NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A Basis of Presentation
The consolidated financial statements include the accounts of Worthington Industries, Inc. and consolidated subsidiaries
(collectively, we, our, Worthington, or the Company). Investments in unconsolidated affiliates are accounted for using the equity method. Significant intercompany accounts and transactions
are eliminated.
dHybrid Systems, LLC (dHybrid), Spartan Steel Coating, LLC (Spartan),
TWB Company, L.L.C. (TWB), Worthington Arıtaş Basınçlı Kaplar Sanayi (Worthington Aritas), Worthington Energy Innovations, LLC (WEI), and Worthington Specialty Processing
(WSP) in which we own controlling interests of 79.59%, 52%, 55%, 75%, 75%, and 51%, respectively, are consolidated with the equity owned by the other joint venture members shown as noncontrolling interests in our consolidated balance
sheets, and their portions of net earnings and other comprehensive income (loss) (OCI) shown as net earnings or comprehensive income attributable to noncontrolling interests in our consolidated statements of earnings and consolidated
statements of comprehensive income, respectively.
These unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities
and Exchange Commission (SEC). Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, which are of a normal and
recurring nature, except those which have been disclosed elsewhere in this Quarterly Report on Form 10-Q, necessary for a fair presentation of the consolidated financial statements for these interim periods, have been included. Operating
results for the three months ended August 31, 2016 are not necessarily indicative of the results that may be expected for the fiscal year ending May 31, 2017 (fiscal 2017). For further information, refer to the consolidated financial
statements and notes thereto included in the Annual Report on Form 10-K for the fiscal year ended May 31, 2016 (fiscal 2016) of Worthington Industries, Inc. (the 2016 Form 10-K).
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Recently Adopted Accounting Standards
In February 2015,
amended accounting guidance was issued that revised consolidation requirements in order to provide financial statement users with a more useful presentation of an entitys economic and operational results. The amended guidance revises the
consolidation requirements for limited partnerships, the considerations surrounding the primary beneficiary determination and the consolidation of certain investment funds and is effective for fiscal years beginning after December 15, 2015,
including interim periods within those fiscal years. The Company adopted this amended guidance on a prospective basis effective June 1, 2016. The adoption of this guidance did not impact our financial position or results of operations.
In April 2015, amended accounting guidance was issued that requires debt issuance costs related to a
recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of the corresponding debt liability itself. The amended guidance does not apply to line-of-credit arrangements. Accordingly,
issuance costs related to line-of-credit arrangements will continue to be presented as an asset and amortized ratably over the term of the arrangement. The amended guidance is effective for fiscal years beginning after December 15, 2015,
including interim periods within those fiscal years. The Company adopted this guidance on a retrospective basis effective June 1, 2016. As a result, debt issuance costs totaling $2,405,000 and $2,491,000 as of August 31, 2016 and May 31,
2016, respectively, have been presented as a component of the carrying amount of long-term debt reported in our consolidated balance sheets. These amounts were previously capitalized and reported within other assets.
In September 2015, amended accounting guidance was issued regarding adjustments to provisional amounts recorded in
conjunction with a business combination. The amended guidance requires the acquirer to recognize adjustments to provisional amounts identified during the measurement period in the reporting period in which such
5
adjustments are identified, rather than retrospectively adjusting previously reported amounts. The amended guidance is effective for fiscal years beginning after December 15, 2015, including
interim periods within those fiscal years. The Company adopted this amended guidance on a prospective basis effective June 1, 2016. The adoption of this guidance did not impact our financial position or results of operations.
In March 2016, amended accounting guidance was issued that simplifies the accounting for share-based payments. The
amended guidance impacts several aspects of the accounting for share-based payment transactions, including the income tax consequences, forfeitures, statutory withholding requirements, and classification in the statement of cash flows. The
Company early adopted this guidance during the fourth quarter of fiscal 2016. As required for early adoption in an interim period, all adjustments have been reflected as of the beginning of fiscal 2016. Accordingly, income tax expense for
the three months ended August 31, 2015 has been restated to reflect excess tax benefits associated with share-based payments totaling $558,000 in current income tax expense, rather than in paid-in capital.
Recently Issued Accounting Standards
In May 2014, amended accounting guidance was issued that replaces most existing revenue recognition guidance under U.S. GAAP. The amended guidance requires an entity to recognize the amount of
revenue to which it expects to be entitled for the transfer of promised goods or services to customers. Subsequently, additional guidance was issued on several areas including guidance intended to improve the operability and understandability of the
implementation of principal versus agent considerations and clarifications on the identification of performance obligations and implementation of guidance related to licensing. The amended guidance is effective for annual reporting periods beginning
after December 15, 2017, including interim periods within that reporting period. We are in the process of evaluating the effect this guidance will have on our consolidated financial position and results of operations. The amended guidance
permits the use of either the retrospective or cumulative effect transition method. We have not selected a transition method nor have we determined the effect of the amended guidance on our ongoing financial reporting.
