(2) | Includes an aggregate of 122,0396,430 common shares surrendered by employees in the period from MarchApril 1, 20162018 through May 31, 20162018 to satisfy tax withholding obligations upon exercisethe vesting of stock options.restricted common shares. These common shares were not counted against the share repurchase authorizationauthorizations in effect throughoutduring fiscal 20162018 and discussed in footnote (1) above. |
Item 6. –Selected– Selected Financial Data | | | Fiscal Years Ended May 31, | | Fiscal Years Ended May 31, | | (In thousands, except per share amounts) | | 2016 | | 2015 | | 2014 | | 2013 | | 2012 | | 2018 | | | 2017 | | | 2016 | | | 2015 | | | 2014 | | FINANCIAL RESULTS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net sales | | $ | 2,819,714 | | | $ | 3,384,234 | | | $ | 3,126,426 | | | $ | 2,612,244 | | | $ | 2,534,701 | | $ | 3,581,620 | | | $ | 3,014,108 | | | $ | 2,819,714 | | | $ | 3,384,234 | | | $ | 3,126,426 | | Cost of goods sold | | | 2,367,121 | | | | 2,920,701 | | | | 2,633,907 | | | | 2,215,601 | | | | 2,201,833 | | | 3,018,763 | | | | 2,478,203 | | | | 2,367,121 | | | | 2,920,701 | | | | 2,633,907 | | | | | | | | | | | | | | | | | | | Gross margin | | | 452,593 | | | | 463,533 | | | | 492,519 | | | | 396,643 | | | | 332,868 | | | 562,857 | | | | 535,905 | | | | 452,593 | | | | 463,533 | | | | 492,519 | | Selling, general and administrative expense | | | 297,402 | | | | 295,920 | | | | 300,396 | | | | 258,324 | | | | 225,069 | | | 367,460 | | | | 316,373 | | | | 297,402 | | | | 295,920 | | | | 300,396 | | Impairment of goodwill and long-lived assets | | | 25,962 | | | | 100,129 | | | | 58,246 | | | | 6,488 | | | | 355 | | | 61,208 | | | | - | | | | 25,962 | | | | 100,129 | | | | 58,246 | | Restructuring and other expense (income) | | | 7,177 | | | | 6,927 | | | | (1,876 | ) | | | 2,689 | | | | 5,834 | | | | | | | | | | | | | | | | | | | | Restructuring and other expense (income), net | | | (7,421 | ) | | | 6,411 | | | | 7,177 | | | | 6,927 | | | | (1,876 | ) | Operating income | | | 122,052 | | | | 60,557 | | | | 135,753 | | | | 129,142 | | | | 101,610 | | | 141,610 | | | | 213,121 | | | | 122,052 | | | | 60,557 | | | | 135,753 | | Miscellaneous income | | | 11,267 | | | | 795 | | | | 16,963 | | | | 1,452 | | | | 2,319 | | | Miscellaneous income, net | | | 2,996 | | | | 3,764 | | | | 11,267 | | | | 795 | | | | 16,963 | | Interest expense | | | (31,670 | ) | | | (35,800 | ) | | | (26,671 | ) | | | (23,918 | ) | | | (19,497 | ) | | (38,675 | ) | | | (29,796 | ) | | | (31,670 | ) | | | (35,800 | ) | | | (26,671 | ) | Equity in net income of unconsolidated affiliates | | | 114,966 | | | | 87,476 | | | | 91,456 | | | | 94,624 | | | | 92,825 | | | 103,139 | | | | 110,038 | | | | 114,966 | | | | 87,476 | | | | 91,456 | | | | | | | | | | | | | | | | | | | Earnings before income taxes | | | 216,615 | | | | 113,028 | | | | 217,501 | | | | 201,300 | | | | 177,257 | | | 209,070 | | | | 297,127 | | | | 216,615 | | | | 113,028 | | | | 217,501 | | Income tax expense | | | 58,987 | | | | 25,772 | | | | 57,349 | | | | 64,465 | | | | 51,904 | | | 8,220 | | | | 79,190 | | | | 58,987 | | | | 25,772 | | | | 57,349 | | | | | | | | | | | | | | | | | | | Net earnings | | | 157,628 | | | | 87,256 | | | | 160,152 | | | | 136,835 | | | | 125,353 | | | 200,850 | | | | 217,937 | | | | 157,628 | | | | 87,256 | | | | 160,152 | | Net earnings attributable to noncontrolling interests | | | 13,913 | | | | 10,471 | | | | 8,852 | | | | 393 | | | | 9,758 | | | 6,056 | | | | 13,422 | | | | 13,913 | | | | 10,471 | | | | 8,852 | | | | | | | | | | | | | | | | | | | Net earnings attributable to controlling interest | | $ | 143,715 | | | $ | 76,785 | | | $ | 151,300 | | | $ | 136,442 | | | $ | 115,595 | | $ | 194,794 | | | $ | 204,515 | | | $ | 143,715 | | | $ | 76,785 | | | $ | 151,300 | | | | | | | | | | | | | | | | | | | Earnings per share – diluted: | | | | | | | | | | | | Earnings per share - diluted: | | | | | | | | | | | | | | | | | | | | | Net earnings per share attributable to controlling interest | | $ | 2.22 | | | $ | 1.12 | | | $ | 2.11 | | | $ | 1.91 | | | $ | 1.65 | | $ | 3.09 | | | $ | 3.15 | | | $ | 2.22 | | | $ | 1.12 | | | $ | 2.11 | | | | | | | | | | | | | | | | | | | Depreciation and amortization | | $ | 84,699 | | | $ | 85,089 | | | $ | 79,730 | | | $ | 66,469 | | | $ | 55,873 | | $ | 103,359 | | | $ | 86,793 | | | $ | 84,699 | | | $ | 85,089 | | | $ | 79,730 | | Capital expenditures (including acquisitions and investments) | | | 136,837 | | | | 210,346 | | | | 82,855 | | | | 219,813 | | | | 272,349 | | | 358,716 | | | | 68,386 | | | | 136,837 | | | | 210,346 | | | | 82,855 | | Cash dividends declared | | | 47,949 | | | | 48,308 | | | | 41,816 | | | | 36,471 | | | | 33,441 | | | 51,772 | | | | 51,448 | | | | 47,949 | | | | 48,303 | | | | 41,816 | | Per common share | | $ | 0.76 | | | $ | 0.72 | | | $ | 0.60 | | | $ | 0.52 | | | $ | 0.48 | | $ | 0.84 | | | $ | 0.80 | | | $ | 0.76 | | | $ | 0.72 | | | $ | 0.60 | | Average common shares outstanding – diluted | | | 64,755 | | | | 68,483 | | | | 71,664 | | | | 71,314 | | | | 70,252 | | | | Average common shares outstanding - diluted | | | 63,042 | | | | 64,874 | | | | 64,755 | | | | 68,483 | | | | 71,664 | | FINANCIAL POSITION | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total current assets | | $ | 915,460 | | | $ | 992,193 | | | $ | 1,198,922 | | | $ | 866,883 | | | $ | 914,239 | | $ | 1,241,122 | | | $ | 1,190,969 | | | $ | 915,115 | | | $ | 991,848 | | | $ | 1,198,550 | | Total current liabilities | | | 430,078 | | | | 524,392 | | | | 589,663 | | | | 448,914 | | | | 658,263 | | | 646,895 | | | | 520,783 | | | | 430,078 | | | | 524,392 | | | | 589,635 | | | | | | | | | | | | | | | | | | | Working capital | | $ | 485,382 | | | $ | 467,801 | | | $ | 609,259 | | | $ | 417,969 | | | $ | 255,976 | | $ | 594,227 | | | $ | 670,186 | | | $ | 485,037 | | | $ | 467,456 | | | $ | 608,915 | | | | | | | | | | | | | | | | | | | Total property, plant and equipment, net | | $ | 582,838 | | | $ | 513,190 | | | $ | 498,861 | | | $ | 459,430 | | | $ | 443,077 | | $ | 584,970 | | | $ | 570,489 | | | $ | 582,838 | | | $ | 513,190 | | | $ | 498,861 | | Total assets | | | 2,063,755 | | | | 2,085,142 | | | | 2,296,381 | | | | 1,950,857 | | | | 1,877,797 | | | 2,621,787 | | | | 2,325,344 | | | | 2,061,264 | | | | 2,082,305 | | | | 2,293,578 | | Total debt | | | 583,495 | | | | 670,743 | | | | 666,325 | | | | 521,056 | | | | 533,714 | | | 750,368 | | | | 578,610 | | | | 581,004 | | | | 667,905 | | | | 663,521 | | Total shareholders’ equity – controlling interest | | | 793,371 | | | | 749,112 | | | | 850,812 | | | | 830,822 | | | | 697,174 | | | Total shareholders' equity - controlling interest | | | 918,769 | | | | 951,635 | | | | 793,371 | | | | 749,112 | | | | 850,812 | | Per share | | $ | 12.89 | | | $ | 11.68 | | | $ | 12.62 | | | $ | 11.91 | | | $ | 10.27 | | $ | 15.60 | | | $ | 15.15 | | | $ | 12.89 | | | $ | 11.68 | | | $ | 12.62 | | Common shares outstanding | | | 61,534 | | | | 64,141 | | | | 67,408 | | | | 69,752 | | | | 67,906 | | | 58,877 | | | | 62,802 | | | | 61,534 | | | | 64,141 | | | | 67,408 | |
The acquisition of the assets of AMTROL has been reflected since June 2017. The operations of Worthington Energy Innovations, LLC (“WEI”) have been excluded since the disposal of a 65% stake of the Company in WEI in March 2018. Worthington Specialty Processing has been reflected since March 2016 when the Company obtained effective control of this business.joint venture. The acquisition of the assets of NetBraze, LLC has been reflected since January 2016. The acquisition of the assets of the CryoScience business of Taylor Wharton has been reflected since December 2015. Our aluminum high-pressure cylinder business has been excluded since its disposal in May 2015. The Advanced Component Technologies, Inc. business has been excluded since its disposal in January 2015. The acquisition of the assets of Rome Strip Steel Company, Inc. has been reflected since January 2015. The operations of dHybrid Systems, LLC have been reflected since October 2014 when we acquired our 79.59% ownership interest.2014. The acquisition of the assets of Midstream Equipment Fabrication LLC has been reflected since August 2014. The acquisition of the assets of James Russell Engineering Works, Inc. has been reflected since July 2014. The operations of the tank manufacturing division of Steffes Corporation have been reflected since their acquisition in March 2014. The operations of Worthington Aritas BasincliArıtaş Basınçlı Kaplar Sanayi have been reflected since January 2014 when we acquired our 75% ownership interest.2014. Our small and medium steel high pressure industrial gas and acetylene cylinders business in North America has been excluded from consolidated operating results since its dispositiondisposal in November 2013. TWB Company, L.L.C.L.LC. has been reflected since July 2013 when we acquired an additional 10% ownership interest bringing our total to 55%. The acquisition of the assets of Palmer Mfg. & Tank, Inc. has been reflected since April 2013. Our European air brake tank operations in Czech Republic have been excluded since their disposal in October 2012. Westerman, Inc. has been reflected since its acquisition in September 2012. Worthington Energy Innovations, formerly PSI Energy Solutions, LLC, has been reflected since March 2012 when we acquired our 75% ownership interest. Worthington Industries Engineered Cabs, formerly Angus Industries, Inc., has been reflected since its acquisition in December 2011. The propane fuel cylinders business of The Coleman Company, Inc. has been reflected since its acquisition in December 2011. STAKO sp. Z o.o. has been reflected since its acquisition in September 2011. The BernzOmatic business of Irwin Industrial Tool Company has been reflected since its acquisition in July 2011.
Item 7. –Management’s– Management’s Discussion and Analysis ofof Financial Condition and Results of Operations Selected statements contained in this “Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations” constitute “forward-looking statements” as that term is used in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based, in whole or in part, on management’s beliefs, estimates, assumptions and currently available information. For a more detailed discussion of what constitutes a forward-looking statement and of some of the factors that could cause actual results to differ materially from such forward-looking statements, please refer to the “Safe Harbor Statement” in the beginning of this 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; water well tanks for commercial and residential uses; 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 our joint ventures, suspensioncomplete ceiling grid systems for concealed and lay-in panel ceilings;solutions; 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, 2016,2018, excluding our joint ventures, we operated 3136 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 activenine joint ventures, which operated 5149 manufacturing facilities worldwide, as of May 31, 2016. Six2018. Three of these joint ventures are consolidated within Steel Processing 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 unconsolidated and accounted for using the equity method. Overview
Performance was steady duringOverview
The Company delivered overall sales growth of 19% for fiscal 2016 despite challenging market conditions resulting from lower2018 compared to fiscal 2017, driven by the June 2, 2017, acquisition of New AMTROL Holdings, Inc. and its subsidiaries (collectively “AMTROL”). Also contributing to sales growth were higher average steel and oil prices. A higher spread between averagedirect selling prices in Steel Processing and material cost and improved operationshigher volumes in the consumer and industrial products businesses within Pressure Cylinders. Operating results were mixed, as contributions from AMTROL and near record performance in the consumer and industrial products businesses in Pressure Cylinders helpedwere more than offset by an overall decline in earnings at Steel Processing and significant impairment charges related to offsetplans to sell the Company’s cryogenics business in Turkey and certain oil & gas asset groups within Pressure Cylinders. Lower direct spreads and lower tolling volumes weighed on Steel Processing’s results, offsetting the favorable 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. gains resulting from rising steel prices. Equity in net income of unconsolidated affiliates (“equity income”) was up 31%decreased from fiscal 2017 as higher steel prices compressed margins at our Clarkwestern Dietrich Building Systems LLC (“ClarkDietrich”) joint venture, and additional allocations resulting from a new cost sharing agreement between its owners were absorbed by WAVE. The enactment of the Tax Cuts and Jobs Act of 2017 (the “TCJA”) also had a significant favorable impact on net income. As a result of the TCJA, the Company elected to pass on a portion of the expected cash savings resulting from the lower statutory federal corporate income tax rate in the form of a one-time bonus to non-executive employees, which reduced pre-tax earnings by $5.5 million in the fourth quarter of 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. 2018. See Recent Business Developments for further discussion of these and other factors affecting the Company’s results.
Recent Business Developments Effective June 1, 2017, the Company made certain organizational changes impacting the internal reporting and management structure of Worthington Steelpac Systems, LLC (“Packaging Solutions”). As a result of these organizational changes, management responsibilities and internal reporting were realigned, moving Packaging Solutions from the Steel Processing operating segment to the Engineered Cabs operating segment. Previously reported segment results have not been restated to conform to this new presentation and are immaterial for all periods presented. On December 7, 2015,June 2, 2017, the Company completedacquired AMTROL, a leading manufacturer of pressure cylinders and water system tanks with operations in the acquisition of the global CryoScience business of Taylor Wharton, including a manufacturing facility in Theodore, Alabama,U.S. and Europe. The total purchase price was approximately $291.9 million after adjusting for $30.6 million.excess working capital, and was funded primarily by cash on hand. 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.at closing, with the well water and expansion tank operations aligning under the consumer products business and the refrigerant, liquid propane and industrial and specialty gas operations aligning under the industrial products business. On July 28, 2017, Worthington Industries completed the public offering of $200.0 million aggregate principal amount of senior unsecured notes. The notes bear interest at a rate of 4.300% and mature on August 1, 2032. On January 15, 2016,September 27, 2017, the Board of Directors of Worthington Industries (the “Board”) authorized the repurchase of up to an additional 6,828,855 of Worthington Industries’ common shares. During fiscal 2018, the Company acquiredrepurchased a total of 4,375,000 common shares for $204.3 million at an average price of $46.69 per share. The total number of common shares available for repurchase at May 31, 2018 was 6,500,000. On November 20, 2017, the Company announced that its Worthington Armstrong Venture (“WAVE”) joint venture had agreed to sell its international operations to the Knauf Group, a family-owned manufacturer of building materials headquartered in Germany. The Company expects to receive proceeds of approximately $45 million for its 50% share of the WAVE operations being sold. The transaction is subject to regulatory approvals and other customary closing conditions and is anticipated to close before the end of calendar 2018. On December 22, 2017, the TCJA was enacted into law. Among other things, the TCJA lowered the U.S. corporate federal corporate income tax rate from 35% to 21% effective January 1, 2018. Our best estimate of the Company’s ongoing effective income tax rate as a result of the tax reform legislation is 24% beginning in fiscal 2019. Results for the full fiscal year ended May 31, 2018 reflected only five months of the lower rate. 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. On January 16, 2018, the Company amended its accounts receivable securitization facility (the “AR Facility”), reducing the borrowing capacity from $100.0 million to $50.0 million and extending the maturity to January 2019. On February 16, 2018, the Company amended its revolving credit facility, extending the maturity by three years to February 2023. Borrowing capacity remained unchanged at $500.0 million. During the fourth quarter of fiscal 2018, management committed to plans to sell the Company’s cryogenics business in Turkey, Worthington Aritas, and certain underperforming oil & gas equipment assets within Pressure Cylinders. As all of the criteria for classification as assets held for sale were met in both instances, 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. 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, WSP’s resultseach asset group have been presented separately as assets held for sale in our consolidated within the financial results of Steel Processing since that date, with the minority member’s portion of earnings eliminated within earnings attributable to noncontrolling interest. In the periods prior to March 1, 2016, WSP’s 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 Company’s 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.balance sheets.
On June 29, 2016,27, 2018, the Board declared a quarterly dividend of $0.20$0.23 per share, an increase of $0.01$0.02 per share from the previous quarterly rate. The dividend is payable on September 29, 201628, 2018 to shareholders of record on September 15, 2016.14, 2018. During fiscal 2016, we repurchased a total of 3,500,000 common shares for $99.8 million at an average price of $28.53.
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 20162018 and fiscal 20152017 is illustrated in the following chart:
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%59% of the net sales of our Steel Processing operating segment are to the automotive market. North American vehicle production, primarily by Ford, General Motors and 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%13% of the net sales of our Steel Processing operating segment 52%and 41% 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%28% and 48%59% 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 the demand of these operating segments.end markets. We use the following information to monitor our costs and demand in our major end markets: | | | | | | | | | | | | | | | | | | | | | | | 2016 | | | 2015 | | | 2014 | | | 2016 vs. 2015 | | | 2015 vs. 2014 | | U.S. GDP (% growth year-over-year)1 | | | 1.2 | % | | | 2.5 | % | | | 1.7 | % | | | -1.3 | % | | | 0.8 | % | Hot-Rolled Steel ($ per ton)2 | | $ | 442 | | | $ | 591 | | | $ | 651 | | | ($ | 149 | ) | | ($ | 60 | ) | Detroit Three Auto Build (000’s vehicles)3 | | | 9,346 | | | | 9,069 | | | | 9,029 | | | | 277 | | | | 40 | | No. America Auto Build (000’s vehicles)3 | | | 17,736 | | | | 17,145 | | | | 16,414 | | | | 591 | | | | 731 | | Zinc ($ per pound)4 | | $ | 0.82 | | | $ | 0.98 | | | $ | 0.86 | | | ($ | 0.16 | ) | | $ | 0.12 | | Natural Gas ($ per mcf)5 | | $ | 2.28 | | | $ | 3.60 | | | $ | 4.08 | | | ($ | 1.32 | ) | | ($ | 0.48 | ) | On-Highway Diesel Fuel Prices ($ per gallon)6 | | $ | 2.40 | | | $ | 3.38 | | | $ | 3.91 | | | ($ | 0.98 | ) | | ($ | 0.53 | ) | Crude Oil – WTI ($ per barrel)6 | | $ | 42.67 | | | $ | 73.16 | | | $ | 100.49 | | | ($ | 30.49 | ) | | ($ | 27.33 | ) |
| | 2018 | | | 2017 | | | 2016 | | | 2018 vs. 2017 | | | 2017 vs. 2016 | | U.S. GDP (% growth year-over-year) 1 | | | 2.5 | % | | | 1.6 | % | | | 1.9 | % | | | 0.9 | % | | | -0.3 | % | Hot-Rolled Steel ($ per ton) 2 | | $ | 687 | | | $ | 593 | | | $ | 437 | | | $ | 94 | | | $ | 156 | | Detroit Three Auto Build (000's vehicles) 3 | | | 8,577 | | | | 9,216 | | | | 9,296 | | | | (639 | ) | | | (80 | ) | No. America Auto Build (000's vehicles) 3 | | | 16,996 | | | | 18,329 | | | | 18,181 | | | | (1,333 | ) | | | 148 | | Zinc ($ per pound) 4 | | $ | 1.42 | | | $ | 1.13 | | | $ | 0.80 | | | $ | 0.29 | | | $ | 0.33 | | Natural Gas ($ per mcf) 5 | | $ | 2.89 | | | $ | 3.01 | | | $ | 2.31 | | | $ | (0.12 | ) | | $ | 0.70 | | On-Highway Diesel Fuel Prices ($ per gallon) 6 | | $ | 2.87 | | | $ | 2.58 | | | $ | 2.40 | | | $ | 0.29 | | | $ | 0.18 | | Crude Oil - WTI ($ per barrel) 6 | | $ | 56.75 | | | $ | 48.80 | | | $ | 42.67 | | | $ | 7.95 | | | $ | 6.13 | |
1 | 2017/2016 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 |
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. The rapid rise in steel prices experienced during the fourth quarter of fiscal 2018 is expected to continue to result in inventory holding gains in the first quarter of fiscal 2019. The following table presents the average quarterly market price per ton of hot-rolled steel during fiscal 2016,2018, fiscal 20152017 and fiscal 2014:2016: | | | Fiscal Year | | | Fiscal Year | | (Dollars per ton 1) | | 2016 | | | 2015 | | | 2014 | | | 2018 | | | 2017 | | | 2016 | | 1st Quarter | | $ | 461 | | | $ | 670 | | | $ | 627 | | | $ | 604 | | | $ | 617 | | | $ | 461 | | 2nd Quarter | | $ | 419 | | | $ | 651 | | | $ | 651 | | | $ | 608 | | | $ | 511 | | | $ | 419 | | 3rd Quarter | | $ | 381 | | | $ | 578 | | | $ | 669 | | | $ | 674 | | | $ | 608 | | | $ | 381 | | 4th Quarter | | $ | 507 | | | $ | 464 | | | $ | 655 | | | $ | 860 | | | $ | 636 | | | $ | 486 | | Annual Avg. | | $ | 442 | | | $ | 591 | | | $ | 651 | | | $ | 687 | | | $ | 593 | | | $ | 437 | |
1 CRU Hot-Rolled Index | CRU Hot-Rolled Index |
No single customer contributedaccounted for more than 10% of our consolidated net sales during fiscal 2016.2018. 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 2016,2018, vehicle production for the Detroit Three automakers was up 3%.off 7% from the record levels achieved in fiscal 2017, while North American vehicle production as a whole was also increased 3%down 7%. 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.
Results of Operations Fiscal 20162018 Compared to Fiscal 20152017 Consolidated Operations The following table presents consolidated operating results for the periods indicated: | | | | | | | | | | | Fiscal Year Ended May 31, | | | | Fiscal Year Ended May 31, | | | | | | % of | | | | | | | % of | | | Increase/ | | (Dollars in millions) | | 2016 | | % of Net sales | | 2015 | | % of Net sales | | Increase/ (Decrease) | | 2018 | | | Net sales | | | 2017 | | | Net sales | | | (Decrease) | | Net sales | | $ | 2,819.7 | | | | 100.0 | % | | $ | 3,384.2 | | | | 100.0 | % | | $ | (564.5 | ) | $ | 3,581.6 | | | | 100.0 | % | | $ | 3,014.1 | | | | 100.0 | % | | $ | 567.5 | | Cost of goods sold | | | 2,367.1 | | | | 83.9 | % | | | 2,920.7 | | | | 86.3 | % | | | (553.6 | ) | | 3,018.7 | | | | 84.3 | % | | | 2,478.2 | | | | 82.2 | % | | | 540.5 | | | | | | | | | | | | | | | | | Gross margin | | | 452.6 | | | | 16.1 | % | | | 463.5 | | | | 13.7 | % | | | (10.9 | ) | | 562.9 | | | | 15.7 | % | | | 535.9 | | | | 17.8 | % | | | 27.0 | | Selling, general and administrative expense | | | 297.4 | | | | 10.5 | % | | | 295.9 | | | | 8.7 | % | | | 1.5 | | | 367.5 | | | | 10.3 | % | | | 316.4 | | | | 10.5 | % | | | 51.1 | | Impairment of goodwill and long-lived assets | | | 26.0 | | | | 0.9 | % | | | 100.1 | | | | 3.0 | % | | | (74.1 | ) | | 61.2 | | | | 1.7 | % | | | - | | | | 0.0 | % | | | 61.2 | | Restructuring and other expense | | | 7.2 | | | | 0.3 | % | | | 6.9 | | | | 0.2 | % | | | 0.3 | | | | | | | | | | | | | | | | | | Restructuring and other expense (income), net | | | (7.4 | ) | | | -0.2 | % | | | 6.4 | | | | 0.2 | % | | | (13.8 | ) | Operating income | | | 122.0 | | | | 4.3 | % | | | 60.6 | | | | 1.8 | % | | | 61.4 | | | 141.6 | | | | 4.0 | % | | | 213.1 | | | | 7.1 | % | | | (71.5 | ) | Miscellaneous income | | | 11.3 | | | | 0.4 | % | | | 0.8 | | | | 0.0 | % | | | 10.5 | | | 3.1 | | | | 0.1 | % | | | 3.8 | | | | 0.1 | % | | | (0.7 | ) | Interest expense | | | (31.7 | ) | | | -1.1 | % | | | (35.8 | ) | | | -1.1 | % | | | (4.1 | ) | | (38.7 | ) | | | -1.1 | % | | | (29.8 | ) | | | -1.0 | % | | | 8.9 | | Equity in net income of unconsolidated affiliates | | | 115.0 | | | | 4.1 | % | | | 87.5 | | | | 2.6 | % | | | 27.5 | | | 103.1 | | | | 2.9 | % | | | 110.0 | | | | 3.6 | % | | | (6.9 | ) | Income tax expense | | | (59.0 | ) | | | -2.1 | % | | | (25.8 | ) | | | -0.8 | % | | | 33.2 | | | (8.2 | ) | | | -0.2 | % | | | (79.2 | ) | | | -2.6 | % | | | (71.0 | ) | | | | | | | | | | | | | | | | Net earnings | | | 157.6 | | | | 5.6 | % | | | 87.3 | | | | 2.6 | % | | | 70.3 | | | 200.9 | | | | 5.6 | % | | | 217.9 | | | | 7.2 | % | | | (17.0 | ) | Net earnings attributable to noncontrolling interests | | | 13.9 | | | | 0.5 | % | | | 10.5 | | | | 0.3 | % | | | 3.4 | | | 6.1 | | | | 0.2 | % | | | 13.4 | | | | 0.4 | % | | | (7.3 | ) | | | | | | | | | | | | | | | | Net earnings attributable to controlling interest | | $ | 143.7 | | | | 5.1 | % | | $ | 76.8 | | | | 2.3 | % | | $ | 66.9 | | $ | 194.8 | | | | 5.4 | % | | $ | 204.5 | | | | 6.8 | % | | $ | (9.7 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Equity income by unconsolidated affiliate | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | WAVE | | $ | 82.7 | | | | | $ | 70.6 | | | | | $ | 12.1 | | $ | 77.5 | | | | | | | $ | 78.3 | | | | | | | $ | (0.8 | ) | ClarkDietrich | | | 14.6 | | | | | | 2.9 | | | | | | 11.7 | | | 9.8 | | | | | | | | 17.3 | | | | | | | | (7.5 | ) | Serviacero | | | 6.3 | | | | | | 3.3 | | | | | | 3.0 | | | Serviacero Worthington | | | 8.8 | | | | | | | | 7.2 | | | | | | | | 1.6 | | ArtiFlex | | | 10.3 | | | | | | 7.2 | | | | | | 3.1 | | | 4.9 | | | | | | | | 7.0 | | | | | | | | (2.1 | ) | WSP | | | 1.7 | | | | | | 2.9 | | | | | | (1.2 | ) | | Other | | | (0.6 | ) | | | | | 0.6 | | | | | | (1.2 | ) | | 2.1 | | | | | | | | 0.2 | | | | | | | | 1.9 | | | | | | | | | | | | | | | | | Total | | $ | 115.0 | | | | | $ | 87.5 | | | | | $ | 27.5 | | $ | 103.1 | | | | | | | $ | 110.0 | | | | | | | $ | (6.9 | ) | | | | | | | | | | | | | | | |
Fiscal 20162018 net earnings attributable to controlling interest increased $66.9decreased $9.7 million overfrom fiscal 2015.2017. Net sales and operating highlights were as follows: Net sales increased $567.5 million over fiscal 2017. The AMTROL acquisition was the largest driver of the increase, contributing net sales of $265.2 million. The remaining increase in net sales was driven by higher average direct selling prices in Steel Processing and higher overall volumes in Pressure Cylinders, partially offset by lower tolling volume at certain consolidated joint ventures. Gross margin increased $27.0 million over fiscal 2017. Pressure Cylinders drove the increase, up $65.1 million, on contributions from AMTROL and higher volumes in the consumer and industrial products businesses. Lower direct spreads and lower tolling volume at Steel Processing partially offset the overall increase in gross margin. SG&A expense increased $51.1 million over fiscal 2017. The increase was driven primarily by the AMTROL acquisition, which added $36.9 million to SG&A expense in fiscal 2018. Overall, SG&A expense was 10.3% of consolidated net sales in fiscal 2018 compared to 10.5% in the prior fiscal year. Impairment charges totaled $61.2 million, of which $52.9 million related to plans to sell the Company’s cryogenics business in Turkey, Worthington Aritas, and certain underperforming oil & gas equipment asset groups within Pressure Cylinders. 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 and other income, net totaled $7.4 million in fiscal 2018 driven by a net gain of $10.6 million related to the sale of the legacy real estate of the Company’s former stainless steel business, Precision Specialty Metals, Inc. (“PSM”), partially offset by severance expense of $2.4 million at Pressure Cylinders related to corporate management and other positions at AMTROL that were eliminated. For additional information, refer to “Item 8. – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note D – Restructuring and Other Expense (Income), Net” of this Annual Report on Form 10-K. |
Interest expense increased $8.9 million over fiscal 2017. The increase was primarily due to the issuance of $200.0 million of aggregate principal amount of senior unsecured notes due August 1, 2032. 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 $564.5$6.9 million from fiscal 2015.2017 to $103.1 million. The decrease was driven by lower average sellingcontributions from ClarkDietrich, down $7.5 million as rising steel prices compressed margins. WAVE was down slightly despite strong volumes as a new cost-sharing agreement between the joint venture and its owners resulted in Steel Processing$7.6 million of additional allocations. This run rate is expected to decline 20%-30% upon the sale of the WAVE international business which is expected to close before the end of calendar 2018. We received distributions of $89.8 million from our unconsolidated affiliates during fiscal 2018. 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 $71.0 million from fiscal 2017 due to (i) a $38.2 million net income tax benefit from re-measuring the deferred tax balances as a result of the enactment of the TCJA, (ii) a $22.1 million tax benefit associated with the impairment charges recorded for Worthington Aritas, (iii) a lower statutory federal corporate income tax rate, and (iv) lower earnings before income taxes. These favorable reductions were partially offset by a $12.2 million lower benefit in the current year associated with share-based payment awards, and a $6.9 million one-time mandatory deemed repatriation tax associated with the TCJA. The TCJA lowered the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018, which due to the market priceCompany’s fiscal year, lowered the Company’s fiscal 2018 U.S. federal blended statutory corporate income tax rate to approximately 29.2%. However, due to the factors mentioned above, the fiscal 2018 income tax expense reflects an effective tax rate attributable to controlling interest of steel4.0% vs. 27.9% in fiscal 2017. For additional information, refer to “Item 8. – Financial Statements and by lower volume in Pressure Cylinders and Engineered Cabs, partially offset bySupplementary Data – Notes to Consolidated Financial Statements – Note L – Income Taxes” of this Annual Report on Form 10-K. Segment Operations Steel Processing The following table presents a summary of operating results for our Steel Processing operating segment for the impact of acquisitions.periods indicated: | Fiscal Year Ended May 31, | | | | | | | % of | | | | | | | % of | | | Increase/ | | (Dollars in millions) | 2018 | | | Net sales | | | 2017 | | | Net sales | | | (Decrease) | | Net sales | $ | 2,252.8 | | | | 100.0 | % | | $ | 2,074.8 | | | | 100.0 | % | | $ | 178.0 | | Cost of goods sold | | 1,968.3 | | | | 87.4 | % | | | 1,757.0 | | | | 84.7 | % | | | 211.3 | | Gross margin | | 284.5 | | | | 12.6 | % | | | 317.8 | | | | 15.3 | % | | | (33.3 | ) | Selling, general and administrative expense | | 141.9 | | | | 6.3 | % | | | 145.5 | | | | 7.0 | % | | | (3.6 | ) | Restructuring and other expense (income), net | | (10.1 | ) | | | -0.4 | % | | | 1.8 | | | | 0.1 | % | | | (11.9 | ) | Operating income | $ | 152.7 | | | | 6.8 | % | | $ | 170.5 | | | | 8.2 | % | | $ | (17.8 | ) | | | | | | | | | | | | | | | | | | | | | Material cost | $ | 1,585.5 | | | | | | | $ | 1,364.5 | | | | | | | $ | 221.0 | | Tons shipped (in thousands) | | 3,820 | | | | | | | | 4,070 | | | | | | | | (250 | ) |
Gross margin decreased $10.9Net sales and operating highlights were as follows:
Net sales increased $178.0 million fromover fiscal 2015 on lower2017 driven by higher average direct selling prices, which increased net sales by $147.6 million, and higher direct volume, partially offset by an improved pricing spreadlower tolling volume due to declines at certain consolidated joint ventures. The mix of direct tons versus toll tons processed was 57% to 43% compared to 52% to 48% in Steel Processingfiscal 2017. Operating income decreased $17.8 million from fiscal 2017 as the combined impact of lower direct spreads and lower manufacturing expenses across manytolling volume more than offset the improvement in the volume of our businesses. SG&A expense increased $1.5 million over fiscal 2015 driven by higher profit sharing and bonus expense anddirect shipments. Unfavorable changes in product mix also contributed to the impactmargin compression. A net restructuring gain of acquisitions.
Impairment charges of $26.0 million in fiscal 2016 consisted of $23.0$10.6 million related to the impairmentsale of certain long-lived assetsthe real estate of the Company’s former stainless steel business, PSM, partially offset the overall decline in operating income.
