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), and Worthington Energy Innovations, LLC (WEI) in which we own
controlling interests of 79.59%, 52%, 55%, 75%, and 75%, respectively, are consolidated with the equity owned by the other joint venture members shown as noncontrolling interests in our consolidated balance sheets, and the other joint venture
members portions of net earnings and other comprehensive income (loss) shown as net earnings or comprehensive income (loss) attributable to noncontrolling interests in our consolidated statements of earnings and consolidated statements of
comprehensive income (loss), 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 and nine months ended February 29, 2016 are not necessarily indicative of the results that may be expected for the fiscal year ending May 31, 2016 (fiscal 2016). 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, 2015 (fiscal 2015) of Worthington Industries, Inc. (the 2015 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 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. 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 April 2015, amended accounting guidance
was issued to simplify the presentation of debt issuance costs by requiring that such costs be presented in the balance sheet as a direct deduction from the carrying amount of the corresponding debt liability itself. For public business entities,
the amended guidance is effective for financial statements issued for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. Early application is permitted for financial statements that have not
been issued. The revised guidance is to be applied on a retrospective basis, and entities are to comply with the applicable disclosures for a change in an accounting principle accordingly. The adoption of this guidance will not have a significant
impact on our consolidated financial position and results of operations.
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
5
transportation. The amended guidance has no impact on inventory accounted for under the last-in, first-out (LIFO) or retail inventory methods. For public business entities, the amended guidance
is effective prospectively for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early application is permitted as of the beginning of an interim or annual reporting period. 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 September 2015, amended accounting guidance was issued regarding adjustments to provisional amounts reported in
conjunction with a business combination. The amended guidance requires that an acquirer in a business combination recognize adjustments to provisional amounts identified during the measurement period in the reporting period in which the adjustment
amounts are determined. The amendment also requires that the acquirer record, in the same periods financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the
change, calculated as if the accounting had been completed at the acquisition date. Additionally, the amendment requires the acquirer to present separately on the face of the income statement or disclose in the notes the portion of the amount
recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. For public business entities, the amended
guidance is effective prospectively for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. Early application is permitted for financial statements that have not been issued. 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 November 2015, amended accounting guidance was issued that simplifies the presentation of deferred income taxes. The
amended guidance requires that all deferred income tax assets and liabilities be classified as noncurrent on a classified statement of financial position. For public business entities, the amended guidance is effective for financial statements
issued for annual periods beginning after December 15, 2016, including interim periods within those annual periods. Early application is permitted as of the beginning of an interim or annual reporting period, and the change may be applied
either prospectively or retrospectively. 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 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. For public business entities, the amended guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application 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.
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%), Worthington Specialty Processing (WSP) (51%), and Zhejiang Nisshin Worthington Precision Specialty Steel Co.,
Ltd. (10%).
WSP has been considered to be jointly controlled and not consolidated due to substantive
participating rights of the minority partner. However, on March 1, 2016, the Company obtained formal control over the operations of the WSP joint venture with United States Steel Corporation (U.S. Steel). Our ownership interest will
remain at 51%. WSPs financial statements will be consolidated within the Steel Processing operating segment beginning March 1, 2016. Refer to NOTE Q Subsequent Events for additional detail.
We received distributions from unconsolidated affiliates totaling $65,318,000 during the nine months ended
February 29, 2016. We have received cumulative distributions from WAVE in excess of our investment balance totaling $58,430,000 at February 29, 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.
6
We use the cumulative earnings approach for determining cash
flow presentation of distributions from our unconsolidated joint ventures. Distributions received are included in our consolidated statements of cash flows as operating activities, unless the cumulative distributions exceed our portion of the
cumulative equity in the net earnings of the joint venture, in which case the excess distributions are deemed to be returns of the investment and are classified as investing activities in our consolidated statements of cash flows.
Combined financial information for our unconsolidated affiliates is summarized as follows:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
February 29,
2016
|
|
|
May 31,
2015
|
|
Cash
|
|
$
|
132,893
|
|
|
$
|
101,011
|
|
Receivable from member (1)
|
|
|
6,902
|
|
|
|
11,092
|
|
Other current assets
|
|
|
434,533
|
|
|
|
491,507
|
|
Noncurrent assets
|
|
|
376,416
|
|
|
|
318,939
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
950,744
|
|
|
$
|
922,549
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
131,308
|
|
|
$
|
184,028
|
|
Short-term borrowings
|
|
|
16,684
|
|
|
|
-
|
|
Current maturities of long-term debt
|
|
|
3,721
|
|
|
|
4,489
|
|
Long-term debt
|
|
|
269,261
|
|
|
|
272,861
|
|
Other noncurrent liabilities
|
|
|
21,133
|
|
|
|
20,471
|
|
Equity
|
|
|
508,637
|
|
|
|
440,700
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
950,744
|
|
|
$
|
922,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
February 29, February 28,
|
|
|
February 29, February 28,
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Net sales
|
|
$
|
376,448
|
|
|
$
|
356,604
|
|
|
$
|
1,170,096
|
|
|
$
|
1,137,866
|
|
Gross margin
|
|
|
83,251
|
|
|
|
67,636
|
|
|
|
257,036
|
|
|
|
232,580
|
|
Operating income
|
|
|
54,801
|
|
|
|
41,335
|
|
|
|
171,857
|
|
|
|
154,678
|
|
Depreciation and amortization
|
|
|
7,905
|
|
|
|
8,827
|
|
|
|
24,070
|
|
|
|
26,932
|
|
Interest expense
|
|
|
2,038
|
|
|
|
2,157
|
|
|
|
6,333
|
|
|
|
6,492
|
|
Other income (expense) (2)
|
|
|
(59
|
)
|
|
|
(79
|
)
|
|
|
23,505
|
|
|
|
(208
|
)
|
Income tax expense
|
|
|
2,625
|
|
|
|
2,555
|
|
|
|
7,348
|
|
|
|
8,107
|
|
Net earnings
|
|
|
51,994
|
|
|
|
37,859
|
|
|
|
186,063
|
|
|
|
141,789
|
|
(1)
|
Represents cash owed from a joint venture partner as a result of centralized cash management.
|
(2)
|
The increase in other income for the nine months ended February 29, 2016, as compared to the comparable period in the prior year is primarily
attributable to the impact of ClarkDietrichs legal settlement related to successful disparagement litigation brought against several competitors in an industry trade association.
|
NOTE C Impairment of Goodwill and 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.