In July 2015, amended accounting guidance was issued regarding the measurement of inventory. The amended guidance
requires that inventory accounted for under the first-in, first-out (FIFO) or average cost methods be measured at the lower of cost and net realizable value, where net realizable value represents the estimated selling price of inventory in the
ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amended guidance has no impact on inventory accounted for under the last-in, first-out (LIFO) or retail inventory methods. The
amended guidance is effective prospectively for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted as of the beginning of an interim or annual reporting
period. We do not expect the adoption of this amended accounting guidance to have a material impact on our financial position or results of operations.
In February 2016, amended accounting guidance was issued that replaces most existing lease accounting guidance under U.S. GAAP. Among other changes, the amended guidance requires that lease assets
and liabilities be recognized on the balance sheet by lessees for those leases classified as operating leases under previous guidance. The amended guidance is effective for fiscal years beginning after December 15, 2018, including interim
periods within those fiscal years. Early adoption is permitted, and the change is to be applied using a modified retrospective approach as of the beginning of the earliest period presented. We are in the process of evaluating the effect
this guidance will have on our consolidated financial position and results of operations, and we have not determined the effect of the amended guidance on our ongoing financial reporting.
In March 2016, amended accounting guidance was issued regarding derivative instruments designated as hedging
instruments. The amended guidance clarifies that a change in the counterparty to such a hedging instrument does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue
to be met. The amended guidance is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted, and the change may be applied either prospectively or
retrospectively. We do not expect the adoption of this amended accounting guidance to have a material impact on our financial position or results of operations.
In June 2016, amended accounting guidance was issued related to the measurement of credit losses on financial
instruments. The amended guidance changes the impairment model for most financial assets to require measurement and recognition of expected credit losses for financial assets held. The amended guidance is effective for fiscal years beginning
after December 15, 2019, including interim periods within those fiscal years. We are in the process
6
of evaluating the effect this guidance will have on our consolidated financial position and results of operations, and we have not determined the effect of the amended guidance on our ongoing
financial reporting.
In August 2016, amended accounting guidance was issued to clarify the proper cash flow
presentation of certain specific types of cash payments and cash receipts. The amended guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is
permitted. We are in the process of evaluating the effect this guidance will have on our consolidated financial position, results of operations and cash flows, and we have not determined the effect of the amended guidance on our ongoing
financial reporting.
NOTE B Investments in Unconsolidated Affiliates
Our investments in affiliated companies that we do not control, either through majority ownership or otherwise, are
accounted for using the equity method. These include ArtiFlex Manufacturing, LLC (ArtiFlex) (50%), Clarkwestern Dietrich Building Systems LLC (ClarkDietrich) (25%), Samuel Steel Pickling Company (31.25%), Serviacero
Planos, S. de R. L. de C.V. (Serviacero) (50%), Worthington Armstrong Venture (WAVE) (50%), and Zhejiang Nisshin Worthington Precision Specialty Steel Co., Ltd. (10%).
We received distributions from unconsolidated affiliates totaling $38,442,000 during the three months ended August 31,
2016. We have received cumulative distributions from WAVE in excess of our investment balance totaling $66,192,000 at August 31, 2016. In accordance with the applicable accounting guidance, these excess distributions are reclassified to the
liabilities section of our consolidated balance sheet. We will continue to record our equity in the net income of WAVE as a debit to the investment account, and if it becomes positive, it will again be shown as an asset on our consolidated
balance sheet. If it becomes obvious that any excess distribution may not be returned (upon joint venture liquidation or otherwise), we will recognize any balance classified as a liability as income immediately.
We use the cumulative earnings approach for determining cash flow presentation of distributions from our
unconsolidated joint ventures. Distributions received are included in our consolidated statements of cash flows as operating activities, unless the cumulative distributions received, less distributions received in prior periods that were
determined to be returns of investment, exceed our portion of the cumulative equity in the net earnings of the joint venture, in which case the excess distributions are deemed to be returns of the investment and are classified as investing
activities in our consolidated statements of cash flows.
Combined financial information for our
unconsolidated affiliates is summarized as follows:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
August 31,
2016
|
|
|
May 31,
2016
|
|
Cash
|
|
$
|
51,269
|
|
|
$
|
112,122
|
|
Other current assets
|
|
|
513,318
|
|
|
|
446,796
|
|
Noncurrent assets
|
|
|
355,777
|
|
|
|
352,370
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
920,364
|
|
|
$
|
911,288
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
125,082
|
|
|
$
|
112,491
|
|
Short-term borrowings
|
|
|
8,315
|
|
|
|
11,398
|
|
Current maturities of long-term debt
|
|
|
2,913
|
|
|
|
3,297
|
|
Long-term debt
|
|
|
265,301
|
|
|
|
266,942
|
|
Other noncurrent liabilities
|
|
|
22,678
|
|
|
|
21,034
|
|
Equity
|
|
|
496,075
|
|
|
|
496,126
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
920,364
|
|
|
$
|
911,288
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
August
31,
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
Net sales
|
|
$
|
417,115
|
|
|
$
|
404,463
|
|
Gross margin
|
|
|
124,197
|
|
|
|
89,018
|
|
Operating income
|
|
|
94,397
|
|
|
|
61,246
|
|
Depreciation and amortization
|
|
|
6,820
|
|
|
|
8,097
|
|
Interest expense
|
|
|
2,148
|
|
|
|
2,159
|
|
Income tax expense
|
|
|
7,518
|
|
|
|
2,560
|
|
Net earnings
|
|
|
86,067
|
|
|
|
62,926
|
|
The financial results of WSP have been included in the amounts presented in the tables
above through March 1, 2016. Effective March 1, 2016, the Company obtained effective control over the operations of WSP. As a result, WSPs results have been consolidated within the financial results of Steel Processing since that
date with the minority members portion of earnings eliminated within earnings attributable to noncontrolling interests.