Pressure Cylinders The following table presents a summary of operating results for our OilPressure Cylinders operating segment for the periods indicated: | Fiscal Year Ended May 31, | | | | | | | % of | | | | | | | % of | | | Increase/ | | (Dollars in millions) | 2018 | | | Net sales | | | 2017 | | | Net sales | | | (Decrease) | | Net sales | $ | 1,206.2 | | | | 100.0 | % | | $ | 829.8 | | | | 100.0 | % | | $ | 376.4 | | Cost of goods sold | | 936.7 | | | | 77.7 | % | | | 625.5 | | | | 75.4 | % | | | 311.2 | | Gross margin | | 269.5 | | | | 22.3 | % | | | 204.3 | | | | 24.6 | % | | | 65.2 | | Selling, general and administrative expense | | 189.8 | | | | 15.7 | % | | | 146.8 | | | | 17.7 | % | | | 43.0 | | Impairment of goodwill and long-lived assets | | 53.9 | | | | 4.5 | % | | | - | | | | 0.0 | % | | | 53.9 | | Restructuring and other expense, net | | 2.4 | | | | 0.2 | % | | | 3.4 | | | | 0.4 | % | | | (1.0 | ) | Operating income | $ | 23.4 | | | | 1.9 | % | | $ | 54.1 | | | | 6.5 | % | | $ | (30.7 | ) | | | | | | | | | | | | | | | | | | | | | Material cost | $ | 534.9 | | | | | | | $ | 338.4 | | | | | | | $ | 196.5 | | | | | | | | | | | | | | | | | | | | | | Net sales by principal class of products: | | | | | | | | | | | | | | | | | | | | Consumer products | $ | 471.2 | | | | | | | $ | 315.0 | | | | | | | $ | 156.2 | | Industrial products | | 526.0 | | | | | | | | 341.2 | | | | | | | | 184.8 | | Alternative fuels | | 109.6 | | | | | | | | 111.3 | | | | | | | | (1.7 | ) | Oil & gas equipment | | 99.4 | | | | | | | | 62.3 | | | | | | | | 37.1 | | Total Pressure Cylinders | $ | 1,206.2 | | | | | | | $ | 829.8 | | | | | | | $ | 376.4 | | | | | | | | | | | | | | | | | | | | | | Units shipped by principal class of products: | | | | | | | | | | | | | | | | | | | | Consumer products | | 72,641,033 | | | | | | | | 60,665,420 | | | | | | | | 11,975,613 | | Industrial products | | 17,058,745 | | | | | | | | 10,155,628 | | | | | | | | 6,903,117 | | Alternative fuels | | 471,653 | | | | | | | | 512,257 | | | | | | | | (40,604 | ) | Oil & gas equipment | | 2,703 | | | | | | | | 2,308 | | | | | | | | 395 | | Total Pressure Cylinders | | 90,174,134 | | | | | | | | 71,335,613 | | | | | | | | 18,838,521 | |
Net sales and operating highlights were as follows: Net sales increased $376.4 million over fiscal 2017. AMTROL was the largest driver of the increase, contributing net sales of $265.2 million. Strong demand in the legacy consumer and industrial products businesses and improvement at the oil & Gas Equipmentgas equipment business and $3.0 millionaccounted for the balance of the increase. Sales activity related to the September 30, 2015 closure of the Engineered Cabs facility in Florence, South Carolina. Impairment chargesAMTROL is split between consumer products and industrial products in the prior year related primarily to the impairment of goodwill and othertable above. | long-lived assets•
| Operating income decreased $30.7 million from fiscal 2017 as impairment charges negatively impacted results by $53.9 million. Contributions from AMTROL and improvements in Engineered Cabs.the legacy consumer and industrial products businesses helped drive the increase in operating income, excluding the impairment charges. Improvement in the oil & gas equipment business was largely offset by a decline in the alternative fuels business. Fiscal 2018 impairment charges related primarily to plans to sell the Company’s cryogenics |
| | business in Turkey and certain underperforming asset groups in the oil & gas equipment business. 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. |
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, | | | | | | | % of | | | | | | | % of | | | Increase/ | | (In millions) | 2018 | | | Net sales | | | 2017 | | | Net sales | | | (Decrease) | | Net sales | $ | 116.6 | | | | 100.0 | % | | $ | 101.4 | | | | 100.0 | % | | $ | 15.2 | | Cost of goods sold | | 110.9 | | | | 95.1 | % | | | 92.5 | | | | 91.2 | % | | | 18.4 | | Gross margin | | 5.7 | | | | 4.9 | % | | | 8.9 | | | | 8.8 | % | | | (3.2 | ) | Selling, general and administrative expense | | 17.1 | | | | 14.7 | % | | | 15.4 | | | | 15.2 | % | | | 1.7 | | Restructuring and other expense (income), net | | (0.1 | ) | | | -0.1 | % | | | 1.2 | | | | 1.2 | % | | | (1.3 | ) | Operating loss | $ | (11.3 | ) | | | -9.7 | % | | $ | (7.7 | ) | | | -7.6 | % | | $ | (3.6 | ) | | | | | | | | | | | | | | | | | | | | | Material cost | $ | 55.2 | | | | | | | $ | 46.1 | | | | | | | $ | 9.1 | |
Restructuring
Net sales and otheroperating highlights were as follows: Net sales increased $15.2 million over fiscal 2017 on higher volume. Operating loss of $11.3 million was $3.6 million higher than fiscal 2017 due to higher labor and conversion costs and unfavorable margins. Other The Other category includes certain income and expense of $7.2 million consisted of $7.0 million in net restructuring charges relateditems not allocated to our operating segments, including costs associated with our captive insurance company. The Other category also includes the ongoing closure of the Company’s 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 assetsresults of our legacy Baltimore steel processing facility ($3.0 million),former Worthington Energy Innovations (“WEI”) operating segment, on a historical basis, through March 31, 2018. The following table presents a summary of operating results for the Other category for the periods indicated: | Fiscal Year Ended May 31, | | | | | | | % of | | | | | | | % of | | | Increase/ | | (In millions) | 2018 | | | Net sales | | | 2017 | | | Net sales | | | (Decrease) | | Net sales | $ | 6.0 | | | | 100.0 | % | | $ | 8.0 | | | | 100.0 | % | | $ | (2.0 | ) | Cost of goods sold | | 2.8 | | | | 46.7 | % | | | 3.2 | | | | 40.0 | % | | | (0.4 | ) | Gross margin | | 3.2 | | | | 53.3 | % | | | 4.8 | | | | 60.0 | % | | | (1.6 | ) | Selling, general and administrative expense | | 18.7 | | | | 311.7 | % | | | 8.6 | | | | 107.5 | % | | | 10.1 | | Impairment of goodwill and long-lived assets | | 7.3 | | | | 121.7 | % | | | - | | | | 0.0 | % | | | 7.3 | | Restructuring and other expense | | 0.4 | | | | 6.7 | % | | | - | | | | 0.0 | % | | | 0.4 | | Operating loss | $ | (23.2 | ) | | | -386.7 | % | | $ | (3.8 | ) | | | -47.5 | % | | $ | (19.4 | ) |
Net sales and operating highlights were as follows: Net sales decreased $2.0 million from fiscal 2017 due to the sale of WEI effective March 31, 2018. Operating loss of $23.2 million in fiscal 2018 was driven by lower earnings at WEI due to a $7.3 million charge for the Worthington Nitin Cylinders joint venture in India ($1.9 million),impairment of goodwill and the sale of real estate in our legacy metal framing business ($1.5 million).certain intangible assets and higher SG&A expense driven by non-allocated corporate costs. For additional information regarding the impairment charge, refer to “Item 8. – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note DC – RestructuringGoodwill and Other Expense”Long-Lived Assets” of this Annual Report on Form 10-K.
Fiscal 2017 Compared to Fiscal 2016 Consolidated Operations The following table presents consolidated operating results for the periods indicated: | Fiscal Year Ended May 31, | | | | | | | % of | | | | | | | % of | | | Increase/ | | (Dollars in millions) | 2017 | | | Net sales | | | 2016 | | | Net sales | | | (Decrease) | | Net sales | $ | 3,014.1 | | | | 100.0 | % | | $ | 2,819.7 | | | | 100.0 | % | | $ | 194.4 | | Cost of goods sold | | 2,478.2 | | | | 82.2 | % | | | 2,367.1 | | | | 83.9 | % | | | 111.1 | | Gross margin | | 535.9 | | | | 17.8 | % | | | 452.6 | | | | 16.1 | % | | | 83.3 | | Selling, general and administrative expense | | 316.4 | | | | 10.5 | % | | | 297.4 | | | | 10.5 | % | | | 19.0 | | Impairment of long-lived assets | | - | | | | 0.0 | % | | | 26.0 | | | | 0.9 | % | | | (26.0 | ) | Restructuring and other expense, net | | 6.4 | | | | 0.2 | % | | | 7.2 | | | | 0.3 | % | | | (0.8 | ) | Operating income | | 213.1 | | | | 7.1 | % | | | 122.0 | | | | 4.3 | % | | | 91.1 | | Miscellaneous income | | 3.8 | | | | 0.1 | % | | | 11.3 | | | | 0.4 | % | | | (7.5 | ) | Interest expense | | (29.8 | ) | | | -1.0 | % | | | (31.7 | ) | | | -1.1 | % | | | (1.9 | ) | Equity in net income of unconsolidated affiliates | | 110.0 | | | | 3.6 | % | | | 115.0 | | | | 4.1 | % | | | (5.0 | ) | Income tax expense | | (79.2 | ) | | | -2.6 | % | | | (59.0 | ) | | | -2.1 | % | | | 20.2 | | Net earnings | | 217.9 | | | | 7.2 | % | | | 157.6 | | | | 5.6 | % | | | 60.3 | | Net earnings attributable to noncontrolling interests | | 13.4 | | | | 0.4 | % | | | 13.9 | | | | 0.5 | % | | | (0.5 | ) | Net earnings attributable to controlling interest | $ | 204.5 | | | | 6.8 | % | | $ | 143.7 | | | | 5.1 | % | | $ | 60.8 | | | | | | | | | | | | | | | | | | | | | | Equity income by unconsolidated affiliate | | | | | | | | | | | | | | | | | | | | WAVE | $ | 78.3 | | | | | | | $ | 82.7 | | | | | | | $ | (4.4 | ) | ClarkDietrich | | 17.3 | | | | | | | | 14.6 | | | | | | | | 2.7 | | Serviacero Worthington | | 7.2 | | | | | | | | 6.3 | | | | | | | | 0.9 | | ArtiFlex | | 7.0 | | | | | | | | 10.3 | | | | | | | | (3.3 | ) | WSP | | - | | | | | | | | 1.7 | | | | | | | | (1.7 | ) | Other | | 0.2 | | | | | | | | (0.6 | ) | | | | | | | 0.8 | | Total | $ | 110.0 | | | | | | | $ | 115.0 | | | | | | | $ | (5.0 | ) |
Miscellaneous income
Fiscal 2017 net earnings attributable to controlling interest increased $10.5$60.8 million over fiscal 2015.2016. Net sales and operating highlights were as follows: Net sales increased $194.4 million from fiscal 2016. The increase was driven by higher average direct selling prices in Steel Processing, which favorably impacted net sales by $156.9 million, partially offset by lower volume in Engineered Cabs and certain Pressure Cylinder businesses. Net sales were also favorably impacted by the consolidation of the WSP joint venture effective March 1, 2016. Gross margin increased $83.3 million over fiscal 2016. The increase was driven primarily the result of a $6.9by higher gross margin at Steel Processing, up $68.9 million pre-tax gain related toon an improved pricing spread and contributions from the consolidation of WSP. The gain representsremaining improvement in gross margin was driven by increases in Pressure Cylinders, where strength in consumer products was partially offset by weakness in industrial products and oil & gas equipment. SG&A expense increased $19.0 million over fiscal 2016. The consolidation of WSP and the difference between the fair valueimpact of prior year acquisitions in Pressure Cylinders accounted for $8.1 million of the Company’s previously-held ownership interestincrease. The remaining increase in WSPSG&A expense was driven primarily by higher profit sharing and its carrying value atbonus expense and an increase in accrued legal costs, which were up a combined $14.2 million. Impairment charges of $26.0 million in fiscal 2016 consisted of $23.0 million related to the acquisition date.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. For additional information regarding these impairment charges, refer to “Item 8. – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note OC – Acquisitions”Goodwill and Other Long-Lived Assets” of this Annual Report on Form 10-K.
| • | Restructuring and other expense totaled $6.4 million in fiscal 2017. A total of $3.4 million related to activities within Pressure Cylinders, including $2.0 million of costs incurred in connection with a plant consolidation at our cryogenics business in Turkey. The remaining activity related to ongoing costs associated with previously completed plant closures in Steel Processing and Engineered Cabs. |
Miscellaneous income decreased $7.5 million from fiscal 2016. The decrease was primarily the result of a $6.9 million pre-tax gain related to the consolidation of WSP in fiscal 2016. The gain represents the difference between the fair value of the Company’s previously-held ownership in WSP and its carrying value at the acquisition date. Interest expense of $31.7decreased $1.9 million was $4.1 million lower than the priorfrom fiscal year.2016. The decrease was driven primarily by lower average debt levels as a result of a decrease in working capital requirements due to the lower average market price of steel.short-term borrowings. 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 increased $27.5decreased $5.0 million overfrom fiscal 20152016 to $115.0$110.0 million. The equity portion of incomedecrease was driven by lower contributions from WAVE ClarkDietrich,due to accelerated customer purchases in the fourth quarter of fiscal 2016, lower offload business at ArtiFlex and Serviacero exceeded the prior year periodimpact of the consolidation of WSP. The impact of these items was partially offset by $12.1 million, $11.7 million, $3.1 million and $3.0 million, respectively. The equity portion of incomehigher contributions from ClarkDietrich, includesup $2.7 million despite a $4.5 million net legal settlement gainfavorable impact related to successful disparagement litigation against several competitorslegal settlements in an industry trade association.fiscal 2016. We received distributions of $86.5$102.0 million from our unconsolidated affiliates during fiscal 2016.2017. 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 increased $33.2$20.2 million over fiscal 20152016 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$13.1 million tax benefit representing excessincrease in tax benefits fromassociated with share-based payment awards recorded inawards. Fiscal 2017 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. Fiscal 2016 income tax expense reflectsreflected an effective tax rate attributable to controlling interest of 29.1%27.9% vs. 25.1%29.1% in fiscal 2015.2016. The 29.1%27.9% rate is lower than the federal statutory income tax rate of 35% primarily as a result of lower tax rates on foreign income,benefits associated with share-based payment awards, benefits from the qualified production activities deduction, and the adoption of the new accounting guidance described above with respect to share-based payment awards,lower tax rates on foreign income, 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.
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, | | | | Fiscal Year Ended May 31, | | | | | | % of | | | | | | | % of | | | Increase/ | | (Dollars in millions) | | 2016 | | | % of Net sales | | 2015 | | | % of Net sales | | Increase/ (Decrease) | | 2017 | | | Net sales | | | 2016 | | | Net sales | | | (Decrease) | | Net sales | | $ | 1,843.7 | | | | 100.0 | % | | $ | 2,145.7 | | | | 100.0 | % | | $ | (302.0 | ) | $ | 2,074.8 | | | | 100.0 | % | | $ | 1,843.7 | | | | 100.0 | % | | $ | 231.1 | | Cost of goods sold | | | 1,594.8 | | | | 86.5 | % | | | 1,910.5 | | | | 89.0 | % | | | (315.7 | ) | | 1,757.0 | | | | 84.7 | % | | | 1,594.8 | | | | 86.5 | % | | | 162.2 | | | | | | | | | | | | | | | | | Gross margin | | | 248.9 | | | | 13.5 | % | | | 235.2 | | | | 11.0 | % | | | 13.7 | | | 317.8 | | | | 15.3 | % | | | 248.9 | | | | 13.5 | % | | | 68.9 | | Selling, general and administrative expense | | | 132.8 | | | | 7.2 | % | | | 123.4 | | | | 5.8 | % | | | 9.4 | | | 145.5 | | | | 7.0 | % | | | 132.8 | | | | 7.2 | % | | | 12.7 | | 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 | | | 1.8 | | | | 0.1 | % | | | 4.1 | | | | 0.2 | % | | | (2.3 | ) | | | | | | | | | | | | | | | | Operating income | | $ | 112.0 | | | | 6.1 | % | | $ | 108.7 | | | | 5.1 | % | | $ | 3.3 | | $ | 170.5 | | | | 8.2 | % | | $ | 112.0 | | | | 6.1 | % | | $ | 58.5 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Material cost | | $ | 1,245.1 | | | | | $ | 1,567.3 | | | | | $ | (322.2 | ) | $ | 1,364.5 | | | | | | | $ | 1,245.1 | | | | | | | $ | 119.4 | | Tons shipped (in thousands) | | | 3,523 | | | | | | 3,510 | | | | | | 13 | | | 4,071 | | | | | | | | 3,523 | | | | | | | | 548 | |
Net sales and operating highlights were as follows: Net sales decreased $302.0increased $231.1 million fromover fiscal 2015 as lower2016 driven primarily by higher average steel prices led to lower averagedirect selling prices, reducingwhich increased net sales by approximately $260.5$156.9 million. The remaining decrease in net salesincrease was due to higher overall volume, including $49.6 million related to the closureconsolidation of the Company’s stainless steel business, PSM, in the current year, partially offset by contributions from recent acquisitions.WSP joint venture. The mix of direct versus toll tons processed was 52% to 48% compared to 58% to 42% compared to 59% to 41% in fiscal 2015.2016. The change in mix was driven primarily by the consolidation of WSP. Operating income increased $3.3$58.5 million over fiscal 2015. The increase2016 on higher gross margin, partially offset by higher SG&A expense. Favorable pricing spreads, which benefited from significant inventory holding gains in fiscal 2017 compared to inventory holding losses in fiscal 2016, and higher direct volume increased gross margin by $71.6 million and $10.8 million, respectively. This was partially offset by higher manufacturing expenses driven by higher profit sharing and bonus expense, an improved pricing spreadincrease in healthcare costs and lower inventory holding losses. Higherproduction/start-up costs associated with new production lines at our TWB joint venture. SG&A expense driven byincreased $12.7 million on higher allocated corporate costs, the impactconsolidation of acquisitionsWSP, and higher profit sharing and bonus expense, combined with current period restructuring activities partially offset the overall increase in operating income.expense. Restructuring and other expense in the current periodfiscal 2017 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 Baltimorestainless 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.business. 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 | ) | | | | | | | | | | | | | | | | | | | | | |
| Fiscal Year Ended May 31, | | | | | | | % of | | | | | | | % of | | | Increase/ | | (Dollars in millions) | 2017 | | | Net sales | | | 2016 | | | Net sales | | | (Decrease) | | Net sales | $ | 829.8 | | | | 100.0 | % | | $ | 844.9 | | | | 100.0 | % | | $ | (15.1 | ) | Cost of goods sold | | 625.5 | | | | 75.4 | % | | | 649.3 | | | | 76.8 | % | | | (23.8 | ) | Gross margin | | 204.3 | | | | 24.6 | % | | | 195.6 | | | | 23.2 | % | | | 8.7 | | Selling, general and administrative expense | | 146.8 | | | | 17.7 | % | | | 143.8 | | | | 17.0 | % | | | 3.0 | | Impairment of long-lived assets | | - | | | | 0.0 | % | | | 23.0 | | | | 2.7 | % | | | (23.0 | ) | Restructuring and other expense, net | | 3.4 | | | | 0.4 | % | | | 0.4 | | | | 0.0 | % | | | 3.0 | | Operating income | $ | 54.1 | | | | 6.5 | % | | $ | 28.4 | | | | 3.4 | % | | $ | 25.7 | | | | | | | | | | | | | | | | | | | | | | Material cost | $ | 338.4 | | | | | | | $ | 359.8 | | | | | | | $ | (21.4 | ) | | | | | | | | | | | | | | | | | | | | | Net sales by principal class of products: | | | | | | | | | | | | | | | | | | | | Consumer products | $ | 315.0 | | | | | | | $ | 293.2 | | | | | | | $ | 21.8 | | Industrial products | | 341.2 | | | | | | | | 362.7 | | | | | | | | (21.5 | ) | Alternative fuels | | 111.3 | | | | | | | | 98.7 | | | | | | | | 12.6 | | Oil & gas equipment | | 62.3 | | | | | | | | 90.3 | | | | | | | | (28.0 | ) | Total Pressure Cylinders | $ | 829.8 | | | | | | | $ | 844.9 | | | | | | | $ | (15.1 | ) | | | | | | | | | | | | | | | | | | | | | Units shipped by principal class of products: | | | | | | | | | | | | | | | | | | | | Consumer products | | 60,665,420 | | | | | | | | 61,631,907 | | | | | | | | (966,487 | ) | Industrial products | | 10,155,628 | | | | | | | | 10,484,892 | | | | | | | | (329,264 | ) | Alternative fuels | | 512,257 | | | | | | | | 422,630 | | | | | | | | 89,627 | | Oil & gas equipment | | 2,308 | | | | | | | | 3,668 | | | | | | | | (1,360 | ) | Total Pressure Cylinders | | 71,335,613 | | | | | | | | 72,543,097 | | | | | | | | (1,207,484 | ) |
* | 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.
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Net sales and operating highlights were as follows: Net sales decreased $156.5$15.1 million from fiscal 20152016. The decrease was driven by lower volumes in the oil & gas equipment and industrial products businesses, partially offset by improvements in consumer products and alternative fuels. Softness in the oil & gas equipment market led to a 31%, or $28.0 million, decline in net sales. However, this market began to show signs of improvement in the fourth quarter of fiscal 2017. Net sales in the industrial products business were down $21.5 million on lower volume particularlydue to weaker demand for our refillable propane cylinder products, as well as softness for high pressure cylinders in the Oil & Gas Equipment business where volumes decreased 64%Europe. 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 increased $25.7 million over fiscal 2016 on lower impairment and restructuring charges, which declines a combined $20.0 million. The remaining increase was driven by improvements in the consumer products business, up on the combined impact of higher pricing spreads and an improved product mix, partially offset by declines in the industrial products and oil & gas equipment businesses. |
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.
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, | | | | Fiscal Year Ended May 31, | | | | | | % of | | | | | | | % of | | | Increase/ | | (Dollars in millions) | | 2016 | | % of Net sales | | 2015 | | % of Net sales | | Increase/ (Decrease) | | | (In millions) | | 2017 | | | Net sales | | | 2016 | | | Net sales | | | (Decrease) | | Net sales | | $ | 121.9 | | | | 100.0 | % | | $ | 193.0 | | | | 100.0 | % | | $ | (71.1 | ) | $ | 101.4 | | | | 100.0 | % | | $ | 121.9 | | | | 100.0 | % | | $ | (20.5 | ) | Cost of goods sold | | | 116.2 | | | | 95.3 | % | | | 180.5 | | | | 93.5 | % | | | (64.3 | ) | | 92.5 | | | | 91.2 | % | | | 116.2 | | | | 95.3 | % | | | (23.7 | ) | | | | | | | | | | | | | | | | Gross margin | | | 5.7 | | | | 4.7 | % | | | 12.5 | | | | 6.5 | % | | | (6.8 | ) | | 8.9 | | | | 8.8 | % | | | 5.7 | | | | 4.7 | % | | | 3.2 | | Selling, general and administrative expense | | | 18.4 | | | | 15.1 | % | | | 26.1 | | | | 13.5 | % | | | (7.7 | ) | | 15.4 | | | | 15.2 | % | | | 18.4 | | | | 15.1 | % | | | (3.0 | ) | 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 | | | | | | | | | | | | | | | | | | Impairment of long-lived assets | | | - | | | | 0.0 | % | | | 3.0 | | | | 2.5 | % | | | (3.0 | ) | Restructuring and other expense | | | 1.2 | | | | 1.2 | % | | | 3.6 | | | | 3.0 | % | | | (2.4 | ) | Operating loss | | $ | (19.3 | ) | | | -15.8 | % | | $ | (97.2 | ) | | | -50.4 | % | | $ | 77.9 | | $ | (7.7 | ) | | | -7.6 | % | | $ | (19.3 | ) | | | -15.8 | % | | $ | 11.6 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Material cost | | $ | 57.3 | | | | | $ | 89.3 | | | | | $ | (32.0 | ) | $ | 46.1 | | | | | | | $ | 57.3 | | | | | | | $ | (11.2 | ) |
Net sales and operating highlights were as follows: Net sales decreased $71.1$20.5 million from fiscal 20152016 on lower volumes 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.demand. Operating loss decreased $77.9improved $11.6 million from fiscal 2015 due primarily to $7.7 million on lower impairment and restructuring charges. Excludingcharges and the impact of impairmentcost reduction efforts, which led to margin improvements and restructuring charges, the operating loss was $0.9 million lower than fiscal 2015 as a result of lower16% decline in 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.expense. Other The Other category includesincluded the Construction Services and WEI operating segments, which do not meet the quantitative thresholdssegment for separate disclosure.both fiscal 2017 and fiscal 2016. 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 foralso includes 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 | | | | | | | | | | | | | | | | | | | | | | |
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 theresults of our former 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.
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 Company’s 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 Company’s 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.
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 ason 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 Company’s 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 Company’s Integrated Terminals warehouse facility in Detroit, Michigan, offset by $1.4 million of severance costs accrued in connection with the closure of the Company’s Baltimore steel facility.
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
| related to the Company’s 60%-owned consolidated joint venture in India, $3.2 million related to the Company’s 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 Company’s 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 Company’s 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.
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.historical basis, through May 31, 2016. The following table presents a summary of operating results for the Other category for the periods indicated:
| | | | | | | | | | | Fiscal Year Ended May 31, | | | | Fiscal Year Ended May 31, | | | | | | % of | | | | | | | % of | | | Increase/ | | (Dollars in millions) | | 2015 | | % of Net sales | | 2014 | | % of Net sales | | Increase/ (Decrease) | | | (In millions) | | 2017 | | | Net sales | | | 2016 | | | Net sales | | | (Decrease) | | Net sales | | $ | 44.1 | | | | 100.0 | % | | $ | 61.4 | | | | 100.0 | % | | $ | (17.3 | ) | $ | 8.0 | | | | 100.0 | % | | $ | 9.2 | | | | 100.0 | % | | $ | (1.2 | ) | Cost of goods sold | | | 45.9 | | | | 104.1 | % | | | 56.9 | | | | 92.7 | % | | | (11.0 | ) | | 3.2 | | | | 40.0 | % | | | 6.9 | | | | 75.0 | % | | | (3.7 | ) | | | | | | | | | | | | | | | | Gross margin | | | (1.8 | ) | | | -4.1 | % | | | 4.5 | | | | 7.3 | % | | | (6.3 | ) | | 4.8 | | | | 60.0 | % | | | 2.3 | | | | 25.0 | % | | | 2.5 | | Selling, general and administrative expense | | | 5.3 | | | | 12.0 | % | | | 14.1 | | | | 23.0 | % | | | (8.8 | ) | | 8.6 | | | | 107.5 | % | | | 2.2 | | | | 23.9 | % | | | 6.4 | | 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 | | | | | | | | | | | | | | | | | | Restructuring and other income | | | - | | | | 0.0 | % | | | (0.9 | ) | | | -9.8 | % | | | (0.9 | ) | Operating income (loss) | | $ | (3.8 | ) | | | -47.5 | % | | $ | 1.0 | | | | 10.9 | % | | $ | (4.8 | ) |
Net sales and operating highlights were as follows: Net sales decreased $17.3$1.2 million from fiscal 2014.2016. The decrease was driven by declines in boththe exit of the Construction Services and WEI businesses.business, partially offset by improvement at WEI. Operating loss decreased $2.8of $3.8 million in fiscal 2017 was driven primarily by higher SG&A expense, up $6.4 million due primarily to higher profit sharing and bonus expense and an increase in accrued legal costs. Gross margin increased $2.5 million on higher contributions from fiscal 2014. The improvement resulted fromWEI and a lower losses withinloss in the Construction Services partially offset by impairment chargesbusiness, which ceased operations during the first quarter of $1.2 million related to the military construction business.fiscal 2017.
Liquidity and Capital Resources During fiscal 2016, 2018, we generated $413.3$281.3 million inof cash from operating activities, spent $34.2$285.0 million on acquisitionsto acquire AMTROL, net of cash acquired, and invested $97.0$76.1 million in property, plant and equipment. Additionally, we repurchased 3,500,0004,375,000 of our common shares for $99.8$204.3 million, repaid $85.8$32.1 million in short-term borrowings and long-term debt and paid $47.2$51.4 million of dividends.dividends on our common shares. The following table summarizes our consolidated cash flows for each period shown: | | | | | Fiscal Year Ended | | | | Fiscal Year Ended May 31, | | May 31, | | (in millions) | | 2016 | | 2015 | | 2018 | | | 2017 | | | 2016 | | Net cash provided by operating activities | | $ | 413.3 | | | $ | 214.4 | | $ | 281.3 | | | $ | 335.7 | | | $ | 413.3 | | Net cash used by investing activities | | | (127.0 | ) | | | (203.1 | ) | | (337.4 | ) | | | (63.0 | ) | | | (127.0 | ) | Net cash used by financing activities | | | (233.2 | ) | | | (170.3 | ) | | (100.0 | ) | | | (78.8 | ) | | | (233.2 | ) | | | | | | | | | Increase (decrease) in cash and cash equivalents | | | 53.1 | | | | (159.0 | ) | | (156.1 | ) | | | 193.9 | | | | 53.1 | | Cash and cash equivalents at beginning of period | | | 31.1 | | | | 190.1 | | | 278.1 | | | | 84.2 | | | | 31.1 | | | | | | | | | | Cash and cash equivalents at end of period | | $ | 84.2 | | | $ | 31.1 | | $ | 122.0 | | | $ | 278.1 | | | $ | 84.2 | | | | | | | | | |
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. We routinely monitor current operational requirements, financial market conditions, and credit relationships and we may choose to seek additional capital by issuing new debt and/or equity securities to strengthen our liquidity or capital structure. However, uncertaintyshould we seek such additional capital, there can be no assurance that we would be able to obtain such additional capital on terms acceptable to us, if at all, and volatility insuch additional equity or debt financing could dilute the financial markets may impactinterests of our ability to access capital and the terms under which we can do so. existing shareholders and/or increase our interest costs. Operating activitiesActivities 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 torequiring 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$281.3 million during fiscal 2016 2018 compared to $214.4$335.7 million in fiscal 2015.2017. The $198.9$54.4 million increasedecrease in net cash provided by operating activities in fiscal 2018 was driven primarily by declininghigher working capital resulting from higher average steel prices and lower distributions from unconsolidated joint ventures. Net cash provided by operating activities in fiscal 2017 was affected by an increase in working capital levels as a result of lowerhigher average steel prices, andpartially offset by higher earnings.net earnings as compared to fiscal 2016. Investing activitiesActivities Net cash used by investing activities was $127.0$337.4 million during fiscal 20162018 compared to $203.1$63.0 million in fiscal 2015.2017, an increase of $274.4 million. The decrease of $76.1 million increase was driven primarily by lowerthe acquisition activity in the current year. of AMTROL supplemented by higher capital expenditures, which increased $7.7 million. During fiscal 2016,2018, we spent a combined $34.2$285.0 million, net of cash acquired, forto acquire AMTROL. Net cash used by investing activities in fiscal 2017 was affected by the net assetsabsence of the CryoScience business of Taylor Whartonacquisitions 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 madelower capital expenditures of $97.0 million and received $9.8 million in proceeds from asset sales during fiscal 2016.expenditures.
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 | | | | Fiscal Year Ended May 31, | | May 31, | | (in millions) | | 2016 | | | 2015 | | 2018 | | | 2017 | | | 2016 | | Steel Processing | | $ | 42.1 | | | $ | 34.5 | | $ | 32.0 | | | $ | 40.8 | | | $ | 42.1 | | Pressure Cylinders | | | 29.9 | | | | 35.9 | | | 32.7 | | | | 24.8 | | | | 29.9 | | Engineered Cabs | | | 6.9 | | | | 9.0 | | | 2.1 | | | | 0.8 | | | | 6.9 | | Other | | | 18.1 | | | | 16.9 | | | 9.3 | | | | 2.0 | | | | 18.1 | | | | | | | | | | Total Capital Expenditures | | $ | 97.0 | | | $ | 96.3 | | | | | | | | | | | Total capital expenditures | | $ | 76.1 | | | $ | 68.4 | | | $ | 97.0 | |
Capital expenditures were $97.0$76.1 million in fiscal 2016.2018. Significant capital expenditures in fiscal 20162018 included $19.4$7.2 million for ongoing corporate renovations, $5.6 million to expand capacity at TWB, our consolidated laser blankingwelding joint venture, $5.1 million for capital improvements at Spartan, our steel coating joint venture, and $10.6$4.4 million of costs associated with the renovation of the Company’s 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 offor a new cryogenics manufacturing facilitybuilding for our oil & gas equipment business in Turkey.Skiatook, Oklahoma to replace an expiring leased facility. 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 any such opportunities may require additional financing. There can be no assurance, however, that any such opportunities will arise, that any such acquisitionsacquisition opportunities will be consummated, or that any needed additional financing will be available on satisfactory terms when required. Financing activitiesActivities Net cash used by financing activities was $233.2$100.0 million in fiscal 20162018 compared to $170.3$78.8 million in the prior year.fiscal 2017. During fiscal 2016,2018, we paid $99.8$204.3 million to repurchase 3,500,0004,375,000 of our common shares, reduced short-term borrowingslong-term debt by $85.8$31.1 million, and paid dividends of $47.2$51.4 million on our common shares. In fiscal 2017, there were no share repurchases and repayments of short-term borrowings were lower.Long-term debt –Our senior unsecured long-term debt is rated “investment grade” by both Moody’s Investors Service, Inc. and Standard & Poor’s 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, 2016,2018, 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 July 28, 2017, we issued $200.0 million aggregate principal amount of senior unsecured notes due August 1, 2032. The 2032 Notes bear interest at a rate of 4.300%. The 2032 Notes were sold to the public at 99.901% of the principal amount thereof, to yield 4.309% to maturity. We used a portion of the net proceeds from the offering to repay amounts then outstanding under our multi-year revolving credit facility and amounts then outstanding under our revolving trade accounts receivable securitization facility. On September 26, 2014, our consolidated joint venture in Turkey, Worthington Aritas, executed a five-year term loan denominated in Euros. As ofOn May 31, 2016, we had borrowed $28.4 million against29, 2018, 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 anCompany paid off this term loan and settled the interest rate swap to fix the interest rate on 60%in anticipation 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 constructionplanned sale of a new cryogenics manufacturing facility in Turkey.Worthington Aritas. 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, 2016.2018.
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.February 2023. Borrowings under the Credit Facility typically have maturities of less thanup to 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.Overnight Bank Funding rate. The applicable margin is determined by our credit rating. There were no borrowings outstanding under the Credit Facility at May 31, 2016.2018. As discussed in “Item 8. – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note F – Guarantees,” we provided $14.5 million in letters of credit for third-party beneficiaries as of May 31, 2018. While not drawn against at May 31, 2018, $13.2 million of these letters of credit were issued against availability under the Credit Facility, leaving $486.8 million available at May 31, 2018. We maintain a $100.0$50.0 million revolving trade accounts receivable securitization facility (the “AR Facility”) that expiresmatures in January 2018 and was available throughout fiscal 2016 and fiscal 2015.2019. 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$50.0 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.third-party bank. We retain an undivided interest in this pool and are subject to risk of loss based on the collectability of the receivables from this retained interest. Because the amount eligible to be sold excludes receivables more than 90 days past due, receivables offset by an allowance for doubtful accounts due to bankruptcy or other cause, concentrations over certain limits with specific customers and certain reserve amounts, we believe additional risk of loss is minimal. The book value of the retained portion of the pool of accounts receivable approximates fair value. As of May 31, 2016,2018, 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$0.21 per common share for each quarter of fiscal 20162018 compared to $0.18$0.20 per common share for each quarter of fiscal 2015.2017. Dividends paid on our common shares totaled $47.2$51.4 million and $46.4$50.7 million respectively, during fiscal 20162018 and fiscal 2015. 2017, respectively. On June 29, 2011,27, 2018, the Board declared a quarterly dividend of Worthington Industries, Inc. authorized the repurchase$0.23 per common share. The dividend is payable on September 28, 2018 to shareholders 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.record on September 14, 2018. On June 25, 2014, the Board authorized the repurchase of up to 10,000,000 of the outstanding common shares of Worthington Industries Inc. and on September 27, 2017, the Board authorized the repurchase of up to an additional 10,000,0006,828,855 of our outstanding common shares. AnThe total number of common shares available to repurchase at May 31, 2018 is 6,500,000. During fiscal 2018, we repurchased 4,375,000 common shares having an aggregate cost of 3,500,000 and 2,453,855$204.3 million. No common shares were repurchased under this authorization during fiscal 2016 and fiscal 2015, respectively. At May 31, 2016, 4,046,145common shares remained available for repurchase under this authorization.2017 due to the anticipated investment opportunity in AMTROL. The common shares available for repurchase under the current authorization currently in effect 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.factors. 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 of dividends will continue in the future.
