UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended May 31, 2019

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from  _______  to  _______

Commission File Number 1-8399

WORTHINGTON INDUSTRIES, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Ohio

 

31-1189815

 

 

(State or Other Jurisdiction of Incorporation or Organization)

 

(I.R.S. Employer Identification No.)

 

 

200 Old Wilson Bridge Road, Columbus, Ohio

 

43085

 

 

(Address of Principal Executive Offices)

 

(Zip Code)

 

 

Registrant’s telephone number, including area code:            (614) 438-3210       

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Common Shares, Without Par Value

WOR

New York Stock Exchange

 

Securities registered pursuant to Section 12(g) of the Act:      None     

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes      No 

 

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.   Yes       No 

 

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       No 

 

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).   Yes        No 

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes       No 

 

The aggregate market value of the Common Shares (the only common equity of the Registrant) held by non-affiliates of the Registrant, based on the closing price of the Common Shares on the New York Stock Exchange on November 30, 2018, the last business day of the Registrant’s most recently completed second fiscal quarter, was $1,633,376,617.  For this purpose, executive officers and directors of the Registrant are considered affiliates.

 

Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date.  On July 23, 2019, the number of Common Shares issued and outstanding was 56,356,576.

DOCUMENT INCORPORATED BY REFERENCE:

 

Selected portions of the Registrant’s definitive Proxy Statement to be furnished to shareholders of the Registrant in connection with the Annual Meeting of Shareholders to be held on September 25, 2019, are incorporated by reference into Part III of this Annual Report on Form 10-K to the extent provided herein.

 

 

 


 

TABLE OF CONTENTS

 

SAFE HARBOR STATEMENT

ii

PART I

 

 

 

Item 1.

 

Business

1

Item 1A.

 

Risk Factors

9

Item 1B.

 

Unresolved Staff Comments

19

Item 2.

 

Properties

20

Item 3.

 

Legal Proceedings

21

Item 4.

 

Mine Safety Disclosures

21

Supplemental Item.

 

Executive Officers of the Registrant

21

PART II

 

 

 

Item 5.

 

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

23

Item 6.

 

Selected Financial Data

25

Item 7.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

26

Item 7A.

 

Quantitative and Qualitative Disclosures About Market Risk

48

Item 8.

 

Financial Statements and Supplementary Data

51

Item 9.

 

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

100

Item 9A.

 

Controls and Procedures

100

Item 9B.

 

Other Information

103

PART III

 

 

 

Item 10.

 

Directors, Executive Officers and Corporate Governance

104

Item 11.

 

Executive Compensation

105

Item 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

106

Item 13.

 

Certain Relationships and Related Transactions, and Director Independence

106

Item 14.

 

Principal Accountant Fees and Services

106

PART IV

 

 

 

Item 15.

 

Exhibits and Financial Statement Schedules

107

Item 16.

 

Form 10-K Summary

107

Signatures

121

 

 

 

 

i


 

SAFE HARBO R STATEMENT

Selected statements contained in this Annual Report on Form 10-K, including, without limitation, in “PART I – Item 1. – Business” and “PART II – Item 7. – Management’s 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”).  Forward-looking statements reflect our current expectations, estimates or projections concerning future results or events.  These statements are often identified by the use of forward-looking words or phrases such as “believe,” “expect,” “anticipate,” “may,” “could,” “intend,” “estimate,” “plan,” “foresee,” “likely,” “will,” “should,” or other similar words or phrases.  These forward-looking statements include, without limitation, statements relating to:

 

outlook, strategy or business plans;

 

future or expected growth, growth potential, forward momentum, performance, competitive position, sales, volumes, cash flows, earnings, margins, balance sheet strengths, debt, financial condition or other financial measures;

 

pricing trends for raw materials and finished goods and the impact of pricing changes;

 

the ability to improve or maintain margins;

 

expected demand or demand trends for us or our markets;

 

additions to product lines and opportunities to participate in new markets;

 

expected benefits from Transformation and innovation efforts;

 

the ability to improve performance and competitive position at our operations;

 

anticipated working capital needs, capital expenditures and asset sales;

 

anticipated improvements and efficiencies in costs, operations, sales, inventory management, sourcing and the supply chain and the results thereof;

 

projected profitability potential;

 

the ability to make acquisitions and the projected timing, results, benefits, costs, charges and expenditures related to acquisitions, joint ventures, headcount reductions and facility dispositions, shutdowns and consolidations;

 

the successful sale of the WAVE international business;

 

projected capacity and the alignment of operations with demand;

 

the ability to operate profitably and generate cash in down markets;

 

the ability to capture and maintain market share and to develop or take advantage of future opportunities, customer initiatives, new businesses, new products and new markets;

 

expectations for Company and customer inventories, jobs and orders;

 

expectations for the economy and markets or improvements therein;

 

expectations for generating improving and sustainable earnings, earnings potential, margins or shareholder value;

 

effects of judicial rulings; and

 

other non-historical matters.

ii


 

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 thos e projected.  Any number of factors could affect actual results, including, without limitation, those that follow:

 

the effect of national, regional and global economic conditions generally and within major product markets, including a recurrent slowing economy;

 

the effect of conditions in national and worldwide financial markets;

 

the impact of tariffs, the adoption of trade restrictions affecting our products or suppliers, a United States withdrawal from or significant renegotiation of trade agreements, the occurrence of trade wars, the closing of border crossings, and other changes in trade regulations or relationships;

 

lower oil prices as a factor in demand for products;

 

product demand and pricing;

 

changes in product mix, product substitution and market acceptance of our products;

 

fluctuations in the pricing, quality or availability of raw materials (particularly steel), supplies, transportation, utilities and other items required by operations;

 

the outcome of adverse claims experience with respect to workers’ compensation, product recalls or product liability, casualty events or other matters;

 

effects of facility closures and the consolidation of operations;

 

the effect of financial difficulties, consolidation and other changes within the steel, automotive, construction, oil and gas, and other industries in which we participate;

 

failure to maintain appropriate levels of inventories;

 

financial difficulties (including bankruptcy filings) of original equipment manufacturers, end-users and customers, suppliers, joint venture partners and others with whom we do business;

 

the ability to realize targeted expense reductions from headcount reductions, facility closures and other cost reduction efforts;

 

the ability to realize cost savings and operational, sales and sourcing improvements and efficiencies, and other expected benefits from Transformation initiatives, on a timely basis;

 

the overall success of, and the ability to integrate, newly-acquired businesses and joint ventures, maintain and develop their customers, and achieve synergies and other expected benefits and cost savings therefrom;

 

capacity levels and efficiencies, within facilities, within major product markets and within the industries in which we participate as a whole;

 

the effect of disruption in the business of suppliers, customers, facilities and shipping operations due to adverse weather, casualty events, equipment breakdowns, interruption in utility services, civil unrest, international conflicts, terrorist activities or other causes;

 

changes in customer demand, inventories, spending patterns, product choices, and supplier choices;

 

risks associated with doing business internationally, including economic, political and social instability, foreign currency exchange rate exposure and the acceptance of our products in global markets;

iii


 

 

the ability to improve and maintain processes and business practices to keep pace with the economic, competitive and technological environment;

 

deviation of actual results from estimates and/or assumptions used by the Company in the application of its significant accounting policies;

 

level of imports and import prices in our markets;

 

the impact of judicial rulings and governmental regulations, both in the United States and abroad, including those adopted by the United States Securities and Exchange Commission and other governmental agencies as contemplated by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010;

 

the effect of healthcare laws in the United States and potential changes for such laws which may increase our healthcare and other costs and negatively impact our operations and financial results;

 

cyber security risks;

 

the effects of privacy and information security laws and standards; and

 

other risks described from time to time in the filings of Worthington Industries, Inc. with the United States Securities and Exchange Commission, including those described in “PART I – Item 1A. – Risk Factors” of this Annual Report on Form 10-K.

We note these factors for investors as contemplated by the Act.  It is impossible to predict or identify all potential risk factors.  Consequently, you should not consider the foregoing list to be a complete set of all potential risks and uncertainties.  Any forward-looking statements in this Annual Report on Form 10-K are based on current information as of the date of this Annual Report on Form 10-K, and we assume no obligation to correct or update any such statements in the future, except as required by applicable law.

 

iv


 

PAR T I

Item 1. — Business

General Overview

Worthington Industries, Inc. is a corporation formed under the laws of the State of Ohio (individually, the “Registrant” or “Worthington Industries” or, collectively with the subsidiaries of Worthington Industries, Inc., “we,” “our,” “Worthington” or the “Company”).  Founded in 1955, Worthington is primarily a diversified metals manufacturing company, focused on value-added steel processing and manufactured metal products.  Our manufactured metal products include: pressure cylinders for liquefied petroleum gas (“LPG”), compressed natural gas (“CNG”), oxygen, refrigerant and other industrial gas storage; water well tanks for commercial and residential uses; hand torches and filled hand torch cylinders; propane-filled camping cylinders; helium-filled balloon kits; steel tanks and processing equipment primarily for the oil and gas industry; cryogenic pressure vessels for liquefied natural gas (“LNG”) and other gas storage applications; engineered cabs and operator stations and cab components; and, through our joint ventures, complete ceiling grid solutions; laser welded blanks; light gauge steel framing for commercial and residential construction; and current and past model automotive service stampings.

 

Worthington is headquartered at 200 Old Wilson Bridge Road, Columbus, Ohio 43085, telephone (614) 438-3210.  The common shares of Worthington Industries are traded on the New York Stock Exchange under the symbol WOR.

Worthington Industries maintains an Internet web site at www.worthingtonindustries.com.  This uniform resource locator, or URL, is an inactive textual reference only and is not intended to incorporate Worthington Industries’ web site into this Annual Report on Form 10-K.  Worthington Industries’ Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports, filed or furnished pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as well as Worthington Industries’ definitive proxy materials for annual meetings of shareholders filed pursuant to Section 14 of the Exchange Act, are available free of charge, on or through the Worthington Industries web site, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (the “SEC”).

Segments

As of May 31, 2019, we, together with our unconsolidated affiliates, operated 77 manufacturing facilities in 22 states and 11 countries.  Thirty-one of these facilities are operated by wholly-owned and consolidated subsidiaries of the Company.  The remaining facilities are operated by our consolidated and unconsolidated joint ventures.  

 

Our operations are managed principally on a products and services basis and are comprised of three primary operating segments which correspond with our reportable business segments: Steel Processing; Pressure Cylinders; and Engineered Cabs. The Steel Processing operating segment consists of the Worthington Steel business unit (“Worthington Steel”) which operates eight manufacturing facilities; and three consolidated joint ventures: Spartan Steel Coating, LLC (“Spartan”), which operates a cold-rolled, hot-dipped galvanizing line in Monroe, Michigan; TWB Company, L.L.C. (“TWB”), which operates nine laser welded blank facilities and is headquartered in Monroe, Michigan; and Worthington Specialty Processing (“WSP”), which processes wide-sheet steel for the auto industry and operates three facilities in Michigan.  The Pressure Cylinders operating segment consists of the Worthington Cylinders business unit (“Worthington Cylinders”), and operates 19 manufacturing facilities. The Engineered Cabs operating segment consists of the Worthington Industries Engineered Cabs business unit (“Engineered Cabs”), which operates four manufacturing facilities.

 

We hold equity positions in nine joint ventures, which are further discussed in the Joint Ventures section below.  Of these, Spartan, TWB and WSP are consolidated with their operating results reported within our Steel Processing operating segment.

 

1


 

During the fiscal year ended May 31, 201 9 (“fiscal 201 9 ”), the Steel Processing, Pressure Cylinders and Engineered Cabs operating segments served approximately 800, 4,500, and 65 customers, respectively , located primarily in the United States.  International operations accounted for approximately 5 % of our consoli dated net sales during fiscal 201 9 and were comprised primarily of sales to customers in Europe.  No single customer accounted for over 10 % of our consolidated net sales in fiscal 201 9 .

Refer to “Item 8. – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note O – Segment Data” of this Annual Report on Form 10-K for a full description of our reportable business segments.

Recent Developments

In November, 2017, our joint venture Worthington Armstrong Venture (“WAVE”) agreed to sell its business and operations in Europe and Asia, to Knauf Group, a family-owned manufacturer of building materials headquartered in Germany.  The sale is part of a broader transaction involving the other party in the joint venture and does not include the WAVE businesses and operations in the Americas.  The transaction is subject to regulatory approvals and other customary closing conditions and is anticipated to close before the end of calendar 2019.  During the first quarter of fiscal 2019, the parties agreed to extend the date by which certain competition clearance conditions were to be satisfied per the original purchase agreement.  In exchange, Knauf Group irrevocably agreed to fund the purchase price which was received by AWI in two distributions, the first on August 1, 2018, and the balance on September 15, 2018.   For further information r efer to “Item 8. – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – NOTE C – Investments in Unconsolidated Affiliates”.

 

On July 31, 2018, the Company sold its Garden City, Kansas and Dickinson, North Dakota oil & gas equipment manufacturing facilities to Palmer Mfg. & Tank Inc. for $20.3 million, net of selling costs, resulting in a pre-tax gain of $2.0 million recorded in restructuring and other expense (income), net.

During fiscal 2019, the Company announced the following personnel changes:

 

On August 22, 2018, B. Andrew ‘Andy’ Rose was named President and Geoffrey G. Gilmore was named Executive Vice President and Chief Operating Officer (“COO”).  Mark Russell, President and COO, retired.

 

On September 10, 2018, John Lamprinakos, President of Steel Processing, retired.  

 

On September 12, 2018, Catherine M. Lyttle was named Senior Vice President and Chief Human Resources Officer.

 

On November 1, 2018, Joseph B. Hayek was named Vice President and Chief Financial Officer (“CFO”).

 

On May 1, 2019, Eric M. Smolenski was named President of Pressure Cylinders and Jeff R. Klingler was named President of Steel Processing.

On December 31, 2018, the Pressure Cylinders segment sold the operating assets and real property related to its solder business to an affiliate of Lincoln Electric Holdings, Inc. (“Lincoln”) for $26.5 million, and subsequently sold certain brazing assets to Lincoln for an additional $1.1 million, resulting in a pre-tax gain of $11.3 million recorded in restructuring and other expense (income), net.

In February 2019, our Structural Composite Industries, LLC subsidiary (“SCI”) agreed to participate in a tank replacement program for specific composite hydrogen fuel tanks, and recorded a $13.0 million charge to costs of goods sold to reflect our estimated costs of replacing these tanks.  Refer to “Item 8. – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – NOTE F – Contingent Liabilities and Commitments” for more information on the tank replacement program.

2


 

On March 20, 2019, the Board of Di rectors of Worthington Industries, Inc. (the “Worthington Industries Board”) authorized the repurchase of up to an additional 6,600,000 of the Company’s common shares, increasing the total number of common shares then available for repurchase to 10,000,000 .   The total number of common shares available to repurchase under these authorizations at May 31, 2019 is 9,000,000.  During fiscal 2019, we purchased 4,100,000 common shares having an aggregate cost of $168.1 million compared to 4,375,000 common shares h aving an aggregate cost of $204.3 million in fiscal 2018.

On May 1, 2019, Worthington’s Pressure Cylinder business unit acquired the net assets of Magna Industries Inc., a manufacturer of hand-held torches and certain tools used primarily in plumbing.  The purchase price was $13.5 million including contingent consideration related to an earn-out provision tied to future performance.

Steel Processing

Our Steel Processing reportable segment consists of the Worthington Steel business unit, and our consolidated joint ventures, Spartan, TWB and WSP.  It also included Worthington Steelpac Systems, LLC (“Packaging Solutions”), which designs and manufactures recyclable steel packaging solutions for the movement of products, through May 31, 2017.  For fiscal 2019, fiscal 2018 and fiscal 2017, the percentage of our consolidated net sales generated by the Steel Processing operating segment was approximately 65%, 63% and 69%, respectively.

 

Worthington Steel is one of the largest independent intermediate processors of flat-rolled steel in the United States.  It occupies a niche in the steel industry by focusing on products requiring exact specifications.  These products cannot typically be supplied as efficiently by steel mills to the end-users of these products.

 

As of May 31, 2019, the Steel Processing reportable segment, including Spartan, TWB, and WSP, operated 21 manufacturing facilities located in Ohio (5), Michigan (5), Mexico (4), Tennessee (2), Alabama (1), Indiana (1), Kentucky (1), New York (1), and Canada (1).  

 

Our Steel Processing reportable segment serves approximately 800 customers, principally in the automotive, aerospace, agricultural, appliance, construction, container, hardware, heavy-truck, HVAC, lawn and garden, leisure and recreation, office furniture and office equipment markets.  The automotive industry is one of the largest consumers of flat-rolled steel, and thus the largest end market for our Steel Processing operating segment.  For fiscal 2019, Steel Processing’s top three customers represented approximately 31% of the operating segment’s total net sales.

 

Our Steel Processing reportable segment buys coils of steel from integrated steel mills and mini-mills and processes them to the precise type, thickness, length, width, shape and surface quality required by customer specifications.  Computer-aided processing capabilities include, among others:

 

 

cold reducing, which achieves close tolerances of thickness;

 

configured blanking, which mechanically stamps steel into specific shapes;

 

coil fed laser blanking, which uses lasers to cut coils of steel, aluminum and other metals into specific shapes;

 

cutting-to-length, which cuts coils into sheets of exact length;

 

dry-lube, the process of coating steel with a dry, soap-based lubricant;

 

hot-dipped galvanizing, which coats steel with zinc and zinc alloys through a hot-dip process;

 

hydrogen annealing, a thermal process that changes the hardness and certain metallurgical characteristics of steel;

 

laser welding, which joins steel or aluminum blanks and coils with different thicknesses, coatings or material strength;

3


 

 

pickling, a chemical process using an acidic solution to remove surface oxide which develops on hot-rolled steel;

 

slitting, which cuts steel coils or steel sheets to specific widths;

 

oscillate slitting, a slitting process that spools together several narrow coils welded end-to-end into one larger coil;

 

temper rolling, which is the process of light cold-rolling steel;

 

tension leveling, a method of applying pressure to achieve precise flatness tolerances; and

 

non-metallic coating, including  acrylic and paint coating.

 

Our Steel Processing reportable segment also toll processes steel for steel mills, large end-users, service centers and other processors.  Toll processing is different from typical steel processing in that the mill, end-user or other party retains title to the steel and has the responsibility for selling the end product.  Toll processing enhances Worthington Steel’s participation in the market for wide sheet steel and large standard orders, a market generally served by steel mills rather than by intermediate steel processors.

 

The steel processing industry is fragmented and highly competitive.  There are many competitors, including other independent intermediate processors.  Competition is primarily on the basis of price, product quality and the ability to meet delivery requirements. Technical service and support for material testing and customer-specific applications enhance the quality of products (see the Technical Services section below).  However, the extent to which technical service and support capability has improved Steel Processing’s competitive position has not been quantified.  Steel Processing’s ability to meet tight delivery schedules is, in part, based on the proximity of our facilities to customers, suppliers and one another.  The extent to which plant location has impacted Steel Processing’s competitive position has not been quantified.  Processed steel products are priced competitively, primarily based on market factors, including, among other things, market pricing, the cost and availability of raw materials, transportation and shipping costs, and overall economic conditions in the United States and abroad.

Effective in the first quarter of fiscal 2018, the operations of Packaging Solutions were realigned, moving from the Steel Processing reportable segment to the Engineered Cabs reportable segment.

Pressure Cylinders

The Pressure Cylinders reportable segment consists of the Worthington Cylinders business unit. The percentage of our consolidated net sales generated by Pressure Cylinders was approximately 32%, 34% and 28% in fiscal 2019, fiscal 2018 and fiscal 2017 , respectively.  The results of New AMTROL Holdings, Inc. and its subsidiaries (collectively “AMTROL”) have been consolidated within Pressure Cylinders since its acquisition on June 2, 2017.

Our Pressure Cylinders reportable segment manufactures and sells filled and unfilled pressure cylinders, tanks, hand torches, well water and expansion tanks, and oil and gas equipment along with various accessories and related products for diversified end-use market applications.  The following is a description of these markets: 

 

Industrial Products: This market sector includes high pressure and acetylene cylinders for industrial gases, refrigerant and certain propane gas (LPG) cylinders, alternative fuel cylinders, cryogenic equipment and systems and services for handling liquid gases, and other specialty products. Cylinders in this market sector are generally sold to gas producers, cylinder exchangers and industrial distributors. Industrial gas cylinders hold fuel for uses such as cutting, brazing and soldering, semiconductor production, and beverage delivery. Refrigerant gas cylinders are used to hold refrigerant gases for commercial, residential and automotive air conditioning and refrigeration systems.  LPG cylinders hold fuel for barbeque grills, recreational vehicle equipment, residential and light commercial heating systems, industrial forklifts and commercial/residential cooking (the latter, generally outside North America). Alternative fuels includes composite and steel cylinders used to hold CNG and hydrogen for automobiles, buses, and light-duty trucks, and to hold propane/autogas for automobiles and light- and medium-duty trucks. Cryogenic equipment and systems include LNG systems for marine and mining applications, liquid nitrogen storage freezers and shipping containers for organic specimens in healthcare markets, and tanks and trailers for liquefied nitrogen, oxygen, argon, hydrogen, and natural gas. Specialty products include a variety of fire suppression, life support and chemical tanks. 

4


 

 

Consumer Products: This market sector includes propane-filled cylinders for torches, camping stoves and other applications, hand held torches, Balloon Time® helium-filled balloon kits, plumbing tools, well water t anks and expansion tanks. These products are sold primarily to mass merchandisers , retailers and distributors.

 

Oil & Gas Equipment:  This market sector includes steel storage tanks, separation equipment, processing equipment and other products primarily used in the oil and gas markets. This market sector also includes hoists and other marine products which are used principally in shipyard lift systems.

While a large percentage of Pressure Cylinders sales are made to major accounts, this operating segment served approximately 4,500 customers during fiscal 2019.  No single customer represented greater than 10% of net sales for the Pressure Cylinders operating segment during fiscal 2019.  

 

The Pressure Cylinders reportable segment, operates 19 manufacturing facilities located in Alabama, California, Kansas, Kentucky, Maryland, Ohio (5), Oklahoma, Rhode Island, Utah, Wisconsin, Austria, Poland (2), Portugal and Turkey.  

 

For sales in the United States and Canada, high-pressure and low-pressure cylinders are primarily manufactured in accordance with United States Department of Transportation and Transport Canada specifications.  Outside the United States and Canada, cylinders are manufactured according to European norm specifications, as well as various other international standards.  Other products are produced to applicable industry standards including, as applicable, those standards issued by the American Petroleum Institute, ASME and UL.

 

Worthington Cylinders has one principal domestic competitor in the low-pressure LPG cylinder market, and there are a number of foreign competitors in the LPG cylinder market and in the non-refillable refrigerant market.  We believe that Worthington Cylinders has the largest market share in its domestic low-pressure cylinder markets.  In the other cylinder markets, there are several competitors.  Worthington Cylinders is a leading supplier to the European markets for both the high-pressure cylinders and the low-pressure non-refillable cylinders.  Worthington Cylinders generally has a strong competitive position for its industrial, energy, retail and specialty products, but competition varies on a product-by-product basis, and geographically for energy products.  As with our other operating segments, competition is based upon price, service and quality.

 

The Pressure Cylinders reportable segment uses the trade names “Worthington Cylinders”, “AMTROL” and “Alfa” to conduct business.

The Company uses the registered trademark “Balloon Time®” to market helium-filled balloon kits; the registered trademark “BERNZOMATIC®” to market certain fuel cylinders and hand held torches; the trademark “WORTHINGTON PRO-GRADE” to market certain LPG cylinders, hand torches and camping fuel cylinders; the registered trademarks “MAP-PRO®” and “Pro-Max®” to market certain hand torch cylinders; the registered trademark “Mag-Torch®” to market certain hand-held torches; the registered trademark “Superior Tool®” to market certain tools used primarily in plumbing; the registered trademarks “Therm-X-Trol®” and “Extrol®” to market thermal expansion tanks; the registered trademarks “Well X Trol®”, “Champion®”, and “Wel-Flo and Design®” to market well tanks; and the registered trademarks “Hydromax®” and “Boilermate®” to market indirect fired water heaters.

Engineered Cabs

The Engineered Cabs reportable segment consists of the Worthington Industries Engineered Cabs business unit and, effective June 1, 2017, our Packaging Solutions business.  For each of fiscal 2019, fiscal 2018 and fiscal 2017, the percentage of our consolidated net sales generated by the Engineered Cabs operating segment was approximately 3%.

 

Engineered Cabs is headquartered in Columbus, Ohio and operates four manufacturing facilities, one each in Indiana, Ohio, South Dakota and Tennessee, which are located near key assembly locations of original equipment manufacturers.

 

5


 

Engineered Cabs is a non-captive designer and manufacturer of high-quality, custom-engineered open and enclosed cabs and operator stations and custom fabrications and packaging for heavy mobile equipment used primarily in the agricultural, construction, forestry, military and mining industries.  Engineered Cabs’ product design, engineering support and broad manufacturing capabilities enable it to produce custom cabs and structures used in products ranging from small utility equipment to large earthmovers.   Packaging Solutions designs and manufactures reusable custom steel platforms, racks and pallets for supporting, protecting and handling products throughout the shi pping process.

 

In addition to its engineered cab products, this operating segment has the capability to provide a full suite of complementary products such as machined structural components, complex and painted weldments, and engine doors.  Engineered Cabs has the manufacturing capability for metal laser cutting, metal bending and forming, roll-form tube curving and bending, machining, welding – robotic and manual, automated product cleaning and E-coating, top coat painting and assembly.

 

Engineered Cabs produces products for approximately 100 different equipment platforms for approximately 65 customers. For fiscal 2019, Engineered Cabs’ top three customers represented approximately 45% of the operating segment’s total net sales.  Its production levels can range from small and medium production volumes through high volume productions.

 

Engineered Cabs competes with a limited number of large non-captive producers of engineered cabs in the United States, and numerous other suppliers who can perform various functions supplied by the Company.  Many customers can also produce operator cabs in-house.  The Company’s competitive strengths include design and engineering capabilities as well as broad manufacturing capabilities, often providing a fully-integrated complete cab at a more effective cost than customers can produce in-house.  Competitive drivers are related to innovation, quality, delivery and service. 

 

Key supplies for this operating segment include steel sheet and plate, stampings, steel tubing, hardware, controls, wiper systems, glazing materials (glass, polycarbonate), perishables (paint, urethane, caulk), electrical materials, HVAC systems and aesthetic materials (acoustical trim, plastics, foam), which are available from a variety of sources. 

As noted above, effective June 1, 2017, the operations of Packaging Solutions were realigned, moving from the Steel Processing reportable segment to the Engineered Cabs reportable segment.  Packaging Solutions operates one facility in Indiana.

Segment Financial Data

Financial information for the reportable business segments is provided in “Item 8. – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note O – Segment Data”.  

Financial Information About Geographic Areas

For fiscal 2019, our international operations represented 5% of our consolidated net sales, and 6% of our net earnings attributable to controlling interest and 13% of our consolidated net assets at May 31, 2019.  During fiscal 2019, fiscal 2018 and fiscal 2017, we had consolidated operations in Austria, Canada, Mexico, Poland, Portugal, Turkey and the United States.  During these same three fiscal years, our unconsolidated joint ventures had operations in China, France, Mexico, the United Kingdom and the United States.  As noted in the Recent Developments section above, our WAVE joint venture has agreed to sell its business and operations in Europe and Asia.  The transaction is subject to regulatory approvals and other customary closing conditions and is anticipated to close before the end of calendar 2019.  Summary information about our foreign operations, including net sales and fixed assets by geographic region, is provided in “Item 8. – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note A – Summary of Significant Accounting Policies – Risks and Uncertainties” and “Note O – Segment Data” of this Annual Report on Form 10-K.

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Suppliers

The primary raw material purchased by Worthington is steel.  We purchase steel in large quantities at regular intervals from major primary producers of steel, both domestic and foreign.  The amount purchased from any particular supplier varies from year to year depending on a number of factors including market conditions, then current relationships and prices and terms offered.  In nearly all market conditions, steel is available from a number of suppliers and generally any supplier relationship or contract can and has been replaced with little or no significant interruption to our business.  During fiscal 2019, we purchased approximately 2.6 million tons of steel (72% hot-rolled, 12% cold-rolled and 16% galvanized) on a consolidated basis. 

In the Steel Processing operating segment, steel is primarily purchased and processed based on specific customer orders.  The Pressure Cylinders and Engineering Cabs operating segments purchase steel to meet production schedules.  For certain raw materials, there are more limited suppliers -- for example, helium and zinc, which are generally purchased at market prices.  Since there are a limited number of suppliers in the helium and zinc markets, if delivery from a major supplier is disrupted due to a force majeure type occurrence, it may be difficult to obtain an alternative supply.  Raw materials are generally purchased in the open market on a negotiated spot-market basis at prevailing market prices.  Supply contracts are also entered into, some of which have fixed pricing and some of which are indexed (monthly or quarterly).  During fiscal 2019, we purchased steel from the following major suppliers, in alphabetical order: AK Steel Holding Corporation; ArcelorMittal; NLMK USA; North Star BlueScope Steel, LLC; Nucor Corporation; Steel Dynamics, Inc.; and United States Steel Corporation (“U.S. Steel”).  Major suppliers of aluminum to the Pressure Cylinders operating segment in fiscal 2019 were, in alphabetical order:  Arconic Inc.; DK Resources Limited; Geumsan Tech ; Meyer Aluminum; Novelis Corporation; Sapa Group and Shanghai Everskill.  Major suppliers of zinc to the Steel Processing operating segment in fiscal 2019 were, in alphabetical order: Considar Metal Marketing Inc. (a/k/a HudBay); Glencore Ltd; and Teck Resources Limited.  Approximately 31.5 million pounds of zinc and 6.1 million pounds of aluminum were purchased in fiscal 2019.  We believe our supplier relationships are favorable.

Technical Services

We employ a staff of engineers and other technical personnel, and we maintain fully equipped laboratories to support operations.  These facilities enable verification, analysis and documentation of the physical, chemical, metallurgical and mechanical properties of raw materials and products.  Technical Service personnel also work in conjunction with the sales force to specify components and materials required to fulfill customer needs.  Engineers at Engineered Cabs design cabs and cab manufacturing processes according to applicable industry standards. To provide these services, we conduct developmental engineering with respect to product characteristics, requirements and performance.  Laboratory facilities also perform metallurgical and chemical testing as dictated by the regulations of the United States Department of Transportation, Transport Canada, and other associated agencies, along with International Organization for Standardization (ISO), ASTM International, and other customer and industry specific requirements.  An IASI (International Accreditations Service, Incorporated) accredited product material testing laboratory supports some of these efforts.

Seasonality and Backlog

Sales are generally strongest in the fourth quarter of our fiscal year as our operating segments are generally operating at seasonal peaks.  Historically, sales have generally been weaker in the third quarter of our fiscal year, primarily due to reduced activity in the building and construction industry as a result of inclement weather, as well as customer plant shutdowns, particularly in the automotive industry, due to holidays.  We do not believe backlog is a significant indicator of our business.

Employees

As of May 31, 2019, we had approximately 12,000 employees, including those employed by our unconsolidated joint ventures.  Approximately 8% of our consolidated labor force is represented by collective bargaining units.  Worthington believes it has good relationships with its employees, including those covered by collective bargaining units.

Joint Ventures

As part of our strategy to selectively develop new products, markets and technological capabilities and to expand our international presence, while mitigating the risks and costs associated with those activities, as of May 31, 2019, we participated in three consolidated and six unconsolidated joint ventures.

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Consolidated

The results of the following three consolidated joint ventures have been consolidated with the financial results of the Company since the respective dates on which the Company acquired majority ownership or effective control.  The equity owned by the other joint venture members is shown as noncontrolling interests on our consolidated balance sheets and their portions of net earnings are included as net earnings attributable to noncontrolling interests in our consolidated statements of earnings.  The financial results of all of our consolidated joint ventures are consolidated within the Steel Processing operating segment.

 

Spartan is a 52%-owned consolidated joint venture with AK Steel Corporation, located in Monroe, Michigan. It operates a cold-rolled, hot-dipped galvanizing line for toll processing steel coils into galvanized and galvannealed products intended primarily for the automotive industry.

 

TWB is a 55%-owned consolidated joint venture with a subsidiary of Baoshan Iron & Steel Co., Ltd. (“Bao”). TWB is a leading North American supplier of laser welded blanks, tailor welded aluminum blanks, laser welded coils and other laser welded products for use primarily in the automotive industry for products such as inner-door panels, body sides, rails and pillars.  TWB operates facilities in Monroe, Michigan; Glasgow, Kentucky; Antioch and Smyrna, Tennessee; Puebla, Escobedo (Monterrey), Hermosillo and Silao, Mexico; and Cambridge, Ontario, Canada.

 

WSP, a 51%-owned joint venture with a subsidiary of U.S. Steel, operates three steel processing facilities located in Canton, Jackson and Taylor, Michigan, which are managed by Steel Processing. WSP serves primarily as a toll processor for U.S. Steel and others. WSP’s services include slitting, blanking, cutting-to-length, laser blanking, laser welding, tension leveling and warehousing.

Unconsolidated

 

ArtiFlex Manufacturing, LLC (“ArtiFlex”), a 50%-owned joint venture with ITS-H Holdings, LLC, provides an integrated solution for engineering, tooling, stamping, assembly and other services to customers primarily in the automotive industry. ArtiFlex operates five manufacturing facilities: three in Michigan and two in Ohio.

 

Clarkwestern Dietrich Building Systems LLC (“ClarkDietrich”), a 25%-owned joint venture with CWBS-MISA, Inc., is an industry leader in the manufacture and supply of light gauge steel framing products in the United States.  ClarkDietrich manufactures a full line of drywall studs and accessories, structural studs and joists, metal lath and accessories, shaft wall studs and track, vinyl and finishing products used primarily in residential and commercial construction.  This joint venture operates 13 manufacturing facilities, one each in Connecticut, Georgia, Illinois, Maryland and Missouri and two each in California, Florida, Ohio, and Texas.

 

Samuel Steel Pickling Company (“Samuel”), a 31.25%-owned joint venture with Samuel Manu-Tech Pickling Inc., operates two steel pickling facilities in Ohio.

 

Serviacero Planos, S. de R.L. de C.V. (“Serviacero Worthington”), a 50%-owned joint venture with Inverzer, S.A. de C.V., operates three steel processing facilities in Mexico, one each in Leon, Queretaro and Monterrey. Serviacero Worthington provides steel processing services, such as pickling, blanking, slitting, multi-blanking and cutting-to-length, to customers in a variety of industries including automotive, appliance and heavy equipment.

 

WAVE, a 50%-owned joint venture with Armstrong Ventures, Inc., a subsidiary of AWI, is one of the two largest global manufacturers of ceiling suspension systems for concealed and lay-in panel ceilings used in commercial and residential ceiling markets.  It competes with the one other global manufacturer and numerous regional manufacturers.  WAVE operates nine facilities in five countries: Cerritos, California; Alpharetta, Georgia; Aberdeen, Maryland; Benton Harbor, Michigan; North Las Vegas, Nevada; Qingpu, Shanghai, China; Team Valley, United Kingdom; Prouvy, France; and Marval, Pune, India.  As noted in the Recent Developments section above, our joint venture WAVE entered into an agreement to sell its business and operations in Europe and Asia.  The transaction is subject to regulatory approvals and other customary closing conditions and is anticipated to close before the end of calendar 2019.  

 

Zhejiang Nisshin Worthington Precision Specialty Steel Co., Ltd., a 10%-owned unconsolidated joint venture with a subsidiary of NIPPON STEEL NISSHIN CO., LTD. and Marubeni-Itochu Steel Inc., operates one steel processing facility in Pinghu City, Zhejiang, China.

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See “Item 8. – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note C – Investments in Unconsolidated Affiliates” of this Annual Report on Form 10-K for additional inform ation about our unconsolidated joint ventures.

Environmental Regulation

Our manufacturing facilities, generally in common with those of similar industries making similar products, are subject to many federal, state, local and foreign laws and regulations relating to the protection of the environment.  We examine ways to reduce emissions and waste and to decrease costs related to environmental compliance.  The cost of compliance or capital expenditures for environmental control facilities required to meet environmental requirements are not anticipated to be material when compared with overall costs and capital expenditures and, accordingly, are not anticipated to have a material effect on our financial position, results of operations or cash flows, or on the competitive position of Worthington or any particular business segment.

Item 1A.  — Risk Factors  

Future results and the market price for Worthington Industries’ common shares are subject to numerous risks, many of which are driven by factors that cannot be controlled or predicted.  The following discussion, as well as other sections of this Annual Report on Form 10-K, including “PART II—Item 7. — Management’s Discussion and Analysis of Financial Condition and Results of Operations,” describe certain business risks.  Consideration should be given to the risk factors described below as well as those in the Safe Harbor Statement at the beginning of this Annual Report on Form 10-K, in conjunction with reviewing the forward-looking statements and other information contained in this Annual Report on Form 10-K.  The risks described below are not the only risks we face.  Our business operations could also be affected by additional factors that are not presently known to us or that we currently consider to be immaterial in our operations.

Risks Related to Our Business

General Economic or Industry Downturns and Weakness

Our industries are cyclical and weakness or downturns in the general economy or certain industries could have an adverse effect on our business.   If the domestic or global economies, or certain industry sectors of those economies that are key to our sales, contract or deteriorate, it could result in a corresponding decrease in demand for our products and negatively impact our results of operations and financial condition.  

The automotive and construction industries account for a significant portion of our net sales, and reduced demand from these industries could adversely affect our business.   An overall downturn in the general economy, a disruption in capital and credit markets, high unemployment, reduced consumer confidence or other factors could cause reductions in demand from our end markets in general and, in particular, the automotive and construction end markets.  If demand for the products we sell to the automotive, construction or other end markets which we supply were to be reduced, our sales, financial results and cash flows could be negatively affected.

We face intense competition which may cause decreased demand, decreased market share and/or reduced prices for our products and services.    Our businesses operate in industries that are highly competitive and have been subject to increasing consolidation of customers. Because of the range of the products and services we sell and the variety of markets we serve, we encounter a wide variety of competitors.   Our failure to compete effectively and/or pricing pressures resulting from competition may adversely impact our businesses and financial results.

Financial difficulties and bankruptcy filings by our customers could have an adverse impact on our businesses.  In past years, some customers have experienced and some continue to experience challenging financial conditions. The financial difficulties of certain customers and/or their failure to obtain credit or otherwise improve their overall financial condition could result in changes within the markets we serve, including plant closings, decreased production, reduced demand, changes in product mix, unfavorable changes in the prices, terms or conditions we are able to obtain and other changes that may result in decreased purchases from us and otherwise negatively impact our businesses. These conditions also increase the risk that our customers may delay or default on their payment obligations to us. If the general economy or any of our markets decline, the risk of bankruptcy filings by and financial difficulties of our customers may increase.  While we have taken and will continue to take steps intended to mitigate the impact of financial difficulties and potential bankruptcy filings by our customers, these matters could have a negative impact on our businesses.

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Volatility in the prices of natural gas and/or oil may adversely affect the demand for products in our oil and gas equipment business.   Volatility or weakness in oil prices or natural gas prices, or the perception of future price weakness, affects the spending patterns of our customers within the oil and gas equipment business and the demand for our products.  This has resulted and may c ontinue to result in the drilling of fewer wells and lower production spending on existing wells, lowering demand for our oil and gas equipment products and negatively impacting our results of operations and financial condition.  Likewise, recent downturns in the oil industry have limited, and may continue to limit, the number of vehicles changing from gasoline as a fuel to CNG, propane or alternative fuels which could negatively impact demand for our alternative fuel cylinders.

Volatility in the United States and worldwide capital and credit markets could impact our end markets and result in negative impacts on demand, increased credit and collection risks and other adverse effects on our businesses.   The domestic and worldwide capital and credit markets have experienced significant volatility, disruptions and dislocations with respect to price and credit availability. These factors caused diminished availability of credit and other capital in our end markets, and for participants in, and the customers of, those markets.  Although domestic credit markets have largely stabilized from the height of the financial crisis, the effects of the financial crisis continue to present additional risks to us, our customers and suppliers. In particular, there is no guarantee that the credit markets or liquidity will not once again be restricted. Additionally, stricter lending standards may make it more difficult and costly for some firms to access the credit markets. Further, uncertainties in Europe regarding the financial sector and sovereign debt and the potential impact on banks in other regions of the world will continue to weigh on global and domestic growth. Although we believe we have adequate access to several sources of contractually committed borrowings and other available credit facilities, these risks could temporarily restrict our ability to borrow money on acceptable terms in the credit markets and potentially could affect our ability to draw on our credit facilities. In addition, restricted access to the credit markets could make it difficult, or in some cases, impossible for customers to borrow money to fund their operations. Lack of, or limited access to, capital would adversely affect our customers’ ability to purchase our products or, in some cases, to pay for our products on a timely basis.

Raw Material Pricing and Availability  

Our operating results may be adversely affected by declining steel prices .  If steel prices or other raw material prices decrease, competitive conditions may impact how quickly we must reduce our prices to our customers, and we could be forced to use higher-priced raw materials then on hand to complete orders for which the selling prices have decreased. Decreasing steel prices could also require us to write-down the value of our inventory to reflect current market pricing.

Our operating results may be affected by fluctuations in raw material prices and our ability to pass on increases in raw material costs to our customers.   Our principal raw material is flat-rolled steel, which we purchase from multiple primary steel producers. The steel industry as a whole has been cyclical, and at times availability and pricing can be volatile due to a number of factors beyond our control. These factors include general economic conditions, domestic and worldwide supply and demand, the influence of hedge funds and other investment funds participating in commodity markets, curtailed production from major suppliers due to factors such as the closing or idling of facilities, accidents or equipment breakdowns, repairs or catastrophic events, labor costs or problems, competition, new laws and regulations, import duties, tariffs, energy costs, availability and cost of steel inputs (e.g., ore, scrap, coke and energy), foreign currency exchange rates and other factors described in the immediately following paragraph. This volatility, as well as any increases in raw material costs, could significantly affect our steel costs and adversely impact our financial results. If our suppliers increase the prices of our critical raw materials, we may not have alternative sources of supply. In addition, in an environment of increasing prices for steel and other raw materials, competitive conditions may impact how much of the price increases we can pass on to our customers. To the extent we are unable to pass on future price increases in our raw materials to our customers, our financial results could be adversely affected.

The costs of manufacturing our products and our ability to meet our customers’ demands could be negatively impacted if we experience interruptions in deliveries of needed raw materials or supplies.   If, for any reason, our supply of flat-rolled steel or other key raw materials, such as aluminum, zinc, copper or helium, or other supplies is curtailed or we are otherwise unable to obtain the quantities we need at competitive prices, our business could suffer and our financial results could be adversely affected. Such interruptions could result from a number of factors, including a shortage of capacity in the supplier base of raw materials, energy or the inputs needed to make steel or other supplies, a failure of suppliers to fulfill their supply or delivery obligations, financial difficulties of suppliers resulting in the closing or idling of supplier facilities, other significant events affecting supplier facilities, significant weather events, those factors listed in the immediately preceding paragraph or other factors beyond our control. Further, the number of suppliers has decreased in recent years due to industry consolidation and the financial difficulties of certain suppliers, and this consolidation may continue.

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An increas e in the spread between the price of steel and steel scrap prices can have a negative i mpact on our margins.   No matter how efficient , our operations which use steel as a raw material, create some amount of scrap.  The expected price of scrap compared to the price of the steel raw material is generally factored into pricing.  Generally, as t he price of steel increases, the price of scrap increases by a similar amount.   When increases in scrap prices do not ke e p pace with the increases in the price of the steel raw material, it can have a negative impact on our margins.

Inventories

Our businesses could be harmed if we fail to maintain proper inventory levels. We are required to maintain sufficient inventories to accommodate the needs of our customers including, in many cases, short lead times and just-in-time delivery requirements. Although we typically have customer orders in hand prior to placement of our raw material orders for our Steel Processing operating segment, we anticipate and forecast customer demand for each of our operating segments. We purchase raw materials on a regular basis in an effort to maintain our inventory at levels that we believe are sufficient to satisfy the anticipated needs of our customers based upon orders, customer volume expectations, historic buying practices and market conditions. Inventory levels in excess of customer demand may result in the use of higher-priced inventory to fill orders reflecting lower selling prices, if raw material prices have significantly decreased. For example, if steel prices decrease, we could be forced to use higher-priced steel then on hand to complete orders for which the selling price has decreased.  These events could adversely affect our financial results. Conversely, if we underestimate demand for our products or if our suppliers fail to supply quality products in a timely manner, we may experience inventory shortages. Inventory shortages could result in unfilled orders, negatively impacting our customer relationships and resulting in lost revenues, which could harm our businesses and adversely affect our financial results.

Suppliers and Customers

The loss of significant volume from our key customers could adversely affect us . A significant loss of, or decrease in, business from any of our key customers could have an adverse effect on our sales and financial results if we cannot obtain replacement business. Also, due to consolidation in the industries we serve, including the construction, automotive and retail industries, our sales may be increasingly sensitive to deterioration in the financial condition of, or other adverse developments with respect to, one or more of our top customers. In addition, certain of our top customers may be able to exert pricing and other influences on us, requiring us to market, deliver and promote our products in a manner that may be more costly to us. We generally do not have long-term contracts with our customers. As a result, although our customers periodically provide notice of their future product needs and purchases, they generally purchase our products on an order-by-order basis, and the relationship, as well as particular orders, can be terminated at any time.

Many of our key industries, such as automotive, oil and gas, construction and heavy mobile equipment, are cyclical in nature. Many of our key industries, such as automotive, oil and gas, construction and heavy mobile equipment, are cyclical and can be impacted by both market demand and raw material supply, particularly with respect to steel. The demand for our products is directly related to, and quickly impacted by, customer demand in our industries, which can change as the result of changes in the general United States or worldwide economies and other factors beyond our control. Adverse changes in demand or pricing can have a negative effect on our businesses.

Significant reductions in sales to any of the Detroit Three automakers, or to our automotive-related customers in general, could have a negative impact on our business. More than half of the net sales of our Steel Processing operating segment and a significant amount of the net sales of certain joint ventures are to automotive-related customers. Although we do sell to the domestic operations of foreign automakers and their suppliers, a significant portion of our automotive sales are to Ford, General Motors, and FCA US (the “Detroit Three automakers”) and their suppliers. A reduction in sales for any of the Detroit Three automakers could negatively impact our business. Since 2011, automobile producers have been taking steps toward complying with Corporate Average Fuel Economy mileage requirements for new cars and light trucks that they produce. As automobile producers work to produce vehicles in compliance with these standards, they may reduce the amount of steel or begin utilizing alternative materials in cars and trucks to improve fuel economy, thereby reducing demand for steel and resulting in further over-supply of steel in North America.  Certain automakers have begun using greater amounts of aluminum and smaller proportions of steel in some new models.

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A significant reduction in sales to any of our large heavy mobile equipment customers could have a negative impact on ou r business.   Substantially all of the sales of our Engineered Cabs operating segment are to customers who manufacture heavy mobile equipment. A reduction in sales to any of our major customers in this market could negatively impact our business. A reduct ion in demand could result from numerous causes including a reduction in overall market demand for heavy mobile equipment, in-sourcing of engineered cabs by our customers, or increased competition.

The closing or relocation of customer facilities could adversely affect us . Our ability to meet delivery requirements and the overall cost of our products as delivered to customer facilities are important competitive factors. If customers close or move their production facilities further away from our manufacturing facilities which can supply them, it could have an adverse effect on our ability to meet competitive conditions, which could result in the loss of sales. Likewise, if customers move their production facilities outside the United States, it could result in the loss of potential sales for us.

Sales conflicts with our customers and/or suppliers may adversely impact us . In some instances, we may compete with one or more of our customers and/or suppliers in pursuing the same business. In addition, in the Engineered Cabs business, our customers often have the option of producing certain cabs in-house instead of having them supplied by us or our competition and to the extent they elect to produce such cabs in-house, it could adversely affect our sales. Such conflicts may strain our relationships with the parties involved, which could adversely affect our future business with them.

The closing or idling of steel manufacturing facilities could have a negative impact on us. As steel makers have reduced their production capacities by closing or idling production lines, the number of facilities from which we can purchase steel, in particular certain specialty steels, has decreased. Accordingly, if delivery from a supplier is disrupted, particularly with respect to certain types of specialty steel, it may be more difficult to obtain an alternate supply than in the past. These closures and disruptions could also have an adverse effect on our suppliers’ on-time delivery performance, which could have an adverse effect on our ability to meet our own delivery commitments and may have other adverse effects on our businesses.

The loss of key supplier relationships could adversely affect us. Over the years, our various manufacturing operations have developed relationships with certain steel and other suppliers which have been beneficial to us by providing more assured delivery and a more favorable all-in cost, which includes price and shipping costs. If any of those relationships were disrupted, it could have an adverse effect on delivery times and the overall cost and quality of our raw materials, which could have a negative impact on our businesses.  In addition, we do not have long-term contracts with any of our suppliers. If, in the future, we are unable to obtain sufficient amounts of steel and other products at competitive prices and on a timely basis from our traditional suppliers, we may be unable to obtain these products from alternative sources at competitive prices to meet our delivery schedules, which could have a material adverse impact on our results of operations.

Competition

Our businesses are highly competitive, and increased competition could negatively impact our financial results.  Generally, the markets in which we conduct business are highly competitive. Our competitors include a variety of both domestic and foreign companies in all major markets. Competition for most of our products is primarily on the basis of price, product quality and our ability to meet delivery requirements. Depending on a variety of factors, including raw material, energy, labor and capital costs, government control of foreign currency exchange rates and government subsidies of foreign steel producers or competitors, our businesses may be materially adversely affected by competitive forces.  Competition may also increase if suppliers to or customers of our industries begin to more directly compete with our businesses through new facilities, acquisitions or otherwise. As noted above, we can have conflicts with our customers or suppliers who, in some cases, supply the same products and services as we do. Increased competition could cause us to lose market share, increase expenditures, lower our margins or offer additional services at a higher cost to us, which could adversely impact our financial results.

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Material Substitution

If steel prices increase compared to certain substitute materials, the demand for our products could be negatively impacted, which could have an adverse effect on our financial results.   In certain applications, steel competes with other materials, such as aluminum (particularly in the automobile industry), cement and wood (particularly in the construction industry), composites, glass and plastic. Prices of all of these materials fluctuate widely, and differences between the prices of these materials and the price of steel may adversely affect demand for our products and/or encourage material substitution, which could adversely affect the prices of and demand for steel products. The higher cost of steel relative to certain other materials may make material substitution more attractive for certain uses.

If increased government mileage standards for automobiles result in the substitution of other materials for steel, demand for our products could be negatively impacted, which could have an adverse effect on our financial results.   Due to government requirements that manufacturers increase the fuel efficiency of automobiles, the automobile industry is exploring alternative materials to steel to decrease weight. The substitution of lighter weight material for steel in automobiles could adversely affect prices of and demand for our steel products.

Freight and Energy

Increasing freight and energy costs could increase our operating costs, which could have an adverse effect on our financial results.   The availability and cost of freight and energy, such as electricity, natural gas and diesel fuel, are important in the manufacture and transport of our products. Our operations consume substantial amounts of energy, and our operating costs generally increase when energy costs rise. Factors that may affect our energy costs include significant increases in fuel, oil or natural gas prices, unavailability of electrical power or other energy sources due to droughts, hurricanes or other natural causes or due to shortages resulting from insufficient supplies to serve customers, or interruptions in energy supplies due to equipment failure or other causes. During periods of increasing energy and freight costs, we may be unable to fully recover our operating cost increases through price increases without reducing demand for our products. Our financial results could be adversely affected if we are unable to pass all of the cost increases on to our customers or if we are unable to obtain the necessary freight and/or energy. Also, increasing energy costs could put a strain on the transportation of our materials and products if the increased costs force certain transporters to discontinue their operations.

We depend on third parties for freight services, and increases in the costs or the lack of availability of freight services can adversely affect our operations.   We rely primarily on third parties for transportation of our products as well as delivery of our raw materials, primarily by truck.  If, due to a lack of freight services, raw materials are not delivered to us in a timely manner, we may be unable to manufacture and deliver our products to meet customer demand.  Likewise, if due to a lack of freight service, we cannot deliver our products in a timely manner, it could harm our reputation, negatively affect our customer relationships and have a material adverse effect on our results of operations. In addition, any increase in the cost of the transportation of raw materials or our products, as a result of increases in fuel or labor costs, higher demand for logistics services or otherwise, may adversely affect our results of operations as we may not be able to pass such cost increases on to our customers.

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Information Sys tems

We are subject to information system security risks and systems integration issues that could disrupt our internal operations. We are dependent upon information technology and networks in connection with a variety of business activities including the distribution of information internally and to our customers and suppliers. This information technology is subject to potential damage or interruption from a variety of sources, including, without limitation, computer viruses, security breaches, and natural disasters.  We could also be adversely affected by system or network disruptions if new or upgraded business management systems are defective, not installed properly or not properly integrated into operations.  In addition, security breaches of our information systems could result in unauthorized disclosure or destruction of confidential or proprietary information and/or loss of the functionality of our systems. Various measures have been implemented to manage our risks related to information system and network disruptions and to prevent attempts to gain unauthorized access to our information systems. While we undertake mitigating activities to counter these risks, a system failure could negatively impact our operations and financial results and cyber attacks could threaten the integrity of our trade secrets and sensitive intellectual property.

Business Disruptions

Disruptions to our business or the business of our customers or suppliers could adversely impact our operations and financial results.   Business disruptions, including increased costs for, or interruptions in, the supply of energy or raw materials, resulting from shortages of supply or transportation, severe weather events (such as hurricanes, tsunamis, earthquakes, tornados, floods and blizzards), casualty events (such as explosions, fires or material equipment breakdown), acts of terrorism, pandemic disease, labor disruptions, the idling of facilities due to reduced demand (resulting from a downturn in economic activity or otherwise) or other events (such as required maintenance shutdowns), could cause interruptions to our businesses as well as the operations of our customers and suppliers. While we maintain insurance coverage that can offset some losses relating to certain types of these events, losses from business disruptions could have an adverse effect on our operations and financial results and we could be adversely impacted to the extent any such losses are not covered by insurance or cause some other adverse impact to us.

Foreign Operations

Economic, political and other risks associated with foreign operations could adversely affect our international financial results.   Although the substantial majority of our business activity takes place in the United States, we derive a portion of our revenues and earnings from operations in foreign countries, and we are subject to risks associated with doing business internationally. We have wholly-owned facilities in Austria, Poland, Portugal and Turkey and joint venture facilities in Canada, China, France, India, Mexico and the United Kingdom, and are active in exploring other foreign opportunities. The risks of doing business in foreign countries include, among other factors: the potential for adverse changes in the local political climate, in diplomatic relations between foreign countries and the United States or in government policies, laws or regulations; terrorist activity that may cause social disruption; logistical and communications challenges; costs of complying with a variety of laws and regulations; difficulty in staffing and managing geographically diverse operations; deterioration of foreign economic conditions; inflation and fluctuations in interest rates; foreign currency exchange rate fluctuations; foreign exchange restrictions; differing local business practices and cultural considerations; restrictions on imports and exports or sources of supply, including energy and raw materials; changes in duties, quotas, tariffs, taxes or other protectionist measures; and potential issues related to matters covered by the Foreign Corrupt Practices Act, regulations related to import/export controls, the Office of Foreign Assets Control sanctions program, anti-boycott provisions or similar laws. We believe that our business activities outside of the United States involve a higher degree of risk than our domestic activities, and any one or more of these factors could adversely affect our operating results and financial condition. In addition, global and regional economic conditions and the volatility of worldwide capital and credit markets have significantly impacted and may continue to significantly impact our foreign customers and markets. These factors may result in decreased demand in our foreign operations and have had significant negative impacts on our business. Refer to the General Economic or Industry Downturns and Weakness risk factors herein for additional information concerning the impact of the global economic conditions and the volatility of capital and credit markets on our business.

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Joint Ventures

A change in the relationship between the members of any of our joint ventures may have an adverse effect on that joint venture . We have been successful in the development and operation of various joint ventures, and our equity in net income from our joint ventures, particularly WAVE, has been important to our financial results. We believe an important element in the success of any joint venture is a solid relationship between the members of that joint venture. If there is a change in ownership, a change of control, a change in management or management philosophy, a change in business strategy or another event with respect to a member of a joint venture that adversely impacts the relationship between the joint venture members, it could adversely impact that joint venture. The other members in our joint ventures may also, as a result of financial or other reasons, be unable or unwilling to fulfill their obligations in the respective joint ventures.  In addition, joint ventures necessarily involve special risks. Whether or not we hold a majority interest or maintain operational control in a joint venture, the other members in our joint ventures may have economic or business interests or goals that are inconsistent with our interests or goals. For example, the other members in our joint ventures may exercise veto rights to block actions that we believe to be in our best interests, may take action contrary to our policies or objectives with respect to our investments, or may be unable or unwilling to fulfill their obligations or commitments to the joint venture.

Acquisitions

We may be unable to successfully consummate, manage or integrate our acquisitions or our acquisitions may not meet our expectations. A portion of our growth has occurred through acquisitions.  We may from time to time continue to seek attractive opportunities to acquire businesses, enter into joint ventures and make other investments that are complementary to our existing strengths. There are no assurances, however, that any acquisition opportunities will arise or, if they do, that they will be consummated, or that any needed additional financing for such opportunities will be available on satisfactory terms when required. In addition, acquisitions involve risks that the businesses acquired will not perform in accordance with expectations, that business judgments concerning the value, strengths and weaknesses of businesses acquired will prove incorrect, that we may assume unknown liabilities from the seller, that the acquired businesses may not be integrated successfully and that the acquisitions may strain our management resources or divert management’s attention from other business concerns. International acquisitions may present unique challenges and increase our exposure to the risks associated with foreign operations and countries. Also, failure to successfully integrate any of our acquisitions may cause significant operating inefficiencies and could adversely affect our operations and financial condition.  Even if the operations of an acquisition are integrated successfully, we may fail to realize the anticipated benefits of the acquisition, including the synergies, cost savings or growth opportunities that we expect. These benefits may not be achieved within the anticipated timeframe, or at all. Failing to realize the benefits could have a material adverse effect on our financial condition and results of operations.

Capital Expenditures

Our business requires capital investment and maintenance expenditures, and our capital resources may not be adequate to provide for all of our cash requirements.   Many of our operations are capital intensive. For the five-year period ended May 31, 2019, our total capital expenditures, including acquisitions and investment activity, were approximately $871.6 million.  Additionally, as of May 31, 2019, we were obligated to make aggregate lease payments of $33.4 million under operating lease agreements in the coming years. Our businesses also require expenditures for maintenance of our facilities. We currently believe that we have adequate resources (including cash and cash equivalents, cash provided by operating activities, availability under existing credit facilities and unused lines of credit) to meet our cash needs for normal operating costs, capital expenditures, debt repayments, dividend payments, future acquisitions and working capital for our existing businesses. However, given the potential for challenges, uncertainty and volatility in the domestic and global economies and financial markets, there can be no assurance that our capital resources will be adequate to provide for all of our cash requirements.

