UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended August 31, 2006
OR
¨ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission
WORTHINGTON INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Ohio | 31-1189815 | |||
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | |||
200 Old Wilson Bridge Road, Columbus, Ohio | 43085 | |||
(Address of principal executive offices) | (Zip Code) |
(614) 438-3210 |
(Registrants telephone number, including area code)
Not applicable |
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
YES x NO ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES ¨ NO x
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the Issuers classes of common stock, as of the latest practicable date.
As of September 30, 2006, 88,816,504 of the registrants common shares, without par value, were outstanding.
ii | ||||
Item 1. |
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Consolidated Balance Sheets August 31, 2006, and May 31, 2006 |
1 | |||
Consolidated Statements of Earnings Three Months Ended August 31, 2006 and 2005 |
2 | |||
Consolidated Statements of Cash Flows Three Months Ended August 31, 2006 and 2005 |
3 | |||
4 | ||||
Item 2. |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
10 | ||
Item 3. |
17 | |||
Item 4. |
17 | |||
Item 1. |
19 | |||
Item 1A. |
19 | |||
Item 2. |
19 | |||
Item 3. |
20 | |||
Item 4. |
20 | |||
Item 5. |
20 | |||
Item 6. |
20 | |||
22 | ||||
23 |
i
Selected statements contained in this Quarterly Report on Form 10-Q, including, without limitation, in PART I Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations, constitute forward-looking statements as that term is used in the Private Securities Litigation Reform Act of 1995 (the Act). These forward-looking statements include, without limitation, statements relating to:
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future or expected performance, sales, operating results and earnings per share; |
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projected capacity and working capital needs; |
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pricing trends for raw materials and finished goods; |
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anticipated capital expenditures and asset sales; |
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projected timing, results, costs, charges and expenditures related to acquisitions or to facility dispositions, shutdowns and consolidations; |
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new products and markets; |
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expectations for customer inventories, jobs and orders; |
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expectations for the economy and markets; |
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expected benefits from new initiatives, such as the Enterprise Resource Planning System; |
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effects of judicial rulings; and |
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other non-historical matters. |
Because they are based on beliefs, estimates and assumptions, forward-looking statements are inherently subject to risks and uncertainties that could cause actual results to differ materially from those projected. Any number of factors could affect actual results, including, without limitation:
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product demand and pricing; |
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changes in product mix and market acceptance of our products; |
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fluctuations in pricing, quality or availability of raw materials (particularly steel), supplies, transportation, utilities and other items required by operations; |
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effects of facility closures and the consolidation of operations; |
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the effect of consolidation and other changes within the steel, automotive, construction and related industries; |
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failure to maintain appropriate levels of inventories; |
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the ability to realize cost savings and operational efficiencies on a timely basis; |
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the overall success of, and our ability to integrate, newly-acquired businesses and achieve synergies therefrom; capacity levels and efficiencies within facilities and within the industry as a whole; |
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financial difficulties (including bankruptcy filings) of customers, suppliers, joint venture partners and others with whom we do business; |
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the effect of national, regional and worldwide economic conditions generally and within major product markets, including a prolonged or substantial economic downturn; |
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the effect of disruption in the business of suppliers, customers, facilities and shipping operations due to adverse weather, casualty events, equipment breakdown, acts of war or terrorist activities or other causes; |
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changes in customer inventories, spending patterns, product choices, and supplier choices; |
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risks associated with doing business internationally, including economic, political and social instability, and foreign currency exposures; |
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the ability to improve and maintain processes and business practices to keep pace with the economic, competitive and technological environment; |
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adverse or favorable claims experience with respect to workers compensation, product recalls or liability, casualty events or other matters; |
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deviation of actual results from estimates and/or assumptions used in the application of our significant accounting policies; |
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the impact of judicial rulings and governmental regulations, both in the United States and abroad; and |
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other risks described from time to time in our filings with the United States Securities and Exchange Commission (SEC), including those described in PART I Item 1A. Risk Factors of our Annual Report on Form 10-K for the fiscal year ended May 31, 2006. |
Any forward-looking statements in this Quarterly Report on Form 10-Q are based on current information as of the date of this Quarterly Report on Form 10-Q, and we assume no obligation to correct or update any such statements in the future, except as required by applicable law.
ii
Item 1. - Financial Statements
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
August 31,
2006 |
May 31,
2006 |
|||||
Assets |
||||||
Current assets: |
||||||
Cash and cash equivalents |
$ | 17,009 | $ | 56,216 | ||
Short-term investments |
| 2,173 | ||||
Receivables, less allowances of $4,850 and $4,964 at August 31, 2006 and May 31, 2006 |
399,993 | 404,553 | ||||
Inventories: |
||||||
Raw materials |
334,439 | 266,818 | ||||
Work in process |
118,744 | 104,244 | ||||
Finished products |
101,841 | 88,295 | ||||
Total inventories |
555,024 | 459,357 | ||||
Assets held for sale |
23,334 | 23,535 | ||||
Deferred income taxes |
15,563 | 15,854 | ||||
Prepaid expenses and other current assets |
37,172 | 34,553 | ||||
Total current assets |
1,048,095 | 996,241 | ||||
Investments in unconsolidated affiliates |
135,575 | 123,748 | ||||
Goodwill |
193,238 | 177,771 | ||||
Other assets |
48,856 | 55,733 | ||||
Property, plant & equipment, net |
555,057 | 546,904 | ||||
Total assets |
$ | 1,980,821 | $ | 1,900,397 | ||
Liabilities and shareholders equity |
||||||
Current liabilities: |
||||||
Accounts payable |
$ | 288,942 | $ | 362,883 | ||
Notes payable |
130,782 | 7,684 | ||||
Accrued compensation, contributions to employee benefit plans and related taxes |
47,316 | 49,784 | ||||
Dividends payable |
15,099 | 15,078 | ||||
Other accrued items |
36,261 | 36,483 | ||||
Income taxes payable |
26,791 | 18,874 | ||||
Total current liabilities |
545,191 | 490,786 | ||||
Other liabilities |
54,152 | 55,249 | ||||
Long-term debt |
245,001 | 245,000 | ||||
Deferred income taxes |
113,565 | 114,610 | ||||
Total liabilities |
957,909 | 905,645 | ||||
Minority interest |
50,088 | 49,446 | ||||
Shareholders equity |
972,824 | 945,306 | ||||
Total liabilities and shareholders equity |
$ | 1,980,821 | $ | 1,900,397 | ||
See notes to consolidated financial statements.
1
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands, except per share)
Three Months Ended
August 31, |
||||||||
2006 | 2005 | |||||||
Net sales |
$ | 778,720 | $ | 694,147 | ||||
Cost of goods sold |
657,369 | 618,795 | ||||||
Gross margin |
121,351 | 75,352 | ||||||
Selling, general and administrative expense |
66,626 | 47,807 | ||||||
Operating income |
54,725 | 27,545 | ||||||
Other income (expense): |
||||||||
Miscellaneous income (expense) |
(365 | ) | 358 | |||||
Interest expense |
(4,345 | ) | (6,727 | ) | ||||
Equity in net income of unconsolidated affiliates |
18,279 | 13,212 | ||||||
Earnings before income taxes |
68,294 | 34,388 | ||||||
Income tax expense |
25,067 | 5,981 | ||||||
Net earnings |
$ | 43,227 | $ | 28,407 | ||||
Average common shares outstanding - basic |
88,765 | 87,971 | ||||||
Earnings per share - basic |
$ | 0.49 | $ | 0.32 | ||||
Average common shares outstanding - diluted |
89,415 | 88,470 | ||||||
Earnings per share - diluted |
$ | 0.48 | $ | 0.32 | ||||
Common shares outstanding at end of period |
88,817 | 88,045 | ||||||
Cash dividends declared per share |
$ | 0.17 | $ | 0.17 |
See notes to consolidated financial statements.
2
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Three Months Ended
August 31, |
||||||||
2006 | 2005 | |||||||
Operating activities |
||||||||
Net earnings |
$ | 43,227 | $ | 28,407 | ||||
Adjustments to reconcile net earnings to net cash provided (used) by operating activities: |
||||||||
Depreciation and amortization |
14,931 | 14,360 | ||||||
Provision for deferred income taxes |
844 | (4,464 | ) | |||||
Equity in net income of unconsolidated affiliates, net of distributions |
(10,660 | ) | (649 | ) | ||||
Minority interest |
1,616 | 781 | ||||||
Net loss on sale of assets |
825 | 840 | ||||||
Stock-based compensation |
791 | | ||||||
Excess tax benefits - stock-based compensation |
(200 | ) | | |||||
Changes in assets and liabilities: |
||||||||
Accounts receivable |
8,570 | 57,700 | ||||||
Inventories |
(87,535 | ) | 55,339 | |||||
Prepaid expenses and other current assets |
(2,381 | ) | (1,101 | ) | ||||
Other assets |
494 | (1,359 | ) | |||||
Accounts payable and accrued expenses |
(72,611 | ) | (32,081 | ) | ||||
Other liabilities |
(1,628 | ) | 3,755 | |||||
Net cash provided (used) by operating activities |
(103,717 | ) | 121,528 | |||||
Investing activities |
||||||||
Investment in property, plant and equipment, net |
(16,823 | ) | (12,876 | ) | ||||
Acquisitions, net of cash acquired |
(31,150 | ) | | |||||
Investment in unconsolidated affiliate |
(636 | ) | | |||||
Proceeds from sale of assets |
884 | 934 | ||||||
Purchases of short-term investments |
| (67,999 | ) | |||||
Sales of short-term investments |
2,173 | 30,000 | ||||||
Net cash used by investing activities |
(45,552 | ) | (49,941 | ) | ||||
Financing activities |
||||||||
Proceeds from short-term borrowings |
123,090 | | ||||||
Principal payments on long-term debt |
| (513 | ) | |||||
Proceeds from issuance of common shares |
1,850 | 1,295 | ||||||
Excess tax benefits - stock-based compensation |
200 | | ||||||
Payments to minority interest |
| (1,920 | ) | |||||
Dividends paid |
(15,078 | ) | (14,950 | ) | ||||
Net cash provided (used) by financing activities |
110,062 | (16,088 | ) | |||||
Increase (decrease) in cash and cash equivalents |
(39,207 | ) | 55,499 | |||||
Cash and cash equivalents at beginning of period |
56,216 | 57,249 | ||||||
Cash and cash equivalents at end of period |
$ | 17,009 | $ | 112,748 | ||||
See notes to consolidated financial statements.
