UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
September 30, 2008 (September 24, 2008)
WORTHINGTON INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
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Ohio
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001-08399
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31-1189815
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(State or other jurisdiction
of incorporation)
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(Commission File Number)
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(IRS Employer
Identification No.)
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200 Old Wilson Bridge Road, Columbus, Ohio
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43085
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(Address of principal executive offices)
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(Zip Code)
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Registrants telephone number, including area code:
(614) 438-3210
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Not Applicable
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the
filing obligation of the registrant under any of the following provisions:
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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Item 2.02.
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Results of Operations and Financial Condition.
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Management of Worthington Industries, Inc. (the Registrant) conducted a conference call on
September 24, 2008, beginning at approximately 8:30 a.m., Eastern Daylight Time, to discuss the
Registrants unaudited financial results for the first quarter of fiscal 2009 (the fiscal quarter
ended August 31, 2008). Additionally, the Registrants management addressed certain issues related
to the outlook for the Registrant and its subsidiaries and their markets for the coming months. A
copy of the transcript of the conference call is furnished as Exhibit 99.1 to this Current Report
on Form 8-K and is incorporated herein by reference.
The information contained in this Item 2.02 and Exhibit 99.1 furnished with this Current Report on
Form 8-K, is being furnished pursuant to Item 2.02 and shall not be deemed filed for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), or otherwise
subject to the liabilities of that Section, unless the Registrant specifically states that the
information is to be considered filed under the Exchange Act or incorporates the information by
reference into a filing under the Securities Act of 1933, as amended (the Securities Act), or the
Exchange Act.
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Item 5.02.
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Departure of Directors or Certain Officers; Election of Directors; Appointment of
Certain Officers; Compensatory Arrangements of Certain Officers
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Appointment of Interim Principal Financial Officer
On September 24, 2008, the Board of Directors appointed Richard G. Welch, as Principal Financial
Officer on an interim basis. Mr. Welch, 50, currently also serves as the Corporate Controller of
the Registrant. Mr. Welch joined the Registrant as Assistant Controller in September 1999 and was
named Corporate Controller in March 2000. Mr. Welch has nearly 25 years of experience in
accounting and financial reporting, serving nine years with Time Warner Cable, Inc., where he was
appointed Assistant Controller in 1999, and as an independent auditor with Ernst & Young LLP for
approximately six years prior to that time. Mr. Welch works closely with the Registrants Audit
Committee representing the Registrant.
Approval of Worthington Industries, Inc. Annual Incentive Plan for Executives
At the 2008 Annual Meeting of Shareholders of the Registrant held on September 24, 2008 (the 2008
Annual Meeting), the Registrants shareholders approved the Worthington Industries, Inc. Annual
Incentive Plan for Executives (the Executive Incentive Plan). The Executive Incentive Plan
provides for the payment of cash incentive compensation to participants if specified performance
objectives are achieved. The Executive Incentive Plan is intended to provide compensation which
qualifies as qualified performance based compensation within the meaning of Section 162(m) of the
Internal Revenue Code of 1986, as amended (the Internal Revenue Code), and the related Treasury
regulations.
The Executive Incentive Plan will be administered by the Compensation and Stock Option Committee
(the Compensation Committee) of the Registrants Board of Directors (the Board). The
Compensation Committee is authorized to: (1) designate participants, including officers and other
key employees of the Registrant, who may be granted performance awards
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under the Executive Incentive Plan; (2) identify performance objectives that must be achieved
during a performance period specified by the Compensation Committee as a condition to the payment
of incentive compensation; and (3) specify the amount of incentive compensation to be paid if those
performance objectives are achieved.
The Executive Incentive Plan authorizes the Compensation Committee to grant performance awards
subject to the satisfaction of performance criteria to officers and other key employees of the
Registrant and its 50%-owned subsidiaries.
The amount of a performance award may be stated as a specific dollar amount, a percentage of a
participants base salary, a percentage (the sum of which may not be greater than 100%) of an
aggregate amount allocable to all or specified groups of participants or in any other objectively
determinable manner as determined by the Compensation Committee. Additionally, the amount of the
performance award payable under the Executive Incentive Plan may be stated as a target amount due
if applicable performance objectives are satisfied and in larger or smaller increments if the
applicable performance objectives are exceeded or only partially satisfied. During any fiscal year
of the Registrant, no participant may receive more than $3,000,000 through the Executive Incentive
Plan with respect to any single performance award.
The performance objectives that participants must achieve to be paid incentive compensation under
the Executive Incentive Plan will be derived from one or more of the performance criteria listed in
the Executive Incentive Plan (or a combination thereof). The Compensation Committee may provide in
any performance award that the impact of any of certain events specified in the Executive Incentive
Plan occurring during the relevant performance period will be taken into account when determining
whether the applicable performance objectives have been satisfied. The Compensation Committee must
establish performance objectives for each performance award in writing before the outcome of those
performance objectives is substantially certain but in no event later than 90 days after the
beginning of the performance period or, if earlier, the expiration of 25% of the performance
period.
At the end of each performance period, the Compensation Committee will determine whether each
participant achieved the applicable performance objectives with respect to the participants
performance award and certify those results to the Board along with a statement of the amount of
any incentive compensation earned under the performance award and whether any other material terms
were satisfied. If a participant has not achieved any of the applicable performance objectives,
the participant will not receive incentive compensation related to the performance award for that
performance period and no substitute amount will be paid under any other arrangement.
Unless a participant makes a valid election under a deferred compensation plan maintained by the
Registrant, if the participant achieves the applicable performance objectives, the stipulated
incentive compensation will be paid in a single lump sum cash payment no later than 2
1
/
2
months
following the end of the participants first taxable year in which such incentive compensation is
no longer subject to a substantial risk of forfeiture or, if later, the end of the first taxable
year of the Registrant in which such incentive compensation is no longer subject to a substantial
risk of forfeiture.
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A participant whose employment terminates for any reason other than death, disability (as defined
in the Executive Incentive Plan) or retirement (as defined in the Executive Incentive Plan) before
the end of a performance period will forfeit any right to receive any incentive compensation under
a performance award for that performance period. However, a participant whose employment
terminates because of death, disability or retirement will receive a prorated amount of incentive
compensation for the performance period, but only if the applicable performance objectives are
achieved at the end of that performance period.
In general, unless otherwise determined by the Compensation Committee or specified in a written
agreement between a participant and the Registrant, if, during a performance period, (a) a change
in control (as defined in the Executive Incentive Plan) occurs and (b) on or after the date of the
change in control, the participants employment terminates for any reason, the performance award of
such participant will be considered earned and payable as of the date of the participants
termination of employment in the amount designated as target for such performance award and,
unless the participant has made a valid election under a deferred compensation plan maintained by
the Registrant, will be paid within 30 days following the date of the participants termination of
employment.
The Compensation Committee may at any time, and without the consent of any participant, amend,
revise, suspend or discontinue the Executive Incentive Plan, in whole or in part, subject to any
shareholder approval requirement of applicable law, rules or regulations.
The foregoing description of the Executive Incentive Plan is qualified in its entirety by reference
to the complete terms of the Executive Incentive Plan, which is included with this Current Report
on Form 8-K as Exhibit 10.1 and incorporated herein by this reference. A description of the
material terms of the Executive Incentive Plan was included under the caption PROPOSAL 2: APPROVAL
OF THE WORTHINGTON INDUSTRIES, INC. ANNUAL INCENTIVE PLAN FOR EXECUTIVES in the Registrants
definitive Proxy Statement for the 2008 Annual Meeting as filed with the Securities and Exchange
Commission on August 13, 2008 (the Registrants 2008 Proxy Statement).
Reapproval of Material Terms of Performance Goals under the Worthington Industries, Inc. 1997
Long-Term Incentive Plan
Also at the 2008 Annual Meeting, the Registrants shareholders reapproved the material terms of the
performance goals which may be selected by the Compensation Committee in granting, under the
Worthington Industries, Inc. 1997 Long-Term Incentive Plan (the 1997 LTIP), restricted stock,
performance awards and other stock unit awards settled in common shares of the Registrant intended
to be qualified performance based compensation under Section 162(m) of the Internal Revenue Code
and the related Treasury regulations.
The 1997 LTIP is administered by the Compensation Committee. The 1997 LTIP provides that if the
Compensation Committee determines at the time restricted stock, a performance award or other stock
unit award settled in common shares of the Registrant is granted to a participant that the
participant is likely to be a covered employee (for purposes of Section 162(m) of the Internal
Revenue Code and the related Treasury regulations) at the time the participant recognizes income
for federal income tax purposes in connection with the award, then the
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Compensation Committee may provide as to such award that the lapsing of restrictions thereon and
the distribution of cash, common shares of the Registrant or other property pursuant thereto, as
applicable, will be subject to the achievement of one or more objective performance goals
established by the Compensation Committee. These performance goals may be based on the achievement
levels of one or any combination of the following:
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earnings per share from continuing operations;
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stock price appreciation;
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total shareholder return (measured in terms of stock price appreciation and
dividend growth); or
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cost control of the Registrant, or of the affiliate or division of the
Registrant for or within which the participant is primarily employed.
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Performance goals also may be based upon the achievement of specified levels of the Registrants
performance (or performance of the applicable affiliate or division of the Registrant) under one or
more of the measures described above relative to the performance of other corporations. The
performance goals must be set by the Compensation Committee within the time period prescribed by,
and otherwise comply with the requirements of, Section 162(m) of the Internal Revenue Code and the
related Treasury regulations.
Under the 1997 LTIP, no participant may be granted awards in any one calendar year with respect to
more than 200,000 common shares of the Registrant. In addition, the maximum value of the property,
including cash, that may be paid or distributed to any participant pursuant to a grant of
performance awards valued by reference to a designated amount of property other than common shares
(performance units) made in any one calendar year is $2,500,000.
The foregoing description of the material terms of the performance goals which may be selected by
the Compensation Committee in granting, under the 1997 LTIP, restricted stock, performance awards
and other stock unit awards settled in common shares of the Registrant intended to be qualified
performance based compensation under Section 162(m) of the Internal Revenue Code and the related
Treasury regulations, is qualified in its entirety by reference to the complete terms of the 1997
LTIP, which is included with this Current Report on Form 8-K as Exhibit 10.2 and incorporated
herein by this reference. A description of the material terms of the performance goals under the
1997 LTIP was included under the caption PROPOSAL 3: REAPPROVAL OF
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MATERIAL TERMS OF PERFORMANCE GOALS UNDER THE WORTHINGTON INDUSTRIES, INC. 1997 LONG-TERM INCENTIVE
PLAN in the Registrants 2008 Proxy Statement.
Results from 2008 Annual Meeting.
The following votes occurred at the 2008 Annual Meeting:
(a) Election of Directors at 2008 Annual Meeting and Continuing Directors
At the 2008 Annual Meeting, each of Michael J. Endres, Peter Karmanos, Jr. and Carl A. Nelson, Jr.
was re-elected as a director of the Registrant for a three-year term, expiring at the 2011 Annual
Meeting of Shareholders, with each director receiving in excess of 98% of the votes cast.
The directors of the Registrant whose terms of office continue until the 2009 Annual Meeting of
Shareholders are: John B. Blystone, William S. Dietrich, II and Sidney A. Ribeau.
The directors of the Registrant whose terms of office continue until the 2010 Annual Meeting of
Shareholders are: John R. Kasich, John P. McConnell and Mary Schiavo.
(b) Approval of the Worthington Industries, Inc. Annual Incentive Plan for Executives
As discussed above in Item 5.02 of this Current Report on Form 8-K, the Worthington Industries,
Inc. Annual Incentive Plan for Executives was approved by the shareholders of the Registrant at the
2008 Annual Meeting. Such approval was reflected by the following vote: 59,122,855 votes for;
1,371,390 votes against; 448,648 abstentions; and 11,983,960 broker non-votes. Attached hereto as
Exhibit 10.1.
(c) Reapproval of Material Terms of Performance Goals under the Worthington Industries, Inc. 1997
Long-Term Incentive Plan
As discussed above in Item 5.02 of this Current Report on Form 8-K, the material terms of the
performance goals under the Worthington Industries, Inc. 1997 Long-Term Incentive Plan were
reapproved by the shareholders of the Registrant at the 2008 Annual Meeting. Such reapproval was
reflected by the following vote: 58,189,635 votes for; 2,213,532 votes against; 539,726
abstentions; and 11,983,960 broker non-votes.
(d) Ratification by Shareholders of Selection of KPMG LLP
At the 2008 Annual Meeting, the shareholders of the Registrant ratified the appointment of KPMG LLP
as the Registrants independent registered public accounting firm for the fiscal year ending May
31, 2009.
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(e) Failure of Proposal Presented by Shareholders
At the 2008 Annual Meeting, the Office of the Comptroller of New York City, as the custodian and
trustee of the New York City Employees Retirement System, the New York City Teachers Retirement
System, the New York City Policy Pension Fund, and the New York City Fire Department Pension Fund,
and custodian of the New York City Board of Education Retirement System, presented a shareholder
proposal in respect of sexual orientation non-discrimination policies. The shareholder proposal
failed, receiving less than 24% of the votes cast in the matter.
Item 9.01.
Financial Statements and Exhibits
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(a) through (c): Not applicable.
(d)
Exhibits
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The exhibits are included with this Current Report on Form 8-K:
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Exhibit No.
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Description
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10.1
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Worthington Industries, Inc. Annual Incentive Plan for
Executives (approved by shareholders on September 24, 2008)
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10.2
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Worthington Industries, Inc. 1997 Long-Term Incentive Plan
(material terms of performance goals reapproved by
shareholders on September 24, 2008)
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99.1
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Transcript of Worthington Industries, Inc. Earnings
Conference Call for First Quarter of Fiscal 2009 (Fiscal
Quarter ended August 31, 2008), held on September 24, 2008.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned hereunto duly authorized.