NOTE C
Impairment of Long-Lived Assets
We review the carrying value of our long-lived assets, including
intangible assets with definite useful lives, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable.
Impairment testing of long-lived assets with definite useful lives involves a comparison of the sum of the undiscounted
future cash flows of the asset or asset group to its respective carrying amount. If the sum of the undiscounted future cash flows exceeds the carrying amount, then no impairment exists. If the carrying amount exceeds the sum of the
undiscounted future cash flows, then a second step is performed to determine the amount of impairment, which would be recorded as an impairment charge in our consolidated statement of earnings.
No impairment charges were recognized during the first quarter of fiscal 2017.
During the first quarter of fiscal 2016, management finalized its plan to close the Engineered Cabs facility in Florence,
South Carolina and transfer the majority of the business to the Engineered Cabs facility in Greeneville, Tennessee. Under the plan, certain machinery and equipment was transferred to the Greeneville facility to support higher volume
requirements. Management reevaluated the recoverability of the remaining assets and determined that long-lived assets with a carrying value of $4,059,000 were impaired. As a result, these long-lived assets were written down to their estimated
fair value of $1,059,000 resulting in an impairment charge of $3,000,000 during the first quarter of fiscal 2016. The Company ceased production at the Florence facility on September 30, 2015.
NOTE D Restructuring and Other Expense
We consider restructuring activities to be programs whereby we fundamentally change our operations such as closing and consolidating manufacturing facilities, moving manufacturing of a product to another
location, and rationalizing headcount.
8
A progression of the liabilities associated with our restructuring
activities, combined with a reconciliation to the restructuring and other expense financial statement caption in our consolidated statement of earnings for the three months ended August 31, 2016 is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Beginning
Balance
|
|
|
Expense
|
|
|
Payments
|
|
|
Adjustments
|
|
|
Ending
Balance
|
|
Early retirement and severance
|
|
$
|
1,831
|
|
|
$
|
190
|
|
|
$
|
(890
|
)
|
|
$
|
8
|
|
|
$
|
1,139
|
|
Facility exit and other costs
|
|
|
653
|
|
|
|
1,027
|
|
|
|
(529
|
)
|
|
|
-
|
|
|
|
1,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,484
|
|
|
|
1,217
|
|
|
$
|
(1,419
|
)
|
|
$
|
8
|
|
|
$
|
2,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss on sale of assets
|
|
|
|
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and other expense
|
|
|
|
|
|
$
|
1,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility exit costs in the current year consisted primarily of costs incurred in
connection with the closures of the Companys stainless steel business, Precision Specialty Metals, Inc. (PSM) and the Florence, South Carolina facility in Engineered Cabs.
The total liability as of August 31, 2016 is expected to be paid in the next twelve months.
NOTE E Contingent Liabilities and Commitments
We are defendants in certain legal actions. In the opinion of management, the outcome of these actions, which is not clearly determinable at the present time, would not significantly affect our
consolidated financial position or future results of operations. We believe that environmental issues will not have a material effect on our capital expenditures, consolidated financial position or future results of operations.
NOTE F Guarantees
We do not have guarantees that we believe are reasonably likely to have a material current or future effect on our consolidated financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources. However, as of August 31, 2016, we were party to an operating lease for an aircraft in which we have guaranteed a residual value at the termination of the lease. The
maximum obligation under the terms of this guarantee was approximately $10,198,000 at August 31, 2016. Based on current facts and circumstances, we have estimated the likelihood of payment pursuant to this guarantee is not probable and,
therefore, no amount has been recognized in our consolidated financial statements.
NOTE G Debt and Receivables Securitization
We maintain a $500,000,000 multi-year revolving credit facility (the Credit Facility) with a
group of lenders that matures in April 2020. Borrowings under the Credit Facility typically have maturities of less than one year. However, we can extend the term of amounts borrowed by renewing these borrowings for the term of the Credit
Facility. We have the option to borrow at rates equal to an applicable margin over the LIBOR, Prime rate or Fed Funds rate. The applicable margin is determined by our credit rating. There were no borrowings outstanding under the
Credit Facility at August 31, 2016.
We also maintain a $100,000,000 revolving trade accounts receivable
securitization facility (the AR Facility) which expires in January 2018. Pursuant to the terms of the AR Facility, certain of our subsidiaries sell their accounts receivable without recourse, on a revolving basis, to Worthington
Receivables Corporation (WRC), a wholly-owned, consolidated, bankruptcy-remote subsidiary. In turn, WRC may sell without recourse, on a revolving basis, up to $100,000,000 of undivided ownership interests in this pool of accounts
receivable to a third-party bank. We retain an undivided interest in this pool and are subject to risk of loss based on the collectability of the receivables from this retained interest. Because the amount eligible to be sold excludes
receivables more than 90 days past due, receivables offset by an allowance for doubtful accounts due to bankruptcy or other cause, concentrations over certain limits with specific customers and certain reserve amounts, we believe additional
risk of loss is minimal. As of August 31, 2016, no undivided ownership interests in this pool of accounts receivable had been sold.