Litigation

We may be subject to legal proceedings or investigations, the resolution of which could negatively affect our results of operations and liquidity in a particular period.   Our results of operations or liquidity in a particular period could be affected by an adverse ruling in any legal proceedings or investigations which may be pending against us or filed against us in the future. We are also subject to a variety of legal and compliance risks, including, without limitation, potential claims relating to product liability, product recall, privacy and information security, health and safety, environmental matters, intellectual property rights, taxes and compliance with U.S. and foreign export laws, anti-bribery laws, competition laws and sales and trading practices. While we believe that we have adopted appropriate risk management and compliance programs to address and reduce these risks, the global and diverse nature of our operations means that these risks will continue to exist and additional legal proceedings and contingencies may arise from time to time. An adverse ruling or settlement or an unfavorable change in laws, rules or regulations could have a material adverse effect on our results of operations or liquidity in a particular period.

15


 

Claims and Insurance

Adverse claims experience, to the extent not covered by insurance, may have an adverse effect on our financial results.   We self-insure most of our risks for product recall, cyber liability and pollution liability.  We also self-insure a significant portion of our potential liability for workers’ compensation, product liability, general liability, property liability, automobile liability and employee medical claims, and in order to reduce risk for these liabilities, we purchase insurance from highly-rated, licensed insurance carriers that cover most claims in excess of the applicable deductible or retained amounts. We also maintain reserves for the estimated cost to resolve certain open claims that have been made against us (which may include active product recall or replacement programs), as well as an estimate of the cost of claims that have been incurred but not reported. The occurrence of significant claims, our failure to adequately reserve for such claims, a significant cost increase to maintain our insurance or the failure of our insurance providers to perform could have an adverse impact on our financial condition and results of operations.

Accounting and Tax-Related Estimates

We are required to make accounting and tax-related estimates, assumptions and judgments in preparing our consolidated financial statements, and actual results may differ materially from the estimates, assumptions and judgments that we use.  In preparing our consolidated financial statements in accordance with accounting principles generally accepted in the United States, we are required to make certain estimates and assumptions that affect the accounting for and recognition of assets, liabilities, revenues and expenses. These estimates and assumptions must be made because certain information that is used in the preparation of our consolidated financial statements is dependent on future events, or cannot be calculated with a high degree of precision from data available to us. In some cases, these estimates and assumptions are particularly difficult to determine and we must exercise significant judgment. Some of the estimates, assumptions and judgments having the greatest amount of uncertainty, subjectivity and complexity are related to our accounting for bad debts, returns and allowances, inventory, self-insurance reserves, derivatives, stock-based compensation, deferred tax assets and liabilities and asset impairments. Our actual results may differ materially from the estimates, assumptions and judgments that we use, which could have a material adverse effect on our financial condition and results of operations.

Tax Laws and Regulations

Tax increases or changes in tax laws or regulations could adversely affect our financial results.   We are subject to tax and related obligations in the jurisdictions in which we operate or do business, including state, local, federal and foreign taxes. The taxing rules of the various jurisdictions in which we operate or do business often are complex and subject to varying interpretations. Tax authorities may challenge tax positions that we take or historically have taken, and may assess taxes where we have not made tax filings or may audit the tax filings we have made and assess additional taxes. Some of these assessments may be substantial, and also may involve the imposition of penalties and interest. In addition, governments could change their existing tax laws, impose new taxes on us or increase the rates at which we are taxed in the future. The payment of substantial additional taxes, penalties or interest resulting from tax assessments, or the imposition of any new taxes, could materially and adversely impact our results of operations and financial condition.

Principal Shareholder

Our principal shareholder may have the ability to exert significant influence in matters requiring a shareholder vote and could delay, deter or prevent a change in control of Worthington Industries.   Pursuant to our charter documents, certain matters such as those in which a person would attempt to acquire or take control of the Company, must be approved by the vote of the holders of common shares representing at least 75% of Worthington Industries’ outstanding voting power. Approximately 30% of our outstanding common shares are beneficially owned, directly or indirectly, by John P. McConnell, our Chairman of the Board and Chief Executive Officer. As a result of his beneficial ownership of our common shares, Mr. McConnell may have the ability to exert significant influence in these matters and other proposals upon which our shareholders may vote.

16


 

Key Employees

If we lose senior management or other key employees, our business may be adversely affected. Our ability to successfully operate, grow our business and implement our business strategies is largely dependent on the efforts, abilities and services of our senior management and other key employees. The loss of any of these individuals or our inability to attract, train and retain additional personnel could reduce the competitiveness of our business or otherwise impair our operations or prospects. Our future success will also depend, in part, on our ability to attract and retain qualified personnel, including engineers and other skilled technicians, who have experience in the application of our products and are knowledgeable about our business, markets and products. We cannot assure that we will be able to retain our existing senior management personnel or other key employees or attract additional qualified personnel when needed. The loss of any member of our management team could adversely impact our business and operations.  We have not entered into any formal employment contracts with or other stand-alone change in control provisions relative to our executive officers.  However, we do have certain change in control provisions in our various compensation plans.  We may modify our management structure from time to time or reduce our overall workforce, which may create marketing, operational and other business risks.

Credit Ratings

Ratings agencies may downgrade our credit ratings, which may make it more difficult for us to raise capital and could increase our financing costs.   Any downgrade in our credit ratings may make raising capital more difficult, may increase the cost and affect the terms of future borrowings, may affect the terms under which we purchase goods and services and may limit our ability to take advantage of potential business opportunities. In addition, the interest rate on our revolving credit facility is tied to our credit ratings, and any downgrade of our credit ratings would likely result in an increase in the cost of borrowings under our revolving credit facility.

Difficult Financial Markets

Should we be required to raise capital in the future, we could face higher borrowing costs, less available capital, more stringent terms and tighter covenants or, in extreme conditions, an inability to raise capital.  Although we currently have significant borrowing availability under our existing credit facilities and should be able to access other capital if needed, should those facilities become unavailable due to covenant or other defaults, or should financial results tighten so that we otherwise cannot raise capital outside our existing facilities, or the terms under which we do so change, we may be negatively impacted. Any adverse change in our access to capital or the terms of our borrowings, including increased costs, could have a negative impact on our financial condition.

Environmental, Health and Safety

We may incur additional costs related to environmental and health and safety matters. Our operations and facilities are subject to a variety of federal, state, local and foreign laws and regulations relating to the protection of the environment and human health and safety. Compliance with these laws and regulations and any changes therein may sometimes involve substantial operating costs and capital expenditures, and any failure to maintain or achieve compliance with these laws and regulations or with the permits required for our operations could result in increased costs and capital expenditures and potentially fines and civil or criminal sanctions, third-party claims for property damage or personal injury, cleanup costs or temporary or permanent discontinuance of operations. Over time, we and predecessor operators of our facilities have generated, used, handled and disposed of hazardous and other regulated wastes.  Environmental liabilities, including cleanup obligations, could exist at our facilities or at off-site locations where materials from our operations were disposed of or at facilities we have divested, which could result in future expenditures that cannot be currently quantified and which could reduce our profits and cash flow. We may be held strictly liable for any contamination of these sites, and the amount of any such liability could be material. Under the “joint and several” liability principle of certain environmental laws, we may be held liable for all remediation costs at a particular site, even with respect to contamination for which we are not responsible. In addition, changes in environmental and human health and safety laws, rules, regulations or enforcement policies could have a material adverse effect on our business, financial condition or results of operations.

17


 

Legislation and Regulations

Certain proposed legislation and regulations may have an adverse impact on the economy in general and in our markets specifically, which may adversely affect our businesses.   Our businesses may be negatively impacted by a variety of new or proposed legislation or regulations. For example, legislation and regulations proposing increases in taxation on, or heightened regulation of, greenhouse gas emissions may result in higher prices for steel, higher prices for utilities required to run our facilities, higher fuel costs for us and our suppliers and distributors and other adverse impacts. To the extent that new legislation or regulations increase our costs, we may not be able to fully pass these costs on to our customers without a resulting decline in sales and adverse impact to our profits. Likewise, to the extent new legislation or regulations would have an adverse effect on the economy, our markets or the ability of domestic businesses to compete against foreign operations, we could also be adversely impacted.

Legislation, regulations or other events which could adversely affect the ability or cost to recover natural gas or oil may negatively affect our business.   In recent years, increasing amounts of oil and natural gas have been produced through the hydraulic fracking process throughout the United States and North America. This has resulted in decreasing energy costs, particularly for natural gas and similar energy products. This reduction has helped lower energy costs for U.S. businesses. Also, some of our recent acquisitions supply products which are used by companies engaged in hydraulic fracking. If legislation, regulations or other events limit the ability to recover such fuels through hydraulic fracking or increase the cost thereof, it could have a negative impact on our business, the U.S. economy and U.S. businesses in general, which could result in decreased demand for our products or otherwise negatively impact our business.

The impact of U.S. health care laws could adversely affect our businesses. In the wake of the Patient Protection and Affordable Care Act (“Obamacare”), U.S. health care costs have increased. Many project that there will continue to be significant increases in health care costs which could adversely impact the U.S. economy and U.S. businesses. This could result in a decreased demand for our products, as well as an increase in expenditures for health care costs for our personnel, both of which would negatively impact our profits.  Congress has considered amending or replacing Obamacare, but it is uncertain if any changes or a replacement will be affected or what the impact of any such changes or replacement will be.

 

Changes to global data privacy laws and cross-border transfer requirements could adversely affect our businesses and operations.    Our businesses depend on the transfer of data between our affiliated entities, to and from our business partners, and with third-party service provides, which may be subject to global data privacy laws and cross-border transfer restrictions.  In particular, the European Union recently implemented the General Data Protection Regulation (“GDPR”), which contains numerous requirements that must be complied with in connection with how we handle personal data related to our European-based operations and employees.   A number of U.S. states have also recently introduced and passed legislation to expand data breach notification rules and to mirror some of the protections provided by GDPR.   While we take steps to comply with these legal requirements, the volatility and changes to the applicability of those laws may impact our ability to effectively transfer data across borders in support of our business operations. Compliance with GDPR, or other regulatory standards, could also increase our cost of doing business and/or force us to change our business practices in a manner adverse to our businesses. In addition, violations of GDPR may result in significant fines, penalties and damage to our brands and businesses which could, individually or in the aggregate, materially harm our businesses and reputation.

 

Significant changes to the U.S. federal government’s trade policies, including new tariffs or the renegotiation or termination of existing trade agreements and/or treaties, may adversely affect our financial performance . The U.S. federal government has altered U.S. international trade policy and has indicated its intention to renegotiate or terminate certain existing trade agreements and treaties with foreign governments.  Most recently, the U.S. federal government has re-negotiated the North American Free Trade Agreement (“NAFTA”) with Mexico and Canada. While the renegotiated form of NAFTA has yet to be fully implemented, the U.S. federal government’s potential decision to withdraw or materially modify NAFTA or other existing trade agreements or treaties may adversely impact our business, customers and/or suppliers by disrupting trade and commercial transactions and/or adversely affecting the U.S. economy or specific portions thereof.

18


 

Additionally, the U.S. federal government has imposed, and is considering imposing additional tariffs on certain foreign goods. T he U.S. federal government has imposed tariffs on certain steel products imported into the United States . Although the new steel tariffs may benefit portions of our business, these tariffs, as well as country-specific or product-specific exemptions, may also lead to steel prices fl uctuations and retaliatory actions from foreign governments and/or modifications to the purchasing patterns of our customers that could adversely affect our business or the steel industry as a whole. In particular, certain foreign governments, including Canada, China and Mexico, as well as the European Union, have instituted or are considering imposing tariffs on certain U.S. goods. Restrictions on trade with foreign countries, imposition of customs d uties or further modifications to U.S. international trade policy have the potential to disrupt our supply chain or the supply chains of our customers and to adversely impact demand for our products, our costs, customers, suppliers and/or the U.S. economy or certain sectors thereof, potentially leading to negative effects on our business.

Seasonality

Our operations have been subject to seasonal fluctuations that may impact our cash flows for a particular period. Historically our sales are generally strongest in the fourth quarter of the fiscal year when all of our business segments are normally operating at seasonal peaks, and our sales are generally weaker in the third quarter of the fiscal year, primarily due to reduced activity in the building and construction industry as a result of the colder, more inclement weather, as well as customer plant shutdowns in the automotive industry due to holidays. Our quarterly results may also be affected by the timing of large customer orders. Consequently, our cash flow from operations may fluctuate significantly from quarter to quarter. If, as a result of any such fluctuation, our quarterly cash flows were significantly reduced, we may be unable to service our indebtedness or maintain compliance with certain covenants under our credit facilities. A default under any of the documents governing our indebtedness could prevent us from borrowing additional funds, limit our ability to pay interest or principal and allow our lenders to declare the amounts outstanding to be immediately due and payable and to exercise certain other remedies.

Impairment Charges

Weakness or instability in the general economy, our markets or our results of operations could result in future asset impairments, which would reduce our reported earnings and net worth.   We review the carrying value of our long-lived assets, excluding purchased goodwill and intangible assets with indefinite lives, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable. Impairment testing involves a comparison of the sum of the undiscounted future cash flows of the asset or asset group to its respective carrying amount.  If the sum of the undiscounted future cash flows exceeds the carrying amount, then no impairment exists. If the carrying amount exceeds the sum of the undiscounted future cash flows, then a second step is performed to determine the amount of impairment, if any, to be recognized. For long-lived assets other than goodwill, an impairment loss is recognized to the extent that the carrying amount of the asset or asset group exceeds fair value. Goodwill and intangible assets with indefinite lives are tested for impairment annually, during the fourth quarter, or more frequently if events or changes in circumstances indicate that impairment may be present. For goodwill and indefinite lived intangible assets, we test for impairment by first evaluating qualitative factors including macroeconomic conditions, industry and market considerations, cost factors, and overall financial performance. If there are no concerns raised from this evaluation, no further testing is performed.  If, however, our qualitative analysis indicates it is more likely than not that the fair value is less than the carrying amount, a quantitative analysis is performed. The quantitative analysis compares the fair value of each reporting unit or indefinite-lived intangible asset to the respective carrying amount, and an impairment loss is recognized in our consolidated statements of earnings equivalent to the excess of the carrying amount over the fair value. Fair value is determined based on discounted cash flows or appraised values, as appropriate.  Either way, our policy is to perform a quantitative analysis over each reporting unit at least every three years. Economic conditions remain fragile in some markets and the possibility remains that the domestic or global economies, or certain industry sectors that are key to our sales, may deteriorate. If certain of our business segments are adversely affected by challenging economic and financial conditions, we may be required to record future impairments, which would negatively impact our results of operations.

Item 1B.  — Unresolved Staff Comments

None.

19


 

Item 2.  — P roperties .

General

Our principal corporate offices are located in an owned office building in Columbus, Ohio, which also houses the principal corporate offices of our Pressure Cylinders and Engineered Cabs operating segments. Our Steel Processing corporate offices are located in an office building next to the principal corporate offices where we lease office space.  We also own three facilities in Columbus, Ohio used for administrative and medical purposes.  As of May 31, 2019, excluding our consolidated and unconsolidated joint ventures, we operated 31 manufacturing facilities and 12 warehouses.  Altogether, as of May 31, 2019, we owned or leased a total of approximately 10,600,000 square feet of space for our operations, of which approximately 9,200,000 square feet (10,200,000 square feet with warehouses) was devoted to manufacturing, product distribution and sales offices.  Major leases contain renewal options for periods of up to 10 years.  For information concerning rental obligations, refer to “Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Contractual Cash Obligations and Other Commercial Commitments ” as well as “Item 8. – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note S – Operating Leases” of this Annual Report on Form 10-K.  We believe these facilities are well maintained and in good operating condition, and are sufficient to meet our current needs.

Steel Processing

As of May 31, 2019, our wholly-owned operations within the Steel Processing operating segment operated a total of eight manufacturing facilities, seven of which are owned by the Company, and one which is leased.  These facilities are located in Alabama, Indiana, New York and Ohio (5).  As of May 31, 2019, this operating segment also owned one warehouse in Ohio and one warehouse in South Carolina.  As noted above, this operating segment’s corporate offices are located in Columbus, Ohio.

Pressure Cylinders

As of May 31, 2019, our wholly-owned operations within the Pressure Cylinders operating segment operated a total of 19 manufacturing facilities, 17 of which are owned by the Company and two of which are leased.  These facilities are located in Alabama, California, Kansas, Kentucky, Maryland, Ohio (5), Oklahoma, Rhode Island, Utah, Wisconsin, Austria, Poland (2), Portugal and Turkey.  As of May 31, 2019, Pressure Cylinders also operated two owned warehouses, one each in Austria and Poland, and six leased warehouses, one each in Ohio, Rhode Island, and Kentucky, and three in Portugal.  As noted above, this operating segment’s corporate offices are located in Columbus, Ohio.

Engineered Cabs

As of May 31, 2019, Engineered Cabs operated four manufacturing facilities, two owned by the Company, which are located in South Dakota and Tennessee, and two leased by the Company, which are located in Indiana and Ohio.  As of May 31, 2019, this operating segment also had four leased warehouses, which are located in South Dakota (2) and Tennessee (2).  As noted above, this operating segment’s corporate offices are located in Columbus, Ohio.  

Other

The Company also owns a manufacturing facility in Wooster, Ohio, that is subject to a lease agreement with our automotive body panels joint venture, ArtiFlex.  

Joint Ventures

As outlined below, our consolidated and unconsolidated joint ventures operate a total of 46 manufacturing facilities.

Consolidated

 

Spartan owns and operates one manufacturing facility in Monroe, Michigan.

 

TWB operates nine manufacturing facilities, one owned facility located in Monroe, Michigan, and eight leased facilities located in Kentucky, Tennessee (2), Canada, and Mexico (4).

20


 

 

W SP owns and operates three steel processing facilities located in Michigan.

Unconsolidated

 

ArtiFlex operates five manufacturing facilities, three of which are owned.  These facilities are located in Michigan (3), and Ohio (2).

 

ClarkDietrich operates 13 manufacturing facilities, one each in Connecticut, Georgia, Illinois, Maryland and Missouri and two each in California, Florida, Ohio and Texas.  The two facilities in Ohio are owned.  The remaining 11 facilities are leased.

 

Samuel owns and operates two steel pickling facilities in Ohio.

 

Serviacero Worthington owns and operates three steel processing facilities in Mexico. 

 

WAVE operates nine manufacturing facilities in five countries, five of which are located in the United States, including one owned facility each in Michigan and Nevada, and one leased facility each in California, Georgia and Maryland.  The foreign facilities include one owned facility each in China, France and India, and one leased facility in the United Kingdom.  As noted in the Recent Developments section of Item 1. – Business, WAVE has entered into an agreement to sell its operations in Europe and Asia.

 

Zhejiang Nisshin Worthington Precision Specialty Steel Co., Ltd, operates one steel processing facility in Pinghu City, Zhejiang, China.

Item 3.  — Legal Proceedings

The Company is involved in various judicial and administrative proceedings, as both plaintiff and defendant, arising in the ordinary course of business.  The Company does not believe that any such proceedings will have a material adverse effect on its business, financial position, results of operation or cash flows.

Item 4.  — Mine Safety Disclosures

Not Applicable

Supplemental Item — Executive Officers of the Registrant

The following table lists the names, positions held and ages of the individuals serving as executive officers of the Registrant as of July 30, 2019.

 


Name

Age

Position(s) with the Registrant

Present Office

Held Since

John P. McConnell

65

Chairman of the Board and Chief Executive Officer; a Director

1996

B. Andrew Rose

49

President

2018

Geoffrey G. Gilmore

47

Executive Vice President and Chief Operating Officer

2018

Joseph B. Hayek

47

Vice President and Chief Financial Officer

2018

Dale T. Brinkman

66

Senior Vice President-Administration, General Counsel and Secretary

2000

Jeff R. Klingler

47

President – The Worthington Steel Company

2019

Eric M. Smolenski

49

President – Worthington Cylinder Corporation

2019

Catherine M. Lyttle

60

Senior Vice President and Chief Human Resources Officer

2018

Richard G. Welch

61

Corporate Controller

2000

Virgil L. Winland

71

Senior Vice President-Manufacturing

2001

 

John P. McConnell has served as Worthington Industries’ Chief Executive Officer since June 1993, as a Director of Worthington Industries continuously since 1990, and as Chairman of the Board of Worthington Industries since September 1996.  Mr. McConnell also serves as the Chair of the Executive Committee of Worthington Industries’ Board of Directors.  He served in various other positions with the Company from 1975 to June 1993.

 

21


 

B. Andrew ‘Andy’ Rose has served as President of Worthington Industries since August 22, 2018.  M r. Rose served as Chief Financial Officer on an interim basis from August 22, 2018 to November 1, 2018.  Mr. Rose served as Executive Vice President and Chief Financial Officer of Worthington Industries from July 2014 to August 2018 and as Vice President a nd Chief Financial Officer of Worthington Industries from December 2008 to July 2014 .  From 2007 to 2008, he served as a senior investment professional with MCG Capital Corporation, a publicly-traded company specializing in debt and equity investments in middle market companies; and from 2002 to 2007, he was a founding partner at Peachtree Equity Partners, L.P., a private equity firm backed by Goldman Sachs.

 

Geoffrey G. Gilmore has served as Executive Vice President and Chief Operating Officer of Worthington Industries since August 22, 2018.  Mr. Gilmore served as President of Worthington Cylinder Corporation from June 2016 to August 2018.  He served as President of The Worthington Steel Company from August 2012 through May 2016.  From July 2011 to July 2012, he served as Vice President-Purchasing for Worthington Industries.  From April 2010 to July 2011, he served as General Manager of The Worthington Steel Company’s Delta, Ohio facility; and from June 2006 to February 2010, he served as Director of Automotive Sales for The Worthington Steel Company.  Mr. Gilmore served in various other positions with the Company from 1998 to June 2006.  

 

Joseph B. Hayek has served as Worthington Industries’ Vice President and Chief Financial Officer since November 1, 2018.  Mr. Hayek served as Vice President and General Manager of Worthington’s Oil and Gas Equipment business from March 2017 to November 2018.  From April 2014 to March 2017, Mr. Hayek served as Worthington Industries’ Vice President – Mergers & Acquisitions and Corporate Development. Prior to joining Worthington, Mr. Hayek served as President of Sarcom, Inc., a value-added IT solutions provider (n/k/a PCM Sales, Inc.) and the largest division of PCM, Inc.   

 

Dale T. Brinkman has served as Worthington Industries’ Vice President-Administration since December 1998 and as Worthington Industries’ General Counsel since September 1982.  He has been Secretary of Worthington Industries since September 2000 and served as Assistant Secretary of Worthington Industries from September 1982 to September 2000.

 

Jeff R. Klinger has served as President of The Worthington Steel Company since May 1, 2019. Mr. Klingler served as General Manager of various business units within The Worthington Steel Company from May 2014 until April 2019.  He served as vice president of sales, marketing and procurement for Banner Services Corporation from 2008 until 2014, after serving in numerous capacities with The Worthington Steel Company from 1992 to 2008.    

 

Eric M. Smolenski has served as President of Worthington Cylinder Corporation since May 1, 2019. Mr. Smolenski served as General Manager of Worthington Cylinder Corporation’s industrial products business unit from May 2017 until April 2019 and its oil and gas business unit from January 2015 until May 2017. He joined Worthington in 1994 and has worked in numerous accounting, finance, human resources and information technology capacities, including vice president of human resources from 2006 to 2012 and chief information officer from 2012 to 2014.

 

Catherine M. Lyttle has served as Senior Vice President and Chief Human Resources Officer since September 2018.  Ms. Lyttle served as Vice President-Communications and Investor Relations of Worthington Industries from April 2009 to September 2018.  She served as Vice President of Communications of Worthington Industries from January 1999 to April 2009.  Ms. Lyttle served as Vice President of Marketing for the Columbus Chamber of Commerce from 1987 to September 1997 and as Vice President of JMAC Hockey from 1997 to 1999.

 

Richard G. Welch has served as the Corporate Controller of Worthington Industries since March 2000 and prior thereto, he served as Assistant Controller of Worthington Industries from August 1999 to March 2000.  He served as Principal Financial Officer of Worthington Industries on an interim basis from September 2008 to December 2008.  

 

Virgil L. Winland has served as Senior Vice President-Manufacturing of Worthington Industries since January 2001.  He served in various other positions with the Company from 1971 to January 2001, including as President of Worthington Cylinder Corporation from June 1998 through January 2001.

 

Executive officers serve at the pleasure of the Worthington Industries Board of Directors of the Registrant.  There are no family relationships among any of the Registrant's executive officers or directors.  No arrangements or understandings exist pursuant to which any individual has been, or is to be, selected as an executive officer of the Registrant.

22


 

PAR T II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Common Shares Information

The common shares of Worthington Industries, Inc. (“Worthington Industries”) trade on the New York Stock Exchange (“NYSE”) under the symbol "WOR" and are listed in most newspapers as "WorthgtnInd."  As of July 23, 2019, Worthington Industries had 5,045 registered shareholders.           

The Board reviews the dividend on a quarterly basis and establishes the dividend rate based upon Worthington Industries’ financial condition, results of operations, capital requirements, current and projected cash flows, business prospects and other factors which the directors may deem relevant.  While Worthington Industries has paid a dividend every quarter since becoming a public company in 1968, there is no guarantee this will continue in the future.   We currently have no material contractual or regulatory restrictions on the payment of dividends.

Shareholder Return Performance

The following information in this Item 5 of this Annual Report on Form 10-K is not deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission or subject to Regulation 14A or Regulation 14C under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or to the liabilities of Section 18 of the Exchange Act, and will 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 we specifically incorporate such information into such a filing.

The following graph compares the five-year cumulative return on Worthington Industries’ common shares, the S&P Midcap 400 Index and the S&P 1500 Steel Composite Index.  The graph assumes that $100 was invested at May 31, 2014, in Worthington Industries’ common shares and each index.

 

 

 

 

5/14

 

 

5/15

 

 

5/16

 

 

5/17

 

 

5/18

 

 

5/19

 

Worthington Industries, Inc.

 

$

100.00

 

 

$

68.88

 

 

$

97.15

 

 

$

111.05

 

 

$

129.21

 

 

$

94.04

 

S&P Midcap 400 Index

 

$

100.00

 

 

$

112.28

 

 

$

111.81

 

 

$

131.00

 

 

$

150.46

 

 

$

142.28

 

S&P 1500 Steel Composite Index

 

$

100.00

 

 

$

89.94

 

 

$

84.83

 

 

$

104.07

 

 

$

136.64

 

 

$

89.34

 

 

Data and graph provided by Zacks Investment Research, Inc. Copyright© 2019, Standard & Poor's, a division of The McGraw-Hill Companies, Inc. All rights reserved. Used with permission .

23


 

Worthington Industries is a component of the S&P Midcap 400 Index.  The S&P 1500 Steel Composite Index, of which Worthington Industries is also a component, is the most specific index r elative to the largest line of business of Worthington Industries and its subsidiaries.  At May 31, 2019 , the S&P 1500 Steel Composite Index included 13 steel related companies from the S&P 500, S&P Midcap 400 and S&P 600 indices:   AK Steel Holding Corpora tion; Allegheny Technologies Inc orporated ; Carpenter Technology Corporation; Commercial Metals Company; Haynes International, Inc.; Nucor Corporation; Olympic Steel, Inc.; Reliance Steel & Aluminum Co.; Steel Dynamics, Inc.; SunCoke Energy, Inc.; TimkenSte el Corporation; United States Steel Corporation; and Worthington Industries, Inc.

Issuer Purchases of Equity Securities

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 Exchange Act) of common shares of Worthington Industries, Inc. during each month of the fiscal quarter ended May 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

Total Number of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchased as

 

 

Maximum Number of

 

 

 

Total Number

 

 

Average Price

 

 

Part of Publicly

 

 

Common Shares that

 

 

 

of Common

 

 

Paid per

 

 

Announced

 

 

May Yet Be

 

 

 

Shares

 

 

Common

 

 

Plans or

 

 

Purchased Under the

 

Period

 

Purchased

 

 

Share

 

 

Programs

 

 

Plans or Programs (1)

 

March 1-31, 2019

 

 

86,675

 

 

$

36.03

 

 

 

86,675

 

 

 

9,913,325

 

April 1-30, 2019 (2)

 

 

824,102

 

 

$

39.30

 

 

 

820,611

 

 

 

9,092,714

 

May 1-31, 2019

 

 

92,714

 

 

$

39.92

 

 

 

92,714

 

 

 

9,000,000

 

Total

 

 

1,003,491

 

 

$

39.08

 

 

 

1,000,000

 

 

 

 

 

 

 

(1)

The number shown represents, as of the end of each period, the maximum number of common shares that could be purchased under the publicly announced repurchase authorizations then in effect.  On September 27, 2017, the Worthington Industries Board authorized the repurchase of up to 6,828,855 of the outstanding common shares of Worthington Industries, Inc. On March 20, 2019, the Worthington Industries Board authorized the repurchase of up to an additional 6,600,000 of the Company’s common shares, increasing the total number of shares then available for repurchase to 10,000,000.  A total of 1,000,000 common shares have been repurchased since the latest authorization, leaving 9,000,000 common shares available for repurchase at May 31, 2019.

The common shares available for repurchase under the authorization currently in effect 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 flows from operations, general economic conditions and other appropriate factors.  Repurchases may be made on the open market or through privately negotiated transactions.

 

(2)

Includes an aggregate of 3,491 common shares surrendered by employees in the period from April 1, 2019 through April 30, 2019 to satisfy tax withholding obligations upon the vesting of restricted common shares.  These common shares were not counted against the share repurchase authorizations in effect during the fiscal quarter ended May 31, 2019 and discussed in footnote (1) above.

24


 

Item 6. – Selected Financial Data

 

 

Fiscal Years Ended May 31,

 

(In thousands, except per share amounts)

2019

 

 

2018

 

 

2017

 

 

2016

 

 

2015

 

FINANCIAL RESULTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

$

3,759,556

 

 

$

3,581,620

 

 

$

3,014,108

 

 

$

2,819,714

 

 

$

3,384,234

 

Cost of goods sold

 

3,279,601

 

 

 

3,018,763

 

 

 

2,478,203

 

 

 

2,367,121

 

 

 

2,920,701

 

Gross margin

 

479,955

 

 

 

562,857

 

 

 

535,905

 

 

 

452,593

 

 

 

463,533

 

Selling, general and administrative expense

 

338,392

 

 

 

367,460

 

 

 

316,373

 

 

 

297,402

 

 

 

295,920

 

Impairment of goodwill and long-lived assets

 

7,817

 

 

 

61,208

 

 

 

-

 

 

 

25,962

 

 

 

100,129

 

Restructuring and other expense (income), net

 

(11,018

)

 

 

(7,421

)

 

 

6,411

 

 

 

7,177

 

 

 

6,927

 

Operating income

 

144,764

 

 

 

141,610

 

 

 

213,121

 

 

 

122,052

 

 

 

60,557

 

Miscellaneous income, net

 

2,716

 

 

 

2,996

 

 

 

3,764

 

 

 

11,267

 

 

 

795

 

Interest expense

 

(38,063

)

 

 

(38,675

)

 

 

(29,796

)

 

 

(31,670

)

 

 

(35,800

)

Equity in net income of unconsolidated affiliates

 

97,039

 

 

 

103,139

 

 

 

110,038

 

 

 

114,966

 

 

 

87,476

 

Earnings before income taxes

 

206,456

 

 

 

209,070

 

 

 

297,127

 

 

 

216,615

 

 

 

113,028

 

Income tax expense

 

43,183

 

 

 

8,220

 

 

 

79,190

 

 

 

58,987

 

 

 

25,772

 

Net earnings

 

163,273

 

 

 

200,850

 

 

 

217,937

 

 

 

157,628

 

 

 

87,256

 

Net earnings attributable to noncontrolling interests

 

9,818

 

 

 

6,056

 

 

 

13,422

 

 

 

13,913

 

 

 

10,471

 

Net earnings attributable to controlling interest

$

153,455

 

 

$

194,794

 

 

$

204,515

 

 

$

143,715

 

 

$

76,785

 

Earnings per share - diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings per share attributable to controlling interest

$

2.61

 

 

$

3.09

 

 

$

3.15

 

 

$

2.22

 

 

$

1.12

 

Depreciation and amortization

$

95,602

 

 

$

103,359

 

 

$

86,793

 

 

$

84,699

 

 

$

85,089

 

Capital expenditures (including acquisitions and investments)

 

94,901

 

 

 

361,116

 

 

 

68,386

 

 

 

136,837

 

 

 

210,346

 

Cash dividends declared

 

53,391

 

 

 

51,771

 

 

 

51,448

 

 

 

47,949

 

 

 

48,308

 

Per common share

$

0.92

 

 

$

0.84

 

 

$

0.80

 

 

$

0.76

 

 

$

0.72

 

Average common shares outstanding - diluted

 

58,823

 

 

 

63,042

 

 

 

64,874

 

 

 

64,755

 

 

 

68,483

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FINANCIAL POSITION

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total current assets

$

1,165,913

 

 

$

1,241,122

 

 

$

1,190,969

 

 

$

915,115

 

 

$

991,848

 

Total current liabilities

 

698,020

 

 

 

646,895

 

 

 

520,783

 

 

 

430,078

 

 

 

524,392

 

Working capital

$

467,893

 

 

$

594,227

 

 

$

670,186

 

 

$

485,037

 

 

$

467,456

 

Total property, plant and equipment, net

$

578,664

 

 

$

584,970

 

 

$

570,489

 

 

$

582,838

 

 

$

513,190

 

Total assets

 

2,510,796

 

 

 

2,621,787

 

 

 

2,325,344

 

 

 

2,061,264

 

 

 

2,082,305

 

Total debt

 

749,299

 

 

 

750,368

 

 

 

578,610

 

 

 

581,004

 

 

 

667,905

 

Total shareholders' equity - controlling interest

 

831,246

 

 

 

918,769

 

 

 

951,635

 

 

 

793,371

 

 

 

749,112

 

Per share

$

14.99

 

 

$

15.60

 

 

$

15.15

 

 

$

12.89

 

 

$

11.68

 

Common shares outstanding

 

55,468

 

 

 

58,877

 

 

 

62,802

 

 

 

61,534

 

 

 

64,141

 

 

The Selected Financial Data above reflects the impact of the following acquisitions and dispositions from the date of the transactions:  the May 2019 acquisition of the net assets of Magna Industries, Inc.; the December 2018 disposal of the Company’s solder business in Winston-Salem, North Carolina; the July 2018 disposal of the Garden City, Kansas and Dickinson, North Dakota oil & gas equipment facilities; the Company’s March 2018 disposal of its 65% stake in Worthington Energy Innovations, LLC (“WEI”); the June 2017 acquisition of AMTROL; the consolidation of WSP since March 2016 when the Company obtained effective control of this joint venture; the January 2016 acquisition of the assets of NetBraze, LLC through their disposal in January 2019; the December 2015 acquisition of the assets of the CryoScience business of Taylor Wharton; the May 2015 disposal of the aluminum high-pressure cylinder business; the January 2015 disposal of the Advanced Component Technologies, Inc. business; the January 2015 acquisition of the assets of Rome Strip Steel Company, Inc.; the October 2014 acquisition of dHybrid Systems, LLC through the May 2019 wind-down of its operations; the August 2014 acquisition of the assets of Midstream Equipment Fabrication LLC; and the July 2014 acquisition of the assets of James Russell Engineering Works, Inc.

25


 

Item 7. – Management’s Discussion and Analysis o f Financial Condition and Results of Operations

Selected statements contained in this “Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations” constitute “forward-looking statements” as 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 management’s beliefs, estimates, assumptions and currently available information. For a more detailed discussion of what constitutes a forward-looking statement and of some of the factors that could cause actual results to differ materially from such forward-looking statements, please refer to the “Safe Harbor Statement” in the beginning of this Annual Report on Form 10-K and “Part I - Item 1A. - Risk Factors” of this Annual Report on Form 10-K.

Introduction

Worthington Industries, Inc. is a corporation formed under the laws of the State of Ohio (individually, the “Registrant” or “Worthington Industries” or, collectively with the subsidiaries of Worthington Industries, Inc., “we,” “our,” “Worthington” or the “Company”).  Founded in 1955, Worthington is primarily a diversified metals manufacturing company, focused on value-added steel processing and manufactured metal products.  Our manufactured metal products include: pressure cylinders for liquefied petroleum gas (“LPG”), compressed natural gas (“CNG”), oxygen, refrigerant and other industrial gas storage; water well tanks for commercial and residential uses; hand torches and filled hand torch cylinders; propane-filled camping cylinders; helium-filled balloon kits; steel tanks and processing equipment primarily for the oil and gas industry; cryogenic pressure vessels for liquefied natural gas (“LNG”) and other gas storage applications; engineered cabs and operator stations and cab components; and, through our joint ventures, complete ceiling grid solutions; laser welded blanks; light gauge steel framing for commercial and residential construction; and current and past model automotive service stampings.  Our number one goal is to increase shareholder value, which we seek to accomplish by optimizing existing operations, developing and commercializing new products and applications, and pursuing strategic acquisitions and joint ventures.

As of May 31, 2019, excluding our joint ventures, we operated 31 manufacturing facilities worldwide, principally in three operating segments, which correspond with our reportable business segments: Steel Processing, Pressure Cylinders and Engineered Cabs.

We also held equity positions in nine joint ventures, which operated 46 manufacturing facilities worldwide, as of May 31, 2019.  Three of these joint ventures are consolidated within Steel Processing with the equity owned by the other joint venture member(s) shown as noncontrolling interests in our consolidated balance sheets, and the other joint venture member(s)’ portion of net earnings and other comprehensive income shown as net earnings or comprehensive income attributable to noncontrolling interests in our consolidated statements of earnings and consolidated statements of comprehensive income, respectively.  The remaining six of these joint ventures are unconsolidated and accounted for using the equity method.

Overview

Operating income was up $3.2 million, or 2.2%, on lower impairment and restructuring charges in fiscal 2019.  The Company’s results continued to be impacted by fluctuating steel prices that have resulted from the ongoing steel tariffs, which have increased selling prices in Steel Processing but have created short-term margin pressure across most of our businesses.  The run-up in steel prices that began in the latter part of fiscal 2018 continued into the first quarter of fiscal 2019, peaking at $918 per ton in July 2018, but steel prices have since receded to lower levels.  The recent decline in steel prices has led to inventory holding losses of $4.4 million in fiscal 2019 versus inventory holding gains of $17.8 million in fiscal 2018.  

Higher material prices have also put pressure on margins in our Pressure Cylinders business as costs for both steel and helium increased during fiscal 2019.  However, margins have begun to improve as the result of recent increases to selling prices and other costs mitigation efforts taken by the Company.  Pressure Cylinder results for fiscal 2019 were also negatively impacted by a $13.0 million charge associated with a tank replacement program for certain composite hydrogen fuel tanks, as described further under Recent Business Developments .

Equity in net income of unconsolidated affiliates (“equity income”) decreased $6.1 million as higher contributions from WAVE were more than offset by a $4.0 million impairment charge to write down our 10% investment in Zhejiang Nisshin Worthington Precision Specialty Steel (“Nisshin”) to its estimated fair value and declines in the other unconsolidated joint ventures.  

26


 

Recent Business Developments

 

On July 31, 2018, the Company sold its Garden City, Kansas and Dickinson, North Dakota oil & gas equipment manufacturing facilities to Palmer Mfg. & Tank Inc. for $20.3 million, net of selling costs resulting in a pre-tax gain of $2.0 million recorded in restructuring and other expense (income), net.

 

In September 2018, the Company received a one-time special cash distribution of $35.0 million from WAVE representing the primary portion of its share of the proceeds received by Armstrong World Industries, Inc. (“AWI”) in connection with the pending sale of the combined international operations of WAVE and AWI.  The Company expects to receive total proceeds of up to $45.0 million (including the $35.0 million received to date) in connection with the sale transaction, subject to certain closing adjustments provided in the purchase agreement, which is anticipated to close before the end of calendar 2019.  Refer to “Item 8. – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note C – Investments in Unconsolidated Affiliates” of this Annual Report on Form 10-K for more information on this pending sale.

 

In October 2018, the Company received a $25.0 million one-time special cash distribution from WAVE in connection with a financing transaction completed by WAVE in October 2018.

 

On December 31, 2018, the Pressure Cylinders segment sold the operating assets and real property related to its solder business to an affiliate of Lincoln Electric Holdings, Inc. (“Lincoln”) for $26.5 million, and subsequently sold certain brazing assets to Lincoln for an additional $1.1 million, resulting in a pre-tax gain of $11.3 million recorded in restructuring and other expense (income), net.

 

In February 2019, our Structural Composites Industries, LLC subsidiary (“SCI”) agreed to fund a tank replacement program for specific composite hydrogen fuel tanks, and recorded a $13.0 million charge to costs of goods sold to reflect our estimated costs of replacing these tanks.  Refer to “Item 8. – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note F – Contingent Liabilities and Commitments” of this Annual Report on Form 10-K for more information on the tank replacement program.

 

On March 20, 2019, the Board of Directors of Worthington Industries, Inc. (the “Worthington Industries Board”) authorized the repurchase of up to an additional 6,600,000 of the Company’s common shares, increasing the total number of common shares then available for repurchase to 10,000,000.  During fiscal 2019, the Company repurchased a total of 4,100,000 common shares for $168.1 million at an average price of $41.00 per share.  The total number of common shares available for repurchase at May 31, 2019 was 9,000,000.

 

On May 1, 2019, the Company acquired the net assets of Magna Industries, Inc., a Cleveland-based manufacturer of Mag-Torch® hand-held torches and Superior Tool plumbing tools.  The total purchase price was $13.5 million including $2.0 million of contingent consideration related to an earn-out provision tied to future performance. Refer to “Item 8. – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note P – Acquisitions” of this Annual Report on Form 10-K.

 

On June 26, 2019, the Worthington Industries Board declared a quarterly dividend of $0.24 per share, an increase of $0.01 per share from the previous quarterly rate.  The dividend is payable on September 27, 2019 to shareholders of record on September 13, 2019.

27


 

Market & Industry Overview

We sell our products and services to a diverse customer base and a broad range of end markets.  The breakdown of our net sales by end market for fiscal 2019 and fiscal 2018 is illustrated in the following chart:

 

 

The automotive industry is one of the largest consumers of flat-rolled steel, and thus the largest end market for our Steel Processing operating segment.  Approximately 59% of the net sales of our Steel Processing operating segment are to the automotive market.  North American vehicle production, primarily by Ford, General Motors and FCA US (the “Detroit Three automakers”), has a considerable impact on the activity within this operating segment.  The majority of the net sales of three of our unconsolidated joint ventures are also to the automotive end market.

Approximately 12% of the net sales of our Steel Processing operating segment and 35% of the net sales of our Engineered Cabs operating segment are to the construction market.  The construction market is also the predominant end market for two of our unconsolidated joint ventures: WAVE and ClarkDietrich.  While the market price of steel significantly impacts these businesses, there are other key indicators that are meaningful in analyzing construction market demand, including U.S. gross domestic product (“GDP”), the Dodge Index of construction contracts and, in the case of ClarkDietrich, trends in the relative price of framing lumber and steel.

Substantially all of the net sales of our Pressure Cylinders operating segment, and approximately 29% and 65% of the net sales of our Steel Processing and Engineered Cabs operating segments, respectively, are to other markets such as consumer products, industrial, lawn and garden, agriculture, oil & gas equipment, heavy truck, mining, forestry and appliance.  Given the many different products that make up these net sales and the wide variety of end markets, it is very difficult to detail the key market indicators that drive this portion of our business.  However, we believe that the trend in U.S. GDP growth is a good economic indicator for analyzing the demand of these end markets.

We use the following information to monitor our costs and demand in our major end markets:

 

 

 

2019

 

 

2018

 

 

2017

 

 

2019 vs. 2018

 

 

2018 vs. 2017

 

U.S. GDP (% growth year-over-year) 1

 

 

3.0

%

 

 

2.3

%

 

 

1.6

%

 

 

0.7

%

 

 

0.7

%

Hot-Rolled Steel ($ per ton) 2

 

$

783

 

 

$

687

 

 

$

593

 

 

$

96

 

 

$

94

 

Detroit Three Auto Build (000’s vehicles) 3

 

 

8,411

 

 

 

8,605

 

 

 

9,216

 

 

 

(194

)

 

 

(611

)

No. America Auto Build (000’s vehicles) 3

 

 

16,872

 

 

 

16,894

 

 

 

18,329

 

 

 

(22

)

 

 

(1,435

)

Zinc ($ per pound) 4

 

$

1.23

 

 

$

1.42

 

 

$

1.13

 

 

$

(0.19

)

 

$

0.29

 

Natural Gas ($ per mcf) 5

 

$

3.05

 

 

$

2.89

 

 

$

3.01

 

 

$

0.16

 

 

$

(0.12

)

On-Highway Diesel Fuel Prices ($ per gallon) 6

 

$

3.17

 

 

$

2.87

 

 

$

2.58

 

 

$

0.30

 

 

$

0.29

 

Crude Oil – WTI ($ per barrel) 6

 

$

61.98

 

 

$

56.75

 

 

$

48.80

 

 

$

5.23

 

 

$

7.95

 

 

1

2018/2017 figures based on revised actuals 2 CRU Hot-Rolled Index; period average 3 IHS Global 4 LME Zinc; period average   5 NYMEX Henry Hub Natural Gas; period average 6 Energy Information Administration; period average

28


 

U.S. GDP growth rate trends are generally indicative of the strength in demand and, in many cases, pricing for our products.  A year-over-year increase in U.S. GDP growth rates is indicative of a str onger economy, which generally increases demand and pricing for our products.  Conversely, decreasing U.S. GDP growth rates generally indicate a weaker economy.  Changes in U.S. GDP growth rates can also signal changes in conversion costs related to produc tion and in selling, general and administrative (“SG&A”) expense.

The market price of hot-rolled steel is one of the most significant factors impacting our selling prices and operating results.  When steel prices fall, we typically have higher-priced material flowing through cost of goods sold, while selling prices compress to what the market will bear, negatively impacting our results.  On the other hand, in a rising price environment, our results are generally favorably impacted, as lower-priced material purchased in previous periods flows through cost of goods sold, while our selling prices increase at a faster pace to cover current replacement costs.  The decline in steel prices experienced during the last three quarters of fiscal 2019 is expected to continue to result in inventory holding losses in the first and second quarters of fiscal 2020.

The following table presents the average quarterly market price per ton of hot-rolled steel during fiscal 2019, fiscal 2018 and fiscal 2017:

 

 

 

Fiscal Year

 

(Dollars per ton 1 )

 

2019

 

 

2018

 

 

2017

 

1 st Quarter

 

$

900

 

 

$

604

 

 

$

617

 

2 nd Quarter

 

$

836

 

 

$

608

 

 

$

511

 

3 rd Quarter

 

$

725

 

 

$

674

 

 

$

608

 

4 th Quarter

 

$

672

 

 

$

860

 

 

$

636

 

Annual Avg.

 

$

783

 

 

$

687

 

 

$

593

 

 

 

1

CRU Hot-Rolled Index

No single customer accounted for more than 10% of our consolidated net sales during fiscal 2019.  While our automotive business is largely driven by the production schedules of the Detroit Three automakers, our customer base is much broader and includes other domestic manufacturers and many of their suppliers.  During fiscal 2019, vehicle production for the Detroit Three automakers was down 2% from fiscal 2018, while North American vehicle production as a whole was flat.

Certain other commodities, such as zinc, natural gas and diesel fuel, represent a significant portion of our cost of goods sold, both directly through our plant operations and indirectly through transportation and freight expense.

29


 

Results of Operations

Fiscal 2019 Compared to Fiscal 2018

Consolidated Operations

The following table presents consolidated operating results for the periods indicated:

 

 

Fiscal Year Ended May 31,

 

 

 

 

 

 

% of

 

 

 

 

 

 

% of

 

 

Increase/

 

(Dollars in millions)

2019

 

 

Net sales

 

 

2018

 

 

Net sales

 

 

(Decrease)

 

Net sales

$

3,759.6

 

 

 

100.0

%

 

$

3,581.6

 

 

 

100.0

%

 

$

178.0

 

Cost of goods sold

 

3,279.6

 

 

 

87.2

%

 

 

3,018.7

 

 

 

84.3

%

 

 

260.9

 

Gross margin

 

480.0

 

 

 

12.8

%

 

 

562.9

 

 

 

15.7

%

 

 

(82.9

)

Selling, general and administrative expense

 

338.4

 

 

 

9.0

%

 

 

367.5

 

 

 

10.3

%

 

 

(29.1

)

Impairment of goodwill and long-lived assets

 

7.8

 

 

 

0.2

%

 

 

61.2

 

 

 

1.7

%

 

 

(53.4

)

Restructuring and other income, net

 

(11.0

)

 

 

-0.3

%

 

 

(7.4

)

 

 

-0.2

%

 

 

3.6

 

Operating income

 

144.8

 

 

 

3.9

%

 

 

141.6

 

 

 

4.0

%

 

 

3.2

 

Miscellaneous income, net

 

2.8

 

 

 

0.1

%

 

 

3.1

 

 

 

0.1

%

 

 

(0.3

)

Interest expense

 

(38.1

)

 

 

-1.0

%

 

 

(38.7

)

 

 

-1.1

%

 

 

(0.6

)

Equity in net income of unconsolidated affiliates

 

97.0

 

 

 

2.6

%

 

 

103.1

 

 

 

2.9

%

 

 

(6.1

)

Income tax expense

 

(43.2

)

 

 

-1.1

%

 

 

(8.2

)

 

 

-0.2

%

 

 

35.0

 

Net earnings

 

163.3

 

 

 

4.4

%

 

 

200.9

 

 

 

5.6

%

 

 

(37.6

)

Net earnings attributable to noncontrolling interests

 

9.8

 

 

 

0.3

%

 

 

6.1

 

 

 

0.2

%

 

 

3.7

 

Net earnings attributable to controlling interest

$

153.5

 

 

 

4.1

%

 

$

194.8

 

 

 

5.5

%

 

$

(41.3

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity income (loss) by unconsolidated affiliate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

WAVE

$

82.3

 

 

 

 

 

 

$

77.5

 

 

 

 

 

 

$

4.8

 

ClarkDietrich

 

8.6

 

 

 

 

 

 

 

9.8

 

 

 

 

 

 

 

(1.2

)

Serviacero Worthington

 

8.1

 

 

 

 

 

 

 

8.8

 

 

 

 

 

 

 

(0.7

)

ArtiFlex

 

2.0

 

 

 

 

 

 

 

4.9

 

 

 

 

 

 

 

(2.9

)

Other

 

(4.0

)

 

 

 

 

 

 

2.1

 

 

 

 

 

 

 

(6.1

)

Total

$

97.0

 

 

 

 

 

 

$

103.1

 

 

 

 

 

 

$

(6.1

)

 

Fiscal 2019 net earnings attributable to controlling interest decreased $41.3 million from fiscal 2018.  Net sales and operating highlights were as follows:

 

Net sales increased $178.0 million over fiscal 2018. Higher average selling prices across the business units added $320.4 million, but this was partially offset by lower direct volume in Steel Processing, and lower volume in the consumer and industrial products businesses and the impact of current year divestitures in Pressure Cylinders.

 

Gross margin decreased $82.9 million from fiscal 2018. The decrease was driven by lower direct spreads and direct volume in Steel Processing, and lower overall contribution from Pressure Cylinders as a result of a $13.0 million charge associated with the tank replacement program and lower volume in the consumer and industrial products businesses.  Higher conversion costs and lower scrap prices relative to the price of steel, resulting from the ongoing steel tariffs, continued to have a negative impact on direct spreads.

 

SG&A expense decreased $29.1 million from fiscal 2018.  The decrease was driven primarily by lower profit sharing and bonus expense, a decrease in legal costs and the impact of divestitures.  Overall, SG&A expense was 9.0% of consolidated net sales in fiscal 2019 compared to 10.3% in the prior fiscal year.

 

Impairment charges totaled $7.8 million, of which $2.4 million related to the Company’s cryogenics business in Turkey, Worthington Aritas; $2.2 million related to the wind-down of the CNG fuel system facility in Salt Lake City, Utah; and $3.2 million related to certain long-lived assets at the consolidated toll processing joint venture, WSP.  For additional information regarding these impairment charges, refer to “Item 8. – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note D – Goodwill and Other Long-Lived Assets” of this Annual Report on Form 10-K.

30


 

 

Restructuring and other income, net totaled $11.0 million and resulted primarily from a net gain related to the sale of the solder business and certain brazing assets in our Pressure Cylinders business.   For additional information, refer to “Item 8. – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note E – Restructuring and Other Expense (Income), Net ” of this A nnual Report on Form 10-K.

 

Equity income decreased $6.1 million from fiscal 2018 to $97.0 million, as higher contributions from WAVE, up $4.8 million from fiscal 2018, when a new cost-sharing agreement between Worthington and Armstrong resulted in a $3.6 million reduction in equity income, were more than offset by an impairment charge of $4.0 million to write down the Company’s 10% investment in Nisshin to its estimated fair value and declines in the other joint ventures.  ArtiFlex’s contribution to equity income decreased by $2.9 million due to higher volume of lower margin business while ClarkDietrich’s contribution decreased $1.1 million due to higher material and conversion costs.  We received cash distributions from our unconsolidated joint ventures of $161.1 million, which included $60.0 million of one-time special distributions from WAVE. For additional financial information regarding our unconsolidated affiliates, refer to “Item 8. – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note C – Investments in Unconsolidated Affiliates” of this Annual Report on Form 10-K.

 

Income tax expense increased $35.0 million from fiscal 2018, due primarily to the impact of a lower statutory federal corporate income tax rate and several one-time tax adjustments recorded in fiscal 2018, including (i) a $38.2 million net income tax benefit from re-measuring the deferred tax balances as a result of the enactment of the Tax Cuts and Jobs Act (“TCJA”), and (ii) a $22.1 million tax benefit associated with the impairment charges recorded for Worthington Aritas.  These favorable reductions were partially offset by $6.9 million mandatory deemed repatriation tax associated with the TCJA.  The TCJA lowered the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018, resulting in a U.S. federal statutory corporate income tax rate of 21.0% in fiscal 2019 versus a U.S. federal blended statutory corporate income tax rate of approximately 29.2% in fiscal 2018 due to the Company’s fiscal year.  The fiscal 2019 tax expense was calculated using an estimated annual effective income tax rate of 22.0% versus 4.0% in fiscal 2018.  For additional information, refer to “Item 8. – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note M – Income Taxes” of this Annual Report on Form 10-K.


31


 

Segment Operations

Steel Processing

The following table presents a summary of operating results for our Steel Processing operating segment for the periods indicated:

 

 

Fiscal Year Ended May 31,

 

 

 

 

 

 

% of

 

 

 

 

 

 

% of

 

 

Increase/

 

(Dollars in millions)

2019

 

 

Net sales

 

 

2018

 

 

Net sales

 

 

(Decrease)

 

Net sales

$

2,435.8

 

 

 

100.0

%

 

$

2,252.8

 

 

 

100.0

%

 

$

183.0

 

Cost of goods sold

 

2,205.7

 

 

 

90.6

%

 

 

1,968.3

 

 

 

87.4

%

 

 

237.4

 

Gross margin

 

230.1

 

 

 

9.4

%

 

 

284.5

 

 

 

12.6

%

 

 

(54.4

)

Selling, general and administrative expense

 

137.0

 

 

 

5.6

%

 

 

141.9

 

 

 

6.3

%

 

 

(4.9

)

Impairment of long-lived assets

 

3.3

 

 

 

0.1

%

 

 

-

 

 

 

0.0

%

 

 

3.3

 

Restructuring and other income, net

 

-

 

 

 

0.0

%

 

 

(10.1

)

 

 

-0.4

%

 

 

10.1

 

Operating income

$

89.8

 

 

 

3.7

%

 

$

152.7

 

 

 

6.8

%

 

$

(62.9

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Material cost

$

1,834.9

 

 

 

 

 

 

$

1,585.5

 

 

 

 

 

 

$

249.4

 

Tons shipped (in thousands)

 

3,715

 

 

 

 

 

 

 

3,820

 

 

 

 

 

 

 

(105

)

 

Net sales and operating highlights were as follows:

 

Net sales increased $183.0 million over fiscal 2018 as higher average direct selling prices added $268.1 million, but was partially offset by lower direct shipments. The mix of direct tons versus toll tons processed was 56% to 44% compared to 57% to 43% in fiscal 2018.

 

Operating income decreased $62.9 million from fiscal 2018 when the sale of the real estate of the Company’s former stainless steel business, Precision Specialty Metals, Inc. (“PSM”) resulted in a net restructuring gain of $10.6 million.  Operating income continued to be impacted by fluctuating steel prices which (i) led to inventory holding losses in fiscal 2019 of $4.4 million compared to significant inventory holding gains in fiscal 2018 of $17.8 million, (ii) created short-term margin pressure and (iii) contributed to lower direct shipments in the second half of fiscal 2019 as customers appeared to delay orders. The steel tariffs have also resulted in lower scrap prices in fiscal 2019 relative to the cost of steel, which also had a negative impact on direct spreads.

32


 

Pressure Cylinders

The following table presents a summary of operating results for our Pressure Cylinders operating segment for the periods indicated:

 

 

Fiscal Year Ended May 31,

 

 

 

 

 

 

% of

 

 

 

 

 

 

% of

 

 

Increase/

 

(Dollars in millions)

2019

 

 

Net sales

 

 

2018

 

 

Net sales

 

 

(Decrease)

 

Net sales

$

1,207.8

 

 

 

100.0

%

 

$

1,206.2

 

 

 

100.0

%

 

$

1.6

 

Cost of goods sold

 

961.2

 

 

 

79.6

%

 

 

936.7

 

 

 

77.7

%

 

 

24.5

 

Gross margin

 

246.6

 

 

 

20.4

%

 

 

269.5

 

 

 

22.3

%

 

 

(22.9

)

Selling, general and administrative expense

 

183.2

 

 

 

15.2

%

 

 

189.8

 

 

 

15.7

%

 

 

(6.6

)

Impairment of goodwill and long-lived assets

 

4.5

 

 

 

0.4

%

 

 

53.9

 

 

 

4.5

%

 

 

(49.4

)

Restructuring and other expense (income), net

 

(11.0

)

 

 

-0.9

%

 

 

2.4

 

 

 

0.2

%

 

 

(13.4

)

Operating income

$

69.9

 

 

 

5.8

%

 

$

23.4

 

 

 

1.9

%

 

$

46.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Material cost

$

550.4

 

 

 

 

 

 

$

534.9

 

 

 

 

 

 

$

15.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Units shipped by principal class of products:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer products

 

68,791,001

 

 

 

 

 

 

 

72,641,033

 

 

 

 

 

 

 

(3,850,032

)

Industrial products

 

14,994,640

 

 

 

 

 

 

 

17,530,398

 

 

 

 

 

 

 

(2,535,758

)

Oil & gas equipment

 

1,652

 

 

 

 

 

 

 

2,703

 

 

 

 

 

 

 

(1,051

)

Total Pressure Cylinders

 

83,787,293

 

 

 

 

 

 

 

90,174,134

 

 

 

 

 

 

 

(6,386,841

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales by principal class of products:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer products

$

470.4

 

 

 

 

 

 

$

471.2

 

 

 

 

 

 

$

(0.8

)

Industrial products

 

627.1

 

 

 

 

 

 

 

635.6

 

 

 

 

 

 

 

(8.5

)

Oil & gas equipment

 

110.3

 

 

 

 

 

 

 

99.4

 

 

 

 

 

 

 

10.9

 

Total Pressure Cylinders

$

1,207.8

 

 

 

 

 

 

$

1,206.2

 

 

 

 

 

 

$

1.6

 

 

Net sales and operating highlights were as follows:

 

Net sales increased $1.6 million over fiscal 2018, as higher average selling prices added $34.9 million but was mostly offset by lower volume driven primarily by declines in the consumer and industrial products businesses and current year divestitures.