7
Fiscal 2016:
Due to the decline in oil prices and resulting reduced
demand for products, management determined that an impairment indicator was present for the long-lived assets in the Oil & Gas Equipment business within Pressure Cylinders. The Company had tested the five asset groups in its Oil &
Gas Equipment business for impairment during the fourth quarter of fiscal 2015 and again in the first quarter of fiscal 2016. In each of these tests, the Companys estimate of the undiscounted future cash flows for each asset group indicated
that the carrying amounts were expected to be recovered as of those measurement dates.
During the second
quarter of fiscal 2016, the continued decline of oil prices further reduced the demand for Oil & Gas Equipment products, causing a significant decrease in the long-term cash flow projections of that business. Based on these revised cash
flow projections, the Company determined that long-lived assets of two of the facilities with a combined carrying amount of $59,895,000 were impaired and wrote them down to their estimated fair value of $36,933,000, resulting in an impairment charge
of $22,962,000. Fair value was based on expected future cash flows using Level 3 inputs under Accounting Standard Codification (ASC) 820. The cash flows are those expected to be generated by market participants, discounted at an
appropriate rate for the risks inherent in those cash flow projections, or 13%. Because of deteriorating market conditions (i.e., rising interest rates and declining marketplace demand), it is reasonably possible that our estimate of discounted cash
flows may change resulting in the need to adjust our determination of fair value.
As a result of the
impairment of the Oil & Gas Equipment assets noted above, the Company also performed an impairment review of the goodwill of the Pressure Cylinders reporting unit during the second quarter of fiscal 2016. The Company first assessed the
reporting unit structure and determined that it was no longer appropriate to aggregate the Oil & Gas Equipment component with the rest of the Pressure Cylinders for purposes of goodwill impairment testing. This determination was driven by
changes in the economic characteristics of the Oil & Gas Equipment business as a result of sustained low oil prices, which now indicate that the risk profile and prospects for growth and profitability of the Oil & Gas Equipment
component are no longer similar to the other components of our Pressure Cylinders businesses. In accordance with the applicable accounting guidance, the Company allocated a portion of Pressure Cylinders goodwill totaling $25,982,000 to the
Oil & Gas Equipment reporting unit using a relative fair value approach. A subsequent comparison of the fair values of the Oil & Gas Equipment and Pressure Cylinders reporting units, determined using discounted cash flows, to their
respective carrying values indicated that a step 2 calculation to quantify a potential impairment was not required. The key assumptions that drive the fair value calculations are projected cash flows and the discount rate. Prior to the allocation of
goodwill, the Company tested the goodwill of the old Pressure Cylinders reporting unit for impairment and determined that fair value exceeded carrying value by a significant amount.
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.
Fiscal 2015:
During the third quarter of fiscal 2015, the Company concluded that an interim impairment test of the
goodwill of its Engineered Cabs reporting unit was necessary. This conclusion was based on certain indicators of impairment, including the decision to close the Companys Engineered Cabs facility in Florence, South Carolina and
significant downward revisions to forecasted cash flows as a result of continued weakness in the mining and agricultural end markets and higher than expected manufacturing costs.
Prior to conducting the goodwill impairment test, the Company first evaluated the other long-lived assets of the
Engineered Cabs reporting unit for recoverability. Recoverability was tested using future cash flow projections based on managements long-range estimates of market conditions. The sums of the undiscounted future cash flows for the customer
relationship intangible asset and the property, plant and equipment of the Florence, South Carolina facility were less than their respective carrying values. As a result, these assets were written down to their respective fair values, resulting in
impairment charges of $22,356,000 for the customer relationship intangible asset and $14,311,000 for the property, plant and equipment of the Florence asset group during the third quarter of fiscal 2015. As noted above, an additional impairment
charge related to the Florence asset group was later recognized during the nine months ended February 29, 2016.
8
As noted above, the Company determined that indicators of potential
impairment existed to require an interim goodwill analysis of the Engineered Cabs reporting unit. A comparison of the fair value of the Engineered Cabs reporting unit, determined using discounted cash flows, to its carrying value indicated that a
step 2 calculation to quantify the potential impairment was required. After a subsequent review of the fair value of the net assets of Engineered Cabs, it was determined that the implied fair value of goodwill was $0 and, accordingly, the entire
$44,933,000 goodwill balance was written-off during the third quarter of fiscal 2015. The key assumptions used in the fair value calculations were projected cash flows and the discount rate.
During the second quarter of fiscal 2015, management committed to a plan to sell the assets of the Advanced Component
Technologies, Inc. business within Engineered Cabs. In accordance with the applicable accounting guidance, the net assets were recorded at the lower of net book value or fair value less costs to sell, resulting in an impairment charge of $2,389,000.
During the third quarter of fiscal 2015, the Company completed the sale of these assets and recognized a gain of $313,000.
