-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OllmwW36XLDr9GOHu4siwSGZeKzVSj/lsQJCBDOalY1xlLuefyTJXdqAa+pPpC19 I8lIHbxJt42ljpAub0oyKg== 0000950152-01-504176.txt : 20010830 0000950152-01-504176.hdr.sgml : 20010830 ACCESSION NUMBER: 0000950152-01-504176 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010927 FILED AS OF DATE: 20010829 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WORTHINGTON INDUSTRIES INC CENTRAL INDEX KEY: 0000108516 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES & ROLLING & FINISHING MILLS [3310] IRS NUMBER: 311189815 STATE OF INCORPORATION: OH FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: 1934 Act SEC FILE NUMBER: 001-08399 FILM NUMBER: 1726663 BUSINESS ADDRESS: STREET 1: 1205 DEARBORN DR CITY: COLUMBUS STATE: OH ZIP: 43085 BUSINESS PHONE: 6144383210 MAIL ADDRESS: STREET 1: 1205 DEARBORN DR CITY: COLUMBUS STATE: OH ZIP: 43085 FORMER COMPANY: FORMER CONFORMED NAME: WORTHINGTON STEEL CO DATE OF NAME CHANGE: 19720123 DEF 14A 1 l90013adef14a.txt WORTHINGTON INDUSTRIES, INC.--DEFINITIVE PROXY 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SCHEDULE 14A (RULE 14A-101) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. ) Filed by the Registrant [X] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14a-6(e)(2)) [X] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12.
WORTHINGTON INDUSTRIES, INC. (NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) (NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT) Payment of Filing Fee (Check the appropriate box): [X] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. (1) Title of each class of securities to which transaction applies: ....... (2) Aggregate number of securities to which transaction applies: .......... (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): ............ (4) Proposed maximum aggregate value of transaction: ...................... (5) Total fee paid: ....................................................... [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: ............................................... (2) Form, Schedule or Registration Statement No.: ......................... (3) Filing Party: ......................................................... (4) Date Filed: ........................................................... - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 [WORTHINGTON INDUSTRIES LOGO] August 30, 2001 Dear Worthington Industries Shareholder: You are cordially invited to attend the 2001 Annual Meeting of Shareholders to be held at 2:00 p.m., Eastern Daylight Time, on Thursday, September 27, 2001. The meeting will be held at the Worthington Industries Athletic Center, 905 Dearborn Drive, Columbus, Ohio 43085. The Notice of Annual Meeting of Shareholders and Proxy Statement that follow contain information concerning the business to be conducted at the meeting, including the election of three directors. It is important that your shares are represented at the meeting, whether or not you plan to attend. Thus, I ask that you sign, date and return the enclosed proxy card promptly. Alternatively, for the first time, registered shareholders may transmit voting instructions for their shares electronically through the Internet or by telephone by following the simple instructions on the proxy card. If you do attend the meeting, you may revoke your proxy in open meeting and vote in person if you so desire. For those shareholders who are unable to attend the meeting, a live audio webcast will be available via Internet link at www.worthingtonindustries.com. Along with the other members of your Board of Directors, I look forward to personally greeting those shareholders who attend the meeting. On behalf of the Board of Directors and our management team, I would like to express our appreciation for your continued interest in Worthington Industries. Sincerely, /s/ John P. McConnell John P. McConnell Chairman and Chief Executive Officer 3 [WORTHINGTON INDUSTRIES LOGO] NOTICE OF ANNUAL MEETING OF SHAREHOLDERS To the Shareholders of WORTHINGTON INDUSTRIES, INC.: Notice is hereby given that the 2001 Annual Meeting of Shareholders (the "Annual Meeting") of Worthington Industries, Inc. (the "Company") will be held at the Worthington Industries Athletic Center, 905 Dearborn Drive, Columbus, Ohio on September 27, 2001 at 2:00 p.m., Eastern Daylight Time. The Annual Meeting is being held for the following purposes: 1. To elect three directors, each for a term of three years; and 2. To transact such other business as may properly come before the Annual Meeting or any adjournment. Only shareholders of record at the close of business on August 8, 2001 are entitled to notice of and to vote at the Annual Meeting or any adjournment. A copy of the Company's Annual Report to Shareholders for the fiscal year ended May 31, 2001 accompanies this notice. PLEASE COMPLETE, SIGN AND PROMPTLY RETURN YOUR PROXY CARD IN THE ENCLOSED ENVELOPE. ALTERNATIVELY, REFER TO THE INSTRUCTIONS ON THE PROXY CARD TO TRANSMIT YOUR VOTING INSTRUCTIONS ELECTRONICALLY THROUGH THE INTERNET OR BY TELEPHONE. YOU MAY STILL VOTE IN PERSON AT THE ANNUAL MEETING BY PROPERLY REVOKING YOUR PROXY. PLEASE VOTE PROMPTLY. IT WILL HELP ENSURE A QUORUM IS PRESENT AND AVOID ADDITIONAL PROXY SOLICITATION COSTS. Very truly yours, Dale T. Brinkman, Secretary August 30, 2001 4 WORTHINGTON INDUSTRIES, INC. 1205 DEARBORN DRIVE COLUMBUS, OHIO 43085 (614) 438-3210 ------------------------------ PROXY STATEMENT ------------------------------ This Proxy Statement and the enclosed proxy card are being furnished to you in connection with the solicitation of proxies on behalf of the Board of Directors of Worthington Industries, Inc. The proxies are being solicited for use at the Annual Meeting of Shareholders (the "Annual Meeting") to be held at 2:00 p.m., local time, on Thursday, September 27, 2001, at the Worthington Industries Athletic Center, 905 Dearborn Drive, Columbus, Ohio 43085, or any adjournment. Only shareholders of record at the close of business on August 8, 2001 (the "Record Date") are entitled to notice of and to vote at the Annual Meeting. The Company is mailing this Proxy Statement and the accompanying proxy card to those shareholders on or about August 30, 2001. To ensure that your Common Shares will be voted at the Annual Meeting, please sign, date and mail your proxy card in the enclosed envelope promptly, or transmit your voting instructions electronically by accessing the Internet site or by using the toll-free telephone number stated on the proxy card. There are no fees or charges associated with transmitting voting instructions via the Internet or by telephone other than fees or charges, if any, that you would typically pay for access to the Internet and for telephone service. Those Common Shares represented by properly signed proxies or properly authenticated votes recorded electronically through the Internet or by telephone, that are received prior to the Annual Meeting and not revoked, will be voted as directed by the shareholder. All valid proxies received prior to the Annual Meeting that do not specify how Common Shares should be voted will be voted FOR each of the nominees listed below under the caption "PROPOSAL 1: ELECTION OF DIRECTORS." No appraisal rights exist for any action proposed to be taken at the Annual Meeting. You may revoke a proxy at any time before it is voted by giving written notice of revocation to the Secretary of the Company, by executing and returning to the Company a later-dated proxy card, by voting in person at the Annual Meeting (but only if you are the registered shareholder), by submitting a later-dated electronic vote through the Internet if you previously voted through the Internet, or by voting by telephone at a later date if you previously voted by telephone. Attending the Annual Meeting does not, in itself, revoke a previously appointed proxy. The solicitation of proxies may be made by mail, personal interview, telephone, facsimile or telegraph by directors, officers and regular employees of the Company, none of whom will receive additional compensation for such solicitation activities. In addition, the Company has retained Investor Communications Services, a division of Automatic Data Processing, Inc., to aid in the solicitation of proxies for a fee of approximately $600 plus out-of-pocket expenses. Other than the Internet access and telephone service fees described above, all proxy solicitation costs will be borne by the Company. As used herein, the term "Company" means Worthington Industries, Inc. or, where appropriate, Worthington Industries, Inc. and its subsidiaries. The term "Common Shares" means the Company's Common Shares, without par value. 1 5 VOTING SECURITIES AND PRINCIPAL HOLDERS VOTING RIGHTS At the Record Date, the total number of outstanding Common Shares entitled to vote at the Annual Meeting is 85,379,425 shares. Only shareholders of record at the close of business on the Record Date are entitled to notice of and to vote at the Annual Meeting or any adjournment. Each shareholder is entitled to one vote for each Common Share held. There are no cumulative voting rights in the election of directors. The results of shareholder voting will be tabulated by the inspector of elections appointed for the Annual Meeting. Common Shares represented by properly executed proxies returned to the Company prior to the Annual Meeting or represented by properly authenticated electronic votes recorded through the Internet or by telephone will be counted toward the quorum in all matters even though they are marked "Withhold All" or are not marked at all. Broker/dealers who hold Common Shares in street name, may, under the applicable rules of the exchange and other self-regulatory organizations of which the broker/dealers are members, sign and submit proxies for such Common Shares and may vote such Common Shares on some matters, but broker/dealers may not vote such Common Shares on other matters without specific instructions from the customer who owns such Common Shares. Proxies that are signed and submitted by broker/dealers that have not been voted on certain matters as described in the previous sentence are referred to as broker non-votes. These proxies count toward the establishment of a quorum. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The Common Shares are the Company's only outstanding class of voting securities. The following table furnishes, as of July 31, 2001, certain information regarding the beneficial ownership of the Company's Common Shares by (i) each person known to management to beneficially own more than 5% of the Common Shares, (ii) each director, director nominee and named executive officer listed in the Summary Compensation Table, and (iii) all directors and executive officers as a group.
AMOUNT AND NATURE OF NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) PERCENT OF CLASS ------------------------ ------------------------ ---------------- John H. McConnell (2)........................ 16,120,650 18.9% 1205 Dearborn Drive Columbus, Ohio 43085 John T. Baldwin (3).......................... 85,434 * John B. Blystone (4)......................... 9,000 * John S. Christie (5)......................... 221,468 * William S. Dietrich, II (6).................. 40,000 * Michael J. Endres (7)........................ 57,100 * Edward A. Ferkany (8)........................ 103,403 * Peter Karmanos, Jr. (9)...................... 44,000 * John R. Kasich............................... 0 0 John P. McConnell (10)....................... 1,396,880 1.6% Robert B. McCurry (11)....................... 54,455 * Sidney A. Ribeau (12)........................ 4,000 * Ralph V. Roberts (13)........................ 94,325 * Mary Fackler Schiavo (14).................... 8,011 * All Directors and Executive Officers as a Group (18 People).......................... 18,299,010 21.3%
* less than 1% 2 6 - --------------- (1) Unless otherwise stated, each shareholder named in this table has sole voting and investment power over the listed Common Shares, or shares such power with his or her spouse. (2) Includes 13,402,982 Common Shares, which are held of record by JDEL, Inc. ("JDEL"), a Delaware corporation. The directors of JDEL have given Mr. McConnell sole voting and investment power with respect to these Common Shares. Also included are 50,000 Common Shares subject to currently exercisable options and 506,250 Common Shares held by John H. McConnell's wife, as to which 506,250 Common Shares beneficial ownership is disclaimed. The table does not include 2,428,312 Common Shares (2.8% of Common Shares outstanding) held by an independent trustee, in trust for the benefit of Mr. McConnell's wife, his adult daughter and his son, John P. McConnell, over which Common Shares the trustee has investment and voting power, subject to the approval of Mrs. McConnell. Beneficial ownership of these 2,428,312 Common Shares is disclaimed. (3) Includes 56,000 Common Shares subject to currently exercisable options or options exercisable within 60 days from July 31, 2001. (4) Includes 4,000 Common Shares subject to currently exercisable options or options exercisable within 60 days from July 31, 2001. (5) Includes 68,000 Common Shares subject to currently exercisable options or options exercisable within 60 days from July 31, 2001. Also included are 144,000 Common Shares held in The McConnell Educational Foundation for the benefit of third parties, of which John P. McConnell and John S. Christie are co-trustees and share voting and investment power. Beneficial ownership of these 144,000 Common Shares is disclaimed. (6) Includes 30,000 Common Shares subject to currently exercisable options or options exercisable within 60 days from July 31, 2001. (7) Includes 4,000 Common Shares subject to currently exercisable options or options exercisable within 60 days from July 31, 2001. Includes 10,000 Common Shares held by Mr. Endres' wife. Beneficial ownership of these Common Shares is disclaimed. (8) Includes 73,200 Common Shares subject to currently exercisable options or options exercisable within 60 days from July 31, 2001. Includes 22,189 Common Shares held by Mr. Ferkany's wife. Beneficial ownership of these Common Shares is disclaimed. (9) Includes 4,000 Common Shares subject to currently exercisable options or options exercisable within 60 days from July 31, 2001. (10) Included are 40,848 Common Shares held by John P. McConnell as custodian for his minor children and 221,200 Common Shares subject to currently exercisable options or options exercisable within 60 days from July 31, 2001. Also includes 118,000 Common Shares held by The McConnell Family Trust of which Mr. McConnell is co-trustee and shares voting and investment power. Also included are 144,000 Common Shares held in The McConnell Educational Foundation for the benefit of third parties, of which John P. McConnell and John S. Christie are co-trustees and share voting and investment power. Beneficial ownership of these 144,000 Common Shares is disclaimed. (11) Includes 4,000 Common Shares subject to currently exercisable options or options exercisable within 60 days from July 31, 2001. Includes 50,455 Common Shares held by Mr. McCurry and his wife as trustees of a family trust. (12) Includes 4,000 Common Shares subject to currently exercisable options or options exercisable within 60 days from July 31, 2001. (13) Includes 63,200 Common Shares subject to currently exercisable options or options exercisable within 60 days from July 31, 2001. (14) Includes 4,000 Common Shares subject to currently exercisable options or options exercisable within 60 days from July 31, 2001. 3 7 PROPOSAL 1: ELECTION OF DIRECTORS At a meeting held on August 23, 2001, pursuant to Section 2.02(A) of the Company's Code of Regulations, the Board of Directors, by unanimous vote, reduced the number of directors from 11 to 10, with the seat being taken from the class of directors to be elected at the Annual Meeting. As a result, only three directors will be elected at the Annual Meeting and proxies may not be voted for a greater number of persons than the number of nominees named. The Board of Directors has designated Mr. John P. McConnell, Mr. John R. Kasich and Ms. Mary Fackler Schiavo as nominees for election as directors of the Company for terms expiring in 2004. Mr. McConnell, Mr. Kasich and Ms. Schiavo are currently serving as directors of the Company for terms that expire at the Annual Meeting and each has served continuously as a director since 1990, 2001 and 1998, respectively. Under Ohio law and the Company's Code of Regulations, the three nominees receiving the greatest number of votes will be elected as directors. Common Shares as to which the authority to vote is withheld will be counted for quorum purposes but will not be counted toward the election of directors, or toward the election of the individual nominees specified on the proxy card. In the event a nominee who would otherwise receive the required number of votes is unable to serve, the persons designated as proxy holders reserve full discretion to vote the Common Shares represented by the proxies they hold for the election of the remaining nominees and for the election of any substitute nominee designated by the Board of Directors. The Board of Directors has no reason to believe that any of the nominees will be unable to serve if elected. THE COMMON SHARES REPRESENTED BY THE ENCLOSED PROXY CARD WILL BE VOTED FOR EACH OF THE NOMINEES UNLESS THE SHAREHOLDER EXECUTING THE PROXY CARD INSTRUCTS OTHERWISE. The following table sets forth, as of July 31, 2001, the name, age and certain biographical information for each of the Company's continuing directors and each of the persons nominated by the Board of Directors for election to the Board of Directors:
NAME AGE POSITION AND OTHER BUSINESS EXPERIENCE ---- --- -------------------------------------- NOMINEES John P. McConnell 47 Chairman of the Board of Directors continuously since 1996, Director continuously since 1990 and member of the Executive and Nominating Committees. Mr. McConnell has served as Chief Executive Officer since June 1993 and as Chairman of the Board since September 1996. Mr. McConnell is also a director of Alltel Corporation. John P. McConnell is John H. McConnell's son. John R. Kasich 49 Director continuously since February 2001 and member of the Audit Committee. Mr. Kasich has been a managing director for Lehman Brothers, an investment banking group, in Columbus, Ohio since January 2001. Prior to that time, for more than five years, Mr. Kasich was a member of the U. S. House of Representatives. Mr. Kasich also serves as a director of Invacare Corporation and Instinet Group Incorporated.