Contractual Cash Obligations and Other Commercial Commitments The following table summarizes our contractual cash obligations as of May 31, 2016.2018. 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 | | | | Payments Due by Period | | | | | | | Less Than | | | 1 - 3 | | | 4 - 5 | | | After | | (in millions) | | Total | | | Less Than 1 Year | | | 2–3 Years | | | 4–5 Years | | | After 5 Years | | | Total | | | 1 Year | | | Years | | | Years | | | 5 Years | | Short-term borrowings | | $ | 2.6 | | | $ | 2.6 | | | $ | - | | | $ | - | | | $ | - | | | Long-term debt | | | 581.4 | | | | 0.9 | | | | 13.1 | | | | 167.1 | | | | 400.3 | | | $ | 754.7 | | | $ | 1.5 | | | $ | 151.7 | | | $ | 1.2 | | | $ | 600.3 | | Interest expense on long-term debt | | | 208.7 | | | | 28.6 | | | | 57.1 | | | | 45.6 | | | | 77.4 | | | | 263.8 | | | | 36.6 | | | | 62.3 | | | | 62.0 | | | | 102.9 | | Operating leases | | | 41.7 | | | | 9.6 | | | | 15.9 | | | | 10.4 | | | | 5.8 | | | | 43.4 | | | | 11.4 | | | | 15.6 | | | | 10.9 | | | | 5.5 | | Royalty obligations | | | 12.0 | | | | 2.0 | | | | 4.0 | | | | 4.0 | | | | 2.0 | | | | 10.0 | | | | 2.0 | | | | 4.0 | | | | 4.0 | | | | - | | | | | | | | | | | | | | | | | | | Total contractual cash obligations | | $ | 846.4 | | | $ | 43.7 | | | $ | 90.1 | | | $ | 227.1 | | | $ | 485.5 | | | $ | 1,071.9 | | | $ | 51.5 | | | $ | 233.6 | | | $ | 78.1 | | | $ | 708.7 | | | | | | | | | | | | | | | | | | |
Interest expense on long-term debt is computed by using the fixed rates of interest on theeach tranche of long-term debt, including impacts of the related interest rate hedge.hedges. 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 the unfunded portion of our pension benefit obligations and 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 amountthese amounts in the contractual cash obligations table above. For additional information, refer to “Item 8. – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note K – Employee Pension Plans” and “Note L – Income Taxes” of this Annual Report on Form 10-K. The following table summarizes our other commercial commitments as of May 31, 2016.2018. These commercial commitments are not reflected in our consolidated balance sheet. | | | | | | | | | | | | Commitment Expiration by Period | | | | Commitment Expiration by Period | | | | | | | Less Than | | | 1 - 3 | | | 4 - 5 | | | After | | (in millions) | | Total | | | Less Than 1 Year | | | 2–3 Years | | | 4–5 Years | | | After 5 Years | | | Total | | | 1 Year | | | Years | | | Years | | | 5 Years | | Guarantees | | $ | 10.5 | | | $ | 10.5 | | | $ | - | | | $ | - | | | $ | - | | | $ | 8.4 | | | $ | 8.4 | | | $ | - | | | $ | - | | | $ | - | | Standby letters of credit | | | 16.4 | | | | 16.4 | | | | - | | | | - | | | | - | | | | 14.5 | | | | 14.5 | | | | - | | | | - | | | | - | | | | | | | | | | | | | | | | | | | Total commercial commitments | | $ | 26.9 | | | $ | 26.9 | | | $ | - | | | $ | - | | | $ | - | | | $ | 22.9 | | | $ | 22.9 | | | $ | - | | | $ | - | | | $ | - | | | | | | | | | | | | | | | | | | |
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 consolidated financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources. However, as of May 31, 2016,2018, 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$8.4 million at May 31, 2016. 2018. 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.probable and, therefore, no amount has been recognized in our consolidated financial statements.
Recently Issued Accounting Standards In May 2014, amendednew accounting guidance was issued that replaces most existing revenue recognition guidance under U.S. GAAP. The amendednew 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 amendednew 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 amendedThe Company adopted this guidance on June 1, 2018 using the cumulative effect transition method. Based on our ongoing financial reporting. In February 2015, amended accounting guidance was issued that revised consolidation requirementsevaluation, which included a review of significant contracts with customers across all revenue streams, it resulted in order to provide financial statement users with a more useful presentationchange in timing of an entity’s economicrevenue recognition for the toll processing 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,oil & gas equipment revenue streams and the amendments may be applied using either a retrospective or modified retrospective approach. We dodid not expect the adoption of this amended accounting guidance to have a material impact on our consolidated 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 As a direct deduction from the carrying amountresult 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, the Company 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 period’s 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 adjustmentmake additional disclosures related to the provisional amounts had been recognizednature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers as ofrequired by 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.new guidance.
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 cash flows, 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 As of itself, require dedesignationMay 31, 2018, we have operating leases with $43.4 million 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.future minimum lease payments.
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.
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| • | | 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.
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| • | | 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.
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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; however, we do not expect the amended guidance to have a material impact on our ongoing financial reporting. In October 2016, amended accounting guidance was issued that requires the income tax consequences of an intra-entity transfer of an asset other than inventory to be recognized when the transfer occurs. The amended guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years and is to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Early adoption is permitted. We do not expect the adoption of this amended guidance to have a material impact on our consolidated financial position, results of operations and cash flows. In November 2016, amended accounting guidance was issued that requires amounts generally described as restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amended guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. We do not expect the adoption of this amended guidance to have a material impact on our consolidated cash flows. In March 2017, amended accounting guidance was issued that requires an employer to report the service cost component of pension and postretirement benefits in the same line item as other current employee compensation costs. Additionally, other components of net benefit cost are to be presented in the income statement separately from the service cost component and outside of income from operations. The amended guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years and is to be applied retrospectively for the presentation in the income statement and prospectively on and after the
effective date for the capitalization of service cost. We do not expect the adoption of this amended guidance to have a material impact on our consolidated financial position, results of operations and cash flows. In May 2017, amended accounting guidance was issued to provide guidance about which changes to the terms or conditions of a share-based payment award require application of modification accounting. The amended guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. We do not expect the adoption of this amended guidance to have a material impact on our consolidated financial position or results of operations. In August 2017, amended accounting guidance was issued that modifies hedge accounting by making more hedge strategies eligible for hedge accounting, amending presentation and disclosure requirements, and changing how companies assess effectiveness. The intent is to simplify application of hedge accounting and increase transparency of information about an entity’s risk management activities. The amended guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. It is to be applied using a modified retrospective transition approach for cash flow and net investment hedges existing at the date of adoption. The presentation and disclosure guidance is only required prospectively. Early adoption is permitted. 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 consolidated 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 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 consolidated 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, 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. 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. We also provide for customer rebates and sales discounts based on specific agreements and recent and anticipated levels of customer activity. Receivables: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 reserveallowance for doubtful accounts increaseddecreased approximately $1.5$2.8 million during fiscal 20162018 to $4.6$0.6 million. While we believe our allowances areallowance for doubtful accounts is 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 bad debt reserves may be required. Inventory Valuation: Inventories are valued at the lower of cost or market.net realizable value. Cost is determined using the first-in, first-out method for all inventories. ThisThe assessment of net realizable value 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, 20162018 and May 31, 2015.2017. 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 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 its fair value. Fiscal 2018:During the fourth quarter of fiscal 2018, management committed to plans to sell the Company’s cryogenics business in Turkey, Worthington Aritas, and certain underperforming oil & gas equipment assets within Pressure Cylinders. As all of the criteria for classification as assets held for sale were met in both instances, the net assets of each asset group have been presented separately as assets held for sale in our consolidated balance sheets. 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. The book value of Worthington Aritas exceeded its estimated fair market value of $9.0 million, resulting in an impairment charge of $42.4 million. The book value of the oil & gas equipment asset group also exceeded its estimated fair market value of $21.0 million resulting in an impairment charge of $10.5 million. During the second quarter of fiscal 2018, the Company determined that indicators of impairment were present with regard to the goodwill and intangible assets of the former WEI reporting unit. As a result, these assets were written down to their estimated fair value resulting in an impairment charge of $7.3 million. During the second quarter of fiscal 2018, the Company also identified the presence of impairment indicators with regard to vacant land at the oil & gas equipment facility in Bremen, Ohio, resulting in an impairment charge of $1.0 million to write the vacant land down to its estimated 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 Oiloil & Gas Equipmentgas equipment business within Pressure Cylinders. The Company had tested the five asset groups in its Oiloil & Gas Equipmentgas 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 Company’s 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 Oiloil & Gas Equipmentgas 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, 2015.2015 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 management’s 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 management’s 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.
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 Company’s aluminum high-pressure cylinder business in New Albany, Mississippi, and at the Company’s 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 management’s 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 Oiloil & Gas Equipmentgas equipment business has been treated as a separate reporting unit since the second quarter of fiscal 2016. For goodwill and indefinite lived intangible assets, we test for impairment by completing what is referred to as the “Step 0” analysis which involves evaluating qualitative factors including macroeconomic conditions, industry and market considerations, cost factors, and overall financial performance. If our “Step 0” analysis indicates it is more likely than not that the fair value is less than the carrying amount, we would perform a quantitative impairment test. The goodwill impairment test consists of comparingquantitative analysis compares the fair value of each reporting unit determined using discounted cash flows,or indefinite-lived intangible asset to each reporting unit’sthe 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 asand an impairment chargeloss is recognized in our consolidated statements of earnings. The impairment test for indefinite-lived intangible assets consists of a comparisonearnings equivalent to the excess of the carrying amount over the fair value. 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 recordeddetermined based on discounted cash flows or appraised values, as an impairment charge in our consolidated statements of earnings.appropriate. As a result of the fiscal 2016 impairment of the Oiloil & Gas Equipmentgas 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 Oiloil & Gas Equipmentgas 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 Oiloil & Gas Equipmentgas equipment business as a result of sustained low oil prices, which now indicateindicated that the risk profile and prospects for growth and profitability of the Oil & Gas Equipment component arewere no longer similar to the other components of our Pressure Cylinders businesses.Cylinders. In accordance with the applicable accounting guidance, the Company allocated a portion of Pressure Cylinders goodwill totaling $26.0 million to the Oiloil & Gas Equipmentgas equipment reporting unit using a relative fair value approach. A subsequent comparison of the fair values of the Oiloil & Gas Equipmentgas 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 Company’s 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 management’s 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 20162018 and concluded that the fair value of each reporting unit substantially exceeded its carrying value; therefore, no additional impairment charges were recognized.For additional information on impairment, refer to “Item 8. Financial Statements – Notes to Consolidated Financial Statements – NOTE C – Goodwill and Other Long-Lived Assets” of this Annual Report on Form 10-K.
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 exchange rates 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 theeach award at the date of grant. We estimate forfeitures at the date of grant based on historic experience. 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. 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 taxThese 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 7A. –Quantitative– Quantitative and Qualitative Disclosures About Market Risk In the normal course of business, we are exposed to various market risks. We continually monitor these risks and regularly develop appropriate strategies to manage them. Accordingly, from time to time, we may enter into certain financial and commodity-based derivative instruments. These instruments are used solely to mitigate market exposure and are not used for trading or speculative purposes. Refer to “Item 8. – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note P – Derivative Instruments and Hedging Activities” of this Annual Report on Form 10-K for additional information.
Interest Rate Risk We are exposed to changes in interest rates primarily as a result of our borrowing and investing activities to maintain liquidity and fund operations. The nature and amount of our long-term and short-term debt can be expected to fluctuate as a result of business requirements, market conditions and other factors. We manage exposures to interest rates using a mix of fixed and variable rate debt. We use interest rate swap instruments to manage our exposure to interest rate movements. We entered into an interest rate swap in June 2017, in anticipation of the issuance of $200.0 million principal amount of our 2032 Notes. 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 for additional information regarding the 2032 Notes. The interest rate swap had a notional amount of $150.0 million to hedge the risk of changes in the semi-annual interest rate payments attributable to changes in the benchmark interest rate during the several days leading up to the issuance of the 2032 Notes. Upon pricing of the 2032 Notes, the derivative instrument was settled resulting in a gain of approximately $3.1 million, which was reflected in accumulated other comprehensive loss in our consolidated statements of equity and will be recognized in earnings, as a decrease to interest expense, over the life of the related 2032 Notes. We entered into an interest rate swap in October 2014 to hedge changes in cash flows attributable to changes in EURIBOR associated with a five-year, euro denominatedeuro-denominated term loan entered into by our consolidated joint venture in Turkey.Worthington Aritas. Under the terms of the swap, we receivereceived interest at a variable rate equal to the three-month EURIBOR plus 1.5% and paypaid interest at a fixed rate of 2.015%. The interest rate swap hashad a notional amount equal to 60% of the borrowings outstanding under the facility. Borrowings outstanding underOn May 29, 2018, in anticipation of the facility totaled $28.4 million at May 31, 2016.planned sale of our cryogenics business in Turkey, the term loan was paid off and the derivative instrument settled for an immaterial loss.
We entered into an interest rate swap in March 2014, in anticipation of the issuance of $250.0 million principal amount of our 2026 Notes. 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 for additional information regarding the 2026 Notes. The interest rate swap had a notional amount of $150.0 million to hedge the risk of changes in the semi-annual interest payments attributable to changes in the benchmark interest rate during the several days leading up to the issuance of the 12-year fixed-rate debt. Upon pricing of the 2026 Notes, the derivative instrument was settled and resulted in a loss of approximately $3.1 million, a significant portion of which was reflected within accumulated other comprehensive incomeloss in our consolidated statementstatements of equity and will be recognized in earnings, as an increase to interest expense, over the life of the related 2026 Notes. We entered into a U.S. Treasury Rate-based treasury lock in April 2010, in anticipation of the issuance of $150.0 million principal amount of our 2020 Notes. 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 for additional information regarding the 2020 Notes. The treasury lock had a notional amount of $150.0 million to hedge the risk of changes in the semi-annual interest payments attributable to changes in the benchmark interest rate during the several days leading up to the issuance of the 10-year fixed-rate debt. Upon pricing of the 2020 Notes, the derivative instrument was settled and resulted in a loss of approximately $1.4 million, which has been reflected within accumulated other comprehensive incomeloss in our consolidated statements of equity. That balance is being recognized in earnings, as an increase to interest expense, over the life of the related 2020 Notes.
Foreign Currency Exchange Risk The translation of foreign currencies into United StatesU.S. dollars subjects us to exposure related to fluctuating foreign currency exchange rates. Derivative instruments are not used to manage this risk; however, we do make use of forward contracts to manage exposure to certain intercompany loans with our foreign affiliates as well as exposure to transactions denominated in a currency other than the related foreign affiliate’s local currency. Such forward contracts limit exposure to both favorable and unfavorable currency exchange rate fluctuations. At May 31, 2016,2018, the difference between the contract and book value of these instrumentsforward contracts was not material to our consolidated financial position, results of operations or cash flows. A 10% change in the exchange rate to the U.S. dollar forward rate is not expected to materially impact our consolidated financial position, results of operations or cash flows. A sensitivity analysis of changes in the U.S. dollar on these foreign currency-denominated contracts indicates that if the U.S. dollar uniformly weakened by 10% against all of these foreign currency exposures, the fair value of these instrumentsforward contracts would not be materially impacted. Any resulting changes in fair value would be offset by changes in the underlying hedged balance sheet position. A sensitivity analysis of changes in the foreign currency exchange rates of our foreign locations indicates that a 10% increase in those rates would not have materially impacted our net results. The sensitivity analysis assumes a uniform shift in all foreign currency exchange rates. The assumption that foreign currency exchange rates change in uniformity may overstate the impact of changing exchange rates on assets and liabilities denominated in a foreign currency. Commodity Price Risk We are exposed to market risk for price fluctuations on purchases of steel, natural gas, zinc and other raw materials as well as our utility requirements. We attempt to negotiate the best prices for commodities and to competitively price products and services to reflect the fluctuations in market prices. Derivative financial instruments have been used to manage a portion of our exposure to fluctuations in the cost of certain commodities, including steel, natural gas, zinc and other raw materials. These contracts covered periods commensurate with known or expected exposures throughout fiscal 2016.2019. The derivative instruments were executed with highly rated financial institutions. No credit loss is anticipated. No derivatives are held for trading purposes. A sensitivity analysis of changes in the price of hedged commodities indicates that a 10% decline in the market prices of steel, zinc, natural gas or any combination of these would not have a material impact to the value of our hedges or our reported results. The fair values of our outstanding derivative positions as of May 31, 20162018 and 20152017 are summarized below. Fair values of these derivatives do not consider the offsetting impact of the underlying hedged item. | | | | | | | | | | | Fair Value At May 31, | | (in millions) | | 2016 | | | 2015 | | Interest rate | | $ | (0.5 | ) | | $ | (0.2 | ) | Foreign currency | | | - | | | | 0.1 | | Commodity | | | 20.3 | | | | (21.9 | ) | | | | | | | | | | | | $ | 19.8 | | | $ | (22.0 | ) | | | | | | | | | |
| | Fair Value At | | | | May 31, | | (in millions) | | 2018 | | | 2017 | | Interest rate contracts | | $ | - | | | $ | (0.3 | ) | Foreign exchange contracts | | | (0.1 | ) | | | 0.1 | | Commodity contracts | | | 10.7 | | | | 7.4 | | | | $ | 10.6 | | | $ | 7.2 | |
Safe Harbor Quantitative and qualitative disclosures about market risk include forward-looking statements with respect to management’s opinion about risks associated with the use of derivative instruments. These statements are based on certain assumptions with respect to market prices and industry supply of, and demand for, steel products and certain raw materials. To the extent these assumptions prove to be inaccurate, future outcomes with respect to hedging programs may differ materially from those discussed in the forward-looking statements.
Item 8. –Financial Statements– Financial Statements and Supplementary Data Report of Independent Registered Public Accounting Firm The
To the Board of Directors and Shareholders Worthington Industries, Inc.:
Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Worthington Industries, Inc. and subsidiaries (the Company) as of May 31, 20162018 and 2015, and2017, the related consolidated statements of earnings, comprehensive income, equity, and cash flows for each of the years in thethree-year three‑year period ended May 31, 2016. In connection with our audits of2018, and the consolidated financial statements, we also have audited therelated notes and financial statement schedule of valuation and qualifying accounts. accounts (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of May 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the three‑year period ended May 31, 2018, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of May 31, 2018, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated July 30, 2018 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Basis for Opinion These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includesmisstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statement presentation.statements. 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 thethree-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 reportingserved as of May 31, 2016, based on criteria established inInternal 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 Company’s internal control over financial reporting.auditor since 2001. Columbus, Ohio July 30, 2018 Columbus, Ohio
August 1, 2016
WORTHINGTON INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS (In thousands) | | | May 31, | | May 31, | | | | 2016 | | | 2015 | | 2018 | | | 2017 | | ASSETS | | | | | | | | | | | | Current assets: | | | | | | | | | | | | Cash and cash equivalents | | $ | 84,188 | | | $ | 31,067 | | $ | 121,967 | | | $ | 278,081 | | Receivables, less allowances of $4,579 and $3,085 at May 31, 2016 and 2015, respectively | | | 439,688 | | | | 474,292 | | | Receivables, less allowances of $632 and $3,444 at May 31, 2018 | | | | | | | | | and May 31, 2017, respectively | | | 572,689 | | | | 486,730 | | Inventories: | | | | | | | | | | | | Raw materials | | | 162,427 | | | | 181,975 | | | 237,471 | | | | 185,001 | | Work in process | | | 86,892 | | | | 107,069 | | | 122,977 | | | | 95,630 | | Finished products | | | 70,016 | | | | 85,931 | | | 93,579 | | | | 73,303 | | | | | | | | | | Total inventories | | | 319,335 | | | | 374,975 | | | 454,027 | | | | 353,934 | | Income taxes receivable | | | 10,535 | | | | 12,119 | | | 1,650 | | | | 7,164 | | Assets held for sale | | | 10,079 | | | | 23,412 | | | 30,655 | | | | 9,654 | | Deferred income taxes | | | - | | | | 22,034 | | | Prepaid expenses and other current assets | | | 51,635 | | | | 54,294 | | | 60,134 | | | | 55,406 | | | | | | | | | | Total current assets | | | 915,460 | | | | 992,193 | | | 1,241,122 | | | | 1,190,969 | | Investments in unconsolidated affiliates | | | 191,826 | | | | 196,776 | | | 216,010 | | | | 208,591 | | Goodwill | | | 246,067 | | | | 238,999 | | | 345,183 | | | | 247,673 | | 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 intangible assets, net of accumulated amortization of $74,922 and | | | | | | | | | $63,134 at May 31, 2018 and May 31, 2017, respectively | | | 214,026 | | | | 82,781 | | Other assets | | | 31,400 | | | | 24,867 | | | 20,476 | | | | 24,841 | | Property, plant and equipment: | | | | | | | | | | | | Land | | | 18,537 | | | | 16,017 | | | 24,229 | | | | 22,077 | | Buildings and improvements | | | 256,973 | | | | 218,182 | | | 300,542 | | | | 297,951 | | Machinery and equipment | | | 945,951 | | | | 872,986 | | | 1,030,720 | | | | 961,542 | | Construction in progress | | | 48,156 | | | | 40,753 | | | 32,282 | | | | 27,616 | | | | | | | | | | Total property, plant and equipment | | | 1,269,617 | | | | 1,147,938 | | | 1,387,773 | | | | 1,309,186 | | Less: accumulated depreciation | | | 686,779 | | | | 634,748 | | | 802,803 | | | | 738,697 | | | | | | | | | | Total property, plant and equipment, net | | | 582,838 | | | | 513,190 | | | 584,970 | | | | 570,489 | | | | | | | | | | Total assets | | $ | 2,063,755 | | | $ | 2,085,142 | | $ | 2,621,787 | | | $ | 2,325,344 | | | | | | | | | |
See notes to consolidated financial statements.
WORTHINGTON INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS (InDollars in thousands) | | | May 31, | | May 31, | | | | 2016 | | 2015 | | 2018 | | | 2017 | | LIABILITIES AND EQUITY | | | | | | | | | | | | Current liabilities: | | | | | | | | | | | | Accounts payable | | $ | 290,432 | | | $ | 294,129 | | $ | 473,485 | | | $ | 368,071 | | Short-term borrowings | | | 2,651 | | | | 90,550 | | | - | | | | 123 | | Accrued compensation, contributions to employee benefit plans and related taxes | | | 75,105 | | | | 66,252 | | | 96,487 | | | | 86,201 | | Dividends payable | | | 13,471 | | | | 12,862 | | | 13,731 | | | | 13,698 | | Other accrued items | | | 45,056 | | | | 56,913 | | | 57,125 | | | | 41,551 | | Income taxes payable | | | 2,501 | | | | 2,845 | | | 4,593 | | | | 4,448 | | Current maturities of long-term debt | | | 862 | | | | 841 | | | 1,474 | | | | 6,691 | | | | | | | | | | Total current liabilities | | | 430,078 | | | | 524,392 | | | 646,895 | | | | 520,783 | | Other liabilities | | | 63,487 | | | | 58,269 | | | 74,237 | | | | 61,498 | | Distributions in excess of investment in unconsolidated affiliate | | | 52,983 | | | | 61,585 | | | 55,198 | | | | 63,038 | | Long-term debt | | | 579,982 | | | | 579,352 | | | 748,894 | | | | 571,796 | | Deferred income taxes | | | 17,379 | | | | 21,495 | | | | | | | | | | | Deferred income taxes, net | | | 60,188 | | | | 34,300 | | Total liabilities | | | 1,143,909 | | | | 1,245,093 | | | 1,585,412 | | | | 1,251,415 | | | | | | | | | | 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 | | | - | | | | - | | | 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, 2018 - 58,876,921 shares, 2017 - 62,802,456 shares | | | - | | | | - | | Additional paid-in capital | | | 298,984 | | | | 289,078 | | | 295,592 | | | | 303,391 | | Accumulated other comprehensive loss, net of taxes of $4,768 and $16,909 at May 31, 2016 and 2015, respectively | | | (28,565 | ) | | | (50,704 | ) | | Accumulated other comprehensive loss, net of taxes of $2,908 and $5,310 at | | | | | | | | | May 31, 2018 and May 31, 2017, respectively | | | (14,580 | ) | | | (27,775 | ) | Retained earnings | | | 522,952 | | | | 510,738 | | | 637,757 | | | | 676,019 | | | | | | | | | | Total shareholders’ equity – controlling interest | | | 793,371 | | | | 749,112 | | | Total shareholders' equity - controlling interest | | | 918,769 | | | | 951,635 | | Noncontrolling interests | | | 126,475 | | | | 90,937 | | | 117,606 | | | | 122,294 | | | | | | | | | | Total equity | | | 919,846 | | | | 840,049 | | | 1,036,375 | | | | 1,073,929 | | | | | | | | | | Total liabilities and equity | | $ | 2,063,755 | | | $ | 2,085,142 | | $ | 2,621,787 | | | $ | 2,325,344 | | | | | | | | | |
See notes to consolidated financial statements.
WORTHINGTON INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF EARNINGS (In thousands, except per share amounts) | | | Fiscal Years Ended May 31, | | Fiscal Years Ended May 31, | | | | 2016 | | 2015 | | 2014 | | 2018 | | | 2017 | | | 2016 | | Net sales | | $ | 2,819,714 | | | $ | 3,384,234 | | | $ | 3,126,426 | | $ | 3,581,620 | | | $ | 3,014,108 | | | $ | 2,819,714 | | Cost of goods sold | | | 2,367,121 | | | | 2,920,701 | | | | 2,633,907 | | | 3,018,763 | | | | 2,478,203 | | | | 2,367,121 | | | | | | | | | | | | | Gross margin | | | 452,593 | | | | 463,533 | | | | 492,519 | | | 562,857 | | | | 535,905 | | | | 452,593 | | Selling, general and administrative expense | | | 297,402 | | | | 295,920 | | | | 300,396 | | | 367,460 | | | | 316,373 | | | | 297,402 | | Impairment of goodwill and long-lived assets | | | 25,962 | | | | 100,129 | | | | 58,246 | | | 61,208 | | | | - | | | | 25,962 | | Restructuring and other expense (income) | | | 7,177 | | | | 6,927 | | | | (1,876 | ) | | | | | | | | | | | | | Restructuring and other expense (income), net | | | (7,421 | ) | | | 6,411 | | | | 7,177 | | Operating income | | | 122,052 | | | | 60,557 | | | | 135,753 | | | 141,610 | | | | 213,121 | | | | 122,052 | | Other income (expense): | | | | | | | | | | | | | | | | | | Miscellaneous income, net | | | 11,267 | | | | 795 | | | | 16,963 | | | 2,996 | | | | 3,764 | | | | 11,267 | | Interest expense | | | (31,670 | ) | | | (35,800 | ) | | | (26,671 | ) | | (38,675 | ) | | | (29,796 | ) | | | (31,670 | ) | Equity in net income of unconsolidated affiliates | | | 114,966 | | | | 87,476 | | | | 91,456 | | | 103,139 | | | | 110,038 | | | | 114,966 | | | | | | | | | | | | | Earnings before income taxes | | | 216,615 | | | | 113,028 | | | | 217,501 | | | 209,070 | | | | 297,127 | | | | 216,615 | | Income tax expense | | | 58,987 | | | | 25,772 | | | | 57,349 | | | 8,220 | | | | 79,190 | | | | 58,987 | | | | | | | | | | | | | Net earnings | | | 157,628 | | | | 87,256 | | | | 160,152 | | | 200,850 | | | | 217,937 | | | | 157,628 | | Net earnings attributable to noncontrolling interests | | | 13,913 | | | | 10,471 | | | | 8,852 | | | 6,056 | | | | 13,422 | | | | 13,913 | | | | | | | | | | | | | Net earnings attributable to controlling interest | | $ | 143,715 | | | $ | 76,785 | | | $ | 151,300 | | $ | 194,794 | | | $ | 204,515 | | | $ | 143,715 | | | | | | | | | | | | | | | | | | | | | | | Basic | | | | | | | | | | | | | | | | | | Average common shares outstanding | | | 62,469 | | | | 66,309 | | | | 68,944 | | | 60,923 | | | | 62,443 | | | | 62,469 | | | | | | | | | | | | | Earnings per share attributable to controlling interest | | $ | 2.30 | | | $ | 1.16 | | | $ | 2.19 | | $ | 3.20 | | | $ | 3.28 | | | $ | 2.30 | | | | | | | | | | | | | | | | | | | | | | | Diluted | | | | | | | | | | | | | | | | | | Average common shares outstanding | | | 64,755 | | | | 68,483 | | | | 71,664 | | | 63,042 | | | | 64,874 | | | | 64,755 | | | | | | | | | | | | | Earnings per share attributable to controlling interest | | $ | 2.22 | | | $ | 1.12 | | | $ | 2.11 | | $ | 3.09 | | | $ | 3.15 | | | $ | 2.22 | | | | | | | | | | | | |
See notes to consolidated financial statements.
WORTHINGTON INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) | | | | | | | Fiscal Years Ended May 31, | | | | 2016 | | 2015 | | 2014 | | 2018 | | | 2017 | | | 2016 | | Net earnings | | $ | 157,628 | | | $ | 87,256 | | | $ | 160,152 | | $ | 200,850 | | | $ | 217,937 | | | $ | 157,628 | | Other comprehensive income (loss): | | | | | | | | | | | | | | | | | | Foreign currency translation | | | 4,716 | | | | (34,229 | ) | | | 7,618 | | | 12,744 | | | | 1,342 | | | | 4,716 | | Pension liability adjustment, net of tax | | | (2,058 | ) | | | (3,738 | ) | | | (1,044 | ) | | 1,566 | | | | 2,242 | | | | (2,058 | ) | Cash flow hedges, net of tax | | | 22,208 | | | | (11,653 | ) | | | 2,509 | | | 959 | | | | (2,822 | ) | | | 22,208 | | | | | | | | | | | | | Other comprehensive income (loss) | | | 24,866 | | | | (49,620 | ) | | | 9,083 | | | | | | | | | | | | | | Other comprehensive income | | | 15,269 | | | | 762 | | | | 24,866 | | Comprehensive income | | | 182,494 | | | | 37,636 | | | | 169,235 | | | 216,119 | | | | 218,699 | | | | 182,494 | | Comprehensive income attributable to noncontrolling interests | | | 16,640 | | | | 7,974 | | | | 9,480 | | | 6,429 | | | | 13,394 | | | | 16,640 | | | | | | | | | | | | | Comprehensive income attributable to controlling interest | | $ | 165,854 | | | $ | 29,662 | | | $ | 159,755 | | $ | 209,690 | | | $ | 205,305 | | | $ | 165,854 | | | | | | | | | | | | |
See notes to consolidated financial statements.
