal 2003, reflecting higher profit sharing and bonus
expense and an increase in bad debt expense. The $5.2 million increase in
labor and manufacturing expense is primarily due to increased profit sharing
expense.
15
Metal Framing
In fiscal 2004, our Metal Framing segment posted its best performance
ever. From August 2002 until the third quarter of fiscal 2004, we experienced
a depressed commercial construction market and deteriorating spreads between
average selling prices and material costs. In the first half of fiscal 2004,
we also incurred approximately $4.0 million of unanticipated integration costs
related to the Unimast acquisition, primarily for temporary labor and repairs
and maintenance of equipment and facilities. During the third quarter of
fiscal 2004, we began to realize synergies from the acquisition and, aided by
an improving economy, spreads widened and demand began to pick up. This trend
continued into the fourth quarter of fiscal 2004 as spreads improved
dramatically and volume continued to increase. Through the integration, we
were able to maintain the combined market shares of Dietrich and Unimast.
The following table presents a summary of operating results for the Metal
Framing segment for the fiscal years indicated:
Operating income increased $41.3 million, to a record $63.8 million in
fiscal 2004 from $22.5 million in fiscal 2003. A volume increase of 13%
included the impact of twelve months of Unimast activity in fiscal 2004
compared to only ten months during fiscal 2003, and was better than the 8%
improvement in the U.S. Census Bureaus index of office construction. Average
selling prices increased 9% and, as a result, net sales increased 23%, or
$122.6 million, to $662.0 million in fiscal 2004 from $539.4 million in fiscal
2003. Gross margin increased 54% to $133.8 million from $87.0 million in
fiscal 2003 mostly due to an increase in the spread between average selling
prices and material costs and the volume increase mentioned above. Gross
margin as a percentage of net sales increased to 20.2% in fiscal 2004 from
16.1% in fiscal 2003. Even though SG&A expense increased $7.1 million, it
decreased as a percentage of net sales to 10.6% in fiscal 2004 from 11.7% in
fiscal 2003 due to the significant increase in net sales. SG&A expense
increased primarily due to a $3.4 million increase in profit sharing and bonus
expense related to higher income and a $3.1 million increase in wages due
mainly to the Unimast acquisition. In addition, a $1.6 million restructuring
charge was recorded during the second quarter of fiscal 2003. The combined
impact of the factors discussed above was an increase in operating income as a
percentage of net sales to 9.6% in fiscal 2004 from 4.2% in fiscal 2003.
Pressure Cylinders
We consider the pressure cylinders market to be stable. While we have
seen reduced demand for certain liquefied petroleum gas (LPG) cylinders
during fiscal 2004 and 2003 due to the diminishing impact of the regulations
effective April 2002 requiring overfill prevention devices on these cylinders,
the impact has not been as significant as originally expected. Increases in
total North American unit sales, which represent approximately 80% of total
units sales, were offset by declines at our European facilities where the
strong Euro has made it unattractive for our customers to export their
products. We have had success in the European market with our high-pressure
and refrigerant cylinders, but we have struggled with LPG cylinder sales due to
overcapacity and declining demand. As a result, an impairment charge of $2.0
million on certain of our European LPG assets was recorded during the fourth
16
quarter of fiscal 2004. Despite the charge, this segment continues to provide
consistent and excellent profitability and returns on capital.
The following table presents a summary of operating results for the
Pressure Cylinders segment for the fiscal years indicated:
Operating income decreased 9%, or $2.9 million, to $29.4 million in fiscal
2004 from $32.3 million in fiscal 2003. Excluding the impairment charges and
other from each year, operating income decreased $2.3 million, to $31.4 million
in fiscal 2004 from $33.7 million in fiscal 2003. Net sales increased 2%, or
$6.9 million, to $328.7 million in fiscal 2004 from $321.8 million in fiscal
2003. This increase was primarily due to the benefit of a $12.0 million gain
related to the translation of European sales to U.S. dollars, partially offset
by a decline in the average selling price of steel portable and refrigerant
cylinders in North America. Higher unit sales in North America were offset by
lower unit sales in Europe. Gross margin was slightly lower than in fiscal
2003 because of higher labor and manufacturing expenses in Europe and lower
average selling prices in North America, partially offset by favorable
pricing in Europe. Operating income was minimally impacted by the
favorable exchange rate. The previously mentioned factors decreased operating
income as a percentage of net sales to 8.9% in fiscal 2004 from 10.0% in fiscal
2003.
17
Fiscal 2003 Compared to Fiscal 2002
Consolidated Operations
The following table presents our consolidated operating results for the
fiscal years indicated:
Net earnings increased $68.7 million to $75.2 million in fiscal 2003, from
$6.5 million in the year ended May 31, 2002 (fiscal 2002). Fiscal 2003
diluted earnings per share increased $0.79 per share to $0.87 per share from
diluted earnings per share of $0.08 in fiscal 2002. The increase in fiscal
2003 net earnings primarily was due to the inclusion of two significant charges
in fiscal 2002 results: a $64.6 million pre-tax restructuring expense and a
$21.2 million pre-tax charge related to the impairment of certain assets. See
below for a detailed description of these items.
On July 31, 2002, we acquired the stock of Unimast, a wholly-owned
subsidiary of WHX Corporation, for $114.7 million in cash (net of cash
acquired) and $9.3 million of assumed debt. Unimast manufactures construction
steel products, including light gauge steel framing, plastering steel and trim
accessories, and serves the construction industry. The results of Unimast have
been included in our Metal Framing segment since the acquisition date.
Net sales increased 27%, or $474.9 million, to $2,219.9 million in fiscal
2003 from $1,745.0 million in fiscal 2002. The increase primarily was due to
the addition of Unimast and higher average selling prices in Metal Framing
combined with higher average selling prices and volumes in Processed Steel
Products.
Gross margin increased 14%, or $38.1 million, to $302.9 million in fiscal
2003 from $264.8 million in fiscal 2002. Higher volumes, primarily in Metal
Framing due to the Unimast acquisition, contributed $94.2 million. However,
the improvement in gross margin was partially offset by an 8%, or $41.9
million, increase in conversion expenses. Furthermore, the net impact of
higher material costs in excess of higher average selling prices reduced gross
margin by $14.2 million. Together, these factors decreased gross margin as a
percentage of net sales to 13.6% in fiscal 2003 from 15.2% in fiscal 2002.
18
SG&A expense decreased as a percentage of net sales to 8.2% in fiscal 2003
from 9.5% in fiscal 2002. In total, SG&A expense increased 10%, or $16.8
million, to $182.7 million in fiscal 2003 from $165.9 million in fiscal 2002.
The main reason for the increase was the $14.7 million in additional SG&A
expenses due to the acquisition of Unimast. Most of this increase was
attributable to compensation and benefits costs. In addition, the prior year
results included the favorable impact of $3.7 million in legal
settlements. A $10.2 million decrease in bad debt expense partially offset the
overall increase.
During the third quarter ended February 28, 2002 (the third quarter) of
fiscal 2002, we recorded a $64.6 million pre-tax restructuring charge as a
result of the consolidation plan announced in January 2002. This plan included
the reduction of approximately 542 employees, the closing of six of our
facilities and the restructuring of two other facilities. The eight facilities
impacted by the consolidation plan affected each of our three business segments
- Processed Steel Products (4), Metal Framing (1) and Pressure Cylinders (3).
In our Processed Steel Products segment, we closed facilities located in
Malvern, Pennsylvania, and Jackson, Michigan, and we reduced overhead costs at
our facility in Louisville, Kentucky. We converted the Rock Hill, South
Carolina, facility into a Metal Framing facility serving both Metal Framing and
Processed Steel Products. The Metal Framing facility in Fredericksburg,
Virginia, was closed and its operations moved to Rock Hill. In our Pressure
Cylinders segment, we discontinued the operations of two partnerships in Itu,
Brazil, and we closed a production facility in Claremore, Oklahoma. See Item
8. Financial Statements and Supplementary Data Note N Impairment Charges
and Restructuring Expense for more information.
During the second quarter ended November 30, 2002 (the second quarter)
of fiscal 2003, we recorded a $5.6 million favorable pre-tax adjustment to the
original restructuring charge in fiscal 2002 mentioned above. This credit was
the result of higher-than-estimated proceeds from the sale of real estate at
our former facility in Malvern, Pennsylvania, and the net reduction of
previously established reserves, partially offset by estimated charges for the
announced closure of three additional facilities. See Item 8. Financial
Statements and Supplementary Data Note N Impairment Charges and
Restructuring Expense for more information.
As part of our sale of Buckeye Steel in the fiscal year ended May 31, 1999
(fiscal 1999), the acquirer assumed certain workers compensation liabilities
which arose while our workers compensation guarantee was in place. The
acquirer agreed to indemnify us against claims made on our guarantee related to
the assumed workers compensation claims. During the second quarter of fiscal
2003, economic conditions caused Buckeye Steel to cease operations and file for
bankruptcy thereby raising the issue of the acquirers ability to fulfill its
obligations. As a result, we recorded a $5.4 million reserve for the estimated
potential liability relating to these workers compensation claims.
During the third quarter of fiscal 2002, we also recorded a $21.2 million
pre-tax charge for the impairment of certain preferred stock and subordinated
debt that we received as partial payment from four acquirers when we sold the
assets of our Custom Products and Cast Products business segments during fiscal
1999. As economic conditions deteriorated, each of the issuers encountered
difficulty making scheduled payments under the terms of the preferred stock and
subordinated debt.
Interest expense increased 9%, or $2.1 million, to $24.8 million in fiscal
2003 from $22.7 million in fiscal 2002 due to higher average short-term debt
balances, partially offset by lower average interest rates.
Equity in net income of unconsolidated affiliates increased 30%, or $6.9
million, to $30.0 million in fiscal 2003 from $23.1 million in fiscal 2002.
The main reasons for the increase were higher net sales at each unconsolidated
affiliate and improved margins at WAVE, WSP and TWB. In addition, during
fiscal 2003, TWB acquired the ownership interests of Rouge Steel, LTV Steel and
Bethlehem Steel, thereby increasing our ownership interest from 33% to 50% and
resulting in an increase in equity in net income of unconsolidated affiliates
of $0.8 million.
Our effective tax rate of 36.5% in fiscal 2003 was unchanged from fiscal
2002.
19
Segment Operations
Processed Steel Products
The following table presents a summary of operating results for the fiscal
years indicated:
Operating income increased $67.4 million, to $81.0 million in fiscal 2003
from $13.6 million in fiscal 2002. Most of the improvement was due to the
$52.1 million restructuring expense included in fiscal 2002 results and the
$8.7 million restructuring credit recorded in the second quarter of fiscal
2003. In addition, SG&A expense as a percentage of net sales declined to 6.0%
in fiscal 2003 from 7.6% in fiscal 2002. This decrease of $5.7 million
primarily was due to the reduction of $5.5 million in bad debt expense.
However, despite higher net sales, the decline in the spread between selling
prices and material costs decreased gross margin as a percentage of net sales
to 11.4% in fiscal 2003 from 13.4% in fiscal 2002. Net sales rose 19%, or
$210.7 million, to $1,343.4 million in fiscal 2003 from $1,132.7 million in
fiscal 2002. Higher average selling prices, reflecting the rising cost of
steel, increased net sales by $124.0 million. Increased shipments to most
markets, particularly the automotive industry, contributed $86.7 million in
additional net sales. The net result of the factors mentioned above was an
increase in operating income as a percentage of net sales to 6.0% in fiscal
2003 from 1.2% in fiscal 2002.
Metal Framing
The following table presents a summary of operating results for the fiscal
years indicated:
20
Operating income increased 18%, or $3.4 million, to $22.5 million in
fiscal 2003 from $19.1 million in fiscal 2002 due to higher net sales. The
combined impact of increased volumes, attributable to the Unimast acquisition,
and higher average selling prices, which were instituted in response to rising
raw material costs, resulted in an increase in net sales of 76%, or $233.4
million, to $539.4 million in fiscal 2003 from $306.0 million in fiscal
2002. Excluding Unimast, volumes actually decreased due to a weak
commercial construction market. This volume decline, combined with the
aforementioned increase in raw material costs, decreased gross margin as a
percentage of net sales to 16.1% in fiscal 2003 from 19.5% in fiscal 2002.
SG&A expense decreased as a percentage of net sales to 11.7% in fiscal 2003
from 12.9% in fiscal 2002. Overall, SG&A expense increased primarily due to
the Unimast acquisition which added $14.7 million, comprised mainly of
compensation and benefits expenses. In addition, a $1.6 million restructuring
expense was recorded during the second quarter of fiscal 2003. These items
partially offset the overall improvement in operating income. The combined
impact of the factors discussed above was a decrease in operating income as a
percentage of net sales to 4.2% in fiscal 2003 from 6.3% in fiscal 2002.
Pressure Cylinders
The following table presents a summary of operating results for the fiscal
years indicated:
Operating income increased 193%, or $21.3 million, to $32.3 million in
fiscal 2003 from $11.0 million in fiscal 2002. The improvement primarily was
due to higher net sales and the $10.7 million restructuring expense in fiscal
2002, partially offset by the $1.4 million restructuring expense from the
second quarter of fiscal 2003. Net sales increased 10%, or $29.0 million, to
$321.8 million in fiscal 2003 from $292.8 million in fiscal 2002. Higher
European net sales, due to increased volumes and the strengthening of the Euro
against the U.S. dollar, contributed $24.6 million to the increase. Strong
domestic demand in fiscal 2003 for LPG cylinders increased net sales by $12.4
million and was driven by new regulations that required overfill prevention
devices in most states on certain sizes of LPG cylinders. These regulations
also positively impacted net sales upon their inception in the fourth quarter
of fiscal 2002. Gross margin as a percentage of net sales increased to 20.6%
in fiscal 2003 from 19.1% in fiscal 2002. Together, the previously mentioned
factors increased operating income as a percentage of net sales to 10.0% in
fiscal 2003 from 3.8% in fiscal 2002.
Liquidity and Capital Resources
In fiscal 2004, we generated $79.4 million in cash from operating
activities, representing a $101.3 million decrease from fiscal 2003. The
decrease primarily was due to an increase in net working capital partially
offset by higher net earnings.
Consolidated net working capital of $358.1 million at May 31, 2004
increased $170.0 million from May 31, 2003. The increase was due to a $179.9
million increase in receivables caused by higher selling prices and volumes.
Lower usage of the accounts receivable securitization facility also contributed
to the increase as usage of the facility declined to $60.0 million from $140.0
million at May 31, 2003. Additionally, inventory increased $94.1 million and
accounts payable increased $162.4 million. These increases were driven by the
higher volume of sales and significantly higher steel prices.
21
Our primary investing and financing activities during fiscal 2004 included
disbursing $55.2 million in dividends to shareholders and spending $29.6
million on capital projects. These transactions were funded by the cash flows
from our operations, $10.6 million in proceeds from the sale of common shares
in connection with stock option exercises and $5.6 million from the sale of
assets related to our restructuring efforts and the aforementioned sale of
certain Metal Framing assets.
Capital spending during fiscal 2004 included the following: $6.1 million
in our Processed Steel Products segment; $10.3 million in our Metal Framing
segment; $3.2 million in our Pressure Cylinders segment; and $10.0 million in
Other. In our Other category, $5.2 million of the $10.0 million in capital
spending was related to our new corporate headquarters. In addition, we spent
$3.9 million as we began implementing a new enterprise resource planning
(ERP) system. Over the three-year life of this ERP system implementation, we
expect to incrementally spend approximately $35.0 million, with $21.0 million
being capitalized and $14.0 million being charged to SG&A expense. For the
fiscal year ending May 31, 2005, we expect to spend approximately $10.0
million, of which $6.0 million will be capitalized. Our annual capital
spending, barring acquisitions, should remain at or below our annual
depreciation expense.
Our short-term liquidity needs are primarily served by a $190.0 million
short-term trade accounts receivable securitization (TARS) facility, $45.0
million in short-term uncommitted credit lines and a $435.0 million long-term
revolving credit facility, which matures in May 2007. The long-term revolving
credit facility serves as an informal committed backstop to the TARS facility
and uncommitted credit lines while also providing additional credit capacity
for general corporate purposes. Our decision to utilize the TARS facility and
uncommitted lines versus the long-term revolving credit facility is dependent
on the relative cost of capital obtained through each source.
The TARS facility has been in place since November 2000 and renews every
364 days. The next renewal will occur in November 2004. 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, consolidated, bankruptcy-remote subsidiary. 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.
Facility fees of $1.6 million and $3.3 million were incurred during fiscal 2004
and fiscal 2003, respectively, and were recorded as miscellaneous expense. The
book value of the retained portion of the pool of accounts receivable
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, 2004, a $60.0 million undivided interest in this pool had been sold, down
from $140.0 million at May 31, 2003.
During fiscal 2004, we increased our available short-term uncommitted
lines of credit from $30.0 million with two banks to $45.0 million with three
banks. The uncommitted lines of credit are extended to us on a discretionary
basis. Because the outstanding principal amounts can be reset and adjusted
daily, these lines typically provide us with the greatest amount of funding
flexibility compared to our other sources of short-term capital. These lines
supplement our short-term liquidity and allow us to reduce short-term borrowing
costs. At May 31, 2004, we had no borrowings outstanding under the uncommitted
lines of credit.
Our $435.0 million long-term revolving credit facility, provided by a
group of 15 banks, matures in May 2007. In July 2004, we amended this facility
to increase the borrowing limit and eliminate certain covenants. As a result
of the restructuring, the facility size was increased from $235.0 million to
$435.0 million with the same group of 15 banks. The increase in the facility
was necessitated by several factors including higher working capital needs,
capital expenditures related to our ERP implementation, and potential
acquisitions. In addition, the larger facility significantly enhances our
flexibility related to the upcoming long-term note maturity on May 15, 2006.
At May 31, 2004, we had no borrowings outstanding under the revolving credit
facility.
22
At May 31, 2004, our total debt was $288.4 million compared to $292.0
million at the end of fiscal 2003. Our debt to total capitalization ratio
improved to 29.9% at May 31, 2004, from 31.5% at the end of fiscal 2003 due to
higher net earnings in fiscal 2004.
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 borrowing capacity should be sufficient to fund
expected normal operating costs, dividends, working capital, and capital
expenditures for our existing businesses.
Contractual Cash Obligations and Other Commercial Commitments
The following table summarizes our contractual cash obligations as of May
31, 2004. Certain of these contractual obligations are reflected on our
consolidated balance sheet, while others are disclosed as future obligations
under accounting principles generally accepted in the United States.
The following table summarizes our other commercial commitments as of May
31, 2004. Certain of these commercial commitments are reflected on our
consolidated balance sheet, while others are disclosed as future obligations
under accounting principles generally accepted in the United States.
23
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.
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. We continually 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 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 reflect 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 since
these are the primary areas where financial information is subject to our
estimates, assumptions and judgment in the preparation of our consolidated
financial statements.
Receivables:
We review our receivables on a monthly basis to ensure they
are properly valued and collectible. This is accomplished through two
contra-receivable accounts: returns and allowances and allowance for doubtful
accounts. Returns and allowances is used to record estimates of returns or
other allowances resulting from quality, delivery, discounts or other issues
affecting the value of receivables. This account is estimated based on
historical trends and current market conditions, with the offset recorded to
net sales.
The allowance for doubtful accounts is used to record the estimated risk
of loss related to the customers ability to pay, including the risk associated
with our retained interest in the pool of receivables sold through our TARS
facility. This allowance is maintained at a level that we consider appropriate
based on factors that affect collectibility, such as the financial health of
the customer, historical trends of charge-offs and recoveries and current and
projected economic and market conditions. As we monitor our receivables, we
identify customers that may have a problem paying, and we adjust the allowance
accordingly, with the offset to SG&A expense.
The recent rise in steel prices and related increase in our receivables
has increased the risk of collectibility. We have evaluated this risk and have
made appropriate adjustments to these two allowance accounts. While we believe
these allowances are adequate, deterioration in economic conditions could
adversely impact our future earnings.
Impairment of Long-Lived Assets
: We review the carrying value of our
long-lived assets, including intangible assets, whenever events or changes in
circumstances indicate that the carrying value of an asset or a group of assets
may not be realizable. Accounting standards require an impairment charge to be
recognized in the financial statements if the carrying amount exceeds the
undiscounted cash flows that asset or group of assets would generate. The loss
recognized would be the difference between the fair value and the carrying
amount of the asset or group of assets.
24
Annually, we review goodwill for impairment using the present value
technique to determine the estimated fair value of 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 debt and equity
capital. Tax rates are maintained at current levels.
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. These derivatives
are based on 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:
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.
Stock-Based Compensation:
The possible treatment of employee stock
options and employee stock purchase plan shares as compensation expense and the
resulting proper valuation of such charges is currently a controversial issue.
If we elected, or were required, to record an expense for our stock-based
compensation plans using the fair value method, our results would be affected.
For example, in fiscal 2004, fiscal 2003 and fiscal 2002, had we accounted for
stock-based compensation plans using the fair value method prescribed in SFAS
No. 123 as amended by SFAS No. 148, basic earnings per share would have been
reduced by $0.02 per share in each year. Although we are not currently
required to record any compensation expense using the fair value method in
connection with option grants that have an exercise price at or above fair
market value at the grant date, it is possible that future laws or regulations
will require us to treat all stock-based compensation as an expense using the
fair value method. See Item 8. Financial Statements and Supplementary Data
Note A Summary of Significant Accounting Policies Stock-Based
Compensation and Item 8. Financial Statements and Supplementary Data Note
F Stock-Based Compensation for a more detailed presentation of accounting
for stock-based compensation plans.
Income Taxes:
In accordance with the provisions of SFAS No. 109,
Accounting for Income Taxes
, we account for income taxes using the asset and
liability method. The asset and liability method requires the recognition of
deferred tax assets and liabilities for expected future tax consequences of
temporary differences that currently exist between the tax bases and financial
reporting bases of our assets and liabilities. In assessing the realizability
of deferred tax assets, we consider whether it is more likely than not that
some or a portion of the deferred tax assets will not be realized. We provide
a valuation allowance for deferred income tax assets when, in our judgment,
based upon currently available information and other factors, it is more likely
than not that a portion of such deferred income tax assets will not be
realized. The determination of the need for a valuation allowance is based on
an on-going evaluation of current information including, among other things,
estimates of future earnings in different tax jurisdictions and the expected
timing of deferred income tax asset reversals. We believe that the
determination to record a valuation allowance to reduce deferred income tax
assets is a critical accounting estimate because it is based on an estimate of
future taxable income in the United States, which is susceptible to change and
may or may not occur, and because the impact of adjusting a valuation allowance
may be material.
We have a reserve for taxes that may become payable as a result of audits
in future periods with respect to previously filed tax returns included in
long-term liabilities. It is our policy to establish reserves for taxes that
may become payable in future years as a result of an examination by taxing
authorities. We established the reserves based upon our assessment of exposure
associated with permanent tax differences, tax credits and interest expense
applied to temporary difference adjustments. The tax reserves are analyzed
periodically, and adjustments are made as events occur to warrant adjustment to
the reserve.
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
25
different result. Other accounting policies also have a significant
effect on our consolidated financial statements, and some of these policies
require the use of estimates and assumptions. See Item 8. Financial
Statements and Supplementary Data Note A Summary of Significant Accounting
Policies for more information.
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
solely to mitigate market exposure and are not used for trading or speculative
purposes.
Interest Rate Risk
At May 31, 2004, 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 do 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. Such contracts limit our exposure to both
favorable and unfavorable currency fluctuations. At May 31, 2004, 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.
A sensitivity analysis of changes in the U.S. dollar on these foreign
currency-denominated contracts indicates that if the U.S. dollar uniformly
weakened by 10% against all of our currency exposures, the fair value of these
instruments would decrease by $3.8 million. Any resulting changes in fair
value would be offset by changes in the underlying hedged balance sheet
position. The sensitivity analysis assumes a parallel shift in foreign
currency exchange rates. The assumption that exchange rates change in parallel
may overstate the impact of changing exchange rates on assets and liabilities
denominated in a foreign currency.
Commodity Price Risk
We are exposed to market risk for price fluctuations on purchases of
steel, natural gas, zinc (see additional information below regarding natural
gas and zinc) and other raw materials and utility requirements. We attempt to
negotiate the best prices for our commodities and competitively price our
products and services to reflect the fluctuations in market prices for our
commodities.
We selectively use derivative financial instruments to manage our exposure
to fluctuations in the cost of our supply of natural gas and zinc. These
contracts cover periods commensurate with known or expected exposures through
2008. We do not hold any derivatives for trading purposes. No credit loss is
anticipated as the counterparties to these agreements are major financial
institutions with high credit ratings. The derivatives are classified as cash
flow hedges. The effective portions of the changes in the fair values of these
derivatives are recorded in other comprehensive income and are reclassified to
cost of goods sold in the period in which earnings are impacted by the hedged
items or in the period that the transaction no longer qualifies as a cash flow
hedge. There were no transactions that ceased to qualify as a cash flow hedge
in fiscal 2004.
Notional transaction amounts and fair values for our outstanding commodity
derivative positions as of May 31, 2004 and 2003, are summarized below. Fair
values of the derivatives do not consider the offsetting underlying hedged
item.
26
A sensitivity analysis of changes in the price of hedged commodities
indicates that a 10% decline in zinc prices would reduce the fair value of our
hedge position by $2.6 million. A similar 10% decline in natural gas prices
would reduce the fair value of our natural gas hedge position by $0.5 million.
Any resulting changes in fair value would be recorded as adjustments to other
comprehensive income.
27
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28
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
We have audited the accompanying consolidated balance sheets of Worthington
Industries, Inc. and subsidiaries as of May 31, 2004 and 2003, and the related
consolidated statements of earnings, shareholders equity, and cash flows for
each of the years in the three-year period ended May 31, 2004. In connection
with our audits of the consolidated financial statements, we also have audited
the financial statement schedule of valuation and qualifying accounts. These
consolidated financial statements and the financial statement schedule are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these consolidated financial statements and the financial statement
schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Worthington
Industries, Inc. and subsidiaries as of May 31, 2004 and 2003, and the results
of their operations and their cash flows for each of three years in the
three-year period ended May 31, 2004 in conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
Columbus, Ohio
29
WORTHINGTON INDUSTRIES, INC.
See notes to consolidated financial statements.
30
WORTHINGTON INDUSTRIES, INC.
See notes to consolidated financial statements.
31
WORTHINGTON INDUSTRIES, INC.
See notes to consolidated financial statements.
32
WORTHINGTON INDUSTRIES, INC.
See notes to consolidated financial statements.
33
WORTHINGTON INDUSTRIES, INC.
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, LLC (owned 52%) 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 income or expense. Investments in unconsolidated
affiliates are accounted for using the equity method. Significant intercompany
accounts and transactions are eliminated. Certain reclassifications were made
to prior year amounts to conform to the fiscal 2004 presentation.
During January 2003, the FASB issued Interpretation No. 46,
Consolidation
of Variable Interest Entities
(FIN 46). FIN 46 was intended to provide
guidance in determining whether consolidation is required under the
controlling financial interest model of Accounting Research Bulletin No. 51,
Consolidated Financial Statements
(ARB No. 51), or whether the variable
interest model under FIN 46 should be used to account for existing and new
entities. However, FIN 46 was confusing to many companies. Consequently,
during December 2003, the FASB released Interpretation No. 46 (revised December
2003),
Consolidation of Variable Interest Entities an interpretation of ARB
No. 51
(FIN 46R). FIN 46R clarifies certain provisions of FIN 46 and
provides certain entities with exemptions from the requirements of FIN 46.
Special provisions apply to companies that have fully or partially applied FIN
46 prior to issuance of FIN 46R. Otherwise, application of FIN 46R is required
in financial statements of public entities that have interests in variable
interest entities or potential variable interest entities commonly referred to
as special purpose entities for periods ending after December 15, 2003.
Application of FIN 46R for all other types of entities was required for periods
ending after March 15, 2004. Adoption of FIN 46R did not have an impact on the
Companys financial position or results of operations.
Use of Estimates:
The preparation of financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual results could
differ from those estimates.
Cash and Cash Equivalents:
The Company considers all highly liquid
investments purchased with a maturity of three months or less to be cash
equivalents.
Inventories:
Inventories are valued at the lower of cost or market. With
the exception of steel coil inventories, which are accounted for using the
specific identification method, cost is determined using the first-in,
first-out method or standard costing which approximates the first-in, first-out
method for all inventories.
Derivative Financial Instruments:
The Company does not engage in currency
or commodity speculation and generally enters into derivatives only to hedge
specific foreign currency or commodity transactions. Gains or losses from
these transactions offset gains or losses of the assets, liabilities or
transactions being hedged.
Fair Value of Financial Instruments:
The non-derivative financial
instruments included in the carrying amounts of cash and cash equivalents,
receivables, other assets and payables approximate fair values. The fair value
of long-term debt based upon quoted market prices was $326,547,000 and
$327,814,000 at May 31, 2004 and 2003, respectively.
Risks and Uncertainties
: As of May 31, 2004, the Company, including
unconsolidated affiliates, operated 61 production facilities in 22 states and
10 countries. The Companys largest markets are the automotive and automotive
supply markets, which comprise approximately one-third of the Companys sales.
Foreign operations and exports represent less than 10% of the Companys
production, net sales and net assets. Approximately 11% of the Companys
consolidated labor force is covered by collective bargaining agreements. Of
these labor contracts, 69% expire within one year from May 31, 2004. The
concentration of credit risks from financial instruments related
34
to the markets served by the Company is not expected to have a material
adverse effect on the Companys consolidated financial position, cash flows or
future results of operations.