4 8
NAME AGE POSITION AND OTHER BUSINESS EXPERIENCE ---- --- -------------------------------------- Mary Fackler Schiavo 45 Director continuously since 1998, Chairman of the Audit Committee, and member of the Nominating Committee. Since 1997 Ms. Schiavo has served as a Professor at The Ohio State University and also as a Consultant for NBC News. Prior to 1997, Ms. Schiavo served as Inspector General for the U. S. Department of Transportation for six years and in 1996 worked for ABC News as a consultant and on-air commentator. CONTINUING DIRECTORS THROUGH 2002 John S. Christie 51 Director continuously since 1999. Mr. Christie has served as President and Chief Operating Officer of the Company since June 1999. Prior to that time, Mr. Christie served as President of JMAC, Inc., a private investment company, from 1995 through 1999. Mr. Christie is also a director of Neoprobe Corporation. Michael J. Endres 53 Director continuously since 1999 and member of the Executive, Audit and Compensation and Stock Option Committees. Mr. Endres is a Partner of Stonehenge Financial Holdings, Inc., a private equity investment firm, which he co-founded in August 1999. Prior to that time, he served as Chairman of BancOne Capital Partners, a financing entity, and as Vice Chairman of BancOne Capital Corporation, an investment banking firm, for more than five years prior to August 1999. Mr. Endres also serves as a director of Applied Innovation Inc. Peter Karmanos, Jr. 58 Director since 1997, and member of the Audit and Compensation and Stock Option Committees. Mr. Karmanos has held the position of Chairman of the Board, Chief Executive Officer and Co-Founder of Compuware Corporation, a software development company, for more than five years. Mr. Karmanos also serves as a director for Compuware Corporation and Taubman Centers, Inc. John H. McConnell 78 Chairman Emeritus of the Board of Directors continuously since 1996, Chairman of the Board of Directors from 1955 through 1996 and current Chairman of the Executive Committee. Mr. McConnell founded the Company in 1955 and served as its Chief Executive Officer until May 1993. John H. McConnell is John P. McConnell's father. CONTINUING DIRECTORS THROUGH 2003 John B. Blystone 48 Director continuously since 1997, Chairman of the Compensation and Stock Option Committee and member of the Executive and Nominating Committees. Mr. Blystone has served as Chairman, President and Chief Executive Officer of SPX Corporation, a global provider of technical products and systems, industrial products and services, flow technology and service solutions, since December 1995. Mr. Blystone is also a director of SPX Corporation and Inrange Technologies Corporation.
5 9
NAME AGE POSITION AND OTHER BUSINESS EXPERIENCE ---- --- -------------------------------------- William S. Dietrich, II 63 Director continuously since 1996. Mr. Dietrich has served as Chairman of the Board of Dietrich Industries, Inc., a subsidiary of the Company, for more than five years. Mr. Dietrich is also a director of Carpenter Technologies Corporation. Sidney A. Ribeau 53 Director continuously since 2000 and member of the Nominating Committee. Dr. Ribeau has served as President of Bowling Green State University for more than five years. Dr. Ribeau is also a director of The Andersons, Inc.
COMPENSATION OF DIRECTORS Non-management directors are paid $6,000 per quarter plus $1,500 for each board meeting attended and $1,000 ($1,500 for Committee chairmen) for each meeting of a committee of the directors attended. Effective June 1, 2000, the Board of Directors amended and restated the Worthington Industries, Inc. Deferred Compensation Plan for Directors (the "Director Deferred Plan"), pursuant to which, in general, the directors may elect to defer the payment of all or a portion of their directors' fees until a specified date or until they are no longer associated with the Company. Participants in the Director Deferred Plan may elect to have their deferred fees invested at a rate reflecting either the increase or decrease in the fair market value per share of the Company's Common Shares with dividend reinvestment or a fixed rate determined by the Director Deferred Plan Administrator. In May 2000, the Board of Directors adopted and in September 2000 the shareholders approved the Worthington Industries, Inc. 2000 Stock Option Plan for Non-Employee Directors. Pursuant to this plan, each non-employee director receives an initial option grant to purchase 4,000 Common Shares and thereafter annual option grants as of the date of the annual meeting of shareholders to purchase 2,000 Common Shares at an exercise price equal to the fair market value of the Common Shares on the date of grant. In general, the options will vest one year from the date of grant and will have a 10-year term. An initial option to purchase 4,000 Common Shares at an exercise price of $9.00 per share was granted on September 28, 2000 to eligible non-employee directors. Any person who became or will become a non-employee director after September 28, 2000 has received or will receive his/her initial option grant on the date that he/she becomes a member of the Board of Directors. MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS BOARD MEETINGS The Board of Directors of the Company held five meetings during the fiscal year ended May 31, 2001 ("Fiscal 2001"). With the exception of Mr. Karmanos, each incumbent director attended at least 75% of the aggregate of (i) the total number of meetings of the directors, and (ii) the total number of meetings held by all committees of the directors on which such director served, in each case during the period such director served. COMPENSATION AND STOCK OPTION COMMITTEE The Compensation and Stock Option Committee members include Messrs. Blystone, Endres, Karmanos and McCurry. Mr. McCurry is not standing for re-election to the Board of Directors. The Committee met three times during Fiscal 2001. Its functions are to set and review all base and bonus compensation for officers of the Company and to administer the Company's stock option and long-term incentive plans. 6 10 NOMINATING COMMITTEE The Nominating Committee members include Mr. McCurry, Mr. John P. McConnell, Dr. Ribeau and Ms. Schiavo. The Committee met three times during Fiscal 2001. Its function is to recommend to the directors persons to be nominated for election as directors. The Committee will consider nominees recommended by shareholders, provided that such nominations are submitted in writing to John P. McConnell, 1205 Dearborn Drive, Columbus, Ohio 43085, not later than the May 31 preceding the annual meeting. Each such submission must include a statement of the qualifications of the nominee, a consent signed by the nominee evidencing a willingness to serve as a director if elected, and a commitment by the nominee to meet personally with the Nominating Committee. In accordance with the Company's Code of Regulations, any shareholder wishing to make a nomination of a director otherwise than through the Nominating Committee must give notice to the Secretary of the Company not less than 14 nor more than 50 days prior to the meeting at which directors will be elected, unless shareholders are given less than 21 days' notice of the meeting, in which case shareholder nominations would be permissible up to 7 days after the notice of the meeting has been mailed. The notice of nomination must include the nominee's name, address and principal occupation, the number of Common Shares beneficially owned by the nominee and the nominating shareholder, the name and address of the nominating shareholder, as it appears on the Company's books, a written consent of the proposed nominee to serve if elected, and any other information concerning the nominee required to be disclosed under the laws and regulations governing proxy solicitations. AUDIT COMMITTEE The Audit Committee members include Ms. Schiavo, Mr. Karmanos, Mr. Endres and Mr. Kasich, each of whom is an independent director as the term independence is defined in the New York Stock Exchange's listing standards. The Committee met four times during Fiscal 2001. The Audit Committee is organized and conducts its business pursuant to a written charter adopted by the Board of Directors. A complete copy of the Committee's charter is included as Appendix A to this Proxy Statement. The Audit Committee is responsible for assisting the Board of Directors in fulfilling its financial and accounting oversight functions. Specifically, the Audit Committee, on behalf of the Board, monitors and evaluates the Company's consolidated financial statements and the financial reporting process, the system of internal accounting and financial controls, the internal audit function and the annual independent audit of the Company's consolidated financial statements. The Audit Committee also provides an avenue for communication between internal auditors, the independent accountants and the Board of Directors. 7 11 REPORT OF THE AUDIT COMMITTEE The primary responsibility of the Audit Committee is to oversee the Company's financial reporting process on behalf of, and report the results of its activities to, the Board of Directors. Management has the primary responsibility for the financial statements and the reporting process including the systems of internal controls. In fulfilling its oversight responsibilities, the Committee reviewed the Company's audited financial statements for the fiscal year ended May 31, 2001 with management including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements. The Committee reviewed with the independent auditors, who are responsible for expressing an opinion on the conformity of those audited financial statements with generally accepted accounting principles, their judgments as to the quality, not just the acceptability, of the Company's accounting principles and such other matters as are required to be discussed with the Committee under generally accepted auditing standards. In addition, the Committee has discussed with the independent auditor the auditor's independence from management and the Company including the matters in the written disclosures required by the Independent Standards Board. The Committee discussed with the Company's internal and independent auditors the overall scope and plans for their respective audits. The Committee meets with the internal and independent auditors, with and without management present, to discuss the results of their examinations, their evaluations of the Company's internal controls, and the overall quality of the Company's financial reporting. In reliance on the reviews and discussions referred to above, the Committee recommended to the Board of Directors that the audited financial statements be included in the Company's 2001 Annual Report to Shareholders and incorporated by reference into the Annual Report on Form 10-K for the year ended May 31, 2001 for filing with the Securities and Exchange Commission. AUDIT COMMITTEE Mary Fackler Schiavo, Chairman Michael J. Endres Peter Karmanos, Jr. John R. Kasich 8 12 EXECUTIVE COMPENSATION SUMMARY OF CASH AND OTHER COMPENSATION The following table shows, for the fiscal years ended May 31, 2001, 2000 and 1999, the cash compensation and other benefits paid or provided by the Company to its Chief Executive Officer ("CEO") and its four other most highly compensated executive officers (collectively, the "Named Executives"). SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ------------ AWARDS ANNUAL COMPENSATION ------------ YEAR -------------------------------------- SECURITIES NAME AND PRINCIPAL ENDED OTHER ANNUAL UNDERLYING ALL OTHER POSITION IN FISCAL 2001 MAY 31 SALARY($) BONUS($) COMPENSATION($) OPTIONS(#) COMPENSATION($) ----------------------- ------ --------- -------- --------------- ------------ --------------- John P. McConnell 2001 400,000 381,000 -- 100,000 7,491(1) Chairman & Chief 2000 400,000 564,000 -- 133,000 59,406 Executive Officer 1999 400,000 526,750 -- 120,000 8,866 John S. Christie 2001 225,000 306,500 -- 70,000 8,895(2) President & Chief 2000 225,000 403,000 -- 190,000 3072 Operating Officer 1999 -- -- -- -- -- John T. Baldwin 2001 160,000 173,200 35,000 5,241(3) Vice President & Chief 2000 130,000 238,500 34,000 7,870 Financial Officer 1999 108,333 215,000 -- 100,000 269 Edward A. Ferkany 2001 175,000 228,000 -- 20,000 20,022(4) President, The 2000 175,000 299,200 -- 38,000 154,982 Worthington Steel 1999 175,000 287,400 -- 50,000 82,819 Company Ralph V. Roberts 2001 150,000 221,250 -- 20,000 6,869(5) Senior Vice President - 2000 150,000 308,000 -- 38,000 46,561 Marketing 1999 147,500 310,000 -- 100,000 7,978
- --------------- (1) Includes $4,799 attributable to Fiscal 2001 Company contributions under the Worthington Industries, Inc. Deferred Profit Sharing Plan, effective December 1, 1971 and most recently amended and restated effective January 1, 2000 (the "DPSP"), $803 attributable to interest in excess of 120% of the applicable long term IRS rate (the "Above IRS Rate Interest") earned on deferred compensation under the Worthington Industries, Inc. Non-Qualified Deferred Compensation Plan(s) (the "Executive Deferred Plan"), and $1,997 for term life insurance premiums. (2) Includes $5,412 attributable to Fiscal 2001 Company contributions under the DPSP, $2,269 attributable to Above IRS Rate Interest earned on deferred compensation under the Executive Deferred Plan, and $1,214 for term life insurance premiums. (3) Includes $4,789 attributable to Fiscal 2001 Company contributions under the DPSP and $452 for term life insurance premiums. (4) Includes $4,801 attributable to Fiscal 2001 Company contributions under the DPSP, $11,235 attributable to Above IRS Rate Interest earned on deferred compensation under the Executive Deferred Plan, and $3,986 for term life insurance premiums. (5) Includes $4,801 attributable to Fiscal 2001 Company contributions under the DPSP, $553 attributable to Above IRS Rate Interest earned on deferred compensation under the Executive Deferred Plan, and $1,515 for term life insurance premiums. 9 13 EXECUTIVE DEFERRED PLANS Executives who choose to participate in the Executive Deferred Plan may elect to defer the payment of up to 50% of their quarterly bonus until a specified date or until they are no longer associated with the Company. Participants in the Executive Deferred Plan may elect to have their deferred bonuses invested at a rate reflecting either the increase or decrease in the fair market value per share of the Company's Common Shares with dividend reinvestment or at a fixed rate determined by the Executive Deferred Plan Administrator. In addition, the Company has the option under the Executive Deferred Plan to make contributions to the accounts of certain participants. DEFERRED PROFIT SHARING PLAN The Named Executives also participate in the DPSP (as defined in footnote (1) above), together with substantially all of the other regular full-time employees of the Company except those represented by labor unions. Contributions made by the Company are based on profits and are allocated quarterly to employee accounts based upon total compensation and length of service. Distributions under the DPSP are generally deferred until retirement, death or total and permanent disability. In addition to the contributions made by the Company, the Named Executives and other participants in the DPSP may elect to make voluntary contributions from their salary or bonus. OPTION GRANTS The following table summarizes information concerning individual grants of options made to the Named Executives during Fiscal 2001. OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS ------------------------------------------------------- POTENTIAL REALIZABLE PERCENT VALUE AT ASSUMED OF TOTAL ANNUAL RATES OF STOCK COMMON SHARES OPTIONS PRICE APPRECIATION FOR UNDERLYING GRANTED TO EXERCISE OPTION TERM (1) OPTIONS EMPLOYEES PRICE EXPIRATION ----------------------- NAME GRANTED (#) (2) IN FY ($/SH) DATE 5% ($) 10% ($) ---- --------------- ---------- -------- ---------- --------- ----------- J. P. McConnell...... 100,000 5.4 9.30 3/30/11 584,872 1,482,180 J. S. Christie....... 70,000 3.8 9.30 3/30/11 409,410 1,037,526 J. T. Baldwin........ 35,000 1.9 9.30 3/30/11 204,705 518,763 E. A. Ferkany........ 20,000 1.1 9.30 3/30/11 116,974 296,436 R. V. Roberts........ 20,000 1.1 9.30 3/30/11 116,974 296,436
- --------------- (1) The dollar amounts reflected in this table are the result of calculations at the 5% and 10% annual appreciation rates set by the Securities and Exchange Commission for illustrative purposes, and assume the options are held until their expiration date. Such dollar amounts are not intended to forecast future financial performance or possible future appreciation in the price of the Company's Common Shares. Shareholders are therefore cautioned against drawing any conclusions from the appreciation data shown, aside from the fact that optionees will only realize value from the option grants shown when the price of the Company's Common Shares appreciates, which benefits all shareholders commensurately. (2) All reported options were granted under the Worthington Industries, Inc. 1997 Long-Term Incentive Plan (the "LTIP") at the fair market value of the Common Shares on the date of grant. The options become exercisable in 20% per year increments on each anniversary of their effective date. In the event of a change in control of the Company (as defined in the LTIP), unless the Board of Directors explicitly provides otherwise, all stock options which 10 14 have been outstanding at least six months before the date of such change in control become fully exercisable. OPTION EXERCISES AND HOLDINGS The following table summarizes information concerning unexercised options held by the Named Executives as of May 31, 2001. None of the Named Executives exercised options during Fiscal 2001. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
NUMBER OF COMMON SHARES VALUE (1) OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS OPTIONS AT 5/31/01 AT 5/31/01 ($) -------------------------- -------------------------- NOT NOT NAME EXERCISABLE EXERCISABLE EXERCISABLE EXERCISABLE ---- ----------- ----------- ----------- ----------- J. P. McConnell........................... 314,400 208,600 $225,000 -0- J. S. Christie............................ 200,000 60,000 $157,500 -0- J. T. Baldwin............................. 126,200 52,800 $ 78,750 -0- E. A. Ferkany............................. 88,400 69,600 $ 45,000 -0- R. V. Roberts............................. 114,400 59,600 $ 45,000 -0-
- --------------- (1) Pre-tax value based on the spread between the exercise price and the May 31, 2001, closing price of $11.55 per share. LONG-TERM INCENTIVE PLAN AWARDS The following table summarizes information concerning incentive awards made to the Named Executives during Fiscal 2001 under the LTIP. None of the Named Executives received payouts under the LTIP for the award period that ended on May 31, 2001. LONG-TERM INCENTIVE PLAN -- AWARDS IN LAST FISCAL YEAR
