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)
         
Ohio   001-08399   31-1189815
         
(State or other jurisdiction
of incorporation)
  (Commission File Number)   (IRS Employer
Identification No.)
     
200 Old Wilson Bridge Road, Columbus, Ohio   43085
     
(Address of principal executive offices)   (Zip Code)
  Registrant’s telephone number, including area code:       (614) 438-3210           
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:
o   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o   Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o   Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o   Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
 

 


 

Item 2.02.   Results of Operations and Financial Condition.
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 Registrant’s unaudited financial results for the first quarter of fiscal 2009 (the fiscal quarter ended August 31, 2008). Additionally, the Registrant’s 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.
Item 5.02.   Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers .
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 Registrant’s 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 Registrant’s 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 Registrant’s 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 participant’s 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 participant’s 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 participant’s 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 participant’s employment terminates for any reason, the performance award of such participant will be considered earned and payable as of the date of the participant’s 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 participant’s 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 Registrant’s definitive Proxy Statement for the 2008 Annual Meeting as filed with the Securities and Exchange Commission on August 13, 2008 (the “Registrant’s 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 Registrant’s 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:
    earnings per share from continuing operations;
    operating income;
    revenues;
    gross margin;
    return on equity;
    economic value added;
    stock price appreciation;
    total shareholder return (measured in terms of stock price appreciation and dividend growth); or
    cost control of the Registrant, or of the affiliate or division of the Registrant for or within which the participant is primarily employed.
Performance goals also may be based upon the achievement of specified levels of the Registrant’s 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 Registrant’s 2008 Proxy Statement.
Item 8.01   Other Events.
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 Registrant’s 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 .
          (a) through (c): Not applicable.
          (d) Exhibits :
The exhibits are included with this Current Report on Form 8-K:
         
Exhibit No.   Description
       
 
  10.1    
Worthington Industries, Inc. Annual Incentive Plan for Executives (approved by shareholders on September 24, 2008)
       
 
  10.2    
Worthington Industries, Inc. 1997 Long-Term Incentive Plan (material terms of performance goals reapproved by shareholders on September 24, 2008)
       
 
  99.1    
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.
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.
         
  WORTHINGTON INDUSTRIES, INC.
 
 
Date: September 30, 2008  By:   /s/ Dale T. Brinkman    
    Dale T. Brinkman, Vice President —   
    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 Participant’s 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 Participant’s 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 Company’s 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 Participant’s 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 Participant’s 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 Committee’s 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 Participant’s 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 Participant’s 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 Participant’s 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 Participant’s 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 Participant’s 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 Participant’s Employment, means the Participant has (a) caused the Company, other than pursuant to the advice of the

 


 

Company’s legal counsel, to violate a law which, in the opinion of the Company’s 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 Participant’s 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 Participant’s 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 Participant’s 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 Participant’s 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 Participant’s 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 Participant’s 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 Participant’s 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 Participant’s 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 Participant’s 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 Worthington’s 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 Participant’s 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 Participant’s 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 Company’s 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 Participant’s 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 Participant’s spouse or, if no spouse survives the Participant, the Participant’s 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 Worthington’s 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 Company’s 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.

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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.

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     (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.

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     (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 Participant’s 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 Participant’s 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

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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

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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.

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     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 optionee’s or Participant’s 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 Participant’s lifetime, only by the Participant or, if permissible under applicable law, by the Participant’s 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 Participant’s 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 Company’s 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 Participant’s 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.

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     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 Company’s 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

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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.

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Exhibit 99.1
(WORTHINGTON INDUSTRIES FRONT COVERPAGE)
                           
                           
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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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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 Worthington’s 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 we’re 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 Company’s sustainable earnings power over the next three years.
Now I’ll talk more about the transformation plan in closing but now I’m 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 WAVE’s 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 Processing’s quarterly sales rose 29% to a record $460 million from $356 million in last year’s 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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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 year’s 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 year’s 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 year’s 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. We’re 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 year’s 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. We’re 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 year’s 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 can’t 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.
I’ll now turn it back to John P. McConnell for final comments.
 
