Item 7.
Managements Discussion and Analysis of Financial
Condition and Results of Operations
Selected statements contained in this Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operations constitute forward-looking statements as that term is used in the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements are based, in whole or in part, on managements beliefs, estimates, assumptions and currently available information. For a more detailed discussion of what constitutes a forward-looking statement and of some of the factors that could
cause actual results to differ materially from such forward-looking statements, please refer to the Safe Harbor Statement in the beginning of this Annual Report on Form 10-K and Part I Item 1A. Risk Factors of
this Annual Report on Form 10-K.
Introduction
Worthington Industries, Inc. is a corporation formed under the laws of the State of Ohio (individually, the
Registrant or Worthington Industries or, collectively with the subsidiaries of Worthington Industries, Inc., we, our, Worthington or the Company). Founded in 1955, Worthington
is primarily a diversified metals manufacturing company, focused on value-added steel processing and manufactured metal products. Our manufactured metal products include: pressure cylinders for liquefied petroleum gas (LPG), compressed
natural gas (CNG), oxygen, refrigerant and other industrial gas storage; hand torches and filled hand torch cylinders; propane-filled camping cylinders; helium-filled balloon kits; steel and fiberglass tanks and processing equipment
primarily for the oil and gas industry; cryogenic pressure vessels for liquefied natural gas (LNG) and other gas storage applications; engineered cabs and operator stations and cab components; and, through joint ventures, suspension grid
systems for concealed and lay-in panel ceilings; laser welded blanks; light gauge steel framing for commercial and residential construction; and current and past model automotive service stampings. Our number one goal is to increase shareholder
value, which we seek to accomplish by optimizing existing operations, developing and commercializing new products and applications, and pursuing strategic acquisitions and joint ventures.
As of May 31, 2016, excluding our joint ventures, we operated 31 manufacturing facilities worldwide, principally in three
operating segments, which correspond with our reportable business segments: Steel Processing, Pressure Cylinders and Engineered Cabs. Our remaining operating segments, which do not meet the applicable aggregation criteria or quantitative thresholds
for separate disclosure, are combined and reported in the Other category. These include Construction Services and Worthington Energy Innovations (WEI). The Company is in the process of exiting the businesses within
Construction Services.
We also held equity positions in 12 active joint ventures, which operated 51
manufacturing facilities worldwide, as of May 31, 2016. Six of these joint ventures are consolidated with the equity owned by the other joint venture member(s) shown as noncontrolling interests in our consolidated balance sheets, and the other joint
venture member(s) portion of net earnings and other comprehensive income shown as net earnings or comprehensive income attributable to noncontrolling interests in our consolidated statements of earnings and consolidated statements of
comprehensive income, respectively. The remaining six of these joint ventures are accounted for using the equity method.
Overview
Performance was steady during fiscal 2016 despite challenging market conditions resulting from lower
average steel and oil prices. A higher spread between average selling prices and material cost and improved operations in the industrial and consumer products businesses in Pressure Cylinders helped to offset the impact of inventory holding losses
in Steel Processing and lower volume in the Oil & Gas Equipment business within Pressure Cylinders. Demand remained steady in most of our key end markets, with the exception of the oil and gas equipment and agricultural end
markets.
Equity in net income of unconsolidated affiliates (equity income) was up 31% in fiscal
2016 to $115.0 million on higher contributions from all of our unconsolidated joint ventures. Strong automotive and construction markets and lower steel costs have benefited these businesses. We received distributions of $86.5 million from our
unconsolidated affiliates during fiscal 2016.
30
Recent Business Developments
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On December 7, 2015, the Company completed the acquisition of the global CryoScience business of Taylor Wharton, including a manufacturing facility
in Theodore, Alabama, for $30.6 million. The asset purchase was made pursuant to the Chapter 11 bankruptcy proceedings of Taylor Wharton. The acquired net assets became part of the Pressure Cylinders operating segment upon closing.
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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, for $3.4 million. The acquired net assets became part of the Pressure Cylinders operating segment upon closing.
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As of March 1, 2016, the Company reached an agreement with United States Steel Corporation (U.S. Steel), its partner in the Worthington
Specialty Processing (WSP) joint venture, whereby the Company appoints a majority of the WSP Board of Directors, giving the Company 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 interest. In the periods prior to March 1, 2016, WSPs results had
been accounted for under the equity method. As required by the applicable accounting guidance, a pre-tax gain of $6.9 million was recognized for the difference between the fair value of the Companys previously-held ownership interest in WSP
and its carrying value at the acquisition date. The gain was recorded in miscellaneous income, below operating income. The ownership percentages in WSP remained unchanged at 51% Worthington and 49% U.S. Steel.
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On June 29, 2016, the Board declared a quarterly dividend of $0.20 per share, an increase of $0.01 per share from the previous quarterly
rate. The dividend is payable on September 29, 2016 to shareholders of record on September 15, 2016.
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During fiscal 2016, we repurchased a total of 3,500,000 common shares for $99.8 million at an average price of $28.53.
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Market & Industry Overview
We sell our products and services to a diverse customer base and a broad range of end markets. The breakdown of our net sales by end market for fiscal 2016 and fiscal 2015 is illustrated in the
following chart:
31
The automotive industry is one of the largest consumers of flat-rolled
steel, and thus the largest end market for our Steel Processing operating segment. Approximately 65% of the net sales of our Steel Processing operating segment are to the automotive market. North American vehicle production, primarily by FCA US,
Ford and General Motors (the Detroit Three automakers), has a considerable impact on the activity within this operating segment. The majority of the net sales of three of our unconsolidated joint ventures are also to the automotive end
market.
Approximately 10% of the net sales of our Steel Processing operating segment, 52% of the net sales of
our Engineered Cabs operating segment and substantially all of the net sales of our Construction Services operating segment are to the construction market. The construction market is also the predominant end market for two of our unconsolidated
joint ventures: WAVE and ClarkDietrich. While the market price of steel significantly impacts these businesses, there are other key indicators that are meaningful in analyzing construction market demand, including U.S. gross domestic product
(GDP), the Dodge Index of construction contracts and, in the case of ClarkDietrich, trends in the relative price of framing lumber and steel.
Substantially all of the net sales of our Pressure Cylinders operating segment, and approximately 25% and 48% of the net sales of our Steel Processing and Engineered Cabs operating segments, respectively,
are to other markets such as consumer products, industrial, lawn and garden, agriculture, oil and gas equipment, heavy truck, mining, forestry and appliance. Given the many different products that make up these net sales and the wide variety of
end markets, it is very difficult to detail the key market indicators that drive this portion of our business. However, we believe that the trend in U.S. GDP growth is a good economic indicator for analyzing these operating segments.
We use the following information to monitor our costs and demand in our major end markets:
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2016
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2015
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2014
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2016 vs.
2015
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2015 vs.
2014
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U.S. GDP (% growth year-over-year)
1
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1.2
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%
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2.5
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%
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1.7
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%
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-1.3
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%
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0.8
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%
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Hot-Rolled Steel ($ per ton)
2
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$
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442
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$
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591
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$
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651
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($
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149
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)
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($
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60
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)
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Detroit Three Auto Build (000s vehicles)
3
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9,346
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9,069
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9,029
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277
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40
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No. America Auto Build (000s vehicles)
3
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17,736
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17,145
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16,414
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591
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731
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Zinc ($ per pound)
4
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$
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0.82
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$
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0.98
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$
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0.86
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($
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0.16
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)
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$
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0.12
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Natural Gas ($ per mcf)
5
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|
$
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2.28
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$
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3.60
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|
$
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4.08
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($
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1.32
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)
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($
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0.48
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)
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On-Highway Diesel Fuel Prices ($ per gallon)
6
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$
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2.40
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$
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3.38
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$
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3.91
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|
($
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0.98
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)
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($
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0.53
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)
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Crude Oil WTI ($ per barrel)
6
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$
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42.67
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$
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73.16
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$
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100.49
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($
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30.49
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)
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($
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27.33
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)
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1
2015/2014
figures based on revised actuals
2
CRU Hot-Rolled Index; period
average
3
IHS
Global
4
LME Zinc; period
average
5
NYMEX Henry Hub Natural
Gas; period average
6
Energy
Information Administration; period average
U.S. GDP growth rate trends are generally indicative of the
strength in demand and, in many cases, pricing for our products. A year-over-year increase in U.S. GDP growth rates is indicative of a stronger economy, which generally increases demand and pricing for our products. Conversely, decreasing U.S. GDP
growth rates generally indicate a weaker economy. Changes in U.S. GDP growth rates can also signal changes in conversion costs related to production and in selling, general and administrative (SG&A) expense.
The market price of hot-rolled steel is one of the most significant factors impacting our selling prices and operating
results. When steel prices fall, we typically have higher-priced material flowing through cost of goods sold, while selling prices compress to what the market will bear, negatively impacting our results. On the other hand, in a rising
price environment, our results are generally favorably impacted, as lower-priced material purchased in previous periods flows through cost of goods sold, while our selling prices increase at a faster pace to cover current replacement costs.
32
The following table presents the average quarterly market price per ton of
hot-rolled steel during fiscal 2016, fiscal 2015 and fiscal 2014:
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Fiscal Year
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(Dollars per ton
1
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2016
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2015
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2014
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1st Quarter
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$
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461
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$
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670
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$
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627
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2nd Quarter
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$
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419
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$
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651
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$
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651
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3rd Quarter
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$
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381
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$
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578
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$
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669
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4th Quarter
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$
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507
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$
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464
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$
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655
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Annual Avg.
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$
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442
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$
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591
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$
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651
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1
CRU
Hot-Rolled Index
No single customer contributed more than 10% of our consolidated net sales during fiscal
2016. While our automotive business is largely driven by the production schedules of the Detroit Three automakers, our customer base is much broader and includes other domestic manufacturers and many of their suppliers. During fiscal 2016,
vehicle production for the Detroit Three automakers was up 3%. North American vehicle production as a whole also increased 3%.
Certain other commodities, such as zinc, natural gas and diesel fuel, represent a significant portion of our cost of goods sold, both directly through our plant operations and indirectly through
transportation and freight expense.
33
Results of Operations
Fiscal 2016 Compared to Fiscal 2015
Consolidated Operations
The following table presents consolidated operating results for the periods indicated:
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Fiscal Year Ended May 31,
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(Dollars in millions)
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2016
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% of
Net sales
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2015
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% of
Net sales
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Increase/
(Decrease)
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|
Net sales
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$
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2,819.7
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|
|
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100.0
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%
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|
$
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3,384.2
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|
|
100.0
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%
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$
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(564.5
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)
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Cost of goods sold
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2,367.1
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|
|
|
83.9
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%
|
|
|
2,920.7
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|
|
|
86.3
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%
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(553.6
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)
|
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|
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Gross margin
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452.6
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16.1
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%
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|
|
463.5
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|
|
|
13.7
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%
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(10.9
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)
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Selling, general and administrative expense
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297.4
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|
|
|
10.5
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%
|
|
|
295.9
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|
|
|
8.7
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%
|
|
|
1.5
|
|
Impairment of goodwill and long-lived assets
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|
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26.0
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|
|
0.9
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%
|
|
|
100.1
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|
|
|
3.0
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%
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|
|
(74.1
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)
|
Restructuring and other expense
|
|
|
7.2
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|
|
|
0.3
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%
|
|
|
6.9
|
|
|
|
0.2
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%
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Operating income
|
|
|
122.0
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|
|
4.3
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%
|
|
|
60.6
|
|
|
|
1.8
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%
|
|
|
61.4
|
|
Miscellaneous income
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|
|
11.3
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|
|
|
0.4
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%
|
|
|
0.8
|
|
|
|
0.0
|
%
|
|
|
10.5
|
|
Interest expense
|
|
|
(31.7
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)
|
|
|
-1.1
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%
|
|
|
(35.8
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)
|
|
|
-1.1
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%
|
|
|
(4.1
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)
|
Equity in net income of unconsolidated affiliates
|
|
|
115.0
|
|
|
|
4.1
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%
|
|
|
87.5
|
|
|
|
2.6
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%
|
|
|
27.5
|
|
Income tax expense
|
|
|
(59.0
|
)
|
|
|
-2.1
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%
|
|
|
(25.8
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)
|
|
|
-0.8
|
%
|
|
|
33.2
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Net earnings
|
|
|
157.6
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|
|
|
5.6
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%
|
|
|
87.3
|
|
|
|
2.6
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%
|
|
|
70.3
|
|
Net earnings attributable to noncontrolling interests
|
|
|
13.9
|
|
|
|
0.5
|
%
|
|
|
10.5
|
|
|
|
0.3
|
%
|
|
|
3.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to controlling interest
|
|
$
|
143.7
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|
|
|
5.1
|
%
|
|
$
|
76.8
|
|
|
|
2.3
|
%
|
|
$
|
66.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity income by unconsolidated affiliate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WAVE
|
|
$
|
82.7
|
|
|
|
|
|
|
$
|
70.6
|
|
|
|
|
|
|
$
|
12.1
|
|
ClarkDietrich
|
|
|
14.6
|
|
|
|
|
|
|
|
2.9
|
|
|
|
|
|
|
|
11.7
|
|
Serviacero
|
|
|
6.3
|
|
|
|
|
|
|
|
3.3
|
|
|
|
|
|
|
|
3.0
|
|
ArtiFlex
|
|
|
10.3
|
|
|
|
|
|
|
|
7.2
|
|
|
|
|
|
|
|
3.1
|
|
WSP
|
|
|
1.7
|
|
|
|
|
|
|
|
2.9
|
|
|
|
|
|
|
|
(1.2
|
)
|
Other
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
0.6
|
|
|
|
|
|
|
|
(1.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
115.0
|
|
|
|
|
|
|
$
|
87.5
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|
|
|
|
|
|
$
|
27.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2016 net earnings attributable to controlling interest increased $66.9 million
over fiscal 2015. Net sales and operating highlights were as follows:
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Net sales decreased $564.5 million from fiscal 2015. The decrease was driven by lower average selling prices in Steel Processing due to the market
price of steel and by lower volume in Pressure Cylinders and Engineered Cabs, partially offset by the impact of acquisitions.
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Gross margin decreased $10.9 million from fiscal 2015 on lower volume partially offset by an improved pricing spread in Steel Processing and lower
manufacturing expenses across many of our businesses.
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SG&A expense increased $1.5 million over fiscal 2015 driven by higher profit sharing and bonus expense and the impact of acquisitions.
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Impairment charges of $26.0 million in fiscal 2016 consisted of $23.0 million related to the impairment of certain long-lived assets in our Oil
& Gas Equipment business and $3.0 million related to the September 30, 2015 closure of the Engineered Cabs facility in Florence, South Carolina. Impairment charges in the prior year related primarily to the impairment of goodwill and other
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34
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long-lived assets in Engineered Cabs. For additional information regarding these impairment charges, refer to Item 8. Financial Statements and Supplementary Data
Notes to Consolidated Financial Statements Note C Goodwill and Other Long-Lived Assets of this Annual Report on Form 10-K.
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Restructuring and other expense of $7.2 million consisted of $7.0 million in net restructuring charges related to the ongoing closure of the
Companys stainless steel business, Precision Specialty Metals, Inc. (PSM), $1.8 million of employee severance related to workforce reduction in Oil & Gas Equipment and $3.2 million of facility exit costs related to the closure
of the Florence, South Carolina facility in Engineered Cabs. A net gain of $6.9 million on asset disposals partially offset the impact of these items. The net gain was related primarily to the disposal of the remaining fixed assets of our legacy
Baltimore steel processing facility ($3.0 million), the sale of the Worthington Nitin Cylinders joint venture in India ($1.9 million), and the sale of real estate in our legacy metal framing business ($1.5 million). For additional information, refer
to Item 8. Financial Statements and Supplementary Data Notes to Consolidated Financial Statements Note D Restructuring and Other Expense of this Annual Report on Form 10-K.
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Miscellaneous income increased $10.5 million over fiscal 2015. The increase was primarily the result of a $6.9 million pre-tax gain related to the
consolidation of WSP. The gain represents the difference between the fair value of the Companys previously-held ownership interest in WSP and its carrying value at the acquisition date. For additional information, refer to Item 8.
Financial Statements and Supplementary Data Notes to Consolidated Financial Statements Note O Acquisitions of this Annual Report on Form 10-K.
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Interest expense of $31.7 million was $4.1 million lower than the prior fiscal year. The decrease was driven by lower average debt levels as a
result of a decrease in working capital requirements due to the lower average market price of steel. For additional information, refer to Item 8. Financial Statements and Supplementary Data Notes to Consolidated
Financial Statements Note G Debt and Receivables Securitization of this Annual Report on Form 10-K.
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Equity income increased $27.5 million over fiscal 2015 to $115.0 million. The equity portion of income from WAVE, ClarkDietrich, ArtiFlex and
Serviacero exceeded the prior year period by $12.1 million, $11.7 million, $3.1 million and $3.0 million, respectively. The equity portion of income from ClarkDietrich includes a $4.5 million net legal settlement gain related to successful
disparagement litigation against several competitors in an industry trade association. We received distributions of $86.5 million from our unconsolidated affiliates during fiscal 2016. For additional financial information regarding our
unconsolidated affiliates, refer to Item 8. Financial Statements and Supplementary Data Notes to Consolidated Financial Statements Note B Investments in Unconsolidated Affiliates of this
Annual Report on Form 10-K.
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|
|
|
Income tax increased $33.2 million over fiscal 2015 due to higher earnings and an approximately $5.3 million benefit related to foreign tax credits
recorded in the prior year, partially offset by a $3.2 million tax benefit representing excess tax benefits from share-based payment awards recorded in income tax expense resulting from the adoption of new accounting guidance as described in
Item 8. Financial Statements and Supplementary Data Notes to Consolidated Financial Statements Note A Summary of Significant Accounting Policies Recently Issued Accounting
Standards of this Annual Report on Form 10-K.
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Fiscal 2016 income tax expense reflects
an effective tax rate attributable to controlling interest of 29.1% vs. 25.1% in fiscal 2015. The 29.1% rate is lower than the federal statutory rate of 35% primarily as a result of lower tax rates on foreign income, benefits from the qualified
production activities deduction, and the adoption of the new accounting guidance described above with respect to share-based payment awards, offset partially by state and local income taxes. For additional information, refer to Item 8.
Financial Statements and Supplementary Data Notes to Consolidated Financial Statements Note L Income Taxes of this Annual Report on Form 10-K.
35
Segment Operations
Steel Processing
The following table presents a
summary of operating results for our Steel Processing operating segment for the periods indicated:
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended May 31,
|
|
(Dollars in millions)
|
|
2016
|
|
|
% of
Net sales
|
|
|
2015
|
|
|
% of
Net sales
|
|
|
Increase/
(Decrease)
|
|
Net sales
|
|
$
|
1,843.7
|
|
|
|
100.0
|
%
|
|
$
|
2,145.7
|
|
|
|
100.0
|
%
|
|
$
|
(302.0
|
)
|
Cost of goods sold
|
|
|
1,594.8
|
|
|
|
86.5
|
%
|
|
|
1,910.5
|
|
|
|
89.0
|
%
|
|
|
(315.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
248.9
|
|
|
|
13.5
|
%
|
|
|
235.2
|
|
|
|
11.0
|
%
|
|
|
13.7
|
|
Selling, general and administrative expense
|
|
|
132.8
|
|
|
|
7.2
|
%
|
|
|
123.4
|
|
|
|
5.8
|
%
|
|
|
9.4
|
|
Impairment of long-lived assets
|
|
|
-
|
|
|
|
0.0
|
%
|
|
|
3.1
|
|
|
|
0.1
|
%
|
|
|
(3.1
|
)
|
Restructuring and other expense
|
|
|
4.1
|
|
|
|
0.2
|
%
|
|
|
-
|
|
|
|
0.0
|
%
|
|
|
4.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
112.0
|
|
|
|
6.1
|
%
|
|
$
|
108.7
|
|
|
|
5.1
|
%
|
|
$
|
3.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Material cost
|
|
$
|
1,245.1
|
|
|
|
|
|
|
$
|
1,567.3
|
|
|
|
|
|
|
$
|
(322.2
|
)
|
Tons shipped (in thousands)
|
|
|
3,523
|
|
|
|
|
|
|
|
3,510
|
|
|
|
|
|
|
|
13
|
|
Net sales and operating highlights were as follows:
|
|
|
Net sales decreased $302.0 million from fiscal 2015 as lower average steel prices led to lower average selling prices, reducing net sales by
approximately $260.5 million. The remaining decrease in net sales was due to the closure of the Companys stainless steel business, PSM, in the current year, partially offset by contributions from recent acquisitions. The mix of direct versus
toll tons processed was 58% to 42% compared to 59% to 41% in fiscal 2015.
|
|
|
|
Operating income increased $3.3 million over fiscal 2015. The increase was driven by an improved pricing spread and lower inventory holding
losses. Higher SG&A expense, driven by the impact of acquisitions and higher profit sharing and bonus expense, combined with current period restructuring activities partially offset the overall increase in operating
income. Restructuring and other expense in the current period consisted primarily of costs related to the closure of PSM ($7.0 million), which were partially offset by a net gain related to the disposal of the remaining fixed assets of our
legacy Baltimore steel processing facility ($3.0 million). The $3.1 million impairment charge in the prior year period related to the closure of the PSM facility.
|
36
Pressure Cylinders
The following table presents a summary of operating results for our Pressure Cylinders operating segment for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended May 31,
|
|
(Dollars in millions)
|
|
2016
|
|
|
% of
Net sales
|
|
|
2015
|
|
|
% of
Net sales
|
|
|
Increase/
(Decrease)
|
|
Net sales
|
|
$
|
844.9
|
|
|
|
100.0
|
%
|
|
$
|
1,001.4
|
|
|
|
100.0
|
%
|
|
$
|
(156.5
|
)
|
Cost of goods sold
|
|
|
649.3
|
|
|
|
76.8
|
%
|
|
|
783.8
|
|
|
|
78.3
|
%
|
|
|
(134.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
195.6
|
|
|
|
23.2
|
%
|
|
|
217.6
|
|
|
|
21.7
|
%
|
|
|
(22.0
|
)
|
Selling, general and administrative expense
|
|
|
143.8
|
|
|
|
17.0
|
%
|
|
|
141.1
|
|
|
|
14.1
|
%
|
|
|
2.7
|
|
Impairment of long-lived assets
|
|
|
23.0
|
|
|
|
2.7
|
%
|
|
|
11.9
|
|
|
|
1.2
|
%
|
|
|
11.1
|
|
Restructuring and other expense
|
|
|
0.4
|
|
|
|
0.0
|
%
|
|
|
6.4
|
|
|
|
0.6
|
%
|
|
|
(6.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
28.4
|
|
|
|
3.4
|
%
|
|
$
|
58.2
|
|
|
|
5.8
|
%
|
|
$
|
(29.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Material cost
|
|
$
|
359.8
|
|
|
|
|
|
|
$
|
474.3
|
|
|
|
|
|
|
$
|
(114.5
|
)
|
Net sales by principal class of products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Products
|
|
$
|
217.4
|
|
|
|
|
|
|
$
|
217.7
|
|
|
|
|
|
|
$
|
(0.3
|
)
|
Industrial Products*
|
|
|
406.6
|
|
|
|
|
|
|
|
413.2
|
|
|
|
|
|
|
|
(6.6
|
)
|
Mississippi*
|
|
|
-
|
|
|
|
|
|
|
|
26.8
|
|
|
|
|
|
|
|
(26.8
|
)
|
Alternative Fuels
|
|
|
98.7
|
|
|
|
|
|
|
|
94.5
|
|
|
|
|
|
|
|
4.2
|
|
Oil and Gas Equipment
|
|
|
90.3
|
|
|
|
|
|
|
|
230.5
|
|
|
|
|
|
|
|
(140.2
|
)
|
Cryogenics
|
|
|
31.9
|
|
|
|
|
|
|
|
18.7
|
|
|
|
|
|
|
|
13.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Pressure Cylinders
|
|
$
|
844.9
|
|
|
|
|
|
|
$
|
1,001.4
|
|
|
|
|
|
|
$
|
(156.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units shipped by principal class of products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Products
|
|
|
45,298,605
|
|
|
|
|
|
|
|
48,964,578
|
|
|
|
|
|
|
|
(3,665,973
|
)
|
Industrial Products*
|
|
|
26,493,737
|
|
|
|
|
|
|
|
26,426,519
|
|
|
|
|
|
|
|
67,218
|
|
Mississippi*
|
|
|
-
|
|
|
|
|
|
|
|
5,278,597
|
|
|
|
|
|
|
|
(5,278,597
|
)
|
Alternative Fuels
|
|
|
422,630
|
|
|
|
|
|
|
|
431,954
|
|
|
|
|
|
|
|
(9,324
|
)
|
Oil and Gas Equipment
|
|
|
3,668
|
|
|
|
|
|
|
|
10,246
|
|
|
|
|
|
|
|
(6,578
|
)
|
Cryogenics
|
|
|
11,381
|
|
|
|
|
|
|
|
716
|
|
|
|
|
|
|
|
10,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Pressure Cylinders
|
|
|
72,230,021
|
|
|
|
|
|
|
|
81,112,610
|
|
|
|
|
|
|
|
(8,882,589
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Mississippi, an industrial gas facility, was sold in May 2015. It has been identified separately so as not to distort the Industrial Products
comparisons as the products previously produced at the Mississippi facility have been discontinued.
|
Net sales and operating highlights were as follows:
|
|
|
Net sales decreased $156.5 million from fiscal 2015 on lower volume, particularly in the Oil & Gas Equipment business where volumes decreased
64%. Volumes in the current fiscal year were also negatively impacted by the May 2015 disposition of our high-pressure cylinders business in Mississippi, which generated sales of $26.8 million in the prior year.
|
|
|
|
Operating income decreased $29.8 million from fiscal 2015 as declines in the Oil & Gas Equipment business more than offset improvements in the
Industrial Products and Consumer Products businesses resulting from lower commodity input prices and lower overall manufacturing costs. Impairment charges in the current period related to the partial write-off of certain long-lived assets in
the Oil & Gas Equipment business.
