EXHIBIT 10.2
WORTHINGTON INDUSTRIES, INC.
AMENDED AND RESTATED
1997 LONG-TERM INCENTIVE PLAN
(reflects First Amendment, Second Amendment
Third Amendment and Fourth Amendment thereto)
SECTION 1. PURPOSE. The purposes of the Worthington Industries, Inc. Amended and Restated 1997 Long-Term Incentive Plan (the “Plan”) are to encourage selected key employees of the Company to acquire a proprietary and vested interest in the growth and performance of the Company, to generate an increased incentive to contribute to the Company’s future success and prosperity, thus enhancing the value of the Company for the benefit of shareholders, and to enhance the ability of the Company to attract and retain individuals of exceptional talent upon whom, in large measure, the sustained progress, growth and profitability of the Company depends. This Plan became effective on the Effective Date and is being amended and restated effective as of November 1, 2008 for purposes of Section 409A of the Code.
SECTION 2. ADMINISTRATION. The Plan shall be administered by the Committee. The Committee shall have full power and authority, subject to such orders or resolutions not inconsistent with the provisions of the Plan as may from time to time be adopted by the Board, to: (i) select the Employees of the Company to whom Awards may from time to time be granted hereunder; (ii) determine the type or types of Award to be granted to each Participant hereunder; (iii) determine the number of Shares to be covered by each Award granted hereunder; (iv) determine the terms and conditions, not inconsistent with the provisions of the Plan, of any Award granted hereunder; (v) determine whether, to what extent and under what circumstances Awards may be settled in cash, Shares or other property or canceled or suspended; (vi) interpret and administer the Plan and any instrument or agreement entered into under the Plan; (vii) establish such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and (viii) make any other determination and take any other action that the Committee deems necessary or desirable for administration of the Plan. Decisions of the Committee shall be final, conclusive and binding upon all Persons, including the Company, any Participant, any shareholder, and any Employee of the Company. A majority of the members of the Committee may determine its actions and fix the time and place of its meetings.
SECTION 3. DURATION OF, AND SHARES SUBJECT TO PLAN.
(a) Term. The Plan shall remain in effect until terminated by the Board, provided, however, that no Incentive Stock Option may be granted after more than 10 years after the Effective Date.
(b) Shares Subject to the Plan. The maximum number of Shares in respect of which Awards may be granted under the Plan, subject to adjustment as provided in Section 3(c) of the Plan, shall be 8,000,000. Notwithstanding the foregoing, no Participant may be granted Awards in any one calendar year with respect to more than 200,000 Shares. No awards of Incentive Stock Options may be made after 2007. [NOTE: This paragraph of Section 3(b) was amended pursuant to the Fourth Amendment to the Plan effective as of September 25, 2019.]
For the purpose of computing the total number of Shares available for Awards under the Plan, there shall be counted against the foregoing limitations the number of Shares subject to issuance upon exercise or settlement of Awards as of the dates on which such Awards are granted. Shares which were previously subject to Awards shall again be available for Awards under the Plan if any such Awards are forfeited, terminated, expire unexercised, settled in cash or property other than Shares or exchanged for other Awards including any withholding of Shares to pay taxes (to the extent of such forfeiture, termination, withholding or expiration of such Awards), or if the Shares subject thereto can otherwise no longer be issued. Any Shares which are used as full or partial payment to Worthington by a Participant of the option price of Shares upon exercise of an Option shall again be available for Awards under the Plan; provided, however, that any Shares which are the subject of Options or of Stock Appreciation Rights granted on or after September 26, 2013, shall not again be available for Awards under the Plan, even if such Option or Stock Appreciation Right is forfeited, terminated, expires unexercised, settled in cash
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or property other than Shares or exchanged for another Award or the Shares subject to such Option or Stock Appreciation Right can otherwise no longer be issued. [NOTE: This paragraph of Section 3(b) was amended pursuant to the Fourth Amendment to the Plan effective as of September 25, 2019.]
Shares which may be issued under the Plan may be either authorized and unissued Shares or issued Shares which have been reacquired by Worthington. No fractional Shares shall be issued under the Plan.
(c) Changes in Shares. In the event of any merger, reorganization, consolidation, recapitalization, stock dividend, stock split, reverse stock split, spin off, exchange of shares or similar transaction or other change in corporate structure or capitalization affecting the Shares or the price thereof, such adjustments and other substitutions shall be made to the Plan and to Awards as the Committee in its sole discretion deems equitable or appropriate, including without limitation such adjustments in the aggregate number, class and kind of Shares which may be delivered under the Plan, in the aggregate or to any one Participant, in the number, class, kind and option or exercise price of Shares subject to outstanding Options, Stock Appreciation Rights or other Awards granted under the Plan, and in the number, class and kind of Shares subject to Awards granted under the Plan (including, if the Committee deems appropriate, the substitution of similar options to purchase the shares of, or other awards denominated in the shares of, another company) as the Committee may determine to be appropriate in its sole discretion, provided that the number of Shares or other securities subject to any Award shall always be a whole number. Any adjustment made pursuant to this Section 3(c) shall be made consistent with the requirements of Section 409A of the Code, to the extent applicable.
(d) Prohibition on Repricing. Except for adjustments made pursuant to Section 3(c) of the Plan, in no event may the Committee, without obtaining shareholder approval: (i) amend the terms of an outstanding Award to reduce the option price of an outstanding Option or the grant price of an outstanding Stock Appreciation Right; (ii) cancel an outstanding Option or Stock Appreciation Right in exchange for Options or Stock Appreciation Rights with an option price or grant price, as applicable, that is less than the option price or grant price of the original Option or Stock Appreciation Right; (iii) cancel an outstanding Option or Stock Appreciation Right with an option price or grant price, as applicable, which is above the current Fair Market Value of the Shares underlying the Option or Stock Appreciation Right in exchange for another Award, cash or other securities; (iv) take any other action that is treated as a “repricing” under generally accepted accounting principles; or (v) take any other action that has the effect of “repricing” an Award, as defined under the rules of the securities exchange or other recognized market or quotation system on which the Shares are then listed or traded. [NOTE: This Section 3(d) was amended pursuant to the Second Amendment to the Plan effective as of September 26, 2013.]
SECTION 4. ELIGIBILITY. Any Employee (excluding any member of the Committee) shall be eligible to be selected as a Participant.
SECTION 5. OPTIONS. Options may be granted hereunder to Participants, either alone or in addition to other Awards granted under the Plan. Any Option granted under the Plan shall be evidenced by an Award Agreement in such form as the Committee may from time to time approve. Any such Option shall be subject to the following terms and conditions and to such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall deem desirable. The provisions of Options need not be the same with respect to each Participant.
(a) Option Price. The option price per Share purchasable upon exercise of an Option shall be determined by the Committee in its sole discretion; provided that such option price shall not be less than the Fair Market Value of the Share on the date of the grant of the Option.
(b) Option Period. The term of each Option shall be fixed by the Committee in its sole discretion; provided that no Incentive Stock Option shall be exercisable after the expiration of ten years from the date the Incentive Stock Option is granted.
(c) Exercisability. Options shall be exercisable at such time or times as determined by the Committee at or subsequent to grant. Unless otherwise determined by the Committee at or subsequent to grant, no Incentive Stock
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Option shall be exercisable during the year ending on the day before the first anniversary date of the granting of the Incentive Stock Option.
(d) Method of Exercise. Subject to the other provisions of the Plan and any applicable Award Agreement, any Option may be exercised by the Participant in whole or in part at such time or times, and the Participant may make payment of the option price in such form or forms, including, without limitation, payment by delivery of cash, Shares already owned by the Participant or other consideration (including, where permitted by law, by delivery or surrender of outstanding vested and exercisable Awards, including through the withholding of Shares which would otherwise be issued in connection with the exercise of a vested and exercisable Option, having a Fair Market Value on the exercise date equal to the total option price, or by any combination of cash, Shares and other consideration unless the Committee may otherwise specify in the applicable Award Agreement.