 

Operating income increased $46.5 million over fiscal 2018.  The increase was driven by the combination of lower impairment charges, an $11.0 million net restructuring gain primarily related to the sale of the Company’s solder business and certain brazing assets, partially offset by the $13.0 million charge for the tank replacement program and the impact of lower volumes in the industrial and consumer products businesses.


33


 

Engineered Cabs

The following table presents a summary of operating results for our Engineered Cabs operating segment for the periods indicated:

 

 

Fiscal Year Ended May 31,

 

 

 

 

 

 

% of

 

 

 

 

 

 

% of

 

 

Increase/

 

(In millions)

2019

 

 

Net sales

 

 

2018

 

 

Net sales

 

 

(Decrease)

 

Net sales

$

115.9

 

 

 

100.0

%

 

$

116.6

 

 

 

100.0

%

 

$

(0.7

)

Cost of goods sold

 

113.1

 

 

 

97.6

%

 

 

110.9

 

 

 

95.1

%

 

 

2.2

 

Gross margin

 

2.8

 

 

 

2.4

%

 

 

5.7

 

 

 

4.9

%

 

 

(2.9

)

Selling, general and administrative expense

 

17.5

 

 

 

15.1

%

 

 

17.1

 

 

 

14.7

%

 

 

0.4

 

Restructuring and other income, net

 

-

 

 

 

0.0

%

 

 

(0.1

)

 

 

-0.1

%

 

 

0.1

 

Operating loss

$

(14.7

)

 

 

-12.7

%

 

$

(11.3

)

 

 

-9.7

%

 

$

(3.4

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Material cost

$

52.0

 

 

 

 

 

 

$

55.2

 

 

 

 

 

 

$

(3.2

)

 

Net sales and operating highlights were as follows:

 

Net sales decreased $0.7 million from fiscal 2018 on lower volume, partially offset by higher average selling prices.  

 

Operating loss of $14.7 million was $3.4 million higher than fiscal 2018, due to lower volume following the final exit of lower margin business combined with start-up costs associated with a new fabricated products operation.

Other

The Other category includes certain income and expense items not allocated to our operating segments, including costs associated with our captive insurance company.  The Other category also includes the results of our former Worthington Energy Innovations (“WEI”) operating segment, on a historical basis, through March 31, 2018.  The following table presents a summary of operating results for the Other category for the periods indicated:

 

 

Fiscal Year Ended May 31,

 

 

 

 

 

 

% of

 

 

 

 

 

 

% of

 

 

Increase/

 

(In millions)

2019

 

 

Net sales

 

 

2018

 

 

Net sales

 

 

(Decrease)

 

Net sales

$

-

 

 

 

-

 

 

$

6.0

 

 

 

100.0

%

 

$

(6.0

)

Cost of goods sold

 

(0.4

)

 

 

-

 

 

 

2.8

 

 

 

46.7

%

 

 

(3.2

)

Gross margin

 

0.4

 

 

 

-

 

 

 

3.2

 

 

 

53.3

%

 

 

(2.8

)

Selling, general and administrative expense

 

0.6

 

 

 

-

 

 

 

18.7

 

 

 

311.7

%

 

 

(18.1

)

Impairment of goodwill and long-lived assets

 

-

 

 

 

-

 

 

 

7.3

 

 

 

121.7

%

 

 

(7.3

)

Restructuring and other expense

 

-

 

 

 

-

 

 

 

0.4

 

 

 

6.7

%

 

 

(0.4

)

Operating loss

$

(0.2

)

 

 

-

 

 

$

(23.2

)

 

 

-386.7

%

 

$

23.0

 

 

Operating highlights were as follows:

 

Operating loss of $0.2 million in fiscal 2019 was $23.0 million lower than the $23.2 million operating loss in fiscal 2018.  The prior year included higher SG&A expense driven by non-allocated corporate costs, primarily for healthcare, legal and profit sharing and bonus expenses, combined with a $7.3 million charge for the impairment of goodwill and certain intangible assets of WEI.

34


 

Fiscal 2018 Compared to Fiscal 2017

Consolidated Operations

The following table presents consolidated operating results for the periods indicated:

 

 

Fiscal Year Ended May 31,

 

 

 

 

 

 

% of

 

 

 

 

 

 

% of

 

 

Increase/

 

(Dollars in millions)

2018

 

 

Net sales

 

 

2017

 

 

Net sales

 

 

(Decrease)

 

Net sales

$

3,581.6

 

 

 

100.0

%

 

$

3,014.1

 

 

 

100.0

%

 

$

567.5

 

Cost of goods sold

 

3,018.7

 

 

 

84.3

%

 

 

2,478.2

 

 

 

82.2

%

 

 

540.5

 

Gross margin

 

562.9

 

 

 

15.7

%

 

 

535.9

 

 

 

17.8

%

 

 

27.0

 

Selling, general and administrative expense

 

367.5

 

 

 

10.3

%

 

 

316.4

 

 

 

10.5

%

 

 

51.1

 

Impairment of goodwill and long-lived assets

 

61.2

 

 

 

1.7

%

 

 

-

 

 

 

0.0

%

 

 

61.2

 

Restructuring and other expense (income), net

 

(7.4

)

 

 

-0.2

%

 

 

6.4

 

 

 

0.3

%

 

 

(13.8

)

Operating income

 

141.6

 

 

 

4.0

%

 

 

213.1

 

 

 

7.0

%

 

 

(71.5

)

Miscellaneous income, net

 

3.1

 

 

 

0.1

%

 

 

3.8

 

 

 

0.1

%

 

 

(0.7

)

Interest expense

 

(38.7

)

 

 

-1.1

%

 

 

(29.8

)

 

 

-1.0

%

 

 

8.9

 

Equity in net income of unconsolidated affiliates

 

103.1

 

 

 

2.9

%

 

 

110.0

 

 

 

3.6

%

 

 

(6.9

)

Income tax expense

 

(8.2

)

 

 

-0.2

%

 

 

(79.2

)

 

 

-2.6

%

 

 

(71.0

)

Net earnings

 

200.9

 

 

 

5.6

%

 

 

217.9

 

 

 

7.2

%

 

 

(17.0

)

Net earnings attributable to noncontrolling interests

 

6.1

 

 

 

0.2

%

 

 

13.4

 

 

 

0.4

%

 

 

(7.3

)

Net earnings attributable to controlling interest

$

194.8

 

 

 

5.5

%

 

$

204.5

 

 

 

6.7

%

 

$

(9.7

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity income by unconsolidated affiliate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

WAVE

$

77.5

 

 

 

 

 

 

$

78.3

 

 

 

 

 

 

$

(0.8

)

ClarkDietrich

 

9.8

 

 

 

 

 

 

 

17.3

 

 

 

 

 

 

 

(7.5

)

Serviacero Worthington

 

8.8

 

 

 

 

 

 

 

7.2

 

 

 

 

 

 

 

1.6

 

ArtiFlex

 

4.9

 

 

 

 

 

 

 

7.0

 

 

 

 

 

 

 

(2.1

)

Other

 

2.1

 

 

 

 

 

 

 

0.2

 

 

 

 

 

 

 

1.9

 

Total

$

103.1

 

 

 

 

 

 

$

110.0

 

 

 

 

 

 

$

(6.9

)

 

Fiscal 2018 net earnings attributable to controlling interest decreased $9.7 million from fiscal 2017.  Net sales and operating highlights were as follows:

 

Net sales increased $567.5 million over fiscal 2017 .  The June 2, 2017 acquisition of New AMTROL Holdings, Inc. and its subsidiaries (collectively “AMTROL”) was the largest driver of the increase, contributing net sales of $265.2 million in fiscal 2018.  The remaining increase in net sales was driven by higher average direct selling prices in Steel Processing and higher overall volumes in Pressure Cylinders, partially offset by lower tolling volume at certain consolidated joint ventures.

 

Gross margin increased $27.0 million over fiscal 2017. Pressure Cylinders drove the increase, up $65.1 million, on contributions from AMTROL and higher volumes in the consumer and industrial products businesses.  Lower direct spreads and lower tolling volume at Steel Processing partially offset overall increase in gross margin .

 

SG&A expense increased $51.1 million over fiscal 2017. The increase was driven primarily by the AMTROL acquisition, which added $36.9 million to SG&A expense in fiscal 2018.  Overall, SG&A expense was 10.3% of consolidated net sales in fiscal 2018 compared to 10.5% in the prior fiscal year.

 

Impairment charges totaled $61.2 million, of which $52.9 million related to plans to sell the Company’s cryogenics business in Turkey, Worthington Aritas, and certain underperforming oil & gas equipment asset groups within Pressure Cylinders.  For additional information regarding these impairment charges, refer to “Item 8. – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note D – Goodwill and Other Long-Lived Assets” of this Annual Report on Form 10-K.

35


 

 

Restructuri ng and other income, net totaled $7 .4 million in fiscal 2018 driven by a net gain of $10.6 million related to the sale of the legacy real estate of the Company’s former stainless steel business, PSM, partially offset by severance expense of $2.4 million at Pressure Cylinders related to corporate management and other positions at AMTROL that were eliminated.

 

Interest expense increased $8.9 million over fiscal 2017.  The increase was primarily due to the issuance of $200.0 million of aggregate principal amount of senior unsecured notes due August 1, 2032.  For additional information, refer to “Item 8. – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note H – Debt and Receivables Securitization” of this Annual Report on Form 10-K.

 

Equity income decreased $6.9 million from fiscal 2017 to $103.1 million. The decrease was driven by lower contributions from ClarkDietrich, down $7.5 million as rising steel prices compressed margins. WAVE was down slightly despite strong volumes as a new cost-sharing agreement between the joint venture and its owners resulted in $7.6 million of additional allocations.  This run rate is expected to decline 20%-30% upon the sale of the WAVE international business.  We received distributions of $89.8 million from our unconsolidated affiliates during fiscal 2018. For additional financial information regarding our unconsolidated affiliates, refer to “Item 8. – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note C – Investments in Unconsolidated Affiliates” of this Annual Report on Form 10-K.

 

Income tax expense decreased $71.0 million from fiscal 2017 due to (i) a $38.2 million net income tax benefit from re-measuring the deferred tax balances as a result of the enactment of the TCJA, (ii) a $22.1 million tax benefit associated with the impairment charges recorded for Worthington Aritas, (iii) a lower statutory federal corporate income tax rate, and (iv) lower earnings before income taxes.  These favorable reductions were partially offset by a $12.2 million lower benefit in the current year associated with share-based payment awards, and a $6.9 million one-time mandatory deemed repatriation tax associated with the TCJA.  The TCJA lowered the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018, which due to the Company’s fiscal year, lowered the Company’s fiscal 2018 U.S. federal blended statutory corporate income tax rate to approximately 29.2%.  However, due to the factors mentioned above, the fiscal 2018 income tax expense reflects an effective tax rate attributable to controlling interest of 4.0% vs. 27.9% in fiscal 2017.   For additional information, refer to “Item 8. – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note M – Income Taxes” of this Annual Report on Form 10-K.


36


 

Segment Operations

Steel Processing

The following table presents a summary of operating results for our Steel Processing operating segment for the periods indicated:

 

 

Fiscal Year Ended May 31,

 

 

 

 

 

 

% of

 

 

 

 

 

 

% of

 

 

Increase/

 

(Dollars in millions)

2018

 

 

Net sales

 

 

2017

 

 

Net sales

 

 

(Decrease)

 

Net sales

$

2,252.8

 

 

 

100.0

%

 

$

2,074.8

 

 

 

100.0

%

 

$

178.0

 

Cost of goods sold

 

1,968.3

 

 

 

87.4

%

 

 

1,757.0

 

 

 

84.7

%

 

 

211.3

 

Gross margin

 

284.5

 

 

 

12.6

%

 

 

317.8

 

 

 

15.3

%

 

 

(33.3

)

Selling, general and administrative expense

 

141.9

 

 

 

6.3

%

 

 

145.5

 

 

 

7.0

%

 

 

(3.6

)

Restructuring and other expense (income), net

 

(10.1

)

 

 

-0.4

%

 

 

1.8

 

 

 

0.1

%

 

 

(11.9

)

Operating income

$

152.7

 

 

 

6.8

%

 

$

170.5

 

 

 

8.2

%

 

$

(17.8

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Material cost

$

1,585.5

 

 

 

 

 

 

$

1,364.5

 

 

 

 

 

 

$

221.0

 

Tons shipped (in thousands)

 

3,820

 

 

 

 

 

 

 

4,070

 

 

 

 

 

 

 

(250

)

 

Net sales and operating highlights were as follows:

 

Net sales increased $178.0 million over fiscal 2017 driven by higher average direct selling prices, which increased net sales by $147.6 million, and higher direct volume, partially offset by lower tolling volume due to declines at certain consolidated joint ventures.   The mix of direct tons versus toll tons processed was 57% to 43% compared to 52% to 48% in fiscal 2017.

 

Operating income decreased $17.8 million from fiscal 2017 as the combined impact of lower direct spreads and lower tolling volume more than offset the improvement in the volume of direct shipments.  Unfavorable changes in product mix also contributed to the margin compression.  A net restructuring gain of $10.6 million related to the sale of the real estate of the Company’s former stainless steel business, PSM, partially offset the overall decline in operating income .  


37


 

Pressure Cylinders

 

The following table presents a summary of operating results for our Pressure Cylinders operating segment for the periods indicated:

 

 

Fiscal Year Ended May 31,

 

 

 

 

 

 

% of

 

 

 

 

 

 

% of

 

 

Increase/

 

(Dollars in millions)

2018

 

 

Net sales

 

 

2017

 

 

Net sales

 

 

(Decrease)

 

Net sales

$

1,206.2

 

 

 

100.0

%

 

$

829.8

 

 

 

100.0

%

 

$

376.4

 

Cost of goods sold

 

936.7

 

 

 

77.7

%

 

 

625.5

 

 

 

75.4

%

 

 

311.2

 

Gross margin

 

269.5

 

 

 

22.3

%

 

 

204.3

 

 

 

24.6

%

 

 

65.2

 

Selling, general and administrative expense

 

189.8

 

 

 

15.7

%

 

 

146.8

 

 

 

17.7

%

 

 

43.0

 

Impairment of long-lived assets

 

53.9

 

 

 

4.5

%

 

 

-

 

 

 

0.0

%

 

 

53.9

 

Restructuring and other expense, net

 

2.4

 

 

 

0.2

%

 

 

3.4

 

 

 

0.4

%

 

 

(1.0

)

Operating income

$

23.4

 

 

 

1.9

%

 

$

54.1

 

 

 

6.5

%

 

$

(30.7

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Material cost

$

534.9

 

 

 

 

 

 

$

338.4

 

 

 

 

 

 

$

196.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Units shipped by principal class of products:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer products

 

72,641,033

 

 

 

 

 

 

 

60,665,420

 

 

 

 

 

 

 

11,975,613

 

Industrial products

 

17,530,398

 

 

 

 

 

 

 

10,667,885

 

 

 

 

 

 

 

6,862,513

 

Oil & gas equipment

 

2,703

 

 

 

 

 

 

 

2,308

 

 

 

 

 

 

 

395

 

Total Pressure Cylinders

 

90,174,134

 

 

 

 

 

 

 

71,335,613

 

 

 

 

 

 

 

18,838,521

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales by principal class of products:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer products

$

471.2

 

 

 

 

 

 

$

315.0

 

 

 

 

 

 

$

156.2

 

Industrial products

 

635.6

 

 

 

 

 

 

 

452.5

 

 

 

 

 

 

 

183.1

 

Oil & gas equipment

 

99.4

 

 

 

 

 

 

 

62.3

 

 

 

 

 

 

 

37.1

 

Total Pressure Cylinders

$

1,206.2

 

 

 

 

 

 

$

829.8

 

 

 

 

 

 

$

376.4

 

 

Net sales and operating highlights were as follows:

 

Net sales increased $376.4 million over fiscal 2017. AMTROL was the largest driver of the increase, contributing net sales of $265.2 million .  Strong demand in the legacy consumer and industrial products businesses and improvement at the oil & gas equipment business accounted for the balance of the increase.  Sales activity related to AMTROL is split between consumer products and industrial products in the table above.  

 

Operating income decreased $30.7 million from fiscal 2017 as impairment charges negatively impacted results by $53.9 million.  Contributions from AMTROL and improvements in the legacy consumer and industrial products businesses helped drive the increase in operating income, excluding the impairment charges.  Improvement in the oil & gas equipment business was largely offset by a decline in the alternative fuels business.  Fiscal 2018 impairment charges related primarily to plans to sell the Company’s cryogenics business in Turkey and certain underperforming asset groups in the oil & gas equipment business.  For additional information regarding these impairment charges, refer to “Item 8. – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note D – Goodwill and Other Long-Lived Assets” of this Annual Report on Form 10-K .

38


 

Engineered Cabs

The following table presents a summary of operating results for our Engineered Cabs operating segment for the periods indicated:

 

 

Fiscal Year Ended May 31,

 

 

 

 

 

 

% of

 

 

 

 

 

 

% of

 

 

Increase/

 

(In millions)

2018

 

 

Net sales

 

 

2017

 

 

Net sales

 

 

(Decrease)

 

Net sales

$

116.6

 

 

 

100.0

%

 

$

101.4

 

 

 

100.0

%

 

$

15.2

 

Cost of goods sold

 

110.9

 

 

 

95.1

%

 

 

92.5

 

 

 

91.2

%

 

 

18.4

 

Gross margin

 

5.7

 

 

 

4.9

%

 

 

8.9

 

 

 

8.8

%

 

 

(3.2

)

Selling, general and administrative expense

 

17.1

 

 

 

14.7

%

 

 

15.4

 

 

 

15.2

%

 

 

1.7

 

Restructuring and other expense (income), net

 

(0.1

)

 

 

-0.1

%

 

 

1.2

 

 

 

1.2

%

 

 

(1.3

)

Operating loss

$

(11.3

)

 

 

-9.7

%

 

$

(7.7

)

 

 

-7.6

%

 

$

(3.6

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Material cost

$

55.2

 

 

 

 

 

 

$

46.1

 

 

 

 

 

 

$

9.1

 

 

Net sales and operating highlights were as follows:

 

Net sales increased $15.2 million over fiscal 2017 on higher volume.

 

Operating loss of $11.3 million was $3.6 million higher than fiscal 2017 due to higher labor and conversion costs and unfavorable margins.

Other

The Other category includes certain income and expense items not allocated to our operating segments, including costs associated with our captive insurance company.  The Other category also includes the results of our former WEI operating segment, on a historical basis, through March 31, 2018.  The following table presents a summary of operating results for the Other category for the periods indicated:

 

 

Fiscal Year Ended May 31,

 

 

 

 

 

 

% of

 

 

 

 

 

 

% of

 

 

Increase/

 

(In millions)

2018

 

 

Net sales

 

 

2017

 

 

Net sales

 

 

(Decrease)

 

Net sales

$

6.0

 

 

 

100.0

%

 

$

8.0

 

 

 

100.0

%

 

$

(2.0

)

Cost of goods sold

 

2.8

 

 

 

46.7

%

 

 

3.2

 

 

 

40.0

%

 

 

(0.4

)

Gross margin

 

3.2

 

 

 

53.3

%

 

 

4.8

 

 

 

60.0

%

 

 

(1.6

)

Selling, general and administrative expense

 

18.7

 

 

 

311.7

%

 

 

8.6

 

 

 

107.5

%

 

 

10.1

 

Impairment of goodwill and long-lived assets

 

7.3

 

 

 

121.7

%

 

 

-

 

 

 

0.0

%

 

 

7.3

 

Restructuring and other expense

 

0.4

 

 

 

6.7

%

 

 

-

 

 

 

0.0

%

 

 

0.4

 

Operating loss

$

(23.2

)

 

 

-386.7

%

 

$

(3.8

)

 

 

-47.5

%

 

$

(19.4

)

 

Net sales and operating highlights were as follows:

 

Net sales decreased $2.0 million from fiscal 2017, due to the sale of WEI effective March 31, 2018.

 

Operating loss of $23.2 million in fiscal 2018 was driven by lower earnings at WEI due to a $7.3 million charge for the impairment of goodwill and certain intangible assets and higher SG&A expense driven by non-allocated corporate costs.  For additional information regarding the impairment charge, refer to “Item 8. – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note D – Goodwill and Other Long-Lived Assets” of this Annual Report on Form 10-K.

39


 

Liquidity and Capital Resources

During fiscal 2019, we generated $197.9 million of cash from operating activities, received $49.7 million in proceeds from asset sales, net of selling costs, invested $84.5 million in property, plant and equipment, received $56.7 million in excess distributions from WAVE and paid $52.3 million of dividends on our common shares . Additionally, we repurchased 4,100,000 of our common shares for $168.1 million.  The following table summarizes our consolidated cash flows for each period shown:

 

 

Fiscal Year Ended

 

 

May 31,

 

(in millions)

2019

 

 

2018

 

 

2017

 

Net cash provided by operating activities

$

197.9

 

 

$

281.3

 

 

$

335.7

 

Net cash provided (used) by investing activities

 

11.5

 

 

 

(337.4

)

 

 

(63.0

)

Net cash used by financing activities

 

(239.0

)

 

 

(100.0

)

 

 

(78.8

)

Increase (decrease) in cash and cash equivalents

 

(29.6

)

 

 

(156.1

)

 

 

193.9

 

Cash and cash equivalents at beginning of period

 

122.0

 

 

 

278.1

 

 

 

84.2

 

Cash and cash equivalents at end of period

$

92.4

 

 

$

122.0

 

 

$

278.1

 

 

We believe we have access to adequate resources to meet our needs for normal operating costs, capital expenditures, debt repayments, dividend payments and working capital for our existing businesses.  These resources include cash and cash equivalents, cash provided by operating activities and unused lines of credit.  We also believe we have adequate access to the financial markets to allow us to be in a position to sell long-term debt or equity securities. We routinely monitor current operational requirements, financial market conditions, and credit relationships and we may choose to seek additional capital by issuing new debt and/or equity securities to strengthen our liquidity or capital structure. However, should we seek such additional capital, there can be no assurance that we would be able to obtain such additional capital on terms acceptable to us, if at all, and such additional equity or debt financing could dilute the interests of our existing shareholders and/or increase our interest costs.  

Operating Activities

Our business is cyclical and cash flows from operating activities may fluctuate during the year and from year to year due to economic and industry conditions.  We rely on cash and short-term borrowings to meet cyclical increases in working capital needs.  These needs generally rise during periods of increased economic activity or increasing raw material prices, requiring higher levels of inventory and accounts receivable.  During economic slowdowns or periods of decreasing raw material costs, working capital needs generally decrease as a result of the reduction of inventories and accounts receivable.

Net cash provided by operating activities was $197.9 million during fiscal 2019 compared to $281.3 million in fiscal 2018.  The $83.4 million decrease in net cash provided by operating activities in fiscal 2019 was driven primarily by higher working capital resulting from higher average steel prices and the impact of lower earnings.  

Investing Activities

Net cash provided by investing activities was $11.5 million during fiscal 2019 compared to a net cash outflow of $337.4 million in fiscal 2018 .  The change from fiscal 2018 was driven primarily by the acquisition of AMTROL on June 2, 2017, which reduced cash by $285.0 million, net of cash acquired.  During fiscal 2019, we received $49.7 million in net proceeds from asset sales primarily from the sale of two oil & gas facilities ($20.3 million) and the sale of the operating assets and real property related to the solder business and certain brazing assets ($27.6 million).  We also received $56.7 of excess distributions from WAVE during fiscal 2019 driven by a $35.0 million special cash distribution related to the pending sale of the international operations and a $25.0 million special cash distribution in connection with a financing transaction as discussed in “Item 8. – Financial Statements – Note C – Investments in Unconsolidated Affiliates”.  

40


 

Capital expenditures reflect cash used for investment in property, plant and equipment and are presented below by reportable business segment (this information excludes cash flows related to acquisition and divestiture activity):

 

 

Fiscal Year Ended

 

 

May 31,

 

(in millions)

2019

 

 

2018

 

 

2017

 

Steel Processing

$

39.1

 

 

$

32.0

 

 

$

40.8

 

Pressure Cylinders

 

37.6

 

 

 

32.7

 

 

 

24.8

 

Engineered Cabs

 

1.1

 

 

 

2.1

 

 

 

0.8

 

Other

 

6.7

 

 

 

9.3

 

 

 

2.0

 

Total capital expenditures

$

84.5

 

 

$

76.1

 

 

$

68.4

 

 

Capital expenditures were $84.5 million in fiscal 2019. Significant capital expenditures for Steel Processing in fiscal 2019 included: $11.6 million for new slitting equipment and a pickle line upgrade and $2.5 million for implementation of a new ERP system at our TWB joint venture.  Some of the more significant items at Pressure Cylinders were $5.7 million for automation and equipment upgrades at the facility in Chilton, Wisconsin and $2.6 million related to the new manufacturing facility for the oil & gas equipment business in Tulsa, Oklahoma to replace an expired leased facility.  The largest driver of the fiscal 2019 capital expenditures in Other was $2.3 million for ongoing corporate renovations.

Investment activities are largely discretionary and future investment activities could be reduced significantly, or eliminated, as economic conditions warrant.  We assess acquisition opportunities as they arise, and any such opportunities may require additional financing.  There can be no assurance, however, that any such opportunities will arise, that any such acquisition opportunities will be consummated, or that any needed additional financing will be available on satisfactory terms when required.  

Financing Activities

Net cash used by financing activities was $239.0 million in fiscal 2019 compared to $100.0 million in fiscal 2018. During fiscal 2019, we paid $168.1 million to repurchase 4,100,000 of our common shares, reduced long-term debt by $1.4 million, and paid dividends of $52.3 million on our common shares.  In fiscal 2018, we paid $204.3 million to repurchase 4,375,000 of our common shares, reduced long-term debt by $31.1 million, and paid dividends of $51.4 million on our common shares.

Long-term debt Our senior unsecured long-term debt is rated “investment grade” by both Moody’s Investors Service, Inc. and Standard & Poor’s Ratings Group. We typically use the net proceeds from long-term debt for acquisitions, refinancing of outstanding debt, capital expenditures and general corporate purposes.  As of May 31, 2019, we were in compliance with our long-term financial debt covenants.  Our long-term debt agreements do not include ratings triggers or material adverse change provisions.

On July 28, 2017, we issued $200.0 million aggregate principal amount of senior unsecured notes due August 1, 2032.  The 2032 Notes bear interest at a rate of 4.300%.  The 2032 Notes were sold to the public at 99.901% of the principal amount thereof, to yield 4.309% to maturity.  We used a portion of the net proceeds from the offering to repay amounts then outstanding under our multi-year revolving credit facility and amounts then outstanding under our revolving trade accounts receivable securitization facility.

On September 26, 2014, Worthington Aritas, executed a five-year term loan denominated in Euros.  On May 29, 2018 , the Company paid off this term loan and settled the interest rate swap in anticipation of the planned sale of Worthington Aritas.  

Short-term borrowings Our short-term debt agreements do not include ratings triggers or material adverse change provisions.  We were in compliance with our short-term financial debt covenants at May 31, 2019.

41


 

We maintain a $500.0 million multi-year revolving credi t facility (the “Credit Facility”) with a group of lenders that matures in February 2023 .  Borrowings under the Credit Facility have maturities of up to one year and have been classified as short-term borrowings within current liabilities on our consolidat ed balance sheets.  We have the option to borrow at rates equal to an applicable margin over the LIBOR, Prime or Overnight Bank Funding rate.  The applicable margin is determined by our credit rating.  There were no borrowings outstanding under the Credit Facility at May 31, 2019 .  As discussed in “Item 8. – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note G – Guarantees,” w e provided $ 15.8 million in letters of credit for third-party beneficiaries as of May 31, 2019 .   While not drawn against at May 31, 2019 , $ 2.0 million of these letters of credit were issued against availability under the Credit Facility, leaving $ 498 . 0 million available at May 31, 2019 .

We maintain a $50.0 million revolving trade accounts receivable securitization facility (the “AR Facility”) that matures in January 2020.  Pursuant to the terms of the AR Facility, certain of our subsidiaries sell their accounts receivable without recourse, on a revolving basis, to Worthington Receivables Corporation (“WRC”), a wholly-owned, consolidated, bankruptcy-remote subsidiary.  In turn, WRC may sell without recourse, on a revolving basis, up to $50.0 million of undivided ownership interests in this pool of accounts receivable to a third-party bank.  We retain an undivided interest in this pool and are subject to risk of loss based on the collectability of the receivables from this retained interest.  Because the amount eligible to be sold excludes receivables more than 90 days past due, receivables offset by an allowance for doubtful accounts due to bankruptcy or other cause, concentrations over certain limits with specific customers and certain reserve amounts, we believe additional risk of loss is minimal.   As of May 31, 2019, no undivided ownership interests in this pool of accounts receivable had been sold.   

Common shares – We declared dividends at a quarterly rate of $0.23 per common share for each quarter of fiscal 2019 compared to $0.21 per common share for each quarter of fiscal 2018.   Dividends paid on our common shares totaled $52.3 million and $51.4 million during fiscal 2019 and fiscal 2018, respectively. On June 26, 2019, the Worthington Industries Board declared a quarterly dividend of $0.24 per common share.  The dividend is payable on September 27, 2019 to shareholders of record on September 13, 2019.

On September 27, 2017, the Worthington Industries Board authorized the repurchase of up to 6,828,855 of the outstanding common shares of Worthington Industries, Inc., and on March 20, 2019, the Worthington Industries Board authorized the repurchase of up to an additional 6,600,000 of outstanding common shares.  These common shares may be repurchased from time to time with consideration given to the market price of the common shares, the nature of other investment opportunities, cash flows from operations, general economic conditions and other relevant considerations.  Repurchases may be made on the open market or through privately negotiated transactions.  The total number of common shares available to repurchase at May 31, 2019 was 9,000,000.  

During fiscal 2019 and fiscal 2018, we repurchased 4,100,000 and 4,375,000 common shares, respectively, having an aggregate cost of $168.1 million and $204.3 million, respectively.  

Dividend Policy

We currently have no material contractual or regulatory restrictions on the payment of dividends.  Dividends are declared at the discretion of the Worthington Industries Board.  The Worthington Industries Board 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 relevant factors.  While we have paid a dividend every quarter since becoming a public company in 1968, there is no guarantee that payments of dividends will continue in the future.

42


 

Contractual Cash Obligations and Other Commercial Commitments

The following table summarizes our contractual cash obligations as of May 31, 2019.  Certain of these contractual obligations are reflected in our consolidated balance sheet, while others are disclosed as future obligations in accordance with U.S. GAAP.

 

 

 

Payments Due by Period

 

 

 

 

 

 

 

Less

Than

 

 

1 - 3

 

 

4 - 5

 

 

After

 

(in millions)

 

Total

 

 

1 Year

 

 

Years

 

 

Years

 

 

5 Years

 

Long-term debt

 

$

753.1

 

 

$

150.9

 

 

$

1.3

 

 

$

0.8

 

 

$

600.1

 

Interest expense on long-term debt

 

 

235.8

 

 

 

35.4

 

 

 

53.8

 

 

 

53.8

 

 

 

92.8

 

Operating leases

 

 

33.4

 

 

 

10.8

 

 

 

13.8

 

 

 

6.2

 

 

 

2.6

 

Royalty obligations

 

 

12.0

 

 

 

2.0

 

 

 

4.0

 

 

 

4.0

 

 

 

2.0

 

Total contractual cash obligations

 

$

1,034.3

 

 

$

199.1

 

 

$

72.9

 

 

$

64.8

 

 

$

697.5

 

 

Interest expense on long-term debt is computed by using the rates of interest on each tranche of long-term debt, including impacts of the related interest rate hedges.  Royalty obligations relate to a trademark license agreement executed in connection with the acquisition of the Coleman Cylinders business in fiscal 2012.  Due to the uncertainty regarding the timing of future cash outflows associated with the unfunded portion of our pension benefit obligations and our unrecognized tax benefits, we are unable to make a reliable estimate of the periods of cash settlement and have not included these amounts in the contractual cash obligations table above.  For additional information, refer to “Item 8. – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note L – Employee Pension Plans” and “Note M – Income Taxes” of this Annual Report on Form 10-K.

The following table summarizes our other commercial commitments as of May 31, 2019.  These commercial commitments are not reflected in our consolidated balance sheet.

 

 

 

Commitment Expiration by Period

 

 

 

 

 

 

 

Less

Than

 

 

1 - 3

 

 

4 - 5

 

 

After

 

(in millions)

 

Total

 

 

1 Year

 

 

Years

 

 

Years

 

 

5 Years

 

Guarantees

 

$

7.4

 

 

$

7.4

 

 

$

-

 

 

$

-

 

 

$

-

 

Standby letters of credit

 

 

15.8

 

 

 

15.8

 

 

 

-

 

 

 

-

 

 

 

-

 

Total commercial commitments

 

$

23.2

 

 

$

23.2

 

 

$

-

 

 

$

-

 

 

$

-

 

 

Off-Balance Sheet Arrangements

We do not have guarantees or other off-balance sheet financing arrangements that we believe are reasonably likely to have a material current or future effect on our consolidated financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.  However, as of May 31, 2019, we were party to an operating lease for an aircraft in which we have guaranteed a residual value at the termination of the lease.  The maximum obligation under the terms of this guarantee was approximately $7.4 million at May 31, 2019.   Based on current facts and circumstances, we have estimated the likelihood of payment pursuant to this guarantee is not probable and, therefore, no amount has been recognized in our consolidated financial statements.

43


 

Recently Issued Accounting Standards

In February 2016, new accounting guidance was issued that replaces most existing lease accounting guidance under U.S. GAAP.  Among other changes, the new accounting guidance requires that leased assets and liabilities be recognized on the balance sheet by lessees for those leases classified as operating leases under previous guidance.  The new guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.  Early adoption is permitted, and the change is to be applied using a modified retrospective approach as of the beginning of the earliest period presented.  In July 2018, the FASB issued additional accounting standard updates clarifying certain provisions, as well as providing for a second transition method allowing entities to initially apply the standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance sheet in retained earnings.  We have completed steps to evaluate the components and criteria of existing leases; reviewed contracts and agreements to identify items that meet the definition of a lease under the new accounting guidance; and procured a third-party software system to track and manage our leases.  We have imported the lease data into the system and are in the process of testing the upload and system calculations.  We are also in the process of assessing the design of the future lease process and drafting a policy to address the new accounting standard requirements.  We have elected certain practical expedients available under the new accounting guidance, including a package of practical expedients which allows us to not reassess prior conclusions related to contracts containing leases, lease classification, and initial direct costs.  While we are in the process of evaluating the effect the new accounting guidance will have on the presentation of our consolidated financial statements and related disclosures, the adoption is anticipated to have a material impact on the Company’s consolidated balance sheets with the addition of right-of-use assets, offset by the associated liabilities; however, we do not expect it to have a material impact on the consolidated statement of earnings or on the consolidated statement of cash flows.

In June 2016, amended accounting guidance was issued related to the measurement of credit losses on financial instruments. The amended accounting guidance changes the impairment model for most financial assets to require measurement and recognition of expected credit losses for financial assets held.  The amended accounting guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.  We are in the process of evaluating the effect this amended accounting guidance will have on our consolidated financial position and results of operations; however, we do not expect the amended accounting guidance to have a material impact on our ongoing financial reporting.

In August 2017, amended accounting guidance was issued that modifies hedge accounting by making more hedge strategies eligible for hedge accounting, amending presentation and disclosure requirements, and changing how companies assess effectiveness.  The intent is to simplify application of hedge accounting and increase transparency of information about an entity’s risk management activities.  The amended accounting guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.   It is to be applied using a modified retrospective transition approach for cash flow and net investment hedges existing at the date of adoption.  The presentation and disclosure guidance is only required prospectively.   Early adoption is permitted.  We are in the process of evaluating the effect this amended accounting guidance will have on our consolidated financial position and results of operations; however, we do not expect the amended accounting guidance to have a material impact on our ongoing financial reporting.

Environmental

We do not believe that compliance with environmental laws has or will have a material effect on our capital expenditures, future results of operations or financial position or competitive position.

Inflation

The effects of inflation on our operations were not significant during the periods presented in the consolidated financial statements.

44


 

Critical Accounting Policies

The discussion and analysis of our consolidated financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP.  The preparation of these consolidated 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.  We continually evaluate our estimates, including those related to our valuation of receivables, inventories, intangible assets, accrued liabilities, income and other tax accruals and contingencies and litigation.  We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances.  These results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Critical accounting policies are defined as those that reflect our significant judgments and uncertainties that could potentially result in materially different results under different assumptions and conditions.  Although actual results historically have not deviated significantly from those determined using our estimates, as discussed below, our consolidated financial position or results of operations could be materially different if we were to report under different conditions or to use different assumptions in the application of such policies.  We believe the following accounting policies are the most critical to us, as these are the primary areas where financial information is subject to our estimates, assumptions and judgment in the preparation of our consolidated financial statements.

Revenue Recognition:   Through fiscal 2018, we recognized revenue upon transfer of title and risk of loss, or in the case of toll processing revenue, upon delivery of the goods, provided evidence of an arrangement existed, pricing was fixed and determinable and the ability to collect was probable.  Through charges to net sales, provisions were made for returns & allowances, customer rebates and sales discounts based on past experience, specific agreements, and anticipated levels of customer activity.

On June 1, 2018, we adopted new accounting guidance that replaces most existing revenue recognition accounting guidance under U.S. GAAP, Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606) (“Topic 606”).   Under the new accounting guidance, we recognize revenue upon transfer of control of promised goods or services to customers in an amount that reflects the consideration we expect to receive for those goods or services, including any variable consideration. Refer to “Note B – Revenue Recognition” for additional information on the adoption and impact of Topic 606.

Receivables:   In order to ensure that our receivables are properly valued, we utilize an allowance for doubtful accounts.  The allowance for doubtful accounts is used to record the estimated risk of loss related to the customers’ inability to pay.  This allowance is maintained at a level that we consider appropriate based on factors that affect collectability, such as the financial health of our customers, historical trends of charge-offs and recoveries and current economic and market conditions.  As we monitor our receivables, we identify customers that may have payment problems, and we adjust the allowance accordingly, with the offset to SG&A expense.  Account balances are charged off against the allowance when recovery is considered remote.

We review our receivables on an ongoing basis to ensure that they are properly valued and collectible.  Based on this review, we believe our related reserves are appropriate.  The allowance for doubtful accounts increased approximately $518,000 during fiscal 2019 to $1.1 million.

While we believe our allowance for doubtful accounts is adequate, changes in economic conditions, the financial health of customers and bankruptcy settlements could impact our future earnings.   If the economic environment and market conditions deteriorate, particularly in the automotive and construction end markets where our exposure is greatest, additional bad debt reserves may be required.

Inventory Valuation:   Inventories are valued at the lower of cost or net realizable value.  Cost is determined using the first-in, first-out method for all inventories. The assessment of net realizable value requires the use of significant estimates to determine cost to complete, normal profit margin and the ultimate selling price of the inventory.  We believe our inventories were valued appropriately as of May 31, 2019 and May 31, 2018.

45


 

Impairm ent of Definite-Lived Long-Lived Assets :   We review the carrying value of our long-lived assets, including intangible assets with finite useful lives, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset o r asset group may not be recoverable.  Impairment testing involves a comparison of the sum of the undiscounted future cash flows of the asset or asset group to its respective carrying amount.  If the sum of the undiscounted future cash flows exceeds the ca rrying amount, then no impairment exists. If the carrying amount exceeds the sum of the undiscounted future cash flows, then a second step is performed to determine the amount of impairment, if any, to be recognized.   An impairment loss is recognized to t he extent that the carrying amount of the asset or asset group exceeds its fair value.

Fiscal 2019:   During the fourth quarter of fiscal 2019, management finalized plans to close the Company’s CNG fuel systems facility in Salt Lake City, Utah.  As a result, long-lived assets with a carrying value of $2.4 million were written down to their estimated fair market value of $238,000, resulting in an impairment charge of $2.2 million.  The Company ceased production at this facility in May 2019.

During the fourth quarter of fiscal 2019, management determined that indicators of impairment were present with regard to certain long-lived assets of the Canton, Michigan facility operated by the Company’s consolidated joint venture, WSP.  As a result, long-lived assets with a carrying value of $4.3 million were written down to their estimated fair market value of $1.0 million, resulting in an impairment charge of $3.3 million.

During the first quarter of fiscal 2019, changes in the facts and circumstances related to the planned sale of our cryogenics business in Turkey, Worthington Aritas, resulted in our lowering the estimate of fair value less cost to sell to $7.0 million which generated an impairment charge of $2.4 million.  

Fiscal 2018 :    During the fourth quarter of fiscal 2018, management committed to plans to sell the Company’s cryogenics business in Turkey, Worthington Aritas, and certain underperforming oil & gas equipment assets within Pressure Cylinders.  As all of the criteria for classification as assets held for sale were met in both instances, the net assets of each asset group have been presented separately as assets held for sale in our consolidated balance sheets.  In accordance with the applicable accounting guidance, the net assets were recorded at the lower of net book value or fair value less costs to sell.  The book value of Worthington Aritas exceeded its estimated fair market value of $9.0 million, resulting in an impairment charge of $42.4 million.  The book value of the oil & gas equipment asset group also exceeded its estimated fair market value of $21.0 million resulting in an impairment charge of $10.5 million.

During the second quarter of fiscal 2018, the Company determined that indicators of impairment were present with regard to the goodwill and intangible assets of the former WEI reporting unit.  As a result, these assets were written down to their estimated fair value resulting in an impairment charge of $7.3 million.  During the second quarter of fiscal 2018, the Company also identified the presence of impairment indicators with regard to vacant land at the oil & gas equipment facility in Bremen, Ohio, resulting in an impairment charge of $1.0 million to write the vacant land down to its estimated fair value.  

Impairment of Indefinite-Lived Long-Lived Assets :   Goodwill and intangible assets with indefinite lives are not amortized, but instead are tested for impairment annually, during the fourth quarter, or more frequently if events or changes in circumstances indicate that impairment may be present.  Application of goodwill impairment testing involves judgment, including but not limited to, the identification of reporting units and estimation of the fair value of each reporting unit.  A reporting unit is defined as an operating segment or one level below an operating segment. With the exception of Pressure Cylinders, we test goodwill at the operating segment level as we have determined that the characteristics of the reporting units within each operating segment are similar and allow for their aggregation in accordance with the applicable accounting guidance.  For our Pressure Cylinders operating segment, the oil & gas equipment business has been treated as a separate reporting unit since the second quarter of fiscal 2016.

 

46


 

For goodwill and indefinite lived intangible assets, we test for impairment by first evaluating qualitative factors including macroeconomic conditions, industry and market considerations, cost factors, and overall financial performance. If there are no co ncerns raised from this evaluation, no further testing is performed.  If, however, our qualitative analysis indicates it is more likely than not that the fair value is less than the carrying amount , a quantitative analysis is performed . The quantitative a nalysis compares the fair value of each reporting unit or indefinite-lived i ntangible asset to the respective carrying amount , and an impairment loss is recognized in our consolidated statements of earnings equivalent to the excess of the carrying amount o ver the fair value. Fair value is determined based on discounted cash flows or appraised values, as appropriate. Either way, o ur policy is to perform a quantitative analysis over e ach reporting unit at least every three years.

We performed our annual impairment evaluation of goodwill and other indefinite-lived intangible assets during the fourth quarter of fiscal 2019 and concluded that there were no issues with the Steel Processing or Pressure Cylinders assets.  However, because of certain market conditions and other concerns with the oil & gas equipment reporting unit, we performed a quantitative analysis of its long-lived assets, primarily goodwill.  While this analysis concluded there was no impairment, the estimated fair value of the oil & gas equipment reporting unit did not exceed its carrying value by a significant amount (approximately 13%).  A 100 basis point decrease in the projected long-term growth rate for this reporting unit could decrease the fair value by enough to result in some impairment based on the current forecast model.  Similarly, a 100 basis point increase in the discount rate could also decrease the fair value by enough to result in some impairment based on the current forecast model.  Accordingly, future declines in the market and/or deterioration in earnings could lead to a potential impairment.  The oil & gas equipment reporting unit had goodwill totaling $22.0 million at May 31, 2019.   For additional information on impairment, refer to “Item 8.  Financial Statements – Notes to Consolidated Financial Statements – NOTE D – Goodwill and Other Long-Lived Assets” of this Annual Report on Form 10-K.

Impairment of Equity Method Investments:   We review our equity-method investments for impairment whenever events or changes in circumstances indicate that the carrying value of the investment might not be recoverable.  Events and circumstances can include, but are not limited to:  evidence we do not have the ability to recover the carrying value; the inability of the investee to sustain earnings; the current fair value of the investment is less than the carrying value; and other investors cease to provide support or reduce their financial commitment to the investee.  If the fair value of the investment is less than the carrying value, and the investment will not recover in the near term, then other-than-temporary impairment may exist.  When the loss in value of an investment is determined to be other-than-temporary, we recognize an impairment in the period the conclusion is made.

Accounting for Derivatives and Other Contracts at Fair Value:   We use derivatives in the normal course of business to manage our exposure to fluctuations in commodity prices, foreign currency exchange rates and interest rates.  Fair values for these contracts are based upon valuation methodologies deemed appropriate in the circumstances; however, the use of different assumptions could affect the estimated fair values.

Stock-Based Compensation: All share-based awards, including those to employees and non-employee directors, are recorded as expense in the consolidated statements of earnings based on the fair value of each award at the date of grant.  Forfeitures are recognized as they occur.

Income Taxes:   In accordance with the authoritative accounting guidance , we account for income taxes using the asset and liability method.  The asset and liability method requires the recognition of deferred tax assets and liabilities for expected future tax consequences of temporary differences that currently exist between the tax basis and financial reporting basis of our assets and liabilities.  We evaluate the deferred tax assets to determine whether it is more likely than not that some, or a portion, of the deferred tax assets will not be realized, and provide a valuation allowance as appropriate.

In accordance with accounting literature related to uncertainty in income taxes , tax benefits from uncertain tax positions that are recognized in the consolidated financial statements are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.

47


 

We have reserves for income taxes and associated interest and penalties that may become payable in future years as a result of audits by taxing authorities.  It is our policy to record these in income tax expense.  While we believe the positions taken on previously filed tax returns are appropriate, we have established the tax and interest reserves in recognition that various taxing authorities may challenge our positions.  The se reserves are analyzed periodically, and adjustments are made as events occur to warrant adjustment to the reserves, such as lapsing of applicable statutes of limitations, conclusion of tax aud its, additional exposure based on current calculations, identification of new issues, and release of administrative guidance or court decisions affecting a particular tax issue.

Self-Insurance Reserves: We self-insure most of our risks for product recall, cyber liability and pollution liability.  We also are largely self-insured with respect to workers’ compensation, general and automobile liability, property damage, and employee medical claims and, in order to reduce risk and better manage our overall loss exposure, we purchase stop-loss insurance that covers individual claims in excess of the deductible amounts.  We maintain reserves for the estimated cost to settle open claims, which includes estimates of legal costs expected to be incurred, as well as an estimate of the cost of claims that have been incurred but not reported.  These estimates are based on actuarial valuations that take into consideration the historical average claim volume, the average cost for settled claims, current trends in claim costs, changes in our business and workforce, general economic factors and other assumptions believed to be reasonable under the circumstances.  The estimated reserves for these liabilities could be affected if future occurrences and claims differ from assumptions used and historical trends.  Facility consolidations, a focus on safety initiatives and an emphasis on property loss prevention and product quality have resulted in an improvement in our loss history and the related assumptions used to analyze many of the current self-insurance reserves.  We will continue to review these reserves on a quarterly basis, or more frequently if factors dictate a more frequent review is warranted.

The critical accounting policies discussed herein are not intended to be a comprehensive list of all of our accounting policies.  In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. GAAP, with a lesser need for our judgment in their application.  There are also areas in which our judgment in selecting an available alternative would not produce a materially different result.

Item 7A. – Quantitative and Qualitative Disclosures About Market Risk

In the normal course of business, we are exposed to various market risks.  We continually monitor these risks and regularly develop appropriate strategies to manage them.  Accordingly, from time to time, we may enter into certain financial and commodity-based derivative instruments.  These instruments are used solely to mitigate market exposure and are not used for trading or speculative purposes.  Refer to “Item 8. – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note Q – Derivative Instruments and Hedging Activities” of this Annual Report on Form 10-K for additional information.

Interest Rate Risk

We are exposed to changes in interest rates primarily as a result of our borrowing and investing activities to maintain liquidity and fund operations.  The nature and amount of our long-term and short-term debt can be expected to fluctuate as a result of business requirements, market conditions and other factors.  We manage exposures to interest rates using a mix of fixed and variable rate debt.  We use interest rate swap instruments to manage our exposure to interest rate movements.

We entered into an interest rate swap in June 2017, in anticipation of the issuance of $200.0 million aggregate principal amount of senior unsecured notes due August 1, 2032 (“2032 Notes”).  Refer to “Item 8. – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note H – Debt and Receivables Securitization” of this Annual Report on Form 10-K for additional information regarding the 2032 Notes.  The interest rate swap had a notional amount of $150.0 million to hedge the risk of changes in the semi-annual interest rate payments attributable to changes in the benchmark interest rate during the several days leading up to the issuance of the 15-year fixed-rate debt.  Upon pricing of the 2032 Notes, the derivative instrument was settled resulting in a gain of approximately $3.1 million, which was reflected in accumulated other comprehensive loss in our consolidated statements of equity and will be recognized in earnings, as a decrease to interest expense, over the life of the related 2032 Notes.

48


 

We entered into an interest rate swap in October 2014 to hedge changes in cash flows attributable to changes in EURIBOR associated with a five-year, euro - denominated term loan entered into by Worthington Aritas .  Under the terms of the swap, we receive d interest at a variable rate equal to the three -month EURIBOR plus 1.5% and paid interest at a fixed rate of 2.015%.  The interest rate swap ha d a notional amount equal to 60% of the borrowings outstanding under t he facility.   On May 29, 2018, in anticipation of the planned sale of our cryogenics business in Turkey, the term loan was paid off and the derivative instrument settled for an immaterial loss.

We entered into an interest rate swap in March 2014, in anticipation of the issuance of $250.0 million aggregate principal amount of senior unsecured notes due April 15, 2026 (“2026 Notes”).  Refer to “Item 8. – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note H – Debt and Receivables Securitization” of this Annual Report on Form 10-K for additional information regarding the 2026 Notes.  The interest rate swap had a notional amount of $150.0 million to hedge the risk of changes in the semi-annual interest payments attributable to changes in the benchmark interest rate during the several days leading up to the issuance of the 12-year fixed-rate debt.  Upon pricing of the 2026 Notes, the derivative instrument was settled and resulted in a loss of approximately $3.1 million, a significant portion of which was reflected within accumulated other comprehensive loss in our consolidated statements of equity and will be recognized in earnings, as an increase to interest expense, over the life of the related 2026 Notes.

We entered into a U.S. Treasury Rate-based treasury lock in April 2010, in anticipation of the issuance of $150.0 million aggregate principal amount of senior unsecured notes due April 15, 2020 (“2020 Notes”).  Refer to “Item 8. – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note H – Debt and Receivables Securitization” of this Annual Report on Form 10-K for additional information regarding the 2020 Notes.  The treasury lock had a notional amount of $150.0 million to hedge the risk of changes in the semi-annual interest payments attributable to changes in the benchmark interest rate during the several days leading up to the issuance of the 10-year fixed-rate debt.  Upon pricing of the 2020 Notes, the derivative instrument was settled and resulted in a loss of approximately $1.4 million, which has been reflected within accumulated other comprehensive loss in our consolidated statements of equity.  That balance is being recognized in earnings, as an increase to interest expense, over the life of the related 2020 Notes.

Foreign Currency Exchange Risk

The translation of foreign currencies into U.S. dollars subjects us to exposure related to fluctuating foreign currency exchange rates.  Derivative instruments are not used to manage this risk; however, we do make use of forward contracts to manage exposure to certain intercompany loans with our foreign affiliates as well as exposure to transactions denominated in a currency other than the related foreign affiliate’s local currency.  Such forward contracts limit exposure to both favorable and unfavorable foreign currency exchange rate fluctuations.  At May 31, 2019, the difference between the contract and book value of these forward contracts was not material to our consolidated financial position, results of operations or cash flows.  A 10% change in the foreign currency exchange rate to the U.S. dollar forward rate is not expected to materially impact our consolidated financial position, results of operations or cash flows.  A sensitivity analysis of changes in the U.S. dollar exchange rate on these foreign currency-denominated contracts indicates that if the U.S. dollar uniformly weakened by 10% against all of these foreign currency exposures, the fair value of these forward contracts would not be materially impacted.  Any resulting changes in fair value would be offset by changes in the underlying hedged balance sheet position.  A sensitivity analysis of changes in the foreign currency exchange rates of our foreign locations indicates that a 10% increase in those rates would not have materially impacted our net results.  The sensitivity analysis assumes a uniform shift in all foreign currency exchange rates.  The assumption that foreign currency exchange rates change in uniformity may overstate the impact of changing foreign currency exchange rates on assets and liabilities denominated in a foreign currency.

49


 

Commodity Price Risk

We are exposed to market risk for price fluctuations on purchases of steel, natural gas, zinc and other raw materials as well as our utility requirements.  We attempt to negotiate the best prices for commodities and to competitively price products and services to reflect the fluctuations in market prices. Derivative financial instruments have been used to manage a portion of our exposure to fluctuations in the cost of certain commodities, including steel, natural gas, zinc, copper and other raw materials. These contracts covered periods commensurate with known or expected exposures throughout fiscal 2020.  The derivative instruments were executed with highly rated financial institutions.  No credit loss is anticipated.  No derivatives are held for trading purposes.

A sensitivity analysis of changes in the price of hedged commodities indicates that a 10% decline in the market prices of steel, zinc, copper, natural gas or any combination of these would not have a material impact to the value of our hedges or our reported results.

The fair values of our outstanding derivative positions as of May 31, 2019 and 2018 are summarized below.  Fair values of these derivatives do not consider the offsetting impact of the underlying hedged item.

 

 

 

Fair Value At

 

 

 

May 31,

 

(in millions)

 

2019

 

 

2018

 

Foreign exchange contracts

 

$

-

 

 

$

(0.1

)

Commodity contracts

 

 

(9.8

)

 

 

10.7

 

Total derivative instruments

 

$

(9.8

)

 

$

10.6

 

 

Safe Harbor

Quantitative and qualitative disclosures about market risk include forward-looking statements with respect to management’s opinion about risks associated with the use of derivative instruments.  These statements are based on certain assumptions with respect to market prices and industry supply of, and demand for, steel products and certain raw materials.  To the extent these assumptions prove to be inaccurate, future outcomes with respect to hedging programs may differ materially from those discussed in the forward-looking statements.

50


 

Item 8. – Financial State m ents and Supplementary Data

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors and Shareholders

Worthington Industries, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Worthington Industries, Inc. and subsidiaries (the Company) as of May 31, 2019 and 2018, the related consolidated statements of earnings, comprehensive income, equity, and cash flows for each of the years in the three‑year period ended May 31, 2019, and the related notes and financial statement schedule of valuation and qualifying accounts (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of May 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three‑year period ended May 31, 2019, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of May 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated July 30, 2019, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Adoption of New Accounting Pronouncement

As discussed in Note A to the consolidated financial statements, the Company changed its method of accounting for revenue and certain costs effective June 1, 2018, due to the adoption of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers .

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/KPMG LLP

 

We have served as the Company’s auditor since 2001.

Columbus, Ohio

July 30, 2019

 

51


 

WORTHINGTON INDUSTRIES, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)

 

 

May 31,

 

 

2019

 

 

2018

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

92,363

 

 

$

121,967

 

Receivables, less allowances of $1,150 and $632 at May 31, 2019

 

 

 

 

 

 

 

and May 31, 2018, respectively

 

501,944

 

 

 

572,689

 

Inventories:

 

 

 

 

 

 

 

Raw materials

 

268,607

 

 

 

237,471

 

Work in process

 

113,848

 

 

 

122,977

 

Finished products

 

101,825

 

 

 

93,579

 

Total inventories

 

484,280

 

 

 

454,027

 

Income taxes receivable

 

10,894

 

 

 

1,650

 

Assets held for sale

 

6,924

 

 

 

30,655

 

Prepaid expenses and other current assets

 

69,508

 

 

 

60,134

 

Total current assets

 

1,165,913

 

 

 

1,241,122

 

Investments in unconsolidated affiliates

 

214,930

 

 

 

216,010

 

Goodwill

 

334,607

 

 

 

345,183

 

Other intangible assets, net of accumulated amortization of $87,759 and

 

 

 

 

 

 

 

$74,922 at May 31, 2019 and May 31, 2018, respectively

 

196,059

 

 

 

214,026

 

Other assets

 

20,623

 

 

 

20,476

 

Property, plant and equipment:

 

 

 

 

 

 

 

Land

 

23,996

 

 

 

24,229

 

Buildings and improvements

 

310,112

 

 

 

300,542

 

Machinery and equipment

 

1,049,068

 

 

 

1,030,720

 

Construction in progress

 

49,423

 

 

 

32,282

 

Total property, plant and equipment

 

1,432,599

 

 

 

1,387,773

 

Less: accumulated depreciation

 

853,935

 

 

 

802,803

 

Total property, plant and equipment, net

 

578,664

 

 

 

584,970

 

Total assets

$

2,510,796

 

 

$

2,621,787

 

 

See notes to consolidated financial statements.