|
37
Engineered Cabs
The following table presents a summary of operating results for our Engineered Cabs operating segment for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended May 31,
|
|
(Dollars in millions)
|
|
2016
|
|
|
% of
Net sales
|
|
|
2015
|
|
|
% of
Net sales
|
|
|
Increase/
(Decrease)
|
|
Net sales
|
|
$
|
121.9
|
|
|
|
100.0
|
%
|
|
$
|
193.0
|
|
|
|
100.0
|
%
|
|
$
|
(71.1
|
)
|
Cost of goods sold
|
|
|
116.2
|
|
|
|
95.3
|
%
|
|
|
180.5
|
|
|
|
93.5
|
%
|
|
|
(64.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
5.7
|
|
|
|
4.7
|
%
|
|
|
12.5
|
|
|
|
6.5
|
%
|
|
|
(6.8
|
)
|
Selling, general and administrative expense
|
|
|
18.4
|
|
|
|
15.1
|
%
|
|
|
26.1
|
|
|
|
13.5
|
%
|
|
|
(7.7
|
)
|
Impairment of goodwill and long-lived assets
|
|
|
3.0
|
|
|
|
2.5
|
%
|
|
|
83.9
|
|
|
|
43.5
|
%
|
|
|
(80.9
|
)
|
Restructuring and other expense (income)
|
|
|
3.6
|
|
|
|
3.0
|
%
|
|
|
(0.3
|
)
|
|
|
-0.2
|
%
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
$
|
(19.3
|
)
|
|
|
-15.8
|
%
|
|
$
|
(97.2
|
)
|
|
|
-50.4
|
%
|
|
$
|
77.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Material cost
|
|
$
|
57.3
|
|
|
|
|
|
|
$
|
89.3
|
|
|
|
|
|
|
$
|
(32.0
|
)
|
Net sales and operating highlights were as follows:
|
|
|
Net sales decreased $71.1 million from fiscal 2015 due to declines in market demand in most lines of business combined with the impact of the
January 2015 sale of the assets of Advanced Component Technologies, Inc. and the September 2015 closure of the Florence, South Carolina facility.
|
|
|
|
Operating loss decreased $77.9 million from fiscal 2015 due primarily to lower impairment and restructuring charges. Excluding the impact of
impairment and restructuring charges, the operating loss was $0.9 million lower than fiscal 2015 as a result of lower SG&A expense, partially offset by a decrease in gross margin. Fiscal 2016 impairment charges consisted of $3.0 million related
to the closure of the Florence, South Carolina facility. Impairment charges in the prior year consisted of $44.9 million for the full write off of goodwill and $39.0 million for other long-lived assets. For additional information regarding these
impairment charges, refer to Item 8. Financial Statements and Supplementary Data Notes to Consolidated Financial Statements Note C Goodwill and Other Long-Lived Assets of this Annual Report
on Form 10-K.
|
Other
The Other category includes the Construction Services and WEI operating segments, which do not meet the quantitative thresholds for separate disclosure. Certain income and expense items not allocated
to our operating segments are also included in the Other category, including costs associated with our captive insurance company. The following table presents a summary of operating results for the Other category for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended May 31,
|
|
(Dollars in millions)
|
|
2016
|
|
|
% of
Net sales
|
|
|
2015
|
|
|
% of
Net sales
|
|
|
Increase/
(Decrease)
|
|
Net sales
|
|
$
|
9.2
|
|
|
|
100.0
|
%
|
|
$
|
44.1
|
|
|
|
100.0
|
%
|
|
$
|
(34.9
|
)
|
Cost of goods sold
|
|
|
6.9
|
|
|
|
75.0
|
%
|
|
|
45.9
|
|
|
|
104.1
|
%
|
|
|
(39.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
2.3
|
|
|
|
25.0
|
%
|
|
|
(1.8
|
)
|
|
|
-4.1
|
%
|
|
|
4.1
|
|
Selling, general and administrative expense
|
|
|
2.2
|
|
|
|
23.9
|
%
|
|
|
5.3
|
|
|
|
12.0
|
%
|
|
|
(3.1
|
)
|
Impairment of long-lived assets
|
|
|
-
|
|
|
|
0.0
|
%
|
|
|
1.2
|
|
|
|
2.7
|
%
|
|
|
(1.2
|
)
|
Restructuring and other expense (income)
|
|
|
(0.9
|
)
|
|
|
-9.8
|
%
|
|
|
0.7
|
|
|
|
1.6
|
%
|
|
|
(1.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
1.0
|
|
|
|
10.9
|
%
|
|
$
|
(9.0
|
)
|
|
|
-20.4
|
%
|
|
$
|
10.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
Net sales and operating highlights were as follows:
|
|
|
Net sales decreased $34.9 million from fiscal 2015. The decrease was driven by a decline in both the Construction Services business, which the
Company is in the process of exiting, and the WEI business.
|
|
|
|
Operating income of $1.0 million represents a $10.0 million improvement from the $9.0 million operating loss recognized in fiscal 2015. The
improvement resulted from lower losses within Construction Services, which the Company is exiting, and a net gain within restructuring and other income related to the sale of real estate in our legacy metal framing business.
|
Fiscal 2015 Compared to Fiscal 2014
Consolidated Operations
The following table
presents consolidated operating results for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended May 31,
|
|
(Dollars in millions)
|
|
2015
|
|
|
% of
Net sales
|
|
|
2014
|
|
|
% of
Net sales
|
|
|
Increase/
(Decrease)
|
|
Net sales
|
|
$
|
3,384.2
|
|
|
|
100.0
|
%
|
|
$
|
3,126.4
|
|
|
|
100.0
|
%
|
|
$
|
257.8
|
|
Cost of goods sold
|
|
|
2,920.7
|
|
|
|
86.3
|
%
|
|
|
2,633.9
|
|
|
|
84.2
|
%
|
|
|
286.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
463.5
|
|
|
|
13.7
|
%
|
|
|
492.5
|
|
|
|
15.8
|
%
|
|
|
(29.0
|
)
|
Selling, general and administrative expense
|
|
|
295.9
|
|
|
|
8.7
|
%
|
|
|
300.4
|
|
|
|
9.6
|
%
|
|
|
(4.5
|
)
|
Impairment of goodwill and long-lived assets
|
|
|
100.1
|
|
|
|
3.0
|
%
|
|
|
58.2
|
|
|
|
1.9
|
%
|
|
|
41.9
|
|
Restructuring and other expense (income)
|
|
|
6.9
|
|
|
|
0.2
|
%
|
|
|
(1.9
|
)
|
|
|
-0.1
|
%
|
|
|
8.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
60.6
|
|
|
|
1.8
|
%
|
|
|
135.8
|
|
|
|
4.3
|
%
|
|
|
(75.2
|
)
|
Miscellaneous income
|
|
|
0.8
|
|
|
|
0.0
|
%
|
|
|
16.9
|
|
|
|
0.5
|
%
|
|
|
(16.1
|
)
|
Interest expense
|
|
|
(35.8
|
)
|
|
|
-1.1
|
%
|
|
|
(26.7
|
)
|
|
|
-0.9
|
%
|
|
|
9.1
|
|
Equity in net income of unconsolidated affiliates
|
|
|
87.5
|
|
|
|
2.6
|
%
|
|
|
91.5
|
|
|
|
2.9
|
%
|
|
|
(4.0
|
)
|
Income tax expense
|
|
|
(25.8
|
)
|
|
|
-0.8
|
%
|
|
|
(57.3
|
)
|
|
|
-1.8
|
%
|
|
|
(31.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
87.3
|
|
|
|
2.6
|
%
|
|
|
160.2
|
|
|
|
5.1
|
%
|
|
|
(72.9
|
)
|
Net earnings attributable to noncontrolling interests
|
|
|
10.5
|
|
|
|
0.3
|
%
|
|
|
8.9
|
|
|
|
0.3
|
%
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to controlling interest
|
|
$
|
76.8
|
|
|
|
2.3
|
%
|
|
$
|
151.3
|
|
|
|
4.8
|
%
|
|
$
|
(74.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity income by unconsolidated affiliate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WAVE
|
|
$
|
70.6
|
|
|
|
|
|
|
$
|
67.1
|
|
|
|
|
|
|
$
|
3.5
|
|
ClarkDietrich
|
|
|
2.9
|
|
|
|
|
|
|
|
7.0
|
|
|
|
|
|
|
|
(4.1
|
)
|
Serviacero
|
|
|
3.3
|
|
|
|
|
|
|
|
7.3
|
|
|
|
|
|
|
|
(4.0
|
)
|
ArtiFlex
|
|
|
7.2
|
|
|
|
|
|
|
|
3.8
|
|
|
|
|
|
|
|
3.4
|
|
WSP
|
|
|
2.9
|
|
|
|
|
|
|
|
4.1
|
|
|
|
|
|
|
|
(1.2
|
)
|
Other
|
|
|
0.6
|
|
|
|
|
|
|
|
2.2
|
|
|
|
|
|
|
|
(1.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
87.5
|
|
|
|
|
|
|
$
|
91.5
|
|
|
|
|
|
|
$
|
(4.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2015 net earnings attributable to controlling interest decreased $74.5 million
from fiscal 2014. Net sales and operating highlights were as follows:
|
|
|
Net sales increased $257.8 million over fiscal 2014. The increase was driven by the impact of acquisitions ($185.6 million) and higher volumes from
existing operations ($123.7 million), partially offset by lower average selling prices ($51.5 million).
|
|
|
|
Gross margin decreased $29.0 million from fiscal 2014. The decrease was driven by declines in the oil and gas equipment and industrial products end
markets in Pressure Cylinders, inventory holding losses in Steel Processing and higher manufacturing expenses, partially offset by contributions from recent acquisitions.
|
39
|
|
|
SG&A expense decreased $4.5 million from fiscal 2014 driven by lower profit sharing and bonus expense partially offset by the impact of
acquisitions. In addition, the prior year period included a net pre-tax gain of $4.0 million for the favorable settlement of a legal dispute.
|
|
|
|
Impairment charges of $100.1 million consisted primarily of $83.9 million related to Engineered Cabs, including $44.9 million for the full write off
of goodwill. Impairment charges in the comparable prior year period consisted primarily of $30.7 million related to the write off of certain trade name intangible assets as a result of a re-branding initiative and $19.0 million related to the
Companys 60%-owned consolidated joint venture in India. For additional information regarding these impairment charges, refer to Item 8. Financial Statements and Supplementary Data Notes to Consolidated Financial
Statements Note C Goodwill and Other Long-Lived Assets of this Annual Report on Form 10-K.
|
|
|
|
Restructuring expense of $6.5 million consisted primarily of employee severance related to workforce reductions in our Oil & Gas Equipment
businesses ($2.2 million) and a net loss on the sale of the Companys aluminum high-pressure cylinder business in New Albany, Mississippi ($3.3 million). For additional information, refer to Item 8. Financial Statements
and Supplementary Data Notes to Consolidated Financial Statements Note D Restructuring and Other Expense of this Annual Report on Form 10-K.
|
|
|
|
Interest expense of $35.8 million was $9.1 million higher than the prior fiscal year. The increase was due to the impact of higher average debt
levels and higher average interest rates resulting from an increase in the usage of long-term debt versus short-term debt. For additional information, refer to Item 8. Financial Statements and Supplementary Data Notes
to Consolidated Financial Statements Note G Debt and Receivables Securitization of this Annual Report on Form 10-K.
|
|
|
|
Equity income decreased $4.0 million from fiscal 2014 to $87.5 million. The decline was due to lower equity income at Serviacero as a result of
lower steel prices ($4.0 million) and lower equity income at ClarkDietrich on lower volumes ($4.1 million), partially offset by increases at WAVE ($3.5 million) and ArtiFlex ($3.4 million). We received $78.3 million in cash distributions from our
unconsolidated affiliates during fiscal 2015. All joint ventures posted positive results, led by WAVE and ArtiFlex, which contributed $70.6 million and $7.2 million of equity income, respectively. For additional financial information regarding our
unconsolidated affiliates, refer to Item 8. Financial Statements and Supplementary Data Notes to Consolidated Financial Statements Note B Investments in Unconsolidated Affiliates of this
Annual Report on Form 10-K.
|
|
|
|
Income tax expense decreased $31.5 million from fiscal 2014 on lower earnings and an approximately $5.3 million benefit related to foreign tax
credits, offset partially by favorable tax adjustments recorded in the prior year including $7.1 million associated with the acquisition of an additional 10% interest in TWB, $2.3 million associated with the write off of an investment in a foreign
subsidiary, and $2.2 million of research and development credits.
|
Fiscal 2015 income tax
expense reflects an effective tax rate attributable to controlling interest of 25.1% vs. 27.5% in fiscal 2014. The 25.1% rate is lower than the federal statutory rate of 35% primarily as a result of benefits from the qualified production activities
deduction and the benefit related to foreign tax credits, offset partially by state and local income taxes. For additional information, refer to Item 8. Financial Statements and Supplementary Data Notes to Consolidated
Financial Statements Note L Income Taxes of this Annual Report on Form 10-K.
40
Segment Operations
Steel Processing
The following table presents a
summary of operating results for our Steel Processing operating segment for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended May 31,
|
|
(Dollars in millions)
|
|
2015
|
|
|
% of
Net sales
|
|
|
2014
|
|
|
% of
Net sales
|
|
|
Increase/
(Decrease)
|
|
Net sales
|
|
$
|
2,145.7
|
|
|
|
100.0
|
%
|
|
$
|
1,936.1
|
|
|
|
100.0
|
%
|
|
$
|
209.6
|
|
Cost of goods sold
|
|
|
1,910.5
|
|
|
|
89.0
|
%
|
|
|
1,683.7
|
|
|
|
87.0
|
%
|
|
|
226.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
235.2
|
|
|
|
11.0
|
%
|
|
|
252.4
|
|
|
|
13.0
|
%
|
|
|
(17.2
|
)
|
Selling, general and administrative expense
|
|
|
123.4
|
|
|
|
5.8
|
%
|
|
|
129.7
|
|
|
|
6.7
|
%
|
|
|
(6.3
|
)
|
Impairment of long-lived assets
|
|
|
3.1
|
|
|
|
0.1
|
%
|
|
|
7.1
|
|
|
|
0.4
|
%
|
|
|
(4.0
|
)
|
Restructuring and other income
|
|
|
-
|
|
|
|
0.0
|
%
|
|
|
(3.4
|
)
|
|
|
-0.2
|
%
|
|
|
3.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
108.7
|
|
|
|
5.1
|
%
|
|
$
|
119.0
|
|
|
|
6.1
|
%
|
|
$
|
(10.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Material cost
|
|
$
|
1,567.3
|
|
|
|
|
|
|
$
|
1,392.0
|
|
|
|
|
|
|
$
|
175.3
|
|
Tons shipped (in thousands)
|
|
|
3,510
|
|
|
|
|
|
|
|
3,282
|
|
|
|
|
|
|
|
228
|
|
Net sales and operating highlights were as follows:
|
|
|
Net sales increased $209.6 million over fiscal 2014. The increase was driven by the impact of acquisitions ($109.9 million), higher volumes from
existing operations ($60.5 million) and higher average selling prices due to product mix ($39.2 million). Excluding the impact of TWB, the mix of direct versus toll tons processed was unchanged from fiscal 2014 at 56% to 44%.
|
|
|
|
Operating income decreased $10.3 million from fiscal 2014. Gross margin declined $17.2 million as a result of lower spreads between average selling
prices and material cost due to the declining price of steel. SG&A expense declined $6.3 million as a result of lower profit sharing and bonus expense and a decrease in depreciation expense partially offset by the impact of acquisitions.
Operating income in the current year included an impairment charge of $3.1 million compared to $7.1 million in the prior year. Impairment charges in both fiscal 2015 and fiscal 2014 related to the Companys stainless steel business, PSM.
Operating income in fiscal 2014 was favorably impacted by a net restructuring gain of $3.4 million, which consisted of a $4.8 million gain on the sale of the Companys Integrated Terminals warehouse facility in Detroit, Michigan, offset by $1.4
million of severance costs accrued in connection with the closure of the Companys Baltimore steel facility.
|
41
Pressure Cylinders
The following table presents a summary of operating results for our Pressure Cylinders operating segment for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended May 31,
|
|
(Dollars in millions)
|
|
2015
|
|
|
% of
Net sales
|
|
|
2014
|
|
|
% of
Net sales
|
|
|
Increase/
(Decrease)
|
|
Net sales
|
|
$
|
1,001.4
|
|
|
|
100.0
|
%
|
|
$
|
928.4
|
|
|
|
100.0
|
%
|
|
$
|
73.0
|
|
Cost of goods sold
|
|
|
783.8
|
|
|
|
78.3
|
%
|
|
|
716.1
|
|
|
|
77.1
|
%
|
|
|
67.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
217.6
|
|
|
|
21.7
|
%
|
|
|
212.3
|
|
|
|
22.9
|
%
|
|
|
5.3
|
|
Selling, general and administrative expense
|
|
|
141.1
|
|
|
|
14.1
|
%
|
|
|
126.0
|
|
|
|
13.6
|
%
|
|
|
15.1
|
|
Impairment of long-lived assets
|
|
|
11.9
|
|
|
|
1.2
|
%
|
|
|
32.0
|
|
|
|
3.4
|
%
|
|
|
(20.1
|
)
|
Restructuring and other expense (income)
|
|
|
6.4
|
|
|
|
0.6
|
%
|
|
|
(0.7
|
)
|
|
|
-0.1
|
%
|
|
|
7.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
58.2
|
|
|
|
5.8
|
%
|
|
$
|
55.0
|
|
|
|
5.9
|
%
|
|
$
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Material cost
|
|
$
|
474.3
|
|
|
|
|
|
|
$
|
426.9
|
|
|
|
|
|
|
$
|
47.4
|
|
|
|
|
|
|
|
Net sales by principal class of products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Products
|
|
$
|
217.7
|
|
|
|
|
|
|
$
|
219.4
|
|
|
|
|
|
|
$
|
(1.7
|
)
|
Industrial Products*
|
|
|
413.2
|
|
|
|
|
|
|
|
425.2
|
|
|
|
|
|
|
|
(12.0
|
)
|
Mississippi*
|
|
|
26.8
|
|
|
|
|
|
|
|
30.2
|
|
|
|
|
|
|
|
(3.4
|
)
|
Alternative Fuels
|
|
|
94.5
|
|
|
|
|
|
|
|
93.0
|
|
|
|
|
|
|
|
1.5
|
|
Oil and Gas Equipment
|
|
|
230.5
|
|
|
|
|
|
|
|
153.5
|
|
|
|
|
|
|
|
77.0
|
|
Cryogenics
|
|
|
18.7
|
|
|
|
|
|
|
|
7.1
|
|
|
|
|
|
|
|
11.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Pressure Cylinders
|
|
$
|
1,001.4
|
|
|
|
|
|
|
$
|
928.4
|
|
|
|
|
|
|
$
|
73.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units shipped by principal class of products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Products
|
|
|
48,964,578
|
|
|
|
|
|
|
|
48,785,465
|
|
|
|
|
|
|
|
179,113
|
|
Industrial Products*
|
|
|
26,426,519
|
|
|
|
|
|
|
|
27,135,688
|
|
|
|
|
|
|
|
(709,169
|
)
|
Mississippi*
|
|
|
5,278,597
|
|
|
|
|
|
|
|
6,487,361
|
|
|
|
|
|
|
|
(1,208,764
|
)
|
Alternative Fuels
|
|
|
431,954
|
|
|
|
|
|
|
|
442,685
|
|
|
|
|
|
|
|
(10,731
|
)
|
Oil and Gas Equipment
|
|
|
10,246
|
|
|
|
|
|
|
|
8,201
|
|
|
|
|
|
|
|
2,045
|
|
Cryogenics
|
|
|
716
|
|
|
|
|
|
|
|
88
|
|
|
|
|
|
|
|
628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Pressure Cylinders
|
|
|
81,112,610
|
|
|
|
|
|
|
|
82,859,488
|
|
|
|
|
|
|
|
(1,746,878
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Mississippi, an industrial gas facility, was sold in May 2015. It has been identified separately so as not to distort the Industrial Products
comparisons as the products previously produced at the Mississippi facility have been discontinued.
|
Net sales and operating highlights were as follows:
|
|
|
Net sales increased $73.0 million over fiscal 2014. The increase was driven by recent acquisitions ($81.3 million) and an increase in Oil &
Gas Equipment sales, partially offset by lower industrial products volume and the impact of foreign currency exchange rates on European sales.
|
|
|
|
Operating income increased $3.2 million from fiscal 2014. Gross margin increased $5.3 million on contributions from recent acquisitions partially
offset by high manufacturing costs in certain Oil & Gas Equipment locations and lower volume in industrial products. SG&A expense increased $15.1 million due to the impact of acquisitions and the favorable prior year impact of a $4.0 million
net pre-tax litigation gain. Fiscal 2015 impairment charges of $11.9 million consisted of $6.4 million
|
42
|
related to the Companys 60%-owned consolidated joint venture in India, $3.2 million related to the Companys aluminum high-pressure cylinder business in New Albany, Mississippi, and
$2.3 million for the partial impairment of intangible assets related to our dHybrid joint venture. Impairment charges in the prior year consisted primarily of $19.0 million related to the Companys 60%-owned consolidated joint venture in India
and $11.6 million related to the write off of certain trade name intangible assets as a result of a re-branding initiative. Restructuring expense of $6.4 million consisted primarily of employee severance related to workforce reductions in our Oil
& Gas Equipment businesses ($2.2 million) and a net loss on the sale of the Companys aluminum high-pressure cylinder business in New Albany, Mississippi ($3.3 million).
|
Engineered Cabs
The following table presents a summary of operating results for our Engineered Cabs operating segment for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended May 31,
|
|
(Dollars in millions)
|
|
2015
|
|
|
% of
Net sales
|
|
|
2014
|
|
|
% of
Net sales
|
|
|
Increase/
(Decrease)
|
|
Net sales
|
|
$
|
193.0
|
|
|
|
100.0
|
%
|
|
$
|
200.5
|
|
|
|
100.0
|
%
|
|
$
|
(7.5
|
)
|
Cost of goods sold
|
|
|
180.5
|
|
|
|
93.5
|
%
|
|
|
177.3
|
|
|
|
88.4
|
%
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
12.5
|
|
|
|
6.5
|
%
|
|
|
23.2
|
|
|
|
11.6
|
%
|
|
|
(10.7
|
)
|
Selling, general and administrative expense
|
|
|
26.1
|
|
|
|
13.5
|
%
|
|
|
30.6
|
|
|
|
15.3
|
%
|
|
|
(4.5
|
)
|
Impairment of goodwill and long-lived assets
|
|
|
83.9
|
|
|
|
43.5
|
%
|
|
|
19.1
|
|
|
|
9.5
|
%
|
|
|
64.8
|
|
Restructuring and other income
|
|
|
(0.3
|
)
|
|
|
-0.2
|
%
|
|
|
-
|
|
|
|
0.0
|
%
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
$
|
(97.2
|
)
|
|
|
-50.4
|
%
|
|
$
|
(26.5
|
)
|
|
|
-13.2
|
%
|
|
$
|
(70.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Material cost
|
|
$
|
89.3
|
|
|
|
|
|
|
$
|
90.9
|
|
|
|
|
|
|
$
|
(1.6
|
)
|
Net sales and operating highlights were as follows:
|
|
|
Net sales decreased $7.5 million from fiscal 2014. The decrease was driven by lower tooling revenue from startup programs and the January 2015
sale of the assets of Advanced Component Technologies, Inc.
|
|
|
|
Operating loss increased $70.7 million over fiscal 2014 on higher impairment charges, which were up $64.8 million. Excluding the impact of
impairment charges, operating loss increased $6.0 million largely due to lower average selling prices and higher operating costs at the facility in Florence, South Carolina. Fiscal 2015 impairment charges consisted of $44.9 million for the full
write off of goodwill and $39.0 million for other long-lived assets. Impairment charges in the prior year consisted of $19.1 million related to the write off of certain trade name intangible assets in connection with a re-branding initiative. For
additional information regarding these impairment charges, refer to Item 8. Financial Statements and Supplementary Data Notes to Consolidated Financial Statements Note C Goodwill and Other
Long-Lived Assets of this Annual Report on Form 10-K.
|
43
Other
The Other category includes the Construction Services and WEI operating segments, which do not meet the quantitative thresholds for separate disclosure. Certain income and expense items not allocated
to our operating segments are also included in the Other category. The following table presents a summary of operating results for the Other category for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended May 31,
|
|
(Dollars in millions)
|
|
2015
|
|
|
% of
Net sales
|
|
|
2014
|
|
|
% of
Net sales
|
|
|
Increase/
(Decrease)
|
|
Net sales
|
|
$
|
44.1
|
|
|
|
100.0
|
%
|
|
$
|
61.4
|
|
|
|
100.0
|
%
|
|
$
|
(17.3
|
)
|
Cost of goods sold
|
|
|
45.9
|
|
|
|
104.1
|
%
|
|
|
56.9
|
|
|
|
92.7
|
%
|
|
|
(11.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
(1.8
|
)
|
|
|
-4.1
|
%
|
|
|
4.5
|
|
|
|
7.3
|
%
|
|
|
(6.3
|
)
|
Selling, general and administrative expense
|
|
|
5.3
|
|
|
|
12.0
|
%
|
|
|
14.1
|
|
|
|
23.0
|
%
|
|
|
(8.8
|
)
|
Impairment of long-lived assets
|
|
|
1.2
|
|
|
|
2.7
|
%
|
|
|
-
|
|
|
|
0.0
|
%
|
|
|
1.2
|
|
Restructuring and other expense
|
|
|
0.7
|
|
|
|
1.6
|
%
|
|
|
2.2
|
|
|
|
3.6
|
%
|
|
|
(1.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
$
|
(9.0
|
)
|
|
|
-20.4
|
%
|
|
$
|
(11.8
|
)
|
|
|
-19.2
|
%
|
|
$
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales and operating highlights were as follows:
|
|
|
Net sales decreased $17.3 million from fiscal 2014. The decrease was driven by declines in both the Construction Services and WEI businesses.
|
|
|
|
Operating loss decreased $2.8 million from fiscal 2014. The improvement resulted from lower losses within Construction Services partially offset by
impairment charges of $1.2 million related to the military construction business.
|
Liquidity and Capital Resources
During fiscal 2016, we generated $413.3 million in cash from operating activities, spent $34.2 million
on acquisitions and invested $97.0 million in property, plant and equipment. Additionally, we repurchased 3,500,000 of our common shares for $99.8 million, repaid $85.8 million in short-term borrowings and paid $47.2 million of
dividends. The following table summarizes our consolidated cash flows for each period shown:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
Ended May 31,
|
|
(in millions)
|
|
2016
|
|
|
2015
|
|
Net cash provided by operating activities
|
|
$
|
413.3
|
|
|
$
|
214.4
|
|
Net cash used by investing activities
|
|
|
(127.0
|
)
|
|
|
(203.1
|
)
|
Net cash used by financing activities
|
|
|
(233.2
|
)
|
|
|
(170.3
|
)
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
53.1
|
|
|
|
(159.0
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
31.1
|
|
|
|
190.1
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
84.2
|
|
|
$
|
31.1
|
|
|
|
|
|
|
|
|
|
|
We believe we have access to adequate resources to meet our needs for normal operating
costs, capital expenditures, debt repayments, dividend payments and working capital for our existing businesses. These resources include cash and cash equivalents, cash provided by operating activities and unused lines of credit. We also
believe we have adequate access to the financial markets to allow us to be in a position to sell long-term debt or equity securities. However, uncertainty and volatility in the financial markets may impact our ability to access capital and the
terms under which we can do so.