Also during the second quarter of fiscal 2015, we determined that indicators of impairment were present at the Companys aluminum high-pressure cylinder business in New Albany, Mississippi, and at
the Companys military construction business due to current and projected operating losses. Recoverability of the identified asset groups was tested using future cash flow projections based on managements long-range estimates of market
conditions. The sum of the undiscounted future cash flows was less than the net book value of the asset groups. In accordance with the applicable accounting guidance, the net assets were written down to their fair values, resulting in impairment
charges of $3,221,000 and $1,179,000, respectively.
During the fourth quarter of fiscal 2014, the Company
committed to a plan to sell its 60% ownership interest in Worthington Nitin Cylinders, a consolidated joint venture in India, and Precision Specialty Metals (PSM), a stainless steel business. Accordingly, at May 31, 2014, the net
assets of these businesses were recorded as assets held for sale at the lower of their fair values or net book values, less selling costs. During the first half of fiscal 2015, changes in facts and circumstances related to these businesses indicated
that the Company needed to reassess the fair value of these assets. As a result, additional impairment charges of $6,346,000 and $3,050,000, respectively, were recorded.
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.
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 nine months ended February 29, 2016 is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Beginning
Balance
|
|
|
Expense
|
|
|
Payments
|
|
|
Adjustments
|
|
|
Ending
Balance
|
|
Early retirement and severance
|
|
$
|
2,170
|
|
|
$
|
5,365
|
|
|
$
|
(4,639
|
)
|
|
$
|
26
|
|
|
$
|
2,922
|
|
Facility exit and other costs
|
|
|
371
|
|
|
|
6,576
|
|
|
|
(5,760
|
)
|
|
|
(23
|
)
|
|
|
1,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,541
|
|
|
|
11,941
|
|
|
$
|
(10,399
|
)
|
|
$
|
3
|
|
|
$
|
4,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain on sale of assets
|
|
|
|
|
|
|
(6,647
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and other expense
|
|
|
|
|
|
$
|
5,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During fiscal 2016, the following activities were taken related to the Companys
restructuring activities:
|
|
|
In connection with the closure of the Engineered Cabs facility in Florence, South Carolina the Company recognized severance expense of $2,171,000
and facility exit costs of $888,000.
|
|
|
|
The Company recognized severance expense of $1,496,000 related to workforce reductions in our Oil & Gas Equipment business within Pressure
Cylinders.
|
|
|
|
In connection with the closure of the Companys stainless steel business, PSM, the Company recognized $5,184,000 of facility exit costs and
severance expense of $1,122,000.
|
9
|
|
|
In connection with the pending closure of the steel packaging facility in York, Pennsylvania, the Company recognized severance expense of $556,000.
|
|
|
|
The Company recognized a gain of $2,978,000 in connection with the sale of the remaining fixed assets of its legacy Baltimore steel processing
facility. The Company also recorded a $240,000 credit to severance expense and recognized facility exit costs of $134,000 during fiscal 2016 related to this matter.
|
|
|
|
The Company recognized a gain of $1,484,000 in connection with the sale of the remaining land and building of its legacy metal framing business.
|
|
|
|
The Company recognized a gain of $1,928,000 in connection with the sale of its interest in Worthington Nitin Cylinders, the Companys
alternative fuels joint venture in India. The sale was completed on January 28, 2016.
|
|
|
|
The Company incurred severance expense and facility costs totaling $260,000 and $370,000, respectively, related to other non-significant
restructuring activities.
|
The total liability as of February 29, 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 February 29, 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 $10,820,000 at February 29, 2016. We have also guaranteed the
repayment of a term loan entered into by our unconsolidated affiliate, ArtiFlex, which had $417,000 outstanding at February 29, 2016. Based on current facts and circumstances, we have estimated the likelihood of payment pursuant to these
guarantees, and determined that the fair value of our obligation under each guarantee based on those likely outcomes is not material and, therefore, no amounts have 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 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 or Fed Funds rates. The applicable margin is determined by our credit rating. The applicable interest rate at February 29, 2016 was 1.538%. Borrowings outstanding
under the Credit Facility totaled $22,710,000 at February 29, 2016, leaving $477,290,000 available for future use.
We also maintain a $100,000,000 revolving trade accounts receivable securitization facility (the AR Facility) which expires in January 2018. The AR Facility has been available throughout
fiscal 2016 to date, and was available throughout fiscal 2015. 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 multi-seller,
asset-backed commercial paper conduit (the Conduit). Purchases by the Conduit are financed with the sale of A1/P1 commercial paper. 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. The book value of the retained portion of the pool of accounts receivable approximates fair value. As of February 29, 2016, the
pool of eligible accounts receivable exceeded the $100,000,000 limit, and $5,000,000 of undivided interests in this pool of accounts receivable had been sold.
10
The remaining balance of short-term borrowings at February 29, 2016
consisted of an aggregate of $3,056,000 outstanding under various credit facilities maintained by our consolidated affiliate, Worthington Aritas.
We also have letters of credit totaling $16,650,000 outstanding as of February 29, 2016. These letters of credit are issued to third-party service providers and had no amounts drawn against them at
February 29, 2016.