Property and Depreciation:
Property, plant and equipment are carried at
cost and depreciated using the straight-line method. Depreciation expense was
$66,545,000 for the fiscal year ended May 31, 2004 (fiscal 2004), $67,828,000
for the fiscal year ended May 31, 2003 (fiscal 2003), and $68,734,000 for the
fiscal year ended May 31, 2002 (fiscal 2002). Accelerated depreciation
methods are used for income tax purposes.
Capitalized Interest:
The Company capitalizes interest in connection with
the construction of qualified assets. Under this policy, the Company
capitalized interest of $22,000 in fiscal 2004, $48,000 in fiscal 2003 and
$358,000 in fiscal 2002.
Stock-Based Compensation:
At May 31, 2004, the Company had stock option
plans for employees and non-employee directors which are described more fully
in Note F Stock-Based Compensation. The Company accounts for these plans
under the recognition and measurement principles of Accounting Principles Board
(APB) Opinion No. 25,
Accounting for Stock Issued to Employees,
and the
related interpretations. No stock-based employee compensation cost is
reflected in net earnings, as all options granted under the plans had an
exercise price equal to the market value of the underlying stock on the date of
the grant. Pro forma information regarding net earnings and earnings per share
is required by Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation
, as amended by SFAS No. 148,
Accounting
for Stock-Based Compensation Transition and Disclosure
. This information is
required to be determined as if the Company had accounted for its stock options
granted after December 31, 1994, under the fair value method prescribed by that
Statement. The weighted average fair value of stock options granted in fiscal
2004, fiscal 2003 and fiscal 2002 was $2.82, $2.71 and $2.89, respectively,
based on the Black-Scholes option-pricing model with the following weighted
average assumptions:
The following table illustrates the effect on net earnings and earnings
per share if the Company had accounted for the stock option plans under the
fair value method of accounting for the years ended May 31:
Revenue Recognition:
The Company recognizes revenue upon transfer of
title and risk of loss provided evidence of an arrangement exists, pricing is
fixed and determinable, and collectibility is probable. In circumstances where
the collection of payment is highly questionable at the time of shipment, the
Company defers recognition of
35
revenue until payment is collected. The Company provides for expected
returns based on experience and current customer activities.
During December 2003, the Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin (SAB) No. 104,
Revenue Recognition
, which
supercedes SAB No. 101
, Revenue Recognition in Financial Statements
. This
Bulletins primary purpose is to rescind accounting guidance contained in SAB
No. 101 related to multiple element revenue arrangements, superceded as a
result of the issuance of EITF 00-21,
Accounting for Revenue Arrangements with
Multiple Deliverables
. While the wording of SAB No. 104 has changed to reflect
the issuance of EITF 00-21, the revenue recognition principles of SAB No. 101
remain largely unchanged by the issuance of SAB No. 104. The issuance of this
Bulletin did not impact the Companys accounting policy for revenue
recognition.
Advertising Expense:
The Company expenses advertising costs as incurred.
Advertising expense was $3,024,000, $2,520,000 and $2,095,000 for fiscal 2004,
fiscal 2003 and fiscal 2002, respectively.
Environmental Costs:
Environmental costs are capitalized if the costs
extend the life of the property, increase its capacity, and/or mitigate or
prevent contamination from future operations. Costs related to environmental
contamination treatment and clean-up are charged to expense.
Statements of Cash Flows:
Supplemental cash flow information for the
years ended May 31 is as follows:
Nonrecurring Losses:
As part of the Companys sale of Buckeye Steel
Castings Company (Buckeye Steel) in the fiscal year ended May 31, 1999, the
acquirer assumed liability for certain workers compensation liabilities which
arose while the Companys workers compensation guarantee was in place. The
acquirer agreed to indemnify the Company against claims made on the guarantee
related to the assumed workers compensation claims. During the second quarter
of fiscal 2003, economic conditions caused Buckeye Steel to cease operations
and file for bankruptcy thereby raising the issue of the acquirers ability to
fulfill its obligations. As a result, the Company recorded a $5,400,000
reserve for the estimated potential liability relating to these workers
compensation claims.
During January 2002, the Company recognized a $21,223,000 loss for the
impairment of assets received in connection with the fiscal 1999 sale of
certain discontinued operations. During fiscal 1999, the Company sold all of
the assets of its Custom Products and Cast Products business segments for
aggregate proceeds of $194,000,000 in cash and $30,000,000 in preferred stock
and subordinated debt issued by four acquirers. As economic conditions
deteriorated, each of the issuers encountered difficulty making scheduled
payments under the terms of the preferred stock and subordinated debt.
Income Taxes:
In accordance with the provisions of SFAS No. 109,
Accounting for Income Taxes,
the Company accounts for income taxes using the
asset and liability method. The asset and liability method requires the
recognition of deferred tax assets and liabilities for expected future tax
consequences of temporary differences that currently exist between the tax
bases and financial reporting bases of the Companys assets and liabilities.
In assessing the realizability of deferred tax assets, the Company considers
whether it is more likely than not that some or a portion of the deferred tax
assets will not be realized. The Company provides a valuation allowance for
deferred income tax assets when it is more likely than not that a portion of
such deferred income tax assets will not be realized.
The Company has a reserve for taxes that may become payable as a result of
audits in future periods with respect to previously filed tax returns included
in long-term liabilities. It is the Companys policy to establish reserves for
taxes that may become payable in future years as a result of an examination by
taxing authorities. The Company establishes the reserves based upon
managements assessment of exposure associated with permanent tax
differences, tax credits, and interest expense applied to temporary
difference adjustments. The tax reserves are analyzed periodically, and
adjustments are made as events occur to warrant adjustment to the reserve.
36
NOTE B Shareholders Equity
Preferred Shares:
The Companys Amended Articles of Incorporation
authorize two classes of preferred shares and their relative voting rights.
The board of directors is empowered to determine the issue prices, dividend
rates, amounts payable upon liquidation, and other terms of the preferred
shares when issued. No preferred shares are issued or outstanding.
Comprehensive Income:
The components of other comprehensive income (loss)
and related tax effects for the years ended May 31 were as follows:
The components of cumulative other comprehensive loss, net of tax, at May
31 were as follows:
NOTE C Debt
Debt at May 31 is summarized as follows:
Short-term notes payable represent notes payable to banks. The weighted
average interest rate for all bank notes was 3.73% at May 31, 2004. As of May
31, 2004, the Company had a $235.0 million multi-year revolving
credit facility, provided by a group of 15 banks, which matures in May
2007. The Company pays commitment fees on the unused credit amount under the
facility. Interest rates on borrowings under the facility and related fees are
37
determined by the Companys senior unsecured long-term debt ratings as assigned
by Standard & Poors Ratings Services and Moodys Investors Service. There was
no outstanding balance under the facility at May 31, 2004 and 2003. The
covenants in the facility include, among others, maintenance of a debt-to-total
capitalization ratio of not more than 55% and maintenance of a debt-to-EBITDA
(Earnings Before Interest, Taxes, Depreciation and Amortization) ratio of not
more than 3.25 times through February 2005, declining to 3.00 times in May
2005. The Company was in compliance with all covenants under the facility at
May 31, 2004.
During July 2004, the Company amended the $235.0 million revolving credit
facility to increase its size to $435.0 million and eliminate certain
covenants. This facility is with the same group of 15 banks, matures in May
2007, and contains the same provisions mentioned above.
At May 31, 2004, the Companys Other debt represented debt from foreign
operations with a weighted average interest rate of 0.36%. At May 31, 2004,
the Company was not a party to any interest rate swap agreements or other
interest rate derivatives.
Principal payments due on long-term debt in the next five fiscal years and
the remaining years thereafter are as follows (in thousands):
NOTE D Income Taxes
Earnings before income taxes for the years ended May 31 include the following components:
38
Significant components of income tax expense for the years ended May 31
were as follows:
Tax benefits related to the exercise of stock options that were credited
to additional paid-in capital were $446,000, $489,000 and $384,000 for fiscal
2004, fiscal 2003 and fiscal 2002, respectively. Tax benefits (expenses)
related to foreign currency translation adjustments that were credited to other
comprehensive income were $0, $(2,214,000), and $(2,136,000) for fiscal 2004,
fiscal 2003 and fiscal 2002, respectively. The tax benefits (expenses) related
to minimum pension liability that were credited to other comprehensive income
were $(492,000) and $1,463,000 for fiscal 2004 and fiscal 2003, respectively.
Tax benefits (expenses) related to cash flow hedges that were credited to other
comprehensive income were $(2,628,000), $(253,000) and $495,000 for fiscal
2004, fiscal 2003 and fiscal 2002, respectively.
The reconciliation of the differences between the effective income tax
rate and the statutory federal income tax rate for the years ended May 31 is as
follows:
The Company has a reserve for taxes that may become payable as a result of
audits in future periods with respect to previously filed tax returns included
in long-term liabilities. It is the Companys policy to establish reserves for
taxes that may become payable in future years as a result of an examination by
taxing authorities. The Company establishes the reserves based upon
managements assessment of exposure associated with permanent tax differences,
tax credits and interest expense applied to temporary difference adjustments.
The tax reserves are analyzed periodically, and adjustments are made as events
occur to warrant adjustment to the reserve. The Company decreased the tax
reserve in the fourth quarter of fiscal 2004 as a result of favorable
resolution of certain tax audits, resulting in a $6,364,000 reduction in income
tax expense.
The Company adjusted deferred taxes in fiscal 2004, resulting in a
$1,361,000 reduction in income tax expense.
Undistributed earnings of the Companys foreign subsidiaries at May 31,
2004, are considered to be indefinitely reinvested. Accordingly, the
calculation of and provision for deferred taxes are not practicable. Upon
distribution of those earnings in the form of dividends or otherwise, the
earnings may become taxable.
39
The components of the Companys deferred tax assets and liabilities as
of May 31 were as follows:
The above amounts are classified in the consolidated balance sheets as of
May 31 as follows:
At May 31, 2004, the Company had tax benefits for federal net operating
loss carryforwards of $785,000 that expire from fiscal 2005 to fiscal 2018.
These net operating loss carryforwards are subject to utilization limitations.
At May 31, 2004, the Company had tax benefits for state net operating loss
carryforwards of $19,186,000 that expire from fiscal 2005 to fiscal 2019 and
state credit carryforwards of $3,060,000. At May 31, 2004, the Company had tax
benefits for foreign net operating loss carryforwards of $4,350,000 for income
tax purposes that expire from fiscal 2005 to fiscal 2011.
A valuation allowance of $21,127,000 has been recognized to offset the
deferred tax assets related to the net operating loss carryforwards. The
valuation allowance includes $785,000 for federal, $15,992,000 for state and
$4,350,000 for foreign. The majority of the state valuation allowance relates
to a corporation which owned the Decatur, Alabama, facility (see Note N
Impairment Charges and Restructuring Expense for more information). As a
result, the Company has determined that it is more likely than not that there
will not be sufficient taxable income in future years to utilize all of the net
operating loss carryforwards.
NOTE E Employee Pension Plans
During December 2003, the Financial Accounting Standards Board (FASB)
issued SFAS No. 132 (revised 2003),
Employers Disclosures about Pensions and
Other Postretirement Benefits an amendment of FASB Statements No. 87, 88, and
106
. This Statement revised disclosure requirements about pension plans and
other postretirement benefit plans. It did not change the measurement or
recognition of those plans required by SFAS No.
40
87,
Employers Accounting for
Pensions,
SFAS No. 88,
Employers Accounting for Settlements and Curtailments
of Defined Benefit Pension Plans and for Termination Benefits,
and SFAS No.
106,
Employers Accounting for Postretirement Benefits Other Than Pensions.
This Statement required additional disclosures about the assets,
obligations, cash flows and net periodic benefit cost of defined benefit
pension plans and other postretirement benefit plans. In addition, the various
elements of pension and other postretirement benefit costs must be disclosed on
a quarterly basis. The annual disclosure provisions of SFAS No. 132 (revised
2003) generally are effective for fiscal years ending after December 15, 2003,
while the interim disclosure provisions are effective for interim periods
beginning after December 15, 2003. The required annual disclosures are made
below and the required interim disclosures will be made starting with the
quarter ending August 31, 2004.
The Company provides pension benefits to employees through defined benefit
or deferred profit sharing plans. The defined benefit plan is a
non-contributory pension plan, which covers certain employees based on age and
length of service. Company contributions to this plan comply with ERISAs
minimum funding requirements. The remaining employees are covered by deferred
profit sharing plans to which employees may also contribute. Company
contributions to the deferred profit sharing plans are determined as a
percentage of the Companys pre-tax income before profit sharing. In addition,
the Company began matching employee contributions up to 2% of their pay
starting in January 2003. The Company has one defined benefit plan, The
Gerstenslager Company Bargaining Unit Employees Pension Plan.
As part of its consolidation plan announced in fiscal 2002, the Company
recognized in the restructuring charge actual and curtailment losses on plan
assets of $4,242,000 in fiscal 2002 and $3,135,000 in fiscal 2003. The loss
primarily resulted from the recognition of prior service costs of terminated
employees in the Malvern, the NRM Trucking and the Jackson defined benefit
plans. During 2003 and 2004, the Internal Revenue Service and the Pension
Benefit Guaranty Corporation approved The Notice of Intent to Terminate and
Freeze the Malvern, NRM Trucking and Jackson plans. Annuity contracts were
purchased in 2004 and 2003 to settle the liabilities under these plans. During
2004, the liabilities of the Malvern, NRM Trucking and Jackson plans were
settled through annuity purchases requiring additional employer contributions
of $5,991,000.
The following table summarizes the components of net periodic pension
cost, excluding the amounts recorded as part of the restructuring charge, for
the defined benefit and contribution plans for the years ended May 31:
41
The following actuarial assumptions were used for the Companys defined
benefit pension plans:
The expected long-term rate of return on the continuing plan in fiscal
2004 is based on the actual historical returns adjusted for a change in the
frequency of lump sum settlements upon retirement. The expected long-term rate
of return on the continuing plan for fiscal 2003 and fiscal 2002 was based on
historical returns.
The following tables provides a reconciliation of the changes in the
projected benefit obligation and fair value of plan assets and the funded
status during fiscal 2004 and fiscal 2003 as of the March 31 measurement date:
42
Plan assets for the continuing plan consist principally of the following
as of the March 31 measurement date:
Equity securities include no employer stock. The investment policies and
strategies for the continuing plan are as follows: The plans objectives are
long-term in nature and liquidity requirements are anticipated to be minimal
due to the projected normal retirement date of the average employee and the
current average age of participants. The plans objective is to earn nominal
returns, net of investment fees, equal to or in excess of the actuarial
assumption of the plan. The strategic asset allocation includes 60-80%
equities, including international, and 20-40% fixed income investments.
No contributions to the continuing plan are expected during fiscal 2005.
The following estimated future benefits, which reflect expected future service,
as appropriate, are expected to be paid:
NOTE F Stock-Based Compensation
Under its employee and non-employee director stock option plans, the
Company may grant incentive or non-qualified stock options to purchase common
shares at not less than 100% of market value at date of grant and non-qualified
stock options at a price determined by the Compensation and Stock Option
Committee. The exercise price of all stock options granted is set at 100% of
the market price on the date of grant. Generally, stock options vest and
become exercisable at the rate of 20% per year beginning one year from the date
of grant and expire ten years thereafter.
43
The following table summarizes the stock option plans activities for the
years ended May 31:
The following table summarizes information for stock options outstanding
and exercisable at May 31, 2004:
Under APB 25, the Company does not recognize compensation expense related
to stock options, as no stock options have been granted at a price below the
market price on the date of grant. See Note A Summary of Significant
Accounting Policies Stock-Based Compensation for pro forma disclosures
required by SFAS No. 148.
NOTE G Contingent Liabilities and Commitments
The Company is a defendant in certain legal actions. In the opinion of
management, the outcome of these actions, which is not clearly determinable at
the present time, would not significantly affect the Companys consolidated
financial position or future results of operations. The Company believes that
environmental issues will not have a material effect on capital expenditures,
consolidated financial position or future results of operations.
To secure access to facilities used to regenerate acid used in certain
steel processing locations, the Company has entered into unconditional purchase
obligations with a third party which require the Company to deliver certain
quantities of acid for processing annually through the year 2019. In addition,
the Company is required to pay for freight and utilities used in processing its
acid. The aggregate amount of required future payments at May 31, 2004, is as
follows (in thousands):
44
The Company may not terminate the unconditional purchase obligations
without assuming or otherwise repaying certain debt of the supplier which was
$14,630,000 at May 31, 2004.
At the closing of the sale of the Decatur facility on August 1, 2004, the
unconditional purchase obligation associated with Decatur was eliminated. The
estimated termination cost will be recorded in 1st quarter of fiscal 2005. See
Note N Impairment Charges and Restructuring Expense for more information.
NOTE H Industry Segment Data
The Companys operations include three reportable segments: Processed
Steel Products, Metal Framing and Pressure Cylinders. Factors used to identify
these segments include the products and services provided by each segment as
well as the management reporting structure used by the Company. A discussion
of each segment is outlined below.
Processed Steel Products
: This segment consists of two business units, The
Worthington Steel Company (Worthington Steel) and The Gerstenslager Company
(Gerstenslager). Both are intermediate processors of flat-rolled steel.
This segments processing capabilities include pickling, slitting, cold
reduction, hot-dipped galvanizing, hydrogen annealing, cutting-to-length,
tension leveling, edging, dry lubricating, configured blanking and stamping.
Worthington Steel sells to customers principally in the automotive,
construction, lawn and garden, hardware, furniture, office equipment,
electrical control, tubing, leisure and recreation, appliance, farm implement,
HVAC, container and aerospace markets. Gerstenslager supplies exposed body
panels and unexposed components for past model service and current model
production primarily to domestic and transplant automotive and heavy-duty truck
manufacturers in the United States.
Metal Framing
: This segment consists of one business unit, Dietrich
Industries, Inc. (Dietrich), which designs and produces metal framing
components and systems and related accessories for the commercial and
residential construction markets in the United States. Dietrichs customers
primarily consist of wholesale distributors, commercial and residential
contractors, and big box building material retailers.
Pressure Cylinders
: This segment consists of one business unit,
Worthington Cylinder Corporation (Worthington Cylinders). Worthington
Cylinders produces a diversified line of pressure cylinders, including
low-pressure liquefied petroleum gas (LPG) cylinders, refrigerant gas
cylinders, high-pressure and industrial/specialty gas cylinders. The LPG
cylinders are used for gas barbecue grills, recreational vehicle equipment,
residential heating systems, industrial forklifts and commercial/residential
cooking (the latter, generally outside North America). Refrigerant cylinders
are used to hold refrigerant gases for commercial and residential air
conditioning and refrigeration systems and for automotive air conditioning
systems. High-pressure and industrial/specialty gas cylinders are containers
for gases used in the following: 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, air reservoirs for truck and
trailer manufacturers, and non-refillable cylinders for Balloon Time® helium
kits.
The accounting policies of the operating segments are described in Note A
Summary of Significant Accounting Policies. The Company evaluates segment
performance based on operating income. Inter-segment sales are not material.
45
Summarized financial information for the Companys reportable segments as
of, and for, the years ended May 31 is shown in the following table. The
Other category includes corporate related items, results of immaterial
operations, and income and expense not allocable to the reportable segments.
46
Net sales by geographic region for the Companys reportable segments for
the years ended May 31 are shown in the following table:
NOTE I Related Party Transactions
The Company purchases from and sells to affiliated companies certain raw
materials and services at prevailing market prices. Net sales to affiliated
companies for fiscal 2004, fiscal 2003 and fiscal 2002 totaled $18,960,000,
$12,534,000 and $25,321,000, respectively. Accounts receivable related to
these transactions were $2,901,000 and $1,697,000 at May 31, 2004 and 2003,
respectively. Accounts payable to affiliated companies were $18,000 and
$2,168,000 at May 31, 2004 and 2003, respectively.
NOTE J Investments in Unconsolidated Affiliates
The Companys investments in affiliated companies, which are not
majority-owned or not controlled, are accounted for using the equity method.
These equity investments and the percentage interest owned consist of
Worthington Armstrong Venture (50%), TWB Company, LLC (50%), Acerex, S.A. de
C.V. (50%), Worthington Specialty Processing (50%), Aegis Metal Framing, LLC
(60%), and Viking & Worthington Steel Enterprise, LLC (VWS) (49%). On June
27, 2003, Worthington Steel joined with Bainbridge Steel, LLC (Bainbridge),
an affiliate of Viking Industries, LLC, a qualified minority business
enterprise (MBE), to form Viking & Worthington Steel Enterprise, LLC, an
unconsolidated joint venture in which Worthington Steel has a 49% interest and
Bainbridge has a 51% interest. VWS purchased substantially all of the assets
of Valley City Steel, LLC in Valley City, Ohio, for approximately $5,700,000.
Bainbridge manages the operations of the joint venture, and Worthington Steel
provides assistance in operations, selling and marketing. The parties operate
VWS as an MBE.
During fiscal 2003, TWB acquired the ownership interests of the minority
partners, thereby increasing the Companys ownership interest from 33% to 50%
and resulting in an increase to shareholders equity of $2,450,000 (net of
deferred taxes of $1,492,000).
The Company received distributions from unconsolidated affiliates totaling
$12,152,000 and $41,107,000 in fiscal 2004 and fiscal 2003, respectively.
47
Financial information for affiliated companies accounted for using the
equity method as of, and for, the years ended May 31 was as follows:
The Companys share of undistributed earnings of unconsolidated affiliates
was $35,643,000 at May 31, 2004.
NOTE K Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share for the years ended May 31:
Stock options covering 854,935, 2,211,600 and 1,298,094 common shares for
fiscal 2004, fiscal 2003 and fiscal 2002 have been excluded from the
computation of diluted earnings per share because the effect would have been
antidilutive for those periods.
48
NOTE L Operating Leases
The Company leases certain property and equipment from third parties under
non-cancelable operating lease agreements. Rent expense under operating leases
was $6,221,000 in fiscal 2004, $9,377,000 in fiscal 2003 and $7,732,000 in
fiscal 2002. Future minimum lease payments for non-cancelable operating leases
having an initial or remaining term in excess of one year at May 31, 2004, are
as follows (in thousands):
NOTE M Sale of Accounts Receivable
The Company and certain of its subsidiaries maintain a $190,000,000
revolving trade receivables securitization facility. Pursuant to the terms of
the facility, these subsidiaries sell their accounts receivable, on a revolving
basis, to Worthington Receivables Corporation (WRC), a wholly-owned,
consolidated, bankruptcy-remote subsidiary. In turn, WRC sells, on a revolving
basis, up to $190,000,000 undivided ownership interests in this pool of
accounts receivable to independent third parties. The Company retains an
undivided interest in this pool and is 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, the Company believes additional risk of loss is minimal. Also
because of these exclusions, no discount occurs on the sale, and no gain or
loss is recorded. Facility fees of $1,641,000 and $3,292,000 were incurred
during fiscal 2004 and fiscal 2003, respectively, and were recorded as
miscellaneous expense. The book value of the retained portion of the pool of
accounts receivable approximates fair value. The Company continues to service
the accounts receivable. No servicing asset or liability has been recognized,
as the Companys cost to service the accounts receivable is expected to
approximate the servicing income.
As of May 31, 2004, a $60,000,000 undivided interest in this pool of
accounts receivable had been sold. The proceeds from the sale were reflected
as a reduction of accounts receivable on the consolidated balance sheets and as
operating cash flows in the consolidated statements of cash flows. The sale
proceeds were used to pay down short-term debt.
NOTE N Impairment Charges and Restructuring Expense
On May 27, 2004, the Company signed an agreement to sell its Decatur,
Alabama, steel-processing facility and its cold rolling assets to Nucor
Corporation (Nucor) for $82,000,000 cash. The sale excludes the slitting and
cut-to-length assets and net working capital. After the sale, the Company will
remain in a portion of the current facility under a long-term lease from Nucor
and will continue to serve customers requiring steel processing services in its
core business of slitting and cutting-to-length. The transaction closed as of
August 1, 2004. As a result of the sale agreement, the Company recorded a
$67,400,000 pre-tax charge during its fourth quarter ended May 31, 2004. The
charge included $66,642,000 for the impairment of assets at the Decatur
facility and $758,000 for severance and employee related costs. The severance
and employee related costs were due to the elimination of 40 administrative,
production and other employee positions. The assets to be sold were classified
as assets held for sale at May 31, 2004, at their selling price. The after-tax
impact of this charge was $41,788,000 or $0.48 per diluted share. An
additional pre-tax charge, estimated at $5,749,000, mainly relating to contract
termination costs will be recognized during the first quarter of fiscal 2005
ending August 31, 2004.
Also during the fourth quarter ended May 31, 2004, the Company took an
impairment charge of $1,998,000 on certain of its European LPG assets. The
after-tax impact of this charge was $1,239,000 or $0.01 per diluted share. The
European market has been difficult for more than just currency reasons. The
Company has had success in high-
49
pressure and refrigerant cylinders, but the LPG market is challenged by
overcapacity and declining demand. The impairment was recorded as a write-down
of original cost to fair market value with future depreciation expense to be
based on this value.
During the quarter ended February 28, 2002, the Company announced a
consolidation plan that affected each of the Companys business segments and
resulted in the closure of six facilities and the restructuring of two others.
As a result, the Company recorded a $64,575,000 pre-tax restructuring expense,
which included a write-down to estimated fair value of certain property and
equipment, severance and employee related costs, and other items. The
severance and employee related costs were due to the elimination of
approximately 542 administrative, production and other employee positions. As
of May 31, 2004, 499 employees had been terminated, 43 others had either
retired or left through normal attrition, and the Company had paid severance of
$7,047,000. All six of the facilities to be closed have been closed, and their
related assets have been transferred, sold or are being marketed. The
restructuring of the other two facilities is complete.
During the quarter ended November 30, 2002, the Company recorded a
favorable pre-tax adjustment of $5,622,000 to the restructuring charge
mentioned above. This credit was the result of higher-than-estimated proceeds
from the sale of real estate at the Companys former facility in Malvern,
Pennsylvania, and the net reduction of previously established reserves,
partially offset by estimated charges for the announced closure of three
additional facilities discussed below.
The components of this adjustment are as follows:
The closure of three additional facilities was announced during the
quarter ended November 30, 2002. Two facilities from the Metal Framing segment
and one from the Pressure Cylinders segment were affected. The Metal Framing
facilities in East Brunswick, New Jersey, and Atlanta, Georgia, were considered
redundant following the July 31, 2002, acquisition of Unimast. The Pressure
Cylinders facility, located in Citronelle, Alabama, produced acetylene
cylinders. The production of these cylinders has been partially transferred to
another plant and partially outsourced. The closure of these three facilities
resulted in an additional $2,980,000 pre-tax restructuring charge. The
restructuring charge included a write-down to estimated fair value of certain
equipment, property related costs, severance and employee related costs and
other items. The severance and employee related costs are due to the estimated
elimination of 69 administrative, production and other employee positions. As
of May 31, 2004, 69 employees had been terminated and severance of $604,000 had
been paid.
The progression of the restructuring charge is summarized as follows:
Sales that were historically generated by the closed plants were
transferred to other Company facilities except for the sales from the Itu,
Brazil, facility and sales related to the painted and coated products at the
Malvern,
50
Pennsylvania, facility. Net sales not transferred were $0, $9,090,000
and $42,363,000 for fiscal 2004, fiscal 2003 and fiscal 2002, respectively.
The related operating loss for these products was $105,000, $659,000 and
$5,314,000 for fiscal 2004, fiscal 2003 and fiscal 2002, respectively.
NOTE O Goodwill
The Company adopted SFAS No. 141,
Business Combinations
, and SFAS No. 142,
Goodwill and Other Intangible Assets
, effective June 2001. SFAS No. 141
requires the use of the purchase method of accounting for any business
combinations initiated after June 30, 2002, and further clarifies the criteria
to recognize intangible assets separately from goodwill. Under SFAS No. 142,
Goodwill and Other Intangible Assets
, goodwill and indefinite-lived intangible
assets are no longer amortized but are reviewed for impairment. The annual
impairment test was performed during the fourth quarters of fiscal 2004 and
fiscal 2003, and no goodwill was written off as a result.
Goodwill by segment is summarized as follows at May 31:
The change in Metal Framing goodwill relates to the Unimast acquisition.
The change in Pressure Cylinders goodwill is due to foreign currency
translation adjustments.
Note P Guarantees and Warranties
During the quarter ended February 28, 2003, the Company adopted the
provisions of FASB Interpretation No. 45,
Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others
(FIN 45). FIN 45 requires the Company to recognize the fair value of
guarantee and indemnification arrangements issued or modified by the Company
after December 31, 2002, if these arrangements are within the scope of the
Interpretation. As of May 31, 2004, the Company had not issued or modified any
of its guarantee or indemnification arrangements since December 31, 2002. In
addition, consistent with previously existing generally accepted accounting
principles, the Company continues to monitor its guarantees and
indemnifications to identify whether it is probable that a loss has occurred
and would recognize any such loss when estimable.
The Company has established reserves for anticipated sales returns and
allowances including limited warranties on certain products. The liability for
sales returns and allowances is primarily based on historical experience and
current information. The liability amounts related to warranties were
immaterial at May 31, 2004 and 2003.