(e) Incentive Stock Options. In accordance with rules and procedures established by the Committee, the aggregate Fair Market Value (determined as of the time of grant) of the Shares with respect to which Incentive Stock Options held by any Participant which are exercisable for the first time by such Participant during any calendar year under the Plan (and under any other benefit plans of the Company or of any parent or subsidiary corporation of the Company) shall not exceed $100,000 or, if different, the maximum limitation in effect at the time of grant under Section 422 of the Code, or any successor provision, and any Treasury Regulations promulgated thereunder. The terms of any Incentive Stock Option granted hereunder shall comply in all respects with the provisions of Section 422 of the Code, or any successor provision, and any Treasury Regulations promulgated thereunder.
SECTION 6. STOCK APPRECIATION RIGHTS. Stock Appreciation Rights may be granted hereunder to Participants, either alone or in addition to other Awards granted under the Plan, and may, but need not, relate to a specific Option granted under Section 5. The provisions of Stock Appreciation Rights need not be the same with respect to each Participant. Any Stock Appreciation Right related to a Nonstatutory Stock Option may be granted at any time thereafter before exercise, termination or expiration of such Nonstatutory Stock Option. Any Stock Appreciation Right related to an Incentive Stock Option must be granted at the same time such Incentive Stock Option is granted. In the case of any Stock Appreciation Right related to any Option, the Stock Appreciation Right or applicable portion thereof shall terminate and no longer be exercisable upon the termination or exercise of the related Option, except that a Stock Appreciation Right granted with respect to less than the full number of Shares covered by a related Option shall not be reduced until the number of Shares subject to the exercise or termination of the related Option exceeds the number of Shares not covered by the Stock Appreciation Right. Any Option related to any Stock Appreciation Right shall no longer be exercisable to the extent the related Stock Appreciation Right has been exercised. The Committee may impose such conditions or restrictions on the exercise of any Stock Appreciation Right as it shall deem appropriate.
SECTION 7. RESTRICTED STOCK.
(a) Issuance. Restricted Stock Awards may be issued hereunder to Participants, either alone or in addition to other Awards granted under the Plan, for such consideration as determined by the Committee in its sole discretion and the Committee may issue such Awards for no consideration or for such minimum consideration as may be required by applicable law. Restricted Stock Awards shall contain such limitations, terms and conditions and other provisions as determined by the Committee in its sole discretion. The provisions of Restricted Stock Awards need not be the same with respect to each Participant.
(b) Registration. Any Restricted Stock issued hereunder may be evidenced in such manner as the Committee in its sole discretion shall deem appropriate, including, without limitation, book-entry registration or issuance of a stock certificate or certificates. In the event any stock certificate is issued in respect of shares of Restricted Stock awarded under the Plan, such certificate shall be registered in the name of the Participant, and shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Award.
(c) Forfeiture. Except as otherwise determined by the Committee at the time of grant, upon termination of employment for any reason during the restriction period, all shares of Restricted Stock still subject to restriction shall be forfeited by the Participant and reacquired by Worthington, for the purchase price paid by the Participant or such other consideration (or no consideration) as set by the Committee as part of the terms and conditions of the Award, provided that except as provided in Section 11, in the event of a Participant’s retirement, permanent
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disability, other termination of employment or death, or in cases of special circumstances, the Committee may, in its sole discretion, waive in whole or in part any or all remaining restrictions with respect to such Participant’s shares of Restricted Stock. Unrestricted Shares, evidenced in such manner as the Committee shall deem appropriate, shall be issued to the Participant after the period of forfeiture, as determined or modified by the Committee, shall expire.
SECTION 8. PERFORMANCE AWARDS. Performance Awards may be issued hereunder to Participants, either alone or in addition to other Awards granted under the Plan, for such consideration as determined by the Committee, in its sole discretion, and the Committee may issue such Performance Awards for no consideration or for such minimum consideration as may be required by applicable law. The performance criteria to be achieved during any Performance Period, the length of the Performance Period and the other terms and conditions and provisions with respect to the Performance Award shall be determined by the Committee upon the grant of each Performance Award. Except as provided in Section 10, Performance Awards will be distributed only after the end of the relevant Performance Period. Performance Awards may be paid in cash, Shares or any combination thereof, in the sole discretion of the Committee at the time of payment. The performance levels to be achieved for each Performance Period and the amount of the Award to be distributed shall be conclusively determined by the Committee. Performance Awards may be paid in a lump sum or in installments following the close of the Performance Period. The maximum value of the property, including cash, that may be paid or distributed to any Participant pursuant to a grant of Performance Units made in any one calendar year shall be $2,500,000. The provisions of Performance Awards need not be the same with respect to each Participant.
SECTION 9. OTHER STOCK UNIT AWARDS.
(a) Other Stock Unit Awards Administration. Other Awards of Shares and other Awards that are valued in whole or in part by reference to, or are otherwise based on, Shares or other property (“Other Stock Unit Awards”) may be granted hereunder to Participants, either alone or in addition to other Awards granted under the Plan. Other Stock Unit Awards may be paid in Shares, cash or any other form of property as the Committee shall determine.
(b) Terms and Conditions. Other Stock Unit Awards granted under this Section 9 may be issued for such consideration as determined by the Committee in its sole discretion, and the Committee may issue such Awards for no consideration or for such minimum consideration as may be required by applicable law. Shares (including securities convertible into Shares) purchased pursuant to a purchase right awarded under this Section 9 shall be purchased for such consideration as the Committee shall in its sole discretion determine, which shall not be less than the Fair Market Value of such Shares or other securities as of the date such purchase right is awarded. The terms and conditions and other provisions with respect to Other Stock Unit Awards shall be determined by the Committee. The provisions of Other Stock Unit Awards need not be the same with respect to each Participant.
SECTION 10. CHANGE IN CONTROL PROVISIONS.
(a) Impact of Event. Notwithstanding any other provision of the Plan to the contrary, but subject to the provisions of Section 10(c), in the event of a Change in Control:
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(i)
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Any Options and Stock Appreciation Rights outstanding as of the date such Change in Control is determined to have occurred, and which are not then exercisable and vested, shall become fully exercisable and vested to the full extent of the original grant; provided, that in the case of a Participant holding a Stock Appreciation Right who is actually subject to Section 16(b) of the Exchange Act, such Stock Appreciation Right shall not become fully vested and exercisable unless it shall have been outstanding for at least six months at the date such Change in Control is determined to have occurred.
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(ii)
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The restrictions applicable to any Restricted Stock shall lapse, and such Restricted Stock shall become free of all restrictions and become fully vested and transferable to the full extent of the original grant.
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(iii)
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All Performance Awards shall be considered to be earned and payable in full, and any other restriction shall lapse and such Performance Awards shall be immediately settled or distributed.
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(iv)
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The restrictions and other conditions applicable to any Other Stock Unit Awards or any other Awards shall lapse, and such Other Stock Unit Awards or such other Awards shall become free of all restrictions or conditions and become fully vested and transferable to the full extent of the original grant.
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(b) Change in Control Cash-Out. Notwithstanding any other provision of the Plan, during the 60-day period from and after a Change in Control (the “Exercise Period”), if the Committee shall determine at, or at any time after the time of grant, a Participant holding an Option shall have the right, whether or not the Option is fully exercisable and in lieu of the payment of the option price for the Shares being purchased under the Option and by giving notice to Worthington, to elect (within the Exercise Period) to, surrender all or part of the Option to Worthington and to receive cash, within 30 days of such notice, in an amount equal to the amount by which the Change in Control Price per Share on the date of such election shall exceed the purchase price per Share under the Option (the “Spread”) multiplied by the number of Shares granted under the Option as to which the right granted under this Section 10(b) shall have been exercised.