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WORTHINGTON INDUSTRIES, INC.
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Date: September 30, 2008
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By:
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/s/ Dale T. Brinkman
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Dale T. Brinkman, Vice President
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Administration, General Counsel and Secretary
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Exhibit 10.1
WORTHINGTON INDUSTRIES, INC.
ANNUAL INCENTIVE PLAN FOR EXECUTIVES
The purpose of the Plan is to advance the interests of the Company by providing designated
officers and key employees with incentive compensation that is correlated with the achievement of
specified performance goals. The Plan is intended to provide compensation, which qualifies as
qualified performance based compensation within the meaning of Section 162(m) of the Code and
Treasury Regulation §1.162-27(e).
SECTION 1
DEFINITIONS
For purposes of the Plan, unless the context requires otherwise, the following terms shall
have the respective meanings set forth in this Section:
1.1
Beneficiary
means the beneficiary or beneficiaries designated to receive any amounts
payable under the Plan pursuant to Section 7.9 upon a Participants death.
1.2
Board
means the Board of Directors of Worthington.
1.3
Business Unit
means any business, operating or administrative unit of the Company which
is identified and designated by the Committee, in its discretion, as a separate business unit for
purposes of this Plan.
1.4
Code
means the Internal Revenue Code of 1986, as amended, or any successor thereto.
1.5
Committee
means the Compensation and Stock Option Committee of the Board.
1.6
Common Shares
means the common shares, without par value, of Worthington, or any equity
security issued in substitution, in exchange or in place of the common shares of Worthington.
1.7
Company
means Worthington and its Subsidiaries, collectively.
1.8
Disability
means a permanent and total disability as defined in the primary retirement
plan of the Company in effect on the date the determination as to Disability is made as of the
effective date of this Plan, the Worthington Industries, Inc. Deferred Profit Sharing Plan. A
Participant with a Disability shall be deemed Disabled for purposes of this Plan.
1.9
Employee
means an individual who is employed by and is on the payroll of the Company.
1.10
Employment
means that the Participant is an Employee of the Company. In this regard,
the transfer of a Participant from Employment by one entity which is part of the
Company to Employment by a different entity which is part of the Company shall not be deemed
to be a termination of the Participants Employment. A Participant who is an Employee shall be
deemed Employed for purposes of this Plan.
1.11
Incentive Compensation
means the compensation approved by the Committee to be awarded
to a Participant for any Performance Period under the Plan.
1.12
Participant
means an officer or other key Employee of the Company whom the Committee
designates as a participant under the Plan.
1.13
Payout Date
means the date the Committee establishes for the payment to a Participant
of any Incentive Compensation award under the Plan, as provided in Section 5 of this Plan.
1.14
Performance Award
means an award by the Committee under this Plan that is subject to
one or more of the Performance Criteria listed in Section 3.4 of this Plan.
1.15
Performance Criteria
means the criteria that are specified by the Committee pursuant to
Section 3.4 of this Plan, any one or more of which may be used in establishing the conditions of a
Performance Award.
1.16
Performance Period
means each fiscal year (or portion thereof) of the Company, or such
other period of twelve (12) months or less, as determined by the Committee.
1.17
Plan
means this Worthington Industries, Inc. Annual Incentive Plan for Executives, as
may be amended.
1.18
Retirement
means, unless the Committee specifies otherwise in the Performance Award,
termination of Employment (other than for Cause) with the Company which qualifies as a retirement
of the Participant under the Companys normal policies.
1.19
Section
162(m)
Employee
means a covered employee as defined under Section 162(m) of
the Code.
1.20
Subsidiary
means any corporation which constitutes a subsidiary corporation of the
Company, as defined in Section 424(f) of the Code, and any limited liability company, partnership,
joint venture, or other entity in which the Company controls, directly or indirectly, more than
fifty percent (50%) of its voting power or equity interests.
1.21
Worthington
means Worthington Industries, Inc., an Ohio corporation, or its successor
in interest.
SECTION 2
ADMINISTRATION
The Plan shall be administered and interpreted by the Committee; provided that in no event
shall the Plan be interpreted in a manner that would cause any award intended to be qualified
performance based compensation under Section 162(m) of the Code to fail to so qualify with respect
to a Section 162(m) Employee. The Committee shall establish performance objectives relating to the
Performance Criteria for any Performance Period in accordance with Section 3 and certify whether
and to what extent such performance objectives have been achieved. Any determination made by the
Committee under the Plan shall be final and conclusive on the affected Participant. The Committee
may employ such legal counsel, consultants and agents (including counsel or agents who are
Employees of the Company) as it may deem desirable for the administration of the Plan and may rely
upon any opinion received from any such counsel or consultant or agent and any computation received
from such consultant or agent. All expenses incurred in the administration of the Plan, including,
without limitation, for the engagement of any counsel, consultant or agent, shall be paid by the
Company. To the extent permitted by applicable law, the Committee may delegate its authority under
this Plan; provided that the Committee shall in no event delegate its authority with respect to the
compensation of a Section 162(m) Employee.
SECTION 3
ELIGIBILITY, PERFORMANCE AWARDS AND PERFORMANCE CRITERIA
3.1
Determination of Eligibility by the Committee
. For each Performance Period, the Committee
shall select the Participants to whom Incentive Compensation may be awarded under the Plan for such
Performance Period consistent with the provisions of this Plan. Participants who participate in
the Plan may also participate in other incentive or other benefit plans maintained by the Company.
3.2
Granting Performance Awards
. The Committee may grant Performance Awards pursuant to the
Plan, in such amounts and on such terms (consistent with the provisions of the Plan), as the
Committee shall determine.
3.3
Amount of Performance Award
. The amount of the Performance Award payable under the Plan
if applicable performance objectives are met may be stated as a specific dollar amount, a
percentage of a Participants base salary, a percentage (the sum of which may not be greater than
one hundred percent (100%)) of an aggregate amount allocable to all or specified groups of
Participants or in any other objectively determinable manner as determined by the Committee. Also,
the amount of the Performance Award payable may be stated as a target amount due if applicable
performance objectives are met and in larger or smaller increments if the applicable performance
objectives are exceeded or partially met. The amount payable may not be increased solely due to
another Participants termination of Employment or eligibility during a Performance Period. As
determined by the Committee, the amount of any Performance Award payable under the Plan shall be
subject to performance objectives, consistent with Section 3.4 of this Plan. Notwithstanding
anything in the Plan to the contrary, during any fiscal year of the Company, no Participant may
receive more than $3,000,000 through this Plan with respect to any single Performance Award.
3.4
Performance Objectives
. For each Performance Period, the Committee will establish for
each Participant the performance objectives that will be applied to determine the amount of
Incentive Compensation payable to such Participant under the Plan with respect to a Performance
Award.
The following Performance Criteria may be used by the Committee in setting performance
objectives with respect to the Plan:
(a) Income or earnings (before or after interest, taxes, depreciation, amortization and/or
other items);
(b) Earnings per Common Share;
(c) Economic value added;
(d) Sales or revenues;
(e) Growth;
(f) Operating income;
(g) Return measures (including, but not limited to, return on assets, capital, invested
capital, equity or revenue);
(h) Cash flow (including, but not limited to, operating cash flow, free cash flow, cash flow
return on equity or cash flow return on investment);
(i) Gross, operating or other margins;
(j) Productivity ratios or other productivity measures;
(k) Common Share price (including, but not limited to, growth measures and total shareholder
return);
(l) Expense reduction, expense targets or cost control;
(m) Operating or other efficiencies;
(n) Market share;
(o) Developing new markets, new products and/or new lines of revenue; or
(p) Identifying and completing acquisitions.
Performance Criteria may be stated in absolute terms or relative to comparison entities,
indices or other measures to be achieved during a Performance Period. Performance Criteria may be
applied solely with reference to the Company (or any Business Unit) or relatively
between the Company (or any Business Unit) and one or more unrelated entities or business
units or indices.
The Committee shall establish performance objectives based on one or more Performance Criteria
for each Performance Award to a Participant. The terms of the stated performance objectives for
each applicable Performance Award must preclude the Committees discretion to increase the amount
payable to any Section 162(m) Employee that would otherwise be due upon attainment of the
performance objectives. The performance objectives specified need not be applicable to all
Performance Awards, and may be particular or unique to an individual Participants function, duties
or Business Unit.
The Committee may provide in any Performance Award that any evaluation of performance may
include or exclude the impact of any of the following events that occurs during a Performance
Period: (i) asset write-downs; (ii) litigation or claim judgments or settlements; (iii) changes in
tax laws, accounting principles, or other laws or provisions affecting reported results; (iv) any
reorganization and restructuring programs; (v) extraordinary or nonrecurring items; (vi)
acquisitions or divestitures; and (vii) foreign exchange gains and losses. To the extent such
inclusions or exclusions affect Performance Awards to Section 162(m) Employees, they shall be
prescribed in a form that meets the requirements of Section 162(m) of the Code for deductibility.
3.5
Adjustments
. The Committee will make appropriate adjustments to reflect the effect, if
any, on any Performance Criteria and performance objectives of any Common Share dividend or split,
recapitalization (including, without limitation, the payment of an extraordinary dividend), merger,
consolidation, combination, spin-off, distribution of assets to shareholders, exchange of shares or
similar corporate change. This adjustment to the Performance Criteria and performance objectives
will be made to the extent the Performance Criteria and performance objectives, as applicable, are
based on Common Shares as of the effective date of the event and for the Performance Period in
which the event occurs. Also, the Committee will make a similar adjustment to any portion of
Performance Criteria and any performance objectives that are not based on Common Shares but which
are affected by an event having an effect similar to those just described. To the extent allowable
under Section 162(m) of the Code, the Committee may also make adjustments to take into account
extraordinary or unusual events, the disposition or purchase of a business, or a change in
accounting practice. Notwithstanding the foregoing provisions of this Section 3.5, no adjustment
shall be made or is allowable under this Section 3.5 to the extent such adjustment would cause any
award to a Section 162(m) Employee intended to qualify as qualified performance based compensation
under Section 162(m) of the Code to fail to so qualify.
3.6
Period for Determining Performance Objectives
. Performance objectives with respect to any
Performance Award will be established by the Committee in writing before the outcome is
substantially certain but in no event later than the earlier of:
(a) Ninety (90) days after the beginning of the applicable Performance Period; or
(b) The expiration of twenty-five percent (25%) of the applicable Performance Period.
3.7
Certification
. As of the end of each Performance Period, the Committee will certify in
writing the extent to which each Participant has or has not met the applicable performance
objectives with respect to any Performance Award, the amount (if any) due to each Participant and
whether any other material terms (if any) were satisfied. Also, no amount will be paid under this
Plan (and no substitute amount will be paid under any other arrangement) if the conditions imposed
by the Committee have not been met.
SECTION 4
EFFECT OF TERMINATION OF EMPLOYMENT
DURING A PERFORMANCE PERIOD OR PRIOR TO PAYOUT
4.1
Forfeiture Upon Termination of Employment prior to end of Performance Period.
Subject to
Section 6.1 of this Plan, if a Participants Employment terminates for any reason other than death,
Disability or Retirement prior to the end of a Performance Period, then such Participant shall
immediately forfeit and relinquish any and all rights and claims to receive any Incentive
Compensation hereunder for such Performance Period.
4.2
Pro Rata Payment for Termination of Employment Due to Death, Disability or Retirement
.
Subject to Section 6.1 of this Plan, if during a Performance Period, a Participants Employment is
terminated as a result of his or her death, Disability or Retirement, such Participant shall be
eligible to receive a pro-rata portion of the Incentive Compensation that would have been payable
if such Participant had remained Employed for the full Performance Period, which shall be
determined and paid as follows:
(a) Following the end of the Performance Period, the Committee will determine the extent to
which the performance objectives applicable to the Participants Performance Award have been
satisfied to measure the amount of the Performance Award that otherwise would have been payable to
the Participant under this Plan had his or her Employment not terminated prior to the end of the
Performance Period.
(b) The Committee will then multiply the amount determined in accordance with Section 4.2(a)
by a fraction, the numerator of which is the number of whole calendar months in which the
terminated, deceased, Disabled or Retired Participant was Employed by the Company as a Participant
in the Plan during the Performance Period and the denominator of which is the number of whole
calendar months in the Performance Period.
(c) Such resulting amount shall be paid at the time and in the manner provided for in Section
5 of this Plan.
4.3
Termination of Employment after the Performance Period
. If a Participants Employment
terminates for any reason except for Cause after the end of a Performance Period but prior to the
Payout Date, then such Participant shall be entitled to payment of any Incentive Compensation for
such Performance Period, as determined by the Committee, on the Payout Date.
Cause
when used in connection with the termination of a Participants Employment, means the
Participant has (a) caused the Company, other than pursuant to the advice of the
Companys legal counsel, to violate a law which, in the opinion of the Companys legal
counsel, is reasonable grounds for criminal penalties or material civil penalties against the
Company; (b) engaged in misappropriation of a corporate opportunity, dishonesty, fraud,
misappropriation of funds for personal gain or in violation of law, governmental or judicial orders
or otherwise engaged in conduct which constitutes a material violation of the established written
policies or procedures of the Company regarding the conduct of its Employees; (c) committed fraud
or acted with willful misconduct or gross negligence with respect to the Company or the
Participants Employment; (d) been indicted or similarly charged by applicable governmental
authorities with, or been convicted of, a felony or any crime involving moral turpitude or a
violation of federal or state securities laws; (e) engaged in repeated disobedience or
insubordination (after written notice of the same from the Company and failure to cure with thirty
(30) days after receipt of such notice, provided that such notice and right to cure shall only be
required for the first occurrence), or has shown willful and persistent inattention to his or her
duties (after written notice of the same and failure to cure within thirty (30) days after receipt
of such notice, provided that such notice and right to cure shall only be required for the first
occurrence); or (f) materially breached the Worthington Industries Code of Conduct or any
agreement between the Participant and the Company.
