Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
WOR > SEC Filings for WOR > Form 10-Q on 9-Jan-2014All Recent SEC Filings

Show all filings for WORTHINGTON INDUSTRIES INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for WORTHINGTON INDUSTRIES INC


9-Jan-2014

Quarterly Report


Item 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations

Selected statements contained in this "Item 2. - 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 Quarterly Report on Form 10-Q and "Part I - Item 1A. - Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended May 31, 2013.

Introduction

The following discussion and analysis of market and industry trends, business developments, and the results of operations and financial position of Worthington Industries, Inc., together with its subsidiaries (collectively, "we," "our," "Worthington," or our "Company"), should be read in conjunction with our consolidated financial statements and notes thereto included in "Item
1. - Financial Statements" of this Quarterly Report on Form 10-Q. Our Annual Report on Form 10-K for the fiscal year ended May 31, 2013 ("fiscal 2013") includes additional information about Worthington, our operations and our financial position and should be read in conjunction with this Quarterly Report on Form 10-Q.

We are primarily a diversified metals manufacturing company, focused on value-added steel processing and manufactured metal products. As of November 30, 2013, excluding our joint ventures, we operated 35 manufacturing facilities worldwide, principally in three reportable business segments: Steel Processing, Pressure Cylinders and Engineered Cabs. Our remaining operating segments, which do not meet the applicable aggregation criteria or quantitative thresholds for separate disclosure, are combined and reported in the "Other" category. These include the Construction Services and Worthington Energy Innovations operating segments.

During the first quarter of fiscal 2014, we made certain organizational changes impacting the internal reporting and management structure of our Steel Packaging operating segment. As a result of these organizational changes, management responsibilities and internal reporting were realigned under our Steel Processing operating segment. Segment information reported in previous periods has been restated to conform to this new presentation.

We also held equity positions in 11 joint ventures, which operated 47 manufacturing facilities worldwide, as of November 30, 2013.

Overview

The Company's performance during the second quarter of fiscal 2014 was solid, driven by a strong performance in Steel Processing and modest growth in Pressure Cylinders and several joint ventures, partially offset by weakness in Engineered Cabs. Net earnings in the current quarter include non-cash, pre-tax impairment charges of $30.7 million related to the write-off of certain trade name assets in connection with a branding initiative launched during the quarter to re-brand substantially all of the Company's businesses under the Worthington Industries name. Net earnings also include the impact of a pre-tax gain of $2.5 million within miscellaneous income related to insurance proceeds received during the quarter for property damaged in a fire at the Company's Pressure Cylinders facility in Austria on August 19, 2013.

Volumes were mixed in the second quarter. Pressure Cylinders volumes were down 9%; however, a more favorable product mix due to a shift to higher priced, lower volume tanks led to a 3% increase in net sales. Steel Processing volumes were up over 30%, driven by contributions from the consolidation of TWB and improvements in the automotive, construction and agriculture markets. Excluding the impact of TWB, Steel Processing volumes were up 16%. Refer to Recent Business Developments below for additional information regarding the acquisition of an additional 10% interest in TWB.


Table of Contents

Engineered Cabs continues to experience soft demand due to lower volumes from key customers. We are responding to the current environment and are implementing a plan to adjust costs accordingly without sacrificing production capacity.

Equity in net income of unconsolidated affiliates ("equity income") during the quarter was down 16% compared to the prior year period. The decrease was driven primarily by the consolidation of TWB on July 31, 2013. Since that date, TWB's results have been consolidated versus reported in equity income. All of our joint ventures operated at a profit during the quarter, led by WAVE, ClarkDietrich, and WSP, which contributed $15.6 million, $2.3 million, and $1.5 million of equity income, respectively. The equity portion of income from WSP and WAVE exceeded the prior year quarter by $1.0 million and $0.8 million, respectively. We received $21.2 million in distributions from our unconsolidated affiliates during the quarter.

The Company continues its strategy of optimizing existing operations through the Transformation, pursuing growth opportunities that add to our current businesses, and developing new products through innovation. Our Transformation efforts within Pressure Cylinders, which were initiated in the first quarter of fiscal 2012, continue to gain traction and increase in scope. The efforts in our industrial and retail segments in particular are helping to drive recent steady quarterly improvements in our operating margins. Additionally, during the first quarter of fiscal 2013, we initiated the diagnostics phase of the Transformation Plan in our Engineered Cabs operating segment, and these efforts are progressing through each facility.

Recent Business Developments

• On July 31, 2013, we acquired an additional 10% interest in our laser welded blanks joint venture, TWB, increasing our ownership to a 55% controlling interest. As a result, TWB's results have been consolidated within Steel Processing since that date, with the minority member's portion of earnings eliminated within earnings attributable to noncontrolling interest. This transaction was accounted for as a step acquisition, which required that we re-measure our previously held 45% ownership interest to fair value and record the difference between fair value and carrying value as a gain in our consolidated statement of earnings. The re-measurement to fair value resulted in a non-cash pre-tax gain of $11.0 million, which is included in miscellaneous income in our consolidated statement of earnings for the six months ended November 30, 2013.

• During the second quarter of fiscal 2014, we repurchased a total of 500,000 common shares for $19.8 million at an average price of $39.60.

• During the second quarter of fiscal 2014, we committed to a re-branding initiative to brand substantially all of our businesses under the Worthington Industries name. In connection with the branding strategy, the Company plans to discontinue the use of non-Worthington trade names except for retail brand names including BernzOmatic® and Balloon Time® and those related to our joint ventures. As a result, the Company recognized an impairment charge of $30.7 million during the quarter ended November 30, 2013.