See Note A Summary of Significant Accounting Policies Nonrecurring
Losses for additional information on the Companys nonrecurring loss related
to guarantees.
Note Q Acquisition
On July 31, 2002, the Company acquired all of the outstanding stock of
Unimast Incorporated (together with its subsidiaries, Unimast) for
$114,703,000 in cash (net of cash acquired) plus the assumption of $9,254,000
of debt. Unimast manufactures construction steel products, including light
gauge steel framing, plastering steel and trim accessories, and serves the
construction industry. The acquisition increased capacity for the Companys
existing products, expanded the Companys product line to include Unimasts
complementary products and introduced new products to the Metal Framing
segment, including metal corner bead and trim and vinyl construction
accessories. The acquisition was accounted for using the purchase method, with
results for Unimast included since the purchase date.
51
The purchase price was allocated to the acquired assets and assumed
liabilities based on their estimated fair values at the date of acquisition.
Goodwill is defined as the excess of the purchase price over the fair value
allocated to the net assets.
The purchase price was allocated as follows:
Intangibles include patents and trademarks that are being amortized
generally over 10 years.
The following pro forma data summarizes the results of operations of the
Company for fiscal 2003 and fiscal 2002 assuming Unimast had been acquired at
the beginning of each period presented. In preparing the pro forma data,
adjustments have been made to conform Unimasts accounting policies to those of
the Company and to reflect purchase accounting adjustments and interest
expense:
The pro forma information does not purport to be indicative of the results
of operations that actually would have been obtained if the acquisition had
occurred on the dates indicated or the results of operations that will be
reported in the future.
52
NOTE R Quarterly Results of Operations (Unaudited)
The following is a summary of the unaudited quarterly results of
operations for the years ended May 31:
Results for the second quarter of fiscal 2004 ended November 30, 2003,
include a credit to income tax expense of $1,361,000 ($0.01 per diluted share)
from an adjustment to deferred taxes.
Results for the fourth quarter of fiscal 2004 ended May 31, 2004, include
a pre-tax restructuring charge in the aggregate amount of $69,398,000 ($0.49
per diluted share, net of tax) related to impairment of certain assets and
other related costs at the Decatur, Alabama, steel-processing facility and
certain assets related to the European operations of the Pressure Cylinders
segment. This quarter also included a credit of $6,364,000 ($0.07 per diluted
share) to income tax expense for the favorable resolution of certain tax
audits.
Results for the second quarter of fiscal 2003 ended November 30, 2002,
include a pre-tax restructuring credit of $5,622,000 ($0.04 per diluted share,
net of tax) and a pre-tax charge related to the estimated potential liability
relating to certain workers compensation claims of $5,400,000 ($0.04 per
diluted share, net of tax).
53
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
Note A Miscellaneous amounts.
54
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
In Item 4. Changes in Registrants Certifying Accountant of the
Current Report on Form 8-K filed by the Worthington Industries, Inc. Deferred
Profit Sharing Plan on June 9, 2004, as amended by a Current Report on Form
8-K/A filed on June 22, 2004, the change in the independent auditors of the
Worthington Industries, Inc. Deferred Profit Sharing Plan was reported.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The management of the Registrant, with the participation of the
Registrants principal executive officer and principal financial officer,
performed an evaluation of the effectiveness of the Registrants disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934) as of the end of the period covered by this Annual Report
on Form 10-K. Based on that evaluation, the Registrants principal executive
officer and principal financial officer have concluded that such disclosure
controls and procedures were effective as of the end of the period covered by
this Annual Report on Form 10-K to ensure that material information relating to
the Registrant and its consolidated subsidiaries is made known to them,
particularly during the period for which periodic reports of the Registrant,
including this Annual Report on Form 10-K, are being prepared.
Changes in Internal Control Over Financial Reporting
There were no changes which occurred during the Registrants fourth fiscal
quarter of the period covered by this Annual Report on Form 10-K in the
Registrants internal control over financial reporting (as defined in Rule
13a-15 (f) under the Securities Exchange Act of 1934) that have materially
affected, or are reasonably likely to materially affect, the Registrants
internal control over financial reporting.
Part III
Item 10. Directors and Executive Officers of the Registrant
In accordance with General Instruction G(3) of Form 10-K, the information
regarding directors required by Item 401 of Regulation S-K is incorporated
herein by reference from the material which will be included under the heading
PROPOSAL 1: ELECTION OF DIRECTORS in the Registrants Proxy Statement for
the September 30, 2004, Annual Meeting of Shareholders (the Proxy Statement).
The information regarding executive officers required by Item 401 of
Regulation S-K is included in Part I of this Form 10-K under the heading
Supplemental Item. Executive Officers of the Registrant. The information
required by Item 405 of Regulation S-K is incorporated herein by reference from
the material which will be included under the heading SECTION 16(a) BENEFICIAL
OWNERSHIP REPORTING COMPLIANCE in the Registrants Proxy Statement.
Information concerning the Registrants Audit Committee and the
determination by the Registrants Board of Directors that at least one member
of the Audit Committee qualifies as an audit committee financial expert is
incorporated herein by reference from the information which will be included
under the headings PROPOSAL 1: ELECTION OF DIRECTORS Committees and Meetings
of the Board Committees of the Board and PROPOSAL 1: ELECTION OF DIRECTORS
- Committees and Meetings of the Board Audit Committee in the Registrants
Proxy Statement. Information concerning the nomination process for director
candidates is incorporated herein by reference from the information which will
be included under the headings PROPOSAL 1: ELECTION OF DIRECTORS Committees
and Meetings of the Board Nominating and Governance Committee and PROPOSAL
1: ELECTION OF DIRECTORS Nominating Procedures in the Registrants Proxy
Statement.
The Registrants Board of Directors has adopted Charters for each of the
Audit Committee, the Compensation and Stock Option Committee, the Executive
Committee and the Nominating and Governance Committee as well as Corporate
Governance Guidelines as contemplated by the applicable sections of the New
York Stock Exchange Listed Company Manual.
55
In accordance with the requirements of Section 303A(10) of the New York
Stock Exchange Listed Company Manual, the Board of Directors of the Registrant
has adopted a Code of Conduct covering the directors, officers and employees of
the Registrant, including the Registrants Chairman of the Board and Chief
Executive Officer (the principal executive officer), the Registrants President
and Chief Financial Officer (the principal financial officer) and the
Registrants Controller (the principal accounting officer). The Registrant
intends to disclose the following on the Corporate Governance page of its
website located at www.worthingtonindustries.com within the time period
following their occurrence as required by the applicable rules of the SEC and
the requirements of Section 303A(10) of the New York Stock Exchange Listed
Company Manual: (A) the nature of any amendment to a provision of the
Registrants Code of Conduct that (i) applies to the Registrants principal
executive officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions, (ii) relates to any
element of the code of ethics definition enumerated in Item 406(b) of SEC
Regulation S-K, and (iii) is not a technical, administrative or other
non-substantive amendment; and (B) a description of any waiver (including the
nature of the waiver, the name of the person to whom the waiver was granted and
the date of the waiver), including an implicit waiver, from a provision of the
Code of Conduct granted to the Registrants principal executive officer,
principal financial officer, principal accounting officer or controller, or
persons performing similar functions, that relates to one or more of the items
set forth in Item 406(b) of SEC Regulation S-K.
The text of each of the Charter of the Audit Committee, the Charter of the
Compensation and Stock Option Committee, the Charter of the Executive
Committee, the Charter of the Nominating and Governance Committee, the
Corporate Governance Guidelines and the Code of Conduct is posted on the
Corporate Governance page of the Registrants website located at
www.worthingtonindustries.com. Interested persons may also obtain copies of
each of these documents, without charge, by writing to the Vice
President-Administration, General Counsel and Secretary of the Registrant at
Worthington Industries, Inc., 200 Old Wilson Bridge Road, Columbus, Ohio 43085,
Attention: Dale T. Brinkman. In addition, a copy of the Code of Conduct is
being filed as Exhibit 14 to this Annual Report on Form 10-K.
Item 11. Executive Compensation
In accordance with General Instruction G(3) of Form 10-K, the information
required by this Item 11 is incorporated herein by reference from the material
which will be contained in the Proxy Statement under the headings PROPOSAL 1:
ELECTION OF DIRECTORS Compensation of Directors and EXECUTIVE
COMPENSATION. Such incorporation by reference shall not be deemed to
specifically incorporate by reference the information referred to in Item
402(a)(8) of Regulation S-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Shareholder Matters
In accordance with General Instruction G(3) of Form 10-K, the information
required by this Item 12 with respect to the security ownership of certain
beneficial owners and management is incorporated herein by reference from the
material which will be contained in the Proxy Statement under the heading
CERTAIN BENEFICIAL OWNERSHIP OF COMMON SHARES. The information required by
this Item 12 with respect to securities authorized for issuance under equity
compensation plans is incorporated herein by reference from the material
contained in the Proxy Statement under the heading EXECUTIVE COMPENSATION
Equity Compensation Plan Information.
Item 13. Certain Relationships and Related Transactions
In accordance with General Instruction G(3) of Form 10-K, the information
required by this Item 13 is incorporated herein by reference to the information
for John H. McConnell and John P. McConnell which will be contained under the
heading CERTAIN BENEFICIAL OWNERSHIP OF COMMON SHARES in the Proxy Statement
and by reference to the material set forth under the caption TRANSACTIONS WITH
CERTAIN RELATED PARTIES in the Proxy Statement.
56
Item 14.
Principal Accountant Fees and Services
In accordance with General Instruction G(3) of Form 10-K, the information
required by this Item 14 is incorporated herein by reference from the
information which will be contained in the Proxy Statement under the headings
AUDIT COMMITTEE MATTERS Fees of Independent Auditors and AUDIT COMMITTEE
MATTERS Pre-Approval of Services Performed by Independent Auditors.
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
On March 17, 2004, Worthington Industries, Inc. furnished
information to the Securities and Exchange Commission on a Current Report
on Form 8-K dated March 17, 2004, reporting under Item 12. Results of
Operations and Financial Conditions, that on March 17, 2004, Worthington
Industries, Inc. issued a press release announcing results for its fiscal
third quarter ended February 29, 2004.
On May 27, 2004, Worthington Industries, Inc. issued a press release
announcing an agreement to sell its Decatur, Alabama, cold rolling assets
to Nucor Corporation, with closing expected to occur within sixty days,
after receiving the necessary approvals from government agencies. The
press release also included certain information concerning items expected
to impact the Registrants operating results for the fourth fiscal
quarter ending May 31, 2004. Information concerning the press release
was furnished to the Securities and Exchange Commission on a Current
Report on Form 8-K dated May 27, 2004, under Item 9. Regulation FD
Disclosure and Item 12. Results of Operations and Financial
Condition.
57
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
*The undersigned, by signing his name hereto, does hereby sign this report on
behalf of each of the above-identified directors of the Registrant pursuant to
powers of attorney executed by such directors.
58
INDEX TO EXHIBITS
E-1
Table of Contents
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;
cold reduction, which achieves close tolerances of thickness and temper by rolling;
hot-dipped galvanizing, which coats steel with zinc and zinc alloys through a hot-dipped process;
hydrogen annealing, a thermal process that changes the hardness and certain metallurgical characteristics of steel;
cutting-to-length, which cuts flattened steel to exact lengths;
tension leveling, a method of applying pressure to achieve precise flatness tolerances for steel;
edging, which conditions the edges of the steel by imparting round, smooth or knurled edges;
CleanCoat, a dry lubrication process; and
configured blanking, by which steel is stamped into specific shapes.
Table of Contents
Table of Contents
Table of Contents
Spartan Steel Coating, LLC, a 52%-owned consolidated joint venture
with Severstal North America, Inc., operates a cold-rolled, hot-dipped
galvanizing facility in Monroe, Michigan.
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.
Acerex, S.A. de C.V. (Acerex), a 50%-owned joint venture with Hylsa
S.A. de C.V., operates a steel processing facility 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.
Table of Contents
TWB Company, LLC (TWB), a 50%-owned joint venture with ThyssenKrupp
Steel North America, Inc., produces laser welded blanks for use in the
automotive industry for products such as inner-door panels. TWB
operates facilities in Monroe, Michigan; Columbus, Indiana; and
Saltillo, Mexico.
Worthington Armstrong Venture (WAVE), a 50%-owned joint venture
with Armstrong World Industries, Inc., 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 (WSP), a 50%-owned general
partnership with U.S. Steel Corporation (U.S. Steel) in Jackson,
Michigan, operates primarily as a toll processor for U.S. Steel.
Viking & Worthington Steel Enterprise, LLC (VWS), a 49%-owned joint
venture with Bainbridge Steel, LLC (Bainbridge), an affiliate of
Viking Industries, LLC, operates a steel processing facility in Valley
City, Ohio, and is a qualified minority business enterprise.
Table of Contents
Table of Contents
Present Office
Name
Age
Position(s) with the Registrant
Held Since
50
Chairman of the Board and Chief Executive Officer
1996
54
President and Chief Financial Officer
2004
51
Vice President-Administration, General Counsel
and Secretary
2000
54
President, The Worthington Steel Company
2003
46
President, Dietrich Industries, Inc.
2001
57
Senior Vice President-Marketing
2001
58
President, Worthington Cylinder Corporation
2003
56
Senior Vice President-Manufacturing
2001
46
Controller
2000
36
Treasurer
2002
Table of Contents
Market Price
Cash
Low
High
Closing
Dividends
$
14.43
$
18.45
$
17.75
$
0.16
$
16.80
$
19.88
$
17.62
$
0.16
$
13.45
$
18.00
$
13.78
$
0.16
$
11.93
$
14.93
$
14.93
$
0.16
$
13.39
$
16.23
$
15.10
$
0.16
$
12.47
$
15.35
$
14.32
$
0.16
$
14.59
$
18.10
$
17.33
$
0.16
$
17.00
$
19.37
$
19.14
$
0.16
Table of Contents
Year ended May 31,
In thousands, except per share
2004
2003
2002
2001
2000
$
2,379,104
$
2,219,891
$
1,744,961
$
1,826,100
$
1,962,606
2,003,734
1,916,990
1,480,184
1,581,178
1,629,455
375,370
302,901
264,777
244,922
333,151
195,785
182,692
165,885
173,264
163,662
69,398
(5,622
)
64,575
6,474
110,187
125,831
34,317
65,184
169,489
(1,589
)
(7,240
)
(3,224
)
(928
)
2,653
(5,400
)
(21,223
)
(8,553
)
(22,198
)
(24,766
)
(22,740
)
(33,449
)
(39,779
)
41,064
29,973
23,110
25,201
26,832
127,464
118,398
10,240
56,008
150,642
40,712
43,215
3,738
20,443
56,491
86,752
75,183
6,502
35,565
94,151
$
86,752
$
75,183
$
6,502
$
35,565
$
94,151
$
1.00
$
0.87
$
0.08
$
0.42
$
1.06
$
1.00
$
0.87
$
0.08
$
0.42
$
1.06
$
67,302
$
69,419
$
68,887
$
70,582
$
70,997
30,088
139,673
60,100
64,943
72,649
55,312
54,938
54,677
54,762
53,391
$
0.64
$
0.64
$
0.64
$
0.64
$
0.61
86,950
86,537
85,929
85,623
88,598
$
833,110
$
506,246
$
490,340
$
449,719
$
624,229
475,060
318,171
339,351
306,619
433,270
$
358,050
$
188,075
$
150,989
$
143,100
$
190,959
$
555,394
$
743,044
$
766,596
$
836,749
$
862,512
1,643,139
1,478,069
1,457,314
1,475,862
1,673,873
289,768
292,028
295,613
324,750
525,072
680,374
636,294
606,256
649,665
673,354
$
7.83
$
7.40
$
7.09
$
7.61
$
7.85
86,856
85,949
85,512
85,375
85,755
Table of Contents
Year ended May 31,
In thousands, except per share
1999
1998
1997
1996
1995
1994
$
1,763,072
$
1,624,449
$
1,428,346
$
1,126,492
$
1,125,495
$
996,329
1,468,886
1,371,841
1,221,078
948,505
942,672
840,639
294,186
252,608
207,268
177,987
182,823
155,690
147,990
117,101
96,252
78,852
67,657
57,696
146,196
135,507
111,016
99,135
115,166
97,994
5,210
1,396
906
1,013
648
955
(43,126
)
(25,577
)
(18,427
)
(8,687
)
(6,673
)
(3,460
)
24,471
19,316
13,959
28,710
37,395
18,091
132,751
130,642
107,454
120,171
146,536
113,580
49,118
48,338
40,844
46,130
55,190
42,678
83,633
82,304
66,610
74,041
91,346
70,902
(20,885
)
17,337
26,708
26,932
31,783
17,996
18,771
(7,836
)
$
54,912
$
118,412
$
93,318
$
100,973
$
123,129
$
88,898
$
0.90
$
0.85
$
0.69
$
0.76
$
0.94
$
0.73
(0.23
)
0.18
0.27
0.28
0.33
0.19
0.19
(0.08
)
$
0.59
$
1.22
$
0.96
$
1.04
$
1.27
$
0.92
$
64,087
$
41,602
$
34,150
$
26,931
$
23,741
$
23,716
132,458
297,516
287,658
275,052
55,876
23,513
52,343
51,271
45,965
40,872
37,212
33,161
$
0.57
$
0.53
$
0.49
$
0.45
$
0.41
$
0.37
93,106
96,949
96,841
96,822
96,789
96,508
$
624,255
$
642,995
$
594,128
$
505,104
$
474,853
$
435,465
427,725
410,031
246,794
167,585
191,672
171,991
$
196,530
$
232,964
$
347,334
$
337,519
$
283,181
$
263,474
$
871,347
$
933,158
$
691,027
$
544,052
$
358,579
$
323,649
1,686,951
1,842,342
1,561,186
1,282,424
964,299
837,707
493,313
501,950
417,883
317,997
108,916
73,306
689,649
780,273
715,518
667,318
608,142
525,137
$
7.67
$
8.07
$
7.40
$
6.91
$
6.30
$
5.46
89,949
96,657
96,711
96,505
96,515
96,236
Table of Contents
Table of Contents
2004
2003
% of
%
% of
In millions, except per share
Actual
Net Sales
Change
Actual
Net Sales
$
2,379.1
100.0
%
7
%
$
2,219.9
100.0
%
2,003.7
84.2
%
5
%
1,917.0
86.4
%
375.4
15.8
%
24
%
302.9
13.6
%
195.8
8.2
%
7
%
182.7
8.2
%
69.4
3.0
%
(5.6
)
-0.3
%
110.2
4.6
%
-12
%
125.8
5.7
%
(1.6
)
(7.2
)
(5.4
)
(22.2
)
-0.9
%
-10
%
(24.8
)
-1.1
%
41.1
1.7
%
37
%
30.0
1.4
%
127.5
5.4
%
8
%
118.4
5.3
%
40.7
1.8
%
-6
%
43.2
1.9
%
$
86.8
3.6
%
15
%
$
75.2
3.4
%
86.9
86.5
$
1.00
15
%
$
0.87
Table of Contents
Table of Contents
2004
2003
% of
%
% of
Dollars in millions, tons in thousands
Actual
Net Sales
Change
Actual
Net Sales
$
1,373.1
100.0
%
2
%
$
1,343.4
100.0
%
1,199.0
87.3
%
1
%
1,190.4
88.6
%
174.1
12.7
%
14
%
153.0
11.4
%
88.7
6.5
%
10
%
80.7
6.0
%
67.4
4.9
%
(8.7
)
-0.6
%
$
18.0
1.3
%
-78
%
$
81.0
6.0
%
3,806
-2
%
3,890
$
893.7
65.1
%
1
%
$
883.5
65.8
%
Table of Contents
2004
2003
% of
%
% of
Dollars in millions, tons in thousands
Actual
Net Sales
Change
Actual
Net Sales
$
662.0
100.0
%
23
%
$
539.4
100.0
%
528.2
79.8
%
17
%
452.4
83.9
%
133.8
20.2
%
54
%
87.0
16.1
%
70.0
10.6
%
11
%
62.9
11.7
%
1.6
0.2
%
$
63.8
9.6
%
183
%
$
22.5
4.2
%
781
13
%
694
$
364.6
55.1
%
16
%
$
315.5
58.5
%
Table of Contents
2004
2003
% of
%
% of
Dollars in millions, units in thousands
Actual
Net Sales
Change
Actual
Net Sales
$
328.7
100.0
%
2
%
$
321.8
100.0
%
262.6
79.9
%
3
%
255.4
79.4
%
66.1
20.1
%
0
%
66.4
20.6
%
34.7
10.6
%
6
%
32.7
10.2
%
2.0
0.6
%
1.4
0.4
%
$
29.4
8.9
%
-9
%
$
32.3
10.0
%
14,670
-4
%
15,235
$
142.6
43.4
%
0
%
$
142.0
44.1
%
Table of Contents
2003
2002
% of
%
% of
In millions, except per share
Actual
Net Sales
Change
Actual
Net Sales
$
2,219.9
100.0
%
27
%
$
1,745.0
100.0
%
1,917.0
86.4
%
30
%
1,480.2
84.8
%
302.9
13.6
%
14
%
264.8
15.2
%
182.7
8.2
%
10
%
165.9
9.5
%
(5.6
)
-0.3
%
64.6
3.7
%
125.8
5.7
%
267
%
34.3
2.0
%
(7.2
)
(3.3
)
(5.4
)
(21.2
)
(24.8
)
-1.1
%
9
%
(22.7
)
-1.3
%
30.0
1.4
%
30
%
23.1
1.3
%
118.4
5.3
%
1056
%
10.2
0.6
%
43.2
1.9
%
1056
%
3.7
0.2
%
$
75.2
3.4
%
1056
%
$
6.5
0.4
%
86.5
85.9
$
0.87
1048
%
$
0.08
Table of Contents
Table of Contents
2003
2002
% of
%
% of
Dollars in millions, tons in thousands
Actual
Net Sales
Change
Actual
Net Sales
$
1,343.4
100.0
%
19
%
$
1,132.7
100.0
%
1,190.4
88.6
%
21
%
980.6
86.6
%
153.0
11.4
%
1
%
152.1
13.4
%
80.7
6.0
%
-7
%
86.4
7.6
%
(8.7
)
-0.6
%
52.1
4.6
%
$
81.0
6.0
%
495
%
$
13.6
1.2
%
3,890
4
%
3,727
$
883.5
65.8
%
34
%
$
658.8
58.2
%
2003
2002
% of
%
% of
Dollars in millions, tons in thousands
Actual
Net Sales
Change
Actual
Net Sales
$
539.4
100.0
%
76
%
$
306.0
100.0
%
452.4
83.9
%
84
%
246.5
80.5
%
87.0
16.1
%
46
%
59.5
19.5
%
62.9
11.7
%
59
%
39.5
12.9
%
1.6
0.2
%
0.9
0.3
%
$
22.5
4.2
%
18
%
$
19.1
6.3
%
694
30
%
532
$
315.5
58.5
%
105
%
$
153.8
50.3
%
Table of Contents
2003
2002
% of
%
% of
Dollars in millions, units in thousands
Actual
Net Sales
Change
Actual
Net Sales
$
321.8
100.0
%
10
%
$
292.8
100.0
%
255.4
79.4
%
8
%
236.9
80.9
%
66.4
20.6
%
19
%
55.9
19.1
%
32.7
10.2
%
-5
%
34.2
11.7
%
1.4
0.4
%
10.7
3.6
%
$
32.3
10.0
%
193
%
$
11.0
3.8
%
15,235
7
%
14,280
$
142.0
44.1
%
9
%
$
130.9
44.7
%
Table of Contents
Table of Contents
Payments Due by Period
Less Than
1 - 3
4 - 5
After
In millions
Total
1 Year
Years
Years
5 Years
$
289.8
$
1.4
$
143.4
$
145.0
$
49.5
8.6
12.3
10.5
18.1
35.5
2.4
4.7
4.7
23.7
$
374.8
$
12.4
$
160.4
$
160.2
$
41.8
Table of Contents
Table of Contents
Table of Contents
Table of Contents
2004
2003
Change
Notional
Fair
Notional
Fair
In
In millions
Amount
Value
Amount
Value
Fair Value
$
21.2
$
5.0
$
28.5
$
(0.8
)
$
5.8
4.1
1.4
1.4
Table of Contents
Table of Contents
Worthington Industries, Inc.
/s/ KPMG LLP
KPMG LLP
June 18, 2004, except as to Note C paragraph 3, which is as of July 22, 2004
Table of Contents
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
May 31,
2004
2003
$
1,977
$
1,139
348,833
169,967
185,426
116,112
97,007
77,975
80,473
74,896
362,906
268,983
11,304
95,571
5,307
3,963
20,783
19,861
28,762
833,110
506,246
109,040
81,221
117,769
116,781
27,826
30,777
20,456
22,731
222,258
258,241
768,160
937,116
6,452
3,061
1,017,326
1,221,149
461,932
478,105
555,394
743,044
$
1,643,139
$
1,478,069
$
313,909
$
222,987
1,145
56,080
40,438
13,899
13,752
38,469
38,655
51,357
1,346
1,194
475,060
318,171
53,091
50,039
288,422
289,689
104,216
143,444
41,975
40,432
131,255
121,390
(2,393
)
(5,168
)
551,512
520,072
680,374
636,294
$
1,643,139
$
1,478,069
Table of Contents
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands)
Fiscal Years Ended May 31,
2004
2003
2002
$
2,379,104
$
2,219,891
$
1,744,961
2,003,734
1,916,990
1,480,184
375,370
302,901
264,777
195,785
182,692
165,885
69,398
(5,622
)
64,575
110,187
125,831
34,317
(1,589
)
(7,240
)
(3,224
)
(5,400
)
(21,223
)
(22,198
)
(24,766
)
(22,740
)
41,064
29,973
23,110
127,464
118,398
10,240
40,712
43,215
3,738
$
86,752
$
75,183
$
6,502
86,312
85,785
85,408
$
1.01
$
0.88
$
0.08
86,950
86,537
85,929
$
1.00
$
0.87
$
0.08
Table of Contents
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(Dollars in thousands, except per share)
Cumulative
Other
Common Stock
Additional
Paid- in
Comprehensive
Loss, Net of
Retained
Shares
Amount
Capital
Tax
Earnings
Total
85,375,425
$
$
109,685
$
(8,024
)
$
548,004
$
649,665
6,502
6,502
(45
)
(45
)
3,967
3,967
(32
)
(32
)
(921
)
(921
)
9,471
136,800
1,799
1,799
(54,677
)
(54,677
)
(2
)
(2
)
85,512,225
111,484
(5,055
)
499,827
606,256
75,183
75,183
(115
)
(115
)
2,909
2,909
(3,400
)
(3,400
)
493
493
75,070
436,411
5,964
5,964
(54,938
)
(54,938
)
3,942
3,942
85,948,636
121,390
(5,168
)
520,072
636,294
86,752
86,752
94
94
(1,747
)
(1,747
)
1,015
1,015
3,413
3,413
89,527
907,006
11,357
11,357
(1,492
)
(1,492
)
(55,312
)
(55,312
)
86,855,642
$
$
131,255
$
(2,393
)
$
551,512
$
680,374
Table of Contents
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Fiscal Years Ended May 31,
2004
2003
2002
$
86,752
$
75,183
$
6,502
67,302
69,419
68,887
69,398
(5,622
)
64,575
(22,508
)
16,411
(16,721
)
5,400
21,223
(28,912
)
11,134
(8,929
)
4,733
4,283
(332
)
(3,127
)
1,227
1,002
(175,290
)
60,012
(32,276
)
(94,073
)
(13,675
)
7,556
12,841
(1,815
)
(6,521
)
90
(1,886
)
1,171
162,383
(49,507
)
24,946
(222
)
10,157
4,174
79,367
180,721
135,257
(29,599
)
(24,970
)
(39,100
)
(114,703
)
(490
)
(21,000
)
5,662
27,814
10,459
(24,427
)
(111,859
)
(49,641
)
(1,145
)
(7,340
)
(8,513
)
735
(1,234
)
(6,883
)
(20,872
)
10,644
5,419
1,628
(7,200
)
(5,281
)
(2,902
)
(55,167
)
(54,869
)
(54,655
)
(54,102
)
(68,219
)
(85,314
)
838
643
302
1,139
496
194
$
1,977
$
1,139
$
496
Table of Contents
Fiscal Years Ended May 31, 2004, 2003, and 2002
Table of Contents
2004
2003
2002
4.04
%
4.01
%
4.55
%
26.00
%
25.00
%
23.00
%
3.88
%
2.63
%
4.38
%
6.2
6.5
5.0
In thousands, except per share
2004
2003
2002
$
86,752
$
75,183
$
6,502
1,328
1,475
1,430
$
85,424
$
73,708
$
5,072
$
1.01
$
0.88
$
0.08
0.99
0.86
0.06
1.00
0.87
0.08
0.98
0.86
0.06
Table of Contents
In thousands
2004
2003
2002
$
21,889
$
25,027
$
23,485
4,749
37,909
14,371
Table of Contents
In thousands
2004
2003
$
$
1,145
142,409
142,409
145,000
145,000
2,359
3,474
289,768
292,028
1,346
2,339
$
288,422
$
289,689
Table of Contents
In thousands
2004
2003
2002
$
119,658
$
107,948
$
13,108
7,806
10,450
(2,868
)
$
127,464
$
118,398
$
10,240
Table of Contents
Table of Contents
In thousands
2004
2003
$
3,963
$
20,783
104,216
143,444
$
100,253
$
122,661
Table of Contents
Table of Contents
2004
2003
2002
5.37
%
7.00
%
1.00
%
7.75
%
5.75
%
6.00
%
6.00
%
7.00
%
7.00
%
7.00
%
9.00
%
9.00
%
n/a
n/a
n/a
Table of Contents
In thousands
$
43
87
139
169
252
2,244
Table of Contents
Outstanding
Exercisable
Weighted
Weighted
Average
Weighted
Average
Remaining
Average
Exercise
Contractual
Exercise
In thousands, except per share
Number
Price
Life
Number
Price
2,742
$
11.26
5.7
1,994
$
11.76
2,653
16.55
5.9
1,206
18.17
Table of Contents
Table of Contents
Table of Contents
Table of Contents
In thousands
2004
2003
2002
$
246,844
$
173,195
$
151,655
141,450
145,446
156,730
143,750
70,044
66,160
35,727
94,239
54,672
604,243
484,078
420,222
133,218
96,880
81,913
79,625
60,816
47,457
In thousands, except per share
2004
2003
2002
$
86,752
$
75,183
$
6,502
86,312
85,785
85,408
638
752
521
86,950
86,537
85,929
$
1.01
$
0.88
$
0.08
1.00
0.87
0.08
Table of Contents
$
8,638
6,536
5,801
5,643
4,826
18,061
$
49,506
Table of Contents
In thousands
$
(4,965
)
(3,637
)
2,980
$
(5,622
)
Table of Contents
In thousands
2004
2003
$
95,361
$
95,001
22,408
21,780
$
117,769
$
116,781
Table of Contents
In thousands, except per share
2003
2002
$
2,267,510
$
1,983,243
80,203
15,470
$
0.93
$
0.18
0.93
0.18
Table of Contents
Three Months Ended
In thousands, except per share
August 31
November 30
February 29
May 31
$
498,035
$
540,078
$
558,067
$
782,924
48,983
67,242
86,533
172,612
5,917
16,883
24,529
39,423
$
0.07
$
0.20
$
0.28
$
0.45
0.07
0.20
0.28
0.45
August 31
November 30
February 28
May 31
$
525,464
$
567,897
$
536,584
$
589,946
89,424
80,370
65,483
67,624
27,490
20,747
11,331
15,615
$
0.32
$
0.24
$
0.13
$
0.19
0.32
0.24
0.13
0.18
Table of Contents
WORTHINGTON INDUSTRIES, INC. AND SUBSIDIARIES
COL. A.