4.4
Leaves of Absence
. A Participants Employment for purposes of this Plan shall not be
deemed to have been terminated because of a leave of absence covered under the Federal Medical
Family Leave Act or during any other period required to be treated as a leave of absence or
required to be treated as continued Employment by virtue of any applicable statute or regulation.
If a Participant is on any other approved leave of absence (not specifically addressed in the
immediately preceding sentence) during a Performance Period, his or her Employment will not be
deemed to have terminated for purposes of this Plan, except that such Participant shall not be
eligible for Incentive Compensation for the period of the leave of absence, and the Incentive
Compensation payable for such Performance Period will be prorated in accordance with Section 4.2 of
this Plan based on the number of whole calendar months during the Performance Period in which the
Participant was not on a leave of absence.
4.5
Committee Determinations Controlling
. All determinations regarding a Participants
Employment, eligibility to participate in the Plan or in any Performance Period, or amounts owing
to a Participant shall be made by the Committee, whose decision shall be final and binding on the
affected Participant and any Beneficiary.
SECTION 5
PAYMENT OF INCENTIVE COMPENSATION
Unless a Participant has made a valid election under a deferred compensation plan maintained
by the Company no later than the date permitted under such plan and except as otherwise provided in
Section 6.1 of this Plan, a Participants Incentive Compensation for each Performance Period, if
any, shall be paid in a cash lump sum (net of applicable tax and other required withholdings) after
(a) the results for such Performance Period have been finalized and (b) the Committee has made the
certification described in Section 3.7 of this Plan; provided, however, that any Incentive
Compensation shall be paid no later than the later of (i) the 15th day of the third month following
the Participants first taxable year in which such Incentive
Compensation is no longer subject to a substantial risk of forfeiture (within the meaning of
Section 409A of the Code) or (ii) the 15th day of the third month following the end of the first
taxable year of the service recipient (within the meaning of Section 409A of the Code) in which
such Incentive Compensation is no longer subject to a substantial risk of forfeiture.
SECTION 6
CHANGE IN CONTROL
6.1
Payment on Change in Control.
Unless otherwise determined by the Committee in connection
with the establishment of the Performance Award or as otherwise specified in a written agreement
between the Company and the Participant, including the agreement establishing the terms of the
Participants Performance Award, if, during a Performance Period, (i) a Change in Control occurs
and (ii) on or after the date of the Change in Control, the Participants Employment terminates for
any reason, then, notwithstanding Sections 4.1 and 4.2 of this Plan, the Performance Award of such
Participant shall be considered to be earned and payable as of the date of termination of the
Participants Employment in the amount designated as Target for such Performance Award.
Unless a Participant has made a valid election under a deferred compensation plan maintained
by the Company no later than the date permitted under such plan, the Incentive Compensation payable
with respect to the Performance Award in accordance with the preceding paragraph of this Section
6.1 shall be paid within thirty (30) days following the date the Participants Employment
terminates.
6.2
Provisions Not Applicable
. The provisions of this Section 6 shall not apply (i) if the
Committee determines at the time of grant of a Performance Award that this Section 6 shall not
apply in respect of such Performance Award or (ii) to any Change in Control when expressly provided
otherwise by a three-fourths (3/4) vote of the Whole Board, but only if a majority of the members
of the Board then in office and acting upon such matter shall be Continuing Directors.
6.3
Definitions for Section 6
. For purposes of this Section 6, unless the context requires
otherwise, the following terms shall have the respective meanings set forth in this Section:
(a)
Acquiring Person
means any Person or Group (including any individual, firm, corporation
or other entity) who or which, together with all Affiliates and Associates of such Person or Group,
has acquired or obtained the right to acquire the Beneficial Ownership of twenty-five percent
(25%) or more of the Common Shares then outstanding.
(b)
Act
means the Securities Exchange Act of 1934, as amended, or any successor thereto.
(c)
Affiliate
and
Associate
shall have the respective meanings ascribed to such terms in
Rule 12b-2 of the General Rules and Regulations under the Act (or any successor rule thereto).
(d)
Beneficial Ownership
shall be determined pursuant to Rule 13d-3 of the General Rules and
Regulations under the Act (or any successor rule thereto).
(e)
Change in Control
means any Person or Group (other than (i) the Company, (ii) any
employee benefit plan of the Company or any trustee of or fiduciary with respect to any such
employee benefit plan when acting in such capacity, or (iii) any Person who, on the effective date
of the Plan, is an Affiliate of the Company and owning in excess of ten percent (10%) of the
outstanding Common Shares and the respective successors, executors, legal representatives, heirs
and legal assigns of such Person), alone or together with the Affiliates and Associates of such
Person or Group, has acquired or obtained the right to acquire the Beneficial Ownership of
twenty-five percent (25%) or more of the outstanding Common Shares.
(f)
Continuing Director
means any individual who was a member of the Board on the effective
date of the Plan or thereafter elected by the shareholders of Worthington or appointed by the Board
prior to the date as of which the Acquiring Person became a Substantial Shareholder (as such term
is defined in Article Seventh of Worthingtons Amended Articles of Incorporation) or, an individual
designated (before his or her initial election or appointment as a director) as a Continuing
Director by three-fourths (3/4) of the Whole Board, but only if a majority of the Whole Board shall
then consist of Continuing Directors.
(g)
Group
has the meaning given to that term in Sections 13(d)(3) and 14(d)(2) of the Act
(or any successor sections thereto).
(h)
Person
means a
person
, as such term is used for purposes of Section 13(d) or 14(d) of
the Act (or any successor section thereto).
(i)
Whole Board
means the total number of directors which Worthington would have if there
were no vacancies.
6.4
Golden Parachute Limitation.
Subject to any other written agreement to the contrary
between the Company and a Participant which implicitly or explicitly encompasses this Plan,
including the agreement establishing the terms of the Participants Performance Award, if the sum
of the payments described in this Section 6 and those provided under all other plans, programs or
agreements between the Participant and the Company (collectively, the Programs) generate a loss
of deduction under Section 280G of the Code (the Loss Deduction) or an excise tax under Section
4999 of the Code (the Excise Tax), the amounts paid to the Participant under this Plan in
connection with a Change in Control shall be reduced so that the Participants total parachute
payment as defined in Section 280G(b)(2)(A) of the Code under this Plan and the Programs will be
$1.00 less than the amount that would generate a Loss Deduction or an Excise Tax but only if this
reduction provides the Participant with an after-tax amount that is greater than the after-tax
amount that would result if no such reduction were made. If there is a dispute regarding this
reduction, the determination of whether a reduction is required, and/or the amount of reduction
required, pursuant to this Section 6.4 shall be made by a nationally recognized certified public
accounting firm designated by the Company and by applying principles, assumptions and procedures
consistent with Section 280G of the Code. Any reduction pursuant to this Section 6.4 shall be made
in compliance with Section 409A of the Code.
SECTION 7
MISCELLANEOUS PROVISIONS
7.1
Non-Assignability
. A Participant cannot alienate, assign, pledge, encumber, transfer,
sell or otherwise dispose of any rights or benefits under the Plan prior to the actual receipt
thereof, and any attempt to alienate, assign, pledge, encumber, transfer, sell or otherwise make a
disposition prior to such receipt, or any levy, attachment, execution or similar process upon any
such rights or benefits, shall be null and void.
7.2
No Right to Continue in Employment
. Nothing in the Plan confers upon any Participant the
right to continue in the Employment of the Company, or interferes with or restricts in any way the
right of the Company to discharge any Participant at any time.
7.3
Indemnification of Committee Members
. Each individual who is or was a member of the
Committee shall be indemnified by the Company against and from any damage, loss, liability, cost
and expense that may be imposed upon or reasonably incurred by him or her in connection with or
resulting from any claim, action, suit, or proceeding to which he or she is or may be a party, or
in which he or she may be involved, by reason of any action taken or failure to act under the Plan,
except for any such act or omission constituting willful misconduct or gross negligence. Each such
individual shall be indemnified by the Company for all amounts paid by such individual in
settlement thereof, with the Companys approval, or paid by such individual in satisfaction of any
judgment in any such action, suit, or proceeding against him or her, provided he or she shall give
the Company an opportunity, at its own expense, to handle and defend the same before he or she
undertakes to handle and defend it on his or her own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification to which such
individuals may be entitled from the Company, as a matter of law, or otherwise, or any power that
the Company may have to indemnify them or hold them harmless.
7.4
No Plan Funding
. The Plan shall at all times be entirely unfunded and no provision shall
be made with respect to segregating any assets of the Company for payment of any amounts due
hereunder. No Participant, Beneficiary, or other Person (as defined in Section 6.3 of this Plan)
shall have any interest in any particular assets of the Company by reason of the right to receive
any Incentive Compensation under the Plan until such payment is actually received by such Person.
Participants and Beneficiaries shall have only the rights of general unsecured creditors of the
Company.
7.5
Governing Law
. The Plan shall be construed in accordance with the laws of the State of
Ohio, without regard to its conflicts of law provisions.
7.6
Binding Effect
. The Plan shall be binding upon and inure to the benefit of the Company
and its successors and assigns, and the Participants and their respective Beneficiaries, heirs, and
personal representatives.
7.7
Construction of Plan
. The captions used in the Plan are for convenience of reference only
and shall not be construed in interpreting the Plan. Whenever the context so
requires, the masculine shall also include the feminine and neuter, and the singular shall
also include the plural, and conversely.
7.8
Compliance with Section 409A of the Code
. It is intended that the Plan be exempt from the
requirements of Section 409A of the Code and the Treasury Regulations promulgated thereunder, and
the Plan will be interpreted, administered and operated accordingly. Nothing herein shall be
construed as an entitlement to or guarantee of any particular tax treatment to a Participant.
7.9
Beneficiaries.
Each Participant may designate a Beneficiary or Beneficiaries (which
Beneficiary may be an entity other than a natural Person (as defined in Section 6.3 of this Plan))
to receive any payments which may be made under this Plan following the Participants death. Such
designation may be changed or canceled at any time without the consent of any such Beneficiary.
Any such designation, change or cancellation must be made in a form approved by the Committee and
shall not be effective until received by the Committee. If no Beneficiary has been named, or the
designated Beneficiary or Beneficiaries shall have predeceased the Participant, the Beneficiary
shall be the Participants spouse or, if no spouse survives the Participant, the Participants
estate. If a Participant designates more than one Beneficiary, the rights of such Beneficiaries
shall be payable in equal shares, unless the Participant has designated otherwise.
SECTION 8
AMENDMENT OR DISCONTINUANCE
The Committee may at any time, and from time to time, without the consent of any Participant,
amend, revise, suspend or discontinue the Plan, in whole or in part, subject to any shareholder
approval required by applicable law, rules or regulations; provided, however, the Committee may not
amend the Plan to change the method for determining Incentive Compensation or the Performance
Criteria without the approval of the majority of votes cast by the shareholders of the Company in a
separate vote to the extent required by Section 162(m) of the Code.
SECTION 9
EFFECT OF THE PLAN
Neither the adoption of the Plan, nor any action of the Board or the Committee hereunder,
shall be deemed to give any Participant any right to be granted Incentive Compensation hereunder.
In addition, nothing contained in the Plan, and no action taken pursuant to its provisions, shall
be construed to (a) give any Participant any right to any compensation, except as expressly
provided herein; (b) be evidence of any agreement, contract or understanding, express or implied,
that the Company will employ a Participant in any particular position or for any particular
duration; (c) give any Participant any right, title, or interest whatsoever in, or to, any assets
or investments which the Company may make to aid it in meeting its obligations hereunder; (d)
create a trust or fund of any kind; or (e) create any type of fiduciary relationship between the
Company and a Participant or any other Person (as defined in Section 6.3 of this Plan).
SECTION 10
TERM
The Plan shall be effective upon its approval by Worthingtons shareholders on September 24,
2008; provided that such approval is consistent with the shareholder approval requirements of
Section 162(m) of the Code.
Exhibit
10.2
WORTHINGTON INDUSTRIES, INC.
1997 LONG-TERM INCENTIVE PLAN
Section 1.
Purpose
The purposes of the Worthington Industries, Inc. 1997 Long-Term Incentive Plan (the Plan)
are to encourage selected key employees of Worthington Industries, Inc. and its subsidiaries
(collectively the Company) to acquire a proprietary and vested interest in the growth and
performance of the Company, to generate an increased incentive to contribute to the Companys
future success and prosperity, thus enhancing the value of the Company for the benefit of share
owners, and to enhance the ability of the Company to attract and retain individuals of exceptional
talent upon whom, in large measure, the sustained progress, growth and profitability of the Company
depends.
Section 2.
Administration
The Plan shall be administered by the Committee. The Committee shall have full power and
authority, subject to such orders or resolutions not inconsistent with the provisions of the Plan
as may from time to time be adopted by the Board, to: (i) select the Employees of the Company to
whom Awards may from time to time be granted hereunder; (ii) determine the type or types of Award
to be granted to each Participant hereunder; (iii) determine the number of Shares to be covered by
each Award granted hereunder; (iv) determine the terms and conditions, not inconsistent with the
provision of the Plan, of any Award granted hereunder; (v) determine whether, to what extent and
under what circumstances Awards may be settled in cash, Shares or other property or canceled or
suspended; (vi) determine whether, to what extent and under what circumstances cash, Shares, and
other property and other amounts payable with respect to an Award under the Plan shall be deferred
either automatically or at the election of the Participant; (vii) interpret and administer the Plan
and any instrument or agreement entered into under the Plan; (viii) establish such rules and
regulations and appoint such agents as it shall deem appropriate for the proper administration of
the Plan; and (ix) make any other determination and take any other action that the Committee deems
necessary or desirable for administration of the Plan. Decisions of the Committee shall be final,
conclusive and binding upon all persons, including the Company, any Participant, any shareholder,
and any employee of the Company. A majority of the members of the Committee may determine its
actions and fix the time and place of its meetings.
