Worthington Reports Second Quarter Results

Worthington Industries, Inc. (NYSE: WOR) today reported results for the three- and six-month periods ended November 30, 2007. (U.S. dollars in millions, except per share data) 2Q2008    1Q2008   2Q2007    6M2008   6M2007 Net sales $ 713.7 $ 759.0 $ 729.3 $ 1,472.6 $ 1,508.0 Operating income 11.5 20.0 30.6 31.5 85.3 Equity income 14.9 15.0 14.8 29.9 33.1 Net earnings 14.7 20.2 26.9 34.9 70.2 Earnings per share $ 0.18 $ 0.24 $ 0.31 $ 0.42 $ 0.79   EBITDA (a) $ 39.7 $ 49.6 $ 60.4 $ 89.3 $ 147.9 (a) Earnings before interest, taxes, depreciation and amortization. See reconciliation on consolidated statement of earnings. For the second quarter of fiscal 2008, net sales were $713.7 million, a decrease of 2% from $729.3 million last year. Second quarter net earnings were $14.7 million and earnings per diluted share were $0.18, compared to $26.9 million, or $0.31 per diluted share, for the same period last year. Net earnings for the second quarter included $3.5 million in pre-tax restructuring charges, $2.7 million of which was non-cash, primarily related to previously announced plant closures in the Metal Framing segment. These charges had a negative impact of $0.03 on reported earnings per share. For the six-month period, net sales of $1,472.6 million were 2% lower than $1,508.0 million for the same period last year. Net earnings were $34.9 million, or $0.42 per diluted share, compared to $70.2 million, or $0.79 per diluted share, for the same period last year. Year-to-date results were negatively impacted by $7.3 million in pre-tax restructuring charges, or $0.06 per share, related to early retirement, severance and plant closure charges. "Second quarter and first half performance reflects market weakness particularly in our two primary end markets, automotive and construction; the resulting cost/price squeeze across our businesses; and the significant challenge in Metal Framing. The second quarter likely reflects the low point in Metal Framing results,” said Chairman and CEO, John McConnell. "Aggressive countermeasures – including a corporate-wide cost reduction program and a restructuring of Metal Framing – are underway and are expected to benefit the second half of fiscal 2008 and show material impact in fiscal 2009. Moreover, our underlying performance is bolstered by near record results from Pressure Cylinders and our joint ventures, especially WAVE.” McConnell continued, "We expect the major contribution from these businesses to continue, while Steel Processing is working to enhance margins and volume. Our mission over the next few quarters is to restore the earning power of our inherently good portfolio and create a strong platform for future growth.” Second Quarter Highlights Quarterly net sales in the Pressure Cylinders segment were a second quarter record of $133.2 million. Approximately half, or $6.8 million, of the $12.9 million increase from last year’s record sales was due to stronger foreign currencies relative to the dollar. Operating income fell 14% from last year’s second quarter record but remained well above historical levels. Equity income from nine unconsolidated joint ventures totaled $14.9 million due to record second quarter earnings at Worthington Armstrong Venture (WAVE) and to the addition of the new Serviacero Worthington joint venture in Mexico. Cash dividends received from joint ventures totaled $14.7 million for the quarter. Cash provided by operating activities was $21.9 million for the second quarter of fiscal 2008 and $96.7 million for the year to date. Capital expenditures, excluding acquisitions and investments, were $10.1 million and $26.6 million for the same periods. During the second quarter, $13.8 million was paid to shareholders in a regular quarterly dividend. At quarter end, the dividend yielded a 3.2% annualized return. The ratio of total debt to capitalization was 27.9% at quarter end compared to 32.7% at quarter end last year. Quarterly Segment Results In the Steel Processing segment, quarterly net sales fell 8%, or $30.6 million, to $344.2 million from $374.8 million in the comparable quarter of fiscal 2007. Volumes rose 6% as a significant increase in tolling business more than offset a decline in direct business. Tolling volumes in the prior year period were negatively impacted while capacity was increased in the operations of the Spartan Steel Coating consolidated joint venture. The resulting change in product mix contributed to the decrease in net sales and the lower average selling prices (down 14%) for the current quarter. Operating income decreased because of a narrower spread between average selling prices and material costs, especially at Precision Specialty Metals (PSM), a stainless steel processing facility. In the Metal Framing segment, net sales decreased 4%, or $7.1 million, to $182.4 million from $189.5 million in the comparable quarter of fiscal 2007. Pricing remained extremely competitive despite realization of a portion of the