COL. B.
COL. C.
COL. D.
COL. E.
Additions
Balance at
Charged to Other
Beginning of
Charged to Costs
Accounts
Deductions -
Balance at End of
Description
Period
and Expenses
Describe
Describe
Period
$
5,267,000
$
2,491,000
$
108,000
(A)
$
997,000
(B)
$
6,870,000
$
8,215,000
$
178,000
$
627,000
(A)
$
3,753,000
(B)
$
5,267,000
$
9,166,000
$
10,287,000
$
215,000
(A)
$
11,453,000
(B)
$
8,215,000
Note B Uncollectible accounts charged to the allowance.
Table of Contents
Table of Contents
Table of Contents
(a)
The following documents are filed as part of this Form 10-K:
(b)
The following reports on Form 8-K were filed with or furnished
information to the Securities and Exchange Commission during the fiscal
fourth quarter ended May 31, 2004:
(c)
The exhibits listed on the Index to Exhibits beginning on page E-1 of
this report are filed with this Form 10-K or incorporated by reference as
noted in the Index to Exhibits.
(d)
The financial statement schedule listed in Item 15(a)(2) is filed
herewith.
Table of Contents
WORTHINGTON INDUSTRIES, INC.
By:
/s/ John P. McConnell
John P. McConnell
Chairman of the Board and Chief Executive Officer
SIGNATURE
DATE
TITLE
/s/ John P. McConnell
August 16, 2004
Director, Chairman of the Board and
John P. McConnell
Chief Executive Officer
/s/ John S. Christie
August 16, 2004
Director, President and
John S. Christie
Chief Financial Officer
/s/ Richard G. Welch
August 16, 2004
Controller
Richard G. Welch
(Principal Accounting Officer)
*
*
Director
John B. Blystone
*
*
Director
William S. Dietrich
*
*
Director
Michael J. Endres
*
*
Director
Peter Karmanos, Jr.
*
*
Director
John R. Kasich
*
*
Director
Sidney A. Ribeau
*
*
Director
Mary Fackler Schiavo
/s/ John P. McConnell
Date: August 16, 2004
John P. McConnell
Attorney-In-Fact
Table of Contents
Exhibit
Description
Location
Asset Purchase Agreement,
entered into as of May 26,
2004, by and among Nucor
Steel Decatur, LLC;
Worthington Steel Company of
Decatur, L.L.C.; Nucor
Corporation; and Worthington
Industries, Inc. (excluding
exhibits and schedules)
Filed herewith
Amended Articles of
Incorporation of Worthington
Industries, Inc., as filed
with Ohio Secretary of State
on October 13, 1998
Incorporated herein by
reference to Exhibit 3(a) of
the Registrants Quarterly
Report on Form 10-Q for the
quarterly period ended August
31, 1998 (SEC File No.
0-4016)
Code of Regulations of
Worthington Industries, Inc.,
as amended through September
28, 2000 [for SEC reporting
compliance purposes only]
Incorporated herein by
reference to Exhibit 3(b) of
the Registrants Quarterly
Report on Form 10-Q for the
quarterly period ended August
31, 2000 (SEC File No.
1-8399)
Form of Indenture, dated as
of May 15, 1996, between
Worthington Industries, Inc.
and PNC Bank, Ohio, National
Association, as Trustee,
relating to up to
$450,000,000 of debt
securities
Incorporated herein by
reference to Exhibit 4(a) of
the Annual Report on Form
10-K of Worthington
Industries, Inc., a Delaware
corporation (Worthington
Delaware), for the fiscal
year ended May 31, 1997 (SEC
File No. 0-4016)
Form of 7-1/8% Note due May
15, 2006
Incorporated herein by
reference to Exhibit 4(b) of
the Annual Report on Form
10-K of Worthington Delaware
for the fiscal year ended May
31, 1997 (SEC File No.
0-4016)
First Supplemental Indenture,
dated as of February 27,
1997, between Worthington
Industries, Inc. and PNC
Bank, Ohio, National
Association, as Trustee
Incorporated herein by
reference to Exhibit 4(c) of
the Annual Report on Form
10-K of Worthington Delaware
for the fiscal year ended May
31, 1997 (SEC File No.
0-4016)
Form of 6.7% Note due
December 1, 2009
Incorporated herein by
reference to Exhibit 4(f) of
the Annual Report on Form
10-K of Worthington Delaware
for the fiscal year ended May
31, 1998 (SEC File No.
0-4016)
Second Supplemental
Indenture, dated as of
December 12, 1997, between
Worthington Industries, Inc.
and PNC Bank, Ohio, National
Association, as Trustee
Incorporated herein by
reference to Exhibit 4(g) of
the Annual Report on Form
10-K of Worthington Delaware
for the fiscal year ended May
31, 1998 (SEC File No.
0-4016)
Table of Contents
Exhibit
Description
Location
Third Supplemental Indenture,
dated as of October 13, 1998,
among Worthington Industries,
Inc., a Delaware corporation,
Worthington Industries, Inc., an
Ohio corporation, and PNC Bank,
National Association (formerly
known as PNC Bank, Ohio,
National Association)
Incorporated herein by
reference to Exhibit
4(h) of the
Registrants Annual
Report on Form 10-K for
the fiscal year ended
May 31, 1999 (SEC File
No. 0-4016)
Fourth Supplemental Indenture,
dated as of May 10, 2002, among
Worthington Industries, Inc. and
J.P. Morgan Trust Company,
National Association, as
successor trustee to Chase
Manhattan Trust Company,
National Association (successor
Trustee to PNC Bank, National
Association, formerly known as
PNC Bank, Ohio, National
Association)
Incorporated herein by
reference to Exhibit
4(h) of the
Registrants Annual
Report on Form 10-K for
the fiscal year ended
May 31, 2002 (SEC File
No. 1-8399)
$155,000,000 Five-Year Revolving
Credit Agreement, dated as of
May 10, 2002, among Worthington
Industries, Inc., the Lenders
from time to time party thereto,
PNC Bank, National Association,
as Issuing Lender, Swingline
Lender and Administrative Agent,
and First Union Securities, Inc.
and PNC Capital Markets, Inc.,
as Co-Syndication Agents and
Co-Lead Arrangers
Incorporated herein by
reference to Exhibit
4(i)(i) of the
Registrants Annual
Report on Form 10-K for
the fiscal year ended
May 31, 2002 (SEC File
No. 1-8399)
Form of Revolving Note issued by
Worthington Industries, Inc. to
the various Lenders from time to
time party to that certain
$155,000,000 Five-Year Revolving
Credit Agreement, dated as of
May 10, 2002
Incorporated herein by
reference to Exhibit
4(i)(ii) of the
Registrants Annual
Report on Form 10-K for
the fiscal year ended
May 31, 2002 (SEC File
No. 1-8399)
Swingline Note, dated May 10,
2002 issued by Worthington
Industries, Inc. to PNC Bank,
National Association, as
Swingline Lender under that
certain $155,000,000 Five-Year
Revolving Credit Agreement,
dated as of May 10, 2002
Incorporated herein by
reference to Exhibit
4(i)(iii) of the
Registrants Annual
Report on Form 10-K for
the fiscal year ended
May 31, 2002 (SEC File
No. 1-8399)
Table of Contents
Exhibit
Description
Location
Amendment to Five-Year Revolving
Credit Agreement, dated as of
August, 30, 2002, by and among
Worthington Industries, Inc., as
borrower, the banks and other
financial institutions from time
to time party to the Credit
Agreement (defined therein) and
PNC Bank, National Association,
as Issuing Lender, Swingline
Lender and Administrative Agent
Incorporated herein by
reference to Exhibit
4(j)(i) of the
Registrants Quarterly
Report on Form 10-Q for
the quarterly period
ended November 30, 2002
(SEC File No. 1-8399)
Second Amendment, dated as of
November 22, 2002, to the
Five-Year Revolving Credit
Agreement, dated as of May 10,
2002, among Worthington
Industries, Inc., the Lenders
and PNC Bank, National
Association, as Administrative
Agent, Issuing Lender and
Swingline Lender
Incorporated herein by
reference to Exhibit
4(j)(v) of the
Registrants Quarterly
Report on Form 10-Q for
the quarterly period
ended November 30, 2002
(SEC File No. 1-8399)
Pledge Agreement, dated as of
May 10, 2002, by Worthington
Industries, Inc. in favor of
Wells Fargo Bank Minnesota,
National Association, as
Collateral Agent for the Secured
Parties as defined in the Trust
Agreement, dated as of May 10,
2002 (See Exhibit 4(l) below)
Incorporated herein by
reference to Exhibit
4(k) of the
Registrants Annual
Report on Form 10-K for
the fiscal year ended
May 31, 2002 (SEC File
No. 1-8399)
Trust Agreement, dated as of May
10, 2002, among Worthington
Industries, Inc., J.P. Morgan
Trust Company, National
Association (successor to Chase
Manhattan Trust Company, N.A.),
as Public Debt Trustee, Wells
Fargo Bank Minnesota, National
Association, as Collateral
Agent, PNC Bank, National
Association, as Administrative
Agent, and Wells Fargo Bank
Minnesota, National Association,
as Trustee
Incorporated herein by
reference to Exhibit
4(l) of the
Registrants Annual
Report on Form 10-K for
the fiscal year ended
May 31, 2002 (SEC File
No. 1-8399)
Agreement to furnish instruments
and agreements defining rights
of holders of long-term debt
Filed herewith
Table of Contents
Exhibit
Description
Location
Worthington Industries, Inc.
1990 Stock Option Plan, as
amended*
Incorporated herein by
reference to Exhibit
10(b) of the Companys
Annual Report on Form
10-K for the fiscal
year ended May 31, 1999
(SEC File No. 1-8399)
Worthington Industries, Inc.
Executive Deferred Compensation
Plan, as Amended and Restated
effective June 1, 2000*
Incorporated herein by
reference to Exhibit
10(c) of the
Registrants Annual
Report on Form 10-K for
the fiscal year ended
May 31, 2000 (SEC File
No. 1-8399)
Worthington Industries, Inc.
Deferred Compensation Plan for
Directors, as Amended and
Restated, effective June 1,
2000*
Incorporated herein by
reference to Exhibit
10(d) of the
Registrants Annual
Report on Form 10-K for
the fiscal year ended
May 31, 2000 (SEC File
No. 1-8399)
Worthington Industries, Inc.
1997 Long-Term Incentive Plan
(material terms of performance
goals approved by shareholders
on September 25, 2003) *
Incorporated herein by
reference to Exhibit
10(e) of the
Registrants Annual
Report on Form 10-K for
the fiscal year ended
May 31, 1997 (SEC File
No. 0-4016)
Worthington Industries, Inc.
Non-Qualified Deferred
Compensation Plan*
Incorporated herein by
reference to Exhibit
10(f) of the
Registrants Annual
Report on Form 10-K for
the fiscal year ended
May 31, 2000 (SEC File
No. 1-8399)
Worthington Industries, Inc.
2000 Stock Option Plan for
Non-Employee Directors (reflects
amendments through September 25,
2003)*
Incorporated herein by
reference to Exhibit
10(l) of the
Registrants Quarterly
Report on Form 10-Q for
the quarterly period
ended August 31, 2003
(SEC File No. 1-8399)
Receivables Purchase Agreement,
dated as of November 30, 2000,
among Worthington Receivables
Corporation, Worthington
Industries, Inc., as Servicer,
members of various purchaser
groups from time to time party
thereto and PNC Bank, National
Association, as Administrator
Incorporated herein by
reference to Exhibit
10(h)(i) of the
Registrants Annual
Report on Form 10-K for
the fiscal year ended
May 31, 2001 (SEC File
No. 1-8399)
Amendment No. 1 to Receivables
Purchase Agreement, dated as of
May 18, 2001, among Worthington
Receivables Corporation,
Worthington Industries, Inc.,
members of various purchaser
groups from time to time party
thereto and PNC Bank, National
Association
Incorporated herein by
reference to Exhibit
10(h)(ii) of the
Registrants Annual
Report on Form 10-K for
the fiscal year ended
May 31, 2001 (SEC File
No. 1-8399)
Purchase and Sale Agreement,
dated as of November 30, 2000,
between the various originators
listed therein and Worthington
Receivables Corporation
Incorporated herein by
reference to Exhibit
10(h)(iii) of the
Registrants Annual
Report on Form 10-K for
the fiscal year ended
May 31, 2001 (SEC File
No. 1-8399)
Table of Contents
Exhibit
Description
Location
Amendment No. 1, dated as of May
18, 2001, to Purchase and Sale
Agreement, dated as of November
30, 2000, between the various
originators listed therein and
Worthington Receivables
Corporation
Incorporated herein by
reference to Exhibit
10(g)(iv) of the
Registrants Annual
Report on Form 10-K for
the fiscal year ended
May 31, 2002 (File No.
1-8399)
Assumption and Transfer
Agreement, dated as of October
25, 2001, among Worthington
Receivables Corporation, Fifth
Third Bank, as a purchaser, a
related committed purchaser, and
an agent, Market Street Funding
Corporation, as a purchaser, and
PNC Bank, National Association,
as agent for Market Street and
as administrator
Incorporated herein by
reference to Exhibit
10(g)(v) of the
Registrants Annual
Report on Form 10-K for
the fiscal year ended
May 31, 2002 (File No.
1-8399)
Assumption and Transfer
Agreement, dated as of April 24,
2002, among Worthington
Receivables Corporation, Liberty
Street Funding Corp., as a
purchaser and a related
committed purchaser, The Bank of
Nova Scotia, as Agent for
Liberty Street Purchasers,
Market Street Funding
Corporation, as a purchaser and
PNC Bank, National Association,
as agent for Market Street and
as administrator
Incorporated herein by
reference to Exhibit
10(g)(vi) of the
Registrants Annual
Report on Form 10-K for
the fiscal year ended
May 31, 2002 (File No.
1-8399)
Letter Agreement, dated as of
November 29, 2001, among
Worthington Receivables
Corporation, members of various
purchaser groups from time to
time party thereto and PNC Bank,
National Association, as
Administrator, for the purpose
of extending the facility
termination date
Incorporated herein by
reference to Exhibit
10(a) of the
Registrants Quarterly
Report on Form 10-Q for
the quarterly period
ended November 30, 2003
(SEC File No. 1-8399).
Letter Agreement, dated as of
November 27, 2002, among
Worthington Receivables
Corporation, members of various
purchaser groups from time to
time party thereto and PNC Bank,
National Association, as
Administrator, for the purpose
of extending the facility
termination date
Incorporated herein by
reference to Exhibit
10(b) of the
Registrants Quarterly
Report on Form 10-Q for
the quarterly period
ended November 30, 2003
(SEC File No. 1-8399)
Letter Agreement, dated as of
November 25, 2003, among
Worthington Receivables
Corporation, members of various
purchaser groups from time to
time party thereto and PNC Bank,
National Association, as
Administrator, for the purpose
of extending the facility
termination date
Incorporated herein by
reference to Exhibit
10(c) of the
Registrants Quarterly
Report on Form 10-Q for
the quarterly period
ended November 30, 2003
(SEC File No. 1-8399)
Table of Contents
Exhibit
Description
Location
Amendment No. 2, dated as of May
31, 2004, to Purchase and Sale
Agreement, dated as of November
30, 2000, between the various
originators listed therein and
Worthington Receivables
Corporation
Filed herewith
Worthington Industries, Inc.
2003 Stock Option Plan (as
approved by shareholders on
September 25, 2003)*
Incorporated herein by
reference to Exhibit
10.2 of the
Registrants Quarterly
Report on Form 10-Q for
the quarterly period
ended August 31, 2003
(SEC File No. 1-8399).
Code of Conduct
Filed herewith
Subsidiaries of Worthington
Industries, Inc.
Filed herewith
Consent of KPMG LLP
Filed herewith
Powers of Attorney
Filed herewith
Rule 13a - 14(a) / 15d - 14(a)
Certification (Principal
Executive Officer)
Filed herewith
Rule 13a - 14(a) / 15d - 14(a)
Certification (Principal
Financial Officer)
Filed herewith
Section 1350 Certification of
Principal Executive Officer
Filed herewith
Section 1350 Certification of
Principal Financial Officer
Filed herewith
*Management Compensation Plan
EXHIBIT 2
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (Agreement) is made and entered into as of the 26th day of May, 2004 (Effective Date), by and among NUCOR STEEL DECATUR, LLC, a Delaware limited liability company (together with its assignees, if any, Buyer), WORTHINGTON STEEL COMPANY OF DECATUR, L.L.C., an Alabama limited liability company (Seller), NUCOR CORPORATION, a Delaware corporation (Nucor), and WORTHINGTON INDUSTRIES, INC., an Ohio corporation (Worthington).
WITNESSETH:
WHEREAS, Seller desires to sell the Assets (as hereinafter defined) to Buyer, and Buyer desires to purchase the Assets from Seller, on the terms and subject to the conditions set forth in this Agreement;
WHEREAS, simultaneously with the sale of the Assets from Seller to Buyer, Seller, Buyer, Worthington and Nucor contemplate the execution and delivery of the Operating Lease and the Non-Compete Agreement (each as hereinafter defined);
WHEREAS, Nucor, as ultimate parent of Buyer, and Worthington, as ultimate parent of Seller, each wishes to guarantee the obligations of its respective subsidiary hereunder in order to entice each other Party to consummate the transactions contemplated herein;
NOW, THEREFORE, for and in consideration of the foregoing premises, and the agreements, covenants, representations and warranties hereinafter set forth, and other good and valuable consideration, the receipt and adequacy of which are forever acknowledged and accepted, Buyer, Seller, Worthington and Nucor, intending to be legally bound, hereby agree as follows:
1. | DEFINITIONS AND REFERENCES | |||
1.01 | Definitions. |
As used in this Agreement, and unless the context requires a different meaning, the following terms have the meanings given:
Accounts Receivable: all accounts receivable of Seller, of whatever kind or nature, including all current or deferred rights to payment for sales made or projects completed or commenced or services rendered on or prior to the Closing Date, whether or not such services have been billed by Seller as of the Closing Date, and all security interests, claims, remedies and other rights related thereto;
Affiliate: any Person that, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with another
Person, including the power to direct or cause the direction of the management and policies of a Person, whether through the beneficial ownership of more than fifty (50%) percent of the equity securities of such Person, election or appointment of directors, by contract or otherwise;
Agreement: this Asset Purchase Agreement and all Exhibits and Schedules attached hereto, as amended, consolidated, supplemented, novated or replaced by the Parties from time to time;
Assets: all of the assets owned or leased by Seller and used in the operation of the Business, except for the Excluded Assets;
Assumed Contracts: as defined in Section 2.01(e);
Assumed Intellectual Properties: as defined in Section 2.01(g);
Assumed Liabilities: all liabilities and obligations of Seller set forth on Schedule 2.03;
Business: the pickling, annealing, and cold-rolling business conducted at the Steel Processing Facility, but specifically excluding any operations related to Sellers slitting or cut-to-length lines, and operations of third parties;
Business Day: any day on which the banks located in Charlotte, North Carolina are open for and conduct business, excluding any Saturday, Sunday and/or public holiday observed in Charlotte, North Carolina;
Buyer: as defined in the Preamble;
Cash: cash and cash equivalents;
Catastrophic Loss: Physical damage to or any other occurrence affecting the Assets which would require repair, replacement or similar costs in excess of Five Million Dollars ($5,000,000) not covered by insurance resulting from a single event occurring subsequent to the Effective Date;
Closing: as defined in Section 8.01;
Closing Agent: to be appointed by Buyer no later than five (5) Business Days before the Closing Date;
Closing Date: the date on or as of which the Closing occurs;
Code: the Internal Revenue Code of 1986, as amended;
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Contracts: all commitments, contracts, leases, licenses, agreements and understandings, written or oral, relating to the Assets or the operation of the Business to which Seller is a party or by which Seller or any of the Assets are bound;
Damages: as defined in Section 9.02;
Effective Date: the date set forth in the first paragraph of this Agreement;
Encumbrances: levies, claims, charges, assessments, mortgages, security interests, liens, pledges, conditional sales agreements, title retention contracts, leases, subleases, rights of first refusal and other similar rights, options to purchase, restrictions, easements, and other encumbrances (including, without limitation, licenses or covenants which encumber the Assets), and agreements or commitments to create or suffer any of the foregoing;
Environmental Claim: any written notice to Seller by any Person alleging, in relation to the Assets or Business, liability (including liability for investigatory costs, cleanup costs, Governmental Authority response costs, natural resource damages, property damages, personal injuries, or penalties) arising out of, based on or resulting from (a) the Release of any Hazardous Substance at any location, whether or not owned by Seller, or (b) any violation of any Environmental Laws; or (c) circumstances in which Seller has retained or assumed either contractually or by operation of law any liability for any claims relating to an occurrence of an event described in (a) or (b) of this definition alleged or asserted against any third party;
Environmental Laws: any and all Legal Requirements relating to pollution or protection of the environment (including ground water, land surface or subsurface strata), including Legal Requirements relating to Releases or threatened Releases of Hazardous Substance, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, recycling, reporting or handling of Hazardous Substance;
Excluded Assets: as defined in Section 2.02;
Excluded Liabilities: any and all liabilities or obligations of Seller of any kind or nature, other than the Assumed Liabilities, whether known or unknown, fixed or contingent, recorded or unrecorded, and whether arising before or after the Closing;
FTC: Federal Trade Commission;
Governmental Authorities: all agencies, authorities, bodies, boards, commissions, courts, instrumentalities, legislatures and offices of any nature whatsoever of any federal, state, county, district, municipal, city, foreign or other government or quasi-government unit or political subdivision;
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Hazardous Substance: chemicals, pollutants, contaminants, medical waste or specimens, toxic substances, petroleum and petroleum products that are regulated by Environmental Laws or the Release of which creates potential responsibility under Environmental Laws, including hazardous wastes under the Resource, Conservation and Recovery Act, as amended, 42 U.S.C. §6903 et seq ., hazardous substances under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. §9601 et seq ., asbestos, polychlorinated biphenyls and urea formaldehyde, and low-level nuclear materials, special nuclear materials or nuclear-byproduct materials, all within the meaning of the Atomic Energy Act of 1954, as amended, and any rules or regulations promulgated thereunder;
HSR Act: the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or any successor law, and regulations and rules issued pursuant thereto or any successor law;
IDB Lease: that certain Lease Agreement between The Industrial Development Board of the City of Decatur, as Lessor, and Seller, as Lessee, dated as of March 1, 1997, and recorded in Book 1651, at Page 975, Morgan County, Alabama Probate Office;
Inspection Date: as defined in Section 3.05;
Intellectual Properties: all of Sellers software, licenses and all trade secrets, know-how, proprietary intellectual property rights, confidential business information (including research and development, manufacturing and production processes and techniques and pricing and cost information) and similar intangibles (including all variants thereof, applications therefor and renewals or extensions thereof) that are used, or held for use, in connection with the operation of the Business or the Assets;
Justice Department: the United States Justice Department;
Legal Requirements: all statutes, ordinances, by-laws, codes, rules, regulations, restrictions, Permits, judgments, orders, writs, injunctions, decrees, determinations or awards of any Governmental Authority;
Net Proceeds: all proceeds recovered by a Party, less such Partys actual costs in obtaining such proceeds and any applicable insurance deductibles;
Non-Compete Agreement: the non-competition and non-disclosure agreement to be executed by the Parties in the form agreed to by the Parties;
Operating Lease: the lease agreement in the form agreed to by Buyer and Seller wherein Buyer agrees, in return for mutually acceptable rent payments and other terms and conditions, to lease to Seller that portion of the Real Property necessary for Seller to continue to operate the Excluded Assets;
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Party: any of Buyer, Seller, Nucor or Worthington, or their respective successors and assigns;
Permits: all licenses, permits, consents, approvals and other authorizations of or from all Governmental Authorities that are necessary to the ownership of the Assets or in the conduct of the Business as of the Effective Date;
Permitted Encumbrances: (a) ad valorem Taxes not yet due and payable; (b) other Encumbrances relating to the Real Property which are set forth on Schedule 3.09(d); or (c) any Encumbrance specifically relating to an Assumed Liability;
Person: any individual, company, body corporate, association, partnership, firm, joint venture, trust, trustee or Governmental Authority;
Purchase Price: as defined in Section 2.05;
Real Property: all real property in Decatur, Alabama that is owned, leased or subleased by Seller, on which the Steel Processing Facility is located, together with all buildings, improvements and fixtures thereon (except for the Excluded Assets), and including all easements appurtenant thereto, and which is more specifically described in Schedule 2.01(a);
Release: any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping or disposing into the environment of any Hazardous Substance other than that which is in compliance with Environmental Laws;
Sections: sections of the Agreement, unless the context indicates otherwise;
Spares Inventory: all spares and stores inventories of Seller (i) related exclusively to the operation of the Assets; or (ii) on Schedule 2.01(c);
Steel Processing Facility: Sellers steel pickling, cold-rolling, oiling, annealing, slitting and cut-to-length plant facility located in or near Decatur, Alabama;
Subsidiaries: as to any Person, a corporation, partnership, limited liability company or other entity of which fifty percent (50%) or more of the voting power of the outstanding voting equity securities or fifty percent (50%) or more of the outstanding economic equity interest is held or controlled, directly or indirectly, by such Person;
Tangible Personal Property: all machinery, equipment, tools, furniture, office equipment, computer hardware, supplies, materials, motor vehicles and other items of tangible personal property included as part of the Assets (other than Spares Inventory, raw materials, work in progress, finished goods and Cash on hand as of the Closing Date) of every kind owned or leased by Seller and related to the Business wherever located, together with any express or implied warranties (if and to the extent transferable) by the
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manufacturers, vendors or lessors of such property or of any item or component part thereof, and all maintenance records and other documents related thereto;
Tax: any income, unrelated business income, gross receipts, fuel, business privilege, license, payroll, employment, excise, severance, stamp, occupation, privilege, premium, windfall profits, environmental (including taxes under §59A of the Code), customs duties, capital stock, franchise, profits, withholding, social security, unemployment, disability, real property, personal property, stamp, sales, use, transfer, transaction privilege, private car, registration, unclaimed property, value added, alternative or add-on minimum, estimated or other tax, payment of fees in lieu of taxes, assessment, charge, levy or fee of any kind whatsoever, and any interest or penalties on and additions to all of the foregoing, that are due to any Governmental Authority, whether disputed or not, and whether known or unknown;
Tax Return: any return, declaration, report, claim for refund, application (to the extent equivalent to a return), information return or statement, including schedules and attachments thereto and amendments, relating to any Tax;
Transaction: the sale and purchase of the Assets contemplated in this Agreement, together with the other transactions between or among the Parties contemplated by this Agreement;
WARN Act: the Workers Adjustment and Retraining Notification Act, as amended, 29 U.S.C. §§2101-2109.