44
Operating activities
Our business is cyclical and cash flows from operating activities may fluctuate during the year and from year to year due
to economic and industry conditions. We rely on cash and short-term borrowings to meet cyclical increases in working capital needs. These needs generally rise during periods of increased economic activity or increasing raw material prices
due to higher levels of inventory and accounts receivable. During economic slowdowns, or periods of decreasing raw material costs, working capital needs generally decrease as a result of the reduction of inventories and accounts receivable.
Net cash provided by operating activities was $413.3 million during fiscal 2016 compared to $214.4 million in
fiscal 2015. The $198.9 million increase in net cash provided by operating activities was driven primarily by declining working capital levels as a result of lower average steel prices and higher earnings.
Investing activities
Net cash used by investing activities was $127.0 million during fiscal 2016 compared to $203.1 million in fiscal 2015. The decrease of $76.1 million was driven primarily by lower acquisition activity
in the current year. During fiscal 2016, we spent a combined $34.2 million, net of cash acquired, for the net assets of the CryoScience business of Taylor Wharton and the net assets of NetBraze, LLC. Comparatively, during fiscal 2015, we
spent a combined $105.3 million, net of cash acquired, for the net assets of Rome Strip Steel, Midstream Equipment Fabrication, LLC and James Russell Engineering Works, Inc. and our 79.59% interest in dHybrid Systems, LLC. We also made capital
expenditures of $97.0 million and received $9.8 million in proceeds from asset sales during fiscal 2016.
Capital expenditures reflect cash used for investment in property, plant and equipment and are presented below by
reportable business segment (this information excludes cash flows related to acquisition and divestiture activity):
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
May 31,
|
|
(in millions)
|
|
2016
|
|
|
2015
|
|
Steel Processing
|
|
$
|
42.1
|
|
|
$
|
34.5
|
|
Pressure Cylinders
|
|
|
29.9
|
|
|
|
35.9
|
|
Engineered Cabs
|
|
|
6.9
|
|
|
|
9.0
|
|
Other
|
|
|
18.1
|
|
|
|
16.9
|
|
|
|
|
|
|
|
|
|
|
Total Capital Expenditures
|
|
$
|
97.0
|
|
|
$
|
96.3
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures were $97.0 million in fiscal 2016. Significant capital expenditures
in fiscal 2016 included $19.4 million to expand capacity at TWB, our consolidated laser blanking joint venture, and $10.6 million of costs associated with the renovation of the Companys corporate headquarters, which was purchased in fiscal
2012. Capital expenditures in fiscal 2016 also included $4.1 million of capital outlays associated with the construction of a new cryogenics manufacturing facility in Turkey.
Investment activities are largely discretionary and future investment activities could be reduced significantly or
eliminated as economic conditions warrant. We assess acquisition opportunities as they arise, and such opportunities may require additional financing. There can be no assurance, however, that any such opportunities will arise, that any
such acquisitions will be consummated or that any needed additional financing will be available on satisfactory terms when required.
Financing activities
Net cash used by financing activities was $233.2 million in fiscal 2016 compared to $170.3 million in the prior year. During fiscal 2016, we paid $99.8 million to repurchase 3,500,000 of our common
shares, reduced short-term borrowings by $85.8 million, and paid dividends of $47.2 million on our common shares.
45
Long-term debt
Our senior unsecured long-term
debt is rated investment grade by both Moodys Investors Service, Inc. and Standard & Poors Ratings Group. We typically use the net proceeds from long-term debt for acquisitions, refinancing of outstanding debt, capital
expenditures and general corporate purposes. As of May 31, 2016, we were in compliance with our long-term financial debt covenants. Our long-term debt agreements do not include ratings triggers or material adverse change provisions.
On September 26, 2014, our consolidated joint venture in Turkey, Worthington Aritas, executed a five-year
term loan denominated in Euros. As of May 31, 2016, we had borrowed $28.4 million against the facility. The facility bears interest at a variable rate based on EURIBOR. The applicable variable rate was 1.500% at May 31, 2016. On
October 15, 2014, we entered into an interest rate swap to fix the interest rate on 60% of the borrowings outstanding under this facility at 2.015% starting on December 26, 2014 through September 26, 2019. Borrowings against the facility are being
used for the construction of a new cryogenics manufacturing facility in Turkey.
Short-term borrowings
Our short-term debt agreements do not include ratings triggers or material adverse change provisions. We were in compliance with our short-term financial debt covenants at May 31, 2016.
Short-term borrowings at May 31, 2016, consisted of an aggregate of $2.6 million outstanding under various credit
facilities maintained by our consolidated joint venture, Worthington Aritas.
We maintain a $500.0 million
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 and given that our intention has been to
repay them within a year, they have been classified as short-term borrowings within current liabilities on our consolidated balance sheets. However, we can also 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. There were no borrowings outstanding under the Credit Facility
at May 31, 2016.
We maintain a $100.0 million revolving trade accounts receivable securitization facility
(the AR Facility) that expires in January 2018 and was available throughout fiscal 2016 and 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 $100.0 million 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 May 31, 2016, no undivided ownership interests in this pool of accounts receivable had been sold.
We also had letters of credit totaling $16.4 million outstanding as of May 31, 2016. These letters of credit have been issued to third-party service providers and had no amounts drawn against them at
May 31, 2016.
Common shares
We declared dividends at a quarterly rate of $0.19 per common share
for each quarter of fiscal 2016 compared to $0.18 per common share for each quarter of fiscal 2015. Dividends paid on our common shares totaled $47.2 million and $46.4 million, respectively, during fiscal 2016 and fiscal 2015.
46
On June 29, 2011, the Board of Worthington Industries, Inc. authorized the
repurchase of up to 10,000,000 of our outstanding common shares of which none remained available for repurchase at May 31, 2016. During fiscal 2015, 1,722,332 common shares were repurchased under this authorization.
On June 25, 2014, the Board authorized the repurchase of up to an additional 10,000,000 of our outstanding common shares.
An aggregate of 3,500,000 and 2,453,855 common shares were repurchased under this authorization during fiscal 2016 and fiscal 2015, respectively. At May 31, 2016, 4,046,145
common shares remained available for repurchase under this
authorization.
The common shares available for repurchase under the current authorization may be purchased
from time to time, with consideration given to the market price of the common shares, the nature of other investment opportunities, cash flows from operations, general economic conditions and other relevant considerations. Repurchases may be
made on the open market or through privately negotiated transactions.
Dividend Policy
We currently have no material contractual or regulatory restrictions on the payment of dividends. Dividends are
declared at the discretion of the Board. The Board reviews the dividend quarterly and establishes the dividend rate based upon our financial condition, results of operations, capital requirements, current and projected cash flows, business
prospects and other relevant factors. While we have paid a dividend every quarter since becoming a public company in 1968, there is no guarantee that payments will continue in the future.
Contractual Cash Obligations and Other Commercial Commitments
The following table summarizes our contractual cash obligations as of May 31, 2016. Certain of these contractual
obligations are reflected in our consolidated balance sheet, while others are disclosed as future obligations in accordance with U.S. GAAP.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
(in millions)
|
|
Total
|
|
|
Less Than
1 Year
|
|
|
23
Years
|
|
|
45
Years
|
|
|
After
5 Years
|
|
Short-term borrowings
|
|
$
|
2.6
|
|
|
$
|
2.6
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Long-term debt
|
|
|
581.4
|
|
|
|
0.9
|
|
|
|
13.1
|
|
|
|
167.1
|
|
|
|
400.3
|
|
Interest expense on long-term debt
|
|
|
208.7
|
|
|
|
28.6
|
|
|
|
57.1
|
|
|
|
45.6
|
|
|
|
77.4
|
|
Operating leases
|
|
|
41.7
|
|
|
|
9.6
|
|
|
|
15.9
|
|
|
|
10.4
|
|
|
|
5.8
|
|
Royalty obligations
|
|
|
12.0
|
|
|
|
2.0
|
|
|
|
4.0
|
|
|
|
4.0
|
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations
|
|
$
|
846.4
|
|
|
$
|
43.7
|
|
|
$
|
90.1
|
|
|
$
|
227.1
|
|
|
$
|
485.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense on long-term debt is computed by using the fixed rates of interest on
the debt, including impacts of the related interest rate hedge. Royalty obligations relate to a trademark license agreement executed in connection with the acquisition of Coleman Cylinders in fiscal 2012. Due to the uncertainty regarding
the timing of future cash outflows associated with our unrecognized tax benefits of $2.8 million, we are unable to make a reliable estimate of the periods of cash settlement with the respective tax authorities and have not included this amount in
the contractual cash obligations table above.
47
The following table summarizes our other commercial commitments as of May
31, 2016. These commercial commitments are not reflected in our consolidated balance sheet.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitment Expiration by Period
|
|
(in millions)
|
|
Total
|
|
|
Less Than
1 Year
|
|
|
23
Years
|
|
|
45
Years
|
|
|
After
5 Years
|
|
Guarantees
|
|
$
|
10.5
|
|
|
$
|
10.5
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Standby letters of credit
|
|
|
16.4
|
|
|
|
16.4
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial commitments
|
|
$
|
26.9
|
|
|
$
|
26.9
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance Sheet Arrangements
We do not have guarantees or other off-balance sheet financing arrangements that we believe are reasonably likely to have
a material current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources. However, as of May 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 $10.5 million at May 31, 2016. Based on current
facts and circumstances, we have estimated the likelihood of payment pursuant to this guarantee, and determined that the fair value of our obligation based on the likely outcome is not material.
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 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 is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal
years. Early adopton is permitted, and the amendments may be applied using either a retrospective or modified retrospective approach. 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 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. 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 adoption is permitted for financial statements that have not been issued. Retrospective application to prior
periods is required. The adoption of this guidance will not have a significant impact on our consolidated financial position and results of operations.
48
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 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. The amended guidance is effective prospectively
for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. Early adoption is permitted for financial statements that have not been issued. 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 November 2015,
amended accounting guidance was issued that simplifies the presentation of deferred income taxes. The amended guidance requires entities with a classified balance sheet to present all deferred income tax assets and liabilities as
noncurrent. 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 adoption is permitted as of the beginning of
an interim or annual reporting period, and the change may be applied either prospectively or retrospectively. The Company elected to early adopt this amended accounting guidance during the fourth quarter of fiscal 2016. The adoption was on
a prospective basis and therefore prior periods have not been restated.
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 derivatives 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.
49
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 amended guidance is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. The Company elected to early adopt
this amended accounting guidance during the fourth quarter of fiscal 2016. The impact resulting from the adoption of this amended guidance is summarized below.
|
|
|
Income Tax Accounting
The amended accounting guidance requires all excess tax benefits and tax deficiencies to be recognized as
an income tax benefit or expense on a prospective basis in the period of adoption. The adoption of this provision of the amended accounting guidance resulted in the recognition of excess tax benefits of $3.2 million in income tax expense, rather
than in paid-in capital, during fiscal 2016. As the adoption was on a prospective basis, prior periods have not been restated.
|
|
|
|
Forfeitures
The Company has elected to continue to estimate the number of awards expected to vest, as permitted by the amended
accounting guidance, rather than electing to account for forfeitures as they occur.
|
|
|
|
Statement of Cash Flows Presentation
The amended accounting guidance requires excess tax benefits to be classified as an
operating activity in the statement of cash flows. Previously, excess tax benefits were presented as a cash inflow from financing activities and cash outflow from operating activities. The Company has elected to present these changes on a
prospective basis and therefore prior periods have not been adjusted to conform with the current presentation.
|
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 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.
Environmental
We do not believe that compliance with environmental laws has or will have a material effect on our capital expenditures, future results of operations or financial position or competitive position.
Inflation
The effects of inflation on our operations were not significant during the periods presented in the consolidated financial statements.
Critical Accounting Policies
The discussion and
analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to
make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses
during the reporting periods. We continually evaluate our estimates, including those related to our valuation of receivables, inventories, intangible assets, accrued liabilities, income and other tax accruals and contingencies and
litigation. We base our estimates on historical experience and various other assumptions that we believe
50
to be reasonable under the circumstances. These results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other
sources. Critical accounting policies are defined as those that reflect our significant judgments and uncertainties that could potentially result in materially different results under different assumptions and conditions. Although actual
results historically have not deviated significantly from those determined using our estimates, as discussed below, our financial position or results of operations could be materially different if we were to report under different conditions or to
use different assumptions in the application of such policies. We believe the following accounting policies are the most critical to us, as these are the primary areas where financial information is subject to our estimates, assumptions and
judgment in the preparation of our consolidated financial statements.
Revenue
Recognition:
We recognize revenue upon transfer of title and risk of loss provided evidence of an arrangement exists, pricing is fixed and determinable and the ability to collect is probable. In circumstances where the
collection of payment is not probable at the time of shipment, we defer recognition of revenue until payment is collected. We provide for returns and allowances based on historical experience and current customer activities.
Receivables:
In order to ensure that our receivables are properly valued, we utilize two contra-receivable
accounts: returns and allowances and allowance for doubtful accounts. Returns and allowances are used to record estimates of returns or other allowances resulting from quality, delivery, discounts or other issues affecting the value of
receivables. This account is estimated based on historical trends and current market conditions, with the offset to net sales.
The allowance for doubtful accounts is used to record the estimated risk of loss related to the customers inability to pay. This allowance is maintained at a level that we consider appropriate based
on factors that affect collectability, such as the financial health of our customers, historical trends of charge-offs and recoveries and current economic and market conditions. As we monitor our receivables, we identify customers that may have
payment problems, and we adjust the allowance accordingly, with the offset to SG&A expense. Account balances are charged off against the allowance when recovery is considered remote.
We review our receivables on an ongoing basis to ensure that they are properly valued and collectible. Based on this
review, we believe our related reserves are appropriate. The reserve for doubtful accounts increased approximately $1.5 million during fiscal 2016 to $4.6 million.
While we believe our allowances are adequate, changes in economic conditions, the financial health of customers and
bankruptcy settlements could impact our future earnings. If the economic environment and market conditions deteriorate, particularly in the automotive and construction end markets where our exposure is greatest, additional reserves may be
required.
Inventory Valuation:
Inventories are valued at the lower of cost or market. Cost
is determined using the first-in, first-out method for all inventories. This assessment requires the use of significant estimates to determine replacement cost, cost to complete, normal profit margin and the ultimate selling price of the
inventory. No lower of cost or market adjustment was recorded in fiscal 2016. Due to a decline in steel prices in fiscal 2015, the replacement cost of our inventory was lower than what was reflected in our records at May 31,
2015. Accordingly, we recorded a lower of cost or market adjustment of $1.7 million at May 31, 2015 to reflect this lower value. The entire amount related to our Steel Processing operating segment and was recorded in cost of goods
sold. We believe our inventories were valued appropriately as of May 31, 2016 and May 31, 2015.
Impairment of Definite-Lived Long-Lived Assets
: We review the carrying value of our long-lived assets,
including intangible assets with finite useful lives, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable. Impairment
51
testing involves a comparison of the sum of the undiscounted future cash flows of the asset or asset group to its respective carrying amount. If the sum of the undiscounted future cash flows
exceeds the carrying amount, then no impairment exists. If the carrying amount exceeds the sum of the undiscounted future cash flows, then a second step is performed to determine the amount of impairment, if any, to be recognized. An impairment loss
is recognized to the extent that the carrying amount of the asset or asset group exceeds fair value.
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 $59.9 million were impaired and wrote them down to their estimated fair value of $36.9 million, resulting in an impairment charge of $23.0 million. 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 possible that our estimate of discounted cash flows may change resulting in the
need to adjust our determination of fair value.
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 $4.1 million were impaired. As a result, these
long-lived assets were written down to their estimated fair value of $1.1 million resulting in an impairment charge of $3.0 million during the first quarter of fiscal 2016. The Company ceased production at the Florence facility on September 30,
2015.
Fiscal 2015:
During the fourth quarter of fiscal 2015, we determined that
indicators of impairment were present with regard to intangible assets related to our CNG fuel systems joint venture, dHybrid. Recoverability of the identified asset group was tested using future cash flow projections based on managements
long-range estimates of market conditions. The sum of these undiscounted future cash flows was less than the net book value of the asset group. In accordance with the applicable accounting guidance, the intangible assets were written down to their
fair value, resulting in an impairment charge of $2.3 million.
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. 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 $22.4 million for the customer relationship intangible asset and $14.3 million 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 first quarter of fiscal 2016.
52
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 $2.4 million. During the third quarter of fiscal 2015, the Company completed the sale of these assets and recognized a gain of $332,000.
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 $3.2 million and $1.2 million, 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 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 $6.3 million and $3.1 million, respectively, were recorded.
Impairment of Indefinite-Lived Long-Lived Assets
: Goodwill and intangible assets with
indefinite lives are not amortized, but instead are tested for impairment annually, during the fourth quarter, or more frequently if events or changes in circumstances indicate that impairment may be present. Application of goodwill impairment
testing involves judgment, including but not limited to, the identification of reporting units and estimation of the fair value of each reporting unit. A reporting unit is defined as an operating segment or one level below an operating segment. With
the exception of Pressure Cylinders, we test goodwill at the operating segment level as we have determined that the characteristics of the reporting units within each operating segment are similar and allow for their aggregation in accordance with
the applicable accounting guidance. For our Pressure Cylinders operating segment, the Oil & Gas Equipment business has been treated as a separate reporting unit since the second quarter of fiscal 2016.
The goodwill impairment test consists of comparing the fair value of each reporting unit, determined using discounted
cash flows, to each reporting units respective carrying value. If the estimated fair value of a reporting unit exceeds its carrying value, there is no impairment. If the carrying amount of the reporting unit exceeds its estimated fair value,
goodwill impairment is indicated. The amount of the impairment is determined by comparing the fair value of the net assets of the reporting unit, excluding goodwill, to its estimated fair value, with the difference representing the implied fair
value of the goodwill. If the implied fair value of the goodwill is lower than its carrying value, the difference is recorded as an impairment charge in our consolidated statements of earnings. The impairment test for indefinite-lived
intangible assets consists of a comparison of the fair value of the intangible asset to its carrying value. If the carrying value of the intangible asset exceeds its fair value, the difference is recorded as an impairment charge in our
consolidated statements of earnings.
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 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
53
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 $26.0 million 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 the 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 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 unprofitable 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 sum of the undiscounted future cash flows for both the customer
relationship intangible asset and the property, plant and equipment of the Florence 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 $22.4 million for the customer relationship intangible asset and $14.3 million for the property, plant and equipment of the Florence asset group during the third quarter of fiscal 2015.
In addition to the above, the Company also determined that sufficient 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 operating segment, determined using discounted cash flows, to its carrying value indicated potential goodwill
impairment. 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, as a result, the entire $44.9 million goodwill balance was written off during
the third quarter of fiscal 2015.
We performed our annual impairment evaluation of goodwill and other
indefinite-lived intangible assets during the fourth quarter of fiscal 2016 and concluded that the fair value of each reporting unit exceeded its carrying value; therefore, no additional impairment charges were recognized.
Accounting for Derivatives and Other Contracts at Fair Value:
We use derivatives in
the normal course of business to manage our exposure to fluctuations in commodity prices, foreign currency and interest rates. Fair values for these contracts are based upon valuation methodologies deemed appropriate in the circumstances;
however, the use of different assumptions could affect the estimated fair values.
Stock-Based
Compensation:
All share-based awards, including those to employees and non-employee directors, are recorded as expense in the consolidated statements of earnings based on the fair value of the award at the date of grant.
Income Taxes:
In accordance with the authoritative accounting guidance
,
we account for income taxes using the asset and liability method. The asset and liability method requires the recognition of deferred tax assets and liabilities for expected future tax consequences of temporary differences that currently exist
between the tax basis and financial reporting basis of our assets and liabilities. In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some, or a portion, of the deferred tax assets will
not be realized. We provide a valuation allowance for deferred income tax assets when it is more likely than not that a portion of such deferred income tax assets will not be realized.
54
In accordance with accounting literature related to uncertainty in income
taxes
,
tax benefits from uncertain tax positions that are recognized in the financial statements are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.
We have reserves for taxes and associated interest and penalties that may become payable in future years as a
result of audits by taxing authorities. It is our policy to record these in income tax expense. While we believe the positions taken on previously filed tax returns are appropriate, we have established the tax and interest reserves in
recognition that various taxing authorities may challenge our positions. The tax reserves are analyzed periodically, and adjustments are made as events occur to warrant adjustment to the reserves, such as lapsing of applicable statutes of
limitations, conclusion of tax audits, additional exposure based on current calculations, identification of new issues, and release of administrative guidance or court decisions affecting a particular tax issue.
Self-Insurance Reserves:
We are largely self-insured with respect to workers
compensation, general and automobile liability, property damage, employee medical claims and other potential losses. In order to reduce risk and better manage our overall loss exposure, we purchase stop-loss insurance that covers individual claims
in excess of the deductible amounts. We maintain reserves for the estimated cost to settle open claims, which includes estimates of legal costs expected to be incurred, as well as an estimate of the cost of claims that have been incurred but not
reported. These estimates are based on actuarial valuations that take into consideration the historical average claim volume, the average cost for settled claims, current trends in claim costs, changes in our business and workforce, general
economic factors and other assumptions believed to be reasonable under the circumstances. The estimated reserves for these liabilities could be affected if future occurrences and claims differ from assumptions used and historical
trends. Facility consolidations, a focus on safety initiatives and an emphasis on property loss prevention and product quality have resulted in an improvement in our loss history and the related assumptions used to analyze many of the current
self-insurance reserves. We will continue to review these reserves on a quarterly basis, or more frequently if factors dictate a more frequent review is warranted.
The critical accounting policies discussed herein are not intended to be a comprehensive list of all of our accounting
policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. GAAP, with a lesser need for our judgment in their application. There are also areas in which our judgment in selecting an
available alternative would not produce a materially different result.
Item 8.
Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Worthington Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Worthington Industries, Inc. and subsidiaries as of May 31, 2016 and
2015, and the related consolidated statements of earnings, comprehensive income, equity, and cash flows for each of the years in the
three-year
period ended May 31, 2016. In connection with our audits of the
consolidated financial statements, we also have audited the financial statement schedule of valuation and qualifying accounts. These consolidated financial statements and financial statement schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of Worthington Industries, Inc. and subsidiaries as of May 31, 2016 and 2015, and the results of their operations and their cash flows for each of the years in the
three-year
period ended May 31, 2016, in
conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), Worthington Industries, Inc.s internal control over financial reporting as of May 31, 2016, based on criteria established in
Internal Control Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated August 1, 2016 expressed an unqualified opinion on the effectiveness of the Companys internal control over financial reporting.