52


 

WORTHINGTON INDUSTRIES, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

 

 

May 31,

 

 

2019

 

 

2018

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

393,517

 

 

$

473,485

 

Accrued compensation, contributions to employee benefit plans and related taxes

 

78,155

 

 

 

96,487

 

Dividends payable

 

14,431

 

 

 

13,731

 

Other accrued items

 

59,810

 

 

 

57,125

 

Income taxes payable

 

1,164

 

 

 

4,593

 

Current maturities of long-term debt

 

150,943

 

 

 

1,474

 

Total current liabilities

 

698,020

 

 

 

646,895

 

Other liabilities

 

69,976

 

 

 

74,237

 

Distributions in excess of investment in unconsolidated affiliate

 

121,948

 

 

 

55,198

 

Long-term debt

 

598,356

 

 

 

748,894

 

Deferred income taxes, net

 

74,102

 

 

 

60,188

 

Total liabilities

 

1,562,402

 

 

 

1,585,412

 

Shareholders' equity - controlling interest:

 

 

 

 

 

 

 

Preferred shares, without par value; authorized - 1,000,000 shares; issued and

 

 

 

 

 

 

 

outstanding - none

 

-

 

 

 

-

 

Common shares, without par value; authorized - 150,000,000 shares; issued and

 

 

 

 

 

 

 

outstanding, 2019 - 55,467,525 shares, 2018 - 58,876,921 shares

 

-

 

 

 

-

 

Additional paid-in capital

 

283,177

 

 

 

295,592

 

Accumulated other comprehensive loss, net of taxes of $7,100 and $2,908 at

 

 

 

 

 

 

 

May 31, 2019 and May 31, 2018, respectively

 

(43,464

)

 

 

(14,580

)

Retained earnings

 

591,533

 

 

 

637,757

 

Total shareholders' equity - controlling interest

 

831,246

 

 

 

918,769

 

Noncontrolling interests

 

117,148

 

 

 

117,606

 

Total equity

 

948,394

 

 

 

1,036,375

 

Total liabilities and equity

$

2,510,796

 

 

$

2,621,787

 

 

See notes to consolidated financial statements.

53


 

WORTHINGTON INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share amounts)

 

 

Fiscal Years Ended May 31,

 

 

2019

 

 

2018

 

 

2017

 

Net sales

$

3,759,556

 

 

$

3,581,620

 

 

$

3,014,108

 

Cost of goods sold

 

3,279,601

 

 

 

3,018,763

 

 

 

2,478,203

 

Gross margin

 

479,955

 

 

 

562,857

 

 

 

535,905

 

Selling, general and administrative expense

 

338,392

 

 

 

367,460

 

 

 

316,373

 

Impairment of goodwill and long-lived assets

 

7,817

 

 

 

61,208

 

 

 

-

 

Restructuring and other expense (income), net

 

(11,018

)

 

 

(7,421

)

 

 

6,411

 

Operating income

 

144,764

 

 

 

141,610

 

 

 

213,121

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

Miscellaneous income, net

 

2,716

 

 

 

2,996

 

 

 

3,764

 

Interest expense

 

(38,063

)

 

 

(38,675

)

 

 

(29,796

)

Equity in net income of unconsolidated affiliates

 

97,039

 

 

 

103,139

 

 

 

110,038

 

Earnings before income taxes

 

206,456

 

 

 

209,070

 

 

 

297,127

 

Income tax expense

 

43,183

 

 

 

8,220

 

 

 

79,190

 

Net earnings

 

163,273

 

 

 

200,850

 

 

 

217,937

 

Net earnings attributable to noncontrolling interests

 

9,818

 

 

 

6,056

 

 

 

13,422

 

Net earnings attributable to controlling interest

$

153,455

 

 

$

194,794

 

 

$

204,515

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

 

 

 

Average common shares outstanding

 

57,196

 

 

 

60,923

 

 

 

62,443

 

Earnings per share attributable to controlling interest

$

2.68

 

 

$

3.20

 

 

$

3.28

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

 

 

 

 

 

 

 

 

 

 

Average common shares outstanding

 

58,823

 

 

 

63,042

 

 

 

64,874

 

Earnings per share attributable to controlling interest

$

2.61

 

 

$

3.09

 

 

$

3.15

 

 

See notes to consolidated financial statements.

 

54


 

WORTHINGTON INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

 

 

Fiscal Years Ended May 31,

 

 

2019

 

 

2018

 

 

2017

 

Net earnings

$

163,273

 

 

$

200,850

 

 

$

217,937

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation

 

(14,772

)

 

 

12,744

 

 

 

1,342

 

Pension liability adjustment, net of tax

 

(1,785

)

 

 

1,566

 

 

 

2,242

 

Cash flow hedges, net of tax

 

(12,447

)

 

 

959

 

 

 

(2,822

)

Other comprehensive income (loss)

 

(29,004

)

 

 

15,269

 

 

 

762

 

Comprehensive income

 

134,269

 

 

 

216,119

 

 

 

218,699

 

Comprehensive income attributable to noncontrolling interests

 

9,698

 

 

 

6,429

 

 

 

13,394

 

Comprehensive income attributable to controlling interest

$

124,571

 

 

$

209,690

 

 

$

205,305

 

 

See notes to consolidated financial statements.

 

55


 

WORTHINGTON INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(Dollars in thousands, except per share amounts)

 

 

 

Controlling Interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Comprehensive

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Shares

 

 

Paid-in

 

 

Loss,

 

 

Retained

 

 

 

 

 

 

Noncontrolling

 

 

 

 

 

(in thousands)

 

Shares

 

 

Amount

 

 

Capital

 

 

Net of Tax

 

 

Earnings

 

 

Total

 

 

Interests

 

 

Total

 

Balance at May 31, 2016

 

 

61,533,668

 

 

$

-

 

 

$

298,984

 

 

$

(28,565

)

 

$

522,952

 

 

$

793,371

 

 

$

126,475

 

 

$

919,846

 

Net earnings

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

204,515

 

 

 

204,515

 

 

 

13,422

 

 

 

217,937

 

Other comprehensive income (loss)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

790

 

 

 

-

 

 

 

790

 

 

 

(28

)

 

 

762

 

Common shares issued, net of withholding tax

 

 

1,268,788

 

 

 

-

 

 

 

(9,075

)

 

 

-

 

 

 

-

 

 

 

(9,075

)

 

 

-

 

 

 

(9,075

)

Theoretical common shares in NQ plans

 

 

-

 

 

 

-

 

 

 

1,259

 

 

 

-

 

 

 

-

 

 

 

1,259

 

 

 

-

 

 

 

1,259

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

13,158

 

 

 

-

 

 

 

-

 

 

 

13,158

 

 

 

-

 

 

 

13,158

 

Purchase of noncontrolling interest in dHybrid

   Systems, LLC

 

 

-

 

 

 

-

 

 

 

(935

)

 

 

-

 

 

 

-

 

 

 

(935

)

 

 

(1,953

)

 

 

(2,888

)

Dividends to noncontrolling interests

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(15,622

)

 

 

(15,622

)

Cash dividends declared ($0.80 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(51,448

)

 

 

(51,448

)

 

 

-

 

 

 

(51,448

)

Balance at May 31, 2017

 

 

62,802,456

 

 

$

-

 

 

$

303,391

 

 

$

(27,775

)

 

$

676,019

 

 

$

951,635

 

 

$

122,294

 

 

$

1,073,929

 

Net earnings

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

194,794

 

 

 

194,794

 

 

 

6,056

 

 

 

200,850

 

Other comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

14,896

 

 

 

-

 

 

 

14,896

 

 

 

373

 

 

 

15,269

 

Common shares issued, net of withholding tax

 

 

449,465

 

 

 

-

 

 

 

(2,120

)

 

 

-

 

 

 

-

 

 

 

(2,120

)

 

 

-

 

 

 

(2,120

)

Theoretical common shares in NQ plans

 

 

-

 

 

 

-

 

 

 

1,218

 

 

 

-

 

 

 

-

 

 

 

1,218

 

 

 

-

 

 

 

1,218

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

13,460

 

 

 

-

 

 

 

-

 

 

 

13,460

 

 

 

-

 

 

 

13,460

 

Purchase of noncontrolling interest in Worthington

   Arıtaş Basınçlı Kaplar Sanayi

 

 

-

 

 

 

-

 

 

 

924

 

 

 

-

 

 

 

-

 

 

 

924

 

 

 

(2,837

)

 

 

(1,913

)

Sale of controlling interest in Worthington

   Energy Innovations, LLC

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(365

)

 

 

(365

)

Reclassification of stranded tax effects

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,701

)

 

 

1,701

 

 

 

-

 

 

 

-

 

 

 

-

 

Purchases and retirement of common shares

 

 

(4,375,000

)

 

 

-

 

 

 

(21,281

)

 

 

-

 

 

 

(182,986

)

 

 

(204,267

)

 

 

-

 

 

 

(204,267

)

Dividends to noncontrolling interests

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(7,915

)

 

 

(7,915

)

Cash dividends declared ($0.84 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(51,771

)

 

 

(51,771

)

 

 

-

 

 

 

(51,771

)

Balance at May 31, 2018

 

 

58,876,921

 

 

$

-

 

 

$

295,592

 

 

$

(14,580

)

 

$

637,757

 

 

$

918,769

 

 

$

117,606

 

 

$

1,036,375

 

Net earnings

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

153,455

 

 

 

153,455

 

 

 

9,818

 

 

 

163,273

 

Other comprehensive loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(28,884

)

 

 

-

 

 

 

(28,884

)

 

 

(120

)

 

 

(29,004

)

Common shares issued, net of withholding tax

 

 

690,604

 

 

 

-

 

 

 

(6,371

)

 

 

-

 

 

 

-

 

 

 

(6,371

)

 

 

-

 

 

 

(6,371

)

Theoretical common shares in NQ plans

 

 

-

 

 

 

-

 

 

 

680

 

 

 

-

 

 

 

-

 

 

 

680

 

 

 

-

 

 

 

680

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

13,927

 

 

 

-

 

 

 

-

 

 

 

13,927

 

 

 

-

 

 

 

13,927

 

ASC 606 transition adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,174

 

 

 

1,174

 

 

 

570

 

 

 

1,744

 

Purchases and retirement of common shares

 

 

(4,100,000

)

 

 

-

 

 

 

(20,651

)

 

 

-

 

 

 

(147,462

)

 

 

(168,113

)

 

 

-

 

 

 

(168,113

)

Dividends to noncontrolling interests

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(10,726

)

 

 

(10,726

)

Cash dividends declared ($0.92 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(53,391

)

 

 

(53,391

)

 

 

-

 

 

 

(53,391

)

Balance at May 31, 2019

 

 

55,467,525

 

 

$

-

 

 

$

283,177

 

 

$

(43,464

)

 

$

591,533

 

 

$

831,246

 

 

$

117,148

 

 

$

948,394

 

 

See notes to consolidated financial statements

 

56


 

WORTHINGTON INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

 

Fiscal Years Ended May 31,

 

 

2019

 

 

2018

 

 

2017

 

Operating activities:

 

 

 

 

 

 

 

 

 

 

 

Net earnings

$

163,273

 

 

$

200,850

 

 

$

217,937

 

Adjustments to reconcile net earnings to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

95,602

 

 

 

103,359

 

 

 

86,793

 

Impairment of goodwill and long-lived assets

 

7,817

 

 

 

61,208

 

 

 

-

 

Provision for (benefit from) deferred income taxes

 

17,435

 

 

 

(38,237

)

 

 

18,443

 

Bad debt expense

 

659

 

 

 

11

 

 

 

269

 

Equity in net income of unconsolidated affiliates, net of

   distributions

 

7,347

 

 

 

(13,352

)

 

 

(8,023

)

Net (gain) loss on assets

 

(7,059

)

 

 

(10,522

)

 

 

7,951

 

Stock-based compensation

 

11,733

 

 

 

13,758

 

 

 

14,349

 

Changes in assets and liabilities, net of impact of acquisitions:

 

 

 

 

 

 

 

 

 

 

 

Receivables

 

73,346

 

 

 

(53,066

)

 

 

(39,927

)

Inventories

 

(33,649

)

 

 

(84,654

)

 

 

(34,599

)

Prepaid expenses and other current assets

 

(24,284

)

 

 

(12,402

)

 

 

985

 

Other assets

 

3,325

 

 

 

(1,258

)

 

 

1,905

 

Accounts payable and accrued expenses

 

(116,875

)

 

 

105,984

 

 

 

67,492

 

Other liabilities

 

(811

)

 

 

9,666

 

 

 

2,097

 

Net cash provided by operating activities

 

197,859

 

 

 

281,345

 

 

 

335,672

 

 

 

 

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

 

 

 

 

Investment in property, plant and equipment

 

(84,499

)

 

 

(76,088

)

 

 

(68,386

)

Acquisitions, net of cash acquired

 

(10,402

)

 

 

(285,028

)

 

 

-

 

Distributions from unconsolidated affiliate

 

56,693

 

 

 

2,400

 

 

 

-

 

Proceeds from sale of assets

 

49,683

 

 

 

21,311

 

 

 

5,422

 

Net cash provided (used) by investing activities

 

11,475

 

 

 

(337,405

)

 

 

(62,964

)

 

 

 

 

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

 

 

 

 

Net repayments of short-term borrowings, net of issuance costs

 

-

 

 

 

(948

)

 

 

(2,528

)

Proceeds from long-term debt, net of issuance costs

 

-

 

 

 

197,685

 

 

 

-

 

Principal payments on long-term debt

 

(1,394

)

 

 

(31,130

)

 

 

(874

)

Proceeds from issuance of common shares, net of tax withholdings

 

(6,371

)

 

 

(2,120

)

 

 

(9,075

)

Payments to noncontrolling interests

 

(10,726

)

 

 

(7,915

)

 

 

(15,622

)

Repurchase of common shares

 

(168,113

)

 

 

(204,267

)

 

 

-

 

Dividends paid

 

(52,334

)

 

 

(51,359

)

 

 

(50,716

)

Net cash used by financing activities

 

(238,938

)

 

 

(100,054

)

 

 

(78,815

)

Increase (decrease) in cash and cash equivalents

 

(29,604

)

 

 

(156,114

)

 

 

193,893

 

Cash and cash equivalents at beginning of year

 

121,967

 

 

 

278,081

 

 

 

84,188

 

Cash and cash equivalents at end of year

$

92,363

 

 

$

121,967

 

 

$

278,081

 

 

See notes to consolidated financial statements.

57


 

WORTHINGTON INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal Years Ended May 31, 2019, 2018 and 2017

Note A – Summary of Significant Accounting Policies

Consolidation:   The consolidated financial statements include the accounts of Worthington Industries, Inc. and consolidated subsidiaries (collectively, “we,” “our,” “Worthington,” or the “Company”).  Investments in unconsolidated affiliates are accounted for using the equity method.  Significant intercompany accounts and transactions are eliminated.

The Company owns controlling interests in the following three joint ventures: Spartan Steel Coating, LLC (“Spartan”) (52%), TWB Company, L.L.C. (“TWB”) (55%), and Worthington Specialty Processing (“WSP”) (51%).  These joint ventures are consolidated with the equity owned by the other joint venture members shown as noncontrolling interests in our consolidated balance sheets, and their portions of net earnings and other comprehensive income (loss) (“OCI”) shown as net earnings or comprehensive income attributable to noncontrolling interests in our consolidated statements of earnings and comprehensive income, respectively. We recognized a noncontrolling interest in Worthington Energy Innovations, LLC (“WEI”) through March 31, 2018, when the Company sold its controlling stake in WEI to the other joint venture member.  There was no impact to net earnings as a result of the transaction as the fair value of the consideration received approximated the net book value of WEI.  On May 23, 2018, the Company acquired the minority ownership interest in Turkey-based Worthington Arıtaş Basınçlı Kaplar Sanayi (“Worthington Aritas”) from the noncontrolling joint venture members in a non-cash transaction. The difference between the fair value of the noncontrolling interest and its carrying value was recorded as an increase to additional paid-in-capital in the amount of $924,000.  

Use of Estimates:   The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.  Actual results could differ from those estimates.

Cash and Cash Equivalents:   We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Inventories:   Inventories are valued at the lower cost or net realizable value.  Cost is determined using the first-in, first-out method for all inventories.  The assessment of net realizable value requires the use of significant estimates to determine cost to complete, normal profit margin and the ultimate selling price of the inventory.  We believe our inventories were valued appropriately as of May 31, 2019 and May 31, 2018.

Derivative Financial Instruments:    We utilize derivative financial instruments to manage exposure to certain risks related to our ongoing operations.  The primary risks managed through the use of derivative instruments include interest rate risk, foreign currency exchange risk and commodity price risk.   All derivative instruments are accounted for using mark-to-market accounting.   The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, if so, the reason for holding it.  Gains and losses on fair value hedges are recognized in current period earnings in the same line as the underlying hedged item.  The effective portion of gains and losses on cash flow hedges is deferred as a component of accumulated other comprehensive income or loss (“AOCI”) and recognized in earnings at the time the hedged item affects earnings, in the same financial statement caption as the underlying hedged item.   Ineffectiveness of the hedges during the fiscal year ended May 31, 2019 (“fiscal 2019”), the fiscal year ended May 31, 2018 (“fiscal 2018”) and the fiscal year ended May 31, 2017 (“fiscal 2017”) was immaterial. Classification in the consolidated statements of earnings of gains and losses related to derivative instruments that do not qualify for hedge accounting is determined based on the underlying intent of the instruments.  Cash flows related to derivative instruments are generally classified as operating activities in our consolidated statements of cash flows.

58


 

In order for hedging relationships to qualify for hedge accounting under current accounting guidance, we formally document each hedging relationship and its risk management objective.  This documentation includes the hedge strategy, the hedging instrument, the hedged item, the nature of the risk being hedged, how hedge effectiveness will be assessed prospectively and retrospectively as well as a descripti on of the method used to measure hedge ineffectiveness.

Derivative instruments are executed only with highly-rated counterparties.  No credit loss is anticipated on existing instruments, and no material credit losses have been experienced to date.  We monitor our positions, as well as the credit ratings of counterparties to those positions.

We discontinue hedge accounting when it is determined that the derivative instrument is no longer effective in offsetting the hedged risk, expires or is sold, is terminated or is no longer designated as a hedging instrument because it is unlikely that a forecasted transaction will occur or we determine that designation of the hedging instrument is no longer appropriate.  In all situations in which hedge accounting is discontinued and the derivative instrument is retained, we continue to carry the derivative instrument at its fair value on the consolidated balance sheet and recognize any subsequent changes in its fair value in net earnings immediately.  When it is probable that a forecasted transaction will not occur, we discontinue hedge accounting and immediately recognize the gains and losses that were accumulated in AOCI.

Refer to “Note Q – Derivative Instruments and Hedging Activities” for additional information regarding the consolidated balance sheet location and the risk classification of our derivative instruments.

Risks and Uncertainties :  As of May 31, 2019, excluding our joint ventures, we operated 31 manufacturing facilities worldwide, principally in three operating segments, which correspond with our reportable business segments: Steel Processing, Pressure Cylinders, and Engineered Cabs.  We also held equity positions in nine joint ventures, which operated 46 manufacturing facilities worldwide, as of May 31, 2019.  Our largest end market is the automotive industry, which comprised 38%, 37%, and 43% of consolidated net sales in fiscal 2019, fiscal 2018, and fiscal 2017 , respectively.  Our international operations represented 5%, 9%, and 7% of consolidated net sales and 6%, 6%, and 4% of consolidated net earnings attributable to controlling interest in fiscal 2019, fiscal 2018, and fiscal 2017 , respectively, and 13% and 14% of consolidated net assets as of May 31, 2019 and May 31, 2018, respectively.  As of May 31, 2019, approximately 8% of our consolidated labor force was represented by collective bargaining units.  The concentration of credit risks from financial instruments related to the markets we serve is not expected to have a material adverse effect on our consolidated financial position, cash flows or future results of operations.

In fiscal 2019, our largest customer accounted for approximately 9% of our consolidated net sales, and our ten largest customers accounted for approximately 31% of our consolidated net sales.  A significant loss of, or decrease in, business from any of these customers could have an adverse effect on our consolidated net sales and financial results if we were not able to obtain replacement business.  Also, due to consolidation within the industries we serve, including the construction, automotive and retail industries, our sales may be increasingly sensitive to deterioration in the financial condition of, or other adverse developments with respect to, one or more of our largest customers.

Our principal raw material is flat-rolled steel, which we purchase from multiple primary steel producers.  The steel industry as a whole has been cyclical, and at times availability and pricing can be volatile due to a number of factors beyond our control.  This volatility can significantly affect our steel costs.  In an environment of increasing prices for steel and other raw materials, in general, competitive conditions may impact how much of the price increases we can pass on to our customers.  To the extent we are unable to pass on future price increases in our raw materials to our customers, our financial results could be adversely affected.  Also, if steel prices decrease, in general, competitive conditions may impact how quickly we must reduce our prices to our customers, and we could be forced to use higher-priced raw materials to complete orders for which the selling prices have decreased.  Declining steel prices could also require us to write-down the value of our inventories to reflect current market pricing.  Further, the number of suppliers has decreased in recent years due to industry consolidation and the financial difficulties of certain suppliers, and consolidation may continue.  Accordingly, if delivery from a major steel supplier is disrupted, it may be more difficult to obtain an alternative supply than in the past.

Receivables:   We review our receivables on an ongoing basis to ensure that they are properly valued and collectible.  This is accomplished through an allowance for doubtful accounts.    

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The allowance for doubtful accounts is used to record the estimated risk of loss related to the customers’ inability to pay.  This allowance is maintained at a level that we consider appropriate based on factors that affect collectability, such as the fina ncial health of our customers, historical trends of charge-offs and recoveries and current economic and market conditions.  As we monitor our receivables, we identify customers that may have payment problems, and we adjust the allowance accordingly, with t he offset to selling, general and administrative (“SG&A”) expense.  Account balances are charged off against the allowance when recovery is considered remote.   The al lowance for doubtful accounts in creased approximately $ 518 ,000 during fiscal 201 9 to $ 1,150 , 000.

While we believe our allowance for doubtful accounts is adequate, changes in economic conditions, the financial health of customers and bankruptcy settlements could impact our future earnings.   If the economic environment and market conditions deteriorate, particularly in the automotive and construction end markets where our exposure is greatest, additional reserves may be required.

Property and Depreciation:   Property, plant and equipment are carried at cost and depreciated using the straight-line method.  Buildings and improvements are depreciated over 10 to 40 years and machinery and equipment over 3 to 20 years.  Depreciation expense was $80,316,000, $83,680,000 and $73,268,000 during fiscal 2019, fiscal 2018 and fiscal 2017 , respectively.  Accelerated depreciation methods are used for income tax purposes.

 

Goodwill and Other Long-Lived Assets: We use the purchase method of accounting for all business combinations and recognize amortizable and indefinite-lived intangible assets separately from goodwill.  The acquired assets and assumed liabilities in an acquisition are measured and recognized based on their estimated fair values at the date of acquisition, with goodwill representing the excess of the purchase price over the fair value of the identifiable net assets.  A bargain purchase may occur, wherein the fair value of identifiable net assets exceeds the purchase price, and a gain is then recognized in the amount of that excess. Goodwill and intangible assets with indefinite lives are not amortized, but instead are tested for impairment annually, during the fourth quarter, or more frequently if events or changes in circumstances indicate that impairment may be present.  Application of goodwill impairment testing involves judgment, including but not limited to, the identification of reporting units and estimation of the fair value of each reporting unit.  A reporting unit is defined as an operating segment or one level below an operating segment.  With the exception of Pressure Cylinders, we test goodwill at the operating segment level as we have determined that the characteristics of the reporting units within each operating segment are similar and allow for their aggregation in accordance with the applicable accounting guidance.  For our Pressure Cylinders operating segment, the oil & gas equipment business has been treated as a separate reporting unit since the second quarter of fiscal 2016.

 

For goodwill and indefinite-lived intangible assets, we test for impairment by first evaluating qualitative factors including macroeconomic conditions, industry and market considerations, cost factors, and overall financial performance. If there are no concerns raised from this evaluation, no further testing is performed.  If however, our qualitative analysis indicates it is more likely than not that the fair value is less than the carrying amount, a quantitative analysis is performed. The quantitative analysis compares the fair value of each reporting unit or indefinite-lived intangible asset to the respective carrying amount, and an impairment loss is recognized in our consolidated statements of earnings equivalent to the excess of the carrying amount over the fair value. Fair value is determined based on discounted cash flows or appraised values, as appropriate. Either way, our policy is to perform a quantitative analysis over each reporting unit at least every three years.

We performed our annual impairment evaluation of goodwill and other indefinite-lived intangible assets during the fourth quarter of fiscal 2019 and concluded that the fair value of each reporting unit exceeded its carrying value.  The estimated fair value of the oil & gas equipment reporting unit did not exceed its carrying value by a significant amount (approximately 13%).  Accordingly, future declines in the market and/or deterioration in earnings could lead to a potential impairment.

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We review the carrying value of our long-lived assets, including intangible assets with finite useful lives, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable.  Impairment testing involves a comparison of the sum of the undiscounted future cash flows of the asset or asset group to its respective carrying amount.  If the sum of the undiscounted future cash flows exceeds the carrying amount, then no impairment exists.  If the carrying amount exceeds the sum of the undiscounted future cash flows, then a second step is performed to determine the amoun t of impairment, if any, to be recognized.  The impairment loss recognized is equal to the amount that the carrying value of the asset or asset group exceeds its fair value.    Long-lived assets held for sale are reported at the lower of cost or fair value l ess costs to sell and are recorded in a single line in the consolidated b alance s heets. We classify assets as held for sale if we commit to a plan to sell the asset s within one year and actively market the asset s in their current condition for a price that is reasonable in comparison to their estimated fair value.

Our impairment testing for both goodwill and other long-lived assets, including intangible assets with finite useful lives, is largely based on cash flow models that require significant judgment and require assumptions about future volume trends, revenue and expense growth rates; and, in addition, external factors such as changes in economic trends and cost of capital.  Significant changes in any of these assumptions could impact the outcomes of the tests performed. See “Note D – Goodwill and Other Long-Lived Assets” for additional details regarding these assets and related impairment testing.

Equity method investments:   Investments in affiliated companies that we do not control, either through majority ownership or otherwise, are accounted for using the equity method.   We review our equity-method investments for impairment whenever events or changes in circumstances indicate that the carrying value of the investment might not be recoverable.  Events and circumstances can include, but are not limited to:  evidence we do not have the ability to recover the carrying value; the inability of the investee to sustain earnings; the current fair value of the investment is less than the carrying value; and other investors cease to provide support or reduce their financial commitment to the investee.  If the fair value of the investment is less than the carrying value, and the investment will not recover in the near term, then other-than-temporary impairment may exist.  When the loss in value of an investment is determined to be other-than-temporary, we recognize an impairment in the period the conclusion is made.

Leases:   Certain lease agreements contain fluctuating or escalating payments and rent holiday periods.  The related rent expense is recorded on a straight-line basis over the lease term.  Leasehold improvements made by the lessee, whether funded by the lessee or by landlord allowances or incentives, are recorded as leasehold improvement assets and will be amortized over the shorter of the economic life or the lease term.  These incentives are recorded as deferred rent and amortized as reductions in rent expense over the lease term.

Stock-Based Compensation:   At May 31, 2019, we had stock-based compensation plans for our employees as well as our non-employee directors as described more fully in “Note K – Stock-Based Compensation.”  All share-based awards, including grants of stock options and restricted common shares, are recorded as expense in the consolidated statements of earnings based on their grant-date fair values.  Forfeitures are recognized as they occur.

Revenue Recognition :  Through fiscal 2018, we recognized revenue upon transfer of title and risk of loss, or in the case of toll processing revenue, upon delivery of the goods, provided evidence of an arrangement existed, pricing was fixed and determinable and the ability to collect was probable.  Through charges to net sales, provisions were made for returns and allowances, customer rebates and sales discounts based on past experience, specific agreements, and anticipated levels of customer activity.

On June 1, 2018, we adopted new accounting guidance that replaces most existing revenue recognition accounting guidance under U.S. GAAP, Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606) (“Topic 606”).   Under the new accounting guidance, we recognize revenue upon transfer of control of promised goods or services to customers in an amount that reflects the consideration we expect to receive for those goods or services, including any variable consideration.   Refer to “Note B – Revenue Recognition” for additional information on the adoption and impact of Topic 606.

Advertising Expense:   Advertising costs are expensed as incurred and included in SG&A expense.  Advertising expense was $15,574,000, $15,236,000, and $14,822,000 for fiscal 2019, fiscal 2018 and fiscal 2017 , respectively.

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Environmental Costs:   Environmental costs are capitalized if the costs extend the life of the property, increase its capacity, and/or mitigate or prevent contamination from future operations.  Cos ts related to environmental contamination treatment and cleanup are charged to expense as incurred.

Statements of Cash Flows:   Supplemental cash flow information was as follows for the fiscal years ended May 31:

 

(in thousands)

 

2019

 

 

2018

 

 

2017

 

Interest paid, net of amount capitalized

 

$

38,807

 

 

$

34,839

 

 

$

29,826

 

Income taxes paid, net of refunds

 

$

38,848

 

 

$

44,819

 

 

$

55,652

 

 

We use the “cumulative earnings” approach for determining cash flow presentation of distributions from our unconsolidated joint ventures.  Distributions received are included in our consolidated statements of cash flows as operating activities, unless the cumulative distributions exceed our portion of the cumulative equity in the net earnings of the joint venture, in which case the excess distributions are deemed to be returns of the investment and are classified as investing activities in our consolidated statements of cash flows.  

Income Taxes:   We account for income taxes using the asset and liability method.  The asset and liability method requires the recognition of deferred tax assets and liabilities for expected future tax consequences of temporary differences that currently exist between the tax basis and the financial reporting basis of our assets and liabilities.  We evaluate the deferred tax assets to determine whether it is more likely than not that all, or a portion, of the deferred tax assets will not be realized and provide a valuation allowance as appropriate.

Tax benefits from uncertain tax positions that are recognized in the consolidated financial statements are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.

We have reserves for income taxes and associated interest and penalties that may become payable in future years as a result of audits by taxing authorities.  It is our policy to record these in income tax expense.  While we believe the positions taken on previously filed tax returns are appropriate, we have established the tax and interest/penalties reserves in recognition that various taxing authorities may challenge our positions.  These reserves are analyzed periodically, and adjustments are made as events occur to warrant adjustment to the reserves, such as lapsing of applicable statutes of limitations, conclusion of tax audits, additional exposure based on current calculations, identification of new issues and release of administrative guidance or court decisions affecting a particular tax issue.

Self-Insurance Reserves:   We self-insure most of our risks for product liability, cyber liability and pollution liability.  We are largely self-insured with respect to workers’ compensation, general and automobile liability, property liability, automobile liability and employee medical claims, and in order to reduce risk and better manage our overall loss exposure for these liabilities, we purchase stop-loss insurance that covers individual claims in excess of the deductible amounts.  We also maintain reserves for the estimated cost to resolve certain open claims that have been made against us (which may include active product recall or replacement programs), as well as an estimate of the cost of claims that have been incurred but not reported.  These estimates are based on actuarial valuations that take into consideration the historical average claim volume, the average cost for settled claims, current trends in claim costs, changes in our business and workforce, general economic factors and other assumptions believed to be reasonable under the circumstances.  The estimated reserves for these liabilities could be affected if future occurrences and claims differ from the assumptions used and historical trends.

Recently Adopted Accounting Standards:

In February 2018, amended guidance was issued that would allow a reclassification from AOCI to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (“TCJA”) signed into law in December 2017.  The amended guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.  It is to be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the TCJA is recognized.  The Company early adopted this amended guidance in the fourth quarter of fiscal 2018.  As a result, the stranded tax effects in AOCI of $1,701,000, related to various unrealized gains and losses associated with the Company’s hedge instruments and minimum pension liability, were reclassified to retained earnings.

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On June 1, 2018, the Company adopted new accounting guidance that replaces most existing revenue recognition guidance under U.S. GAAP.  See “NOTE B – Revenue Recognition” for further explanation related to this adoption, including newly required disclosures.

Recently Issued Accounting Standards:  

In February 2016, new accounting guidance was issued that replaces most existing lease accounting guidance under U.S. GAAP.  Among other changes, the new accounting guidance requires that leased assets and liabilities be recognized on the balance sheet by lessees for those leases classified as operating leases under previous guidance.  The new guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.  Early adoption is permitted, and the change is to be applied using a modified retrospective approach as of the beginning of the earliest period presented.  In July 2018, the FASB issued additional accounting standard updates clarifying certain provisions, as well as providing for a second transition method allowing entities to initially apply the standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance sheet in retained earnings.  We have completed steps to evaluate the components and criteria of existing leases; reviewed contracts and agreements to identify items that meet the definition of a lease under the new accounting guidance; and procured a third-party software system to track and manage our leases.  We have imported the lease data into the system and are in the process of testing the upload and system calculations.  We are also in the process of assessing the design of the future lease process and drafting a policy to address the new accounting standard requirements.  We have elected certain practical expedients available under the new accounting guidance, including a package of practical expedients which allows us to not reassess prior conclusions related to contracts containing leases, lease classification, and initial direct costs.  While we are in the process of evaluating the effect the new accounting guidance will have on the presentation of our consolidated financial statements and related disclosures, the adoption is anticipated to have a material impact on the Company’s consolidated balance sheets with the addition of right-of-use assets, offset by the associated liabilities; however, we do not expect it to have a material impact on the consolidated statement of earnings or on the consolidated statement of cash flows.

In June 2016, amended accounting guidance was issued related to the measurement of credit losses on financial instruments. The amended accounting guidance changes the impairment model for most financial assets to require measurement and recognition of expected credit losses for financial assets held.  The amended accounting guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.  We are in the process of evaluating the effect this amended accounting guidance will have on our consolidated financial position and results of operations; however, we do not expect the amended accounting guidance to have a material impact on our ongoing financial reporting.

In August 2017, amended accounting guidance was issued that modifies hedge accounting by making more hedge strategies eligible for hedge accounting, amending presentation and disclosure requirements, and changing how companies assess effectiveness.  The intent is to simplify application of hedge accounting and increase transparency of information about an entity’s risk management activities.  The amended accounting guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.   It is to be applied using a modified retrospective transition approach for cash flow and net investment hedges existing at the date of adoption.  The presentation and disclosure guidance is only required prospectively.   Early adoption is permitted.  We are in the process of evaluating the effect this amended accounting guidance will have on our consolidated financial position and results of operations; however, we do not expect the amended accounting guidance to have a material impact on our ongoing financial reporting.

Note B – Revenue Recognition

Through fiscal 2018, in accordance with our historical accounting policies for revenue recognition, we recognized revenue upon transfer of title and risk of loss, or in the case of toll processing revenue, upon delivery of the goods, provided persuasive evidence of an arrangement existed, pricing was fixed or determinable and collectability was reasonably assured.  Through charges to net sales, provisions were made for returns and allowances, customer rebates and sales discounts based on past experiences, specific agreements, and anticipated levels of customer activity.

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On June 1, 2018, we adopted new accounting guidance that replaces most existing revenue recognition accounting guidance under U.S. GAAP, Accounting Sta ndards Update 2014-09, Revenue from Contracts with Customers (Topic 606) (“Topic 606”).  The new accounting guidance was adopted using the modified retrospective approach as applied to customer contracts that were not complete at the date of adoption, with the cumulative effect recognized in retained earnings.  Comparative financial information for reporting periods beginning prior to June 1, 2018, has not been restated and continues to be reported under the previous accounting guidance.  The cumulative eff ect adjustment resulted from a change in the pattern of recognition for our toll processing revenue stream and certain contracts within the oil & gas equipment revenue stream, which previously were accounted for as point in time and now will be accounted f or over time.

The following table outlines the cumulative effect of adopting the new revenue recognition guidance:

 

(in thousands)

 

May 31, 2018

(As Reported)

 

 

Cumulative Effect of

Topic 606 Adoption

 

 

June 1, 2018

(As Adjusted)

 

Consolidated Balance Sheet

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Receivables

 

$

572,689

 

 

$

4,706

 

 

$

577,395

 

Total inventories

 

 

454,027

 

 

 

(3,452

)

 

 

450,575

 

Prepaid expenses and other current assets

 

 

60,134

 

 

 

944

 

 

 

61,078

 

Liabilities and equity

 

 

 

 

 

 

 

 

 

 

 

 

Deferred income taxes, net

 

 

60,188

 

 

 

454

 

 

 

60,642

 

Retained earnings

 

 

637,757

 

 

 

1,174

 

 

 

638,931

 

Noncontrolling interests

 

 

117,606

 

 

 

570

 

 

 

118,176

 

 

Under the new accounting guidance, we recognize revenue upon transfer of control of promised goods or services to customers in an amount that reflects the consideration we expect to receive for those goods or services, including any variable consideration.

Returns and allowances are used to record estimates of returns or other allowances resulting from quality, delivery, discounts or other issues and are estimated based on historical trends and current market conditions, with the offset to net sales.   The returns and allowances account increased approximately $546,000 during fiscal 2019 to $6,745,000.

Shipping and handling costs charged to customers are treated as fulfillment activities and are recorded in both net sales and cost of goods sold at the time control is transferred to the customer.  Due to the short-term nature of our contracts with customers, we have elected to apply the practical expedients under Topic 606 to: (1) expense as incurred, incremental costs of obtaining a contract; and (2) not adjust the consideration for the effects of a significant financing component for contracts with an original expected duration of one year or less.  When we satisfy (or partially satisfy) a performance obligation, prior to being able to invoice the customer, we recognize an unbilled receivable when the right to consideration is unconditional and a contract asset when the right to consideration is conditional.  Unbilled receivables and contract assets are included in receivables and prepaid and other current assets, respectively, on the consolidated balance sheets.  Additionally, we do not maintain contract liability balances, as performance obligations are satisfied prior to customer payment for product.  Payments from customers are generally due within 30 to 60 days of invoicing, which generally occurs upon shipment or delivery of the goods.

Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that we collect from a customer, are excluded from revenue.

Certain contracts with customers include warranties associated with the delivered goods or services.  These warranties are not considered to be separate performance obligations, and accordingly, we record an estimated liability for potential warranty costs as the goods or services are transferred.

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With the exception of the toll processing revenue stream and certain contracts within the oil & gas equipment revenue stream, we recognize revenue at the point in time the performance obligation is satis fied and control of the product is transferred to the customer upon shipment or delivery.  Generally, we receive and acknowledge purchase orders from our customers, which define the quantity, pricing, payment and other applicable terms and conditions.  In some cases, we receive a blanket purchase order from our customers, which includes pricing, payment and other terms and conditions, with quantities defined at the time each customer subsequently issues periodic releases against the blanket purchase order.

For the toll processing revenue stream and certain contracts within the oil & gas equipment revenue stream, we recognize revenue over time.  Revenue is primarily measured using the cost-to-cost method, which we believe best depicts the transfer of control to the customer.  Under the cost-to-cost method, the extent of progress towards completion is measured based on the ratio of actual costs incurred to the total estimated costs expected upon satisfying the identified performance obligation.  Revenues are recorded proportionally as costs are incurred.  We have elected to not disclose the value of unsatisfied performance obligations for contracts with an original expected duration of one year or less.

Certain contracts contain variable consideration, which is not constrained, and primarily include estimated sales returns, customer rebates, and sales discounts which are recorded on an expected value basis.  These estimates are based on historical returns, analysis of credit memo data and other known factors.  We account for rebates by recording reductions to revenue for rebates in the same period the related revenue is recorded.  The amount of these reductions is based upon the terms agreed to with the customer.  We do not exercise significant judgments in determining the timing of satisfaction of performance obligations or the transaction price.

The following table summarizes net sales by product class and by timing of revenue recognition for the fiscal year ended May 31, 2019:

 

(in thousands)

 

Reportable Segments

 

Product class:

 

Steel

Processing

 

 

Pressure

Cylinders

 

 

Engineered

Cabs

 

 

Other

 

 

Total

 

Steel Processing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct

 

$

2,308,756

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

2,308,756

 

Toll

 

 

127,062

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

127,062

 

Pressure Cylinders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Industrial products

 

 

-

 

 

 

627,053

 

 

 

-

 

 

 

-

 

 

 

627,053

 

Consumer products

 

 

-

 

 

 

470,447

 

 

 

-

 

 

 

-

 

 

 

470,447

 

Oil & gas equipment

 

 

-

 

 

 

110,298

 

 

 

-

 

 

 

-

 

 

 

110,298

 

Engineered Cabs

 

 

-

 

 

 

-

 

 

 

115,902

 

 

 

-

 

 

 

115,902

 

Other

 

 

-

 

 

 

-

 

 

 

-

 

 

 

38

 

 

 

38

 

Total

 

$

2,435,818

 

 

$

1,207,798

 

 

$

115,902

 

 

$

38

 

 

$

3,759,556

 

Timing of revenue recognition:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goods transferred at a point in time

 

$

2,308,756

 

 

$

1,132,639

 

 

$

115,902

 

 

$

38

 

 

$

3,557,335

 

Goods and services transferred over

   time

 

 

127,062

 

 

 

75,159

 

 

 

-

 

 

 

-

 

 

 

202,221

 

Total

 

$

2,435,818

 

 

$

1,207,798

 

 

$

115,902

 

 

$

38

 

 

$

3,759,556

 

 

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The following tables show the adjustments that would be required to be made to our fiscal 2019 co nsolidated financial statements to reflect the balances that would have been recorded if we continued to follow our accounting policies under the previous revenue recognition guidance:

 

(in thousands)

 

As Currently

Reported

 

 

Topic 606

Adjustments

 

 

Balances

Without

Adoption of

Topic 606

 

Consolidated Balance Sheet

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Receivables

 

$

501,944

 

 

$

(5,367

)

 

$

496,577

 

Total inventories

 

 

484,280

 

 

 

8,704

 

 

 

492,984

 

Prepaid expenses and other current assets

 

 

69,508

 

 

 

(6,891

)

 

 

62,617

 

Income tax receivable

 

 

10,894

 

 

 

425

 

 

 

11,319

 

Liabilities and equity

 

 

 

 

 

 

 

 

 

 

 

 

Income taxes payable

 

 

1,164

 

 

 

12

 

 

 

1,176

 

Deferred income taxes, net

 

 

74,102

 

 

 

(360

)

 

 

73,742

 

Shareholders' equity - controlling interest

 

 

831,246

 

 

 

(2,227

)

 

 

829,019

 

Noncontrolling interests

 

 

117,148

 

 

 

(554

)

 

 

116,594

 

Consolidated Statement of Earnings

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

3,759,556

 

 

$

(6,608

)

 

$

3,752,948

 

Cost of goods sold

 

 

3,279,601

 

 

 

(5,253

)

 

 

3,274,348

 

Income tax expense

 

 

43,183

 

 

 

(319

)

 

 

42,864

 

Net earnings

 

 

163,273

 

 

 

(1,036

)

 

 

162,237

 

Net earnings attributable to noncontrolling

   interests

 

 

9,818

 

 

 

16

 

 

 

9,834

 

Net earnings attributable to controlling

   interest

 

 

153,455

 

 

 

(1,052

)

 

 

152,403

 

 

Note C – Investments in Unconsolidated Affiliates

Our investments in affiliated companies that we do not control, either through majority ownership or otherwise, are accounted for using the equity method.  These include ArtiFlex Manufacturing, LLC (“ArtiFlex”) (50%), Clarkwestern Dietrich Building Systems LLC (“ClarkDietrich”) (25%), Samuel Steel Pickling Company (31.25%), Serviacero Planos, S. de R. L. de C.V. (“Serviacero Worthington”) (50%), Worthington Armstrong Venture (“WAVE”) (50%), and Zhejiang Nisshin Worthington Precision Specialty Steel Co., Ltd. (“Nisshin”) (10%).

During the fourth quarter of fiscal 2019, we determined our 10% ownership interest in our joint venture in China, Nisshin, was other than temporarily impaired due to current and projected operating losses.  As a result, an impairment charge of $4,017,000 was recognized within equity income in our consolidated statement of earnings to write down the investment to its estimated fair value of $3,700,000.

We received distributions from unconsolidated affiliates totaling $161,079,000, $89,787,000, and $102,015,000 in fiscal 2019, fiscal 2018 and fiscal 2017 , respectively.  We have received cumulative distributions from WAVE in excess of our investment balance, which resulted in an amount recorded within other liabilities on our consolidated balance sheets of $121,948,000 and $55,198,000 at May 31, 2019 and 2018, respectively.  In accordance with the applicable accounting guidance, we reclassified the negative balance to the liabilities section of our consolidated balance sheet.  We will continue to record our equity in the net income of WAVE as a debit to the investment account, and if it becomes positive, it will again be shown as an asset on our consolidated balance sheet. If it becomes probable that any excess distribution may not be returned (upon joint venture liquidation or otherwise), we will recognize any balance classified as a liability as income immediately.

66


 

The fo llowing table presents combined information regarding the financial position of our unconsolidated affiliates accounted for using the equity method as of May 31:

 

(in thousands)

2019

 

 

2018

 

Cash

$

37,471

 

 

$

52,812

 

Other current assets

 

594,959

 

 

 

590,578

 

Current assets for discontinued operations

 

35,793

 

 

 

37,640

 

Noncurrent assets

 

360,925

 

 

 

358,927

 

Total assets

$

1,029,148

 

 

$

1,039,957

 

Current liabilities

$

236,781

 

 

$

166,493

 

Current liabilities for discontinued operations

 

9,610

 

 

 

7,142

 

Short-term borrowings

 

15,162

 

 

 

26,599

 

Current maturities of long-term debt

 

33,003

 

 

 

23,243

 

Long-term debt

 

321,791

 

 

 

259,588

 

Other noncurrent liabilities

 

18,192

 

 

 

17,536

 

Equity

 

394,609

 

 

 

539,356

 

Total liabilities and equity

$

1,029,148

 

 

$

1,039,957

 

 

The amounts presented within the discontinued operations captions in the table above reflect the international operations of our WAVE joint venture, which are being sold as part of a broader transaction between the joint venture partner, Armstrong World Industries, Inc. (“AWI”), and Knauf Group, a family-owned manufacturer of building materials headquartered in Germany.  WAVE’s portion of the total sales proceeds is expected to be approximately $90,000,000 ($45,000,000 attributed to Worthington).  The transaction is subject to regulatory approvals and other customary closing conditions.  During the first quarter of fiscal 2019, the parties agreed to extend the date by which certain competition clearance conditions were to be satisfied per the original purchase agreement.  In exchange, Knauf Group irrevocably agreed to fund the purchase price which was received by AWI in two distributions, the first on August 1, 2018, and the balance on September 15, 2018.  In September 2018, we received a cash distribution of $35,000,000 from WAVE related to the pending sale of the international operations.  We will receive the remaining proceeds at closing, subject to certain adjustments as provided in the purchase agreement, including those related to the economic impact of any required regulatory remedies and a working capital adjustment.  Despite receiving a portion of the sales proceeds, there has been no change in control of the international operations of WAVE; therefore, the gain to be realized from this transaction has not been reflected in WAVE’s statement of earnings.  The closing is expected to occur by the end of calendar 2019.   We also received a one-time special cash distribution of $25,000,000 from WAVE in connection with a financing transaction completed in October 2018.  

 

67


 

The following table presents summarized financial information for our four largest unconsolidated affiliates as of, and for the fiscal years ende d May 31.  All other unconsolidated affiliates are combined and presented in the Other category .

 

(in thousands)

 

2019

 

 

2018

 

 

2017

 

Net sales

 

 

 

 

 

 

 

 

 

 

 

 

WAVE

 

$

379,103

 

 

$

360,395

 

 

$

334,031

 

ClarkDietrich

 

 

892,758

 

 

 

790,887

 

 

 

711,735

 

Serviacero Worthington

 

 

351,671

 

 

 

315,098

 

 

 

275,315

 

ArtiFlex

 

 

201,526

 

 

 

197,061

 

 

 

208,922

 

Other

 

 

32,753

 

 

 

28,578

 

 

 

17,784

 

Total net sales

 

$

1,857,811

 

 

$

1,692,019

 

 

$

1,547,787

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross margin (loss)

 

 

 

 

 

 

 

 

 

 

 

 

WAVE

 

$

205,909

 

 

$

201,581

 

 

$

190,350

 

ClarkDietrich

 

 

93,947

 

 

 

97,437

 

 

 

128,098

 

Serviacero Worthington

 

 

34,494

 

 

 

32,396

 

 

 

37,080

 

ArtiFlex

 

 

12,928

 

 

 

18,266

 

 

 

22,829

 

Other

 

 

(6,000

)

 

 

(6,399

)

 

 

(4,313

)

Total gross margin

 

$

341,278

 

 

$

343,281

 

 

$

374,044

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

WAVE

 

$

166,969

 

 

$

158,697

 

 

$

158,030

 

ClarkDietrich

 

 

33,384

 

 

 

39,153

 

 

 

68,696

 

Serviacero Worthington

 

 

25,636

 

 

 

24,232

 

 

 

29,975

 

ArtiFlex

 

 

5,524

 

 

 

11,395

 

 

 

15,519

 

Other

 

 

(9,964

)

 

 

(10,584

)

 

 

(8,407

)

Total operating income

 

$

221,549

 

 

$

222,893

 

 

$

263,813

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

 

 

 

 

 

 

 

 

 

WAVE

 

$

3,634

 

 

$

3,318

 

 

$

2,978

 

ClarkDietrich

 

 

11,600

 

 

 

11,864

 

 

 

12,718

 

Serviacero Worthington

 

 

4,319

 

 

 

3,919

 

 

 

3,862

 

ArtiFlex

 

 

6,055

 

 

 

5,515

 

 

 

5,850

 

Other

 

 

875

 

 

 

749

 

 

 

698

 

Total depreciation and amortization

 

$

26,483

 

 

$

25,365

 

 

$

26,106

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

WAVE

 

$

10,547

 

 

$

8,365

 

 

$

7,182

 

ClarkDietrich

 

 

912

 

 

 

114

 

 

 

20

 

Serviacero Worthington

 

 

493

 

 

 

397

 

 

 

89

 

ArtiFlex

 

 

1,443

 

 

 

1,333

 

 

 

1,429

 

Other

 

 

-

 

 

 

-

 

 

 

-

 

Total interest expense

 

$

13,395

 

 

$

10,209

 

 

$

8,720

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense (benefit)

 

 

 

 

 

 

 

 

 

 

 

 

WAVE

 

$

219

 

 

$

119

 

 

$

2,398

 

ClarkDietrich

 

 

-

 

 

 

-

 

 

 

-

 

Serviacero Worthington

 

 

7,629

 

 

 

5,141

 

 

 

11,740

 

ArtiFlex

 

 

29

 

 

 

208

 

 

 

(2

)

Other

 

 

-

 

 

 

-

 

 

 

(2

)

Total income tax expense

 

$

7,877

 

 

$

5,468

 

 

$

14,134

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings (loss)

 

 

 

 

 

 

 

 

 

 

 

 

WAVE (1)

 

$

162,849

 

 

$

152,329

 

 

$

154,866

 

ClarkDietrich

 

 

34,560

 

 

 

39,138

 

 

 

69,122

 

Serviacero Worthington

 

 

16,155

 

 

 

17,577

 

 

 

18,140

 

ArtiFlex

 

 

4,051

 

 

 

9,854

 

 

 

14,092

 

Other

 

 

(8,383

)

 

 

(11,922

)

 

 

(5,472

)

Total net earnings

 

$

209,232

 

 

$

206,976

 

 

$

250,748

 

 

 

(1)

These net earnings include net income attributable to discontinued operations of $6,830,000, $2,226,000, and $6,775,000 in fiscal 2019, fiscal 2018, and fiscal 2017, respectively, related to the international operations of WAVE being sold.  All other amounts presented in the table above exclude the activity of the discontinued operations of WAVE.  

68


 

 

At May 31, 2019 and 2018, $46,838,000 and $42,636,000, respectively, of our consolidated retained earnings represented undistributed earnings of our unconsolidated affiliates, net of tax.

Note D – Goodwill and Other Long-Lived Assets

Goodwill

The following table summarizes the changes in the carrying amount of goodwill during fiscal 2019 and fiscal 2018 by reportable business segment:

 

(in thousands)

 

Steel

Processing

 

 

Pressure

Cylinders

 

 

Engineered

Cabs

 

 

Other

 

 

Total

 

Balance at May 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

$

7,899

 

 

$

234,123

 

 

$

44,933

 

 

$

127,245

 

 

$

414,200

 

Accumulated impairment losses

 

 

-

 

 

 

-

 

 

 

(44,933

)

 

 

(121,594

)

 

 

(166,527

)

 

 

 

7,899

 

 

 

234,123

 

 

 

-

 

 

 

5,651

 

 

 

247,673

 

Acquisitions and purchase accounting adjustments (1)

 

 

-

 

 

 

103,437

 

 

 

-

 

 

 

-

 

 

 

103,437

 

Translation adjustments

 

 

-

 

 

 

3,739

 

 

 

-

 

 

 

-

 

 

 

3,739

 

Impairment losses (2)

 

 

-

 

 

 

(4,015

)

 

 

-

 

 

 

(5,651

)

 

 

(9,666

)

 

 

 

-

 

 

 

103,161

 

 

 

-

 

 

 

(5,651

)

 

 

97,510

 

Balance at May 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

 

7,899

 

 

 

341,299

 

 

 

44,933

 

 

 

127,245

 

 

 

521,376

 

Accumulated impairment losses

 

 

-

 

 

 

(4,015

)

 

 

(44,933

)

 

 

(127,245

)

 

 

(176,193

)

 

 

 

7,899

 

 

 

337,284

 

 

 

-

 

 

 

-

 

 

 

345,183

 

Acquisitions and purchase accounting adjustments (1)

 

 

-

 

 

 

777

 

 

 

-

 

 

 

-

 

 

 

777

 

Translation adjustments

 

 

-

 

 

 

(4,093

)

 

 

-

 

 

 

-

 

 

 

(4,093

)

Divestitures (3)

 

 

-

 

 

 

(7,260

)

 

 

-

 

 

 

-

 

 

 

(7,260

)

 

 

 

-

 

 

 

(10,576

)

 

 

-

 

 

 

-

 

 

 

(10,576

)

Balance at May 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

 

7,899

 

 

 

330,723

 

 

 

44,933

 

 

 

127,245

 

 

 

510,800

 

Accumulated impairment losses

 

 

-

 

 

 

(4,015

)

 

 

(44,933

)

 

 

(127,245

)

 

 

(176,193

)

 

 

$

7,899

 

 

$

326,708

 

 

$

-

 

 

$

-

 

 

$

334,607

 

 

 

(1)

For additional information regarding the Company’s acquisitions, refer to “Note P – Acquisitions.”  

 

(2)

Fiscal 2018 impairment charges included $4,015,000 of goodwill allocated to oil & gas equipment assets prior to their disposal on July 31, 2018 and $5,651,000 related to the sale of a 65% stake in WEI on March 31, 2018.  

 

(3)

Fiscal 2019 divestitures included the sale of the operating assets and real property related to the solder business and certain brazing assets.

69


 

Other Intangible Assets

Intangible assets with definite lives are amortized on a straight-line basis over their estimated useful lives, which range from one to 20 years.   The following table summarizes other intangible assets by class as of May 31, 2019 and 2018:

 

 

2019

 

 

2018

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Accumulated

 

(in thousands)

Cost

 

 

Amortization

 

 

Cost

 

 

Amortization

 

Indefinite-lived intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trademarks

$

74,801

 

 

$

-

 

 

$

76,701

 

 

$

-

 

Total indefinite-lived intangible assets

 

74,801

 

 

 

-

 

 

 

76,701

 

 

 

-

 

Definite-lived intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

$

174,150

 

 

$

69,258

 

 

$

173,363

 

 

$

57,125

 

Non-compete agreements

 

8,656

 

 

 

8,509

 

 

 

8,669

 

 

 

8,137

 

Technology / know-how

 

22,495

 

 

 

6,276

 

 

 

26,411

 

 

 

5,856

 

Other

 

3,716

 

 

 

3,716

 

 

 

3,804

 

 

 

3,804

 

Total definite-lived intangible assets

 

209,017

 

 

 

87,759

 

 

 

212,247

 

 

 

74,922

 

Total intangible assets

$

283,818

 

 

$

87,759

 

 

$

288,948

 

 

$

74,922

 

 

Amortization expense totaled $15,286,000, $19,679,000, and $13,525,000 in fiscal 2019, fiscal 2018 and fiscal 2017 , respectively .

Amortization expense for each of the next five fiscal years is estimated to be:

 

(in thousands)

 

 

 

 

2020

 

$

13,031

 

2021

 

$

12,271

 

2022

 

$

10,641

 

2023

 

$

10,039

 

2024

 

$

10,039

 

 

Impairment of Long-Lived Assets

Fiscal 2019:   During the fourth quarter of fiscal 2019, management finalized plans to close the Company’s CNG fuel systems facility in Salt Lake City, Utah.  As a result, long-lived assets with a carrying value of $2,405,000 were written down to their estimated fair market value of $238,000 (determined using Level 2 inputs), resulting in an impairment charge of $2,167,000.  The Company ceased production at this facility in May 2019.

During the fourth quarter of fiscal 2019, management determined that indicators of impairment were present with regard to certain long-lived assets of the Canton, Michigan facility operated by the Company’s consolidated joint venture, WSP.  As a result, long-lived assets with a carrying value of $4,269,000 were written down to their estimated fair market value of $1,000,000 (determined using Level 2 inputs), resulting in an impairment charge of $3,269,000.

During the first quarter of fiscal 2019, changes in the facts and circumstances related to the planned sale of our cryogenics business in Turkey, Worthington Aritas, resulted in our lowering the estimate of fair value less cost to sell to $7,000,000 which generated an impairment charge of $2,381,000.  Fair value was determined using observable (Level 2) inputs.  

70


 

Fiscal 2018:    During the fourth quarter of fiscal 2018, management committed to plans to sell the Company’s cryogenics business in Turkey, Worthington Aritas, and certain underperforming oil & gas equipment assets within Pressure Cylinders.  As all of the criteria for classification as assets held for sale were met in bot h instances, the net assets of each asset group have been presented separately as assets held for sale in our consolidated balance sheets.  In accordance with the applicable accounting guidance, the net assets were recorded at the lower of net book value o r fair value less costs to sell.  The book value of Worthington Aritas exceeded its estimated fair market value of $9,000,000, resulting in an impairment charge of $42,422,000 , consisting of $19,621,000, $11,549,000, and $11,252,000 related to fixed assets , intangible assets , and other assets, respectively .   The impairment charge related to intangible assets was for customer relationships and technological know-how.   The book value of the oil & gas equipment asset group also exceeded its estimated fair mark et value of $21,000,000, resulting in an impairment charge of $10,497,000 , consisting of $4,015,000, $3,849,000, and $2,633,000 related to allocated goodwill, intangible assets , and fixed assets, respectively .    The impairment charge related to intangible a ssets was for the full write-off of the remaining book value of customer relationships.   In both instances, fair value was determined using observable (Level 2) inputs.

During the second quarter of fiscal 2018, the Company determined that indicators of impairment were present with regard to the goodwill and intangible assets of the former WEI reporting unit.  As a result, these assets were written down to their estimated fair value resulting in an impairment charge of $7,325,000.  During the second quarter of fiscal 2018, the Company also identified the presence of impairment indicators with regard to vacant land at the oil & gas equipment facility in Bremen, Ohio, resulting in an impairment charge of $964,000 to write the vacant land down to its estimated fair value.  

Note E – Restructuring and Other Expense (Income), Net

We consider restructuring activities to be programs whereby we fundamentally change our operations such as closing and consolidating manufacturing facilities or moving manufacturing of a product to another location.  Restructuring activities may also involve substantial realignment of the management structure of a business unit in response to changing market conditions.