Section 3.
Duration of, and Shares Subject to Plan
(a)
Term.
The Plan shall remain in effect until terminated by the Board, provided,
however, that no Incentive Stock Option may be granted more than ten (10) years after the
Effective Date of the Plan.
(b)
Shares Subject to the Plan.
The maximum number of Shares in respect of which
Awards may be granted under the Plan, subject to adjustment as provided in Section 3(c) of
the Plan, is 4,500,000 Shares. Notwithstanding the foregoing, in no event shall more than
1,000,000 Shares be cumulatively available for Awards of Incentive Stock Options under the
Plan and provided further that no Participant may be granted Awards in any one calendar year
with respect to more than two hundred thousand (200,000) Shares.
II-1
For the purpose of computing the total number of Shares available for Awards under the Plan,
there shall be counted against the foregoing limitations the number of Shares subject to
issuance upon exercise or settlement of Award as of the dates on which such Awards are
granted. Shares which were previously subject to Awards shall again be available for Awards
under the Plan if any such Awards are forfeited, terminated, expire unexercised, settled in
cash or property other than Shares or exchanged for other Awards (to the extent of such
forfeiture, termination or expiration of such Awards), or if the Shares subject thereto can
otherwise no longer be issued. Further, any Shares which are used as full or partial
payment to the Company by a Participant of the purchase price of Shares upon exercise of a
Stock Option shall again be available for Awards under the Plan.
Shares which may be issued under the Plan may be either authorized and unissued shares or
issued shares which have been reacquired by the Company. No fractional shares shall be
issued under the Plan.
(c)
Changes in Shares.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, stock split, reverse stock split, spin off, exchange of
shares or similar transaction or other change in corporate structure or capitalization
affecting the Shares or the price thereof, such adjustments and other substitutions shall be
made to the Plan and to Awards as the Committee in its sole discretion deems equitable or
appropriate, including without limitation such adjustments in the aggregate number, class
and kind of Shares which may be delivered under the Plan, in the aggregate or to any one
Participant, in the number, class, kind and option or exercise price of Shares subject to
outstanding Options, Stock Appreciation Rights or other Awards granted under the Plan, and
in the number, class and kind of Shares subject to, Awards granted under the Plan
(including, if the Committee deems appropriate, the substitution of similar options to
purchase the shares of, or other awards denominated in the shares of, another company) as
the Committee may determine to be appropriate in its sole discretion, provided that the
number of Shares or other securities subject to any Award shall always be a whole number.
Section 4.
Eligibility
Any Employee (excluding any member of the Committee) shall be eligible to be selected as a
Participant.
Section 5.
Stock Options
Options may be granted hereunder to Participants either alone or in addition to other Awards
granted under the Plan. Any Option granted under the Plan shall be evidenced by an Award Agreement
in such form as the Committee may from time to time approve. Any such Option shall be subject to
the following terms and conditions and to such additional terms and conditions, not inconsistent
with the provisions of the Plan, as the Committee shall deem desirable. The provisions of Options
need not be the same with respect to each recipient.
(a)
Option Price.
The purchase price per Share purchasable under an Option shall be
determined by the Committee in its sole discretion; provided that such purchase price shall
not be less than the Fair Market Value of the Share on the date of the grant of the Option.
(b)
Option Period.
The term of each Option shall be fixed by the Committee in its sole
discretion; provided that no Incentive Stock Option shall be exercisable after the
expiration of ten years from the date the Option is granted.
II-2
(c)
Exercisability.
Options shall be exercisable at such time or times as determined
by the Committee at or subsequent to grant. Unless other determined by the Committee at or
subsequent to grant, no Incentive Stock Option shall be exercisable during the year ending
on the day before the first anniversary date of the granting of the Incentive Stock Option.
(d)
Method of Exercise.
Subject to the other provisions of the Plan and any applicable
Award Agreement, any Option may be exercised by the Participant in whole or in part at such
time or times, and the Participant may make payment of the option price in such form or
forms, including, without limitation, payment by delivery of cash, Shares or other
consideration (including, where permitted by law and the Committee, Awards) having a Fair
Market Value on the exercise date equal to the total option price, or by any combination of
cash, Shares and other consideration as the Committee may specify in the applicable Award
Agreement.
(e)
Incentive Stock Options.
In accordance with rules and procedures established by
the Committee, the aggregate Fair Market Value (determined as of the time of grant) of the
Shares with respect to which Incentive Stock Options held by any Participant which are
exercisable for the first time by such Participant during any calendar year under the Plan
(and under any other benefit plans of the Company or of any parent or subsidiary corporation
of the Company) shall not exceed $100,000 or, if different, the maximum limitation in effect
at the time of grant under Section 422 of the Code, or any successor provision, and any
regulations promulgated thereunder. The terms of any Incentive Stock Option granted
hereunder shall comply in all respects with the provisions of Section 422 of the Code, or
any successor provision, and any regulations promulgated thereunder.
Section 6.
Stock Appreciation Rights
Stock Appreciation Rights may be granted hereunder to Participants either alone or in addition
to other Awards granted under the Plan and may, but need not, relate to a specific Option granted
under Section 5. The provisions of Stock Appreciation Rights need not be the same with respect to
each recipient. Any Stock Appreciation Right related to a Non-Qualified Stock Option may be
granted at any time thereafter before exercise or expiration of such Option. Any Stock
Appreciation Right related to an Incentive Stock Option must be granted at the same time such
Option is granted. In the case of any Stock Appreciation Right related to any Option, the Stock
Appreciation Right or applicable portion thereof shall terminate and no longer be exercisable upon
the termination or exercise of the related Option, except that a Stock Appreciation Right granted
with respect to less than the full number of Shares covered by a related Option shall not be
reduced until the exercise or termination of the related Option exceeds the number of shares not
covered by the Stock Appreciation Right. Any Option related to any Stock Appreciation Right shall
no longer be exercisable to the extent the related Stock Appreciation Right has been exercised.
The Committee may impose such conditions or restrictions on the exercise of any Stock Appreciation
Right as it shall deem appropriate.
Section 7.
Restricted Stock
(a)
Issuance.
Restricted Stock Awards may be issued hereunder to Participants either
alone or in addition to other Awards granted under the Plan, for such consideration as
determined by the Committee in its sole discretion and the Committee may issue such Awards
for no consideration or for such minimum consideration as may be required by applicable law.
Restricted Stock Awards shall contain such limitations, terms and conditions and other
provisions as determined by the Committee in its sole discretion. The provisions of
Restricted Stock Awards need not be the same with respect to each recipient.
II-3
(b)
Registration.
Any Restricted Stock issued hereunder may be evidenced in such
manner as the Committee in its sole discretion shall deem appropriate, including, without
limitation, book-entry registration or issuance of a stock certificate or certificates. In
the event any stock certificate is issued in respect of shares of Restricted Stock awarded
under the Plan, such certificate shall be registered in the name of the Participant, and
shall bear an appropriate legend referring to the terms, conditions, and restrictions
applicable to such Award.
(c)
Forfeiture.
Except as otherwise determined by the Committee at the time of grant,
upon termination of employment for any reason during the restriction period, all shares of
Restricted Stock still subject to restriction shall be forfeited by the Participant and
reacquired by the Company, for the purchase price paid by the Participant or such other
consideration (or no consideration) as set by the Committee as part of the terms and
conditions of the Award, provided that except as provided in Section 11, in the event of a
Participants retirement, permanent disability, other termination of employment or death, or
in cases of special circumstances, the Committee may, in its sole discretion, waive in whole
or in part any or all remaining restrictions with respect to such Participants shares of
Restricted Stock. Unrestricted Shares, evidenced in such manner as the Committee shall deem
appropriate, shall be issued to the grantee after the period of forfeiture, as determined or
modified by the Committee, shall expire.
Section 8.
Performance Awards
Performance Awards may be issued hereunder to Participants, either alone or in addition to other
Awards granted under the Plan, for such consideration as determined by the Committee, in its sole
discretion, and the Committee may issue such Awards for no consideration or for such minimum
consideration as may be required by applicable law. The performance criteria to be achieved during
any Performance Period, the length of the Performance Period and the other terms and conditions and
provisions with respect to the Award shall be determined by the Committee upon the grant of each
Performance Award. Except as provided in Section 10, Performance Awards will be distributed only
after the end of the relevant Performance Period. Performance Awards may be paid in cash, Shares,
other property or any combination thereof, in the sole discretion of the Committee at the time of
payment. The performance levels to be achieved for each Performance Period and the amount of the
Award to be distributed shall be conclusively determined by the Committee. Performance Awards may
be paid in a lump sum or in installments following the close of the Performance Period. The
maximum value of the property, including cash, that may be paid or distributed to any Participant
pursuant to a grant of Performance Units made in any one calendar year shall be $2,500,000. The
provisions of Performance Awards need not be the same with respect to each recipient.
Section 9.
Other Stock Unit Awards
(a)
Stock and Administration.
Other Awards of Shares and other Awards that are valued
in whole or in part by reference to, or are otherwise based on, Shares or other property
(Other Stock Unit Awards) may be granted hereunder to Participants, either alone or in
addition to other Awards granted under the Plan. Other Stock Unit Awards may be paid in
Shares, cash or any other form of property as the Committee shall determine.
(b)
Terms and Conditions.
Other Stock Unit Awards granted under this Section 9 may be
issued for such consideration as determined by the Committee in its sole discretion, and the
Committee may issue such Awards for no consideration or for such minimum consideration as
may be required by applicable law. Shares (including securities convertible into Shares)
purchased pursuant to a purchase right awarded under this Section 9 shall be purchased for
such consideration
II-4
as the Committee shall in its sole discretion determine, which shall not be less than
the Fair Market Value of such Shares or other securities as of the date such purchase right
is awarded. The terms and conditions and other provisions with respect to Other Stock Unit
Awards shall be determined by the Committee. The provisions of Other Stock Unit Awards need
not be the same with respect to each recipient.
Section 10.
Change in Control Provisions
(a)
Impact of Event.
Notwithstanding any other provision of the Plan to the contrary,
but subject to the provisions of Section 10(d), in the event of a Change in Control:
(i) Any Options and Stock Appreciation Rights outstanding as of the date such Change
in Control is determined to have occurred, and which are not then exercisable and
vested, shall become fully exercisable and vested to the full extent of the original
grant; provided, that in the case of a Participant holding a Stock Appreciation
Right who is actually subject to Section 16(b) of the Exchange Act, such Stock
Appreciation Right shall not become fully vested and exercisable unless it shall
have been outstanding for at least six months at the date such Change in Control is
determined to have occurred.
(ii) The restrictions and deferral limitations applicable to any Restricted Stock
shall lapse, and such Restricted Stock shall become free of all restrictions and
limitations and become fully vested and transferable to the full extent of the
original grant.
(iii) All Performance Awards shall be considered to be earned and payable in full,
and any deferral or other restriction shall lapse and such Performance Awards shall
be immediately settled or distributed.
(iv) The restrictions and deferral limitations and other conditions applicable to
any Other Stock Unit Awards or any other Awards shall lapse, and such Other Stock
Unit Awards or such other Awards shall become free of all restrictions, limitations
or conditions and become fully vested and transferable to the full extent of the
original grant.
(b)
Change in Control Cash-Out.
Notwithstanding any other provision of the Plan,
during the 60-day period from and after a Change in Control (the Exercise Period), if the
Committee shall determine at, or at any time after the time of grant, a Participant holding
an Option shall have the right, whether or not the Option is fully exercisable and in lieu
of the payment of the Purchase Price for the Shares being purchased under the Option and by
giving notice to the Company, to elect (within the Exercise Period) to surrender all or part
of the Option to the Company and to receive cash, within 30 days of such notice, in an
amount equal to the amount by which the Change in Control Price per Share on the date of
such election shall exceed the purchase price per Share under the Option (the Spread)
multiplied by the number of Shares granted under the Option as to which the right granted
under this Section 10(b) shall have been exercised; provided, that if the Change in Control
is within six months of the date of grant of a particular Option held by a Participant who
is an officer or director of the Company and is subject to Section 16(b) of the Exchange
Act, no such election shall be made by such Participant with respect to such Option prior to
six months from the date of grant. However, if the end of such 60-day period from and after
a Change-in-Control is within six months of the date of grant of an Option held by a
Participant who is an officer or director of the Company and is subject to Section 16(b) of
the Exchange Act, such Option (unless theretofore exercised) shall be canceled in exchange
for a cash payment to the Participant, effected on the day which is six months and one day
after the date
II-5
of grant of such Option, equal to the Spread multiplied by the number of Shares granted
under the Option.
(c)
Pooling Transaction.
Notwithstanding any other provision of this Plan, if any
right granted pursuant to this Plan would make a Change in Control transaction ineligible
for pooling-of-interests accounting under APB No. 16 that (after giving effect to any other
actions taken to cause such transaction to be eligible for such pooling-of-interests
accounting treatment) but for the nature of such grant would otherwise be eligible for such
accounting treatment, the Committee shall have the ability to substitute for the cash
payable pursuant to such right Shares with a Fair Market Value equal to the cash that would
otherwise be payable pursuant thereto.