(c) Provisions not Applicable. The provisions of this Section 10 shall not apply (i) if the Committee determines at the time of grant that such Section shall not apply or (ii) to any Change in Control when expressly provided otherwise by a three-fourths vote of the Whole Board, but only if a majority of the members of the Board then in office and acting upon such matters shall be Continuing Directors.
SECTION 11. CODE SECTION 162(m) PROVISIONS.
(a) Applicability. Notwithstanding any other provisions of the Plan, if the Committee determines at the time Restricted Stock, a Performance Award or an Other Stock Unit Award is granted to a Participant that such Participant is, or is likely to be at the time such Participant recognizes income for federal income tax purposes in connection with such Award a Covered Employee then the Committee may provide that this Section 11 is applicable to such Award.
(b) Performance Goals. If an Award is subject to this Section 11, then the lapsing of restrictions thereon and the distribution of cash or Shares pursuant thereto, as applicable, shall be subject to the achievement of one or more objective performance goals established by the Committee, which shall be based on the attainment of one or any combination of the following:
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(i)
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Income or earnings (before or after interest, taxes, depreciation, amortization and/or other items);
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(iii)
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Economic value added;
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(vii)
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Return measures (including, but not limited to, return on assets, capital, invested capital, equity or revenue);
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(viii)
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Cash flow (including, but not limited to, operating cash flow, free cash flow, cash flow return on equity or cash flow return on investment);
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(ix)
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Gross, operating or other margins;
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(x)
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Productivity ratios or other productivity measures;
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(xi)
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Share price (including, but not limited to, growth measures and total shareholder return);
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(xii)
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Expense reduction, expense targets or cost control;
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(xiii)
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Operating or other efficiencies;
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(xv)
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Developing new markets, new products and/or new lines of revenue; or
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(xvi)
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Identifying and completing acquisitions.
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Such performance goals may be stated in absolute terms or relative to comparison entities, indices or other measures to be achieved during a Performance Period and may be applied solely with reference to the Company or an affiliate, business unit or division of the Company or relatively between the Company or an affiliate, business unit or division of the Company and one or more unrelated entities or business units or indices.
The Committee may provide in any performance goal that any evaluation of performance may include or exclude the impact of specific items related to the time period over which performance is evaluated including the following: (i) asset write-downs; (ii) litigation or claim judgments or settlements; (iii) changes in tax laws, accounting principles (or interpretations thereof), accounting methods (including the differences between LIFO and FIFO accounting methods), or other laws or provisions affecting reported results; (iv) any reorganization or restructuring program or restructuring costs; (v) extraordinary or non-recurring items; (vi) acquisitions or divestitures; and (vii) foreign exchange gains and losses. To the extent such inclusions or exclusions affect an Award subject to this Section 11, they shall be prescribed in a form that meets the requirements of Section 162(m) of the Code and the Treasury Regulations promulgated thereunder for deductibility.
Such performance goals shall be set by the Committee within the time period prescribed by, and shall otherwise comply with the requirements of, Section 162(m) of the Code and the Treasury Regulations promulgated thereunder.
[NOTE: Section 11(b) was amended pursuant to the First Amendment to the Plan effective as of June 26, 2013.]
(c) Limitations on Adjustments. Notwithstanding any provision of this Plan other than Section 10, with respect to any Award that is subject to this Section 11, the Committee may not adjust upwards the amount payable pursuant to such Award, nor may it waive the achievement of the applicable performance goals except in the case of the death or disability of the Participant.
(d) Other Restrictions. The Committee shall have the power to impose such other restrictions on Awards subject to this Section 11 as it may deem necessary or appropriate to ensure that such Awards satisfy all requirements for “performance-based compensation” within the meaning of Section 162(m)(4)(B) of the Code or any successor provision.
SECTION 12. AMENDMENTS AND TERMINATION. The Board may amend, alter or discontinue the Plan, but no amendment, alteration, or discontinuation shall be made that would impair the rights of a Participant under an Award theretofore granted, without the Participant’s consent, or that without the approval of the shareholders of Worthington would:
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(a)
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except as is provided in Section 3(c) of the Plan, increase the total number of Shares reserved for the purpose of the Plan; or
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(b)
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change the employees or class of employees eligible to participate in the Plan.
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The Committee may amend the terms of any Award theretofore granted, prospectively or retroactively, but no such amendment shall impair the rights of any Participant without the Participant’s consent.
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SECTION 13. GENERAL PROVISIONS.
(a) No Assignment. Unless the Committee determines otherwise at the time the Award is granted, no Award, and no Shares subject to Awards described in Section 9 which have not been issued or as to which any applicable restriction, performance period has not lapsed, may be sold, assigned, transferred, pledged or otherwise encumbered, except by will or by the laws of descent and distribution; provided that, if so determined by the Committee, a Participant may, in the manner established by the Committee, designate a beneficiary to exercise the rights of the Participant with respect to any Award upon the death of the Participant. Each Award shall be exercisable, during the Participant’s lifetime, only by the Participant or, if permissible under applicable law, by the Participant’s guardian or legal representative.
(b) Term of Awards. The term of each Award shall be for such period of months or years from the date of its grant as may be determined by the Committee; provided that in no event shall the term of any Option or Stock Appreciation Right exceed a period of 10 years from the date of its grant. [NOTE: Section 13(b) was amended pursuant to Second Amendment to the Plan effective as of September 26, 2013.]
(c) No Right to Award. No Employee or Participant shall have any claim to be granted any Award under the Plan and there is no obligation for uniformity of treatment of Employees or Participants under the Plan.
(d) Written Agreement Required. The prospective recipient of any Award under the Plan shall not, with respect to such Award, be deemed to have become a Participant, or to have any rights with respect to such Award, until and unless such recipient shall have executed an agreement or other instrument evidencing the Award and delivered a fully executed copy thereof to Worthington, and otherwise complied with the then applicable terms and conditions.
(e) Adjustments. Except as provided in Section 11, the Committee shall be authorized to make adjustments in Performance Award criteria or in the terms and conditions of other Awards in recognition of unusual or nonrecurring events affecting the Company or its financial statements or changes in applicable laws, regulations or accounting principles. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the manner and to the extent it shall deem desirable to carry it into effect. In the event Worthington shall assume outstanding employee benefit awards or the right or obligation to make future awards in connection with the acquisition of another corporation or business entity, the Committee may, in its discretion, make such adjustments in the terms of Awards under the Plan as it shall deem appropriate.
(f) Cancellations and Forfeitures. The Committee shall have full power and authority to determine whether, to what extent, and under what circumstances, any Award shall be canceled or suspended. In particular, but without limitation, all outstanding Awards to any Participant shall be canceled if the Participant, without the consent of the Committee, while employed by the Company or after termination of such employment, becomes associated with, employed by, renders services to, or owns any interest in (other than any nonsubstantial interest, as determined by the Committee), any business that is in competition with the Company or with any business in which the Company has a substantial interest as determined by the Committee.
In the event a Participant terminates his or her employment with the Company for any reason whatsoever, and within 18 months after the date thereof becomes associated with, employed by, renders services to, or owns any interest in (other than any nonsubstantial interest, as determined by the Committee), any business that is in competition with the Company or with any business in which the Company has a substantial interest as determined by the Committee, the Committee, in its sole discretion, may require such Participant to return to the Company the economic value of any Award which is realized or obtained (measured at the date of exercise) by such Participant at any time during the period beginning on that date which is six months prior to the date of such Participant’s termination of employment with the Company.
(g) Securities Laws Restrictions. No Shares shall be issued under the Plan unless counsel for Worthington shall be satisfied that such issuance will be in compliance with applicable Federal and state securities laws. All certificates for Shares delivered under the Plan pursuant to any Award shall be subject to such stock-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Shares are then listed, and any
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applicable Federal or state securities law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.
(h) Payment Requirements. Except as otherwise required in any applicable Award Agreement or by the terms of the Plan, recipients of Awards under the Plan shall not be required to make any payment or provide consideration other than the rendering of services.