Columbus, Ohio
August 1, 2016
58
WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
May 31,
|
|
|
|
2016
|
|
|
2015
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
84,188
|
|
|
$
|
31,067
|
|
Receivables, less allowances of $4,579 and $3,085 at May 31, 2016 and 2015, respectively
|
|
|
439,688
|
|
|
|
474,292
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Raw materials
|
|
|
162,427
|
|
|
|
181,975
|
|
Work in process
|
|
|
86,892
|
|
|
|
107,069
|
|
Finished products
|
|
|
70,016
|
|
|
|
85,931
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
|
319,335
|
|
|
|
374,975
|
|
Income taxes receivable
|
|
|
10,535
|
|
|
|
12,119
|
|
Assets held for sale
|
|
|
10,079
|
|
|
|
23,412
|
|
Deferred income taxes
|
|
|
-
|
|
|
|
22,034
|
|
Prepaid expenses and other current assets
|
|
|
51,635
|
|
|
|
54,294
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
915,460
|
|
|
|
992,193
|
|
Investments in unconsolidated affiliates
|
|
|
191,826
|
|
|
|
196,776
|
|
Goodwill
|
|
|
246,067
|
|
|
|
238,999
|
|
Other intangible assets, net of accumulated amortization of $49,532 and $47,547 at May 31, 2016 and 2015,
respectively
|
|
|
96,164
|
|
|
|
119,117
|
|
Other assets
|
|
|
31,400
|
|
|
|
24,867
|
|
Property, plant and equipment:
|
|
|
|
|
|
|
|
|
Land
|
|
|
18,537
|
|
|
|
16,017
|
|
Buildings and improvements
|
|
|
256,973
|
|
|
|
218,182
|
|
Machinery and equipment
|
|
|
945,951
|
|
|
|
872,986
|
|
Construction in progress
|
|
|
48,156
|
|
|
|
40,753
|
|
|
|
|
|
|
|
|
|
|
Total property, plant and equipment
|
|
|
1,269,617
|
|
|
|
1,147,938
|
|
Less: accumulated depreciation
|
|
|
686,779
|
|
|
|
634,748
|
|
|
|
|
|
|
|
|
|
|
Total property, plant and equipment, net
|
|
|
582,838
|
|
|
|
513,190
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,063,755
|
|
|
$
|
2,085,142
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
59
WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
May 31,
|
|
|
|
2016
|
|
|
2015
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
290,432
|
|
|
$
|
294,129
|
|
Short-term borrowings
|
|
|
2,651
|
|
|
|
90,550
|
|
Accrued compensation, contributions to employee benefit plans and related taxes
|
|
|
75,105
|
|
|
|
66,252
|
|
Dividends payable
|
|
|
13,471
|
|
|
|
12,862
|
|
Other accrued items
|
|
|
45,056
|
|
|
|
56,913
|
|
Income taxes payable
|
|
|
2,501
|
|
|
|
2,845
|
|
Current maturities of long-term debt
|
|
|
862
|
|
|
|
841
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
430,078
|
|
|
|
524,392
|
|
Other liabilities
|
|
|
63,487
|
|
|
|
58,269
|
|
Distributions in excess of investment in unconsolidated affiliate
|
|
|
52,983
|
|
|
|
61,585
|
|
Long-term debt
|
|
|
579,982
|
|
|
|
579,352
|
|
Deferred income taxes
|
|
|
17,379
|
|
|
|
21,495
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,143,909
|
|
|
|
1,245,093
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity controlling interest:
|
|
|
|
|
|
|
|
|
Preferred shares, without par value; authorized 1,000,000 shares; issued and outstanding none
|
|
|
-
|
|
|
|
-
|
|
Common shares, without par value; authorized 150,000,000 shares; issued and outstanding, 2016 61,533,668 shares,
2015 64,141,478 shares
|
|
|
-
|
|
|
|
-
|
|
Additional paid-in capital
|
|
|
298,984
|
|
|
|
289,078
|
|
Accumulated other comprehensive loss, net of taxes of $4,768 and $16,909 at May 31, 2016 and 2015, respectively
|
|
|
(28,565
|
)
|
|
|
(50,704
|
)
|
Retained earnings
|
|
|
522,952
|
|
|
|
510,738
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity controlling interest
|
|
|
793,371
|
|
|
|
749,112
|
|
Noncontrolling interests
|
|
|
126,475
|
|
|
|
90,937
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
919,846
|
|
|
|
840,049
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
2,063,755
|
|
|
$
|
2,085,142
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
60
WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended May 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Net sales
|
|
$
|
2,819,714
|
|
|
$
|
3,384,234
|
|
|
$
|
3,126,426
|
|
Cost of goods sold
|
|
|
2,367,121
|
|
|
|
2,920,701
|
|
|
|
2,633,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
452,593
|
|
|
|
463,533
|
|
|
|
492,519
|
|
Selling, general and administrative expense
|
|
|
297,402
|
|
|
|
295,920
|
|
|
|
300,396
|
|
Impairment of goodwill and long-lived assets
|
|
|
25,962
|
|
|
|
100,129
|
|
|
|
58,246
|
|
Restructuring and other expense (income)
|
|
|
7,177
|
|
|
|
6,927
|
|
|
|
(1,876
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
122,052
|
|
|
|
60,557
|
|
|
|
135,753
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Miscellaneous income, net
|
|
|
11,267
|
|
|
|
795
|
|
|
|
16,963
|
|
Interest expense
|
|
|
(31,670
|
)
|
|
|
(35,800
|
)
|
|
|
(26,671
|
)
|
Equity in net income of unconsolidated affiliates
|
|
|
114,966
|
|
|
|
87,476
|
|
|
|
91,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
216,615
|
|
|
|
113,028
|
|
|
|
217,501
|
|
Income tax expense
|
|
|
58,987
|
|
|
|
25,772
|
|
|
|
57,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
157,628
|
|
|
|
87,256
|
|
|
|
160,152
|
|
Net earnings attributable to noncontrolling interests
|
|
|
13,913
|
|
|
|
10,471
|
|
|
|
8,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to controlling interest
|
|
$
|
143,715
|
|
|
$
|
76,785
|
|
|
$
|
151,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding
|
|
|
62,469
|
|
|
|
66,309
|
|
|
|
68,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share attributable to controlling interest
|
|
$
|
2.30
|
|
|
$
|
1.16
|
|
|
$
|
2.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding
|
|
|
64,755
|
|
|
|
68,483
|
|
|
|
71,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share attributable to controlling interest
|
|
$
|
2.22
|
|
|
$
|
1.12
|
|
|
$
|
2.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
61
WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Net earnings
|
|
$
|
157,628
|
|
|
$
|
87,256
|
|
|
$
|
160,152
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
4,716
|
|
|
|
(34,229
|
)
|
|
|
7,618
|
|
Pension liability adjustment, net of tax
|
|
|
(2,058
|
)
|
|
|
(3,738
|
)
|
|
|
(1,044
|
)
|
Cash flow hedges, net of tax
|
|
|
22,208
|
|
|
|
(11,653
|
)
|
|
|
2,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
24,866
|
|
|
|
(49,620
|
)
|
|
|
9,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
182,494
|
|
|
|
37,636
|
|
|
|
169,235
|
|
Comprehensive income attributable to noncontrolling interests
|
|
|
16,640
|
|
|
|
7,974
|
|
|
|
9,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to controlling interest
|
|
$
|
165,854
|
|
|
$
|
29,662
|
|
|
$
|
159,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
62
WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(Dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Controlling Interest
|
|
|
|
|
|
|
|
|
|
Common Shares
|
|
|
Additional
Paid-in
Capital
|
|
|
Accumulated
Other
Comprehensive
Loss,
Net of Tax
|
|
|
Retained
Earnings
|
|
|
Total
|
|
|
Noncontrolling
Interests
|
|
|
Total
|
|
(in thousands)
|
|
Shares
|
|
|
Amount
|
|
|
|
|
|
|
|
Balance at May 31, 2013
|
|
|
69,752,411
|
|
|
$
|
-
|
|
|
$
|
244,864
|
|
|
$
|
(12,036
|
)
|
|
$
|
597,994
|
|
|
$
|
830,822
|
|
|
$
|
41,415
|
|
|
$
|
872,237
|
|
Net earnings
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
151,300
|
|
|
|
151,300
|
|
|
|
8,852
|
|
|
|
160,152
|
|
Other comprehensive income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,455
|
|
|
|
-
|
|
|
|
8,455
|
|
|
|
628
|
|
|
|
9,083
|
|
Acquisition of PSI Energy Solutions, LLC
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
84,144
|
|
|
|
84,144
|
|
Common shares issued, net of withholding tax
|
|
|
1,036,573
|
|
|
|
-
|
|
|
|
4,618
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,618
|
|
|
|
-
|
|
|
|
4,618
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
25,651
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,651
|
|
|
|
-
|
|
|
|
25,651
|
|
Purchases and retirement of common shares
|
|
|
(3,380,500
|
)
|
|
|
-
|
|
|
|
(12,523
|
)
|
|
|
-
|
|
|
|
(115,695
|
)
|
|
|
(128,218
|
)
|
|
|
-
|
|
|
|
(128,218
|
)
|
Payments to noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(40,969
|
)
|
|
|
(40,969
|
)
|
Cash dividends declared ($0.60 per share)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(41,816
|
)
|
|
|
(41,816
|
)
|
|
|
-
|
|
|
|
(41,816
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 2014
|
|
|
67,408,484
|
|
|
$
|
-
|
|
|
$
|
262,610
|
|
|
$
|
(3,581
|
)
|
|
$
|
591,783
|
|
|
$
|
850,812
|
|
|
$
|
94,070
|
|
|
$
|
944,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
76,785
|
|
|
|
76,785
|
|
|
|
10,471
|
|
|
|
87,256
|
|
Other comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(47,123
|
)
|
|
|
-
|
|
|
|
(47,123
|
)
|
|
|
(2,497
|
)
|
|
|
(49,620
|
)
|
Acquisition of dHybrid Systems, LLC
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,082
|
|
|
|
4,082
|
|
Common shares issued, net of withholding tax
|
|
|
909,181
|
|
|
|
-
|
|
|
|
2,910
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,910
|
|
|
|
-
|
|
|
|
2,910
|
|
Theoretical common shares in NQ plans
|
|
|
-
|
|
|
|
-
|
|
|
|
14,560
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,560
|
|
|
|
-
|
|
|
|
14,560
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
26,837
|
|
|
|
-
|
|
|
|
-
|
|
|
|
26,837
|
|
|
|
-
|
|
|
|
26,837
|
|
Purchases and retirement of common shares
|
|
|
(4,176,187
|
)
|
|
|
-
|
|
|
|
(17,839
|
)
|
|
|
-
|
|
|
|
(109,521
|
)
|
|
|
(127,360
|
)
|
|
|
-
|
|
|
|
(127,360
|
)
|
Payments to noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(15,189
|
)
|
|
|
(15,189
|
)
|
Cash dividends declared ($0.72 per share)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(48,309
|
)
|
|
|
(48,309
|
)
|
|
|
-
|
|
|
|
(48,309
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 2015
|
|
|
64,141,478
|
|
|
$
|
-
|
|
|
$
|
289,078
|
|
|
$
|
(50,704
|
)
|
|
$
|
510,738
|
|
|
$
|
749,112
|
|
|
$
|
90,937
|
|
|
$
|
840,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
143,715
|
|
|
|
143,715
|
|
|
|
13,913
|
|
|
|
157,628
|
|
Other comprehensive income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22,139
|
|
|
|
-
|
|
|
|
22,139
|
|
|
|
2,727
|
|
|
|
24,866
|
|
Acquisition of Worthington Specialty Processing
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
28,004
|
|
|
|
28,004
|
|
Common shares issued, net of withholding tax
|
|
|
892,190
|
|
|
|
-
|
|
|
|
8,707
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,707
|
|
|
|
-
|
|
|
|
8,707
|
|
Theoretical common shares in NQ plans
|
|
|
-
|
|
|
|
-
|
|
|
|
960
|
|
|
|
-
|
|
|
|
-
|
|
|
|
960
|
|
|
|
-
|
|
|
|
960
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
16,534
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,534
|
|
|
|
-
|
|
|
|
16,534
|
|
Purchases and retirement of common shares
|
|
|
(3,500,000
|
)
|
|
|
-
|
|
|
|
(16,295
|
)
|
|
|
-
|
|
|
|
(83,552
|
)
|
|
|
(99,847
|
)
|
|
|
-
|
|
|
|
(99,847
|
)
|
Payments to noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(9,106
|
)
|
|
|
(9,106
|
)
|
Cash dividends declared ($0.76 per share)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(47,949
|
)
|
|
|
(47,949
|
)
|
|
|
-
|
|
|
|
(47,949
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 2016
|
|
|
61,533,668
|
|
|
$
|
-
|
|
|
$
|
298,984
|
|
|
$
|
(28,565
|
)
|
|
$
|
522,952
|
|
|
$
|
793,371
|
|
|
$
|
126,475
|
|
|
$
|
919,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
63
WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended May 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
157,628
|
|
|
$
|
87,256
|
|
|
$
|
160,152
|
|
Adjustments to reconcile net earnings to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
84,699
|
|
|
|
85,089
|
|
|
|
79,730
|
|
Impairment of goodwill and long-lived assets
|
|
|
25,962
|
|
|
|
100,129
|
|
|
|
58,246
|
|
Provision for (benefit from) deferred income taxes
|
|
|
7,354
|
|
|
|
(39,960
|
)
|
|
|
(25,916
|
)
|
Bad debt expense
|
|
|
346
|
|
|
|
259
|
|
|
|
32
|
|
Equity in net income of unconsolidated affiliates, net of distributions
|
|
|
(29,473
|
)
|
|
|
(12,299
|
)
|
|
|
(15,333
|
)
|
Net (gain) loss on sale of assets
|
|
|
(12,996
|
)
|
|
|
3,277
|
|
|
|
(11,212
|
)
|
Stock-based compensation
|
|
|
15,836
|
|
|
|
17,916
|
|
|
|
22,017
|
|
Excess tax benefits stock-based compensation
|
|
|
-
|
|
|
|
(7,178
|
)
|
|
|
(8,880
|
)
|
Gain on previously held equity interests
|
|
|
(6,877
|
)
|
|
|
-
|
|
|
|
(11,000
|
)
|
Changes in assets and liabilities, net of impact of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
66,117
|
|
|
|
32,011
|
|
|
|
(49,206
|
)
|
Inventories
|
|
|
66,351
|
|
|
|
54,108
|
|
|
|
(38,010
|
)
|
Prepaid expenses and other current assets
|
|
|
18,327
|
|
|
|
(15,295
|
)
|
|
|
(2,921
|
)
|
Other assets
|
|
|
(4,530
|
)
|
|
|
1,617
|
|
|
|
(5,278
|
)
|
Accounts payable and accrued expenses
|
|
|
20,180
|
|
|
|
(83,190
|
)
|
|
|
69,682
|
|
Other liabilities
|
|
|
4,460
|
|
|
|
(9,365
|
)
|
|
|
6,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
413,384
|
|
|
|
214,375
|
|
|
|
229,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in property, plant and equipment
|
|
|
(97,036
|
)
|
|
|
(96,255
|
)
|
|
|
(71,338
|
)
|
Investment in notes receivable
|
|
|
-
|
|
|
|
(7,300
|
)
|
|
|
-
|
|
Acquisitions, net of cash acquired
|
|
|
(34,206
|
)
|
|
|
(105,291
|
)
|
|
|
(11,517
|
)
|
Distributions from (investments in) unconsolidated affiliates
|
|
|
(5,595
|
)
|
|
|
(8,230
|
)
|
|
|
9,223
|
|
Proceeds from sale of assets and insurance
|
|
|
9,797
|
|
|
|
14,007
|
|
|
|
27,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities
|
|
|
(127,040
|
)
|
|
|
(203,069
|
)
|
|
|
(46,194
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from (repayments of) short-term borrowings, net of issuance costs
|
|
|
(85,843
|
)
|
|
|
79,047
|
|
|
|
(103,618
|
)
|
Proceeds from long-term debt, net of issuance costs
|
|
|
921
|
|
|
|
30,572
|
|
|
|
247,566
|
|
Principal payments on long-term debt
|
|
|
(862
|
)
|
|
|
(102,852
|
)
|
|
|
(1,219
|
)
|
Proceeds from issuance of common shares
|
|
|
8,707
|
|
|
|
2,910
|
|
|
|
4,618
|
|
Excess tax benefits stock-based compensation
|
|
|
-
|
|
|
|
7,178
|
|
|
|
8,880
|
|
Payments to noncontrolling interests
|
|
|
(9,106
|
)
|
|
|
(13,379
|
)
|
|
|
(40,969
|
)
|
Repurchase of common shares
|
|
|
(99,847
|
)
|
|
|
(127,360
|
)
|
|
|
(128,218
|
)
|
Dividends paid
|
|
|
(47,193
|
)
|
|
|
(46,434
|
)
|
|
|
(31,198
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by financing activities
|
|
|
(233,223
|
)
|
|
|
(170,318
|
)
|
|
|
(44,158
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
53,121
|
|
|
|
(159,012
|
)
|
|
|
138,694
|
|
Cash and cash equivalents at beginning of year
|
|
|
31,067
|
|
|
|
190,079
|
|
|
|
51,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
84,188
|
|
|
$
|
31,067
|
|
|
$
|
190,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
64
WORTHINGTON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Years Ended May 31, 2016, 2015 and 2014
Note A Summary of Significant
Accounting Policies
Consolidation:
The consolidated financial statements
include the accounts of Worthington Industries, Inc. and consolidated subsidiaries (collectively, we, our, Worthington, or the Company). Investments in unconsolidated affiliates are accounted for using
the equity method. Significant intercompany accounts and transactions are eliminated.
dHybrid Systems, LLC
(dHybrid), Spartan Steel Coating, LLC (Spartan), TWB Company, L.L.C. (TWB), Worthington Aritaş Basinçli 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 the other joint venture members portions of net earnings and other comprehensive income or 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.
Use of Estimates:
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (U.S.
GAAP) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents:
We consider all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Inventories:
Inventories are valued at the lower of cost or market. Cost is determined
using the first-in, first-out method for all inventories. This assessment requires the use of significant estimates to determine replacement cost, cost to complete, normal profit margin and the ultimate selling price of the inventory. No lower
of cost or market adjustment was recorded in fiscal 2016. Due to a decline in steel prices in fiscal 2015, the replacement cost of our inventory was lower than what was reflected in our records at May 31, 2015. Accordingly, we
recorded a lower of cost or market adjustment of $1,716,000 at May 31, 2015 to reflect this lower value. The entire amount related to our Steel Processing operating segment and was recorded in cost of goods sold. We believe our inventories
were valued appropriately as of May 31, 2016 and May 31, 2015.
Derivative Financial
Instruments:
We utilize derivative financial instruments to manage exposure to certain risks related to our ongoing operations. The primary risks managed through the use of derivative instruments include interest rate
risk, currency exchange risk and commodity price risk. All derivative instruments are accounted for using mark-to-market accounting. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated
and qualifies as part of a hedging relationship and, if so, the reason for holding it. Gains and losses on fair value hedges are recognized in current period earnings in the same line as the underlying hedged item. The effective portion of gains and
losses on cash flow hedges is deferred as a component of accumulated other comprehensive income or loss (AOCI) and recognized in earnings at the time the hedged item affects earnings, in the same financial statement caption as the
underlying hedged item. Ineffectiveness of the hedges during the fiscal year ended May 31, 2016 (fiscal 2016), the fiscal year ended May 31, 2015 (fiscal 2015) and the fiscal year ended May 31, 2014 (fiscal
2014) was immaterial. Classification in the consolidated statements of earnings of gains and losses related to derivative instruments that do not qualify for hedge accounting is determined based on the underlying intent of the instruments.
Cash flows related to derivative instruments are generally classified as operating activities in our consolidated statements of cash flows.
65
In order for hedging relationships to qualify for hedge accounting under
current accounting guidance, we formally document each hedging relationship and its risk management objective. This documentation includes the hedge strategy, the hedging instrument, the hedged item, the nature of the risk being hedged, how
hedge effectiveness will be assessed prospectively and retrospectively as well as a description of the method used to measure hedge ineffectiveness.
Derivative instruments are executed only with highly-rated counterparties. No credit loss is anticipated on existing instruments, and no material credit losses have been experienced to date. We
monitor our positions, as well as the credit ratings of counterparties to those positions.
We discontinue
hedge accounting when it is determined that the derivative instrument is no longer effective in offsetting the hedged risk, expires or is sold, is terminated or is no longer designated as a hedging instrument because it is unlikely that a forecasted
transaction will occur or we determine that designation of the hedging instrument is no longer appropriate. In all situations in which hedge accounting is discontinued and the derivative instrument is retained, we continue to carry the
derivative instrument at its fair value on the consolidated balance sheet and recognize any subsequent changes in its fair value in net earnings immediately. When it is probable that a forecasted transaction will not occur, we discontinue hedge
accounting and immediately recognize the gains and losses that were accumulated in AOCI.
Refer to Note
P Derivative Instruments and Hedging Activities for additional information regarding the consolidated balance sheet location and the risk classification of our derivative instruments.
Risks and Uncertainties
: As of May 31, 2016, we, together with our unconsolidated
affiliates, operated 82 manufacturing facilities in 24 states and 11 countries. A total of 31 of these facilities are operated by wholly-owned, consolidated subsidiaries of the Company. The remaining facilities are operated by our
consolidated and unconsolidated joint ventures. As of May 31, 2016, we held equity positions in 12 active joint ventures, of which six are consolidated. Our largest market is the automotive market, which comprised 43%, 38%, and 36% of
consolidated net sales in fiscal 2016, fiscal 2015, and fiscal 2014, respectively. Our foreign operations represented 8%, 6%, and 7% of consolidated net sales and 10%, (2)%, and (2)% of net earnings attributable to controlling interest in
fiscal 2016, fiscal 2015, and fiscal 2014, respectively, and 14% and 14% of consolidated net assets as of May 31, 2016 and 2015, respectively. As of May 31, 2016, approximately 8% of our consolidated labor force was represented by collective
bargaining agreements. The concentration of credit risks from financial instruments related to the markets we serve is not expected to have a material adverse effect on our consolidated financial position, cash flows or future results of
operations.
In fiscal 2016, our largest customer accounted for approximately 8% of our consolidated net
sales, and our ten largest customers accounted for approximately 34% of our consolidated net sales. A significant loss of, or decrease in, business from any of these customers could have an adverse effect on our sales and financial results if
we cannot obtain replacement business. Also, due to consolidation within the industries we serve, including the construction, automotive and retail industries, our sales may be increasingly sensitive to deterioration in the financial condition
of, or other adverse developments with respect to, one or more of our largest customers.
Our principal raw
material is flat-rolled steel, which we purchase from multiple primary steel producers. The steel industry as a whole has been cyclical, and at times availability and pricing can be volatile due to a number of factors beyond our
control. This volatility can significantly affect our steel costs. In an environment of increasing prices for steel and other raw materials, in general, competitive conditions may impact how much of the price increases we can pass on to
our customers. To the extent we are unable to pass on future price increases in our raw materials to our customers, our financial results could be adversely affected. Also, if steel prices decrease, in general, competitive conditions may
impact how quickly we must reduce our prices to our customers and we could be forced to use higher-priced raw materials to complete orders for which the selling prices have decreased. Declining steel prices could also require us to write-down
66
the value of our inventories to reflect current market pricing. Further, the number of suppliers has decreased in recent years due to industry consolidation and the financial difficulties of
certain suppliers, and consolidation may continue. Accordingly, if delivery from a major steel supplier is disrupted, it may be more difficult to obtain an alternative supply than in the past.
Receivables:
We review our receivables on an ongoing basis to ensure that they are properly
valued and collectible. This is accomplished through two contra-receivable accounts: returns and allowances and allowance for doubtful accounts. Returns and allowances are used to record estimates of returns or other allowances resulting
from quality, delivery, discounts or other issues affecting the value of receivables. This account is estimated based on historical trends and current market conditions, with the offset to net sales. The returns and allowances account
decreased approximately $341,000 during fiscal 2016 to $6,052,000.
The allowance for doubtful accounts is
used to record the estimated risk of loss related to the customers inability to pay. This allowance is maintained at a level that we consider appropriate based on factors that affect collectability, such as the financial health of our
customers, historical trends of charge-offs and recoveries and current economic and market conditions. As we monitor our receivables, we identify customers that may have payment problems, and we adjust the allowance accordingly, with the offset to
selling, general and administrative (SG&A) expense. Account balances are charged off against the allowance when recovery is considered remote. The allowance for doubtful accounts increased approximately $1,494,000 during fiscal 2016
to $4,579,000.
While we believe our allowances are adequate, changes in economic conditions, the financial
health of customers and bankruptcy settlements could impact our future earnings. If the economic environment and market conditions deteriorate, particularly in the automotive and construction end markets where our exposure is greatest,
additional reserves may be required.
Property and Depreciation:
Property, plant
and equipment are carried at cost and depreciated using the straight-line method. Buildings and improvements are depreciated over 10 to 40 years and machinery and equipment over 3 to 20 years. Depreciation expense was $68,886,000,
$64,666,000, and $62,344,000 during fiscal 2016, fiscal 2015 and fiscal 2014, respectively. Accelerated depreciation methods are used for income tax purposes.
Goodwill and Other Long-Lived Assets:
We use the purchase method of accounting for all
business combinations and recognize amortizable and indefinite-lived intangible assets separately from goodwill. The acquired assets and assumed liabilities in an acquisition are measured and recognized based on their estimated fair values at
the date of acquisition, with goodwill representing the excess of the purchase price over the fair value of the identifiable net assets. A bargain purchase may occur, wherein the fair value of identifiable net assets exceeds the purchase price,
and a gain is then recognized in the amount of that excess. Goodwill and intangible assets with indefinite lives are not amortized, but instead are tested for impairment annually, during the fourth quarter, or more frequently if events or changes in
circumstances indicate that impairment may be present. Application of goodwill impairment testing involves judgment, including but not limited to, the identification of reporting units and estimation of the fair value of each reporting unit. A
reporting unit is defined as an operating segment or one level below an operating segment. With the exception of Pressure Cylinders, we test goodwill at the operating segment level as we have determined that the characteristics of the reporting
units within each operating segment are similar and allow for their aggregation in accordance with the applicable accounting guidance. For our Pressure Cylinders operating segment, the Oil & Gas Equipment business has been treated as a
separate reporting unit since the second quarter of fiscal 2016.
The goodwill impairment test consists of
comparing the fair value of each reporting unit, determined using discounted cash flows, to each reporting units respective carrying value. If the estimated fair value of a reporting unit exceeds its carrying value, there is no impairment. If
the carrying amount of the reporting unit
67
exceeds its estimated fair value, goodwill impairment is indicated. The amount of the impairment is determined by comparing the fair value of the net assets of the reporting unit, excluding
goodwill, to its estimated fair value, with the difference representing the implied fair value of the goodwill. If the implied fair value of the goodwill is lower than its carrying value, the difference is recorded as an impairment charge in our
consolidated statements of earnings. The impairment test for indefinite-lived intangible assets consists of a comparison of the fair value of the intangible asset to its carrying value. If the carrying value of the intangible asset exceeds its
fair value, the difference is recorded as an impairment charge in our consolidated statements of earnings.
We
review the carrying value of our long-lived assets, including intangible assets with finite useful lives, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable.
Impairment testing involves a comparison of the sum of the undiscounted future cash flows of the asset or asset group to its respective carrying amount. If the sum of the undiscounted future cash flows exceeds the carrying amount, then no
impairment exists. If the carrying amount exceeds the sum of the undiscounted future cash flows, then a second step is performed to determine the amount of impairment, if any, to be recognized. The loss recognized is equal to the amount that
the carrying value of the asset or asset group exceeds fair value.
Our impairment testing for both goodwill
and other long-lived assets, including intangible assets with finite useful lives, is largely based on cash flow models that require significant judgment and require assumptions about future volume trends, revenue and expense growth rates; and, in
addition, external factors such as changes in economic trends and cost of capital. Significant changes in any of these assumptions could impact the outcomes of the tests performed. See Note C Goodwill and Other Long-Lived
Assets for additional details regarding these assets and related impairment testing.
Leases:
Certain lease agreements contain fluctuating or escalating payments and rent
holiday periods. The related rent expense is recorded on a straight-line basis over the lease term. Leasehold improvements made by the lessee, whether funded by the lessee or by landlord allowances or incentives, are recorded as leasehold
improvement assets and will be amortized over the shorter of the economic life or the lease term. These incentives are also recorded as deferred rent and amortized as reductions in rent expense over the lease term.
Stock-Based Compensation:
At May 31, 2016, we had stock-based compensation plans for our
employees as well as our non-employee directors as described more fully in Note J Stock-Based Compensation. All share-based awards, including grants of stock options and restricted common shares, are recorded as expense in
the consolidated statements of earnings based on their grant-date fair values.