ESTIMATED FUTURE PAYOUTS UNDER NON-STOCK PRICE-BASED PLANS PERFORMANCE OR OTHER PERIOD ---------------------------------------- NAME UNTIL MATURATION OR PAYOUT THRESHOLD ($) TARGET ($) MAXIMUM ($) ---- ------------------------------- ------------- ---------- ----------- J. P. McConnell Three year period ended 5/31/03 250,000 500,000 750,000 J. S. Christie Three year period ended 5/31/03 137,500 275,000 412,500 J. T. Baldwin Three year period ended 5/31/03 62,500 125,000 187,500 E. A. Ferkany Three year period ended 5/31/03 75,000 150,000 225,000 R. V. Roberts Three year period ended 5/31/03 70,000 140,000 210,000
Payouts of awards are tied to achieving specified levels (threshold, target and maximum) of economic value added and of earnings per share growth for the performance period, with each performance measure carrying a 50% weighting. If the performance level falls between threshold and target, or between target and maximum, the award is prorated. Under the LTIP, payouts will generally be made in August following the end of the applicable performance period. Performance awards may be paid in cash, Common Shares, other property or any combination thereof, in the sole discretion of the Compensation and Stock Option Committee at the time of payment. 11 15 EXECUTIVE COMPENSATION REPORT AND PERFORMANCE GRAPH Notwithstanding anything to the contrary set forth in any of the Company's previous filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might incorporate future filings, including this Proxy Statement, in whole or in part, the following Committee Report and the information under "Comparison Of Five Year Cumulative Total Return" shall not be incorporated by reference into any such filings. 12 16 REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEE ON EXECUTIVE COMPENSATION GENERAL COMPENSATION PHILOSOPHY A basic philosophy of Worthington Industries, Inc. is that all regular full-time, nonunion employees of the Company have a meaningful portion of their total compensation tied to the profitability of the Company. In furtherance of this philosophy, all such employees in general participate in either the Company's cash profit sharing plan or the executive cash bonus plan (the "Bonus Plan") which has been in place since the 1960's. Cash profit sharing, which covers the majority of the Company's employees, is computed as a fixed percentage of profits. The Company's CEO, its other executive officers and certain other key employees, participate in the Bonus Plan. Under the Bonus Plan, bonuses paid to participants are computed as a percentage of the Company's income before taxes, but after adjustment for contributions to the Company's Deferred Plan. The total amount of bonuses paid to all participants in the Bonus Plan may not exceed 15% of the Company's pre-tax income. Bonuses are paid quarterly based upon the quarterly financial results and generally account for in excess of 45% of a participant's total compensation. COMPENSATION FOR EXECUTIVES Since bonus payments account for such a large percentage of total compensation and since bonuses are tied to the Company's profitability, the largest variable in determining total compensation of the CEO, the executive officers, and other participants in the Bonus Plan is the profitability of the Company. However, bonuses can be adjusted, up or down, based on the individual's performance, subjectively determined by his or her supervisor, the CEO or the Compensation and Stock Option Committee (the "Compensation Committee") as appropriate. In setting base salaries for the CEO and the executive officers, the Compensation Committee, which is comprised of outside directors, has reviewed information regarding compensation paid by other manufacturing companies of similar size to officers with similar responsibilities. It is the Compensation Committee's intent to set base salaries at levels so that when the Company performs well, the bonus payments (which are tied to Company income) would put Company officers in the upper range of total compensation being paid to officers of comparable companies. Conversely, should the Company's performance be below that of comparable companies, total executive compensation would fall below the average compensation range. PERFORMANCE OF THE CEO Consistent with the philosophy behind the Bonus Plan, profitability of the Company has been the primary variable in the compensation paid to John P. McConnell, the Company's CEO. Fiscal 2001 was a difficult year for the Company and financial results were poor relative to the Company's historical performance and well-below what management and the Board expect from Worthington Industries. Much of the Company's difficulties were driven by market conditions, particularly in the steel industry, and the overall economic slow-down, particularly in the automotive markets. Although a sharp decline in steel prices does not impact the Company as it does others in the industry who make steel (e.g. the mills), the magnitude of the changes and the speed at which they occurred did adversely impact the Company. In addition, market conditions adversely impacted the Company's customers and their financial condition which hurt volumes and caused pricing pressures throughout the Company's markets. While the Company's performance did not meet Worthington standards, it was much better than most other companies in its industries. Still, the CEO, management and the Board recognize that it is management's responsibility to grow and position the Company to be successful 13 17 throughout all market conditions. During the year, management took a number of steps to address the current situation and to position the Company for the future. Initiatives have been instituted throughout the Company and positive results include significant reductions in head count and inventory levels. Despite the difficult year, the Company maintained its financial flexibility and stability, and reduced its debt level while continuing its dividend payments. Consistent with the Company's highly leveraged, incentive based executive pay programs, which are designed to reward management in strong years and reduce compensation in weaker years, pay for the CEO and other members of management was down significantly in fiscal 2001. The lower financial results were reflected in decreased bonus payments for the year, and in the lack of payouts under performance awards granted under the long-term incentive plan. Mr. McConnell's base wages have remained unchanged since fiscal 1998. He again declined to accept a base wage increase recommended by the Committee at its May 2001 meeting. His bonus compensation decreased 32% from fiscal 2000. As noted, no payouts were made to the CEO under performance awards under the Long-Term Incentive Plan for the period ended May 31, 2001. Stock Options and performance awards granted to the CEO are shown under "Option Grants" and "Long-Term Incentive Plan Awards". INCENTIVE COMPENSATION Bonuses. Although the Bonus Plan is tied to current profitability, it also provides a balance between incentives for current and long-term profitability. Since the payment is based on current year income, the incentive toward current profitability is obvious. However, since future compensation for the officers will continue to be based in large part on the Bonus Plan, the Plan also provides incentives to assure the long-term profitability of the Company. Long-term Incentives. Long-term incentives have historically been provided through stock options. The Compensation Committee views stock options as particularly appropriate long-term incentives because stock options align the interest of the employee/optionholders with those of the shareholder by providing value to the employee tied directly to stock option price increases. The Committee believes that providing long-term compensation tied to sustained financial achievement is also an appropriate method to motivate and reward the Company's top executive officers. To make the Company more competitive with comparable companies in providing long-term compensation to its executives, the Company adopted its Long-Term Incentive Plan ("LTIP") in 1997. Pursuant to the LTIP, the Compensation Committee has implemented a long-term incentive program which anticipates consideration of (i) annual stock option grants, and (ii) long-term incentive awards based on achieving measurable criteria performance over a multiple year period, with payment in cash, stock or stock awards for achievement of those goals. Stock options and performance awards granted to the CEO and other Named Executives are shown under "Option Grants" and "Long-Term Incentive Plan Awards". Although the terms of the Company's 1990 Stock Option Plan and LTIP are flexible, all options granted in the past 15 years have been granted at 100% of the market value on the date of grant. As noted, pursuant to the LTIP, the Compensation Committee currently intends to consider annual stock option grants and Performance Awards for the CEO and other selected executives. The Compensation Committee will continue to review the appropriate time for option grants for other employees. Among the factors which were considered for prior grants and which are likely to be considered for any new grants would be the position held by the participant in the Company, individual performance and the timing and amounts of previous grants. 14 18 TAX DEDUCTIBILITY Section 162(m) of the Internal Revenue Code limits deductions for compensation paid to a publicly-held corporation's five most highly compensated executive officers to $1,000,000 per year per executive officer, excluding "performance based compensation" meeting certain requirements. Federal regulations issued under Section 162(m) define the provisions which compensatory plans must contain to qualify for the "performance based" exemption under Section 162(m). The Company's 1990 Stock Option Plan qualifies for the exemption. The Compensation Committee intends to tailor the incentive programs under the LTIP to also qualify for the exemption. Since no officer's annual salary, plus bonuses, has reached $1,000,000, the Compensation Committee has not attempted to revise the Bonus Plan to satisfy the conditions for the exemption, but it may re-examine the matter if compensation paid thereunder would not otherwise be deductible under Section 162(m) and such provisions would not distort or discourage the existing incentives for performance that enhance the value of the Company. In all cases, however, whether or not some portion of a covered executive officer's compensation is tax deductible, the Company will continue to carefully consider the net cost and value to the Company of its compensation policies. COMPENSATION AND STOCK OPTION COMMITTEE John B. Blystone, Chairman Michael J. Endres Peter Karmanos, Jr. Robert B. McCurry 15 19 COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN The following graph compares the five year cumulative return on the Company's Common Shares, the S&P 500 Stock Index, the S&P Industrials Index and the S&P Iron & Steel Index, in each case assuming that $100 was invested at May 31, 1996 and that dividends were reinvested when received. The S&P Iron & Steel Index, of which the Company is a component, is the most specific index relative to the Company's largest line of business.
WOR S&P 500 S&P INDUST. IRON & STEEL --- ------- ----------- ------------ May 1996 $ 100 $ 100 $ 100 $ 100 May 1997 $ 93.55 $ 129.41 $ 127.71 $ 103.53 May 1998 $ 91.67 $ 169.12 $ 164.84 $ 103.56 May 1999 $ 69.54 $ 204.68 $ 204.91 $ 89.55 May 2000 $ 68.73 $ 226.13 $ 231.46 $ 67.12 May 2001 $ 69.54 $ 202.27 $ 193.69 $ 72.35
MAY 1996 MAY 1997 MAY 1998 MAY 1999 MAY 2000 MAY 2001 WOR $100.00 $ 93.55 $ 91.67 $ 69.54 $ 68.73 $ 69.54 S&P 500 $100.00 $129.41 $169.12 $204.68 $226.13 $202.27 S&P INDUST. $100.00 $127.71 $164.84 $204.91 $231.46 $193.69 IRON & STEEL $100.00 $103.53 $103.56 $ 89.55 $ 67.12 $ 72.35
INDEPENDENT AUDITORS Ernst & Young LLP audited the Company's consolidated financial statements for Fiscal 2001. In light of the independence rules recently adopted by the SEC and the NYSE, the Board of Directors, upon recommendation of the Audit Committee, has determined that the Company's outsourced internal audit services and the Company's independent audit services should not be rendered by the same independent public accounting firm. Thus, at a meeting held on August 23, 2001, the Board of Directors, upon recommendation of the Audit Committee, dismissed Ernst & Young LLP as the Company's independent auditors, effective immediately, and approved the engagement of KPMG LLP as the Company's independent auditors for the fiscal year ended May 31, 2002. Representatives of both Ernst & Young LLP and KPMG LLP are expected to be present at the Annual Meeting and will be given the opportunity to make a statement if they so desire and to respond to appropriate questions. The reports of Ernst & Young LLP on the Company's financial statements for the past two fiscal years did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles. Further, the Company has had no disagreements with Ernst & Young LLP during the past two fiscal years or the subsequent interim period on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures which, if not resolved to the satisfaction of Ernst & Young LLP 16 20 would have caused Ernst & Young LLP to make reference to the matter in connection with their report. AUDIT FEES Ernst & Young LLP has billed the Company $396,600 in the aggregate, for professional services rendered for the audit of the Company's consolidated financial statements for Fiscal 2001 and the reviews of the interim financial statements included in the Company's Forms 10-Q filed during Fiscal 2001. FINANCIAL INFORMATION DESIGN AND IMPLEMENTATION FEES There were no fees for professional services described in Paragraph (c)(4)(ii) of Rule 2-01 of Regulation S-X rendered by Ernst & Young LLP for Fiscal 2001. ALL OTHER FEES Ernst & Young LLP has billed the Company $1,233,115, in the aggregate, for services (other than those services covered under the headings "Audit Fees" and "Financial Information Design and Implementation Fees") rendered during Fiscal 2001. These other fees include fees for internal audit outsourcing, tax outsourcing and consulting, and other non-audit services. The Audit Committee has considered whether the provision of the services covered under the captions "Financial Information Design and Implementation Fees" and "All Other Fees" is compatible with maintaining Ernst & Young LLP's independence. RELATED PARTY TRANSACTIONS The Company is a party to certain agreements relating to the rental of aircraft from JMAC, Inc. ("JMAC"), a private investment firm substantially owned, directly or indirectly, by John H. McConnell, John P. McConnell and a family partnership of John H. McConnell, John P. McConnell and their families, and McAIR, Inc. ("McAIR"), a corporation wholly-owned by John H. McConnell. Under the agreement with JMAC the Company leases, on a net basis, an aircraft for a rental fee of $70,000 per month. Under the agreement with McAIR, the Company leases an aircraft on an as needed basis for a rental fee per flight. For Fiscal 2001, the Company paid an aggregate amount of approximately $877,725 under the JMAC agreement and approximately $170,363 under the McAIR agreement. Based on quotes for similar services provided by unrelated third parties, the Company believes that the rental rates charged by JMAC and McAIR are no less favorable to the Company than those that could be obtained from unrelated entities. SHAREHOLDER PROPOSALS Proposals of shareholders intended to be presented at the Company's 2002 Annual Meeting of Shareholders must be received by the Company no later than May 2, 2002, to be included in the Company's proxy materials relating to that annual meeting. Upon receipt of a shareholder proposal, the Company will determine whether or not to include the proposal in the proxy materials in accordance with applicable rules and regulations promulgated by the Securities and Exchange Commission (the "SEC"). In any event, proposals of shareholders intended to be presented at the 2002 Annual Meeting of Shareholders must be received by the Company no later than 30 days prior to the meeting. The SEC has promulgated rules related to the exercise of discretionary voting authority pursuant to proxies solicited by the Board of Directors. If a shareholder intends to present a proposal at the 2002 Annual Meeting of Shareholders and does not notify the Company of the proposal by July 16, 2002, the proxies solicited by the Board of Directors for use at the 2002 17 21 Annual Meeting of Shareholders may be voted on the proposal without discussion of the proposal in the Company's proxy statement for that annual meeting. In each case, written notice must be given to the Company's Secretary, at the following address: Worthington Industries, Inc., 1205 Dearborn Drive, Columbus, Ohio 43085, ATTN: Secretary. Shareholders desiring to nominate candidates for election as directors at the 2002 Annual Meeting of Shareholders must follow the procedures described in "PROPOSAL 1: ELECTION OF DIRECTORS -- Committees of Directors." 