(i) Withholding. Worthington shall be authorized to withhold from any Award granted or payment due under the Plan the amounts of withholding taxes. The authority provided in this tax withholding section includes authority to determine the amounts to be withheld (including Shares or other portions of Awards) in satisfaction of a Participant’s or former Participant’s withholding obligations, or in satisfaction of other tax obligations, either on a mandatory or elective basis, as permitted in the discretion of Committee due in respect of an Award or payment hereunder and to take such other action as may be necessary in the opinion of Worthington to satisfy all obligations for the payment of such taxes. The Committee shall be authorized to establish procedures for election by Participants to satisfy such withholding taxes by delivery of, or directing Worthington to retain, Shares, unless otherwise specified by the Committee in the Award Agreement. [NOTE: Section 13(i) was amended pursuant to the Third Amendment to the Plan effective as of June 28, 2017.]
(j) Other Arrangements. Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to shareholder approval if such approval is otherwise required, and such arrangements may be either generally applicable or applicable only in specific cases.
(k) Applicable Law. The validity, construction, and effect of the Plan and any rules and regulations relating to the Plan shall be determined in accordance with the laws of the State of Ohio and applicable Federal law.
(l) Invalid Provisions. If any provision of this Plan is or becomes or is deemed invalid, illegal or unenforceable in any jurisdiction, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan, it shall be stricken and the remainder of the Plan shall remain in full force and effect.
(m) Foreign Nationals. Awards may be granted to Employees who are foreign nationals or employed outside the United States, or both, on such terms and conditions different from those specified in the Plan as may, in the judgment of the Committee, be necessary or desirable in order to recognize differences in local law or tax policy. The Committee also may impose conditions on the exercise or vesting of Awards in order to minimize the Company’s obligation with respect to tax equalization for Employees on assignments outside their home country.
(n) No Right to Employment. Neither the adoption of the Plan nor the granting of any Award shall confer upon any employee of the Company any right to continued employment with the Company, nor shall it interfere in any way with the right of the Company to terminate the employment of any of its employees at any time, with or without cause.
(o) Treatment as Compensation for Other Purposes. Payments and other benefits received by a Participant under an Award made pursuant to the Plan shall not be deemed a part of a Participant’s regular, recurring compensation for purposes of the termination indemnity or severance pay law of any country and shall not be included in, nor have any effect on, the determination of benefits under any other employee benefit plan or similar arrangement provided by the Company unless expressly so provided by such other plan or arrangements, or except where the Committee expressly determines that an Award or portion of an Award should be included to accurately reflect competitive compensation practices or to recognize that an Award has been made in lieu of a portion of competitive annual cash compensation. Awards under the Plan may be made in combination with or in tandem with, or as alternatives to, grants, awards or payments under any other Company plans. The Plan notwithstanding, the Company may adopt such other compensation programs and additional compensation arrangements as it deems necessary to attract, retain and reward employees for their service with the Company.
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SECTION 14. EFFECTIVE DATE OF THE PLAN. The Plan became effective on the Effective Date. [NOTE: Section 14 was amended pursuant to the Second Amendment to the Plan effective as of September 26, 2013.]
SECTION 15. DEFINITIONS. As used in the Plan, the following terms shall have the meanings set forth below:
(a)“Acquiring Person” means any Person (any individual, firm, corporation or other entity) who or which, together with all Affiliates and Associates, has acquired or obtained the right to acquire the beneficial ownership of 25% or more of the Shares then outstanding.
(b)“Affiliate” and “Associate” shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Exchange Act
(c)“Award” shall mean any Option, Stock Appreciation Right, Restricted Stock Award, Performance Share, Performance Unit, Other Stock Unit Award, or any other right, interest, or option relating to Shares granted pursuant to the provisions of the Plan.
(d) “Award Agreement” shall mean any written agreement, contract, or other instrument or document evidencing any Award granted by the Committee hereunder.
(e)“Board” shall mean the Board of Directors of Worthington
(f)A “Change in Control” shall have occurred when any Person (other than (i) the Company, (ii) any employee benefit plan of the Company or any trustee of or fiduciary with respect to any such plan when acting in such capacity, or (iii) any Person who, on the Effective Date of the Plan, was an Affiliate of the Company owning in excess of 10% of the outstanding shares of Worthington and the respective successors, executors, legal representatives, heirs and legal assigns of such Person), alone or together with its Affiliates and Associates, has acquired or obtained the right to acquire the beneficial ownership of 25% or more of the Shares then outstanding; provided, however, that with respect to any Award subject to Section 409A of the Code that is settled or distributed upon the occurrence of a Change in Control, no settlement or distribution of such Award shall be made unless the Change in Control also constitutes a “change in control event” within the meaning of Section 409A of the Code.
(g)“Change in Control Price Per Share” shall mean the price per Share (i) paid by the Acquiring Person in connection with the transaction(s) that results in the Change in Control; or (ii) at any time after the Change in Control and before the Participant exercises his election under Section 10(b), the Fair Market Value of the Shares.
(h)“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, and any successor thereto.
(i)“Committee” shall mean the Compensation and Stock Option Committee of the Board, composed of no fewer than three directors, each of whom is a Non-Employee Director and an “outside director” within the meaning of Section 162(m) of the Code.
(j)“Company” shall mean Worthington and its subsidiaries, direct and indirect. Subsidiaries of Worthington shall include (i) any entity of which Worthington owns, directly or indirectly, 50% or more of the total combined voting power of all classes of stock, if the entity is a corporation, or of the capital or profits interests, if the entity is a partnership or another form of entity and (ii) any other entity in which Worthington has a 20% or greater direct or indirect equity interest and which is designated as a “Subsidiary” by the Committee for purposes of this Plan; provided, however, that with respect to any Award that is subject to Section 409A of the Code, “Company” shall mean Worthington and its subsidiaries with whom Worthington would be
9
considered a single employer under Sections 414(b) and (c) of the Code, but modified as permitted by Treasury Regulation §1.409A-1(b)(5)(iii)(E)(1). [NOTE: Section 15(j) was amended pursuant to the Second Amendment to the Plan effective as of September 26, 2013.]
(k)“Continuing Director” means any person who was a member of the Board on the Effective Date of the Plan or thereafter elected by the shareholders of Worthington or appointed by the Board prior to the date as of which the Acquiring Person became a Substantial Shareholder (as such term is defined in Article Seventh of Worthington’s Amended Articles of Incorporation) or, a Person designated (before his initial election or employment as a director) as a Continuing Director by three-fourths of the Whole Board, but only if a majority of the Whole Board shall then consist of Continuing Directors
(l)“Covered Employee” shall mean a “covered employee” within the meaning of Section 162(m)(3) of the Code.
(m)“Effective Date” shall mean September 18, 1997.
(n)“Employee” shall mean any common law employee of the Company. Unless otherwise determined by the Committee in its sole discretion, for purposes of the Plan, an Employee shall be considered to have terminated employment and to have ceased to be an Employee if his or her employer ceases to be a subsidiary of Worthington, even if he or she continues to be employed by such employer. [NOTE: The first sentence of Section 15(n) was amended pursuant to the Second Amendment to the Plan effective September 26, 2013.]
(o)“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended from time to time, and any successor thereto.
(p)“Fair Market Value” The value of one Share on any relevant date, determined under the following rules:
[1] If the Shares are traded on an exchange or recognized market or quotation system on which “closing prices” are reported, the reported “closing price” on the relevant date, if it is a trading day, otherwise on the next trading day;
[2] If the Shares are traded over-the-counter with no reported closing price, the mean between the highest bid and the lowest asked prices on the relevant date, if it is a trading day, otherwise on the next trading day; or
[3] If neither subsections [1] or [2] of this definition apply, the fair market value as determined by the Board in good faith and consistent with any applicable provisions under the Code, except with respect to Options and SARs, in which event the fair market value as determined by the reasonable application of a reasonable valuation method taking into account all information material to the value of the Company satisfying the requirements of Code §409A.