3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three-Month Periods Ended August 31, 2006 and 2005
(Unaudited)
NOTE A Basis of Presentation
The accompanying unaudited consolidated financial statements include the accounts of Worthington Industries, Inc., its subsidiaries and certain of its joint ventures (collectively, we, our, or the Company) and have been prepared in accordance with accounting principles generally accepted in the United States of America (United States) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended August 31, 2006, are not necessarily indicative of the results that may be expected for the fiscal year ending May 31, 2007 (fiscal 2007). For further information, refer to the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended May 31, 2006 (fiscal 2006).
Recently Issued Accounting Standards - In November 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4 (SFAS 151). SFAS 151 amended the guidance in Accounting Research Bulletin No. 43, Chapter 4, Inventory Pricing to clarify the accounting for abnormal amounts of idle facility expense, freight, handling cost and wasted material (spoilage). In addition, SFAS 151 requires that allocation of fixed production overhead to the costs of conversion be based on the normal capacity of the production facilities. SFAS 151 was effective for inventory costs incurred beginning June 1, 2006. The adoption of SFAS 151 did not have a material impact on our financial position or results of operations.
In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109 (FIN 48), which clarifies the accounting for uncertainty in tax positions. This Interpretation requires that we recognize, in our financial statements, the impact of a tax position, if that position is more likely than not to be sustained on audit, based on the technical merits of the position. The provisions of FIN 48 are effective as of June 1, 2007, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. We are currently evaluating the impact of adopting FIN 48 on our financial statements.
In September 2006, the FASB issued FASB Staff Position No. AUG AIR-1, Accounting for Planned Major Maintenance Activities , that prohibits the accrual of future major maintenance costs. It is effective for the fiscal year ending May 31, 2008 (fiscal 2008), and is not expected to materially impact our financial position or results of operations.
In September 2006, the FASB issued SFAS No. 158, Employers Accounting Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R) , that improves financial reporting regarding defined benefit pension and postretirement plans. It is effective at May 31, 2007, and is not expected to materially impact our financial position or results of operations.
In September 2006, the SEC issued Staff Accounting Bulletin No. 108 (SAB 108), Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. SAB 108 provides guidance on the consideration of the effects of prior year unadjusted errors in quantifying current year misstatements for the purpose of a materiality assessment. It is effective for the fiscal year ending May 31, 2007, and is not expected to materially impact our financial position or results of operations.
NOTE B Segment Operations
Several changes occurred during the second quarter of fiscal 2006 in the Companys internal organizational and reporting structures, affecting the composition of the Companys reportable segments. The Automotive Body Panels operating segment, consisting of The Gerstenslager Company, which was previously combined with Steel Processing in the Processed Steel Products
4
segment, was moved to the Other category, and the Processed Steel Products segment was renamed Steel Processing. Dietrich Construction Group was formed to include Dietrich Building Systems (previously included in the Metal Framing segment), Dietrich Residential Construction (previously an unconsolidated joint venture, now wholly-owned), and a research and development project in China. As a result of those changes, the Other category now includes the Automotive Body Panels, Construction Services and Steel Packaging operating segments and income and expense items not allocated to the reportable segments. All prior period financial information has been reclassified to reflect the segment changes mentioned above. Summarized financial information for our reportable segments is shown in the following table.
NOTE C Comprehensive Income
The components of total comprehensive income, net of tax, were as follows:
Three Months Ended
August 31, |
||||||||
(in thousands) | 2006 | 2005 | ||||||
Net earnings |
$ | 43,227 | $ | 28,407 | ||||
Foreign currency translation |
(223 | ) | (159 | ) | ||||
Cash flow hedges |
(3,388 | ) | 2,534 | |||||
Other |
76 | 836 | ||||||
Total comprehensive income |
$ | 39,692 | $ | 31,618 | ||||
5
NOTE D Stock-Based Compensation
Effective June 1, 2006, we adopted SFAS No. 123 (revised 2004), Share-Based Payment (SFAS 123(R)). SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recorded as expense in the statement of earnings based on their fair values.
To adopt SFAS 123(R), we selected the modified prospective transition method. This method requires recording compensation expense prospectively over the remaining vesting period of the stock options on a straight-line basis using the fair value of the options on the date of grant. It does not require restatement of financial results for the prior period expense related to stock option awards that were outstanding prior to adoption. We calculated the fair value of the options using the Black-Scholes model and certain assumptions. The assumptions used to value the previous grants are disclosed in our Annual Report on Form 10-K for fiscal 2006.
The following assumptions were used to value the options granted on June 1, 2006:
Grant date price per share of option award |
$ | 18.17 | ||
Dividend yield |
3.6 | % | ||
Expected term (years) |
6.5 | |||
Expected forfeiture rate |
19.0 | % | ||
Expected volatility |
38.1 | % | ||
Risk-free interest rate |
5.0 | % | ||
Grant date fair value per share of unvested option awards |
$ | 5.82 |
The expected volatility is based on the historical volatility of the common shares of Worthington Industries, Inc., and the risk-free interest rate is based on the United States Treasury strip rate for the expected term of the stock option. The expected term was developed using the simplified approach allowed by the SECs Staff Accounting Bulletin 107.
The calculated pre-tax compensation expense for the current quarter was recorded in selling, general and administrative expense and totaled $791,000, of which $636,000 related to the unvested portion of previously issued options. The after tax impact to the current quarter was $514,000.
In the prior year, as allowed by SFAS 123, stock options were accounted for using the intrinsic-value method (i.e., the difference between the market price at exercise and the price paid by the employee to exercise the stock option). Under that method, no compensation expense was recognized on the grant date, since on that date the option exercise price equaled the market price of the underlying common shares. However, we complied with the disclosure-only provisions of SFAS 123. The following table summarizes this information as disclosed in the prior year for the three months ended August 31, 2005, on a pro forma basis as if we had applied the fair value recognition provisions of SFAS 123:
(in thousands, except per share) |
Three Months
Ended August 31, 2005 |
||
Net earnings, as reported |
$ | 28,407 | |
Deduct: stock-based compensation expense, net of tax |
483 | ||
Pro forma net earnings |
$ | 27,924 | |
Earnings per share: |
|||
Basic, as reported |
$ | 0.32 | |
Basic, pro forma |
$ | 0.32 | |
Diluted, as reported |
$ | 0.32 | |
Diluted, pro forma |
$ | 0.32 |
6
The following table summarizes information for stock options outstanding and exercisable at August 31, 2006:
During the three months ended August 31, 2006, the total intrinsic value of stock options exercised was $774,000. The total amount of cash received by us from the exercise of stock options was $1,850,000 during the three months ended August 31, 2006, and the related net tax benefit realized from the exercise of these stock options was $271,000. In addition, in the current quarter an excess tax benefit of $200,000 for stock options exercised was reclassified in the statement of cash flows to financing activities from operating activities.
The following table summarizes information about non-vested stock option awards outstanding as of August 31, 2006:
At August 31, 2006, total unrecognized compensation cost related to non-vested non-qualified stock option awards was $9,092,000, which is expected to be recognized over the next five fiscal years.
In addition to the stock options previously discussed, we have awarded performance shares that are contingent (i.e., vest) upon achieving corporate economic value added, earnings per share and operating income targets. These performance share awards will be paid, if earned, in common shares of Worthington Industries, Inc. in the fiscal quarter following the end of the three-year performance period ending May 31, 2009. The grant date of these awards was June 1, 2006, at which time the price per common share was $18.17. We recorded pre-tax compensation expense of $223,000 in selling, general and administrative expense for these awards in the first quarter of fiscal 2007. The unrecognized balance of $2,464,000 will be expensed over the remainder of the three-year period ending May 31, 2009.
Descriptions of our stock-based compensation plans are described in our Annual Report on Form 10-K for fiscal 2006.
7
NOTE E Employee Pension Plans
The following table summarizes the components of net periodic pension cost for the Companys defined benefit plans for the periods indicated:
(in thousands) |
Three Months Ended
August 31, |
|||||||
2006 | 2005 | |||||||
Defined benefit plans: |
||||||||
Service cost |
$ | 255 | $ | 243 | ||||
Interest cost |
271 | 247 | ||||||
Expected return on plan assets |
(266 | ) | (199 | ) | ||||
Net amortization and deferral |
50 | 81 | ||||||
Net pension cost of defined benefit plans |
$ | 310 | $ | 372 | ||||
The Company expects to fund its pension obligations with a $2,000,000 payment in fiscal 2007.
NOTE F Income Taxes
Income tax expense for the first three months of fiscal 2007 and fiscal 2006 reflects an estimated annual effective income tax rate of 35.0% and 35.4 %. Management is required to estimate the annual effective tax rate based upon its forecast of annual pre-tax income for domestic and foreign operations. To the extent that actual pre-tax results for the year differ from the forecast estimates applied at the end of the most recent interim period, the actual tax rate recognized in fiscal 2007 could be materially different from the forecasted rate as of the end of the first quarter.
Income tax expense for the first three months of fiscal 2007 was calculated using the estimated annual effective income tax rate for fiscal 2007, but was increased $1,164,000 for adjustments to estimated tax liabilities for various audits and miscellaneous issues.
Income tax expense for the first three months of fiscal 2006 was calculated using the estimated annual effective income tax rate for fiscal 2006, but was reduced by (i) $944,000 primarily due to favorable tax audit settlements and related developments, (ii) an adjustment to reduce deferred tax liabilities by $4,568,000 as a result of the Ohio corporate tax legislation, and (iii) a $683,000 adjustment to reduce accrued income taxes for the first 20% phase-out of the Ohio corporate income tax.