WORTHINGTON INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF EQUITY (Dollars in thousands, except per share amounts) | | | Controlling Interest | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other | | | | | | | | | | | | | | | | | | | | Controlling Interest | | | | | | | | | | | | | | | Additional | | | Comprehensive | | | | | | | | | | | | | | | | | | | | Common Shares | | Additional Paid-in Capital | | | Accumulated Other Comprehensive Loss, Net of Tax | | | Retained Earnings | | | Total | | | Noncontrolling Interests | | | Total | | | Common Shares | | | Paid-in | | | Loss, | | | Retained | | | | | | | Noncontrolling | | | | | | (in thousands) | | Shares | | Amount | | | Shares | | | Amount | | | Capital | | | Net of Tax | | | Earnings | | | Total | | | Interests | | | Total | | 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 | | | | 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 | | | | - | | | | - | | | | - | | | | - | | | | 143,715 | | | | 143,715 | | | | 13,913 | | | | 157,628 | | Other comprehensive income | | | - | | | | - | | | | - | | | | 22,139 | | | | - | | | | 22,139 | | | | 2,727 | | | | 24,866 | | | | - | | | | - | | | | - | | | | 22,139 | | | | - | | | | 22,139 | | | | 2,727 | | | | 24,866 | | Acquisition of Worthington Specialty Processing | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 28,004 | | | | 28,004 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 28,004 | | | | 28,004 | | Common shares issued, net of withholding tax | | | 892,190 | | | | - | | | | 8,707 | | | | - | | | | - | | | | 8,707 | | | | - | | | | 8,707 | | | | 892,190 | | | | - | | | | 8,707 | | | | - | | | | - | | | | 8,707 | | | | - | | | | 8,707 | | Theoretical common shares in NQ plans | | | - | | | | - | | | | 960 | | | | - | | | | - | | | | 960 | | | | - | | | | 960 | | | | - | | | | - | | | | 960 | | | | - | | | | - | | | | 960 | | | | - | | | | 960 | | Stock-based compensation | | | - | | | | - | | | | 16,534 | | | | - | | | | - | | | | 16,534 | | | | - | | | | 16,534 | | | | - | | | | - | | | | 16,534 | | | | - | | | | - | | | | 16,534 | | | | - | | | | 16,534 | | Purchases and retirement of common shares | | | (3,500,000 | ) | | | - | | | | (16,295 | ) | | | - | | | | (83,552 | ) | | | (99,847 | ) | | | - | | | | (99,847 | ) | | | (3,500,000 | ) | | | - | | | | (16,295 | ) | | | - | | | | (83,552 | ) | | | (99,847 | ) | | | - | | | | (99,847 | ) | Payments to noncontrolling interests | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (9,106 | ) | | | (9,106 | ) | | Dividends to noncontrolling interests | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (9,106 | ) | | | (9,106 | ) | Cash dividends declared ($0.76 per share) | | | - | | | | - | | | | - | | | | - | | | | (47,949 | ) | | | (47,949 | ) | | | - | | | | (47,949 | ) | | | - | | | | - | | | | - | | | | - | | | | (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 | | | | 61,533,668 | | | $ | - | | | $ | 298,984 | | | $ | (28,565 | ) | | $ | 522,952 | | | $ | 793,371 | | | $ | 126,475 | | | $ | 919,846 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net earnings | | | | - | | | | - | | | | - | | | | - | | | | 204,515 | | | | 204,515 | | | | 13,422 | | | | 217,937 | | Other comprehensive income (loss) | | | | - | | | | - | | | | - | | | | 790 | | | | - | | | | 790 | | | | (28 | ) | | | 762 | | Common shares issued, net of withholding tax | | | | 1,268,788 | | | | - | | | | (9,075 | ) | | | - | | | | - | | | | (9,075 | ) | | | - | | | | (9,075 | ) | Theoretical common shares in NQ plans | | | | - | | | | - | | | | 1,259 | | | | - | | | | - | | | | 1,259 | | | | - | | | | 1,259 | | Stock-based compensation | | | | - | | | | - | | | | 13,158 | | | | - | | | | - | | | | 13,158 | | | | - | | | | 13,158 | | Purchase of noncontrolling interest in dHybrid Systems, LLC | | | | - | | | | - | | | | (935 | ) | | | - | | | | - | | | | (935 | ) | | | (1,953 | ) | | | (2,888 | ) | Dividends to noncontrolling interests | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (15,622 | ) | | | (15,622 | ) | Cash dividends declared ($0.80 per share) | | | | - | | | | - | | | | - | | | | - | | | | (51,448 | ) | | | (51,448 | ) | | | - | | | | (51,448 | ) | Balance at May 31, 2017 | | | | 62,802,456 | | | $ | - | | | $ | 303,391 | | | $ | (27,775 | ) | | $ | 676,019 | | | $ | 951,635 | | | $ | 122,294 | | | $ | 1,073,929 | | Net earnings | | | | - | | | | - | | | | - | | | | - | | | | 194,794 | | | | 194,794 | | | | 6,056 | | | | 200,850 | | Other comprehensive income | | | | - | | | | - | | | | - | | | | 14,896 | | | | - | | | | 14,896 | | | | 373 | | | | 15,269 | | Common shares issued, net of withholding tax | | | | 449,465 | | | | - | | | | (2,120 | ) | | | - | | | | - | | | | (2,120 | ) | | | - | | | | (2,120 | ) | Theoretical common shares in NQ plans | | | | - | | | | - | | | | 1,218 | | | | - | | | | - | | | | 1,218 | | | | - | | | | 1,218 | | Stock-based compensation | | | | - | | | | - | | | | 13,460 | | | | - | | | | - | | | | 13,460 | | | | - | | | | 13,460 | | Purchase of noncontrolling interest in Worthington Aritas | | | | - | | | | - | | | | 924 | | | | - | | | | - | | | | 924 | | | | (2,837 | ) | | | (1,913 | ) | Sale of controlling interest in WEI | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (365 | ) | | | (365 | ) | Reclassification of stranded tax effects | | | | - | | | | - | | | | - | | | | (1,701 | ) | | | 1,701 | | | | - | | | | - | | | | - | | Purchases and retirement of common shares | | | | (4,375,000 | ) | | | - | | | | (21,281 | ) | | | - | | | | (182,986 | ) | | | (204,267 | ) | | | - | | | | (204,267 | ) | Dividends to noncontrolling interests | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (7,915 | ) | | | (7,915 | ) | Cash dividends declared ($0.84 per share) | | | | - | | | | - | | | | - | | | | - | | | | (51,771 | ) | | | (51,771 | ) | | | - | | | | (51,771 | ) | Balance at May 31, 2018 | | | | 58,876,921 | | | $ | - | | | $ | 295,592 | | | $ | (14,580 | ) | | $ | 637,757 | | | $ | 918,769 | | | $ | 117,606 | | | $ | 1,036,375 | |
See notes to consolidated financial statements
WORTHINGTON INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) | Fiscal Years Ended May 31, | | | 2018 | | | 2017 | | | 2016 | | Operating activities: | | | | | | | | | | | | Net earnings | $ | 200,850 | | | $ | 217,937 | | | $ | 157,628 | | Adjustments to reconcile net earnings to net cash provided by operating activities: | | | | | | | | | | | | Depreciation and amortization | | 103,359 | | | | 86,793 | | | | 84,699 | | Impairment of goodwill and long-lived assets | | 61,208 | | | | - | | | | 25,962 | | Provision for (benefit from) deferred income taxes | | (38,237 | ) | | | 18,443 | | | | 7,354 | | Bad debt expense | | 11 | | | | 269 | | | | 346 | | Equity in net income of unconsolidated affiliates, net of distributions | | (13,352 | ) | | | (8,023 | ) | | | (29,473 | ) | Net (gain) loss on assets | | (10,522 | ) | | | 7,951 | | | | (12,996 | ) | Stock-based compensation | | 13,758 | | | | 14,349 | | | | 15,836 | | Gain on previously held equity interest in Worthington Specialty Processing | | - | | | | - | | | | (6,877 | ) | Changes in assets and liabilities, net of impact of acquisitions: | | | | | | | | | | | | Receivables | | (53,066 | ) | | | (39,927 | ) | | | 66,117 | | Inventories | | (84,654 | ) | | | (34,599 | ) | | | 66,351 | | Prepaid expenses and other current assets | | (12,402 | ) | | | 985 | | | | 18,327 | | Other assets | | (1,258 | ) | | | 1,905 | | | | (4,530 | ) | Accounts payable and accrued expenses | | 105,984 | | | | 67,492 | | | | 20,180 | | Other liabilities | | 9,666 | | | | 2,097 | | | | 4,460 | | Net cash provided by operating activities | | 281,345 | | | | 335,672 | | | | 413,384 | | | | | | | | | | | | | | Investing activities: | | | | | | | | | | | | Investment in property, plant and equipment | | (76,088 | ) | | | (68,386 | ) | | | (97,036 | ) | Acquisitions, net of cash acquired | | (285,028 | ) | | | - | | | | (34,206 | ) | Distributions from (investments in) unconsolidated affiliates | | 2,400 | | | | - | | | | (5,595 | ) | Proceeds from sale of assets and insurance | | 21,311 | | | | 5,422 | | | | 9,797 | | Net cash used by investing activities | | (337,405 | ) | | | (62,964 | ) | | | (127,040 | ) | | | | | | | | | | | | | Financing activities: | | | | | | | | | | | | Net repayments of short-term borrowings, net of issuance costs | | (948 | ) | | | (2,528 | ) | | | (85,843 | ) | Proceeds from long-term debt, net of issuance costs | | 197,685 | | | | - | | | | 921 | | Principal payments on long-term debt | | (31,130 | ) | | | (874 | ) | | | (862 | ) | Proceeds from issuance of common shares, net of tax withholdings | | (2,120 | ) | | | (9,075 | ) | | | 8,707 | | Payments to noncontrolling interests | | (7,915 | ) | | | (15,622 | ) | | | (9,106 | ) | Repurchase of common shares | | (204,267 | ) | | | - | | | | (99,847 | ) | Dividends paid | | (51,359 | ) | | | (50,716 | ) | | | (47,193 | ) | Net cash used by financing activities | | (100,054 | ) | | | (78,815 | ) | | | (233,223 | ) | | | | | | | | | | | | | Increase (decrease) in cash and cash equivalents | | (156,114 | ) | | | 193,893 | | | | 53,121 | | Cash and cash equivalents at beginning of year | | 278,081 | | | | 84,188 | | | | 31,067 | | Cash and cash equivalents at end of year | $ | 121,967 | | | $ | 278,081 | | | $ | 84,188 | |
See notes to consolidated financial statements.
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.
WORTHINGTON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fiscal Years Ended May 31, 2016, 20152018, 2017 and 20142016 Note A – Summary of Significant Accounting Policies Consolidation: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”),The Company owns controlling interests in the following three joint ventures: Spartan Steel Coating, LLC (“Spartan”) (52%), TWB Company, L.L.C. (“TWB”), Worthington Aritaş Basinçli Kaplar Sanayi (“Worthington Aritas”), Worthington Energy Innovations, LLC (“WEI” (55%), and Worthington Specialty Processing (“WSP”) in which we own controlling interests of 79.59%, 52%, 55%, 75%, 75%, and 51%, respectively,(51%). These joint ventures 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’their portions of net earnings and other comprehensive income or loss(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. On January 1, 2017, the Company acquired the minority membership interest in dHybrid Systems, LLC (“dHybrid”) from the noncontrolling member in a non-cash transaction. The difference between the fair value of the noncontrolling interest and its carrying value was recorded as a reduction to additional paid-in capital in the amount of $935,000 (net of tax of $539,000). Effective March 31, 2018, the Company sold its controlling stake in Worthington Energy Innovations, LLC (“WEI”) to the minority member. There was no impact to net earnings as a result of the transaction as the fair value of the consideration received approximated the net book value of WEI. On May 23, 2018, the Company acquired the minority ownership interest in Turkey-based Worthington Arıtaş Basınçlı Kaplar Sanayi (“Worthington Aritas”) from the noncontrolling members in a non-cash transaction. The difference between the fair value of the noncontrolling interest and its carrying value was recorded as an increase to additional paid-in-capital in the amount of $924,000.
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: Inventories are valued at the lower of cost or market.net realizable value. Cost is determined using the first-in, first-out method for all inventories. ThisThe assessment of net realizable value 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, 20162018 and May 31, 2015.2017. 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, 20162018 (“fiscal 2016”2018”), the fiscal year ended May 31, 20152017 (“fiscal 2015”2017”) and the fiscal year ended May 31, 20142016 (“fiscal 2014”2016”) 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.
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, 2016,2018, excluding our joint ventures, we togetheroperated 36 manufacturing facilities worldwide, principally in three operating segments, which correspond with our unconsolidated affiliates, operated 82 manufacturing facilities in 24 statesreportable business segments: Steel Processing, Pressure Cylinders, 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, weEngineered Cabs. We also held equity positions in 12 active9 joint ventures, which operated 49 manufacturing facilities worldwide, as of which six are consolidated.May 31, 2018. Our largest end market is the automotive market,industry, which comprised 43%37%, 38%43%, and 36%42% of consolidated net sales in fiscal 2016,2018, fiscal 2015,2017, and fiscal 2014,2016, respectively. Our foreigninternational operations represented 8%9%, 6%7%, and 7%6% of consolidated net sales and 10%6%, (2)%4%, and (2)%8% of net earnings attributable to controlling interest in fiscal 2016,2018, fiscal 2015,2017, and fiscal 2014,2016, respectively, and 14% and 14%11% of consolidated net assets as of May 31, 20162018 and 2015,May 31, 2017, respectively. As of May 31, 2016,2018, approximately 8%9% 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 2016,2018, our largest customer accounted for approximately 8% of our consolidated net sales, and our ten largest customers accounted for approximately 34%30% 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 consolidated net sales and financial results if we cannotwere not able to 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 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$538,000 during fiscal 20162018 to $6,052,000.$6,199,000. 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 increaseddecreased approximately $1,494,000$2,812,000 during fiscal 20162018 to $4,579,000.$632,000. While we believe our allowances areallowance for doubtful accounts is 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,$83,680,000, $73,268,000 and $62,344,000$68,886,000 during fiscal 2016,2018, fiscal 20152017 and fiscal 2014,2016, 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 Oiloil & Gas Equipmentgas equipment business has been treated as a separate reporting unit since the second quarter of fiscal 2016. For goodwill and indefinite-lived intangible assets, we test for impairment by completing what is referred to as the “Step 0” analysis which involves evaluating qualitative factors including macroeconomic conditions, industry and market considerations, cost factors, and overall financial performance. If our “Step 0” analysis indicates it is more likely than not that the fair value is less than the carrying amount, we would perform a quantitative impairment test. The goodwill impairment test consists of comparingquantitative analysis compares the fair value of each reporting unit determined using discounted cash flows,or indefinite-lived intangible asset to each reporting unit’sthe 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 asand an impairment chargeloss is recognized in our consolidated statements of earnings. The impairment test for indefinite-lived intangible assets consists of a comparisonearnings equivalent to the excess of the carrying amount over the fair value. 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 recordeddetermined based on discounted cash flows or appraised values, as an impairment charge in our consolidated statements of earnings.appropriate.
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 impairment loss recognized is equal to the amount that the carrying value of the asset or asset group exceeds its fair value.Long-lived assets held for sale are reported at the lower of cost or fair value less costs to sell and are recorded in a single line in the consolidated balance sheets. We classify assets as held for sale if we commit to a plan to sell the assets within one year and actively market the assets in their current condition for a price that is reasonable in comparison to their estimated 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: 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, 2016,2018, 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. We estimate forfeitures at the date of grant based on historic experience. 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 advertisingAdvertising costs are expensed as incurred.incurred and included in SG&A expense. Advertising expense was $13,970,000, $11,153,000,$15,236,000, $14,822,000, and $6,788,000$13,970,000 for fiscal 2016,2018, fiscal 20152017 and fiscal 2014,2016, respectively. Shipping and Handling Fees and Costs:Shipping and handling fees billed to customers are included in net sales, and shippingsales. 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 upcleanup are charged to expense as incurred. Statements of Cash Flows:Supplemental cash flow information was as follows for the fiscal years ended May 31: | (in thousands) | | 2016 | | | 2015 | | | 2014 | | | 2018 | | | 2017 | | | 2016 | | Interest paid, net of amount capitalized | | $ | 30,431 | | | $ | 36,190 | | | $ | 24,199 | | | $ | 34,839 | | | $ | 29,826 | | | $ | 30,431 | | Income taxes paid, net of refunds | | | 50,750 | | | | 67,825 | | | | 81,997 | | | $ | 44,819 | | | $ | 55,652 | | | $ | 50,750 | |
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 income 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 taxThese 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 IssuedAdopted 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 entity’s 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.Standards:
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 Company adopted this amended guidance on a prospective basis effective June 1, 2017. The adoption of this guidance did not impact our consolidated financial position or results of operations. In August 2016, amended accounting guidance was issued to clarify the proper cash flow presentation of certain specific types of cash payments and cash receipts. The Company early adopted this amended guidance on a prospective basis effective June 1, 2017. The adoption of this guidance did not impact our consolidated statements of cash flows or ongoing financial reporting. In January 2017, amended accounting guidance was issued to clarify the definition of a business to provide additional guidance to assist in evaluating whether transactions should be accounted for as an acquisition (or disposal) of either an asset or a business. The Company early adopted this amended guidance on a prospective basis effective September 1, 2017. The adoption of this guidance did not impact our consolidated financial position or results of operations. In January 2017, amended accounting guidance was issued to simplify the goodwill impairment calculation, by removing Step 2 of the goodwill impairment test. Goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of the goodwill. The Company early adopted this amended guidance on a prospective basis effective September 1, 2017. The adoption of this guidance did not impact our consolidated financial position or results of operations. In February 2018, amended guidance was issued that would allow a reclassification from AOCI to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (“TCJA”) signed into law in December 2017. The amended guidance is effective prospectively for fiscal years beginning after December 15, 2016,2018, including interim periods within those fiscal years. EarlyIt is to be applied either in the period of adoption is permitted asor retrospectively to each period in which the effect of the beginningchange in the U.S. federal corporate income tax rate in the TCJA is recognized. The Company early adopted this amended guidance in the fourth quarter of fiscal 2018. As a result, the stranded tax effects in AOCI of $1,701,000, related to various unrealized gains and losses associated with the Company’s hedge instruments and minimum pension liability, were reclassified to retained earnings.
Recently Issued Accounting Standards: In May 2014, new accounting guidance was issued that replaces most existing revenue recognition guidance under U.S. GAAP. The new guidance requires an interimentity 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 new guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. We doThe guidance permits the use of either the retrospective or cumulative effect transition method. The Company adopted this guidance on June 1, 2018 using the cumulative effect transition method. Based on our evaluation, which included a review of significant contracts with customers across all revenue streams, it resulted in a change in timing of revenue recognition for the toll processing and oil & gas equipment revenue streams and did not expect the adoption of this amended accounting guidance to have a material impact on our consolidated 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 period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as 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, the Company will make additional disclosures related to have a material impact on our financial position or resultsthe nature, amount, timing and uncertainty of operations.
In November 2015, amended accounting guidance was issued that simplifiesrevenue and cash flows arising from contracts with customers as required by 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.new guidance.
In February 2016, amendednew accounting guidance was issued that replaces most existing lease accounting guidance under U.S. GAAP. Among other changes, the amendednew guidance requires that leaseleased assets and liabilities be recognized on the balance sheet by lessees for those leases classified as operating leases under previous guidance. The amendednew 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 cash flows, and we have not determined the effect of the amendednew 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 As of itself, require dedesignationMay 31, 2018, we have operating leases with $43,400,000 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.future minimum lease payments.
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.
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| • | | 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.
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| • | | 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.
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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; however, we do not expect the amended guidance to have a material impact on our ongoing financial reporting. In October 2016, amended accounting guidance was issued that requires the income tax consequences of an intra-entity transfer of an asset other than inventory to be recognized when the transfer occurs. The amended guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years and is to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Early adoption is permitted. We do not expect the adoption of this amended guidance to have a material impact on our consolidated financial position, results of operations and cash flows. In November 2016, amended accounting guidance was issued that requires amounts generally described as restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amended guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. We do not expect the adoption of this amended guidance to have a material impact on our consolidated cash flows. In March 2017, amended accounting guidance was issued that requires an employer to report the service cost component of pension and postretirement benefits in the same line item as other current employee compensation costs. Additionally, other components of net benefit cost are to be presented in the income statement separately from the service cost component and outside of income from operations. The amended guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years and is to be applied retrospectively for the presentation in the income statement and prospectively on and after the
effective date for the capitalization of service cost. We do not expect the adoption of this amended guidance to have a material impact on our consolidated financial position, results of operations and cash flows. In May 2017, amended accounting guidance was issued to provide guidance about which changes to the terms or conditions of a share-based payment award require application of modification accounting. The amended guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. We do not expect the adoption of this amended guidance to have a material impact on our consolidated financial position or results of operations. In August 2017, amended accounting guidance was issued that modifies hedge accounting by making more hedge strategies eligible for hedge accounting, amending presentation and disclosure requirements, and changing how companies assess effectiveness. The intent is to simplify application of hedge accounting and increase transparency of information about an entity’s risk management activities. The amended guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. It is to be applied using a modified retrospective transition approach for cash flow and net investment hedges existing at the date of adoption. The presentation and disclosure guidance is only required prospectively. Early adoption is permitted. 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,Our investments in affiliated companies that we do not control, either through majority ownership or otherwise, are accounted for using the equity investments and the percentage interests owned consisted of the following (in alphabetic order):method. These include ArtiFlex Manufacturing, LLC (“ArtiFlex”) (50%), Clarkwestern Dietrich Building Systems LLC (“ClarkDietrich”) (25%), Samuel Steel Pickling Company (31.25%), Serviacero Planos, S. de R. L. de C.V. (“Serviacero”Serviacero Worthington”) (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, WSP’s 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, TWB’s 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,$89,787,000, $102,015,000, and $85,346,000$86,513,000 in fiscal 2016,2018, fiscal 20152017 and fiscal 2014,2016, 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$55,198,000 and $61,585,000$63,038,000 at May 31, 20162018 and 2015,2017, respectively. In accordance with the applicable accounting guidance, we reclassified the negative balance to the liabilityliabilities 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.
The following table presents combined information ofregarding the financial position of our unconsolidated affiliates accounted for using the equity method as of May 31, 2016 and 2015:31: | (in thousands) | | 2016 | | | 2015 | | 2018 | | | 2017 | | Cash | | $ | 112,122 | | | $ | 101,011 | | $ | 52,812 | | | $ | 55,541 | | Receivable from member (1) | | | - | | | | 11,092 | | | Other current assets | | | 446,796 | | | | 491,507 | | | 590,578 | | | | 541,746 | | Current assets for discontinued operations | | | 37,640 | | | | 17,275 | | Noncurrent assets | | | 352,370 | | | | 318,939 | | | 358,927 | | | | 342,938 | | | | | | | | | | Noncurrent assets for discontinued operations | | | - | | | | 18,168 | | Total assets | | $ | 911,288 | | | $ | 922,549 | | $ | 1,039,957 | | | $ | 975,668 | | | | | | | | | | Current liabilities | | $ | 112,491 | | | $ | 184,028 | | $ | 166,493 | | | $ | 148,056 | | Current liabilities for discontinued operations | | | 7,142 | | | | 8,891 | | Short-term borrowings | | | 11,398 | | | | - | | | 26,599 | | | | 8,172 | | Current maturities of long-term debt | | | 3,297 | | | | 4,489 | | | 23,243 | | | | 5,827 | | Long-term debt | | | 266,942 | | | | 272,861 | | | 259,588 | | | | 268,711 | | Other noncurrent liabilities | | | 21,034 | | | | 20,471 | | | 17,536 | | | | 20,890 | | Noncurrent liabilities for discontinued operations | | | - | | | | 490 | | Equity | | | 496,126 | | | | 440,700 | | | 539,356 | | | | 514,631 | | | | | | | | | | Total liabilities and equity | | $ | 911,288 | | | $ | 922,549 | | $ | 1,039,957 | | | $ | 975,668 | | | | | | | | | |
| (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.
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The following table presents summarized financial results ofinformation for our four largest unconsolidated affiliates as of, and for the fiscal 2016, fiscal 2015 and fiscal 2014.years ended May 31. 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 | | | | | | | | | | | | | | |
The financial results ofcategory, including WSP have been included in the amounts presented in the tables above through March 1, 2016. EffectiveOn March 1, 2016, the Company obtained effective control over the operations of WSP. AsWSP and, as a result, WSP’s results have been consolidated within thebegan consolidating its financial results within those of Steel Processing since that date with the minority member’s portion of earnings eliminated within earnings attributable to noncontrolling interest.Processing.
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, TWB’s results have been consolidated within the financial results of Steel Processing since that date with the minority member’s portion of earnings eliminated within earnings attributable to noncontrolling interest.
(in thousands) | | 2018 | | | 2017 | | | 2016 | | Net sales | | | | | | | | | | | | | WAVE | | $ | 360,395 | | | $ | 334,031 | | | $ | 329,050 | | ClarkDietrich | | | 790,887 | | | | 711,735 | | | | 615,609 | | Serviacero Worthington | | | 315,098 | | | | 275,315 | | | | 260,337 | | ArtiFlex | | | 197,061 | | | | 208,922 | | | | 219,510 | | Other | | | 28,578 | | | | 17,784 | | | | 74,214 | | Total net sales | | $ | 1,692,019 | | | $ | 1,547,787 | | | $ | 1,498,720 | | | | | | | | | | | | | | | Gross margin (loss) | | | | | | | | | | | | | WAVE | | $ | 201,581 | | | $ | 190,350 | | | $ | 191,535 | | ClarkDietrich | | | 97,437 | | | | 128,098 | | | | 95,427 | | Serviacero Worthington | | | 32,396 | | | | 37,080 | | | | 15,328 | | ArtiFlex | | | 18,266 | | | | 22,829 | | | | 30,181 | | Other | | | (6,399 | ) | | | (4,313 | ) | | | 13,142 | | Total gross margin | | $ | 343,281 | | | $ | 374,044 | | | $ | 345,613 | | | | | | | | | | | | | | | Operating income (loss) | | | | | | | | | | | | | WAVE | | $ | 158,697 | | | $ | 158,030 | | | $ | 162,026 | | ClarkDietrich | | | 39,153 | | | | 68,696 | | | | 33,897 | | Serviacero Worthington | | | 24,232 | | | | 29,975 | | | | 11,110 | | ArtiFlex | | | 11,395 | | | | 15,519 | | | | 22,612 | | Other | | | (10,584 | ) | | | (8,407 | ) | | | 6,910 | | Total operating income | | $ | 222,893 | | | $ | 263,813 | | | $ | 236,555 | | | | | | | | | | | | | | | Depreciation and amortization | | | | | | | | | | | | | WAVE | | $ | 1,659 | | | $ | 2,978 | | | $ | 2,245 | | ClarkDietrich | | | 11,864 | | | | 12,718 | | | | 14,289 | | Serviacero Worthington | | | 3,919 | | | | 3,862 | | | | 3,508 | | ArtiFlex | | | 5,515 | | | | 5,850 | | | | 6,105 | | Other | | | 749 | | | | 698 | | | | 3,081 | | Total depreciation and amortization | | $ | 23,706 | | | $ | 26,106 | | | $ | 29,228 | | | | | | | | | | | | | | | Interest expense (income) | | | | | | | | | | | | | WAVE | | $ | 8,365 | | | $ | 7,182 | | | $ | 6,635 | | ClarkDietrich | | | 114 | | | | 20 | | | | 80 | | Serviacero Worthington | | | 397 | | | | 89 | | | | 114 | | ArtiFlex | | | 1,333 | | | | 1,429 | | | | 1,650 | | Other | | | (1 | ) | | | - | | | | (10 | ) | Total interest expense | | $ | 10,208 | | | $ | 8,720 | | | $ | 8,469 | | | | | | | | | | | | | | | Income tax expense (benefit) | | | | | | | | | | | | | WAVE | | $ | 119 | | | $ | 2,398 | | | $ | (14 | ) | ClarkDietrich | | | - | | | | - | | | | - | | Serviacero Worthington | | | 5,141 | | | | 11,740 | | | | 6,249 | | ArtiFlex | | | 208 | | | | (2 | ) | | | 289 | | Other | | | - | | | | (2 | ) | | | 53 | | Total income tax expense | | $ | 5,468 | | | $ | 14,134 | | | $ | 6,577 | | | | | | | | | | | | | | | Net earnings (loss) | | | | | | | | | | | | | WAVE (1) | | $ | 152,329 | | | $ | 154,866 | | | $ | 164,132 | | ClarkDietrich | | | 39,138 | | | | 69,122 | | | | 58,539 | | Serviacero Worthington | | | 17,577 | | | | 18,140 | | | | 6,246 | | ArtiFlex | | | 9,854 | | | | 14,092 | | | | 20,673 | | Other | | | (11,922 | ) | | | (5,472 | ) | | | 8,516 | | Total net earnings | | $ | 206,976 | | | $ | 250,748 | | | $ | 258,106 | |
| (1) | On November 20, 2017, WAVE agreed to sell its business and operations in Europe and Asia to the Knauf Group, a family-owned manufacturer of building materials headquartered in Germany. WAVE has classified its businesses to be sold as discontinued operations. These net earnings include net income attributable to discontinued operations of $2,226,000, $6,775,000, and $8,930,000 in fiscal 2018, fiscal 2017, and fiscal 2016, respectively. All other amounts presented in the table above exclude the activity of the discontinued operations of WAVE |
At May 31, 2016, $23,283,0002018 and 2017, $42,636,000 and $28,803,000, respectively, of our consolidated retained earnings represented undistributed earnings net of tax, of our unconsolidated affiliates.affiliates, net of tax. Note C – Goodwill and Other Long-Lived Assets Goodwill The following table summarizes the changes in the carrying amount of goodwill during fiscal 2018 and fiscal 2017 by reportable business segment: (in thousands) | | Steel Processing | | | Pressure Cylinders | | | Engineered Cabs | | | Other | | | Total | | 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 | | Acquisitions and purchase accounting adjustments | | | 854 | | | | - | | | | - | | | | - | | | | 854 | | Translation adjustments | | | - | | | | 752 | | | | - | | | | - | | | | 752 | | | | | 854 | | | | 752 | | | | - | | | | - | | | | 1,606 | | Balance at May 31, 2017 | | | | | | | | | | | | | | | | | | | | | Goodwill | | | 7,899 | | | | 234,123 | | | | 44,933 | | | | 127,245 | | | | 414,200 | | Accumulated impairment losses | | | - | | | | - | | | | (44,933 | ) | | | (121,594 | ) | | | (166,527 | ) | | | | 7,899 | | | | 234,123 | | | | - | | | | 5,651 | | | | 247,673 | | Acquisitions and purchase accounting adjustments | | | - | | | | 103,437 | | | | - | | | | - | | | | 103,437 | | Translation adjustments | | | - | | | | 3,739 | | | | - | | | | - | | | | 3,739 | | Impairment losses | | | - | | | | (4,015 | ) | | | - | | | | (5,651 | ) | | | (9,666 | ) | | | | - | | | | 103,161 | | | | - | | | | (5,651 | ) | | | 97,510 | | Balance at May 31, 2018 | | | | | | | | | | | | | | | | | | | | | Goodwill | | | 7,899 | | | | 341,299 | | | | 44,933 | | | | 127,245 | | | | 521,376 | | Accumulated impairment losses | | | - | | | | (4,015 | ) | | | (44,933 | ) | | | (127,245 | ) | | | (176,193 | ) | | | $ | 7,899 | | | $ | 337,284 | | | $ | - | | | $ | - | | | $ | 345,183 | |
For additional information regarding the Company’s acquisitions, refer to “Note O – Acquisitions.” Fiscal 2018 impairment charges noted in the table above consisted of $4,015,000 of goodwill allocated to oil & gas equipment assets available for sale and $5,651,000 related to the sale of a 65% stake in WEI on March 31, 2018.
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, 2018 and 2017: | 2018 | | | 2017 | | | | | | | Accumulated | | | | | | | Accumulated | | (in thousands) | Cost | | | Amortization | | | Cost | | | Amortization | | Indefinite-lived intangible assets: | | | | | | | | | | | | | | | | Trademarks | $ | 76,701 | | | $ | - | | | $ | 14,501 | | | $ | - | | Total indefinite-lived intangible assets | | 76,701 | | | | - | | | | 14,501 | | | | - | | Definite-lived intangible assets: | | | | | | | | | | | | | | | | Customer relationships | $ | 173,363 | | | $ | 57,125 | | | $ | 96,262 | | | $ | 45,822 | | Non-compete agreements | | 8,669 | | | | 8,137 | | | | 9,443 | | | | 7,751 | | Technology / know-how | | 26,411 | | | | 5,856 | | | | 21,755 | | | | 5,607 | | Other | | 3,804 | | | | 3,804 | | | | 3,954 | | | | 3,954 | | Total definite-lived intangible assets | | 212,247 | | | | 74,922 | | | | 131,414 | | | | 63,134 | | Total intangible assets | $ | 288,948 | | | $ | 74,922 | | | $ | 145,915 | | | $ | 63,134 | |
The increase in the carrying value of other intangible assets was primarily driven by the June 2, 2017 acquisition of AMTROL, as disclosed in “Note O – Acquisitions”, partially offset by impairment charges of $11,549,000, $3,849,000 and $1,674,000 related to intangible assets of Worthington Aritas, certain oil & gas equipment asset groups in Pressure Cylinders and WEI, respectively, as further discussed below. Amortization expense totaled $19,679,000, $13,525,000, and $15,813,000 in fiscal 2018, fiscal 2017 and fiscal 2016, respectively. Amortization expense for each of the next five fiscal years is estimated to be: (in thousands) | | | | | 2019 | | $ | 15,308 | | 2020 | | $ | 13,299 | | 2021 | | $ | 12,539 | | 2022 | | $ | 10,858 | | 2023 | | $ | 10,221 | |
Impairment of Long-Lived Assets Fiscal 2018: During the fourth quarter of fiscal 2018, management committed to plans to sell the Company’s cryogenics business in Turkey, Worthington Aritas, and certain underperforming oil & gas equipment assets within Pressure Cylinders. As all of the criteria for classification as assets held for sale were met in both instances, the net assets of each asset group have been presented separately as assets held for sale in our consolidated balance sheets. 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. The book value of Worthington Aritas exceeded its estimated fair market value of $9,000,000, resulting in an impairment charge of $42,422,000, consisting of $19,621,000, $11,549,000, and $11,252,000 related to fixed assets, intangible assets, and other assets, respectively. The impairment charge related to intangible assets was for customer relationships and technological know-how. The book value of the oil & gas equipment asset group also exceeded its estimated fair market value of $21,000,000, resulting in an impairment charge of $10,497,000, consisting of $4,015,000, $3,849,000, and $2,633,000 related to allocated goodwill, intangible assets, and fixed assets, respectively. The impairment charge related to intangible assets was for the full write-off of the remaining book value of customer relationships. In both instances, fair value was determined using observable (Level 2) inputs.
During the second quarter of fiscal 2018, the Company determined that indicators of impairment were present with regard to the goodwill and intangible assets of the former WEI reporting unit. As a result, these assets were written down to their estimated fair value resulting in an impairment charge of $7,325,000. During the second quarter of fiscal 2018, the Company also identified the presence of impairment indicators with regard to vacant land at the oil & gas equipment facility in Bremen, Ohio, resulting in an impairment charge of $964,000 to write the vacant land down to its estimated 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 Oiloil & Gas Equipmentgas equipment business within Pressure Cylinders. The Company had tested the five asset groups in its Oiloil & Gas Equipmentgas 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 Company’s 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 Oiloil & Gas Equipmentgas 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 Oiloil & Gas Equipmentgas 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 Oiloil & Gas Equipmentgas 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 Oiloil & Gas Equipmentgas equipment business as a result of sustained low oil prices, which now indicateindicated that the risk profile and prospects for growth and profitability of the Oil & Gas Equipment component arewere no longer similar to the other components of our Pressure Cylinders businesses.Cylinders. 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 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 management’s 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 Company’s 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 management’s 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 Company’s aluminum high-pressure cylinder business in New Albany, Mississippi, and at the Company’s 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 management’s long-range estimates of market conditions. The sum of the undiscounted future cash flows was less than the net book value of the asset groups. In accordance with the applicable accounting guidance, the net assets were written down to their fair values, resulting in impairment charges of $3,221,000 and $1,179,000, respectively.
During the fourth quarter of fiscal 2014, the Company committed to a plan to sell its 60% ownership interest in Worthington Nitin Cylinders, a consolidated joint venture in India, and Precision Specialty Metals (“PSM”), a stainless steel business. Accordingly, at May 31, 2014, the net assets of these businesses were recorded as assets held for sale at the lower of their fair values or net book values, less selling costs. During the first half of fiscal 2015, changes in facts and circumstances related to these businesses indicated that the Company needed to reassess the fair value of these assets. As a result, additional impairment charges of $6,346,000 and $3,050,000, respectively, were recorded. 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 Company’s 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 management’s 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.
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 Company’s 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 | | | | | | | | | | | | | | | | | | |
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 (Income), Net We consider restructuring activities to be programs whereby we fundamentally change our operations such as closing and consolidating manufacturing facilities or moving manufacturing of a product to another location, and employee severance (including rationalizing headcount or other significant changeslocation. Restructuring activities may also involve substantial realignment of the management structure of a business unit in personnel).response to changing market conditions.
A progression of the liabilities associated with our restructuring activities, combined with a reconciliation to the restructuring and other expense (income)income, net financial statement caption in our consolidated statement of earnings for fiscal 2016,2018, is summarized below: | | | | | | | | | | | | Beginning | | | | | | | | | | | | | | | Ending | | (in thousands) | | Beginning Balance | | | Expense | | Payments | | Adjustments | | Ending Balance | | | Balance | | | Expense | | | Payments | | | Adjustments | | | Balance | | Early retirement and severance | | $ | 2,170 | | | $ | 6,137 | | | $ | (5,746 | ) | | $ | (730 | ) | | $ | 1,831 | | | $ | 253 | | | $ | 2,549 | | | $ | (1,787 | ) | | $ | 101 | | | $ | 1,116 | | Facility exit and other costs | | | 371 | | | | 7,967 | | | | (7,482 | ) | | | (203 | ) | | | 653 | | | | 536 | | | | 482 | | | | (1,018 | ) | | | - | | | | - | | | | | | | | | | | | | | | | | | | $ | 789 | | | | 3,031 | | | $ | (2,805 | ) | | $ | 101 | | | $ | 1,116 | | | | $ | 2,541 | | | | 14,104 | | | $ | (13,228 | ) | | $ | (933 | ) | | $ | 2,484 | | | | | | | | | | | | | | | | | | | Net gain on sale of assets | | | | | (6,927 | ) | | | | | | | | | | | | | (10,452 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Restructuring and other expense | | | | $ | 7,177 | | | | | | | | | | | | | | | | | | | | | | Restructuring and other income, net | | | | | | | $ | (7,421 | ) | | | | | | | | | | | | |
During fiscal 2016,2018, the following actions were taken related to the Company’s restructuring activities: In connection with the closureacquisition of the Engineered Cabs facility in Florence, South CarolinaAMTROL on June 2, 2017, 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$2,365,000 related to the disposal of assets.corporate management and other positions at AMTROL that were eliminated. 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 Company’s stainless steel business, PSM,Precision Specialty Metals, Inc. (“PSM”), the Company recognized $5,863,000 of facility exit costs of $560,000 and a net gain on disposal of assets of $10,595,000 for the sale of the real estate of this business. Net proceeds were $15,874,000. In connection with other non-significant restructuring activities, the Company recognized severance expense of $1,122,000.$184,000 and a credit to facility exit costs of $78,000. The Company also recognized a net gain of $670,000 related to theloss on 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.$143,000.
The Company recognized a gain of $1,484,000 in connection with the sale of the remaining land and building of its legacy metal framing business.
The Company recognized a gain of $1,928,000 in connection with the sale of its interest in Worthington Nitin Cylinders, the Company’s 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, 20162018 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 Company’s 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. 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 Company’s 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 consolidated financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. However, as of May 31, 2016,2018, 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$8,354,000 at May 31, 2016.2018. Based on current facts and circumstances, we have estimated the likelihood of payment pursuant to this guarantee is not probable and, determined that thetherefore, no amounts have been recognized in our consolidated financial statements. We also had in place $14,493,000 of outstanding stand-by letters of credit issued to third-party service providers at May 31, 2018. The fair value of our obligationthese guarantee instruments, based on the likely outcome ispremiums paid, was not material.material and no amounts were drawn against them at May 31, 2018.