(q)“Incentive Stock Option” shall mean an Option granted under Section 5 hereof that is intended to meet the requirements of Section 422 of the Code or any successor provision thereto.
(r)“Non-Employee Director” shall have the meaning set forth in Rule 16b-3(b)(3) promulgated by the Securities and Exchange Commission under the Exchange Act or any successor definition adopted by the Securities and Exchange Commission.
(s)“Nonstatutory Stock Option” shall mean an Option granted under Section 5 hereof that is not intended to be an Incentive Stock Option.
10
(t)“Option” shall mean any right granted to a Participant under the Plan allowing such Participant to purchase Shares at such price or prices and during such period or periods as the Committee shall determine.
(u)“Other Stock Unit Award” shall mean any right granted to a Participant by the Committee pursuant to Section 9 hereof.
(v)“Participant” shall mean an Employee who is selected by the Committee to receive an Award under the Plan.
(w)“Performance Award” shall mean any Award of Performance Shares or Performance Units pursuant to Section 8 hereof.
(x)“Performance Period” shall mean that period established by the Committee at the time any Performance Award is granted or at any time thereafter during which any performance goal(s) specified by the Committee with respect to such Performance Award are to be measured.
(y)“Performance Share” shall mean any grant pursuant to Section 8 hereof of a unit valued by reference to a designated number of Shares, which value may be paid to the Participant by delivery of such property as the Committee shall determine, including, without limitation, cash, Shares, or any combination thereof, upon achievement of such performance goals during the Performance Period as the Committee shall establish at the time of such grant or thereafter.
(z)“Performance Unit” shall mean any grant pursuant to Section 8 hereof of a unit valued by reference to a designated amount of property other than Shares, which value may be paid to the Participant by delivery of such property as the Committee shall determine, including, without limitation, cash, Shares, or any combination thereof, upon achievement of such performance goals during the Performance Period as the Committee shall establish at the time of such grant or thereafter.
(aa)“Person” shall mean any individual, corporation, partnership, association, joint-stock company, trust, unincorporated organization, limited liability company, other entity or government or political subdivision thereof.
(bb)“Restricted Stock” shall mean any Share issued with the restriction that the holder may not sell, transfer, pledge, or assign such Share and with such other restrictions as the Committee, in its sole discretion, may impose (including, without limitation, any restriction on the right to vote such Share, and the right to receive any cash dividends), which restrictions may lapse separately or in combination at such time or times, in installments or otherwise, as the Committee may deem appropriate.
(cc)“Restricted Stock Award” shall mean an award of Restricted Stock under Section 7 hereof.
(dd)“Shares” shall mean the common shares, without par value, of Worthington and such other securities of Worthington as the Committee may from time to time determine.
(ee)“Stock Appreciation Right” shall mean any right granted to a Participant pursuant to Section 6 hereof to receive, upon exercise by the Participant, the excess of (i) the Fair Market Value of one Share on the date of exercise over (ii) the grant price of the right on the date of grant, or if granted in connection with an outstanding Option on the date of grant of the related Option, as specified by the Committee in its sole discretion, which, other than in the case of substitute Awards, shall not be less than the Fair Market Value of one Share on such date of grant
11
of the right or the related Option, as the case may be. Any payment by Worthington in respect of such right may be made in cash, Shares, other property, or any combination thereof, as the Committee, in its sole discretion, shall determine.
(ff)“Treasury Regulations” means any regulations promulgated by the Department of Treasury and/or Internal Revenue Service under the Code.
(gg)“Whole Board” means the total number of directors which Worthington would have if there were no vacancies
(hh)“Worthington” shall mean Worthington Industries, Inc., an Ohio corporation.
SECTION 16. SECTION 409A. This Plan is intended to comply with or be exempt from the requirements of Section 409A of the Code and the Treasury Regulations promulgated thereunder, as applicable, and shall be interpreted, administered and operated accordingly. Nothing in this Plan should be construed as a guarantee or entitlement of any particular tax treatment to a Participant. None of the Company, the Board, the Committee or any other Person shall any liability with respect to any Participant in the event this Plan fails to comply with the requirements of Section 409A of the Code.
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EDITED TRANSCRIPT
Q1 2020 Worthington Industries Inc Earnings Call
EVENT DATE/TIME: SEPTEMBER 25, 2019 / 6:00PM GMT
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SEPTEMBER 25, 2019 / 6:00PM GMT, Q1 2020 Worthington Industries Inc Earnings Call
CORPORATE PARTICIPANTS
B. Andrew Rose Worthington Industries, Inc. - President
John P. McConnell Worthington Industries, Inc. - Chairman of the Board & CEO
Joseph B. Hayek Worthington Industries, Inc. - VP & CFO
Sonya L. Higginbotham Worthington Industries, Inc. - VP of Corporate Communications & Brand Management
CONFERENCE CALL PARTICIPANTS
John Charles Tumazos John Tumazos Very Independent Research, LLC - President and CEO
Martin John Englert Jefferies LLC, Research Division - Equity Analyst
Philip Ross Gibbs KeyBanc Capital Markets Inc., Research Division - VP and Equity Research Analyst
PRESENTATION
Operator
Good afternoon, and welcome to the Worthington Industries First Quarter Fiscal 2020 Earnings Conference Call. (Operator Instructions) This conference is being recorded at the request of Worthington Industries. If anyone objects, you may disconnect at this time. I'd now like to introduce Sonya Higginbotham, Vice President Corporate Communications. Mrs. Higginbotham, you may begin.
Sonya L. Higginbotham Worthington Industries, Inc. - VP of Corporate Communications & Brand Management
Thank you, John. Good afternoon, and welcome to our first quarter earnings call. Before we begin, I'd like to remind everyone that certain statements made today are forward-looking within the meaning of the 1995 Private Securities Litigation Reform Act. These statements are subject to risks and uncertainties and could cause actual results to differ from those suggested. We issued our earnings release this morning prior to the market open. Please refer to it for more detail on those factors that could cause actual results to differ materially. This call is being recorded and will be made available later today on our Worthington Industries website.
On our call today are Chairman and CEO, John McConnell; President, Andy Rose; and Vice President and CFO, Joe Hayek. I'll now turn the call over to John McConnell.
John P. McConnell Worthington Industries, Inc. - Chairman of the Board & CEO
Thank you, Sonya. Welcome, and thank you all for joining us for our first quarter earnings call. This quarter certainly had a lot of noise in it, so let's get right to it. I'll turn the call over to Mr. Hayek to start reviewing the numbers.
Joseph B. Hayek Worthington Industries, Inc. - VP & CFO
Thank you, John. Good afternoon, everybody.
In Q1, we reported a loss of $0.09 a share versus earnings of $0.91 a share last year. There were several unique items in the quarter, including the following: pretax restructuring and impairment charges of $45 million, primarily related to our Engineered Cabs business and our decision to write down the 10% investment we have in our steel joint venture in China.
These charges reduced earnings in the current quarter by $0.65 a share. The prior year quarter included impairment charges of $1.4 million, or $0.01 a share. As we mentioned in our press release this morning, we are actively exploring our strategic alternatives for the Cabs business, including but not limited to the possible sale of majority interest.
Our estimated inventory holding losses were $8.4 million or $0.11 per share in the quarter compared to a gain of $14 million or $0.17 per share in the prior year quarter. We incurred a pretax charge of $4 million or $0.06 per share related to the early extinguishment of our 2020 6.5% public bonds, which we refinanced in August using cash on hand and an issuance of longer-term euro-denominated debt with an average interest rate of 1.76%.
In our Cylinder business, we recognized a pretax profit of $12.8 million or $0.17 per share related to the early termination of a customer take-or-pay contract, which effectively pulled some future earnings into the current quarter.