10-K REPORT Consolidated financial statements for Worthington Industries, Inc. and its subsidiaries are included the Worthington Industries, Inc. Annual Report to Shareholders which is being delivered with this Proxy Statement. Additional copies of these statements and the Company's Annual Report on Form 10-K for the year ended May 31, 2001 (excluding exhibits, unless such exhibits have been specifically incorporated by reference therein) may be obtained, without charge, from the Company's Investor Relations Department at 1205 Dearborn Drive, Columbus, OH 43085. The Form 10-K is also on file with the Securities and Exchange Commission, Washington, D.C. 20549. OTHER MATTERS As of the date of this Proxy Statement, management knows of no other business that will be presented for action by the shareholders at the Annual Meeting. However, if any other matter is properly presented before the Annual Meeting, the persons acting under the Proxies solicited by the Board of Directors will vote and act according to their best judgments in light of the conditions then prevailing. IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON ARE URGED TO FILL IN, SIGN AND RETURN THE PROXY CARD IN THE ENCLOSED, SELF-ADDRESSED STAMPED ENVELOPE OR TRANSMIT VOTING INSTRUCTIONS ELECTRONICALLY THROUGH THE INTERNET OR BY TELEPHONE. By order of the Board of Directors. DALE T. BRINKMAN, Secretary Dated: August 30, 2001 18 22 APPENDIX A CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS OF WORTHINGTON INDUSTRIES, INC. The Audit Committee (the "Audit Committee") of the Board of Directors of Worthington Industries, Inc. (together with its subsidiaries, the "Company") is responsible for assisting the board of directors of Worthington Industries, Inc. (the "Board") in fulfilling its financial and accounting oversight functions so as to assure that the Company's system of internal controls and overall external audit coverage is satisfactory and appropriate to protect shareholders from undue risk. Specifically, the Audit Committee, on behalf of the Board, monitors and evaluates the Company's financial statements and the financial reporting process, the Company's system of internal accounting and financial controls, the internal audit function and the annual independent audit of the Company's financial statements. This charter governs the operations of the Audit Committee. The Audit Committee shall review and reassess the charter at least annually and obtain the approval of the Board. MEMBERSHIP The Audit Committee shall consist of at least three members of the Board, each of whom shall be recommended annually by the Chairman of the Board and appointed by the Board. All members of the Audit Committee shall be directors, independent of management and the Company and free from any relationship that, in the opinion of the Board, may interfere with the exercise of his or her independence from management and the Company. All members of the Audit Committee shall be financially literate, or shall become financially literate within a reasonable period of time after appointment to the Audit Committee, and at least one member shall have accounting or related financial management expertise. The Audit Committee shall be chaired by one of its members appointed by the Chairman of the Board. The Audit Committee may also have in attendance at its meetings such members of management (including internal auditors) and the independent auditors as it may deem necessary or desirable to provide the information it needs to carry out its duties and responsibilities. SCOPE The Audit Committee serves at the pleasure of, and is subject to the control and direction of, the Board and reports to the Board. RESPONSIBILITIES AND PROCESSES The primary responsibility of the Audit Committee is to oversee the Company's financial reporting process on behalf of, and report the results of its activities to, the Board. The following shall be the principal recurring processes of the Audit Committee in carrying out its responsibilities. The processes are set forth as a guide with the understanding that the Audit Committee may supplement them as appropriate. 1. The Audit Committee shall have a clear understanding with management and the independent auditors that the independent auditors are ultimately accountable to the Board and the Audit Committee, as representatives of the Company's shareholders. The Audit Committee and the Board shall have the ultimate authority and responsibility to select, evaluate and, where appropriate, replace the independent auditors. 2. The Audit Committee shall be responsible for ensuring that the independent auditors submit on a periodic basis to the Audit Committee a formal written statement delineating all relationships between the independent auditors and the Company, consistent with Independence Standards Board Standard I. The Audit Committee shall also be responsible A-1 23 for actively engaging in a dialogue with the independent auditors with respect to any disclosed relationships or services that may impact the objectivity and independence of the independent auditors and for recommending that the full Board take appropriate action in response to the independent auditors' report to satisfy itself of the independent auditors' independence. Annually, the Audit Committee shall review and recommend to the Board the selection of the Company's independent auditors. 3. The Audit Committee shall be responsible for reviewing with the internal auditors and the independent auditors annually, before the audit begins, the overall scope of the respective audits, including adequacy of staffing, professional services to be provided and fees to be charged by the independent auditors. 4. The Audit Committee shall meet annually with the independent auditors and the internal auditors, both with and without representatives of management, to discuss the results of their examinations and to: a. Review the adequacy and effectiveness of the accounting and financial controls, including the Company's system to monitor and manage business risks, and legal and ethical compliance programs. b. Review each significant point brought up in the auditors' letter of recommendation to management and management's written response to each such point. Determine which points are to be acted upon, by whom, and time schedule for completion. c. Review the internal auditors' objectives and goals, audit schedules, staffing plans, and have the internal auditors inform the Audit Committee of the results of internal audits, highlighting significant audit findings and recommendations. 5. The Audit Committee shall have direct access to the independent and internal auditors and provide an open avenue of communications between the independent and internal auditors and the Board. 6. The Audit Committee shall review the Company's compliance with pronouncements of the Financial Accounting Standards Boards, the American Institute of Certified Public Accountants, the Securities and Exchange Commission, the New York Stock Exchange, and other similar bodies or agencies which could have an effect on the Company's financial statements. 7. The Audit Committee shall direct and supervise any other special investigations into matters which may come within the scope of its duties. 8. The Audit Committee shall review the interim financial statements with management and the independent auditors prior to the filing of the Company's Quarterly Report on Form 10-Q. Also, the Audit Committee shall discuss the results of the quarterly review and any other matters required to be communicated to the Audit Committee by the independent auditors under generally accepted auditing standards. The Chairman of the Audit Committee may represent the entire Audit Committee for the purposes of this review. 9. The Audit Committee shall review with management and the independent auditors the financial statements to be included in the Company's Annual Report on Form 10-K (or the annual report to shareholders if distributed prior to the filing of Form 10-K), including the independent auditors' judgment about the quality, not just the acceptability, of accounting principles, the consistency of the Company's accounting policies and their application, the reasonableness of significant judgments, the clarity and completeness of the disclosures in the financial statements, and any other matters required to be discussed with the independent auditors by SAS No. 61, as amended by SAS No. 90 and as may be further amended, modified or supplemented. Also, the Audit Committee shall discuss the results A-2 24 of the annual audit and any other matters required to be communicated to the Audit Committee by the independent auditors under generally accepted auditing standards. While the Audit Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Audit Committee to plan or conduct audits or to determine that the Company's financial statements are complete and accurate and are in accordance with generally accepted accounting principles. This is the responsibility of management. Nor is it the duty of the Audit Committee to conduct investigations, to resolve disagreement, if any, between management and the independent auditors or to assure compliance with laws and regulations and the Company's code of conduct. A-3 25 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [WORTHINGTON INDUSTRIES LOGO] 2001 ANNUAL REPORT TO SHAREHOLDERS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 26 WORTHINGTON INDUSTRIES, INC. 2001 ANNUAL REPORT CONTENTS
PAGE ---- A Message to Our Shareholders............................... 1 The Company................................................. 1 Stock Trading, Price and Dividend Information............... 3 Six Year Selected Financial Data............................ 4 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 5 Consolidated Financial Statements Consolidated Balance Sheets -- May 31, 2001 and 2000...... 12 Consolidated Statements of Earnings -- Years ended May 31, 2001, 2000 and 1999.................................... 13 Consolidated Statements of Shareholders' Equity -- Years ended May 31, 2001, 2000 and 1999...................... 14 Consolidated Statements of Cash Flows -- Years ended May 31, 2001, 2000 and 1999................................ 15 Notes to Consolidated Financial Statements.................. 16 Report of Management........................................ 29 Report of Independent Auditors.............................. 30 Company Locations........................................... 31 Officers & Directors........................................ 32
i 27 A MESSAGE TO OUR SHAREHOLDERS This 2001 Annual Report to Shareholders contains the Worthington Industries, Inc. audited consolidated financial statements and all of the information that the regulations of the Securities and Exchange Commission (the "SEC") require be presented in an Annual Report to Shareholders. For legal purposes, this is the Worthington Industries, Inc. 2001 Annual Report to Shareholders. This Annual Report is not part of the Proxy Statement and is not deemed to be soliciting material or to be filed with the SEC except to the extent that it is expressly incorporated by reference in a document filed with the SEC for the fiscal year ended May 31, 2001 ("fiscal 2001"). We invite our shareholders also to consider our 2001 Summary Annual Report, which presents information concerning our business and financial results in a format and level of detail that we believe most of our shareholders will find useful and informative. Shareholders who would like to receive more detailed information may request a copy of our Annual Report on Form 10-K. THE WORTHINGTON INDUSTRIES, INC. ANNUAL REPORT ON FORM 10-K, AS FILED WITH THE SEC, WILL BE PROVIDED TO ANY SHAREHOLDER, WITHOUT CHARGE, UPON WRITTEN REQUEST TO THE WORTHINGTON INDUSTRIES, INC. INVESTOR RELATIONS DEPARTMENT, 1205 DEARBORN DRIVE, COLUMBUS, OHIO 43085. THE COMPANY Worthington Industries, Inc., together with its subsidiaries, is referred to herein as "Worthington". Worthington's corporate headquarters are located at 1205 Dearborn Drive, Columbus, Ohio 43085. Our operations are reported principally in three business segments: Processed Steel Products, Metal Framing and Pressure Cylinders. The Processed Steel Products segment includes The Worthington Steel Company ("Worthington Steel") and The Gerstenslager Company ("Gerstenslager"). The Metal Framing segment is made up of Dietrich Industries, Inc. ("Dietrich"), and the Pressure Cylinders segment consists of Worthington Cylinder Corporation ("Worthington Cylinders"). In addition, we hold an equity position in eight joint ventures as described below. During the fiscal year ended May 31, 1999 ("fiscal 1999"), in keeping with our strategy to focus on steel processing and metals-related businesses, we divested our Worthington Custom Plastics, Inc. ("Worthington Custom Plastics"), Worthington Precision Metals, Inc. ("Worthington Precision Metals") and Buckeye Steel Castings Company ("Buckeye Steel Castings") operations. The divested operations, which previously made up our Custom Products and Cast Products segments, have been reported as discontinued operations for fiscal 1999 and prior. PROCESSED STEEL PRODUCTS Our Processed Steel Products segment consists of two business units, Worthington Steel and Gerstenslager. For fiscal 2001, the fiscal year ended May 31, 2000 ("fiscal 2000") and fiscal 1999, the percentage of sales from continuing operations generated by our Processed Steel Products segment was 64.9%, 65.6% and 63.2%, respectively. Both Worthington Steel and Gerstenslager are intermediate processors of flat-rolled steel. This segment's processing capabilities include blanking, cold-rolling, dry lubricating, configured blanking, cutting-to-length, edging, hot-dipped galvanizing, hydrogen annealing, nickel plating, painting, pickling, slitting, stamping, tension leveling and zinc/nickel coating. Worthington Steel has over 1,000 customers, principally in the automotive, lawn and garden, construction, hardware, furniture, office equipment, electrical control, leisure and recreation, appliance, farm implement, HVAC and aerospace markets. Gerstenslager supplies automotive aftermarket body panels within the United States primarily to domestic and transplant automotive and heavy duty truck manufacturers. METAL FRAMING Our Metal Framing segment consists of one business unit, Dietrich, which produces metal framing products for the commercial and residential construction markets in the United States. For fiscal 2001, fiscal 2000 and 1 28 fiscal 1999, the percentage of sales from continuing operations generated by Dietrich was 18.9%, 17.9% and 19.1%, respectively. Dietrich's products include steel studs and track, TradeReady(R) Floor Systems, SureSpan(R) trusses, TradeReady(R) Spazzer(TM) Bars and other metal framing accessories. Dietrich has over 2,000 customers, primarily consisting of wholesale distributors and commercial and residential building contractors. PRESSURE CYLINDERS Our Pressure Cylinders segment consists of one business unit, Worthington Cylinders. For fiscal 2001, fiscal 2000 and fiscal 1999, the percentage of sales from continuing operations generated by Worthington Cylinders was 15.8%, 16.2% and 17.3%, respectively. Worthington Cylinders produces a complete line of pressure cylinder vessels, including liquefied petroleum gas ("LPG") cylinders, refrigerant cylinders and industrial/specialty gas cylinders. LPG cylinders are used for gas barbecue grills, camping equipment, residential heating systems, industrial forklifts, and commercial/residential cooking (outside North America). Refrigerant cylinders are used to hold refrigerant gases for commercial and residential air conditioning and refrigeration systems and for automotive air conditioning systems. Industrial/specialty gas cylinders are used as containers for gases for the following: cutting and welding metals; breathing (medical, diving and firefighting); semiconductor production; beverage delivery; and compressed natural gas systems. Worthington Cylinders also produces recycle and recovery tanks for refrigerant gases and non-refillable cylinders for helium balloon kits. Worthington Cylinders has over 3,000 customers. During fiscal 1999, we expanded our Pressure Cylinders segment by acquiring the cylinder operations of Jos. Heiser vormals J. Winter's Sohn, GmbH, based in Kienberg, Austria, in June 1998; a majority interest in Gastec spol. s.r.o., based in Hustopece, Czech Republic, in February 1999; and certain assets of Metalurgica Progresso de Vale de Cambra, Lda., based in Vale de Cambra, Portugal, in May 1999. JOINT VENTURES As part of our strategy to selectively develop new products, markets and technological capabilities, and to expand our international presence while mitigating the risks and costs associated with those activities, we participate in four consolidated and four unconsolidated joint ventures. Consolidated - Spartan Steel Coating, L.L.C. ("Spartan Steel"), a 52%-owned consolidated joint venture with Rouge Steel, operates a cold-rolled hot-dipped galvanizing facility in Monroe, Michigan. - Worthington S.A., a 52%-owned consolidated joint venture with three Brazilian propane producers, operates a cylinder manufacturing facility in Itu, Brazil. - Worthington Tank, Ltda., a 65%-owned consolidated joint venture with a Portuguese manufacturer of liquefied petroleum gas tanks, operates a cylinder manufacturing facility in Itu, Brazil. - Worthington Gastec, a.s., a 51%-owned consolidated joint venture with a local Czech Republic entrepreneur, operates a pressure cylinder manufacturing facility in Hustopece, Czech Republic. Unconsolidated - Worthington Armstrong Venture ("WAVE"), a 50%-owned joint venture with Armstrong World Industries, is one of the three leading global manufacturers of suspended ceiling systems for concealed and lay-in panel ceilings. WAVE operates facilities in Sparrows Point, Maryland; Benton Harbor, Michigan; North Las Vegas, Nevada; Malvern, Pennsylvania; Shanghai, China; Team Valley, United Kingdom; Valenciennes, France; and Madrid, Spain. - TWB Company, L.L.C. ("TWB"), a 33%-owned joint venture with Thyssen Krupp, Rouge Steel, LTV Steel and Bethlehem Steel, produces laser welded blanks for use in the auto industry for products such as inner door frames. TWB operates facilities in Monroe, Michigan and Ramos Arizpe, Mexico. 2 29 - Acerex S.A. de C.V. ("Acerex"), a 50%-owned joint venture with Hylsa S.A. de C.V., is a steel processing company located in Monterrey, Mexico. - Worthington Specialty Processing ("WSP"), a 50%-owned joint venture with USX Corporation in Jackson, Michigan, operates primarily as a toll processor for USX Corporation. DISCONTINUED OPERATIONS Custom Products. We completed the divestiture of our Worthington Custom Plastics businesses in the fourth quarter of fiscal 1999. While operated by Worthington, Worthington Custom Plastics manufactured and supplied injection molded plastic parts to automobile manufacturers and their suppliers and to manufacturers of appliances, lawn and garden products, recreational products, business equipment, audio equipment, furniture and other items. We completed the divestiture of our Worthington Precision Metals operations in the second quarter of fiscal 1999. While operated by Worthington, Worthington Precision Metals produced extremely close tolerance metal components for use by automobile manufacturers and their suppliers in power steering, transmission, anti-lock brake and other automotive mechanical systems. Cast Products. We completed the divestiture of our Buckeye Steel Castings operations in the third quarter of fiscal 1999. While operated by Worthington, Buckeye Steel Castings designed, produced and machined a broad line of railcar and industrial steel castings. Buckeye Steel Castings was also a leading designer and producer of undercarriages for mass transit cars. STOCK TRADING, PRICE AND DIVIDEND INFORMATION The common shares of Worthington Industries, Inc. ("Worthington Industries") trade on the New York Stock Exchange ("NYSE") under the symbol "WOR" and are listed in most newspapers as "WorthgtnInd". Prior to April 19, 2000, the Worthington Industries' common shares were traded on the Nasdaq National Market ("Nasdaq") under the symbol "WTHG". As of June 30, 2001, Worthington Industries had approximately 10,848 shareholders of record. The following table sets forth (i) the low, high and closing bid prices for Worthington Industries' common shares (as quoted on Nasdaq) for the first three quarters of fiscal 2000, (ii) the low, high and closing sale prices for Worthington Industries' common shares (as traded on NYSE) for the quarter ended May 31, 2000 and each quarter of fiscal 2001, and (iii) the cash dividends per share paid on Worthington Industries' common shares for each quarter of fiscal 2000 and fiscal 2001.