We also had letters of credit totaling $15,359,000 outstanding as of August 31, 2016. These letters of credit
9
have been issued to third parties and had no amounts drawn against them at August 31, 2016.
NOTE H Comprehensive Income
The following table
summarizes the tax effects on each component of OCI for the three months ended August 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Before-Tax
|
|
|
Tax
|
|
|
Net-of-Tax
|
|
|
Before-Tax
|
|
|
Tax
|
|
|
Net-of-Tax
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
$
|
(665
|
)
|
|
$
|
-
|
|
|
$
|
(665
|
)
|
|
$
|
1,823
|
|
|
$
|
-
|
|
|
$
|
1,823
|
|
Pension liability adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(8
|
)
|
|
|
-
|
|
|
|
(8
|
)
|
Cash flow hedges
|
|
|
1,088
|
|
|
|
(463
|
)
|
|
|
625
|
|
|
|
1,238
|
|
|
|
(608
|
)
|
|
|
630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
$
|
423
|
|
|
$
|
(463
|
)
|
|
$
|
(40
|
)
|
|
$
|
3,053
|
|
|
$
|
(608
|
)
|
|
$
|
2,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE I Changes in Equity
The following table provides a summary of the changes in total equity, shareholders equity attributable to
controlling interest, and equity attributable to noncontrolling interests for the three months ended August 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Controlling Interest
|
|
|
|
|
|
|
|
(in thousands)
|
|
Additional
Paid-in
Capital
|
|
|
Accumulated
Other
Comprehensive
Loss, Net of
Tax
|
|
|
Retained
Earnings
|
|
|
Total
|
|
|
Non-
controlling
Interests
|
|
|
Total
|
|
Balance at May 31, 2016
|
|
$
|
298,984
|
|
|
$
|
(28,565
|
)
|
|
$
|
522,952
|
|
|
$
|
793,371
|
|
|
$
|
126,475
|
|
|
$
|
919,846
|
|
Net earnings
|
|
|
-
|
|
|
|
-
|
|
|
|
65,567
|
|
|
|
65,567
|
|
|
|
2,969
|
|
|
|
68,536
|
|
Other comprehensive income (loss)
|
|
|
-
|
|
|
|
(45
|
)
|
|
|
-
|
|
|
|
(45
|
)
|
|
|
5
|
|
|
|
(40
|
)
|
Common shares issued, net of withholding tax
|
|
|
5,821
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,821
|
|
|
|
-
|
|
|
|
5,821
|
|
Common shares in NQ plans
|
|
|
634
|
|
|
|
-
|
|
|
|
-
|
|
|
|
634
|
|
|
|
-
|
|
|
|
634
|
|
Stock-based compensation
|
|
|
3,491
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,491
|
|
|
|
-
|
|
|
|
3,491
|
|
Cash dividends declared
|
|
|
-
|
|
|
|
-
|
|
|
|
(12,877
|
)
|
|
|
(12,877
|
)
|
|
|
-
|
|
|
|
(12,877
|
)
|
Dividends to noncontrolling interest
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,331
|
)
|
|
|
(4,331
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at August 31, 2016
|
|
$
|
308,930
|
|
|
$
|
(28,610
|
)
|
|
$
|
575,642
|
|
|
$
|
855,962
|
|
|
$
|
125,118
|
|
|
$
|
981,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of the changes in accumulated other comprehensive loss were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Foreign
Currency
Translation
|
|
|
Pension
Liability
Adjustment
|
|
|
Cash
Flow
Hedges
|
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Balance as of May 31, 2016
|
|
$
|
(18,728
|
)
|
|
$
|
(17,061
|
)
|
|
$
|
7,224
|
|
|
$
|
(28,565
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
(670
|
)
|
|
|
-
|
|
|
|
733
|
|
|
|
63
|
|
Reclassification adjustments to income (a)
|
|
|
-
|
|
|
|
-
|
|
|
|
355
|
|
|
|
355
|
|
Income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
(463
|
)
|
|
|
(463
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of August 31, 2016
|
|
$
|
(19,398
|
)
|
|
$
|
(17,061
|
)
|
|
$
|
7,849
|
|
|
$
|
(28,610
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
The statement of earnings classification of amounts reclassified to income for cash flow hedges is disclosed in NOTE N Derivative
Instruments and Hedging Activities.
|
10
NOTE J Stock-Based Compensation
Non-Qualified Stock Options
During the three months ended
August 31, 2016, we granted non-qualified stock options covering a total of 111,000 common shares under our stock-based compensation plans. The option price of $42.30 per share was equal to the market price of the underlying common shares at
the grant date. The fair value of these stock options, based on the Black-Scholes option-pricing model, calculated at the grant date, was $11.60 per share. The calculated pre-tax stock-based compensation expense for these stock options,
after an estimate for forfeitures, is $1,146,000 and will be recognized on a straight-line basis over the three-year vesting period. The following assumptions were used to value these stock options:
|
|
|
|
|
Dividend yield
|
|
|
2.59
|
%
|
Expected volatility
|
|
|
36.86
|
%
|
Risk-free interest rate
|
|
|
1.15
|
%
|
Expected term (years)
|
|
|
6.0
|
|
Expected volatility is based on the historical volatility of our common shares and the
risk-free interest rate is based on the United States Treasury strip rate for the expected term of the stock options. The expected term was developed using historical exercise experience.