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SEPTEMBER 25, 2019 / 6:00PM GMT, Q1 2020 Worthington Industries Inc Earnings Call
Consolidated net sales decreased by 13% to $856 million in Q1 from the prior year quarter due to lower direct shipments and lower average selling prices in Steel Processing.
In addition to the declining steel prices, which impact our revenues and demand, many of our end markets are seeing very little or no growth, and we believe economic conditions, trade wars, tariffs and uncertainty have impacted behaviors both in the U.S. and in Europe.
Our gross profit declined in the quarter by $26 million from Q1 of last year to $117 million, primarily driven by the 21 -- $22 million unfavorable swing in pretax inventory holding losses and lower direct volumes of steel, partially offset by improvements in Cylinders and the pull-forward of the margin dollars related to that canceled take-or-pay contract.
Turning to Steel Processing, net sales of $523 million were down 21% from Q1 of 2019, due primarily to lower direct volumes and lower average direct selling prices driven by declining steel prices. Total shipped tons were down 9.3% with direct shipments down 15.4% and toll declining 1% from last year's record first quarter.
Direct tons were 54% of mix compared to 58% in the prior year quarter. As we've discussed on previous calls, we believe that last year, customer were building inventories due to rising steel prices, which peaked in July. While this year, customers have been destocking to reduce and maintain low inventory levels with the recent low point in steel prices occurring in July of 2019.
While we believe year-over-year destocking is beginning to moderate, we did continue to see some softness in Q1 automotive volumes due to reduced North American auto builds year-over-year, and we saw weakness in agricultural end markets.
Operating income for Steel Processing of $6 million was down $33 million from Q1 last year, driven by the negative swing of approximately $22 million in inventory holding gains or losses combined with lower direct volumes.
Due to continuing decline of steel prices, we do expect inventory holding losses will continue into Q2 of 2020. That said, we also believe that our Steel Processing team is managing that business very well in a difficult environment and is maintaining, and in certain markets, increasing their market share, while remaining focused on long-term growth and profitability.
Turning to Pressure Cylinders, net sales were $304 million, up 1% over the prior year quarter. Operating income of $30 million was up $15 million from Q1 of last year. Excluding the $12.8 million benefit related to the take-or-pay contract within our Industrial Products business and impairment charges in the prior year, Cylinder operating income was up 4% year-over-year, due primarily to improvements in the oil and gas business and in the Industrial Products business.
Cylinder end market conditions in the U.S. were stable, but our operations in Europe continue to face headwinds due to the economic conditions in those geographies.
In Engineered Cabs, net sales were up 3% over Q1 of last year driven by a favorable product mix. Cabs reported operating loss before restructuring of $4.5 million was $200,000 worse than the prior year quarter. As we mentioned earlier, we are actively exploring our strategic alternatives for this business, and we recognize pretax restructuring and impairment charges of $41 million in the quarter.
Our Cabs business has continued to make improvements and has positioned itself very well for the future. But we feel that undertaking this evaluation of alternatives is the right thing to do for both the business and for our shareholders.
Turning to our JVs, equity income during the quarter was $25 million, down $5 million from the prior year quarter. $4 million of that decrease was due to a charge associated with our decision to write down our 10% investment in our steel joint venture in China.
Our equity income from WAVE increased by $1.9 million, but Serviacero was down $2.9 million, primarily due to inventory holding losses. We received $30 million in dividends from our unconsolidated JVs during the quarter.
Turning to the cash flow statement and the balance sheet, cash flow from operations was $64 million in the quarter. We received $9 million in proceeds from asset sales primarily related to the divestiture of our cryogenics business in Turkey. We invested $22 million on capital projects, reduced our debt by $50 million, and we paid $13 million in dividends and $30 million to repurchase 750,000 shares of our stock.
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SEPTEMBER 25, 2019 / 6:00PM GMT, Q1 2020 Worthington Industries Inc Earnings Call
Today, the Board declared a $0.24 per share dividend for the quarter payable in December of 2019.
I'll close with the balance sheet. Funded debt at quarter end was down $50 million sequentially to $699 million, our interest expense of $9 million was down slightly from the prior year quarter.
As we mentioned earlier, during the quarter, we called our $150 million 6.5% coupon bonds that were due in April 2020. We incurred a pretax charge of $4 million to call the bond, and we're very pleased to be able to refinance them using cash on hand and issuing roughly EUR 100 million of long-term euro-denominated notes maturing in 2029, 2031 and 2034 with an average interest rate of 1.76%. Based on current debt levels, this refinancing should reduce of our future interest expense run rate by approximately $2 million per quarter.
We ended the quarter with consolidated cash of $46 million and $548 million available under our revolving credit facilities. Our adjusted EBITDA over the last 12 months, which includes the $13 million charge for the tank replacement program was $302 million, and our net debt to trailing EBITDA leverage ratio is roughly 2x. At this point, I'll turn it over to Andy.
B. Andrew Rose Worthington Industries, Inc. - President
Thank you, Joe. Good afternoon, everyone. While our first quarter had some challenges, primarily driven by continued steel price volatility and tariffs, we accomplished a lot during the quarter and are positioning ourselves well for the balance of the year.
Our recent focus has been on cleaning up underperforming and noncore assets. During the last several months, we exited our Alternative Fuels business in Turkey and wrote off the value of our strip steel joint venture in China. We've also been engaged in the review of strategic alternatives regarding our Engineered Cabs business and hope to have additional information in the coming months regarding our path forward. Our goal remains that all of our businesses achieve year-over-year growth and EBITDA and return our cost to capital. And as we manage our portfolio into the future, our goal is to raise our overall cash return on investment.
In the meantime, our cash flow remain solid. We are using that cash to reward shareholders in other ways. We refinanced long-term debt using some of that cash and will save almost $8 million per year in interest cost at current debt levels. We continue to see value in our shares and repurchased 750,000 shares during the quarter. And while we did not complete any acquisitions, we've seen some increased activity around our core that is encouraging.
A lot has changed in the past year at Worthington with new leadership in many of our businesses and a renewed commitment to driving shareholder value. There is not an industry in America that has not been disrupted in some manner right now, and ours is no different. Whether it's electric vehicles, cloud-based data, analytics or robotics, all of these forces are accelerating change around us.
Change creates opportunity, and we expect to be leading this change not watching it pass us by. We have a talented group of leaders charting our course and an excellent workforce that is a key ingredient to delivering success. Thanks for your continued support of Worthington. John?
John P. McConnell Worthington Industries, Inc. - Chairman of the Board & CEO
Andy, thank you, Joe. Good Job. At this point, we'll take any questions that you may have.
QUESTIONS AND ANSWERS
Operator
(Operator Instructions) And the first go to the line of Martin Englert with Jeffries.
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SEPTEMBER 25, 2019 / 6:00PM GMT, Q1 2020 Worthington Industries Inc Earnings Call
Martin John Englert Jefferies LLC, Research Division - Equity Analyst
So within Steel Processing, even when adjusting for the inventory holding loss, the operating profits per ton seem quite low. Can you talk about what's driving that exactly? Is there something to do with mix or maybe something else? And then also touch on the magnitude of inventory holding losses in fiscal 2Q that you might be anticipating?
Joseph B. Hayek Worthington Industries, Inc. - VP & CFO
Sure. I'll take the second one first. We do expect inventory holding losses in Q2, we think that they'll be 2/3 of what they were -- it's a little early, but 2/3 of what they were in Q1. And with respect to Steel Processing generally getting outside of FIFO volume is a significant contributor there. We had -- we were down in direct tons, [88,000 tons] (corrected by company after the call) year-over-year for the quarter, and so our margins did actually hung in there pretty well, but when you have lower volumes like that, especially year-over-year, you have some challenges. We also had a couple of 2- or 3-week outages that were planned, that were very necessary and beneficial for our facilities to do some maintenance and do somethings like that. But as you know, when you have an outage like that, that's planned you build inventory ahead of that and in a declining steel price environment like the one that we had, ultimately, that hurt us a bit on the P&L side as well.