NOTE G Investments in Unconsolidated Affiliates
On July 20, 2006, Dietrich announced that it had formed a joint venture with NOVA Chemicals Corporation (Dietrich/NOVA, LLC) to develop and manufacture durable, energy-saving composite construction products and systems. The joint ventures focus is on developing and manufacturing cost-effective insulated metal framing panels intended to overcome significant obstacles to using steel framing products for exterior walls in areas where interior/exterior temperature variations may cause condensation.
Our investments in affiliated companies, which are not controlled through majority ownership or otherwise, are accounted for using the equity method. At August 31, 2006, these equity investments, and the percentage interest owned, consisted of: Worthington Armstrong Venture (50%), TWB Company, LLC (50%), Worthington Specialty Processing, Inc. (50%), Aegis Metal Framing, LLC (60%), Viking & Worthington Steel Enterprise, LLC (VWS) (49%) and Dietrich/NOVA, LLC (50%).
8
We received distributions from unconsolidated affiliated companies totaling $7,619,000 during the three months ended August 31, 2006. Combined financial information for these affiliated companies is summarized in the following table:
(in thousands) |
August 31,
2006 |
May 31,
2006 |
||||
Cash |
$ | 115,910 | $ | 93,877 | ||
Other current assets |
156,076 | 163,718 | ||||
Noncurrent assets |
108,105 | 109,841 | ||||
Current maturities of long-term debt |
$ | 3,158 | $ | 3,158 | ||
Other current liabilities |
80,732 | 81,176 | ||||
Long-term debt |
25,868 | 37,813 | ||||
Other noncurrent liabilities |
7,396 | 6,049 | ||||
Three Months Ended
August 31, |
||||||
2006 | 2005 | |||||
Net sales |
$ | 174,521 | $ | 204,715 | ||
Gross margin |
49,074 | 41,567 | ||||
Depreciation and amortization |
3,950 | 4,985 | ||||
Interest expense |
741 | 1,237 | ||||
Income tax expense |
1,503 | 758 | ||||
Net earnings |
36,098 | 25,897 |
NOTE H Acquisitions
On August 16, 2006, we purchased 100% of the capital stock of Precision Specialty Metals, Inc. (PSM) for approximately $31,890,000, net of cash acquired. The purchase price is subject to change due to working capital adjustments and certain targeted earn-outs through 2009. PSM is a specialty stainless steel processor located in Los Angeles, California. PSM is included in our Steel Processing reporting segment.
The purchase price was allocated to the acquired assets and assumed liabilities based on their estimated fair values at the date of acquisition. Goodwill is the excess of the purchase price over the fair value allocated to the net assets pending final valuation of the intangible assets and property, plant and equipment.
The purchase price was allocated as follows:
(in thousands) | |||
Current assets |
$ | 15,767 | |
Goodwill |
15,404 | ||
Property, plant and equipment, net |
7,126 | ||
Total assets |
38,297 | ||
Current liabilities |
3,834 | ||
Total purchase price |
$ | 34,463 | |
Pro forma results, including PSM since the beginning of the fiscal year, would not be materially different than actual results.
9
Item 2. - Managements Discussion and Analysis of Financial Condition and Results of Operations
Selected statements contained in this Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations constitute forward-looking statements as that term is used in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based, in whole or in part, on managements beliefs, estimates, assumptions and currently available information. For a more detailed discussion of what constitutes a forward-looking statement and of some of the factors that could cause actual results to differ materially from such forward-looking statements, please refer to the Safe Harbor Statement in the beginning of this Quarterly Report on Form 10-Q and Part I Item 1A. Risk Factors of our Annual Report on form 10-K for the fiscal year ended May 31, 2006.
Overview
The following discussion and analysis of business strategy, key economic and industry indicators and trends, and the results of operations and financial condition of Worthington Industries, Inc., together with its subsidiaries (collectively, we, our, Worthington, or the Company), should be read in conjunction with our consolidated financial statements included in Item 1. Financial Statements. Our Annual Report on Form 10-K for the fiscal year ended May 31, 2006 (fiscal 2006), includes additional information about our Company, our operations and our financial position and should be read in conjunction with this Quarterly Report on Form 10-Q.
We are a diversified metal processing company that focuses on value-added steel processing and manufactured metal products. As of August 31, 2006, excluding our joint ventures, we operated 47 manufacturing facilities worldwide, principally in three reportable business segments: Steel Processing, Metal Framing and Pressure Cylinders. We also held equity positions in 7 joint ventures, which operated 15 manufacturing facilities worldwide as of August 31, 2006.
Several changes occurred during the second quarter of fiscal 2006 in the Companys internal organizational and reporting structures, affecting the composition of the Companys reportable segments. The Automotive Body Panels operating segment, consisting of The Gerstenslager Company, which was previously combined with Steel Processing in the Processed Steel Products segment, was moved to the Other category, and the Processed Steel Products segment was renamed Steel Processing. Dietrich Construction Group was formed to include Dietrich Building Systems (previously included in the Metal Framing segment), Dietrich Residential Construction (previously an unconsolidated joint venture, now wholly-owned), and a research and development project in China. As a result of these changes, the Other category now includes the Automotive Body Panels, Construction Services and Steel Packaging operating segments and income and expense items not allocated to the reportable segments. All prior period financial information has been reclassified to reflect the segment changes mentioned above.
Business Strategy
Our number one goal is to increase shareholder value. We believe that our business strategy, centered on our core competency of adding value to flat-rolled steel, provides an excellent platform to deliver that increase in value. Each of our reportable business segmentsSteel Processing, Metal Framing, Pressure Cylindersand certain of our joint ventures hold leadership positions in their respective markets, which we expect to leverage and grow. We have the capacity in each of our business segments to handle additional sales growth without significantly increasing capital investment.
The three primary ways we seek to accomplish our goal are optimizing existing operations; developing and commercializing new products and applications; and pursuing strategic acquisitions and joint ventures. Over the last several years, this focus has resulted in our investing in growth markets and products, consolidating facilities and divesting certain non-strategic assets or other assets that were not delivering appropriate returns. We will continue our efforts to optimize existing operations by improving efficiencies, consolidating operations when necessary, and reducing the costs and risks of our existing operations.
Although no individual customer provides more than five percent of our consolidated net sales, diversifying our customer base through new products and new applications for existing products is a priority.
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We intend to continue to add products and operations, which we believe will complement our existing business and strengths. Our strong balance sheet provides the financial flexibility to acquire or invest in companies that further extend our product lines or penetrate new markets. Because of our success with joint ventures and alliances, we continue to look for additional opportunities where we can bring together complementary skill sets, manage our risk and effectively invest our capital. Some of these joint ventures and alliances began as entry points into markets not previously served and have ultimately resulted in buyouts of our partners.
During the first three months of fiscal 2007, we took the following actions:
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On August 16, 2006, we purchased 100% of the capital stock of Precision Specialty Metals, Inc. (PSM) for approximately $31.9 million, net of cash acquired. PSM is a processor of stainless steel located in Los Angeles, California. |
|
On July 20, 2006, Dietrich announced it formed a joint venture with NOVA Chemicals Corporation to develop and manufacture durable, energy-saving composite construction products and systems. The joint ventures focus is on developing cost-effective insulated metal framing panels intended to overcome significant obstacles to using steel framing products for exterior walls in areas where interior/exterior temperature variations may cause condensation. |
Key Economic Indicators and Trends
To better understand the markets in which each of our business segments operate and the performance of those segments, we monitor certain economic and industry data. During the three months ended August 31, 2006, Gross Domestic Product continued to expand, up 2.9% year over year and up slightly sequentially.
Construction is the end market for approximately 43% of our net sales. Our largest construction market is the commercial office building sector. Office building construction was down 7% in the three months ended August 31, 2006 in terms of contracts for new, addition, and major alteration projects as reported in the Dodge Construction Potentials Bulletin. In that same bulletin, retail construction starts were down 3%.
The automotive end market, which represents approximately 31% of our net sales, had mixed results. Total North American vehicle production was flat compared to the same quarter last year. However, Big Three automotive (collectively, DaimlerChrysler AG, Ford Motor Co. and General Motors Corp.) production was down 2.1% compared to the same quarter last year. While our tons shipped directly to the Big Three increased 14% over the same quarter last year, our total automotive volumes were flat from the same quarter last year.
In August and September, the Big Three announced production cuts. These cuts are expected to result in decreased orders not only from the Big Three, but also from their suppliers, many of whom purchase processed steel. In addition, the financial condition of some automotive manufacturers and suppliers has deteriorated and their debt is rated below investment grade. Recently, certain automotive suppliers have filed voluntary petitions for Chapter 11 bankruptcy protection. We are concerned about the viability of certain automotive suppliers and continue to monitor their status.
Benchmark commodity steel prices have strengthened since our fiscal 2006 first quarter, increasing 36% primarily due to industry consolidation and improved overall demand. On average, published benchmark commodity steel prices for the three months ended August 31, 2006, had increased by $167 per ton from the three months ended August 31, 2005. Certain analysts are predicting that demand for steel, driven in part by the announced production cuts at the Big Three, will soften and as a result steel prices will decline in the coming months.
Outlook
We continue to see many uncertainties in our various markets that could exert downward pressure on our results of operations. Uncertainties regarding the direction of the economy and interest rates appear to have softened construction demand and caused projects to be deferred. Also contributing to the weaker construction demand is relatively higher priced metal framing products that have been substituted with lower cost products like wood and concrete. Industry consensus is that steel prices will decrease and while this could ease competition with alternative
11
material it could also dampen results of operations as we fill future orders with higher priced existing inventories. The announced production cuts among the Big Three for the balance of the calendar year could also reduce demand. We cannot predict when, or if, these trends will occur; however, they could affect results of operations.