Service-Based Restricted Common Shares
During the three months ended August 31, 2016, we granted an aggregate of 115,625 service-based restricted common shares under our stock-based compensation plans. The fair value of these restricted
common shares was equal to the closing market price of the underlying common shares on the date of grant, or $42.30 per share. The calculated pre-tax stock-based compensation expense for these restricted common shares, after an estimate for
forfeitures, is $4,353,000 and will be recognized on a straight-line basis over the three-year service-based vesting period.
Performance
Share Awards
We have awarded performance shares to certain key employees under our stock-based
compensation plans. These performance shares are earned based on the level of achievement with respect to corporate targets for cumulative corporate economic value added, earnings per share growth and, in the case of business unit executives,
business unit operating income targets for the three-year periods ending May 31, 2017, 2018 and 2019. These performance share awards will be paid, to the extent earned, in common shares of the Company in the fiscal quarter following the end of the
applicable three-year performance period. The fair values of our performance shares are determined by the closing market prices of the underlying common shares at their respective grant dates and the pre-tax stock-based compensation expense is
based on our periodic assessment of the probability of the targets being achieved and our estimate of the number of common shares that will ultimately be issued. During the three months ended August 31, 2016, we granted performance share awards
covering an aggregate of 68,500 common shares (at target levels). The calculated pre-tax stock-based compensation expense for these performance shares is $2,809,000 and will be recognized over the three-year performance period.
NOTE K Income Taxes
Income tax expense for the three months ended August 31, 2016 and August 31, 2015 reflected estimated annual effective income tax rates of 31.2% and 31.7%, respectively. The annual effective income tax
rates exclude any impact from the inclusion of net earnings attributable to noncontrolling interests in our consolidated statements of earnings. Net earnings attributable to noncontrolling interests are primarily a result of our WSP, Spartan,
Worthington Aritas, and TWB consolidated joint ventures. The earnings attributable to the noncontrolling interests in WSP, Spartan and TWBs U.S. operations do not generate tax expense to Worthington since the investors in WSP, Spartan and
TWBs U.S. operations are taxed directly based on the earnings attributable to them. The tax expense of Worthington Aritas (a foreign corporation), and TWBs wholly-owned foreign corporations, is reported in our consolidated tax
expense. Management is required to estimate the annual effective income tax rate based upon its forecast of annual pre-tax income for domestic and foreign operations. Our actual effective income tax rate for fiscal 2017 could be materially
different from the forecasted rate as of August 31, 2016.
11
NOTE L Earnings per Share
The following table sets forth the computation of basic and diluted earnings per share attributable to controlling
interest for the three months ended August 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
August
31,
|
|
(in thousands, except per share amounts)
|
|
2016
|
|
|
2015
|
|
Numerator (basic & diluted):
|
|
|
|
|
|
|
|
|
Net earnings attributable to controlling interest income available to common shareholders
|
|
$
|
65,567
|
|
|
$
|
31,968
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share attributable to controlling interest weighted average common
shares
|
|
|
61,885
|
|
|
|
63,993
|
|
Effect of dilutive securities
|
|
|
2,452
|
|
|
|
2,072
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per share attributable to controlling interest adjusted weighted average common
shares
|
|
|
64,337
|
|
|
|
66,065
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share attributable to controlling interest
|
|
$
|
1.06
|
|
|
$
|
0.50
|
|
Diluted earnings per share attributable to controlling interest
|
|
$
|
1.02
|
|
|
$
|
0.48
|
|
Stock options and restricted common shares covering 161,429 and 318,904 common shares for
the three months ended August 31, 2016 and 2015, respectively, have been excluded from the computation of diluted earnings per share because the effect of their inclusion would have been anti-dilutive.