(d)
Provisions not Applicable.
The provisions of this Section 10 shall not apply
(i) if the Committee determines at the time of grant that such Section shall not apply or
(ii) to any Change in Control when expressly provided otherwise by a three-fourths vote of
the Whole Board, but only if a majority of the members of the Board then in office and
acting upon such matters shall be Continuing Directors.
Section 11.
Code Section
162(m)
Provisions
(a)
Applicability.
Notwithstanding any other provision of this Plan, if the Committee
determines at the time Restricted Stock, a Performance Award or an Other Stock Unit Award is
granted to a Participant that such Participant is, or is likely to be at the time he or she
recognizes income for federal income tax purposes in connection with such Award a Covered
Employee then the Committee may provide that this Section 11 is applicable to such Award.
(b)
Performance Goals.
If an Award is subject to this Section 11, then the lapsing of
restrictions thereon and the distribution of cash, Shares or other property pursuant
thereto, as applicable, shall be subject to the achievement of one or more objective
performance goals established by the Committee, which shall be based on the attainment of
one or any combination of the following: specified levels of earnings per share from
continuing operations, operating income, revenues, gross margin, return on operating assets,
return on equity, economic value added, stock price appreciation, total stockholder return
(measured in terms of stock price appreciation and dividend growth), or cost control, of the
Company or an Affiliate or division of the Company for or within which the Participant is
primarily employed, or such other measures as the Committee may determine to comply with the
requirements of Section 162(m) of the Code and the regulations thereunder. Such Performance
Goals also may be based upon the attaining specified levels of performance under one or more
of the measures described above relative to the performance of other corporations. Such
performance goals shall be set by the Committee within the time period prescribed by, and
shall otherwise comply with the requirements of, Section 162(m) of the Code and the
regulations thereunder.
(c)
Limitations on Adjustments.
Notwithstanding any provision of this Plan other than
Section 10, with respect to any Award that is subject to this Section 11, the Committee may
not adjust upwards the amount payable pursuant to such Award, nor may it waive the
achievement of the applicable performance goals except in the case of the death or
disability of the Participant.
(d)
Other Restrictions.
The Committee shall have the power to impose such other
restrictions on Awards subject to this Section 11 as it may deem necessary or appropriate to
ensure that such Awards satisfy all requirements for performance based compensation within
the meaning of Section 162 (m)(4)(B) of the Code or any successor thereto.
II-6
Section 12.
Amendments and Terminations
The Board may amend, alter or discontinue the Plan, but no amendment, alteration, or
discontinuation shall be made that would impair the rights of an Optionee or Participant under an
Award theretofore granted, without the optionees or Participants consent, or that without the
approval of the Stockholders would:
(a) except as is provided in Section 3(c) of the Plan, increase the total number of
shares reserved for the purpose of the Plan; or
(b) change the employees or class of employees eligible to participate in the Plan.
The Committee may amend the terms of any Award theretofore granted, prospectively or
retroactively, but no such amendment shall impair the rights of any Participant without his
consent.
Section 13.
General Provisions
(a)
No Assignment.
Unless the Committee determines otherwise at the time the Award is
granted, no Award, and no Shares subject to Awards described in Section 9 which have not
been issued or as to which any applicable restriction, performance or deferral period has
not lapsed, may be sold, assigned, transferred, pledged or otherwise encumbered, except by
will or by the laws of descent and distribution; provided that, if so determined by the
Committee, a Participant may, in the manner established by the Committee, designate a
beneficiary to exercise the rights of the Participant with respect to any Award upon the
death of the Participant. Each Award shall be exercisable, during the Participants
lifetime, only by the Participant or, if permissible under applicable law, by the
Participants guardian or legal representative.
(b)
Term of Awards.
The term of each Award shall be for such period of months or years
from the date of its grant as may be determined by the Committee; provided that in no event
shall the term of any Incentive Stock Option or any Stock Appreciation Right related to any
Incentive Stock Option exceed a period of ten (10) years from the date of its grant.
(c)
No Right to Award.
No Employee or Participant shall have any claim to be granted
any Award under the Plan and there is no obligation for uniformity of treatment of Employees
or Participants under the Plan.
(d)
Written Agreement Required.
The prospective recipient of any Award under the Plan
shall not, with respect to such Award, be deemed to have become a Participant, or to have
any rights with respect to such Award, until and unless such recipient shall have executed
an agreement or other instrument evidencing the Award and delivered a fully executed copy
thereof to the Company, and otherwise complied with the then applicable terms and
conditions.
(e)
Adjustments.
Except as provided in Section 11, the Committee shall be authorized
to make adjustments in Performance Award criteria or in the terms and conditions of other
Awards in recognition of unusual or nonrecurring events affecting the Company or its
financial statements or changes in applicable laws, regulations or accounting principles.
The Committee may correct any defect, supply any omission or reconcile any inconsistency in
the Plan or any Award in the manner and to the extent it shall deem desirable to carry it
into effect. In the event the Company shall assume outstanding employee benefit awards or
the right or obligation to make future awards
II-7
in connection with the acquisition of another corporation or business entity, the Committee
may, in its discretion, make such adjustments in the terms of Awards under the Plan as it
shall deem appropriate.
(f)
Cancellations and Forfeitures
. The Committee shall have full power and authority
to determine whether, to what extent, and under what circumstances, any Award shall be
canceled or suspended. In particular, but without limitation, all outstanding Awards to any
Participant shall be canceled if the Participant, without the consent of the Committee,
while employed by the Company or after termination of such employment becomes associated
with, employed by, renders services to, or owns any interest in (other than any
nonsubstantial interest, as determined by the Committee), any business that is in
competition with the Company or with any business in which the Company has a substantial
interest as determined by the Committee.
In the event a Participant terminates his or her employment with the Company for any reason
whatsoever, and within eighteen (18) months after the date thereof becomes associated with,
employed by, renders services to, or owns any interest in (other than any nonsubstantial
interest, as determined by the Committee), any business that is in competition with the
Company or with any business in which the Company has a substantial interest as determined
by the Committee, the Committee, in its sole discretion, may require such Participant to
return to the Company the economic value of any Award which is realized or obtained
(measured at the date of exercise) by such Participant at any time during the period
beginning on that date which is six months prior to the date of such Participants
termination of employment with the Company.
(g)
Securities Laws Restrictions.
No Shares shall be issued under the Plan unless
counsel for the Company shall be satisfied that such issuance will be in compliance with
applicable Federal and state securities laws. All certificates for Shares delivered under
the Plan pursuant to any Award shall be subject to such stock-transfer orders and other
restrictions as the Committee may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange upon which the
Shares are then listed, and any applicable Federal or state securities law, and the
Committee may cause a legend or legends to be put on any such certificates to make
appropriate reference to such restrictions.
(h)
Deferrals.
The Committee shall be authorized to establish procedures pursuant to
which the payment of any Award may be deferred. Subject to the provisions of this Plan and
any Award Agreement, the recipient of an Award (including, without limitation, any deferred
Award) may, if so determined by the Committee, be entitled to receive, currently or on a
deferred basis, interest or dividends, or interest or dividend equivalents, with respect to
the number of shares covered by the Award, as determined by the Committee, in its sole
discretion, and the Committee may provide that such amounts (if any) shall be deemed to have
been reinvested in additional Shares or otherwise reinvested.
(i)
Payment Requirements.
Except as otherwise required in any applicable Award
Agreement or by the terms of the Plan, recipients of Awards under the Plan shall not be
required to make any payment or provide consideration other than the rendering of services.
(j)
Withholding.
The Company shall be authorized to withhold from any Award granted or
payment due under the Plan the amount of withholding taxes due in respect of an Award or
payment hereunder and to take such other action as may be necessary in the opinion of the
Company to satisfy all obligations for the payment of such taxes. The Committee shall be
II-8
authorized to establish procedures for election by Participants to satisfy such
withholding taxes by delivery of, or directing the Company to retain Shares.
(k)
Other Arrangements.
Nothing contained in this Plan shall prevent the Board from
adopting other or additional compensation arrangements, subject to stockholder approval if
such approval is otherwise required, and such arrangements may be either generally
applicable or applicable only in specific cases.
(l)
Applicable Law.
The validity, construction, and effect of the Plan and any rules
and regulations relating to the Plan shall be determined in accordance with the laws of the
State of Delaware and applicable Federal law.
(m)
Invalid Provisions.
If any provision of this Plan is or becomes or is deemed
invalid, illegal or unenforceable in any jurisdiction, or would disqualify the Plan or any
Award under any law deemed applicable by the Committee, such provision shall be construed or
deemed amended to conform to applicable laws or if it cannot be construed or deemed amended
without, in the determination of the Committee, materially altering the intent of the Plan,
it shall be stricken and the remainder of the Plan shall remain in full force and effect.
(n)
Foreign Nationals.
Awards may be granted to Employees who are foreign nationals or
employed outside the United States, or both, on such terms and conditions different from
those specified in the Plan as may, in the judgment of the Committee, be necessary or
desirable in order to recognize differences in local law or tax policy. The Committee also
may impose conditions on the exercise or vesting of Awards in order to minimize the
Companys obligation with respect to tax equalization for Employees on assignments outside
their home country.
(o)
No Right to Employment.
Neither the adoption of the Plan nor the granting of any
Award shall confer upon any employee of the Company any right to continued employment with
the Company, nor shall it interfere in any way with the right of the Company to terminate
the employment of any of its employees at any time, with or without cause.
(p)
Treatment as Compensation for Other Purposes.
Payments and other benefits received
by a Participant under an Award made pursuant to the Plan shall not be deemed a part of a
Participants regular, recurring compensation for purposes of the termination indemnity or
severance pay law of any country and shall not be included in, nor have any effect on, the
determination of benefits under any other employee benefit plan or similar arrangement
provided by the Company unless expressly so provided by such other plan or arrangements, or
except where the Committee expressly determines that an Award or portion of an Award should
be included to accurately reflect competitive compensation practices or to recognize that an
Award has been made in lieu of a portion of competitive annual cash compensation. Awards
under the Plan may be made in combination with or in tandem with, or as alternatives to,
grants, awards or payments under any other Company plans. The Plan notwithstanding, the
Company may adopt such other compensation programs and additional compensation arrangements
as it deems necessary to attract, retain and reward employees for their service with the
Company.
Section 14.
Effective Date of the Plan
The Plan shall be effective on the Effective Date.
II-9
Section 15.
Definitions
As used in the Plan, the following terms shall have the meanings set forth below:
(a) Award shall mean any Option, Stock Appreciation Right, Restricted Stock Award,
Performance Share, Performance Unit, Dividend Equivalent, Other Stock Unit Award, or any
other right, interest, or option relating to Shares granted pursuant to the provisions of
the Plan.
(b) Award Agreement shall mean any written agreement, contract, or other instrument
or document evidencing any Award granted by the Committee hereunder.
(c) Board shall mean the Board of Directors of Worthington Industries, Inc.
(d) Change in Control shall mean the following:
(i) A Change in Control shall have occurred when any Acquiring Person (other than
(A) Worthington or any Worthington Subsidiary, (B) any employee benefit plan of the
Company or any trustee of or fiduciary with respect to any such plan when acting in
such capacity, or (C) any person who, on the Effective Date of the Plan, is an
Affiliate of this Company and owning in excess of ten percent (10%) of the
outstanding shares of the Company and the respective successors, executors, legal
representatives, heirs and legal assigns of such person), alone or together with its
Affiliates and Associates, has acquired or obtained the right to acquire the
beneficial ownership of twenty-five percent (25%) or more of the Shares then
outstanding.
(ii) Acquiring Person means any person (any individual, firm, corporation or other
entity) who or which, together with all Affiliates and Associates, has acquired or
obtained the right to acquire the beneficial ownership of twenty-five percent (25%)
or more of the Shares then outstanding.
(iii) Affiliate and Associate shall have the respective meanings ascribed to
such terms in Rule 12b-2 of the General Rules and Regulations under the Exchange
Act.
(iv) Continuing Director means any person who was a member of the Board on the
Effective Date of the Plan or thereafter elected by the shareholders or appointed by
the Board prior to the date as of which the acquiring Person became a Substantial
Shareholder (as such term is defined in Article Six of the Companys Certificate of
Incorporation) or, a person designated (before his initial election or employment as
a director) as a Continuing Director by three-fourths of the Whole Board, but only
if a majority of the Whole Board shall then consist of Continuing Directors.
(v) Whole Board means the total number of directors which the Company would have
if there were no vacancies.
(e) Change in Control Price Per Share shall mean the highest price per Share (i) paid
by the Acquiring Person in connection with the transactions that results in the Change in
Control; or (ii) paid or offered by the Acquiring Person, to acquire other Shares in excess
of 1% of the outstanding shares, at any time after the change in control and before the
Participant exercises his election under Section 10(b).
II-10
(f) Code shall mean the Internal Revenue Code of 1986, as amended from time to time,
and any successor thereto.
(g) Committee shall mean the Compensation and Stock Option Committee of the Board,
composed of no fewer than three directors, each of whom is a Disinterested Person and an
outside director within the meaning of Section 162(m) of the Code.
(h) Company shall mean Worthington Industries, Inc., a Delaware corporation, and its
subsidiaries, direct or indirect. Subsidiaries of the Company shall include any entity of
which the Company owns 50% or more.
(i) Covered Employee shall mean a covered employee within the meaning of
Section 162(m)(3) of the Code.
(j) Disinterested Person shall have the meaning set forth in Rule 16b-3(d)(3)
promulgated by the Securities and Exchange Commission under the Exchange Act or any
successor definition adopted by the Securities and Exchange Commission.