Results of Operations
First Quarter-Fiscal 2007 Compared to Fiscal 2006
Our results of operations are mainly driven by two factors, demand and the spread between the average selling price of our products and the cost of our raw material, mainly steel. Our inventory costing methods approximate a first-in, first-out (FIFO) inventory flow and can significantly affect the spread. In a rising steel-price environment, our reported income is often favorably impacted as lower-priced inventory acquired during the two to three previous months flows through cost of goods sold while our selling prices increase to meet the rising replacement cost of steel. In a decreasing steel-price environment, the inverse often occurs as higher-priced inventory on hand flows through cost of goods sold as our selling prices decrease. This results in what we refer to as inventory holding gains or losses. We strive to limit this impact by controlling inventory levels.
A majority of our full-time employees receive a significant portion of
their compensation through profit sharing and bonuses, which are tied to our performance. When earnings are up, so is profit sharing and bonus expense, and when earnings are down, so is profit sharing and bonus expense. Because of this relationship,
Consolidated Operations
The following table presents consolidated operating results:
Three Months Ended August 31, | ||||||||||||||||||
Dollars in millions | 2006 |
% of
Net sales |
2005 |
% of
Net sales |
Increase/
(Decrease) |
|||||||||||||
Net sales |
$ | 778.7 | 100.0 | % | $ | 694.1 | 100.0 | % | $ | 84.6 | ||||||||
Cost of goods sold |
657.4 | 84.4 | % | 618.8 | 89.2 | % | 38.6 | |||||||||||
Gross margin |
121.3 | 15.6 | % | 75.3 | 10.8 | % | 46.0 | |||||||||||
Selling, general and administrative expense |
66.6 | 8.6 | % | 47.8 | 6.9 | % | 18.8 | |||||||||||
Operating income |
54.7 | 7.0 | % | 27.5 | 4.0 | % | 27.2 | |||||||||||
Interest and other expense, net |
(4.7 | ) | -0.6 | % | (6.3 | ) | -0.9 | % | (1.6 | ) | ||||||||
Equity in net income of unconsolidated affiliates |
18.3 | 2.4 | % | 13.2 | 1.9 | % | 5.1 | |||||||||||
Income tax expense |
(25.1 | ) | -3.2 | % | (6.0 | ) | -0.9 | % | 19.1 | |||||||||
Net earnings |
$ | 43.2 | 5.5 | % | $ | 28.4 | 4.1 | % | $ | 14.8 | ||||||||
Our net earnings for the first quarter of fiscal 2007 increased $14.8 million, 52% over the prior year first quarter.
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Net sales grew $84.6 million from the prior year first quarter to $778.7 million, representing the highest first quarter net sales in our history. Average sales prices increased in Steel Processing, Metal Framing, and Pressure Cylinders, contributing $73.0 million to the improvement in net sales. Increased volume accounted for $11.6 million of the change in net sales. Volumes in both Steel Processing and Construction Services (included in the Other category) were up, but were partially offset by a decrease in Metal Framing volume. |
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Cost of goods sold (COGS) increased $38.6 million. This is primarily the result of material price increases experienced in Steel Processing, Metal Framing, and Pressure Cylinders, which accounted for $15.9 million of the increase, while the increase in volume represented $11.7 million of the change. The remaining $11.0 million increase included increases in profit sharing and bonuses of $5.7 million and $3.1 million in freight and other miscellaneous items. |
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|
The gross margin increased $46.0 million from the prior year and the gross margin as a percent of net sales increased from 10.8% to 15.6%. This is primarily due to an improvement in the spread between the average selling prices and material costs. |
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Selling, general and administrative (SG&A) expense increased $18.8 million. Increases in wages, profit sharing and bonuses, and employee benefits accounted for $13.7 million of the change, a majority of which is variable based on earnings. In addition, professional fees increased $2.9 million. |
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Interest and other expense decreased primarily due to a $2.4 million reduction in interest expense resulting from lower average debt levels compared to the same period last year. |
|
Equity in net income of unconsolidated affiliates increased $5.1 million primarily due to a strong quarter at our WAVE joint venture as it continues to grow domestically and internationally. |
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The effective tax rate was 36.7% for the first quarter of fiscal 2007 and 17.4% for the same quarter of the prior year. Income tax expense for the quarter increased $19.1 million as a result of higher earnings. The quarterly effective tax rate increased due to unfavorable adjustments to estimated tax liabilities of $1.2 million in the current quarter while taxes for the first quarter of fiscal 2006 were reduced by a $5.3 million adjustment due to a favorable Ohio tax law change and $0.9 million for other adjustments. |
Segment Operations
Steel Processing
During the first quarter of fiscal 2007 we reclassified: (i) zinc from manufacturing expense to material cost, and (ii) outside processing costs from material cost to manufacturing expense. These changes had no impact to net earnings or cost of goods sold, as these adjustments are reclassifications within cost of goods sold. However, in the information presented for this segment, the material cost line for the prior year has been adjusted to be comparable to the current year presentation.
The following table presents a summary of operating results for the Steel Processing segment for the periods indicated:
Three Months Ended August 31, | |||||||||||||||
Dollars in millions | 2006 |
% of
Net sales |
2005 |
% of
Net sales |
Increase/
(Decrease) |
||||||||||
Net sales |
$ | 401.0 | 100.0 | % | $ | 351.6 | 100.0 | % | $ | 49.4 | |||||
Cost of goods sold |
353.0 | 88.0 | % | 326.6 | 92.9 | % | 26.4 | ||||||||
Gross margin |
48.0 | 12.0 | % | 25.0 | 7.1 | % | 23.0 | ||||||||
Selling, general and administrative expense |
27.2 | 6.8 | % | 16.6 | 4.7 | % | 10.6 | ||||||||
Operating income |
$ | 20.8 | 5.2 | % | $ | 8.4 | 2.4 | % | $ | 12.4 | |||||
Material cost |
$ | 297.9 | $ | 278.6 | $ | 19.3 | |||||||||
Tons shipped (in thousands) |
896.1 | 836.5 | 59.6 |
Net sales and operating income highlights are as follows:
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Net sales grew $49.4 million from the prior year first quarter to $401.0 million. Average sales prices increased and contributed $32.4 million to the improvement in net sales. With the steady rise of steel prices since August 2005 and throughout the year, we increased our average selling prices to reflect this change. This resulted in approximately a 9% increase over last years prices for direct sales. Higher volumes accounted for $17.0 million of the change in net sales. Sales volume to the automotive and construction markets was up from the prior year period. Automotive sales were up primarily due to market share gains with the Big Three. |
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Operating income increased primarily due to a larger spread between our selling prices and material costs. This increase was partially offset by higher profit sharing and bonus expenses and professional fees. |
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Metal Framing
The following table presents a summary of operating results for the Metal Framing segment for the periods indicated:
Three Months Ended August 31, | ||||||||||||||||
Dollars in millions | 2006 |
% of
Net sales |
2005 |
% of
Net sales |
Increase/
(Decrease) |
|||||||||||
Net sales |
$ | 212.3 | 100.0 | % | $ | 205.3 | 100.0 | % | $ | 7.0 | ||||||
Cost of goods sold |
172.5 | 81.3 | % | 176.4 | 85.9 | % | (3.9 | ) | ||||||||
Gross margin |
39.8 | 18.7 | % | 28.9 | 14.1 | % | 10.9 | |||||||||
Selling, general and administrative expense |
22.0 | 10.4 | % | 18.5 | 9.0 | % | 3.5 | |||||||||
Operating income |
$ | 17.8 | 8.4 | % | $ | 10.4 | 5.1 | % | $ | 7.4 | ||||||
Material cost |
$ | 130.2 | $ | 136.8 | $ | (6.6 | ) | |||||||||
Tons shipped (in thousands) |
165.5 | 184.1 | (18.6 | ) |
Net sales and operating income highlights are as follows:
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Net sales grew $7.0 million from the prior year first quarter to $212.3 million. Average sales prices per ton increased and contributed $25.4 million to the improvement in net sales, but this increase was partially offset by decreased volume of $18.4 million. Volume was impacted by three primary factors. The first was the decrease in construction starts including those for office buildings (down 7%) and retail stores (down 3%). Second, the newly introduced UltraSTEEL TM product comprised approximately 20% of our sales during the quarter. Because this product is lighter than the traditional framing products, weighing less per linear foot, volumes on a per ton basis were down approximately 3%. Third, the rising cost of steel, particularly relative to the falling price of wood, allowed competing building systems to take market share from metal framing markets and has caused the deferral of certain non-fire rated construction projects. |
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Operating income improved $7.4 million from the prior year first quarter primarily due to a $20.2 million increase in the spread between selling prices and material costs. This favorable spread more than offset the $4.5 million impact of lower volume, higher compensation expense of $3.6 million, and increased freight costs of $1.0 million. |
Pressure Cylinders
The following table presents a summary of operating results for the Pressure Cylinders segment for the periods indicated:
Three Months Ended August 31, | ||||||||||||||||
Dollars in millions | 2006 |
% of
Net sales |
2005 |
% of
Net sales |
Increase/
(Decrease) |
|||||||||||
Net sales |
$ | 121.5 | 100.0 | % | $ | 107.1 | 100.0 | % | $ | 14.4 | ||||||
Cost of goods sold |
92.7 | 76.3 | % | 88.7 | 82.8 | % | 4.0 | |||||||||
Gross margin |
28.8 | 23.7 | % | 18.4 | 17.2 | % | 10.4 | |||||||||
Selling, general and administrative expense |
12.1 | 10.0 | % | 10.4 | 9.7 | % | 1.7 | |||||||||
Operating income |
$ | 16.7 | 13.7 | % | $ | 8.0 | 7.5 | % | $ | 8.7 | ||||||
Material cost |
$ | 57.2 | $ | 55.0 | $ | 2.2 | ||||||||||
Units shipped (in thousands) |
11,942 | 13,545 | (1,603 | ) |
Net sales and operating income highlights are as follows:
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Net sales grew $14.4 million from the prior year first quarter to $121.5 million. Changes in the overall product mix and price increases in certain product lines to cover increased material cost, were the primary drivers to the improvement in net sales. Overall units shipped were down primarily due to a 17% decline in small portable cylinder product lines, used with such items as camping stoves, portable heaters, and |
14
hand-held torches. Demand for these products in the prior year was driven, in part, by the increased number of hurricanes that hit the United States. In addition, the hand-held torch volume has been impacted by an inventory reduction program at a large customer. However, revenues in the North American LPG and steel high-pressure product lines more than offset these volume declines, resulting in an increase in net sales in North America of $6.0 million. European revenues increased $8.4 million, reflecting the continued strong market conditions for our steel high-pressure cylinders and the growth of air tank units for truck braking applications. |
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Operating income increased over the prior year first quarter resulting in a gross margin increase of $10.4 million, fueled by the sales improvements discussed above, combined with production cost improvements resulting from a plant consolidation for the small portable cylinder product lines, lower insurance and workers compensation costs in North American operations, and improved plant efficiencies. SG&A expenses increased $1.7 million on increased profit sharing and bonus expense and higher legal fees. |
Other
The Other category includes the Automotive Body Panels, Construction Services and Steel Packaging operating segments, which are immaterial for purposes of separate disclosure, and income and expense items not allocated to the operating segments. The following table presents a summary of operating results for the periods indicated:
Three Months Ended August 31, | |||||||||||||||||
Dollars in millions | 2006 |
% of
Net sales |
2005 |
% of
Net sales |
Increase/
(Decrease) |
||||||||||||
Net sales |
$ | 43.9 | 100.0 | % | $ | 30.1 | 100.0 | % | $ | 13.8 | |||||||
Cost of goods sold |
39.0 | 88.8 | % | 27.1 | 90.0 | % | 11.9 | ||||||||||
Gross margin |
4.9 | 11.2 | % | 3.0 | 10.0 | % | 1.9 | ||||||||||
Selling, general and administrative expense |
5.4 | 12.3 | % | 2.2 | 7.3 | % | 3.2 | ||||||||||
Operating income (loss) |
$ | (0.5 | ) | -1.1 | % | $ | 0.8 | 2.7 | % | $ | (1.3 | ) | |||||
Net sales and operating loss highlights are as follows:
|
Net sales increased $13.8 million over the prior year first quarter primarily as a result of increased sales in the Construction Services segment. The Automotive Body Panels and Steel Packaging operating segments also experienced minor increases in net sales over the same quarter in the prior year. |
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Operating loss increased $1.3 million versus the comparable period of fiscal 2006. Higher expenses in the Construction Services operating segment resulted from $1.1 million of expenses related to the project in China combined with higher expenses from increased domestic activity. Construction Services was the primary reason for the operating loss in the current quarter and the decrease compared to the same quarter in the prior year. The Automotive Body Panels and Steel Packaging operating segments experienced improvements in operating income and in operating margin over last years first quarter. |
15
Liquidity and Capital Resources
Cash and cash equivalents at the end of the first quarter of fiscal 2007 declined $95.7 million versus the end of the same quarter last year. The following table is a recap of the consolidated cash flows.