Revenue
Recognition
: We recognize revenue upon transfer of title and risk of loss, or in the case of toll processing revenue, upon delivery of the goods, provided evidence of an arrangement exists, pricing is fixed and
determinable and the ability to collect is probable. We provide, through charges to net sales, for returns and allowances based on experience and current customer activities. We also provide, through charges to net sales, for customer
rebates and sales discounts based on specific agreements and recent and anticipated levels of customer activity. In circumstances where the collection of payment is not probable at the time of shipment, we defer recognition of revenue until
payment is collected.
Advertising Expense:
We expense advertising costs
as incurred. Advertising expense was $13,970,000, $11,153,000, and $6,788,000 for fiscal 2016, fiscal 2015 and fiscal 2014, respectively.
Shipping and Handling Fees and Costs:
Shipping and handling fees billed to customers are included in net sales, and shipping and handling costs incurred are included
in cost of goods sold.
Environmental Costs:
Environmental costs are capitalized
if the costs extend the life of the property, increase its capacity, and/or mitigate or prevent contamination from future operations. Costs related to environmental contamination treatment and clean up are charged to expense as incurred.
68
Statements of Cash Flows:
Supplemental
cash flow information was as follows for the fiscal years ended May 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Interest paid, net of amount capitalized
|
|
$
|
30,431
|
|
|
$
|
36,190
|
|
|
$
|
24,199
|
|
Income taxes paid, net of refunds
|
|
|
50,750
|
|
|
|
67,825
|
|
|
|
81,997
|
|
We use the cumulative earnings approach for determining cash flow
presentation of distributions from our unconsolidated joint ventures. Distributions received are included in our consolidated statements of cash flows as operating activities, unless the cumulative distributions exceed our portion of the cumulative
equity in the net earnings of the joint venture, in which case the excess distributions are deemed to be returns of the investment and are classified as investing activities in our consolidated statements of cash flows.
Income Taxes:
We account for income taxes using the asset and liability method. The
asset and liability method requires the recognition of deferred tax assets and liabilities for expected future tax consequences of temporary differences that currently exist between the tax basis and the financial reporting basis of our assets and
liabilities. In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that all, or a portion, of the deferred tax assets will not be realized. We provide a valuation allowance for deferred
income tax assets when it is more likely than not that a portion of such deferred income tax assets will not be realized.
Tax benefits from uncertain tax positions that are recognized in the consolidated financial statements are measured based on the largest benefit that has a greater than fifty percent likelihood of being
realized upon ultimate settlement.
We have reserves for taxes and associated interest and penalties that may
become payable in future years as a result of audits by taxing authorities. It is our policy to record these in income tax expense. While we believe the positions taken on previously filed tax returns are appropriate, we have established
the tax and interest reserves in recognition that various taxing authorities may challenge our positions. The tax reserves are analyzed periodically, and adjustments are made as events occur to warrant adjustment to the reserves, such as
lapsing of applicable statutes of limitations, conclusion of tax audits, additional exposure based on current calculations, identification of new issues and release of administrative guidance or court decisions affecting a particular tax issue.
Self-Insurance Reserves:
We are largely self-insured with respect to
workers compensation, general and automobile liability, property damage, employee medical claims and other potential losses. In order to reduce risk and better manage our overall loss exposure, we purchase stop-loss insurance that covers
individual claims in excess of the deductible amounts. We maintain reserves for the estimated cost to settle open claims, which includes estimates of legal costs expected to be incurred, as well as an estimate of the cost of claims that have been
incurred but not reported. These estimates are based on actuarial valuations that take into consideration the historical average claim volume, the average cost for settled claims, current trends in claim costs, changes in our business and workforce,
general economic factors and other assumptions believed to be reasonable under the circumstances. The estimated reserves for these liabilities could be affected if future occurrences and claims differ from the assumptions used and historical trends.
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
69
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 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 is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. Early adoption is permitted, and the amendments may be applied using either a
retrospective or modified retrospective approach. 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 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. 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 adoption is permitted for financial statements that have not been issued. Retrospective application to prior periods is required. 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 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 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. The amended guidance is effective prospectively for fiscal years beginning after December 15, 2015, including interim periods within
those fiscal years. Early adoption is permitted for financial statements that have not been issued. 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 November 2015, amended accounting guidance was issued that simplifies the presentation of deferred income
taxes. The amended guidance requires entities with a classified balance sheet to present all deferred income tax assets and liabilities as noncurrent. The amended guidance is effective for financial
70
statements issued for annual periods beginning after December 15, 2016, including interim periods within those annual periods. Early adoption is permitted as of the beginning of an interim
or annual reporting period, and the change may be applied either prospectively or retrospectively. The Company elected to early adopt this amended accounting guidance during the fourth quarter of fiscal 2016. The adoption was on a
prospective basis and therefore prior periods have not been restated.
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 derivatives 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 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
amended guidance is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. The Company elected to early adopt this amended accounting guidance during
the fourth quarter of fiscal 2016. The impact resulting from the adoption of this amended guidance is summarized below.
|
|
|
Income Tax Accounting
The amended accounting guidance requires all excess tax benefits and tax deficiencies to be recognized as
an income tax benefit or expense on a prospective basis in the period of adoption. The adoption of this provision of the amended accounting guidance resulted in the recognition of excess tax benefits of $3,178,000 in income tax expense, rather than
in paid-in capital, during fiscal 2016. As the adoption was on a prospective basis, prior periods have not been restated.
|
|
|
|
Forfeitures
The Company has elected to continue to estimate the number of awards expected to vest, as permitted by the amended
accounting guidance, rather than electing to account for forfeitures as they occur.
|
|
|
|
Statement of Cash Flows Presentation
The amended accounting guidance requires excess tax benefits to be classified as an
operating activity in the statement of cash flows. Previously, excess tax benefits were presented as a cash inflow from financing activities and cash outflow from operating activities. The Company has elected to present these changes on a
prospective basis and therefore prior periods have not been adjusted to conform with the current presentation.
|
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
71
those fiscal years. 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
At May 31, 2016, equity investments and the percentage interests owned consisted of the following (in alphabetic order):
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%).
Effective March 1, 2016, the Company reached an agreement with United States Steel Corporation (U.S. Steel), its partner in the WSP joint venture, whereby the Company appoints a majority of
the WSP Board of Directors, giving the Company effective control over the operations of WSP. Since that date, WSPs results have been consolidated within the financial results of Steel Processing versus being reported in equity in net income of
unconsolidated affiliates. For additional information, refer to Note O Acquisitions.
On October 18, 2013, we finalized an agreement with Nisshin Steel Co., Ltd. and Marubeni-Itochu Steel Inc. to form
Zhejiang Nisshin Worthington Precision Specialty Steel Co., Ltd. We own a 10% interest in the joint venture with the option to increase our ownership interest to 34%. The joint venture is constructing a facility to produce cold-rolled
strip steel, primarily for the automotive industry, which is scheduled to start production in the first quarter of fiscal 2017.
During the second quarter of fiscal 2014, we dissolved our wind tower joint venture, Gestamp Worthington Wind Steel, LLC, due to the volatile political environment in the United States, particularly in
regards to the Federal Production Tax Credit. This event did not have a material impact on our financial position or results of operations.
On July 31, 2013, we acquired an additional 10% interest in our laser welded blank joint venture, TWB, increasing our ownership to a 55% controlling interest. Since that date, TWBs results have been
consolidated within the financial results of Steel Processing versus being reported in equity in net income of unconsolidated affiliates. For additional information, refer to Note O Acquisitions.
We received distributions from unconsolidated affiliates totaling $86,513,000, $78,297,000, and $85,346,000 in fiscal
2016, fiscal 2015 and fiscal 2014, respectively. We have received cumulative distributions from WAVE in excess of our investment balance, which resulted in an amount recorded within other liabilities on our consolidated balance sheets of
$52,983,000 and $61,585,000 at May 31, 2016 and 2015, respectively. In accordance with the applicable accounting guidance, we reclassified the negative balance to the liability section of our consolidated balance sheet. We will continue to
record our equity in the net income of WAVE as a debit to the investment account, and if it becomes positive, it will again be shown as an asset on our consolidated balance sheet. If it becomes probable that any excess distribution may not be
returned (upon joint venture liquidation or otherwise), we will recognize any balance classified as a liability as income immediately.
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. During fiscal 2015, we received excess distributions from ClarkDietrich of $570,000.
72
The following table presents combined information of the financial position
of our unconsolidated affiliates accounted for using the equity method as of May 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
Cash
|
|
$
|
112,122
|
|
|
$
|
101,011
|
|
Receivable from member (1)
|
|
|
-
|
|
|
|
11,092
|
|
Other current assets
|
|
|
446,796
|
|
|
|
491,507
|
|
Noncurrent assets
|
|
|
352,370
|
|
|
|
318,939
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
911,288
|
|
|
$
|
922,549
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
112,491
|
|
|
$
|
184,028
|
|
Short-term borrowings
|
|
|
11,398
|
|
|
|
-
|
|
Current maturities of long-term debt
|
|
|
3,297
|
|
|
|
4,489
|
|
Long-term debt
|
|
|
266,942
|
|
|
|
272,861
|
|
Other noncurrent liabilities
|
|
|
21,034
|
|
|
|
20,471
|
|
Equity
|
|
|
496,126
|
|
|
|
440,700
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
911,288
|
|
|
$
|
922,549
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents cash owed from a third-party joint venture partner as a result of centralized cash management. The decrease in fiscal 2016 is due to
the consolidation of the WSP joint venture.
|
73
The following table presents financial results of our four largest
unconsolidated affiliates for fiscal 2016, fiscal 2015 and fiscal 2014. All other unconsolidated affiliates are combined and presented in the Other category.
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
WAVE
|
|
$
|
393,718
|
|
|
$
|
382,451
|
|
|
$
|
382,821
|
|
ClarkDietrich
|
|
|
615,609
|
|
|
|
576,171
|
|
|
|
549,267
|
|
Serviacero
|
|
|
260,337
|
|
|
|
277,385
|
|
|
|
249,661
|
|
ArtiFlex
|
|
|
219,510
|
|
|
|
183,029
|
|
|
|
170,531
|
|
Other
|
|
|
74,214
|
|
|
|
91,144
|
|
|
|
140,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
1,563,388
|
|
|
$
|
1,510,180
|
|
|
$
|
1,492,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
|
|
|
|
|
|
|
|
|
|
WAVE
|
|
$
|
207,143
|
|
|
$
|
181,102
|
|
|
$
|
177,935
|
|
ClarkDietrich
|
|
|
95,427
|
|
|
|
65,530
|
|
|
|
73,803
|
|
Serviacero
|
|
|
15,328
|
|
|
|
17,028
|
|
|
|
22,268
|
|
ArtiFlex
|
|
|
30,181
|
|
|
|
24,145
|
|
|
|
16,839
|
|
Other
|
|
|
13,142
|
|
|
|
14,201
|
|
|
|
21,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross margin
|
|
$
|
361,221
|
|
|
$
|
302,006
|
|
|
$
|
312,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
|
|
|
|
|
|
|
|
|
WAVE
|
|
$
|
172,721
|
|
|
$
|
147,603
|
|
|
$
|
144,167
|
|
ClarkDietrich
|
|
|
33,897
|
|
|
|
10,436
|
|
|
|
27,918
|
|
Serviacero
|
|
|
11,110
|
|
|
|
14,036
|
|
|
|
19,413
|
|
ArtiFlex
|
|
|
22,612
|
|
|
|
16,476
|
|
|
|
9,785
|
|
Other
|
|
|
6,910
|
|
|
|
4,980
|
|
|
|
12,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
$
|
247,250
|
|
|
$
|
193,531
|
|
|
$
|
213,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
WAVE
|
|
$
|
4,120
|
|
|
$
|
4,150
|
|
|
$
|
4,916
|
|
ClarkDietrich
|
|
|
14,289
|
|
|
|
16,638
|
|
|
|
16,523
|
|
Serviacero
|
|
|
3,508
|
|
|
|
3,462
|
|
|
|
3,533
|
|
ArtiFlex
|
|
|
6,105
|
|
|
|
7,258
|
|
|
|
7,129
|
|
Other
|
|
|
3,081
|
|
|
|
4,154
|
|
|
|
4,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization
|
|
$
|
31,103
|
|
|
$
|
35,662
|
|
|
$
|
36,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense (income)
|
|
|
|
|
|
|
|
|
|
|
|
|
WAVE
|
|
$
|
6,635
|
|
|
$
|
6,412
|
|
|
$
|
6,464
|
|
ClarkDietrich
|
|
|
80
|
|
|
|
138
|
|
|
|
103
|
|
Serviacero
|
|
|
114
|
|
|
|
201
|
|
|
|
474
|
|
ArtiFlex
|
|
|
1,650
|
|
|
|
1,973
|
|
|
|
2,183
|
|
Other
|
|
|
(10
|
)
|
|
|
(29
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
$
|
8,469
|
|
|
$
|
8,695
|
|
|
$
|
9,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
WAVE
|
|
$
|
2,449
|
|
|
$
|
2,539
|
|
|
$
|
3,606
|
|
ClarkDietrich
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Serviacero
|
|
|
6,249
|
|
|
|
7,844
|
|
|
|
5,689
|
|
ArtiFlex
|
|
|
289
|
|
|
|
105
|
|
|
|
82
|
|
Other
|
|
|
53
|
|
|
|
-
|
|
|
|
477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
$
|
9,040
|
|
|
$
|
10,488
|
|
|
$
|
9,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
WAVE
|
|
$
|
164,132
|
|
|
$
|
138,670
|
|
|
$
|
134,019
|
|
ClarkDietrich
|
|
|
58,539
|
|
|
|
11,799
|
|
|
|
27,837
|
|
Serviacero
|
|
|
6,246
|
|
|
|
8,429
|
|
|
|
14,530
|
|
ArtiFlex
|
|
|
20,673
|
|
|
|
14,398
|
|
|
|
7,539
|
|
Other
|
|
|
8,516
|
|
|
|
4,806
|
|
|
|
12,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net earnings
|
|
$
|
258,106
|
|
|
$
|
178,102
|
|
|
$
|
196,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74
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 interest.
The financial results of TWB have been included in the amounts presented in the tables above through July 31, 2013. On July 31, 2013, we completed the acquisition of an additional 10% interest in
TWB. As a result, TWBs 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 interest.
At May 31, 2016, $23,283,000 of our consolidated retained earnings represented undistributed earnings, net of
tax, of our unconsolidated affiliates.
Note C Goodwill and Other Long-Lived Assets
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 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 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 the 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
75
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 fourth quarter of fiscal 2015, we determined that indicators of impairment were present with regard to intangible assets related to our compressed
natural gas (CNG) fuel systems joint venture, dHybrid. Recoverability of the identified asset group was tested using future cash flow projections based on managements long-range estimates of market conditions. The sum of these
undiscounted future cash flows was less than the net book value of the asset group. In accordance with the applicable accounting guidance, the intangible assets were written down to their fair value, resulting in an impairment charge of $2,344,000.
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 first quarter of fiscal 2016.
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. (ACT) 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 $332,000.
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.
76
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. The Company completed the sale of Worthington Nitin Cylinders during the second quarter of fiscal 2016.
Fiscal 2014:
As noted above, during the fourth quarter of fiscal 2014,
management committed to a plan to sell Worthington Nitin Cylinders and PSM. 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
impairment charges of $18,959,000 and $7,141,000, respectively. The portion of the Worthington Nitin Cylinders impairment charge attributable to the noncontrolling interest was $7,583,000 and was recorded within net earnings attributable to
noncontrolling interest.
During the fourth quarter of fiscal 2014, we determined that indicators of
impairment were present at the Companys aluminum high-pressure cylinder business in New Albany, Mississippi, due to current and projected operating losses. Recoverability of the identified asset group was tested using future cash flow
projections based on managements long-range estimates of market conditions. The sum of these undiscounted future cash flows was less than the net book value of the asset group. In accordance with the applicable accounting guidance, the
net assets were written down to their fair value of $7,034,000, resulting in an impairment charge of $1,412,000.
During the second quarter of fiscal 2014, we committed to a re-branding initiative. Under the re-branding initiative, we re-branded substantially all of our businesses under the Worthington Industries
name. In connection with the change in branding strategy, we discontinued the use of all non-Worthington trade names except those related to consumer products such as BernzOmatic
®
and Balloon Time
®
and those
related to our joint ventures. As a result, we determined an impairment indicator was present for the trade names that have been or will be discontinued. As no future cash flows will be attributed to the impacted trade names, the entire book value
was written off, resulting in an impairment charge of $30,734,000.
77
Goodwill
The following table summarizes the changes in the carrying amount of goodwill during fiscal 2016 and fiscal 2015 by
reportable business segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steel
Processing
|
|
|
Pressure
Cylinders
|
|
|
Engineered
Cabs
|
|
|
Other
|
|
|
Total
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
-
|
|
|
$
|
200,509
|
|
|
$
|
44,933
|
|
|
$
|
127,245
|
|
|
$
|
372,687
|
|
Accumulated impairment losses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(121,594
|
)
|
|
|
(121,594
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
200,509
|
|
|
|
44,933
|
|
|
|
5,651
|
|
|
|
251,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions and purchase accounting adjustments
|
|
|
6,587
|
|
|
|
41,421
|
|
|
|
-
|
|
|
|
-
|
|
|
|
48,008
|
|
Divestitures
|
|
|
-
|
|
|
|
(1,891
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,891
|
)
|
Translation adjustments
|
|
|
-
|
|
|
|
(13,278
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(13,278
|
)
|
Impairment losses
|
|
|
-
|
|
|
|
-
|
|
|
|
(44,933
|
)
|
|
|
-
|
|
|
|
(44,933
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,587
|
|
|
|
26,252
|
|
|
|
(44,933
|
)
|
|
|
-
|
|
|
|
(12,094
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
6,587
|
|
|
|
226,761
|
|
|
|
44,933
|
|
|
|
127,245
|
|
|
|
405,526
|
|
Accumulated impairment losses
|
|
|
-
|
|
|
|
-
|
|
|
|
(44,933
|
)
|
|
|
(121,594
|
)
|
|
|
(166,527
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,587
|
|
|
|
226,761
|
|
|
|
-
|
|
|
|
5,651
|
|
|
|
238,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions and purchase accounting adjustments
|
|
|
458
|
|
|
|
6,713
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,171
|
|
Translation adjustments
|
|
|
-
|
|
|
|
(103
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(103
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
458
|
|
|
|
6,610
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
7,045
|
|
|
|
233,371
|
|
|
|
44,933
|
|
|
|
127,245
|
|
|
|
412,594
|
|
Accumulated impairment losses
|
|
|
-
|
|
|
|
-
|
|
|
|
(44,933
|
)
|
|
|
(121,594
|
)
|
|
|
(166,527
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,045
|
|
|
$
|
233,371
|
|
|
$
|
-
|
|
|
$
|
5,651
|
|
|
$
|
246,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For additional information regarding the Companys acquisitions, refer to Note
O Acquisitions.
Other Intangible Assets
Intangible assets with definite lives are amortized on a straight-line basis over their estimated useful lives, which
range from one to 20 years. The following table summarizes other intangible assets by class as of May 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
(in thousands)
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
$
|
14,501
|
|
|
$
|
-
|
|
|
$
|
12,601
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total indefinite-lived intangible assets
|
|
|
14,501
|
|
|
|
-
|
|
|
|
12,601
|
|
|
|
-
|
|
Definite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
96,072
|
|
|
$
|
35,561
|
|
|
$
|
119,871
|
|
|
$
|
34,421
|
|
Non-compete agreements
|
|
|
9,422
|
|
|
|
6,237
|
|
|
|
14,221
|
|
|
|
6,897
|
|
Technology / know-how
|
|
|
21,689
|
|
|
|
3,865
|
|
|
|
15,633
|
|
|
|
2,350
|
|
Other
|
|
|
4,012
|
|
|
|
3,869
|
|
|
|
4,338
|
|
|
|
3,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total definite-lived intangible assets
|
|
|
131,195
|
|
|
|
49,532
|
|
|
|
154,063
|
|
|
|
47,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
145,696
|
|
|
$
|
49,532
|
|
|
$
|
166,664
|
|
|
$
|
47,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78
Amortization expense of $15,813,000, $20,422,000, and $17,386,000 was
recognized during fiscal 2016, fiscal 2015 and fiscal 2014, respectively.
Amortization expense for each of
the next five fiscal years is estimated to be:
|
|
|
|
|
(in thousands)
|
|
|
|
2017
|
|
$
|
13,664
|
|
2018
|
|
$
|
13,225
|
|
2019
|
|
$
|
10,772
|
|
2020
|
|
$
|
8,385
|
|
2021
|
|
$
|
7,813
|
|
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 employee severance (including rationalizing headcount or other significant changes in personnel).
A progression of the liabilities associated with our restructuring activities, combined with a reconciliation to the
restructuring and other expense (income) financial statement caption in our consolidated statement of earnings for fiscal 2016, is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Beginning
Balance
|
|
|
Expense
|
|
|
Payments
|
|
|
Adjustments
|
|
|
Ending
Balance
|
|
Early retirement and severance
|
|
$
|
2,170
|
|
|
$
|
6,137
|
|
|
$
|
(5,746
|
)
|
|
$
|
(730
|
)
|
|
$
|
1,831
|
|
Facility exit and other costs
|
|
|
371
|
|
|
|
7,967
|
|
|
|
(7,482
|
)
|
|
|
(203
|
)
|
|
|
653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,541
|
|
|
|
14,104
|
|
|
$
|
(13,228
|
)
|
|
$
|
(933
|
)
|
|
$
|
2,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain on sale of assets
|
|
|
|
|
|
|
(6,927
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and other expense
|
|
|
|
|
|
$
|
7,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During fiscal 2016, the following actions 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 $1,929,000
and facility exit costs of $1,283,000. The Company also recognized a net loss of $207,000 related to the disposal of assets.
|
|
|
|
The Company recognized severance expense of $1,803,000 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 $5,863,000 of facility exit costs and
severance expense of $1,122,000. The Company also recognized a net gain of $670,000 related to the disposal of assets.
|
|
|
|
In connection with the pending closure of the steel packaging facility in York, Pennsylvania, the Company recognized severance expense of $589,000.
|
|
|
|
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 $130,000 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.
|
79
|
|
|
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.
|
|
|
|
In connection with the consolidation of the cryogenics trailer business in Boston, Massachusetts, to the recently acquired facility in Theodore,
Alabama, the Company recognized severance expense of $550,000.
|
|
|
|
The Company incurred severance expense and facility costs totaling $384,000 and $691,000, respectively, related to other non-significant
restructuring activities.
|
The total liability as of May 31, 2016 is expected to be paid in
the next twelve months.
A progression of the liabilities associated with our restructuring activities,
combined with a reconciliation to the restructuring and other expense (income) financial statement caption in our consolidated statement of earnings for fiscal 2015, is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Beginning
Balance
|
|
|
Expense
|
|
|
Payments
|
|
|
Adjustments
|
|
|
Ending
Balance
|
|
Early retirement and severance
|
|
$
|
6,495
|
|
|
$
|
3,323
|
|
|
$
|
(7,694
|
)
|
|
$
|
46
|
|
|
$
|
2,170
|
|
Facility exit and other costs
|
|
|
534
|
|
|
|
1,266
|
|
|
|
(1,568
|
)
|
|
|
139
|
|
|
|
371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,029
|
|
|
|
4,589
|
|
|
$
|
(9,262
|
)
|
|
$
|
185
|
|
|
$
|
2,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss on sale of assets
|
|
|
|
|
|
|
2,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and other expense
|
|
|
|
|
|
$
|
6,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During fiscal 2015, the following actions were taken related to the Companys
restructuring activities:
|
|
|
In connection with the wind-down of our former Metal Framing operating segment, we recognized $413,000 of facility exit and other costs.
|
|
|
|
The Company completed the sale of its aluminum high-pressure cylinder business in New Albany, Mississippi, for cash proceeds of $8,415,000. A
loss of $2,670,000 was recognized as a result of the transaction, which included $1,891,000 of allocated goodwill. The Company also recognized an accrual of $664,000 for expected severance costs associated with the transaction.
|
|
|
|
The Company completed the sale of the ACT business within Engineered Cabs for cash proceeds of $2,622,000, resulting in a gain of $332,000.
|
|
|
|
On March 24, 2015, the Company announced a workforce reduction in several Oil & Gas Equipment locations due to slowing demand. The Company
recognized an accrual of $2,221,000 for expected severance costs covering those affected by the workforce reductions.
|
|
|
|
In connection with the consolidation of the BernzOmatic hand torch manufacturing operation in Medina, New York into the existing Pressure
Cylinders facility in Chilton, Wisconsin, we incurred $853,000 of facility exit costs.
|
|
|
|
In connection with the wind down of the Military Construction business, the Company recognized an accrual of $366,000 for expected severance costs.
|
Note E Contingent Liabilities and Commitments
Legal Proceedings
We are defendants in certain legal actions. In the opinion of management, the outcome of these actions, which is not clearly determinable at the present time, would not significantly affect our
consolidated financial position or future results of operations. We also believe that environmental issues will not have a material effect on our capital expenditures, consolidated financial position or future results of operations.
80
Insurance Recoveries
On August 19, 2013, a fire occurred at our Pressure Cylinders facility in Kienberg, Austria, in the building that houses
the massing process in the production of acetylene cylinders. The other portions of the Austrian facility were not damaged; however, the massing process building sustained extensive damage and was rendered inoperable. Additionally, we incurred
incremental business interruption costs. The Company had business interruption and property damage insurance and, as a result, the fire did not have a material adverse impact on the Companys consolidated financial results.
During fiscal 2015, the Company received proceeds of $1,248,000 representing advance payments for the replacement value
of damaged equipment. These proceeds were in excess of the $243,000 remaining book value of the assets, resulting in a gain of $1,005,000 within miscellaneous income.
Total proceeds received related to insurance claims since the date of loss have been as follows:
|
|
|
|
|
(in thousands)
|
|
|
|
Property and equipment
|
|
$
|
6,892
|
|
Business interruption
|
|
|
5,521
|
|
Other expenses
|
|
|
1,001
|
|
|
|
|
|
|
Total insurance proceeds
|
|
$
|
13,414
|
|
|
|
|
|
|
Proceeds for business interruption related to the loss of profits since the date of the
fire and have been recorded as a reduction of manufacturing expense, including $2,653,000 during fiscal 2015. Proceeds for other expenses represent reimbursement for incremental expenses related to the fire and were recorded as an offset to
manufacturing expense, including $256,000 during fiscal 2015. This claim was settled during the third quarter of fiscal 2015.