A progression of the liabilities associated with our restructuring activities, combined with a reconciliation to the restructuring and other income, net financial statement caption in our consolidated statement of earnings for fiscal 2019, is summarized below:

 

 

 

Beginning

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending

 

(in thousands)

 

Balance

 

 

Expense

 

 

Payments

 

 

Adjustments

 

 

Balance

 

Early retirement and severance

 

$

1,116

 

 

$

1,899

 

 

$

(2,127

)

 

$

(114

)

 

$

774

 

Facility exit and other costs

 

 

-

 

 

 

503

 

 

 

(313

)

 

 

(188

)

 

 

2

 

 

 

$

1,116

 

 

 

2,402

 

 

$

(2,440

)

 

$

(302

)

 

$

776

 

Net gain on sale of assets

 

 

 

 

 

 

(13,420

)

 

 

 

 

 

 

 

 

 

 

 

 

Restructuring and other income, net

 

 

 

 

 

$

(11,018

)

 

 

 

 

 

 

 

 

 

 

 

 

 

During fiscal 2019, the following actions were taken related to the Company’s restructuring activities:

 

In connection with the consolidation of the Company’s industrial gas operations in Portugal following the acquisition of AMTROL in fiscal 2018, the Company recognized severance expense of $1,086,000 and facility exit costs of $513,000.

 

Within the Pressure Cylinders business, the Company sold two oil & gas manufacturing facilities resulting in net proceeds of $20,256,000 and a net gain on disposal of $1,962,000.

 

In connection with the sale of the operating assets and real property related to the solder business and certain brazing assets within the Pressure Cylinders business, the Company recognized net proceeds of $27,577,000, severance expense of $89,000 and a net gain on disposal of $11,458,000.

 

Upon exit of the North America CNG fuel system market in the Salt Lake City, Utah facility, the Company recognized severance expense of $519,000.

 

In connection with other non-significant restructuring activities, the Company recognized severance expense of $205,000 and a reduction to facility exit costs of $10,000.

The total liability as of May 31, 2019 is expected to be paid in the next twelve months.

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Note F – Contingent Liabilities and Commitments

Legal Proceedings

We are defendants in certain legal actions.  In the opinion of management, the outcome of these actions, which is not clearly determinable at the present time, would not significantly affect our consolidated financial position or future results of operations.  We also believe that environmental issues will not have a material effect on our capital expenditures, consolidated financial position or future results of operations.

Voluntary Tank Replacement Program

In February 2019, our Structural Composites Industries, LLC subsidiary (“SCI”) agreed to participate in a tank replacement program for specific design sizes of its composite hydrogen fuel tanks, which are integrated into a customer’s hydrogen fuel cells used to fuel material handling equipment, primarily rider pallet jacks in warehouses.  The tanks being replaced were sold mainly between 2012 and 2015, and were designed to meet specified ISO-standards.  These tanks successfully passed a number of ISO-certification tests; however, because it was mistakenly determined these tanks would qualify as a “child” of a similar fully-tested tank, not all tests for full standalone ISO-certification were completed.  Since the identical carbon fiber used to manufacture most of these tanks is no longer commercially available, SCI cannot manufacture new units to retroactively complete this testing.  The tanks were supplied to a single customer.  The replacement program is underway and is expected to take approximately six to twelve months to complete.  In connection with this matter, we recorded a $13,000,000 charge to costs of goods sold during the third quarter of fiscal 2019 to reflect our estimated costs of replacing these tanks.  The actual cost incurred by the Company related to this matter may vary from the initial estimate.

A progression of the liabilities recorded in connection with this matter during fiscal 2019 is summarized in the following table:

 

(in thousands)

Beginning

Balance

 

 

Expense

 

 

Payments

 

 

Ending

Balance

 

Tank replacement costs

$

-

 

 

$

13,000

 

 

$

(4,500

)

 

$

8,500

 

 

We believe these liabilities are sufficient to absorb our remaining direct costs related to the replacement program, which are expected to be paid in the next six months.  

Note G – Guarantees

We do not have guarantees that we believe are reasonably likely to have a material current or future effect on our consolidated financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.  However, as of May 31, 2019, we were party to an operating lease for an aircraft in which we have guaranteed a residual value at the termination of the lease.  The maximum obligation under the terms of this guarantee was approximately $7,401,000 at May 31, 2019.  Based on current facts and circumstances, we have estimated the likelihood of payment pursuant to this guarantee is not probable and, therefore, no amounts have been recognized in our consolidated financial statements.

We also had in place $15,833,000 of outstanding stand-by letters of credit issued to third-party service providers at May 31, 2019.  The fair value of these guarantee instruments, based on premiums paid, was not material and no amounts were drawn against them at May 31, 2019.

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Note H – Debt and Receivables Securitization

The following table summarizes our long-term debt and short-term borrowings outstanding at May 31, 2019 and 2018:

 

(in thousands)

2019

 

 

2018

 

4.30% senior notes due August 1, 2032

$

200,000

 

 

$

200,000

 

4.55% senior notes due April 15, 2026

 

250,000

 

 

 

250,000

 

4.60% senior notes due August 10, 2024

 

150,000

 

 

 

150,000

 

6.50% senior notes due April 15, 2020

 

150,000

 

 

 

150,000

 

Term loans

 

-

 

 

 

829

 

Other

 

3,100

 

 

 

3,899

 

Total debt

 

753,100

 

 

 

754,728

 

Unamortized discount and debt issuance costs

 

(3,801

)

 

 

(4,360

)

Total debt, net

 

749,299

 

 

 

750,368

 

Less: current maturities and short-term borrowings

 

150,943

 

 

 

1,474

 

Total long-term debt

$

598,356

 

 

$

748,894

 

 

Maturities of long-term debt in the next five fiscal years, and the remaining years thereafter, are as follows:

 

(in thousands)

 

 

 

 

2020

 

$

150,942

 

2021

 

 

631

 

2022

 

 

648

 

2023

 

 

533

 

2024

 

 

300

 

Thereafter

 

 

600,046

 

Total

 

$

753,100

 

 

Long-Term Debt

On September 26, 2014, Worthington Aritas executed a five-year term loan denominated in Euros, with interest at a variable rate based on EURIBOR.  On October 15, 2014, we entered into an interest rate swap to fix the interest rate on 60% of the borrowings outstanding under this facility at 2.015% starting on December 26, 2014.  Borrowings against the facility were used for the construction of a cryogenics manufacturing facility in Turkey.  In anticipation of the planned sale of the Company’s cryogenics business in Turkey, the Company paid off this term loan and settled the derivative instrument for an immaterial loss during the fourth quarter of fiscal 2018.

On July 28, 2017, we issued $200,000,000 aggregate principal amount of senior unsecured notes due August 1, 2032 (the “2032 Notes”).  The 2032 Notes bear interest at a rate of 4.300%.  The 2032 Notes were sold to the public at 99.901% of the principal amount thereof, to yield 4.309% to maturity.  We used a portion of the net proceeds from the offering to repay amounts then outstanding under our multi-year revolving credit facility and amounts then outstanding under our revolving trade accounts receivable securitization facility, both of which are described in more detail below.  We entered into an interest rate swap in June 2017, in anticipation of the issuance of the 2032 Notes.  The interest rate swap had a notional amount of $150,000,000 to hedge the risk of changes in the semi-annual interest rate payments attributable to changes in the benchmark interest rate during the several days leading up to the issuance of the 2032 Notes.  Upon pricing of the 2032 Notes, the derivative instrument was settled resulting in a gain of approximately $3,098,000, which was reflected in AOCI.  Approximately $2,116,000 and $198,000 were allocated to debt issuance costs and the debt discount, respectively.  The debt issuance costs and the debt discount were recorded on the consolidated balance sheet within long-term debt as a contra-liability.   Each will continue to be amortized, through interest expense, in our consolidated statements of earnings over the term of the 2032 Notes.   The unamortized portion of the debt issuance costs and debt discount was $1,857,000 and $174,000, respectively, at May 31, 2019 and $1,998,000 and $187,000, respectively, at May 31, 2018.

73


 

On April 15, 2014, we issued $250,000,0 00 aggregate principal amount of unsecured senior notes due on April 15, 2026 (the “2026 Notes”).  The 2026 Notes bear interest at a rate of 4.55%.  The 2026 Notes were sold to the public at 99.789% of the principal amount thereof, to yield 4.573% to matur ity.  We used a portion of the net proceeds from the offering to repay borrowings then outstanding under our revolving credit facilities .  Approximately $3,081,000, $2,2 79 ,000 and $528,000 were allocated to the settlement of a derivative contract entered i nto in anticipation of the issuance of the 2026 Notes, debt issuance costs, and the debt discount, respectively.  The debt issuance costs and debt discount were recorded on the consolidated balance sheets within long-term debt as a contra-liability, and th e loss on the derivative contract recorded within AOCI .  Each will continue to be amortized , through interest expense, in our consolidated statements of earnings over the term of the 2026 Notes.  The unamortized portion of the debt issuance costs and debt discount was $ 1 , 297 ,000 and $ 3 00 ,000, respectively, at May 31, 201 9 and $1, 488 ,000 and $3 44 ,000, respectively , at May 31, 201 8 .

On August 10, 2012, we issued $150,000,000 aggregate principal amount of unsecured senior notes due August 10, 2024 (the “2024 Notes”).  The 2024 Notes bear interest at a rate of 4.60%.  The net proceeds from this issuance were used to repay a portion of the then outstanding borrowings under our revolving credit facilities.  Approximately $80,000 of the aggregate proceeds were allocated to debt issuance costs.  The unamortized portion of the debt issuance costs was $35,000 and $41,000 at May 31, 2019 and 2018, respectively.

On April 27, 2012, we executed a $5,880,000 seven-year term loan that matured on May 1, 2019 and required monthly payments of $76,350.  The loan bore interest at a rate of 2.49% and was secured by an aircraft that was purchased with its proceeds.  Borrowings outstanding totaled $829,000 as of May 31, 2018 .  The Company paid off this term loan during the fourth quarter of fiscal 2019.

On April 13, 2010, we issued $150,000,000 aggregate principal amount of unsecured senior notes due on April 15, 2020 (the “2020 Notes”).  The 2020 Notes bear interest at a rate of 6.50%.  The 2020 Notes were sold to the public at 99.890% of the principal amount thereof, to yield 6.515% to maturity.  We used the net proceeds from the offering to repay a portion of the then outstanding borrowings under our revolving credit facilities.  Approximately $1,358,000, $1,486,000 and $165,000 were allocated to the settlement of a derivative contract entered into in anticipation of the issuance of the 2020 Notes, debt issuance costs, and the debt discount.  The debt discount and debt issuance costs were recorded on the consolidated balance sheets within long-term debt as a contra-liability, and the loss on the derivative contract within AOCI .  Each will continue to be amortized, through interest expense, in our consolidated statements of earnings over the remaining term of the 2020 Notes.  The unamortized portion of the debt issuance costs and debt discount was $124,000 and $14,000, respectively, at May 31, 2019 and $272,000 and $30,000, respectively, at May 31, 2018 .

Other Financing Arrangements

We maintain a $50,000,000 revolving trade accounts receivable securitization facility (the “AR Facility”).  On January 15, 2019, the Company extended the maturity by one year to January 2020.  Pursuant to the terms of the AR Facility, certain of our subsidiaries sell their accounts receivable without recourse, on a revolving basis, to Worthington Receivables Corporation (“WRC”), a wholly-owned, consolidated, bankruptcy-remote subsidiary.  In turn, WRC may sell without recourse, on a revolving basis, up to $50,000,000 of undivided ownership interests in this pool of accounts receivable to a third-party bank.  We retain an undivided interest in this pool and are subject to risk of loss based on the collectability of the receivables from this retained interest.  Because the amount eligible to be sold excludes receivables more than 90 days past due, receivables offset by an allowance for doubtful accounts due to bankruptcy or other cause, concentrations over certain limits with specific customers and certain reserve amounts, we believe additional risk of loss is minimal.  As of May 31, 2019, no undivided ownership interests in this pool of accounts receivable had been sold.  Facility fees of $202,000, $383,000, and $354,000 were recognized within interest expense during fiscal 2019, fiscal 2018 and fiscal 2017, respectively.

We also maintain a $500,000,000 multi-year revolving credit facility (the “Credit Facility”) with a group of lenders.  On February 16, 2018, the Company amended the terms of the Credit Facility, extending the maturity by three years to February 2023. Debt issuance costs of $805,000 were incurred as a result of the renewal.  These costs have been deferred and will be amortized over the life of the Credit Facility to interest expense.  Borrowings under the Credit Facility have maturities of up to one year.  We have the option to borrow at rates equal to an applicable margin over the LIBOR, Prime rate or Overnight Bank Funding rate.  The applicable margin is determined by our credit rating.  There were no borrowings outstanding under the Credit Facility at May 31, 2019 .  As discussed in “Note G – Guarantees,” we provided $15,833,000 in letters of credit for third-party beneficiaries as of May 31, 2019.  While not drawn against at May 31, 2019, $1,950,000 of these letters of credit were issued against availability under the Credit Facility, leaving $498,050,000 available at May 31, 2019.

74


 

Note I – Comprehensive Income (Loss)

Other Comprehensive Income (Loss):   The following table summarizes the tax effects of each component of other comprehensive income (loss) for the fiscal years ended May 31:

 

 

 

2019

 

 

2018

 

 

2017

 

(in thousands)

 

Before-

Tax

 

 

Tax

 

 

Net-of-

Tax

 

 

Before-

Tax

 

 

Tax

 

 

Net-of-

Tax

 

 

Before

-Tax

 

 

Tax

 

 

Net-of-

Tax

 

Foreign currency translation

 

$

(14,772

)

 

$

-

 

 

$

(14,772

)

 

$

12,744

 

 

$

-

 

 

$

12,744

 

 

$

1,342

 

 

$

-

 

 

$

1,342

 

Pension liability adjustment

 

 

(2,203

)

 

 

418

 

 

 

(1,785

)

 

 

1,875

 

 

 

(309

)

 

 

1,566

 

 

 

3,400

 

 

 

(1,158

)

 

 

2,242

 

Cash flow hedges

 

 

(16,227

)

 

 

3,780

 

 

 

(12,447

)

 

 

1,351

 

 

 

(392

)

 

 

959

 

 

 

(4,522

)

 

 

1,700

 

 

 

(2,822

)

Other comprehensive income (loss)

 

$

(33,202

)

 

$

4,198

 

 

$

(29,004

)

 

$

15,970

 

 

$

(701

)

 

$

15,269

 

 

$

220

 

 

$

542

 

 

$

762

 

 

 

Accumulated Other Comprehensive Loss:   The components of the changes in accumulated other comprehensive loss for the fiscal years ended May 31, 2019 and May 31, 2018 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

Foreign

 

 

Pension

 

 

Cash

 

 

Other

 

 

 

Currency

 

 

Liability

 

 

Flow

 

 

Comprehensive

 

(in thousands)

 

Translation

 

 

Adjustment

 

 

Hedges

 

 

Loss

 

Balance at May 31, 2017

 

$

(17,358

)

 

$

(14,819

)

 

$

4,402

 

 

$

(27,775

)

Other comprehensive income before reclassifications

 

 

12,371

 

 

 

1,402

 

 

 

14,980

 

 

 

28,753

 

Reclassification adjustments to income (a)

 

 

-

 

 

 

473

 

 

 

(13,629

)

 

 

(13,156

)

Reclassification of stranded tax effects

 

 

-

 

 

 

(2,818

)

 

 

1,117

 

 

 

(1,701

)

Income tax effect

 

 

-

 

 

 

(309

)

 

 

(392

)

 

 

(701

)

Balance at May 31, 2018

 

$

(4,987

)

 

$

(16,071

)

 

$

6,478

 

 

$

(14,580

)

Other comprehensive loss before reclassifications

 

 

(14,652

)

 

 

(3,404

)

 

 

(12,637

)

 

 

(30,693

)

Reclassification adjustments to income (a)

 

 

-

 

 

 

1,201

 

 

 

(3,590

)

 

 

(2,389

)

Income tax effect

 

 

-

 

 

 

418

 

 

 

3,780

 

 

 

4,198

 

Balance at May 31, 2019

 

$

(19,639

)

 

$

(17,856

)

 

$

(5,969

)

 

$

(43,464

)

 

 

(a)

The statement of earnings classification of amounts reclassified to income for cash flow hedges is disclosed in “Note Q – Derivative Instruments and Hedging Activities.”

The estimated net amount of the losses in AOCI at May 31, 2019 expected to be reclassified into net earnings within the succeeding twelve months is $6,590,000 (net of tax of $2,004 ,000).  This amount was computed using the fair value of the cash flow hedges at May 31, 2019, and will change before actual reclassification from other comprehensive income to net earnings during fiscal 2019.

Note J – Equity

Preferred Shares:   The Worthington Industries, Inc. Amended Articles of Incorporation authorize two classes of preferred shares and their relative voting rights.  The Board of Directors of Worthington Industries, Inc. is empowered to determine the issue prices, dividend rates, amounts payable upon liquidation and other terms of the preferred shares when issued.  No preferred shares are issued or outstanding.

Common Shares :  O n September 27, 2017, the Board of Directors of Worthington Industries, Inc. (the “Worthington Industries Board”) authorized the repurchase of up to 6,828,855 outstanding common shares of Worthington Industries, Inc., and on March 20, 2019, the Worthington Industries Board authorized the repurchase of up to an additional 6,600,000 of the outstanding common shares of Worthington Industries, Inc.     These 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 flows from operations, general economic conditions and other relevant considerations.  Repurchases may be made on the open market or through privately negotiated transactions.    The total number of common shares available for repurchase at May 31, 2019 was 9,000,000 .

75


 

During fiscal 2019 and 2018, we repurchased 4 , 1 00,000 common shares and   4,375,000 common shares , respectively, having an aggregate cost of $ 168 , 113 ,000 and $ 204,267, 000 , respectively .   No common shares were repurchased d uring fiscal 2017 in anticipation of the AMTROL acquisi tion .   For additional information refer to “Note P – Acquisitions”.

On October 1, 2014, the Company amended its non-qualified deferred compensation plans for employees to require that any portion of a participant’s current account credited to the theoretical common share option, which reflects the fair value of the Company’s common shares with dividends reinvested, and any new contributions credited to the theoretical common share option remain credited to the theoretical common share option until distributed.  For amounts credited to the theoretical common share option, payouts are required to be made in the form of whole common shares of the Company and cash in lieu of fractional common shares.  As a result, we account for the deferred compensation obligation credited to the theoretical common share option within equity.  The amounts recorded in equity totaled $680,000 and $1,218,000 during fiscal 2019 and fiscal 2018, respectively.  Prior to October 1, 2014, participant accounts credited to the theoretical common share option were settled in cash and classified as a liability in the Company’s consolidated balance sheets.

 

Note K – Stock-Based Compensation

Under our employee and non-employee director stock-based compensation plans (the “Plans”), we may grant incentive or non-qualified stock options, restricted common shares and performance shares to employees and non-qualified stock options and restricted common shares to non-employee directors.  We classify share-based compensation expense within SG&A expense to correspond with the same financial statement caption as the majority of the cash compensation paid to employees.  A total of 2,655,478 of our common shares were authorized and available for issuance in connection with the Plans in place at May 31, 2019.

We recognized pre-tax stock-based compensation expense of $11,733,000 ($9,034,000 after-tax), $13,758,000 ($9,482,000 after-tax), and $14,349,000 ($9,112,000 after-tax) under the Plans during fiscal 2019, fiscal 2018 and fiscal 2017 , respectively.  At May 31, 2019, the total unrecognized compensation cost related to non-vested awards was $19,403,000, which will be expensed over the next three fiscal years.

Non-Qualified Stock Options

Stock options may be granted to purchase common shares at not less than 100% of the fair market value of the underlying common shares on the date of the grant.  All outstanding stock options are non-qualified stock options.  The exercise price of all stock options granted has been set at 100% of the fair market value of the underlying common shares on the date of grant.  Generally, stock options granted to employees vest and become exercisable at the rate of (i) 20% per year for options issued before June 30, 2011, and (ii) 33% per year for options issued on or after June 30, 2011, in each case beginning one year from the date of grant, and expire ten years after the date of grant.  Non-qualified stock options granted to non-employee directors vest and become exercisable on the earlier of (a) the first anniversary of the date of grant or (b) the date on which the next annual meeting of shareholders is held following the date of grant for any stock option granted as of the date of an annual meeting of shareholders of Worthington Industries, Inc.  Stock options can be exercised through net-settlement, at the election of the option holder.

U.S. GAAP requires that all share-based awards be recorded as expense in the statement of earnings based on their grant-date fair value.  We calculate the fair value of our non-qualified stock options using the Black-Scholes option pricing model and certain assumptions.  The computation of fair values for all stock options incorporates the following assumptions: expected volatility (based on the historical volatility of our common shares); risk-free interest rate (based on the United States Treasury strip rate for the expected term of the stock options); expected term (based on historical exercise experience); and dividend yield (based on annualized current dividends and an average quoted price of our common shares over the preceding annual period).

76


 

The table bel ow sets forth the non-qualified stock options granted during each of the last three fiscal years.  For each grant, the exercise price was equal to the closing market price of the underlying common shares at each respective grant date.  The fair values of t hese stock options were based on the Black-Scholes option pricing model, calculated at the respective grant dates.  The calculated pre-tax stock-based compensation expense for these stock options, will be recognized on a straight-line basis over the respec tive vesting periods of the stock options.

 

(in thousands, except per share amounts)

 

2019

 

 

2018

 

 

2017

 

Granted

 

 

96

 

 

 

90

 

 

 

111

 

Weighted average exercise price, per share

 

$

42.86

 

 

$

47.76

 

 

$

42.30

 

Weighted average grant date fair value, per share

 

$

12.54

 

 

$

14.99

 

 

$

11.60

 

Pre-tax stock-based compensation, net of forfeitures

 

$

1,199

 

 

$

1,203

 

 

$

1,146

 

 

The weighted average fair value of stock options granted in fiscal 2019, fiscal 2018 and fiscal 2017 was based on the following weighted average assumptions:

 

 

 

2019

 

 

2018

 

 

2017

 

Assumptions used:

 

 

 

 

 

 

 

 

 

 

 

 

Dividend yield

 

 

2.02

%

 

 

1.81

%

 

 

2.59

%

Expected volatility

 

 

33.09

%

 

 

36.65

%

 

 

36.86

%

Risk-free interest rate

 

 

2.79

%

 

 

1.98

%

 

 

1.15

%

Expected life (years)

 

 

6.0

 

 

 

6.0

 

 

 

6.0

 

 

The following tables summarize our stock option activity for the years ended May 31:

 

 

 

2019

 

 

2018

 

 

2017

 

(in thousands, except per share amounts)

 

Stock

Options

 

 

Weighted

Average

Exercise

Price

 

 

Stock

Options

 

 

Weighted

Average

Exercise

Price

 

 

Stock

Options

 

 

Weighted

Average

Exercise

Price

 

Outstanding, beginning of year

 

 

2,019

 

 

$

22.26

 

 

 

2,307

 

 

$

20.99

 

 

 

3,306

 

 

$

19.01

 

Granted

 

 

96

 

 

 

42.86

 

 

 

90

 

 

 

47.76

 

 

 

111

 

 

 

42.30

 

Exercised

 

 

(506

)

 

 

18.45

 

 

 

(371

)

 

 

20.37

 

 

 

(1,076

)

 

 

16.90

 

Forfeited

 

 

(54

)

 

 

44.31

 

 

 

(7

)

 

 

33.02

 

 

 

(34

)

 

 

29.95

 

Outstanding, end of year

 

 

1,555

 

 

 

24.01

 

 

 

2,019

 

 

 

22.26

 

 

 

2,307

 

 

 

20.99

 

Exercisable at end of year

 

 

1,397

 

 

 

21.96

 

 

 

1,800

 

 

 

20.03

 

 

 

2,067

 

 

 

19.17

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

Number of

 

 

Remaining

 

 

Aggregate

 

 

 

Stock

 

 

Contractual

 

 

Intrinsic

 

 

 

Options

 

 

Life

 

 

Value

 

 

 

(in thousands)

 

 

(in years)

 

 

(in thousands)

 

May 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding

 

 

1,555

 

 

 

3.15

 

 

$

18,728

 

Exercisable

 

 

1,397

 

 

 

2.62

 

 

$

18,728

 

 

 

 

 

 

 

 

 

 

 

 

 

 

May 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding

 

 

2,019

 

 

 

3.59

 

 

$

51,858

 

Exercisable

 

 

1,800

 

 

 

3.06

 

 

$

50,673

 

 

 

 

 

 

 

 

 

 

 

 

 

 

May 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding

 

 

2,307

 

 

 

3.95

 

 

$

48,509

 

Exercisable

 

 

2,067

 

 

 

3.47

 

 

$

47,488

 

 

77


 

The total intrinsic value of stock options exercised during fiscal 201 9 was $ 6,314 ,000.  The total amount of cash received from the exercise of stock options during fiscal 201 9 was $ 5,0 85 ,000, and the related excess tax benefit realized from share-based payment awards was $ 2,792 ,000.

The following table summarizes information about non-vested stock option awards for the year ended May 31, 2019:

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

Average

 

 

 

Number of

 

 

Grant Date

 

 

 

Stock Options

 

 

Fair Value

 

 

 

(in thousands)

 

 

per share

 

Non-vested, beginning of year

 

 

219

 

 

$

11.55

 

Granted

 

 

96

 

 

 

12.55

 

Vested

 

 

(103

)

 

 

10.75

 

Forfeited

 

 

(54

)

 

 

12.70

 

Non-vested, end of year

 

 

158

 

 

$

12.26

 

 

Service-Based Restricted Common Shares

We have awarded restricted common shares to certain employees and non-employee directors that contain service-based vesting conditions.  Service-based restricted common shares granted to employees cliff vest generally three years from the date of grant.  Service-based restricted common shares granted to non-employee directors vest under the same parameters as discussed above.  All service-based restricted common shares are valued at the closing market price of our common shares on the date of the grant.

The table below sets forth the service-based restricted common shares we granted during each of fiscal 2019, fiscal 2018 and fiscal 2017 .  The calculated pre-tax stock-based compensation expense for these restricted common shares will be recognized on a straight-line basis over their respective vesting periods.

 

(in thousands, except per share amounts)

 

2019

 

 

2018

 

 

2017

 

Granted

 

 

339

 

 

 

176

 

 

 

525

 

Weighted average grant date fair value, per share

 

$

43.35

 

 

$

47.88

 

 

$

42.28

 

Pre-tax stock-based compensation, net of forfeitures

 

$

14,692

 

 

$

7,605

 

 

$

19,841

 

 

78


 

The following tables summarize the activity for our service-based restricted common shares for the years ended May 31:

 

 

 

2019

 

 

2018

 

 

2017

 

(in thousands, except per share amounts)

 

Restricted

Common

Shares

 

 

Weighted

Average

Grant

Date Fair

Value

 

 

Restricted

Common

Shares

 

 

Weighted

Average

Grant

Date Fair

Value

 

 

Restricted

Common

Shares

 

 

Weighted

Average

Grant

Date Fair

Value

 

Outstanding, beginning of year

 

 

796

 

 

$

40.80

 

 

 

865

 

 

$

39.49

 

 

 

698

 

 

$

33.69

 

Granted

 

 

339

 

 

 

43.35

 

 

 

176

 

 

 

47.88

 

 

 

525

 

 

 

42.28

 

Vested

 

 

(229

)

 

 

34.63

 

 

 

(205

)

 

 

40.96

 

 

 

(310

)

 

 

31.81

 

Forfeited

 

 

(95

)

 

 

43.83

 

 

 

(40

)

 

 

41.58

 

 

 

(48

)

 

 

38.82

 

Outstanding, end of year

 

 

811

 

 

 

43.25

 

 

 

796

 

 

 

40.80

 

 

 

865

 

 

 

39.49

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average remaining contractual life of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   outstanding restricted common shares (in years)

 

 

1.21

 

 

 

 

 

 

 

1.21

 

 

 

 

 

 

 

1.57

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregate intrinsic value of outstanding restricted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   common shares

 

$

27,681

 

 

 

 

 

 

$

38,160

 

 

 

 

 

 

$

36,298

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregate intrinsic value of restricted common

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   shares vested during the year

 

$

10,388

 

 

 

 

 

 

$

10,330

 

 

 

 

 

 

$

12,840

 

 

 

 

 

 

Market-Based Restricted Common Shares

On June 24, 2014, we granted an aggregate of 50,000 market-based restricted common shares to two key employees under one of our Plans.  Vesting of these restricted common share awards is contingent upon the price of our common shares reaching $60.00 per share and remaining at or above that price for 30 consecutive days during the five-year period following the date of grant and the completion of a five-year service vesting period.  The grant-date fair value of these restricted common shares, as determined by a Monte Carlo simulation model, was $32.06 per share.  The following assumptions were used to determine the grant-date fair value and the derived service period for these market-based restricted common shares:

 

Dividend yield

 

 

1.60

%

Expected volatility

 

 

44.00

%

Risk-free interest rate

 

 

1.70

%

 

The calculated pre-tax stock-based compensation expense was determined to be $1,603,000.  In fiscal 2016, 25,000 of these shares were cancelled.  On September 26, 2018, the remaining market-based restricted common share award was modified to extend the vesting period by one year, to June 24, 2020.  The incremental fair value was $261,000 and is being recognized on a straight-line basis over the remaining term.  At May 31, 2019, the remaining 25,000 market-based restricted common share award was outstanding.

On September 28, 2018, we granted an aggregate 225,000 restricted common shares to two key employees under our Plans.  Vesting of these restricted common share awards is contingent upon the price of our common shares reaching $65.00 per share and remaining at or above that price for 90 consecutive days during the five-year period following the date of grant and the completion of a five-year service vesting period.  The grant-date fair value of these restricted common shares, as determined by a Monte Carlo simulation model, was $23.38 per share.  The following assumptions were used to determine the grant-date fair value and the derived service period for these restricted common shares:

 

Dividend yield

 

 

2.16

%

Expected volatility

 

 

33.60

%

Risk-free interest rate

 

 

2.96

%

 

79


 

The calculated pre-tax stock-based compensation expense for these restricted common shares is $5,261,000 and will be recognized on a straight-line basis over the five-year service vesting period, net of any forfeitures .

Performance Shares

We have awarded performance shares to certain key employees that are contingent (i.e., vest) upon achieving corporate targets for cumulative corporate economic value added, earnings per share growth and, in the case of business unit executives, business unit operating income targets for the three-year periods ended or ending May 31, 2019, 2020 and 2021.  These performance share awards will be paid, to the extent earned, in common shares of Worthington Industries, Inc. in the fiscal quarter following the end of the applicable three-year performance period.  The fair value of our performance shares is determined by the closing market prices of the underlying common shares at their respective grant dates and the pre-tax stock-based compensation expense is based on our periodic assessment of the probability of the targets being achieved and our estimate of the number of common shares that will ultimately be issued.

The table below sets forth the performance shares we granted (at target levels) during fiscal 2019, fiscal 2018 and fiscal 2017 :

 

(in thousands, except per share amounts)

 

2019

 

 

2018

 

 

2017

 

Granted

 

 

43

 

 

 

54

 

 

 

67

 

Weighted average grant date fair value, per share

 

$

42.91

 

 

$

50.61

 

 

$

44.91

 

Pre-tax stock-based compensation

 

$

1,854

 

 

$

2,748

 

 

$

2,995

 

 

Note L – Employee Pension Plans

We provide retirement benefits to employees mainly through defined contribution retirement plans.  Eligible participants make pre-tax contributions based on elected percentages of eligible compensation, subject to annual addition and other limitations imposed by the Internal Revenue Code and the various plans’ provisions.  Company contributions consist of company matching contributions, annual or monthly employer contributions and discretionary contributions, based on individual plan provisions.

We also have one defined benefit plan, The Gerstenslager Company Bargaining Unit Employees’ Pension Plan (the “Gerstenslager Plan” or “defined benefit plan”).  The Gerstenslager Plan is a non‑contributory pension plan, which covers certain employees based on age and length of service.  Our contributions have complied with ERISA's minimum funding requirements.  Effective May 9, 2011, in connection with the formation of the ArtiFlex joint venture, the Gerstenslager Plan was frozen, which qualified as a curtailment under the applicable accounting guidance.  We did not recognize a gain or loss in connection with the curtailment of the Gerstenslager Plan.  During fiscal 2019, the Gerstenslager Plan was amended to allow certain inactive participants to take a lump sum.

The following table summarizes the components of net periodic pension cost for the defined benefit plan and the defined contribution plans for the years ended May 31:

 

(in thousands)

 

2019

 

 

2018

 

 

2017

 

Defined benefit plan:

 

 

 

 

 

 

 

 

 

 

 

 

Interest cost

 

$

1,503

 

 

$

1,522

 

 

$

1,527

 

Return on plan assets

 

 

(532

)

 

 

(1,361

)

 

 

(2,224

)

Net amortization and deferral

 

 

(918

)

 

 

(20

)

 

 

1,025

 

Net periodic pension cost on defined benefit plan

 

 

53

 

 

 

141

 

 

 

328

 

Settlement cost

 

 

760

 

 

 

-

 

 

 

-

 

Defined contribution plans

 

 

16,308

 

 

 

14,972

 

 

 

14,542

 

Total retirement plan cost

 

$

17,121

 

 

$

15,113

 

 

$

14,870

 

 

80


 

The following actuarial assumptions were used for our defined benefit plan:

 

 

 

2019

 

 

2018

 

 

2017

 

To determine benefit obligation:

 

 

 

 

 

 

 

 

 

 

 

 

Discount rate

 

 

3.57

%

 

 

4.02

%

 

 

3.94

%

To determine net periodic pension cost:

 

 

 

 

 

 

 

 

 

 

 

 

Discount rate

 

 

4.02

%

 

 

3.94

%

 

 

3.75

%

Expected long-term rate of return

 

 

7.00

%

 

 

7.00

%

 

 

7.00

%

 

To calculate the discount rate we used the expected cash flows of the benefit payments and the FTSE Pension Index (formerly Citigroup).  The Gerstenslager Plan’s expected long-term rate of return in fiscal 2019, fiscal 2018 and fiscal 2017 was based on the actual historical returns adjusted for a change in the frequency of lump-sum settlements upon retirement.  In determining our benefit obligation, we use the actuarial present value of the vested benefits to which each eligible employee is currently entitled, based on the employee’s expected date of separation or retirement.

The following tables provide a reconciliation of the changes in the projected benefit obligation and fair value of plan assets and the funded status of the Gerstenslager Plan as of, and for the fiscal years ended May 31:

 

(in thousands)

 

2019

 

 

2018

 

Change in benefit obligation

 

 

 

 

 

 

 

 

Benefit obligation, beginning of year

 

$

38,010

 

 

$

39,174

 

Interest cost

 

 

1,503

 

 

 

1,522

 

Actuarial (gain) loss

 

 

1,868

 

 

 

(1,516

)

Benefits paid

 

 

(1,201

)

 

 

(1,170

)

Settlements

 

 

(1,661

)

 

 

-

 

Benefits obligation, end of year

 

$

38,519

 

 

$

38,010

 

 

 

 

 

 

 

 

 

 

Change in plan assets

 

 

 

 

 

 

 

 

Fair value, beginning of year

 

$

27,212

 

 

$

27,022

 

Return on plan assets

 

 

532

 

 

 

1,361

 

Company contributions

 

 

1,376

 

 

 

-

 

Benefits paid

 

 

(1,201

)

 

 

(1,171

)

Settlements

 

 

(1,661

)

 

 

-

 

Fair value, end of year

 

 

26,258

 

 

 

27,212

 

Funded status

 

$

(12,261

)

 

$

(10,798

)

 

 

 

 

 

 

 

 

 

Amounts recognized in the consolidated balance sheets consist of:

 

 

 

 

 

 

 

 

Other liabilities

 

$

(12,261

)

 

$

(10,798

)

Accumulated other comprehensive loss

 

 

18,370

 

 

 

16,343

 

 

 

 

 

 

 

 

 

 

Amounts recognized in accumulated other comprehensive loss consist of:

 

 

 

 

 

 

 

 

Net loss

 

 

18,370

 

 

 

16,343

 

Total

 

$

18,370

 

 

$

16,343

 

 

81


 

The following table shows other changes in plan assets and benefit obligations recognized in OCI during the fiscal years ended May 31:

 

(in thousands)

 

2019

 

 

2018

 

Net gain (loss)

 

$

(3,227

)

 

$

1,023

 

Amortization of net loss

 

 

441

 

 

 

473

 

Extraordinary charges

 

 

759

 

 

 

-

 

Total recognized in other comprehensive income (loss)

 

$

(2,027

)

 

$

1,496

 

Total recognized in net periodic benefit cost and other comprehensive income

 

$

2,839

 

 

$

1,355

 

 

The estimated net loss for the defined benefit plan that will be amortized from AOCI into net periodic pension cost during fiscal 2020 is $553,000.

Pension plan assets are required to be disclosed at fair value in the consolidated financial statements.  Fair value is defined in “Note R – Fair Value Measurements.”  The pension plan assets’ fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.  Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

The following table sets forth, by level within the fair value hierarchy, a summary of the defined benefit plan’s assets measured at fair value on a recurring basis at May 31, 2019:

 

 

 

 

 

 

 

Quoted

 

 

Significant

 

 

 

 

 

 

 

 

 

 

 

Prices

 

 

Other

 

 

Significant

 

 

 

 

 

 

 

in Active

 

 

Observable

 

 

Unobservable

 

 

 

 

 

 

 

Markets

 

 

Inputs

 

 

Inputs

 

(in thousands)

 

Fair Value

 

 

(Level 1)

 

 

(Level 2)

 

 

(level 3)

 

Investment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

3,109

 

 

$

3,109

 

 

$

-

 

 

$

-

 

Bond funds

 

 

11,865

 

 

 

11,865

 

 

 

-

 

 

 

-

 

Equity funds

 

 

11,284

 

 

 

11,284

 

 

 

-

 

 

 

-

 

Total

 

$

26,258

 

 

$

26,258

 

 

$

-

 

 

$

-

 

 

The following table sets forth, by level within the fair value hierarchy, a summary of the defined benefit plan’s assets measured at fair value on a recurring basis at May 31, 2018:

 

 

 

 

 

 

 

Quoted

 

 

Significant

 

 

 

 

 

 

 

 

 

 

 

Prices

 

 

Other

 

 

Significant

 

 

 

 

 

 

 

in Active

 

 

Observable

 

 

Unobservable

 

 

 

 

 

 

 

Markets

 

 

Inputs

 

 

Inputs

 

(in thousands)

 

Fair Value

 

 

(Level 1)

 

 

(Level 2)

 

 

(level 3)

 

Investment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

291

 

 

$

291

 

 

$

-

 

 

$

-

 

Bond funds

 

 

14,887

 

 

 

14,887

 

 

 

-

 

 

 

-

 

Equity funds

 

 

12,034

 

 

 

12,034

 

 

 

-

 

 

 

-

 

Total

 

$

27,212

 

 

$

27,212

 

 

$

-

 

 

$

-

 

 

Fair values of the money market, bond and equity funds held by the defined benefit plan were determined by quoted market prices.

82


 

Plan assets for the defined benef it plan consisted principally of the following as of the respective measurement dates:

 

 

 

May 31,

 

 

May 31,

 

 

 

2019

 

 

2018

 

Asset category:

 

 

 

 

 

 

 

 

Equity securities

 

 

43

%

 

 

44

%

Debt securities

 

 

45

%

 

 

55

%

Other

 

 

12

%

 

 

1

%

Total

 

 

100

%

 

 

100

%

 

Equity securities include no employer stock.  The investment policy and strategy for the defined benefit plan is: (i) long-term in nature with liquidity requirements that are anticipated to be minimal due to the projected normal retirement date of the average employee and the current average age of participants;  (ii) to earn nominal returns, net of investment fees, equal to or in excess of the defined benefit plan’s liability growth rate; and (iii) to include a diversified asset allocation of domestic and international equities and fixed income investments.  We have already contributed $142,000 in fiscal 2020 and have 11 contributions planned for fiscal 2020 totaling $1,558,000.

The following estimated future benefits, which reflect expected future service, as appropriate, are expected to be paid under the defined benefit plan during the fiscal years noted:

 

(in thousands)

 

 

 

 

2020

 

$

1,293

 

2021

 

$

1,322

 

2022

 

$

1,405

 

2023

 

$

1,486

 

2024

 

$

1,556

 

2025-2029

 

$

9,273

 

 

Commercial law requires us to pay severance and service benefits to employees at our Austrian Pressure Cylinders location.  Severance benefits must be paid to all employees hired before December 31, 2002.  Employees hired after that date are covered under a governmental plan that requires us to pay benefits as a percentage of compensation (included in payroll tax withholdings).  Service benefits are based on a percentage of compensation and years of service.  The accrued liability for these unfunded plans was $7,009,000 and $6,561,000 at May 31, 2019 and 2018, respectively, and was included in other liabilities on the consolidated balance sheets.  Net periodic pension cost for these plans was $925,000, $601,000, and $554,000, for fiscal 2019, fiscal 2018 and fiscal 2017 , respectively. The assumed salary rate increase was 2.75% for fiscal 2019, fiscal 2018 and fiscal 2017 .  The discount rate at May 31, 2019, 2018 and 2017 was 1.40%, 1.80%, and 1.60%, respectively.  Each discount rate was based on a published corporate bond rate with a term approximating the estimated benefit payment cash flows and is consistent with European and Austrian regulations.

83


 

Note M – Income Taxes

On December 22, 2017, the Tax Cuts and Jobs Act “(TCJA”) was signed into federal law. The TCJA significantly revised the U.S. corporate income tax system by lowering the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018. In addition, the TCJA added several new provisions including changes to bonus depreciation, the deduction for executive compensation, a tax on global intangible low-taxed income (“GILTI”), the base erosion anti-abuse tax (“BEAT”) and a deduction for foreign-derived intangible income (“FDII”). Many of these provisions, including the tax on GILTI, the BEAT and the deduction for FDII, did not apply to the Company until June 1, 2018. The Company has elected to account for the tax on GILTI as a period cost and thus has not adjusted any of the deferred tax assets and liabilities of its foreign subsidiaries for the new tax. The two material items that impacted the Company for fiscal 2018 were the reduction in the tax rate and a one-time mandatory deemed repatriation tax imposed on the Company’s unremitted foreign earnings. Due to the Company’s fiscal year, the Company’s fiscal 2018 U.S. federal blended statutory income tax rate was 29.2%. The Company’s U.S. federal statutory income tax rate is 21.0% starting June 1, 2018.

Consistent with applicable Securities and Exchange Commission guidance in Staff Accounting Bulletin 118 (“SAB118”), the Company recognized a provisional income tax benefit of $38,200,000 related to the re-measurement of deferred tax assets and liabilities and a provisional income tax expense of $6,900,000 for the one-time mandatory deemed repatriation tax during fiscal 2018.  During fiscal 2019, the Company finalized the accounting for the TCJA and made no material adjustments to these provisional amounts.

Earnings before income taxes for the three fiscal years ended May 31 include the following components:

 

(in thousands)

 

2019

 

 

2018

 

 

2017

 

United States based operations

 

$

173,200

 

 

$

177,088

 

 

$

266,222

 

Non – United States based operations

 

 

33,256

 

 

 

31,982

 

 

 

30,905

 

Earnings before income taxes

 

 

206,456

 

 

 

209,070

 

 

 

297,127

 

Less: Net earnings attributable to noncontrolling interests*

 

 

9,818

 

 

 

6,056

 

 

 

13,422

 

Earnings before income taxes attributable to controlling interest

 

$

196,638

 

 

$

203,014

 

 

$

283,705

 

 

 

*

Net earnings attributable to noncontrolling interests are not taxable to Worthington.

Significant components of income tax expense (benefit) for the fiscal years ended May 31 were as follows:

 

(in thousands)

 

2019

 

 

2018

 

 

2017

 

Current

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

$

15,454

 

 

$

33,261

 

 

$

50,200

 

State and local

 

 

2,309

 

 

 

3,292

 

 

 

2,954

 

Foreign

 

 

7,985

 

 

 

9,904

 

 

 

7,593

 

 

 

 

25,748

 

 

 

46,457

 

 

 

60,747

 

Deferred

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

 

18,195

 

 

 

(34,442

)

 

 

18,177

 

State and local

 

 

1,621

 

 

 

388

 

 

 

476

 

Foreign

 

 

(2,381

)

 

 

(4,183

)

 

 

(210

)

 

 

 

17,435

 

 

 

(38,237

)

 

 

18,443

 

 

 

$

43,183

 

 

$

8,220

 

 

$

79,190

 

 

The tax benefit related to the purchase of the noncontrolling interest in dHybrid Systems, LLC credited to additional paid-in capital was $539,000 for fiscal 2017.  Tax benefits (expenses) related to defined benefit pension liability that were credited to (deducted from) OCI were $418,000, $(309,000), and $(1,158,000) for fiscal 2019, fiscal 2018 and fiscal 2017 , respectively.  Tax benefits (expenses) related to cash flow hedges that were credited to (deducted from) OCI were $3,780,000, $(392,000), and $1,700,000 for fiscal 2019, fiscal 2018 and fiscal 2017 , respectively.

84


 

A reconciliation o f the federal statutory corporate income tax rate to total tax provision follows:

 

 

 

2019

 

 

2018

 

 

2017

 

Federal statutory corporate income tax rate

 

 

21.0

%

 

 

29.2

%

 

 

35.0

%

State and local income taxes, net of federal tax benefit

 

 

2.1

 

 

 

2.3

 

 

 

1.5

 

Non-U.S. income taxes at other than federal statutory rate

 

 

0.2

 

 

 

(1.4

)

 

 

(1.4

)

Qualified production activities deduction

 

 

-

 

 

 

(2.3

)

 

 

(1.9

)

Impact of tax reform (1)

 

 

-

 

 

 

(15.4

)

 

 

-

 

Worthington Aritas write down

 

 

-

 

 

 

(4.8

)

 

 

-

 

Excess benefit related to share-based payment awards

 

 

(1.4

)

 

 

(2.0

)

 

 

(5.7

)

AMTROL acquisition

 

 

-

 

 

 

(1.9

)

 

 

-

 

Other

 

 

0.1

 

 

 

0.3

 

 

 

0.4

 

Effective tax rate attributable to controlling interest

 

 

22.0

%

 

 

4.0

%

 

 

27.9

%

 

 

(1)

Amount reflects the impact of the re-measurement of the Company’s deferred tax balances at the lower federal statutory corporate income tax rate, net of the mandatory deemed repatriation tax on unremitted foreign earnings.

 

The above effective tax rate attributable to controlling interest excludes any impact from the inclusion of net earnings attributable to noncontrolling interests in our consolidated statements of earnings. The effective tax rates upon inclusion of net earnings attributable to noncontrolling interests were 20.9%, 3.9% and 26.7% for fiscal 2019, fiscal 2018 and fiscal 2017 , respectively. Net earnings attributable to noncontrolling interests are primarily a result of our WSP, Spartan, and TWB consolidated joint ventures and Worthington Aritas through May 23, 2018, which is the date we purchased the remaining 25% ownership interest.  The earnings attributable to the noncontrolling interests in WSP, Spartan and TWB’s U.S. operations do not generate tax expense to Worthington since the investors in WSP, Spartan and TWB’s U.S. operations are taxed directly based on the earnings attributable to them. The tax expense of Worthington Aritas (a foreign corporation), and TWB’s wholly-owned foreign corporations, is reported in our consolidated tax expense.    

Under applicable accounting guidance, a tax benefit may be recognized from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, including resolution of any related appeals or litigation processes, based on the technical merits of the position.  Any tax benefits recognized in our financial statements from such a position were measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.

The total amount of unrecognized tax benefits were $1,621,000, $2,638,000, and $2,975,000 as of May 31, 2019, 2018 and 2017 , respectively.  The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate attributable to controlling interest was $1,257,000 as of May 31, 2019.  Unrecognized tax benefits are the differences between a tax position taken, or expected to be taken in a tax return, and the benefit recognized for accounting purposes.  Accrued amounts of interest and penalties related to unrecognized tax benefits are recognized as part of income tax expense within our consolidated statements of earnings.  As of May 31, 2019, 2018 and 2017 , we had accrued liabilities of $287,000, $271,000 and $307,000, respectively, for interest and penalties related to unrecognized tax benefits.

A tabular reconciliation of unrecognized tax benefits follows:

 

(In thousands)

 

 

 

 

Balance at May 31, 2018

 

$

2,638

 

Decreases - tax positions taken in prior years

 

 

(96

)

Increases - tax positions taken in prior years

 

 

41

 

Increases - current tax positions

 

 

43

 

Settlements

 

 

(831

)

Lapse of statutes of limitations

 

 

(174

)

Balance at May 31, 2019

 

$

1,621

 

 

85


 

Approximately $ 1,0 00 ,000 of the liability for unrecognized tax benefits is expected to be settled in the next twelve months due to the expiration of statutes of limitations in various tax jurisdictions and as a result of expected settlements with various tax jurisdictions. While it is expected that the amount of unrecognized tax benefits will change in the next twelve months, any change is not expected to have a material impact on our consolidated financial position, results of operations or cash flows.

The following is a summary of the tax years open to examination by major tax jurisdiction:

U.S. Federal –2015 and forward

U.S. State and Local –2014 and forward

Austria – 2016 and forward

Canada –2015 and forward

Mexico – 2014 and forward

Portugal – 2015 and forward

The components of our deferred tax assets and liabilities as of May 31 were as follows:

 

(in thousands)

 

2019

 

 

2018

 

Deferred tax assets

 

 

 

 

 

 

 

 

Accounts receivable

 

$

1,516

 

 

$

1,455

 

Inventories

 

 

5,649

 

 

 

5,004

 

Accrued expenses

 

 

21,195

 

 

 

23,219

 

Net operating loss carry forwards

 

 

16,433

 

 

 

14,201

 

Stock-based compensation

 

 

10,989

 

 

 

10,588

 

Derivative contracts

 

 

2,054

 

 

 

-

 

Other

 

 

316

 

 

 

1,313

 

Total deferred tax assets

 

 

58,152

 

 

 

55,780

 

Valuation allowance for deferred tax assets

 

 

(14,619

)

 

 

(14,006

)

Net deferred tax assets

 

 

43,533

 

 

 

41,774

 

Deferred tax liabilities

 

 

 

 

 

 

 

 

Property, plant and equipment

 

 

(91,732

)

 

 

(74,512

)

Investment in affiliated companies, principally due

   to undistributed earnings

 

 

(23,035

)

 

 

(22,918

)

Derivative contracts

 

 

-

 

 

 

(2,653

)

Other

 

 

(2,868

)

 

 

(1,879

)

Total deferred tax liability

 

 

(117,635

)

 

 

(101,962

)

Net deferred tax liability

 

$

(74,102

)

 

$

(60,188

)

 

At May 31, 2019, we had tax benefits for state net operating loss carry forwards of $10,745,000 that expire from fiscal 2021 to the fiscal year ending May 31, 2039, and tax benefits for foreign net operating loss carry forwards of $5,688,000 that expire from fiscal 2020 to the fiscal year ending May 31, 2025.

The valuation allowance for deferred tax assets of $14,619,000 at May 31, 2019 is associated primarily with the net operating loss carry forwards.  The valuation allowance includes $9,341,000 for state and $5,278,000 for foreign deferred tax assets.  The majority of the state valuation allowance relates to our facility in Decatur, Alabama. The foreign valuation allowance relates to the Company’s operations in Turkey.  Based on our history of profitability, the scheduled reversal of deferred tax liabilities, and taxable income projections, we have determined that it is more likely than not that the remaining deferred tax assets are otherwise realizable.

86


 

Note N – Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share for the fiscal years ended May 31:

 

(in thousands, except per share amounts)

2019

 

 

2018

 

 

2017

 

Numerator (basic & diluted):

 

 

 

 

 

 

 

 

 

 

 

Net earnings attributable to controlling interest - income available to

 

 

 

 

 

 

 

 

 

 

 

common shareholders

$

153,455

 

 

$

194,794

 

 

$

204,515

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

Denominator for basic earnings per share attributable to controlling

 

 

 

 

 

 

 

 

 

 

 

interest - weighted average common shares

 

57,196

 

 

 

60,923

 

 

 

62,443

 

Effect of dilutive securities

 

1,627

 

 

 

2,119

 

 

 

2,431

 

Denominator for diluted earnings per share attributable to controlling

 

 

 

 

 

 

 

 

 

 

 

interest - adjusted weighted average common shares

 

58,823

 

 

 

63,042

 

 

 

64,874

 

Basic earnings per share attributable to controlling interest

$

2.68

 

 

$

3.20

 

 

$

3.28

 

Diluted earnings per share attributable to controlling interest

$

2.61

 

 

$

3.09

 

 

$

3.15

 

 

Stock options covering 313,144, 188,504, and 100,048 common shares for fiscal 2019, fiscal 2018 and fiscal 2017 , respectively, have been excluded from the computation of diluted earnings per share because the effect of their inclusion would have been anti-dilutive for those periods.

Note O – Segment Data

Our operations are managed principally on a products and services basis and include three reportable business segments: Steel Processing, Pressure Cylinders and Engineered Cabs, each of which is comprised of a similar group of products and services.  Factors used to identify reportable business segments include the nature of the products and services provided by each business, the management reporting structure, similarity of economic characteristics and certain quantitative measures, as prescribed by authoritative guidance.  A discussion of each of our reportable business segments is outlined below.

Effective June 1, 2017, we made certain organizational changes impacting the internal reporting and management structure of Worthington Steelpac Systems, LLC (“Packaging Solutions”).  As a result of these organizational changes, management responsibilities and internal reporting were realigned, moving Packaging Solutions from the Steel Processing operating segment to the Engineered Cabs operating segment.  Previously reported segment information has not been restated to conform to this new presentation and is immaterial for all periods presented.

Steel Processing : The Steel Processing reportable segment consists of the Worthington Steel business unit and three consolidated joint ventures: Spartan, TWB and WSP.  Spartan operates a cold-rolled, hot-dipped galvanizing line and TWB operates a laser welded blanking business.  WSP serves primarily as a toll processor for United States Steel Corporation and others.  Its services include slitting, blanking, cutting-to-length, laser blanking, laser welding, tension leveling and warehousing.  Worthington Steel is an intermediate processor of flat-rolled steel.  This operating segment’s processing capabilities include cold reducing, configured blanking, coil fed laser blanking, cutting-to-length, dry-lube, hot-dipped galvanizing, hydrogen annealing, laser welding, pickling, slitting, oscillate slitting, temper rolling, tension leveling, and non-metallic coating, including  acrylic and paint coating. Worthington Steel sells to customers principally in the automotive, aerospace, agricultural, appliance, construction, container, hardware, heavy-truck, HVAC, lawn and garden, leisure and recreation, office furniture and office equipment markets. Worthington Steel also toll processes steel for steel mills, large end-users, service centers and other processors.  Toll processing is different from typical steel processing in that the mill, end-user or other party retains title to the steel and has the responsibility for selling the end product.  The Steel Processing reportable segment also includes the results of Packaging Solutions through May 31, 2017.  The percentage of our consolidated net sales generated by the Steel Processing reportable segment was approximately 65%, 63% and 69%, in fiscal 2019, fiscal 2018 and fiscal 2017 , respectively.

87


 

Pressure Cylinders : The Pressure Cylinders reportable segment consists of the Worthington Cylinders business unit.   During the fourth quarter of fiscal 2018, management committed to a plan to sell the Company’s cryogenics busi ness in Turkey and the net assets of the asset group have been presented separately as assets held for sale in our consolidated balance sheets.   The percentage of our consolidated net sales generated by the Pressure Cylinders reportable segment was approxi mately 32 %, 34 % and 28 % in fiscal 201 9 , fiscal 201 8 and fiscal 201 7 , respectively.   We acquired AMTROL on June 2, 2017, which has been included in the Pressure Cylinders reportable segment since that date, and accounted for approximately 7 % of our consolid ated net sales in both fiscal 201 9 and fiscal 2018 .

The Pressure Cylinders reportable segment manufactures and sells filled and unfilled pressure cylinders, tanks, hand torches, well water and expansion tanks, and oil and gas equipment along with various accessories and related products for diversified end-use market applications.  The following is a description of these markets:

 

Industrial Products: This market sector includes high pressure and acetylene cylinders for industrial gases, refrigerant and certain propane gas (LPG) cylinders, alternative fuels, cryogenic equipment, and systems and services for handling liquid gasses, and other specialty products. Cylinders in this market sector are generally sold to gas producers, cylinder exchangers and industrial distributors. Industrial gas cylinders hold fuel for uses such as cutting, brazing and soldering, semiconductor production, and beverage delivery. Refrigerant gas cylinders are used to hold refrigerant gases for commercial, residential and automotive air conditioning and refrigeration systems.  LPG cylinders hold fuel for barbeque grills, recreational vehicle equipment, residential and light commercial heating systems, industrial forklifts and commercial/residential cooking (the latter, generally outside North America). Alternative fuels includes composite and steel cylinders used to hold CNG and hydrogen for automobiles, buses, and light-duty trucks, and to hold propane/autogas for automobiles and light- and medium-duty trucks. Cryogenic equipment and systems include LNG systems for marine and mining applications, liquid nitrogen storage freezers and shipping containers for organic specimens in healthcare markets, and tanks and trailers for liquefied nitrogen, oxygen, argon, hydrogen, and natural gas. Specialty products include a variety of fire suppression, life support and chemical tanks.

 

Consumer Products: This market sector includes propane-filled cylinders for torches, camping stoves and other applications, hand held torches, Balloon Time® helium-filled balloon kits, plumbing tools, well water tanks and expansion tanks. These products are sold primarily to mass merchandisers, retailers and distributors.

 

Oil & Gas Equipment:  This market sector includes steel storage tanks, separation equipment, controls and other products primarily used in the energy markets, including oil and gas and nuclear. This market sector also includes hoists and other marine products which are used principally in shipyard lift systems.

Engineered Cabs: The Engineered Cabs reportable segment consists of the Worthington Industries Engineered Cabs business unit, a non-captive designer and manufacturer of high-quality, custom-engineered open and enclosed cabs and operator stations and custom fabrications for heavy mobile equipment used primarily in the agricultural, construction, forestry, military and mining industries.  Engineered Cabs’ product design, engineering support and broad manufacturing capabilities enable it to produce cabs and structures used in products ranging from small utility equipment to large earthmovers.  Engineered Cabs also includes Packaging Solutions, effective June 1, 2017.  Packaging Solutions designs and manufactures reusable custom steel platforms, racks and pallets for supporting, protecting and handling products throughout the shipping process.  For each fiscal 2019, fiscal 2018 and fiscal 2017, the percentage of our consolidated net sales generated by the Engineered Cabs reportable segment was approximately 3%.

Other: Certain income and expense items not allocated to our operating segments are included in Other, including costs associated with our captive insurance company. The Other category also included the former WEI operating segment, through March 31, 2018 when we disposed of 65% of our 75% stake in the business effective March 31, 2018.  