Note G – Debt and Receivables Securitization The following table summarizes our long-term debt and short-term borrowings outstanding at May 31, 20162018 and 2015:2017: | (in thousands) | | 2016 | | | 2015 | | 2018 | | | 2017 | | Short-term borrowings | | $ | 2,651 | | | $ | 90,550 | | $ | - | | | $ | 123 | | 4.30% senior notes due August 1, 2032 | | | 200,000 | | | | - | | 4.55% senior notes due April 15, 2026 | | | 249,567 | | | | 249,524 | | | 250,000 | | | | 250,000 | | 4.60% senior notes due August 10, 2024 | | | 150,000 | | | | 150,000 | | | 150,000 | | | | 150,000 | | 6.50% senior notes due April 15, 2020 | | | 149,937 | | | | 149,920 | | | 150,000 | | | | 150,000 | | Term loans | | | 31,020 | | | | 30,429 | | | 829 | | | | 30,400 | | Other | | | 320 | | | | 320 | | | 3,899 | | | | 668 | | | | | | | | | | Total debt | | | 583,495 | | | | 670,743 | | | 754,728 | | | | 581,191 | | Unamortized discount and debt issuance costs | | | (4,360 | ) | | | (2,581 | ) | Total debt, net | | | 750,368 | | | | 578,610 | | Less: current maturities and short-term borrowings | | | 3,513 | | | | 91,391 | | | 1,474 | | | | 6,814 | | | | | | | | | | Total long-term debt | | $ | 579,982 | | | $ | 579,352 | | $ | 748,894 | | | $ | 571,796 | | | | | | | | | |
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.Maturities on long-term debt in the next five fiscal years, and the remaining years thereafter, are as follows:
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.
(in thousands) | | | | | 2019 | | $ | 1,474 | | 2020 | | | 151,111 | | 2021 | | | 639 | | 2022 | | | 656 | | 2023 | | | 541 | | Thereafter | | | 600,307 | | Total | | $ | 754,728 | |
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.Long-Term Debt
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 bearsEuros, with 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, 2019.2014. Borrowings against the facility are beingwere used for the construction of a new cryogenics manufacturing facility in Turkey. In anticipation of the planned sale of the Company’s cryogenics business in Turkey, the Company paid off this term loan and settled the derivative instrument for an immaterial loss during the fourth quarter of fiscal 2018. On July 28, 2017, we issued $200,000,000 aggregate principal amount of senior unsecured notes due August 1, 2032 (the “2032 Notes”). The 2032 Notes bear interest at a rate of 4.300%. The 2032 Notes were sold to the public at 99.901% of the principal amount thereof, to yield 4.309% to maturity. We used a portion of the net proceeds from the offering to repay amounts then outstanding under our multi-year revolving credit facility and amounts then outstanding under our revolving trade accounts receivable securitization facility, both of which are described in more detail below. We entered into an interest rate swap in June 2017, in anticipation of the issuance of the 2032 Notes. The interest rate swap had a notional amount of $150,000,000 to hedge the risk of changes in the semi-annual interest rate payments attributable to changes in the benchmark interest rate during the several days leading up to the issuance of the 2032 Notes. Upon pricing of the 2032 Notes, the derivative instrument was settled resulting in a gain of approximately $3,098,000, which was reflected in AOCI. Approximately $2,116,000 and $198,000 were allocated to debt issuance costs and the debt discount, respectively. The debt issuance costs and the debt discount were recorded on the consolidated balance sheet within long-term debt as a contra-liability. Each will continue to be amortized, through interest expense, in our consolidated statements of earnings over the term of the 2032 Notes. The unamortized portion of the debt issuance costs and debt discount was $1,998,000 and $187,000, respectively, at May 31, 2018.
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.facilities. Approximately $3,081,000, $2,256,000$2,279,000 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 debt discount were recorded on the consolidated balance sheets within long-term debt as a contra-liability, 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 continue to be recognized,amortized, 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$1,488,000 and $433,000,$344,000, respectively, at May 31, 2016.2018 and $1,677,000 and $388,000, respectively at May 31, 2017. 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. Approximately $80,000 of the aggregate proceeds were allocated to debt issuance costs. The unamortized portion of the debt issuance costs was $41,000 and $48,000 at May 31, 2018 and 2017, respectively. 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$829,000 and $1,713,000 as of May 31, 2016.2018 and 2017, respectively. 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$1,358,000, $1,486,000 and $1,358,000 of the aggregate proceeds$165,000 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,Notes, debt issuance costs, and the loss on the derivative contractdebt discount. The debt discount and debt issuance costs were recorded on the consolidated balance sheets within long-term debt as a contra-liability, short- and long-term other assets and the loss on the derivative contract within AOCI respectively.. Each will continue to be recognized,amortized, 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$272,000 and $63,000,$30,000, respectively, at May 31, 2016.2018 and $421,000 and $47,000, respectively at May 31, 2017. MaturitiesOther Financing Arrangements
We maintain a $50,000,000 revolving trade accounts receivable securitization facility (the “AR Facility”). On January 16, 2018, the Company amended the terms of the AR Facility, extending the maturity by one year to January 2019 and reducing the borrowing capacity from $100,000,000 to $50,000,000. Pursuant to the terms of the AR Facility, certain of our subsidiaries sell their accounts receivable without recourse, on long-term debta 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 $50,000,000 of undivided ownership interests in this pool of accounts receivable to a third-party bank. We retain an undivided interest in this pool and short-termare subject to risk of loss based on the collectability of the receivables from this retained interest. Because the amount eligible to be sold excludes receivables more than 90 days past due, receivables offset by an allowance for doubtful accounts due to bankruptcy or other cause, concentrations over certain limits with specific customers and certain reserve amounts, we believe additional risk of loss is minimal. As of May 31, 2018, no undivided ownership interests in this pool of accounts receivable had been sold. Facility fees of $383,000, $354,000, and $540,000 were recognized within interest expense during fiscal 2018, fiscal 2017 and fiscal 2016, respectively.
We also maintain a $500,000,000 multi-year revolving credit facility (the “Credit Facility”) with a group of lenders. On February 16, 2018, the Company amended the terms of the Credit Facility, extending the maturity by three years to February 2023. Debt issuance costs of $805,000 were incurred as a result of the renewal. These costs have been deferred and will be amortized over the life of the Credit Facility to interest expense. Borrowings under the Credit Facility have maturities of up to one year. We have the option to borrow at rates equal to an applicable margin over the LIBOR, Prime rate or Overnight Bank Funding rate. The applicable margin is determined by our credit rating. There were no borrowings outstanding under the Credit Facility at May 31, 2018. As discussed in “Note F – Guarantees,” we provided $14,493,000 in letters of credit for third-party beneficiaries as of May 31, 2018. While not drawn against at May 31, 2018, $13,245,000 of these letters of credit were issued against availability under the next five fiscal years, and the remaining years thereafter, are as follows:Credit Facility, leaving $486,755,000 available at May 31, 2018. | | | | | (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 | | 2018 | | | 2017 | | | 2016 | | (in thousands) | | Before- Tax | | Tax | | Net-of- Tax | | Before- Tax | | Tax | | Net-of- Tax | | Before- Tax | | Tax | | Net-of- Tax | | 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 | | $ | 12,744 | | | $ | - | | | $ | 12,744 | | | $ | 1,342 | | | $ | - | | | $ | 1,342 | | | $ | 4,716 | | | $ | - | | | $ | 4,716 | | Pension liability adjustment | | | (3,233 | ) | | | 1,175 | | | | (2,058 | ) | | | (5,652 | ) | | | 1,914 | | | | (3,738 | ) | | | (1,555 | ) | | | 511 | | | | (1,044 | ) | | 1,875 | | | | (309 | ) | | | 1,566 | | | | 3,400 | | | | (1,158 | ) | | | 2,242 | | | | (3,233 | ) | | | 1,175 | | | | (2,058 | ) | Cash flow hedges | | | 35,524 | | | | (13,316 | ) | | | 22,208 | | | | (18,605 | ) | | | 6,952 | | | | (11,653 | ) | | | 3,548 | | | | (1,039 | ) | | | 2,509 | | | 1,351 | | | | (392 | ) | | | 959 | | | | (4,522 | ) | | | 1,700 | | | | (2,822 | ) | | | 35,524 | | | | (13,316 | ) | | | 22,208 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other comprehensive income (loss) | | $ | 37,007 | | | $ | (12,141 | ) | | $ | 24,866 | | | $ | (58,486 | ) | | $ | 8,866 | | | $ | (49,620 | ) | | $ | 9,611 | | | $ | (528 | ) | | $ | 9,083 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other comprehensive income | | $ | 15,970 | | | $ | (701 | ) | | $ | 15,269 | | | $ | 220 | | | $ | 542 | | | $ | 762 | | | $ | 37,007 | | | $ | (12,141 | ) | | $ | 24,866 | |
Accumulated Other Comprehensive Loss:The components of the changes in accumulated other comprehensive loss for the fiscal yearyears ended May 31, 20162018 and May 31, 2017 were as follows: | | | | | | | | | | | | | | Accumulated | | | | Foreign | | | Pension | | | | | | | Other | | | | Currency | | | Liability | | | Cash Flow | | | Comprehensive | | (in thousands) | | Translation | | | Adjustment | | | Hedges | | | Loss | | Balance at May 31, 2016 | | $ | (18,728 | ) | | $ | (17,061 | ) | | $ | 7,224 | | | $ | (28,565 | ) | Other comprehensive income before reclassifications | | | 1,370 | | | | 2,841 | | | | 7,669 | | | | 11,880 | | Reclassification adjustments to income (a) | | | - | | | | 559 | | | | (12,191 | ) | | | (11,632 | ) | Income taxes | | | - | | | | (1,158 | ) | | | 1,700 | | | | 542 | | Balance at May 31, 2017 | | $ | (17,358 | ) | | $ | (14,819 | ) | | $ | 4,402 | | | $ | (27,775 | ) | Other comprehensive income before reclassifications | | | 12,371 | | | | 1,402 | | | | 14,980 | | | | 28,753 | | Reclassification adjustments to income (a) | | | - | | | | 473 | | | | (13,629 | ) | | | (13,156 | ) | Reclassification of stranded tax effects | | | - | | | | (2,818 | ) | | | 1,117 | | | | (1,701 | ) | Current income tax effect | | | - | | | | (309 | ) | | | (392 | ) | | | (701 | ) | Balance at May 31, 2018 | | $ | (4,987 | ) | | $ | (16,071 | ) | | $ | 6,478 | | | $ | (14,580 | ) |
| | | | | | | | | | | | | | | | | | | 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, 20162018 expected to be reclassified into net earnings within the succeeding twelve months is $6,792,000$5,775,000 (net of tax of $4,127,000)$1,751,000). This amount was computed using the fair value of the cash flow hedges at May 31, 2016,2018, and will change before actual reclassification from other comprehensive income to net earnings during fiscal 2017.2018.
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, 2011,26, 2014, Worthington Industries, Inc. announced that on June 25, 2014, the Board of Directors of Worthington Industries, Inc. authorized the repurchase of up to 10,000,000 of our outstanding common shares,shares. As of which none remained available for repurchase at May 31, 2015. During fiscal 2015, 1,722,332the end of the month of April, 2018 a total of 10,000,000 common shares werehad been repurchased under this authorization and, no further purchases may be made under this authorization. On June 25, 2014,September 27, 2017, the Board of Worthington Industries, Inc. authorized the repurchase of up to an additional 10,000,000 of our outstanding6,828,855 common shares. AnThe total number of common shares available for repurchase at May 31, 2018 was 6,500,000. During fiscal 2018, we repurchased 4,375,000 common shares having an aggregate cost of 3,500,000 and 2,453,855$204,267,000. During fiscal 2017, no common shares were repurchased under this authorization during fiscal 2016 and fiscal 2015, respectively. At May 31, 2016, 4,046,145common shares remained available for repurchase under thisthe then-existing authorization. During fiscal 2016, and fiscal 2015, we paid $99,847,000 and $127,360,000 to repurchaserepurchased 3,500,000 and 4,176,187 of our common shares respectively,having an aggregate cost of $99,847,000 under these authorizations.the then-existing authorization. The commonCommon shares available for repurchase under these authorizationsthe authorization currently in effect 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 participant’s current account credited to the theoretical common share option, which reflects the fair value of the Company’s 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 common shares. As a result, we account for the deferred compensation obligation credited to the theoretical common share option within equity. The amounts recorded in equity which totaled $960,000$1,218,000 and $14,560,000 for$1,259,000 during fiscal 20162018 and fiscal 2015,2017, 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 Company’s consolidated balance sheet.sheets. 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 4,886,3932,958,967 of our common shares were authorized and available for issuance in connection with the stock-based compensation plans in place at May 31, 2016.2018. We recognized pre-tax stock-based compensation expense of $15,836,000$13,758,000 ($10,056,0009,482,000 after-tax), $17,916,000$14,349,000 ($11,500,0009,112,000 after-tax), and $22,017,000$15,836,000 ($13,778,00010,056,000 after-tax) under the Plans during fiscal 2016,2018, fiscal 20152017 and fiscal 2014,2016, respectively. At May 31, 2016,2018, the total unrecognized compensation cost related to non-vested awards was $9,963,000,$14,312,000, 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 the fair market value of the underlying common shares 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) | | | | | | | | | | | 2018 | | | 2017 | | | 2016 | | Granted | | | 154 | | | | 97 | | | | 130 | | | | 90 | | | | 111 | | | | 154 | | Weighted average exercise price, per share | | $ | 30.92 | | | $ | 42.95 | | | $ | 32.21 | | | $ | 47.76 | | | $ | 42.30 | | | $ | 30.92 | | Weighted average grant date fair value, per share | | $ | 9.55 | | | $ | 17.96 | | | $ | 12.92 | | | $ | 14.99 | | | $ | 11.60 | | | $ | 9.55 | | Pre-tax stock-based compensation | | $ | 1,305 | | | $ | 1,553 | | | $ | 1,539 | | | Pre-tax stock-based compensation, net of forfeitures | | | $ | 1,203 | | | $ | 1,146 | | | $ | 1,305 | |
The weighted average fair value of stock options granted in fiscal 2016,2018, fiscal 20152017 and fiscal 20142016 was based on the Black-Scholes option pricing model with the following weighted average assumptions: | | | 2016 | | 2015 | | 2014 | | | 2018 | | | 2017 | | | 2016 | | Assumptions used: | | | | | | | | | | | | | | | | | | | Dividend yield | | | 2.33 | % | | | 1.88 | % | | | 2.28 | % | | | 1.81 | % | | | 2.59 | % | | | 2.33 | % | Expected volatility | | | 38.40 | % | | | 50.92 | % | | | 52.23 | % | | | 36.65 | % | | | 36.86 | % | | | 38.40 | % | Risk-free interest rate | | | 1.98 | % | | | 1.88 | % | | | 1.69 | % | | | 1.98 | % | | | 1.15 | % | | | 1.98 | % | Expected life (years) | | | 6.0 | | | | 6.0 | | | | 6.0 | | | | 6.0 | | | | 6.0 | | | | 6.0 | |
The following tables summarize our stock option activity for the years ended May 31: | | | | | | | | | | | | | | 2018 | | | 2017 | | | 2016 | | | | 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 | | | (in thousands, except per share amounts) | | | 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 | | | | 2,307 | | | $ | 20.99 | | | | 3,306 | | | $ | 19.01 | | | | 4,044 | | | $ | 18.25 | | Granted | | | 154 | | | | 30.92 | | | | 97 | | | | 42.95 | | | | 130 | | | | 32.21 | | | | 90 | | | | 47.76 | | | | 111 | | | | 42.30 | | | | 154 | | | | 30.92 | | Exercised | | | (874 | ) | | | 17.22 | | | | (758 | ) | | | 17.24 | | | | (828 | ) | | | 17.39 | | | | (371 | ) | | | 20.37 | | | | (1,076 | ) | | | 16.90 | | | | (874 | ) | | | 17.22 | | Forfeited | | | (18 | ) | | | 32.25 | | | | (47 | ) | | | 17.00 | | | | (67 | ) | | | 16.13 | | | | (7 | ) | | | 33.02 | | | | (34 | ) | | | 29.95 | | | | (18 | ) | | | 32.25 | | | | | | | | | | | | | | | | | | | Outstanding, end of year | | | 3,306 | | | | 19.01 | | | | 4,044 | | | | 18.25 | | | | 4,752 | | | | 17.58 | | | | 2,019 | | | | 22.26 | | | | 2,307 | | | | 20.99 | | | | 3,306 | | | | 19.01 | | | | | | | | | | | | | | | | | | | Exercisable at end of year | | | 3,059 | | | | 17.85 | | | | 3,276 | | | | 17.63 | | | | 2,996 | | | | 17.57 | | | | 1,800 | | | | 20.03 | | | | 2,067 | | | | 19.17 | | | | 3,059 | | | | 17.85 | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Weighted | | | | | | | | | | | | | Average | | | | | | | | | | | | | Remaining | | | Aggregate | | | | | Number of | | | Contractual | | | Intrinsic | | | | | Stock Options | | | Life | | | Value | | | | | (in thousands) | | | (in years) | | | (in thousands) | | May 31, 2018 | | | | | | | | | | | | | | Outstanding | | | | 2,019 | | | | 3.59 | | | $ | 51,858 | | Exercisable | | | | 1,800 | | | | 3.06 | | | $ | 50,673 | | | | | | | | | | | | | | | | May 31, 2017 | | | | | | | | | | | | | | Outstanding | | | | 2,307 | | | | 3.95 | | | $ | 48,509 | | Exercisable | | | | 2,067 | | | | 3.47 | | | $ | 47,488 | | | | 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 | | | | 3,306 | | | | 4.33 | | | $ | 61,178 | | Exercisable | | | 3,059 | | | | 4.01 | | | | 60,082 | | | | 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
The total intrinsic value of stock options exercised during fiscal 2018 was $9,084,000.$5,758,000. The total amount of cash received from the exercise of stock options during fiscal 20162018 was $7,893,000,$3,864,000, and the related excess tax benefit realized from share-based payment awards was $3,178,000.$4,075,000. The following table summarizes information about non-vested stock option awards for fiscal 2016:the year ended May 31, 2018: | | | | | | | Weighted Average | | | | | Number of | | | Grant Date | | | | | | | | Stock Options | | | Fair Value | | | | Number of Stock Options (in thousands) | | | Weighted Average Grant Date Fair Value Per Share | | | (in thousands) | | | per share | | Non-vested, beginning of year | | | 768 | | | $ | 7.66 | | | | 240 | | | $ | 9.99 | | Granted | | | 154 | | | | 8.50 | | | | 90 | | | | 14.99 | | Vested | | | (657 | ) | | | 6.63 | | | | (104 | ) | | | 11.06 | | Forfeited | | | (18 | ) | | | 7.87 | | | | (7 | ) | | | 9.59 | | | | | | | | | Non-vested, end of year | | | 247 | | | $ | 10.91 | | | | 219 | | | $ | 11.55 | | | | | | | | |
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 non-employee stock options discussed above. TheseAll service-based 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 service-basedrestricted common shares we granted during each of fiscal 2016,2018, fiscal 20152017 and fiscal 2014.2016. 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 | | | 2018 | | | 2017 | | | 2016 | | Granted | | | 217 | | | | 240 | | | | 380 | | | | 176 | | | | 525 | | | | 217 | | Weighted average grant date fair value, per share | | $ | 29.49 | | | $ | 40.05 | | | $ | 33.14 | | | $ | 47.88 | | | $ | 42.28 | | | $ | 29.49 | | Pre-tax stock-based compensation | | $ | 5,800 | | | $ | 8,660 | | | $ | 11,307 | | | Pre-tax stock-based compensation, net of forfeitures | | | $ | 7,605 | | | $ | 19,841 | | | $ | 5,800 | |
The following tables summarize the activity for ourservice-based restricted common share activityshares for the years ended May 31: | | | | | | | | | | | | | | 2018 | | | 2017 | | | 2016 | | | | 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 | | | (in thousands, except per share amounts) | | | 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 | | | | 865 | | | $ | 39.49 | | | | 698 | | | $ | 33.69 | | | | 635 | | | $ | 33.65 | | Granted | | | 217 | | | | 29.49 | | | | 240 | | | | 40.05 | | | | 380 | | | | 33.14 | | | | 176 | | | | 47.88 | | | | 525 | | | | 42.28 | | | | 217 | | | | 29.49 | | Vested | | | (120 | ) | | | 24.14 | | | | (142 | ) | | | 23.32 | | | | (185 | ) | | | 17.17 | | | | (205 | ) | | | 40.96 | | | | (310 | ) | | | 31.81 | | | | (120 | ) | | | 24.14 | | Forfeited | | | (34 | ) | | | 34.53 | | | | (36 | ) | | | 32.62 | | | | (21 | ) | | | 30.70 | | | | (40 | ) | | | 41.58 | | | | (48 | ) | | | 38.82 | | | | (34 | ) | | | 34.53 | | | | | | | | | | | | | | | | | | | Outstanding, end of year | | | 698 | | | | 33.69 | | | | 635 | | | | 33.65 | | | | 573 | | | | 28.36 | | | | 796 | | | | 40.80 | | | | 865 | | | | 39.49 | | | | 698 | | | | 33.69 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 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 | | | | | Weighted average remaining contractual life of | | | | | | | | | | | | | | | | | | | | | | | | | | outstanding restricted common shares (in years) | | | | 1.21 | | | | | | | | 1.57 | | | | | | | | 1.04 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Aggregate intrinsic value of outstanding restricted | | | | | | | | | | | | | | | | | | | | | | | | | | common shares | | | $ | 38,160 | | | | | | | $ | 36,298 | | | | | | | $ | 26,059 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Aggregate intrinsic value of restricted common shares | | | | | | | | | | | | | | | | | | | | | | | | | | vested during the year | | | $ | 10,330 | | | | | | | $ | 12,840 | | | | | | | $ | 3,527 | | | | | |
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 market-based 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$1,603,000. In fiscal 2016, 25,000 of these shares were cancelled. At May 31, 2018, the remaining vesting period.25,000 restricted common shares were outstanding. 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, 20172018, 2019 and 2018.2020. 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 2016,2018, fiscal 20152017 and fiscal 2014:2016: | (in thousands, except per share amounts) | | 2016 | | | 2015 | | | 2014 | | | 2018 | | | 2017 | | | 2016 | | Granted | | | 87 | | | | 61 | | | | 59 | | | | 54 | | | | 67 | | | | 87 | | Weighted average grant date fair value, per share | | $ | 30.12 | | | $ | 42.71 | | | $ | 33.33 | | | $ | 50.61 | | | $ | 44.91 | | | $ | 31.12 | | Pre-tax stock-based compensation | | $ | 2,623 | | | $ | 2,611 | | | $ | 1,958 | | | $ | 2,748 | | | $ | 2,995 | | | $ | 2,623 | |
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 anon-contributory non‑contributory pension plan, which covers certain employees based on age and length of service. Our contributions have complied with ERISA’sERISA's 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. 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 | | | 2018 | | | 2017 | | | 2016 | | Defined benefit plan: | | | | | | | | | | | | | | | | | | | Interest cost | | $ | 1,621 | | | $ | 1,541 | | | $ | 1,403 | | | $ | 1,522 | | | $ | 1,527 | | | $ | 1,621 | | Actual return (loss) on plan assets | | | (1,154 | ) | | | 1,846 | | | | 2,524 | | | Actuarial (return) loss on plan assets | | | | (1,361 | ) | | | (2,224 | ) | | | 1,154 | | Net amortization and deferral | | | (356 | ) | | | (3,641 | ) | | | (4,175 | ) | | | (20 | ) | | | 1,025 | | | | (2,664 | ) | | | | | | | | | | | | Net periodic pension cost (benefit) on defined benefit plan | | | 111 | | | | (254 | ) | | | (248 | ) | | Net periodic pension cost on defined benefit plan | | | | 141 | | | | 328 | | | | 111 | | Defined contribution plans | | | 13,300 | | | | 13,270 | | | | 12,586 | | | | 14,972 | | | | 14,542 | | | | 13,300 | | | | | | | | | | | | | Total retirement plan cost | | $ | 13,411 | | | $ | 13,016 | | | $ | 12,338 | | | $ | 15,113 | | | $ | 14,870 | | | $ | 13,411 | | | | | | | | | | | | |
The following actuarial assumptions were used for our defined benefit plan: | | | 2016 | | 2015 | | 2014 | | | 2018 | | | 2017 | | | 2016 | | To determine benefit obligation: | | | | | | | | | | | | | | | | | | | Discount rate | | | 3.75 | % | | | 4.07 | % | | | 4.38 | % | | | 4.02 | % | | | 3.94 | % | | | 3.75 | % | To determine net periodic pension cost: | | | | | | | | | | | | | | | | | | | Discount rate | | | 4.07 | % | | | 4.38 | % | | | 4.44 | % | | | 3.94 | % | | | 3.75 | % | | | 4.07 | % | Expected long-term rate of return | | | 7.00 | % | | | 7.00 | % | | | 8.00 | % | | | 7.00 | % | | | 7.00 | % | | | 7.00 | % | Rate of compensation increase | | | n/a | | | | n/a | | | | n/a | | | 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 Plan’s expected long-term rate of return in fiscal 2016,2018, fiscal 20152017 and fiscal 20142016 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 employee’s 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 forof the Gerstenslager Plan during fiscal 2016 and fiscal 2015 as of, and for the respective measurement dates:fiscal years ended May 31: | (in thousands) | | May 31, 2016 | | | May 31, 2015 | | | 2018 | | | 2017 | | Change in benefit obligation | | | | | | | | | | | | | Benefit obligation, beginning of year | | $ | 40,227 | | | $ | 35,539 | | | $ | 39,174 | | | $ | 41,168 | | Interest cost | | | 1,621 | | | | 1,541 | | | | 1,522 | | | | 1,527 | | Actuarial loss | | | 759 | | | | 3,924 | | | Actuarial gain | | | | (1,516 | ) | | | (2,459 | ) | Benefits paid | | | (1,439 | ) | | | (777 | ) | | | (1,170 | ) | | | (1,062 | ) | | | | | | | | | Benefit obligation, end of year | | $ | 41,168 | | | $ | 40,227 | | | Benefits obligation, end of year | | | $ | 38,010 | | | $ | 39,174 | | | | | | | | | | | | | | | | | Change in plan assets | | | | | | | | | | | | | Fair value, beginning of year | | $ | 28,159 | | | $ | 26,470 | | | $ | 27,022 | | | $ | 25,566 | | Actual return (loss) on plan assets | | | (1,154 | ) | | | 1,846 | | | Actuarial return on plan assets | | | | 1,361 | | | | 2,224 | | Company contributions | | | - | | | | 620 | | | | - | | | | 294 | | Benefits paid | | | (1,439 | ) | | | (777 | ) | | | (1,171 | ) | | | (1,062 | ) | | | | | | | | | Fair value, end of year | | $ | 25,566 | | | $ | 28,159 | | | | 27,212 | | | | 27,022 | | | | | | | | | | Funded status | | $ | (15,602 | ) | | $ | (12,068 | ) | | $ | (10,798 | ) | | $ | (12,152 | ) | | | | | | | | | | | | | | | | Amounts recognized in the consolidated balance sheets consist of: | | | | | | | | | | | | | Other liabilities | | $ | (15,602 | ) | | $ | (12,068 | ) | | $ | (10,798 | ) | | $ | (12,152 | ) | Accumulated other comprehensive loss | | | 21,324 | | | | 17,900 | | | | 16,343 | | | | 17,839 | | | | | | | | | | | | Amounts recognized in accumulated other comprehensive loss consist of: | | | | | | | | | | | | | Net loss | | | 21,324 | | | | 17,900 | | | | 16,343 | | | | 17,839 | | | | | | | | | | Total | | $ | 21,324 | | | $ | 17,900 | | | $ | 16,343 | | | $ | 17,839 | | | | | | | | | |
The following table shows other changes in plan assets and benefit obligations recognized in OCI during the fiscal yearyears 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 | ) | | | | | | | | | |
(in thousands) | | 2018 | | | 2017 | | Net actuarial gain | | $ | 1,023 | | | $ | 2,926 | | Amortization of net loss | | | 473 | | | | 559 | | Total recognized in other comprehensive income | | $ | 1,496 | | | $ | 3,485 | | Total recognized in net periodic benefit cost and other comprehensive income | | $ | 1,355 | | | $ | 3,157 | |
The estimated net loss for the defined benefit plan that will be amortized from AOCI into net periodic pension cost over theduring fiscal year ending May 31, 20172019 is $559,000.$441,000. 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 plan’s assets measured at fair value on a recurring basis at May 31, 2018: | | | | | | Quoted | | | Significant | | | | | | | | | | | | Prices | | | Other | | | Significant | | | | | | | | in Active | | | Observable | | | Unobservable | | | | | | | | Markets | | | Inputs | | | Inputs | | (in thousands) | | Fair Value | | | (Level 1) | | | (Level 2) | | | (level 3) | | Investment: | | | | | | | | | | | | | | | | | Money market funds | | $ | 291 | | | $ | 291 | | | $ | - | | | $ | - | | Bond funds | | | 14,887 | | | | 14,887 | | | | - | | | | - | | Equity funds | | | 12,034 | | | | 12,034 | | | | - | | | | - | | Total | | $ | 27,212 | | | $ | 27,212 | | | $ | - | | | $ | - | |
The following table sets forth, by level within the fair value hierarchy, a summary of the defined benefit plan’s assets measured at fair value on a recurring basis at May 31, 2016:2017: | | | | | | | | | | | | | | | | | (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 plan’s assets measured at fair value on a recurring basis at May 31, 2015:
| | | | | | Quoted | | | Significant | | | | | | | | | | | | Prices | | | Other | | | Significant | | | | | | | | in Active | | | Observable | | | Unobservable | | | | | | | | Markets | | | Inputs | | | Inputs | | (in thousands) | | Fair Value | | | (Level 1) | | | (Level 2) | | | (level 3) | | Investment: | | | | | | | | | | | | | | | | | Money market funds | | $ | 294 | | | $ | 294 | | | $ | - | | | $ | - | | Bond funds | | | 14,613 | | | | 14,613 | | | | - | | | | - | | Equity funds | | | 12,115 | | | | 12,115 | | | | - | | | | - | | Total | | $ | 27,022 | | | $ | 27,022 | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | | | | | (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. Plan assets for the defined benefit plan consisted principally of the following as of the respective measurement dates: | | | | | | May 31, | | | May 31, | | | | May 31, 2016 | | May 31, 2015 | | | 2018 | | | 2017 | | Asset category | | | | | | Asset category: | | | | | | | | | | Equity securities | | | 50 | % | | | 53 | % | | | 44 | % | | | 45 | % | Debt securities | | | 49 | % | | | 41 | % | | | 55 | % | | | 54 | % | Other | | | 1 | % | | | 6 | % | | | 1 | % | | | 1 | % | | | | | | | | | Total | | | 100 | % | | | 100 | % | | | 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;defined benefit plan’s liability growth rate; and (iii) to include a strategicdiversified asset allocation of 60%-80%domestic and international equities including international, and 20%-40% fixed income investments. No employerWe have already contributed $104,000 in fiscal 2019 and have five contributions are expected to be made to the defined benefit plan duringplanned for fiscal 2017.2019 totaling $876,000.
The following estimated future benefits, which reflect expected future service, as appropriate, are expected to be paid under the defined benefit plan during the fiscal years noted: | (in thousands) | | | | | | | | 2017 | | $ | 927 | | | 2018 | | $ | 1,005 | | | 2019 | | $ | 1,099 | | | $ | 1,223 | | 2020 | | $ | 1,173 | | | $ | 1,237 | | 2021 | | $ | 1,291 | | | $ | 1,275 | | 2022-2026 | | $ | 8,470 | | | 2022 | | | $ | 1,382 | | 2023 | | | $ | 1,476 | | 2024-2028 | | | $ | 9,066 | |
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$6,561,000 and $5,564,000$6,149,000 at May 31, 20162018 and 2015,2017, respectively, and was included in other liabilities on the consolidated balance sheets. Net periodic pension cost for these plans was $617,000, $718,000,$601,000, $554,000, and $677,000,$617,000, for fiscal 2016,2018, fiscal 20152017 and fiscal 2014,2016, respectively. The assumed salary rate increase was 2.75%, 2.75%, and 2.75% for fiscal 2016 and 3.0% for each of2018, fiscal 20152017 and fiscal 2014.2016, respectively. The discount rate at May 31, 2016, 20152018, 2017 and 20142016 was 1.75%1.80%, 1.60%, and 3.25%1.75%, 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 On December 22, 2017, the TCJA was enacted into federal law. The TCJA significantly revised the U.S. corporate income tax system by lowering the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018. In addition, the TCJA added several new provisions including changes to bonus depreciation, the deduction for executive compensation, a tax on global intangible low-taxed income (“GILTI”), the base erosion anti-abuse tax (“BEAT”) and a deduction for foreign-derived intangible income (“FDII”). Many of these provisions, including the tax on GILTI, the BEAT and the deduction for FDII, do not apply to the Company until June 1, 2018. The Company has elected to account for the tax on GILTI as a period cost and thus has not adjusted any of the deferred tax assets and liabilities of its foreign subsidiaries for the new tax. The two material items that impacted the Company for fiscal 2018 were the reduction in the tax rate and a one-time mandatory deemed repatriation tax imposed on the Company’s unremitted foreign earnings. Due to the Company’s fiscal year, the Company’s fiscal 2018 U.S. federal blended statutory income tax rate is 29.2%. The Company’s U.S. federal statutory income tax rate will be 21.0% starting June 1, 2018. Consistent with applicable Securities and Exchange Commission guidance in Staff Accounting Bulletin 118 (“SAB118”), the Company has made a reasonable estimate of the one-time mandatory deemed repatriation tax required by the TCJA. As such, the Company recognized a provisional income tax expense of $6.9 million for the one-time mandatory deemed repatriation tax for fiscal 2018. SAB118 allows companies to use a measurement period, similar to that used in business combinations, to account for the impacts of the TCJA in their consolidated financial statements. The Company considers key estimates on the deemed repatriation tax to be incomplete due to our continuing analysis of final year-end data and the impact of expected further authoritative guidance and interpretations. We expect to complete our analysis of the amount recorded within the measurement period of one year from the enactment of the TCJA.