Note F
Guarantees
We do not have guarantees that we believe are reasonably likely to have a material
current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. However, as of May 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 $10,510,000 at May 31, 2016. Based on current facts and
circumstances, we have estimated the likelihood of payment pursuant to this guarantee, and determined that the fair value of our obligation based on the likely outcome is not material.
Note G Debt and Receivables Securitization
The
following table summarizes our long-term debt and short-term borrowings outstanding at May 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
Short-term borrowings
|
|
$
|
2,651
|
|
|
$
|
90,550
|
|
4.55% senior notes due April 15, 2026
|
|
|
249,567
|
|
|
|
249,524
|
|
4.60% senior notes due August 10, 2024
|
|
|
150,000
|
|
|
|
150,000
|
|
6.50% senior notes due April 15, 2020
|
|
|
149,937
|
|
|
|
149,920
|
|
Term loans
|
|
|
31,020
|
|
|
|
30,429
|
|
Other
|
|
|
320
|
|
|
|
320
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
583,495
|
|
|
|
670,743
|
|
Less: current maturities and short-term borrowings
|
|
|
3,513
|
|
|
|
91,391
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
579,982
|
|
|
$
|
579,352
|
|
|
|
|
|
|
|
|
|
|
81
Short-term borrowings at May 31, 2016, consisted of an aggregate of
$2,651,000 outstanding under various credit facilities maintained by our consolidated affiliate, Worthington Aritas.
We maintain a $100,000,000 revolving trade accounts receivable securitization facility (the AR Facility) that expires in January 2018 and was available throughout fiscal 2016 and 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 May 31, 2016, no undivided ownership interests in this pool of accounts receivable had
been sold. Facility fees of $540,000, $723,000, and $652,000 were recognized within interest expense during fiscal 2016, fiscal 2015 and fiscal 2014, respectively.
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 and given that our intention has been to repay them within a year, they have been classified as short-term borrowings within current
liabilities on our consolidated balance sheets. However, we can also 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. There were no borrowings outstanding under the Credit Facility at May 31, 2016.
We also had letters of credit totaling $16,428,000 outstanding as of May 31, 2016. These letters of credit have been
issued to third-party service providers and had no amounts drawn against them at May 31, 2016.
On September
26, 2014, our consolidated joint venture in Turkey, Worthington Aritas, executed a five-year term loan denominated in Euros. As of May 31, 2016, we had borrowed $28,445,000 against the facility. The facility bears interest at a variable
rate based on EURIBOR. The applicable variable rate was 1.500% at May 31, 2016. On October 15, 2014, we entered into an interest rate swap to fix the interest rate on 60% of the borrowings outstanding under this facility at 2.015% starting on
December 26, 2014 through September 26, 2019. Borrowings against the facility are being used for the construction of a new cryogenics manufacturing facility in Turkey.
On April 15, 2014, we issued $250,000,000 aggregate principal amount of unsecured senior notes due on April 15, 2026 (the
2026 Notes). The 2026 Notes bear interest at a rate of 4.55%. The 2026 Notes were sold to the public at 99.789% of the principal amount thereof, to yield 4.573% to maturity. We used a portion of the net proceeds from the offering to
repay borrowings then outstanding under our revolving credit facilities. Approximately $3,081,000, $2,256,000 and $528,000 of the aggregate proceeds were allocated to the settlement of a derivative contract entered into in anticipation of the
issuance of the 2026 Notes, debt issuance costs, and the debt discount, respectively. The debt discount, debt issuance costs and the loss on the derivative contract were recorded on the consolidated balance sheet as of May 31, 2016, within long-term
debt as a contra-liability, short- and long-term other assets and AOCI, respectively. Each will be recognized, through interest expense, in our consolidated statements of earnings over the term of the 2026 Notes. The unamortized portion of the debt
issuance costs and debt discount was $1,867,000 and $433,000, respectively, at May 31, 2016.
82
On August 10, 2012, we issued $150,000,000 aggregate principal amount of
unsecured senior notes due August 10, 2024 (the 2024 Notes). The 2024 Notes bear interest at a rate of 4.60%. The net proceeds from this issuance were used to repay a portion of the then outstanding borrowings under our revolving credit
facilities.
On April 27, 2012, we executed a $5,880,000 seven-year term loan that matures on May 1, 2019 and
requires monthly payments of $76,350. The loan bears interest at a rate of 2.49% and is secured by an aircraft that was purchased with its proceeds. Borrowings outstanding totaled $2,575,000 as of May 31, 2016.
On April 13, 2010, we issued $150,000,000 aggregate principal amount of unsecured senior notes due on April 15, 2020 (the
2020 Notes). The 2020 Notes bear interest at a rate of 6.50%. The 2020 Notes were sold to the public at 99.890% of the principal amount thereof, to yield 6.515% to maturity. We used the net proceeds from the offering to repay a portion
of the then outstanding borrowings under our revolving credit facilities. Approximately $165,000, $1,535,000 and $1,358,000 of the aggregate proceeds were allocated to the debt discount, debt issuance costs, and the settlement of a derivative
contract entered into in anticipation of the issuance of the 2020 Notes. The debt discount, debt issuance costs and the loss on the derivative contract were recorded on the consolidated balance sheets within long-term debt as a contra-liability,
short- and long-term other assets and AOCI, respectively. Each will continue to be recognized, through interest expense, in our consolidated statements of earnings over the remaining term of the 2020 Notes. The unamortized portion of the debt
issuance costs and debt discount was $569,000 and $63,000, respectively, at May 31, 2016.
Maturities on
long-term debt and short-term borrowings in the next five fiscal years, and the remaining years thereafter, are as follows:
|
|
|
|
|
(in thousands)
|
|
|
|
2017
|
|
$
|
3,513
|
|
2018
|
|
|
6,573
|
|
2019
|
|
|
6,518
|
|
2020
|
|
|
167,067
|
|
2021
|
|
|
-
|
|
Thereafter
|
|
|
400,320
|
|
|
|
|
|
|
Total
|
|
$
|
583,991
|
|
|
|
|
|
|
Note H Comprehensive Income (Loss)
Other Comprehensive Income (Loss):
The following table summarizes the tax effects of
each component of other comprehensive income (loss) for the fiscal years ended May 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
(in thousands)
|
|
Before-
Tax
|
|
|
Tax
|
|
|
Net-of-
Tax
|
|
|
Before-
Tax
|
|
|
Tax
|
|
|
Net-of-
Tax
|
|
|
Before-
Tax
|
|
|
Tax
|
|
|
Net-of-
Tax
|
|
Foreign currency translation
|
|
$
|
4,716
|
|
|
$
|
-
|
|
|
$
|
4,716
|
|
|
$
|
(34,229
|
)
|
|
$
|
-
|
|
|
$
|
(34,229
|
)
|
|
$
|
7,618
|
|
|
$
|
-
|
|
|
$
|
7,618
|
|
Pension liability adjustment
|
|
|
(3,233
|
)
|
|
|
1,175
|
|
|
|
(2,058
|
)
|
|
|
(5,652
|
)
|
|
|
1,914
|
|
|
|
(3,738
|
)
|
|
|
(1,555
|
)
|
|
|
511
|
|
|
|
(1,044
|
)
|
Cash flow hedges
|
|
|
35,524
|
|
|
|
(13,316
|
)
|
|
|
22,208
|
|
|
|
(18,605
|
)
|
|
|
6,952
|
|
|
|
(11,653
|
)
|
|
|
3,548
|
|
|
|
(1,039
|
)
|
|
|
2,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
$
|
37,007
|
|
|
$
|
(12,141
|
)
|
|
$
|
24,866
|
|
|
$
|
(58,486
|
)
|
|
$
|
8,866
|
|
|
$
|
(49,620
|
)
|
|
$
|
9,611
|
|
|
$
|
(528
|
)
|
|
$
|
9,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83
Accumulated Other Comprehensive
Loss:
The components of the changes in accumulated other comprehensive loss for the fiscal year ended May 31, 2016 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency
Translation
|
|
|
Pension
Liability
Adjustment
|
|
|
Cash Flow
Hedges
|
|
|
Accumulated
Other
Comprehensive
Loss
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of May 31, 2015
|
|
$
|
(20,717
|
)
|
|
$
|
(15,003
|
)
|
|
$
|
(14,984
|
)
|
|
$
|
(50,704
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
1,989
|
|
|
|
(3,667
|
)
|
|
|
7,283
|
|
|
|
5,605
|
|
Reclassification adjustments to income (a)
|
|
|
-
|
|
|
|
434
|
|
|
|
28,241
|
|
|
|
28,675
|
|
Income taxes
|
|
|
-
|
|
|
|
1,175
|
|
|
|
(13,316
|
)
|
|
|
(12,141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of May 31, 2016
|
|
$
|
(18,728
|
)
|
|
$
|
(17,061
|
)
|
|
$
|
7,224
|
|
|
$
|
(28,565
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
The statement of earnings classification of amounts reclassified to income for cash flow hedges is disclosed in Note P Derivative
Instruments and Hedging Activities.
|
The estimated net amount of the gains in AOCI at
May 31, 2016 expected to be reclassified into net earnings within the succeeding twelve months is $6,792,000 (net of tax of $4,127,000). This amount was computed using the fair value of the cash flow hedges at May 31, 2016, and will change
before actual reclassification from other comprehensive income to net earnings during fiscal 2017.
Note I Equity
Preferred Shares:
The Worthington Industries, Inc. Amended Articles of Incorporation
authorize two classes of preferred shares and their relative voting rights. The Board of Directors of Worthington Industries, Inc. is empowered to determine the issue prices, dividend rates, amounts payable upon liquidation and other terms of
the preferred shares when issued. No preferred shares are issued or outstanding.
Common
Shares
:
On June 29, 2011, the Board of Worthington Industries, Inc. authorized the repurchase of up to 10,000,000 of our outstanding common shares, of which none remained available for repurchase at May 31,
2015. During fiscal 2015, 1,722,332 common shares were repurchased under this authorization.
On June 25,
2014, the Board of Worthington Industries, Inc. authorized the repurchase of up to an additional 10,000,000 of our outstanding common shares. An aggregate of 3,500,000 and 2,453,855 common shares were repurchased under this authorization during
fiscal 2016 and fiscal 2015, respectively. At May 31, 2016, 4,046,145
common shares remained available for repurchase under this authorization.
During fiscal 2016 and fiscal 2015, we paid $99,847,000 and $127,360,000 to repurchase 3,500,000 and 4,176,187 of our common shares, respectively, under these authorizations.
The common shares available for repurchase under these authorizations may be purchased from time to time, with
consideration given to the market price of the common shares, the nature of other investment opportunities, cash flows from operations, general economic conditions and other relevant considerations. Repurchases may be made on the open market or
through privately negotiated transactions.
On October 1, 2014, the Company amended its non-qualified deferred
compensation plans for employees to require that any portion of a participants current account credited to the theoretical common share option, which reflects the fair value of the Companys common shares with dividends reinvested, and
any new contributions credited to the theoretical common share option remain credited to the theoretical common share option until distributed. For amounts credited to the theoretical common share option, payouts are required to be made in the form
of whole common shares of the Company and cash in lieu of fractional shares. As a result, we account for the deferred compensation obligation credited to the theoretical
84
common share option within equity, which totaled $960,000 and $14,560,000 for fiscal 2016 and fiscal 2015, respectively. Prior to October 1, 2014, participant accounts credited to the theoretical
common share option were settled in cash and classified as a liability in the Companys consolidated balance sheet.
Note J
Stock-Based Compensation
Under our employee and non-employee director stock-based compensation plans (the
Plans), we may grant incentive or non-qualified stock options, restricted common shares and performance shares to employees and non-qualified stock options and restricted common shares to non-employee directors. We classify share-based
compensation expense within SG&A expense to correspond with the same financial statement caption as the majority of the cash compensation paid to employees. A total of 4,886,393 of our common shares were authorized and available for issuance in
connection with the stock-based compensation plans in place at May 31, 2016.
We recognized pre-tax
stock-based compensation expense of $15,836,000 ($10,056,000 after-tax), $17,916,000 ($11,500,000 after-tax), and $22,017,000 ($13,778,000 after-tax) under the Plans during fiscal 2016, fiscal 2015 and fiscal 2014, respectively. At May 31,
2016, the total unrecognized compensation cost related to non-vested awards was $9,963,000, which will be expensed over the next three fiscal years.
Non-Qualified Stock Options
Stock options may be granted
to purchase common shares at not less than 100% of fair market value on the date of the grant. All outstanding stock options are non-qualified stock options. The exercise price of all stock options granted has been set at 100% of the fair
market value of the underlying common shares on the date of grant. Generally, stock options granted to employees vest and become exercisable at the rate of (i) 20% per year for options issued before June 30, 2011, and (ii) 33% per year for
options issued on or after June 30, 2011, in each case beginning one year from the date of grant, and expire ten years after the date of grant. Non-qualified stock options granted to non-employee directors vest and become exercisable on
the earlier of (a) the first anniversary of the date of grant or (b) the date on which the next annual meeting of shareholders is held following the date of grant for any stock option granted as of the date of an annual meeting of shareholders of
Worthington Industries, Inc. Stock options can be exercised through net-settlement, at the election of the option holder.
U.S. GAAP requires that all share-based awards be recorded as expense in the statement of earnings based on their grant-date fair value. We calculate the fair value of our non-qualified stock options
using the Black-Scholes option pricing model and certain assumptions. The computation of fair values for all stock options incorporates the following assumptions: expected volatility (based on the historical volatility of our common shares);
risk-free interest rate (based on the United States Treasury strip rate for the expected term of the stock options); expected term (based on historical exercise experience); and dividend yield (based on annualized current dividends and an average
quoted price of our common shares over the preceding annual period).
The table below sets forth the
non-qualified stock options granted during each of the last three fiscal years. For each grant, the exercise price was equal to the closing market price of the underlying common shares at each respective grant date. The fair values of
these stock options were based on the Black-Scholes option pricing model, calculated at the respective grant dates. The calculated pre-tax stock-based compensation expense for these stock options, which is after an estimate of forfeitures, will
be recognized on a straight-line basis over the respective vesting periods of the stock options.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
154
|
|
|
|
97
|
|
|
|
130
|
|
Weighted average exercise price, per share
|
|
$
|
30.92
|
|
|
$
|
42.95
|
|
|
$
|
32.21
|
|
Weighted average grant date fair value, per share
|
|
$
|
9.55
|
|
|
$
|
17.96
|
|
|
$
|
12.92
|
|
Pre-tax stock-based compensation
|
|
$
|
1,305
|
|
|
$
|
1,553
|
|
|
$
|
1,539
|
|
85
The weighted average fair value of stock options granted in fiscal 2016,
fiscal 2015 and fiscal 2014 was based on the Black-Scholes option pricing model with the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Assumptions used:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend yield
|
|
|
2.33
|
%
|
|
|
1.88
|
%
|
|
|
2.28
|
%
|
Expected volatility
|
|
|
38.40
|
%
|
|
|
50.92
|
%
|
|
|
52.23
|
%
|
Risk-free interest rate
|
|
|
1.98
|
%
|
|
|
1.88
|
%
|
|
|
1.69
|
%
|
Expected life (years)
|
|
|
6.0
|
|
|
|
6.0
|
|
|
|
6.0
|
|
The following tables summarize our stock option activity for the years ended May 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
(in thousands, except per share)
|
|
Stock
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Stock
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Stock
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding, beginning of year
|
|
|
4,044
|
|
|
$
|
18.25
|
|
|
|
4,752
|
|
|
$
|
17.58
|
|
|
|
5,517
|
|
|
$
|
17.19
|
|
Granted
|
|
|
154
|
|
|
|
30.92
|
|
|
|
97
|
|
|
|
42.95
|
|
|
|
130
|
|
|
|
32.21
|
|
Exercised
|
|
|
(874
|
)
|
|
|
17.22
|
|
|
|
(758
|
)
|
|
|
17.24
|
|
|
|
(828
|
)
|
|
|
17.39
|
|
Forfeited
|
|
|
(18
|
)
|
|
|
32.25
|
|
|
|
(47
|
)
|
|
|
17.00
|
|
|
|
(67
|
)
|
|
|
16.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of year
|
|
|
3,306
|
|
|
|
19.01
|
|
|
|
4,044
|
|
|
|
18.25
|
|
|
|
4,752
|
|
|
|
17.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year
|
|
|
3,059
|
|
|
|
17.85
|
|
|
|
3,276
|
|
|
|
17.63
|
|
|
|
2,996
|
|
|
|
17.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Stock Options
(in thousands)
|
|
|
Weighted
Average
Remaining
Contractual
Life
(in years)
|
|
|
Aggregate
Intrinsic Value
(in thousands)
|
|
May 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
3,306
|
|
|
|
4.33
|
|
|
$
|
61,178
|
|
Exercisable
|
|
|
3,059
|
|
|
|
4.01
|
|
|
|
60,082
|
|
May 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
4,044
|
|
|
|
4.82
|
|
|
$
|
38,277
|
|
Exercisable
|
|
|
3,276
|
|
|
|
4.42
|
|
|
|
31,625
|
|
May 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
4,752
|
|
|
|
5.50
|
|
|
$
|
107,970
|
|
Exercisable
|
|
|
2,996
|
|
|
|
4.67
|
|
|
|
68,108
|
|
During fiscal 2016, the total intrinsic value of stock options exercised was
$9,084,000. The total amount of cash received from the exercise of stock options during fiscal 2016 was $7,893,000, and the related excess tax benefit realized from share-based payment awards was $3,178,000.
86
The following table summarizes information about non-vested stock option
awards for fiscal 2016:
|
|
|
|
|
|
|
|
|
|
|
Number of
Stock Options
(in thousands)
|
|
|
Weighted
Average
Grant
Date Fair
Value Per
Share
|
|
Non-vested, beginning of year
|
|
|
768
|
|
|
$
|
7.66
|
|
Granted
|
|
|
154
|
|
|
|
8.50
|
|
Vested
|
|
|
(657
|
)
|
|
|
6.63
|
|
Forfeited
|
|
|
(18
|
)
|
|
|
7.87
|
|
|
|
|
|
|
|
|
|
|
Non-vested, end of year
|
|
|
247
|
|
|
$
|
10.91
|
|
|
|
|
|
|
|
|
|
|
Service-Based Restricted Common Shares
We have awarded restricted common shares to certain employees and non-employee directors that contain service-based
vesting conditions. Service-based restricted common shares granted to employees cliff vest three years from the date of grant. Service-based restricted common shares granted to non-employee directors vest under the same parameters as the
stock options discussed above. These restricted common shares are valued at the closing market price of our common shares on the date of the grant.
The table below sets forth the restricted common shares we granted during each of fiscal 2016, fiscal 2015 and fiscal 2014. The calculated pre-tax stock-based compensation expense for these
restricted common shares will be recognized on a straight-line basis over their respective vesting periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share amounts)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Granted
|
|
|
217
|
|
|
|
240
|
|
|
|
380
|
|
Weighted average grant date fair value, per share
|
|
$
|
29.49
|
|
|
$
|
40.05
|
|
|
$
|
33.14
|
|
Pre-tax stock-based compensation
|
|
$
|
5,800
|
|
|
$
|
8,660
|
|
|
$
|
11,307
|
|
The following tables summarize our restricted common share activity for the years ended
May 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
(in thousands, except per share)
|
|
Restricted
Common
Shares
|
|
|
Weighted
Average
Grant
Date Fair
Value
|
|
|
Restricted
Common
Shares
|
|
|
Weighted
Average
Grant
Date Fair
Value
|
|
|
Restricted
Common
Shares
|
|
|
Weighted
Average
Grant
Date Fair
Value
|
|
Outstanding, beginning of year
|
|
|
635
|
|
|
$
|
33.65
|
|
|
|
573
|
|
|
$
|
28.36
|
|
|
|
399
|
|
|
$
|
18.74
|
|
Granted
|
|
|
217
|
|
|
|
29.49
|
|
|
|
240
|
|
|
|
40.05
|
|
|
|
380
|
|
|
|
33.14
|
|
Vested
|
|
|
(120
|
)
|
|
|
24.14
|
|
|
|
(142
|
)
|
|
|
23.32
|
|
|
|
(185
|
)
|
|
|
17.17
|
|
Forfeited
|
|
|
(34
|
)
|
|
|
34.53
|
|
|
|
(36
|
)
|
|
|
32.62
|
|
|
|
(21
|
)
|
|
|
30.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of year
|
|
|
698
|
|
|
|
33.69
|
|
|
|
635
|
|
|
|
33.65
|
|
|
|
573
|
|
|
|
28.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining contractual life of outstanding restricted common shares (in years)
|
|
|
1.04
|
|
|
|
|
|
|
|
1.41
|
|
|
|
|
|
|
|
1.61
|
|
|
|
|
|
Aggregate intrinsic value of outstanding restricted common shares
|
|
$
|
26,059
|
|
|
|
|
|
|
$
|
17,269
|
|
|
|
|
|
|
$
|
23,112
|
|
|
|
|
|
Aggregate intrinsic value of restricted common shares vested during the year
|
|
$
|
3,527
|
|
|
|
|
|
|
$
|
5,400
|
|
|
|
|
|
|
$
|
7,499
|
|
|
|
|
|
87
Market-Based Restricted Common Shares
During fiscal 2015, we granted an aggregate of 50,000 market-based restricted common shares to two key employees under one
of our stock-based compensation plans. Vesting of these restricted common share awards is contingent upon the price of our common shares reaching $60.00 per share and remaining at or above that price for 30 consecutive days during the five-year
period following the date of grant and the completion of a five-year service vesting period. The grant-date fair value of these restricted common shares, as determined by a Monte Carlo simulation model, was $32.06 per share. The following
assumptions were used to determine the grant-date fair value and the derived service period for these restricted common shares:
|
|
|
|
|
Dividend yield
|
|
|
1.60
|
%
|
Expected volatility
|
|
|
44.00
|
%
|
Risk-free interest rate
|
|
|
1.70
|
%
|
The calculated pre-tax stock-based compensation expense for these restricted common
shares was determined to be $1,603,000 and will continue to be recognized on a straight-line basis over the remaining vesting period.
Performance Shares
We have awarded performance shares to
certain key employees that are contingent (i.e., vest) upon achieving corporate targets for cumulative corporate economic value added, earnings per share growth and, in the case of business unit executives, business unit operating income targets for
the three-year periods ended or ending May 31, 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 value of our performance shares is determined by the closing market prices of the underlying common shares at their respective grant dates and the pre-tax stock-based compensation expense is based on our periodic
assessment of the probability of the targets being achieved and our estimate of the number of common shares that will ultimately be issued.
The table below sets forth the performance shares we granted (at target levels) during fiscal 2016, fiscal 2015 and fiscal 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share amounts)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Granted
|
|
|
87
|
|
|
|
61
|
|
|
|
59
|
|
Weighted average grant date fair value, per share
|
|
$
|
30.12
|
|
|
$
|
42.71
|
|
|
$
|
33.33
|
|
Pre-tax stock-based compensation
|
|
$
|
2,623
|
|
|
$
|
2,611
|
|
|
$
|
1,958
|
|
Note K Employee Pension Plans
We provide retirement benefits to employees mainly through defined contribution retirement plans. Eligible participants
make pre-tax contributions based on elected percentages of eligible compensation, subject to annual addition and other limitations imposed by the Internal Revenue Code and the various plans provisions. Company contributions consist of company
matching contributions, annual or monthly employer contributions and discretionary contributions, based on individual plan provisions.
We also have one defined benefit plan, The Gerstenslager Company Bargaining Unit Employees Pension Plan (the Gerstenslager Plan or defined benefit plan). The Gerstenslager
Plan is a
non-contributory
pension plan, which covers certain employees based on age and length of service. Our contributions have complied with ERISAs minimum funding requirements. Effective
May 9, 2011, in connection with the formation of the ArtiFlex joint venture, the Gerstenslager Plan was frozen, which qualified as a curtailment under the applicable accounting guidance. We did not recognize a gain or loss in connection with
the curtailment of the Gerstenslager Plan.
88
The following table summarizes the components of net periodic pension cost
for the defined benefit plan and the defined contribution plans for the years ended May 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Defined benefit plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost
|
|
$
|
1,621
|
|
|
$
|
1,541
|
|
|
$
|
1,403
|
|
Actual return (loss) on plan assets
|
|
|
(1,154
|
)
|
|
|
1,846
|
|
|
|
2,524
|
|
Net amortization and deferral
|
|
|
(356
|
)
|
|
|
(3,641
|
)
|
|
|
(4,175
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost (benefit) on defined benefit plan
|
|
|
111
|
|
|
|
(254
|
)
|
|
|
(248
|
)
|
Defined contribution plans
|
|
|
13,300
|
|
|
|
13,270
|
|
|
|
12,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total retirement plan cost
|
|
$
|
13,411
|
|
|
$
|
13,016
|
|
|
$
|
12,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following actuarial assumptions were used for our defined benefit plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
To determine benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
3.75
|
%
|
|
|
4.07
|
%
|
|
|
4.38
|
%
|
To determine net periodic pension cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
4.07
|
%
|
|
|
4.38
|
%
|
|
|
4.44
|
%
|
Expected long-term rate of return
|
|
|
7.00
|
%
|
|
|
7.00
|
%
|
|
|
8.00
|
%
|
Rate of compensation increase
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
To calculate the discount rate, we used the expected cash flows of the benefit payments
and the Citigroup Pension Index. The Gerstenslager Plans expected long-term rate of return in fiscal 2016, fiscal 2015 and fiscal 2014 was based on the actual historical returns adjusted for a change in the frequency of lump-sum settlements
upon retirement. In determining our benefit obligation, we use the actuarial present value of the vested benefits to which each eligible employee is currently entitled, based on the employees expected date of separation or retirement.