The accounting policies of the reportable business segments and other operating segments are described in “Note A – Summary of Significant Accounting Policies.”   We evaluate operating segment performance based on operating income (loss). Inter-segment sales are not material.

88


 

The following table presents summarized financial information for our reportable business segments as of, and for the fiscal years ended, May 31:

 

(in thousands)

2019

 

 

2018

 

 

2017

 

Net sales

 

 

 

 

 

 

 

 

 

 

 

Steel Processing

$

2,435,818

 

 

$

2,252,771

 

 

$

2,074,869

 

Pressure Cylinders

 

1,207,798

 

 

 

1,206,183

 

 

 

829,846

 

Engineered Cabs

 

115,902

 

 

 

116,631

 

 

 

101,388

 

Other

 

38

 

 

 

6,035

 

 

 

8,005

 

Total net sales

$

3,759,556

 

 

$

3,581,620

 

 

$

3,014,108

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

 

 

 

 

 

 

 

 

 

Steel Processing

$

89,761

 

 

$

152,690

 

 

$

170,481

 

Pressure Cylinders

 

69,872

 

 

 

23,396

 

 

 

54,098

 

Engineered Cabs

 

(14,664

)

 

 

(11,305

)

 

 

(7,685

)

Other

 

(205

)

 

 

(23,171

)

 

 

(3,773

)

Total operating income

$

144,764

 

 

$

141,610

 

 

$

213,121

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

 

 

 

 

 

 

 

 

Steel Processing

$

40,374

 

 

$

43,331

 

 

$

42,861

 

Pressure Cylinders

 

42,403

 

 

 

46,691

 

 

 

31,052

 

Engineered Cabs

 

5,687

 

 

 

5,415

 

 

 

5,197

 

Other

 

7,138

 

 

 

7,922

 

 

 

7,683

 

Total depreciation and amortization

$

95,602

 

 

$

103,359

 

 

$

86,793

 

 

 

 

 

 

 

 

 

 

 

 

 

Impairment of goodwill and long-lived assets

 

 

 

 

 

 

 

 

 

 

 

Steel Processing

$

3,269

 

 

$

-

 

 

$

-

 

Pressure Cylinders

 

4,548

 

 

 

53,883

 

 

 

-

 

Engineered Cabs

 

-

 

 

 

-

 

 

 

-

 

Other

 

-

 

 

 

7,325

 

 

 

-

 

Total impairment of goodwill and long-lived assets

$

7,817

 

 

$

61,208

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

Restructuring and other expense (income), net

 

 

 

 

 

 

 

 

 

 

 

Steel Processing

$

(9

)

 

$

(10,087

)

 

$

1,828

 

Pressure Cylinders

 

(11,009

)

 

 

2,365

 

 

 

3,411

 

Engineered Cabs

 

-

 

 

 

(78

)

 

 

1,219

 

Other

 

-

 

 

 

379

 

 

 

(47

)

Total restructuring and other expense (income), net

$

(11,018

)

 

$

(7,421

)

 

$

6,411

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

 

 

 

 

 

 

 

 

 

 

Steel Processing

$

924,966

 

 

$

999,238

 

 

$

882,863

 

Pressure Cylinders

 

1,123,115

 

 

 

1,147,268

 

 

 

766,611

 

Engineered Cabs

 

66,226

 

 

 

66,456

 

 

 

62,141

 

Other

 

396,489

 

 

 

408,825

 

 

 

613,729

 

Total assets

$

2,510,796

 

 

$

2,621,787

 

 

$

2,325,344

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

 

 

 

 

 

 

 

 

 

Steel Processing

$

39,114

 

 

$

31,966

 

 

$

40,775

 

Pressure Cylinders

 

37,558

 

 

 

32,697

 

 

 

24,798

 

Engineered Cabs

 

1,131

 

 

 

2,067

 

 

 

755

 

Other

 

6,696

 

 

 

9,358

 

 

 

2,058

 

Total capital expenditures

$

84,499

 

 

$

76,088

 

 

$

68,386

 

 

89


 

The following table presents net sales by geographic region for the fiscal years ended May 31:

 

(in thousands)

 

2019

 

 

2018

 

 

2017

 

North America

 

$

3,559,650

 

 

$

3,275,090

 

 

$

2,805,182

 

International

 

 

199,906

 

 

 

306,530

 

 

 

208,926

 

Total

 

$

3,759,556

 

 

$

3,581,620

 

 

$

3,014,108

 

 

The following table presents property, plant and equipment, net, by geographic region as of May 31:

 

(in thousands)

 

2019

 

 

2018

 

North America

 

$

514,519

 

 

$

512,439

 

International

 

 

64,145

 

 

 

72,531

 

Total

 

$

578,664

 

 

$

584,970

 

 

Note P – Acquisitions

Magna Industries, Inc.

On May 1, 2019, the Company acquired the net assets of Magna Industries, Inc., a Cleveland-based manufacturer of Mag-Torch® hand-held torches and Superior Tool® plumbing tools.  The total purchase price was $13,500,000, including contingent consideration with an estimated fair value of $2,000,000 related to an earn-out provision tied to future performance.  An additional $1,150,000 of the purchase price was deferred to cover any adjustments or disputes that arise after the closing date for up to one year.  In connection with the acquisition, the Company recognized total intangible assets of $3,677,000, including goodwill of $777,000.  The remaining purchase price was allocated primarily to working capital.

AMTROL

On June 2, 2017, the Company acquired AMTROL, a leading manufacturer of pressure cylinders and water system tanks with operations in the U.S. and Europe.  The total purchase price was $291,921,000, after adjusting for excess working capital, and was funded primarily with cash on hand.  The net assets became part of the Pressure Cylinders operating segment at closing, with the well water and expansion tank operations aligning under the consumer products business and the refrigerant, liquid propane and industrial and specialty gas operations aligning under the industrial products business.  Total acquisition-related expenses were $3,568,000, of which $1,568,000 were incurred during fiscal 2018.

The assets acquired and liabilities assumed were recognized at their acquisition-date fair values, with goodwill representing the excess of the purchase price over the fair value of the net identifiable assets acquired.  In connection with the acquisition, we identified and valued the following identifiable intangible assets:

 

(in thousands)

 

 

 

 

 

Useful Life

Category

 

Amount

 

 

(Years)

Customer relationships

 

$

90,800

 

 

14-17

Trade names

 

 

62,200

 

 

Indefinite

Technology

 

 

13,000

 

 

15-16

Total acquired identifiable intangible assets

 

$

166,000

 

 

 

 

The purchase price includes the fair values of other assets that were not identifiable, not separately recognizable under accounting rules (e.g., assembled workforce) or of immaterial value.  The purchase price also includes a going-concern element that represents our ability to earn a higher rate of return on this group of assets than would be expected on the separate assets as determined during the valuation process.  This additional investment value resulted in goodwill, which is not expected to be deductible for income tax purposes.

90


 

The following table summarized the consideration transferred for the assets of AMTROL and the fair value assigned to the assets acquired and liabilities assumed at the acquisition date:

 

 

 

 

 

 

 

Measurement

 

 

 

 

 

 

 

Preliminary

 

 

Period

 

 

Revised

 

(in thousands)

 

Valuation

 

 

Adjustments

 

 

Valuation

 

Cash

 

$

6,893

 

 

$

-

 

 

$

6,893

 

Accounts receivable

 

 

40,212

 

 

 

-

 

 

 

40,212

 

Inventories

 

 

37,249

 

 

 

-

 

 

 

37,249

 

Prepaid expenses

 

 

981

 

 

 

-

 

 

 

981

 

Other assets

 

 

2,550

 

 

 

-

 

 

 

2,550

 

Intangible assets

 

 

166,000

 

 

 

-

 

 

 

166,000

 

Property, plant and equipment

 

 

52,870

 

 

 

-

 

 

 

52,870

 

Total assets

 

 

306,755

 

 

 

-

 

 

 

306,755

 

Accounts payable

 

 

25,945

 

 

 

-

 

 

 

25,945

 

Accrued liabilities

 

 

21,016

 

 

 

-

 

 

 

21,016

 

Long-term debt including current maturities

 

 

2,287

 

 

 

-

 

 

 

2,287

 

Other accrued items

 

 

3,993

 

 

 

1,501

 

 

 

5,494

 

Deferred income taxes, net

 

 

64,495

 

 

 

(966

)

 

 

63,529

 

Net identifiable assets

 

 

189,019

 

 

 

(535

)

 

 

188,484

 

Goodwill

 

 

102,902

 

 

 

535

 

 

 

103,437

 

Purchase price

 

$

291,921

 

 

$

-

 

 

$

291,921

 

 

Operating results of AMTROL have been included in the Company’s consolidated statements of earnings since the date of the acquisition.  During the fiscal year ended May 31, 2018, AMTROL contributed net sales of $265,198,000 and operating income of $18,899,000.  

The following unaudited pro forma information presents consolidated financial information as if AMTROL had been acquired at the beginning of fiscal 2017.  Depreciation and amortization expense included in the pro forma results reflect the acquisition-date fair values assigned to the definite-lived intangible assets and fixed assets of AMTROL assuming a June 1, 2016 acquisition date.  Adjustment has also been made for the acquisition-related costs incurred in each period presented.  Pro forma results for the fiscal year ended May 31, 2018 have also been adjusted to remove the impact of the acquisition-date fair value adjustments to inventories and accrued severance costs related to headcount reductions at AMTROL initiated during the first quarter of fiscal 2018.  The pro forma adjustments noted above have been adjusted for the applicable income tax impact.  The pro forma information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place as of June 1, 2016

 

(in thousands, except per share amounts)

 

2018

 

 

2017

 

Net sales

 

$

3,581,620

 

 

$

3,263,315

 

Net earnings attributable to controlling interest

 

$

199,038

 

 

$

215,182

 

Diluted earnings per share attributable to controlling interest

 

$

3.16

 

 

$

3.32

 

 

Note Q – Derivative Instruments and Hedging Activities

We utilize derivative financial instruments to manage exposure to certain risks related to our ongoing operations. The primary risks managed through the use of derivative instruments include interest rate risk, foreign currency exchange risk and commodity price risk. While certain of our derivative instruments are designated as hedging instruments, we also enter into derivative instruments that are designed to hedge a risk, but are not designated as hedging instruments and therefore do not qualify for hedge accounting. These derivative instruments are adjusted to current fair value through earnings at the end of each period.

91


 

Interest Rate Risk Management – We are exposed to the impact of interest rate changes. Our objective is to manage the impact of int erest rate changes on cash flows and the market value of our borrowings. We utilize a mix of debt maturities along with both fixed-rate and variable-rate debt to manage changes in interest rates. In addition, we enter into interest rate swaps to further manage our exposure to interest rate variations related to our borrowings and to lower our overall borrowing costs.

Foreign Currency Exchange Risk Management – We conduct business in several major international currencies and are, therefore, subject to risks associated with changing foreign currency exchange rates. We enter into various contracts that change in value as foreign currency exchange rates change to manage this exposure. Such contracts limit exposure to both favorable and unfavorable foreign currency exchange rate fluctuations. The translation of foreign currencies into United States dollars also subjects us to exposure related to fluctuating foreign currency exchange rates; however, derivative instruments are not used to manage this risk.

Commodity Price Risk Management – We are exposed to changes in the price of certain commodities, including steel, natural gas, copper, zinc and other raw materials, and our utility requirements. Our objective is to reduce earnings and cash flow volatility associated with forecasted purchases and sales of these commodities to allow management to focus its attention on business operations. Accordingly, we enter into derivative contracts to manage the associated price risk.

We are exposed to counterparty credit risk on all of our derivative instruments. Accordingly, we have established and maintain strict counterparty credit guidelines. We have credit support agreements in place with certain counterparties to limit our credit exposure.  These agreements require either party to post cash collateral if its cumulative market position exceeds a predefined liability threshold.  Amounts posted to the margin accounts accrue interest at market rates and are required to be refunded in the period in which the cumulative market position falls below the required threshold.  We do not have significant exposure to any one counterparty and management believes the risk of loss is remote and, in any event, would not be material.

Refer to " Note R – Fair Value Measurements " for additional information regarding the accounting treatment for our derivative instruments, as well as how fair value is determined.

The following table summarizes the fair value of our derivative instruments and the respective line in which they were recorded in the consolidated balance sheet at May 31, 2019 :

 

 

 

Asset Derivatives

 

 

Liability Derivatives

 

 

 

Balance

 

 

 

 

 

Balance

 

 

 

 

 

 

Sheet

 

Fair

 

 

Sheet

 

Fair

 

(in thousands)

 

Location

 

Value

 

 

Location

 

Value

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

Receivables

 

$

5

 

 

Accounts payable

 

$

8,383

 

 

 

Other assets

 

 

-

 

 

Other liabilities

 

 

201

 

Totals

 

 

 

$

5

 

 

 

 

$

8,584

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

Receivables

 

$

2,347

 

 

Accounts payable

 

$

3,568

 

 

 

Other assets

 

 

62

 

 

Other liabilities

 

 

66

 

 

 

 

 

 

2,409

 

 

 

 

 

3,634

 

Foreign exchange contracts

 

Receivables

 

 

-

 

 

Accounts payable

 

 

20

 

Totals

 

 

 

$

2,409

 

 

 

 

$

3,654

 

Total derivative instruments

 

 

 

$

2,414

 

 

 

 

$

12,238

 

 

The amounts in the table above reflect the fair value of the Company’s derivative contracts on a net basis. Had these amounts been recognized on a gross basis, the impact would have been a $220,000 increase in receivables with a corresponding increase in accounts payable.

92


 

The following table summarizes the fair value of our derivative instruments and the respective line in which they were recorded in the consolidated balance sheet at May 31, 201 8 :

 

 

 

Asset Derivatives

 

 

Liability Derivatives

 

 

 

Balance

 

 

 

 

 

Balance

 

 

 

 

 

 

Sheet

 

Fair

 

 

Sheet

 

Fair

 

(in thousands)

 

Location

 

Value

 

 

Location

 

Value

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

Receivables

 

$

6,385

 

 

Accounts payable

 

$

-

 

 

 

Other assets

 

 

68

 

 

Other liabilities

 

 

-

 

Totals

 

 

 

$

6,453

 

 

 

 

$

-

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

Receivables

 

$

4,749

 

 

Accounts payable

 

$

613

 

 

 

Other assets

 

 

221

 

 

Other liabilities

 

 

158

 

 

 

 

 

 

4,970

 

 

 

 

 

771

 

Foreign exchange contracts

 

Receivables

 

 

-

 

 

Accounts payable

 

 

75

 

Totals

 

 

 

$

4,970

 

 

 

 

$

846

 

Total derivative instruments

 

 

 

$

11,423

 

 

 

 

$

846

 

 

The amounts in the table above reflect the fair value of the Company’s derivative contracts on a net basis. Had these amounts been recognized on a gross basis, the impact would have been a $351,000 increase in receivables with a corresponding increase in accounts payable.

Cash Flow Hedges

We enter into derivative instruments to hedge our exposure to changes in cash flows attributable to interest rate and commodity price fluctuations associated with certain forecasted transactions.  These derivative instruments are designated and qualify as cash flow hedges.  Accordingly, the effective portion of the gain or loss on the derivative instrument is reported as a component of OCI and reclassified into earnings in the same line associated with the forecasted transaction and in the same period during which the hedged transaction affects earnings.  The ineffective portion of the gain or loss on the derivative instrument is recognized in earnings immediately.

The following table summarizes our cash flow hedges outstanding at May 31, 2019:

 

 

 

Notional

 

 

 

(in thousands)

 

Amount

 

 

Maturity Date

Commodity contracts

 

$

61,454

 

 

June 2019 - December 2020

 

93


 

The following table summarizes the gain recognized in OCI and the gain (loss) reclassified from AOCI into earnings for derivative instruments designated as cash flow hedges during fiscal 201 9 and fiscal 201 8 :

 

 

 

 

 

 

 

 

 

 

 

 

 

Location of

 

 

 

 

 

 

 

 

 

 

Location of

 

 

 

 

 

Gain

 

Gain

 

 

 

 

 

 

 

Gain (Loss)

 

Gain (Loss)

 

 

(Ineffective

 

(Ineffective

 

 

 

Gain (Loss)

 

 

Reclassified

 

Reclassified

 

 

Portion)

 

Portion)

 

 

 

Recognized

 

 

from

 

from

 

 

Excluded

 

Excluded

 

 

 

in OCI

 

 

AOCI

 

AOCI

 

 

from

 

from

 

 

 

(Effective

 

 

(Effective

 

(Effective

 

 

Effectiveness

 

Effectiveness

 

(in thousands)

 

Portion)

 

 

Portion)

 

Portion)

 

 

Testing

 

Testing

 

For the fiscal year ended May 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

$

-

 

 

Interest expense

 

$

(162

)

 

Interest expense

 

$

-

 

Commodity contracts

 

 

(12,637

)

 

Cost of goods sold

 

 

3,752

 

 

Cost of goods sold

 

 

-

 

Totals

 

$

(12,637

)

 

 

 

$

3,590

 

 

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the fiscal year ended May 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

$

3,363

 

 

Interest expense

 

$

(407

)

 

Interest expense

 

$

-

 

Commodity contracts

 

 

11,620

 

 

Cost of goods sold

 

 

14,034

 

 

Cost of goods sold

 

 

-

 

Totals

 

$

14,983

 

 

 

 

$

13,627

 

 

 

 

$

-

 

 

The estimated net amount of the losses in AOCI at May 31, 2019 expected to be reclassified into net earnings within the succeeding twelve months is $6,590,000 (net of tax of $2,004,000).  This amount was computed using the fair value of the cash flow hedges at May 31, 2019, and will change before actual reclassification from other comprehensive income to net earnings during fiscal 2020.

Economic (Non-designated) Hedges

We enter into foreign exchange contracts to manage our foreign currency exchange rate exposure related to inter-company and financing transactions that do not meet the requirements for hedge accounting treatment.  We also enter into certain commodity contracts that do not qualify for hedge accounting treatment.  Accordingly, these derivative instruments are adjusted to current market value at the end of each period through earnings.

The following table summarizes our economic (non-designated) derivative instruments outstanding at May 31, 2019:

 

 

 

Notional

 

 

 

(in thousands)

 

Amount

 

 

Maturity Date(s)

Commodity contracts

 

$

53,310

 

 

June 2019 - August 2020

Foreign exchange contracts

 

 

8,590

 

 

June 2019 - March 2020

 

The following table summarizes the gain (loss) recognized in earnings for economic (non-designated) derivative financial instruments during fiscal 2019 and fiscal 2018:

 

 

 

 

 

Gain (Loss)

 

 

 

 

 

Recognized in Earnings

 

 

 

 

 

Fiscal Year Ended

 

 

 

Location of Gain (Loss)

 

May 31,

 

(in thousands)

 

Recognized in Earnings

 

2019

 

 

2018

 

Commodity contracts

 

Cost of goods sold

 

$

(5,114

)

 

$

6,284

 

Foreign exchange contracts

 

Miscellaneous income, net

 

 

(3,604

)

 

 

(264

)

Total

 

 

 

$

(8,718

)

 

$

6,020

 

 

94


 

Note R – Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date .  Fair value is an exit price concept that assumes an orderly transaction between willing market participants and is required to be based on assumptions that market participants would use in pricing an asset or a liability.   Current accounting guidance establishes a three-tier fair value hierarchy as a basis for considering such assumptions and for classifying the inputs used in the valuation methodologies.  This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs.  The three levels of inputs used to measure fair values are as follows:

 

Level 1

 

 

Observable prices in active markets for identical assets and liabilities.

 

 

 

Level 2

 

 

Inputs other than quoted prices included within Level 1 that are observable for the assets and liabilities, either directly or indirectly.

 

 

 

Level 3

 

 

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities.

 

Recurring Fair Value Measurements

At May 31, 2019 , our financial assets and liabilities measured at fair value on a recurring basis were as follows:

 

 

 

Quoted

 

 

Significant

 

 

 

 

 

 

 

 

 

 

 

Prices

 

 

Other

 

 

Significant

 

 

 

 

 

 

 

in Active

 

 

Observable

 

 

Unobservable

 

 

 

 

 

 

 

Markets

 

 

Inputs

 

 

Inputs

 

 

 

 

 

(in thousands)

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

Totals

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative contracts (1)

 

$

-

 

 

$

2,414

 

 

$

-

 

 

$

2,414

 

Total assets

 

$

-

 

 

$

2,414

 

 

$

-

 

 

$

2,414

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative contracts (1)

 

$

-

 

 

$

12,238

 

 

$

-

 

 

$

12,238

 

Total liabilities

 

$

-

 

 

$

12,238

 

 

$

-

 

 

$

12,238

 

 

At May 31, 2018 , our financial assets and liabilities measured at fair value on a recurring basis were as follows:

 

 

 

Quoted

 

 

Significant

 

 

 

 

 

 

 

 

 

 

 

Prices

 

 

Other

 

 

Significant

 

 

 

 

 

 

 

in Active

 

 

Observable

 

 

Unobservable

 

 

 

 

 

 

 

Markets

 

 

Inputs

 

 

Inputs

 

 

 

 

 

(in thousands)

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

Totals

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative contracts (1)

 

$

-

 

 

$

11,423

 

 

$

-

 

 

$

11,423

 

Total assets

 

$

-

 

 

$

11,423

 

 

$

-

 

 

$

11,423

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative contracts (1)

 

$

-

 

 

$

846

 

 

$

-

 

 

$

846

 

Total liabilities

 

$

-

 

 

$

846

 

 

$

-

 

 

$

846

 

 

 

(1)

The fair value of our derivative contracts was based on the present value of the expected future cash flows considering the risks involved, including non-performance risk, and using discount rates appropriate for the respective maturities.  Market observable, Level 2 inputs are used to determine the present value of the expected future cash flows.  Refer to “ Note Q – Derivative Instruments and Hedging Activities ” for additional information regarding our use of derivative instruments.

95


 

Non-Recurring Fair Value Measurements

At May 31, 2019, our assets measured at fair value on a non-recurring basis were categorized as follows:

 

 

 

Quoted

 

 

Significant

 

 

 

 

 

 

 

 

 

 

 

Prices

 

 

Other

 

 

Significant

 

 

 

 

 

 

 

in Active

 

 

Observable

 

 

Unobservable

 

 

 

 

 

 

 

Markets

 

 

Inputs

 

 

Inputs

 

 

 

 

 

(in thousands)

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

Totals

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in unconsolidated affiliate (1)

 

$

-

 

 

$

3,700

 

 

$

-

 

 

$

3,700

 

Long-lived assets held and used (2)

 

 

-

 

 

 

1,238

 

 

 

-

 

 

 

1,238

 

Long-lived assets held for sale (3)

 

 

-

 

 

 

7,000

 

 

 

-

 

 

 

7,000

 

Total assets

 

$

-

 

 

$

11,938

 

 

$

-

 

 

$

11,938

 

 

At May 31, 2018, our assets measured at fair value on a non-recurring basis were categorized as follows:

 

 

 

Quoted

 

 

Significant

 

 

 

 

 

 

 

 

 

 

 

Prices

 

 

Other

 

 

Significant

 

 

 

 

 

 

 

in Active

 

 

Observable

 

 

Unobservable

 

 

 

 

 

 

 

Markets

 

 

Inputs

 

 

Inputs

 

 

 

 

 

(in thousands)

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

Totals

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-lived assets held for sale (4)

 

$

-

 

 

$

30,000

 

 

$

-

 

 

$

30,000

 

Total assets

 

$

-

 

 

$

30,000

 

 

$

-

 

 

$

30,000

 

 

 

(1)

During the fourth quarter of fiscal 2019, we determined our 10% ownership interest in our Nisshin joint venture was other than temporarily impaired due to current and projected operating losses.  As a result, the investment was written down to its estimated fair value of $3,700,000, resulting in an impairment charge of $4,017,000 within equity in net income of unconsolidated affiliates.

 

(2)

During the fourth quarter of fiscal 2019, in connection with the ongoing closure of the CNG fuel system facility in Salt Lake City, Utah, long-lived assets consisting primarily of technology-related intangible assets and fixed assets were written down to their estimated fair value of $238,000 resulting in an impairment charge of $2,167,000.  During the fourth quarter of fiscal 2019, certain long-lived assets at our consolidated joint venture, WSP, were written down to their estimated fair value of $1,000,000, resulting in an impairment charge of $3,269,000.

 

(3)

During the first quarter of fiscal 2019, changes in facts and circumstances related to the planned sale of our cryogenics business in Turkey, Worthington Aritas, resulted in our lowering the estimate of fair value less cost to sell to $7,000,000 generating an impairment charge of $2,381,000.

 

(4)

During the fourth quarter of fiscal 2018, management committed to a plan to sell the Company’s cryogenics business in Turkey, Worthington Aritas, and certain underperforming oil & gas equipment assets within Pressure Cylinders.  In accordance with the applicable accounting guidance, the net assets were recorded at the lower of net book value or fair value less costs to sell.  The book value of Worthington Aritas exceeded its then estimated fair market value of $9,000,000, resulting in an impairment charge of $42,422,000.  Worthington Aritas was sold in July 2019; refer to “Note V – Subsequent Events” for additional information regarding the sale.  The book value of the oil & gas equipment asset group also exceeded its estimated fair market value of $21,000,000, resulting in an impairment charge of $10,497,000.  The oil & gas equipment assets were sold July 31, 2018.

The non-derivative financial instruments included in the carrying amounts of cash and cash equivalents, receivables, income taxes receivable, other assets, deferred income taxes, accounts payable, short-term borrowings, accrued compensation, contributions to employee benefit plans and related taxes, other accrued expenses, income taxes payable and other liabilities approximate fair value due to their short-term nature.  The fair value of long-term debt, including current maturities, based upon models utilizing primarily market observable (Level 2) inputs and credit risk, was $767,075,000 and $757,069,000 at May 31, 2019 and 2018, respectively.  The carrying amount of long-term debt, including current maturities, was $749,299,000 and $750,368,000 at May 31, 2019 and 2018, respectively.

96


 

Note S – Operating Leases

We lease certain property and equipment from third parties under non-cancelable operating lease agreements.  Rent expense under operating leases was $16,624,000, $16,277,000 and $13,519,000 in fiscal 2019, fiscal 2018 and fiscal 2017 , respectively.  Future minimum lease payments for non-cancelable operating leases having an initial or remaining term in excess of one year at May 31, 2019, were as follows:

 

(in thousands)

 

 

 

 

2020

 

$

10,774

 

2021

 

 

8,398

 

2022

 

 

5,428

 

2023

 

 

4,054

 

2024

 

 

2,098

 

Thereafter

 

 

2,637

 

Total

 

$

33,389

 

 

Note T – Related Party Transactions

We purchase from, and sell to, affiliated companies certain raw materials and services at prevailing market prices.  Net sales to affiliated companies for fiscal 2019, fiscal 2018 and fiscal 2017 totaled $53,125,000, $57,382,000, and $56,588,000, respectively.  Purchases from affiliated companies for fiscal 2019, fiscal 2018 and fiscal 2017 totaled $2,906,000, $7,292,000, and $7,145,000, respectively.  Accounts receivable from affiliated companies were $4,246,000 and $2,479,000 at May 31, 2019 and 2018, respectively.  Accounts payable to affiliated companies were $687,000 at May 31, 2019.  There was no accounts payable outstanding to affiliated companies at May 31, 2018.

Note U – Quarterly Results of Operations (Unaudited)

The following table summarizes the unaudited quarterly consolidated results of operations for fiscal 2019 and fiscal 2018:

 

(in thousands, except per share)

Three Months Ended

 

Fiscal 2019

August 31

 

 

November 30

 

 

February 28

 

 

May 31

 

Net sales

$

988,107

 

 

$

958,226

 

 

$

874,381

 

 

$

938,842

 

Gross margin

 

142,997

 

 

 

120,934

 

 

 

90,021

 

 

 

126,003

 

Impairment of long-lived assets (1)

 

2,381

 

 

 

-

 

 

 

-

 

 

 

5,436

 

Net earnings

 

56,958

 

 

 

37,792

 

 

 

29,548

 

 

 

38,975

 

Net earnings attributable to controlling interest

 

54,942

 

 

 

34,002

 

 

 

26,773

 

 

 

37,738

 

Basic earnings per share - controlling interest

$

0.94

 

 

$

0.59

 

 

$

0.47

 

 

$

0.68

 

Diluted earnings per share - controlling interest

$

0.91

 

 

$

0.57

 

 

$

0.46

 

 

$

0.66

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal 2018

August 31

 

 

November 30

 

 

February 28

 

 

May 31

 

Net sales

$

848,237

 

 

$

871,266

 

 

$

841,657

 

 

$

1,020,460

 

Gross margin

 

132,778

 

 

 

140,079

 

 

 

127,055

 

 

 

162,946

 

Impairment of goodwill and long-lived assets (1)

 

-

 

 

 

8,289

 

 

 

-

 

 

 

52,919

 

Net earnings

 

48,074

 

 

 

41,622

 

 

 

78,297

 

 

 

32,857

 

Net earnings attributable to controlling interest

 

45,534

 

 

 

39,403

 

 

 

79,087

 

 

 

30,769

 

Basic earnings per share - controlling interest

$

0.73

 

 

$

0.64

 

 

$

1.31

 

 

$

0.52

 

Diluted earnings per share - controlling interest

$

0.70

 

 

$

0.62

 

 

$

1.27

 

 

$

0.50

 

 

 

(1)

For additional information regarding the Company’s impairment activity, refer to “Note D – Goodwill and Other Long-Lived Assets.”

The sum of the quarterly earnings per share data presented in the table may not equal the annual results due to rounding and the impact of dilutive securities on the annual versus the quarterly earnings per share calculations.

97


 

Note V – Subsequent Events

On July 24, 2019, the Company completed the sale of Worthington Aritas and received cash proceeds, net of transaction costs, of approximately $8,300,000.  The impact of the transaction was immaterial to the statement of earnings. 

98


 

WORTHINGTON INDUSTRIES, INC. AND SUBSIDIARIES

SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS

 

Description

 

Balance at

Beginning

of Period

 

 

Charged

to Costs

and Expenses

 

 

Uncollectable

Accounts

Charged to

Allowance (A)

 

 

Balance at

End of

Period

 

Year Ended May 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deducted from asset accounts: Allowance for

   possible losses on trade accounts receivable

 

$

632,000

 

 

$

659,000

 

 

$

(141,000

)

 

$

1,150,000

 

Year Ended May 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deducted from asset accounts: Allowance for

   possible losses on trade accounts receivable

 

$

3,444,000

 

 

$

11,000

 

 

$

(2,823,000

)

 

$

632,000

 

Year Ended May 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deducted from asset accounts: Allowance for

   possible losses on trade accounts receivable

 

$

4,579,000

 

 

$

269,000

 

 

$

(1,404,000

)

 

$

3,444,000

 

 

Note A – For fiscal 2018, the balance also includes $1,215,000 related to Worthington Aritas that was reclassified to assets held for sale.

See accompanying Report of Independent Registered Public Accounting Firm.

99


 

Item 9. – Changes in and Disagreements With Acco untants on Accounting and Financial Disclosure

Not applicable.

Item 9A. - 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 recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s 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.

Management, with the participation of our principal executive officer and our principal financial officer, performed an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the fiscal year covered by this Annual Report on Form 10-K (the fiscal year ended May 31, 2019).  Based on that evaluation, our principal executive officer and our principal financial officer have concluded that such disclosure controls and procedures were effective at a reasonable assurance level as of the end of the fiscal year covered by this Annual Report on Form 10-K.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred in the last fiscal quarter (the fiscal quarter ended May 31, 2019) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Annual Report of Management on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.  Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Worthington Industries, Inc. and our consolidated subsidiaries; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States, and that receipts and expenditures of Worthington Industries, Inc. and our consolidated subsidiaries are being made only in accordance with authorizations of management and directors of Worthington Industries, Inc. and our consolidated subsidiaries, as appropriate; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the assets of Worthington Industries, Inc. and our consolidated subsidiaries that could have a material effect on the financial statements.

Management, with the participation of our principal executive officer and our principal financial officer, evaluated the effectiveness of our internal control over financial reporting as of May 31, 2019, the end of our fiscal year.  Management based its assessment on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Management’s assessment included evaluation of such elements as the design and operating effectiveness of key controls over financial reporting, process documentation, accounting policies and our overall control environment.  This assessment is supported by testing and monitoring performed under the direction of management.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.  Accordingly, even an effective system of internal control over financial reporting will provide only reasonable assurance with respect to financial statement preparation.

100


 

Based on the assessment of o ur internal control over financial reporting, management has concluded that our internal control over financial reporting was effective at a reasonable assurance level as of May 31, 2019 .  The results of management’s assessment were reviewed with the Audit Committee of the Worthington Industries , Inc. Board of Directors .

Additionally, our independent registered public accounting firm, KPMG LLP, independently assessed the effectiveness of our internal control over financial reporting and issued the accompanying Report of Independent Registered Public Accounting Firm.

101


 

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders

Worthington Industries, Inc.:

Opinion on Internal Control Over Financial Reporting

We have audited Worthington Industries, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of May 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission . In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of May 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of May 31, 2019 and 2018, the related consolidated statements of earnings, comprehensive income, equity, and cash flows for each of the years in the three-year period ended May 31, 2019, and the related notes and financial statement schedule of valuation and qualifying accounts (collectively, the consolidated financial statements), and our report dated July 30, 2019, expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Annual Report of Management on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

 

/s/KPMG LLP

 

 

 

Columbus, Ohio

 

July 30, 2019

 

102


 

Item 9B. – Othe r Information

There is nothing to be reported under this Item 9B.

 

103


 

PART III

Item 10. – Directors, Executive Officers and Corporate Governance

Directors, Executive Officers and Persons Nominated or Chosen to Become Directors or Executive Officers

The information required by Item 401 of SEC Regulation S-K concerning the directors of Worthington Industries, Inc. (“Worthington Industries” or the “Registrant”) and the nominees for re-election as directors of Worthington Industries at the Annual Meeting of Shareholders to be held on September 25, 2019 (the “2019 Annual Meeting”) is incorporated herein by reference from the disclosure to be included under the caption “PROPOSAL 1:  ELECTION OF DIRECTORS” in Worthington Industries’ definitive Proxy Statement relating to the 2019 Annual Meeting (“Worthington Industries’ Definitive 2019 Proxy Statement”), which will be filed pursuant to SEC Regulation 14A not later than 120 days after the end of Worthington Industries’ fiscal 2019 (the fiscal year ended May 31, 2019).

The information required by Item 401 of SEC Regulation S-K concerning the executive officers of Worthington Industries is incorporated herein by reference from the disclosure included under the caption “Supplemental Item – Executive Officers of the Registrant” in Part I of this Annual Report on Form 10-K.

Compliance with Section 16(a) of the Exchange Act

The information required by Item 405 of SEC Regulation S-K is incorporated herein by reference from the disclosure to be included under the caption “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT – Delinquent Section 16(a) Reports” in Worthington Industries’ Definitive 2019 Proxy Statement.

Procedures by which Shareholders may Recommend Nominees to Worthington Industries’ Board of Directors

Information concerning the procedures by which shareholders of Worthington Industries may recommend nominees to Worthington Industries’ Board of Directors is incorporated herein by reference from the disclosure to be included under the captions “PROPOSAL 1:  ELECTION OF DIRECTORS – Committees of the Board – Nominating and Governance Committee” and “CORPORATE GOVERNANCE – Nominating Procedures” in Worthington Industries’ Definitive 2019 Proxy Statement.  These procedures have not materially changed from those described in Worthington Industries’ definitive Proxy Statement for the 2018 Annual Meeting of Shareholders held on September 26, 2018.

Audit Committee Matters

The information required by Items 407(d)(4) and 407(d)(5) of SEC Regulation S‑K is incorporated herein by reference from the disclosure to be included under the caption “PROPOSAL 1:  ELECTION OF DIRECTORS –Committees of the Board – Audit Committee” in Worthington Industries’ Definitive 2019 Proxy Statement.

104


 

Code of Conduct; Committee Charters; Corporate Governance Guidelines; Charter of Lead Independent Director

Worthington Industries’ Board of Directors has adopted Charters for each of the Audit Committee, the Compensation Committee, the Executive Committee and the Nominating and Governance Committee as well as Corporate Governance Guidelines as contemplated by the applicable sections of the New York Stock Exchange Listed Company Manual.  Worthington Industries’ Board of Directors has also adopted a Charter of the Lead Independent Director of Worthington Industries’ Board of Directors.

In accordance with the requirements of Section 303A.10 of the New York Stock Exchange Listed Company Manual, the Board of Directors of Worthington Industries has adopted a Code of Conduct covering the directors, officers and employees of Worthington Industries and its subsidiaries, including Worthington Industries’ Chairman of the Board and Chief Executive Officer (the principal executive officer), Worthington Industries’ Vice President and Chief Financial Officer (the principal financial officer) and Worthington Industries’ Controller (the principal accounting officer).  The Registrant will disclose the following events, if they occur, in a current report on Form 8-K to be filed with the SEC within the required four business days following their occurrence: (A) the date and nature of any amendment to a provision of Worthington Industries’ Code of Conduct that (i) applies to Worthington Industries’ principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, (ii) relates to any element of the “code of ethics” definition enumerated in Item 406(b) of SEC Regulation S‑K, and (iii) is not a technical, administrative or other non-substantive amendment; and (B) a description of any waiver (including the nature of the waiver, the name of the person to whom the waiver was granted and the date of the waiver), including an implicit waiver, from a provision of the Code of Conduct granted to Worthington Industries’ principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, that relates to one or more of the elements of the “code of ethics” definition set forth in Item 406(b) of SEC Regulation S-K.  In addition, Worthington Industries will disclose any waivers from the provisions of the Code of Conduct granted to a director or an executive officer of Worthington Industries in a current report on Form 8-K to be filed with the SEC within the required four business days following their occurrence.

The text of each of the Charter of the Audit Committee, the Charter of the Compensation Committee, the Charter of the Executive Committee, the Charter of the Nominating and Governance Committee, the Charter of the Lead Independent Director, the Corporate Governance Guidelines and the Code of Conduct is posted on the “Corporate Governance” page of the “Investor Center” section of Worthington Industries’ Internet web site located at www.worthingtonindustries.com.  

Item 11. – Executive Compensation

The information required by Item 402 of SEC Regulation S-K is incorporated herein by reference from the disclosure to be included under the captions “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT,” “EXECUTIVE COMPENSATION” and “COMPENSATION OF DIRECTORS” in Worthington Industries’ Definitive 2019 Proxy Statement.

The information required by Item 407(e)(4) of SEC Regulation S-K is incorporated herein by reference from the disclosure to be included under the caption “CORPORATE GOVERNANCE — Compensation Committee Interlocks and Insider Participation” in Worthington Industries’ Definitive 2019 Proxy Statement.

The information required by Item 407(e)(5) of SEC Regulation S-K is incorporated herein by reference from the disclosure to be included under the caption “EXECUTIVE COMPENSATION — Compensation Committee Report” in Worthington Industries’ Definitive 2019 Proxy Statement.

105


 

Item 12. – Security Ownership of Certain Beneficial O wners and Management and Related Stockholder Matters

Ownership of Common Shares of Worthington Industries

The information required by Item 403 of SEC Regulation S-K is incorporated herein by reference from the disclosure to be included under the caption “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT” in Worthington Industries’ Definitive 2019 Proxy Statement.

Equity Compensation Plan Information

The information required by Item 201(d) of SEC Regulation S-K is incorporated herein by reference from the disclosure to be included under the caption “EQUITY COMPENSATION PLAN INFORMATION” in Worthington Industries’ Definitive 2019 Proxy Statement.

Item 1 3. – Certain Relationships and Related Transactions, and Director Independence

Certain Relationships and Related Person Transactions

The information required by Item 404 of SEC Regulation S-K is incorporated herein by reference from the disclosure in respect of John P. McConnell to be included under the caption “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT” and from the disclosure to be included under the caption “TRANSACTIONS WITH CERTAIN RELATED PERSONS” in Worthington Industries’ Definitive 2019 Proxy Statement.

Director Independence

The information required by Item 407(a) of SEC Regulation S-K is incorporated herein by reference from the disclosure to be included under the captions “CORPORATE GOVERNANCE – Director Independence” and “TRANSACTIONS WITH CERTAIN RELATED PERSONS” in Worthington Industries’ Definitive 2019 Proxy Statement.

Item 14. – Principal Accountant Fees and Services

The information required by this Item 14 is incorporated herein by reference from the disclosure to be included under the captions “AUDIT COMMITTEE MATTERS – Independent Registered Public Accounting Firm Fees” and “AUDIT COMMITTEE MATTERS – Pre-Approval of Services Performed by the Independent Registered Public Accounting Firm” in Worthington Industries’ Definitive 2019 Proxy Statement.

 

106


 

PART IV

Item 15. – E xhibits and Financial Statement Schedules

(a)

The following documents are filed as a part of this Annual Report on Form 10-K:

(1) Consolidated Financial Statements:

The consolidated financial statements (and report thereon) listed below are filed as a part of this Annual Report on Form 10-K:

Report of Independent Registered Public Accounting Firm (KPMG LLP)

Consolidated Balance Sheets as of May 31, 2019 and 2018

Consolidated Statements of Earnings for the fiscal years ended May 31, 2019, 2018 and 2017

Consolidated Statements of Comprehensive Income for the fiscal years ended May 31, 2019, 2018 and 2017

Consolidated Statements of Equity for the fiscal years ended May 31, 2019, 2018 and 2017

Consolidated Statements of Cash Flows for the fiscal years ended May 31, 2019, 2018 and 2017

Notes to Consolidated Financial Statements – fiscal years ended May 31, 2019, 2018 and 2017

(2) Financial Statement Schedule :

Schedule II – Valuation and Qualifying Accounts

All other financial statement schedules for which provision is made in the applicable accounting regulations of the SEC are omitted because they are not required or the required information has been presented in the aforementioned consolidated financial statements or notes thereto.

(3) Exhibits Required by Item 601 of Regulation S-K :

The documents listed in the Index to Exhibits that immediately precedes the signatures page of this Annual Report on Form 10-K are filed or furnished with this Annual Report on Form 10-K as exhibits or incorporated by reference as noted.  Each management contract or compensatory plan or arrangement is identified as such in the Index to Exhibits.

(b)

Exhibits :  The documents listed in the Index to Exhibits that immediately precedes the Signatures page of this Annual Report on Form 10-K are filed or furnished with this Annual Report on Form 10-K as exhibits or incorporated into this Annual Report on Form 10-K by reference.

(c)

Financial Statement Schedule :  The financial statement schedule listed in Item 15(a)(2) above is filed with this Annual Report on Form 10-K.

Item 16. – Form 10-K Summary

None.

107


 

INDEX TO EXHIBITS

 

Exhibit

 

Description of Exhibit

 

Location

 

 

 

 

 

2.1

 

Agreement and Plan of Merger, dated as of June 2, 2017, by and among Worthington Steel of Michigan, Inc., Worthington Rhode Island Corporation, New AMTROL Holdings, Inc. and Aqua Stockholder Representative, LLC, as Stockholder Representative

 

Incorporated herein by reference to Exhibit 2.1 to the Current Report on Form 8-K of Worthington Industries, Inc., an Ohio corporation (the “Registrant”), dated June 6, 2017 and filed with the SEC on the same date  (SEC File No. 1-8399)

 

 

 

 

 

3.1

 

Amended Articles of Incorporation of Worthington Industries, Inc., as filed with the Ohio Secretary of State on October 13, 1998 P

 

Incorporated herein by reference to Exhibit 3(a) to the Registrant’s Quarterly Report on Form 10-Q  for the quarterly period ended August 31, 1998 (SEC File No. 0-4016)

 

 

 

 

 

3.2

 

Code of Regulations of Worthington Industries, Inc. (reflecting all amendments through the date of this Annual Report on Form 10-K) [This document represents the Code of Regulations of Worthington Industries, Inc. in compiled form incorporating all amendments.]

 

Incorporated herein by reference to Exhibit 3(b) to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended August 31, 2000 (SEC File No. 1-8399)

 

 

 

 

 

4.1

 

Second Amended and Restated Credit Agreement, dated as of February 16, 2018, among Worthington Industries, Inc., as a Borrower; Worthington Industries International S.à.r.l., as a Borrower; PNC Bank, National Association, as a Lender, the Swingline Lender, an Issuing Bank and Administrative Agent; JPMorgan Chase Bank, N.A., as a Lender and Syndication Agent; Bank of America, N.A.; Branch Banking and Trust Company; U.S. Bank National Association; Wells Fargo Bank, National Association; Fifth Third Bank; The Huntington National Bank; and The Northern Trust Company, as Lenders (collectively with PNC Bank, National Association and JPMorgan Chase Bank, N.A., the “Lenders”); with Bank of America, N.A., Branch Banking and Trust Company, U.S. Bank National Association and Wells Fargo Bank, National Association serving as Co-Documentation Agents; and JPMorgan Chase Bank, N.A. and PNC Capital Markets LLC serving as Joint Bookrunners and Joint Lead Arrangers

 

Incorporated herein by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated February 22, 2018 and filed with the SEC on the same date (SEC File No. 1-8399)

 

 

 

 

 

4.2

 

Indenture, dated as of April 13, 2010, between Worthington Industries, Inc. and U.S. Bank National Association, as Trustee

 

Incorporated herein by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated April 13, 2010 and filed with the SEC on the same date (SEC File No. 1-8399)

 

 

 

 

 

4.3

 

First Supplemental Indenture, dated as of April 13, 2010, between Worthington Industries, Inc. and U.S. Bank National Association, as Trustee

 

Incorporated herein by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K dated April 13, 2010 and filed with the SEC on the same date (SEC File No. 1-8399)

 

 

 

 

 

4.4

 

Form of 6.50% Global Note due April 15, 2020 (included as Exhibit A in Exhibit 4.3 incorporated by reference in this Annual Report on Form 10-K)

 

Incorporated herein by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K dated April 13, 2010 and filed with the SEC on the same date (SEC File No. 1-8399)

 

 

 

 

 

108


 

Exhibit

 

Description of Exhibit

 

Location

4.5

 

Second Supplemental Indenture, dated as of April 15, 2014, between Worthington Industries, Inc. and U.S. Bank National Association, as Trustee

 

Incorporated herein by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K dated April 15, 2014 and filed with the SEC on the same date (SEC File No. 1-8399)

 

 

 

 

 

4.6

 

Form of 4.55% Global Note due April 15, 2026 (included as Exhibit A in Exhibit 4.5 incorporated by reference in this Annual Report on Form 10-K)

 

Incorporated herein by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K dated April 15, 2014 and filed with the SEC on the same date (SEC File No. 1-8399)

 

 

 

 

 

4.7

 

Third Supplemental Indenture, dated as of July 28, 2017, between Worthington Industries, Inc. and U.S. Bank National Association, as Trustee

 

Incorporated herein by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K dated July 28, 2017 and filed with the SEC on the same date (SEC File No. 1-8399)

 

 

 

 

 

4.8

 

Form of 4.300% Global Note due August 1, 2032 (included as Exhibit A in Exhibit 4.7 incorporated by reference in this Annual Report on Form 10-K)

 

Incorporated herein by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K dated July 28, 2017 and filed with the SEC on the same date (SEC File No. 1-8399)

 

 

 

 

 

4.9

 

Note Agreement, dated as of August 10, 2012, between Worthington Industries, Inc. and The Prudential Insurance Company of America, Pruco Life Insurance Company of New Jersey, Pruco Life Insurance Company, Prudential Arizona Reinsurance Universal Company, Prudential Annuities Life Assurance Corporation, The Prudential Life Insurance Company, Ltd. and The Gibraltar Life Insurance Co., Ltd.

 

Incorporated herein by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated August 15, 2012 and filed with the SEC on the same date (SEC File No. 1-8399)

 

 

 

 

 

4.10

 

Form of 4.60% Senior Note due August 10, 2024 (included as Exhibit A in Exhibit 4.9 incorporated by reference in this Annual Report on Form 10-K)

 

Incorporated herein by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated August 15, 2012 and filed with the SEC on the same date (SEC File No. 1-8399)

 

 

 

 

 

4.11

 

Amendment No. 1 to Note Agreement, dated June 10, 2015, among Worthington Industries, Inc., on the one hand, and The Prudential Insurance Company of America, Pruco Life Insurance Company of New Jersey, Pruco Life Insurance Company, Prudential Arizona Reinsurance Universal Company, Prudential Annuities Life Assurance Corporation, The Prudential Life Insurance Company, Ltd. and The Gibraltar Life Insurance Co., Ltd., on the other hand

 

Incorporated herein by reference to Exhibit 4.9 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2015 (SEC File No. 1-8399)

 

 

 

 

 

4.12

 

Agreement to furnish instruments and agreements defining rights of holders of long-term debt to the Securities and Exchange Commission upon request

 

Filed herewith

 

 

 

 

 

10.1

 

Worthington Industries, Inc. Non-Qualified Deferred Compensation Plan effective March 1, 2000*

 

Incorporated herein by reference to Exhibit 10.1 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2005 (SEC File No. 1-8399)

 

 

 

 

 

109


 

Exhibit

 

Description of Exhibit

 

Location

10.2

 

Amendment to the Worthington Industries, Inc. Non-Qualified Deferred Compensation Plan (Amendment effective as of September 1, 2011)*

 

Incorporated herein by reference to Exhibit 10.8 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended August 31, 2011 (SEC File No. 1-8399)

 

 

 

 

 

10.3

 

Second Amendment to the Worthington Industries, Inc. Non-Qualified Deferred Compensation Plan (Second Amendment effective as of October 1, 2014)*

 

Incorporated herein by reference to Exhibit 10.3 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2014 (SEC File No. 1-8399)

 

 

 

 

 

10.4

 

Worthington Industries, Inc. Amended and Restated 2005 Non-Qualified Deferred Compensation Plan (Restatement effective December 2008) *

 

Incorporated herein by reference to Exhibit 10.10 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2008 (SEC File No. 1-8399)

 

 

 

 

 

10.5

 

First Amendment to the Worthington Industries, Inc. Amended and Restated 2005 Non-Qualified Deferred Compensation Plan (First Amendment effective as of September 1, 2011)*

 

Incorporated herein by reference to Exhibit 10.9 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended August 31, 2011 (SEC File No. 1-8399)

 

 

 

 

 

10.6

 

Second Amendment to the Worthington Industries, Inc. Amended and Restated 2005 Non-Qualified Deferred Compensation Plan (Second Amendment effective as of October 1, 2014)*

 

Incorporated herein by reference to Exhibit 10.6 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2014 (SEC File No. 1-8399)

 

 

 

 

 

10.7

 

Worthington Industries, Inc. Deferred Compensation Plan for Directors, as Amended and Restated, effective June 1, 2000*

 

Incorporated herein by reference to Exhibit 10(d) to the Registrant's Annual Report on Form 10-K for the fiscal year ended May 31, 2000 (SEC File No. 1-8399)

 

 

 

 

 

10.8

 

Amendment to the Worthington Industries, Inc. Deferred Compensation Plan for Directors, as Amended and Restated, effective June 1, 2000 (Amendment effective as of September 1, 2011)*

 

Incorporated herein by reference to Exhibit 10.10 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended August 31, 2011 (SEC File No. 1-8399)

 

 

 

 

 

10.9

 

Second Amendment to the Worthington Industries, Inc. Deferred Compensation Plan for Directors, as Amended and Restated (Second Amendment effective as of October 1, 2014)*

 

Incorporated herein by reference to Exhibit 10.9 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2014 (SEC File No. 1-8399)

 

 

 

 

 

10.10

 

Worthington Industries, Inc. Amended and Restated 2005 Deferred Compensation Plan for Directors (Restatement effective as of December 2008)*

 

Incorporated herein by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2008 (SEC File No. 1-8399)

 

 

 

 

 

10.11

 

First Amendment to the Worthington Industries, Inc. Amended and Restated 2005 Deferred Compensation Plan for Directors (First Amendment effective as of September 1, 2011)*

 

Incorporated herein by reference to Exhibit 10.11 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended August 31, 2011 (SEC File No. 1-8399)

 

 

 

 

 

10.12

 

Second Amendment to the Worthington Industries, Inc. Amended and Restated 2005 Deferred Compensation Plan for Directors (Second Amendment effective as of October 1, 2014)*

 

Incorporated herein by reference to Exhibit 10.12 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2014 (SEC File No. 1-8399)

 

 

 

 

 

10.13

 

Worthington Industries, Inc. Amended and Restated 1997 Long-Term Incentive Plan (amendment and restatement effective as of November 1, 2008)*

 

Incorporated herein by reference to Exhibit 10.8 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2008 (SEC File No. 1-8399)

 

 

 

 

 

110


 

Exhibit

 

Description of Exhibit

 

Location

10.14

 

First Amendment to the Worthington Industries, Inc. Amended and Restated 1997 Long-Term Incentive Plan (First Amendment effective as of June 26, 2013; performance goals approved by shareholders on September 26, 2013)*

 

Incorporated herein by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K dated October 1, 2013 and filed with the SEC on the same date (SEC File No. 1-8399)

 

 

 

 

 

10.15

 

Second Amendment to the Worthington Industries, Inc. Amended and Restated 1997 Long-Term Incentive Plan (Second Amendment effective as of September 26, 2013)*

 

Incorporated herein by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8-K dated October 1, 2013 and filed with the SEC on the same date (SEC File No. 1-8399)

 

 

 

 

 

10.16

 

Third Amendment to the Worthington Industries, Inc. Amended and Restated 1997 Long-Term Incentive Plan (Third Amendment effective as of June 28, 2017)*

 

Incorporated herein by reference to Exhibit 10.16 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2017 (SEC File No. 1-8399)

 

 

 

 

 

10.17

 

Worthington Industries, Inc. Amended and Restated 1997 Long-Term Incentive Plan (reflects the First Amendment, the Second Amendment and the Third Amendment thereto)*

 

Incorporated herein by reference to Exhibit 10.17 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2017 (SEC File No. 1-8399)

 

 

 

 

 

10.18

 

Form of Notice of Grant of Stock Options and Option Agreement for non-qualified stock options under the Worthington Industries, Inc. 1997 Long-Term Incentive Plan (now known as the Worthington Industries, Inc. Amended and Restated 1997 Long-Term Incentive Plan)*

 

Incorporated herein by reference to Exhibit 10.7 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2010 (SEC File No. 1-8399)

 

 

 

 

 

10.19

 

Form of Letter Evidencing Performance Awards Granted and to be Granted under the Worthington Industries, Inc. Amended and Restated 1997 Long-Term Incentive Plan with targets for three-fiscal-year periods ending on or after May 31, 2015*

 

Incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated July 2, 2013 and filed with the SEC on the same date (SEC File No. 1-8399)

 

 

 

 

 

10.20

 

Form of Restricted Stock Award Agreement for awards granted after June 1, 2014 entered into by Worthington Industries, Inc. in order to evidence grants of restricted common shares on and after June 30, 2014 and prior to June 28, 2017, in each case which will vest on the third anniversary of the grant date, subject to the terms thereof and of the Worthington Industries, Inc. Amended and Restated 1997 Long-Term Incentive Plan*

 

Incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated July 1, 2014 and filed with the SEC on the same date (SEC File No. 1-8399)

 

 

 

 

 

10.21

 

Form of Restricted Stock Award Agreement for awards granted after June 28, 2017 entered into by Worthington Industries, Inc. in order to evidence the grant, after June 28, 2017, of restricted common shares, in each case which will vest on the fourth anniversary of the grant date, subject to the terms thereof and of the Worthington Industries, Inc. Amended and Restated 1997 Long-Term Incentive Plan*

 

Incorporated herein by reference to Exhibit 10.22 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2017 (SEC File No. 1-8399)

 

 

 

 

 

111


 

Exhibit

 

Description of Exhibit

 

Location

10.22

 

Form of Restricted Stock Award Agreement entered into by Worthington Industries, Inc. with Geoffrey G. Gilmore, in order to evidence the grant, effective June 24, 2014, of 25,000 performance-based restricted common shares pursuant to the Worthington Industries, Inc. Amended and Restated 1997 Long-Term Incentive Plan*

 

Incorporated herein by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated July 1, 2014 and filed with the SEC on the same date (SEC File No. 1-8399)

10.23

 

Amendment No. 1 to Restricted Stock Award Agreement entered into by Worthington Industries, Inc. with Geoffrey G. Gilmore, effective as of September 26, 2018, in order to amend the Restricted Stock Award Agreement, effective as of June 24, 2014, evidencing the grant of 25,000 performance-based restricted common shares to Mr. Gilmore pursuant to the Worthington Industries, Inc. Amended and Restated 1997 Long-Term Incentive Plan*

 

Incorporated herein by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2018 (SEC File No. 1-8399)

 

 

 

 

 

10.24

 

Form of Restricted Stock Award Agreement for awards granted after June 28, 2017 to be entered into by Worthington Industries, Inc. in order to evidence the grant, after June 28, 2017, of restricted common shares, in each case which will vest on the third anniversary of the grant date, subject to the terms thereto and of the Worthington Industries, Inc. Amended and Restated 1997 Long-Term Incentive Plan*

 

Incorporated herein by reference to Exhibit 10.24 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2017 (SEC File No. 1-8399)

 

 

 

 

 

10.25

 

Worthington Industries, Inc. Amended and Restated 2003 Stock Option Plan (amendment and restatement effective November 1, 2008)*

 

Incorporated herein by reference to Exhibit 10.6 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2008 (SEC File No. 1-8399)

 

 

 

 

 

10.26

 

First Amendment to the Worthington Industries, Inc. Amended and Restated 2003 Stock Option Plan (First Amendment effective September 26, 2013)*

 

Incorporated herein by reference to Exhibit 10.6 to the Registrant's Current Report on Form 8-K dated October 1, 2013 and filed with the SEC on the same date (SEC File No. 1-8399)

 

 

 

 

 

10.27

 

Second Amendment to the Worthington Industries, Inc. Amended and Restated 2003 Stock Option Plan (Second Amendment effective June 28, 2017)*

 

Incorporated herein by reference to Exhibit 10.27 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2017 (SEC File No. 1-8399)

 

 

 

 

 

10.28

 

Form of Notice of Grant of Stock Options and Option Agreement for non-qualified stock options granted under the Worthington Industries, Inc. 2003 Stock Option Plan (now known as the Worthington Industries, Inc. Amended and Restated 2003 Stock Option Plan)*

 

Incorporated herein by reference to Exhibit 10.14 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2010 (SEC File No. 1-8399)

 

 

 

 

 

10.29

 

Worthington Industries, Inc. Amended and Restated 2006 Equity Incentive Plan for Non-Employee Directors (amended and restated effective as of September 2016)*

 

Incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated October 3, 2016 and filed with the SEC on the same day (SEC File No. 1-8399)

 

 

 

 

 

112


 

Exhibit

 

Description of Exhibit

 

Location

10.30

 

Form of Notice of Grant of Stock Options and Option Agreement under the Worthington Industries, Inc. 2006 Equity Incentive Plan for Non-Employee Directors (now known as the Worthington Industries, Inc. Amended and Restated 2006 Equity Incentive Plan for Non-Employee Directors) to evidence the grant of non-qualified stock options to non-employee directors of Worthington Industries, Inc. on and after September 24, 2008*