NOTE H Comprehensive Income (Loss)
The following table summarizes the tax effects on each component of other comprehensive income (loss)
for the three months ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 29, 2016
|
|
|
February 28, 2015
|
|
|
|
Before-Tax
|
|
|
Tax
|
|
|
Net-of-Tax
|
|
|
Before-Tax
|
|
|
Tax
|
|
|
Net-of-Tax
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
$
|
8,646
|
|
|
$
|
-
|
|
|
$
|
8,646
|
|
|
$
|
(14,873
|
)
|
|
$
|
-
|
|
|
$
|
(14,873
|
)
|
Pension liability adjustment
|
|
|
(90
|
)
|
|
|
-
|
|
|
|
(90
|
)
|
|
|
(1,072
|
)
|
|
|
371
|
|
|
|
(701
|
)
|
Cash flow hedges
|
|
|
8,505
|
|
|
|
(3,075
|
)
|
|
|
5,430
|
|
|
|
(15,253
|
)
|
|
|
5,715
|
|
|
|
(9,538
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
$
|
17,061
|
|
|
$
|
(3,075
|
)
|
|
$
|
13,986
|
|
|
$
|
(31,198
|
)
|
|
$
|
6,086
|
|
|
$
|
(25,112
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the tax effects on each component of other comprehensive
income (loss) for the nine months ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 29, 2016
|
|
|
February 28, 2015
|
|
|
|
Before-Tax
|
|
|
Tax
|
|
|
Net-of-Tax
|
|
|
Before-Tax
|
|
|
Tax
|
|
|
Net-of-Tax
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
$
|
1,255
|
|
|
$
|
-
|
|
|
$
|
1,255
|
|
|
$
|
(31,735
|
)
|
|
$
|
-
|
|
|
$
|
(31,735
|
)
|
Pension liability adjustment
|
|
|
(98
|
)
|
|
|
-
|
|
|
|
(98
|
)
|
|
|
(1,072
|
)
|
|
|
371
|
|
|
|
(701
|
)
|
Cash flow hedges
|
|
|
5,938
|
|
|
|
(2,401
|
)
|
|
|
3,537
|
|
|
|
(16,683
|
)
|
|
|
6,225
|
|
|
|
(10,458
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
$
|
7,095
|
|
|
$
|
(2,401
|
)
|
|
$
|
4,694
|
|
|
$
|
(49,490
|
)
|
|
$
|
6,596
|
|
|
$
|
(42,894
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
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 nine months ended February 29, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Controlling Interest
|
|
|
|
|
|
|
|
(in thousands)
|
|
Additional
Paid-in
Capital
|
|
|
Cumulative
Other
Comprehensive
Loss, Net of
Tax
|
|
|
Retained
Earnings
|
|
|
Total
|
|
|
Non-
controlling
Interests
|
|
|
Total
|
|
Balance at May 31, 2015
|
|
$
|
289,078
|
|
|
$
|
(50,704
|
)
|
|
$
|
510,738
|
|
|
$
|
749,112
|
|
|
$
|
90,937
|
|
|
$
|
840,049
|
|
Net earnings
|
|
|
-
|
|
|
|
-
|
|
|
|
84,227
|
|
|
|
84,227
|
|
|
|
9,698
|
|
|
|
93,925
|
|
Other comprehensive income
|
|
|
-
|
|
|
|
2,185
|
|
|
|
-
|
|
|
|
2,185
|
|
|
|
2,509
|
|
|
|
4,694
|
|
Common shares issued, net of withholding tax
|
|
|
5,811
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,811
|
|
|
|
-
|
|
|
|
5,811
|
|
Common shares in NQ plans
|
|
|
881
|
|
|
|
-
|
|
|
|
-
|
|
|
|
881
|
|
|
|
-
|
|
|
|
881
|
|
Stock-based compensation
|
|
|
13,466
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,466
|
|
|
|
-
|
|
|
|
13,466
|
|
Purchases and retirement of common shares
|
|
|
(16,296
|
)
|
|
|
-
|
|
|
|
(83,552
|
)
|
|
|
(99,848
|
)
|
|
|
-
|
|
|
|
(99,848
|
)
|
Cash dividends declared
|
|
|
-
|
|
|
|
-
|
|
|
|
(36,058
|
)
|
|
|
(36,058
|
)
|
|
|
-
|
|
|
|
(36,058
|
)
|
Payments to noncontrolling interest
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(9,106
|
)
|
|
|
(9,106
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at February 29, 2016
|
|
$
|
292,940
|
|
|
$
|
(48,519
|
)
|
|
$
|
475,355
|
|
|
$
|
719,776
|
|
|
$
|
94,038
|
|
|
$
|
813,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2015
|
|
$
|
(20,717
|
)
|
|
$
|
(15,003
|
)
|
|
$
|
(14,984
|
)
|
|
$
|
(50,704
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
(1,254
|
)
|
|
|
(98
|
)
|
|
|
(17,903
|
)
|
|
|
(19,255
|
)
|
Reclassification adjustments to income (a)
|
|
|
-
|
|
|
|
-
|
|
|
|
23,841
|
|
|
|
23,841
|
|
Income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,401
|
)
|
|
|
(2,401
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of February 29, 2016
|
|
$
|
(21,971
|
)
|
|
$
|
(15,101
|
)
|
|
$
|
(11,447
|
)
|
|
$
|
(48,519
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
The statement of earnings classification of amounts reclassified to income for cash flow hedges is disclosed in NOTE O Derivative
Instruments and Hedging Activities.
|
NOTE J Stock-Based Compensation
Non-Qualified Stock Options
During the nine months ended February 29, 2016, we granted non-qualified stock options covering a total of 153,500 common shares under our stock-based compensation plans. The option price of $30.92
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 $9.55 per share. The calculated
pre-tax stock-based compensation expense for these stock options, after an estimate for forfeitures, is $1,305,000 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
|
|
|
2.33
|
%
|
Expected volatility
|
|
|
38.40
|
%
|
Risk-free interest rate
|
|
|
1.98
|
%
|
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.