mid-quarter price increase. Average selling prices fell 7% from the prior year period, more than offsetting an overall volume increase of 4%. Product mix continued to negatively impact earnings, as volumes increased in lower margin product lines and decreased significantly in higher margin lines, many of which serve the residential housing sector. The much narrower spread resulting from lower selling prices and higher material costs resulted in an operating loss for the quarter. In addition, results were hurt by $3.6 million in pre-tax restructuring charges related to announced plant closures (see press release dated September 25, 2007, for more detail on plant closures). The plant closures are expected to be substantially complete by fiscal year end. Measurable cost savings related to these closures, estimated at $9 million annually, are not expected until fiscal 2009. In the Pressure Cylinders segment, net sales increased 11%, or $12.9 million, to $133.2 million from $120.3 million in the comparable quarter of fiscal 2007. Stronger foreign currencies relative to the U.S. Dollar positively impacted reported U.S. dollar sales of the non-U.S. operations by $6.8 million compared to last year. Improved North American volumes across most product lines combined with stable pricing resulted in a $5.8 million increase in sales. Improved steel high pressure cylinder volumes resulting from a capacity expansion at the Austrian facility were substantially offset by an 8% decline in average selling prices. Capacity increases by European high pressure cylinder producers and increased imports into Europe from the U.S. and China drove the pricing decline. Operating income remained near record levels as a result of continued strength in both the European and North American operations. Worthington’s joint ventures added significantly to second quarter results as equity income from the nine unconsolidated affiliates totaled $14.9 million, compared to $14.8 million in the year ago quarter. WAVE continued to contribute the vast majority of equity earnings. Its earnings were a second quarter record, up slightly from the record set last year. Compared to the year ago quarter, equity income increased due primarily to Worthington’s new Mexican joint venture, Serviacero Worthington, offset by a decline in earnings from TWB Company and start-up expenses at two newer joint ventures. Cost Reduction Initiative Update Annual savings related to the company’s cost reduction program, which includes early retirement, plant closures and hundreds of company-wide initiatives impacting all expense categories, are expected to total $35 million. All initiatives have been identified, and implementation is underway. Realized cost savings are expected to increase for the balance of fiscal 2008 and into fiscal 2009, reaching the full $35 million annual savings run rate in fiscal 2010. Other Dividend Declared On November 16, 2007, the board of directors declared a quarterly cash dividend of $0.17 per share payable December 29, 2007, to shareholders of record on December 15, 2007. Conference Call Worthington will review second quarter results during its quarterly conference call today, December 20, 2007, at 1:30 p.m. Eastern Time. Details on the conference call can be found on the company web site at www.WorthingtonIndustries.com Corporate Profile Worthington Industries is a leading diversified metal processing company with annual sales of approximately $3 billion. The Columbus, Ohio, based company is North America’s premier value-added steel processor and a leader in manufactured metal products such as metal framing, pressure cylinders, automotive past model service stampings, metal ceiling grid systems and laser welded blanks. Worthington employs more than 8,000 people and operates 68 facilities in 10 countries. Founded in 1955, the company operates under a long-standing corporate philosophy rooted in the golden rule, with earning money for its shareholders as the first corporate goal. This philosophy, an unwavering commitment to the customer and one of the strongest employee/employer partnerships in American industry serve as the company’s foundation. Safe Harbor Statement The company wishes to take advantage of the Safe Harbor provisions included in the Private Securities Litigation Reform Act of 1995 (the "Act”). Statements by the company relating to future or expected performance, sales, operating results and earnings per share; projected capacity and working capital needs; pricing trends for raw materials and finished goods; anticipated capital expenditures and asset sales; projected timing, results, costs, charges and expenditures related to acquisitions or to facility startups, dispositions, shutdowns and consolidations; new products and markets; expectations for company and customer inventories, jobs and orders; expectations for the economy and markets; expected benefits from turnaround plans, cost reduction efforts and other new initiatives; expectations for