(k) Dividend Equivalent shall mean any right granted pursuant to Section 14(h)
hereof.
(l) Effective Date shall mean September 18, 1997.
(m) Employee shall mean any salaried employee of the Company. Unless otherwise
determined by the Committee in its sole discretion, for purposes of the Plan, an Employee
shall be considered to have terminated employment and to have ceased to be an Employee if
his or her employer ceases to be a subsidiary of Worthington, even if he or she continues to
be employed by such employer.
(n) Exchange Act shall mean the Securities Exchange Act of 1934, as amended from time
to time, and any successor thereto.
(o) Fair Market Value shall mean, with respect to any property, the fair market value
of such property determined pursuant to the regulations issued under Section 422 of the Code
or by such other methods or procedures as shall be established from time to time by the
Committee.
(p) Incentive Stock Option shall mean an Option granted under Section 5 hereof that
is intended to meet the requirements of Section 422 of the Code or any successor provision
thereto.
(q) Non-Qualified Stock Option shall mean an Option granted under Section 5 hereof
that is not intended to be an Incentive Stock Option.
(r) Option shall mean any right granted to a Participant under the Plan allowing such
Participant to purchase Shares at such price or prices and during such period or periods as
the Committee shall determine.
(s) Other Stock Unit Award shall mean any right granted to a Participant by the
Committee pursuant to Section 9 hereof.
II-11
(t) Participant shall mean an Employee who is selected by the Committee to receive an
Award under the Plan.
(u) Performance Award shall mean any Award of Performance Shares or Performance Units
pursuant to Section 8 hereof.
(v) Performance Period shall mean that period established by the Committee at the
time any Performance Award is granted or at any time thereafter during which any performance
goal specified by the Committee with respect to such Award are to be measured.
(w) Performance Share shall mean any grant pursuant to Section 8 hereof of a unit
valued by reference to a designated number of Shares, which value may be paid to the
Participant by delivery of such property as the Committee shall determine, including,
without limitation, cash, Shares, or any combination thereof, upon achievement of such
performance goals during the Performance Period as the Committee shall establish at the time
of such grant or thereafter.
(x) Performance Unit shall mean any grant pursuant to Section 8 hereof of a unit
valued by reference to a designated amount of property other than Shares, which value may be
paid to the Participant by delivery of such property as the Committee shall determine,
including, without limitation, cash, Shares, or any combination thereof, upon achievement of
such performance goals during the Performance Period as the Committee shall establish at the
time of such grant or thereafter.
(y) Person shall mean any individual, corporation, partnership, association,
joint-stock company, trust, unincorporated organization, limited liability company, other
entity or government or political subdivision thereof.
(z) Restricted Stock shall mean any Share issued with the restriction that the holder
may not sell, transfer, pledge, or assign such Share and with such other restrictions as the
Committee, in its sole discretion, may impose (including, without limitation, any
restriction on the right to vote such Share, and the right to receive any cash dividends),
which restrictions may lapse separately or in combination at such time or times, in
installments or otherwise, as the Committee may deem appropriate.
(aa) Restricted Stock Award shall mean an award of Restricted Stock under Section 7
hereof.
(bb) Shares shall mean the shares of common stock, $.01 par value, of the Company and
such other securities of the Company as the Committee may from time to time determine.
(cc) Stock Appreciation Right shall mean any right granted to a Participant pursuant
to Section 6 hereof to receive, upon exercise by the Participant, the excess of (i) the Fair
Market Value of one Share on the date of exercise or, if the Committee shall so determine in
the case of any such right other than one related to any Incentive Stock Option, at any time
during a specified period before the date of exercise over (ii) the grant price of the right
on the date of grant, or if granted in connection with an outstanding Option on the date of
grant of the related Option, as specified by the Committee in its sole discretion, which,
other than in the case of substitute awards, shall not be less than the Fair Market Value of
one Share on such date of grant of the right or the related Option, as the case may be. Any
payment by the Company in respect of such right may be
II-12
made in cash, Shares, other property, or any combination thereof, as the Committee, in
its sole discretion, shall determine.
(dd) Worthington shall mean Worthington Industries, Inc., an Ohio corporation.
II-13
Exhibit 99.1
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Thomson StreetEvents
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www.streetevents.com
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© 2008 Thomson Financial. Republished with permission. No part of this publication may be
reproduced or transmitted in any form or by any means without the prior written consent of Thomson
Financial.
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Final Transcript
CORPORATE PARTICIPANTS
Allison Sanders
Worthington Industries Director IR
John McConnell
Worthington Industries Chairman, CEO
Richard Welch
Worthington Industries Controller, Principal Financial Officer
George Stoe
Worthington Industries EVP, COO
CONFERENCE CALL PARTICIPANTS
Charles Bradford
Soleil Securities Analyst
James Behre
Perimeter Capital Management Analyst
Tim Hayes
Davenport & Co Analyst
John Tumazos
Very Independent Research Analyst
Bob Richard
Longbow Research Analyst
Kevin Money
Cleveland Research Analyst
Mark Parr
KeyBanc Capital Markets Analyst
Sal Tharani
Goldman Sachs Analyst
PRESENTATION
Operator
Good morning and welcome to the Worthington Industries first quarter earnings results
conference call. All participants will be able to listen only until the question and answer session
of the call. This call is being recorded at the request of Worthington Industries. If there are any
objections you may disconnect at this time.
I would like to introduce your first speaker, Ms. Allison Sanders, Director of Investor Relations.
Ms. Sanders, you may begin.
Allison Sanders
- Worthington Industries Director IR
Thank you, Joyce and good morning everyone. Welcome to our quarterly earnings conference call.
Before we begin our presentation, I want to remind everyone that certain statements made in this
conference call are forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements are subject to risks and uncertainties which could
cause actual results to differ from those suggested. Please refer to the press release for more
detail on factors that could cause actual results to differ materially.
For those who are interested listening to this conference call again, a replay will be available on
the homepage of our website at www.WorthingtonIndustries.com. With me in the room today are John
McConnell, Chairman and Chief Executive Officer, George Stoe,
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© 2008 Thomson Financial. Republished with permission. No part of this publication may be
reproduced or transmitted in any form or by any means without the prior written consent of Thomson
Financial.
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Final Transcript
Executive Vice President and Chief Operating Officer, and Richard Welch, Controller and Principal
Financial Officer. John McConnell will begin.
John McConnell
- Worthington Industries Chairman, CEO
Allison, thank you and good morning everybody. We certainly thank everyone for joining us at
an earlier hour than normal. This will be kind of the standard around the September earnings
release and particularly apologize to those in the Central Time zone who had to get up earlier yet.
We are very pleased with our results this quarter, and with those employees who were instrumental
in producing them.
This quarter was the best quarter in Worthingtons history. And while results in the past two
quarters were aided by tail winds stemming from FIFO inventory gains and a rising steel price
environment, it is clear to me that our performance was also the result of improved execution and
that we maximized the opportunities that were present. I say this to acknowledge the improving
performance of our teams, and also to highlight the fact that the tail winds as they diminish and
retractions in both automotive and commercial construction markets continue to build, our execution
will continue to improve, helping to mitigate those headwinds. Our initial cost reduction efforts
announced in the first quarter of fiscal 2008 have grown into a broader performance improvement
initiative that were calling the transformation plan. The transformation plan includes a focus on
cost reduction, margin expansion, organizational capability improvements, and cultural change. The
intent is to drive excellence in three core competencies: Sales, Operations, and Supply Chain
Management. The goal of the transformation plan is to increase the Companys sustainable earnings
power over the next three years.
Now Ill talk more about the transformation plan in closing but now Im going to turn the call over
to Richard Welch, our Controller and Primary Financial Officer and George Stoe, our Chief Operating
Officer, to provide more details on an excellent first quarter for fiscal 2009. Richard?
Richard Welch
- Worthington Industries Controller, Principal Financial Officer
Thanks, John. Good morning. Our first quarter of fiscal 2009, which ended on August 31, 2008,
we reported record earnings per share of $0.86 per share. Excluding restructuring charges in both
periods, earnings per share were $0.94 compared to $0.27 last year. Restructuring charges amounted
to $0.08 per share in the current quarter and $0.03 per share in the year ago quarter. Record first
quarter sales of $913 million were up 20% from the prior year period. The sales increase was due to
higher pricing, especially in our Steel Processing and Metal Framing segment. The gross profit
margin rose from 10.4% to 16.6%, primarily as a result of a much wider spread between selling
prices and material costs in the Steel Processing and Metal Framing segments.
SG&A expense fell as a percentage of sales from 7.2% to 6.9%, despite increasing $9 million. The
increased dollars were a result of higher compensation expense, which included profit-sharing and
bonuses that rose with record earnings. Quarterly operating income increased from $24 million to
$88 million, excluding the restructuring charges in both periods. Operating income does not include
an additional $25 million in equity income from 8 unconsolidated joint ventures, the most
significant of which, WAVE, had record quarterly earnings. Collectively, equity income rose 67% to
$25 million, from $15 million last year due to WAVEs record performance. As well as to the
addition of our Mexican steel processing joint venture which was newly formed in September 2007. As
a group, the eight joint ventures generated $231 million in sales during our first quarter and paid
us $15 million in dividends. Miscellaneous expense was in line with the year ago period and
interest expense increased almost $1 million due to higher short-term borrowings. Income tax
expense for the quarter rose due to significantly higher earnings. We expect the effective tax rate
to remain at 30% for the balance of the year.
And now to the balance sheet. Total debt was $445 million at quarter end, short-term borrowings
increased $64 million from our May fiscal year end, primarily to support higher working capital
requirements and also our acquisition of Sharon Stairs in June. At quarter end, our total
debt-to-capitalization ratio was 32.5%. For the first quarter, cash provided by operating
activities was $22 million. Working capital requirements have increased as a result of much higher
prices for steel. Our investment in inventory in dollar terms is probably a record, even though our
tons in inventory declined 10% from fiscal year end. We expect to bring inventory levels down
further in the next few quarters, as we adjust to reduce demand forecasts, which should generate
cash as a result. For the quarter, capital spending excluding acquisitions was $15 million compared
to depreciation of $16 million. For the year, capital spending is expected to exceed anticipated
depreciation of $65 million because delays pushed from fiscal 2008 project spending into the
current year.
Now to talk specifically about first quarter results for each of our three primary business
segments, beginning with Steel Processing, which represented 50% of revenues this quarter. Steel
Processings quarterly sales rose 29% to a record $460 million from $356 million in last years
first quarter. The increase in sales was due to much higher pricing, which moved upward with steel
raw material pricing. Volumes fell 7% due to continued weakness in demand from automotive related
customers. Growth from our new business development efforts helped offset some of the
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© 2008 Thomson Financial. Republished with permission. No part of this publication may be
reproduced or transmitted in any form or by any means without the prior written consent of Thomson
Financial.
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Final Transcript
weakness in automotive, as year-over-year Big Three production was off a much greater 22% during
the same time period. As a result of these changing customer dynamics, automotive now represents
approximately 40% of the business in Steel Processing segments, down from a peak of 61% in November
2005. For the Company as a whole, exposure to automotive is now 23%.
Operating income quadrupled for Steel Processing, rising to a record $44 million from $11 million
last year, excluding the restructuring charges in the earlier period. The operating margin rose
from 3.1% to 9.7%. The increase was due to wider spread between average selling prices and material
costs, largely as a result of lower priced inventory in a rising price environment. This contrasts
with last years first quarter when the reverse was true.
Turning now to our Metal Framing segment which represented 26% of revenues this quarter, first
quarter sales of $233 million were up 18% from last years August quarter, when sales were $198
million, primarily due to increased average selling prices of 35%. As raw material costs rose, the
sales team did an outstanding job raising selling prices despite the challenging competitive and
demand environment. Volumes declined 13% compared to the year ago time period, continued weakness
is expected as credit and financing difficulties result in commercial project postponement. The
spread between average selling prices and material costs rose significantly compared to the year
ago quarter, due to the higher pricing I just mentioned and lower priced inventory. Excluding
restructuring charges, the resulting operating income of $22 million was significantly better than
the $7 million loss in the year ago quarter.
Finally, in our Pressure Cylinders segment, which represented 16% of total Company revenues, sales
for the quarter were up 9% or $12 million from last year, due primarily to increased volumes in our
16 ounce camping gas product line. Operating income increased almost $1 million from last years
record first quarter results to $19 million while the operating margin declined slightly. Pressure
Cylinders continues to realize the benefits of relatively stable markets and improvements that we
have made to the business through consolidation, acquisition, geographic expansion, operational
enhancements and product innovation.
George will now continue with his remarks on Operations.
George Stoe
- Worthington Industries EVP, COO
Thank you, Richard. Were obviously very pleased with the results from all three of our main
business segments during our first fiscal quarter. FIFO accounting benefits us in a rising price
environment as was the case during our first quarter and contributed to our strong earnings for the
quarter; however, all of our businesses are focused on reducing cost, maximizing asset utilization,
and driving operational improvements. We reported last quarter that our Metal Framing business
returned to profitability, and we expected it to show continued improvement through our first
fiscal quarter. During the first quarter, our sales were up 18% or $35 million from the previous
years first quarter. It should be noted that while our prices in the marketplace have increased
more than 50% since last October, the high price of Steel and corresponding low prices for lumber,
the instability of the financial markets, and the general slowdown in the commercial building
sector are cause for concerns in the coming quarters. In our Steel Processing business, we talked
on the last call about the weakening demand in automotive and building and construction. That
weakness continues but is being partially offset by a more robust demand in energy and agricultural
related markets. We realized some FIFO related inventory gains during our recently completed
quarter, but they will subside as Steel prices have leveled.