Earnings before income taxes for the three fiscal years ended May 31 include the following components: | (in thousands) | | 2016 | | | 2015 | | | 2014 | | | 2018 | | | 2017 | | | 2016 | | United States based operations | | $ | 180,467 | | | $ | 104,732 | | | $ | 210,783 | | | $ | 177,088 | | | $ | 266,222 | | | $ | 180,467 | | Non – United States based operations | | | 36,148 | | | | 8,296 | | | | 6,718 | | | | 31,982 | | | | 30,905 | | | | 36,148 | | | | | | | | | | | | | Earnings before income taxes | | | 216,615 | | | | 113,028 | | | | 217,501 | | | | 209,070 | | | | 297,127 | | | | 216,615 | | Less: Net earnings attributable to noncontrolling interests* | | | 13,913 | | | | 10,471 | | | | 8,852 | | | | 6,056 | | | | 13,422 | | | | 13,913 | | | | | | | | | | | | | Earnings before income taxes attributable to controlling interest | | $ | 202,702 | | | $ | 102,557 | | | $ | 208,649 | | | $ | 203,014 | | | $ | 283,705 | | | $ | 202,702 | | | | | | | | | | | | |
| * | Net earnings attributable to noncontrolling interests are not taxable to Worthington. |
Significant components of income tax expense (benefit) for the fiscal years ended May 31 were as follows: | (in thousands) | | 2016 | | | 2015 | | | 2014 | | | 2018 | | | 2017 | | | 2016 | | Current | | | | | | | | | | | | | | | | | | | Federal | | $ | 42,837 | | | $ | 57,511 | | | $ | 73,149 | | | $ | 33,261 | | | $ | 50,200 | | | $ | 42,837 | | State and local | | | 2,157 | | | | 2,731 | | | | 3,537 | | | | 3,292 | | | | 2,954 | | | | 2,157 | | Foreign | | | 6,639 | | | | 5,490 | | | | 6,579 | | | | 9,904 | | | | 7,593 | | | | 6,639 | | | | | | | | | | | | | | | | 51,633 | | | | 65,732 | | | | 83,265 | | | | | | | | | | | | | | | 46,457 | | | | 60,747 | | | | 51,633 | | Deferred | | | | | | | | | | | | | | | | | | | Federal | | | 7,584 | | | | (37,839 | ) | | | (25,453 | ) | | | (34,442 | ) | | | 18,177 | | | | 7,584 | | State and local | | | 934 | | | | (754 | ) | | | (1,194 | ) | | | 388 | | | | 476 | | | | 934 | | Foreign | | | (1,164 | ) | | | (1,367 | ) | | | 731 | | | | (4,183 | ) | | | (210 | ) | | | (1,164 | ) | | | | | | | | | | | | | (38,237 | ) | | | 18,443 | | | | 7,354 | | | | | 7,354 | | | | (39,960 | ) | | | (25,916 | ) | | $ | 8,220 | | | $ | 79,190 | | | $ | 58,987 | | | | | | | | | | | | | | | $ | 58,987 | | | $ | 25,772 | | | $ | 57,349 | | | | | | | | | | | | | |
Due to the adoption of amended accounting guidance
The tax benefit related to the accounting for share-based paymentspurchase of noncontrolling interest 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 weredHybrid Systems, LLC credited to additional paid-in capital inwas $539,000 for fiscal 2016.2017. 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(expense) related to defined benefit pension liability that were credited to (deducted from) OCI were $1,175,000, $1,914,000,$(309,000), $(1,158,000), and $511,000$1,175,000 for fiscal 2016,2018, fiscal 20152017 and fiscal 2014,2016, respectively. Tax benefits (expenses) related to cash flow hedges that were credited to (deducted from) OCI were $(13,316,000)$(392,000), $6,952,000,$1,700,000, and $(1,039,000)$(13,316,000) for fiscal 2016,2018, fiscal 20152017 and fiscal 2014,2016, respectively. A reconciliation of the 35% federal statutory corporate income 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 | % | | | | | | | | | | | | | |
| | 2018 | | | 2017 | | | 2016 | | Federal statutory corporate income tax rate | | | 29.2 | % | | | 35.0 | % | | | 35.0 | % | State and local income taxes, net of federal tax benefit | | | 2.3 | | | | 1.5 | | | | 1.5 | | Non-U.S. income taxes at other than federal statutory rate | | | (1.4 | ) | | | (1.4 | ) | | | (3.0 | ) | Qualified production activities deduction | | | (2.3 | ) | | | (1.9 | ) | | | (2.2 | ) | Impact of tax reform (1) | | | (15.4 | ) | | | - | | | | - | | Worthington Aritas write down | | | (4.8 | ) | | | - | | | | - | | Excess benefit related to share-based payment awards | | | (2.0 | ) | | | (5.7 | ) | | | (1.6 | ) | AMTROL acquisition | | | (1.9 | ) | | | - | | | | - | | Other | | | 0.3 | | | | 0.4 | | | | (0.6 | ) | Effective tax rate attributable to controlling interest | | | 4.0 | % | | | 27.9 | % | | | 29.1 | % |
| (1) | Amount reflects the impact of the re-measurement of the Company’s deferred tax balances at the lower federal statutory corporate income tax rate, net of the mandatory deemed repatriation tax on unremitted foreign earnings. |
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%3.9%, 22.8%26.7% and 26.4%27.2% for fiscal 2016,2018, fiscal 20152017 and fiscal 2014,2016, respectively. The change in effective income tax rates, upon inclusion of netNet earnings attributable to noncontrolling interests isare primarily a result of our WSP, Spartan, Worthington Nitin Cylinders, Worthington Aritas, and TWB consolidated joint ventures.ventures and Worthington Aritas through May 23, 2018, which is the date we purchased the remaining 25% ownership interest. The earnings attributable to the noncontrolling interests in WSP, Spartan and TWB’s U.S. operations do not generate tax expense to Worthington since the investors in WSP, Spartan and TWB’s U.S. operations are taxed directly based on the earnings attributable to them. The tax expense of Worthington Aritas a(a foreign corporation,corporation), and TWB’s wholly-owned foreign corporations, is reported in our consolidated tax expense. Since the consolidation of TWB on July 31, 2013, the tax expense of TWB’s 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,$2,638,000, $2,975,000, and $4,110,000$2,827,000 as of May 31, 2016, 20152018, 2017 and 2014,2016, 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$2,235,000 as of May 31, 2016.2018. 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, 20152018, 2017 and 2014,2016, we had accrued liabilities of $538,000, $947,000$271,000, $307,000 and $1,049,000,$538,000, 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 | | | | | | |
(In thousands) | | | | | Balance at May 31, 2017 | | $ | 2,975 | | Decreases - tax positions taken in prior years | | | (107 | ) | Increases - tax positions taken in prior years | | | 81 | | Increases - current tax positions | | | 12 | | Settlements | | | (184 | ) | Lapse of statutes of limitations | | | (139 | ) | Balance at May 31, 2018 | | $ | 2,638 | |
Approximately $404,000$753,000 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 – 2013–2015 and forward U.S. State and Local – 2012–2013 and forward Austria – 2013 and forward Canada – 2012–2014 and forward Mexico – 20102013 and forward Earnings before income taxes attributable to foreign sources for fiscal 2016, fiscal 2015Portugal – 2014 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 foreignforward
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) | | 2018 | | | 2017 | | Deferred tax assets | | | | | | | | | Accounts receivable | | $ | 1,455 | | | $ | 2,157 | | Inventories | | | 5,004 | | | | 6,624 | | Accrued expenses | | | 23,219 | | | | 30,065 | | Net operating loss carry forwards | | | 14,201 | | | | 13,256 | | Tax credit carry forwards | | | 811 | | | | 3,206 | | Stock-based compensation | | | 10,588 | | | | 17,668 | | Other | | | 502 | | | | 205 | | Total deferred tax assets | | | 55,780 | | | | 73,181 | | Valuation allowance for deferred tax assets | | | (14,006 | ) | | | (12,987 | ) | Net deferred tax assets | | | 41,774 | | | | 60,194 | | Deferred tax liabilities | | | | | | | | | Property, plant and equipment | | | (74,512 | ) | | | (42,599 | ) | Investment in affiliated companies, principally due to undistributed earnings | | | (22,918 | ) | | | (46,001 | ) | Derivative contracts | | | (2,653 | ) | | | (1,745 | ) | Other | | | (1,879 | ) | | | (4,149 | ) | Total deferred tax liability | | | (101,962 | ) | | | (94,494 | ) | Net deferred tax liability | | $ | (60,188 | ) | | $ | (34,300 | ) |
| | | | | | | | | (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, 2016,2018, we had tax benefits for state net operating loss carry forwards of $9,615,000$9,363,000 that expire from fiscal 20172019 to the fiscal year ending May 31, 2036,2038, tax benefits for foreign net operating loss carry forwards of $3,141,000$4,837,000 that expire from fiscal 20182019 to the fiscal year ending May 31, 2036,2023, tax benefits for foreign investment tax credit carry forwards of $649,000, that expire in the fiscal year ending May 31, 2025, and a tax benefitbenefits for foreign income tax credit carry forwards of $3,127,000,$162,000, that expire from fiscal 2025 toin the fiscal year ending May 31, 2026.2028.
The valuation allowance for deferred tax assets of $11,796,000$14,006,000 at May 31, 20162018 is associated primarily with the net operating loss carry forwards. The valuation allowance includes $9,395,000$9,537,000 for state and $2,401,000$4,469,000 for foreign.foreign deferred tax assets. The majority of the state valuation allowance relates to our facility in Decatur, Alabama. The foreign valuation allowance relates to the Company’s 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 fiscal years ended May 31: | (in thousands, except per share amounts) | | 2016 | | | 2015 | | | 2014 | | 2018 | | | 2017 | | | 2016 | | Numerator (basic & diluted): | | | | | | | | | | | | | | | | | | Net earnings attributable to controlling interest – income available to common shareholders | | $ | 143,715 | | | $ | 76,785 | | | $ | 151,300 | | | Net earnings attributable to controlling interest - income available to | | | | | | | | | | | | | common shareholders | | $ | 194,794 | | | $ | 204,515 | | | $ | 143,715 | | Denominator: | | | | | | | | | | | | | | | | | | Denominator for basic earnings per share attributable to controlling interest – weighted average common shares | | | 62,469 | | | | 66,309 | | | | 68,944 | | | Denominator for basic earnings per share attributable to controlling | | | | | | | | | | | | | interest - weighted average common shares | | | 60,923 | | | | 62,443 | | | | 62,469 | | Effect of dilutive securities | | | 2,286 | | | | 2,174 | | | | 2,720 | | | 2,119 | | | | 2,431 | | | | 2,286 | | | | | | | | | | | | | Denominator for diluted earnings per share attributable to controlling interest – adjusted weighted average common shares | | | 64,755 | | | | 68,483 | | | | 71,664 | | | | | | | | | | | | | | Denominator for diluted earnings per share attributable to controlling | | | | | | | | | | | | | interest - adjusted weighted average common shares | | | 63,042 | | | | 64,874 | | | | 64,755 | | Basic earnings per share attributable to controlling interest | | $ | 2.30 | | | $ | 1.16 | | | $ | 2.19 | | $ | 3.20 | | | $ | 3.28 | | | $ | 2.30 | | Diluted earnings per share attributable to controlling interest | | | 2.22 | | | | 1.12 | | | | 2.11 | | $ | 3.09 | | | $ | 3.15 | | | $ | 2.22 | |
Stock options covering 326,585, 97,798,188,504, 100,048, and 7,945326,585 common shares for fiscal 2016,2018, fiscal 20152017 and fiscal 2014,2016, respectively, have been excluded from the computation of diluted earnings per share because the effect of their inclusion 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,Effective June 1, 2017, we made certain organizational changes impacting the internal reporting and management structure of our Steel Worthington Steelpac Systems, LLC (“Packaging operating segment.Solutions”). As a result of these organizational changes, management responsibilities and internal reporting were realigned, under ourmoving Packaging Solutions from the Steel Processing operating segment to the Engineered Cabs operating segment. SegmentPreviously reported segment information reported in previous periods has not been restated to conform to this new presentation.presentation and is immaterial for all periods presented.
Steel Processing: The Steel Processing operatingreportable 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.United States Steel Corporation 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 segment’s 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 leveling, and non-metallic coating, including acrylic and paint coating. Worthington Steel sells to customers principally in the automotive, 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. Steel Processing also includes the results of Packaging Solutions through May 31, 2017. The percentage of our consolidated net sales generated by Steel Processing was approximately 63%, 69% and 65%, in fiscal 2018, fiscal 2017 and fiscal 2016, respectively. Pressure Cylinders: The Pressure Cylinders operatingreportable segment consists of the Worthington Cylinders business unit and two consolidated joint ventures:Worthington Aritas. Worthington Aritas is a Turkish manufacturer of cryogenic pressure vessels for LNG and other gas storage applications;applications. During the fourth quarter of fiscal 2018, management committed to a plan to sell the Company’s cryogenics business in Turkey and dHybrid, which manufactures CNG fuel systemsthe net assets of the asset group have been presented separately as assets held for heavy duty, refuse and other trucks out of a facilitysale in Salt Lake City, Utah.our consolidated balance sheets. The percentage of our consolidated net sales generated by Pressure Cylinders was approximately 34%, 28% and 30% in each of fiscal 2016,2018, fiscal 20152017 and fiscal 2014. Our2016, respectively. We acquired AMTROL on June 2, 2017, which has been included in the Pressure Cylinders operatingreportable segment since that date, and accounted for approximately 7%of our consolidated net sales in fiscal 2018.
Pressure Cylinders manufactures and sells filled and unfilled pressure cylinders, tanks, hand torches, well water and expansion tanks, 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 cylinderscryogenic equipment, and joining products such as soldersystems and brazing rodsservices for handling liquid gasses, and other specialty products. Cylinders in these marketsthis market sector 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). Cryogenic equipment and systems 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. 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 such as solder and brazing rods, and Balloon Time® helium-filled balloon kits, well water tanks and expansion tanks. These products are sold primarily to mass merchandisers and distributors. | • | | 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.
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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 market sector also includes hoists and other marine products which are used principally in shipyard lift systems. This market 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 The Engineered Cabs reportable 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 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. Engineered Cabs also includes Packaging Solutions, effective June 1, 2017. Packaging Solutions designs and manufactures reusable custom steel platforms, racks and pallets for supporting, protecting and handling products throughout the shipping process. For fiscal 2018, fiscal 2017 and fiscal 2016, the percentage of our consolidated net sales generated by the Engineered Cabs operating segment was approximately 3%, 3%, and 4%, respectively. Other:Other: The Other category includes the Construction Services andformer Worthington Energy Innovations operating segments,segment, as they doit did not meet the quantitative thresholds for separate disclosure.disclosure prior to disposal of a 65% stake effective March 31, 2018. 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,Other, including costs associated 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. WEI’s financial results are reported within theour captive insurance company. The Other category foralso includes the results of our former Construction Services operating segment, reporting purposes.on a historical basis, through May 31, 2016.
The accounting policies of the reportable business segments and other operating segments are described in “Note“Note A – Summary of Significant Accounting Policies.” We evaluate operating segment performance based on operating income (loss).Inter-segment. Inter-segment sales are not material.
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 | | 2018 | | | 2017 | | | 2016 | | Net sales | | | | | | | | | | | | | | | | | | Steel Processing | | $ | 1,843,661 | | | $ | 2,145,744 | | | $ | 1,936,073 | | $ | 2,252,771 | | | $ | 2,074,869 | | | $ | 1,843,661 | | Pressure Cylinders | | | 844,898 | | | | 1,001,402 | | | | 928,396 | | | 1,206,183 | | | | 829,846 | | | | 844,898 | | Engineered Cabs | | | 121,946 | | | | 192,953 | | | | 200,528 | | | 116,631 | | | | 101,388 | | | | 121,946 | | Other | | | 9,209 | | | | 44,135 | | | | 61,429 | | | 6,035 | | | | 8,005 | | | | 9,209 | | | | | | | | | | | | | Total net sales | | $ | 2,819,714 | | | $ | 3,384,234 | | | $ | 3,126,426 | | $ | 3,581,620 | | | $ | 3,014,108 | | | $ | 2,819,714 | | | | | | | | | | | | | | | | | | | | | | | Operating income (loss) | | | | | | | | | | | | | | | | | | Steel Processing | | $ | 112,001 | | | $ | 108,707 | | | $ | 119,025 | | $ | 152,690 | | | $ | 170,481 | | | $ | 112,001 | | Pressure Cylinders | | | 28,375 | | | | 58,113 | | | | 55,004 | | | 23,396 | | | | 54,098 | | | | 28,375 | | Engineered Cabs | | | (19,331 | ) | | | (97,260 | ) | | | (26,516 | ) | | (11,305 | ) | | | (7,685 | ) | | | (19,331 | ) | Other | | | 1,007 | | | | (9,003 | ) | | | (11,760 | ) | | (23,171 | ) | | | (3,773 | ) | | | 1,007 | | | | | | | | | | | | | Total operating income | | $ | 122,052 | | | $ | 60,557 | | | $ | 135,753 | | $ | 141,610 | | | $ | 213,121 | | | $ | 122,052 | | | | | | | | | | | | | | | | | | | | | | | Depreciation and amortization | | | | | | | | | | | | | | | | | | Steel Processing | | $ | 38,523 | | | $ | 34,526 | | | $ | 32,882 | | $ | 43,331 | | | $ | 42,861 | | | $ | 38,523 | | Pressure Cylinders | | | 32,403 | | | | 34,953 | | | | 31,984 | | | 46,691 | | | | 31,052 | | | | 32,403 | | Engineered Cabs | | | 6,205 | | | | 10,184 | | | | 10,027 | | | 5,415 | | | | 5,197 | | | | 6,205 | | Other | | | 7,568 | | | | 5,426 | | | | 4,837 | | | 7,922 | | | | 7,683 | | | | 7,568 | | | | | | | | | | | | | Total depreciation and amortization | | $ | 84,699 | | | $ | 85,089 | | | $ | 79,730 | | $ | 103,359 | | | $ | 86,793 | | | $ | 84,699 | | | | | | | | | | | | | | | | | | | | | | | Impairment of goodwill and long-lived assets | | | | | | | | | | | | | | | | | | Steel Processing | | $ | - | | | $ | 3,050 | | | $ | 7,141 | | $ | - | | | $ | - | | | $ | - | | Pressure Cylinders | | | 22,962 | | | | 11,911 | | | | 32,005 | | | 53,883 | | | | - | | | | 22,962 | | Engineered Cabs | | | 3,000 | | | | 83,989 | | | | 19,100 | | | - | | | | - | | | | 3,000 | | Other | | | - | | | | 1,179 | | | | - | | | 7,325 | | | | - | | | | - | | | | | | | | | | | | | Total impairment of goodwill and long-lived assets | | $ | 25,962 | | | $ | 100,129 | | | $ | 58,246 | | $ | 61,208 | | | $ | - | | | $ | 25,962 | | | | | | | | | | | | | | | | | | | | | | | Restructuring and other expense (income) | | | | | | | | Restructuring and other expense (income), net | | | | | | | | | | | | | Steel Processing | | $ | 4,110 | | | $ | 72 | | | $ | (3,382 | ) | $ | (10,087 | ) | | $ | 1,828 | | | $ | 4,110 | | Pressure Cylinders | | | 392 | | | | 6,408 | | | | (745 | ) | | 2,365 | | | | 3,411 | | | | 392 | | Engineered Cabs | | | 3,570 | | | | (332 | ) | | | - | | | (78 | ) | | | 1,219 | | | | 3,570 | | Other | | | (895 | ) | | | 779 | | | | 2,251 | | | 379 | | | | (47 | ) | | | (895 | ) | | | | | | | | | | | | Total restructuring and other expense (income) | | $ | 7,177 | | | $ | 6,927 | | | $ | (1,876 | ) | | Total restructuring and other expense (income), net | | $ | (7,421 | ) | | $ | 6,411 | | | $ | 7,177 | | | | | | | | | | | | | | | | | | | | | | | Total assets | | | | | | | | | | | | | | | | | | Steel Processing | | $ | 819,853 | | | $ | 829,116 | | | $ | 850,748 | | $ | 999,238 | | | $ | 882,863 | | | $ | 819,853 | | Pressure Cylinders | | | 787,786 | | | | 804,799 | | | | 818,720 | | | 1,147,268 | | | | 766,611 | | | | 787,786 | | Engineered Cabs | | | 75,124 | | | | 94,506 | | | | 181,251 | | | 66,456 | | | | 62,141 | | | | 75,124 | | Other | | | 380,992 | | | | 356,721 | | | | 445,662 | | | 408,825 | | | | 613,729 | | | | 378,501 | | | | | | | | | | | | | Total assets | | $ | 2,063,755 | | | $ | 2,085,142 | | | $ | 2,296,381 | | $ | 2,621,787 | | | $ | 2,325,344 | | | $ | 2,061,264 | | | | | | | | | | | | | | | | | | | | | | | Capital expenditures | | | | | | | | | | | | | | | | | | Steel Processing | | $ | 42,063 | | | $ | 34,546 | | | $ | 16,682 | | $ | 31,966 | | | $ | 40,775 | | | $ | 42,063 | | Pressure Cylinders | | | 29,916 | | | | 35,872 | | | | 32,364 | | | 32,697 | | | | 24,798 | | | | 29,916 | | Engineered Cabs | | | 6,945 | | | | 8,951 | | | | 10,351 | | | 2,067 | | | | 755 | | | | 6,945 | | Other | | | 18,112 | | | | 16,886 | | | | 11,941 | | | 9,358 | | | | 2,058 | | | | 18,112 | | | | | | | | | | | | | Total capital expenditures | | $ | 97,036 | | | $ | 96,255 | | | $ | 71,338 | | $ | 76,088 | | | $ | 68,386 | | | $ | 97,036 | | | | | | | | | | | | |
The following table presents net sales by geographic region for the fiscal 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 | | | | | | | | | | | | | | |
(in thousands) | | 2018 | | | 2017 | | | 2016 | | North America | | $ | 3,275,090 | | | $ | 2,805,182 | | | $ | 2,662,196 | | International | | | 306,530 | | | | 208,926 | | | | 157,518 | | Total | | $ | 3,581,620 | | | $ | 3,014,108 | | | $ | 2,819,714 | |
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 | | | | | | | | | | |
(in thousands) | | 2018 | | | 2017 | | North America | | $ | 512,439 | | | $ | 501,776 | | International | | | 72,531 | | | | 68,713 | | Total | | $ | 584,970 | | | $ | 570,489 | |
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 Company’s 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.
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 WhartonAMTROL
On December 7, 2015,June 2, 2017, the Company acquired AMTROL, a leading manufacturer of pressure cylinders and water system tanks with operations in 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 propertyU.S. and manufacturing assets of Taylor Wharton focused on the cryogenic industrial and LNG markets.Europe. The total purchase price was $30,584,000$291,921,000 after adjusting for an estimatedexcess working capital deficit of $772,000.and was funded primarily with cash on hand. The acquirednet assets became part of ourthe Pressure Cylinders operating segment upon closing.at closing, with the well water and expansion tank operations aligning under the consumer products business and the refrigerant, liquid propane and industrial and specialty gas operations aligning under the industrial products business. Total acquisition-related expenses were $3,568,000, of which $1,568,000 were incurred during fiscal 2018. 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) | | | | | | | Useful Life | Category | | | Amount | | | (Years) | Customer relationships | | | $ | 90,800 | | | 14-17 | Trade names | | | | 62,200 | | | Indefinite | Technology | | $ | 2,800 | | | | 20 | | | | 13,000 | | | 15-16 | Customer relationships | | | 2,200 | | | | 15 | | | Other | | | 260 | | | | 1 | | | | | | | | | | Total acquired identifiable intangible assets | | $ | 5,260 | | | | | $ | 166,000 | | | | | | | | | | |
The purchase price includes the fair values of other assets that were not identifiable, not separately recognizable under accounting rules (e.g., assembled workforce), or of immaterial value. The purchase price also includes a going-concern element that represents our ability to earn a higher rate of return on this group of assets than would be expected on the separate assets as determined during the valuation process. This additional investment value resulted in goodwill, which is expected to be deductible for income tax purposes. The following table summarizes the consideration transferred and the fair value assigned to the assets acquired and liabilities assumed at the acquisition date:
| | | | | (in thousands) | | | | Accounts receivable | | $ | 2,367 | | 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 | | | | | | | | | | | | | | |
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 not expected to be deductible for income tax purposes.
The following table summarizessummarized the consideration transferred for the assets of Rome Strip SteelAMTROL and the fair value assigned to the assets acquired and liabilities assumed at the acquisition date: | | | | | | | Measurement | | | | | | | | | | Preliminary | | | Period | | | Revised | | (in thousands) | | | | | Valuation | | | Adjustments | | | Valuation | | Cash | | $ | 10 | | | $ | 6,893 | | | $ | - | | | $ | 6,893 | | Accounts receivable | | | 6,333 | | | | 40,212 | | | | - | | | | 40,212 | | Inventories | | | 17,063 | | | | 37,249 | | | | - | | | | 37,249 | | Prepaid expenses | | | 41 | | | | 981 | | | | - | | | | 981 | | Other assets | | | | 2,550 | | | | - | | | | 2,550 | | Intangible assets | | | 5,500 | | | | 166,000 | | | | - | | | | 166,000 | | Property, plant and equipment | | | 22,775 | | | | 52,870 | | | | - | | | | 52,870 | | | | | | | Total identifiable assets | | | 51,722 | | | Total assets | | | | 306,755 | | | | - | | | | 306,755 | | Accounts payable | | | (3,091 | ) | | | 25,945 | | | | - | | | | 25,945 | | Accrued liabilities | | | | 21,016 | | | | - | | | | 21,016 | | Long-term debt including current maturities | | | | 2,287 | | | | - | | | | 2,287 | | Other accrued items | | | (410 | ) | | | 3,993 | | | | 1,501 | | | | 5,494 | | Other liabilities | | | (313 | ) | | | | | | | Net assets | | | 47,908 | | | Deferred income taxes, net | | | | 64,495 | | | | (966 | ) | | | 63,529 | | Net identifiable assets | | | | 189,019 | | | | (535 | ) | | | 188,484 | | Goodwill | | | 6,587 | | | | 102,902 | | | | 535 | | | | 103,437 | | | | | | | Purchase price | | $ | 54,495 | | | $ | 291,921 | | | $ | - | | | $ | 291,921 | | 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 interestOperating results of AMTROL have been included in dHybrid, a manufacturerthe Company’s consolidated statements of CNG systems for heavy duty, refuseearnings since the date of the acquisition. During the fiscal year ended May 31, 2018, AMTROL contributed net sales of $265,198,000 and other trucks, for total considerationoperating income 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.$18,899,000.
The contingent consideration arrangement requiresfollowing unaudited pro forma information presents consolidated financial information as if AMTROL had been acquired at the Companybeginning of fiscal 2017. Depreciation and amortization expense included in the pro forma results reflect the acquisition-date fair values assigned to pay $3,979,000the definite-lived intangible assets and fixed assets of additional consideration when cumulative net sales beginning JanuaryAMTROL assuming a June 1, 2013 reach $20,000,000 plus 50% of gross margin above certain thresholds2016 acquisition date. Adjustment has also been made for the acquisition-related costs incurred in each ofperiod presented. Pro forma results for the five twelve-month periods followingfiscal year ended May 31, 2018 have also been adjusted to remove the closing date. We determinedimpact of the acquisition-date fair value adjustments to inventories and accrued severance costs related to headcount reductions at AMTROL initiated during the first quarter of fiscal 2018, as discussed in “Note D – Restructuring and Other Expense (Income), Net.” The pro forma adjustments noted above have been adjusted for the applicable income tax impact. The pro forma information is presented for informational purposes only and is not indicative of the contingent consideration obligation using a probability weighted cash flow approach based on management’s projectionsresults 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. 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 withoperations that would have been achieved if the acquisition had taken place as of the assets of dHybrid, we identified and valued the following identifiable intangible assets:June 1, 2016
| | | | | | | | | (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, except per share amounts) | | 2018 | | | 2017 | | Net sales | | $ | 3,581,620 | | | $ | 3,263,315 | | Net earnings attributable to controlling interest | | $ | 199,038 | | | $ | 215,182 | | Diluted earnings per share attributable to controlling interest | | $ | 3.16 | | | $ | 3.32 | |
| | | | | (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.
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.
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, foreign 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. Foreign Currency Exchange Risk Management – We conduct business in several major international currencies and are therefore subject to risks associated with changing foreign currency exchange rates. We enter into various contracts that change in value as foreign currency exchange rates change to manage this exposure. Such contracts limit exposure to both favorable and unfavorable currency exchange rate fluctuations. The translation of foreign currencies into United States dollars also subjects us to exposure related to fluctuating currency exchange rates; however, derivative instruments are not used to manage this risk. Commodity Price Risk Management – We are exposed to changes in the price of certain commodities, including steel, natural gas, zinc and other raw materials, and our utility requirements. Our objective is to reduce earnings and cash flow volatility associated with forecasted purchases and sales of these commodities to allow management to focus its attention on business operations. Accordingly, we enter into derivative contracts to manage the associated price risk. We are exposed to counterparty credit risk on all of our derivative instruments. Accordingly, we have established and maintain strict counterparty credit guidelines. We have credit support agreements in place with certain counterparties to limit our credit exposure. These agreements require either party to post cash collateral if its cumulative market position exceeds a predefined liability threshold. At 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"Note Q – Fair Value Measurements”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, 2016:2018: | | | Asset Derivatives | | | Liability Derivatives | | | | | | | | | | | | Balance | | | | | | Balance | | | | | | | Asset Derivatives | | | Liability Derivatives | | | Sheet | | Fair | | | Sheet | | Fair | | (in thousands) | | Balance Sheet Location | | | Fair Value | | | Balance Sheet Location | | | Fair Value | | | Location | | Value | | | Location | | Value | | Derivatives designated as hedging instruments: | | | | | | | | | Derivatives designated as hedging | | | | | | | | | | | | | | instruments: | | | | | | | | | | | | | | Commodity contracts | | | Receivables | | $ | 6,385 | | | Accounts payable | | $ | - | | | | | Other assets | | | 68 | | | Other liabilities | | | - | | Totals | | | | | $ | 6,453 | | | | | $ | - | | | | | | | | | | | | | | | | Derivatives not designated as hedging | | | | | | | | | | | | | | instruments: | | | | | | | | | | | | | | Commodity contracts | | | Receivables | | | $ | 13,224 | | | | Accounts payable | | | $ | 696 | | | Receivables | | $ | 4,749 | | | Accounts payable | | $ | 613 | | | | | Other assets | | | | 3,589 | | | | Other liabilities | | | | 80 | | | Other assets | | | 221 | | | Other liabilities | | | 158 | | | | | | | | | | | | | | | | | 4,970 | | | | | | 771 | | | | | | | 16,813 | | | | | | 776 | | | Interest rate contracts | | | Receivables | | | | - | | | | Accounts payable | | | | 155 | | | | | | Other assets | | | | - | | | | Other liabilities | | | | 306 | | | | | | | | | | | | | | | | | | | | - | | | | | | 461 | | | | | | | | | | | | | | | Foreign exchange contracts | | | Receivables | | | - | | | Accounts payable | | | 75 | | Totals | | | | $ | 16,813 | | | | | $ | 1,237 | | | | | $ | 4,970 | | | | | $ | 846 | | | | | | | | | | | | | | 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 | | | | | | | | | | | | | | | Total derivative instruments | | | | | $ | 11,423 | | | | | $ | 846 | |
The amounts in the table above reflect the fair value of the Company’s derivative contracts on a net basis. Had these amounts been recognized on a gross basis, the impact would have been a $300,000 decrease$351,000 increase in receivables with a corresponding decreaseincrease in accounts payable.