 

Incorporated herein by reference to Exhibit 10.17 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2010 (SEC File No. 1-8399)

 

 

 

 

 

10.31

 

Form of Restricted Stock Award Agreement under the Worthington Industries, Inc. 2006 Equity Incentive Plan for Non-Employee Directors (now known as the Worthington Industries, Inc. Amended and Restated 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 24, 2008 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 Registrant's Quarterly Report on Form 10-Q for the quarterly period ended August 31, 2008 (SEC File No. 1-8399)

 

 

 

 

 

10.32

 

Worthington Industries, Inc. 2010 Stock Option Plan*

 

Incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K dated October 5, 2010 and filed with the SEC on the same date (SEC File No. 1-8399)

 

 

 

 

 

10.33

 

First Amendment to the Worthington Industries, Inc. 2010 Stock Option Plan (First Amendment effective September 26, 2013) *

 

Incorporated herein by reference to Exhibit 10.7 to the Registrant's Current Report on Form 8-K dated October 1, 2013 and filed with the SEC on the same date (SEC File No. 1-8399)

 

 

 

 

 

10.34

 

Second Amendment to the Worthington Industries, Inc. 2010 Stock Option Plan (Second Amendment effective as of June 28, 2017)*

 

Incorporated herein by reference to Exhibit 10.35 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2017 (SEC File No. 1-8399)

 

 

 

 

 

10.35

 

Form of Non-Qualified Stock Option Award Agreement entered into by Worthington Industries, Inc. in order to evidence the grant of non-qualified stock options to executive officers of Worthington Industries, Inc. effective as of June 30, 2011 pursuant to the Worthington Industries, Inc. 2010 Stock Option Plan and to be entered into by Worthington Industries, Inc. in order to evidence future grants of non-qualified stock options to executive officers pursuant to the Worthington Industries, Inc. 2010 Stock Option Plan*

 

Incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K dated July 6, 2011 and filed with the SEC on the same date (SEC File No. 1-8399)

 

 

 

 

 

10.36

 

Worthington Industries, Inc. Annual Incentive Plan for Executives*

 

Incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K dated September 30, 2008 and filed with the SEC on the same date (SEC File No. 1-8399)

 

 

 

 

 

113


 

Exhibit

 

Description of Exhibit

 

Location

10.37

 

First Amendment to the Worthington Industries, Inc. Annual Incentive Plan for Executives (approved by shareholders on September 26, 2013)*

 

Incorporated herein by reference to Exhibit 10.5 to the Registrant's Current Report on Form 8-K dated October 1, 2013 and filed with the SEC on the same date (SEC File No. 1-8399)

 

 

 

 

 

10.38

 

Form of Letter Evidencing Cash Performance Bonus Awards Granted and to be Granted under the Worthington Industries, Inc. Annual Incentive Plan for Executives (sometimes also referred to as the Worthington Industries, Inc. Annual Short Term Incentive Plan) *

 

Incorporated herein by reference to Exhibit 10.42 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2014 (SEC File No. 1-8399)

 

 

 

10.39

Receivables Purchase Agreement, dated as of November 30, 2000, among Worthington Receivables Corporation, as Seller, Worthington Industries, Inc., as Servicer, the members of the various purchaser groups from time to time party to the Receivables Purchase Agreement and PNC Bank, National Association, as Administrator

 

Incorporated herein by reference to Exhibit 10(h)(i) to the Registrant's Annual Report on Form 10-K for the fiscal year ended May 31, 2001 (SEC File No. 1-8399)

 

 

 

 

 

10.40

Amendment No. 1 to Receivables Purchase Agreement, dated as of May 18, 2001, among Worthington Receivables Corporation, as Seller, Worthington Industries, Inc., as Servicer, the members of the various purchaser groups from time to time party to the Receivables Purchase Agreement and PNC Bank, National Association, as Administrator

 

Incorporated herein by reference to Exhibit 10(h)(ii) to the Registrant's Annual Report on Form 10-K for the fiscal year ended May 31, 2001 (SEC File No. 1-8399)

 

 

 

 

 

10.41

Amendment No. 2 to Receivables Purchase Agreement, dated as of May 31, 2004, among Worthington Receivables Corporation, as Seller, Worthington Industries, Inc., as Servicer, the members of the various purchaser groups from time to time party to the Receivables Purchase Agreement and PNC Bank, National Association, as Administrator

 

Incorporated herein by reference to Exhibit 10(g)(x) to the Registrant's Annual Report on Form 10-K for the fiscal year ended May 31, 2004 (SEC File No. 1-8399)

 

 

 

 

 

10.42

Amendment No. 3 to Receivables Purchase Agreement, dated as of January 27, 2005, among Worthington Receivables Corporation, as Seller, Worthington Industries, Inc., as Servicer, the members of the various purchaser groups from time to time party to the Receivables Purchase Agreement and PNC Bank, National Association, as Administrator

 

Incorporated herein by reference to Exhibit 10.15 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2005 (SEC File No. 1-8399)

 

 

 

 

 

10.43

Amendment No. 4 to Receivables Purchase Agreement, dated as of January 25, 2008, among Worthington Receivables Corporation, as Seller, Worthington Industries, Inc., as Servicer, the members of the various purchaser groups from time to time party to the Receivables Purchase Agreement and PNC Bank, National Association, as Administrator

 

Incorporated herein by reference to Exhibit 10.20 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2008 (SEC File No. 1-8399)

 

 

 

 

 

10.44

Amendment No. 5 to Receivables Purchase Agreement, dated as of January 22, 2009, among Worthington Receivables Corporation, as Seller, Worthington Industries, Inc., as Servicer, the members of the various purchaser groups from time to time party to the Receivables Purchase Agreement and PNC Bank, National Association, as Administrator

 

Incorporated herein by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended February 28, 2009 (SEC File No. 1-8399)

114


 

Exhibit

 

Description of Exhibit

 

Location

 

 

 

 

 

10.45

Amendment No. 6 to Receivables Purchase Agreement, dated as of April 30, 2009, among Worthington Receivables Corporation, as Seller, Worthington Industries, Inc., as Servicer, the members of the various purchaser groups from time to time party to the Receivables Purchase Agreement and PNC Bank, National Association, as Administrator

 

Incorporated herein by reference to Exhibit 10.30 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2009 (SEC File No. 1-8399)

 

 

 

 

 

10.46

Amendment No. 7 to Receivables Purchase Agreement, dated as of January 21, 2010, among Worthington Receivables Corporation, as Seller, Worthington Industries, Inc., as Servicer, the members of the various purchaser groups from time to time party to the Receivables Purchase Agreement and PNC Bank, National Association, as Administrator

 

Incorporated herein by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended February 28, 2010 (SEC File No. 1-8399)

 

 

 

 

 

10.47

Amendment No. 8 to Receivables Purchase Agreement, dated as of April 16, 2010, among Worthington Receivables Corporation, as Seller, Worthington Industries, Inc., as Servicer, the members of the various purchaser groups from time to time party to the Receivables Purchase Agreement and PNC Bank, National Association, as Administrator

 

Incorporated herein by reference to Exhibit 10.30 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2010 (SEC File No. 1-8399)

 

 

 

 

 

10.48

Amendment No. 9 to Receivables Purchase Agreement, dated as of January 20, 2011, among Worthington Receivables Corporation, as Seller, Worthington Industries, Inc., as Servicer, the members of the various purchaser groups from time to time party to the Receivables Purchase Agreement and PNC Bank, National Association, as Administrator

 

Incorporated herein by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended February 28, 2011 (SEC File No. 1-8399)

 

 

 

 

 

10.49

Amendment No. 10 to Receivables Purchase Agreement, dated as of February 28, 2011, among Worthington Receivables Corporation, as Seller, Worthington Industries, Inc., as Servicer, the members of the various purchaser groups from time to time party to the Receivables Purchase Agreement and PNC Bank, National Association, as Administrator

 

Incorporated herein by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended February 28, 2011 (SEC File No. 1-8399)

 

 

 

 

 

10.50

Amendment No. 11 to Receivables Purchase Agreement, dated as of May 6, 2011, among Worthington Receivables Corporation, as Seller, Worthington Industries, Inc., as Servicer, the members of the various purchaser groups from time to time party to the Receivables Purchase Agreement and PNC Bank, National Association, as Administrator

 

Incorporated herein by reference to Exhibit 10.36 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2011 (SEC File No. 1-8399)

 

 

 

 

 

10.51

Amendment No. 12 to Receivables Purchase Agreement, dated as of January 19, 2012, among Worthington Receivables Corporation, as Seller, Worthington Industries, Inc., as Servicer, the members of the various purchaser groups from time to time party to the Receivables Purchase Agreement and PNC Bank, National Association, as Administrator

 

Incorporated herein by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended February 29, 2012 (SEC File No. 1-8399)

 

 

 

 

 

115


 

Exhibit

 

Description of Exhibit

 

Location

10.52

Amendment No. 13 to Receivables Purchase Agreement, dated as of January 18, 2013, among Worthington Receivables Corporation, as Seller, Worthington Industries, Inc., as Servicer, the members of the various purchaser groups from time to time party to the Receivables Purchase Agreement and PNC Bank, National Association, as Administrator

 

Incorporated herein by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended February 28, 2013 (SEC File No. 1-8399)

 

 

 

 

 

10.53

Amendment No. 14 to Receivables Purchase Agreement, dated as of July 15, 2013, among Worthington Receivables Corporation, as Seller, Worthington Industries, Inc., as Servicer, the members of the various purchaser groups from time to time party to the Receivables Purchase Agreement and PNC Bank, National Association, as Administrator

 

Incorporated herein by reference to Exhibit 10.48 to the Registrant's Annual Report on Form 10-K for the fiscal year ended May 31, 2013 (SEC File No. 1-8399)

 

 

 

 

 

10.54

Amendment No. 15 to Receivables Purchase Agreement, dated as of October 11, 2013, among Worthington Receivables Corporation, as Seller, Worthington Industries, Inc., as Servicer, the members of the various purchaser groups from time to time party to the Receivables Purchase Agreement and PNC Bank, National Association, as Administrator

 

Incorporated herein by reference to Exhibit 10.57 to the Registrant's Annual Report on Form 10-K for the fiscal year ended May 31, 2015 (SEC File No. 1-8399)

 

 

 

 

 

10.55

Amendment No. 16 to Receivables Purchase Agreement, dated as of May 23, 2014, among Worthington Receivables Corporation, as Seller, Worthington Industries, Inc., as Servicer, the members of the various purchaser groups from time to time party to the Receivables Purchase Agreement and PNC Bank, National Association, as Administrator

 

Incorporated herein by reference to Exhibit 10.58 to the Registrant's Annual Report on Form 10-K for the fiscal year ended May 31, 2015 (SEC File No. 1-8399)

 

 

 

 

 

10.56

Amendment No. 17 to Receivables Purchase Agreement, dated as of January 16, 2015, among Worthington Receivables Corporation, as Seller, Worthington Industries, Inc., as Servicer, the members of the various purchaser groups from time to time party to the Receivables Purchase Agreement and PNC Bank, National Association, as Administrator

 

Incorporated herein by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended February 28, 2015 (SEC File No. 1-8399)

 

 

 

 

 

10.57

Amendment No. 18 to Receivables Purchase Agreement, dated as of January 16, 2018, among Worthington Receivables Corporation, as Seller, Worthington Industries, Inc., as Servicer, the members of the various purchaser groups from time to time party to the Receivables Purchase Agreement and PNC Bank, National Association, as Administrator

 

Incorporated herein by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended February 28, 2018 (SEC File No. 1-8399)

 

 

 

 

10.58

Amendment No. 19 to Receivables Purchase Agreement dated November 30, 2018, among Worthington Receivables Corporation,, as Seller, Worthington Industries, Inc., as Servicer, the members of the various purchaser groups from time to time party to the Receivables Purchase Agreement and PNC Bank, National Association, as Administrator

 

Filed herewith

 

 

 

 

116


 

Exhibit

 

Description of Exhibit

 

Location

10.5 9

Amendment No. 20 to Receivables Purchase Agreement, dated as of January 14, 2019, among Worthington Receivables Corporation, as Seller, Worthington Industries, Inc., as Servicer, the members of the various purchaser groups from time to time party to the Receivables Purchase Agreement and PNC Bank, National Association, as Administrator

 

Incorporated herein by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended February 28, 2019 (SEC File No. 1-8399)

 

 

 

 

10.60

Purchase and Sale Agreement, dated as of November 30, 2000, between the various originators listed therein and Worthington Receivables Corporation

 

Incorporated herein by reference to Exhibit 10(h)(iii) to the Registrant's Annual Report on Form 10-K for the fiscal year ended May 31, 2001 (SEC File No. 1-8399)

 

 

 

 

 

10.61

Amendment No. 1, dated as of May 18, 2001, to Purchase and Sale Agreement, dated as of November 30, 2000, between the various originators listed therein and Worthington Receivables Corporation

 

Incorporated herein by reference to Exhibit 10(h)(iv) to the Registrant's Annual Report on Form 10-K for the fiscal year ended May 31, 2001 (SEC File No. 1-8399)

 

 

 

 

 

10.62

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

 

Incorporated herein by reference to Exhibit 10.5 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended August 31, 2006 (SEC File No. 1-8399)

 

 

 

 

 

10.63

Amendment No. 3, dated as of October 1, 2008, to Purchase and Sale Agreement, dated as of November 30, 2000, among the various originators listed therein, Worthington Taylor, Inc. and Worthington Receivables Corporation

 

Incorporated herein by reference to Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended February 28, 2011 (SEC File No. 1-8399)

 

 

 

 

 

10.64

Amendment No. 4, dated as of February 28, 2011, to Purchase and Sale Agreement, dated as of November 30, 2000, among the various originators listed therein, Dietrich Industries, Inc. and Worthington Receivables Corporation

 

Incorporated herein by reference to Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended February 28, 2011 (SEC File No. 1-8399)

 

 

 

 

 

10.65

Amendment No. 5, dated as of May 6, 2011, to Purchase and Sale Agreement, dated as of November 30, 2000, among the various originators listed therein, The Gerstenslager Company and Worthington Receivables Corporation

 

Incorporated herein by reference to Exhibit 10.42 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2011 (SEC File No. 1-8399)

 

 

 

 

 

10.66

Amendment No. 6, dated as of January 19, 2012, to Purchase and Sale Agreement, dated as of November 30, 2000, among the various originators listed therein and Worthington Receivables Corporation

 

Incorporated herein by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended February 29, 2012 (SEC File No. 1-8399)

 

 

 

 

 

10.67

Amendment No. 7, dated as of January 16, 2015, to Purchase and Sale Agreement, dated as of November 30, 2000, among the various originators listed therein, Advanced Component Technologies, Inc., Worthington Cylinders Mississippi, LLC, Worthington Steel of Kentucky, L.L.C., The Worthington Steel Company (North Carolina), and Worthington Receivables Corporation

 

Incorporated herein by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended February 28, 2015 (SEC File No. 1-8399)

 

 

 

 

 

10.68

Amendment No. 8, dated as of February 18, 2015, to Purchase and Sale Agreement, dated as of November 30, 2000, among the various originators listed therein and Worthington Receivables Corporation

 

Incorporated herein by reference to Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended February 28, 2015 (SEC File No. 1-8399)

 

 

 

 

 

117


 

Exhibit

 

Description of Exhibit

 

Location

10.6 9

Amendment No. 9, dated as of November 30, 2018, to Purchase and Sale Agreement, dated as of November 30, 2000, among the various originators listed therein, Worthington Torch, LLC and Worthington Receivables Corporation

 

Incorporated herein by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2018 (SEC File No. 1-8399)

 

 

 

 

 

10.70

Amendment No. 10, dated as of January 14, 2019, to Purchase and Sale Agreement, dated as of November 30, 2000, among the various Remaining Originators listed therein, Worthington Industries Engineered Cabs, Inc., Worthington Industries Engineered Cabs, LLC, AMTROL Inc., Westerman, Inc. and Worthington Receivables Corporation

 

Incorporated herein by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended February 28, 2019 (SEC File No. 1-8399)

 

 

 

 

 

10.71

Summary of Annual Base Salaries Approved for Named Executive Officers of Worthington Industries, Inc.*

 

Filed herewith

 

 

 

 

 

10.72

Summary of Annual Cash Performance Bonus Awards, Long-Term Performance Awards, Stock Options and Restricted Shares granted in Fiscal 2012 for Named Executive Officers*

 

Incorporated herein by reference to Exhibit 10.47 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2011 (SEC File No. 1-8399)

 

 

 

 

 

10.73

Summary of Annual Cash Performance Bonus Awards, Long-Term Performance Awards, Stock Options and Restricted Shares granted in Fiscal 2013 for Named Executive Officers*

 

Incorporated herein by reference to Exhibit 10.56 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2012 (SEC File No. 1-8399)

 

 

 

 

 

10.74

Summary of Annual Cash Incentive Bonus Awards, Long-Term Performance Awards, Stock Options and Restricted Common Shares granted in Fiscal 2014 for Named Executive Officers*

 

Incorporated herein by reference to Exhibit 10.62 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2013 (SEC File No. 1-8399)

 

 

 

 

 

10.75

Summary of Annual Cash Incentive Bonus Awards, Long-Term Performance Awards, Stock Options and Restricted Common Shares granted in Fiscal 2015 for Named Executive Officers*

 

Incorporated herein by reference to Exhibit 10.71 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2014 (SEC File No. 1-8399)

 

 

 

 

 

10.76

Summary of Annual Cash Incentive Bonus Awards, Long-Term Performance Awards, Stock Options and Restricted Common Shares granted in Fiscal 2016 for Named Executive Officers*

 

Incorporated herein by reference to Exhibit 10.74 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2015 (SEC File No. 1-8399)

 

 

 

 

 

10.77

Summary of Annual Cash Incentive Bonus Awards, Long-Term Performance Awards, Stock Options and Restricted Common Shares granted in Fiscal 2017 for Named Executive Officers*

 

Incorporated herein by reference to Exhibit 10.71 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2016 (SEC File No. 1-8399)

 

 

 

 

 

10.78

Summary of Annual Cash Incentive Bonus Awards, Long-Term Performance Awards, Stock Options and Restricted Common Shares granted in Fiscal 2018 for Named Executive Officers*

 

Incorporated herein by reference to Exhibit 10.74 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2017 (SEC File No. 1-8399)

 

 

 

 

 

10.79

Summary of Annual Cash Incentive Bonus Awards, Long-Term Performance Awards, Stock Options and Restricted Common Shares granted in Fiscal 2019 for Named Executive Officers*

 

Incorporated herein by reference to Exhibit 10.74 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2018 (SEC File No. 1-8399)

 

 

 

 

118


 

Exhibit

 

Description of Exhibit

 

Location

10. 80

Summary of Annual Cash Incentive Bonus Awards, Long-Term Performance Awards, Stock Options and Restricted Common Shares granted in Fiscal 2020 for Named Executive Officers*

 

Filed herewith

 

 

 

 

10.81

Retirement and Non-Competition Agreement – Mark A. Russell, made and entered between Mark A. Russell and Worthington Industries, Inc. (executed on August 27, 2018)*

 

Incorporated herein by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended August 31, 2018 (SEC File No. 1-8399)

 

 

 

 

10.82

Restricted Stock Award Agreement entered into by Worthington Industries, Inc. with B. Andrew Rose in order to evidence the grant, effective as of September 26, 2018, of 175,000 performance-based restricted common shares pursuant to the Worthington Industries, Inc. Amended and Restated 1997 Long-Term Incentive Plan*

 

Incorporated herein by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2018 (SEC File No. 1-8399)

 

 

 

 

10.83

Restricted Stock Award Agreement entered into by Worthington Industries, Inc. with Geoffrey G. Gilmore in order to evidence the grant, effective as of September 26, 2018, of 50,000 performance-based restricted common shares pursuant to the Worthington Industries, Inc. Amended and Restated 1997 Long-Term Incentive Plan*

 

Incorporated herein by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2018 (SEC File No. 1-8399)

 

 

 

 

10.84

Form of Indemnification Agreement entered into between Worthington Industries, Inc. and each executive officer of Worthington Industries, Inc. *

 

Incorporated herein by reference to Exhibit 10.33 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2008 (SEC File No. 1-8399)

 

 

 

 

 

10.85

Form of Indemnification Agreement entered into between Worthington Industries, Inc. and each non-employee director of Worthington Industries, Inc. *

 

Incorporated herein by reference to Exhibit 10.32 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2008 (SEC File No. 1-8399)

 

 

 

 

 

21

Subsidiaries of Worthington Industries, Inc.

 

Filed herewith

 

 

 

 

 

23.1

Consent of Independent Registered Public Accounting Firm (KPMG LLP)

 

Filed herewith

 

 

 

 

 

23.2

Consent of Independent Auditor (KPMG LLP) with respect to consolidated financial statements of  Worthington Armstrong Venture

 

Filed herewith

 

 

 

 

 

24

Powers of Attorney of Directors and Certain Executive Officers of Worthington Industries, Inc.

 

Filed herewith

 

 

 

 

 

31.1

Rule 13a - 14(a) / 15d - 14(a) Certifications (Principal Executive Officer)

 

Filed herewith

 

 

 

 

 

31.2

Rule 13a - 14(a) / 15d - 14(a) Certifications (Principal Financial Officer)

 

Filed herewith

 

 

 

 

 

32.1

Certifications of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

Furnished herewith

 

 

 

 

 

32.2

Certifications of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

Furnished herewith

 

 

 

 

 

99.1

Worthington Armstrong Venture Consolidated Financial Statements as of December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016

 

Filed herewith

 

 

 

 

 

119


 

Exhibit

 

Description of Exhibit

 

Location

101.INS

XBRL Instance Document

 

Submitted electronically herewith #

 

 

 

 

 

101.SCH

XBRL Taxonomy Extension Schema Document

 

Submitted electronically herewith #

 

 

 

 

 

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

 

Submitted electronically herewith #

 

 

 

 

 

101.DEF

XBRL Taxonomy Definition Linkbase Document

 

Submitted electronically herewith #

 

 

 

 

 

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

 

Submitted electronically herewith #

 

 

 

 

 

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

 

Submitted electronically herewith #

 

The Disclosure Schedules and Exhibits referenced in the Agreement and Plan of Merger were omitted pursuant to Item 601(b)(2) of SEC Regulation S-K, as in effect at the time of filing of the Agreement and Plan of Merger.  Worthington Industries, Inc. hereby undertakes to furnish a copy of any of the omitted Disclosure Schedules and Exhibits to the Securities and Exchange Commission upon request.

*

Indicates management contract or compensatory plan or arrangement.

#

Attached as Exhibit 101 to this Annual Report on Form 10-K for the fiscal year ended May 31, 2019 of Worthington Industries, Inc. are the following documents formatted in XBRL (eXtensible Business Reporting Language):  

 

(i)

Consolidated Balance Sheets at May 31, 2019 and 2018;  

 

(ii)

Consolidated Statements of Earnings for the fiscal years ended May 31, 2019, 2018 and 2017;

 

(iii)

Consolidated Statements of Comprehensive Income for the fiscal years ended May 31, 2019, 2018 and 2017;

 

(iv)

Consolidated Statements of Equity for the fiscal years ended May 31, 2019, 2018 and 2017;

 

(v)

Consolidated Statements of Cash Flows for the fiscal years ended May 31, 2019, 2018 and 2017; and  

 

(vi)

Notes to Consolidated Financial Statements – fiscal years ended May 31, 2019, 2018 and 2017.

120


 

S IGNAT URES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

WORTHINGTON INDUSTRIES, INC.

 

 

 

 

Date:   July 30, 2019

By:

 

/s/ John P. McConnell

 

 

 

John P. McConnell,

 

 

 

Chairman of the Board and Chief Executive Officer

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.

 

SIGNATURE

 

DATE

 

TITLE

 

 

 

 

 

/s/ John P. McConnell

 

July 30, 2019

 

Director, Chairman of the Board and Chief

John P. McConnell

 

 

 

Executive Officer (Principal Executive Officer)

 

 

 

 

 

/s/ Joseph B. Hayek

 

July 30, 2019

 

Vice President and Chief Financial Officer

Joseph B. Hayek

 

 

 

(Principal Financial Officer)

 

 

 

 

 

/s/ Richard G. Welch

 

July 30, 2019

 

Controller

Richard G. Welch

 

 

 

(Principal Accounting Officer)

 

 

 

 

 

*

 

*

 

Director

Kerrii B. Anderson

 

 

 

 

 

 

 

 

 

*

 

*

 

Director

David P. Blom

 

 

 

 

 

 

 

 

 

*

 

*

 

Director

John B. Blystone

 

 

 

 

 

 

 

 

 

*

 

*

 

Director

Mark C. Davis

 

 

 

 

 

 

 

 

 

*

 

*

 

Director

Michael J. Endres

 

 

 

 

 

 

 

 

 

*

 

*

 

Director

Ozey K. Horton, Jr.

 

 

 

 

 

 

 

 

 

*

 

*

 

Director

Peter Karmanos, Jr.

 

 

 

 

 

 

 

 

 

*

 

*

 

Director

Carl A. Nelson, Jr.

 

 

 

 

 

 

 

 

 

*

 

*

 

Director

Sidney A. Ribeau

 

 

 

 

 

 

 

 

 

*

 

*

 

Director

Mary Schiavo

 

 

 

 

 

*

The undersigned, by signing his name hereto, does hereby sign this report on behalf of each of the above-identified directors of the Registrant pursuant to powers of attorney executed by such directors, which powers of attorney are filed with this report within Exhibit 24.

 

*By:

 

/s/ John P. McConnell

Date:  July 30, 2019

 

 

John P. McConnell

 

 

 

Attorney-In-Fact

 

 

121

Exhibit 4.12

July 30, 2019

Securities and Exchange Commission

100 F Street, NE

Washington, D.C.  20549

 

Re:

Worthington Industries, Inc. – Annual Report on Form 10-K for the fiscal year ended May 31, 2019

- SEC File No. 1-8399

Ladies and Gentlemen:

Worthington Industries, Inc., an Ohio corporation, is today filing its Annual Report on Form 10-K for the fiscal year ended May 31, 2019 (the “Form 10-K”).

None of (i) Worthington Industries, Inc., (ii) any of the consolidated subsidiaries of Worthington Industries, Inc. or (iii) Worthington Armstrong Venture, a 50%-owned unconsolidated joint venture (in the form of a general partnership between Armstrong Ventures, Inc., a subsidiary of Armstrong World Industries, Inc., and The Worthington Steel Company (Delaware), a subsidiary of Worthington Industries, Inc.), for which financial statements are required to be filed with the Form 10-K, has outstanding any instrument or agreement with respect to its long-term debt, other than those filed or incorporated by reference as an exhibit to the Form 10-K, under which the total amount of long-term debt authorized exceeds 10% of the total assets of Worthington Industries, Inc. and its subsidiaries on a consolidated basis.  In accordance with the provisions of Item 601(b)(4)(iii) of SEC Regulation S-K, Worthington Industries, Inc. hereby agrees to furnish to the SEC, upon request, a copy of each instrument or agreement defining (i) the rights of holders of the long-term debt of Worthington Industries, Inc. or (ii) the rights of holders of the long-term debt of a consolidated subsidiary of Worthington Industries, Inc. or (iii) the rights of holders of the long-term debt of Worthington Armstrong Venture, in each case which is not being filed or incorporated by reference as an exhibit to the Form 10-K.

 

 

Very truly yours,

 

 

 

WORTHINGTON INDUSTRIES, INC.

 

 

 

/s/ Joseph B. Hayek

 

Joseph B. Hayek

 

Vice President and Chief Financial Officer

 

 

Exhibit 10.58

 

EXECUTION COPY

AMENDMENT NO. 19 TO RECEIVABLES PURCHASE AGREEMENT

 

THIS  AMENDMENT  NO. 19  TO  RECEIVABLES  PURCHASE AGREEMENT (this “ Amendment ”), dated as of November 30, 2018, is entered into among WORTHINGTON RECEIVABLES CORPORATION, a Delaware corporation, as Seller (the “ Seller ”), WORTHINGTON INDUSTRIES, INC., an Ohio corporation, as Servicer (the “ Servicer ”), THE MEMBERS OF THE VARIOUS PURCHASER GROUPS FROM TIME TO TIME PARTY TO THE AGREEMENT (as defined below) (each, a “ Purchaser Group ” and collectively, the “ Purchaser Groups ”), and PNC BANK, NATIONAL ASSOCIATION, as Administrator (the “ Administrator ”).

RECITALS

WHEREAS , the Seller, the Servicer, each member of each of the Purchaser Groups and the Administrator are parties to the Receivables Purchase Agreement, dated as of November 30, 2000 (as amended, supplemented or otherwise modified through the date hereof, the “ Agreement ”);

WHEREAS , concurrently herewith, Worthington Torch, LLC (the “ Released Originator ”), the Remaining Originators and the Seller are entering into that certain Amendment No. 9 to Purchase and Sale Agreement (the “ Sale Agreement Amendment ”), dated as of the date hereof;

WHEREAS , concurrently herewith, the Released Originator and Worthington Cylinders Corporation are entering into a separate Assignment Agreement with the Seller (each, an “ Assignment Agreement ” and collectively, the “ Assignment Agreements ”), dated as of the date hereof; and

WHEREAS , the parties hereto desire to amend the Agreement as hereinafter set forth.

NOW, THEREFORE , for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1. Certain Defined Terms . Capitalized terms that are used herein without definition and that are defined in Exhibit I to the Agreement shall have the same meanings herein as therein defined.

2. Amendments to Agreement . The Agreement is hereby amended to reflect the marked pages of the Agreement attached hereto as Exhibit A.

3. Representations and Warranties . The Seller and the Servicer each hereby represents and warrants to the Administrator and each member of the various Purchaser Groups from time to time party to the Agreement as follows:

(a) Representations and Warranties . Its representations and warranties contained in Exhibit III of the Agreement are true and correct as of the date hereof (unless stated to relate solely to an earlier date, in which case such representations or warranties were true and correct as of such earlier date);

(b) Enforceability . The execution and delivery by each of the Seller and the Servicer of this Amendment, and the performance of each of its obligations under this Amendment and the Agreement, as amended hereby, are within each of its corporate powers and have been duly authorized by all necessary corporate action on each of its parts. This Amendment and the Agreement, as amended hereby, are each of the Seller’s and the Servicer’s valid and legally binding obligations, enforceable in accordance with its terms; and

 

730409855 00691175


 

(c) No Default . Immediately after giving effect to this Amendment and the transactions contemplated hereby, no Termination Event or Unmatured Termination Event exists or shall exist.

(d) Borrowing Base . Immediately after giving effect to this Amendment, the Sale Agreement Amendment and the Assignment Agreements, the Aggregate Investment plus the Total Reserves on the date hereof will not exceed the Net Receivables Pool Balance on the date hereof.

4. Consent . Each of the parties hereto hereby (i) consents to the execution, delivery and performance of the Sale Agreement Amendment, each Assignment Agreement and each of the other documents, instruments and agreements referenced in Section 6 of this Amendment and (ii) waives any notice requirement set forth in the Agreement or any other Transaction Document as a prerequisite or condition precedent to the effectiveness of any such document, instrument or agreement.

5. Effect of Amendment . All provisions of the Agreement, including as expressly amended and modified by this Amendment, shall remain in full force and effect and are hereby ratified. After this Amendment becomes effective, all references in the Agreement (or in any other Transaction Document) to “this Agreement”, “hereof”, “herein” or words of similar effect referring to the Agreement shall be deemed to be references to the Agreement as amended by this Amendment. This Amendment shall not be deemed, either expressly or impliedly, to waive, amend or supplement any provision of the Agreement other than as set forth herein.

6. Effectiveness . This Amendment shall become effective as of the date hereof upon receipt by the Administrator of counterparts of: (i) this Amendment, (ii) the Sale Agreement Amendment, (iii) each Assignment Agreement, and (iv) such other documents, instruments and agreements reasonably requested by the Administrator prior to the date hereof.

7. Counterparts . This Amendment may be executed in any number of counterparts and by different parties on separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute but one and the same instrument.

8. Severability . Each provision of this Amendment shall be severable from every other provision of this Amendment for the purpose of determining the legal enforceability of any provision hereof, and the unenforceability of one or more provisions of this Amendment in one jurisdiction shall not have the effect of rendering such provision or provisions unenforceable in any other jurisdiction.

 

730409855 00691175

2

 


 

9. Governing Law . This Amendment shall be governed by, and construed in accordance with, the internal laws of the State of New York (without regard to any otherwise applicable principles of conflicts of law other than Sections 5-1401 and 5-1402 of the New York General Obligations Law).

10. Section Headings . The various headings of this Amendment are included for convenience only and shall not affect the meaning or interpretation of this Amendment, the Agreement or any provision hereof or thereof.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

730409855 00691175

3

 


 

IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first written above .

 

WORTHINGTON RECEIVABLES

CORPORATION , as Seller

 

 

By:

/s/ Marcus Rogier

 

Name: Marcus Rogier

 

Title: Treasurer

 

 

WORTHINGTON INDUSTRIES, INC. ,

as Servicer

 

 

By:

/s/ Marcus Rogier

 

Name: Marcus Rogier

 

Title: Treasurer

 

 

PNC BANK, NATIONAL ASSOCIATION,

as Administrator

 

 

By:

/s/ Michael Brown

 

Name: Michael Brown

 

Title: Senior Vice President

 

 

PNC BANK, NATIONAL ASSOCIATION,

as a Purchaser Agent and a Related Committed

Purchaser

 

 

By:

/s/ Michael Brown

 

Name: Michael Brown

 

Title: Senior Vice President

 

 

 

730409855 00691175

S-1

Amendment No. 19 to Receivables

Purchase Agreement (Worthington)

 


 

Exhibit A

[Amendments to the Receivables Purchase Agreement]

 

 

730409855 00691175

Exhibit A

Amendment No. 19 to Receivables

Purchase Agreement (Worthington)

 


 

Exhibit A to Amendment No. 19 dated November 30, 2018

 

 

 

 

 

 

RECEIVABLES PURCHASE AGREEMENT

 

 

dated as of November 30, 2000

 

 

among

 

 

WORTHINGTON RECEIVABLES CORPORATION,

 

 

WORTHINGTON INDUSTRIES, INC.,

as Servicer

 

 

THE MEMBERS OF VARIOUS PURCHASER GROUPS FROM TIME TO TIME PARTY HERETO

 

 

and

 

 

PNC BANK, NATIONAL ASSOCIATION,

as Administrator

 

 

 

 

 

 

 

730468638 00691175


 

IN WITNESS WHEREOF , the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written.

 

 

WORTHINGTON RECEIVABLES CORPORATION

 

 

 

By:

 

 

 

 

Name:

 

 

 

Title:

 

 

Address:

 

 

 

Worthington Receivables Corporation

1205 Dearborn Drive

Columbus, Ohio 43085

 

 

 

Attention: Marcus Rogier

Telephone: (614) 840-4663

Facsimile: (614) 438-7508

 

 

WORTHINGTON INDUSTRIES, INC., as Servicer

 

 

 

By:

 

 

 

 

Name:

 

 

 

Title:

 

 

Address:

 

 

 

Worthington Industries, Inc.

200 Old Wilson Bridge Road

Worthington, Ohio 43085

 

 

 

Attention: Marcus Rogier

Telephone: (614) 840-4663

Facsimile: (614) 438-7508

 

 

 

730468638 00691175

S-1

 


 

Credit and Collection Policy ” means, as the context may require, those receivables credit and collection policies and practices of each Originator and of Worthington in effect on the date of the Agreement and described in Schedule I to the Agreement, as modified in compliance with the Agreement.

Current Days’ Sales Outstanding ” means, for any calendar month, an amount computed as of the last day of such calendar month equal to: (a) the average of the Outstanding Balance of all Pool Receivables that are not passed their respective due date as of the last day of most recent three calendar months divided by (b)(i) the average of the aggregate credit sales made by the Originators during most recent three calendar months divided by (ii) 90.

Cut-off Date ” has the meaning set forth in the Sale Agreement.

Cylinders ” means Worthington Cylinders Corporation, an Ohio corporation.

Debt ” means: (a) indebtedness for borrowed money, (b) obligations evidenced by bonds, debentures, notes or other similar instruments, (c) obligations to pay the deferred purchase price of property or services, (d) obligations as lessee under leases that shall have been or should be, in accordance with generally accepted accounting principles, recorded as capital leases, and (e) obligations under direct or indirect guaranties in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clauses (a) through (d) .

Default Ratio ” means the ratio (expressed as a percentage and rounded to the nearest 1/100 of 1%, with 5/1000th of 1% rounded upward) computed as of the last day of each calendar month by dividing: (a) the aggregate Outstanding Balance of all Pool Receivables that became Defaulted Receivables during such month excluding Ineligible Elimination Amounts, by (b)(i) at all times during which the Current Days’ Sales Outstanding is less than or equal to 40, the aggregate credit sales made by the Originators during the month that is five months before such month and (ii) at all other times, the aggregate credit sales made by the Originators during the month that is six months before such month.

Defaulted Receivable ” means a Receivable:

(a) as to which any payment, or part thereof, remains unpaid for more than 120 days, in each case from the due date for such payment, or

(b) without duplication (i) as to which an Insolvency Proceeding shall have occurred with respect to the Obligor thereof or any other Person obligated thereon or owning any Related Security with respect thereto, (ii) that has been charged-off as uncollectible or (iii) that should have been charged-off as uncollectible pursuant to the Credit and Collection Policy.

The “Outstanding Balance” of any Defaulted Receivable shall be determined without regard to any credit memos or credit balances.

(B) the “fair value” of an asset shall be the amount which may be realized within a reasonable time either through collection or sale of such asset at its regular market value;

 

730468638 00691175

I-19

 


 

(C) the “regular market value” of an asset shall be the amount which a capable and diligent business person could obtain for such asset from an interested buyer who is willing to Purchase such asset under ordinary selling conditions; and

(D) the “present fair saleable value” of an asset means the amount which can be obtained if such asset is sold with reasonable promptness in an arm’s-length transaction in an existing and not theoretical market.

Specifically Reserved Dilution Amount ” means, for any calendar month, the sum of the amounts reserved in the balance sheet of each Originator for (i) volume rebates and (ii) potential credits relating to the voluntary recall announced by the Servicer in a public filing on January 10, 2012.

Standard & Poor’s ” means Standard & Poor’s, a division of The McGraw-Hill Companies, Inc.

Steel Surcharge Receivable ” means a Receivable, the Originators of which are The Worthington Steel Company, a Delaware corporation, The Worthington Steel Company, an Ohio corporation, Worthington Steel Company of Decatur, L.L.C., an Alabama limited liability company, Worthington Steel of Michigan, Inc., a Michigan corporation, WSC Acquisition, LLC, an Ohio Limited liability company, or The Worthington Steel Company, LLC, an Ohio limited liability company, which is associated with surcharges for coke shortages, utilities, fuel, freight and other costs from vendors of such Originators.

Subject Collections ” means, with respect to any Subject Receivable: (a) all funds that are received by a Subject Worthington Affiliate or Cylinders, in payment of any amounts owed in respect of such Subject Receivable (including purchase price, finance charges, interest and all other charges), or applied to amounts owed in respect of such Subject Receivable (including insurance payments and net proceeds of the sale or other disposition of repossessed goods or other collateral or property of the related obligor or any other Person directly or indirectly liable for the payment of such Subject Receivable and available to be applied thereon) and (b) all other proceeds of such Subject Receivable.

Subject Facility ” means Cylinders’ facility located in Mount Orab, Ohio.

Subject Receivable ” means (a) any indebtedness and other obligations owed to any Subject Worthington Affiliate, arising in connection with the sale of goods or for services rendered, and includes, without limitation, the obligation to pay any finance charges, fees and other charges with respect thereto or (b) any indebtedness and other obligations owed to Cylinders, arising in connection with the sale of goods or for services rendered through the Subject Facility, and includes, without limitation, the obligation to pay any finance charges, fees and other charges with respect thereto; provided, however, that Subject Receivable shall exclude (i) all Pool Receivables and (ii) all Excluded Receivables.

Subject Worthington Affiliate ” means (a) AMTROL, Inc. a Rhode Island corporation, and (b) Worthington Torch, LLC, an Ohio limited liability company.

 

 

730468638 00691175

I-19

 


 

Subsidiary ” means, as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock of each class or other interests having ordinary voting power (other than stock or other interests having such power only by reason of the happening of a contingency) to elect a majority of the Board of Directors or other managers of such entity are at the time owned, or management of which is otherwise controlled: (a) by such Person, (b) by one or more Subsidiaries of such Person or (c) by such Person and one or more Subsidiaries of such Person.

Tangible Net Worth ” means, with respect to any Person, the tangible net worth of such Person as determined in accordance with GAAP.

Termination Day ” means: (a) each day on which the conditions set forth in Section 2 of Exhibit II to the Agreement are not satisfied or (b) each day that occurs on or after the Facility Termination Date.

Termination Event ” has the meaning specified in Exhibit V to the Agreement. “ Termination Fee ” means, for any Yield Period, with respect to any Purchaser, the amount, if any, by which: (a) the additional Discount related to such Purchaser’s Investment (calculated without taking into account any Termination Fee or any shortened duration of such Yield Period) that would have accrued during such Yield Period on the reductions of Investment relating to such Yield Period had such reductions not been made, exceeds (b) the income, if any, received by such Purchaser from investing the proceeds of such reductions of Investment, as determined by the such Purchaser’s Purchaser Agent, which determination shall be binding and conclusive for all purposes, absent manifest error.

Total Reserves ” means, at any time, the sum of the Yield Reserve and the greater of (a) the sum of the Loss Reserve and the Dilution Reserve, or (b) the sum of the Concentration Reserve and the Dilution Component Reserve.

Transaction Documents ” means the Agreement, the Lock-Box Agreements, each Purchaser Group Fee Letter, the Sale Agreement and all other certificates, instruments, UCC financing statements, reports, notices, agreements and documents executed or delivered under or in connection with any of the foregoing, in each case as the same may be amended, supplemented or otherwise modified from time to time in accordance with the Agreement.

Transfer Supplement ” has the respective meanings set forth in Sections 6.3(c) and 6.3(e) .

Turnover Rate ” means, for any calendar month, an amount computed as of the last day of such calendar month equal to: (a) the average of the Outstanding Balance of all Pool Receivables as of the last day of such calendar month, divided by (b) the quotient of (i) the aggregate credit sales made by the Originators during the three calendar months ended on the last day of such calendar month, divided by (ii) 3.

 

730468638 00691175

I-20

 

Exhibit 10.71

ANNUAL BASE SALARIES APPROVED FOR NAMED EXECUTIVE OFFICERS

OF

WORTHINGTON INDUSTRIES, INC .

 

In June 2019, the Compensation Committee of the Board of Directors of Worthington Industries, Inc. (the “Registrant”) approved base salary increases for the following executive officers of the Registrant who either are named executive officers of the Registrant for purposes of the disclosure included in the Registrant’s Proxy Statement for the 2018 Annual Meeting of Shareholders held on September 26, 2018 and/or will be named executive officers of the Registrant for purposes of the disclosure to be included in the Registrant’s Proxy Statement for the 2019 Annual Meeting of Shareholders to be held on September 25, 2019, which will become effective in September 2019.

 

Name and Principal Position

 

 

Base Salary

 

 

 

 

 

John P. McConnell

Chairman and Chief Executive Officer of the Registrant

 

 

$

703,443

 

 

 

 

 

Joseph B. Hayek

 

 

$

324,450

Vice President and Chief Financial Officer of the Registrant

 

 

 

 

 

 

 

 

 

B. Andrew Rose

President of the Registrant

 

 

$

566,500

 

 

 

 

 

Geoffrey G. Gilmore

Executive Vice President and Chief Financial Officer of the Registrant

 

 

$

556,200

 

 

 

 

 

Virgil L. Winland

Senior Vice President-Manufacturing of the Registrant

 

 

$

398,814

 

 

 

 

 

Dale T. Brinkman

 

 

$

417,918

Senior Vice President-General Counsel and Secretary of the Registrant

 

 

 

 

 

 

 

 

 

 

 

Exhibit 10.80

 

SUMMARY OF ANNUAL CASH INCENTIVE BONUS AWARDS,

LONG-TERM PERFORMANCE AWARDS, STOCK OPTIONS AND RESTRICTED COMMON

SHARES GRANTED IN FISCAL 2020 FOR NAMED EXECUTIVE OFFICERS

OF WORTHINGTON INDUSTRIES, INC.

 

Annual Cash Incentive Bonus Awards Granted In Fiscal 2020

 

The following table sets forth the annual cash incentive bonus awards granted to the following current executive officers of Worthington Industries, Inc. (the “Registrant”) who either are named executive officers of the Registrant for purposes of the disclosure included in the Registrant’s Proxy Statement for the 2018 Annual Meeting of Shareholders held on September 26, 2018 and/or will be named executive officers of the Registrant for purposes of the disclosure to be included in the Registrant’s Proxy Statement for the 2019 Annual Meeting of Shareholders to be held on September 25, 2019 (“NEOs”), which grants were made under the Worthington Industries, Inc. Annual Incentive Plan for Executives for the twelve-month performance period ending May 31, 2020:

 

Annual Cash Incentive Bonus Awards Granted for Fiscal 2020

Name

Annual Cash Incentive Bonus Awards for Twelve-Month Performance Period Ending May 31, 2020 (1)

 

Threshold ($)

Target ($)

Maximum ($)

John P. McConnell

483,969

967,938

1,935,876

Joseph B. Hayek

198,275

396,550

793,100

B. Andrew Rose

386,250

772,500

1,545,000

Geoffrey G. Gilmore

339,900

679,800

1,359,600

Virgil L. Winland

245,864

437,091

874,182

Dale T. Brinkman

218,546

437,091

874,182

________________________

(1)

Payouts which can be earned under these annual cash incentive bonus awards are generally tied to achieving specified levels (threshold, target and maximum) of corporate economic value added (“EVA”) and earnings per share (“EPS”) for the twelve-month performance period with each performance measure carrying a 50% weighting. For all calculations, restructuring charges and non-recurring items are excluded and both Corporate EPS and the Steel Processing business unit business unit EOI results are to be adjusted to eliminate the impact of FIFO gains and losses.   If the performance level falls between threshold and target or between target and maximum, the award is linearly prorated.  If threshold levels are not reached for any performance measure, no annual cash incentive bonus will be paid.  Annual cash incentive bonus award payouts earned will be made within a reasonable time following the end of the performance period.  In the event of a change in control of the Company (followed by actual or constructive termination of an NEO’s employment during the performance period), the annual cash incentive bonus award would be considered to be earned at “target” and payable as of the date of termination of employment.


 


 

 

Long-Term Performance Awards, Option Awards and Restricted Common Share Awards Granted in Fiscal 2020

 

The following table sets forth the long-term performance awards (consisting of long-term cash performance awards and long-term performance share awards) for the three-fiscal-year period ending May 31, 2022 and the option awards and restricted common share awards granted to the NEOs in the fiscal year ending May 31, 2020 (“Fiscal 2020”).

Long-Term Performance Awards, Option Awards and

Restricted Common Share Awards Granted in Fiscal 2020

Name

 

Long-Term Cash Performance Awards for Three-Fiscal-Year Period Ending
May 31, 2022 (1)

Long-Term Performance Share Awards for Three-Fiscal-Year Period Ending
May 31, 2022 (1)

Option Awards:

Number of Common Shares Underlying Options (2)

Exercise or Base Price of Option Awards
($/Share) (2)

Restricted Common
Share Awards

Threshold

($)

Target

($)

Maximum

($)

Threshold

(# of Common Shares)

Target

(# of Common Shares)

Maximum

(# of Common Shares)

John P. McConnell

500,000

1,000,000

2,000,000

7,500

15,000

30,000

27,000

38.91

22,500 (3)

Joseph B. Hayek

140,000

280,000

560,000

1,800

3,600

7,200

6,800

38.91

5,400 (3)

B. Andrew Rose

300,000

600,000

1,200,000

3,750

7,500

15,000

14,000

38.91

12,000 (3)

Geoffrey G. Gilmore

220,000

440,000

880,000

2,850

5,700

11,400

10,000

38.91

8,500 (3)

Virgil L. Winland

115,000

230,000

460,000

1,250

2,500

5,000

4,300

38.91

3,700 (3)

Dale T. Brinkman

100,000

200,000

400,000

1,250

2,500

5,000

4,300

38.91

3,700 (3)

(1)

These columns show the potential payouts under the long-term cash performance awards and the long-term performance share awards granted to the NEOs under the Worthington Industries, Inc. Amended and Restated 1997 Long-Term Incentive Plan (as amended, the “1997 LTIP”) for the three-fiscal-year performance period from June 1, 2019 to May 31, 2022.  Payouts of long-term cash performance awards and long-term performance share awards for Corporate executives are tied to achieving specified levels (threshold, target and maximum) of cumulative corporate EVA for the three-fiscal-year performance period and EPS growth over that performance period, with each performance measure carrying a 50% weighting.   In all calculations, restructuring charges and non-recurring items are excluded, and Corporate EPS and Steel Processing business unit EOI results are to be adjusted to eliminate the impact of FIFO gains or losses.   No awards are paid or distributed if none of the three-fiscal-year threshold financial measures are met.  If the performance levels fall between threshold and target or between target and maximum, the award is linearly prorated.

(2)

Effective June 27, 2019, under the Worthington Industries, Inc. 2010 Stock Option Plan, the NEOs were granted non-qualified stock options with respect to the number of common shares shown, with an exercise price equal to $38.91, the fair market value of the underlying common shares on the date of grant.  The options become exercisable over three years in increments of one-third per year on each anniversary of their grant date.

(3)

These annual time-vested restricted common share awards were granted effective June 27, 2019 under the 1997 LTIP and will generally cliff vest on the third anniversary of the grant date.

 

 

 

 

Exhibit 21

SUBSIDIARIES OF WORTHINGTON INDUSTRIES, INC.

 

The following is a list of the subsidiaries, direct and indirect, of Worthington Industries, Inc., an Ohio corporation, together with their respective jurisdictions of incorporation or organization as of July 30, 2019.  The names of indirectly-owned subsidiaries are indented under the names of their respective immediate parents:

 

Enterprise Protection Insurance Company

Vermont

Worthington Industries Leasing, LLC

Ohio

Worthington Services, LLC

Ohio

Worthington Industries Medical Center, Inc.

Ohio

Worthington Steel of Michigan, Inc. (d/b/a The Worthington Steel Company)

Michigan

New AMTROL Holdings, Inc.

Delaware

AMTROL Inc.

Rhode Island

AMTROL North American Cylinders, LLC

Delaware

Red Hen, LLC

Rhode Island

AMTROL Water Technology, LLC

Delaware

AMTROL Canada Ltd.

Toronto, Canada

AMTROL International Investments Inc.

Rhode Island

AMTROL Holding Netherlands B.V.

Netherlands

AMTROL Holding Portugal, SGPS, Unipessoal, Lda

Portugal

AMTROL-ALFA Metalomecanica, S.A.

Portugal

AMTROL Brasil Representacao Ltda.

Brazil

AMTROL Licensing Inc.

Rhode Island

Cleveland Pickling, Inc.

Delaware

GerCo Holdings, Inc.

Ohio

Precision Specialty Metals, Inc.

Delaware

WI Ventures, LLC

Ohio

Worthington-Buckeye, Inc.

Ohio

Worthington Cylinder Corporation

Ohio

dHybrid Systems, LLC

Ohio

Westerman, Inc. (d/b/a Palmer Mfg. & Tank, Inc.)

Ohio

Westerman Acquisition Co., LLC

Ohio

Westerman Rocky Mountain LLC

Ohio

Structural Composites Industries, LLC

Delaware

Worthington Cryogenics, LLC

Ohio

Worthington Cylinder Corporation, LLC

Ohio

Worthington Cylinders Mexico, S. de R.L. de C.V.

Mexico

WI Netherlands Holdings, C.V.

Netherlands

Worthington Industries Global Holdings, LLC

Ohio

Worthington Industries Global Holdings, LLC & Co. OG

Austria

Worthington Industries International S.à.r.l.

Luxembourg

Stako Sp. z.o.o.

Poland

Worthington Cylinders GmbH

Austria

Worthington Steel Mexico, S.A. de C.V.

Mexico

Worthington Cylinders-Embalagens Industriais de Gas, S.A.

Portugal

Worthington Cylinders Kansas, LLC

Ohio

Worthington Cylinders Mississippi, LLC

Ohio

Worthington Cylinders Wisconsin, LLC

Ohio

Worthington Torch, LLC

Ohio

Worthington Energy Group, Inc.

Ohio

Worthington Industries Engineered Cabs, Inc. (d/b/a Angus Industries, Inc.)

Delaware

Worthington Industries Engineered Cabs, LLC (d/b/a Angus-Palm, LLC)

Delaware


Worthington Precision Steel , Inc.

Ohio

Worthington OEG Company

Michigan

Worthington Steel Company of Alabama, Inc.  Co OEG

Austria

The Worthington Steel Company (formerly Worthington Ventures, Inc.)

Delaware

Worthington CDBS Holding, LLC

Ohio

Worthington Steelpac Systems, LLC (d/b/a Worthington Industries Packaging Solutions)

Delaware

Worthington Mid-Rise Construction, Inc.

Ohio

Worthington Military Construction, Inc.

Ohio

The Worthington Steel Company

Ohio

Worthington Receivables Corporation

Delaware

The Worthington Steel Company, LLC

Ohio

The Worthington Steel Company of Decatur, Inc.

Michigan

Worthington Steel Company of Decatur, L.L.C.

Alabama

Worthington Steel Rome, LLC

Ohio

Worthington WSP, LLC

Michigan


Joint Ventures

 

ArtiFlex Manufacturing, LLC (1)

Delaware

4400 Donker Land, LLC

Michigan

Clarkwestern Dietrich Building Systems, LLC (2)

Ohio

Samuel Steel Pickling Company (3)

New York

Serviacero Planos, S.A. de R.L. de C.V. (4)

Mexico

(Serviacero Planos Servicios, S.A. de C.V. (i.e., services company to JV Company) (4)

Mexico

Spartan Steel Coating, LLC (5)

Michigan

TWB Company, L.L.C. (6)

Michigan

Tailor Welded Blanks of Canada, Inc.

Canada

TWB of Ohio, Inc.

Ohio

TWB Industries, S.A. de C.V.

Mexico

TWB de Mexico, S.A. de C.V.

Mexico

Worthington Armstrong Venture (WAVE) (7)

Delaware

Worthington Energy Innovations, LLC (8)

Ohio

Worthington Modern Steel Framing System Co., Ltd. (9)

China

Worthington Specialty Processing  (WSP) (10)

Michigan

Worthington Taylor, LLC

Michigan

ProCoil Company, LLC

Delaware

Zhejiang Nisshin Worthington Precision Specialty Steel Co., Ltd.  (11)

China

 

(1)

Unconsolidated joint venture with 50% owned by GerCo Holdings, Inc. and 50% owned by ITS-H Holdings, LLC

(2)

Unconsolidated joint venture with 25% owned by Worthington CDBS Holding, LLC and 75% owned by CWBS-MISA, Inc.

(3)

Unconsolidated joint venture with 31.25% owned by Cleveland Pickling, Inc. and 68.75% owned by Samuel Manu-Tech Pickling Inc.

(4)

Unconsolidated joint venture with 50% owned by Worthington Steel Mexico, S.A. de C.V. and 50% owned by Inverzer, S.A. de C.V.

(5)

Consolidated joint venture with 52% owned by Worthington Steel of Michigan, Inc. and 48% owned by AK Steel Corporation.

(6)

Consolidated joint venture with 55% owned by Worthington Steel of Michigan, Inc. and 45% owned by a subsidiary of Boashan Iron & Steel Co., Ltd.

(7)

Unconsolidated joint venture, operating as a general partnership, with 50% owned by The Worthington Steel Company (Delaware) and 50% owned by Armstrong Ventures, Inc., a subsidiary of Armstrong World Industries, Inc.

(8)

Passive holding with 10% owned by Worthington Energy Group, Inc.

(9)

Unconsolidated joint venture with 60% owned by Hubei Modern Urban Construction & Development Group Co., Ltd. and 40% owned by Worthington Industries International S.à.r.l.


(10)

Consolidated joint venture, operating as a general partnership, with 51% owned by Worthington WSP, LLC and 49% by USS WSP, LLC, a subsidiary of United States Steel Corporation.

(11)

Unconsolidated joint venture with 55% owned by Nisshin Steel Co., Ltd., 35% owned by Marubeni-Itochu Steel Inc., and 10% owned by Worthington Industries International S.à.r.l.

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors

Worthington Industries, Inc.:

We consent to the incorporation by reference in the registration statements:

 

Form S-3 No. 333-219349 pertaining to the shelf registration of common shares, without par value, and debt securities of Worthington Industries, Inc.;

 

Forms S-8 Nos. 033-57981 and 333-168421 pertaining to the Worthington Industries, Inc. Deferred Profit Sharing Plan;

 

Forms S-3 Nos. 333-48627 and 333-168418 pertaining to the Worthington Industries, Inc. Dividend Reinvestment and Stock Purchase Plan;

 

Forms S-8 Nos. 333-42849 and 333-191668 pertaining to the Worthington Industries, Inc. Amended and Restated 1997 Long-Term Incentive Plan, as amended;

 

Form S-8 No. 333-109619 pertaining to the Worthington Industries, Inc. Amended and Restated 2003 Stock Option Plan, as amended;

 

Forms S-8 Nos. 333-137614 and 333-177237 pertaining to the Worthington Industries, Inc. Amended and Restated 2006 Equity Incentive Plan for Non-Employee Directors, as amended;

 

Form S-8 No. 333-126183 pertaining to the Worthington Industries, Inc. Retirement Savings Plan for Collectively Bargained Employees;

 

Form S-8 No. 333-169769 pertaining to the Worthington Industries, Inc. 2010 Stock Option Plan, as amended;

 

Form S-8 No. 333-198203 pertaining to the Worthington Industries, Inc. Amended and Restated 2005 Deferred Compensation Plan for Directors, as amended;

 

Form S-8 No. 333-198201 pertaining to the Worthington Industries, Inc. Non-Qualified Deferred Compensation Plan, as amended;

 

Form S-8 No. 333-198200 pertaining to the Worthington Industries, Inc. Amended and Restated 2005 Non-Qualified Deferred Compensation Plan, as amended; and

 

Form S-8 No. 333-198199 pertaining to the Worthington Industries, Inc. Deferred Compensation Plan for Directors, as amended

of our reports dated July 30, 2019 with respect to the consolidated balance sheets of Worthington Industries, Inc. and subsidiaries (the Company) as of May 31, 2019 and 2018, and the related consolidated statements of earnings, comprehensive income, equity, and cash flows for each of the years in the three-year period ended May 31, 2019, and the related notes and financial statement schedule of valuation and qualifying accounts, and the effectiveness of internal control over financial reporting as of May 31, 2019, which reports appear in the Annual Report on Form 10‑K of Worthington Industries, Inc. for the year-ended May 31, 2019.