Martin John Englert Jefferies LLC, Research Division - Equity Analyst
So the FIFO inventory holding losses that you called out for the quarter that included the inventory build as well? Or that would be exclusive of the implications there?
Joseph B. Hayek Worthington Industries, Inc. - VP & CFO
That is separate from that number.
Martin John Englert Jefferies LLC, Research Division - Equity Analyst
That is separate. Any rough estimates on maybe what the headwinds would've been from the holding losses on the inventory build? And then also anything else associated with the outage?
Joseph B. Hayek Worthington Industries, Inc. - VP & CFO
Yes. Those -- the outages would have just -- would just because of the dynamic that took place in terms of the way that steel prices decline, that was north of $4 million.
Martin John Englert Jefferies LLC, Research Division - Equity Analyst
Okay. So $4 million in outage expense and then some other amount of inventory holding losses above and beyond the $8 million that you called out from also associated with the outage?
Joseph B. Hayek Worthington Industries, Inc. - VP & CFO
No. No.
That the -- the outage, really is that number, and then the losses were on top of that.
Martin John Englert Jefferies LLC, Research Division - Equity Analyst
Okay, due to the outage. Okay, and within Cylinders, can you provide some more detail on the take-or-pay contract that was canceled? What happened? What was going on with that? And then also, what you're seeing regarding more recent demand trends, with Industrial and Consumer Products relative to where you're at current quarter here, where things are trending today?
Joseph B. Hayek Worthington Industries, Inc. - VP & CFO
Sure. So with respect to the contract and the bringing-forward of those margin dollars, some of the nature of our business is that we do a significant amount of engineering work, tooling work to spool up for long extended programs. In this case, we were working with a very large Japanese OEM on some hydrogen fuel cell-oriented tanks. They did a fair amount of work. We're set, reserved factory capacity for the next 18 months and because of some shift that they had in platform and in demand, they have decided not to move forward and had to essentially terminate that contract. As a consequence of that, we will receive the cash flows that would have been associated with us
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SEPTEMBER 25, 2019 / 6:00PM GMT, Q1 2020 Worthington Industries Inc Earnings Call
performing over that contract over the next 5 or 6 quarters. That's the amount that you see there that would've been, from a cash flow perspective, spread over 5 or 6 quarters because of an accounting requirement and the fact that we've agreed to that, we were compelled to recognize all of that in Q1. So effectively, what we are doing is bringing forward those margin dollars we would've gotten for the next $5 or $6 (sic) [5 or 6 quarters] where we'll recognize the cash that comes in, in this quarter. With respect to Cylinder markets generally, I think domestically, things are pretty reasonable. We think that growth is moderate, and we think we are doing a good job maintaining or growing our share. We have seen some softness in Europe. We have facilities over there, and we have businesses in those geographies. Our teams there are doing a terrific job in a pretty challenging environment.
Martin John Englert Jefferies LLC, Research Division - Equity Analyst
Can you remind us what your regional split is for that business between NAFTA and the Euro market and anything else there?
Joseph B. Hayek Worthington Industries, Inc. - VP & CFO
Sure, it has spliced a little bit, but the European piece of Cylinders business is usually between about 18% and 20% of the total.
B. Andrew Rose Worthington Industries, Inc. - President
And it's primarily industrial products.
Martin John Englert Jefferies LLC, Research Division - Equity Analyst
Yes. Any specific industrial end market that is more heavily weighted towards?
Joseph B. Hayek Worthington Industries, Inc. - VP & CFO
In Europe, it's steel high-pressure and LPG, primarily.
Martin John Englert Jefferies LLC, Research Division - Equity Analyst
Okay. Thanks for all the detail. If I could, 1 last one? Do you have a budgeted CapEx number for the year and anticipated tax rate?
B. Andrew Rose Worthington Industries, Inc. - President
Yes, probably $90 million to $100 million, something like that would be a good estimate, $22 million in the first quarter.
Joseph B. Hayek Worthington Industries, Inc. - VP & CFO
And we don't -- it'd be a sort of a guess, Martin, but I -- we would say, in terms of tax rate, 23% to 25%.
Martin John Englert Jefferies LLC, Research Division - Equity Analyst
Okay, excellent. Thanks for all the color and good luck.
Operator
Next, we'll go to Phil Gibbs with KeyBanc Capital Markets.
Philip Ross Gibbs KeyBanc Capital Markets Inc., Research Division - VP and Equity Research Analyst
The corporate or other loss in the quarter, I think, was around $5 million that had been zeroed out the last several quarters. Anything that we should be thinking about there in terms of persistence, or is that more of a onetime item related to some of the things that you're doing here?
B. Andrew Rose Worthington Industries, Inc. - President
Yes. I would say it's probably more onetime. Primarily the charge there is a related to an increase in healthcare costs. And it's a combination of a slight uptick in our overall healthcare cost, and then a large sort of a onetime event. We are self-insured and so that flows through that other line item, and then there is also some -- to the lesser extent, there is some legal cost that are in there.
Philip Ross Gibbs KeyBanc Capital Markets Inc., Research Division - VP and Equity Research Analyst
So should I model something being modest or pretty?
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SEPTEMBER 25, 2019 / 6:00PM GMT, Q1 2020 Worthington Industries Inc Earnings Call
B. Andrew Rose Worthington Industries, Inc. - President
For that future?
Philip Ross Gibbs KeyBanc Capital Markets Inc., Research Division - VP and Equity Research Analyst
Yes.
B. Andrew Rose Worthington Industries, Inc. - President
Yes. I mean that line item should be relatively flat going forward, but we do get these sort of regional upticks like the one we had here.
Philip Ross Gibbs KeyBanc Capital Markets Inc., Research Division - VP and Equity Research Analyst
I know you've had a lot of things moving around in WAVE the last, call it, 12 to 18 months. I think one of them was an allocation change with your partner and one of them was a sale of an international business. So when I look at WAVE $24 million of JV profit relative to $22 million last year, are those comps clean? Or do we have some variation in terms of what we're looking at -- just correct me if I'm wrong, Europe is not in the numbers now, but they were last year, and I know that they may have not been all that accretive to you all. So I'm just trying to understand the comparison?
B. Andrew Rose Worthington Industries, Inc. - President
The way I would answer that one, Phil, it's a pretty clean number. The sale of Europe, actually, is expected to close next week, if you can believe that. It's been ongoing because of some regulatory issues. But Europe was a very small percentage of WAVE's profit. So it really shouldn't affect our number much more than $0.25 million to $0.5 million, every quarter or something like that.
Joseph B. Hayek Worthington Industries, Inc. - VP & CFO
But we've also lapped that allocation change.
B. Andrew Rose Worthington Industries, Inc. - President
Yes.
Philip Ross Gibbs KeyBanc Capital Markets Inc., Research Division - VP and Equity Research Analyst
When the proceeds relative to that sale, have you realized those, or you still -- are those on the comps?
B. Andrew Rose Worthington Industries, Inc. - President
About 2/3 of them, we've realized the proceeds. We've actually been paid the full amount but it's being held in escrow until the deal closes.
Philip Ross Gibbs KeyBanc Capital Markets Inc., Research Division - VP and Equity Research Analyst
Okay. So that's on your -- so that's been realized on your financial statements at this point?
B. Andrew Rose Worthington Industries, Inc. - President
Except for the last portion of proceeds, which is not -- it's less than $10 million.
Philip Ross Gibbs KeyBanc Capital Markets Inc., Research Division - VP and Equity Research Analyst
Okay. And the growth that you saw on the profit in WAVE year-over-year, is that more related to volume or spread, just trying to get into demand and mix environment?
B. Andrew Rose Worthington Industries, Inc. - President
It's actually both, here in the U.S, their volumes were up quarter-over-quarter, and their spreads were up as well.