MARKET PRICE FISCAL 2000 --------------------------- CASH QUARTER ENDED LOW HIGH CLOSING DIVIDENDS ------------- ------ ------ ------- --------- August 31, 1999............................... $12.31 $16.44 $15.00 $0.15 November 30, 1999............................. $14.38 $17.63 $16.00 $0.15 February 29, 2000............................. $12.88 $17.00 $13.25 $0.15 May 31, 2000.................................. $11.38 $13.63 $12.13 $0.16
FISCAL 2001 QUARTER ENDED ------------- August 31, 2000............................... $10.00 $12.75 $10.46 $0.16 November 30, 2000............................. $ 8.44 $10.50 $ 9.19 $0.16 February 28, 2001............................. $ 6.44 $10.45 $ 9.85 $0.16 May 31, 2001.................................. $ 9.00 $12.85 $11.50 $0.16
3 30 WORTHINGTON INDUSTRIES, INC. AND SUBSIDIARIES SIX YEAR SELECTED FINANCIAL DATA
FISCAL YEAR ENDED MAY 31 --------------------------------------------------------------------------- 2001 2000 1999 1998 1997 1996 IN THOUSANDS, EXCEPT PER SHARE ---------- ---------- ---------- ---------- ---------- ---------- FINANCIAL RESULTS Net Sales................................. $1,826,100 $1,962,606 $1,763,072 $1,624,449 $1,428,346 $1,126,492 Cost of Goods Sold........................ 1,581,178 1,629,455 1,468,886 1,371,841 1,221,078 948,505 ---------- ---------- ---------- ---------- ---------- ---------- Gross Margin.............................. 244,922 333,151 294,186 252,608 207,268 177,987 Selling, General & Administrative Expense................................. 173,264 163,662 147,990 117,101 96,252 78,852 Restructuring Expense..................... 6,474 -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- Operating Income.......................... 65,184 169,489 146,196 135,507 111,016 99,135 Miscellaneous Income (Expense)............ (928) 2,653 5,210 1,396 906 1,013 Loss on Investment in Rouge............... -- (8,553) -- -- -- -- Interest Expense.......................... (33,449) (39,779) (43,126) (25,577) (18,427) (8,687) Equity in Net Income of Unconsolidated Affiliates -- Joint Ventures........... 25,201 26,832 24,471 19,316 13,959 6,981 Equity in Net Income of Unconsolidated Affiliate -- Rouge...................... -- -- -- -- -- 21,729 ---------- ---------- ---------- ---------- ---------- ---------- Earnings from Continuing Operations Before Income Taxes............................ 56,008 150,642 132,751 130,642 107,454 120,171 Income Taxes.............................. 20,443 56,491 49,118 48,338 40,844 46,130 ---------- ---------- ---------- ---------- ---------- ---------- Earnings from Continuing Operations....... 35,565 94,151 83,633 82,304 66,610 74,041 Discontinued Operations, Net of Taxes..... -- -- (20,885) 17,337 26,708 26,932 Extraordinary Item, Net of Taxes.......... -- -- -- 18,771 -- -- Cumulative Effect of Accounting Change, Net of Taxes............................ -- -- (7,836) -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- Net Earnings.............................. 35,565 94,151 54,912 118,412 93,318 100,973 Earnings Per Share (Diluted) -- Continuing Operations................... 0.42 1.06 0.90 0.85 0.69 0.76 Discontinued Operations, Net of Taxes... -- -- (0.23) 0.18 0.27 0.28 Extraordinary Item, Net of Taxes........ -- -- -- 0.19 -- -- Cumulative Effect of Accounting Change, Net of Taxes.......................... -- -- (0.08) -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- Net Earnings............................ 0.42 1.06 0.59 1.22 0.96 1.04 Continuing Operations (Excluding Restructuring Expense and Rouge)*..... 0.46 1.12 0.90 0.85 0.69 0.62 Continuing Operations: Depreciation and Amortization........... 70,582 70,997 64,087 41,602 34,150 26,931 Earnings Before Interest, Taxes, Depreciation and Amortization......... 160,039 261,418 239,964 197,821 160,031 155,789 Capital Expenditures (Including Acquisitions)**....................... 64,943 72,649 132,458 297,516 287,658 275,052 Cash Dividends Declared................... 54,762 53,391 52,343 51,271 45,965 40,872 Per Share............................... $ 0.64 $ 0.61 $ 0.57 $ 0.53 $ 0.49 $ 0.45 Average Shares Outstanding (Diluted)...... 85,623 88,598 93,106 96,949 96,841 96,822 FINANCIAL POSITION Current Assets............................ $ 449,719 $ 624,229 $ 624,255 $ 642,995 $ 594,128 $ 505,104 Current Liabilities....................... 306,619 433,270 427,725 410,031 246,794 167,585 ---------- ---------- ---------- ---------- ---------- ---------- Working Capital........................... 143,100 190,959 196,530 232,964 347,334 337,519 Net Fixed Assets.......................... 836,749 862,512 871,347 933,158 691,027 544,052 Total Assets.............................. 1,475,862 1,673,873 1,686,951 1,842,342 1,561,186 1,282,424 Total Debt***............................. 324,750 525,072 493,313 501,950 417,883 317,997 Shareholders' Equity...................... 649,665 673,354 689,649 780,273 715,518 667,318 Per Share............................... 7.61 7.85 7.67 8.07 7.40 6.91 Total Committed Capital***................ $ 974,415 $1,198,426 $1,182,962 $1,282,223 $1,133,401 $ 985,315 Shares Outstanding........................ 85,375 85,755 89,949 96,657 96,711 96,505
- --------------- All financial data include the results of The Gerstenslager Company, which was acquired in February 1997 through a pooling of interests. * Excludes the impact of the "Restructuring Expense" for the fiscal year ended May 31, 2001, the "Loss on Investment in Rouge" for the fiscal year ended May 31, 2000 and the "Equity in Net Income of Unconsolidated Affiliate -- Rouge" for the fiscal year ended May 31, 1996. ** Includes $113,000 of Worthington Industries, Inc. common shares exchanged for The Gerstenslager Company during the fiscal year ended May 31, 1997. *** Excludes Debt Exchangeable for Common Stock of $52,497, $75,745 and $88,494 at May 31, 1999, 1998 and 1997, respectively. 4 31 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Statements contained in this 2001 Annual Report to Shareholders, including, without limitation, the Management's Discussion and Analysis that follows, that are not historical fact constitute "forward-looking statements" that are based on management's beliefs, estimates, assumptions and currently available information. These forward-looking statements include, without limitation, statements relating to future sales and operating results, growth, stock appreciation, projected capacity levels, pricing trends, anticipated capital expenditures, plant start-ups, capabilities, new products and markets and other non-historical information. 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, changes in product mix and market acceptance of products; changes in pricing or availability of raw materials, particularly steel; capacity restraints and efficiencies; conditions in major product markets; delays in construction or equipment supply; financial difficulties of customers and suppliers; inherent risks of international development, including foreign currency risks; the ability to improve processes and business practices to keep pace with the economic, competitive and technological environment; general economic conditions, business environment and the impact of governmental regulations, both in the United States and abroad; and other risks described from time to time in filings with the Securities and Exchange Commission. OVERVIEW Worthington Industries, Inc. is a diversified steel processor that focuses on steel processing and metals-related businesses. We operate 43 facilities worldwide, principally in three reportable business segments: Processed Steel Products, Metal Framing and Pressure Cylinders. We also hold equity positions in eight joint ventures, which operate 16 facilities worldwide. On February 1, 2001, we announced the shutdown of a portion of our Malvern, Pennsylvania, facility, which is included in our Processed Steel Products segment. Selected assets, including two rolling mills, a cleaning line, a tension leveler, a pickle line and a slitter, were idled. As a result, 160 hourly and salaried positions were to be eliminated through retirement, normal attrition and termination. The business affected by the shutdown was transferred to other facilities. During the quarter ended February 28, 2001, we recorded a pre-tax restructuring expense of $6.5 million ($0.04 per share, net of tax). The restructuring expense consists of $2.0 million for severance and employee related costs and $4.5 million for the write-down of the idled assets to net realizable value. In March 2000, we recorded an $8.6 million pre-tax loss ($0.06 per share, net of tax) relating to our investment in the common stock of Rouge Industries, Inc. ("Rouge"). This previously unrealized loss had been reported as a reduction in shareholders' equity. On March 1, 1997, we issued debt exchangeable for common stock ("DECS"), payable in Rouge stock. We realized the loss on the Rouge investment when we used the Rouge stock to satisfy the DECS at maturity on March 1, 2000. During fiscal 1999, we divested our non-core businesses: Worthington Custom Plastics, Inc., Worthington Precision Metals, Inc. and Buckeye Steel Castings Company, which had previously comprised our Custom Products and Cast Products segments. The divested operations are reflected in our financial statements as discontinued operations. The divestitures provided aggregate proceeds of $224.0 million, which included $194.0 million in cash and $30.0 million in preferred stock and notes receivable issued by the acquirers. We used the cash proceeds to finance capital projects, fund acquisitions, repurchase common shares and reduce debt. The divestitures resulted in an aggregate $24.6 million after-tax loss. In fiscal 1999, we adopted the American Institute of Certified Public Accountants' Statement of Position 98-5, Reporting on the Costs of Start-Up Activities, which requires that we expense as incurred any costs related to commencing operations at new plants and facilities. We recorded an after-tax charge of $7.8 million, or $0.08 per share, for the accounting policy change, to expense the costs that had been capitalized prior to fiscal 1999. The impact of the change on earnings from continuing operations for fiscal 1999 as reported was not material. 5 32 During fiscal 1999, we completed three European acquisitions within the Pressure Cylinders segment. In June 1998, we acquired the stock of Jos. Heiser vormals J. Winter's Sohn, GmbH ("Worthington Heiser"). Based in Kienberg, Austria, Worthington Heiser produces high-pressure cylinders. We acquired a 51% majority interest in Gastec spol. s.r.o., based in Hustopece, Czech Republic, in February 1999 and purchased the cylinder manufacturing assets of Metalurgica Progresso de Vale de Cambra, Lda., based in Vale de Cambra, Portugal, in May 1999. Both of these operations manufacture various low-pressure cylinders. These acquisitions offer growth opportunities for us, given the full product offering and geographic coverage throughout Europe. See Note K to the Consolidated Financial Statements. RESULTS FROM OPERATIONS The following table sets forth, for the fiscal years indicated, consolidated sales and operating income by segment and other financial information:
2001 2000 1999 ------------------------- ------------------------- ---------------- % OF % % OF % % OF ACTUAL SALES CHANGE ACTUAL SALES CHANGE ACTUAL SALES IN MILLIONS, EXCEPT PER SHARE -------- ----- ------ -------- ----- ------ -------- ----- Net Sales: Processed Steel Products.............. $1,184.9 64.9% -8% $1,287.9 65.6% 16% $1,114.9 63.2% Metal Framing......................... 346.0 18.9% -1% 350.6 17.9% 4% 337.2 19.1% Pressure Cylinders.................... 289.1 15.8% -9% 318.8 16.2% 4% 305.8 17.3% Other................................. 6.1 0.4% 5.3 0.3% 5.2 0.4% -------- -------- -------- Total Net Sales................... 1,826.1 100.0% -7% 1,962.6 100.0% 11% 1,763.1 100.0% Cost of Goods Sold........................ 1,581.2 86.6% -3% 1,629.4 83.0% 11% 1,468.9 83.3% -------- -------- -------- Gross Margin...................... 244.9 13.4% -27% 333.2 17.0% 13% 294.2 16.7% Selling, General & Administrative Expense................................. 173.2 9.5% 6% 163.7 8.4% 11% 148.0 8.4% Restructuring Expense..................... 6.5 0.4% -- -- -- -- Operating Income: Processed Steel Products.............. 29.3 2.5% -70% 96.8 7.5% 17% 82.6 7.4% Metal Framing......................... 23.7 6.9% -45% 43.2 12.3% 70% 25.4 7.5% Pressure Cylinders.................... 19.3 6.7% -44% 34.2 10.7% -7% 36.7 12.0% Other................................. (7.1) (4.7) 1.5 -------- -------- -------- Total Operating Income............ 65.2 3.5% -62% 169.5 8.6% 16% 146.2 8.3% Other Income (Expense): Misc. Income (Expense)................ (0.9) 2.7 5.1 Loss on Investment in Rouge........... -- (8.6) -- Interest Expense...................... (33.5) -1.8% -16% (39.8) -2.0% -8% (43.1) -2.4% Equity in Net Income of Unconsolidated Affiliates.......................... 25.2 1.4% -6% 26.8 1.4% 9% 24.5 1.4% -------- -------- -------- Earnings Before Taxes............... 56.0 3.0% -63% 150.6 7.7% 13% 132.7 7.5% Income Taxes.............................. 20.4 1.1% -64% 56.4 2.9% 15% 49.1 2.8% -------- -------- -------- Earnings from Continuing Operations....... 35.6 1.9% -62% 94.2 4.8% 13% 83.6 4.7% Discontinued Operations, Net of Taxes..... -- -- (20.9) Cumulative Effect of Accounting Change, Net of Taxes............................ -- -- (7.8) -------- -------- -------- Net Earnings.............................. $ 35.6 1.9% -62% $ 94.2 4.8% 71% $ 54.9 3.1% ======== ======== ======== Average Common Shares Outstanding -- Diluted................................. 85.6 88.6 93.1 Earnings Per Share -- Diluted: Earnings from Continuing Operations........................ $ 0.42 $ 1.06 $ 0.90 Discontinued Operations, Net of Taxes............................. -- -- (0.23) Cumulative Effect of Accounting Change, Net of Taxes.............. -- -- (0.08) -------- -------- -------- Net Earnings........................ $ 0.42 $ 1.06 $ 0.59 ======== ======== ========
6 33 FISCAL 2001 COMPARED TO FISCAL 2000 Net sales decreased 7% to $1.8 billion from $2.0 billion in fiscal 2000 due to lower demand within our Processed Steel Products and Pressure Cylinders segments and reduced selling prices in Processed Steel Products and Metal Framing. Higher volumes in Metal Framing partially offset these factors. The following provides further information on net sales by segment: - Processed Steel Products. Net sales decreased 8% to $1.2 billion from $1.3 billion in fiscal 2000 primarily due to the general economic slowdown, especially in the domestic automotive industry. The decrease in net sales was principally attributable to declining direct shipments from most plants and a decrease in toll processing volume. However, our Monroe, Ohio ("Monroe") and Decatur, Alabama ("Decatur") plants continued to increase direct volumes due to the new dry lube line and market penetration, respectively. Direct shipments include sales of material with a value-added processing charge, while toll shipments contain only a value-added processing charge on customer-owned material. - Metal Framing. Net sales decreased 1% to $346.0 million from $350.6 million in fiscal 2000 due to erosion of selling prices throughout the year brought on by intense competition. Nevertheless, strong demand for building products led to higher volumes, thus offsetting much of the negative impact due to pricing. - Pressure Cylinders. Net sales decreased 9% to $289.1 million from $318.8 million in fiscal 2000. The primary reason for the decrease was the weakening demand in all product lines due to the slowing economy and stiff competition in the European market. A strong United States dollar also resulted in lower reported sales from our international operations. Gross margin as a percentage of net sales decreased to 13.4% in fiscal 2001 from 17.0% in fiscal 2000. The majority of the decline occurred in our Processed Steel Products segment due to lower volumes and the smaller spread between direct average selling prices and raw material costs. Selling, general and administrative costs ("SG&A") increased to 9.5% of net sales in fiscal 2001 from 8.4% of net sales in fiscal 2000 due to lower sales and higher salary, bad debt and health care expenses. Operating income decreased 62% to $65.2 million from $169.5 million in fiscal 2000. The decrease was due to lower volumes in our Processed Steel Products and Pressure Cylinders segments and higher average raw material costs in our Processed Steel Products and Metal Framing segments. Operating income as a percentage of net sales was 3.5% in fiscal 2001 compared to 8.6% in fiscal 2000. The following provides further information on operating income by segment: - Processed Steel Products. Operating income decreased 70% to $29.3 million in fiscal 2001 from $96.8 million in fiscal 2000 due to higher average raw material prices, changes in sales mix to lower margin products, and declining direct and toll processing volumes. The previously mentioned restructuring expense of $6.5 million and higher manufacturing expenses and SG&A costs as a percentage of net sales resulted in a 2.5% operating margin for the year. - Metal Framing. Operating income decreased 45% to $23.7 million in fiscal 2001 from $43.2 million in fiscal 2000. Sales volume increases were overshadowed by price competition and higher raw material costs, decreasing the operating margin to 6.9%. - Pressure Cylinders. Operating income decreased 44% to $19.3 million in fiscal 2001 from $34.2 million in fiscal 2000. Reductions in sales volumes and the start-up of a new non-refillable refrigerant production line in Portugal were the major factors leading to the decrease in the current year operating margin to 6.7%. Interest expense decreased 16% to $33.5 million in fiscal 2001 from $39.8 million in fiscal 2000. Since we paid off the DECS liability during the fourth quarter of fiscal 2000, there was no comparable interest expense during fiscal 2001. In addition, we reduced short-term debt (see description in "Liquidity and Capital Resources"). However, higher average short-term interest rates partially offset these factors. Our average interest rate on short-term unsecured notes payable was 6.69% for fiscal 2001 compared to 5.82% for fiscal 2000. At May 31, 2001, approximately 96% of our $324.8 million of total debt was at fixed rates of interest. 