12
Service-Based Restricted Common Shares
During the nine months ended February 29, 2016, we granted an aggregate of 210,200 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 $29.26 per share. The calculated pre-tax stock-based
compensation expense for these restricted common shares, after an estimate for forfeitures, is $5,582,000 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 that 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, 2016, 2017 and 2018. 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 nine months ended
February 29, 2016, we granted performance share awards covering an aggregate of 87,096 common shares (at target levels). The calculated pre-tax stock-based compensation expense for these performance shares is $2,623,000 and will be recognized
over the three-year performance period.
NOTE K Income Taxes
Income tax expense for the nine months ended February 29, 2016 and February 28, 2015
reflected estimated annual effective income tax rates of 30.1% and 30.9%, 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 is primarily a result of our Spartan, Worthington Nitin Cylinders, Worthington Aritas, and TWB consolidated joint ventures. The earnings attributable to the noncontrolling
interest in Spartan and TWBs U.S. operations do not generate tax expense to Worthington since the investors in Spartan and TWBs U.S. operations are taxed directly based on the earnings attributable to them. The tax expense of Worthington
Aritas and Worthington Nitin Cylinders (both foreign corporations), 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 2016 could be materially different from the forecasted rate as of February 29, 2016.
13
NOTE L Earnings (Loss) per Share
The following table sets forth the computation of basic and diluted earnings (loss) per share for the
three and nine months ended February 29, 2016 and February 28, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
February 29, February 28,
|
|
|
February 29, February 28,
|
|
(in thousands, except per share amounts)
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Numerator (basic & diluted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) attributable to controlling interest income (loss) available to common shareholders
|
|
$
|
29,576
|
|
|
$
|
(25,710
|
)
|
|
$
|
84,227
|
|
|
$
|
47,920
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings (loss) per share attributable to controlling interest weighted average common
shares
|
|
|
61,747
|
|
|
|
66,359
|
|
|
|
62,810
|
|
|
|
67,013
|
|
Effect of dilutive securities
|
|
|
1,980
|
|
|
|
-
|
|
|
|
1,773
|
|
|
|
2,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings (loss) per share attributable to controlling interest adjusted weighted average common
shares
|
|
|
63,727
|
|
|
|
66,359
|
|
|
|
64,583
|
|
|
|
69,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share attributable to controlling interest
|
|
$
|
0.48
|
|
|
$
|
(0.39
|
)
|
|
$
|
1.34
|
|
|
$
|
0.72
|
|
Diluted earnings (loss) per share attributable to controlling interest
|
|
$
|
0.46
|
|
|
$
|
(0.39
|
)
|
|
$
|
1.30
|
|
|
$
|
0.69
|
|
Stock options and restricted common shares covering 352,830 and 1,924,019 common shares
for the three months ended February 29, 2016 and February 28, 2015, respectively, and 343,454 and 122,721 common shares for the nine months ended February 29, 2016 and February 28, 2015, respectively, have been excluded from the
computation of diluted earnings per share because the effect would have been anti-dilutive.
14
NOTE M Segment Operations
Summarized financial information for our reportable segments is shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
February 29,
|
|
|
February 28,
|
|
|
February 29,
|
|
|
February 28,
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steel Processing
|
|
$
|
419,026
|
|
|
$
|
500,703
|
|
|
$
|
1,377,638
|
|
|
$
|
1,605,790
|
|
Pressure Cylinders
|
|
|
200,721
|
|
|
|
248,086
|
|
|
|
626,288
|
|
|
|
749,789
|
|
Engineered Cabs
|
|
|
25,553
|
|
|
|
45,390
|
|
|
|
92,869
|
|
|
|
146,484
|
|
Other
|
|
|
1,780
|
|
|
|
10,606
|
|
|
|
8,248
|
|
|
|
36,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
647,080
|
|
|
$
|
804,785
|
|
|
$
|
2,105,043
|
|
|
$
|
2,538,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steel Processing
|
|
$
|
21,294
|
|
|
$
|
16,406
|
|
|
$
|
71,574
|
|
|
$
|
86,152
|
|
Pressure Cylinders
|
|
|
8,969
|
|
|
|
18,611
|
|
|
|
15,479
|
|
|
|
47,797
|
|
Engineered Cabs
|
|
|
(4,053
|
)
|
|
|
(85,780
|
)
|
|
|
(17,634
|
)
|
|
|
(93,534
|
)
|
Other
|
|
|
(1,138
|
)
|
|
|
(1,287
|
)
|
|
|
(1,379
|
)
|
|
|
(7,071
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income (loss)
|
|
$
|
25,072
|
|
|
$
|
(52,050
|
)
|
|
$
|
68,040
|
|
|
$
|
33,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of goodwill and long-lived assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steel Processing
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,050
|
|
Pressure Cylinders
|
|
|
-
|
|
|
|
-
|
|
|
|
22,962
|
|
|
|
9,567
|
|
Engineered Cabs
|
|
|
-
|
|
|
|
81,600
|
|
|
|
3,000
|
|
|
|
83,989
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impairment of goodwill and long-lived assets
|
|
$
|
-
|
|
|
$
|
81,600
|
|
|
$
|
25,962
|
|
|
$
|
97,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and other expense (income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steel Processing
|
|
$
|
1,068
|
|
|
$
|
(28
|
)
|
|
$
|
3,788
|
|
|
$
|
(58
|
)
|
Pressure Cylinders
|
|
|
(1,031
|
)
|
|
|
2,498
|
|
|
|
(316
|
)
|
|
|
2,926
|
|
Engineered Cabs
|
|
|
416
|
|
|
|
(313
|
)
|
|
|
3,059
|
|
|
|
(313
|
)
|
Other
|
|
|
249
|
|
|
|
20
|
|
|
|
(1,237
|
)
|
|
|
210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring and other expense
|
|
$
|
702
|
|
|
$
|
2,177
|
|
|
$
|
5,294
|
|
|
$
|
2,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
February 29,
2016
|
|
|
May 31,
2015
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steel Processing
|
|
$
|
734,182
|
|
|
$
|
829,116
|
|
|
|
|
|
|
|
|
|
Pressure Cylinders
|
|
|
784,880
|
|
|
|
804,799
|
|
|
|
|
|
|
|
|
|
Engineered Cabs
|
|
|
75,603
|
|
|
|
94,506
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
365,263
|
|
|
|
356,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,959,928
|
|
|
$
|
2,085,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
NOTE N Acquisitions
The CryoScience business of Taylor Wharton
On December 7, 2015, the Company acquired the net assets of the CryoScience business of Taylor Wharton (Taylor
Wharton CryoScience), including a manufacturing facility in Theodore, Alabama. The Company also purchased certain intellectual property and manufacturing assets of Taylor Wharton focused on the cryogenic industrial and liquefied natural gas
markets. The total purchase price was $30,287,000 after adjusting for an estimated working capital deficit of $1,069,000. The acquired assets became part of our Pressure Cylinders operating segment upon closing.