• On October 18, 2013, we finalized an agreement with Nisshin Steel Co., Ltd. and Marubeni-Itochu Steel Inc. to form Zhejiang Nisshin Worthington Precision Specialty Steel Co., Ltd., which is awaiting regulatory approval. The joint venture will construct a plant in Zhejiang Province in the People's Republic of China that will produce cold rolled strip steel primarily for the automotive industry. Initially, we will own a 10% interest in the joint venture with the option to increase our ownership interest to 34%.

• On November 12, 2013, we entered into an agreement to sell the operating assets related to our steel high pressure and acetylene cylinders business in North America. The Company recognized a net gain of $2.0 million in connection with this transaction.

• On December 10, 2013, the Company announced to its employees that its Baltimore steel facility will be closing by the end of fiscal 2014. With the consolidation of the steel industry, many of the mills that previously supplied the Baltimore facility have closed, negatively impacting the supply chain there. The Company has concluded that it can more efficiently service its customers in the Mid-Atlantic Region from other Worthington facilities and processing partners, and believes it will retain most of the business.


Table of Contents
• On December 18, 2013, the board of directors declared a quarterly dividend of $0.15 per share payable on March 28, 2014 to shareholders of record at March 14, 2014.

• On January 6, 2014, the Company announced that its Pressure Cylinders operating segment signed an agreement to acquire a 75% interest in ARITAS, one of Europe's leading liquefied natural gas ("LNG") and cryogenic technology companies. ARITAS offers a broad portfolio of LNG products, cryogenic vessels, systems and services and is located in Istanbul, Turkey. The transaction is awaiting Turkish government approval, which is expected to be completed later this month.

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 the second quarter of fiscal 2014 and fiscal 2013 is illustrated in the following chart:

[[Image Removed: LOGO]]

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 60% of the net sales of our Steel Processing operating segment are to the automotive market. North American vehicle production, primarily by Chrysler, Ford and General Motors (the "Detroit Three automakers"), has a considerable impact on the activity within this operating segment. The majority of the net sales of four of our unconsolidated joint ventures are also to the automotive end market. The increase in the portion of total net sales made to the automotive market shown in the table above was driven primarily by the consolidation of TWB on July 31, 2013.

Approximately 9% of the net sales of our Steel Processing operating segment, 55% of the net sales of our Engineered Cabs operating segment and substantially all of the net sales of our Construction Services operating segment are to the construction market. The construction market is also the predominant end market for three of our unconsolidated joint ventures: WAVE, ClarkDietrich and WMSFMCo. 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 trends in the relative price of framing lumber and steel.

Substantially all of the net sales of our Pressure Cylinders operating segment, and approximately 31% and 45% of the net sales of our Steel Processing and Engineered Cabs operating segments, respectively, are to other markets such as retail, industrial, lawn and garden, agriculture, energy, 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 these operating segments.


Table of Contents

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

                                         Three Months Ended                        Six Months Ended
                                            November 30,                             November 30,
                                                                     Inc /                                   Inc /
                                         2013           2012         (Dec)         2013         2012         (Dec)
U.S. GDP (% growth year-over-year) 1         1.8 %         2.6 %       -0.8 %         1.7 %        2.8 %       -1.1 %
Hot-Rolled Steel ($ per ton) 2         $     651       $   622      $    29      $    639      $   619      $    20
Detroit Three Auto Build (000's
vehicles) 3                                2,455         2,211          244         4,555        4,280          275
No. America Auto Build (000's
vehicles) 3                                4,350         4,032          318         8,213        7,834          379
Zinc ($ per pound) 4                   $    0.85       $  0.91      ($ 0.06 )    $   0.85      $  0.87      ($ 0.02 )
Natural Gas ($ per mcf) 5              $    3.63       $  3.26      $  0.37      $   3.63      $  3.00      $  0.63
On-Highway Diesel Fuel Prices ($ per
gallon) 6                              $    3.89       $  4.07      ($ 0.18 )    $   3.88      $  3.95      ($ 0.07 )

1 2012 figures based on revised actuals 2 CRU Index; period average 3 IHS Global4 LME Zinc; period average 5 NYMEX Henry Hub Natural Gas; period average 6 Energy Information Administration; period average

U.S. GDP growth rate trends are generally indicative of the strength in demand for our products. A year-over-year increase in U.S. GDP growth rates is indicative of an improving economy, which generally increases demand for our products. Conversely, decreasing U.S. GDP growth rates generally have the opposite effect. Changes in U.S. GDP growth rates can also signal changes in conversion costs related to production and in 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 to cover current replacement costs.

The following table presents the average quarterly market price per ton of hot-rolled steel during fiscal 2014 (first and second quarters), fiscal 2013, and fiscal 2012:

                                  Fiscal Year                      Increase / (Decrease)
     (Dollars per ton 1)   2014      2013      2012        2014 vs. 2013           2013 vs. 2012
     1st Quarter           $ 627     $ 616     $ 709     $    11        1.8 %    ($ 93 )      -13.1 %
     2nd Quarter           $ 651     $ 622     $ 660     $    29        4.7 %    ($ 38 )       -5.8 %
     3rd Quarter             N/A     $ 629     $ 718         N/A        N/A      ($ 89 )      -12.4 %
     4th Quarter             N/A     $ 595     $ 684         N/A        N/A      ($ 89 )      -13.0 %
     Annual Avg.             N/A     $ 616     $ 693         N/A        N/A      ($ 77 )      -11.1 %

1 CRU Hot-Rolled Index Average

No single customer contributed more than 10% of our consolidated net sales during the second quarter of fiscal 2014. 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 the second quarter of fiscal 2014, vehicle production for the Detroit Three automakers was up 11% over the comparable period in the prior year. Additionally, North American vehicle production during the second quarter of fiscal 2014 increased 8% over the comparable period in the prior year.

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.


Table of Contents

  Add WOR to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for WOR - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.