7 34 Equity in net income of unconsolidated affiliates decreased 6% to $25.2 million in fiscal 2001 from $26.8 million in fiscal 2000. Higher raw material costs at TWB and lower sales at WSP led to lower margins at those joint ventures. Increases in sales and operating income at the Acerex and WAVE joint ventures partly negated the overall decline. Our effective tax rate decreased to 36.5% in fiscal 2001 from 37.5% in fiscal 2000 primarily due to ongoing state and local tax planning initiatives. FISCAL 2000 COMPARED TO FISCAL 1999 Net sales increased 11% to $2.0 billion from $1.8 billion in fiscal 1999. The increase was primarily due to the start-up of two Processed Steel Products facilities: our Decatur facility and Spartan Steel. A strong construction market and increased demand for steel portable cylinders provided for the increased sales in our Metal Framing and Pressure Cylinders segments, respectively. These volume increases were partially offset by lower selling prices in our Processed Steel Products and Pressure Cylinders segments. The following provides further information on net sales by segment: - Processed Steel Products. Net sales increased 16% to $1.3 billion from $1.1 billion in fiscal 1999. This increase was mainly volume driven as the start-up facilities in Decatur and at Spartan continued to ramp up their operations throughout fiscal 2000. However, the effect of the volume increases was partially offset by lower selling prices during fiscal 2000. - Metal Framing. Net sales increased 4% to $350.6 million from $337.2 million in fiscal 1999. The building products market remained strong throughout fiscal 2000. That combined with the volume and price increases in the stainless products were the main reasons for the increase in sales. Lower fiscal 2000 selling prices for building products and the sale of the garage door product line in the second quarter of fiscal 1999 partially offset this increase. - Pressure Cylinders. Net sales increased 4% to $318.8 million from $305.8 million in fiscal 1999. Increased demand for steel portables, system tanks and high-pressure steel cylinders, partially offset by lower selling prices, was the main reason for the increase in sales. Sales in the European operations were flat compared to fiscal 1999 due to competitive pricing pressures in that market. Gross margin as a percentage of net sales increased to 17.0% in fiscal 2000 from 16.7% in fiscal 1999. The improvement in our gross margin was primarily due to favorable raw material costs, particularly in our Metal Framing and Pressure Cylinders segments. This favorability occurred earlier in the year as prices for raw materials continued to increase across all segments throughout the year. Higher manufacturing expenses partially offset some of this favorable price impact. SG&A costs remained at 8.4% of sales for both fiscal 2000 and fiscal 1999 and were higher than normal due to Year 2000 expenses in both years. Operating income increased 16% to $169.5 million from $146.2 million in fiscal 1999. This increase mainly was due to the previously mentioned increases in sales volume and favorable raw material pricing partially offset by lower selling prices and increased manufacturing expenses in our European cylinder operations. Operating income as a percentage of net sales was 8.6% in fiscal 2000 compared to 8.3% in fiscal 1999. The following provides further information on operating income by segment: - Processed Steel Products. Operating income increased 17% to $96.8 million in fiscal 2000 from $82.6 million in fiscal 1999. This was primarily due to higher sales volumes in our start-up operations. Favorability due to lower raw material costs occurred earlier in the year but was offset by raw material price increases in the third and fourth quarters of fiscal 2000. Direct labor, manufacturing expenses and SG&A costs as a percentage of net sales remained consistent with fiscal 1999 resulting in an operating margin for the year of 7.5%. - Metal Framing. Operating income for Metal Framing increased 70% to $43.2 million in fiscal 2000 from $25.4 million in fiscal 1999. Higher sales volumes in our building products line driven by the favorable construction market more than offset the impact of lower selling prices. Favorable raw material prices and operating efficiencies also contributed, increasing the operating margin to 12.3%. 8 35 - Pressure Cylinders. Operating income decreased 7% to $34.2 million in fiscal 2000 from $36.7 million in fiscal 1999. Lower selling prices kept sales in the European market flat compared to the prior year. In addition, higher labor, manufacturing and SG&A expenses in those operations lowered operating income. Higher sales volumes in the steel portables product line were partially offset by fewer sales of the refrigerant cylinders. All of these factors combined produced an operating margin of 10.7%. Interest expense decreased 8% to $39.8 million in fiscal 2000 from $43.1 million in fiscal 1999. Capitalized interest in fiscal 2000 was $0.8 million compared to $4.0 million in fiscal 1999 as our major construction projects (Decatur and rebuilding Monroe) were completed in the first part of fiscal 1999. The decrease in interest expense was due to lower weighted average debt levels and the extinguishment of the DECS notes in fiscal 2000. At May 31, 2000, approximately 70% of our $525.1 million of total debt was at fixed rates of interest. Equity in net income of unconsolidated affiliates increased 9% to $26.8 million in fiscal 2000 from $24.5 million in fiscal 1999. Our WAVE, TWB and Acerex joint ventures posted increases in sales and earnings for fiscal 2000. Profits for WSP declined slightly in fiscal 2000 due to lower sales. Our effective tax rate was 37.5% in fiscal 2000 up from 37.0% in fiscal 1999 due to increased business in higher-taxed foreign and domestic locations, the result of divestiture and acquisition activity concluded in fiscal 1999. LIQUIDITY AND CAPITAL RESOURCES In fiscal 2001, we generated $321.5 million in cash from operating activities, representing a $182.6 million increase from fiscal 2000. The increase primarily was due to $110.0 million in proceeds from the sale of accounts receivable and a $63.9 million reduction in inventories. Lower net income and a $31.0 million tax payment relating to the tax gain from the disposition of our investment in the common stock of Rouge (which occurred in the fourth quarter of fiscal 2000) partially offset these factors. In November 2000, we entered into a $120.0 million revolving trade receivables securitization ("TRS") facility with a commercial bank which was expanded to $190.0 million in May 2001. Under the TRS facility, certain of our subsidiaries sell their accounts receivable, on a revolving basis, to Worthington Receivables Corporation ("WRC"), a wholly-owned, bankruptcy-remote subsidiary. WRC then sells undivided ownership interests in those accounts receivable to independent third parties. As of May 31, 2001, $110.0 million of accounts receivable had been sold. The proceeds from these sales have been used to reduce short-term borrowings. Our significant investing and financing activities during fiscal 2001 included repaying $146.4 million in short-term debt, investing $62.9 million in capital projects (excluding acquisitions), retiring $50.6 million in long-term debt and disbursing $54.8 million in dividends to shareholders. These transactions were funded by the cash flows from our operations. Capital spending during fiscal 2001 included continued construction on Gerstenslager's Clyde facility, the completion of the expansion of our annealing capacity at Decatur and the addition of a dry film lubricant line at Monroe, all within our Processed Steel Products segment. Expenditures were made in our Metal Framing segment for a plant start-up in Seattle, in our Pressure Cylinders segment for a new low-pressure cylinder line in Portugal, and for additional weld cells for our steel pallet business. Consolidated net working capital decreased $47.9 million from May 31, 2000 to $143.1 million at May 31, 2001. The decrease was due to the following: a reduction in inventory levels reflecting lower levels of business and an increased focus on inventory reduction; an increase in accounts payable; and the aforementioned tax payment. We repurchased 379,100 common shares ($2.7 million) and 4.6 million common shares ($63.7 million) during fiscal 2001 and fiscal 2000, respectively. As of May 31, 2001, approximately 2.5 million common shares remain available for repurchase under programs authorized by our Board of Directors. The timing and amount of any future repurchases will be at our discretion and will depend upon market conditions and our operating 9 36 performance and liquidity. Any repurchase will also be subject to the covenants contained in our credit facilities and other debt instruments. We maintain a $190.0 million revolving credit facility (the "Revolver") with a group of commercial banks, which expires in May 2003, to finance the cash requirements of our business operations. We also have short-term uncommitted lines of credit extended by various commercial banks available as needed. We had no outstanding borrowings under the Revolver and $13.8 million was outstanding under the uncommitted lines at May 31, 2001. At May 31, 2001, our total debt was $324.8 million compared to $525.1 million at the end of fiscal 2000. This reduction was due to the previously mentioned use of proceeds from the TRS and lower working capital requirements. As a result, our debt to capital ratio decreased to 33.3% from 43.8% at the end of fiscal 2000. From time to time, we engage in discussions with respect to selected acquisitions, and we expect to continue to assess acquisition opportunities as they arise. Additional financing may be required if we decide to make additional acquisitions. There can be no assurance, however, that any such opportunities will arise, that any such acquisitions will be consummated or that any needed additional financing will be available on satisfactory terms when required. Absent any acquisitions, we anticipate that cash flows from operations, working capital and unused short-term borrowing capacity should be more than sufficient to fund expected normal operating costs, dividends and capital expenditures for our existing businesses. 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 derivative financial and commodity instruments. These instruments are used to mitigate market exposure and are not used for trading or speculative purposes. Interest Rate Risk: At May 31, 2001, our long-term debt was comprised primarily of fixed-rate instruments. Therefore, the fair value of this debt is sensitive to fluctuations in interest rates. Assuming a 1% increase in interest rates, the fair value of our long-term debt would not be materially affected. We would not expect that this fluctuation would materially impact our results of operations and cash flows absent an election to repurchase or retire all or a portion of the fixed-rate debt at prices above carrying value. Foreign Currency Risk: The translation of our foreign operations from their local currencies to the U.S. dollar subjects us to exposure related to fluctuating exchange rates. We do not use derivative instruments to manage this risk. However, we do make limited use of forward contracts to manage our exposure to certain intercompany loans with our foreign affiliates. We do not expect that a 10% change in the exchange rate to the U.S. dollar forward rate would materially impact our results of operations or cash flows. Commodity Price Risk: We are exposed to market risk for price fluctuations on purchases of steel, natural gas, zinc, nickel and other raw materials and utility requirements. To limit this exposure we negotiate the best prices for our commodities and competitively price our products and services to reflect the fluctuations in commodity market prices. To a limited extent, we have entered into commodity derivative instruments to hedge purchases of steel and zinc. At May 31, 2001, these positions were not material to our financial position, results of operations or cash flows. RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, which we are required to adopt in fiscal 2002. The Statement requires derivatives to be carried on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The change in a derivative's fair value 10 37 related to the ineffective portion of a hedge, if any, will be immediately recognized in earnings. The adoption of this Statement will not have a material impact on our results of operations or financial position. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 on Revenue Recognition, which we adopted the beginning of the fourth quarter of fiscal 2001. Adoption of the Bulletin did not have a significant effect on our results of operations or financial position. In July 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires the use of the purchase method of accounting for any business combinations initiated after June 30, 2001 and further clarifies the criteria to recognize intangible assets separately from goodwill. Under SFAS No. 142, goodwill and indefinite-lived intangible assets will no longer be amortized but will be reviewed for impairment. Separable intangible assets with a definite life will continue to be amortized over their useful lives. We adopted SFAS No. 142 effective June 1, 2001. The adoption of this Statement will not have a material effect on our results of operations. During fiscal 2002, we will perform the first of the required impairment tests of goodwill and indefinite-lived intangible assets. The impact of these impairment tests has not yet been determined. ENVIRONMENTAL We believe environmental issues will not have a material effect on capital expenditures, future results of operations or financial position. INFLATION The effects of inflation on our operations were not significant during the periods presented in the Consolidated Financial Statements. 11 38 WORTHINGTON INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
MAY 31 ------------------------ 2001 2000 DOLLARS IN THOUSANDS ---------- ---------- ASSETS Current Assets: Cash and cash equivalents................................. $ 194 $ 538 Accounts receivable, less allowances of $9,166 and $3,879 at May 31, 2001 and 2000................................ 169,330 301,175 Inventories Raw materials........................................... 102,051 144,903 Work in process......................................... 59,735 81,632 Finished products....................................... 65,720 64,669 ---------- ---------- 227,506 291,204 Prepaid expenses and other current assets................. 52,689 31,312 ---------- ---------- Total Current Assets............................... 449,719 624,229 Investments in Unconsolidated Affiliates.................... 58,638 50,197 Intangible Assets........................................... 80,377 80,213 Other Assets................................................ 50,379 56,722 Property, Plant and Equipment Land...................................................... 25,085 27,654 Buildings and improvements................................ 244,834 244,187 Machinery and equipment................................... 883,160 861,600 Construction in progress.................................. 48,111 47,181 ---------- ---------- 1,201,190 1,180,622 Less accumulated depreciation............................. 364,441 318,110 ---------- ---------- 836,749 862,512 ---------- ---------- Total Assets....................................... $1,475,862 $1,673,873 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable.......................................... $ 207,568 $ 157,998 Notes payable............................................. 13,794 160,194 Accrued compensation, contributions to employee benefit plans and related taxes................................. 39,329 36,888 Dividends payable......................................... 13,660 13,721 Other accrued items....................................... 28,560 30,082 Income taxes.............................................. 1,960 31,699 Current maturities of long-term debt...................... 1,748 2,688 ---------- ---------- Total Current Liabilities.......................... 306,619 433,270 Other Liabilities........................................... 19,860 25,531 Long-Term Debt.............................................. 309,208 362,190 Deferred Income Taxes....................................... 140,974 125,942 Contingent Liabilities -- Note G............................ -- -- Minority Interest........................................... 49,536 53,586 Shareholders' Equity: 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, 2001 -- 85,375,425 shares, 2000 -- 85,754,525 shares............................... -- -- Additional paid-in capital................................ 109,685 109,776 Cumulative other comprehensive loss, net of taxes of $4,349 and $3,046 at May 31, 2001 and 2000.............. (8,024) (5,806) Retained earnings......................................... 548,004 569,384 ---------- ---------- 649,665 673,354 ---------- ---------- Total Liabilities and Shareholders' Equity......... $1,475,862 $1,673,873 ========== ==========
See notes to consolidated financial statements. 12 39 WORTHINGTON INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS
YEAR ENDED MAY 31 -------------------------------------- 2001 2000 1999 IN THOUSANDS, EXCEPT PER SHARE ---------- ---------- ---------- Net sales............................................. $1,826,100 $1,962,606 $1,763,072 Cost of goods sold.................................... 1,581,178 1,629,455 1,468,886 ---------- ---------- ---------- Gross Margin................................... 244,922 333,151 294,186 Selling, general and administrative expense........... 173,264 163,662 147,990 Restructuring expense................................. 6,474 -- -- ---------- ---------- ---------- Operating Income............................... 65,184 169,489 146,196 Other income (expense): Miscellaneous income (expense)...................... (928) 2,653 5,210 Loss on investment in Rouge......................... -- (8,553) -- Interest expense.................................... (33,449) (39,779) (43,126) Equity in net income of unconsolidated affiliates -- joint ventures..................... 25,201 26,832 24,471 ---------- ---------- ---------- Earnings Before Income Taxes................... 56,008 150,642 132,751 Income taxes.......................................... 20,443 56,491 49,118 ---------- ---------- ---------- Earnings from Continuing Operations............ 35,565 94,151 83,633 Discontinued operations, net of taxes................. -- -- (20,885) Cumulative effect of accounting change, net of taxes............................................... -- -- (7,836) ---------- ---------- ---------- Net Earnings................................... $ 35,565 $ 94,151 $ 54,912 ========== ========== ========== Average Common Shares Outstanding (Basic)............. 85,590 88,411 93,016 Earnings Per Share (Basic): Continuing operations.......................... $ 0.42 $ 1.06 $ 0.90 Discontinued operations, net of taxes.......... -- -- (0.23) Cumulative effect of accounting change, net of taxes....................................... -- -- (0.08) ---------- ---------- ---------- Net Earnings................................... $ 0.42 $ 1.06 $ 0.59 ========== ========== ========== Average Common Shares Outstanding (Diluted)........... 85,623 88,598 93,106 Earnings Per Share (Diluted): Continuing operations.......................... $ 0.42 $ 1.06 $ 0.90 Discontinued operations, net of taxes.......... -- -- (0.23) Cumulative effect of accounting change, net of taxes....................................... -- -- (0.08) ---------- ---------- ---------- Net Earnings................................... $ 0.42 $ 1.06 $ 0.59 ========== ========== ==========