A note of interest that I wanted to make is that the employees at our Porter, Indiana facility
recently voted to decertify the union that was elected in 2006. We greatly appreciate the
confidence the employees have shown in our ability to operate the facility union-free. Work has
begun in designing the building, specifying equipment, and in general preparations for our new JV
site in Monterey, Mexico, with our partner, Serviacero. This JV continues to produce great results
for us in its first year of operation. This is further evidence of our committment to a long term
strategy of expanding our reach globally. Were very proud of the fact that we now operate in 11
different countries. This strategy has been instrumental in supporting our earnings performance.
Over the past few years, we have averaged one-third of our earnings outside the US.
Our Cylinders business continues to enjoy strong demand and growing market shares in many of their
key product lines. Our sales for the quarter were up 9% or $12 million from the previous years
quarter. We have grown our sales by more than 75% in this business since 2003, with an associated
dramatic increase in our profitability. And I cant close without mentioning once again the
continued success of our safety initiatives. The results from our long term efforts to improve the
safe operation of our facilities are outstanding. During fiscal 2008, 19 different facilities
worked for a collective 2.4 million man hours without a lost time incident.
Ill now turn it back to John P. McConnell for final comments.
John McConnell
- Worthington Industries Chairman, CEO
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Financial.
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Final Transcript
Richard and George thank you. That was a very good overview of the fiscal first quarter which
was very, very good and for those of you on the call I dont know if you would know, I know we said
it before but back when George was leading our Cylinder Division, he is really the one responsible
for launching this very hyper attack on safety in our facility, so George, I know youre very proud
of those numbers and so am I and everyone here at Worthington. Now as I said earlier, the
transformation plan grew from our initial cost reduction efforts, during which we identified
savings totaling $39 million in overhead expense reduction, early retirement, plant and plant
closures. Thats exclusive of expenses relating to achieving those savings. To date, $22 million of
the $39 million in identified savings has been realized. The remaining $17 million will be fully
realized by 2010.
The transformation plan using outside help and a rigorous process to examine everything we do from
top to bottom, end-to-end, consists of seven priority areas, featuring our three big businesses,
and core functional areas such as sourcing. It is still in its early days. We are only four months
in from the launch of our first deep dive in one of our Steel Processing locations. Last month,
this facility turned its focus to capturing the opportunities identified and we moved our
assessment team to a second Steel Processing location. It was heartening to look that with the
expertise and experience and tools developed from the first site, the process is moving much more
rapidly. The diagnostic will be done in two months versus four. We also expanded the assessment
process to Metal Framing in the past 30 days. While its early in our broader effort, the
opportunities we are uncovering are significant and they are real.
This is an exciting time at Worthington. Its been exciting to watch individuals from all levels
step up and create positive change. Its been very pleasing to watch some of our veterans accept
the need to change practices that were once successful but are no longer effective. We will
continue to update you on our transformational efforts as we go forward. Again, our efforts are
very young, but if the last four months are indicative of the future, and I believe they are, we
will continue to gain momentum over the course of this fiscal year.
I thank you again for joining us today. We clearly have challenges ahead that depth and extent of
which has yet to be known, but our focus on improving our performance and to truly transform
Worthington Industries will mitigate the short-term results and more importantly position us to
increase our earnings power sustainably in the future and increase our fundamental capabilities
over the next several years. Well be happy to take your questions now.
QUESTION AND ANSWER
Operator
(OPERATOR INSTRUCTIONS). Your first question comes from Charles Bradford. Your line is open.
Charles Bradford
- Soleil Securities Analyst
Thank you. Hello?
John McConnell
- Worthington Industries Chairman, CEO
Good morning. You just now came on mid sentence so if you could start over ,
Charles Bradford
- Soleil Securities Analyst
Well first of all good morning. Secondly, could you quantify the FIFO gains for the quarter?
John McConnell
- Worthington Industries Chairman, CEO
They were a significant part of our earnings. That part is clear. They were different in each
of our businesses to an extent, largely affecting Metal Framing and Steel Processing the most, but
beyond that were not going to give you a number.
Charles Bradford
- Soleil Securities Analyst
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Final Transcript
Okay, thank you.
John McConnell
- Worthington Industries Chairman, CEO
Yes, sir.
Operator
Your next question comes from James Behre. Please state your organization.
James Behre
- Perimeter Capital Management Analyst
Perimeter Capital Management. Could you tell us what happened or what was different about how
you mitigated the high steel prices and then the correction that occurred in the quarter? Did you
do anything differently? Have you focused on that more than usual?
John McConnell
- Worthington Industries Chairman, CEO
I am not certain I grasp exactly what youre after here but we certainly have been working to
improve our performance and thereby mitigating any ill effects of lower price Steel coming through
the inventories. Thats an affect that really hasnt been felt yet. Prices have largely plateaued.
There is some slight softening of prices from different mills but there certainly has been no steep
retreat as far as pricing goes.
James Behre
- Perimeter Capital Management Analyst
Well you mentioned that your inventory is going to be down 10%. So are you trying to overall
lower your inventory the next couple of quarters?
John McConnell
- Worthington Industries Chairman, CEO
Yes. Im sorry, I missed that as the primary focus, but yes we are very focused on our
inventories. George is working with the presidents. They have a good plan in the art of which by
the way besides the idea of doing it is always keeping ahead of a forward slope that continues to
fall in front of you and thats the hard part of it, but I think they are doing an excellent job
and Im very focused on it. George, I think you might want to comment further.
George Stoe
- Worthington Industries EVP, COO
Well I think operationally what we tried to do is we recognize that each month, were not
going to have the inventories exactly where we want them to be for a variety of reasons, either
order rates fall off or other things can happen, mills may ship early or late, and what we try to
do is to make sure that we have a system in place and a process in place that allows us to get the
inventories back in balance where we want them to be 60 days out, and to drive towards that each
month as we go forward.
James Behre
- Perimeter Capital Management Analyst
If you had to take your crystal ball out, what do you think is happening in the steel markets
and what is your outlook for prices?
John McConnell
- Worthington Industries Chairman, CEO
It is going to be an interesting, you could call it a science experiment. Im interested to
see what will happen actually. Demand is certainly much softer than what supports current prices,
they are being held up by cost drivers in that industry. The Big Three are continuing to hold their
prices up. As demand continues to fall, we hope that they are able to sustain pricing at least in a
fairly narrow band going forward so that we can get
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Final Transcript
some stability in steel prices, that would be good for our customers and good for the mills and it
would be good for us. Imports have not started coming in, so we will see what happens. Its not a
normal, you cant just look at it on a typical supply and demand and cost inputs and come up with
an answer I think here. This has to do with some will, and desire of the Mills where they want to
keep pricing.
James Behre
- Perimeter Capital Management Analyst
All right, thank you.
Operator
Tim Hanes, your line is open. Please state your company name.
Tim Hayes
- Davenport & Co Analyst
Its Tim Hayes with Davenport. Good morning.
John McConnell
- Worthington Industries Chairman, CEO
Good morning.
Tim Hayes
- Davenport & Co Analyst
First couple questions, for your Metal Framing and Steel Processing segments, what are the
inventory turns for each of those like right now?
John McConnell
- Worthington Industries Chairman, CEO
I would say that they are slowed from where we were about five, five times annually. Four to
five.
Tim Hayes
- Davenport & Co Analyst
Four to five, okay. And then capacity utilization for both, for each segment, please?
John McConnell
- Worthington Industries Chairman, CEO
Do they have an overall number where we stand right now? Were nowhere near running at 100%
capacity. I think thats the critical answer here. We have plenty of room in all of our operations
except in Cylinders, probably in a couple key spots were probably bumping up against it on 16
pound and bumping up against it on 20 pound Cylinders, both have been very successful this year in
the marketplace and both are running probably seven days right now trying to keep up and get the
Cylinders out that we are able to sell. And both Steel and Metal Framing, we have plenty of
capacity. Matter of fact the task before us over the next six to 18 months is to really get
capacity matched up with needs and demand. We may have, we already took some capacity out at
Dietrich in the first quarter of 08 and we continue to look at the footprints of both of those
companies to make sure were positioned properly and capacity is set right to match demand.
Tim Hayes
- Davenport & Co Analyst
Right. A few quarters back, the Metal Framing capacity utilization was around 30, 35%. Has
that now with these consolidations improved to say maybe 50ish?
John McConnell
- Worthington Industries Chairman, CEO
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Financial.
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Final Transcript
Id say in many of the facilities it would be about the same. The instructive one for us was
as we closed plants and actually ramped one of the facilities up to three shifts, capacity there is
probably running closer to 70% right now, 80%, and clearly showed us that we can take a lot of cost
out as we produce the products on that basis, not a surprise to anybody but certainly we want to
prove it to ourselves. Bigger part of the question was could we serve the markets where we
retracted from and the answer to that is yes. All that data is really deemed compiled for final
look at right now. We dont believe we lost any customers and service levels remained high. It
takes learning a different way to operate, but the final numbers on full impacts of cost, including
freight movement since the one versus the three that once served that region have yet to be put
together. They will be coming in probably by the end of this month.
Tim Hayes
- Davenport & Co Analyst
Okay and just a few more questions and the price increases from Metal Framing, what was the
last time you raised prices? Was that in July?
John McConnell
- Worthington Industries Chairman, CEO
Yes.
Tim Hayes
- Davenport & Co Analyst
And on your JVs, those run on a FIFO-like accounting, at least the ones in the US; correct?
John McConnell
- Worthington Industries Chairman, CEO
Yes.
Tim Hayes
- Davenport & Co Analyst
And my last question, yesterdays announcement by putting one of your facilities in Michigan
into the expanded JV with US Steel, I notice that youre going to have 51% of that JV. Is that
going to still be running through the equity income line or is that going to be consolidated within
the segment now?
John McConnell
- Worthington Industries Chairman, CEO
Its going to continue to run through the equity line because its joint ownership, the
control is the same for each partner.
Tim Hayes
- Davenport & Co Analyst
Okay, and that Michigan asset was in Steel Processing; correct?
John McConnell
- Worthington Industries Chairman, CEO
Thats correct.
Tim Hayes
- Davenport & Co Analyst
And for modeling purposes, what kind of sale should we pull out from that segment?
John McConnell
- Worthington Industries Chairman, CEO
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Final Transcript
Were kind of looking around for a number. The fact is they will be at the moment about the
same as all four facilities are required to. We are assessing exactly how we want to operate that,
whether we go to three plants or remain at four, and US, our partner is also very focused on what
it needs to do to fill up these facilities to a greater rate as we go into the contract season and
look at additional tooling tons and master coil arrangements.
Tim Hayes
- Davenport & Co Analyst
Okay, maybe we can circle back on that one then?
John McConnell
- Worthington Industries Chairman, CEO
Yes.
Tim Hayes
- Davenport & Co Analyst
All right, thanks. Thats all my questions, thank you.
John McConnell
- Worthington Industries Chairman, CEO
Thank you.
Operator
Your next question comes from John Tumazos. Your line is open. Please state your company name.
John Tumazos
- Very Independent Research Analyst
John Tumazos, John Tumazos Very Independent Research. Congratulations on the record results
and good decisions early in the year to continue to rationalize to cut costs.
John McConnell
- Worthington Industries Chairman, CEO
Thank you, John.
John Tumazos
- Very Independent Research Analyst
In view of the unfortunate wealth effects in the housing market and the financial segment
services segment of the stock market and the credit crunch, will you be continuously reevaluating
the cost reduction program to shrink more if the market shrank particularly in framing?
John McConnell
- Worthington Industries Chairman, CEO
In both framing and steel, if we look at the most affected markets going forward it will be
those two, and we really have, moving from cost reduction to transformation, this will be probably
the last quarter we talk about the initial effort and they all blend into one under transformation
as we continue to focus on cost reduction, so well continue to report on cost reduction every
quarter, John and youll be able to see the results of what we do, but we redoubled our efforts,
lets put it that way, a couple months ago to make sure that we are moving to keep up with
contraction that is coming our way. The difficulty of course is understanding as I said in the call
the depth or extent of whats going to happen and I dont think were going to know that for a few
weeks at the soonest until this starts to settle down.
John Tumazos
- Very Independent Research Analyst
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Final Transcript
Id like to ask a second question. Were estimating that iron ore output rises 7 to 8% this
year and next year and in the September quarter, the major met coal companies are up something like
13% an output, and you know, theres always a chance that world steel production falls on metal
steel cutting production in the fourth quarter. Are there extra inventory reductions you can do
just in case the steel price turns a little toxic to permit you to buy back more shares rather than
take inventory hits on the way down?
John McConnell
- Worthington Industries Chairman, CEO
Im going to let George again focus on that. Hes working with the Presidents to drive
inventory but again, the kind of macro answer is certainly in the last 30, 45 days we said listen,
weve got to make sure we stay ahead of the curve and stop trying to catch up to it. Youve got to
assume its going to be less than you think at the moment youre taking that snapshot, 90 days out
for the next set of orders.
George Stoe
- Worthington Industries EVP, COO
John, I think that part of the challenge for us is being a steel processor, our customers
expect us to have inventory at every moment, so we try to balance that against what we think we
need to operate the business efficiently and effectively going forward, and were constantly
monitoring that on a weekly basis to see what the order rate is coming in, and what kind of orders
we have to put on with the mills as were going forward, and certainly, going over into the next
few months, into October and November, the mills have seen a drop off from us to make sure that we
keep our inventories where we want them to be and to not get caught with high priced inventory. As
John mentioned earlier, I think that it is our great hope that the mills will show discipline and
keep the prices balanced at a level that makes sense for everyone and we dont see a huge drop off
in the prices. I dont think thats good for us or certainly good for the marketplace.