The following tables provide a reconciliation of the changes in the projected benefit obligation and fair
value of plan assets and the funded status for the Gerstenslager Plan during fiscal 2016 and fiscal 2015 as of the respective measurement dates:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
May 31,
2016
|
|
|
May 31,
2015
|
|
Change in benefit obligation
|
|
|
|
|
|
|
|
|
Benefit obligation, beginning of year
|
|
$
|
40,227
|
|
|
$
|
35,539
|
|
Interest cost
|
|
|
1,621
|
|
|
|
1,541
|
|
Actuarial loss
|
|
|
759
|
|
|
|
3,924
|
|
Benefits paid
|
|
|
(1,439
|
)
|
|
|
(777
|
)
|
|
|
|
|
|
|
|
|
|
Benefit obligation, end of year
|
|
$
|
41,168
|
|
|
$
|
40,227
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
Fair value, beginning of year
|
|
$
|
28,159
|
|
|
$
|
26,470
|
|
Actual return (loss) on plan assets
|
|
|
(1,154
|
)
|
|
|
1,846
|
|
Company contributions
|
|
|
-
|
|
|
|
620
|
|
Benefits paid
|
|
|
(1,439
|
)
|
|
|
(777
|
)
|
|
|
|
|
|
|
|
|
|
Fair value, end of year
|
|
$
|
25,566
|
|
|
$
|
28,159
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
$
|
(15,602
|
)
|
|
$
|
(12,068
|
)
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the consolidated balance sheets consist of:
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
$
|
(15,602
|
)
|
|
$
|
(12,068
|
)
|
Accumulated other comprehensive loss
|
|
|
21,324
|
|
|
|
17,900
|
|
Amounts recognized in accumulated other comprehensive loss consist of:
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
21,324
|
|
|
|
17,900
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
21,324
|
|
|
$
|
17,900
|
|
|
|
|
|
|
|
|
|
|
89
The following table shows other changes in plan assets and benefit
obligations recognized in OCI during the fiscal year ended May 31:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
Net actuarial loss
|
|
$
|
(3,858
|
)
|
|
$
|
(4,199
|
)
|
Amortization of net loss
|
|
|
434
|
|
|
|
327
|
|
|
|
|
|
|
|
|
|
|
Total recognized in other comprehensive loss
|
|
$
|
(3,424
|
)
|
|
$
|
(3,872
|
)
|
|
|
|
|
|
|
|
|
|
Total recognized in net periodic benefit cost and other comprehensive loss
|
|
$
|
(3,535
|
)
|
|
$
|
(3,618
|
)
|
|
|
|
|
|
|
|
|
|
The estimated net loss for the defined benefit plan that will be amortized from AOCI into
net periodic pension cost over the fiscal year ending May 31, 2017 is $559,000.
Pension plan assets are
required to be disclosed at fair value in the consolidated financial statements. Fair value is defined in Note Q Fair Value Measurements. The pension plan assets fair value measurement level within the fair value
hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
The following table sets forth, by level within the fair value hierarchy, a summary of the defined benefit plans
assets measured at fair value on a recurring basis at May 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Fair Value
|
|
|
Quoted
Prices
in Active
Markets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money Market Funds
|
|
$
|
340
|
|
|
$
|
340
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Bond Funds
|
|
|
12,435
|
|
|
|
12,435
|
|
|
|
-
|
|
|
|
-
|
|
Equity Funds
|
|
|
12,791
|
|
|
|
12,791
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
25,566
|
|
|
$
|
25,566
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth by level within the fair value hierarchy a summary of the
defined benefit plans assets measured at fair value on a recurring basis at May 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Fair Value
|
|
|
Quoted
Prices
in Active
Markets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money Market Funds
|
|
$
|
1,775
|
|
|
$
|
1,775
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Bond Funds
|
|
|
11,524
|
|
|
|
11,524
|
|
|
|
-
|
|
|
|
-
|
|
Equity Funds
|
|
|
14,860
|
|
|
|
14,860
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
28,159
|
|
|
$
|
28,159
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair values of the money market, bond and equity funds held by the defined benefit plan
were determined by quoted market prices.
90
Plan assets for the defined benefit plan consisted principally of the
following as of the respective measurement dates:
|
|
|
|
|
|
|
|
|
|
|
May 31,
2016
|
|
|
May 31,
2015
|
|
Asset category
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
50
|
%
|
|
|
53
|
%
|
Debt securities
|
|
|
49
|
%
|
|
|
41
|
%
|
Other
|
|
|
1
|
%
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Equity securities include no employer stock. The investment policy and strategy for
the defined benefit plan is: (i) long-term in nature with liquidity requirements that are anticipated to be minimal due to the projected normal retirement date of the average employee and the current average age of participants; (ii) to earn
nominal returns, net of investment fees, equal to or in excess of the actuarial assumptions of the plan; and (iii) to include a strategic asset allocation of 60%-80% equities, including international, and 20%-40% fixed income investments. No
employer contributions are expected to be made to the defined benefit plan during fiscal 2017.
The following
estimated future benefits, which reflect expected future service, as appropriate, are expected to be paid during the fiscal years noted:
|
|
|
|
|
(in thousands)
|
|
|
|
2017
|
|
$
|
927
|
|
2018
|
|
$
|
1,005
|
|
2019
|
|
$
|
1,099
|
|
2020
|
|
$
|
1,173
|
|
2021
|
|
$
|
1,291
|
|
2022-2026
|
|
$
|
8,470
|
|
Commercial law requires us to pay severance and service benefits to employees at our
Austrian Pressure Cylinders location. Severance benefits must be paid to all employees hired before December 31, 2002. Employees hired after that date are covered under a governmental plan that requires us to pay benefits as a percentage
of compensation (included in payroll tax withholdings). Service benefits are based on a percentage of compensation and years of service. The accrued liability for these unfunded plans was $5,939,000 and $5,564,000 at May 31, 2016 and 2015,
respectively, and was included in other liabilities on the consolidated balance sheets. Net periodic pension cost for these plans was $617,000, $718,000, and $677,000, for fiscal 2016, fiscal 2015 and fiscal 2014, respectively. The assumed
salary rate increase was 2.75% for fiscal 2016 and 3.0% for each of fiscal 2015 and fiscal 2014. The discount rate at May 31, 2016, 2015 and 2014 was 1.75%, 1.60%, and 3.25%, respectively. Each discount rate was based on a published
corporate bond rate with a term approximating the estimated benefit payment cash flows and is consistent with European and Austrian regulations.
Note L Income Taxes
Earnings before income taxes
for the years ended May 31 include the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
United States based operations
|
|
$
|
180,467
|
|
|
$
|
104,732
|
|
|
$
|
210,783
|
|
Non United States based operations
|
|
|
36,148
|
|
|
|
8,296
|
|
|
|
6,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
216,615
|
|
|
|
113,028
|
|
|
|
217,501
|
|
Less: Net earnings attributable to noncontrolling interests*
|
|
|
13,913
|
|
|
|
10,471
|
|
|
|
8,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes attributable to controlling interest
|
|
$
|
202,702
|
|
|
$
|
102,557
|
|
|
$
|
208,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Net earnings attributable to noncontrolling interests are not taxable to Worthington.
|
91
Significant components of income tax expense (benefit) for the years ended
May 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
42,837
|
|
|
$
|
57,511
|
|
|
$
|
73,149
|
|
State and local
|
|
|
2,157
|
|
|
|
2,731
|
|
|
|
3,537
|
|
Foreign
|
|
|
6,639
|
|
|
|
5,490
|
|
|
|
6,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,633
|
|
|
|
65,732
|
|
|
|
83,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
7,584
|
|
|
|
(37,839
|
)
|
|
|
(25,453
|
)
|
State and local
|
|
|
934
|
|
|
|
(754
|
)
|
|
|
(1,194
|
)
|
Foreign
|
|
|
(1,164
|
)
|
|
|
(1,367
|
)
|
|
|
731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,354
|
|
|
|
(39,960
|
)
|
|
|
(25,916
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
58,987
|
|
|
$
|
25,772
|
|
|
$
|
57,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to the adoption of amended accounting guidance related to the accounting for
share-based payments in the current year, as described in Note A Summary of Significant Accounting Policies Recently Issued Accounting Standards, no tax benefits related to stock-based compensation were credited
to additional paid-in capital in fiscal 2016. Tax benefits related to stock-based compensation that were credited to additional paid-in capital were $6,179,000, and $7,115,000 for fiscal 2015 and fiscal 2014, respectively. Tax benefits
related to defined benefit pension liability that were credited to OCI were $1,175,000, $1,914,000, and $511,000 for fiscal 2016, fiscal 2015 and fiscal 2014, respectively. Tax benefits (expenses) related to cash flow hedges that were credited
to (deducted from) OCI were $(13,316,000), $6,952,000, and $(1,039,000) for fiscal 2016, fiscal 2015 and fiscal 2014, respectively.
A reconciliation of the 35% federal statutory tax rate to total tax provision follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Federal statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State and local income taxes, net of federal tax benefit
|
|
|
2.6
|
|
|
|
3.0
|
|
|
|
2.0
|
|
Change in state and local valuation allowances
|
|
|
(1.1
|
)
|
|
|
(1.1
|
)
|
|
|
(0.9
|
)
|
Non-U.S. income taxes at other than 35%
|
|
|
(3.5
|
)
|
|
|
(0.7
|
)
|
|
|
(1.0
|
)
|
Change in Non-U.S. valuation allowances
|
|
|
0.5
|
|
|
|
1.2
|
|
|
|
1.4
|
|
Qualified production activities deduction
|
|
|
(2.2
|
)
|
|
|
(5.9
|
)
|
|
|
(3.9
|
)
|
Acquisition of an additional 10% interest in TWB
|
|
|
-
|
|
|
|
-
|
|
|
|
(3.4
|
)
|
Research & development credits
|
|
|
(0.2
|
)
|
|
|
(0.2
|
)
|
|
|
(1.1
|
)
|
Tax write off of investment in foreign subsidiary
|
|
|
-
|
|
|
|
-
|
|
|
|
(1.1
|
)
|
Benefit related to foreign tax credits
|
|
|
-
|
|
|
|
(5.3
|
)
|
|
|
-
|
|
Excess benefit related to share-based payment awards
|
|
|
(1.6
|
)
|
|
|
-
|
|
|
|
-
|
|
Other
|
|
|
(0.4
|
)
|
|
|
(0.9
|
)
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate attributable to controlling interest
|
|
|
29.1
|
%
|
|
|
25.1
|
%
|
|
|
27.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The above effective tax rate attributable to controlling interest excludes any impact
from the inclusion of net earnings attributable to noncontrolling interests in our consolidated statements of earnings. The effective tax rates upon inclusion of net earnings attributable to noncontrolling interests were 27.2%, 22.8% and 26.4% for
fiscal 2016, fiscal 2015 and fiscal 2014, respectively. The change in effective income tax rates, upon inclusion of 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 interests in Spartan and TWBs U.S. operations do not generate tax expense
92
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, a foreign
corporation, is reported in our consolidated tax expense. Since the consolidation of TWB on July 31, 2013, the tax expense of TWBs wholly-owned foreign corporations are reported in our consolidated tax expense.
Under applicable accounting guidance, a tax benefit may be recognized from an uncertain tax position only if it is more
likely than not that the tax position will be sustained on examination by the taxing authorities, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Any tax benefits recognized in
our financial statements from such a position were measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.
The total amount of unrecognized tax benefits were $2,827,000, $3,530,000, and $4,110,000 as of May 31, 2016, 2015 and
2014, respectively. The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate attributable to controlling interest was $2,035,000 as of May 31, 2016. Unrecognized tax benefits are the
differences between a tax position taken, or expected to be taken in a tax return, and the benefit recognized for accounting purposes. Accrued amounts of interest and penalties related to unrecognized tax benefits are recognized as part of
income tax expense within our consolidated statements of earnings. As of May 31, 2016, 2015 and 2014, we had accrued liabilities of $538,000, $947,000 and $1,049,000, respectively, for interest and penalties related to unrecognized tax
benefits.
A tabular reconciliation of unrecognized tax benefits follows:
|
|
|
|
|
(In thousands)
|
|
|
|
Balance at May 31, 2015
|
|
$
|
3,530
|
|
Increases tax positions taken in prior years
|
|
|
362
|
|
Decreases tax positions taken in prior years
|
|
|
(530
|
)
|
Increases current tax positions
|
|
|
687
|
|
Settlements
|
|
|
(755
|
)
|
Lapse of statutes of limitations
|
|
|
(467
|
)
|
|
|
|
|
|
Balance at May 31, 2016
|
|
$
|
2,827
|
|
|
|
|
|
|
Approximately $404,000 of the liability for unrecognized tax benefits is expected to be
settled in the next twelve months due to the expiration of statutes of limitations in various tax jurisdictions and as a result of expected settlements with various tax jurisdictions. While it is expected that the amount of unrecognized tax benefits
will change in the next twelve months, any change is not expected to have a material impact on our consolidated financial position, results of operations or cash flows.
The following is a summary of the tax years open to examination by major tax jurisdiction:
U.S. Federal 2013 and forward
U.S. State and Local 2012 and forward
Austria 2013 and forward
Canada 2012 and forward
Mexico 2010 and forward
Earnings before income taxes attributable to foreign sources for fiscal 2016, fiscal 2015 and fiscal 2014 were as noted
above. As of May 31, 2016, and based on the tax laws in effect at that time, it remains our intention to continue to indefinitely reinvest our undistributed foreign earnings, except for the foreign earnings of our TWB joint
venture. Accordingly, no deferred tax liability has been recorded for our foreign earnings, except those that pertain to TWB. Excluding TWB, the undistributed earnings of our foreign
93
subsidiaries at May 31, 2016 were approximately $225,000,000. If such earnings were not permanently reinvested, a deferred tax liability of approximately $15,000,000 would have been
required.
The components of our deferred tax assets and liabilities as of May 31 were as follows:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
2,786
|
|
|
$
|
1,895
|
|
Inventories
|
|
|
6,418
|
|
|
|
8,051
|
|
Accrued expenses
|
|
|
34,035
|
|
|
|
33,678
|
|
Net operating and capital loss carry forwards
|
|
|
12,756
|
|
|
|
14,326
|
|
Tax credit carry forwards
|
|
|
3,127
|
|
|
|
3,688
|
|
Stock-based compensation
|
|
|
22,452
|
|
|
|
20,434
|
|
Derivative contracts
|
|
|
-
|
|
|
|
9,177
|
|
Other
|
|
|
210
|
|
|
|
247
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
81,784
|
|
|
|
91,496
|
|
Valuation allowance for deferred tax assets
|
|
|
(11,796
|
)
|
|
|
(13,036
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
69,988
|
|
|
|
78,460
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
(35,521
|
)
|
|
|
(39,433
|
)
|
Undistributed earnings of unconsolidated affiliates
|
|
|
(42,967
|
)
|
|
|
(35,165
|
)
|
Derivative contracts
|
|
|
(6,395
|
)
|
|
|
-
|
|
Other
|
|
|
(2,484
|
)
|
|
|
(2,150
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(87,367
|
)
|
|
|
(76,748
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset (liability)
|
|
$
|
(17,379
|
)
|
|
$
|
1,712
|
|
|
|
|
|
|
|
|
|
|
The above amounts are classified in the consolidated balance sheets as of May 31 as
follows:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
$
|
-
|
|
|
$
|
22,034
|
|
Noncurrent assets:
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
-
|
|
|
|
1,173
|
|
Noncurrent liabilities:
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
(17,379
|
)
|
|
|
(21,495
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset (liability)
|
|
$
|
(17,379
|
)
|
|
$
|
1,712
|
|
|
|
|
|
|
|
|
|
|
During fiscal 2016, the Company adopted amended accounting guidance that requires all
deferred tax assets and liabilities to be classified as noncurrent on the balance sheet. The adoption was on a prospective basis and therefore prior periods have not been restated. At May 31, 2016, we had tax benefits for state net operating
loss carry forwards of $9,615,000 that expire from fiscal 2017 to the fiscal year ending May 31, 2036, tax benefits for foreign net operating loss carry forwards of $3,141,000 that expire from fiscal 2018 to the fiscal year ending May 31, 2036, and
a tax benefit for foreign income tax credit carry forwards of $3,127,000, that expire from fiscal 2025 to the fiscal year ending May 31, 2026.
The valuation allowance for deferred tax assets of $11,796,000 at May 31, 2016 is associated primarily with the net operating loss carry forwards. The valuation allowance includes $9,395,000 for state and
$2,401,000 for foreign. The majority of the state valuation allowance relates to our facility in Decatur,
94
Alabama. The foreign valuation allowance relates to the Companys operations in Turkey. Based on our history of profitability, the scheduled reversal of deferred tax liabilities, and taxable
income projections, we have determined that it is more likely than not that the remaining deferred tax assets are otherwise realizable.
Note M Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share for the years ended May 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share amounts)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Numerator (basic & diluted):
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to controlling interest income available to common shareholders
|
|
$
|
143,715
|
|
|
$
|
76,785
|
|
|
$
|
151,300
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share attributable to controlling interest weighted average common
shares
|
|
|
62,469
|
|
|
|
66,309
|
|
|
|
68,944
|
|
Effect of dilutive securities
|
|
|
2,286
|
|
|
|
2,174
|
|
|
|
2,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per share attributable to controlling interest adjusted weighted average common
shares
|
|
|
64,755
|
|
|
|
68,483
|
|
|
|
71,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share attributable to controlling interest
|
|
$
|
2.30
|
|
|
$
|
1.16
|
|
|
$
|
2.19
|
|
Diluted earnings per share attributable to controlling interest
|
|
|
2.22
|
|
|
|
1.12
|
|
|
|
2.11
|
|
Stock options covering 326,585, 97,798, and 7,945 common shares for fiscal 2016, fiscal
2015 and fiscal 2014, respectively, have been excluded from the computation of diluted earnings per share because the effect would have been anti-dilutive for those periods.
Note N Segment Data
Our operations are managed
principally on a products and services basis and include three reportable business segments: Steel Processing, Pressure Cylinders and Engineered Cabs, each of which is comprised of a similar group of products and services. Factors used to
identify reportable business segments include the nature of the products and services provided by each business, the management reporting structure, similarity of economic characteristics and certain quantitative measures, as prescribed by
authoritative guidance. A discussion of each of our reportable business segments is outlined below.
During the first quarter of fiscal 2015, we made certain organizational changes impacting the internal reporting and
management structure of our Steel Packaging operating segment. As a result of these organizational changes, management responsibilities and internal reporting were realigned under our Steel Processing operating segment. Segment information
reported in previous periods has been restated to conform to this new presentation.
Steel
Processing
: The Steel Processing operating segment consists of the Worthington Steel business unit and Worthington Steelpac Systems, LLC (SteelPac), which designs and manufactures reusable steel custom
platforms, racks and pallets for supporting, protecting and handling products throughout the shipping process. Worthington Steel also includes three consolidated joint ventures: Spartan, TWB and WSP. Spartan operates a cold-rolled hot-dipped
galvanizing line and TWB operates a laser welded blanking business. WSP serves primarily as a toll processor for U.S. Steel and others. Its services include slitting, blanking, cutting-to-length, laser blanking, laser welding, tension leveling and
warehousing. Worthington Steel is an intermediate processor of flat-rolled steel. This operating segments processing capabilities include cold reducing, configured blanking, coil fed laser blanking, cutting-to-length, dry-lube, hot-dipped
galvanizing, hydrogen annealing, laser welding, pickling, slitting, oscillate slitting, temper rolling, tension
95
leveling, and non-metallic coating, including acrylic and paint coating. Worthington Steel sells to customers principally in the aerospace, agricultural, appliance, automotive, construction,
container, hardware, HVAC, lawn and garden, leisure and recreation, office furniture and office equipment markets. Worthington Steel also toll processes steel for steel mills, large end-users, service centers and other processors. Toll processing is
different from typical steel processing in that the mill, end-user or other party retains title to the steel and has the responsibility for selling the end product.
Pressure Cylinders
: The Pressure Cylinders operating segment consists of the Worthington
Cylinders business unit and two consolidated joint ventures: Worthington Aritas, a Turkish manufacturer of cryogenic pressure vessels for LNG and other gas storage applications; and dHybrid, which manufactures CNG fuel systems for heavy duty, refuse
and other trucks out of a facility in Salt Lake City, Utah. The percentage of consolidated net sales generated by Pressure Cylinders was approximately 30% in each of fiscal 2016, fiscal 2015 and fiscal 2014.
Our Pressure Cylinders operating segment manufactures and sells filled and unfilled pressure cylinders, tanks, hand
torches, and oil and gas equipment along with various accessories and related products for diversified end-use market applications. The following is a description of these markets:
|
|
|
Industrial Products: This market sector includes high pressure and acetylene cylinders for industrial gases, refrigerant and
certain propane gas cylinders, hand torch cylinders and joining products such as solder and brazing rods and other specialty products. Cylinders in these markets are generally sold to gas producers, cylinder exchangers and industrial distributors.
Industrial cylinders hold fuel for uses such as cutting, brazing and soldering, semiconductor production, and beverage delivery. Refrigerant gas cylinders are used to hold refrigerant gases for commercial, residential and automotive air conditioning
and refrigeration systems. LPG cylinders hold fuel for barbeque grills, recreational vehicle equipment, residential and light commercial heating systems, industrial forklifts and commercial/residential cooking (the latter, generally outside
North America). Specialty products include a variety of fire suppression and chemical tanks.
|
|
|
|
Consumer Products: This market sector includes propane-filled cylinders for torches, camping stoves and other applications,
hand held torches and accessories, and Balloon Time
®
helium-filled balloon kits. These products are sold
primarily to mass merchandisers and distributors.
|
|
|
|
Alternative Fuels: This market sector includes composite and steel cylinders used to hold CNG and hydrogen for automobiles,
buses, and light-duty trucks, and to hold propane/autogas for automobiles and light- and medium-duty trucks, as well as CNG fuel systems for heavy duty, refuse and other trucks.
|
|
|
|
Oil & Gas Equipment: This market sector includes steel and fiberglass storage tanks, separation equipment, controls and
other products primarily used in the energy markets, including oil and gas and nuclear. This sector also includes hoists and other marine products which are used principally in shipyard lift systems. This sector also leverages its manufacturing
competencies to produce pressure vessels, atmospheric tanks, controls and various custom machined components for other industrial and agricultural end markets.
|
|
|
|
Cryogenics: This market sector includes cryogenic equipment, systems and services for handling liquid gases. Key product
segments include LNG systems for marine and mining applications, liquid nitrogen storage freezers and shipping containers for organic specimens in healthcare markets, and tanks, trailers, and regasification plants for liquefied nitrogen, oxygen,
argon, hydrogen, and natural gas.
|
Engineered Cabs:
This
operating segment consists of the Worthington Industries Engineered Cabs business unit, a non-captive designer and manufacturer of high-quality, custom-engineered open and enclosed cabs and operator stations and custom fabrications for heavy mobile
equipment used primarily in
96
the agricultural, construction, forestry, military and mining industries. Engineered Cabs product design, engineering support and broad manufacturing capabilities enable it to produce
cabs and structures used in products ranging from small utility equipment to the large earthmovers.
Other:
The Other category includes the Construction Services and Worthington Energy
Innovations operating segments, as they do not meet the quantitative thresholds for separate disclosure. Certain income and expense items not allocated to our operating segments are also included in Other.
Construction Services:
The Company is in the process of winding down this
business, which involved the supply and construction of single family housing, with a focus on military housing.
Worthington Energy Innovations:
WEI is a 75%-owned consolidated joint venture with Tom E.
Kiser (20%) and Stonehenge Structured Finance Partners, LLC (5%) (together referred to as WEI Partners), with offices in Fremont and Columbus, Ohio. WEI is an Energy Services Company that develops cost-effective energy
solutions for entities in North America and Asia. Once these solutions are implemented, WEI monitors, verifies and guarantees these energy saving solutions. WEIs financial results are reported within the Other category for segment
reporting purposes.
The accounting policies of the reportable business segments and other operating segments
are described in Note A Summary of Significant Accounting Policies. We evaluate operating segment performance based on operating income (loss).
Inter-segment sales are not material.