See notes to consolidated financial statements. 13 40 WORTHINGTON INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY THREE YEARS ENDED MAY 31
CUMULATIVE COMMON STOCK ADDITIONAL OTHER -------------------- PAID-IN COMPREHENSIVE RETAINED SHARES AMOUNT CAPITAL LOSS, NET OF TAX EARNINGS TOTAL DOLLARS IN THOUSANDS, EXCEPT PER SHARE ---------- ------ ---------- ---------------- -------- -------- Balance at June 1, 1998.......................... 96,656,759 $968 $116,696 $(8,375) $670,984 $780,273 Comprehensive income: Net income..................................... -- -- -- -- 54,912 54,912 Foreign currency translation................... -- -- -- (109) -- (109) -------- Total comprehensive income............... 54,803 -------- Common shares issued............................. 139,982 -- 1,362 -- -- 1,362 Reincorporation to Ohio.......................... -- (926) 926 -- -- -- Purchase and retirement of common shares......... (6,847,467) (42) (7,497) -- (86,893) (94,432) Cash dividends declared ($0.57 per share)........ -- -- -- -- (52,342) (52,342) Other............................................ -- -- (13) -- (2) (15) ---------- ---- -------- ------- -------- -------- Balance at May 31, 1999.......................... 89,949,274 -- 111,474 (8,484) 586,659 689,649 Comprehensive income: Net income..................................... -- -- -- -- 94,151 94,151 Unrealized gain on investment.................. -- -- -- 5,616 -- 5,616 Foreign currency translation................... -- -- -- (2,938) -- (2,938) -------- Total comprehensive income............... 96,829 -------- Common shares issued............................. 358,203 -- 4,018 -- -- 4,018 Purchase and retirement of common shares......... (4,552,952) -- (5,720) -- (58,020) (63,740) Cash dividends declared ($0.61 per share)........ -- -- -- -- (53,391) (53,391) Other............................................ -- -- 4 -- (15) (11) ---------- ---- -------- ------- -------- -------- Balance at May 31, 2000.......................... 85,754,525 -- 109,776 (5,806) 569,384 673,354 Comprehensive income: Net income..................................... -- -- -- -- 35,565 35,565 Unrealized gain on investment.................. -- -- -- 1 -- 1 Foreign currency translation................... -- -- -- (2,219) -- (2,219) -------- Total comprehensive income............... 33,347 -------- Purchase and retirement of common shares......... (379,100) -- (485) -- (2,184) (2,669) Cash dividends declared ($0.64 per share)........ -- -- -- -- (54,762) (54,762) Other............................................ -- -- 394 -- 1 395 ---------- ---- -------- ------- -------- -------- Balance at May 31, 2001.......................... 85,375,425 $ -- $109,685 $(8,024) $548,004 $649,665 ========== ==== ======== ======= ======== ========
See notes to consolidated financial statements. 14 41 WORTHINGTON INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED MAY 31 ---------------------------------- 2001 2000 1999 DOLLARS IN THOUSANDS --------- -------- --------- OPERATING ACTIVITIES: Net earnings........................................... $ 35,565 $ 94,151 $ 54,912 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization....................... 70,582 70,997 78,490 Restructuring expense............................... 6,474 -- -- Provision for deferred income taxes................. 9,077 (16,345) (18,087) Loss on investment in Rouge......................... -- 8,553 -- Equity in undistributed net income of unconsolidated affiliates........................................ (10,119) 13,262 (10,848) Minority interest in net income (loss) of consolidated subsidiaries......................... 1,464 2,699 (2,664) Net loss on sale of assets.......................... 84 -- 29,237 Cumulative effect of accounting change.............. -- -- 12,292 Changes in assets and liabilities: Accounts receivable............................... 132,497 (17,413) (27,078) Inventories....................................... 63,886 (29,106) (4,980) Prepaid expenses and other current assets......... 4,314 1,264 (2,965) Other assets...................................... (449) (15,957) (366) Accounts payable and accrued expenses............. 14,804 30,631 (665) Other liabilities................................. (6,725) (3,826) (3,554) --------- -------- --------- Net Cash Provided By Operating Activities...... 321,454 138,910 103,724 INVESTING ACTIVITIES: Investment in property, plant and equipment, net....... (62,900) (71,541) (107,759) Acquisitions, net of cash acquired..................... (2,043) (1,108) (34,054) Proceeds from sale of assets........................... 1,030 2,672 198,995 --------- -------- --------- Net Cash Provided (Used) By Investing Activities................................... (63,913) (69,977) 57,182 FINANCING ACTIVITIES: Proceeds from (payments on) short-term borrowings...... (146,401) 37,917 (14,491) Proceeds from long-term debt........................... 2,064 -- 390 Principal payments on long-term debt................... (50,643) (5,597) (4,983) Proceeds from issuance of common shares................ -- 4,018 1,349 Proceeds from (payments to) minority interest.......... (4,677) 3,790 7,497 Repurchase of common shares............................ (3,406) (63,003) (94,432) Dividends paid......................................... (54,822) (53,161) (52,383) --------- -------- --------- Net Cash Used By Financing Activities.......... (257,885) (76,036) (157,053) --------- -------- --------- Increase (decrease) in cash and cash equivalents....... (344) (7,103) 3,853 Cash and cash equivalents at beginning of year......... 538 7,641 3,788 --------- -------- --------- Cash and Cash Equivalents at End of Year....... $ 194 $ 538 $ 7,641 ========= ======== =========
See notes to consolidated financial statements. 15 42 WORTHINGTON INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidation: The consolidated financial statements include the accounts of Worthington Industries, Inc. and subsidiaries (the "Company"). Spartan Steel Coating, L.L.C. (owned 52%), Worthington S.A. (owned 52%), Worthington Tank, Ltda. (owned 65%), and Worthington Gastec, a.s. (owned 51%) are fully consolidated with the equity owned by the respective partners shown as minority interest on the balance sheet and their portion of net income or loss included in miscellaneous income or expense. Investments in unconsolidated affiliates are accounted for using the equity method. Significant intercompany accounts and transactions are eliminated. Certain reclassifications were made to prior year amounts to conform to the 2001 presentation. Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Cash and Cash Equivalents: The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Inventories: Inventories are valued at the lower of cost or market. Cost is determined using the specific identification method for steel coils and the first-in, first-out method for all other inventories. Derivative Financial Instruments: The Company does not engage in currency or commodity speculation and generally enters into forward contracts and swaps only to hedge specific foreign currency or commodity transactions. Gains or losses from these contracts offset gains or losses of the assets, liabilities or transactions being hedged. The amount of these contracts outstanding and the adjustments marked-to-market are not material. In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, which the Company is required to adopt in fiscal 2002. The Statement requires derivatives to be carried on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The change in a derivative's fair value related to the ineffective portion of a hedge, if any, will be immediately recognized in earnings. The adoption of this Statement will not have a material impact on the Company's results of operations or financial position. Fair Value of Financial Instruments: The non-derivative financial instruments included in the carrying amounts of cash and cash equivalents, receivables, other assets and payables approximate fair values. The fair value of long-term debt based upon quoted market prices was $280,543,000 and $335,420,000 at May 31, 2001 and 2000, respectively. Risks and Uncertainties: The Company, including unconsolidated affiliates, operates 59 production facilities in 22 states and 11 countries. The Company's largest markets are the automotive and automotive supply markets which comprise approximately one-third of the Company's sales. Foreign operations and exports represent less than 10% of the Company's production and sales. Approximately 19% of the Company's labor force is covered by collective bargaining agreements. All significant labor contracts expire over one year from May 31, 2001. The concentration of credit risks from financial instruments related to the markets served by the Company is not expected to have a material adverse effect on the Company's consolidated financial position, cash flow or future results of operations. Intangible Assets: Intangible assets primarily include goodwill, which is being amortized on the straight-line method generally over 40 years. Intangible assets were $80,377,000 at May 31, 2001 and $80,213,000 at May 31, 2000 net of accumulated amortization of $9,678,000 and $7,841,000, respectively. Amortization expense was $4,196,000 in fiscal 2001, $4,150,000 in fiscal 2000 and $2,996,000 in fiscal 1999. The Company's policy is 16 43 to periodically review its intangible assets based upon the evaluation of such factors as the occurrence of a significant adverse event or change in the environment in which the business operates or if the expected future net cash flows (undiscounted and without interest) would become less than the carrying amount of the assets. An impairment loss would be recorded in the period such determination is made based on the fair value of the related businesses. Property and Depreciation: Property, plant and equipment are carried at cost and depreciated using the straight-line and units-of-production methods. Depreciation expense was $66,386,000 in fiscal 2001, $66,847,000 in fiscal 2000 and $75,494,000 in fiscal 1999. Accelerated depreciation methods are used for income tax purposes. Capitalized Interest: Interest is capitalized in connection with construction of qualified assets. Under this policy, the Company capitalized interest of $1,905,000 in fiscal 2001, $750,000 in fiscal 2000 and $3,972,000 in fiscal 1999. Stock-Based Compensation: The Company has elected to follow the accounting provisions of Accounting Principles Board Opinion No. 25 (APB 25), Accounting for Stock Issued to Employees, for stock-based compensation and to furnish the pro forma disclosures required under SFAS No. 123, Accounting for Stock-Based Compensation. See Note F for pro forma disclosures required by SFAS No. 123 and for additional information on the Company's stock options. Revenue Recognition: The Company generally recognizes revenue upon the transfer of title. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 on Revenue Recognition, which the Company adopted the beginning of the fourth quarter of fiscal 2001. Adoption of the Bulletin did not have a significant effect on the Company's results of operations or financial position. Advertising Expense: The Company expenses advertising costs as incurred. Advertising expense was $2,314,000, $2,059,000 and $1,413,000 for fiscal 2001, fiscal 2000 and fiscal 1999, respectively. Environmental Costs: Environmental costs are capitalized if the costs extend the life of the property, increase its capacity, and/or mitigate or prevent contamination from future operations. Costs related to environmental contamination treatment and clean-up are charged to expense. Statements of Cash Flows: Supplemental cash flow information for the years ended May 31 is as follows:
2001 2000 1999 IN THOUSANDS ------- ------- ------- Interest paid........................................ $34,887 $41,634 $45,251 Income taxes paid, net of refunds.................... 42,069 22,821 52,459
Loss on Investment in Rouge: During March 1997, the Company issued $92,994,000 of three-year notes exchangeable into Class A Common Stock of Rouge (the "DECS"). On March 1, 2000, the Company retired the DECS notes in exchange for the Rouge shares held by the Company. Prior to the exchange, the Company's investment in Rouge Industries, Inc. ("Rouge") was classified as an "available-for-sale" security with adjustments to market value being recorded, net of tax, to shareholders' equity. While it was outstanding, the DECS liability fluctuated in proportion to the market value of the Rouge shares. Because it was the Company's intention to settle the DECS using the Rouge shares, a net of tax adjustment to shareholder's equity was made for the net change both in stock value and the carrying amount of the DECS liability while it was outstanding. The previously unrealized loss on the investment in Rouge was realized when the Company exchanged the Rouge shares for the DECS, resulting in an $8,553,000 pre-tax loss in fiscal 2000. Deferred Start-up Costs: In April 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-5 (SOP 98-5), Reporting on the Costs of Start-Up Activities, which requires that costs related to start-up activities be expensed as incurred. Prior to 1999, the Company capitalized the cost of starting up new plants and facilities. The Company adopted the provisions of SOP 98-5 in its financial statements for fiscal 1999. The effect of the adoption of SOP 98-5 was to record a charge for the cumulative effect of an accounting change of $7,836,000, net of taxes of $4,456,000, to expense costs that had been capitalized prior to 1999. The impact of the change on earnings from continuing operations for fiscal 1999 was immaterial. 17 44 Recently Issued Accounting Standards: In July 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires the use of the purchase method of accounting for any business combinations initiated after June 30, 2001 and further clarifies the criteria to recognize intangible assets separately from goodwill. Under SFAS No. 142, goodwill and indefinite-lived intangible assets will no longer be amortized but will be reviewed for impairment. Separable intangible assets with a definite life will continue to be amortized over their useful lives. The Company adopted SFAS No. 142 effective June 1, 2001. The adoption of this Statement will not have a material effect on our results of operations. During fiscal 2002, the Company will perform the first of the required impairment tests of goodwill and indefinite-lived intangible assets. The impact of these impairment tests has not yet been determined. NOTE B -- SHAREHOLDERS' EQUITY Preferred Shares: The Company's Articles of Incorporation contemplate two classes of preferred shares and their relative voting rights. The Board of Directors is empowered to determine the issue prices, dividend rates, amounts payable upon liquidation, and other terms of the preferred shares when issued. Reincorporation to Ohio: On October 13, 1998, Worthington Industries, Inc., a Delaware corporation ("Worthington Delaware") was merged with and into the Company, an Ohio corporation and a wholly-owned subsidiary of Worthington Delaware. Each share of common stock, par value $.01 per share, of Worthington Delaware was converted into one common share, without par value, of the Company. Comprehensive Income: The components of other comprehensive income (loss) and related tax effects for the years ended May 31 were as follows:
2001 2000 1999 IN THOUSANDS ------- ------- ----- Other comprehensive income (loss): Unrealized gain on investment, net of tax of $0, $(3,024) and $0 in 2001, 2000 and 1999............ $ 1 $ 5,616 $ -- Foreign currency translation, net of tax of $1,195, $1,582 and $57 in 2001, 2000 and 1999............. (2,219) (2,938) (109) ------- ------- ----- Other comprehensive income (loss).................... $(2,218) $ 2,678 $(109) ======= ======= =====
The components of cumulative other comprehensive loss, net of tax at May 31 were as follows:
2001 2000 IN THOUSANDS ------- ------- Unrealized gain (loss) on investment........................ $ 54 $ 53 Foreign currency translation................................ (8,078) (5,859) ------- ------- Cumulative other comprehensive loss......................... $(8,024) $(5,806) ======= =======
NOTE C -- DEBT Debt at May 31 is summarized as follows:
2001 2000 IN THOUSANDS -------- -------- Short-term unsecured notes payable.......................... $ 13,794 $160,194 Revolver -- unsecured....................................... -- -- 7.125% unsecured senior notes due May 15, 2006.............. 158,500 200,000 6.700% unsecured senior notes due December 1, 2009.......... 145,000 150,000 Other....................................................... 7,456 14,878 -------- -------- Total debt............................................. 324,750 525,072 Less current maturities and short-term notes payable........ 15,542 162,882 -------- -------- Total long-term debt................................... $309,208 $362,190 ======== ========