Three Months Ended
August 31, |
||||||||
Cash Flow Summary (in millions) |
2006 | 2005 | ||||||
Cash flows provided (used) by operating activities |
$ | (103.7 | ) | $ | 121.5 | |||
Cash flows used by investing activities |
(45.6 | ) | (49.9 | ) | ||||
Cash provided (used) by financing activities |
110.1 | (16.1 | ) | |||||
Increase (decrease) in cash and cash equivalents |
(39.2 | ) | 55.5 | |||||
Cash and cash equivalents at beginning of period |
56.2 | 57.2 | ||||||
Cash and cash equivalents at end of period |
$ | 17.0 | $ | 112.7 | ||||
During the first three months of fiscal 2007, we used $103.7 million in cash for operating activities. This was primarily the result of an increase of $87.5 million in inventory during the period and a $73.9 million decrease in accounts payable partially offset by $43.2 million in net earnings. The difference between the net cash used by operating activities in fiscal 2007 compared to net cash provided by operating activities in fiscal 2006 was primarily the result of changes in inventory and accounts payable compared to changes reported in the same quarter last year. The inventory increase reflects the increase in steel prices over the prior year and in quantities as purchases outpaced anticipated sales. Accounts payable decreased from year-end due to the timing of disbursements. Consolidated net working capital was $502.9 million at August 31, 2006, compared to $505.5 million at May 31, 2006.
We used $45.6 million for investing activities, which included spending $31.2 million for the acquisition of PSM and $16.8 million for capital projects, partially offset by the sale of short-term investments of $2.2 million. We anticipate that our fiscal 2007 capital spending, excluding acquisitions, will slightly exceed annual depreciation. Major ongoing capital projects include our Enterprise Resource Planning (ERP) project, a furnace upgrade at our Spartan joint venture galvanizing facility, and the conversion of most of the roll forming at our Metal Framing segments facilities to UltraSTEEL TM .
Financing activities provided $110.1 million in cash primarily as a result of $123.1 million in short-term borrowings under our committed and uncommitted lines of credit to support our operations, acquisitions, capital projects and quarterly dividend.
We have a total of $560.0 million available to meet short-term liquidity needs from our long-term revolving credit facility ($435.0 million), trade account receivables securitization facility ($100.0 million) and other uncommitted discretionary credit lines ($25.0 million). At August 31, 2006, we had used $123.1 million of this availability. We have provided $16.2 million in guarantees and letters of credit for third parties as of August 31, 2006, which have not changed since fiscal year end 2006.
Dividend Policy
Dividends are declared at the discretion of our board of directors. Our board of directors reviews the dividend quarterly and establishes the dividend rate based upon our financial condition, results of operations, capital requirements, current and projected cash flows, business prospects and other factors which are deemed relevant. While we have paid a dividend every quarter since becoming a public company in 1968, there is no guarantee that this will continue in the future.
Contractual Cash Obligations and Other Commercial Commitments
Our contractual cash obligations and other commercial commitments have not changed significantly from those disclosed in Item 7. Managements Discussion and Analysis of Financial Conditions and Results of Operations of our Annual Report on Form 10-K for fiscal 2006.
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Off-Balance Sheet Arrangements
We had no material off-balance sheet arrangements at August 31, 2006.
Recently Issued Accounting Standards
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109 (FIN 48), which clarifies the accounting for uncertainty in tax positions. This Interpretation requires that we recognize, in our financial statements, the impact of a tax position, if that position is more likely than not to be sustained on audit, based on the technical merits of the position. The provisions of FIN 48 are effective as of June 1, 2007, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. We are currently evaluating the impact of adopting FIN 48 on our financial statements.
In September 2006, the FASB issued FASB Staff Position No. AUG AIR-1, Accounting for Planned Major Maintenance Activities , that prohibits the accrual of future major maintenance costs. It is effective for fiscal 2008 and is not expected to materially impact our financial position or results of operations.
In September 2006, the FASB issued SFAS No. 158, Employers Accounting Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R) , that improves financial reporting regarding defined benefit pension and postretirement plans. It is effective at May 31, 2007 and is not expected to materially impact our financial position or results of operations.
In September 2006, the SEC issued Staff Accounting Bulletin No. 108 (SAB 108), Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. SAB 108 provides guidance on the consideration of the effects of prior year unadjusted errors in quantifying current year misstatements for the purpose of a materiality assessment. It is effective for the fiscal year ending May 31, 2007, and is not expected to materially impact our financial position or results of operations.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting period. We continually evaluate our estimates, including those related to our valuation of receivables, intangible assets, accrued liabilities, income and other tax accruals, and contingencies and litigation. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. These results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Critical accounting policies are defined as those that reflect our significant judgments and uncertainties that could potentially result in materially different results under different assumptions and conditions. Although actual results historically have not deviated significantly from those determined using our estimates, our financial position or results of operations could be materially different if we were to report under different conditions or to use different assumptions in the application of such policies. Our critical accounting policies have not significantly changed from those discussed in Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the fiscal year ended May 31, 2006.
Item 3. - Quantitative and Qualitative Disclosures About Market Risk
Market risks have not changed significantly from those disclosed in Item 7A. Quantitative and Qualitative Disclosures About Market Risk of our Annual Report on Form 10-K for the fiscal year ended May 31, 2006.
Item 4. - Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures [as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)] that are designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is
17
recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Because of inherent limitations, disclosure controls and procedures, no matter how well designed and operated, can only provide reasonable, and not absolute, assurance that the objectives of disclosure controls and procedures are met.
Management, with the participation of our principal executive officer and principal financial officer, performed an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the quarterly period covered by this Quarterly Report on Form 10-Q (the fiscal quarter ended August 31, 2006). Based on that evaluation, our principal executive officer and principal financial officer have concluded that such disclosure controls and procedures were effective as of the end of the quarterly period covered by this Quarterly Report on Form 10-Q to ensure that material information relating to Worthington Industries, Inc. and our consolidated subsidiaries is made known to them, particularly during the period for which periodic reports of Worthington Industries, Inc., including this Quarterly Report on Form 10-Q, are being prepared.
Changes in Internal Control Over Financial Reporting
There were no changes, except for the continued implementation of the new enterprise resource planning (ERP) system mentioned below, which occurred during the quarterly period covered by this Quarterly Report on Form 10-Q (the fiscal quarter ended August 31, 2006), in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We are in the process of implementing a new ERP system throughout much of Worthington Industries, Inc. and our consolidated subsidiaries. Implementing a new system results in changes to business processes and related controls. During the quarter, we began the second phase of our implementation, which includes changes in our manufacturing and order management systems within our Steel Processing segment. The implementation will continue by manufacturing location throughout the remainder of the current and next fiscal year. We believe that we are adequately controlling the transition to the new processes and controls and that there will be no negative impact to our internal control environment. In fact, one of the expected benefits of the fully implemented ERP system is an enhancement of our current internal control environment.
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Various legal actions, which generally have arisen in the ordinary course of business, are pending against Worthington. None of this pending litigation, individually or collectively, is expected to have a material adverse effect on our financial position, results of operation or cash flows.