97
The following table presents summarized financial information for our
reportable business segments as of, and for the fiscal years ended, May 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Steel Processing
|
|
$
|
1,843,661
|
|
|
$
|
2,145,744
|
|
|
$
|
1,936,073
|
|
Pressure Cylinders
|
|
|
844,898
|
|
|
|
1,001,402
|
|
|
|
928,396
|
|
Engineered Cabs
|
|
|
121,946
|
|
|
|
192,953
|
|
|
|
200,528
|
|
Other
|
|
|
9,209
|
|
|
|
44,135
|
|
|
|
61,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
2,819,714
|
|
|
$
|
3,384,234
|
|
|
$
|
3,126,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Steel Processing
|
|
$
|
112,001
|
|
|
$
|
108,707
|
|
|
$
|
119,025
|
|
Pressure Cylinders
|
|
|
28,375
|
|
|
|
58,113
|
|
|
|
55,004
|
|
Engineered Cabs
|
|
|
(19,331
|
)
|
|
|
(97,260
|
)
|
|
|
(26,516
|
)
|
Other
|
|
|
1,007
|
|
|
|
(9,003
|
)
|
|
|
(11,760
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
$
|
122,052
|
|
|
$
|
60,557
|
|
|
$
|
135,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
Steel Processing
|
|
$
|
38,523
|
|
|
$
|
34,526
|
|
|
$
|
32,882
|
|
Pressure Cylinders
|
|
|
32,403
|
|
|
|
34,953
|
|
|
|
31,984
|
|
Engineered Cabs
|
|
|
6,205
|
|
|
|
10,184
|
|
|
|
10,027
|
|
Other
|
|
|
7,568
|
|
|
|
5,426
|
|
|
|
4,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization
|
|
$
|
84,699
|
|
|
$
|
85,089
|
|
|
$
|
79,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of goodwill and long-lived assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Steel Processing
|
|
$
|
-
|
|
|
$
|
3,050
|
|
|
$
|
7,141
|
|
Pressure Cylinders
|
|
|
22,962
|
|
|
|
11,911
|
|
|
|
32,005
|
|
Engineered Cabs
|
|
|
3,000
|
|
|
|
83,989
|
|
|
|
19,100
|
|
Other
|
|
|
-
|
|
|
|
1,179
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impairment of goodwill and long-lived assets
|
|
$
|
25,962
|
|
|
$
|
100,129
|
|
|
$
|
58,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and other expense (income)
|
|
|
|
|
|
|
|
|
|
|
|
|
Steel Processing
|
|
$
|
4,110
|
|
|
$
|
72
|
|
|
$
|
(3,382
|
)
|
Pressure Cylinders
|
|
|
392
|
|
|
|
6,408
|
|
|
|
(745
|
)
|
Engineered Cabs
|
|
|
3,570
|
|
|
|
(332
|
)
|
|
|
-
|
|
Other
|
|
|
(895
|
)
|
|
|
779
|
|
|
|
2,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring and other expense (income)
|
|
$
|
7,177
|
|
|
$
|
6,927
|
|
|
$
|
(1,876
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Steel Processing
|
|
$
|
819,853
|
|
|
$
|
829,116
|
|
|
$
|
850,748
|
|
Pressure Cylinders
|
|
|
787,786
|
|
|
|
804,799
|
|
|
|
818,720
|
|
Engineered Cabs
|
|
|
75,124
|
|
|
|
94,506
|
|
|
|
181,251
|
|
Other
|
|
|
380,992
|
|
|
|
356,721
|
|
|
|
445,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,063,755
|
|
|
$
|
2,085,142
|
|
|
$
|
2,296,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
Steel Processing
|
|
$
|
42,063
|
|
|
$
|
34,546
|
|
|
$
|
16,682
|
|
Pressure Cylinders
|
|
|
29,916
|
|
|
|
35,872
|
|
|
|
32,364
|
|
Engineered Cabs
|
|
|
6,945
|
|
|
|
8,951
|
|
|
|
10,351
|
|
Other
|
|
|
18,112
|
|
|
|
16,886
|
|
|
|
11,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
|
|
$
|
97,036
|
|
|
$
|
96,255
|
|
|
$
|
71,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98
The following table presents net sales by geographic region for the years
ended May 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
United States
|
|
$
|
2,586,391
|
|
|
$
|
3,175,972
|
|
|
$
|
2,917,484
|
|
Europe
|
|
|
143,466
|
|
|
|
125,778
|
|
|
|
136,513
|
|
Mexico
|
|
|
54,284
|
|
|
|
56,687
|
|
|
|
51,430
|
|
Canada
|
|
|
21,521
|
|
|
|
6,464
|
|
|
|
10,324
|
|
Other
|
|
|
14,052
|
|
|
|
19,333
|
|
|
|
10,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,819,714
|
|
|
$
|
3,384,234
|
|
|
$
|
3,126,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents property, plant and equipment, net, by geographic region as
of May 31:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
United States
|
|
$
|
506,649
|
|
|
$
|
439,296
|
|
Europe
|
|
|
49,529
|
|
|
|
50,520
|
|
Mexico
|
|
|
4,903
|
|
|
|
5,030
|
|
Canada
|
|
|
3,711
|
|
|
|
4,284
|
|
Other
|
|
|
18,046
|
|
|
|
14,060
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
582,838
|
|
|
$
|
513,190
|
|
|
|
|
|
|
|
|
|
|
Note O Acquisitions
Fiscal 2016
Worthington Specialty Processing
Effective March 1, 2016, the Company reached an agreement with U.S. Steel, its partner in the WSP joint venture, whereby
the Company appoints a majority of the WSP Board of Directors, giving the Company effective control over the operations of WSP. The ownership percentages in WSP remained unchanged at 51% Worthington and 49% U.S. Steel. This transaction was
accounted for as a step acquisition, which required that the Company re-measure its previously held 51% ownership interest in WSP to fair value and record the difference between fair value and carrying value as a gain in our consolidated statement
of earnings. The re-measurement to fair value resulted in a non-cash, pre-tax gain of $6,877,000, which is included in miscellaneous income in our consolidated statement of earnings for fiscal 2016. The fair value of the Companys
previously held interest in WSP was estimated to be $32,375,000 and was derived using an income approach. The acquired assets became part of our Steel Processing operating segment upon closing.
The assets acquired and liabilities assumed were recognized at their acquisition-date fair values. In connection
with the acquisition of WSP, we identified and valued the following identifiable intangible assets:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Amount
|
|
|
Useful
Life
(Years)
|
|
Category
|
|
|
Customer relationships
|
|
$
|
3,300
|
|
|
|
6
|
|
Trade name
|
|
|
1,900
|
|
|
|
Indefinite
|
|
|
|
|
|
|
|
|
|
|
Total acquired identifiable intangible assets
|
|
$
|
5,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total fair value of the business 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 fair value of the business 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.
99
The following table summarizes the fair value assigned to the assets
acquired and liabilities assumed at the acquisition date:
|
|
|
|
|
(in thousands)
|
|
|
|
Cash
|
|
$
|
6,902
|
|
Accounts receivable
|
|
|
10,233
|
|
Inventories
|
|
|
3,349
|
|
Prepaid expense and other
|
|
|
809
|
|
Intangible assets
|
|
|
5,200
|
|
Other assets
|
|
|
2,608
|
|
Property, plant and equipment
|
|
|
39,511
|
|
|
|
|
|
|
Total identifiable assets
|
|
|
68,612
|
|
Accounts payable
|
|
|
(6,963
|
)
|
Accrued liabilities
|
|
|
(1,728
|
)
|
|
|
|
|
|
Net identifiable assets
|
|
|
59,921
|
|
Goodwill
|
|
|
458
|
|
|
|
|
|
|
Net assets
|
|
|
60,379
|
|
Noncontrolling interest
|
|
|
(28,004
|
)
|
|
|
|
|
|
Total basis allocated
|
|
$
|
32,375
|
|
|
|
|
|
|
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 LNG markets. The total
purchase price was $30,584,000 after adjusting for an estimated working capital deficit of $772,000. 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)
|
|
Amount
|
|
|
Useful
Life
(Years)
|
|
Category
|
|
|
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.
100
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
|
|
$
|
2,367
|
|
Inventories
|
|
|
5,762
|
|
Prepaid expenses
|
|
|
208
|
|
Intangible assets
|
|
|
5,260
|
|
Property, plant and equipment
|
|
|
13,400
|
|
|
|
|
|
|
Total identifiable assets
|
|
|
26,997
|
|
Accounts payable
|
|
|
(2,808
|
)
|
Other accrued items
|
|
|
(318
|
)
|
|
|
|
|
|
Net assets
|
|
|
23,871
|
|
Goodwill
|
|
|
6,713
|
|
|
|
|
|
|
Purchase price
|
|
$
|
30,584
|
|
Plus: estimated working capital deficit
|
|
|
772
|
|
|
|
|
|
|
Cash paid at closing
|
|
$
|
31,356
|
|
|
|
|
|
|
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 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 businesses have been included in our consolidated statements of earnings from the
respective acquisition date, forward, and have been immaterial, individually and in the aggregate. Pro forma results, including the acquired businesses since the beginning of fiscal 2015, would not be materially different than reported results,
individually and in the aggregate.
Fiscal 2015
Rome Strip Steel Company, Inc.
On January 16, 2015, the
Company acquired the assets of Rome Strip Steel Company, Inc. (Rome Strip Steel) for cash consideration of $54,495,000. This amount differs from the $55,312,000 paid at closing due to an estimated working capital deficit of $817,000.
Located in Rome, New York, the Rome Strip Steel business manufactures cold-rolled steel to extremely tight tolerances. The acquired assets became part of our Steel Processing 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 of the assets of Rome Strip Steel, we identified and valued the following identifiable intangible
assets:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
Useful
Life
(Years)
|
|
Category
|
|
Amount
|
|
|
Customer relationships
|
|
$
|
4,300
|
|
|
|
10
|
|
Non-compete agreements
|
|
|
1,200
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
Total acquired identifiable intangible assets
|
|
$
|
5,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101
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 for the assets of Rome Strip Steel and the fair value
assigned to the assets acquired and liabilities assumed at the acquisition date:
|
|
|
|
|
(in thousands)
|
|
|
|
Cash
|
|
$
|
10
|
|
Accounts receivable
|
|
|
6,333
|
|
Inventories
|
|
|
17,063
|
|
Prepaid expenses
|
|
|
41
|
|
Intangible assets
|
|
|
5,500
|
|
Property, plant and equipment
|
|
|
22,775
|
|
|
|
|
|
|
Total identifiable assets
|
|
|
51,722
|
|
Accounts payable
|
|
|
(3,091
|
)
|
Other accrued items
|
|
|
(410
|
)
|
Other liabilities
|
|
|
(313
|
)
|
|
|
|
|
|
Net assets
|
|
|
47,908
|
|
Goodwill
|
|
|
6,587
|
|
|
|
|
|
|
Purchase price
|
|
$
|
54,495
|
|
Plus: estimated working capital deficit
|
|
|
817
|
|
|
|
|
|
|
Cash paid at closing
|
|
$
|
55,312
|
|
|
|
|
|
|
dHybrid Systems, LLC
On October 20, 2014, we acquired a 79.59% ownership interest in dHybrid, a manufacturer of CNG systems for heavy duty,
refuse and other trucks, for total consideration of $15,918,000, including contingent consideration with an estimated fair value of $3,979,000, and the assumption of certain liabilities. The remaining 20.41% was retained by a founding member.
The acquired business became part of our Pressure Cylinders operating segment upon closing.
The contingent
consideration arrangement requires the Company to pay $3,979,000 of additional consideration when cumulative net sales beginning January 1, 2013 reach $20,000,000 plus 50% of gross margin above certain thresholds in each of the five twelve-month
periods following the closing date. We determined the acquisition-date fair value of the contingent consideration obligation using a probability weighted cash flow approach based on managements projections of future sales and gross margin.
Refer to Note Q Fair Value Measurements for additional information regarding the fair value measurement of the contingent consideration obligation.
102
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 of the assets of dHybrid, we identified and valued the
following identifiable intangible assets:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
Useful
Life
(Years)
|
|
Category
|
|
Amount
|
|
|
Technological know-how
|
|
$
|
3,100
|
|
|
|
10
|
|
Customer relationships
|
|
|
600
|
|
|
|
7
|
|
Backlog
|
|
|
88
|
|
|
|
Less than 1
|
|
|
|
|
|
|
|
|
|
|
Total acquired identifiable intangible assets
|
|
$
|
3,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 for our 79.59% interest in dHybrid and the fair value
assigned to the assets acquired and liabilities assumed at the acquisition date:
|
|
|
|
|
(in thousands)
|
|
|
|
Consideration Transferred:
|
|
|
|
|
Cash consideration
|
|
$
|
11,939
|
|
Fair value of contingent consideration
|
|
|
3,979
|
|
|
|
|
|
|
Total consideration
|
|
$
|
15,918
|
|
|
|
|
|
|
Estimated Fair Value of Assets Acquired and Liabilities Assumed:
|
|
Cash and cash equivalents
|
|
$
|
1,132
|
|
Accounts receivable
|
|
|
1,482
|
|
Inventories
|
|
|
2,732
|
|
Prepaid expenses and other current assets
|
|
|
38
|
|
Intangible assets
|
|
|
3,788
|
|
Property, plant and equipment
|
|
|
406
|
|
|
|
|
|
|
Total identifiable assets
|
|
|
9,578
|
|
Accounts payable
|
|
|
(1,867
|
)
|
Accrued liabilities
|
|
|
(533
|
)
|
Long-term debt
|
|
|
(5,000
|
)
|
|
|
|
|
|
Net identifiable assets
|
|
|
2,178
|
|
Goodwill
|
|
|
17,822
|
|
|
|
|
|
|
Net assets
|
|
|
20,000
|
|
Noncontrolling interest
|
|
|
(4,082
|
)
|
|
|
|
|
|
Total consideration
|
|
$
|
15,918
|
|
|
|
|
|
|
Midstream Equipment Fabrication LLC
On August 1, 2014, we acquired the assets of Midstream Equipment Fabrication LLC (MEF) for cash consideration
of $38,441,000 and the assumption of certain liabilities. The MEF business manufactures patented horizontal heated and high pressure separators used to separate oilfield fluids and gas. The acquired assets became part of our Pressure Cylinders
operating segment upon closing.
103
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 of the assets of MEF, we identified and valued the
following identifiable intangible assets:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
Useful
Life
(Years)
|
|
Category
|
|
Amount
|
|
|
Technological know-how
|
|
$
|
5,100
|
|
|
|
10
|
|
Customer relationships
|
|
|
4,300
|
|
|
|
7
|
|
Non-compete agreements
|
|
|
2,400
|
|
|
|
4
|
|
Backlog
|
|
|
1,800
|
|
|
|
Less than 1
|
|
|
|
|
|
|
|
|
|
|
Total acquired identifiable intangible assets
|
|
$
|
13,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 for the assets of MEF and the fair value assigned to the
assets acquired and liabilities assumed at the acquisition date:
|
|
|
|
|
(in thousands)
|
|
|
|
Accounts receivable
|
|
$
|
3,329
|
|
Inventories
|
|
|
3,550
|
|
Intangible assets
|
|
|
13,600
|
|
Property, plant and equipment
|
|
|
166
|
|
|
|
|
|
|
Total identifiable assets
|
|
|
20,645
|
|
Accounts payable
|
|
|
(555
|
)
|
Other accrued items
|
|
|
(92
|
)
|
Deferred revenue
|
|
|
(4,808
|
)
|
|
|
|
|
|
Net identifiable assets
|
|
|
15,190
|
|
Goodwill
|
|
|
23,251
|
|
|
|
|
|
|
Cash consideration
|
|
$
|
38,441
|
|
|
|
|
|
|
James Russell Engineering Works, Inc.
On July 31, 2014, we acquired the assets of James Russell Engineering Works, Inc. (JRE) for cash consideration
of $1,571,000. The JRE business manufactures aluminum and stainless steel cryogenic transport trailers used for hauling liquid oxygen, nitrogen, argon, hydrogen and LNG for producers and distributors of industrial gases and LNG. 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. 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.
104
The following table summarizes the consideration transferred for the assets
of JRE and the fair value assigned to the assets acquired and liabilities assumed at the acquisition date:
|
|
|
|
|
(in thousands)
|
|
|
|
Cash
|
|
$
|
253
|
|
Accounts receivable
|
|
|
509
|
|
Inventories
|
|
|
2,793
|
|
Prepaid expense and other current assets
|
|
|
40
|
|
Property, plant and equipment
|
|
|
250
|
|
|
|
|
|
|
Total identifiable assets
|
|
|
3,845
|
|
Accounts payable
|
|
|
(514
|
)
|
Other accrued items
|
|
|
(2,160
|
)
|
|
|
|
|
|
Net identifiable assets
|
|
|
1,171
|
|
Goodwill
|
|
|
400
|
|
|
|
|
|
|
Total cash consideration
|
|
$
|
1,571
|
|
|
|
|
|
|
Operating results of the acquired businesses have been included in our consolidated
statement of earnings from the respective acquisition date, forward, and have not been material, individually and in the aggregate. Pro forma net sales and net earnings, including the acquired businesses since the beginning of fiscal 2014,
would not be materially different than reported results, individually and in the aggregate.
Note P Derivative Instruments and
Hedging Activities
We utilize derivative financial instruments to manage exposure to certain risks related
to our ongoing operations. The primary risks managed through the use of derivative instruments include interest rate risk, 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. We have credit support agreements in
place
105
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 May 31, 2016, we had posted total cash collateral of $255,000 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 Q Fair Value Measurements for additional information regarding the accounting
treatment for our derivative instruments, as well as how fair value is determined.
The following table
summarizes the fair value of our derivative instruments and the respective line in which they were recorded in the consolidated balance sheet at May 31, 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 exchange 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 impact would have been a $300,000 decrease in receivables with a corresponding decrease in accounts payable.
106
The following table summarizes the fair value of our derivative instruments
and the respective line in which they were recorded in the consolidated balance sheet at May 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
$
|
17,241
|
|
|
|
|
Other assets
|
|
|
|
-
|
|
|
|
Other liabilities
|
|
|
|
592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
17,833
|
|
Interest rate contracts
|
|
|
Receivables
|
|
|
|
-
|
|
|
|
Accounts payable
|
|
|
|
81
|
|
|
|
|
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
|
|
|
|
|
Other assets
|
|
|
|
-
|
|
|
|
Other liabilities
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
|
|
|
$
|
96
|
|
|
|
|
|
|
$
|
4,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivative Instruments
|
|
|
|
|
|
$
|
171
|
|
|
|
|
|
|
$
|
22,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $200,000 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 rate and commodity price fluctuations associated with certain forecasted
transactions. These derivative instruments are designated and qualify as cash flow hedges. Accordingly, the effective portion of the gain or loss on the derivative instrument is reported as a component of OCI and reclassified into earnings
in the same line associated with the forecasted transaction and in the same period during which the hedged transaction affects earnings. The ineffective portion of the gain or loss on the derivative instrument is recognized in earnings
immediately.
The following table summarizes our cash flow hedges outstanding at May 31, 2016:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Notional
Amount
|
|
|
Maturity
Date
|
|
Commodity contracts
|
|
$
|
87,639
|
|
|
|
June 2016 December 2017
|
|
Interest rate contracts
|
|
$
|
17,032
|
|
|
|
September 2019
|
|
107
The following table summarizes the gain (loss) recognized in OCI and the
gain (loss) reclassified from AOCI into earnings for derivative instruments designated as cash flow hedges during fiscal 2016 and fiscal 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Income
(Loss)
Recognized
in OCI
(Effective
Portion)
|
|
|
Location of
Income (Loss)
Reclassified from
Accumulated
OCI
(Effective
Portion)
|
|
|
Income
(Loss)
Reclassified
from
Accumulated
OCI
(Effective
Portion)
|
|
|
Location of
Income (Loss)
(Ineffective
Portion)
Excluded
from
Effectiveness
Testing
|
|
|
Income
(Loss)
(Ineffective
Portion)
Excluded
from
Effectiveness
Testing
|
|
For the fiscal year ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
(266
|
)
|
|
|
Interest expense
|
|
|
$
|
(510
|
)
|
|
|
Interest expense
|
|
|
$
|
-
|
|
Commodity contracts
|
|
|
7,549
|
|
|
|
Cost of goods sold
|
|
|
|
(27,727
|
)
|
|
|
Cost of goods sold
|
|
|
|
-
|
|
Foreign currency contracts
|
|
|
-
|
|
|
|
Miscellaneous
income, net
|
|
|
|
(4
|
)
|
|
|
Miscellaneous
income, net
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
7,283
|
|
|
|
|
|
|
$
|
(28,241
|
)
|
|
|
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal year ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
(167
|
)
|
|
|
Interest expense
|
|
|
$
|
(2,538
|
)
|
|
|
Interest expense
|
|
|
$
|
-
|
|
Commodity contracts
|
|
|
(29,336
|
)
|
|
|
Cost of goods sold
|
|
|
|
(8,364
|
)
|
|
|
Cost of goods sold
|
|
|
|
-
|
|
Foreign currency contracts
|
|
|
851
|
|
|
|
Miscellaneous
income, net
|
|
|
|
855
|
|
|
|
Miscellaneous
income, net
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
(28,652
|
)
|
|
|
|
|
|
$
|
(10,047
|
)
|
|
|
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated net amount of the gains in AOCI at May 31, 2016 expected to be reclassified
into net earnings within the succeeding twelve months is $6,792,000 (net of tax of $4,127,000). This amount was computed using the fair value of the cash flow hedges at May 31, 2016, and will change before actual reclassification from other
comprehensive income to net earnings during fiscal 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 May 31, 2016:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Notional
Amount
|
|
|
Maturity Date(s)
|
|
Commodity contracts
|
|
$
|
33,371
|
|
|
|
June 2016 December 2017
|
|
Foreign currency contracts
|
|
$
|
10,767
|
|
|
|
May 2017
|
|
108
The following table summarizes the gain (loss) recognized in earnings for
economic (non-designated) derivative financial instruments during fiscal 2016 and fiscal 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Recognized
in Earnings
|
|
|
|
Location of Income (Loss)
Recognized in Earnings
|
|
Fiscal Year Ended
May
31,
|
|
(in thousands)
|
|
|
2016
|
|
|
2015
|
|
Commodity contracts
|
|
Cost of goods sold
|
|
$
|
(1,351
|
)
|
|
$
|
(15,432
|
)
|
Foreign exchange contracts
|
|
Miscellaneous income, net
|
|
|
148
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
(1,203
|
)
|
|
$
|
(15,432
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Note Q Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. Fair value is an exit price concept that assumes an orderly transaction between willing market participants and is required to be based on assumptions that market participants
would use in pricing an asset or a liability. Current accounting guidance establishes a three-tier fair value hierarchy as a basis for considering such assumptions and for classifying the inputs used in the valuation methodologies. This
hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair values are as follows:
|
|
|
|
|
Level 1
|
|
|
|
Observable prices in active markets for identical assets and liabilities.
|
|
|
|
Level 2
|
|
|
|
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.
|
Recurring Fair Value Measurements
At May 31, 2016, our financial 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109
At May 31, 2015, our financial 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 P 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 measurements are based on significant inputs not observable in the market and thus represent Level 3 measurements.
|
Non-Recurring Fair Value Measurements
At May 31, 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, the Company determined that indicators of impairment were present with regard to intangible assets related
to our CNG fuel systems joint venture, dHybrid. Recoverability of the identified asset group was tested using future cash flow projections based on managements long-range estimates of market conditions. The sum of these undiscounted future
cash flows was less than the net book value of the asset group. 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.
|
110
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 are based on significant inputs not observable in the market and thus represent Level 3 measurements. The key assumptions that drove the fair value calculations were projected cash flows and the discount rate.
The non-derivative financial instruments included in the carrying amounts of cash and cash equivalents, receivables,
income taxes receivable, other assets, deferred income taxes, accounts payable, short-term borrowings, accrued compensation, contributions to employee benefit plans and related taxes, other accrued expenses, income taxes payable and other
liabilities approximate fair value due to their short-term nature. The fair value of long-term debt, including current maturities, based upon models utilizing market observable (Level 2) inputs and credit risk, was $609,245,000 and $610,028,000
at May 31, 2016 and 2015, respectively. The carrying amount of long-term debt, including current maturities, was $580,844,000 and $580,193,000 at May 31, 2016 and 2015, respectively.
Note R Operating Leases
We lease certain property
and equipment from third parties under non-cancelable operating lease agreements. Rent expense under operating leases was $14,683,000, $17,219,000 and $14,677,000 in fiscal 2016, fiscal 2015 and fiscal 2014, respectively. Future minimum
lease payments for non-cancelable operating leases having an initial or remaining term in excess of one year at May 31, 2016, were as follows:
|
|
|
|
|
(in thousands)
|
|
|
|
2017
|
|
$
|
9,569
|
|
2018
|
|
|
8,567
|
|
2019
|
|
|
7,342
|
|
2020
|
|
|
5,800
|
|
2021
|
|
|
4,643
|
|
Thereafter
|
|
|
5,810
|
|
|
|
|
|
|
Total
|
|
$
|
41,731
|
|
|
|
|
|
|
Note S Related Party Transactions
We purchase from, and sell to, affiliated companies certain raw materials and services at prevailing market prices. Net
sales to affiliated companies for fiscal 2016, fiscal 2015 and fiscal 2014 totaled $32,496,000, $32,277,000, and $31,441,000, respectively. Purchases from affiliated companies for fiscal 2016, fiscal 2015 and fiscal 2014 totaled $15,737,000,
$8,021,000, and $9,387,000, respectively. Accounts receivable from affiliated companies were $5,152,000 and $5,826,000 at May 31, 2016 and 2015, respectively. Accounts payable to affiliated companies were $107,000 and $11,528,000 at May
31, 2016 and 2015, respectively.
111
Note T Quarterly Results of Operations (Unaudited)
The following table summarizes the unaudited quarterly consolidated results of operations for fiscal 2016 and fiscal 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share)
|
|
Three Months Ended
|
|
Fiscal 2016
|
|
August 31
|
|
|
November 30
|
|
|
February 29
|
|
|
May 31
|
|
Net sales
|
|
$
|
758,147
|
|
|
$
|
699,816
|
|
|
$
|
647,080
|
|
|
$
|
714,671
|
|
Gross margin
|
|
|
113,016
|
|
|
|
109,179
|
|
|
|
95,923
|
|
|
|
134,475
|
|
Impairment of long-lived assets (1)
|
|
|
3,000
|
|
|
|
22,962
|
|
|
|
-
|
|
|
|
-
|
|
Net earnings (2)
|
|
|
34,995
|
|
|
|
25,752
|
|
|
|
34,143
|
|
|
|
62,738
|
|
Net earnings attributable to controlling interest (2)
|
|
|
31,968
|
|
|
|
23,376
|
|
|
|
29,847
|
|
|
|
58,523
|
|
Earnings per share basic (2)
|
|
$
|
0.50
|
|
|
$
|
0.37
|
|
|
$
|
0.48
|
|
|
$
|
0.95
|
|
Earnings per share diluted (2)
|
|
|
0.48
|
|
|
|
0.36
|
|
|
|
0.47
|
|
|
|
0.92
|
|
|
|
|
|
|
Fiscal 2015
|
|
August 31
|
|
|
November 30
|
|
|
February 28
|
|
|
May 31
|
|
Net sales
|
|
$
|
862,414
|
|
|
$
|
871,012
|
|
|
$
|
804,785
|
|
|
$
|
846,023
|
|
Gross margin
|
|
|
129,507
|
|
|
|
125,223
|
|
|
|
98,491
|
|
|
|
110,312
|
|
Impairment of goodwill and long-lived assets (1)
|
|
|
1,950
|
|
|
|
14,235
|
|
|
|
81,600
|
|
|
|
2,344
|
|
Net earnings (loss)
|
|
|
48,820
|
|
|
|
31,455
|
|
|
|
(23,243
|
)
|
|
|
30,226
|
|
Net earnings (loss) attributable to controlling interest
|
|
|
44,168
|
|
|
|
29,462
|
|
|
|
(25,710
|
)
|
|
|
28,865
|
|
Earnings (loss) per share basic
|
|
$
|
0.65
|
|
|
$
|
0.44
|
|
|
$
|
(0.39
|
)
|
|
$
|
0.45
|
|
Earnings (loss) per share diluted
|
|
|
0.63
|
|
|
|
0.43
|
|
|
|
(0.39
|
)
|
|
|
0.44
|
|
(1)
|
For additional information regarding the Companys impairment charges, refer to Note C Goodwill and Other Long-Lived Assets.
|
(2)
|
Amounts are presented on a revised basis due to the adoption of amended accounting guidance related to the accounting for share-based payments in
the fourth quarter of fiscal 2016. As a result of the adoption of this amended accounting guidance, net earnings and net earnings attributable to controlling interest for the three month periods ended August 31, 2015, November 30, 2015 and February
29, 2016 increased $558,000, $136,000 and $271,000, respectively, from the previously reported results. For additional information, refer to Note A Summary of Significant Accounting Policies Recently Issued Accounting
Standards.
|
The sum of the quarterly earnings per share data presented in the table
may not equal the annual results due to rounding and the impact of dilutive securities on the annual versus the quarterly earnings per share calculations.
112