   John McConnell - Worthington Industries — Chairman, CEO
                           
                           
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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 don’t 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 you’re 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. That’s 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 it’s early in our broader effort, the opportunities we are uncovering are significant and they are real.
This is an exciting time at Worthington. It’s been exciting to watch individuals from all levels step up and create positive change. It’s 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. We’ll 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 we’re 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 you’re 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. That’s an affect that really hasn’t 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. I’m 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 that’s the hard part of it, but I think they are doing an excellent job and I’m 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, we’re 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. I’m 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. It’s not a normal, you can’t 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
  It’s 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? We’re nowhere near running at 100% capacity. I think that’s the critical answer here. We have plenty of room in all of our operations except in Cylinders, probably in a couple key spots we’re 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 we’re 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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Final Transcript
  I’d 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 don’t 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 JV’s, 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, yesterday’s announcement by putting one of your facilities in Michigan into the expanded JV with US Steel, I notice that you’re 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
  It’s going to continue to run through the equity line because it’s 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
  That’s 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
  We’re 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. That’s 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 we’ll continue to report on cost reduction every quarter, John and you’ll be able to see the results of what we do, but we redoubled our efforts, let’s 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 what’s going to happen and I don’t think we’re 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
  I’d like to ask a second question. We’re 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, there’s 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
  I’m going to let George again focus on that. He’s 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, we’ve got to make sure we stay ahead of the curve and stop trying to catch up to it. You’ve got to assume it’s going to be less than you think at the moment you’re 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 we’re 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 we’re 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 don’t see a huge drop off in the prices. I don’t think that’s 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 we’re 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, it’s pretty exciting and puts us in a new place. It’s 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 we’re 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 we’re going at the moment. If we could get to six to eight, we would be thrilled, but you’re 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 it’s softer, over capacity, but you go back seven months ago and it was a 60 to 90 day window, that’s the best you could get and then often the material wouldn’t come in. So we all have to work together. That’s why one of our primary focuses as you’ll recall from my comments in the transformation to Supply Chain Management and we’re 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 weren’t 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 we’ll 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 I’ve 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 what’s going on there.
 
   John McConnell - Worthington Industries — Chairman, CEO
  Obviously we’re extremely proud of John [Lafranakis] and his team and what they’ve done over at WAVE. It’s 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, that’s probably the primary thing. So we are a good producer length up with a very strong brand name on the ceiling tile itself. It’s a packaged product, so it’s difficult for someone else to come in and just hang the grid. You can’t 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 that’s a great benchmark for that Company and what they’re 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 else’s 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.
 
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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 I’m asking something that you’ve 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 you’re 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 it’s 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 I’m trying to make sure I don’t 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 it’s 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, that’s where our focus is as a result of the diagnostics and some of this we’ve 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 it’s 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, I’m 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 wasn’t 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, we’ve 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 we’re 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, that’s 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 I’m wondering if there’s 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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Final Transcript
 
   Mark Parr - KeyBanc Capital Markets — Analyst
  Okay. I guess just along those lines, just one other question, recently in the trade press, there’s 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 what’s 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 can’t talk about somebody else’s business and what they see, but we’ve seen the mills being very responsible and very circumspect in what they do and we haven’t 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 I’m 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 don’t see somebody acting differently. As John mentioned, we’ve seen some of the smaller Mills be more aggressive on pricing and trying to get more business and to fill up, but we’ve 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
  It’s remained, it doesn’t change a lot but it’s 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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Final Transcript
  So you’re 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 he’s going to say that it’s pulling back quickly, but I’ll 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 we’re 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
  I’m 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 there’s 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. Let’s 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 today’s conference. Everyone may disconnect at this time.
 
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