In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors discussed in PART I Item 1A. Risk Factors of the Annual Report on Form 10-K of Worthington Industries, Inc. for the fiscal year ended May 31, 2006 (the 2006 Form 10-K), as filed with the United States Securities and Exchange Commission on August 11, 2006, and available at www.sec.gov. The risk factors facing Worthington Industries, Inc. and our subsidiaries (collectively, Worthington) have not changed significantly from those disclosed in the 2006 Form 10-K. These risk factors could materially affect our business, financial condition or future results. The risk factors described in the 2006 Form 10-K are not the only risks facing Worthington. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, also may materially affect our business, financial condition and/or future results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information about purchases made by, or on behalf of, Worthington Industries, Inc. or any affiliated purchaser (as defined in Rule 10b 18(a) (3) under the Securities Exchange Act of 1934, as amended) of common shares of Worthington Industries, Inc. during each month of the fiscal quarter ended August 31, 2006:
Period |
Total Number
of Common Shares Purchased |
Average Price
Paid per Common Share |
Total Number of
Common Shares Purchased as Part of Publicly Announced Plans or Programs |
Maximum Number
(or Approximate Dollar Value) of Common Shares that May Yet Be Purchased Under the Plans or Programs (1) |
||||
June 1-30, 2006 |
| | | 10,000,000 | ||||
July 1-31, 2006 |
| | | 10,000,000 | ||||
August 1-31, 2006 |
| | | 10,000,000 | ||||
Total |
| | | 10,000,000 |
(1) |
At its meeting on September 27, 2006, the Board of Directors of the Company reconfirmed its authorization to repurchase up to 10,000,000 of Worthington Industries, Inc.s outstanding common shares, which authorization had initially been announced on June 13, 2005. The common shares may be purchased from time to time, with consideration given to the market price of the common shares, the nature of other investment opportunities, cash flow from operations and general economic conditions. Repurchases may be made on the open market or through privately negotiated transactions. The Company began making purchases of its outstanding common shares on September 28, 2006. No repurchases of common shares had been made by the Company under this authorization prior to that time. |
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Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of Worthington Industries, Inc. was held on September 27, 2006. In connection with the Annual Meeting, proxies were solicited. At the close of business on August 1, 2006, the record date for the Annual Meeting, 88,807,354 common shares of Worthington Industries, Inc. were outstanding and entitled to vote. At the Annual Meeting, 82,178,495 common shares, or 93% of the outstanding common shares entitled to vote, were represented by proxy or in person. Following are the voting results on the proposals considered and voted upon at the 2006 annual meeting of shareholders:
1. |
All of the nominees of the Board of Directors of Worthington Industries, Inc. for election to the class of directors whose terms will expire at the 2009 annual meeting of shareholders were elected by the following vote: |
Votes For | Votes Withheld |
Abstentions/
Broker Non-votes |
||||
John B. Blystone |
81,425,525 | 752,970 | N/A | |||
William S. Dietrich, II |
81,034,588 | 1,143,907 | N/A | |||
Carl A. Nelson, Jr. |
81,595,186 | 583,309 | N/A | |||
Sidney A. Ribeau |
81,612,952 | 565,543 | N/A |
Continuing directors whose terms will expire at the 2007 annual meeting of shareholders are John R. Kasich, John P. McConnell and Mary Schiavo. Continuing directors whose terms will expire at the 2008 annual meeting of shareholders are John S. Christie, Michael J. Endres, and Peter Karmanos, Jr.
2. |
The Worthington Industries, Inc. 2006 Equity Incentive Plan for Non-Employee Directors was approved by the following vote: 64,165,327 votes for, 3,698,562 votes against, 561,201 abstentions, and 13,753,405 broker non-votes. |
3. |
The selection of KPMG LLP as the independent registered public accounting firm of Worthington Industries, Inc. for the fiscal year ending May 31, 2007, was ratified by the following vote: 81,603,332 votes for, 365,473 votes against, 209,689 abstentions, and no broker non-votes. |
Not applicable
Exhibits
10.1 |
Worthington Industries, Inc. 2006 Equity Incentive Plan for Non-Employee Directors (incorporated herein by reference to Exhibit 10 to the Registration Statement on Form S - 8 of Worthington Industries, Inc. filed on September 27, 2006 (Registration No. 333-137614)). |
|
10.2 |
Form of Nonqualified Stock Option Award Agreement under the Worthington Industries, Inc. 2006 Equity Incentive Plan for Non-Employee Directors entered into by Worthington Industries, Inc. in order to evidence the grant of nonqualified stock options to non-employee directors of Worthington |
20
Industries, Inc. on September 27, 2006 and to be entered into by Worthington Industries, Inc. in order to evidence future grants of nonqualified stock options to non-employee directors of Worthington Industries, Inc. (incorporated herein by reference to Exhibit 10.2 to the Current Report Form 8-K of Worthington Industries, Inc. dated and filed on October 2, 2006 (File No. 001-08399)). |
||
10.3 |
Form of Restricted Stock Award Agreement under the Worthington Industries, Inc. 2006 Equity Incentive Plan for Non-Employee Directors entered into by Worthington Industries, Inc. in order to evidence the grant of restricted stock to non-employee directors of Worthington Industries, Inc. on September 27, 2006 and to be entered into by Worthington Industries, Inc. in order to evidence future grants of restricted stock to non-employee directors of Worthington Industries, Inc. (incorporated herein by reference to Exhibit 10.3 to the Current Report Form 8-K of Worthington Industries, Inc. dated and filed on October 2, 2006 (File No. 001-08399)). |
|
10.4 |
Summary of Cash Compensation for Directors of Worthington Industries, Inc., effective June 1, 2006 (incorporated herein by reference to Exhibit 10.22 to the Annual Report on Form 10-K for the fiscal year ended May 31, 2006 of Worthington Industries, Inc. (File No. 001-08399)). |
|
10.5 |
Amendment No. 2 dated as of August 25, 2006 to Purchase and Sale Agreement dated as of November 30, 2000, between the various originators listed therein and Worthington Receivables Corporation |
|
31.1 |
Rule 13a - 14(a) / 15d - 14(a) Certification (Principal Executive Officer) |
|
31.2 |
Rule 13a - 14(a) / 15d - 14(a) Certification (Principal Financial Officer) |
|
32.1 |
Section 1350 Certification of Principal Executive Officer |
|
32.2 |
Section 1350 Certification of Principal Financial Officer |
21
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
WORTHINGTON INDUSTRIES, INC. |
||||
Date: October 10, 2006 |
By: |
/s/ John S. Christie |
||
John S. Christie, |
||||
President and Chief Financial Officer (On behalf of the Registrant and as Principal Financial Officer) |
22
Exhibit |
Description |
Location |
||||
10.1 |
Worthington Industries, Inc. 2006 Equity Incentive Plan for Non-employee Directors |
Incorporated herein by reference to Exhibit 10 to the Registration Statement on Form S - 8 of Worthington Industries, Inc. filed on September 27, 2006 (Registration No. 333-137614). |
||||
10.2 |
Form of Nonqualified Stock Option Award Agreement under the Worthington Industries, Inc. 2006 Equity Incentive Plan for Non-Employee Directors entered into by Worthington Industries, Inc. in order to evidence the grant of nonqualified stock options to non-employee directors of Worthington Industries, Inc. on September 27, 2006 and to be entered into by Worthington Industries, Inc. in order to evidence future grants of nonqualified stock options to non-employee directors of Worthington Industries, Inc. |
Incorporated herein by reference to Exhibit 10.2 to the Current Report on Form 8-K of Worthington Industries, Inc. dated and filed on October 2, 2006 (File No. 001-08399). |
||||
10.3 |
Form of Restricted Stock Award Agreement under the Worthington Industries, Inc. 2006 Equity Incentive Plan for Non-Employee Directors entered into by Worthington Industries, Inc. in order to evidence the grant of restricted stock to non-employee directors of Worthington Industries, Inc. on September 27, 2006 and to be entered into by Worthington Industries, Inc. in order to evidence future grants of restricted stock to non-employee directors of Worthington Industries, Inc. |
Incorporated herein by reference to Exhibit 10.3 to the Current Report on Form 8-K of Worthington Industries, Inc. dated and filed on October 2, 2006 (File No. 001-08399). |
||||
10.4 |
Summary of Cash Compensation for Directors of Worthington Industries, Inc., effective June 1, 2006 |
Incorporated herein by reference to Exhibit 10.22 to the Annual Report on Form 10-K for the fiscal year ended May 31, 2006 of Worthington Industries, Inc. (File No. 001-08399). |
||||
10.5 |
Amendment No. 2 dated as of August 25, 2006 to Purchase and Sale Agreement dated as of November 30, 2000, between the various originators listed therein and Worthington Receivables Corporation |
Filed herewith |
||||
31.1 |
Rule 13a - 14(a) / 15d - 14(a) Certification (Principal Executive Officer) |
Filed herewith |
||||
31.2 |
Rule 13a - 14(a) / 15d - 14(a) Certification (Principal Financial Officer) |
Filed herewith |
||||
32.1 |
Section 1350 Certification of Principal Executive Officer |
Filed herewith |
||||
32.2 |
Section 1350 Certification of Principal Financial Officer |
Filed herewith |
23
Exhibit 10.5
EXECUTION COPY
AMENDMENT NO. 2
Dated as of August 25, 2006
to
PURCHASE AND SALE AGREEMENT
Dated as of November 30, 2000
This AMENDMENT NO. 2 (this Amendment ) dated as of August 25, 2006 is entered into between the VARIOUS ENTITIES LISTED ON SCHEDULE I HERETO AS ORIGINATORS (each, an Originator ; and collectively, the Originators), and WORTHINGTON RECEIVABLES CORPORATION, a Delaware corporation (the Company ).
RECITALS
WHEREAS, the parties hereto have entered into a certain Purchase and Sale Agreement dated as of November 30, 2000 as amended by Amendment No. 1 dated May 18, 2001 (the Agreement );
WHEREAS, the parties hereto wish to make certain changes to the Agreement as herein provided;
NOW, THEREFORE, in consideration of the promises and the mutual agreements contained herein and in the Agreement, the parties hereto agree as follows:
SECTION 1. Definitions . All capitalized terms not otherwise defined herein are used as defined in the Agreement.