improving margins and increasing shareholder value; effects of judicial rulings and other non-historical matters constitute "forward-looking statements” within the meaning of the Act. Because they are based on beliefs, estimates and assumptions, forward-looking statements are inherently subject to risks and uncertainties that could cause actual results to differ materially from those projected. Any number of factors could affect actual results, including, without limitation, product demand and pricing; changes in product mix, product substitution and market acceptance of the company’s products; fluctuations in pricing, quality or availability of raw materials (particularly steel), supplies, transportation, utilities and other items required by operations; effects of facility closures and the consolidation of operations; the effect of consolidation and other changes within the steel, automotive, construction and related industries; failure to maintain appropriate levels of inventories; the ability to realize targeted expense reductions such as head count reductions, facility closures and other expense reductions; the ability to realize other cost savings and operational efficiencies on a timely basis; the overall success of, and the ability to integrate, newly-acquired businesses and achieve synergies therefrom; capacity levels and efficiencies within facilities and within the industry as a whole; financial difficulties (including bankruptcy filings) of customers, suppliers, joint venture partners and others with whom the company does business; the effect of national, regional and worldwide economic conditions generally and within major product markets, including a prolonged or substantial economic downturn; the effect of disruption in business of suppliers, customers, facilities and shipping operations due to adverse weather, casualty events, equipment breakdowns, acts of war or terrorist activities or other causes; changes in customer inventories, spending patterns, product choices, and supplier choices; risks associated with doing business internationally, including economic, political and social instability, and foreign currency exposure; the ability to improve and maintain processes and business practices to keep pace with the economic, competitive and technological environment; adverse claims experience with respect to workers compensation, product recalls or liability, casualty events or other matters; deviation of actual results from estimates and/or assumptions used by the company in the application of its significant accounting policies; level of imports and import prices in the company’s markets; the impact of judicial rulings and governmental regulations, both in the United States and abroad; and other risks described from time to time in the company’s filings with the United States Securities and Exchange Commission. WORTHINGTON INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF EARNINGS (In thousands, except per share)     Three Months Ended Six Months Ended November 30, November 30, 2007 2006   2007 2006   Net sales $ 713,664 $ 729,262 $ 1,472,619 $ 1,507,982 Cost of goods sold 643,654 645,164   1,323,824 1,302,533   Gross margin 70,010 84,098 148,795 205,449 Selling, general and administrative expense 55,051 53,531 110,000 120,157 Restructuring charges 3,478 -   7,310 -   Operating income 11,481 30,567 31,485 85,292 Other income (expense): Miscellaneous expense (2,431 ) (704 ) (3,339 ) (1,069 ) Interest expense (5,370 ) (6,022 ) (10,008 ) (10,367 ) Equity in net income of unconsolidated affiliates 14,927 14,802   29,912 33,081   Earnings before income taxes 18,607 38,643 48,050 106,937 Income tax expense 3,867 11,698   13,142 36,765   Net earnings $ 14,740 $ 26,945   $ 34,908 $ 70,172       Average common shares outstanding - basic 81,366 87,234   82,722 88,004   Earnings per share - basic $ 0.18 $ 0.31   $ 0.42 $ 0.80       Average common shares outstanding - diluted 82,358 87,611   83,717 88,555   Earnings per share - diluted $ 0.18 $ 0.31   $ 0.42 $ 0.79       Common shares outstanding at end of period 81,567 85,203 81,567 85,203   Cash dividends declared per share $ 0.17 $ 0.17 $ 0.34 $ 0.34           Reconciliation of net earnings to EBITDA Net earnings $ 14,740 $ 26,945   $ 34,908 $ 70,172 Interest expense 5,370 6,022   10,008 10,367 Income taxes 3,867 11,698   13,142 36,765 Depreciation & amortization 15,736 15,690   31,222 30,621   EBITDA $ 39,713 $ 60,355     $ 89,280 $ 147,925   WORTHINGTON INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS (In thousands)   November 30, May 31, 2007 2007 Assets Current assets: Cash and cash equivalents $ 39,554 $ 38,277 Short-term investments - 25,562 Receivables, less allowances of $4,241 and $3,641 at November 30, 2007 and May 31, 2007 370,031 400,916 Inventories: Raw materials 248,498 261,849 Work in process 84,896 97,633 Finished products 114,455 88,382 Total inventories 447,849 447,864 Income taxes receivable 8,851 - Assets held for sale 4,546 4,600 Deferred