The assets acquired and liabilities assumed were recognized at their acquisition-date fair values, with goodwill
representing the excess of the purchase price over the fair value of the net identifiable assets acquired. In connection with the acquisition, we identified and valued the following identifiable intangible assets:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
Useful Life
|
|
Category
|
|
Amount
|
|
|
(Years)
|
|
Technology
|
|
$
|
2,800
|
|
|
|
20
|
|
Customer relationships
|
|
|
2,200
|
|
|
|
15
|
|
Other
|
|
|
260
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Total acquired identifiable intangible assets
|
|
$
|
5,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The purchase price includes the fair values of other assets that were not identifiable,
not separately recognizable under accounting rules (e.g., assembled workforce), or of immaterial value. The purchase price also includes a going-concern element that represents our ability to earn a higher rate of return on this group of assets than
would be expected on the separate assets as determined during the valuation process. This additional investment value resulted in goodwill, which is expected to be deductible for income tax purposes.
The following table summarizes the consideration transferred and the fair value assigned to the assets acquired and
liabilities assumed at the acquisition date:
|
|
|
|
|
(in thousands)
|
|
|
|
Accounts receivable
|
|
$
|
2,271
|
|
Inventories
|
|
|
5,686
|
|
Prepaid expenses
|
|
|
211
|
|
Intangible assets
|
|
|
5,260
|
|
Property, plant and equipment
|
|
|
13,400
|
|
|
|
|
|
|
Total identifiable assets
|
|
|
26,828
|
|
Accounts payable
|
|
|
(2,801
|
)
|
Other accrued items
|
|
|
(310
|
)
|
|
|
|
|
|
Net assets
|
|
|
23,717
|
|
Goodwill
|
|
|
6,570
|
|
|
|
|
|
|
Purchase price
|
|
$
|
30,287
|
|
Plus: estimated working capital deficit
|
|
|
1,069
|
|
|
|
|
|
|
Cash paid at closing
|
|
$
|
31,356
|
|
|
|
|
|
|
Operating results of the acquired business have been included in our consolidated
statement of earnings from the acquisition date, forward, and have been immaterial. Pro forma net sales and net earnings, including the acquired business since the beginning of fiscal 2015, would not be materially different than reported results.
NetBraze
On January 15, 2016, the Company acquired the net assets of NetBraze, LLC, a manufacturer of brazing alloys, silver brazing filler metals, solders and fluxes. The total purchase price was $3,390,000,
including contingent consideration with an estimated fair value of $540,000. This basis was allocated among the net assets acquired at
16
their acquisition-date fair values, with $1,565,000 to working capital and $1,825,000 to fixed assets. The purchase price is subject to change based on final working capital adjustments. The
acquired assets became part of our Pressure Cylinders operating segment upon closing.
Operating results of
the acquired business have been included in our consolidated statements of earnings from the acquisition date, forward, and have been immaterial. Pro forma results, including the acquired business since the beginning of fiscal 2015, would not be
materially different than reported results.
NOTE O 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, currency exchange risk and commodity price risk. While certain of our derivative instruments are designated as hedging instruments, we also
enter into derivative instruments that are designed to hedge a risk, but are not designated as hedging instruments and therefore do not qualify for hedge accounting. These derivative instruments are adjusted to current fair value through earnings at
the end of each period.
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.
Currency Exchange Risk Management
We conduct business in several major international currencies and are
therefore subject to risks associated with changing foreign exchange rates. We enter into various contracts that change in value as foreign 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 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 and enter into derivative instruments
only with major financial institutions. 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 February 29, 2016, we had posted total cash collateral of $3,810,000 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 P Fair Value Measurements for additional information regarding the accounting treatment
for our derivative instruments, as well as how fair value is determined.
17
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 February 29, 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
|
|
$
|
-
|
|
|
Accounts payable
|
|
$
|
12,334
|
|
|
|
Other assets
|
|
|
-
|
|
|
Other liabilities
|
|
|
338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
12,672
|
|
Interest rate contracts
|
|
Receivables
|
|
|
-
|
|
|
Accounts payable
|
|
|
141
|
|
|
|
Other assets
|
|
|
-
|
|
|
Other liabilities
|
|
|
327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
|
$
|
-
|
|
|
|
|
$
|
13,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
Receivables
|
|
$
|
-
|
|
|
Accounts payable
|
|
$
|
2,247
|
|
|
|
Other assets
|
|
|
-
|
|
|
Other liabilities
|
|
|
133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
2,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Receivables
|
|
|
-
|
|
|
Accounts payable
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
|
$
|
-
|
|
|
|
|
$
|
2,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivative Instruments
|
|
|
|
$
|
-
|
|
|
|
|
$
|
15,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 impact would have been a $995,000 increase in receivables with a corresponding increase in accounts payable.