John McConnell
- Worthington Industries Chairman, CEO
John, kind of a good adjacent point on this just to sort of also understand our numbers
particularly from an inventory standpoint as we go forward. As you all know, we have been in the
midst of rolling out our Oracle ERP system in the steel company. Every division we go to, and were
in five at the moment, we will build inventory up in advance of that beyond what we think we need
just because there is always going to be noise and disruption as you turn on the switch. We get
better and better at it as we go. More importantly, where we have been up for awhile and are
learning to understand and use the system and the tools available in it, our ability to manage the
inventory is going to continue to increase very rapidly.
Due to this investment of $75 million in the Oracle system, we can now tell you in the plants that
have been up for any length of time the cost of everything we do by the minute, its pretty
exciting and puts us in a new place. Its one of the things that help us drive this transformation
forward and understand what we need to do. But it does have a side effect on inventories both
negative in the front end and more positive in the back end and the more people get skilled at
using it the better were going to be.
John Tumazos
- Very Independent Research Analyst
Thank you.
Operator
Bob Richard,your line is open. Please state your company name.
Bob Richard
- Longbow Research Analyst
Good morning, Longbow, thanks for taking our call.
John McConnell
- Worthington Industries Chairman, CEO
Yes, sir.
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Final Transcript
Bob Richard
- Longbow Research Analyst
Great quarter. Just to beat the inventory turns to death, you mentioned four to five times
last quarter or the first quarter, pardon me. Where would you like to see that? Normally?
John McConnell
- Worthington Industries Chairman, CEO
Well obviously the faster it turns the happier we are. I think there are just some systemic
issues in the Industries that are not going to permit us to go much faster than were going at the
moment. If we could get to six to eight, we would be thrilled, but youre in a period right now,
six to eight may be achievable due to a very quick delivery and lead time you get out of the mills
because its softer, over capacity, but you go back seven months ago and it was a 60 to 90 day
window, thats the best you could get and then often the material wouldnt come in. So we all have
to work together. Thats why one of our primary focuses as youll recall from my comments in the
transformation to Supply Chain Management and were reaching out with the Mills to try to discover
different ways to make this an easier animal to manage and try to focus on getting our turns up,
but systemically, it would be very difficult to get much beyond where we are until some other
things change.
Bob Richard
- Longbow Research Analyst
Okay, I appreciate that, and then six to eight times, very nice goal, that would be the same
between Steel Processing and Metal Framing, or would you want to turn one faster than the other?
George Stoe
- Worthington Industries EVP, COO
Bob this is George Stoe. I would guess that we probably would like to see the Steel Processing
a little bit higher than Metal Framing just because of the locations of where we are and the
variety of products that we have to keep in inventory with the Metal Framing business.
Bob Richard
- Longbow Research Analyst
Okay, thank you. And one follow-up. John, are all your facilities on the Oracle now?
John McConnell
- Worthington Industries Chairman, CEO
No. We have just launched delta over Labor Day weekend and behind that is Columbus. That is
the last of our primary process Steel locations and that will be done, targeted now to launch in
December, completed by January, and now there are a number of small divisions that werent part of
this originally. One would be the impacts on the US joint venture we just announced. That is not
how an Oracle system. US is rolling out Oracle into their facilities at the same time so well have
to sort through how and when we put those systems together. But that would be the only remaining
piece that touches steel that right now is planned to do but no execution plan on timing to do it,
if that makes sense.
Bob Richard
- Longbow Research Analyst
It sure does, and again great quarter and thanks for taking our call.
John McConnell
- Worthington Industries Chairman, CEO
Thank you. Appreciate you being on.
Operator
Kevin Money, your line is open. Please state your company name.
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Final Transcript
Kevin Money
- Cleveland Research Analyst
Kevin Money, Cleveland Research. Good morning.
John McConnell
- Worthington Industries Chairman, CEO
Good morning.
Kevin Money
- Cleveland Research Analyst
Yeah, I think Ive asked this before but just wanted to get your take on what the drivers are
in the WAVE business, it just seems like I know this business keeps performing pretty well in what
seems to be a down market, just wondering kind of whats going on there.
John McConnell
- Worthington Industries Chairman, CEO
Obviously were extremely proud of John [Lafranakis] and his team and what theyve done over
at WAVE. Its been a Company that since its founding just continues to improve as the years pass.
There are a number of good things kind of systemically that help that business. One of which is we
have a great partnership with Armstrong, thats probably the primary thing. So we are a good
producer length up with a very strong brand name on the ceiling tile itself. Its a packaged
product, so its difficult for someone else to come in and just hang the grid. You cant get
Armstrong ceiling tile without our grid with it.
Now for the first time, this past year we actually sold more grid than tile was sold, and I think
thats a great benchmark for that Company and what theyre doing. Fairly limited space like
Cylinders and each of its product lines fairly limited competition, so they have done a beautiful
job of growing internationally and really tending to the market needs of their customers not being
afraid to make the tough decisions and again dealing within a space where we have a great
partnership with Armstrong and limited competition. Those are all very beneficial things, not to
take away from their execution because they are taking cost out of that business every year on a
significant manner and the other thing they hang their hat on is great Product Development. We
continue to develop grid products that are easier to install, faster to install for the
distribution network and some of that may be why our products continue to evolve and have started
to sell more grid than tile at the moment. Obviously displacing someone elses tile package, so
those would be the broad issues around that.
Kevin Money
- Cleveland Research Analyst
Okay, thank you.
Operator
Next question, Mark Parr your line is open. Please state your company name.
Mark Parr
- KeyBanc Capital Markets Analyst
Yeah, thanks very much. KeyBanc Capital Markets. Good morning.
John McConnell
- Worthington Industries Chairman, CEO
Good morning Mark.
Mark Parr
- KeyBanc Capital Markets Analyst
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© 2008 Thomson Financial. Republished with permission. No part of this publication may be
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Financial.
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Final Transcript
Wow. This is two in a row you guys are on a roll. Great quarter. One thing and I missed the
first few minutes of your commentary so I apologize if Im asking something that youve already
talked about, but this transformation process that seems to be really having an impact on the
bottom line, could you give us some more color on the kinds of things, the kinds of opportunities
that youre seeing in both in the Steel Processing area and in the Metal Framing arena?
John McConnell
- Worthington Industries Chairman, CEO
One of the things we said Mark was that we just launched the diagnostic a month ago in Metal
Framing and in both of them, I think its safe to look at and talk in terms of equipment
efficiency, how we get work through our facilities. Clearly, we began to discover that we can be a
lot more effective the way we push material through, and it largely has to do with Im trying to
make sure I dont help my competitors any here, a focus on the time and how to utilize equipment as
opposed to the tons that you get across one and this business is very easy to get fixated on
tonnage and its frankly the wrong metric. So that would be a quick example.
We know that we need to go out and continue to expand our marketplace. I said that in the first
quarter of 08 when we announced our cost reduction efforts we were going to start going after
medium and smaller customers that we had not been going after for awhile and as George mentioned in
his comments the agricultural and energy Markets clearly a part of that effort that we went out and
were able to penetrate markets we just were not participating in so we need to get more efficient
in how we produce things and more effective in total costs to our customers and we also need to
broaden our customer base and in real broad form, thats where our focus is as a result of the
diagnostics and some of this weve known and believed kind of instinctively for awhile. What the
diagnostic does and you have the Oracle system behind it with strong facts is bring anybody who
doubted it over the wall. So we have a lot of people pushing and rowing the same way and its a
very good and exciting time right here.
Mark Parr
- KeyBanc Capital Markets Analyst
All right does the Oracle implementation provide the basis for this transformation or are
they, Im trying to think, are these parallel paths or is kind of one necessary before you can do
the second?
John McConnell
- Worthington Industries Chairman, CEO
It is not necessary. We even had some debates of whether to go to a non-Oracle facility where
Oracle wasnt installed, that said better, and we believe that we could do it. Our outside support
believes you could do it. Would it be as easy or as accurate, and the answer to that is absolutely
not. So, weve been running them with the diagnostics trailing Oracle so that we have really good
solid information when we walk in. The opening day of the second site that we went to on a
diagnostic dive, we had all the customer information profitability wise on day one. Now it took us
six weeks, well a little longer than that actually, eight weeks to develop that tool at our first
site and how to use the information properly so this is where what were doing on deep dives is
also helping drive an accelerated learning process on how to use Oracle more effectively so both of
those things go in tandem. They are very much linked up. They do not have to be but they are best
when they are.
Mark Parr
- KeyBanc Capital Markets Analyst
Okay. All right, thats really helpful. Thanks for that color. I had one other question if I
could. If I could get, could you give us some color on the pricing discipline among your
competitors and Steel Processing? I know that particularly in the strip market, there had been some
concern about excess capacity and lack of pricing discipline and Im wondering if theres been any
shift or any improvement in that dynamic in the last several months?
George Stoe
- Worthington Industries EVP, COO
Mark, this is George Stoe. I would certainly say to you that we have seen a change over the
last few months in the marketplace, not just from the mills side of things but our competitors. You
probably saw in the paper yesterday that one of our competitors announced they were closing a
facility they had in Flint, Michigan the other day, and I think that everybody is looking very
carefully at the backlog of orders that they have and the projections they are seeing for the
coming months and trying to match those things up better than they have in the past. As John
mentioned, I think many of the businesses were run on chasing tons and I think that we see a lot
more emphasis on people looking to profitability today.
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© 2008 Thomson Financial. Republished with permission. No part of this publication may be
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Financial.
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Final Transcript
Mark Parr
- KeyBanc Capital Markets Analyst
Okay. I guess just along those lines, just one other question, recently in the trade press,
theres been some reports of lawsuits that have been filed by service center processor entities,
not Worthington but other entities filed anti- trust lawsuits against the steel industry. I mean,
have you had a chance to look at those and is there anything, any commentary or any color that you
can give on how you feel about the veracity or the validity of whats happened here?
George Stoe
- Worthington Industries EVP, COO
Well all we know Mark is what we read in the American Metal Market and other publications. I
think that our position is that we have not seen that in our side of the business. We cant talk
about somebody elses business and what they see, but weve seen the mills being very responsible
and very circumspect in what they do and we havent seen any indication of that kind of thing at
all.
Mark Parr
- KeyBanc Capital Markets Analyst
One of the things I noticed in that I thought was interesting was at least in the one
complaint that I read, none of the Russian mills were named and Im just wondering maybe have the
Russians been acting much differently in the market than say Metal and US Steel and some of the
other players?
George Stoe
- Worthington Industries EVP, COO
Definitely not. We see the kind of activity from all of the mills in similar lights. We dont
see somebody acting differently. As John mentioned, weve seen some of the smaller Mills be more
aggressive on pricing and trying to get more business and to fill up, but weve seen a general
discipline out there in the broad marketplace.
Mark Parr
- KeyBanc Capital Markets Analyst
Okay, terrific. Thanks very much for all of the help and congratulations on all the great
progress.
John McConnell
- Worthington Industries Chairman, CEO
Thank you.
Operator
(OPERATOR INSTRUCTIONS). The next question comes from Sal Tharani. Please state your company
name.
Sal Tharani
- Goldman Sachs Analyst
Thank you. Goldman Sachs. Can you give us the percentage this quarter in your process steel
business?
John McConnell
- Worthington Industries Chairman, CEO
Its remained, it doesnt change a lot but its definitely gone from being a little stronger
on the top side to tolling dropping to like 49 versus 51 direct. That number is not going to shift
around a lot. Tolling had retracted a bit more than that at one point during the fourth quarter and
in the first and has come back a little bit.
Sal Tharani
- Goldman Sachs Analyst
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© 2008 Thomson Financial. Republished with permission. No part of this publication may be
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Final Transcript
So youre getting actually some improved business in the tolling from the auto industry?
John McConnell
- Worthington Industries Chairman, CEO
Yes.
Sal Tharani
- Goldman Sachs Analyst
And also, how far is the outlook on the Metal Framing side in terms of backlog and how do you
see over the next few months things turnaround?
John McConnell
- Worthington Industries Chairman, CEO
George Stoe very close to that market. I believe hes going to say that its pulling back
quickly, but Ill let him expand on that.
George Stoe
- Worthington Industries EVP, COO
Yeah, Sal, I think John is absolutely correct. In our first fiscal quarter starting in June,
the volumes for the first two months were about right where we thought they would be. We saw a drop
off in that third month of our first fiscal quarter and were seeing a similar experience as we go
forward in the coming months.
Sal Tharani
- Goldman Sachs Analyst
Are you adjusting your inventory based on the order book you have?
John McConnell
- Worthington Industries Chairman, CEO
Absolutely.
Sal Tharani
- Goldman Sachs Analyst
And also, just one quick thing, of the FIFO impact was it more on the framing side or more on
the process Steel side?
John McConnell
- Worthington Industries Chairman, CEO
Richard, do you have a feel for that?
Richard Welch
- Worthington Industries Controller, Principal Financial Officer
I think it was more on the Steel Processing side.
Sal Tharani
- Goldman Sachs Analyst
Great. Thank you very much guys.
Operator
Im showing no further questions.
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Final Transcript
John McConnell
- Worthington Industries Chairman, CEO
Okay, thank you all very much for joining us this morning. We had an excellent first quarter
of the year. We are being as clear as we can as we always have tried to be what the future holds
theres going to be some clear contraction in key Markets for us. Another take away, we would like
you to keep in mind is we are working very hard to make sure we mitigate that using all of the
levers that we have here at Worthington. Lets all hope that somehow, our friends in Washington and
those on Wall Street can figure out how to get a little stability back in the financial markets and
help the economy overall in all of us feel a little better and consumers return to a more normal
pattern. Thank you again for joining us and we look forward to talking to you next quarter.
Operator
Thank you. That concludes todays conference. Everyone may disconnect at this time.
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