1.02 | Certain References. |
As used in this Agreement, and unless the context requires otherwise:
(a) references to include or including mean including without limitation;
(b) references to hereof, herein and derivative or similar words refer to this Agreement;
(c) references to any document are references to that document as amended, consolidated, supplemented, novated or replaced by the Parties thereto from time to time;
(d) references to any law are references to that law as amended, consolidated, supplemented or replaced from time to time and all rules and regulations promulgated thereunder, in each case as in effect at the relevant time;
(e) the gender of all words includes the masculine, feminine and neuter, and the number of all words includes the singular and plural; and
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(f) the divisions of this Agreement into articles, sections and subsections and the use of captions and headings in connection therewith are solely for convenience and shall have no legal effect in construing the provisions of this Agreement.
2. | SALE OF ASSETS AND RELATED MATTERS | |||
2.01 | Sale of Assets. |
Subject to the terms and conditions of this Agreement, at Closing, Seller shall sell, assign, convey, transfer and deliver to Buyer, and Buyer shall purchase from Seller, the Assets, free and clear of all Encumbrances other than the Permitted Encumbrances, including the following:
(a) the Real Property owned by Seller;
(b) all Tangible Personal Property, including that listed in Schedule 2.01(b);
(c) all Spares Inventory;
(d) all project-related and other records relating exclusively to the Assets (including equipment records, project plans, documents, historical cost data, catalogs, books, records, files and operating manuals);
(e) all interests of Seller in the Contracts listed in Schedule 2.01(e), if any (the Assumed Contracts);
(f) all Permits (including pending approvals) of Governmental Authorities relating solely to the ownership, development and operations of the Business or the Assets, including the Permits described on Schedule 2.01(f), to the extent transferable or assignable under applicable Legal Requirements;
(g) those rights in and to the Intellectual Properties owned or licensed by Seller for use solely in the Business and utilized in connection with the Assets set forth in Schedule 2.01(g) (the Assumed Intellectual Properties);
(h) subject to Section 5.09(c), all prepaid expenses relating to the Assets;
(i) any and all claims and causes of action, including privileges related thereto, of Seller or its Affiliates against third parties relating exclusively to the Assets, Assumed Liabilities or the Assumed Contracts, if any, including the claims and causes of action set forth on Schedule 2.01(i); and
(j) copies of all (A) supplier lists (excluding steel suppliers) for the last three (3) fiscal years related to products produced by the Assets and (B) customer lists described in Section 3.20.
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2.02 | Excluded Assets. |
Notwithstanding the generality of Section 2.01, the following specifically listed assets are not a part of the sale and purchase contemplated by this Agreement and are excluded from the Assets (collectively, the Excluded Assets):
(a) all finished goods, raw materials and work-in-progress inventory whether or not related to the Business;
(b) all Accounts Receivable;
(c) the Purchase Price;
(d) all Cash;
(e) all personal property comprising the cut-to-length and slitting lines currently located at the Steel Processing Facility, and all ancillary personal property related thereto, as more specifically listed on Schedule 2.02(e) hereof;
(f) the minute books, member records and related documents and tax records of Seller, subject to Buyers rights pursuant to Section 5.06 hereof;
(g) all employee benefit plans or assets therein of Seller;
(h) all insurance policies maintained by Seller or its Affiliates, and the rights to receive payments thereunder;
(i) those records not included in Section 2.01(d);
(j) the rights of Seller under any Permit not listed in Schedule 2.01(f) hereof;
(k) all rights of Seller in any litigation or proceeding to which it is a party as of the Closing, except for warranty or similar claims related to the Assets;
(l) all rights of Seller in any contracts that are not Assumed Contracts;
(m) all rights in and to the Intellectual Properties, other than the Assumed Intellectual Properties;
(n) those assets listed on Schedule 2.02(n);
(o) all rights of Seller under this Agreement, the Non-Compete Agreement, the Operating Lease, and the instruments, agreements, certificates and documents identified in Sections 8.03(b) and 8.03(g) hereof; and
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(p) any other assets excluded from the purchase and sale contemplated by this agreement by mutual written agreement of the Parties.
2.03 | Assumed Liabilities. |
As of the Closing Date, Buyer shall assume only the Assumed Liabilities, if any, set forth on Schedule 2.03, and no other liabilities of Seller of any type or nature.
2.04 | Excluded Liabilities. |
Except for liabilities specifically referenced in Section 2.03, under no circumstance shall Buyer assume or be obligated to pay, and none of the Assets shall be or become liable for or subject to, any Excluded Liabilities, including the following liabilities of Seller, which shall be and remain liabilities of Seller, as applicable:
(a) liabilities or obligations associated with any Excluded Assets;
(b) any and all indebtedness of Seller for borrowed money, and the liabilities or obligations associated therewith or arising thereunder;
(c) liabilities or obligations arising out of or in connection with claims, litigation and proceedings (whether instituted prior to or after Closing) for acts or omissions that occurred prior to the Closing Date;
(d) any liabilities or obligations of Seller (i) to any of its employees (ii) with respect to any employee benefit plans of any type or nature whatsoever, (iii) to the Internal Revenue Service or any other Governmental Authority relating to any of Sellers employees (whether or not triggered by the Transaction or the announcement thereof);
(e) penalties, fines, settlements, interest, costs and expenses arising out of or incurred as a result of any actual or alleged violation by Seller of any Legal Requirement at any time whatsoever;
(f) liabilities or obligations under the WARN Act, if any, arising out of or resulting from layoffs or termination of employees by Seller prior to and including the date of the Closing and/or the consummation of the Transaction;
(g) liabilities for any Tax related to Seller, the Business and/or the Assets prior to Closing, and liabilities for Taxes imposed on or assessed against Seller and arising out of or related to the Transaction; and
(h) all liabilities for expenses of Seller for the negotiation and preparation of this Agreement, including those related to legal counsel, accounting, brokerage and investment advisors fees and disbursements.
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2.05 | Purchase Price. |
Subject to the terms and conditions hereof, in reliance upon the representations and warranties of Seller and the covenants of Seller herein set forth and as consideration for the sale and purchase of the Assets, at Closing Buyer shall purchase the Assets, shall assume the Assumed Liabilities and shall tender to Seller the sum of Eighty-Two Million Dollars (US $82,000,000) (the Purchase Price). The Purchase Price shall be paid by Buyer to Seller in immediately available funds by wire transfer at Closing to an account specified by Seller.
3. | REPRESENTATIONS AND WARRANTIES OF SELLER |
Seller hereby represents and warrants to Buyer that the statements contained in this Article 3 are correct and complete as of the Effective Date and, except where limited to a specific date, shall be correct and complete as of the Closing Date:
3.01 | Organization. |
Seller is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Alabama. Seller is licensed, registered, qualified or admitted to do business in each jurisdiction in which the ownership, use or leasing of any of the Assets, or the conduct or nature of the Business, makes such licensing, registration, qualification or admission necessary, except where the failure to be so licensed, registered, qualified or admitted would not individually or in the aggregate have a material adverse effect on the ownership or use of the Assets, by Buyer.
3.02 | Powers; Consents; Absence of Conflicts. |
Seller has the requisite power and authority to conduct the Business as presently conducted and has the requisite power and authority to enter into, execute, and perform all of its obligations under this Agreement. Except as provided in the HSR Act or as set forth on Schedule 3.02 hereof, the execution, delivery and performance of this Agreement by Seller, and the consummation of the Transaction by Seller:
(a) are within the limited liability company power and authority of Seller, are not in contravention of the terms of any articles of organization, operating agreement or other organizational documents of Seller, each as amended to date, and have been duly authorized by all necessary action of the members of Seller;
(b) do not require any approval or consent of, or filing with, any Governmental Authority;
(c) do not conflict with or result in any breach or contravention of any material agreement to which Seller is a party or by which it is bound; and
(d) do not violate in any material respect any Legal Requirement to which Seller or the Assets may be subject.
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3.03 | Binding Agreement. |
This Agreement and all instruments and agreements being or to be executed and delivered by Seller hereunder are (or upon execution and delivery thereof will be) valid and legally binding obligations of Seller, enforceable against Seller in accordance with the respective terms hereof or thereof, except as enforceability may be subject to general principles of equity and as may be restricted, limited or delayed by applicable bankruptcy or other laws affecting creditors rights generally.
3.04 | Third-Party Rights. |
There are no agreements with, or options, commitments or rights in favor of, any Person to directly or indirectly acquire any of the Assets, or any interest therein, other than those arising in the ordinary course of business and those arising hereunder.
3.05 | Recent Activities. |
Since April 20, 2004 (the Inspection Date), except as set forth on Schedule 3.05:
(a) no damage, destruction or loss (whether or not covered by insurance) has occurred that individually or in the aggregate would have a material adverse affect on the ownership or use of any of the Assets, or the operation of the Business, by Buyer;
(b) Seller has not sold, leased, assigned, transferred, distributed or otherwise disposed of any of the Assets;
(c) Seller has not canceled or waived any claims or rights in respect of the Assets;
(d) Seller has not entered into any contract, agreement, lease or license relating to the Assets or the Business outside the ordinary course of the Business other than this Agreement;
(e) there has been no acceleration of, material modification to, termination of, cancellation of, or receipt of notice of termination of any Assumed Contract; and
(f) Seller has not entered into any Contract, whether oral or written, to do any of the foregoing.
3.06 | Assets. |
(a) Except as set forth on Schedule 3.06(a), (i) the Assets constitute all assets that are owned or leased by Seller and used by Seller to conduct the Business; and (ii) no Person other than Seller owns, holds title to or has any other direct, indirect or beneficial interest in any of the Assets.
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(b) Except as set forth on Schedule 3.06(b), the Assets (i) constitute all of the assets of any nature whatsoever necessary to operate the Business in the manner presently operated by Seller and (ii) include all of the operating assets of the Business.
3.07 | Condition of Assets. |
Except as set forth on Schedule 3.07, all Assets, other than the Real Property, are in the same condition as they were on the Inspection Date, ordinary wear and tear excepted.
3.08 | Title to Personal Property. |
Except as described on Schedule 3.08, Seller owns and holds good and valid title or leasehold title, as the case may be, to all the Assets, other than the Real Property, free and clear of any Encumbrances. At Closing, Seller will convey to Buyer good, valid and marketable title to the Assets, other than the Real Property, free and clear of any Encumbrances other than Permitted Encumbrances.
3.09 | Real Property. |
Except as listed on Schedule 3.09(a):
(a) Seller owns or holds good and marketable fee simple (or leasehold, as applicable) title to the Real Property, together with all buildings, improvements and fixtures thereon and all appurtenances and rights thereto, free and clear of any Encumbrances other than the Permitted Encumbrances, and the Real Property comprises all of the real property owned or leased by Seller that is used by Seller in the operation of the Business.
(b) At the Closing, Seller will convey to Buyer by special warranty deed good and marketable fee simple title to the Real Property owned by Seller, free and clear of any Encumbrances other than the Permitted Encumbrances.
(c) Seller has not received any written notice that the whole or any part of the Real Property is subject to any proceeding for condemnation, eminent domain or other taking by any Governmental Authority, and, to the knowledge of Seller, no such condemnation or other taking is threatened. Seller has not received any written notice from any Governmental Authority concerning any actual or contemplated public improvements made or to be made by any Governmental Authority, the costs of which are or could become special assessments against or a lien upon the Real Property and, to the knowledge of Seller, no such public improvement is threatened.
(d) Other than Permitted Encumbrances (including those set forth on Schedule 3.09(d)), there are no contract rights, leases, subleases, licenses or other agreements, written or oral, granting to any party the right of purchase, use or occupancy related to any portion of the Real Property.
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(e) Seller has received all required approvals of Governmental Authorities (including Permits and certificates of occupancy or other such certificates permitting lawful occupancy of the Real Property) required in connection with its use of the Real Property and all improvements and personal property thereon, except where a failure to obtain such approvals would not individually or in the aggregate have a material adverse effect on the ownership or use of the Assets or the operation of the Business.
3.10 | Environmental Matters. |
Except as set forth on Schedule 3.10:
(a) the Business and the Assets have been and are currently being conducted and used in compliance with all applicable Environmental Laws, except where the failure to so comply would not individually or in the aggregate have a material adverse effect on the ownership or use of the Assets or the operation of the Business.
(b) Seller has not received any Environmental Claim nor to the knowledge of Seller is there any basis for any Environmental Claim (including knowledge of any actions, activities, circumstances, conditions, events or incidents, including the Release or disposal of any Hazardous Substance, whether relating to the Assets or the Business or otherwise) which could result in any material adverse effect on the ownership or use of the Assets, or the operation of the Business, by Buyer.
(c) there is no existing contamination by, and there has not been any Release of, any Hazardous Substance on, at, under or around any of the Assets which would result in any material adverse effect on the ownership or use of the Assets, or the operation of the Business, by Buyer.
(d) true, complete and correct copies of the written reports of all material environmental audits or assessments that have been conducted with respect to the Business and/or the Assets, either by Seller or any environmental consultant or engineer engaged by Seller (or Sellers representatives) for such purpose, have been made available to Buyer, and a list of all such reports, audits and assessments is included on Schedule 3.10(d).
(e) Seller has all Permits required to own and operate the Assets and to conduct the Business thereon in compliance with applicable Environmental Laws, except where the failure to hold such Permits would not have a material adverse effect on Buyers ownership or operation of the Assets. All Permits currently held by Seller pursuant to applicable Environmental Laws are identified on Schedule 3.10(e).
(f) (i) all Hazardous Substances generated by or in connection with the Business or the Assets are and have been handled and disposed of in compliance with all applicable Environmental Laws, (ii) there are no underground storage tanks located on the Real Property, (iii) there is no exposed friable asbestos contained in or forming part of any building, building component, structure or office space comprising a portion of the
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Assets, and (iv) no polychlorinated biphenyls are used or stored at the Real Property, except where the failure of any or all of the foregoing would not have a material adverse effect on Buyers ownership or operation of the Assets.
3.11 | Intellectual Properties/Computer Software. |
(a) Except as described on Schedule 3.11(a), Seller owns or has the right to use pursuant to license, sublicense or other agreement free and clear of any liens, royalty or other payment obligations, the Intellectual Properties. Seller has not received any written notice alleging violation or infringement of any rights of any other Person with respect to any such Intellectual Properties, and to the knowledge of Seller no such violation or infringement exists.
(b) Schedule 3.11(b) identifies all material Intellectual Properties. Seller has delivered to Buyer true, correct and complete copies of all material licenses, sublicenses, and similar agreements (as amended to date) related to the Assumed Intellectual Properties.
3.12 | Permits. |
Schedule 3.12 contains a complete and accurate list of all material Permits (including applications therefor) owned or held by Seller, all of which were properly applied for and remain in effect and good standing, except as otherwise listed. With respect to the Business, Seller has obtained all material Permits required by the appropriate Governmental Authorities.
3.13 | Agreements and Commitments. |
Schedule 3.13 is a true, complete and correct list of all Contracts of Seller relating to the Business or the Assets and conforming to the descriptions set forth in this Section 3.13, copies of each of which have been delivered or made available to Buyer:
(a) any Contract involving payments by or to Seller in excess of One Hundred Thousand Dollars ($100,000), whether or not entered into in the ordinary course of business, but excluding any Contract related to the purchase of steel;
(b) any collective bargaining or other agreement between Seller and any labor union;
(c) any option or other Contract to purchase or otherwise acquire, or sell or otherwise dispose of, any interest in the Real Property;
(d) any bond, indenture, note, loan or credit agreement or other Contract relating to the borrowing of money from any Person other than an Affiliate of Seller, or the direct or indirect guarantee or assumption by Seller of the obligations of any other Person (other than an Affiliate of Seller) for borrowed money;
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(e) any Contract limiting or restricting in any material manner the operation of the Business by Buyer or its potential successors and assigns; or
(f) any agreement for the license, use or other disposition of the Assumed Intellectual Properties.
3.14 | Assumed Contracts. |
Except as set forth on Schedule 3.14:
(a) the Assumed Contracts constitute lawful, valid and legally binding obligations of Seller, and are enforceable against such Seller, in accordance with their respective terms;
(b) to the knowledge of Seller, each Assumed Contract is in full force and effect and constitutes the entire agreement by and between the parties thereto;
(c) to the knowledge of Seller, no other party to any Assumed Contract has repudiated any provision of any Assumed Contract; and
(d) no Assumed Contract requires the consent of any Person to the assignment of such Assumed Contract to and assumption thereof by Buyer.
3.15 | Employees and Employee Relations. |
Except as described on Schedule 3.15, no employees of Seller are represented by a labor union or employee organization, and (i) no union or employee organization has made a demand for recognition by Seller and (ii) to the knowledge of Seller, no other union organizing or collective bargaining activities by or with respect to any employees employed by the Business are taking place.
3.16 | Litigation and Proceedings. |
Except as set forth on Schedule 3.16, there are no claims, actions, suits, litigation, arbitration, mediations, governmental investigations or other proceedings pending or, to the knowledge of Seller, threatened against Seller which relate to or may affect the Assets or the Business.
3.17 | Taxes. |
(a) Seller has timely filed or will timely file all Tax Returns related to the Business and/or the Assets which are required to be filed by or on behalf of Seller for any period prior to Closing. All such Tax Returns are, or shall be when filed, correct and complete in all material respects, and Seller has duly paid or made provision for the payment of all Taxes due and payable with respect to periods ending on or prior to Closing, whether or not shown on any Tax Return; and, as of Closing, except for ad
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valorem taxes not yet due and payable and other Permitted Encumbrances, there will be no Encumbrances (actual or potential) on any Assets that arose or may arise in connection with any failure to pay any Tax when due, including any Taxes arising from the Transaction. There are no pending Tax assessments or, to the knowledge of Seller, threatened Tax assessments from any Governmental Authority that may give rise to any Encumbrance on the Assets at any time.
(b) Except as described on Schedule 3.17(b), Seller has withheld proper and accurate amounts from its employees compensation in full and complete compliance with all withholding and similar provisions of the Code and any and all other applicable Legal Requirements, and has withheld and paid, or caused to be withheld and paid, all Taxes on monies paid by Seller to independent contractors, creditors and other Persons for which withholding or payment is required by applicable law.
(c) Schedule 3.17(c) sets forth the original cost basis of Seller in the Assets and the years such Assets were acquired.
3.18 | Brokers and Finders. |
None of Seller, any Affiliate of Seller or any member, officer, director, employee or agent of Seller has engaged any finder or broker in connection with the Transaction, with the exception of CIBC World Markets Corp., for whose fees Seller shall be solely responsible.
3.19 | Payments. |
Seller has not, directly or indirectly, paid or delivered or agreed to pay or deliver any fee, commission or other sum of money or item of property, however characterized, to any Person that is in any manner related to the Assets or the Business in violation of any Legal Requirement. None of Seller, its members, officers, directors or employees, has received or, as a result of the consummation of the Transaction contemplated by this Agreement, will receive any improper or illegal rebate, kickback or other payment from any Person with whom Seller conducts or has conducted business.
3.20 | Customer List. |
Seller has provided to Buyer a true, complete and correct list of all customers of Seller related exclusively to the Business that, since January 1, 2002, generated revenues in excess of Ten Thousand Dollars ($10,000) in any year during such period.
3.21 | Compliance with Legal Requirements. |
Except as set forth on Schedule 3.21, Seller has complied in all material respects with all applicable Legal Requirements related to the Assets, and to the knowledge of Seller, no action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand or notice has been filed or commenced against Seller alleging any failure to so comply.
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4. | REPRESENTATIONS AND WARRANTIES OF BUYER |
Buyer hereby represents and warrants to Seller that the statements contained in this Article 4 are correct and complete as of the Effective Date and, except where expressly limited to a specific date, shall be correct and complete as of the Closing Date:
4.01 | Organization. |
Buyer is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware.
4.02 | Powers; Consents; Absence of Conflicts. |
Buyer has the requisite power and authority to enter into, execute and perform Buyers obligations under this Agreement. Except as provided in the HSR Act or as set forth on Schedule 4.02 hereof, the execution, delivery and performance by Buyer of this Agreement and the consummation of the Transaction by Buyer:
(a) are within the limited liability company power and authority of Buyer, are not in contravention of the terms of any certificate of formation, operating agreement or other organizational documents of Buyer, each as amended to date, and have been duly authorized by all necessary action of the members of Buyer;
(b) do not require any approval or consent of, or filing with, any Governmental Authority;
(c) do not conflict with or result in any breach or contravention of any material agreement to which Buyer is a party or by which it is bound; and
(d) do not violate any Legal Requirement to which Buyer or the Assets may be subject.
4.03 | Binding Agreement. |
This Agreement and all instruments and agreements being or to be executed and delivered by Buyer hereunder are (or upon execution and delivery thereof will be) valid and legally binding obligations of Buyer, enforceable against Buyer in accordance with the respective terms hereof or thereof, except as enforceability may be subject to general principles of equity and as may be restricted, limited or delayed by applicable bankruptcy or other laws affecting creditors rights generally.
4.04 | Brokers and Finders. |
None of Buyer, any Affiliate of Buyer, or any member, officer, director, employee or agent of Buyer has engaged any finder or broker in connection with the Transaction.
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4.05 | Adequate Assurance. |
Buyer shall have as of the Closing Date immediately available funds in the amount necessary for Buyer to complete the Transaction.
4.06 | Payments. |
Buyer has not, directly or indirectly, paid or delivered or agreed to pay or deliver any fee, commission or other sum of money or item of property, however characterized, to any Person that is in any manner related to the Assets or the Business in violation of any Legal Requirement. None of Buyer, its members, officers, directors or employees, has received or, as a result of the consummation of the Transaction contemplated by this Agreement, will receive any rebate, kickback or other improper or illegal payment from any Person with whom Buyer conducts or has conducted business.
5. | COVENANTS AND AGREEMENTS OF THE PARTIES | |||
5.01 | Standstill. |
Until such time as this Agreement shall be lawfully terminated, neither Seller nor Worthington (nor their respective Affiliates, agents, employees, officers, directors or members) shall directly or indirectly solicit, initiate, encourage or entertain any inquiries or proposals from, discuss or negotiate with, provide any nonpublic information to or consider the merits of any inquiries or proposals from any Person (other than Buyer) which may lead to (a) a sale or disposition of any of the Assets or (b) a sale of the securities of Seller or a merger by or acquisition of Seller or Worthington which would include a disposition of the Assets. In addition, upon the execution of this Agreement, Seller shall immediately terminate any and all other negotiations related to the Assets, if any, and shall immediately notify any and all other bidders and interested parties, if any, that the bid solicitation process and all due diligence procedures have concluded and no further negotiations will be conducted. Subsequent to the Effective Date, Seller shall notify Buyer of any offer or proposal regarding the sale or disposition of any of the Assets within twenty-four (24) hours of receipt or awareness of the same by Seller, Worthington or any of their Affiliates.
5.02 | Operations. |
From the Effective Date until the Closing Date, except as otherwise expressly provided in this Agreement, Seller shall:
(a) comply in all material respects with all Legal Requirements and obligations under the Assumed Contracts relating to or affecting the Assets or the Business;
(b) carry on the Business in substantially the same manner as it has on the Effective Date;
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(c) maintain the Assets in the same condition as the Assets were maintained as of the Effective Date, normal wear and tear excepted; provided, however, Seller shall be under no obligation under this Section 5.02(c) with respect to Assets in which Seller has suffered a Catastrophic Loss;
(d) subject to Section 5.07(a), take all actions necessary and appropriate to deliver to Buyer title to the Assets free and clear of all Encumbrances (other than Permitted Encumbrances);
(e) keep in full force and effect present insurance policies or other comparable insurance benefiting the Assets and the conduct of the Business; and
(f) maintain and preserve its status as a limited liability company.
5.03 | Certain Actions. |
From the Effective Date until the Closing Date, except as otherwise expressly provided in this Agreement or as set forth on Schedule 5.03, Seller shall not take any of the following actions without first obtaining the written consent of Buyer (which consent shall not be unreasonably withheld):
(a) amend or terminate any Assumed Contract; or
(b) sell, assign, transfer, distribute or otherwise transfer or dispose of any of the Assets.
5.04 | Employee Matters. |
(a) Nothing contained in this Agreement shall confer upon any employee of Seller any right with respect to continued employment by Buyer. For purposes of clarification and not limitation, Buyer shall not assume any liability or obligation of Seller with respect to or in favor of any employees of Seller. Effective as of the Closing, Seller will terminate all employees of the Business not being retained by Seller. All employer responsibilities arising from and related to such termination pursuant to the WARN Act (and any other applicable law, rule or regulation pertaining to the termination of any of Sellers employees) shall be the responsibility of Seller, and Seller agrees to lawfully discharge all such responsibilities. Seller covenants to indemnify and hold Buyer harmless from and against all direct and indirect costs, expenses and liabilities of any sort arising from or relating to any claims by or on behalf of present or former employees of Seller in respect to any and all matters arising or incurred relating to the termination of employees by Seller as contemplated hereby and in respect to severance pay or termination pay and similar obligations relating to the termination by Seller of such employees employment with Seller.
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(b) The Parties hereby specifically acknowledge and agree that 2004 Forms W-2 for those employees of the Business hired by Buyer shall be prepared and filed in accordance with the standard procedure of the Internal Revenue Employment Tax Regulations, as clarified in Revenue Procedure 96-60, 1996-2 C.B. 399, and any comparable provisions of applicable state and local law.
5.05 | Access to and Provision of Additional Information. |
(a) From the Effective Date until the Closing Date, Seller shall reasonably cooperate with Buyer and Buyers representatives in connection with Buyers due diligence investigation of the Business and the Assets and, to the extent permissible under applicable Legal Requirements, shall provide to Buyer and Buyers representatives reasonable access to and the right to inspect the Business, the Assets, and books and records of Seller relating to the Assets and the Business, and will furnish to Buyer all material information concerning the Assets and the Business, access to files and other records of Seller (unless protected by legal privilege) regarding claims, actions, suits, litigation, arbitration, mediations, investigations and other proceedings pending against or otherwise affecting the Assets or the Business, and such additional financial, operating and other data and information regarding the Business as Buyer may from time to time reasonably request, without regard to where such information may be located. Buyer and Seller specifically agree that Buyer may conduct, at its own expense, a physical survey of the Real Property. All communication regarding such due diligence shall be with individuals specified by Worthington.
(b) From the Effective Date until the Closing Date, to the extent permissible under applicable Legal Requirements, Seller shall use its reasonable best efforts to cause the officers and employees of Seller to confer on a regular and frequent basis with one or more representatives of Buyer and to answer Buyers questions regarding matters relating to the conduct of the Business and the status of the Transaction. Seller shall notify Buyer of any material changes in the condition of the Assets, which arise between the Effective Date and the Closing, and shall keep Buyer reasonably informed of such matters.
5.06 | Post-Closing Maintenance of and Access to Information. |
The Parties acknowledge that after Closing Buyer and Seller may need access to information or documents in the control or possession of the other for the purposes of concluding the Transaction, Tax Returns or audits, the Assumed Contracts and other Legal Requirements, and the prosecution or defense of third party claims. Accordingly, each of Buyer and Seller shall keep, preserve and maintain in the ordinary course of business, and as required by Legal Requirements and relevant insurance carriers, all books, records, documents and other information in the possession or control of such Party and relevant to the foregoing purposes for a period of five (5) years; provided, however, Buyer or Seller may destroy or otherwise dispose of any of the items referenced in this Section 5.06 at any time if the Party seeking to destroy or dispose of such items provides sixty (60) days prior written notice to the other Party of the intent to destroy or dispose of such items and affords such other Party an opportunity to copy or otherwise remove such items. The foregoing notice and copy obligations shall be required
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before any destruction of any such documents by a Party. The exercise by any Party of any right of access granted herein shall not materially interfere with the business operations of the other Party. The survival periods of Section 9.01 hereof shall not apply to this Section 5.06.
5.07 | Governmental Authority Approvals; Consents to Assignment. |
(a) From the Effective Date until the Closing Date, each of Seller and Buyer shall (i) promptly apply for, diligently pursue through to completion, and use their respective commercially reasonable efforts to obtain prior to Closing all consents, approvals, authorizations and clearances of Governmental Authorities required of it to consummate the Transaction (including the assignment of the Assumed Contracts), (ii) provide such information and communications to Governmental Authorities as the other Party or such Persons may reasonably request, and (iii) assist and cooperate with the other Party to obtain all Permits and clearances of Governmental Authorities that the other Party reasonably deems necessary or appropriate, and to prepare any document or other information reasonably required of it by any such Persons to consummate the Transaction; provided, however, that, notwithstanding the foregoing, no Party shall have any obligation under such provisions (x) to pay any cash amounts to Governmental Authorities other than filing fees, or (y) to agree to divest assets or limit the operations of its businesses.
(b) Seller and Buyer shall each promptly prepare and file a notification with the Justice Department and the FTC as required by the HSR Act. Seller and Buyer shall cooperate with each other in connection with the preparation of such notification and shall provide the other such information and assistance as the other may reasonably request to complete such notification, and shall provide a copy of such notification to the other prior to filing. Each of Seller and Buyer shall keep confidential all information about the other obtained in connection with the preparation of such notification. Buyer shall pay all filing fees required under the HSR Act. Buyer and Seller shall keep each other apprised of the status of any communications with, and inquiries and requests for information from, any Governmental Authority. Buyer and Seller shall use their commercially reasonable efforts to obtain any clearance required under the HSR Act for the consummation of the Transaction.