Our report dated July 30, 2019, on the consolidated financial statements refers to the adoption of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers .

/s/ KPMG LLP

Columbus, Ohio

July 30, 2019

Exhibit 23.2

Consent of Independent Auditors

The Board of Directors

Worthington Armstrong Venture:

We consent to the incorporation by reference in the registration statements:

 

Form S-3 No. 333-219349 pertaining to the shelf registration of common shares, without par value, and debt securities of Worthington Industries, Inc.;

 

Forms S-8 Nos. 033-57981 and 333-168421 pertaining to the Worthington Industries, Inc. Deferred Profit Sharing Plan;

 

Forms S-3 Nos. 333-168418 and 333-48627 pertaining to the Worthington Industries, Inc. Dividend Reinvestment and Stock Purchase Plan;

 

Forms S-8 Nos. 333-42849 and 333-191668 pertaining to the Worthington Industries, Inc. Amended and Restated 1997 Long-Term Incentive Plan, as amended;

 

Form S-8 No. 333-109619 pertaining to Worthington Industries, Inc. Amended and Restated 2003 Stock Option Plan, as amended;

 

Forms S-8 Nos. 333-137614 and 333-177237 pertaining to the Worthington Industries, Inc. Amended and Restated 2006 Equity Incentive Plan for Non-Employee Directors, as amended;

 

Form S-8 No. 333-126183 pertaining to the Worthington Industries, Inc. Retirement Savings Plan for Collectively Bargained Employees;

 

Form S-8 No. 333-169769 pertaining to the Worthington Industries, Inc. 2010 Stock Option Plan, as amended;

 

Form S-8 No. 333-198203 pertaining to the Worthington Industries, Inc. Amended and Restated 2005 Deferred Compensation Plan for Directors, as amended;

 

Form S-8 No. 333-198201 pertaining to the Worthington Industries, Inc. Non-Qualified Deferred Compensation Plan, as amended;

 

Form S-8 No. 333-198200 pertaining to the Worthington Industries, Inc. Amended and Restated 2005 Non-Qualified Deferred Compensation Plan, as amended; and

 

Form S-8 No. 333-198199 pertaining to the Worthington Industries, Inc. Deferred Compensation Plan for Directors, as amended

 

of our report dated February 18, 2019, with respect to the consolidated balance sheets of Worthington Armstrong Venture and subsidiaries as of December 31, 2018 and 2017, the related consolidated statements of income and comprehensive income, partners’ deficit, and cash flows for each of the years in the three-year period ended December 31, 2018, and the related notes, which report appears in Exhibit 99.1 in the May 31, 2019 annual report on Form 10-K of Worthington Industries, Inc.

/s/ KPMG LLP

Philadelphia, Pennsylvania
July 30, 2019

Exhibit 24

 

POWER OF ATTORNEY

 

 

KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and director of Worthington Industries, Inc., an Ohio corporation, which anticipates filing its Annual Report on Form 10-K for the fiscal year ended May 31, 2019, with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, hereby makes, constitutes and appoints B. Andrew Rose and Dale T. Brinkman, each with full power to act without the other, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign such Annual Report on Form 10-K and any and all amendments to such Annual Report on Form 10-K, and to file the same with all exhibits, financial statements and schedules related thereto, and any and all applications or other documents pertaining to such Annual Report on Form 10-K, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do if personally present.  The undersigned hereby ratifies and confirms all that each said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

 

IN WITNESS WHEREOF , the undersigned has hereunto set his hand this 26th day of June, 2019.

 

 

 

/s/ John P. McConnell

John P. McConnell

 


 


 

POWER OF ATTORNEY

 

 

KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer of Worthington Industries, Inc., an Ohio corporation, which anticipates filing its Annual Report on Form 10-K for the fiscal year ended May 31, 2019, with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, hereby makes, constitutes and appoints John P. McConnell and Dale T. Brinkman, each with full power to act without the other, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign such Annual Report on Form 10-K and any and all amendments to such Annual Report on Form 10-K, and to file the same with all exhibits, financial statements and schedules related thereto, and any and all applications or other documents pertaining to such Annual Report on Form 10-K, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do if personally present.  The undersigned hereby ratifies and confirms all that each said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

 

IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 26th day of June, 2019.

 

 

 

/s/ B. Andrew Rose

B. Andrew Rose

 


 


POWER OF ATTORNEY

 

 

KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer of Worthington Industries, Inc., an Ohio corporation, which anticipates filing its Annual Report on Form 10-K for the fiscal year ended May 31, 2019, with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, hereby makes, constitutes and appoints John P. McConnell, B. Andrew Rose and Dale T. Brinkman, each with full power to act without the others, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign such Annual Report on Form 10-K and any and all amendments to such Annual Report on Form 10-K, and to file the same with all exhibits, financial statements and schedules related thereto, and any and all applications or other documents pertaining to such Annual Report on Form 10-K, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do if personally present.  The undersigned hereby ratifies and confirms all that each said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

 

IN WITNESS WHEREOF , the undersigned has hereunto set his hand this 26th day of June, 2019.

 

 

 

/s/ Richard G. Welch

Richard G. Welch

 

 


 


POWER OF ATTORNEY

 

 

KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Worthington Industries, Inc., an Ohio corporation, which anticipates filing its Annual Report on Form 10-K for the fiscal year ended May 31, 2019, with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, hereby makes, constitutes and appoints John P. McConnell, B. Andrew Rose and Dale T. Brinkman, each with full power to act without the others, her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for her and in her name, place and stead, in any and all capacities, to sign such Annual Report on Form 10-K and any and all amendments to such Annual Report on Form 10-K, and to file the same with all exhibits, financial statements and schedules related thereto, and any and all applications or other documents pertaining to such Annual Report on Form 10-K, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as she might or could do if personally present.  The undersigned hereby ratifies and confirms all that each said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

 

IN WITNESS WHEREOF , the undersigned has hereunto set her hand this 26th day of June, 2019.

 

 

 

/s/ Kerrii B. Anderson

Kerrii B. Anderson

 


 


 

POWER OF ATTORNEY

 

 

KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Worthington Industries, Inc., an Ohio corporation, which anticipates filing its Annual Report on Form 10-K for the fiscal year ended May 31, 2019, with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, hereby makes, constitutes and appoints John P. McConnell, B. Andrew Rose and Dale T. Brinkman, each with full power to act without the others, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign such Annual Report on Form 10-K and any and all amendments to such Annual Report on Form 10-K, and to file the same with all exhibits, financial statements and schedules related thereto, and any and all applications or other documents pertaining to such Annual Report on Form 10-K, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as she might or could do if personally present.  The undersigned hereby ratifies and confirms all that each said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

 

IN WITNESS WHEREOF , the undersigned has hereunto set his hand this 26th day of June, 2019.

 

 

 

/s/ David P. Blom

David P. Blom

 

 


 


 

POWER OF ATTORNEY

 

 

KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Worthington Industries, Inc., an Ohio corporation, which anticipates filing its Annual Report on Form 10-K for the fiscal year ended May 31, 2019, with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, hereby makes, constitutes and appoints John P. McConnell, B. Andrew Rose and Dale T. Brinkman, each with full power to act without the others, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign such Annual Report on Form 10-K and any and all amendments to such Annual Report on Form 10-K, and to file the same with all exhibits, financial statements and schedules related thereto, and any and all applications or other documents pertaining to such Annual Report on Form 10-K, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do if personally present.  The undersigned hereby ratifies and confirms all that each said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

 

IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 26th day of June, 2019.

 

 

 

/s/ John B. Blystone

John B. Blystone

 


 


POWER OF ATTORNEY

 

 

KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Worthington Industries, Inc., an Ohio corporation, which anticipates filing its Annual Report on Form 10-K for the fiscal year ended May 31, 2019, with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, hereby makes, constitutes and appoints John P. McConnell, B. Andrew Rose and Dale T. Brinkman, each with full power to act without the others, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign such Annual Report on Form 10-K and any and all amendments to such Annual Report on Form 10-K, and to file the same with all exhibits, financial statements and schedules related thereto, and any and all applications or other documents pertaining to such Annual Report on Form 10-K, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do if personally present.  The undersigned hereby ratifies and confirms all that each said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

 

IN WITNESS WHEREOF , the undersigned has hereunto set his hand this 26th day of June, 2019.

 

 

 

/s/ Mark C. Davis

Mark C. Davis


 


POWER OF ATTORNEY

 

 

KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Worthington Industries, Inc., an Ohio corporation, which anticipates filing its Annual Report on Form 10-K for the fiscal year ended May 31, 2019, with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, hereby makes, constitutes and appoints John P. McConnell, B. Andrew Rose and Dale T. Brinkman, each with full power to act without the others, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign such Annual Report on Form 10-K and any and all amendments to such Annual Report on Form 10-K, and to file the same with all exhibits, financial statements and schedules related thereto, and any and all applications or other documents pertaining to such Annual Report on Form 10-K, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do if personally present.  The undersigned hereby ratifies and confirms all that each said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

 

IN WITNESS WHEREOF , the undersigned has hereunto set his hand this 26th day of June, 2019.

 

 

 

/s/ Michael J. Endres

Michael J. Endres


 


POWER OF ATTORNEY

 

 

KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Worthington Industries, Inc., an Ohio corporation, which anticipates filing its Annual Report on Form 10-K for the fiscal year ended May 31, 2019, with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, hereby makes, constitutes and appoints John P. McConnell, B. Andrew Rose and Dale T. Brinkman, each with full power to act without the others, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign such Annual Report on Form 10-K and any and all amendments to such Annual Report on Form 10-K, and to file the same with all exhibits, financial statements and schedules related thereto, and any and all applications or other documents pertaining to such Annual Report on Form 10-K, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do if personally present.  The undersigned hereby ratifies and confirms all that each said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

 

IN WITNESS WHEREOF , the undersigned has hereunto set his hand this 26th day of June, 2019.

 

 

 


/s/ Ozey K. Horton, Jr.

Ozey K. Horton, Jr.

 


 


POWER OF ATTORNEY

 

 

KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Worthington Industries, Inc., an Ohio corporation, which anticipates filing its Annual Report on Form 10-K for the fiscal year ended May 31, 2019, with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, hereby makes, constitutes and appoints John P. McConnell, B. Andrew Rose and Dale T. Brinkman, each with full power to act without the others, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign such Annual Report on Form 10-K and any and all amendments to such Annual Report on Form 10-K, and to file the same with all exhibits, financial statements and schedules related thereto, and any and all applications or other documents pertaining to such Annual Report on Form 10-K, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do if personally present.  The undersigned hereby ratifies and confirms all that each said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

 

IN WITNESS WHEREOF , the undersigned has hereunto set his hand this 26th day of June, 2019.

 

 

/s/ Peter Karmanos, Jr.

Peter Karmanos, Jr.

 


 


POWER OF ATTORNEY

 

 

KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Worthington Industries, Inc., an Ohio corporation, which anticipates filing its Annual Report on Form 10-K for the fiscal year ended May 31, 2019, with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, hereby makes, constitutes and appoints John P. McConnell, B. Andrew Rose and Dale T. Brinkman, each with full power to act without the others, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign such Annual Report on Form 10-K and any and all amendments to such Annual Report on Form 10-K, and to file the same with all exhibits, financial statements and schedules related thereto, and any and all applications or other documents pertaining to such Annual Report on Form 10-K, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do if personally present.  The undersigned hereby ratifies and confirms all that each said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

 

IN WITNESS WHEREOF , the undersigned has hereunto set his hand this 26th day of June, 2019.

 

 

 

/s/ Carl A. Nelson, Jr.

Carl A. Nelson, Jr.


 


POWER OF ATTORNEY

 

 

KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Worthington Industries, Inc., an Ohio corporation, which anticipates filing its Annual Report on Form 10-K for the fiscal year ended May 31, 2019, with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, hereby makes, constitutes and appoints John P. McConnell, B. Andrew Rose and Dale T. Brinkman, each with full power to act without the others, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign such Annual Report on Form 10-K and any and all amendments to such Annual Report on Form 10-K, and to file the same with all exhibits, financial statements and schedules related thereto, and any and all applications or other documents pertaining to such Annual Report on Form 10-K, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do if personally present.  The undersigned hereby ratifies and confirms all that each said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

 

IN WITNESS WHEREOF , the undersigned has hereunto set his hand this 26th day of June, 2019.

 

 

/s/ Sidney A. Ribeau

Sidney A. Ribeau

 


 


POWER OF ATTORNEY

 

 

KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Worthington Industries, Inc., an Ohio corporation, which anticipates filing its Annual Report on Form 10-K for the fiscal year ended May 31, 2019, with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, hereby makes, constitutes and appoints John P. McConnell, B. Andrew Rose and Dale T. Brinkman, each with full power to act without the others, her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for her and in her name, place and stead, in any and all capacities, to sign such Annual Report on Form 10-K and any and all amendments to such Annual Report on Form 10-K, and to file the same with all exhibits, financial statements and schedules related thereto, and any and all applications or other documents pertaining to such Annual Report on Form 10-K, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as she might or could do if personally present.  The undersigned hereby ratifies and confirms all that each said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

 

IN WITNESS WHEREOF , the undersigned has hereunto set her hand this 26th day of June, 2019.

 

 

/s/ Mary Schiavo

Mary Schiavo

 


 


POWER OF ATTORNEY

 

 

KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Worthington Industries, Inc., an Ohio corporation, which anticipates filing its Annual Report on Form 10-K for the fiscal year ended May 31, 2019, with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, hereby makes, constitutes and appoints John P. McConnell and  B. Andrew Rose, each with full power to act without the others, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign such Annual Report on Form 10-K and any and all amendments to such Annual Report on Form 10-K, and to file the same with all exhibits, financial statements and schedules related thereto, and any and all applications or other documents pertaining to such Annual Report on Form 10-K, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as she might or could do if personally present.  The undersigned hereby ratifies and confirms all that each said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

 

IN WITNESS WHEREOF , the undersigned has hereunto set her hand this 26th day of June, 2019.

 

 

 

/s/ Dale T. Brinkman

Dale T. Brinkman

 


 


POWER OF ATTORNEY

 

 

KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Worthington Industries, Inc., an Ohio corporation, which anticipates filing its Annual Report on Form 10-K for the fiscal year ended May 31, 2019, with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, hereby makes, constitutes and appoints John P. McConnell, B. Andrew Rose and Dale T. Brinkman, each with full power to act without the others, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign such Annual Report on Form 10-K and any and all amendments to such Annual Report on Form 10-K, and to file the same with all exhibits, financial statements and schedules related thereto, and any and all applications or other documents pertaining to such Annual Report on Form 10-K, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as she might or could do if personally present.  The undersigned hereby ratifies and confirms all that each said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

 

IN WITNESS WHEREOF , the undersigned has hereunto set his hand this 26th day of June, 2019.

 

 

 

/s/ Joseph B. Hayek

Joseph B. Hayek

 

 

 

Exhibit 31.1

RULE 13a-14(a) / 15d-14(a)

CERTIFICATIONS (PRINCIPAL EXECUTIVE OFFICER)

CERTIFICATIONS

I, John P. McConnell, certify that:

 

1.

I have reviewed this Annual Report on Form 10-K for the fiscal year ended May 31, 2019 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 registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting.

 

Date:  July 30, 2019

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)

CERTIFICATIONS (PRINCIPAL FINANCIAL OFFICER)

CERTIFICATIONS

I, Joseph B. Hayek, certify that:

 

1.

I have reviewed this Annual Report on Form 10-K for the fiscal year ended May 31, 2019 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 registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting.

 

Date:  July 30, 2019

By:

 

/s/ Joseph B. Hayek

 

 

 

Joseph B. Hayek,

 

 

 

Vice President and Chief Financial Officer

 

 

Exhibit 32.1

CERTIFICATIONS OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002*

In connection with the Annual Report of Worthington Industries, Inc. (the “Company”) on Form 10-K for the fiscal year ended May 31, 2019, 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) or 15(d) 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:  July 30, 2019

*These certifications are 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 liability of that Section.  These certifications 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 these certifications by reference.

 

Exhibit 32.2

CERTIFICATIONS OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 *

In connection with the Annual Report of Worthington Industries, Inc. (the “Company”) on Form 10-K for the fiscal year ended May 31, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Joseph B. Hayek, Vice 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) or 15(d) 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/ Joseph B. Hayek

 

Printed Name: Joseph B. Hayek

 

Title: Vice President and Chief Financial Officer

 

Date:  July 30, 2019

*These certifications are 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 liability of that Section.  These certifications 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 these certifications by reference.

 

Exhibit 99.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

WORTHINGTON ARMSTRONG VENTURE

Consolidated Financial Statements

December 31, 2018 and 2017

(With Independent Auditors’ Report Thereon)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


WORTHINGTON ARMSTRONG VENTURE

 

Table of Contents

 

 

 

Page

Independent Auditors’ Report

 

1

 

 

 

Consolidated Balance Sheets, December 31, 2018 and 2017

 

2

 

 

 

Consolidated Statements of Income and Comprehensive Income, Years ended December 31, 2018, 2017, and 2016

 

3

 

 

 

Consolidated Statements of Partners’ Deficit, Years ended December 31, 2018, 2017, and 2016

 

4

 

 

 

Consolidated Statements of Cash Flows, Years ended December 31, 2018, 2017, and 2016

 

5

 

 

 

Notes to Consolidated Financial Statements

 

6

 

 

 

 


 

 

KPMG LLP

1601 Market Street

Philadelphia, PA 19103-2499

 

 

Independent Auditors’ Report

 

The Board of Directors

Worthington Armstrong Venture:

We have audited the accompanying consolidated financial statements of Worthington Armstrong Venture and its subsidiaries, which comprise the consolidated balance sheets as of December 31, 2018 and 2017, and the related consolidated statements of income and comprehensive income, partners’ deficit, and cash flows for each of the years in the three year period ended December 31, 2018, and the related notes to the consolidated financial statements.

 

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Worthington Armstrong Venture and its subsidiaries as of December 31, 2018 and 2017, and the results of their operations and their cash flows for each of the years in the three year period ended December 31, 2018 in accordance with U.S. generally accepted accounting principles.

 

 

Philadelphia, Pennsylvania

February 18, 2019

 

KPMG LLP is a Delaware limited liability partnership and the U.S. member

firm of the KPMG network of independent member firms affiliated with

KPMG International Cooperative (“KPMG International”), a Swiss entity.

 

 

 


 

 

WORTHINGTON ARMSTRONG VENTURE

Consolidated Balance Sheets

December 31, 2018 and 2017

(Dollar amounts in thousands)

 

Assets

 

2018

 

 

2017

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

 

16,755

 

 

 

26,856

 

Short-term investments

 

 

 

 

 

6,897

 

Accounts receivable, net

 

 

31,472

 

 

 

27,751

 

Receivables from affiliates

 

 

24,963

 

 

 

2,594

 

Inventory, net

 

 

39,646

 

 

 

32,586

 

Other current assets

 

 

49

 

 

 

97

 

Current assets of discontinued operations held for sale (Note 3)

 

 

33,781

 

 

 

36,439

 

Total current assets

 

 

146,666

 

 

 

133,220

 

Property, plant, and equipment, net

 

 

24,127

 

 

 

24,311

 

Goodwill & intangibles

 

 

9,675

 

 

 

8,037

 

Other assets

 

 

1,145

 

 

218

 

Total assets

$

 

181,613

 

 

 

165,786

 

Liabilities and Partners’ Deficit

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

$

 

12,319

 

 

 

11,810

 

Accounts payable to affiliates

 

 

2,053

 

 

 

1,145

 

Accrued expenses

 

 

7,043

 

 

 

5,021

 

Taxes payable

 

 

155

 

 

 

158

 

Advanced receipt of sale proceeds

 

 

92,000

 

 

 

 

Current liabilities of discontinued operations held for sale (Note 3)

 

 

6,908

 

 

 

8,095

 

Total current liabilities

 

 

120,478

 

 

 

26,229

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Long-term debt

 

 

291,712

 

 

 

243,508

 

Other long-term liabilities

 

 

1,941

 

 

 

3,104

 

Total long-term liabilities

 

 

293,653

 

 

 

246,612

 

Total liabilities

 

 

414,131

 

 

 

272,841

 

Partners’ deficit:

 

 

 

 

 

 

 

 

Accumulated deficit

 

 

(218,280

)

 

 

(94,421

)

Accumulated other comprehensive loss

 

 

(14,238

)

 

 

(12,634

)

Total partners’ deficit

 

 

(232,518

)

 

 

(107,055

)

Total liabilities and partners’ deficit

$

 

181,613

 

 

 

165,786

 

 

See accompanying notes to consolidated financial statements.

 

2


 

 

WORTHINGTON ARMSTRONG VENTURE

Consolidated Statements of Income and Comprehensive Income

Years ended December 31, 2018, 2017, and 2016

(Dollar amounts in thousands)

 

 

 

2018

 

 

2017

 

 

2016

 

Net sales

$

 

374,973

 

 

 

344,483

 

 

 

330,717

 

Cost of sales

 

 

(169,213

)

 

 

(151,820

)

 

 

(138,321

)

Gross margin

 

 

205,760

 

 

 

192,663

 

 

 

192,396

 

Selling, general, and administrative expenses

 

 

(39,612

)

 

 

(40,053

)

 

 

(31,857

)

Operating income

 

 

166,148

 

 

 

152,610

 

 

 

160,539

 

Other (expense), net

 

 

(106

)

 

 

(208

)

 

 

(170

)

Interest expense

 

 

(9,256

)

 

 

(7,873

)

 

 

(6,878

)

Income from continuing operations before tax expense

 

 

156,786

 

 

 

144,529

 

 

 

153,491

 

Income tax expense

 

 

(215

)

 

 

(239

)

 

 

(1,604

)

Net income from continuing operations

 

 

156,571

 

 

 

144,290

 

 

 

151,887

 

Discontinued Operations (Note 3)

 

 

 

 

 

 

 

 

 

 

 

 

Net income from discontinued operations, net of tax expense

 

 

4,970

 

 

 

4,159

 

 

 

6,976

 

Total net income

 

 

161,541

 

 

 

148,449

 

 

 

158,863

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Change in pension plan

 

 

96

 

 

 

461

 

 

 

(234

)

Change in cash flow hedge

 

 

916

 

 

 

1,154

 

 

 

522

 

Foreign currency adjustments

 

 

(2,616

)

 

 

4,784

 

 

 

(3,623

)

Total other comprehensive income (loss)

 

 

(1,604

)

 

 

6,399

 

 

 

(3,335

)

Total comprehensive income

$

 

159,937

 

 

 

154,848

 

 

 

155,528

 

 

See accompanying notes to consolidated financial statements.

 

3


 

 

WORTHINGTON ARMSTRONG VENTURE

Consolidated Statements of Partners’ Deficit

Years ended December 31, 2018, 2017, and 2016

(Dollar amounts in thousands)

 

 

 

Contributed capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Armstrong

Ventures,

Inc.

 

 

The

Worthington

Steel

Company

 

 

Accumulated

deficit

 

 

Accumulated

other

comprehensive

income (loss)

 

 

Total

partners’

deficit

 

Balance, December 31, 2015

 

 

 

 

 

 

 

 

(85,755

)

 

 

(15,698

)

 

 

(101,453

)

Net income

 

 

 

 

 

 

 

 

158,863

 

 

 

 

 

 

158,863

 

Other

 

 

 

 

 

 

 

 

22

 

 

 

 

 

 

22

 

Distributions

 

 

 

 

 

 

 

 

(176,000

)

 

 

 

 

 

(176,000

)

Change in pension plan

 

 

 

 

 

 

 

 

 

 

 

(234

)

 

 

(234

)

Change in cash flow hedge

 

 

 

 

 

 

 

 

 

 

 

522

 

 

 

522

 

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

(3,623

)

 

 

(3,623

)

Balance, December 31, 2016

$

 

 

 

 

 

 

 

(102,870

)

 

 

(19,033

)

 

 

(121,903

)

Net income

 

 

 

 

 

 

 

 

148,449

 

 

 

 

 

 

148,449

 

Distributions

 

 

 

 

 

 

 

 

(140,000

)

 

 

 

 

 

(140,000

)

Change in pension plan

 

 

 

 

 

 

 

 

 

 

 

461

 

 

 

461

 

Change in cash flow hedge

 

 

 

 

 

 

 

 

 

 

 

1,154

 

 

 

1,154

 

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

4,784

 

 

 

4,784

 

Balance, December 31, 2017

$

 

 

 

 

 

 

 

(94,421

)

 

 

(12,634

)

 

 

(107,055

)

Net income

 

 

 

 

 

 

 

 

161,541

 

 

 

 

 

 

161,541

 

Distributions

 

 

 

 

 

 

 

 

(285,400

)

 

 

 

 

 

(285,400

)

Change in pension plan

 

 

 

 

 

 

 

 

 

 

 

96

 

 

 

96

 

Change in cash flow hedge

 

 

 

 

 

 

 

 

 

 

 

916

 

 

 

916

 

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

(2,616

)

 

 

(2,616

)

Balance, December 31, 2018

$

 

 

 

 

 

 

 

(218,280

)

 

 

(14,238

)

 

 

(232,518

)

 

S ee accompanying notes to consolidated financial statements.

 

4


 

 

WORTHINGTON A R MSTRONG VENTURE

Consolidated Statements of Cash Flows

Years ended December 31, 2018, 2017, and 2016

(Dollar amounts in thousands)

 

 

 

2018

 

 

2017

 

 

2016

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

 

161,541

 

 

 

148,449

 

 

 

158,863

 

Adjustments to reconcile net income to net cash

 

 

 

 

 

 

 

 

 

 

 

 

provided by operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

3,488

 

 

 

5,160

 

 

 

4,681

 

Deferred income taxes

 

 

277

 

 

 

476

 

 

 

388

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Change in receivables

 

 

(4,288

)

 

 

(102

)

 

 

(5,392

)

Change in inventory

 

 

(5,654

)

 

 

(4,879

)

 

 

(3,633

)

Change in payables and accrued expenses

 

 

293

 

 

 

1,065

 

 

 

3,702

 

Other

 

 

(559

)

 

 

(4,986

)

 

 

71

 

Net cash provided by operating activities,

   including discontinued operations

 

 

155,098

 

 

 

145,183

 

 

 

158,680

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Purchases of property, plant, and equipment

 

 

(3,942

)

 

 

(4,444

)

 

 

(4,924

)

Sale of property, plant, and equipment

 

 

33

 

 

 

34

 

 

 

38

 

Change in short-term investments

 

 

6,897

 

 

 

(1,115

)

 

 

(348

)

Purchase of assets from affiliate

 

 

(2,000

)

 

 

 

 

 

 

Cash consideration received from affiliate

 

 

70,000

 

 

 

 

 

 

 

Net cash provided by/(used) in investing

   activities, including discontinued operations

 

 

70,988

 

 

 

(5,525

)

 

 

(5,234

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from revolving credit facility

 

 

190,000

 

 

 

176,000

 

 

 

264,000

 

Issuance of long-term debt

 

 

50,000

 

 

 

 

 

 

 

Issuance of short-term debt

 

 

 

 

 

 

 

 

14,000

 

Repayment of short-term debt

 

 

 

 

 

(14,000

)

 

 

 

Repayment of revolving credit facility

 

 

(192,000

)

 

 

(171,500

)

 

 

(267,500

)

Financing cost

 

 

(31

)

 

 

(832

)

 

 

 

Distributions paid

 

 

(285,400

)

 

 

(140,000

)

 

 

(176,000

)

Net cash used in financing activities,

   including discontinued operations

 

 

(237,431

)

 

 

(150,332

)

 

 

(165,500

)

Effect of exchange rate changes on cash and cash equivalents

 

 

1,244

 

 

 

3,143

 

 

 

(1,577

)

Net increase (decrease) in cash and cash

   equivalents

 

 

(10,101

)

 

 

(7,531

)

 

 

(13,631

)

Cash and cash equivalents at beginning of year

 

 

26,856

 

 

 

34,387

 

 

 

48,018

 

Cash and cash equivalents at end of year

$

 

16,755

 

 

 

26,856

 

 

 

34,387

 

Supplemental disclosures:

 

 

 

 

 

 

 

 

 

 

 

 

Interest paid

$

 

8,730

 

 

 

7,873

 

 

 

6,961

 

Income taxes paid

 

 

933

 

 

 

168

 

 

 

2,728

 

 

See accompanying notes to consolidated financial statements.

 

5


 

 

 

 

 

 

WORTHINGTON ARMSTRONG VENTURE

Notes to Consolidated Financial Statements

December 31, 2018 and 2017

(Dollar amounts in thousands)

 

(1)

Description of Business

Worthington Armstrong Venture (the Company) is a general partnership, formed in June 1992, between Armstrong Ventures, Inc. (Armstrong), a subsidiary of Armstrong World Industries, Inc., and The Worthington Steel Company (Worthington), a Delaware corporation (a subsidiary of Worthington Industries, Inc.). Its business is to manufacture and market suspension systems for commercial and residential ceiling markets throughout the world. The Company has manufacturing plants located in the United States, France, the United Kingdom, the People’s Republic of China, and India.

On November 17, 2017, Armstrong World Industries, Inc. (AWI) entered into a Share Purchase Agreement (the Purchase Agreement) with Knauf International GmbH (Knauf) to sell certain subsidiaries comprising its business in Europe, the Middle East, Africa (EMEA) and the Pacific Rim. The sale also includes the corresponding businesses and operations of the Company, which was approved by both AWI and Worthington. The consideration to be paid by Knauf for the Company’s businesses is approximately $92,000, subject to certain adjustments as provided in the Purchase Agreement, including adjustments based on the economic impact of any required regulatory remedies and a working capital adjustment. We expect the transaction, which is subject to regulatory approvals and other customary conditions, will close by the end of the first half of 2019. EMEA and Pacific Rim’s financial results have been reflected in the Company’s Consolidated Financial Statements as discontinued operations for all periods presented. Refer to Note 3 for additional information.

On July 18, 2018, AWI entered into an amendment to the above Purchase Agreement, pursuant to which Knauf agreed to irrevocably and unconditionally pay AWI (i) $250,000 on August 1, 2018, and (ii) $80,000 on September 15, 2018, if, prior to such date (A) any competition condition has not been satisfied, or (B) the closing has not yet occurred. The amendment also provided for the reduction (from a maximum of $35,000 to a maximum of $20,000) of potential adjustments to the purchase price consideration for the transaction based on the impact of remedies required to satisfy competition conditions. AWI received both the $250,000 payment and the $80,000 payment from Knauf in the third quarter of 2018. Following receipt of these payments, $70,000 was remitted to the Company in partial consideration of the purchase price payable in respect of the business and operations of the Company under the transaction. The Company subsequently paid each of AWI and Worthington a dividend of $35,000. The Company also recorded a $22,000 receivable from AWI, which is reflected within Receivables from Affiliates. The total consideration payable from AWI to the Company will be determined following closing in connection with the calculation of the adjustments contemplated by the Purchase Agreement. The Company recorded $92,000 within Advanced Receipt of Sale Proceeds which will remain until the closing of the transaction.

 

6

(Continued)

 


 

 

 

 

 

 

WORTHINGTON ARMSTRONG VENTURE

Notes to Consolidated Financial Statements

December 31, 2018 and 2017

(Dollar amounts in thousands)

 

(2)

Summary of Significant Accounting Policies

 

(a)

Use of Estimates

These consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and include management estimates and judgments, where appropriate. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the valuation of property, plant, and equipment and goodwill, accrual for volume rebates, and assets and obligations related to employee benefits.

The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions have been eliminated.

 

(b)

Revenue Recognition

The Company recognizes revenue from the sale of products when title transfers, generally on the date of shipment and collection of the relevant receivable is probable. At the time of shipment, a provision is made for estimated applicable discounts and losses that reduce revenue. The Company’s standard sales terms are “Free On Board” (FOB) shipping point. The Company has minimal sales terms that are FOB destination.

Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and, therefore, are excluded from revenues in the consolidated statements of income and comprehensive income.

 

(c)

Derivative Instruments and Hedging Activities

The Company recognizes all derivative instruments as either assets or liabilities in the balance sheet at their respective fair values. For derivatives designated in hedging relationships, changes in the fair value are recognized in accumulated other comprehensive income, to the extent the derivative is effective at offsetting the changes in cash flows being hedged until the hedged item affects earnings. For derivatives not designated as hedges or that do not meet the criteria for hedge accounting, all changes in fair value are recorded immediately to profit or loss.

 

(d)

Advertising Costs

The Company recognizes advertising expense as incurred. Advertising expense was $1,491, $1,243, $1,170 and for the years ended December 31, 2018, 2017, and 2016 respectively.

 

7

(Continued)

 


 

 

 

 

 

 

WORTHINGTON ARMSTRONG VENTURE

Notes to Consolidated Financial Statements

December 31, 2018 and 2017

(Dollar amounts in thousands)

 

 

(e)

Research and Development Expenditures

The Company recognizes research and development expense as expenditures are incurred. Total research and development expense was $3,997, $4,653, and $4,305 for the years ended December 31, 2018, 2017, and 2016 respectively.

 

(f)

Taxes

The Company is a general partnership in the United States, and accordingly, generally, U.S. federal and state income taxes are the responsibility of the two general partners. The Company recognizes the effect of uncertain income tax positions only if those positions are more likely than not of being sustained. Recognized income tax benefits are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

 

(g)

Cash and Cash Equivalents

Short-term investments that have original maturities of three months or less when purchased are considered to be cash equivalents.

 

(h)

Short Term Investments

Short-term investments that have maturity dates greater  than  three months  consist  primarily  of one year certificates of deposits.

 

(i)

Trade Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management considers historical losses, current receivables aging, and existing industry and national economic data. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers.

 

(j)

Inventories

Inventories are valued at the lower of cost or market. Cost is determined on the first-in, first-out method.

 

8

(Continued)

 


 

 

 

 

 

 

WORTHINGTON ARMSTRONG VENTURE

Notes to Consolidated Financial Statements

December 31, 2018 and 2017

(Dollar amounts in thousands)

 

 

(k)

Long-Lived Assets

Property, plant, and equipment are stated at cost, with accumulated depreciation and amortization deducted to arrive at net book value. Depreciation charges are determined generally on the straight-line basis over the useful lives as follows: buildings, 30 years; machinery and equipment, 5 to 15 years; and leasehold improvements over the shorter of 10 years or the life of the lease. Impairment losses are recorded when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amount. If an impairment exists, the asset is reduced to fair value.

 

(m)

Goodwill

Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in a purchase business combination. Goodwill is tested for impairment at least annually. The impairment tests performed in 2018, 2017, and 2016 did not result in an impairment of the Company’s goodwill.

 

(n)

Foreign Currency Translation

Gains and losses on foreign currency translation are recognized in accumulated other comprehensive income in the accompanying consolidated balance sheets.

 

(o)

Recently Issued Accounting Standards

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which requires a company to recognize revenue when the company transfers control of promised goods and services to the customer. Revenue is recognized in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. A company also is required to disclose sufficient quantitative and qualitative information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The FASB also has issued several amendments to the standard, which are intended to promote a more consistent interpretation and application of the principles outlined in the standard. Companies are permitted to adopt the standard using a retrospective transition method (i.e. restate all prior periods presented) or a cumulative effect method (i.e. recognize the cumulative effect of initially applying the guidance at the date of initial application with no restatement of prior periods). However, both methods allow companies to elect certain practical expedients on transition that will help to simplify how a company restates its contracts.

 

9

(Continued)

 


 

 

 

 

 

 

WORTHINGTON ARMSTRONG VENTURE

Notes to Consolidated Financial Statements

December 31, 2018 and 2017

(Dollar amounts in thousands)

 

The standard is effective for the Company for annual periods in fiscal years beginning after December 15, 2018. The Company has adopted the provisions of ASU 2014-09 as of January 1, 2019 using the retrospective transition method.

Substantially all of our revenues from contracts with customers are recognized from the sale of products with standard shipping terms, sales discounts and warranties. The Company will continue to record revenue at a single point in time when control of the product is transferred to the customer, which is determined to be generally when the product is shipped to the customer. Adoption of the standard will not have a material effect on the consolidated financial statements, other than for the additional disclosures required by the standard.

In February 2016, the FASB issued ASU 2016-02, Leases, which amends accounting for leases, most notably by requiring a lessee to recognize the assets and liabilities that arise from a  lease  agreement. Specifically, this new guidance will require lessees to recognize a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term, with limited exceptions. We will adopt ASU 2016-02 effective January 1, 2020.

 

(3)

Discontinued Operations

As discussed in Note 1, AWI entered into a Purchase Agreement with Knauf to sell certain subsidiaries comprising its business in Europe, the Middle East, Africa (EMEA) and the Pacific Rim. The sale also includes the corresponding businesses and operations of the Company. Accordingly, the assets and liabilities and results of operations of our EMEA and Pacific Rim businesses have been reported as discontinued operations in the accompanying consolidated financial statements.

The Company and Knauf will also enter into an agreement related to the mutual supply of certain products and a license agreement relating to the use of certain intellectual property.

 

10

(Continued)

 


 

 

 

 

 

 

WORTHINGTON ARMSTRONG VENTURE

Notes to Consolidated Financial Statements

December 31, 2018 and 2017

(Dollar amounts in thousands)

 

The following table presents the carrying amounts of major classes of assets and liabilities of the discontinued operations held for sale in the consolidated balance sheets as of December 31, 2018 and 2017:

 

Assets

 

2018

 

 

2017

 

Accounts receivable, net

$

 

5,107

 

 

 

5,190

 

Inventory, net

 

 

8,501

 

 

 

9,629

 

Other current assets

 

 

1,161

 

 

 

2,030

 

Property, plant and equipment

 

 

16,056

 

 

 

16,504

 

Other non-current assets

 

 

2,956

 

 

 

3,086

 

Total current assets of discontinued operations held

   for sale

 

 

33,781

 

 

 

36,439

 

Liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

 

4,295

 

 

 

4,587

 

Accrued expenses

 

 

1,925

 

 

 

2,985

 

Other liabilities

 

 

688

 

 

 

523

 

Total current liabilities of discontinued operations held

   for sale

 

 

6,908

 

 

 

8,095

 

Total net assets

$

 

26,873

 

 

 

28,344

 

 

The following table represents the results of our discontinued operations:

 

 

 

2018

 

 

2017

 

 

2016

 

Net sales

$

 

64,638

 

 

 

63,222

 

 

 

63,024

 

Cost of sales

 

 

52,677

 

 

 

51,400

 

 

 

46,764

 

Selling, general, and administrative expenses

 

 

5,045

 

 

 

8,004

 

 

 

6,279

 

Interest income, expense, other, net

 

 

117

 

 

 

(309

)

 

 

(733

)

Income from discontinued operations before

   tax expense

 

 

6,799

 

 

 

4,127

 

 

 

10,714

 

Income tax benefit (expense)

 

 

(1,829

)

 

32

 

 

 

(3,738

)

Net income from discontinued operations, net

   of tax expense

$

 

4,970

 

 

 

4,159

 

 

 

6,976

 

 

The following is a summary of total depreciation and amortization and capital expenditures of our discontinued operations, which are presented as components of operating and investing activities in our consolidated statement of cash flows:

 

 

 

2018

 

 

2017

 

 

2016

 

Depreciation and amortization

$

 

 

 

 

1,958

 

 

 

1,896

 

Purchase of property, plant and equipment

 

 

637

 

 

 

1,753

 

 

 

1,285

 

 

 

11

(Continued)

 


 

 

 

 

 

 

WORTHINGTON ARMSTRONG VENTURE

Notes to Consolidated Financial Statements

December 31, 2018 and 2017

(Dollar amounts in thousands)

 

(4)

Accounts Receivable

The Company sells its products to select, preapproved customers whose businesses are directly affected by changes in economic and market conditions. The Company considers these factors and the financial condition of each customer when establishing its allowance for losses from doubtful accounts. The allowance for doubtful accounts was $2 and $136 at December 31, 2018 and 2017, respectively.

(5)

Inventory

 

 

 

2018

 

 

2017

 

Finished goods

$

 

12,534

 

 

 

11,841

 

Goods in process

 

 

347

 

 

 

94

 

Raw materials

 

 

24,198

 

 

 

18,114

 

Supplies

 

 

2,567

 

 

 

2,537

 

Total inventory, net of reserves

$

 

39,646

 

 

 

32,586

 

 

(6)

Derivative Instruments and Hedging Activities

The Company uses variable-rate London Interbank Offered Rate (LIBOR) debt to finance its operations. The debt obligations expose the Company to variability in interest payments due to changes in interest rates. Management believes that it is prudent to limit the variability of a portion of its interest payments. To meet this objective, management enters into LIBOR based interest rate swap agreements to manage fluctuations in cash flows resulting from changes in the benchmark interest rate of LIBOR. The swap changes the variable-rate cash flow exposure on the debt obligations to fixed cash flows. Under the terms of the interest rate swaps, the Company receives LIBOR-based variable interest rate payments and makes fixed interest rate payments, thereby creating the equivalent of fixed-rate debt for the notional amount of its debt hedged.

On July 16, 2013, the Company entered into a LIBOR-based interest rate swap agreement to manage fluctuations in cash flows resulting from changes in the benchmark interest rate of LIBOR. The swap has a notional amount of $50,000 maturing in July 2020, under the terms of which the Company pays a fixed rate of 2.136% and receives one-month LIBOR. This swap is designated as a cash flow hedge.

On April 28, 2017 the Company entered into another swap with a notional amount of $50,000 maturing in February 2022, under the terms of which the Company pays a fixed rate of 1.9365% and receives one-month LIBOR. This swap is designated as a cash flow hedge.

As of December 31, 2018 and 2017, the total notional amount of the Company’s outstanding interest-rate swap agreements that were entered into to hedge outstanding or forecasted debt obligations were $100,000 and $100,000, respectively.

 

12

(Continued)

 


 

 

 

 

 

 

WORTHINGTON ARMSTRONG VENTURE

Notes to Consolidated Financial Statements

December 31, 2018 and 2017

(Dollar amounts in thousands)

 

The fair value of derivatives designated as hedging instruments held as of December 31, 2018 and 2017 are as follows:

 

 

 

2018

 

 

2017

 

 

 

Balance

Sheet

Location

 

Fair

value

 

 

Balance

Sheet

Location

 

Fair

value

 

Interest rate swap

 

Other assets

$

 

1,082

 

 

Other assets

$

 

165

 

 

The amount of gain recognized in accumulated other comprehensive income was $1,093 and $177, respectively as of December 31, 2018 and 2017.

 

(7)

Property, Plant, and Equipment

 

 

 

2018

 

 

2017

 

Land

$

 

673

 

 

 

673

 

Buildings

 

 

13,195

 

 

 

13,143

 

Machinery and equipment

 

 

59,660

 

 

 

57,391

 

Computer software

 

 

1,672

 

 

 

1,328

 

Construction in process

 

 

2,393

 

 

 

2,595

 

 

 

 

77,593

 

 

 

75,130

 

Accumulated depreciation and amortization

 

 

(53,466

)

 

 

(50,819

)

Total property, plant, and equipment, net

$

 

24,127

 

 

 

24,311

 

 

Depreciation and amortization expense was $3,488, $3,202 and $2,785 for the years ended December 31, 2018, 2017 and 2016, respectively.

(8)

Fair Value of Financial Instruments

The Company does not hold or issue financial instruments for trading purposes.

The carrying amounts of cash and cash equivalents, short-term investments, accounts receivable, and accounts payable approximate their fair value due to the short-term maturity of these instruments. The carrying value and estimated fair value of debt was $291,712 and $291,809, respectively, at December 31, 2018. The carrying value and estimated fair value of debt was $243,508 and $243,529, respectively, at December 31, 2017.

The fair value of the Company’s debt is based on the amount of future cash flows discounted using rates the Company would currently be able to realize for similar instruments of comparable maturity.

 

13

(Continued)

 


 

 

 

 

 

 

WORTHINGTON ARMSTRONG VENTURE

Notes to Consolidated Financial Statements

December 31, 2018 and 2017

(Dollar amounts in thousands)

 

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. The three levels of inputs used to measure fair value are as follows:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.

The Company’s derivatives are valued using Level 2 inputs. The fair values are disclosed in Note 6. The Company does not have any significant financial or nonfinancial assets or liabilities that are valued using Level 3 inputs.

(9)

Debt

The Company had a $200,000 revolving credit facility (Facility) with PNC Bank and other lenders that was due to expire on February 21, 2019. On March 22, 2017, the Company refinanced the Facility with PNC Bank and other lenders increasing the size of the revolver from $200,000 to $250,000 and extending the terms to March 22, 2022. At the same time, the Company paid off their $50,000 private floating rate debt with New York Life Insurance Company. As of December 31, 2018 and 2017 there was $192,500 and $194,500, respectively, outstanding under the Facility. The Company can borrow at rates with a range over LIBOR of 1.125% to 1.75%, depending on the Company’s leverage ratio, as defined by the terms of the Facility. As of December 31, 2018 and 2017, the rate was 3.60% and 2.82%, respectively.

On December 23, 2011, the Company issued $50,000 of 10-year private placement notes (Prudential Notes) with Prudential Insurance Company that mature in December 2021. At December 31, 2018 and 2017, there was $50,000 outstanding. The Prudential Notes bear interest at 4.90% that is paid on a quarterly basis.

On October 19, 2018, the Company issued $50,000 of 10-year private placement notes (Prudential Notes) with Prudential Insurance Company that mature in October 2028. At December 31, 2018, there was $50,000 outstanding. The Prudential Notes bear interest at 4.79% that is paid on a quarterly basis.

 

14

(Continued)

 


 

 

 

 

 

 

WORTHINGTON ARMSTRONG VENTURE

Notes to Consolidated Financial Statements

December 31, 2018 and 2017

(Dollar amounts in thousands)

 

The debt agreements contain certain restrictive financial covenants, including, among others, interest coverage and leverage ratios. The Company was in compliance with its covenants during the years ended and as of December 31, 2018 and 2017.

(10)

Pension Benefit Programs

The  Company  contributes  to  the  Worthington  Industries  Deferred  Profit  Sharing  Plan  for  eligible U.S. employees. Costs for this plan were $1,407, $1,399 and $1,413 for 2018, 2017 and 2016, respectively.

The Company also has a U.S. defined-benefit pension plan for eligible hourly employees that worked in its former manufacturing plant located in Malvern, Pennsylvania. This plan was curtailed in January 2004 due to the consolidation of the Company’s East Coast operations, which eliminated the expected future years of service for participants in the plan. The following tables set forth the defined-benefit pension plan’s benefit obligations, fair value of plan assets, and funded status at December 31, 2018 and 2017:

 

 

 

2018

 

 

2017

 

Projected benefit obligation at beginning of year

$

 

11,145

 

 

 

11,005

 

Interest cost

 

 

374

 

 

 

417

 

Actuarial (gain) loss

 

 

(881

)

 

 

353

 

Benefits paid

 

 

(650

)

 

 

(630

)

Projected benefit obligation at end of year

$

 

9,988

 

 

 

11,145

 

 

 

 

2018

 

 

2017

 

Benefit obligation at December 31

$

 

9,988

 

 

 

11,145

 

Fair value of plan assets as of December 31

 

 

8,622

 

 

 

9,065

 

Funded status at end of year

$

 

(1,366

)

 

 

(2,080

)

Amounts recognized in the balance sheets consist of:

 

 

 

 

 

 

 

 

Other long-term liabilities

$

 

(1,366

)

 

 

(2,080

)

Accumulated other comprehensive loss

 

 

6,044

 

 

 

6,141

 

Net amount recognized

$

 

4,678

 

 

 

4,061

 

 

Amounts recognized in accumulated other comprehensive loss represent unrecognized net actuarial losses. The components of net periodic benefit cost (benefit) are as follows:

 

 

 

2018

 

 

2017

 

 

2016

 

Interest cost

$

 

374

 

 

 

417

 

 

 

457

 

Expected return on plan assets

 

 

(651

)

 

 

(593

)

 

 

(600

)

Recognized net actuarial loss

 

 

320

 

 

 

334

 

 

 

332

 

Net periodic benefit cost

$

 

43

 

 

 

158

 

 

 

189

 

 

 

15

(Continued)

 


 

 

 

 

 

 

WORTHINGTON ARMSTRONG VENTURE

Notes to Consolidated Financial Statements

December 31, 2018 and 2017

(Dollar amounts in thousands)

 

The accumulated benefit obligation for the U.S. defined-benefit pension plan was $9,988 and $11,145 at December 31, 2018 and 2017, respectively. The unrecognized net loss for the defined-benefit pension plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year is $235.

The valuations and assumptions reflect the Society of Actuaries updated RP-2014 mortality tables with MP- 2018 generational projection scales as of December 31, 2018.

Weighted average assumptions used to determine benefit obligations for the years ended and as of December 31, 2018 and 2017 are as follows:

 

 

 

2018

 

 

2017

 

Weighted average assumptions for the year ended December 31:

 

 

 

 

 

 

 

 

Discount rate

 

 

3.52

%

 

 

3.95

%

Expected long-term rate of return on plan assets

 

 

7.25

 

 

 

7.25

 

Weighted average assumptions as of December 31:

 

 

 

 

 

 

 

 

Discount rate

 

 

4.13

%

 

 

3.52

%

Expected long-term rate of return on plan assets

 

7.25

 

 

 

7.25

 

 

Pension plan assets are required to be disclosed at fair value in the consolidated financial statements. Fair value is defined in Note 8 – Fair Value of Financial Instruments.

The U.S. defined-benefit pension plan assets’ fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

The following tables set forth by level within the fair value hierarchy a summary of the plan’s assets measured at fair value on a recurring basis as of December 31, 2018 and 2017, respectively:

 

 

 

 

 

 

 

2018

 

 

 

 

 

 

 

Fair value based on

 

 

 

 

 

 

 

Quoted

active

markets

 

 

Observable

inputs

 

 

 

Fair value

 

 

(Level 1)

 

 

(Level 2)

 

Investment:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and money market funds

$

 

445

 

 

 

445

 

 

 

 

Debt securities

 

 

2,999

 

 

 

 

 

 

2,999

 

Common stocks

 

 

5,178

 

 

 

5,178

 

 

 

 

 

$

 

8,622

 

 

 

5,623

 

 

 

2,999

 

 

 

16

(Continued)

 


 

 

 

 

 

 

WORTHINGTON ARMSTRONG VENTURE

Notes to Consolidated Financial Statements

December 31, 2018 and 2017

(Dollar amounts in thousands)

 

 

 

 

 

 

 

2017

 

 

 

 

 

 

 

Fair value based on

 

 

 

 

 

 

 

Quoted

active

markets

 

 

Observable

inputs

 

 

 

Fair value

 

 

(Level 1)

 

 

(Level 2)

 

Investment:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and money market funds

$

 

332

 

 

 

332

 

 

 

 

Debt securities

 

 

2,799

 

 

 

 

 

 

2,799

 

Common stocks

 

 

5,934

 

 

 

5,934

 

 

 

 

 

$

 

9,065

 

 

 

6,266

 

 

 

2,799

 

 

Following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at December 31, 2018 and 2017.

Cash: Consists of cash and cash equivalents. The carrying amounts of cash and cash equivalents approximate fair value due to the short-term maturity of these instruments.

Money market funds: The money market investment consists of an institutional investor money market fund, valued at the fund’s net asset value (NAV), which is normally calculated at the close of business daily. The fund’s assets are valued as of this time for the purpose of computing the fund’s NAV.

Debt securities: Consist of investments in individual corporate bonds, municipal bonds, or government bonds. These bonds are each individually valued using a yield curve model, based on observable inputs, which may also incorporate available trade and bid/ask spread data where available.

Common stocks: Consist of investments in common stocks that are valued at the closing price reported on the active market on which the individual security is traded.

In developing the 7.25% expected long-term rate of return assumption, the Company considered its historical returns and reviewed asset class return expectations and long-term inflation assumptions.

The primary investment objective of the defined-benefit pension plan is to achieve long-term growth of capital in excess of 7.25% annually, exclusive of contributions or withdrawals. This objective is to be achieved through a balanced portfolio comprising equities, fixed income, and cash investments.

 

17

(Continued)

 


 

 

 

 

 

 

WORTHINGTON ARMSTRONG VENTURE

Notes to Consolidated Financial Statements

December 31, 2018 and 2017

(Dollar amounts in thousands)

 

Each asset class utilized by the defined-benefit pension plan has a targeted percentage. The following table shows the asset allocation target and the December 31, 2018 and 2017 position:

 

 

 

 

 

 

 

Position at December 31

 

 

 

Target

weight

 

 

2018

 

 

2017

 

Equity securities

 

 

65

%

 

 

70

%

 

 

74

%

Fixed income securities

 

 

35

 

 

 

25

 

 

 

22

 

Cash and equivalents

 

 

 

 

 

5

 

 

 

4

 

 

The Company made contributions of $660, $400, and $500 to the U.S. defined-benefit pension plan in 2018, 2017, and 2016 respectively. The Company expects to contribute $650 to the plan in 2019.

The benefits expected to be paid in each of the next five years and in the aggregate for the five years thereafter are shown in the following table:

 

Expected future payments for the year(s)

 

 

 

 

ending December 31:

 

 

 

 

2019

$

 

650

 

2020

 

 

653

 

2021

 

 

641

 

2022

 

 

656

 

2023

 

 

669

 

2024-2028

 

 

3,203

 

 

The expected benefits are based on the same assumptions used to measure the Company’s benefit obligation at December 31, 2018.

(11)

Income Taxes

The Company is a general partnership in the United States, and accordingly, U.S. federal and state income taxes are generally the responsibility of the two general partners. Therefore, no federal income tax provision has been recorded on U.S. income.

(12)

Leases

The Company rents certain real estate and equipment. Several leases include options for renewal or purchase and contain clauses for payment of real estate taxes and insurance. In most cases, management expects that in the normal course of business, leases will be renewed or replaced by other leases. Minimum rent payments under operating leases are recognized on a straight-line basis over the term of the lease including any periods of free rent. Rent expense during 2018, 2017 and 2016 amounted to $2,235, $2,258 and $2,309, respectively.

 

18

(Continued)

 


 

 

 

 

 

 

WORTHINGTON ARMSTRONG VENTURE

Notes to Consolidated Financial Statements

December 31, 2018 and 2017

(Dollar amounts in thousands)

 

Future minimum payments by year and in the aggregate for operating leases having noncancelable lease terms in excess of one year are as follows:

 

Year:

 

 

 

 

2019

$

 

2,440

 

2020

 

 

2,435

 

2021

 

 

2,418

 

2022

 

 

1,885

 

2023

 

 

814

 

Thereafter

 

 

334

 

Total

$

 

10,326

 

 

(13)

Accumulated Other Comprehensive Income (Loss)

The following table summarizes the activity, by component, related to the change in AOCI for December 31, 2018 and the balances for accumulated other comprehensive income (loss):

 

 

 

Foreign

currency

translation

 

 

Cash flow

hedge

 

 

Pension plan

 

 

Accumulated

other

comprehensive

(loss)

 

Balance, December 31, 2016

 

 

(11,453

)

 

 

(977

)

 

 

(6,603

)

 

 

(19,033

)

Other comprehensive income before

   reclassifications

 

 

4,784

 

 

 

1,154

 

 

 

231

 

 

 

6,169

 

Amounts reclassified from accumulated other comprehensive

   income

 

 

 

 

 

 

 

 

230

 

 

 

230

 

Net current period other

   comprehensive income

 

 

4,784

 

 

 

1,154

 

 

 

461

 

 

 

6,399

 

Balance, December 31, 2017

$

 

(6,669

)

 

 

177

 

 

 

(6,142

)

 

 

(12,634

)

Other comprehensive (loss) / income

   before reclassifications

 

 

(2,616

)

 

 

916

 

 

 

(120

)

 

 

(1,820

)

Amounts reclassified from

   accumulated other comprehensive

   income

 

 

 

 

 

 

 

 

216

 

 

 

216

 

Net current period other

   comprehensive (loss) / income

 

 

(2,616

)

 

 

916

 

 

 

96

 

 

 

(1,604

)

Balance, December 31, 2018

$

 

(9,285

)

 

 

1,093

 

 

 

(6,046

)

 

 

(14,238

)

 

The amount reclassified from AOCI was recorded in cost of goods sold in the consolidated statements of income and comprehensive income.

 

19

(Continued)

 


 

 

 

 

 

 

WORTHINGTON ARMSTRONG VENTURE

Notes to Consolidated Financial Statements

December 31, 2018 and 2017

(Dollar amounts in thousands)

 

(14)

Related Parties

AWI provides certain selling, promotional, and administrative processing services to the Company for which it receives reimbursement. AWI purchases grid products from the Company, which are then resold along with AWI inventory to the customer.

 

 

 

2018

 

 

2017

 

 

2016

 

Services provided by Armstrong

$

 

15,775

 

 

 

14,878

 

 

 

9,098

 

Sales to Armstrong

 

 

22,494

 

 

 

18,224

 

 

 

18,004

 

 

AWI owed the Company $2,963 and $2,594 for purchases of product as of December 31, 2018 and 2017, respectively. Additionally, as discussed in Note 1, AWI owes the Company approximately $22,000 in remaining consideration for the sale of the Company’s EMEA and Pacific Rim businesses to Knauf. The Company owed $2,053 and $1,145 to Worthington and affiliates of Worthington as of December 31, 2018 and 2017, respectively, which are included in accounts payable to affiliates.

Worthington, and affiliates of Worthington, provide certain administrative processing services, steel processing services, and insurance-related coverages to the Company for which it receives reimbursement.

 

 

 

2018

 

 

2017

 

 

2016

 

Administrative services by Worthington

$

 

1,597

 

 

 

1,382

 

 

 

501

 

Insurance-related coverage net of premiums by

   Worthington

 

 

879

 

 

 

840

 

 

 

824

 

Steel processing services by Worthington and

   affiliates of Worthington

 

 

3,015

 

 

 

1,656

 

 

 

3,394

 

 

On August 16, 2018, AWI acquired the business and assets of Steel Ceilings. In October 2018, the Company acquired certain assets related to a specific product line from AWI for a purchase price of $2,000. The purchase price was allocated to the acquired tangible assets based on their estimated fair values, with the remaining amount recorded as an intangible asset. The estimated total fair value of acquired inventory was $400; the remaining $1,600 was recorded as an intangible asset in the form of amortizable customer relationships.

(15)

Legal Proceedings

The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations, or liquidity.

 

 

20

(Continued)

 


 

 

 

 

 

 

WORTHINGTON ARMSTRONG VENTURE

Notes to Consolidated Financial Statements

December 31, 2018 and 2017

(Dollar amounts in thousands)

 

(16)

Business and Credit Concentrations

Approximately 23%, 22%, and 20% of net sales were to the Company’s largest third-party customer for 2018, 2017, and 2016 respectively. The Company’s 10 largest third-party customers accounted for approximately 75%, 77%, and 74% of the Company’s net sales for 2018, 2017, and 2016 respectively, and approximately 86% and 73% of the Company’s accounts receivable balances at December 31, 2018 and 2017, respectively. See Note 14 for sales to and amounts owed to the Company from AWI.

(17)

Subsequent Events

Management has evaluated subsequent events through the date the annual consolidated financial statements were available to be issued, February 18, 2019.

 

21