12
NOTE M Segment Operations
Summarized financial information for our reportable segments is shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
August
31,
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
Net sales
|
|
|
|
|
|
|
|
|
Steel Processing
|
|
$
|
505,674
|
|
|
$
|
490,800
|
|
Pressure Cylinders
|
|
|
205,209
|
|
|
|
224,394
|
|
Engineered Cabs
|
|
|
25,581
|
|
|
|
38,617
|
|
Other
|
|
|
1,085
|
|
|
|
4,336
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
737,549
|
|
|
$
|
758,147
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
|
|
|
|
|
|
Steel Processing
|
|
$
|
54,782
|
|
|
$
|
23,638
|
|
Pressure Cylinders
|
|
|
14,105
|
|
|
|
16,819
|
|
Engineered Cabs
|
|
|
(1,843
|
)
|
|
|
(9,291
|
)
|
Other
|
|
|
(2,146
|
)
|
|
|
(170
|
)
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
$
|
64,898
|
|
|
$
|
30,996
|
|
|
|
|
|
|
|
|
|
|
Impairment of long-lived assets
|
|
|
|
|
|
|
|
|
Steel Processing
|
|
$
|
-
|
|
|
$
|
-
|
|
Pressure Cylinders
|
|
|
-
|
|
|
|
-
|
|
Engineered Cabs
|
|
|
-
|
|
|
|
3,000
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total impairment of long-lived assets
|
|
$
|
-
|
|
|
$
|
3,000
|
|
|
|
|
|
|
|
|
|
|
Restructuring and other expense (income)
|
|
|
|
|
|
|
|
|
Steel Processing
|
|
$
|
966
|
|
|
$
|
462
|
|
Pressure Cylinders
|
|
|
146
|
|
|
|
731
|
|
Engineered Cabs
|
|
|
206
|
|
|
|
1,878
|
|
Other
|
|
|
10
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
Total restructuring and other expense
|
|
$
|
1,328
|
|
|
$
|
3,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
August 31,
2016
|
|
|
May 31,
2016
|
|
Total assets
|
|
|
|
|
|
|
|
|
Steel Processing
|
|
$
|
871,588
|
|
|
$
|
819,853
|
|
Pressure Cylinders
|
|
|
766,070
|
|
|
|
787,786
|
|
Engineered Cabs
|
|
|
70,471
|
|
|
|
75,124
|
|
Other
|
|
|
473,824
|
|
|
|
378,501
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,181,953
|
|
|
$
|
2,061,264
|
|
|
|
|
|
|
|
|
|
|
13
NOTE N Derivative Instruments and Hedging Activities
We utilize derivative instruments to manage exposure to certain risks related to our ongoing operations. The primary
risks managed through the use of derivative instruments include interest rate risk, foreign currency exchange rate risk and commodity price risk. While certain of our derivative instruments are designated as hedging instruments, we also enter into
derivative instruments that are designed to hedge a risk, but are not designated as hedging instruments and therefore do not qualify for hedge accounting. These derivative instruments are adjusted to current fair value through earnings at the end of
each period.
Interest Rate Risk Management
We are exposed to the impact of interest rate
changes. Our objective is to manage the impact of interest rate changes on cash flows and the market value of our borrowings. We utilize a mix of debt maturities along with both fixed-rate and variable-rate debt to manage changes in interest rates.
In addition, we enter into interest rate swaps to further manage our exposure to interest rate variations related to our borrowings and to lower our overall borrowing costs.
Foreign Currency Rate Risk Management
We conduct business in several major international currencies and are
therefore subject to risks associated with changing foreign currency exchange rates. We enter into various contracts that change in value as foreign currency exchange rates change to manage this exposure. Such contracts limit exposure to both
favorable and unfavorable currency fluctuations. The translation of foreign currencies into United States dollars also subjects us to exposure related to fluctuating foreign currency exchange rates; however, derivative instruments are not used to
manage this risk.
Commodity Price Risk Management
We are exposed to changes in the price of
certain commodities, including steel, natural gas, zinc and other raw materials, and our utility requirements. Our objective is to reduce earnings and cash flow volatility associated with forecasted purchases and sales of these commodities to allow
management to focus its attention on business operations. Accordingly, we enter into derivative contracts to manage the associated price risk.
We are exposed to counterparty credit risk on all of our derivative instruments. Accordingly, we have established and maintain strict counterparty credit guidelines. We have credit support agreements in
place with certain counterparties to limit our credit exposure. These agreements require either party to post cash collateral if its cumulative market position exceeds a predefined liability threshold. At August 31, 2016, we had posted
total cash collateral of $152,000 to our margin accounts. Amounts posted to the margin accounts accrue interest at market rates and are required to be refunded in the period in which the cumulative market position falls below the required
threshold. We do not have significant exposure to any one counterparty and management believes the risk of loss is remote and, in any event, would not be material.
Refer to NOTE O Fair Value for additional information regarding the accounting treatment for our
derivative instruments, as well as how fair value is determined.
14
The following table summarizes the fair value of our derivative instruments
and the respective financial statement caption in which they were recorded in our consolidated balance sheet at August 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
(in thousands)
|
|
Balance
Sheet
Location
|
|
Fair
Value
|
|
|
Balance
Sheet
Location
|
|
Fair
Value
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
Receivables
|
|
$
|
10,337
|
|
|
Accounts payable
|
|
$
|
31
|
|
|
|
Other assets
|
|
|
850
|
|
|
Other liabilities
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,187
|
|
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
Receivables
|
|
|
-
|
|
|
Accounts payable
|
|
|
175
|
|
|
|
Other assets
|
|
|
-
|
|
|
Other liabilities
|
|
|
320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
|
$
|
11,187
|
|
|
|
|
$
|
526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
Receivables
|
|
$
|
3,737
|
|
|
Accounts payable
|
|
$
|
151
|
|
|
|
Other assets
|
|
|
75
|
|
|
Other liabilities
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,812
|
|
|
|
|
|
151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
|
Receivables
|
|
|
-
|
|
|
Accounts payable
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
|
$
|
3,812
|
|
|
|
|
$
|
182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivative Instruments
|
|
|
|
$
|
14,999
|
|
|
|
|
$
|
708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amounts in the table above reflect the fair value of the Companys derivative
contracts on a net basis. Had these amounts been recognized on a gross basis, the aggregate impact would have been a $200,000 decrease in receivables with a corresponding decrease in accounts payable.