(c) Seller shall utilize its commercially reasonable best efforts to obtain all agreements, consents, approvals or waivers necessary for the assignment or transfer of any Assumed Contracts and Permits, and deliver the same to Buyer on or prior to the Closing Date; provided, however, in no event shall Seller be required to pay any out-of-pocket expenses or other amounts not specifically required under the terms of the Assumed Contracts and Permits with respect to its obligations under this Section 5.07(c) other than normal filing fees and processing charges. Seller shall cooperate with Buyer in order to effect Buyers succession to the ad valorem tax abatements related to the Assets, including without limitation execution of an assignment of such abatements to Buyer.
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5.08 | Allocation of Purchase Price for Tax Purposes. |
Buyer shall prepare, in accordance with §1060 of the Code and the Treasury Regulations thereunder, and send to Seller Internal Revenue Service Form 8594 within one hundred twenty (120) days after the Closing Date. Seller and Buyer covenant to report gain or loss or cost basis, as the case may be, in a manner consistent with the asset-class allocations reflected on such Form 8594 on all Tax Returns filed by any of them after Closing and not to voluntarily take any inconsistent position therewith in any administrative or judicial proceeding relating to such returns.
5.09 | Costs and Expenses. |
(a) Except as otherwise expressly set forth in this Agreement, all expenses of the negotiation and preparation of this Agreement and other documents related to the Transaction, including legal, accounting, brokerage and investment advisor fees and disbursements, shall be borne by the respective Party incurring such expense, whether or not the Transaction is consummated.
(b) Buyer shall pay the cost of Buyers owners title insurance policies and Seller shall pay the cost of removing Encumbrances that are not Permitted Encumbrances. Buyer shall pay the cost of Buyers land title surveys of the Real Property, and environmental, engineering and other professional studies undertaken by Buyer.
(c) The real estate taxes with respect to the Real Property shall be prorated between the Parties as of the Closing Date, with Seller liable to the extent such items relate to any time on or prior to the Closing Date, and with Buyer liable to the extent such items relate to periods subsequent to the Closing Date. Seller shall be liable for all transaction privilege, transfer, sales and use taxes related to the Transaction. Buyer shall be responsible for all recording fees related to the Transaction.
(d) All costs related to any due diligence, physical surveys, and Phase I audits shall be for the account of Buyer.
(e) Prior to Closing, Seller shall prepay, pursuant to and in accordance with Section 9.3 of the IDB Lease, such amount of Basic Rent (as defined in the IDB Lease) as shall be sufficient to enable the Board (as defined in the IDB Lease) to redeem and retire, in advance of maturity, all of the Bonds (as defined in the IDB Lease), in accordance with their terms, including payment of all reasonable fees, charges and disbursements of the Trustee (as defined in the IDB Lease) accrued and to accrue until the date of such payment; provided, however, Seller shall not exercise its purchase option pursuant to Section 11.2 of the IDB Lease.
5.10 | Further Acts and Assurances. |
At any time and from time to time at and after the Closing, upon request of Buyer, Seller
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shall do, execute, acknowledge and deliver, or cause to be done, executed, acknowledged and delivered, such further acts, deeds, assignments, transfers, conveyances, powers of attorney, confirmations and assurances as Buyer may reasonably request to more effectively convey, assign and transfer to and vest in Buyer, its successors and assigns, legal right, title and interest in and actual possession of the Assets and to generally carry out the purposes and intent of this Agreement. To the fullest extent permitted by Legal Requirements, Seller shall also furnish Buyer with such information and documents in its possession or under its control, or that Seller can execute or cause to be executed, as will enable Buyer to prosecute any and all petitions, applications, claims and demands relating to or constituting a part of the Assets and the Business.
5.11 | Fulfillment of Conditions. |
Each Party will execute and deliver at Closing each agreement, instrument or other document that such Party is required by this Agreement to execute and deliver as a condition to Closing, and will take all commercially reasonable steps necessary or desirable and proceed diligently and in good faith to satisfy each other condition to the obligations of the Parties contained in this Agreement, to the extent that satisfaction of such condition is within the control of such Party.
5.12 | Preservation of Representations and Warranties. |
Each of the Parties hereto shall refrain from taking any action which would render any representation or warranty contained in Articles 3 or 4 of this Agreement inaccurate as of the Closing Date. Each of Buyer and Seller shall promptly notify the other of any proceeding that shall be instituted or threatened against such Party to restrain, prohibit or otherwise challenge the legality of the Transaction. To the extent Seller or Buyer gains knowledge of any of the following prior to Closing, such party shall promptly notify the other of (a) any proceeding that may be threatened, brought, asserted or commenced against such Party which would have been listed in any Schedule to this Agreement if such proceeding had arisen prior to the date hereof, (b) any fact which, if known on the date of this Agreement, would have been required to be set forth or disclosed pursuant to this Agreement, and (c) any actual or threatened breach in any material respect of any of the representations and warranties contained in this Agreement and with respect to the latter, shall use their commercially reasonable efforts to remedy such actual or threatened breach.
5.13 | Termination of Supply Agreements. |
Prior to the Effective Date, (i) Buyer and Seller signed a Product Supply Agreement and (ii) Nucor and Worthington signed a National Steel Supply Agreement (collectively, the Supply Agreements), the effectiveness of each of which was expressly made contingent upon the execution of an asset purchase agreement by and among the Parties. In connection with the execution and performance of this Agreement, the Parties agree that each Supply Agreement shall be null and void prior to its effectiveness, and no party thereto shall have any rights or obligations thereunder.
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5.14 | Pre-Closing Physical Damage. |
In the event there is physical damage to any of the Assets which does not result in a Catastrophic Loss, either (i) Seller shall repair or replace such Asset and return it to the condition it was in on the Inspection Date, or (ii) there shall be a credit against the Purchase Price for the reasonable amount of the repair or replacement costs, as determined by an independent engineer or adjuster.
6. | CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER |
The obligations of Seller hereunder are subject to the satisfaction on or prior to the Closing Date of the following conditions unless waived in writing by Seller:
6.01 | Representations and Warranties; Covenants. |
(a) Each of the representations and warranties of Buyer contained in this Agreement shall be true, complete and correct in all material respects on and as of the Effective Date and, except where expressly limited to a specific date, on and as of the Closing Date.
(b) Each and all of the terms, covenants and agreements to be complied with or performed by Buyer on or before the Closing Date shall have been complied with and performed in all material respects, including the obligations of Buyer in Section 8.03.
6.02 | Adverse Actions or Proceedings. |
No Governmental Authority shall have taken or threatened to take any action restraining or prohibiting the Transaction and as a result of which Seller reasonably and in good faith deems it inadvisable to proceed with the Transaction; and there shall not be in effect any order restraining, enjoining or otherwise preventing consummation of the Transaction; provided that the Parties shall have used their respective commercially reasonable best efforts to cause any such order to be vacated or lifted. Further, all applicable waiting periods for comment or approval by any Governmental Authority shall have expired.
6.03 | Pre-Closing Confirmations. |
Seller shall have obtained documentation or other written evidence reasonably satisfactory to Seller that Seller and Buyer have received or will receive all consents, approvals, authorizations and clearances of Governmental Authorities required to consummate the Transaction.
7. | CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER |
The obligations of Buyer hereunder are subject to the satisfaction on or prior to the Closing Date of each of the following conditions, unless waived in writing by Buyer:
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7.01 | Representations and Warranties; Covenants. |
(a) Each of the representations and warranties of Seller contained in this Agreement shall be true, complete and correct in all material respects on and as of the Effective Date and, except where expressly limited to a specific date, on and as of the Closing Date.
(b) Each and all of the terms, covenants and agreements to be complied with or performed by Seller on or before the Closing Date shall have been complied with and performed in all material respects, including the obligations of Seller in Section 8.02.
7.02 | Adverse Actions or Proceedings. |
No Governmental Authority shall have taken or threatened to take any action restraining or prohibiting the Transaction and as a result of which Buyer reasonably and in good faith deems it inadvisable to proceed with the Transaction; and there shall not be in effect any order restraining, enjoining or otherwise preventing consummation of the Transaction; provided that the Parties shall have used their respective commercially reasonable best efforts to cause any such order to be vacated or lifted. Further, all applicable waiting periods for comment or approval by any Governmental Authority shall have expired.
7.03 | Pre-Closing Confirmations. |
Buyer shall have obtained documentation or other written evidence reasonably satisfactory to Buyer that Seller and Buyer have received or will receive all consents, approvals, authorizations and clearances of Governmental Authorities required to consummate the Transaction.
8. | CLOSING; TERMINATION OF AGREEMENT |
8.01 | Closing. |
Consummation of the sale and purchase of the Assets and the other transactions contemplated by and described in this Agreement (the Closing) shall take place at the offices of Moore & Van Allen PLLC in Charlotte, North Carolina at 10:00 A.M. EDT on July 1, 2004, or at such other time or place as the Parties may mutually agree. Unless otherwise agreed in writing by the Parties at Closing, the Closing shall be effective for accounting purposes as of 12:01 A.M. EDT on the Closing Date.
8.02 | Actions of Seller Prior to and at Closing. |
(a) No later than three (3) Business Days prior to Closing, Seller shall deliver to the Closing Agent a special warranty deed(s) in form and substance reasonably acceptable to Buyer, conveying to Buyer fee simple title in the Real Property owned by Seller, free and clear of any Encumbrances other than Permitted Encumbrances, in
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recordable form. The Closing Agent shall agree in writing to hold such deed(s) in trust and not to record the same except pursuant to the terms hereof.
(b) At the Closing, unless otherwise waived in writing by Buyer, Seller shall deliver or shall cause to be delivered to Buyer:
(i) bills of sale and assignment, as the case may be, in form and substance reasonably acceptable to Buyer, conveying to Buyer good and valid title to all of the Assets other than the Real Property owned by Seller, free and clear of all Encumbrances (other than Permitted Encumbrances);
(ii) assignments and consents to such assignments if required, in form and substance reasonably acceptable to Buyer, conveying the interests of Seller in the Assumed Contracts, to Buyer;
(iii) copies of resolutions or equivalent instruments duly adopted by the Board of Directors of Worthington and by the members of Seller authorizing and approving the execution and delivery of this Agreement and the consummation of the Transaction, certified as true and in full force and effect as of the Closing Date by a member or an officer of Seller and by an officer of Worthington, as appropriate;
(iv) certificates of the duly authorized officer or manager of Seller certifying that each of the representations and warranties of Seller contained in this Agreement is true and correct on and as of the Closing Date in all material respects, and that each and all of the terms, covenants and agreements to be complied with or performed by Seller on or before the Closing Date have been complied with and performed in all material respects;
(v) a certificate of good standing for Seller from the State of Alabama, dated within thirty (30) days prior to the Closing Date;
(vi) a counterpart of each of the Operating Lease and the Non-Compete Agreement, executed by Seller and/or Worthington, as appropriate; and
(vii) such other instruments, agreements, certificates and documents as Buyer reasonably deems necessary to effect the Transaction, including without limitation the assignment contemplated by Section 5.07(c) hereof.
8.03 | Action of Buyer at Closing. |
At the Closing and unless otherwise waived in writing by Seller, Buyer shall deliver or cause to be delivered to Seller:
(a) the Purchase Price;
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(b) an assumption agreement, fully executed by Buyer, in form and substance reasonably acceptable to Seller, pursuant to which Buyer shall assume the performance of the obligations of the Assumed Contracts and the payment of the Assumed Liabilities;
(c) copies of resolutions or equivalent instruments duly adopted by Nucor and by the members of Buyer authorizing and approving the execution and delivery of this Agreement and the consummation of the Transaction, certified as true and in full force and effect as of the Closing Date by the members or an officer of Buyer and by an officer of Nucor, as appropriate;
(d) certificates of the duly authorized officer or manager of Buyer certifying that each of the representations and warranties of Buyer contained in this Agreement is true and correct on and as of the Closing Date in all material respects, and that each and all of the terms, covenants and agreements to be complied with or performed by Buyer on or before the Closing Date have been complied with and performed in all material respects;
(e) certificates of existence and good standing of Buyer from the State of Delaware, dated within thirty (30) days prior to the Closing Date;
(f) a counterpart of each of the Operating Lease and the Non-Compete Agreement, executed by Buyer and/or Nucor, as appropriate; and
(g) such other instruments, agreements, certificates and documents as Seller reasonably deems necessary to effect the Transaction, including without limitation the assignment contemplated by Section 5.07(c) hereof.
8.04 | Closing Procedures. |
Following a title update through the Closing Date and recordation of the special warranty deed described in Section 8.02(a) above, the Closing Agent shall notify Buyer and Seller of such actions. At such time, Buyer shall disburse the Purchase Price (following prorations or other adjustments made pursuant to the specific terms of this Agreement) by wire transfer to an account designated by Seller in writing at the Closing.
8.05 | Termination Prior to Closing. |
(a) Notwithstanding anything herein to the contrary, this Agreement may be terminated, and the Transaction abandoned, upon notice by the terminating Party to the other Party:
(i) at any time before the Closing, by mutual consent of Buyer and Seller without penalty or payment; or
(ii) at any time before the Closing, by Buyer on the one hand, or Seller on the other hand, in the event of material breach of this Agreement by the non-
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terminating Party, which breach is not cured within thirty (30) days following receipt of notice of the alleged breach by the breaching Party; or
(iii) by Seller or Buyer if the Closing shall not have taken place on or before September 30, 2004 (a) as a result of action or threat of action by a Governmental Authority restraining or prohibiting the consummation of the Transaction, or (b) if any approval or consent of a Governmental Authority necessary for the consummation of the Transaction under applicable Legal Requirements has not been received; provided that the Parties shall have used their respective commercially reasonable best efforts to cause any such action or order to be vacated, lifted or otherwise disposed of such that the Transaction can be consummated; or
(iv) at any time before the Closing, by Buyer in the event Seller suffers a Catastrophic Loss and Seller has not repaired (or agreed in a signed writing reasonably satisfactory to Buyer to repair) the Assets affected to the condition such Assets were in prior to the Catastrophic Loss.
(b) If this Agreement is validly terminated pursuant to Section 8.05(a), the Closing Agent shall return the deed(s), if any, to Seller. In addition, if this Agreement is validly terminated pursuant to Section 8.05(a)(i), (iii) or (iv), this Agreement will be null and void, and there will be no liability on the part of any Party (or any of their respective members, officers, directors, trustees, employees, agents, consultants or other representatives). If this Agreement is validly terminated pursuant to Section 8.05(ii), in addition to termination hereof, the terminating Party shall have at its disposal all rights and remedies available to it at law or in equity.
(c) In the event Seller suffers a Catastrophic Loss and Buyer does not terminate this Agreement pursuant to Section 8.05(a)(iv), then the Closing shall occur as provided for herein.
8.06 | Waiver of Closing Requirements. |
Unless otherwise agreed in writing by Buyer and Seller, all requirements specified in Sections 8.02 and 8.03 of this Agreement shall be deemed to be satisfied or, to the extent not satisfied, waived by the Parties if the Closing is consummated.
9. | INDEMNITY | |||
9.01 | Survival/Right to Indemnification. |
(a) Each representation, warranty, covenant and obligation of this Agreement that relates to Section 3.10 or any Environmental Claim, or any Environmental Law, shall survive the Closing and shall continue in full force and effect until the four year anniversary of the Closing Date.
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(b) Each representation, warranty, covenant, and obligation of this Agreement that relates to any Tax matter or any Tax liability shall survive the Closing and continue in full force and effect until the expiration of the applicable statute of limitations related to such Tax matter or Tax liability as the case may be.
(c) Except for the matters described in Sections 9.01(a) and (b), all representations, warranties, covenants, and obligations of this Agreement, and any certificates or documents delivered pursuant hereto, shall survive the Closing and continue in full force and effect until the eighteen (18)-month anniversary of the Closing Date.
(d) Any and all claims for indemnification under this Article 9 shall be subject to the provision of proper notice as specified in Sections 9.06 and 9.07 hereof, and must be made by the Party claiming such right to indemnification within three (3) months following the expiration of the applicable survival period related to the representation, warranty, covenant or obligation hereunder.
(e) All rights to indemnification and payment of Damages under this Article 9 based on any breach of any representations, warranties, covenants and obligations shall be deemed waived by a Party if prior to Closing such Party (i) had actual knowledge of the circumstances constituting such breach; (ii) had actual knowledge of the fact that such circumstances actually constituted such breach; and (iii) fails to notify the breaching Party of such breach. For purposes of determining if such waiver has occurred, the Party claiming the waiver must show the actual knowledge required herein by clear and convincing evidence. Except as otherwise provided in this Agreement, waiver of any condition based on the accuracy of any representation or warranty, or on the performance of or compliance with any covenant or obligation, will not affect the right to indemnification or any other remedy based on such representations, warranties, covenants and obligations.
9.02 | Indemnification and Payment of Damages by Seller. |
Seller will indemnify and hold harmless Buyer, and Buyers Affiliates, officers, directors, employees and agents (collectively, the Buyer Indemnified Persons) from, and will pay to the Buyer Indemnified Persons the amount of, any loss, liability, claim, damage, expense, fine or penalty (including the same as they relate to injury to any Person or property, costs of investigation and defense, and reasonable attorneys fees, whether or not involving a third-party claim, but excluding except as to third party claims any indirect, special or consequential damages) (collectively, Damages), arising, directly or indirectly, from or in connection with:
(a) any breach by Seller of any representation, warranty, covenant or obligation of Seller in this Agreement,
(b) any and all liabilities (excluding Assumed Liabilities), costs or expenses related to the operation or ownership of the Business or the Assets (including tax, environmental, product liability, warranty, contract, tort, negligence or employment
29
claims and liabilities), arising out of the operation or ownership of the Business or the Assets prior to the Closing; or
(c) any claim by any Person for brokerage or finders fees or commissions or similar payments based upon any agreement or understanding alleged to have been made by any such Person with Seller (or any Person acting on Sellers behalf) in connection with the Transaction.
9.03 Limitations on Sellers Obligations.
Seller shall not be subject to any liability under this Article 9 until all Damages of the Buyer Indemnified Persons exceed a Six Hundred Fifty Thousand Dollars ($650,000) aggregate threshold (the Basket Amount), at which point Seller will be obligated to indemnify the Buyer Indemnified Persons from and against all Damages in excess of the Basket Amount for an amount up to but not to exceed Fifteen Million Dollars ($15,000,000); provided, however, any liability of Seller under Article 9 related in any way to (i) Taxes or (ii) the covenants of Sections 5.01 and 5.03 through 5.14 inclusive shall not be subject to the provisions of this Section 9.03. The amount for which Seller shall be liable with respect to any Damages pursuant to Section 9.02 shall be reduced to the extent that the Buyer Indemnified Persons shall theretofore have realized any Net Proceeds recovered from third parties with respect to such Damages. If the Buyer Indemnified Persons shall have received or shall have had paid on their behalf an indemnity payment with respect to such Damages and shall subsequently receive, directly or indirectly, such proceeds, then Buyer shall promptly pay to Seller the Net Proceeds or, if less, the amount of such indemnity payment. Buyer shall have an affirmative obligation to file claims under applicable policies to recover insurance proceeds that may be due to Buyer or any other Person in order to mitigate Sellers obligations hereunder.
9.04 | Indemnification and Payment of Damages by Buyer. |
Buyer will indemnify and hold harmless Seller, and Sellers Affiliates, officers, directors, employees and agents (collectively, the Seller Indemnified Persons) from, and will pay to the Seller Indemnified Persons the amount of any Damages arising, directly or indirectly, from or in connection with:
(a) any breach by Buyer of any representation, warranty, covenant or obligation of Buyer in this Agreement;
(b) any and all liabilities, costs or expenses related to the operation or ownership of the Business or the Assets (including environmental, product liability, warranty, contract, tort, negligence or employment claims and liabilities), arising out of the operation or ownership of the Business or the Assets subsequent to the Closing Date;
(c) any claim by any Person for brokerage or finders fees or commissions or similar payments based upon any agreement or understanding alleged to have been made by any such Person with Buyer (or any Person acting on Buyers behalf) in connection with the Transaction; or
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(d) any Assumed Liabilities.
9.05 | Limitations on Buyers Obligations. |
Buyer shall not be subject to any liability under this Article 9 until all damages of the Seller Indemnified Persons exceeds the Basket Amount, at which point Buyer will be obligated to indemnify the Seller Indemnified Persons from and against all damages in excess of the Basket Amount for an amount up to but not to exceed Fifteen Million Dollars ($15,000,000); provided, however, any liability of Buyer under Article 9 related in any way to the covenants of Sections 5.01 and 5.03 through 5.14 inclusive shall not be subject to the provisions of this Section 9.05. The amount for which Buyer shall be liable with respect to any damages pursuant to Section 9.04 shall be reduced to the extent that the Seller Indemnified Persons shall theretofore have realized any Net Proceeds recovered from third parties with respect to such Damages. If the Seller Indemnified Persons shall have received or shall have had paid on their behalf an indemnity payment with respect to such Damages and shall subsequently receive, directly or indirectly, such proceeds, then Seller shall promptly pay to Buyer the Net Proceeds or, if less, the amount of such indemnity payment. Seller shall have an affirmative obligation to file claims under applicable policies to recover insurance proceeds that may be due to Seller or any other Person in order to mitigate Buyers obligations hereunder.
9.06 | Procedure for Indemnification Third Party Claims. |
(a) Within fifteen (15) days following receipt by any of the Buyer Indemnified Persons or the Seller Indemnified Persons as the case may be (respectively, the Indemnified Persons) of notice of the commencement of any proceeding against it, such Indemnified Person will, if a claim is to be made against the other Party (the Indemnifying Person), give notice to the Indemnifying Person of the commencement of such proceeding, but the failure to notify the Indemnifying Person will not relieve Indemnifying Person of any liability that it may have to any Indemnified Persons, except to the extent that the Indemnifying Person demonstrates that the defense of such action is prejudiced by the Indemnified Persons failure to give such notice.
(b) If any proceeding referred to in Section 9.06(a) is brought against any Indemnified Persons, the Indemnifying Person will be entitled to participate in such proceeding and, to the extent that it wishes (unless (i) the Indemnifying Person is also a party to such proceeding and the Indemnified Persons determine in good faith that joint representation would be inappropriate, or (ii) Indemnifying Person fails to provide reasonable assurance to the Indemnified Persons of its financial capacity to defend such proceeding and provide indemnification with respect to such proceeding), to assume the defense of such proceeding with counsel reasonably satisfactory to the Indemnified Persons and, after notice from Indemnifying Person to the Indemnified Persons of its election to assume the defense of such proceeding, the Indemnifying Person will not, as long as it diligently conducts such defense, be liable to the Indemnified Persons under this Article 9 for any fees of other counsel or any other expenses with respect to the defense of such proceeding, in each case subsequently incurred by the Indemnified Persons in connection with the defense of such proceeding. If the Indemnifying Person assumes the defense of a proceeding, no compromise or settlement of any claims made in
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that proceeding of such claims may be effected by the Indemnifying Person without the Indemnified Persons consent (which shall not be unreasonably withheld) unless (A) there is no finding or admission by the Indemnified Persons of any violation of applicable Legal Requirements or any violation of the rights of any Person and no effect on any other claims that may be made against the Indemnified Persons, and (B) the sole relief provided is monetary damages that are paid in full by the Indemnifying Person. If the Indemnifying Person fails to defend against a proceeding, subject to the limitations set forth in this Article 9, the Indemnified Persons may assume control of the defense and if the Indemnified Persons shall undertake at any time to compromise such proceeding, it shall promptly notify the Indemnifying Person of its intention to do so and shall obtain the Indemnifying Persons prior written consent to any final compromise or settlement, which consent shall not be unreasonably withheld or delayed. The Parties shall provide reasonable cooperation to each other in the defense of any such claim.
(c) Notwithstanding the foregoing, if any Indemnified Persons determines in good faith that there is a reasonable probability that a proceeding may adversely affect it other than as a result of monetary damages for which it would be entitled to indemnification under this Agreement, the Indemnified Persons may, by notice to the Indemnifying Person, assume the exclusive right to defend, compromise, or settle such proceeding, but the Indemnifying Person will not be bound by any determination of a proceeding so defended or any compromise or settlement effected without its consent (which may not be unreasonably withheld).
(d) The Parties hereby consent to the non-exclusive jurisdiction of any court in which a proceeding is brought against any Indemnified Persons for purposes of any claim that any Indemnified Persons may have under this Agreement with respect to such proceeding or the matters alleged therein.
9.07 | Procedure for Indemnification Other Claims. |
(a) A claim for indemnification for any matter not involving a third-party claim may be asserted by notice to the Party from whom indemnification is sought.
(b) No Indemnified Persons shall undertake or cause to be undertaken or allow any removal, remedial or response action with respect to which any Indemnified Persons may be entitled to indemnification without providing reasonable prior written notice to the Indemnifying Person.
9.08 | Survival. |
The Indemnifying Persons obligation to indemnify the Indemnified Persons shall terminate at the conclusion of the time periods set forth in this Article 9, except with respect to Damages that are, prior to the conclusion of the applicable time period, the subject of a proceeding in a court of competent jurisdiction (notice of which proceeding has been delivered to the Indemnifying Person by the Indemnified Persons prior to the conclusion of the applicable
32
time period) and are incurred after the conclusion of the applicable time period as a direct result of a judgment, order or decree entered therein, or a settlement thereof.
9.09 | Good Faith Endeavors. |
With respect to Damages for which any Indemnified Person could claim indemnification under the provisions of this Article 9, both Buyer and Seller will endeavor in good faith to incur only reasonable Damages.
10. | SELLERS PARENT GUARANTY | |||
10.01 | Guaranty of Performance. |
Worthington hereby unconditionally and irrevocably guarantees to Buyer the timely performance of all obligations of Seller under this Agreement (for purposes of this Article 10, the Seller Obligations). Buyer acknowledges and agrees that the Seller Obligations are subject to and shall be determined in accordance with the express terms and conditions of this Agreement.
10.02 | Primary Liability of Worthington. |
Worthington agrees that this guaranty may be enforced by Buyer without the necessity at any time of resorting to or exhausting any other remedy or without the necessity at any time of having recourse to this Agreement. Worthington hereby waives the right to require Buyer to proceed against Seller or any other Person or to require Buyer to pursue any other remedy or enforce any other right. Worthington agrees that nothing contained herein shall prevent Buyer from exercising any and all rights or remedies under this Agreement or any other document or instrument executed in connection with this Agreement if neither Seller nor Worthington timely performs the Seller Obligations, and the exercise of any of the aforesaid rights and the completion of any proceedings related thereto shall not constitute a discharge of any of Worthingtons obligations hereunder, it being the express purpose and intent of Worthington that Worthingtons obligations hereunder shall be absolute, independent and unconditional under any and all circumstances. Neither Worthingtons obligations under this guaranty nor any remedy for the enforcement thereof shall be impaired, modified, changed or released in any manner whatsoever by an impairment, modification, change, release or limitation of the liability of Seller or by reason of bankruptcy or insolvency.
10.03 | Continuation of Guaranty. |
This guaranty shall continue to be effective, or be reinstated, as the case may be, if at any time payment or performance, or any part thereof, of any of the Seller Obligations is rescinded or must otherwise be restored or returned by Buyer upon insolvency, bankruptcy, dissolution, liquidation or reorganization of Seller, or upon or as a result of the appointment of any receiver, intervenor or conservator of, or trustee or similar officer for, Seller or any substantial part of its property, or otherwise, as if such payments or performances had not been made.
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10.04 | Attorneys Fees and Costs of Collection. |
If at any time or times hereafter Buyer employs counsel to pursue collection, to intervene, to sue for enforcement of the terms hereof, or to file a petition, complaint, answer, motion or other pleading in any suit or proceeding related to this guaranty, then in each such event the prevailing party in any such action shall be entitled to recover its reasonable attorneys fees from the non-prevailing party.
11. | BUYERS PARENT GUARANTY | |||
11.01 | Guaranty of Performance. |
Nucor hereby unconditionally and irrevocably guarantees to Seller the timely performance of all obligations of Buyer under this Agreement (for purposes of this Article 11, the Buyer Obligations). Seller acknowledges and agrees that the Buyer Obligations are subject to and shall be determined in accordance with the express terms and conditions of this Agreement.
11.02 | Primary Liability of Nucor. |
Nucor agrees that this guaranty may be enforced by Seller without the necessity at any time of resorting to or exhausting any other remedy or without the necessity at any time of having recourse to this Agreement. Nucor hereby waives the right to require Seller to proceed against Buyer or any other Person or to require Seller to pursue any other remedy or enforce any other right. Nucor agrees that nothing contained herein shall prevent Seller from exercising any and all rights or remedies under this Agreement or any other document or instrument executed in connection with this Agreement if neither Buyer nor Nucor timely performs the Buyer Obligations, and the exercise of any of the aforesaid rights and the completion of any proceedings related thereto shall not constitute a discharge of any of Nucors obligations hereunder, it being the express purpose and intent of Nucor that Nucors obligations hereunder shall be absolute, independent and unconditional under any and all circumstances. Neither Nucors obligations under this guaranty nor any remedy for the enforcement thereof shall be impaired, modified, changed or released in any manner whatsoever by an impairment, modification, change, release or limitation of the liability of Buyer or by reason of bankruptcy or insolvency.
11.03 | Continuation of Guaranty. |
This guaranty shall continue to be effective, or be reinstated, as the case may be, if at any time payment or performance, or any part thereof, of any of the Buyer Obligations is rescinded or must otherwise be restored or returned by Seller upon insolvency, bankruptcy, dissolution, liquidation or reorganization of Buyer, or upon or as a result of the appointment of any receiver, intervenor or conservator of, or trustee or similar officer for, Buyer or any substantial part of its property, or otherwise, as if such payments or performances had not been made.