income taxes 19,487 13,067 Prepaid expenses and other current assets 43,134 39,097 Total current assets 933,452 969,383   Investments in unconsolidated affiliates 106,832 57,540 Goodwill 181,903 179,441 Other assets 33,576 43,553 Property, plant & equipment, net 558,477 564,265 Total assets $ 1,814,240 $ 1,814,182   Liabilities and shareholders' equity Current liabilities: Accounts payable $ 266,007 $ 263,665 Notes payable 93,200 31,650 Accrued compensation, contributions to employee benefit plans and related taxes 42,382 46,237 Dividends payable 13,869 14,440 Other accrued items 55,219 45,519 Income taxes payable 16,959 18,983 Total current liabilities 487,636 420,494   Other liabilities 73,543 57,383 Long-term debt 245,000 245,000 Deferred income taxes 90,324 105,983 Total liabilities 896,503 828,860   Minority interest 45,075 49,321 Shareholders' equity 872,662 936,001 Total liabilities and shareholders' equity $ 1,814,240 $ 1,814,182 WORTHINGTON INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)       Three Months Ended Six Months Ended November 30, November 30, 2007 2006 2007 2006 Operating activities Net earnings $ 14,740 $ 26,945 $ 34,908 $ 70,172 Adjustments to reconcile net earnings to net cash provided (used) by operating activities:   Depreciation and amortization 15,736 15,690 31,222 30,621 Restructuring charges, non-cash 2,730 - 2,730 - Provision for deferred income taxes 4,729 (670 ) 6,476 174 Equity in net income of unconsolidated affiliates, net of distributions (227 ) 10,123 (512 ) (537 ) Minority interest in net income of consolidated subsidiaries 1,989 965 3,987 2,581 Net loss on sale of assets 550 (2,852 ) 2,942 (2,027 ) Stock-based compensation 828 859 1,762 1,650 Excess tax benefits - stock-based compensation (1,688 ) - (2,248 ) (200 ) Changes in assets and liabilities: Accounts receivable 12,201 24,223 25,564 32,793 Inventories (2,066 ) 23,597 637 (63,938 ) Prepaid expenses and other current assets (1,846 ) (865 ) (128 ) (3,246 ) Other assets (559 ) 3,494 (352 ) 3,988 Accounts payable and accrued expenses (26,069 ) (93,964 ) (9,745 ) (166,575 ) Other liabilities 868   3,393   (494 ) 1,765   Net cash provided (used) by operating activities 21,916   10,938   96,749   (92,779 )   Investing activities Investment in property, plant and equipment, net (10,116 ) (16,684 ) (26,621 ) (33,507 ) Acquisitions, net of cash acquired (2,241 ) (577 ) (2,241 ) (31,727 ) Investments in unconsolidated affiliates (47,043 ) (364 ) (47,043 ) (1,000 ) Proceeds from sale of assets 246 17,072 292 17,956 Sales of short-term investments -   -   25,562   2,173   Net cash used by investing activities (59,154 ) (553 ) (50,051 ) (46,105 )   Financing activities Proceeds from short-term borrowings 6,200 72,726 61,550 195,816 Principal payments on long-term debt - (2 ) - (2 ) Proceeds from issuance of common shares 8,314 15 13,048 1,865 Excess tax benefits - stock-based compensation 1,688 - 2,248 200 Payments to minority interest (4,320 ) - (6,720 ) - Repurchase of common shares - (62,508 ) (87,310 ) (62,508 ) Dividends paid (13,776 ) (15,098 ) (28,237 ) (30,176 ) Net cash provided (used) by financing activities (1,894 ) (4,867 ) (45,421 ) 105,195     Increase (decrease) in cash and cash equivalents (39,132 ) 5,518 1,277 (33,689 ) Cash and cash equivalents at beginning of period 78,686   17,009   38,277   56,216   Cash and cash equivalents at end of period $ 39,554   $ 22,527   $ 39,554   $ 22,527   WORTHINGTON INDUSTRIES, INC. SUPPLEMENTAL DATA (In thousands)       This supplemental information is provided to assist in the analysis of the results of operations.     Three Months Ended Six Months Ended November 30, November 30, 2007 2006 2007 2006 Volume: Steel Processing (tons) 840 791 1,650 1,688 Metal Framing (tons) 163 157 338 323 Pressure Cylinders (units) 10,677 9,379 22,215 21,321   Net sales: Steel Processing $ 344,230 $ 374,879 $ 700,084 $ 775,867 Metal Framing 182,415 189,515 380,486 401,855 Pressure Cylinders 133,214 120,300 269,812 241,811 Other 53,805   44,568   122,237   88,449   Total net sales $ 713,664   $ 729,262   $ 1,472,619   $ 1,507,982     Material cost: Steel Processing $ 262,117 $ 287,934 $ 532,338 $ 585,763 Metal Framing 138,218 138,522 283,719 268,708 Pressure Cylinders 60,780 53,329 125,059 110,495   Operating income (loss): Steel Processing $ 10,267 $ 17,774 $ 20,246 $ 38,571 Metal Framing (16,045 ) (4,862 ) (24,048 ) 12,919 Pressure Cylinders 17,431 20,166 35,396 36,836 Other (172 ) (2,511 ) (109 ) (3,034 ) Total operating income $ 11,481   $ 30,567   $ 31,485   $ 85,292         The following provides detail of the restructuring charges included in the operating income by segment presented above.   Three Months Ended Six Months Ended November 30, November 30, 2007 2006 2007 2006   Pre-tax restructuring charges by segment:   Steel Processing $ (106 ) $ - $ 1,096 $ - Metal Framing 3,557 - 4,439 - Pressure Cylinders - - - - Other 27   -   1,775   -   Total restructuring charges $ 3,478   $ -   $ 7,310   $ -