15
The following table summarizes the fair value of our derivative instruments
and the financial statement caption in which they were recorded in the consolidated balance sheet at May 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
(in thousands)
|
|
Balance
Sheet
Location
|
|
|
Fair
Value
|
|
|
Balance
Sheet
Location
|
|
Fair
Value
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
|
Receivables
|
|
|
$
|
13,224
|
|
|
Accounts payable
|
|
$
|
696
|
|
|
|
|
Other assets
|
|
|
|
3,589
|
|
|
Other liabilities
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,813
|
|
|
|
|
|
776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
Receivables
|
|
|
|
-
|
|
|
Accounts payable
|
|
|
155
|
|
|
|
|
Other assets
|
|
|
|
-
|
|
|
Other liabilities
|
|
|
306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
|
|
|
$
|
16,813
|
|
|
|
|
$
|
1,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
|
Receivables
|
|
|
$
|
4,660
|
|
|
Accounts payable
|
|
$
|
761
|
|
|
|
|
Other assets
|
|
|
|
317
|
|
|
Other liabilities
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,977
|
|
|
|
|
|
761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
|
|
Receivables
|
|
|
|
-
|
|
|
Accounts payable
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
|
|
|
$
|
4,977
|
|
|
|
|
$
|
776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivative Instruments
|
|
|
|
|
|
$
|
21,790
|
|
|
|
|
$
|
2,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amounts in the table above reflect the fair value of the Companys derivative
contracts on a net basis. Had these amounts been recognized on a gross basis, the aggregate impact would have been a $300,000 decrease in receivables with a corresponding decrease in accounts payable.
Cash Flow Hedges
We enter into derivative instruments to hedge our exposure to changes in cash flows attributable to interest rates and commodity price fluctuations associated with certain forecasted
transactions. These derivative instruments are designated and qualify as cash flow hedges. Accordingly, the effective portion of the gain or loss on the derivative instrument is reported as a component of OCI and reclassified into earnings
in the same financial statement caption associated with the forecasted transaction and in the same period during which the hedged transaction affects earnings. The ineffective portion of the gain or loss on the derivative instrument is
recognized in earnings immediately.
The following table summarizes our cash flow hedges outstanding at August
31, 2016:
|
|
|
|
|
|
|
(in thousands)
|
|
Notional
Amount
|
|
|
Maturity Date
|
Commodity contracts
|
|
$
|
60,267
|
|
|
September 2016 - December 2017
|
Interest rate contracts
|
|
|
17,072
|
|
|
September 2019
|
16
The following table summarizes the gain (loss) recognized in OCI and the
loss reclassified from accumulated OCI into earnings for derivative instruments designated as cash flow hedges during the three months ended August 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of
|
|
|
|
|
Location of
|
|
|
|
|
|
|
|
|
Loss
|
|
Loss
|
|
|
Gain
|
|
Gain
|
|
|
|
|
|
|
Reclassified
|
|
Reclassified
|
|
|
(Ineffective
|
|
(Ineffective
|
|
|
|
Gain (Loss)
|
|
|
from
|
|
from
|
|
|
Portion)
|
|
Portion)
|
|
|
|
Recognized
|
|
|
Accumulated
|
|
Accumulated
|
|
|
and Excluded
|
|
and Excluded
|
|
|
|
in OCI
|
|
|
OCI
|
|
OCI
|
|
|
from
|
|
from
|
|
|
|
(Effective
|
|
|
(Effective
|
|
(Effective
|
|
|
Effectiveness
|
|
Effectiveness
|
|
(in thousands)
|
|
Portion)
|
|
|
Portion)
|
|
Portion)
|
|
|
Testing
|
|
Testing
|
|
For the three months ended August 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
$
|
769
|
|
|
Cost of goods sold
|
|
$
|
(252
|
)
|
|
Cost of goods sold
|
|
$
|
-
|
|
Interest rate contracts
|
|
|
(36
|
)
|
|
Interest expense
|
|
|
(103
|
)
|
|
Interest expense
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
733
|
|
|
|
|
$
|
(355
|
)
|
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended August 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
$
|
(8,126
|
)
|
|
Cost of goods sold
|
|
$
|
(9,187
|
)
|
|
Cost of goods sold
|
|
$
|
-
|
|
Interest rate contracts
|
|
|
34
|
|
|
Interest expense
|
|
|
(139
|
)
|
|
Interest expense
|
|
|
-
|
|
Foreign currency contracts
|
|
|
-
|
|
|
Miscellaneous income, net
|
|
|
(4
|
)
|
|
Miscellaneous income, net
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
(8,092
|
)
|
|
|
|
$
|
(9,330
|
)
|
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated net amount of the losses recognized in accumulated OCI at August 31, 2016
expected to be reclassified into net earnings within the succeeding twelve months is $9,008,000 (net of tax of $5,568,000). This amount was computed using the fair value of the cash flow hedges at August 31, 2016, and will change before actual
reclassification from OCI to net earnings during the fiscal years ending May 31, 2017 and 2018.