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11.04 | Attorneys Fees and Costs of Collection. |
If at any time or times hereafter Seller employs counsel to pursue collection, to intervene, to sue for enforcement of the terms hereof, or to file a petition, complaint, answer, motion or other pleading in any suit or proceeding related to this guaranty, then in each such event the prevailing party in any such action shall be entitled to recover its reasonable attorneys fees from the non-prevailing party.
12. | GENERAL | |||
12.01 | Schedules. |
The Schedules and all Exhibits and documents referred to in or attached to this Agreement are integral parts of this Agreement as if fully set forth herein. Nothing in the Schedules shall be deemed adequate to disclose an exception to a representation or warranty made herein unless the Schedule identifies the exception with reasonable particularity. Any statement, notation or other disclosure in any Schedule relates only to the particular section or subsection of the Agreement under which such statement, notation or disclosure is listed and does not apply to any other section or subsection of this Agreement. The inclusion of any matter on any Schedule shall not constitute an admission by Seller that such matter is material or would reasonably be expected to have a material adverse effect upon the Business. Seller may update any Schedules referred to in this Agreement prior to or at the Closing for any fact or circumstance arising after the Effective Date by giving notice to Buyer in accordance with the terms of this Agreement. Such updates will be effective to cure and correct, for all purposes, any breach of any representation or warranty which would have existed if Seller had not made such update, so long as such update(s) individually or in the aggregate do not have a material adverse effect on the Business, as determined by Buyer in its discretion, unless Seller cures such material adverse effect to the satisfaction of Buyer. If Buyer determines that such update does create a material adverse effect, Buyer may elect to either accept such update or to immediately terminate this Agreement without further penalty or obligation. All references to any Schedule which is updated pursuant to this Section 12.01 shall, for all purposes, be deemed to be a reference to such Schedule as updated.
12.02 | Tax Effect. |
No Party (nor any Partys counsel or accountants) has made or is making in this Agreement any representation to any other Party (or such Partys counsel or accountants) concerning any of the Tax effects or consequences on any other Party to the Transaction. Each Party represents that it has obtained, or may obtain, independent Tax advice with respect thereto and upon which it, if so obtained, has solely relied.
12.03 | Consents, Approvals and Discretion. |
Except as herein expressly provided to the contrary, whenever this Agreement requires any consent or approval to be given by any Party that is not in such Partys sole discretion or such Party must or may exercise discretion (other than its sole discretion), such consent or
35
approval shall not be unreasonably withheld or delayed and such discretion shall be reasonably exercised.
12.04 | Choice of Law; Submission to Jurisdiction. |
This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without regard to such states conflicts of laws rules. Each of the Parties hereby submits to the exclusive jurisdiction of the State and Federal Courts located in Delaware and irrevocably waives, to the fullest extent permitted by law, any objection to such action based on venue or forum non conveniens .
12.05 | Benefit; Assignment. |
This Agreement shall inure to the benefit of and be binding upon the Parties hereto and their respective legal representatives, successors and assigns. Neither Buyer nor Seller may assign this Agreement without the prior written consent of the other Party; provided, however, that Buyer may assign this Agreement, in whole or in part, to any Affiliate of Buyer without any such consent. In the event Buyer elects to assign this Agreement in whole or in part to any Affiliate of Buyer, Buyer and Nucor shall guarantee the performance of any and all obligations of such Affiliate hereunder.
12.06 | No Third-Party Beneficiary. |
The terms and provisions of this Agreement (including provisions regarding employee and employee benefit matters) are intended solely for the benefit of the Parties, and their respective successors and permitted assigns, and are not intended to confer third-party beneficiary rights upon any other Person.
12.07 | Waiver of Breach, Right or Remedy. |
The waiver by any Party of any breach or violation by another Party of any provision of this Agreement or of any right or remedy of the waiving Party in this Agreement (a) shall not waive or be construed to waive any subsequent breach or violation of the same provision, (b) shall not waive or be construed to waive a breach or violation of any other provision, and (c) shall be in writing and may not be presumed or inferred from any Partys conduct. In addition to any other rights and remedies any Party may have at law or in equity for breach of this Agreement, each Party shall be entitled to seek an injunction to enforce the provisions of this Agreement.
12.08 | Notices. |
Any notice, demand or communication required, permitted or desired to be given hereunder shall be deemed effectively given if given in writing (a) on the date tendered by personal delivery, (b) on the date received by facsimile or other electronic means, (c) one day after the date tendered for delivery by nationally recognized overnight courier, or (d) three days after the date tendered for delivery by United States mail with postage prepaid thereon, certified
36
or registered mail, return receipt requested, in any event addressed as
follows:
Nucor Steel Decatur, LLC
4301 Iverson Boulevard
Trinity, AL 35673
Attn: General Manager
Telephone: (256) 301-3500
Facsimile: (256) 301-3545
and
Nucor Corporation
2100 Rexford Road
Charlotte, NC 28211
Attn: Chief Financial Officer
Telephone: (704) 366-7000
Facsimile: (704) 367-8696
Moore & Van Allen PLLC
Suite 4700
100 North Tryon Street
Charlotte, NC 28202-4003
Attn: Mike DeLaney
Telephone: (704) 331-3519
Facsimile: (704) 339-5819
Worthington Industries, Inc.
200 Old Wilson Bridge Road
Columbus, OH 43085
Attn: General Counsel
Telephone: (614) 438-3001
Facsimile: (614) 840-3706
Vorys, Sater, Seymour and Pease LLP
52 East Gay Street
PO Box 1008
Columbus OH 43216-1008
Attn: Elizabeth Turrell Farrar
Telephone: (614) 464-5607
Facsimile: (614) 719-4708
or to such other address or number, and to the attention of such other Person, as any Party may designate at any time in writing in conformity with this Section 12.08.
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12.09 | Severability. |
If any provision of this Agreement is held or determined to be illegal, invalid or unenforceable under any present or future law by a court of competent jurisdiction: (a) such provision will be fully severable; (b) this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof; (c) the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom; and (d) in lieu of such illegal, invalid or unenforceable provision, Seller and Buyer agree to negotiate in good faith a legal, valid and enforceable provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible.
12.10 | Entire Agreement; Counterparts; Amendment. |
This Agreement supersedes all prior or contemporaneous contracts, agreements and understandings and constitutes the entire agreement of whatsoever kind or nature existing between or among the Parties representing the subject matter of this Agreement and no Party shall be entitled to benefits other than those specified herein. As between or among the Parties, any oral or written representation, agreement or statement not expressly incorporated herein, whether given prior to or on the Effective Date, shall be of no force and effect unless and until made in writing and signed by the Parties on or after the Effective Date. Each representation, warranty and covenant contained in this Agreement has independent significance and if any Party has breached any representation, warranty or covenant contained herein in any respect, the fact that there exists another representation, warranty or covenant relating to the same subject matter (regardless of the relative level of specificity) that such Party has not breached shall not detract from or mitigate the fact that the Party is in breach of the first representation, warranty or covenant. This Agreement may be executed in two (2) or more counterparts, each and all of which shall be deemed an original and all of which together shall constitute but one and the same instrument. This Agreement may not be amended except in a written instrument executed by the Parties.
12.11 | Drafting. |
No provision of this Agreement shall be interpreted for or against any Person on the basis that such Person was the draftsman of such provision, and no presumption or burden of proof shall arise favoring or disfavoring any Person by virtue of the authorship of any provision of this Agreement.
12.12 | Confidentiality. |
The confidentiality provisions of the Non-Disclosure and Non-Solicitation Agreement between Buyer and Seller dated April 10, 2003, as amended from time to time, are hereby incorporated by this reference as if fully set forth herein and shall apply and remain in full force and effect through the Closing Date.
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12.13 | Publicity. |
The Parties hereby agree that they shall (a) utilize their commercially reasonable efforts to consult with each other prior to making any public disclosure regarding the Transaction; and (b) mutually agree upon the content of any such public disclosure prior to issuance. Consent to any such disclosure shall not be unreasonably withheld by the non-issuing Party.
[ Signature Pages to Follow ]
39
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed in multiple originals by their duly authorized officers as of the Effective Date.
SELLER:
WORTHINGTON STEEL COMPANY OF DECATUR, L.L.C. |
||||
By: | /s/ Dale T. Brinkman | |||
Name: | Dale T. Brinkman | |||
Title: | VP Date: 5/26/04 | |||
Date: | 5/26/04 | |||
BUYER:
NUCOR STEEL DECATUR, LLC |
||||
By: | /s/ Joseph A. Rutkowski, Jr. | |||
Name: | Joseph A. Rutkowski, Jr. | |||
Title: | VP | |||
Date: | 5/26/04 | |||
NUCOR CORPORATION
|
||||
By: | /s/ Joseph A. Rutkowski, Jr. | |||
Name: | Joseph A. Rutkowski, Jr. | |||
Title: | EVP | |||
Date: | 5/26/04 | |||
WORTHINGTON INDUSTRIES, INC.
|
||||
By: | /s/ Dale T. Brinkman | |||
Name: | Dale T. Brinkman | |||
Title: | VP | |||
Date: | 5/26/04 | |||
SIGNATURE PAGE
SCHEDULES TO THE ASSET PURCHASE AGREEMENT
TABLE OF CONTENTS
Dated as of the 26th day of May, 2004
by and among
NUCOR STEEL DECATUR, LLC;
WORTHINGTON STEEL COMPANY OF DECATUR, L.L.C.;
NUCOR CORPORATION; and
WORTHINGTON INDUSTRIES, INC.
Legal Descriptions
Tangible Personal Property
Spares Inventory
Assumed Contracts
Permits
Intellectual Properties
Claims
Excluded Tangible Personal Property
Excluded Assets
Assumed Liabilities
Powers; Consents; Absence of Conflicts
Recent Activities
Ownership of Assets
Sufficiency of Assets
Condition of Assets
Title to Personal Property
Real Property Title Exceptions
Permitted Encumbrances
Environmental Matters
Environmental Reports
Environmental Permits
Rights to Intellectual Property
Material Intellectual Properties
Permits
Contracts
Assumed Contracts
Employees and Employee Relations
Litigation and Proceedings
Taxes
Cost Basis of Assets
Compliance with Legal Requirements
Authority of Buyer
Certain Actions
41
Agreement to Supplementally Furnish
Schedules to Asset Purchase Agreement,
dated as of May 26, 2004,
among Nucor Steel Decatur, LLC;
Worthington Steel Company of Decatur, L.L.C.;
Nucor Corporation; and
Worthington Industries, Inc.
The Schedules described in the Table of Contents of the Schedules to the Asset Purchase Agreement, dated as of May 26, 2004, among Nucor Steel Decatur, LLC; Worthington Steel Company of Decatur, L.L.C.; Nucor Corporation; and Worthington Industries, Inc. are not being filed herewith pursuant to Item 601(b)(2) of Regulation S-K. Worthington Industries, Inc. hereby agrees to furnish supplementally a copy of any omitted Schedule to the Securities and Exchange Commission upon request.
WORTHINGTON INDUSTRIES, INC.
|
||||
By: | ||||
Title: | ||||
Date: | August , 2004 | |||
42
Exhibit 4(k)
August 16, 2004
Securities and Exchange
Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Worthington Industries, Inc. Form 10-K for the fiscal year ended May 31, 2004 |
Ladies and Gentlemen:
Worthington Industries, Inc., an Ohio corporation, is today executing and filing a Form 10-K, Annual Report for the fiscal year ended May 31, 2004 (the Form 10-K).
Pursuant to the instructions relating to the Exhibits in Item 601 of Regulation S-K, Worthington Industries, Inc., hereby agrees to furnish to the Commission, upon request, copies of instruments and agreements defining the rights of holders of its long-term debt and of the long-term debt of its consolidated subsidiaries, which are not being filed as exhibits to the form 10-K. Such long-term debt does not exceed 10% of the total assets of Worthington Industries, Inc., and its subsidiaries on a consolidated basis.
Very truly yours,
WORTHINGTON INDUSTRIES, INC. |
||||
/s/ John S. Christie | ||||
John S. Christie | ||||
President and Chief Financial Officer | ||||
Exhibit 10(g)(x)
EXECUTION VERSION
AMENDMENT NO. 2 TO RECEIVABLES PURCHASE AGREEMENT
THIS AMENDMENT NO. 2 TO RECEIVABLES PURCHASE AGREEMENT (this Amendment) dated as of May 31, 2004, is entered into among WORTHINGTON RECEIVABLES CORPORATION, a Delaware corporation (the Seller), WORTHINGTON INDUSTRIES, INC., an Ohio corporation (the Servicer), THE MEMBERS OF THE VARIOUS PURCHASER GROUPS FROM TIME TO TIME PARTY THERETO (each, a Purchaser Group and collectively, the Purchaser Groups), and PNC BANK, NATIONAL ASSOCIATION, as Administrator (the Administrator).
RECITALS
The Seller, the Servicer, each member of each of the Purchaser Groups and Administrator are parties to the Receivables Purchase Agreement, dated as of November 30, 2000 (as amended, supplemented or otherwise modified from time to time, the Agreement); and
The parties hereto desire to amend the Agreement as hereinafter set forth.
NOW THEREFORE , for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Certain Defined Terms. Capitalized terms that are used herein without definition and that are defined in Exhibit I to the Agreement shall have the same meanings herein as therein defined.
2. Amendments to Agreement.
2.1 Exhibit I of the Agreement is hereby amended by adding the following definition, as alphabetically appropriate:
Steel Surcharge Receivable means a Receivable, the Originators of which are The Worthington Steel Company, a Delaware corporation, The Worthington Steel Company, a North Carolina corporation, The Worthington Steel Company, an Ohio corporation, Worthington Steel Company of Kentucky, LLC, a Kentucky limited liability company, Worthington Steel Company of Decatur, L.L.C., an Alabama limited liability company, or Worthington Steel of Michigan, Inc., a Michigan corporation, which is associated with surcharges for coke shortages, utilities, fuel, freight and other costs from vendors of such Originators..
2.2 The definition of Defaulted Receivables is hereby amended by adding the following sentence in its entirety immediately at the end of such definition:
The Outstanding Balance of any Defaulted Receivable shall be determined without regard to any credit memos or credit balances..
2.3 The definition of Delinquency Ratio set forth in the Exhibit I to the Agreement is hereby amended and restated in its entirety to read as follows:
Delinquency Ratio means the ratio (expressed as a percentage and rounded to the nearest 1/100 of 1%, with 5/1000th of 1% rounded upward) computed as of the last day of each calendar month by dividing: (a) the aggregate Outstanding Balance of all Pool Receivables that were Delinquent Receivables (excluding Steel Surcharge Receivables and amounts reported by the Servicer as inputs to the Information Package as charge-backs and disputed receivables) on such day by (b) the aggregate Outstanding Balance of all Pool Receivables on such day..
2.4 The definition of Delinquent Receivables is hereby amended by adding the following sentence in its entirety immediately at the end of such definition:
The Outstanding Balance of any Delinquent Receivable shall be determined without regard to any credit memos or credit balances..
2.5 Clause (m) of the definition of Eligible Receivable set forth in Exhibit I to the Agreement is hereby amended and restated in its entirety to read as follows:
"(m) that is not a Defaulted Receivable, a Delinquent Receivable or a Steel Surcharge Receivable,.
2.6 The definition of Ineligible Elimination Amounts set forth in Exhibit I to the Agreement is hereby amended and restated in its entirety to read as follows:
Ineligible Elimination Amounts means amounts which are reported by the Servicer as inputs to the Information Package as credit memos or aged invoices which relate to Receivables which are not Eligible Receivables, including without limitation, Receivables (a) the Obligor of which is not United States resident, (b) the Obligor of which is an Affiliate of Worthington, (c) related to the resale program or (d) which are Steel Surcharge Receivables..
3. Representations and Warranties. The Seller hereby represents and warrants to the Administrator and each member of the various Purchaser Groups from time to time party thereto as follows:
(a) Representations and Warranties. The representations and warranties contained in Exhibit III of the Agreement are true and correct as of the date hereof (unless stated to relate solely to an earlier date, in which case such representations or warranties were true and correct as of such earlier date).
(b) Enforceability. The execution and delivery by each of the Seller and the Servicer of this Amendment, and the performance of each of its obligations under this Amendment and the Agreement, as amended hereby, are within each of its corporate powers and have been duly authorized by all necessary corporate action on each of its parts. This Amendment and the Agreement, as amended hereby, are each of the Sellers and the Servicers valid and legally binding obligations, enforceable in accordance with its terms.
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(c) No Default. Both before and immediately after giving effect to this Amendment and the transactions contemplated hereby, no Termination Event or Unmatured Termination Event exists or shall exist.
4. Effect of Amendment. All provisions of the Agreement, as expressly amended and modified by this Amendment, shall remain in full force and effect. After this Amendment becomes effective, all references in the Agreement (or in any other Transaction Document) to this Agreement, hereof, herein or words of similar effect referring to the Agreement shall be deemed to be references to the Agreement as amended by this Amendment. This Amendment shall not be deemed, either expressly or impliedly, to waive, amend or supplement any provision of the Agreement other than as set forth herein.
5. Effectiveness. This Amendment shall become effective as of the date hereof upon receipt by the Administrator of counterparts of this Amendment (whether by facsimile or otherwise) executed by each of the other parties hereto.
6. Counterparts. This Amendment may be executed in any number of counterparts and by different parties on separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute but one and the same instrument.
7. Governing Law. This Amendment shall be governed by, and construed in accordance with, the internal laws of the State of New York (without regard to any otherwise applicable principles of conflicts of law).
8. Section Headings. The various headings of this Amendment are included for convenience only and shall not affect the meaning or interpretation of this Amendment, the Agreement or any provision hereof or thereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first written above.
WORTHINGTON RECEIVABLES CORPORATION, as Seller
|
||||
By: | /s/Randal I. Rombeiro | |||
Name: | Randal I. Rombeiro | |||
Title: | Treasurer | |||
WORTHINGTON INDUSTRIES, INC.,
as Servicer |
||||
By: | /s/Randal I. Rombeiro | |||
Name: | Randal I. Rombeiro | |||
Title: | Treasurer | |||
Amendment No. 2 to
RPA
(Worthington)
S-1
MARKET STREET FUNDING CORPORATION,
as a Purchaser |
||||
By: | /s/Douglas K. Johnson | |||
Name: | Douglas K. Johnson | |||
Title: | President | |||
PNC BANK, NATIONAL ASSOCIATION,
as Administrator and as a Purchaser Agent |
||||
By: | /s/ John T. Smathers | |||
Name: | John T. Smathers | |||
Title: | Vice President | |||
Amendment No. 2 to
RPA
(Worthington)
S-2
AGREED, ACKNOWLEDGED AND CONSENTED TO:
LIBERTY STREET FUNDING CORP.,
as a Purchaser
By: | /s/Bernard J. Angelo | ||
Name: | Bernard J. Angelo | ||
Title: | Vice President | ||
THE BANK OF NOVA SCOTIA,
as Purchaser Agent for the Liberty Street Purchasers
By: | /s/Norman Last | ||
Name: | Norman Last | ||
Title: | Managing Director | ||
Amendment No. 2 to
RPA
(Worthington)
S-3
AGREED, ACKNOWLEDGED AND CONSENTED TO:
FIFTH THIRD BANK,
as a Purchaser and as Purchaser Agent for the Fifth Third Purchasers
By: | /s/ Robert O. Finley | ||
Name: | Robert O. Finley | ||
Title: | Vice President | ||
Amendment No. 2 to
RPA
(Worthington)
S-4
EXHIBIT 14
WORTHINGTON INDUSTRIES, INC.
CODE OF CONDUCT
Table of Contents
Introduction
|
1 | |||
Commitment to Legal and Ethical Behavior
|
1 | |||
Work Environment
|
1 | |||
Respect
|
1 | |||
Equal Opportunity
|
1 | |||
Non-Harassment/Non-Discrimination
|
1 | |||
Safety and Health
|
2 | |||
Prevention of Violence in the Workplace
|
2 | |||
Loyalty to Worthington
|
2 | |||
Conflicts of Interest
|
2 | |||
Business Opportunities
|
3 | |||
Investments
|
3 | |||
Family Members
|
3 | |||
Consultants and Representatives
|
3 | |||
Bribes, Kickbacks and Other Improper Payments
|
3 | |||
Fraud, Misappropriation, Theft, Embezzlement
|
4 | |||
Gifts, Meals and Entertainment
|
4 | |||
Personal Behavior
|
4 | |||
Electronic Media
|
5 | |||
Policy on Electronic Media
|
5 | |||
Chat Rooms/Message Boards
|
5 | |||
Using and Supplying Information
|
5 | |||
Insider Stock Trading
|
5 | |||
Information of Other Companies
|
6 | |||
Communication with the Analysts and Investors
|
6 | |||
Investor Relations Information
|
6 | |||
Media Relations
|
6 | |||
Record Keeping
|
7 | |||
Accuracy of Records
|
7 | |||
Financial Reporting Compliance
|
7 | |||
Reporting of Concerns
|
7 | |||
Worthingtons Proprietary Information
|
8 | |||
Certifications and Disclosures
|
8 | |||
Competitive Intelligence
|
8 |
i
Compliance With Laws
|
9 | |||
Antitrust Laws
|
9 | |||
A. Relationship with Competitors
|
9 | |||
B. Customer Relations
|
9 | |||
Foreign Business
|
10 | |||
Environmental Practices
|
10 | |||
Political Contributions and Activity
|
10 | |||
Corporation Contributions
|
10 | |||
Employee Political Participation
|
10 | |||
Additional Provisions Applicable to Officers and Directors
|
11 | |||
Resolving and Reporting Issues
|
11 | |||
Do the Right Thing
|
11 | |||
How To Get Help
|
11 | |||
Reporting Violations
|
11 | |||
EthicsLine
|
11 | |||
Contact Information
|
13 |
ii
Code of Conduct
Guided by the Worthington Industries Philosophy, Worthington Industries has built a strong and valuable reputation. Preserving and building upon this reputation and maintaining the trust and confidence of those with whom we deal is vitally important to the Company and a responsibility all employees share.
The Worthington Industries Philosophy has long provided employees with guidance for the conduct of business operations. This Code of Conduct is a further guide to the legal and ethical standards the Company expects of all employees and to their relationship with the Company, fellow employees, customers, suppliers and other parties. This Code has the full support and commitment of the Companys Board of Directors and Management and is applicable to all Worthington employees unless otherwise provided by local laws.
This Code is neither a contract nor a comprehensive manual that covers every situation that might develop. It is a guide that identifies key issues, policies and resources to help employees reach appropriate decisions.
Commitment to Legal and Ethical Behavior
Worthington is committed to conducting its business in accordance with the core values reflected in the Worthington Philosophy, which is rooted in the Golden Rule of treating others as we would like to be treated. This commitment includes conducting its business in accordance with high standards of ethical behavior and in compliance with applicable laws. Worthington views this commitment seriously and expects all of its employees to ensure this commitment is met. All employees must be aware of the laws that affect their job and must carry out their responsibilities in compliance with the law. Employees must adhere to the standards of conduct outlined in this Code and act in a professional, legal and ethical manner at all times. Any questions or concerns about illegal or unethical acts should be raised with management or the Ethics Officer, or reported on the EthicsLine. Failure to abide by this Code and applicable laws can lead to disciplinary measures appropriate to the violation, up to and including termination.
Work Environment
Respect. Worthington employees will treat each other with dignity and respect at all times.
Equal Opportunity. Worthington Industries is an equal opportunity employer. It is Worthingtons goal to ensure that hiring, transfer, promotion, compensation, and discipline decisions are based on the job-related qualifications, abilities and performance of employees and applicants. The Company does not discriminate against any employee or applicant on the basis of sex, race, color, religion, age, national origin, citizenship, disability or veteran status, or any other reason prohibited by federal, state or local law.
Non-Harassment/Non-Discrimination. It is Worthingtons policy and each employees responsibility to provide a workplace that is free of unlawful and inappropriate harassment or discrimination by supervisors, other employees, or other parties conducting business with Worthington. Worthington prohibits all forms of unlawful harassment or
1
discrimination based upon sex, race, color, religion, age, national origin, citizenship, disability, veteran status or any other reason prohibited by applicable federal, state or local law. Worthington will not tolerate sexual advances, actions, comments or other conduct that creates an intimidating, offensive or hostile environment. Religious or ethnic slurs, jokes or other demeaning conduct which would be considered unwanted by a reasonable person are not permitted. Anyone who has been found, after investigation by Worthington, to have violated this policy will be subject to appropriate discipline, up to and including termination. The Companys complete policy against harassment is contained in the Companys Employee Handbook, which includes the complaint procedure to be used by persons who believe they have been subjected to such discrimination or harassment or who believe they have observed another person being subjected to such discrimination or harassment. Every employee should speak out whenever anothers conduct makes them uncomfortable and report any harassment they experience or observe.
Safety and Health. The overall safety and well being of all Worthington employees is of the utmost importance and is a responsibility the Company and all employees share. Employees must comply with safety rules and procedures required by law and established by the Company with respect to each of its locations. Failure to follow safety laws and rules will subject the employee to disciplinary action up to and including termination. Worthington is committed to providing a safe work environment and to maintaining all equipment and machinery in proper working condition, with all safety apparatus in place and functioning. Assuring this is a fundamental responsibility of each employee. If at any time an employee believes an unsafe condition does exist, or an unsafe act is occurring, they should report it promptly to their supervisor, manager or other designated person.
Prevention of Violence in the Workplace. The best deterrent to employee violence is open communication between the employee and management. Worthington recognizes this and will continue to maintain its Open Door Policy for constructive and interactive problem solving. However, any act of violence or threat of violence, serious or not, direct or indirect, against a co-worker, customer, visitor or other individual by a Worthington employee will not be tolerated and is prohibited. Any employee engaging in such act will be subject to disciplinary action up to and including termination. It is every employees obligation to immediately report to their supervisor any such act or threat of violence made by a Worthington co-worker, customer, supplier, visitor or other individual that may affect the safety or security of the workplace. Failure to do so may result in disciplinary action up to and including termination. While Worthington will attempt to maintain confidentiality as appropriate for any reported act or threat of violence, the prevention of any potential serious harm to an individual will take precedence over confidentiality.
Loyalty To Worthington
Conflicts of Interest. Business decisions and actions must be based on the best interests of Worthington and must not be motivated or influenced by personal considerations or relationships.
2
All employees must avoid conflicts of interest. A conflict of interest exists when an employees personal or family relationships, their financial affairs, or an outside business involvement may adversely influence the judgment or loyalty required for performance of their duties to Worthington. If an employee suspects even the appearance of a conflict of interest or is in doubt about a particular situation, the employee should promptly notify their supervisor or the Ethics Officer. The supervisor will then consult with the management or the Ethics Officer as appropriate.
Employees should also avoid conduct that may create an appearance of impropriety, i.e., conduct that would lead a reasonable observer to objectively conclude that the employee is acting in a manner that is dishonest, unethical, illegal or otherwise in violation of these guidelines.
It is not possible to identify every instance that results in a conflict of interest or in the appearance of impropriety. However, the following guidelines identify common instances in which they occur.
Business Opportunities. If an employee becomes aware of a possible business opportunity which Worthington may be interested in pursuing, they should consider such opportunity strictly for Worthingtons benefit. It is improper for an employee to exploit such opportunities for personal benefit or become involved in a manner which would divide their loyalty between Worthington and a party that may do business with Worthington.
Investments. Employees may not allow their investments to influence, or appear to influence, their independent judgment on behalf of Worthington. This could happen in many ways, but it is most likely to arise if an employee has an investment or other interest in a contractor, competitor, supplier, or customer and their decisions may have a business impact on this outside party. If there is any doubt about how an investment might be perceived, the employee should disclose it to their supervisor or the Ethics Officer.
Family Members. Employees may not use undue personal influence to get or to do business with an entity in which family members or friends have an interest. These decisions must be made on the basis of what is best for Worthington. In some instances, it may be a conflict of interest if a member of an employees immediate family is employed by a supplier, contractor, customer, or competitor of the Company. The employees supervisor should be notified if these situations occur. The supervisor will then consult with management or the Ethics Officer as appropriate.
Consultants and Representatives. When it is necessary to engage the services of an individual or firm to consult for or otherwise represent the Company, special consideration must be given to avoid any conflicts of interest between the Company and the person or entity so employed. Consultants and representatives of the Company must act on the Companys behalf in a manner consistent with the Companys philosophy, this Code of Conduct and applicable laws and regulations.
Bribes, Kickbacks and Other Improper Payments. Bribes, kickbacks, payoffs and other improper payments are unethical and illegal, and no employee may make, offer or authorize any
3
such payment. Also, employees are not permitted to solicit or accept any offer, payment, or gift that is intended or appears to influence their conduct or decisions or that is otherwise unlawful.
Fraud, Misappropriation, Theft, Embezzlement. Employees shall not commit, aid or assist in any fraud, misappropriation, theft, embezzlement, bribery or any similar activities. Prohibited acts include, but are not limited to: forgery or alteration of checks, securities or other negotiable instruments; misappropriation of funds, securities or other assets; improper handling or reporting of money or financial transactions; improper handling of corporate property, assets or information or their use for personal gain; unauthorized use or disclosure of corporate business plans, intellectual property, trade secrets or financial information; destruction or unauthorized removal of records, furniture, fixtures or equipment; violating federal, state or foreign tax laws; and submitting false expense reports or other false personal information.