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, 2015:2017: | | | Asset Derivatives | | | Liability Derivatives | | | | | | | | | | | | Balance | | | | | | Balance | | | | | | | Asset Derivatives | | | Liability Derivatives | | | Sheet | | Fair | | | Sheet | | Fair | | (in thousands) | | Balance Sheet Location | | | Fair Value | | | Balance Sheet Location | | | Fair Value | | | Location | | Value | | | Location | | Value | | Derivatives designated as hedging instruments: | | | | | | | | | | Derivatives designated as hedging | | | | | | | | | | | | | | instruments: | | | | | | | | | | | | | | Commodity contracts | | | Receivables | | | $ | - | | | | Accounts payable | | | $ | 17,241 | | | Receivables | | $ | 7,148 | | | Accounts payable | | $ | 111 | | | | | Other assets | | | | - | | | | Other liabilities | | | | 592 | | | | | | | | | | | | | | | Other assets | | | 6 | | | Other liabilities | | | 159 | | | | | | | - | | | | | | 17,833 | | | | | | 7,154 | | | | | | 270 | | Interest rate contracts | | | Receivables | | | | - | | | | Accounts payable | | | | 81 | | | Receivables | | | - | | | Accounts payable | | | 141 | | | | | Other assets | | | | - | | | | Other liabilities | | | | 113 | | | Other assets | | | - | | | Other liabilities | | | 160 | | | | | | | | | | | | | | | | | - | | | | | | 301 | | | | | | | - | | | | | | 194 | | | Foreign exchange contracts | | | Receivables | | | | 75 | | | | Accounts payable | | | | - | | | | | | | | | | | | | | | Totals | | | | $ | 75 | | | | | $ | 18,027 | | | | | $ | 7,154 | | | | | $ | 571 | | | | | | | | | | | | | | | | | | | | | | | | | Derivatives not designated as hedging instruments: | | | | | | | | | Derivatives not designated as hedging | | | | | | | | | | | | | | instruments: | | | | | | | | | | | | | | Commodity contracts | | | Receivables | | | $ | 96 | | | | Accounts payable | | | $ | 4,104 | | | Receivables | | $ | 1,110 | | | Accounts payable | | $ | 570 | | | | | Other assets | | | | - | | | | Other liabilities | | | | - | | | Other assets | | | - | | | Other liabilities | | | 1 | | | | | | | | | | | | | | | | | 1,110 | | | | | | 571 | | Foreign exchange contracts | | | Receivables | | | 62 | | | Accounts payable | | | - | | Totals | | | | $ | 96 | | | | | $ | 4,104 | | | | | $ | 1,172 | | | | | $ | 571 | | | | | | | | | | | | | | Total Derivative Instruments | | | | $ | 171 | | | | | $ | 22,131 | | | | | | | | | | | | | | | Total derivative instruments | | | | | $ | 8,326 | | | | | $ | 1,142 | |
The amounts in the table above reflect the fair value of the Company’s derivative contracts on a net basis. Had these amounts been recognized on a gross basis, the impact would have been a $200,000 decrease$100,000 increase in receivables with a corresponding decreaseincrease 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, 2016:2018: | | | | | | Notional | | | | (in thousands) | | Notional Amount | | | Maturity Date | | | Amount | | | Maturity Date | Commodity contracts | | $ | 87,639 | | | | June 2016 – December 2017 | | | $ | 15,276 | | | June 2018 - June 2019 | Interest rate contracts | | $ | 17,032 | | | | September 2019 | | |
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 20162018 and fiscal 2015:2017: | | | | | | | | | | | | | Location of | | | | | | | | | | | | Location of | | | | | | Gain | | Gain | | | | | | | | | Gain (Loss) | | Gain (Loss) | | | (Ineffective | | (Ineffective | | | | | Gain | | | Reclassified | | Reclassified | | | Portion) | | Portion) | | | | | Recognized | | | from | | from | | | Excluded | | Excluded | | | | | in OCI | | | AOCI | | AOCI | | | from | | from | | | | | | | | | | | | | | (Effective | | | (Effective | | (Effective | | | Effectiveness | | Effectiveness | | (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 | | | Portion) | | | Portion) | | Portion) | | | Testing | | Testing | | For the fiscal year ended | | | | | | | | | | | | | | | | | | | | | | | | | | | May 31, 2016: | | | | | | | | | | | | May 31, 2018: | | | | | | | | | | | | | | | | | | Interest rate contracts | | $ | (266 | ) | | | Interest expense | | | $ | (510 | ) | | | Interest expense | | | $ | - | | | $ | 3,363 | | | Interest expense | | $ | (407 | ) | | Interest expense | | $ | - | | Commodity contracts | | | 7,549 | | | | Cost of goods sold | | | | (27,727 | ) | | | Cost of goods sold | | | | - | | | | 11,620 | | | Cost of goods sold | | | 14,034 | | | Cost of goods sold | | | - | | Foreign currency contracts | | | - | | | | Miscellaneous income, net | | | | (4 | ) | | | Miscellaneous income, net | | | | - | | | | | | | | | | | | | | | | | | Totals | | $ | 7,283 | | | | | $ | (28,241 | ) | | | | $ | - | | | $ | 14,983 | | | | | $ | 13,627 | | | | | $ | - | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the fiscal year ended | | | | | | | | | | | | | | | | | | | | | | | | | | | May 31, 2015: | | | | | | | | | | | | May 31, 2017: | | | | | | | | | | | | | | | | | | Interest rate contracts | | $ | (167 | ) | | | Interest expense | | | $ | (2,538 | ) | | | Interest expense | | | $ | - | | | $ | 26 | | | Interest expense | | $ | (211 | ) | | Interest expense | | $ | - | | Commodity contracts | | | (29,336 | ) | | | Cost of goods sold | | | | (8,364 | ) | | | Cost of goods sold | | | | - | | | | 7,643 | | | Cost of goods sold | | | 12,402 | | | Cost of goods sold | | | - | | Foreign currency contracts | | | 851 | | | | Miscellaneous income, net | | | | 855 | | | | Miscellaneous income, net | | | | - | | | | | | | | | | | | | | | | | | Totals | | $ | (28,652 | ) | | | | $ | (10,047 | ) | | | | $ | - | | | $ | 7,669 | | | | | $ | 12,191 | | | | | $ | - | | | | | | | | | | | | | | | | |
The estimated net amount of the gains in AOCI at May 31, 20162018 expected to be reclassified into net earnings within the succeeding twelve months is $6,792,000$5,775,000 (net of tax of $4,127,000)$1,751,000). This amount was computed using the fair value of the cash flow hedges at May 31, 2016,2018, and will change before actual reclassification from other comprehensive income to net earnings during fiscal 2017.2019. Economic (Non-designated) Hedges We enter into foreign currencyexchange 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, 2016:2018: | | | | | | Notional | | | | (in thousands) | | Notional Amount | | | Maturity Date(s) | | | Amount | | | Maturity Date(s) | Commodity contracts | | $ | 33,371 | | | | June 2016 – December 2017 | | | $ | 31,814 | | | June 2018 - December 2019 | Foreign currency contracts | | $ | 10,767 | | | | May 2017 | | | Foreign exchange contracts | | | | 10,448 | | | June 2018 - August 2018 |
The following table summarizes the gain (loss) recognized in earnings for economic (non-designated) derivative financial instruments during fiscal 20162018 and fiscal 2015:2017: | | | | | Gain (Loss) | | | | | | | | | | | | Recognized in Earnings | | | | | Income (Loss) Recognized in Earnings | | | | | Fiscal Year Ended | | | | Location of Income (Loss) Recognized in Earnings | | Fiscal Year Ended May 31, | | | Location of Gain (Loss) | | May 31, | | (in thousands) | | | 2016 | | 2015 | | | Recognized in Earnings | | 2018 | | | 2017 | | Commodity contracts | | Cost of goods sold | | $ | (1,351 | ) | | $ | (15,432 | ) | | Cost of goods sold | | $ | 6,284 | | | $ | 3,749 | | Foreign exchange contracts | | Miscellaneous income, net | | | 148 | | | | - | | | Miscellaneous income, net | | | (264 | ) | | | (553 | ) | | | | | | | | | | | Total | | | | $ | (1,203 | ) | | $ | (15,432 | ) | | | | $ | 6,020 | | | $ | 3,196 | | | | | | | | | | | |
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.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–
| | Inputs other than quoted prices in active marketsincluded within Level 1 that are observable for identical or similarthe assets and liabilities.liabilities, either directly or indirectly. | | | | Level 3 | | – | | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. |
Recurring Fair Value Measurements At May 31, 2016,2018, our financial assets and liabilities measured at fair value on a recurring basis were as follows: | | | | | | | Significant | | | | | | | | | | | | | Quoted Prices | | | Other | | | Significant | | | | | | | | | in Active | | | Observable | | | Unobservable | | | | | | | | | | | | | | | | Markets | | | Inputs | | | Inputs | | | | | | (in thousands) | | Quoted Prices in Active Markets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | | | Totals | | | (Level 1) | | | (Level 2) | | | (Level 3) | | | Totals | | Assets | | | | | | | | | | | | | | | | | | | | | | | | | Derivative contracts (1) | | $ | - | | | $ | 21,790 | | | $ | - | | | $ | 21,790 | | | $ | - | | | $ | 11,423 | | | $ | - | | | $ | 11,423 | | | | | | | | | | | | | | | | Total assets | | $ | - | | | $ | 21,790 | | | $ | - | | | $ | 21,790 | | | Total Assets | | | $ | - | | | $ | 11,423 | | | $ | - | | | $ | 11,423 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | Derivative contracts (1) | | $ | - | | | $ | 2,013 | | | $ | - | | | $ | 2,013 | | | $ | - | | | $ | 846 | | | $ | - | | | $ | 846 | | Contingent consideration obligations (2) | | | - | | | | - | | | | 4,519 | | | | 4,519 | | | | | | | | | | | | | | | | | Total liabilities | | $ | - | | | $ | 2,013 | | | $ | 4,519 | | | $ | 6,532 | | | $ | - | | | $ | 846 | | | $ | - | | | $ | 846 | | | | | | | | | | | | | | | |
At May 31, 2015,2017, our financial assets and liabilities measured at fair value on a recurring basis were as follows: | | | | | | | Significant | | | | | | | | | | | | | Quoted Prices | | | Other | | | Significant | | | | | | | | | in Active | | | Observable | | | Unobservable | | | | | | | | | | | | | | | | Markets | | | Inputs | | | Inputs | | | | | | (in thousands) | | Quoted Prices in Active Markets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | | | Totals | | | (Level 1) | | | (Level 2) | | | (Level 3) | | | Totals | | Assets | | | | | | | | | | | | | | | | | | | | | | | | | Derivative contracts (1) | | $ | - | | | $ | 171 | | | $ | - | | | $ | 171 | | | $ | - | | | $ | 8,326 | | | $ | - | | | $ | 8,326 | | | | | | | | | | | | | | | | Total assets | | $ | - | | | $ | 171 | | | $ | - | | | $ | 171 | | | $ | - | | | $ | 8,326 | | | $ | - | | | $ | 8,326 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | Derivative contracts (1) | | $ | - | | | $ | 22,131 | | | $ | - | | | $ | 22,131 | | | $ | - | | | $ | 1,142 | | | $ | - | | | $ | 1,142 | | Contingent consideration obligations (2) | | | - | | | | - | | | | 3,979 | | | | 3,979 | | | | | | | | | | | | | | | | | Contingent consideration obligation (2) | | | | - | | | | - | | | | 585 | | | | 585 | | Total liabilities | | $ | - | | | $ | 22,131 | | | $ | 3,979 | | | $ | 26,110 | | | $ | - | | | $ | 1,142 | | | $ | 585 | | | $ | 1,727 | | | | | | | | | | | | | | | |
(1) | (1) | The fair value of our derivative contracts iswas 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“Note P – Derivative Instruments and Hedging Activities”Activities” for additional information regarding our use of derivative instruments. |
(2) | The fair value of the contingent consideration obligations isobligation was determined using a probability weighted cash flow approach based on management’s projections of future cash flows of the acquired businesses.business. 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, 2016,2018, our assets measured at fair value on a non-recurring basis were categorized as follows: | | | | | | Significant | | | | | | | | | | | | Quoted Prices | | | Other | | | Significant | | | | | | | | in Active | | | Observable | | | Unobservable | | | | | | | | Markets | | | Inputs | | | Inputs | | | | | | (in thousands) | | (Level 1) | | | (Level 2) | | | (Level 3) | | | Totals | | Assets | | | | | | | | | | | | | | | | | Long-lived assets held for sale (1) | | $ | - | | | $ | 30,000 | | | $ | - | | | $ | 30,000 | | Total assets | | $ | - | | | $ | 30,000 | | | $ | - | | | $ | 30,000 | |
| (1) | During the fourth quarter of fiscal 2018, management committed to a plan to sell the Company’s cryogenics business in Turkey, Worthington Aritas, and certain underperforming oil & gas equipment assets within Pressure Cylinders. 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. The book value of Worthington Aritas exceeded its estimated fair market value of $9,000,000, resulting in an impairment charge of $42,422,000. The book value of the oil & gas equipment asset group also exceeded its estimated fair market value of $21,000,000, resulting in an impairment charge of $10,497,000. |
At May 31, 2017, there were no assets or liabilities measured at fair value on a non-recurring basis on the Company’s 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 management’s 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.
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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 management’s 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 primarily market observable (Level 2) inputs and credit risk, was $609,245,000$757,069,000 and $610,028,000$618,059,000 at May 31, 20162018 and 2015,2017, respectively. The carrying amount of long-term debt, including current maturities, was $580,844,000$750,368,000 and $580,193,000$578,487,000 at May 31, 20162018 and 2015,2017, 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$16,277,000, $13,519,000 and $14,677,000$14,683,000 in fiscal 2016,2018, fiscal 20152017 and fiscal 2014,2016, respectively. Future minimum lease payments for non-cancelable operating leases having an initial or remaining term in excess of one year at May 31, 2016,2018, were as follows: | (in thousands) | | | | | | | | 2017 | | $ | 9,569 | | | 2018 | | | 8,567 | | | 2019 | | | 7,342 | | | $ | 11,348 | | 2020 | | | 5,800 | | | | 8,839 | | 2021 | | | 4,643 | | | | 6,774 | | 2022 | | | | 5,825 | | 2023 | | | | 5,097 | | Thereafter | | | 5,810 | | | | 5,508 | | | | | | | Total | | $ | 41,731 | | | $ | 43,391 | | | | | | |
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 2016,2018, fiscal 20152017 and fiscal 20142016 totaled $32,496,000, $32,277,000,$57,382,000, $56,588,000, and $31,441,000,$32,496,000, respectively. Purchases from affiliated companies for fiscal 2016,2018, fiscal 20152017 and fiscal 20142016 totaled $15,737,000, $8,021,000,$7,292,000, $7,145,000, and $9,387,000,$15,737,000, respectively. Accounts receivable from affiliated companies were $5,152,000$2,479,000 and $5,826,000$4,616,000 at May 31, 20162018 and 2015,2017, respectively. Accounts payable to affiliated companies were $107,000 and $11,528,000$76,000 at May 31, 2016 and 2015, respectively. 2017.Note T – Quarterly Results of Operations (Unaudited) The following table summarizes the unaudited quarterly consolidated results of operations for fiscal 20162018 and fiscal 2015:2017: | | | | | | | | | | | | | | | | | (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 | |
(in thousands, except per share) | | Three Months Ended | | Fiscal 2018 | | August 31 | | | November 30 | | | February 28 | | | May 31 | | Net sales | | $ | 848,237 | | | $ | 871,266 | | | $ | 841,657 | | | $ | 1,020,460 | | Gross margin | | | 132,778 | | | | 140,079 | | | | 127,055 | | | | 162,946 | | Impairment of goodwill and long-lived assets (1) | | | | | | | 8,289 | | | | - | | | | 52,919 | | Net earnings | | | 48,074 | | | | 41,622 | | | | 78,297 | | | | 32,857 | | Net earnings attributable to controlling interest | | | 45,534 | | | | 39,403 | | | | 79,087 | | | | 30,770 | | Basic earnings per share - controlling interest | | $ | 0.73 | | | $ | 0.64 | | | $ | 1.31 | | | $ | 0.52 | | Diluted earnings per share - controlling interest | | $ | 0.70 | | | $ | 0.62 | | | $ | 1.27 | | | $ | 0.50 | | | | | | | | | | | | | | | | | | | Fiscal 2017 | | August 31 | | | November 30 | | | February 28 | | | May 31 | | Net sales | | $ | 737,549 | | | $ | 727,780 | | | $ | 703,436 | | | $ | 845,343 | | Gross margin | | | 147,282 | | | | 122,803 | | | | 110,990 | | | | 154,830 | | Net earnings | | | 68,536 | | | | 49,867 | | | | 38,951 | | | | 60,583 | | Net earnings attributable to controlling interest | | | 65,567 | | | | 46,565 | | | | 35,889 | | | | 56,494 | | Basic earnings per share - controlling interest | | $ | 1.06 | | | $ | 0.75 | | | $ | 0.57 | | | $ | 0.90 | | Diluted earnings per share - controlling interest | | $ | 1.02 | | | $ | 0.72 | | | $ | 0.55 | | | $ | 0.87 | |
| (1) | For additional information regarding the Company’s impairment charges,activity, 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.”
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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.
WORTHINGTON INDUSTRIES, INC. AND SUBSIDIARIES SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | COL. A. | | | | | COL. B. | | | | | | COL. C. | | | | | | COL. D. | | | | | | COL. E. | | | | | Description | | | | | | | | | | | Additions | | | | | | | | | | | | | | | | | | | Balance at Beginning of Period | | | | | | Charged to Costs and Expenses | | | | | | Charged to Other Accounts – Describe (A) | | | | | | Deductions – Describe (B) | | | | Balance at End of Period | | | | | | | | | | | | | | | | | Year Ended May 31, 2016: Deducted from asset accounts: Allowance for possible losses on trade accounts receivable | | | | | | $ | 3,085,000 | | | | | | | $ | 1,556,000 | | | | | | | $ | 394,000 | | | | | | | $ | 456,000 | | | | | | | $ | 4,579,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Year Ended May 31, 2015: Deducted from asset accounts: Allowance for possible losses on trade accounts receivable | | | | | | $ | 3,043,000 | | | | | | | $ | 259,000 | | | | | | | $ | - | | | | | | | $ | 217,000 | | | | | | | $ | 3,085,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Year Ended May 31, 2014: Deducted from asset accounts: Allowance for possible losses on trade accounts receivable | | | | | | $ | 3,408,000 | | | | | | | $ | 32,000 | | | | | | | $ | - | | | | | | | $ | 397,000 | | | | | | | $ | 3,043,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
COL. A. | COL. B. | COL. C. | COL. D. | COL. E. | Description | Balance at Beginning of Period | Additions | Deductions – Describe (B) | Balance at End of Period | Charged to Costs and Expenses | Charged to Other Accounts – Describe (A) |
Year Ended May 31, 2018: | | | | | | | | | | | | | | | | | | | | | Deducted from asset accounts: Allowance for possible losses on trade accounts receivable | | $ | 3,444,000 | | | $ | 11,000 | | | $ | - | | | $ | 2,823,000 | | | $ | 632,000 | | Year Ended May 31, 2017: | | | | | | | | | | | | | | | | | | | | | Deducted from asset accounts: Allowance for possible losses on trade accounts receivable | | $ | 4,579,000 | | | $ | 269,000 | | | $ | - | | | $ | 1,404,000 | | | $ | 3,444,000 | | Year Ended May 31, 2016: | | | | | | | | | | | | | | | | | | | | | Deducted from asset accounts: Allowance for possible losses on trade accounts receivable | | $ | 3,085,000 | | | $ | 1,556,000 | | | $ | 394,000 | | | $ | 456,000 | | | $ | 4,579,000 | |
Note A – Miscellaneous amounts. Note B – Uncollectable accounts charged to the allowance. For fiscal 2018, the balance also includes $1,215,000 related to Worthington Aritas that was reclassified to assets held for sale. See accompanying Report of Independent Registered Public Accounting Firm.
Item 9. – Changes in and Disagreements With AccountantsAccountants on Accounting and Financial Disclosure Not applicable. Item 9A. –- Controls and Procedures Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures [as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)] that are designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Management, with the participation of our principal executive officer and our principal financial officer, performed an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the fiscal year covered by this Annual Report on Form 10-K (the fiscal year ended May 31, 2016)2018). Based on that evaluation, our principal executive officer and our principal financial officer have concluded that such disclosure controls and procedures were effective at a reasonable assurance level as of the end of the fiscal year covered by this Annual Report on Form 10-K. Changes in Internal Control Over Financial Reporting There were no changes in our internal control over financial reporting that occurred in the last fiscal quarter (the fiscal quarter ended May 31, 2016)2018) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Annual Report of Management on Internal Control Over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Worthington Industries, Inc. and our consolidated subsidiaries; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States, and that receipts and expenditures of Worthington Industries, Inc. and our consolidated subsidiaries are being made only in accordance with authorizations of management and directors of Worthington Industries, Inc. and our consolidated subsidiaries, as appropriate; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the assets of Worthington Industries, Inc. and our consolidated subsidiaries that could have a material effect on the financial statements.
Management, with the participation of our principal executive officer and our principal financial officer, evaluated the effectiveness of our internal control over financial reporting as of May 31, 2016,2018, the end of our fiscal year. Management based its assessment on criteria established inInternal Control –- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The scope of the assessment included all of the consolidated operations of the Company except for those of New AMTROL Holdings, Inc. and its subsidiaries (collectively, “AMTROL”). AMTROL was acquired on June 2, 2017. The total assets and net sales of AMTROL represented $418.6 million and $265.2 million of consolidated total assets and consolidated net sales of the Company, respectively, as of and for the year ended May 31, 2018. Management’s assessment included evaluation of such elements as the design and operating effectiveness of key controls over financial reporting, process documentation, accounting policies and our overall control environment. This assessment is supported by testing and monitoring performed under the direction of management. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Accordingly, even an effective system of internal control over financial reporting will provide only reasonable assurance with respect to financial statement preparation. Based on the assessment of our internal control over financial reporting, management has concluded that our internal control over financial reporting was effective at a reasonable assurance level as of May 31, 2016.2018. The results of management’s assessment were reviewed with the Audit Committee of the Board of Directors of Worthington Industries, Inc. Additionally, our independent registered public accounting firm, KPMG LLP, independently assessed the effectiveness of our internal control over financial reporting and issued the accompanying Report of Independent Registered Public Accounting Firm.
Report of Independent Registered Public Accounting Firm TheTo the Board of Directors and Shareholders
Worthington Industries, Inc.: Opinion on Internal Control Over Financial Reporting We have audited Worthington Industries, Inc.’s and subsidiaries’ (the Company) internal control over financial reporting as of May 31, 2016,2018, based on criteria established inInternal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Worthington Industries, In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of May 31, 2018, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of May 31, 2018, and 2017, 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, 2018, and related notes and financial statement schedule of valuation and qualifying accounts (collectively, the consolidated financial statements), and our report dated July 30, 2018 expressed an unqualified opinion on those consolidated financial statements. The Company acquired New AMTROL Holdings, Inc.’s and its subsidiaries (AMTROL) during the year ended May 31, 2018, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of May 31, 2018, AMTROL’s internal control over financial reporting associated with total assets of $418.6 million and net sales of $265.2 million included in the consolidated financial statements of the Company as of and for the year ended May 31, 2018. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of AMTROL. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Annual Report of Management on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, Worthington Industries, Inc. maintained, in all material respects, effective internal control over financial reporting as of May 31, 2016, based on criteria established inInternal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 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, and our report dated August 1, 2016, expressed an unqualified opinion on those consolidated financial statements.
| | /s/KPMG LLP | | | | Columbus, Ohio | | | July 30, 2018 | | |
Columbus, Ohio
August 1, 2016
Item 9B. – OtherOther Information There is nothing to be reported under this Item 9B.
PART III Item 10. – Directors, Executive Officers and Corporate Governance Directors, Executive Officers and Persons Nominated or Chosen to Become Directors or Executive Officers The information required by Item 401 of SEC Regulation S-K concerning the directors of Worthington Industries, Inc. (“Worthington Industries” or the “Registrant”) and the nominees for re-election as directors of Worthington Industries at the Annual Meeting of Shareholders to be held on September 29, 201627, 2018 (the “2016“2018 Annual Meeting”) is incorporated herein by reference from the disclosure to be included under the caption “PROPOSAL 1: ELECTION OF DIRECTORS” in Worthington Industries’ definitive Proxy Statement relating to the 20162018 Annual Meeting (“Worthington Industries’ Definitive 20162018 Proxy Statement”), which will be filed pursuant to SEC Regulation 14A not later than 120 days after the end of Worthington Industries’ fiscal 20162018 (the fiscal year ended May 31, 2016)2018). The information required by Item 401 of SEC Regulation S-K concerning the executive officers of Worthington Industries is incorporated herein by reference from the disclosure included under the caption “Supplemental Item – Executive Officers of the Registrant” in Part I of this Annual Report on Form 10-K. Compliance with Section 16(a) of the Exchange Act The information required by Item 405 of SEC Regulation S-K is incorporated herein by reference from the disclosure to be included under the caption “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT – Section 16(a) Beneficial Ownership Reporting Compliance” in Worthington Industries’ Definitive 20162018 Proxy Statement. Procedures by which Shareholders may Recommend Nominees to Worthington Industries’ Board of Directors Information concerning the procedures by which shareholders of Worthington Industries may recommend nominees to Worthington Industries’ Board of Directors is incorporated herein by reference from the disclosure to be included under the captions “PROPOSAL 1: ELECTION OF DIRECTORS – Committees of the Board – Nominating and Governance Committee” and “CORPORATE GOVERNANCE – Nominating Procedures” in Worthington Industries’ Definitive 20162018 Proxy Statement. These procedures have not materially changed from those described in Worthington Industries’ definitive Proxy Statement for the 20152017 Annual Meeting of Shareholders held on September 24, 2015.27, 2017. Audit Committee Matters The information required by Items 407(d)(4) and 407(d)(5) of SEC RegulationS-K S‑K is incorporated herein by reference from the disclosure to be included under the caption “PROPOSAL 1: ELECTION OF DIRECTORS –Committees of the Board – Audit Committee” in Worthington Industries’ Definitive 20162018 Proxy Statement.
Code of Conduct; Committee Charters; Corporate Governance Guidelines; Charter of Lead Independent Director Worthington Industries’ Board of Directors has adopted Charters for each of the Audit Committee, the Compensation and Stock Option Committee, the Executive Committee and the Nominating and Governance Committee as well as Corporate Governance Guidelines as contemplated by the applicable sections of the New York Stock Exchange Listed Company Manual. Worthington Industries’ Board of Directors has also adopted a Charter of the Lead Independent Director of Worthington Industries’ Board of Directors. In accordance with the requirements of Section 303A.10 of the New York Stock Exchange Listed Company Manual, the Board of Directors of Worthington Industries has adopted a Code of Conduct covering the directors, officers and employees of Worthington Industries and its subsidiaries, including Worthington Industries’ Chairman of the Board and Chief Executive Officer (the principal executive officer), Worthington Industries’ Executive Vice President and Chief Financial Officer (the principal financial officer) and Worthington Industries’ Controller (the principal accounting officer). The Registrant will disclose the following events, if they occur, in a current report on Form 8-K to be filed with the SEC within the required four business days following their occurrence: (A) the date and nature of any amendment to a provision of Worthington Industries’ Code of Conduct that (i) applies to Worthington Industries’ principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, (ii) relates to any element of the “code of ethics” definition enumerated in Item 406(b) of SECRegulation S-K,S‑K, and (iii) is not a technical, administrative or other non-substantive amendment; and (B) a description of any waiver (including the nature of the waiver, the name of the person to whom the waiver was granted and the date of the waiver), including an implicit waiver, from a provision of the Code of Conduct granted to Worthington Industries’ principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, that relates to one or more of the elements of the “code of ethics” definition set forth in Item 406(b) of SEC Regulation S-K. In addition, Worthington Industries will disclose any waivers from the provisions of the Code of Conduct granted to a director or an executive officer of Worthington Industries in a current report on Form 8-K to be filed with the SEC within the required four business days following their occurrence. The text of each of the Charter of the Audit Committee, the Charter of the Compensation and Stock Option Committee, the Charter of the Executive Committee, the Charter of the Nominating and Governance Committee, the Charter of the Lead Independent Director, the Corporate Governance Guidelines and the Code of Conduct is posted on the “Corporate Governance” page of the “Investor Center” section of Worthington Industries’ Internet web site located at www.worthingtonindustries.com. In addition, a copy of the Code of Conduct was filed as Exhibit 14 to Worthington Industries’ Annual Report on Form 10-K for the fiscal year ended May 31, 2012. Item 11. – Executive Compensation The information required by Item 402 of SEC Regulation S-K is incorporated herein by reference from the disclosure to be included under the captions “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT,” “EXECUTIVE COMPENSATION” and “COMPENSATION OF DIRECTORS” in Worthington Industries’ Definitive 20162018 Proxy Statement. The information required by Item 407(e)(4) of SEC Regulation S-K is incorporated herein by reference from the disclosure to be included under the caption “CORPORATE GOVERNANCE –— Compensation Committee Interlocks and Insider Participation” in Worthington Industries’ Definitive 20162018 Proxy Statement. The information required by Item 407(e)(5) of SEC Regulation S-K is incorporated herein by reference from the disclosure to be included under the caption “EXECUTIVE COMPENSATION –— Compensation Committee Report”in Worthington Industries’ Definitive 20162018 Proxy Statement.
Item 12. – Security Ownership of Certain Beneficial OwnersOwners and Management and Related Stockholder Matters Ownership of Common Shares of Worthington Industries The information required by Item 403 of SEC Regulation S-K is incorporated herein by reference from the disclosure to be included under the caption “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT” in Worthington Industries’ Definitive 20162018 Proxy Statement. Equity Compensation Plan Information The information required by Item 201(d) of SEC Regulation S-K is incorporated herein by reference from the disclosure to be included under the caption “EQUITY COMPENSATION PLAN INFORMATION” in Worthington Industries’ Definitive 20162018 Proxy Statement. Item 13. – Certain Relationships and Related Transactions, and Director Independence Certain Relationships and Related Person Transactions The information required by Item 404 of SEC Regulation S-K is incorporated herein by reference from the disclosure in respect of John P. McConnell to be included under the caption “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT” and from the disclosure to be included under the caption “TRANSACTIONS WITH CERTAIN RELATED PERSONS” in Worthington Industries’ Definitive 20162018 Proxy Statement. Director Independence The information required by Item 407(a) of SEC Regulation S-K is incorporated herein by reference from the disclosure to be included under the captions “CORPORATE GOVERNANCE – Director Independence” and “TRANSACTIONS WITH CERTAIN RELATED PERSONS” in Worthington Industries’ Definitive 20162018 Proxy Statement. Item 14. – Principal Accountant Fees and Services The information required by this Item 14 is incorporated herein by reference from the disclosure to be included under the captions “AUDIT COMMITTEE MATTERS – Independent Registered Public Accounting Firm Fees” and “AUDIT COMMITTEE MATTERS – Pre-Approval of Services Performed by the Independent Registered Public Accounting Firm” in Worthington Industries’ Definitive 20162018 Proxy Statement.
PART IV Item 15. – Exhibits and Financial Statement Schedules (a) | The following documents are filed as a part of this Annual Report on Form 10-K: |
| (1) | Consolidated Financial Statements: |
The consolidated financial statements (and report thereon) listed below are filed as a part of this Annual Report on Form 10-K: Report of Independent Registered Public Accounting Firm (KPMG LLP) Consolidated Balance Sheets as of May 31, 20162018 and 20152017 Consolidated Statements of Earnings for the fiscal years ended May 31, 2016, 20152018, 2017 and 20142016 Consolidated Statements of Comprehensive Income for the fiscal years ended May 31, 2016, 20152018, 2017 and 20142016 Consolidated Statements of Equity for the fiscal years ended May 31, 2016, 20152018, 2017 and 20142016 Consolidated Statements of Cash Flows for the fiscal years ended May 31, 2016, 20152018, 2017 and 20142016 Notes to Consolidated Financial Statements – fiscal years ended May 31, 2016, 20152018, 2017 and 20142016 (2)Financial Statement Schedule: | (2) | Financial Statement Schedule:
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Schedule II – Valuation and Qualifying Accounts All other financial statement schedules for which provision is made in the applicable accounting regulations of the SEC are omitted because they are not required or the required information has been presented in the aforementioned consolidated financial statements or notes thereto. (3)Exhibits Required by Item 601 of Regulation S-K: The exhibitsdocuments listed on the “Index to Exhibits” beginning on page E-1 of this Annual Report on Form 10-Kbelow are includedfiled or furnished with this Annual Report on Form 10-K as exhibits or incorporated ininto this Annual Report on Form 10-K by reference as noted in the “Index to Exhibits.” The “Index to Exhibits” specifically identifies each management contract or compensatory plan or arrangement required to be included as an exhibit to this Annual Report on Form 10-K or incorporated in this Annual Report on Form 10-K by reference.noted: (c) | Financial Statement Schedule: The financial statement schedule listed in Item 15(a)(2) above is8-K of Worthington Industries, Inc., an Ohio corporation (the “Registrant”), dated June 6, 2017 and filed with this Annual Reportthe SEC on Form 10-K.the same date (SEC File No. 1-8399)
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | | | | WORTHINGTON INDUSTRIES, INC. | | | | | Date: August 1, 2016
| | | | By: | | /s/ JOHN P. MCCONNELL
| | | | | | | John P. McConnell,
| | | | | | | Chairman of the Board and Chief Executive Officer
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
| | | | | SIGNATURE
| | DATE
| | TITLE
| | | | /s/ John P. McConnell
John P. McConnell
| | August 1, 2016 | | Director, Chairman of the Board and Chief Executive Officer (Principal Executive Officer)
| | | | /s/ B. Andrew Rose
B. Andrew Rose
| | August 1, 2016 | | Executive Vice President and Chief Financial Officer (Principal Financial Officer)
| | | | /s/ Richard G. Welch
Richard G. Welch
| | August 1, 2016 | | Controller (Principal Accounting Officer)
| | | | *
Kerrii B. Anderson
| | * | | Director
| | | | *
John B. Blystone
| | * | | Director
| | | | *
Mark C. Davis
| | * | | Director
| | | | *
Michael J. Endres
| | * | | Director
| | | | *
Ozey K. Horton, Jr.
| | * | | Director
| | | | *
Peter Karmanos, Jr.
| | * | | Director
| | | | *
Carl A. Nelson, Jr.
| | * | | Director
| | | | *
Sidney A. Ribeau
| | * | | Director
| | | | *
Mary Schiavo
| | * | | Director
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*The undersigned, by signing his name hereto, does hereby sign this report on behalf of each of the above-identified directors of the Registrant pursuant to powers of attorney executed by such directors, which powers of attorney are filed with this report within Exhibit 24.
| | | | | | | *By:
| | /s/ John P. McConnell
| | | | Date: August 1, 2016 | | | John P. McConnell
| | | | | | | Attorney-In-Fact
| | | | |
INDEX TO EXHIBITS
| | | | | | | Exhibit
| | Description
| | | | Location
| 3.1 | | | | 3.1 | | Amended Articles of Incorporation of Worthington Industries, Inc., as filed with the Ohio Secretary of State on October 13, 1998 P | | | | Incorporated herein by reference to Exhibit 3(a) to the Registrant’s Quarterly Report on Form 10-Q of Worthington Industries, Inc., an Ohio corporation (the “Registrant”), for the quarterly period ended August 31, 1998 (SEC File No. 0-4016) | | | | | | 3.2 | | Code of Regulations of Worthington Industries, Inc. (reflecting all amendments) [for SEC reporting compliance purposes only]amendments through the date of this Annual Report on Form 10-K) [This document represents the Code of Regulations of Worthington Industries, Inc. in compiled form incorporating all amendments.] | | | | Incorporated herein by reference to Exhibit 3(b) to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended August 31, 2000 (SEC File No. 1-8399) |
Exhibit | | Description of Exhibit | | Location | | | | | | 4.1 | | | Second Amended and Restated Credit Agreement, dated as of April 23, 2015,February 16, 2018, among Worthington Industries, Inc., as a Borrower; Worthington Industries International S.à.r.l., as a Borrower; PNC Bank, National Association, as a Lender, the Swingline Lender, an Issuing Bank and Administrative Agent; JPMorgan Chase Bank, N.A., as a Lender an Issuing Bank and Syndication Agent; Bank of America, N.A.; Branch Banking and Trust Company; U.S. Bank National Association; Wells Fargo Bank, National Association; Branch Banking and Trust Company; Fifth Third Bank; The Huntington National Bank; and The Northern Trust Company; and Credit Suisse AG, Cayman Islands Branch,Company, as Lenders (collectively with PNC Bank, National Association and JPMorgan Chase Bank, N.A., the “Lenders”); and Citizens Bank of Pennsylvania, as a Departing Lender; with Bank of America, N.A., Branch Banking and Trust Company, U.S. Bank National Association and Wells Fargo Bank, National Association serving as Co-Documentation Agents; and J.P. Morgan Securities LLCJPMorgan Chase Bank, N.A. and PNC Capital Markets LLC serving as Joint Bookrunners and Joint Lead Arrangers | | | | Incorporated herein by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated April 28, 2015February 22, 2018 and filed with the SEC on the same date (SEC FileNo. 1-8399) | | | | | | 4.2 | | Indenture, dated as of April 13, 2010, between Worthington Industries, Inc. and U.S. Bank National Association, as Trustee | | | | Incorporated herein by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated April 13, 2010 and filed with the SEC on the same date (SEC FileNo. 1-8399) | | | | | | 4.3 | | First Supplemental Indenture, dated as of April 13, 2010, between Worthington Industries, Inc. and U.S. Bank National Association, as Trustee | | | | Incorporated herein by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K dated April 13, 2010 and filed with the SEC on the same date (SEC File No. 1-8399) | | | | | | 4.4 | | Form of 6.50% Global Note due April 15, 2020 (included as Exhibit A in Exhibit 4.3 toincorporated by reference in this Annual Report on Form 10-K) | | | | Incorporated herein by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K dated April 13, 2010 and filed with the SEC on the same date (SEC File No. 1-8399) |
| | | | | | | | | | | | 4.5 | | Second Supplemental Indenture, dated as of April 15, 2014, between Worthington Industries, Inc. and U.S. Bank National Association, as Trustee | | | | Incorporated herein by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K dated April 15, 2014 and filed with the SEC on the same date (SEC File No. 1-8399) | | | | | | 4.6 | | | Form of 4.55% Global Note due April 15, 2026 (included as Exhibit A in Exhibit 4.5 toincorporated by reference in this Annual Report onForm 10-K) | | | | Incorporated herein by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K dated April 15, 2014 and filed with the SEC on the same date (SEC File No. 1-8399) | | | | | | 4.7 | | Third Supplemental Indenture, dated as of July 28, 2017, between Worthington Industries, Inc. and U.S. Bank National Association, as Trustee | | Incorporated herein by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K dated July 28, 2017 and filed with the SEC on the same date (SEC File No. 1-8399) |
Exhibit | | Description of Exhibit | | Location | | | | | | 4.8 | | Form of 4.300% Global Note due August 1, 2032 (included as Exhibit A in Exhibit 4.7 incorporated by reference in this Annual Report on Form 10-K) | | Incorporated herein by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K dated July 28, 2017 and filed with the SEC on the same date (SEC File No. 1-8399) | | | | | | 4.9 | | Note Agreement, dated as of August 10, 2012, between Worthington Industries, Inc. and The Prudential Insurance Company of America, Pruco Life Insurance Company of New Jersey, Pruco Life Insurance Company, Prudential Arizona Reinsurance Universal Company, Prudential Annuities Life Assurance Corporation, The Prudential Life Insurance Company, Ltd. and The Gibraltar Life Insurance Co., Ltd. | | | | Incorporated herein by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated August 15, 2012 and filed with the SEC on the same date (SEC File No. 1-8399) | | | | | | 4.84.10 | | Form of 4.60% Senior Note due August 10, 2024 (included as Exhibit A in Exhibit 4.7 to4.9 incorporated by reference in this Annual Report on Form 10-K) | | | | Incorporated herein by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated August 15, 2012 and filed with the SEC on the same date (SEC File No. 1-8399) | | | | | | 4.94.11 | | Amendment No. 1 to Note Agreement, dated June 10, 2015, among Worthington Industries, Inc., on the one hand, and The Prudential Insurance Company of America, Pruco Life Insurance Company of New Jersey, Pruco Life Insurance Company, Prudential Arizona Reinsurance Universal Company, Prudential Annuities Life Assurance Corporation, The Prudential Life Insurance Company, Ltd. and The Gibraltar Life Insurance Co., Ltd., on the other hand | | | | Incorporated herein by reference to Exhibit 4.9 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2015 (SEC File No. 1-8399) | | | | | | 4.10 | 4.12 | | Agreement to furnish instruments and agreements defining rights of holders of long-term debt to the Securities and Exchange Commission upon request | | | | Filed herewith | | | | | | 10.1 | | Worthington Industries, Inc. Non-Qualified Deferred Compensation Plan effective March 1, 2000* | | | | Incorporated herein by reference to Exhibit 10.1 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2005 (SEC File No. 1-8399) | | | | | | 10.2 | | Amendment to the Worthington Industries, Inc. Non-Qualified Deferred Compensation Plan (Amendment effective as of September 1, 2011)* | | | | Incorporated herein by reference to Exhibit 10.8 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended August 31, 2011 (SEC File No. 1-8399) |
* | Indicates management contract or compensatory plan or arrangement.