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, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
|
Balance
|
|
|
|
|
Balance
|
|
|
|
|
|
Sheet
|
|
Fair
|
|
|
Sheet
|
|
Fair
|
|
(in thousands)
|
|
Location
|
|
Value
|
|
|
Location
|
|
Value
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
Receivables
|
|
$
|
-
|
|
|
Accounts payable
|
|
$
|
17,241
|
|
|
|
Other assets
|
|
|
-
|
|
|
Other liabilities
|
|
|
592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
17,833
|
|
Interest rate contracts
|
|
Receivables
|
|
|
-
|
|
|
Accounts payable
|
|
|
81
|
|
Other assets
|
|
Other assets
|
|
|
-
|
|
|
Other liabilities
|
|
|
113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Receivables
|
|
|
75
|
|
|
Accounts payable
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
|
$
|
75
|
|
|
|
|
$
|
18,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
Receivables
|
|
$
|
96
|
|
|
Accounts payable
|
|
$
|
4,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
|
$
|
96
|
|
|
|
|
$
|
4,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivative Instruments
|
|
|
|
$
|
171
|
|
|
|
|
$
|
22,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
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 impact would have been a $500,000 increase in receivables with a corresponding increase in accounts payable.
Cash Flow Hedges
We enter into derivative instruments to hedge our exposure to changes in cash flows attributable to interest rates, foreign exchange 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 other comprehensive income (loss)
(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 February 29, 2016:
|
|
|
|
|
|
|
(in thousands)
|
|
Notional
Amount
|
|
|
Maturity Date
|
Commodity contracts
|
|
$
|
103,490
|
|
|
March 2016 - December 2017
|
Interest rate contracts
|
|
|
16,635
|
|
|
September 2019
|
The following table summarizes the gain (loss) recognized in OCI and the gain (loss)
reclassified from accumulated OCI into earnings for derivative instruments designated as cash flow hedges during the three months ended February 29, 2016 and February 28, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of
|
|
|
|
|
Location of
|
|
|
|
|
|
|
|
|
Gain (Loss)
|
|
Gain (Loss)
|
|
|
Gain (Loss)
|
|
Gain (Loss)
|
|
|
|
|
|
|
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
February 29, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
(107
|
)
|
|
Interest expense
|
|
$
|
(130
|
)
|
|
Interest expense
|
|
$
|
-
|
|
Commodity contracts
|
|
|
707
|
|
|
Cost of goods sold
|
|
|
(7,775
|
)
|
|
Cost of goods sold
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
600
|
|
|
|
|
$
|
(7,905
|
)
|
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
February 28, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
-
|
|
|
Interest expense
|
|
$
|
(160
|
)
|
|
Interest expense
|
|
$
|
-
|
|
Commodity contracts
|
|
|
(15,178
|
)
|
|
Cost of goods sold
|
|
|
539
|
|
|
Cost of goods sold
|
|
|
-
|
|
Foreign currency contracts
|
|
|
314
|
|
|
Miscellaneous income
|
|
|
-
|
|
|
Miscellaneous income
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
(14,864
|
)
|
|
|
|
$
|
379
|
|
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
The following table summarizes the gain (loss) recognized in OCI and the
gain (loss) reclassified from accumulated OCI into earnings for derivative instruments designated as cash flow hedges during the nine months ended February 29, 2016 and February 28, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of
|
|
|
|
|
Location of
|
|
|
|
|
|
|
|
|
Gain (Loss)
|
|
Gain (Loss)
|
|
|
Gain (Loss)
|
|
Gain (Loss)
|
|
|
|
|
|
|
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 nine months ended February 29, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
(274
|
)
|
|
Interest expense
|
|
$
|
(415
|
)
|
|
Interest expense
|
|
$
|
-
|
|
Commodity contracts
|
|
|
(17,629
|
)
|
|
Cost of goods sold
|
|
|
(23,422
|
)
|
|
Cost of goods sold
|
|
|
-
|
|
Foreign currency contracts
|
|
|
-
|
|
|
Miscellaneous income
|
|
|
(4
|
)
|
|
Miscellaneous income
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
(17,903
|
)
|
|
|
|
$
|
(23,841
|
)
|
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended February 28, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
-
|
|
|
Interest expense
|
|
$
|
(2,445
|
)
|
|
Interest expense
|
|
$
|
-
|
|
Commodity contracts
|
|
|
(19,953
|
)
|
|
Cost of goods sold
|
|
|
(613
|
)
|
|
Cost of goods sold
|
|
|
-
|
|
Foreign currency contracts
|
|
|
211
|
|
|
Miscellaneous income
|
|
|
-
|
|
|
Miscellaneous income
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
(19,742
|
)
|
|
|
|
$
|
(3,058
|
)
|
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated net amount of the losses recognized in accumulated OCI at February 29,
2016 expected to be reclassified into net earnings within the succeeding twelve months is $9,382,000 (net of tax of $5,349,000). This amount was computed using the fair value of the cash flow hedges at February 29, 2016, and will change before
actual reclassification from OCI to net earnings during the fiscal years ending May 31, 2016 and 2017.