Economic (Non-designated) Hedges
We enter into foreign currency contracts to manage our foreign currency exchange rate exposure related to
inter-company and financing transactions that do not meet the requirements for hedge accounting treatment. We also enter into certain commodity contracts that do not qualify for hedge accounting treatment. Accordingly, these derivative
instruments are adjusted to current market value at the end of each period through earnings.
The following
table summarizes our economic (non-designated) derivative instruments outstanding at August 31, 2016:
|
|
|
|
|
|
|
(in thousands)
|
|
Notional
Amount
|
|
|
Maturity Date(s)
|
Commodity contracts
|
|
$
|
24,809
|
|
|
September 2016 - August 2018
|
Foreign currency contracts
|
|
|
18,847
|
|
|
September 2016 - August 2017
|
17
The following table summarizes the gain (loss) recognized in earnings for
economic (non-designated) derivative financial instruments during the three months ended August 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Recognized
|
|
|
|
|
|
|
in Earnings for the
Three Months Ended
|
|
|
|
Location of Gain (Loss)
|
|
|
August 31,
|
|
(in thousands)
|
|
Recognized in Earnings
|
|
|
2016
|
|
|
2015
|
|
Commodity contracts
|
|
|
Cost of goods sold
|
|
|
$
|
2,908
|
|
|
$
|
(2,755
|
)
|
Foreign currency contracts
|
|
|
Miscellaneous expense, net
|
|
|
|
(66
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
2,842
|
|
|
$
|
(2,755
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The gain (loss) on the foreign currency derivatives significantly offsets the gain (loss)
on the hedged item.
NOTE O Fair Value
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is
an exit price concept that assumes an orderly transaction between willing market participants and is required to be based on assumptions that market participants would use in pricing an asset or a liability. Current accounting guidance
establishes a three-tier fair value hierarchy as a basis for considering such assumptions and for classifying the inputs used in the valuation methodologies. This hierarchy requires entities to maximize the use of observable inputs and minimize
the use of unobservable inputs. The three levels of inputs used to measure fair values are as follows:
|
|
|
|
|
Level 1
|
|
|
|
Observable prices in active markets for identical assets and liabilities.
|
|
|
|
Level 2
|
|
|
|
Inputs other than quoted prices included within Level 1 that are observable for the assets and liabilities, either directly or indirectly.
|
|
|
|
Level 3
|
|
|
|
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities.
|
Recurring Fair Value Measurements
At August 31, 2016, our assets and liabilities measured at fair value on a recurring basis were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Quoted Prices
in Active
Markets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Totals
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts (1)
|
|
$
|
-
|
|
|
$
|
14,999
|
|
|
$
|
-
|
|
|
$
|
14,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
-
|
|
|
$
|
14,999
|
|
|
$
|
-
|
|
|
$
|
14,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts (1)
|
|
$
|
-
|
|
|
$
|
708
|
|
|
$
|
-
|
|
|
$
|
708
|
|
Contingent consideration obligation (2)
|
|
|
-
|
|
|
|
-
|
|
|
|
4,519
|
|
|
|
4,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
-
|
|
|
$
|
708
|
|
|
$
|
4,519
|
|
|
$
|
5,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
At May 31, 2016, our assets and liabilities measured at fair value on a
recurring basis were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Quoted Prices
in Active
Markets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Totals
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts (1)
|
|
$
|
-
|
|
|
$
|
21,790
|
|
|
$
|
-
|
|
|
$
|
21,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
-
|
|
|
$
|
21,790
|
|
|
$
|
-
|
|
|
$
|
21,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts (1)
|
|
$
|
-
|
|
|
$
|
2,013
|
|
|
$
|
-
|
|
|
$
|
2,013
|
|
Contingent consideration obligations (2)
|
|
|
-
|
|
|
|
-
|
|
|
|
4,519
|
|
|
|
4,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
-
|
|
|
$
|
2,013
|
|
|
$
|
4,519
|
|
|
$
|
6,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The fair value of our derivative contracts is based on the present value of the expected future cash flows considering the risks involved, including
non-performance risk, and using discount rates appropriate for the respective maturities. Market observable, Level 2 inputs are used to determine the present value of the expected future cash flows. Refer to NOTE N Derivative
Instruments and Hedging Activities for additional information regarding our use of derivative instruments.
|
(2)
|
The fair value of the contingent consideration obligations is determined using a probability weighted cash flow approach based on managements
projections of future cash flows of the acquired businesses. The fair value measurement was based on Level 3 inputs not observable in the market.
|
The fair value of non-derivative financial instruments included in the carrying amounts of cash and cash equivalents,
receivables, notes receivable, income taxes receivable, other assets, accounts payable, short-term borrowings, accrued compensation, contributions to employee benefit plans and related taxes, other accrued items, income taxes payable and other
liabilities approximate carrying value due to their short-term nature. The fair value of long-term debt, including current maturities, based upon models utilizing market observable (Level 2) inputs and credit risk, was $611,710,000 and $609,245,000
at August 31, 2016 and May 31, 2016, respectively. The carrying amount of long-term debt, including current maturities, was $578,275,000 and $578,353,000 at August 31, 2016 and May 31, 2016, respectively.
19