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Exhibit | | Description of Exhibit | | Location | | | | | | 10.5 | | First Amendment to the Worthington Industries, Inc. Amended and Restated 2005 Non-Qualified Deferred Compensation Plan (First Amendment effective as of September 1, 2011)* | | | | Incorporated herein by reference to Exhibit 10.9 to the Registrant’sRegistrant's Quarterly Report on Form 10-Q for the quarterly period ended August 31, 2011 (SEC File No. 1-8399) | | | | | | 10.6 | | Second Amendment to the Worthington Industries, Inc. Amended and Restated 2005 Non-Qualified Deferred Compensation Plan (Second Amendment effective as of October 1, 2014)* | | | | Incorporated herein by reference to Exhibit 10.6 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2014 (SEC File No. 1-8399) | | | | | | 10.7 | | Worthington Industries, Inc. Deferred Compensation Plan for Directors, as Amended and Restated, effective June 1, 2000* | | | | Incorporated herein by reference to Exhibit 10(d) to the Registrant’sRegistrant's Annual Report on Form 10-K for the fiscal year ended May 31, 2000 (SEC File No. 1-8399) | | | | | | 10.8 | | Amendment to the Worthington Industries, Inc. Deferred Compensation Plan for Directors, as Amended and Restated, effective June 1, 2000 (Amendment effective as of September 1, 2011)* | | | | Incorporated herein by reference to Exhibit 10.10 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended August 31, 2011 (SEC File No. 1-8399) | | | | | | 10.9 | | Second Amendment to the Worthington Industries, Inc. Deferred Compensation Plan for Directors, as Amended and Restated (Second Amendment effective as of October 1, 2014)* | | | | Incorporated herein by reference to Exhibit 10.9 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2014 (SEC File No. 1-8399) | | | | | | 10.10 | | Worthington Industries, Inc. Amended and Restated 2005 Deferred Compensation Plan for Directors (Restatement effective as of December 2008)* | | | | Incorporated herein by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2008 (SEC File No. 1-8399) | | | | | | 10.11 | | First Amendment to the Worthington Industries, Inc. Amended and Restated 2005 Deferred Compensation Plan for Directors (First Amendment effective as of September 1, 2011)* | | | | Incorporated herein by reference to Exhibit 10.11 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended August 31, 2011 (SEC File No. 1-8399) | | | | | | 10.12 | | Second Amendment to the Worthington Industries, Inc. Amended and Restated 2005 Deferred Compensation Plan for Directors (Second Amendment effective as of October 1, 2014)* | | | | Incorporated herein by reference to Exhibit 10.12 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2014 (SEC File No. 1-8399) |
* | Indicates management contract or compensatory plan or arrangement.
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| | | | | | | | | | | | 10.13 | | Worthington Industries, Inc. Amended and Restated 1997 Long-Term Incentive Plan (amendment and restatement effective as of November 1, 2008)* | | | | Incorporated herein by reference to Exhibit 10.8 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2008 (SEC File No. 1-8399) | | | | | | 10.14 | | First Amendment to the Worthington Industries, Inc. Amended and Restated 1997 Long-Term Incentive Plan (First Amendment effective as of June 26, 2013; performance goals approved by shareholders on September 26, 2013)* | | | | Incorporated herein by reference to Exhibit 10.2 to the Registrant’sRegistrant's Current Report on Form 8-K dated October 1, 2013 and filed with the SEC on the same date (SEC File No. 1-8399) | | | | | | 10.15 | | Second Amendment to the Worthington Industries, Inc. Amended and Restated 1997 Long-Term Incentive Plan (Second Amendment effective as of September 26, 2013)* | | | | Incorporated herein by reference to Exhibit 10.3 to the Registrant’sRegistrant's Current Report on Form 8-K dated October 1, 2013 and filed with the SEC on the same date (SEC File No. 1-8399) |
Exhibit | | Description of Exhibit | | Location | | | | | | 10.16 | | Third Amendment to the Worthington Industries, Inc. Amended and Restated 1997 Long-Term Incentive Plan (Third Amendment effective as of June 28, 2017)* | | Incorporated herein by reference to Exhibit 10.16 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2017 (SEC File No. 1-8399) | | | | | | 10.17 | | Worthington Industries, Inc. Amended and Restated 1997 Long-Term Incentive Plan (reflects the First Amendment, the Second Amendment and the Third Amendment thereto)* | | Incorporated herein by reference to Exhibit 10.17 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2017 (SEC File No. 1-8399) | | | | | | 10.18 | | Form of Notice of Grant of Stock Options and Option Agreement for non-qualified stock options under the Worthington Industries, Inc. 1997 Long-Term Incentive Plan (now known as the Worthington Industries, Inc. Amended and Restated 1997 Long-Term Incentive Plan)* | | | | Incorporated herein by reference to Exhibit 10.7 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2010 (SEC File No. 1-8399) | | | | | 10.17 | �� | Form of Restricted Stock Award Agreement under the Worthington Industries, Inc. Amended and Restated 1997 Long-Term Incentive Plan entered into by Worthington Industries, Inc. prior to June 2013 in order to evidence the grant of restricted stock to employees of Worthington Industries, Inc.*
| | | | Incorporated herein by reference to Exhibit 10.3 to the Registrant’s Quarterly Report onForm 10-Q for the quarterly period ended November 30, 2008 (SEC File No. 1-8399)
| | | | | | 10.18 | 10.19 | Form of Letter Evidencing Cash Performance Awards and Performance Share Awards Granted under the Worthington Industries, Inc. 1997 Long-Term Incentive Plan (now known as the Worthington Industries, Inc. Amended and Restated 1997 Long-Term Incentive Plan) with targets for the three-fiscal-year periods ending on May 31, 2011, on May 31, 2012, on May 31, 2013 and on May 31, 2014*
| | | | Incorporated herein by reference to Exhibit 10.10 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2010 (SEC File No. 1-8399)
| | | | | 10.19 | | Form of Letter Evidencing Performance Awards Granted and to be Granted under the Worthington Industries, Inc. Amended and Restated 1997 Long-Term Incentive Plan with targets for three-fiscal-year periods ending on or after May 31, 2015* | | | | Incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated July 2, 2013 and filed with the SEC on the same date (SEC File No. 1-8399) |
* | Indicates management contract or compensatory plan or arrangement.
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| | | | | | | | | | | 10.20 | | Form of Notice of Grant and Restricted Stock Award Agreement entered into by Worthington Industries, Inc. in order to evidence the grant for 2013, effective as of June 28, 2013, of restricted common shares, which will vest on the third anniversary of the grant date, pursuant to the Worthington Industries, Inc. Amended and Restated 1997 Long-Term Incentive Plan*
| | | | Incorporated herein by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated July 2, 2013 and filed with the SEC on the same date (SEC File No. 1-8399)
| | | | | 10.21 | | Form of Notice of Grant and Restricted Stock Award Agreement entered into by Worthington Industries, Inc. with each of B. Andrew Rose and Mark A. Russell in order to evidence the grant, effective as of June 28, 2013, of 180,000 performance-based restricted common shares pursuant to the Worthington Industries, Inc. Amended and Restated 1997 Long-Term Incentive Plan*
| | | | Incorporated herein by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K dated July 2, 2013 and filed with the SEC on the same date (SEC File No. 1-8399)
| | 10.20 | | | | 10.22 | | Form of Restricted Stock Award Agreement for awards granted after June 1, 2014 entered into by Worthington Industries, Inc. in order to evidence the grant, effective as of June 30, 2014, as well as future grants of restricted common shares on and after June 30, 2014 and prior to June 28, 2017, in each case which will vest on the third anniversary of the grant date, subject to the terms thereof and of the Worthington Industries, Inc. Amended and Restated 1997 Long-Term Incentive Plan* | | | | Incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated July 1, 2014 and filed with the SEC on the same date (SEC File No. 1-8399) | | | | | | 10.2310.21 | | Form of Restricted Stock Award Agreement for awards granted after June 28, 2017 entered into by Worthington Industries, Inc. in order to evidence the grant, after June 28, 2017, of restricted common shares, in each case which will vest on the fourth anniversary of the grant date, subject to the terms thereof and of the Worthington Industries, Inc. Amended and Restated 1997 Long-Term Incentive Plan* | | Incorporated herein by reference to Exhibit 10.22 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2017 (SEC File No. 1-8399) | | | | | | 10.22 | | Form of Restricted Stock Award Agreement entered into by Worthington Industries, Inc. with Geoffrey G. Gilmore, in order to evidence the grant, effective June 24, 2014, of 25,000 performance-based restricted common shares pursuant to the Worthington Industries, Inc. Amended and Restated 1997 Long-Term Incentive Plan* | | | | Incorporated herein by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated July 1, 2014 and filed with the SEC on the same date (SEC File No. 1-8399) | | | | | | 10.23 | | Form of Restricted Stock Award Agreement for awards granted after June 28, 2017 to be entered into by Worthington Industries, Inc. in order to evidence the grant, after June 28, 2017, of restricted common shares, in each case which will vest on the third anniversary of the grant date, subject to the terms thereto and of the Worthington Industries, Inc. Amended and Restated 1997 Long-Term Incentive Plan* | | Incorporated herein by reference to Exhibit 10.24 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2017 (SEC File No. 1-8399) |
* | Indicates management contract or compensatory plan or arrangement.
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| | | | | | | | | | | | 10.26 | | Second Amendment to the Worthington Industries, Inc. Amended and Restated 2003 Stock Option Plan (Second Amendment effective June 28, 2017)* | | Incorporated herein by reference to Exhibit 10.27 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2017 (SEC File No. 1-8399) | | | | | | 10.27 | | Form of Notice of Grant of Stock Options and Option Agreement for non-qualified stock options granted under the Worthington Industries, Inc. 2003 Stock Option Plan (now known as the Worthington Industries, Inc. Amended and Restated 2003 Stock Option Plan)* | | | | Incorporated herein by reference to Exhibit 10.14 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2010 (SEC File No. 1-8399) | | | | | | 10.2710.28 | | Worthington Industries, Inc. Amended and Restated 2006 Equity Incentive Plan for Non-Employee Directors (amendment(amended and restatementrestated effective as of November 1, 2008)September 2016)* | | | | Incorporated herein by reference to Exhibit 10.910.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2008 (SEC File No. 1-8399) | | | | | 10.28 | | First Amendment to the Worthington Industries, Inc. Amended and Restated 2006 Equity Incentive Plan for Non-Employee Directors (amendment and restatement effective as of November 1, 2008) (First Amendment approved by shareholders on September 29, 2011)*
| | | | Incorporated herein by reference to Exhibit 10.22 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2012 (SEC File No. 1-8399)
| | | | | 10.29 | | Form of Nonqualified Stock Option Award Agreement under the Worthington Industries, Inc. 2006 Equity Incentive Plan for Non-Employee Directors (now known as the Worthington Industries, Inc. Amended and Restated 2006 Equity Incentive Plan for Non-Employee Directors) entered into by Worthington Industries, Inc. in order to evidence the grant of nonqualified stock options to non-employee directors of Worthington Industries, Inc. on September 27, 2006 and September 26, 2007*
| | | | Incorporated herein by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated October 2, 20063, 2016 and filed with the SEC on the same date (SECday (SEC File No. 1-8399)
| | | | | | 10.3010.29 | | Form of Notice of Grant of Stock Options and Option Agreement under the Worthington Industries, Inc. 2006 Equity Incentive Plan for Non-Employee Directors (now known as the Worthington Industries, Inc. Amended and Restated 2006 Equity Incentive Plan for Non-Employee Directors) to evidence the grant of non-qualified stock options to non-employee directors of Worthington Industries, Inc. on and after September 24, 2008* | | | | Incorporated herein by reference to Exhibit 10.17 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2010 (SEC File No. 1-8399) | | | | | | 10.3110.30 | | Form of Restricted Stock Award Agreement under the Worthington Industries, Inc. 2006 Equity Incentive Plan for Non-Employee Directors (now known as the Worthington Industries, Inc. Amended and Restated 2006 | | | | Incorporated herein by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended August 31, 2008 (SEC File No. 1-8399)
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* | Indicates management contract or compensatory plan or arrangement.
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Exhibit | | Description of Exhibit | | Location | | | | | | 10.3310.32 | | First Amendment to the Worthington Industries, Inc. 2010 Stock Option Plan (First Amendment effective September 26, 2013)* | | | | Incorporated herein by reference to Exhibit 10.7 to the Registrant’sRegistrant's Current Report on Form 8-K dated October 1, 2013 and filed with the SEC on the same date (SEC File No. 1-8399) | | | | | | 10.3410.33 | | Second Amendment to the Worthington Industries, Inc. 2010 Stock Option Plan (Second Amendment effective as of June 28, 2017)* | | Incorporated herein by reference to Exhibit 10.35 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2017 (SEC File No. 1-8399) | | | | | | 10.34 | | Form of Non-Qualified Stock Option Award Agreement entered into by Worthington Industries, Inc. in order to evidence the grant of non-qualified stock options to executive officers of Worthington Industries, Inc. effective as of June 30, 2011 pursuant to the Worthington Industries, Inc. 2010 Stock Option Plan and to be entered into by Worthington Industries, Inc. in order to evidence future grants of non-qualified stock options to executive officers pursuant to the Worthington Industries, Inc. 2010 Stock Option Plan* | | | | Incorporated herein by reference to Exhibit 10.1 to the Registrant’sRegistrant's Current Report on Form 8-K dated July 6, 2011 and filed with the SEC on the same date (SEC File No. 1-8399) | | | | | | 10.35 | | Worthington Industries, Inc. Annual Incentive Plan for Executives* | | | | Incorporated herein by reference to Exhibit 10.1 to the Registrant’sRegistrant's Current Report on Form 8-K dated September 30, 2008 and filed with the SEC on the same date (SEC File No. 1-8399) | | | | | | 10.36 | | First Amendment to the Worthington Industries, Inc. Annual Incentive Plan for Executives (approved by shareholders on September 26, 2013)* | | | | Incorporated herein by reference to Exhibit 10.5 to the Registrant’sRegistrant's Current Report on Form 8-K dated October 1, 2013 and filed with the SEC on the same date (SEC File No. 1-8399) | | | | | | 10.37 | | Form of Letter Evidencing Cash Performance Bonus Awards Granted and to be Granted under the Worthington Industries, Inc. Annual Incentive Plan for Executives (sometimes also referred to as the Worthington Industries, Inc. Annual Short Term Incentive Plan)* | | | | Incorporated herein by reference to Exhibit 10.42 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2014 (SEC File No. 1-8399) |
* | Indicates management contract or compensatory plan or arrangement.
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| | | | | | | 10.38 | | | 10.38 | Receivables Purchase Agreement, dated as of November 30, 2000, among Worthington Receivables Corporation, as Seller, Worthington Industries, Inc., as Servicer, members of various purchaser groups from time to time party to the Receivables Purchase Agreement and PNC Bank, National Association, as Administrator | | | | Incorporated herein by reference to Exhibit 10(h)(i) to the Registrant’sRegistrant's Annual Report on Form 10-K for the fiscal year ended May 31, 2001 (SEC File No. 1-8399) | | | | | | 10.39 | | Amendment No. 1 to Receivables Purchase Agreement, dated as of May 18, 2001, among Worthington Receivables Corporation, as Seller, Worthington Industries, Inc., as Servicer, members of various purchaser groups from time to time party to the Receivables Purchase Agreement and PNC Bank, National Association, as Administrator | | | | Incorporated herein by reference to Exhibit 10(h)(ii) to the Registrant’sRegistrant's Annual Report on Form 10-K for the fiscal year ended May 31, 2001 (SEC File No. 1-8399) |
Exhibit | | Description of Exhibit | | Location | | | | | | 10.40 | | Amendment No. 2 to Receivables Purchase Agreement, dated as of May 31, 2004, among Worthington Receivables Corporation, as Seller, Worthington Industries, Inc., as Servicer, members of various purchaser groups from time to time party to the Receivables Purchase Agreement and PNC Bank, National Association, as Administrator | | | | Incorporated herein by reference to Exhibit 10(g)(x) to the Registrant’sRegistrant's Annual Report on Form 10-K for the fiscal year ended May 31, 2004 (File(SEC File No. 1-8399) | | | | | | 10.41 | | Amendment No. 3 to Receivables Purchase Agreement, dated as of January 27, 2005, among Worthington Receivables Corporation, as Seller, Worthington Industries, Inc., as Servicer, the members of the various purchaser groups from time to time party to the Receivables Purchase Agreement and PNC Bank, National Association, as Administrator | | | | Incorporated herein by reference to Exhibit 10.15 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2005 (SEC File No. 1-8399) | | | | | | 10.42 | | Amendment No. 4 to Receivables Purchase Agreement, dated as of January 25, 2008, among Worthington Receivables Corporation, as Seller, Worthington Industries, Inc., as Servicer, the members of the various purchaser groups from time to time party to the Receivables Purchase Agreement and PNC Bank, National Association, as Administrator | | | | Incorporated herein by reference to Exhibit 10.20 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2008 (SEC File No. 1-8399) | | | | | | 10.43 | | Amendment No. 5 to Receivables Purchase Agreement, dated as of January 22, 2009, among Worthington Receivables Corporation, as Seller, Worthington Industries, Inc., as Servicer, the members of the various purchaser groups from time to time party to the Receivables Purchase Agreement and PNC Bank, National Association, as Administrator | | | | Incorporated herein by reference to Exhibit 10.1 to the Registrant’sRegistrant's Quarterly Report on Form 10-Q for the quarterly period ended February 28, 2009 (SEC File No. 1-8399) |
| | | | | | | 10.44 | | | | | 10.44 | Amendment No. 6 to Receivables Purchase Agreement, dated as of April 30, 2009, among Worthington Receivables Corporation, as Seller, Worthington Industries, Inc., as Servicer, the members of the various purchaser groups from time to time party to the Receivables Purchase Agreement and PNC Bank, National Association, as Administrator | | | | Incorporated herein by reference to Exhibit 10.30 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2009 (SEC File No. 1-8399) | | | | | | 10.45 | | Amendment No. 7 to Receivables Purchase Agreement, dated as of January 21, 2010, among Worthington Receivables Corporation, as Seller, Worthington Industries, Inc., as Servicer, the members of the various purchaser groups from time to time party to the Receivables Purchase Agreement and PNC Bank, National Association, as Administrator | | | | Incorporated herein by reference to Exhibit 10.1 to the Registrant’sRegistrant's Quarterly Report on Form 10-Q for the quarterly period ended February 28, 2010 (SEC File No. 1-8399) | | | | | | 10.46 | | Amendment No. 8 to Receivables Purchase Agreement, dated as of April 16, 2010, among Worthington Receivables Corporation, as Seller, Worthington Industries, Inc., as Servicer, the members of the various purchaser groups from time to time party to the Receivables Purchase Agreement and PNC Bank, National Association, as Administrator | | | | Incorporated herein by reference to Exhibit 10.30 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2010 (SEC File No. 1-8399) |
Exhibit | | Description of Exhibit | | Location | | | | | | 10.47 | | Amendment No. 9 to Receivables Purchase Agreement, dated as of January 20, 2011, among Worthington Receivables Corporation, as Seller, Worthington Industries, Inc., as Servicer, the members of the various purchaser groups from time to time party to the Receivables Purchase Agreement and PNC Bank, National Association, as Administrator | | | | Incorporated herein by reference to Exhibit 10.1 to the Registrant’sRegistrant's Quarterly Report on Form 10-Q for the quarterly period ended February 28, 2011 (SEC File No. 1-8399) | | | | | | 10.48 | | Amendment No. 10 to Receivables Purchase Agreement, dated as of February 28, 2011, among Worthington Receivables Corporation, as Seller, Worthington Industries, Inc., as Servicer, the members of the various purchaser groups from time to time party to the Receivables Purchase Agreement and PNC Bank, National Association, as Administrator | | | | Incorporated herein by reference to Exhibit 10.2 to the Registrant’sRegistrant's Quarterly Report on Form 10-Q for the quarterly period ended February 28, 2011 (SEC File No. 1-8399) | | | | | | 10.49 | | Amendment No. 11 to Receivables Purchase Agreement, dated as of May 6, 2011, among Worthington Receivables Corporation, as Seller, Worthington Industries, Inc., as Servicer, the members of the various purchaser groups from time to time party to the Receivables Purchase Agreement and PNC Bank, National Association, as Administrator | | | | Incorporated herein by reference to Exhibit 10.36 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2011 (SEC File No. 1-8399) |
| | | | | | | 10.50 | | | | | 10.50 | Amendment No. 12 to Receivables Purchase Agreement, dated as of January 19, 2012, among Worthington Receivables Corporation, as Seller, Worthington Industries, Inc., as Servicer, the members of the various purchaser groups from time to time party to the Receivables Purchase Agreement and PNC Bank, National Association, as Administrator | | | | Incorporated herein by reference to Exhibit 10.1 to the Registrant’sRegistrant's Quarterly Report on Form 10-Q for the quarterly period ended February 29, 2012 (SEC File No. 1-8399) | | | | | | 10.51 | | Amendment No. 13 to Receivables Purchase Agreement, dated as of January 18, 2013, among Worthington Receivables Corporation, as Seller, Worthington Industries, Inc., as Servicer, the members of the various purchaser groups from time to time party to the Receivables Purchase Agreement and PNC Bank, National Association, as Administrator | | | | Incorporated herein by reference to Exhibit 10.1 to the Registrant’sRegistrant's Quarterly Report on Form 10-Q for the quarterly period ended February 28, 2013 (SEC File No. 1-8399) | | | | | | 10.52 | | Amendment No. 14 to Receivables Purchase Agreement, dated as of July 15, 2013, among Worthington Receivables Corporation, as Seller, Worthington Industries, Inc., as Servicer, the members of the various purchaser groups from time to time party to the Receivables Purchase Agreement and PNC Bank, National Association, as Administrator | | | | Incorporated herein by reference to Exhibit 10.48 to the Registrant’sRegistrant's Annual Report on Form 10-K for the fiscal year ended May 31, 2013 (SEC File No. 1-8399) | | | | | | 10.53 | | Amendment No. 15 to Receivables Purchase Agreement, dated as of October 11, 2013, among Worthington Receivables Corporation, as Seller, Worthington Industries, Inc., as Servicer, the members of the various purchaser groups from time to time party to the Receivables Purchase Agreement and PNC Bank, National Association, as Administrator | | | | Incorporated herein by reference to Exhibit 10.57 to the Registrant’sRegistrant's Annual Report on Form 10-K for the fiscal year ended May 31, 2015 (SEC File No. 1-8399) |
Exhibit | | Description of Exhibit | | Location | | | | | | 10.54 | | Amendment No. 16 to Receivables Purchase Agreement, dated as of May 23, 2014, among Worthington Receivables Corporation, as Seller, Worthington Industries, Inc., as Servicer, the members of the various purchaser groups from time to time party to the Receivables Purchase Agreement and PNC Bank, National Association, as Administrator | | | | Incorporated herein by reference to Exhibit 10.58 to the Registrant’sRegistrant's Annual Report on Form 10-K for the fiscal year ended May 31, 2015 (SEC File No. 1-8399) | | | | | | 10.55 | | Amendment No. 17 to Receivables Purchase Agreement, dated as of January 16, 2015, among Worthington Receivables Corporation, as Seller, Worthington Industries, Inc., as Servicer, the members of the various purchaser groups from time to time party to the Receivables Purchase Agreement and PNC Bank, National Association, as Administrator | | | | Incorporated herein by reference to Exhibit 10.1 to the Registrant’sRegistrant's Quarterly Report on Form 10-Q for the quarterly period ended February 28, 2015 (SEC File No. 1-8399) |
| | | | | | | 10.56 | | | | | 10.56 | Amendment No. 18 to Receivables Purchase Agreement, dated as of January 16, 2018, among Worthington Receivables Corporation, as Seller, Worthington Industries, Inc., as Servicer, the members of the various purchaser groups from time to time party to the Receivables Purchase Agreement and PNC Bank, National Association, as Administrator | | Incorporated herein by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended February 28, 2018 (SEC File No. 1-8399) | | | | | 10.57 | Purchase and Sale Agreement, dated as of November 30, 2000, between the various originators listed therein and Worthington Receivables Corporation | | | | Incorporated herein by reference to Exhibit 10(h)(iii) to the Registrant’sRegistrant's Annual Report on Form 10-K for the fiscal year ended May 31, 2001 (SEC File No. 1-8399) | | | | | | 10.57 | 10.58 | Amendment No. 1, dated as of May 18, 2001, to Purchase and Sale Agreement, dated as of November 30, 2000, between the various originators listed therein and Worthington Receivables Corporation | | | | Incorporated herein by reference to Exhibit 10(h)(iv) to the Registrant’sRegistrant's Annual Report on Form 10-K for the fiscal year ended May 31, 2001 (File(SEC File No. 1-8399) | | | | | | 10.58 | 10.59 | Amendment No. 2, dated as of August 25, 2006, to Purchase and Sale Agreement, dated as of November 30, 2000, between the various originators listed therein and Worthington Receivables Corporation | | | | Incorporated herein by reference to Exhibit 10.5 to the Registrant’sRegistrant's Quarterly Report on Form 10-Q for the quarterly period ended August 31, 2006 (SEC File No. 1-8399) | | | | | | 10.59 | 10.60 | Amendment No. 3, dated as of October 1, 2008, to Purchase and Sale Agreement, dated as of November 30, 2000, among the various originators listed therein, Worthington Taylor, Inc. and Worthington Receivables Corporation | | | | Incorporated herein by reference to Exhibit 10.3 to the Registrant’sRegistrant's Quarterly Report on Form 10-Q for the quarterly period ended February 28, 2011 (SEC File No. 1-8399) | | | | | | 10.60 | 10.61 | Amendment No. 4, dated as of February 28, 2011, to Purchase and Sale Agreement, dated as of November 30, 2000, among the various originators listed therein, Dietrich Industries, Inc. and Worthington Receivables Corporation | | | | Incorporated herein by reference to Exhibit 10.4 to the Registrant’sRegistrant's Quarterly Report on Form 10-Q for the quarterly period ended February 28, 2011 (SEC File No. 1-8399) |
Exhibit | | Description of Exhibit | | Location | | | | | | 10.61 | 10.62 | Amendment No. 5, dated as of May 6, 2011, to Purchase and Sale Agreement, dated as of November 30, 2000, among the various originators listed therein, The Gerstenslager Company and Worthington Receivables Corporation | | | | Incorporated herein by reference to Exhibit 10.42 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2011 (SEC File No. 1-8399) | | | | | | 10.62 | 10.63 | Amendment No. 6, dated as of January 19, 2012, to Purchase and Sale Agreement, dated as of November 30, 2000, among the various originators listed therein and Worthington Receivables Corporation | | | | Incorporated herein by reference to Exhibit 10.2 to the Registrant’sRegistrant's Quarterly Report on Form 10-Q for the quarterly period ended February 29, 2012 (SEC File No. 1-8399) | | | | | | 10.63 | 10.64 | Amendment No. 7, dated as of January 16, 2015, to Purchase and Sale Agreement, dated as of November 30, 2000, among the various originators listed therein, Advanced Component Technologies, Inc., Worthington Cylinders Mississippi, LLC, Worthington Steel of Kentucky, L.L.C., The Worthington Steel Company (North Carolina), and Worthington Receivables Corporation | | | | Incorporated herein by reference to Exhibit 10.2 to the Registrant’sRegistrant's Quarterly Report on Form 10-Q for the quarterly period ended February 28, 2015 (SEC File No. 1-8399) | | | | | | 10.64 | 10.65 | Amendment No. 8, dated as of February 18, 2015, to Purchase and Sale Agreement, dated as of November 30, 2000, among the various originators listed therein and Worthington Receivables Corporation | | | | Incorporated herein by reference to Exhibit 10.3 to the Registrant’sRegistrant's Quarterly Report on Form 10-Q for the quarterly period ended February 28, 2015 (SEC File No. 1-8399) |
| | | | | | | 10.65 | | | | | | 10.66 | Summary of Annual Base Salaries Approved for Named Executive Officers of Worthington Industries, Inc.* | | | | Filed herewith | | | | | | 10.66 | 10.67 | Summary of Annual Cash Performance Bonus Awards, Long-Term Performance Awards, Stock Options and Restricted Shares granted in Fiscal 2012 for Named Executive Officers* | | | | Incorporated herein by reference to Exhibit 10.47 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2011 (SEC File No. 1-8399) | | | | | | 10.67 | 10.68 | Summary of Annual Cash Incentive Bonus Awards, Long-Term Performance Awards, Stock Options and Restricted Common Shares granted in Fiscal 2013 for Named Executive Officers* | | | | Incorporated herein by reference to Exhibit 10.56 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2012 (SEC File No. 1-8399) | | | | | | 10.68 | 10.69 | Summary of Annual Cash Incentive Bonus Awards, Long-Term Performance Awards, Stock Options and Restricted Common Shares granted in Fiscal 2014 for Named Executive Officers* | | | | Incorporated herein by reference to Exhibit 10.62 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2013 (SEC File No. 1-8399) | | | | | | 10.69 | 10.70 | Summary of Annual Cash Incentive Bonus Awards, Long-Term Performance Awards, Stock Options and Restricted Common Shares granted in Fiscal 2015 for Named Executive Officers* | | | | Incorporated herein by reference to Exhibit 10.71 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2014 (SEC File No. 1-8399) | | | | | | 10.70 | 10.71 | Summary of Annual Cash Incentive Bonus Awards, Long-Term Performance Awards, Stock Options and Restricted Common Shares granted in Fiscal 2016 for Named Executive Officers* | | | | Incorporated herein by reference to Exhibit 10.74 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2015 (SEC File No. 1-8399) |
Exhibit | | Description of Exhibit | | Location | | | | | | 10.71 | 10.72 | Summary of Annual Cash Incentive Bonus Awards, Long-Term Performance Awards, Stock Options and Restricted Common Shares granted in Fiscal 2017 for Named Executive Officers* | | Incorporated herein by reference to Exhibit 10.71 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2016 (SEC File No. 1-8399) | | | | | | 10.73 | Summary of Annual Cash Incentive Bonus Awards, Long-Term Performance Awards, Stock Options and Restricted Common Shares granted in Fiscal 2018 for Named Executive Officers* | | Incorporated herein by reference to Exhibit 10.74 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2017 (SEC File No. 1-8399) | | | | | | 10.74 | Summary of Annual Cash Incentive Bonus Awards, Long-Term Performance Awards, Stock Options and Restricted Common Shares granted in Fiscal 2019 for Named Executive Officers* | | Filed herewith | | | | | 10.72 | 10.75 | Form of Indemnification Agreement entered into between Worthington Industries, Inc. and each executive officer of Worthington Industries, Inc.* | | | | Incorporated herein by reference to Exhibit 10.33 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2008 (SEC File No. 1-8399) | | | | | | 10.76 | Form of Indemnification Agreement entered into between Worthington Industries, Inc. and each non-employee director of Worthington Industries, Inc. * | | Incorporated herein by reference to Exhibit 10.32 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2008 (SEC File No. 1-8399) | | | | | | 14 | | Worthington Industries, Inc. Code of Conduct | | | | Incorporated herein by reference to Exhibit 14 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2012 (SEC File No. 1-8399) | | | | | | 21 | | Subsidiaries of Worthington Industries, Inc. | | | | Filed herewith | | | | | | �� 23.1 | | Consent of Independent Registered Public Accounting Firm (KPMG LLP) | | | | Filed herewith |
| | | | E-12
* | Indicates management contract or compensatory plan or arrangement.
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Exhibit | | Description of Exhibit | | Location | | | | | | 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document | | | | Submitted electronically herewith # | | | | | | 101.DEF | | XBRL Taxonomy Definition Linkbase Document | | | | Submitted electronically herewith # | | | | | | 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document | | | | Submitted electronically herewith # | | | | | | 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document | | | | Submitted electronically herewith # |
# Attached as Exhibit 101 to this Annual Report on Form 10-K for the fiscal year ended May 31, 2016 of Worthington Industries, Inc. are the following documents formatted in XBRL (eXtensible Business Reporting Language):
☨ | The DisclosureSchedules and Exhibits referenced in the Agreement and Plan of Merger have been omitted pursuant to Item 601(b)(2) of SEC Regulation S-K. Worthington Industries, Inc. hereby undertakes to furnish a copy of any of the omitted Disclosure Schedules and Exhibits to the Securities and Exchange Commission upon request. |
* | Indicates management contract or compensatory plan or arrangement. |
# | Attached as Exhibit 101 to this Annual Report on Form 10-K for the fiscal year ended May 31, 2018 of Worthington Industries, Inc. are the following documents formatted in XBRL (eXtensible Business Reporting Language): |
| (i) | Consolidated Balance Sheets at May 31, 20162018 and 2015;2017; |
| (ii) | Consolidated Statements of Earnings for the fiscal years ended May 31, 2016, 20152018, 2017 and 2014;2016; |
| (iii) | Consolidated Statements of Comprehensive Income for the fiscal years ended May 31, 2016, 20152018, 2017 and 2014;2016; |
| (iv) | Consolidated Statements of Equity for the fiscal years ended May 31, 2016, 20152018, 2017 and 2014;2016; |
| (v) | Consolidated Statements of Cash Flows for the fiscal years ended May 31, 2016, 20152018, 2017 and 2014;2016; and |
| (vi) | Notes to Consolidated Financial Statements – fiscal years ended May 31, 2016, 20152018, 2017 and 2014.2016. |
(b) | Exhibits: The documents listed in Item 15(a)(3) above are filed or furnished with this Annual Report on Form 10-K as exhibits or incorporated into this Annual Report on Form 10-K by reference. |
(c) | Financial Statement Schedule: The financial statement schedule listed in Item 15(a)(2) above is filed with this Annual Report on Form 10-K. |
Item 16. – Form 10-K Summary None.
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. | WORTHINGTON INDUSTRIES, INC. | | | | | Date: July 30, 2018 | By: | | /s/ John P. McConnell | | | | John P. McConnell, | | | | Chairman of the Board and Chief Executive Officer |
E-13
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. SIGNATURE | | DATE | | TITLE | | | | | | /s/ John P. McConnell | | July 30, 2018 | | Director, Chairman of the Board and Chief | John P. McConnell | | | | Executive Officer (Principal Executive Officer) | | | | | | /s/ B. Andrew Rose | | July 30, 2018 | | Executive Vice President and Chief Financial | B. Andrew Rose | | | | Officer (Principal Financial Officer) | | | | | | /s/ Richard G. Welch | | July 30, 2018 | | Controller | Richard G. Welch | | | | (Principal Accounting Officer) | | | | | | * | | * | | Director | Kerrii B. Anderson | | | | | | | | | | * | | * | | Director | John B. Blystone | | | | | | | | | | * | | * | | Director | Mark C. Davis | | | | | | | | | | * | | * | | Director | Michael J. Endres | | | | | | | | | | * | | * | | Director | Ozey K. Horton, Jr. | | | | | | | | | | * | | * | | Director | Peter Karmanos, Jr. | | | | | | | | | | * | | * | | Director | Carl A. Nelson, Jr. | | | | | | | | | | * | | * | | Director | Sidney A. Ribeau | | | | | | | | | | * | | * | | Director | Mary Schiavo | | | | |
* | The undersigned, by signing his name hereto, does hereby sign this report on behalf of each of the above-identified directors of the Registrant pursuant to powers of attorney executed by such directors, which powers of attorney are filed with this report within Exhibit 24. |
*By: | | /s/ John P. McConnell | Date: July 30, 2018 | | | John P. McConnell | | | | Attorney-In-Fact | |
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