Economic (Non-designated)
Hedges
We enter into foreign currency contracts to manage our foreign exchange 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 February 29, 2016:
|
|
|
|
|
|
|
(in thousands)
|
|
Notional
Amount
|
|
|
Maturity Date(s)
|
Commodity contracts
|
|
$
|
36,996
|
|
|
March 2016 - October 2017
|
Foreign currency contracts
|
|
|
6,806
|
|
|
March 2016 - February 2017
|
20
The following table summarizes the gain (loss) recognized in earnings for
economic (non-designated) derivative financial instruments during the three months ended February 29, 2016 and February 28, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Recognized
in Earnings for the
Three Months
Ended
|
|
(in thousands)
|
|
Location of Gain
(Loss)
Recognized in Earnings
|
|
February 29,
2016
|
|
|
February 28,
2015
|
|
Commodity contracts
|
|
Cost of goods sold
|
|
$
|
173
|
|
|
$
|
(4,105
|
)
|
Foreign currency contracts
|
|
Miscellaneous income (expense)
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
220
|
|
|
$
|
(4,105
|
)
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the gain (loss) recognized in earnings for economic
(non-designated) derivative financial instruments during the nine months ended February 29, 2016 and February 28, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Recognized
in Earnings for the
Nine Months Ended
|
|
(in thousands)
|
|
Location of Gain (Loss)
Recognized in Earnings
|
|
February 29,
2016
|
|
|
February 28,
2015
|
|
Commodity contracts
|
|
Cost of goods sold
|
|
$
|
(7,972
|
)
|
|
$
|
(6,522
|
)
|
Foreign currency contracts
|
|
Miscellaneous income (expense)
|
|
|
117
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
(7,855
|
)
|
|
$
|
(6,479
|
)
|
|
|
|
|
|
|
|
|
|
|
|
The gain (loss) on the foreign currency derivatives significantly offsets the gain (loss)
on the hedged item.
NOTE P 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
|
|
|
|
Observable inputs other than quoted prices in active markets for identical or similar assets and liabilities.
|
|
|
|
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.
|
21
Recurring Fair Value Measurements
At February 29, 2016, our assets and liabilities measured at fair value on a recurring basis were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Quoted Price
in Active
Markets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Totals
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts (1)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts (1)
|
|
$
|
-
|
|
|
$
|
15,522
|
|
|
$
|
-
|
|
|
$
|
15,522
|
|
Contingent consideration obligation (2)
|
|
|
-
|
|
|
|
-
|
|
|
|
540
|
|
|
|
540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
-
|
|
|
$
|
15,522
|
|
|
$
|
540
|
|
|
$
|
16,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At May 31, 2015, 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)
|
|
$
|
-
|
|
|
$
|
171
|
|
|
$
|
-
|
|
|
$
|
171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
-
|
|
|
$
|
171
|
|
|
$
|
-
|
|
|
$
|
171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts (1)
|
|
$
|
-
|
|
|
$
|
22,131
|
|
|
$
|
-
|
|
|
$
|
22,131
|
|
Contingent consideration obligations (2)
|
|
|
-
|
|
|
|
-
|
|
|
|
3,979
|
|
|
|
3,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
-
|
|
|
$
|
22,131
|
|
|
$
|
3,979
|
|
|
$
|
26,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 O 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.
|
22
Non-Recurring Fair Value Measurements
At February 29, 2016, there were no assets or liabilities measured at fair value on a non-recurring basis on the
Companys consolidated balance sheet.
At May 31, 2015, our assets measured at fair value on a
non-recurring basis were categorized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Quoted Prices
in Active
Markets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Totals
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets held and used (1)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
12,403
|
|
|
$
|
12,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
12,403
|
|
|
$
|
12,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
During the fourth quarter of fiscal 2015, management reviewed certain intangible assets related to our CNG fuel systems joint venture, dHybrid, for
impairment. In accordance with the applicable accounting guidance, the intangible assets were written down to their fair value of $600,000, resulting in an impairment charge of $2,344,000. The key assumptions that drove the fair value calculation
were projected cash flows and the discount rate.
|
During the third quarter of fiscal 2015,
the Company concluded that an interim impairment test of the goodwill of its Engineered Cabs operating segment was necessary. Prior to conducting the goodwill impairment test, the Company first evaluated the other long-lived assets of the Engineered
Cabs operating segment for recoverability. Recoverability was tested using future cash flow projections based on managements long-range estimates of market conditions. The sum of the undiscounted future cash flows for the customer relationship
intangible asset and the property, plant and equipment of the Florence, South Carolina facility were less than their respective carrying values. As a result, these assets were written down to their respective fair values of $2,000,000 and
$9,803,000. The fair value measurements were based on Level 3 inputs not observable in the market. The key assumptions that drove the fair value calculations were projected cash flows and the discount rate.
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 $602,511,000 and $610,028,000
at February 29, 2016 and May 31, 2015, respectively. The carrying amount of long-term debt, including current maturities, was $580,372,000 and $580,193,000 at February 29, 2016 and May 31, 2015, respectively.
NOTE Q Subsequent Events
As of March 1, 2016, the Company reached an agreement with U.S. Steel, its partner in the WSP
joint venture, whereby it obtained a majority of the WSP Board of Directors, which gave the Company effective control over the operations of WSP. As a result, we began consolidating the results of WSP within our financial results as of March 1,
2016, the beginning of the Companys fiscal 2016 fourth quarter. The equity of United States Steel Corporation in the joint venture will be shown as noncontrolling interest in our consolidated balance sheets beginning March 1, 2016 and
United States Steel Corporations portion of net earnings will be included as net earnings attributable to noncontrolling interest in our consolidated statements of earnings beginning with the fourth quarter of fiscal 2016. The Company had been
accounting for the results of WSP, through the third quarter of 2016, under the equity method. As a result of this change, and in accordance with U.S. GAAP, we will be required to write up the assets of WSP to fair market value which will result in
a one-time, non-cash gain in the fourth quarter of fiscal 2016. The ownership percentages in WSP will remain 51% Worthington and 49% U.S. Steel.
23