Philip Ross Gibbs KeyBanc Capital Markets Inc., Research Division - VP and Equity Research Analyst
Your volumes were up year-over-year you mean, relatively?
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SEPTEMBER 25, 2019 / 6:00PM GMT, Q1 2020 Worthington Industries Inc Earnings Call
B. Andrew Rose Worthington Industries, Inc. - President
Yes.
Philip Ross Gibbs KeyBanc Capital Markets Inc., Research Division - VP and Equity Research Analyst
Or, yes?
B. Andrew Rose Worthington Industries, Inc. - President
Yes.
Philip Ross Gibbs KeyBanc Capital Markets Inc., Research Division - VP and Equity Research Analyst
Okay. And then last question for me is just assuming that we, for simplicity, take out Engineered Cabs moving forward, just out of the numbers. Any estimate in terms of how much D&A is tied to the business?
B. Andrew Rose Worthington Industries, Inc. - President
We'll get you that number. We'll grab that one quickly.
Philip Ross Gibbs KeyBanc Capital Markets Inc., Research Division - VP and Equity Research Analyst
Thank you.
Joseph B. Hayek Worthington Industries, Inc. - VP & CFO
Phil, are you talking about the depreciation and amortization within Engineered Cabs?
Philip Ross Gibbs KeyBanc Capital Markets Inc., Research Division - VP and Equity Research Analyst
Yes. So if you were to sell it or wind it down, how much of depreciation is associated with that?
B. Andrew Rose Worthington Industries, Inc. - President
We'll work on that number. Obviously, the majority of it is written off now, so there won't be any going forward. I know what you're trying to do, you're not trying to figure out how much is coming out.
Philip Ross Gibbs KeyBanc Capital Markets Inc., Research Division - VP and Equity Research Analyst
Thank you.
Operator
Next go to John Tumazos, Very Independent Research.
John Charles Tumazos John Tumazos Very Independent Research, LLC - President and CEO
Thank you for that great euro-denominated financing and all the good house cleaning. I think the euro went down more in the last month and the interest rate you're going to pay.
Joseph B. Hayek Worthington Industries, Inc. - VP & CFO
Interesting times for sure.
John Charles Tumazos John Tumazos Very Independent Research, LLC - President and CEO
I was in Greece, and I have some left over euros that got devalued. So with the 92,000 ton fall in Steel Processing volume in the quarter, that's the tons that you took title to. What was that rate of change of toll tons?
Joseph B. Hayek Worthington Industries, Inc. - VP & CFO
The direct tons is actually 88,000 tons. And -- so that was the direct tons number. I'll make sure I don't give you the wrong one. Direct tons declined a little over 15%, and total is just 1%.
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SEPTEMBER 25, 2019 / 6:00PM GMT, Q1 2020 Worthington Industries Inc Earnings Call
John Charles Tumazos John Tumazos Very Independent Research, LLC - President and CEO
So it was basically a switch from direct to toll?
Joseph B. Hayek Worthington Industries, Inc. - VP & CFO
You got it. The mix shifted.
John Charles Tumazos John Tumazos Very Independent Research, LLC - President and CEO
Okay. So it wasn't really a volume decline per se. What do you think is the natural rate of growth of the Steel Processing business, the Cylinder business and WAVE as they exist today? Excuse me for the tough question.
Joseph B. Hayek Worthington Industries, Inc. - VP & CFO
We like to think of them as around GDP, and we're pretty -- there'll be some markets that grow more rapidly than that within our businesses and within our end markets but there will be some that grow slower than that. But overall, we think of them as GDP over the midterm, and we are very comfortable operating in an environment like that because we think that the way that we go about our business through innovation, through Lean manufacturing, through selected M&A will allow us to have lots and lots of opportunities to take share from those, and ultimately, longer-term grow more rapidly than our markets do.
John Charles Tumazos John Tumazos Very Independent Research, LLC - President and CEO
The volumes fell a lot in the Industrial Cylinders, double-digit and around 5% in the consumer Cylinders. Was there anything in particular that might explain that?
Joseph B. Hayek Worthington Industries, Inc. - VP & CFO
Yes. That's a great question. We should have mentioned that earlier. 90% of that decline is because of the divestitures. If you recall, at the end of the calendar year last year, we divested of our brazing and soldering operations, that's the lion share of that decline in volume.
John Charles Tumazos John Tumazos Very Independent Research, LLC - President and CEO
Thank you very much.
Joseph B. Hayek Worthington Industries, Inc. - VP & CFO
Certainly, thank you.
B. Andrew Rose Worthington Industries, Inc. - President
To answer Phil's question on the amount of depreciation and amortization for Engineered Cabs, it's about $5.5 million per year.
Operator
(Operator Instructions) And we do have a follow-up from Phil Gibbs.
Philip Ross Gibbs KeyBanc Capital Markets Inc., Research Division - VP and Equity Research Analyst
So if I'm to take the $12-plus million of lost or future gross profit that you pulled into this quarter here with the take-or-pay, the hydrogen contract, I would imagine revenue from that contract would have been a multiple of that over what you thought the life would've been. So how do you replace moving forward, how do you replace that lost business because it's a pretty big chunk, and I know that's pretty specialized equipment that you're running those materials on? Just give us a flavor for that market.
Joseph B. Hayek Worthington Industries, Inc. - VP & CFO
It's a very good question. That is a business for us so you illustrate the point, which is -- it is we've got to go, get there, and we are fully aware of that, and our commercial teams and our engineering teams are out talking to lots of customers and sometimes a good thing to have capacity in a market where the products that you have are desirable and with the world in different places moving in different directions in terms of the fuels that we use, we feel pretty good about our ability to replace that, not tomorrow, but over the course of the next several months.
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SEPTEMBER 25, 2019 / 6:00PM GMT, Q1 2020 Worthington Industries Inc Earnings Call
Philip Ross Gibbs KeyBanc Capital Markets Inc., Research Division - VP and Equity Research Analyst
And this is largely -- you're making this stuff in the U.S. or out of Europe?
Joseph B. Hayek Worthington Industries, Inc. - VP & CFO
It's produced in the U.S. It might end up in a geography other than the U.S.
Philip Ross Gibbs: Thanks, appreciate it.
Operator
And we do have a follow-up from John Tumazos.
John Charles Tumazos John Tumazos Very Independent Research, LLC - President and CEO
With benchmarks for hot-rolled sheet having fallen June last year $924 to about $525 June this year, then bouncing up and eroding a little bit. Can we assume that when November is over, that $400 is roughly washed through your system at a steady state?
B. Andrew Rose Worthington Industries, Inc. - President
Yes. I mean assuming prices stay stable where they are, the answer is yes.
John Charles Tumazos John Tumazos Very Independent Research, LLC - President and CEO
Further, your cash balances closed at $45.6 million at the end of August. When business goes to the tubes, you generate a little bit of cash, lower receivables and lower inventory values. When business picks up, how much money do you think you'll put back into working capital?
B. Andrew Rose Worthington Industries, Inc. - President
That's a relatively complex question because a lot of it depends on what steel prices do, John, in terms of how much the actual tons of inventory, we don't expect to change significantly. But the price certainly can affect that. But obviously if business goes up 10%, then there is an equation there.
John Charles Tumazos John Tumazos Very Independent Research, LLC - President and CEO
I thought your guess would be better than mine.
B. Andrew Rose Worthington Industries, Inc. - President
It's not an easy one to answer.
Operator
And with no further questions in queue, I'll turn it back to the company, if you have any closing comments.
John P. McConnell Worthington Industries, Inc. - Chairman of the Board & CEO
Thank you all again for joining us with this review of the first quarter, and we look forward to talking to you at the end of the second. Thank you.
Operator
Ladies and gentlemen, that does conclude your conference. Thank you for your participation. You may now disconnect.
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SEPTEMBER 25, 2019 / 6:00PM GMT, Q1 2020 Worthington Industries Inc Earnings Call
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