Employees who suspect or have information concerning any such wrongdoing involving Worthington, its employees or any Worthington agent or customer (including customer employees, or anyone doing business with Worthington) must promptly notify their supervisor, a member of management or the Ethics Officer.
Gifts, Meals and Entertainment. By receiving meals, gifts or entertainment, an employee may create the impression that they favor an entity for reasons of personal advantage rather than price, quality, service or other factors beneficial to the Company. Employees involved in purchasing, negotiating or contracting with vendors and customers must use special care to avoid the existence, or even the appearance of impropriety.
In general, the Company allows the receipt of business gifts, meals and entertainment that are not extravagant, are consistent with the Companys and the communitys ethical norms, and are consistent with the employees position and the business purpose served by having the employee participate. In the case of a gift, it must be sufficiently limited in value and form such that it would not be construed as a bribe or a payoff (the acceptance of money in any form is never appropriate), or an attempt to influence the employees decision making. In the case of meals and entertainment, their value must be appropriate to the employees position and the business purpose served. Employees may accept transportation and lodging provided by a supplier, customer or other third party, if the trip is for business and is approved in advance by the employees supervisor. As a general rule, if the disclosure of the gift, meal, entertainment or travel to fellow employees or others would embarrass the employee or the Company, it should not be accepted. All such gifts, meals, entertainment and travel should be disclosed to the employees supervisor who will consult with management or the Ethics Officer, as appropriate.
Similar good judgment must be applied in giving gifts, meals, entertainment and travel to current or prospective customers and vendors.
Personal Behavior
Employees are expected to conduct their private affairs and actions in a manner that will not cause embarrassment to or bring discredit upon the Company.
4
Electronic Media
Policy on Electronic Media. The Company provides many of its employees access to one or more forms of electronic media and services, including computers, e-mails, telephones, voice mail, fax machines, external electronic bulletin boards, wire services, on-line services, the internet and the worldwide web. The Company encourages the use of these media and associated services because they can enhance communication and are valuable sources of information. However, all employees should remember that these electronic media and services provided by Worthington are Worthingtons property and their purpose is to facilitate and support Worthingtons business.
Worthingtons policy concerning electronic media and services is contained in a separate document and any employee using electronic media and services should obtain a copy of that policy. However, a few important points from that policy are as follows:
| Electronic media must be used responsibly and cannot be used for transmitting, retrieving or storing any inappropriate communication or information. | |||
| Worthington provides electronic media and services for the employee to use for Worthington business. Limited, occasional, or incidental use of these media and services for personal, non-business purposes is understandable but employees must do so responsibly and not abuse this privilege. | |||
| Worthington reserves the right to review an employees electronic files and messages, including e-mail and voice mail. Thus, employees should not assume electronic communications are private. | |||
| Employees who abuse the privilege of Company provided access to electronic media or services are subject to disciplinary action up to and including termination. |
Chat Rooms/Message Boards. Employees should not participate in or provide information about the Company to chat rooms, message boards or similar forums. These forums are not sponsored by, or endorsed by Worthington. When employees participate in such forums they often provide information which may be confidential, inappropriate or detrimental to Worthington and its interests, which could potentially expose them to personal liability.
Employees who do provide confidential, inappropriate, derogatory or damaging information about Worthington are subject to disciplinary action, up to and including termination. The best way to avoid any problems is not to participate.
Using and Supplying Company Information
Insider Stock Trading. Stock transactions are regulated by numerous and complex laws. Civil and criminal penalties can be imposed on individuals in corporations convicted of violations of the securities laws.
5
An employee who knows of any material information about the Company that has not yet been disclosed to the public may not buy or sell Worthington stock until 24 hours after the information has been made public. Material information means any fact that would likely influence a reasonable investors decision to buy, sell, or hold the stock. Examples may include, but are not limited to, knowledge of new contracts, products or discoveries, unpublished financial information such as sales or earnings, acquisition or merger proposals, major litigation, changes in management, strategic plans or any other favorable or adverse business information. In addition, employees can be legally liable if someone outside the Company trades in Worthington stock based upon inside information given by an employee.
Company policy forbids any employee to give any confidential Company information to anyone without adequate legal safeguards.
Information of Other Companies. Insider trading laws also apply to the receipt of material nonpublic information concerning other organizations. If an employee receives material nonpublic information about a Worthington customer, supplier, acquisition candidate or other party in confidence, they should neither disclose that information to anyone else nor trade in that organizations securities until the information is released to the public. Employees should not trade in any other companys securities if they believe Worthingtons plans or activities will affect their value.
Communication with Analysts and Investors. Insider trading laws also apply to communications by Worthington employees with the financial media, other media representatives, investment analysts or others in the investment or financial community. Therefore, it is required that all communications with, and inquiries from, such persons be handled solely through Worthingtons Investor Relations Department.
Investor Relations Information. Requests for information regarding Worthington from shareholders, their representatives or any other member of the investment or financial community, including your personal financial advisor, should be referred to Worthingtons Investor Relations Department. Employees should not handle these requests themselves.
Media Relations. Employees may not discuss or otherwise release information about Worthington, about events involving or affecting the Company, or about Worthington employees to the news media. All such information must be released solely by, or upon approval of, Worthingtons Corporate Communications Department.
All requests from the news media for information or interviews should be referred to the Corporate Communications Department. Employees should not handle these requests themselves.
Employees may not make public appearances, speeches or statements, in person or through broadcast, electronic or printed media, or the internet relating to Worthington or its business without obtaining prior approval from the Corporate Communications Department, and disclosing the content if requested. This would include any personal communications that might be attributed to the Company due to the employees position with the Company.
6
Record Keeping
Accuracy of Records. Records relating to Worthingtons business transactions and other activities must be prepared accurately and truthfully. All Company payments and other transactions must be properly authorized and be accurately and completely recorded in accordance with Worthingtons accounting policies. No false, incomplete or misleading entries or records shall be created.
Worthington has established a system of internal controls that must be strictly followed so as to provide reasonable assurances that all financial transactions are executed in accordance with management authorization and are recorded in a proper manner. No undisclosed or unrecorded corporate funds or accounts shall be established for any purpose.
Complete and accurate records or information must be made available to internal auditors and to external auditors as requested. No employee may interfere with or seek to improperly influence an authorized audit of the Companys financial records.
Business documents should be retained and disposed of in accordance with all regulatory requirements and Company policies concerning record retention. Business records and communications can often become public. Avoid exaggeration, colorful language, guesswork, legal conclusions, and derogatory remarks or characterizations of people and companies. This applies to communications of all kinds, including e-mail and informal notes or memos.
Employees must also maintain accurate records of expenditures of corporate funds for travel and other reimbursable expenses, and accurate records demonstrating their eligibility for benefits including sick leave, disability payments and education.
Falsification of business or employee records is prohibited. Any employee who falsifies records is subject to disciplinary action, up to and including termination.
Financial Reporting Compliance. The Company is required to issue reports in compliance with rules and regulations of the United States Securities and Exchange Commission and the New York Stock Exchange, and to issue financial statements in conformity with generally accepted accounting principles and those rules. All employees of the Company must keep accurate and complete books, records, and accounts to enable the Company to meet these reporting obligations. It is expected that any employee involved in preparing the Companys disclosures will adhere to such principles.
Reporting of Concerns. Any employee who, in good faith, believes that the Companys method of accounting is inappropriate or not in compliance with generally accepted accounting principals, that records are not being appropriately maintained, that business transactions are not being properly reported, or that internal controls are not being followed should report this to the Companys Chief Financial Officer, the Companys General Counsel, or the Ethics Officer, either directly or through the EthicsLine. If the employee is unsatisfied with the response, they should report the matter to the Audit Committee of the Company, either directly or through the EthicsLine.
7
Worthingtons Proprietary Information. Proprietary Information means any private or otherwise nonpublic business, technological, financial, strategic, personnel or other information, plans, data or material of the Company that employees have learned, generated, had access to or acquired while working at Worthington. Proprietary Information may be oral or written. Worthingtons Proprietary Information is a valuable corporate asset. Employees may not access or use such information unless they have proper authorization and the information is relevant to the performance of their jobs. The content of all Worthington files, records, strategies and other information is strictly confidential. Employees may not disclose such information to any outside parties without managements prior authorization. If management permits disclosure, it shall first determine whether to require the outside party to sign a confidentiality agreement.
Proprietary Information includes Worthingtons trade secrets. A trade secret is any information or knowledge that has not been made public and which could give Worthington a competitive advantage. Examples include, but are not limited to, customer lists, technology, computer programs and market information.
The general rule is: If you are not sure if an item of information is proprietary, treat it as such. Should a breach of confidentiality occur for any reason, any employee who becomes aware of the breach should notify their supervisor as soon as possible.
Follow these procedures for storing proprietary information:
| Label it Proprietary and Confidential. | |||
| Store it so that unauthorized persons do not have access to it. | |||
| Give it to other Worthington employees only if they need it to carry out their business responsibilities. | |||
| If someone other than a Worthington employee asks for such information, refer the request to your supervisor or the Legal Department. |
Each employee has a continuing obligation after separating from the Company for any reason not to make use of or disclose any Worthington proprietary or confidential information. Employees terminating their service with Worthington must leave all documents and other materials containing proprietary or confidential information with the Company.
Certifications and Disclosures. Employees are routinely required to certify that to their knowledge, the Company is in compliance with the law. Some common certificates include: certificates of environmental, safety and health, and certifications to the federal government concerning business information. Employees must be aware of the requirements applicable to their jobs and be sure that all certifications are completed and filed in a timely and accurate manner.
Competitive Intelligence. To be successful, a business must understand its competitors. In collecting data about its competitors, the Company uses all legitimate sources, but avoids any actions that are illegal, unethical or could cause embarrassment or liability to the Company. The Economic Espionage Act of 1996, for example, imposes criminal penalties on individual corporations and entities that steal or attempt to steal trade secrets or knowingly receive or possess stolen trade secrets of others. A trade secret is confidential information that a company has sought to protect, because it provides a business advantage over those who do not know or
8
use it. If a Worthington employee or representative receives or is offered information which they believe was obtained in an inappropriate manner, do not use or distribute the information until it has been reviewed by the Legal Department.
Compliance with Laws
Antitrust Laws. Worthington is committed to compliance with federal and state antitrust laws of the countries in which it does business. Violations of antitrust laws can result in severe criminal penalties and civil liability for Worthington, and liability, fines and imprisonment for offending employees.
The following material only summarizes common problem areas. Review it carefully. If you have a concern regarding the legality of any activity even a seemingly unimportant activity promptly contact the Companys Legal Department.
A. Relationship With Competitors. It is illegal to reach any agreement or understanding express or implied, written or oral with a competitor regarding price, terms of sales (e.g., discounts), production levels, division of markets, territories or customers, refusal to deal with third parties, or level of product quality. The law makes these activities automatically illegal. There is no need to prove an anti-competitive effect this is presumed.
Remember, no formal agreement need be proved. Oral discussions and informal arrangements followed by common action may be an agreement which can be a violation. Accordingly, employees should never discuss any of the following topics with competitors.
| price or any aspect whatsoever of pricing policy; | |||
| billing and credit practices; | |||
| profits and profit margins; | |||
| suppliers terms and conditions; | |||
| distribution or marketing plans or practices; | |||
| bidding plans or practices; | |||
| dividing up customers, products, sales territories or business markets; | |||
| making false comments about a competitors products and making false or misleading advertising claims; | |||
| new products; and/or | |||
| refusals to deal with customers or suppliers. |
If a competitor begins to discuss any of these subjects, terminate the conversation immediately, and report it to the Companys Legal Department.
B. Customer Relations. Certain types of contractual relationships with customers can also raise antitrust concerns by unreasonably hampering competition. Typically, these arrangements are not automatically illegal, but require a showing of harm to competition. If you have a concern that a business arrangement you are thinking of entering on Worthingtons behalf
9
might be viewed as an unreasonable restraint on competition, do not act without the prior review and approval of the Companys Legal Department.
Foreign Business. Employees are expected to obey the laws and respect the customs of countries in which Worthington transacts business. If these laws or customs are not addressed or appear to be in conflict with these guidelines, contact the Companys Legal Department to get a resolution of the issues.
Employees must follow the Foreign Corrupt Practices Act (FCPA). The FCPA prohibits Worthington and its employees from making or offering to make payments of money, products or services to any foreign governmental official or governmental employee, to any foreign political party, or to any official or candidate of a foreign political party if the purpose of the payment is to help Worthington obtain or retain business, or to help Worthington direct business to any person. The FCPA also bars the making or offering of such payments through third party intermediaries. If you have any concern that a payment that you are thinking of making, offering or authorizing will violate the FCPA, do not act without prior review and approval of the Companys Legal Department. If you violate the FCPA, you can subject the Company and yourself to severe civil and criminal penalties.
Worthington employees must obey American and foreign laws relating to gifts and entertainment for public employees and not engage in any illegal activity to obtain or retain business.
Environmental Practices. Worthington is committed to conducting its business activities in a manner that protects and preserves the environment. Worthington will comply with all environmental laws and operate its facilities with necessary permits, approvals and controls. In addition to knowing and complying with applicable environmental laws and regulations, each employee has a personal responsibility to report to management any spills, discharge or releases into the environment of any material and to assure that appropriate remedial action is taken. Employees may also report any known environmental violations or releases to the Corporate Environmental Director or any member of the Companys Legal Department.
Political Contributions and Activity
Corporate Contributions. Federal law and the laws of many states generally prohibit companies from making contributions of money, goods or services to political parties or candidates. Employees may not make any contribution on behalf of Worthington or use Worthingtons name, funds, facilities, properties or services for the support of any political party or candidate, unless the contribution or activity is permitted by law and authorized in advance by management. Employees may voluntarily participate in the Worthington Industries Political Action Committee, an independent, not-for-profit association established under federal law to solicit individual contributions to support candidates for political office whose ideals are consistent with the Companys best interest.
Employee Political Participation. Worthington encourages employees to participate in the political process by voting and otherwise being involved in political activity. However, employees should never create the impression that they are speaking or acting on behalf of Worthington when engaging in political activity or expressing a political opinion.
10
Additional Provisions Applicable to Officers and Directors
The Audit Committee of the Company shall investigate any alleged violation of the Code of Conduct by any of the Companys Officers or Directors. In the event the Audit Committee determines that a violation of the Code of Conduct has occurred, the Audit Committee shall be authorized to take any action it deems appropriate. If the Audit Committee determines that a violation by an Executive Officer or Director has occurred, but elects not to take any remedial or other action against such Officer or Director, the Company shall disclose the facts and circumstances of its election to waive the Code of Conduct as required under applicable law or the requirements of the New York Stock Exchange.
Any action or transaction in which the personal interest of an Officer or a Director may be in conflict with those of the Company, must be reported to the Audit Committee of the Board of Directors. The Audit Committee shall have the right to determine in advance whether any such action or transaction would constitute a conflict of interest in violation of this Code of Conduct.
Resolving and Reporting Issues
Do The Right Thing. Most situations can be handled by following a basic rule Do the right thing. At times, however, the right thing to do is not always perfectly clear. If you find yourself in a situation where the right thing is unclear, read the Worthington Philosophy. If you need support, talk to your supervisor, a member of management or the Ethics Officer.
How To Get Help. If you have questions about the Code of Conduct, the first place to turn is your supervisor or manager. If you are uncomfortable discussing the issue with your supervisor, please talk to any member of management, Human Resources, the Legal Department or the Ethics Officer. Our Open Door Policy allows you the freedom to approach any level of management with your concerns.
Reporting Violations. The Company expects full compliance with this Code of Conduct.
Any employee who is found to have violated the Code of Conduct may be subject to discipline up to and including termination. Employees are encouraged to report any violation of the Code of Conduct to their supervisor, any member of management, Human Resources, the Legal Department, or the Ethics Officer. The Company will not permit any retaliation against an employee who appropriately reports a matter they believe in good faith is a violation of this Code of Conduct. However, employees who make knowingly false accusations in bad faith may be subject to discipline up to and including termination.
EthicsLine
Although we hope you will feel comfortable discussing with your supervisor or some member of management, any issues you have concerning compliance with the Code of Conduct or any concerns you have that a violation of the Code of Conduct has occurred, we have established the Worthington Industries EthicsLine as an alternative to report or raise any such items. The EthicsLine offers employees a 24/7 hotline service by which they can make confidential reports to a third party provider. This service is provided through The Network, which has been in
11
business for over 24 years and offers services to over 1,000 companies, including many in the Fortune 500.
Calls to the EthicsLine may be made anonymously. Anonymous callers will be advised if additional information is required before an effective investigation can take place. Callers who wish, will be assigned a confidential identification number, so they can follow the status of their calls. It is the intent of The Network and the Company to maintain the anonymity and confidentially for all people who request it.
In the U.S. and Canada, the EthicsLine may be reached at 877-263-9893. If calling from other countries, call 770-613-6395. No method of identifying a caller is used.
12
Contact Information
Ethics Officer:
|
Corporate Communications: | |||||
|
||||||
Dale T. Brinkman
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(Name) | Cathy M. Lyttle | (Name) | |||
200 Old Wilson Bridge Road
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(Address) | 200 Old Wilson Bridge Road | (Address) | |||
Columbus, Ohio 43085
|
(Address) | Columbus, Ohio 43085 | (Address) | |||
614-438-3001
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(Phone) | 614-438-3077 | (Phone) | |||
614-840-3706
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(Fax) | 614-840-4150 | (Fax) | |||
dtbrinkm@worthingtonindustries.com
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(E-mail) | cmlyttle@worthingtonindustries.com | (E-mail) | |||
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||||||
Legal Department:
|
Investor Relations: | |||||
|
||||||
200 Old Wilson Bridge Road
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(Address) | Allison M. Sanders | (Name) | |||
Columbus, Ohio 43085
|
(Address) | 200 Old Wilson Bridge Road | (Address) | |||
614-840-3001
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(Phone) | Columbus, Ohio 43085 | (Address) | |||
614-840-3706
|
(Fax) | 614-840-3133 | (Phone) | |||
dtbrinkm@worthingtonindustries.com
|
(E-mail) | 614-840-4150 | (Fax) | |||
|
asanders@worthingtonindustries.com | (E-mail) |
EthicsLine:
877-263-9893 (Phone Inside the U.S.)
770-613-6395 (Phone Outside the U.S.)
13
EXHIBIT 21
The following is a list of subsidiaries owned, directly or indirectly, by
Worthington Industries, Inc., an Ohio corporation, together with their
respective jurisdictions of incorporation or organization.
SUBSIDIARIES OF
WORTHINGTON INDUSTRIES, INC.
an Ohio Corporation
Barbados
Ohio
Ohio
Vermont
Michigan
Pennsylvania
Pennsylvania
Florida
Delaware
Ohio
Michigan
Ohio
Ohio
Ohio
Ohio
Ohio
Ohio
Canada
Canada
Austria
Portugal
Mexico
Michigan
Delaware
Delaware
North Carolina
Ohio
Delaware
Kentucky
Ohio
Ohio
Alabama
Michigan
Austria
Michigan
Mexico
Delaware
Michigan
Michigan
Ohio
Mexico
Mexico
Indiana
Ohio
Worthington Armstrong Venture (WAVE) (6)
|
Delaware | |
Worthington Cylinders a.s. (7)
|
Czech Republic | |
Worthington Specialty Processing (WSP) (8)
|
Michigan |
(1) | Unconsolidated joint venture with 50% owned by Worthington Industries Mexico, S.A. de C.V. and 50% owned by Hylsa S.A. de C.V. | |
(2) | Unconsolidated joint venture with 60% owned by WD Ventures, Inc. and 40% owned by MiTek Industries, Inc. | |
(3) | Consolidated joint venture with 52% owned by Worthington Steel of Michigan, Inc. and 48% by Severstal North America, Inc. | |
(4) | Unconsolidated joint venture with 50% owned by Worthington Steel of Michigan, Inc. and 50% owned by ThyssenKrupp Steel North America, Inc. | |
(5) | Unconsolidated joint venture with 49% owned by VCS/WOR, Inc. (Ohio) and 51% owned by Bainbridge Steel, LLC. | |
(6) | Unconsolidated joint venture with 50% owned by The Worthington Steel Company (Delaware) and 50% owned by Armstrong World Industries, Inc. | |
(7) | Consolidated joint venture with 51% owned by Worthington Cylinders GmbH with a local Czech Republic entrepreneur in Hustopece, Czech Republic. | |
(8) | Unconsolidated general partnership owned 50% by Worthington Steel of Michigan, Inc. and 50% by U.S. Steel Corporation. |
EXHIBIT 23
Consent of Independent Registered Public Accounting Firm
The Board of Directors
We consent to the incorporation by reference in Registration Statement (Form
S-8 No. 33-57981) pertaining to the Worthington Industries, Inc. Deferred
Profit Sharing Plan; (Form S-3 No. 33-46470 and Form S-3 No. 333-48627)
pertaining to the Worthington Industries, Inc. Dividend Reinvestment and Stock
Purchase Plan; (Form S-8 No. 33-38486) pertaining to the Worthington
Industries, Inc. 1990 Stock Option Plan; (Form S-8 No. 333-42849) pertaining to
the Worthington Industries, Inc. 1997 Long-Term Incentive Plan; and (Form S-8
No. 333-52628) pertaining to the Worthington Industries, Inc. 2000 Stock Option
Plan for Non-Employee Directors of Worthington Industries, Inc. of our report
dated June 18, 2004, except as to Note C paragraph 3, which is as of July 22,
2004, with respect to the consolidated balance sheets of Worthington
Industries, Inc. and subsidiaries as of May 31, 2004 and 2003, and the related
consolidated statements of earnings, shareholders equity, and cash flows for
each of the years in the three-year period ended May 31, 2004, and the related
financial statement schedule, which report appears in the May 31, 2004, Annual
Report on Form 10-K of Worthington Industries, Inc. and subsidiaries.
/s/ KPMG LLP
Columbus, Ohio
Worthington Industries, Inc.
August 16, 2004
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS , that the undersigned officer and/or director of Worthington Industries, Inc., an Ohio corporation, which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the year ended May 31, 2004 constitutes and appoints John P. McConnell, John S. Christie and Dale T. Brinkman, his or her true and lawful attorneys-in-fact and agents, with full power to act without the other, for him or her and in his or her name, place and stead, in any and all capacities, to sign such Annual Report on Form 10-K and any or all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agents or any of them or their or his substitute or substitutes may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF , the undersigned has hereunto set his hand this 22 day of May, 2004.
/s/ John B. Blystone | ||||
John B. Blystone | ||||
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS , that the undersigned officer and/or director of Worthington Industries, Inc., an Ohio corporation, which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the year ended May 31, 2004 constitutes and appoints John P. McConnell, John S. Christie and Dale T. Brinkman, his or her true and lawful attorneys-in-fact and agents, with full power to act without the other, for him or her and in his or her name, place and stead, in any and all capacities, to sign such Annual Report on Form 10-K and any or all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agents or any of them or their or his substitute or substitutes may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF , the undersigned has hereunto set his hand this 22 day of May, 2004.
/s/ William S. Dietrich | ||||
William S. Dietrich | ||||
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS , that the undersigned officer and/or director of Worthington Industries, Inc., an Ohio corporation, which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the year ended May 31, 2004 constitutes and appoints John P. McConnell, John S. Christie and Dale T. Brinkman, his or her true and lawful attorneys-in-fact and agents, with full power to act without the other, for him or her and in his or her name, place and stead, in any and all capacities, to sign such Annual Report on Form 10-K and any or all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agents or any of them or their or his substitute or substitutes may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF , the undersigned has hereunto set his hand this 22 day of May, 2004.
/s/ Michael J. Endres | ||||
Michael J. Endres | ||||
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS , that the undersigned officer and/or director of Worthington Industries, Inc., an Ohio corporation, which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the year ended May 31, 2004 constitutes and appoints John P. McConnell, John S. Christie and Dale T. Brinkman, his or her true and lawful attorneys-in-fact and agents, with full power to act without the other, for him or her and in his or her name, place and stead, in any and all capacities, to sign such Annual Report on Form 10-K and any or all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agents or any of them or their or his substitute or substitutes may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF , the undersigned has hereunto set his hand this 22 day of May, 2004.
/s/ Peter Karmanos, Jr. | ||||
Peter Karmanos, Jr. | ||||
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS , that the undersigned officer and/or director of Worthington Industries, Inc., an Ohio corporation, which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the year ended May 31, 2004 constitutes and appoints John P. McConnell, John S. Christie and Dale T. Brinkman, his or her true and lawful attorneys-in-fact and agents, with full power to act without the other, for him or her and in his or her name, place and stead, in any and all capacities, to sign such Annual Report on Form 10-K and any or all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agents or any of them or their or his substitute or substitutes may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF , the undersigned has hereunto set his hand this 22 day of May, 2004.
/s/ John R. Kasich | ||||
John R. Kasich | ||||
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS , that the undersigned officer and/or director of Worthington Industries, Inc., an Ohio corporation, which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the year ended May 31, 2004 constitutes and appoints John P. McConnell, John S. Christie and Dale T. Brinkman, his or her true and lawful attorneys-in-fact and agents, with full power to act without the other, for him or her and in his or her name, place and stead, in any and all capacities, to sign such Annual Report on Form 10-K and any or all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agents or any of them or their or his substitute or substitutes may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF , the undersigned has hereunto set his hand this 22 day of May, 2004.
/s/ Sidney A. Ribeau | ||||
Sidney A. Ribeau | ||||
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS , that the undersigned officer and/or director of Worthington Industries, Inc., an Ohio corporation, which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the year ended May 31, 2004 constitutes and appoints John P. McConnell, John S. Christie and Dale T. Brinkman, his or her true and lawful attorneys-in-fact and agents, with full power to act without the other, for him or her and in his or her name, place and stead, in any and all capacities, to sign such Annual Report on Form 10-K and any or all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agents or any of them or their or his substitute or substitutes may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF , the undersigned has hereunto set her hand this 22 day of May, 2004.
/s/ Mary Fackler Schiavo | ||||
Mary Fackler Schiavo | ||||
EXHIBIT 31(a)
RULE 13a-14(a) / 15d 14(a)
I, John P. McConnell, certify that:
1. | I have reviewed this Annual Report on Form 10-K for the fiscal year ended May 31, 2004 of Worthington Industries, Inc.; | |||
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |||
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |||
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |||
(b) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |||
(c) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | |||
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Dated: August 16, 2004 | By: | /s/ John P. McConnell | ||
John P. McConnell, | ||||
Chairman of the Board and Chief Executive Officer |
EXHIBIT 31(b)
RULE 13a-14(a) / 15d 14(a)
I, John S. Christie, certify that:
1. | I have reviewed this Annual Report on Form 10-K for the fiscal year ended May 31, 2004 of Worthington Industries, Inc.; | |||
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |||
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |||
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |||
(b) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |||
(c) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | |||
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Dated: August 16, 2004 | By: | /s/ John S. Christie | ||
John S. Christie, | ||||
President and Chief Financial Officer |
EXHIBIT 32(a)
SECTION 1350 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
In connection with the Annual Report of Worthington Industries, Inc. (the
Company) on Form 10-K for the fiscal year ended May 31, 2004, as filed with
the Securities and Exchange Commission on the date hereof (the Report), I,
John P. McConnell, Chairman of the Board and Chief Executive Officer of the
Company, certify, pursuant to Section 1350 of Chapter 63 of Title 18 of the
United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that, to the best of my knowledge:
Date: August 16, 2004
*This certification is being furnished as required by Rule 13a-14(b) under the
Securities Exchange Act of 1934 (the Exchange Act) and Section 1350 of
Chapter 63 of Title 18 of the United States Code, and shall not be deemed
filed for purposes of Section 18 of the Exchange Act or otherwise subject to
the liability of that Section. This certification shall not be deemed to be
incorporated by reference into any filing under the Securities Act of 1933 or
the Exchange Act, except as otherwise stated in such filing.
(1)
The Report fully complies with the requirements of
Section 13(a) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly
presents, in all material respects, the financial condition and
results of operations of the Company.
/s/ John P. McConnell*
Printed Name: John P. McConnell
Title: Chairman of the Board and Chief
Executive Officer
EXHIBIT 32(b)
SECTION 1350 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
In connection with the Annual Report of Worthington Industries, Inc. (the
Company) on Form 10-K for the fiscal year ended May 31, 2004, as filed with
the Securities and Exchange Commission on the date hereof (the Report), I,
John S. Christie, President and Chief Financial Officer of the Company,
certify, pursuant to Section 1350 of Chapter 63 of Title 18 of the United
States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that, to the best of my knowledge:
Date: August 16, 2004
*This certification is being furnished as required by Rule 13a-14(b) under the
Securities Exchange Act of 1934 (the Exchange Act) and Section 1350 of
Chapter 63 of Title 18 of the United States Code, and shall not be deemed
filed for purposes of Section 18 of the Exchange Act or otherwise subject to
the liability of that Section. This certification shall not be deemed to be
incorporated by reference into any filing under the Securities Act of 1933 or
the Exchange Act, except as otherwise stated in such filing.
(1)
The Report fully complies with the requirements of
Section 13(a) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly
presents, in all material respects, the financial condition and
results of operations of the Company.
/s/ John S. Christie*
Printed Name: John S. Christie
Title: President and Chief Financial
Officer