SECTION 2. Amendments to Agreement . The Agreement is hereby amended as follows:
2.1 Clause (f) of Section 6.3 of the Agreement is hereby amended and restated in its entirety as follows:
(f) Location and Offices . Change its location (as such term is defined in the UCC) or move its principal place of business and chief executive office and the offices where it keeps its records concerning or related to the Receivables, to a location or address other than the locations and addresses set forth on Schedule 6.3(f) or, upon 30 days prior written notice to the Company and the Administrator, at such other locations or addresses in jurisdictions where all action required by Section 7.3 shall have been taken and completed.
2.2 Schedule I of the Agreement is hereby amended and restated in its entirety as set forth on Schedule I attached hereto.
2.3 Schedule 5.6 of the Agreement is hereby amended and restated in its entirety as set forth on Schedule 5.6 attached hereto.
1 |
Amendment to the Purchase and Sale Agreement |
2.4 Schedule 5.15 of the Agreement is hereby amended and restated in its entirety as set forth on Schedule 5.6 attached hereto.
2.5 Schedule 6.1(f) of the Agreement is hereby amended and restated in its entirety as set forth on Schedule 6.1(f) attached hereto.
SECTION 3. Miscellaneous .
3.1 Representations and Warranties . Each Originator and the Company hereby makes, with respect to itself, the representations and warranties as follows:
(a) Representations and Warranties . The representations and warranties contained in Article V of the Agreement of such Originators are true and correct as of the date hereof (unless stated to relate solely to an earlier date, in which case such representations and warranties were true and correct as of such earlier date).
(b) Enforceability . The execution and delivery by such Person of this Amendment, and the performance of its obligations under this Amendment and the Agreement, as amended hereby, are within its organizational powers and have been duly authorized by all necessary organizational action on its part. This Amendment and the Agreement, as amended hereby, are its valid and legally binding obligations, enforceable in accordance with its terms.
(c) Termination Event . No Purchase and Sale Termination Event or Unmatured Purchase and Sale Termination Event has occurred and is continuing.
3.2 References to Agreement . Upon the effectiveness of this Amendment, each reference in the Agreement to this Agreement, hereunder, hereof, herein, or words of like import shall mean and be a reference to the Agreement as amended hereby, and each reference to the Agreement in any other document, instrument or agreement executed and/or delivered in connection with the Agreement shall mean and be a reference to the Agreement as amended hereby.
3.3 Effect on the Agreement . Except as specifically amended above, the Agreement and all other documents, instruments and agreements executed and/or delivered in connection therewith shall remain in full force and effect and are hereby ratified and confirmed.
3.4 No Waiver . The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of any party under the Agreement or any other document, instrument or agreement executed in connection therewith, nor constitute a waiver of any provision contained therein, except as specifically set forth herein.
3.5 Governing Law . This Amendment, including the rights and duties of the parties hereto, shall be governed by, and construed in accordance with, the laws of the State of New York (without giving effect to the conflict of laws principles thereof).
2 |
Amendment to the Purchase and Sale Agreement |
3.6 Successors and Assigns . This Amendment shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns.
3.7 Headings . The Section headings in this Amendment are inserted for convenience of reference only and shall not affect the meaning or interpretation of this Amendment or any provision hereof.
3.8 Counterparts . This Amendment may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
3 |
Amendment to the Purchase and Sale Agreement |
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written.
WORTHINGTON RECEIVABLES CORPORATION | ||
By: |
/s/ Lester V. Hess |
|
Name: | Lester V. Hess | |
Title: | Treasurer |
S-1 |
Amendment to the Purchase and Sale Agreement |
ORIGINATORS: | ||
DIETRICH INDUSTRIES, INC. | ||
By: |
/s/ Lester V. Hess |
|
Name: | Lester V. Hess | |
Title: | Treasurer | |
THE GERSTENSLAGER COMPANY | ||
By: |
/s/ Lester V. Hess |
|
Name: | Lester V. Hess | |
Title: | Treasurer | |
THE WORTHINGTON STEEL COMPANY, a Delaware corporation |
||
By: |
/s/ Lester V. Hess |
|
Name: | Lester V. Hess | |
Title: | Treasurer | |
THE WORTHINGTON STEEL COMPANY, a North Carolina corporation |
||
By: |
/s/ Lester V. Hess |
|
Name: | Lester V. Hess | |
Title: | Treasurer | |
THE WORTHINGTON STEEL COMPANY, an Ohio corporation |
||
By: |
/s/ Lester V. Hess |
|
Name: | Lester V. Hess | |
Title: | Treasurer |
S-2 |
Amendment to the Purchase and Sale Agreement |
WORTHINGTON CYLINDERS CORPORATION | ||
By: |
/s/ Lester V. Hess |
|
Name: | Lester V. Hess | |
Title: | Treasurer | |
WORTHINGTON CYLINDERS WISCONSIN, LLC | ||
By: |
/s/ Lester V. Hess |
|
Name: | Lester V. Hess | |
Title: | Treasurer | |
WORTHINGTON STEEL COMPANY OF DECATUR, L.L.C. | ||
By: |
/s/ Lester V. Hess |
|
Name: | Lester V. Hess | |
Title: | Treasurer | |
WORTHINGTON STEEL COMPANY OF KENTUCKY, LLC | ||
By: |
/s/ Lester V. Hess |
|
Name: | Lester V. Hess | |
Title: | Treasurer | |
WORTHINGTON STEEL OF MICHIGAN, INC. | ||
By: |
/s/ Lester V. Hess |
|
Name: | Lester V. Hess | |
Title: | Treasurer | |
WORTHINGTON TAYLOR, INC. | ||
By: |
/s/ Lester V. Hess |
|
Name: | Lester V. Hess | |
Title: | Treasurer |
S-3 |
Amendment to the Purchase and Sale Agreement |
Schedule I
LIST OF ORIGINATORS
Dietrich Industries, Inc., a Pennsylvania Corporation
The Gerstenslager Company, a Michigan Corporation
The Worthington Steel Company, a Delaware corporation
The Worthington Steel Company, a North Carolina corporation
The Worthington Steel Company, an Ohio corporation
Worthington Cylinders Wisconsin, LLC, an Ohio limited liability company
Worthington Steel Company of Decatur, L.L.C., an Alabama limited liability company
Worthington Steel Company of Kentucky, LLC, a Kentucky limited liability company
Worthington Steel of Michigan, Inc., a Michigan corporation
Worthington Taylor, Inc., a Michigan corporation
Worthington Cylinders Corporation, an Ohio Corporation
Sch. I-1 |
Amendment to the Purchase and Sale Agreement |
Schedule 5.6
PROCEEDINGS
NONE
Sch. 5.6-1 |
Amendment to the Purchase and Sale Agreement |
Schedule 5.15
TRADE NAMES
Legal Name |
Trade Names |
|
Dietrich Industries, Inc. |
Cimple Steel Solutions Dietrich Design Dietrich Metal Framing Unimast Worthington Industries Worthington Steel |
|
The Gerstenslager Company |
Gertenslager Company Worthington Industries Worthington Steel Company |
|
The Worthington Steel Company, a Delaware corporation |
Worthington Steel Malvern Worthington Steel Company |
|
The Worthington Steel Company, a North Carolina corporation |
Worthington Steel - Rock Hill Worthington Steel Company |
|
The Worthington Steel Company, an Ohio corporation |
Worthington Steel Baltimore Worthington Steel Columbus Worthington Steel Delta Worthington Steel Monroe Worthington Steel Porter Worthington Steel Company |
|
Worthington Cylinders Corporation |
Worthington Cylinders Worthington Industries |
|
Worthington Cylinders Wisconsin, LLC |
Worthington Cylinders Gerett Product Worthington Industries |
|
Worthington Steel Company of Decatur, L.L.C. |
Worthington Steel Decatur Worthington Steel Company The Worthington Steel Company |
|
Worthington Steel Company of Kentucky, LLC |
Worthington Steel Louisville Worthington Steel Company The Worthington Steel Company |
|
Worthington Steel of Michigan, Inc. |
Worthington Steel Jackson Worthington Steel Company The Worthington Steel Company |
|
Worthington Taylor, Inc. |
Worthington Taylor Worthington Steel Company Taylor Steel Worthington Steel Taylor Worthington Industries |
Sch. 5.15-1 |
Amendment to the Purchase and Sale Agreement |
The Worthington Steel Company , a Delaware corporation, was originally incorporated as Worthington Ventures, Inc., a Delaware corporation, in March 1992. The Worthington Steel Company, a Pennsylvania corporation, which held the Malvern, PA facility, merged with an into Worthington Ventures, Inc. on November 26, 1996 as part of a corporate reorganization. Worthington Ventures, Inc., a Delaware corporation, was the surviving entity and changed its name to The Worthington Steel Company.
The Worthington Steel Company , an Ohio corporation, was originally incorporated on February 10, 1998 as The Worthington Steel Company of Ohio, Inc. On May 22, 1998, as part of a corporate reorganization, its name was changed to the current name, The Worthington Steel Company.
Sch. 5.15-2 |
Amendment to the Purchase and Sale Agreement |
Schedule 6.3(f)
LOCATION OF EACH ORIGINATOR
Originator |
Location |
|
Dietrich Industries, Inc. | Pennsylvania | |
The Gerstenslager Company | Michigan | |
The Worthington Steel Company, a Delaware corporation | Delaware | |
The Worthington Steel Company, a North Carolina corporation | North Carolina | |
The Worthington Steel Company, an Ohio corporation | Ohio | |
Worthington Cylinders Corporation | Ohio | |
Worthington Cylinders Wisconsin, LLC | Ohio | |
Worthington Steel Company of Decatur, LLC | Alabama | |
Worthington Steel Company of Kentucky, L.L.C. | Kentucky | |
Worthington Steel Company of Michigan, Inc. | Michigan | |
Worthington Taylor, Inc. | Michigan |
Sch. 6.3(f)-1 |
Amendment to the Purchase and Sale Agreement |
LOCATION OF CHIEF EXECUTIVE OFFICE AND PRINCIPAL PLACE OF
BUSINESS OF EACH ORIGINATOR
Originator |
Location |
|
Dietrich Industries, Inc. |
500 Grant Street, Suite 2226 Pittsburgh, PA 15219 |
|
8911 Bethlehem Blvd. Baltimore, MS 21219 |
||
2001 Cooley Dr. Colton, CA 92324 |
||
6700 Franklin St. Denver, CO 80229 |
||
1435 165 th St. Hammond, IN 46320 |
||
1012 West Wintergreen Rd. Hutchins, TX 75141 |
||
91-300 Hanua St. Kapolei, HI 96707 |
||
120 Hoelocker Dr. LaPorte, IN 46350 |
||
15546 W. 108 th St. Lenexa, KS 66219 |
||
198 Summer St. Lunenburg, MA 01462 |
||
255 Northeast 181 st St. Miami, FL 33162 |
||
420 South 53 rd Ave. Phoenix, AZ 85043 |
||
3351 East Valley Rd. Renton, WA 98055 |
||
1345 Hall Spencer Rd. Rock Hill, SC 29730 |
Sch. 6.3(f)-2 |
Amendment to the Purchase and Sale Agreement |
2525 South Airport Way Stockton, CA 95206 |
||
1985 North River Road Warren, OH 44483 |
||
721 Industrial Dr. Wildwood, FL 34785 |
||
The Gerstenslager Company |
200 Old Wilson Bridge Road Columbus, OH 43085 |
|
1425 East Bowman Street Wooster, OH 44691 |
||
The Worthington Steel Company, a Delaware corporation |
200 Old Wilson Bridge Road Columbus, Ohio 43085 |
|
The Worthington Steel Company, a North Carolina corporation |
200 Old Wilson Bridge Road Columbus, Ohio 43085 |
|
1345 Hall Road Rock Hill, South Carolina 29730 |
||
The Worthington Steel Company, an Ohio corporation |
200 Old Wilson Bridge Road Columbus, Ohio 43085 |
|
8911 Kelso Drive Baltimore, Maryland 21221 |
||
1127 Dearborn Drive Columbus, Ohio 43085 |
||
6303 County Road 10 Delta, Ohio 43515 |
||
100 Worthington Drive Porter, Indiana 46304 |
||
350 Lawton Avenue Monroe, Ohio 45050 |
||
Worthington Cylinders Corporation |
200 Old Wilson Bridge Road Columbus, Ohio 43085 |
|
1085 Dearborn Drive Columbus, OH 43085 |
||
Worthington Cylinders Wisconsin, LLC |
200 Old Wilson Bridge Road Columbus, OH 43085 |
Sch. 6.3(f)-3 |
Amendment to the Purchase and Sale Agreement |
300 East Breed Street Chilton, WI 53014 |
||
Worthington Steel Company of Decatur, LLC |
200 Old Wilson Bridge Road Columbus, Ohio 43085 |
|
1400 Red Hat Road, N.W. Decatur, Alabama 35601 |
||
Worthington Steel Company of Kentucky, L.L.C. |
200 Old Wilson Bridge Road Columbus, Ohio 43085 |
|
1152 Industrial Boulevard Louisville, Kentucky 40219 |
Sch. 6.3(f)-4 |
Amendment to the Purchase and Sale Agreement |
Worthington Steel of Michigan, Inc. |
200 Old Wilson Bridge Road Columbus, Ohio 43085 |
|
200 Old Wilson Bridge Road Columbus, Ohio 43085 |
||
Worthington Taylor, Inc. |
200 Old Wilson Bridge Road Columbus, Ohio 43085 |
|
11700 Worthington Drive Taylor, MI 48180 |
Sch. 6.3(f)-5 |
Amendment to the Purchase and Sale Agreement |
LOCATION OF BOOKS AND RECORDS OF ORIGINATORS
Originator |
Location |
|
Dietrich Industries, Inc. |
500 Grand Street, Suite 2226 Pittsburgh, PA 15219 |
|
8911 Bethlehem Blvd. Baltimore, MD 21219 |
||
2001 Cooley Dr. Colton, CA 92324 |
||
6700 Franklin St. Denver, CO 80229 |
||
1435 165 th St. Hammond, IN 46320 |
||
1012 West Wintergreen Rd. Hutchins, TX 75141 |
||
91-300 Hauna St. Kapolei, HI 96707 |
||
120 Hoelocker Dr. LaPorte, IN 46350 |
||
15546 W. 108 th St. Lenexa, KS 66219 |
||
198 Summer St. Lunenburg, MA 01462 |
||
255 Northeast 181 st St. Miami, FL 33162 |
||
420 South 53 rd Ave. Phoenix, AZ 85043 |
||
3351 East Valley Rd. Renton, WA 98055 |
||
1345 Hall Spencer Rd. Rock Hill, SC 29730 |
||
2525 South Airport Way Stockton, CA 95206 |
||
1985 North River Rd. Warren, OH 44483 |
Sch. 6.3(f)-6 |
Amendment to the Purchase and Sale Agreement |
721 Industrial Dr. Wildwood, FL 34785 |
||
The Gerstenslager Company |
200 Old Wilson Bridge Road Columbus, OH 43085 |
|
1425 East Bowman Street Wooster, OH 44691 |
||
The Worthington Steel Company, a Delaware corporation |
200 Old Wilson Bridge Road Columbus, Ohio 43085 |
|
The Worthington Steel Company, a North Carolina corporation |
200 Old Wilson Bridge Road Columbus, Ohio 43085 |
|
1345 Hall Road Rock Hill, South Carolina 29730 |
||
The Worthington Steel Company, an Ohio corporation |
200 Old Wilson Bridge Road Columbus, Ohio 43085 |
|
8911 Kelso Drive Baltimore, Maryland 21221 |
||
1127 Dearborn Drive Columbus, Ohio 43085 |
||
6303 County Road 10 Delta, Ohio 43515 |
||
100 Worthington Drive Porter, Indiana 46304 |
||
350 Lawton Avenue Monroe, Ohio 45050 |
||
Worthington Cylinders Corporation |
200 Old Wilson Bridge Road Columbus, OH 43085 |
|
1085 Dearborn Drive Columbus, OH 43085 |
||
Worthington Cylinders Wisconsin, LLC |
200 Old Wilson Bridge Road Columbus, Ohio 43085 |
|
300 East Breed Street Chilton, WI 53014 |
||
Worthington Steel Company of Decatur, LLC |
200 Old Wilson Bridge Road Columbus, Ohio 43085 |
Sch. 6.3(f)-7 |
Amendment to the Purchase and Sale Agreement |
1400 Red Hat Road, N.W. Decatur, Alabama 35601 |
||
Worthington Steel Company of Kentucky, L.L.C. |
200 Old Wilson Bridge Road Columbus, Ohio 43085 |
|
1152 Industrial Boulevard Louisville, Kentucky 40219 |
||
Worthington Steel of Michigan, Inc. |
200 Old Wilson Bridge Road Columbus, Ohio 43085 |
|
1150 S. Elm Street Jackson, Michigan 49204 |
||
Worthington Taylor, Inc. |
200 Old Wilson Bridge Road Columbus, Ohio 43085 |
|
11700 Worthington Drive Taylor, Michigan 48180 |
Sch. 6.3(f)-8 |
Amendment to the Purchase and Sale Agreement |
Exhibit 31.1
RULE 13a-14(a) / 15d-14(a)
CERTIFICATION (PRINCIPAL EXECUTIVE OFFICER)
I, John P. McConnell, certify that:
1. |
I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended August 31, 2006 of Worthington Industries, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have: |
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) |
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) |
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. |
The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Dated: October 10, 2006 |
By: |
/s/ John P. McConnell |
||
John P. McConnell, |
||||
Chairman of the Board and Chief Executive Officer |
Exhibit 31.2
RULE 13a-14(a) / 15d-14(a)
CERTIFICATION (PRINCIPAL FINANCIAL OFFICER)
I, John S. Christie, certify that:
1. |
I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended August 31, 2006 of Worthington Industries, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have: |
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) |
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) |
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. |
The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Dated: October 10, 2006 |
By: |
/s/ John S. Christie |
||
John S. Christie, |
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President and Chief Financial Officer |
Exhibit 32.1
SECTION 1350 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER*
In connection with the Quarterly Report of Worthington Industries, Inc. (the Company) on Form 10-Q for the quarterly period ended August 31, 2006, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, John P. McConnell, Chairman of the Board and Chief Executive Officer of the Company, certify, pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) |
The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and |
(2) |
The information contained in the Report fairly presents, in all material respects, the consolidated financial condition and results of operations of the Company and its subsidiaries. |
/s/ John P. McConnell |
Printed Name: John P. McConnell |
Title: Chairman of the Board and Chief Executive Officer |
Date: October 10, 2006
*This certification is being furnished as required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended (the Exchange Act), and Section 1350 of Chapter 63 of Title 18 of the United States Code, and shall not be deemed filed for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that Section. This certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that Worthington Industries, Inc. specifically incorporates this certification by reference.
Exhibit 32.2
SECTION 1350 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER*
In connection with the Quarterly Report of Worthington Industries, Inc. (the Company) on Form 10-Q for the quarterly period ended August 31, 2006, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, John S. Christie, President and Chief Financial Officer of the Company, certify, pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) |
The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and |
(2) |
The information contained in the Report fairly presents, in all material respects, the consolidated financial condition and results of operations of the Company and its subsidiaries. |
/s/ John S. Christie |
Printed Name: John S. Christie |
Title: President and Chief Financial Officer |
Date: October 10, 2006
*This certification is being furnished as required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended (the Exchange Act), and Section 1350 of Chapter 63 of Title 18 of the United States Code, and shall not be deemed filed for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that Section. This certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that Worthington Industries, Inc. specifically incorporates this certification by reference.