18 45 The short-term unsecured notes payable represent borrowings under uncommitted bank lines of credit. The weighted average interest rate for these short-term notes was 6.69% and 5.82% for fiscal 2001 and 2000, respectively. In addition, the Company maintains a $190,000,000 unsecured revolving credit facility maturing May 30, 2003. The Company pays a commitment fee on the unused credit amount. Interest rates are determined at the time of borrowing based upon alternatives specified in the credit agreement. To remain in compliance with the credit agreement, the Company must maintain net worth of not less than $450,000,000 and a ratio of debt to total capitalization, as defined, of less than 50%. At May 31, 2001, this ratio was 33.9%. During May 2001, the Company entered into open-market transactions to repurchase portions of the 7.125% Notes due 2006 and the 6.700% Notes due 2009. The total amounts repurchased through May 31, 2001 were $41,500,000 and $5,000,000, respectively. The Company's "Other" debt includes an industrial development revenue bond with an interest rate of 2.00% and debt from foreign operations with a weighted average interest rate of 4.41%. During fiscal 2001, the Company prepaid $7,305,000 of floating rate notes due 2011. In conjunction with the prepayment, the Company terminated certain interest rate swap agreements that effectively converted the interest rate on the floating rate notes to a 5.91% fixed rate. The Company recorded a $392,000 loss on the termination of the interest rate swap agreements. Principal payments due on long-term debt in the next five fiscal years are as follows: 2002 -- $1,748,000; 2003 -- $1,199,000; 2004 -- $1,281,000; 2005 -- $1,241,000; 2006 -- $159,682,000; and thereafter -- $145,805,000. The Company guaranteed obligations totaling $2,349,000 at May 31, 2001, with varying maturities. The Company believes the guarantees will not significantly affect its consolidated financial position or future results of operations. NOTE D -- INCOME TAXES Income taxes for the years ended May 31 were as follows:
2001 2000 1999 IN THOUSANDS ------- -------- ------- Current: Federal........................................... $ 6,740 $ 66,070 $33,665 State and local................................... 1,126 4,078 3,808 Foreign........................................... 3,500 2,688 3,938 Deferred: Federal........................................... 8,998 (16,514) 7,891 State............................................. 79 169 (184) ------- -------- ------- 20,443 56,491 49,118 Discontinued Operations............................. -- -- (4,481) ------- -------- ------- $20,443 $ 56,491 $44,637 ======= ======== =======
Under SFAS No. 109, Accounting for Income Taxes, the liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, and are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. 19 46 The components of the Company's deferred tax assets and liabilities as of May 31 are as follows:
2001 2000 IN THOUSANDS -------- -------- Deferred tax assets: Allowance for doubtful accounts........................... $ 4,078 $ 2,094 Inventory................................................. 4,551 1,913 Accrued expenses.......................................... 8,337 5,172 Income taxes.............................................. 4,094 4,122 Other..................................................... 347 413 -------- -------- 21,407 13,714 Deferred tax liabilities: Property, plant and equipment............................. 129,688 115,529 Undistributed earnings of unconsolidated affiliates....... 13,512 11,830 Other..................................................... (2,226) (1,417) -------- -------- 140,974 125,942 -------- -------- Net deferred tax liability................................ $119,567 $112,228 ======== ========
The reasons for the difference between the effective income tax rate and the statutory federal income tax rate were as follows:
2001 2000 1999 ---- ---- ---- Federal statutory rate...................................... 35.0% 35.0% 35.0% State and local income taxes, net of federal tax benefit.... 1.4 1.8 1.9 Foreign and other........................................... 0.1 0.7 0.1 ---- ---- ---- Effective tax rate.......................................... 36.5% 37.5% 37.0% ==== ==== ====
NOTE E -- EMPLOYEE BENEFIT PLANS Certain employees of the Company participate in a current cash profit sharing plan and a deferred profit sharing plan. Company contributions to and costs for these plans are determined as a percentage of the Company's pre-tax income before profit sharing. Certain operations have non-contributory defined benefit pension plans covering a majority of their employees qualified by age and service. Company contributions to these plans comply with ERISA's minimum funding requirements. At May 31, 1999, all pension plans of discontinued operations were disposed. 20 47 A summary of the components of net periodic pension cost for the defined benefit plans in fiscal 2001, fiscal 2000 and fiscal 1999, and the contributions charged to pension expense for the defined contribution plans follows:
2001 2000 1999 IN THOUSANDS ------- ------- ------- Defined benefit plans: Service cost (benefits earned during the period)..... $ 922 $ 827 $ 1,214 Interest cost on projected benefit obligation........ 1,242 1,051 1,236 Actual (return) loss on plan assets.................. 1,092 (1,109) (2,050) Net amortization and deferral........................ (2,135) 177 1,587 ------- ------- ------- Net pension cost on defined benefit plans............ 1,121 946 1,987 Defined contribution plans............................. 5,676 6,418 6,247 ------- ------- ------- Total pension expense -- Continuing Operations................................. 6,797 7,364 8,234 Discontinued Operations................................ -- -- (1,048) ------- ------- ------- Total pension expense........................ $ 6,797 $ 7,364 $ 7,186 ======= ======= =======
Pension expense was calculated assuming a weighted average discount rate of between 7.00% and 7.75% with a weighted average expected long-term rate of return of between 7.75% and 9.00%. Plan assets consist principally of listed equity securities and fixed income instruments. The following table sets forth the funded status and amounts recognized in the Company's consolidated balance sheets for defined benefit pension plans at May 31:
2001 2000 IN THOUSANDS ------- ------- Change in Benefit Obligation Benefit obligation -- beginning of year................... $14,891 $14,520 Service cost.............................................. 922 827 Interest cost............................................. 1,242 1,069 Amendments................................................ 1,108 -- Actuarial (gain) loss..................................... 114 (706) Benefits paid............................................. (672) (819) ------- ------- Benefit obligation -- end of year......................... 17,605 14,891 ------- ------- Change in Plan Assets Fair value of plan assets -- beginning of year............ 14,767 13,932 Actual return (loss) on plan assets....................... (1,092) 796 Employer contributions.................................... 1,425 781 Benefits paid............................................. (580) (742) ------- ------- Fair value of plan assets -- end of year.................. 14,520 14,767 ------- ------- Funded Status............................................... (3,085) (124) Unrecognized Net Actuarial Loss............................. (1,385) (3,928) Unrecognized Prior Service Cost............................. 1,369 2,967 ------- ------- Accrued Benefit Cost........................................ $(3,101) $(1,085) ======= ======= Plans With Benefit Obligations in Excess of Fair Value of Plan Assets: Projected Benefit Obligation.............................. $16,816 $14,073 Fair Value of Plan Assets................................. 13,469 13,563 ------- ------- Funded Status............................................. $(3,347) $ (510) ======= =======
21 48 NOTE F -- STOCK OPTIONS Under its employee and non-employee director stock option plans, the Company may grant incentive stock options to purchase common shares at not less than 100% of market value at date of grant or non-qualified stock options at a price determined by the Compensation and Stock Option Committee. Generally, options vest and become exercisable at the rate of 20% per year beginning one year from date of grant and expire ten years thereafter. The following table summarizes the option plans' activities for the years ended May 31:
2001 2000 1999 ------------------ ------------------ ------------------ WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE IN THOUSANDS, EXCEPT PER SHARE ------- -------- ------- -------- ------- -------- Outstanding -- beginning of year.......... 4,336 $14.90 3,907 $15.04 2,440 $17.39 Granted................................... 1,851 9.30 1,006 12.75 2,153 13.00 Exercised................................. -- -- (358) 9.25 (140) 9.31 Forfeited................................. (348) 15.77 (219) 17.29 (546) 18.90 ----- ----- ----- Outstanding -- end of year................ 5,839 13.07 4,336 14.90 3,907 15.04 ===== ===== ===== Exercisable at end of year................ 2,005 16.34 1,474 17.68 1,227 16.52 ===== ===== =====
The following table summarizes information for options outstanding and exercisable at May 31, 2001:
OUTSTANDING EXERCISABLE ------------------------------------------ ----------------------- WEIGHTED WEIGHTED AVERAGE WEIGHTED AVERAGE REMAINING AVERAGE NUMBER EXERCISE PRICE CONTRACTUAL LIFE NUMBER EXERCISE PRICE IN THOUSANDS, EXCEPT PER SHARE ------ -------------- ---------------- ------ -------------- Exercise prices between $9.00 and $13.00............... 4,487 $11.33 8.7 943 $12.84 $14.38 and $21.38.............. 1,352 18.87 5.0 1,062 19.44
Under APB 25, the Company does not recognize compensation expense related to employee stock options, as no options are granted at a price below the market price on the day of grant. Pro Forma Information: Pro forma information regarding net income and earnings per share is required by SFAS No. 123. This information is required to be determined as if the Company had accounted for its employee stock options granted subsequent to December 31, 1994 under the fair value method prescribed by that statement. The weighted average fair value of options granted in fiscal 2001, 2000 and 1999 was $2.27, $2.84 and $2.19, respectively, based on the Black-Scholes option-pricing model with the following weighted average assumptions:
2001 2000 1999 Assumptions used: ----- ----- ----- Dividend yield............................................ 6.38% 4.25% 4.25% Expected volatility....................................... 23.00% 23.00% 23.00% Risk-free interest rate................................... 3.61% 5.96% 4.79% Expected lives (years).................................... 5 5 5
Had compensation cost for the Company's stock option plans been determined based on the fair value at the grant date for awards in 2001, 2000 and 1999 consistent with the provisions of SFAS No. 123, the Company's net earnings and earnings per share would have been as presented in the following table:
2001 2000 1999 IN THOUSANDS, EXCEPT PER SHARE ------- ------- ------- Pro forma net earnings................................ $34,199 $92,708 $53,830 Pro forma earnings per share (basic).................. 0.40 1.05 0.58 Pro forma earnings per share (diluted)................ 0.40 1.05 0.58
22 49 The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the above weighted average assumptions used for grants. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in the Company's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. NOTE G -- CONTINGENT LIABILITIES AND COMMITMENTS The Company is a defendant 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 the Company's consolidated financial position or future results of operations. The Company believes that environmental issues will not have a material effect on capital expenditures, consolidated financial position or future results of operations. To secure access to facilities used to regenerate acid used in certain steel processing locations, the Company has entered into unconditional purchase obligations with a third party which require the Company to deliver certain quantities of acid for processing annually through the year 2019. In addition, the Company is required to pay for freight and utilities used in processing its acid. The aggregate amount of required payments at May 31, 2001 is as follows (in thousands): 2002............................................. $ 4,395 2003............................................. 4,395 2004............................................. 4,395 2005............................................. 4,395 2006............................................. 4,395 Thereafter....................................... 57,140 ------- Total............................................ $79,115 =======
The Company may not terminate the unconditional purchase obligations without assuming or otherwise repaying certain debt of the supplier, based on the fair market value of the facility. At May 31, 2001, $34,235,000 of such debt was outstanding. NOTE H -- INDUSTRY SEGMENT DATA The Company's continuing operations include three reportable segments (Processed Steel Products, Metal Framing and Pressure Cylinders). Factors used to identify these segments include the products and services provided by each segment as well as the management reporting structure used by the Company. A discussion of each segment is outlined below. Processed Steel Products: This segment consists of two business units, The Worthington Steel Company ("Worthington Steel") and The Gerstenslager Company ("Gerstenslager"). Both are intermediate processors of flat-rolled steel. This segment's processing capabilities include blanking, cold-rolling, dry lubricating, configured blanking, cutting-to-length, edging, hot-dipped galvanizing, hydrogen annealing, nickel plating, painting, pickling, slitting, stamping, tension leveling and zinc/nickel coating. Worthington Steel sells to customers principally in the automotive, lawn and garden, construction, hardware, furniture, office equipment, electrical control, leisure and recreation, appliance, farm implement, HVAC and aerospace markets. Gerstenslager supplies automotive aftermarket body panels within the United States primarily to domestic and transplant automotive and heavy duty truck manufacturers. Metal Framing: This segment consists of one business unit, Dietrich Industries, Inc. ("Dietrich"), which produces metal framing products for the commercial and residential construction markets in the United States. Dietrich's customers primarily consist of wholesale distributors and commercial and residential building contractors. 23 50 Pressure Cylinders: This segment consists of one business unit, Worthington Cylinder Corporation ("Worthington Cylinders"). Worthington Cylinders produces a complete line of pressure cylinder vessels, including liquefied petroleum gas ("LPG") cylinders, refrigerant cylinders and industrial/specialty gas cylinders. LPG cylinders are used for gas barbecue grills, camping equipment, residential heating systems, industrial forklifts, and commercial/residential cooking (outside North America). Refrigerant cylinders are used to hold refrigerant gases for commercial and residential air conditioning and refrigeration systems and for automotive air conditioning systems. Industrial/specialty gas cylinders are used as containers for gases for the following: cutting and welding metals; breathing (medical, diving and firefighting); semiconductor production; beverage delivery; and compressed natural gas systems. Worthington Cylinders also produces recycle and recovery tanks for refrigerant gases and non-refillable cylinders for helium balloon kits. The accounting policies of the operating segments are described in Note A. The Company evaluates segment performance based on operating income. Inter-segment sales are not material. Summarized financial information concerning the Company's reportable segments is shown in the following table. The "Other" category includes corporate related items, results of immaterial operations, and income and expense not allocated to the reportable segments. See Note M for results of the discontinued operations' segments.
2001 2000 1999 IN MILLIONS -------- -------- -------- NET SALES Processed Steel Products........................... $1,184.9 $1,287.9 $1,114.9 Metal Framing...................................... 346.0 350.6 337.2 Pressure Cylinders................................. 289.1 318.8 305.8 Other.............................................. 6.1 5.3 5.2 -------- -------- -------- Continuing Operations.............................. $1,826.1 $1,962.6 $1,763.1 ======== ======== ======== OPERATING INCOME Processed Steel Products........................... $ 29.3 $ 96.8 $ 82.6 Metal Framing...................................... 23.7 43.2 25.4 Pressure Cylinders................................. 19.3 34.2 36.7 Other.............................................. (7.1) (4.7) 1.5 -------- -------- -------- Continuing Operations.............................. $ 65.2 $ 169.5 $ 146.2 ======== ======== ======== DEPRECIATION AND AMORTIZATION Processed Steel Products........................... $ 46.2 $ 48.0 $ 43.2 Metal Framing...................................... 10.6 9.4 8.6 Pressure Cylinders................................. 10.1 10.4 9.4 Other.............................................. 3.7 3.2 2.9 -------- -------- -------- Continuing Operations.............................. $ 70.6 $ 71.0 $ 64.1 ======== ======== ======== TOTAL ASSETS Processed Steel Products........................... $ 908.1 $1,049.6 $1,000.0 Metal Framing...................................... 239.9 256.5 250.7 Pressure Cylinders................................. 178.9 215.9 223.9 Other.............................................. 149.0 151.9 212.4 -------- -------- -------- Continuing Operations.............................. $1,475.9 $1,673.9 $1,687.0 ======== ======== ======== CAPITAL EXPENDITURES Processed Steel Products........................... $ 31.0 $ 31.2 $ 79.0 Metal Framing...................................... 15.1 11.0 7.8 Pressure Cylinders................................. 9.8 12.4 8.0 Other.............................................. 7.0 16.9 3.6 -------- -------- -------- Continuing Operations.............................. $ 62.9 $ 71.5 $ 98.4 ======== ======== ========
24 51 NOTE I -- RELATED PARTY TRANSACTIONS The Company purchases from and sells to affiliated companies certain raw materials and services at prevailing market prices. Sales to affiliated companies for fiscal 2001, 2000 and 1999 totaled $36,063,000, $31,359,000 and $33,325,000, respectively. Accounts receivable related to these transactions were $3,671,000 and $1,304,000 at May 31, 2001 and 2000, respectively. Accounts payable to related parties were $23,427,000 and $19,212,000 at May 31, 2001 and 2000, respectively. NOTE J -- INVESTMENT IN UNCONSOLIDATED AFFILIATES The Company's investments in affiliated companies which are not "majority-owned" and controlled are accounted for using the equity method. Investments carried at equity and the percentage interest owned consist of Worthington Armstrong Venture (50%), TWB Company, L.L.C. (33%), Acerex S.A. de C.V. (50%) and Worthington Specialty Processing (50%). The Company received dividends from unconsolidated affiliates totaling $15,082,000 and $40,094,000 in 2001 and 2000, respectively. Financial information for affiliated companies accounted for by the equity method as of and for the years ended May 31 is as follows:
2001 2000 1999 IN THOUSANDS -------- -------- -------- Current assets.................................... $125,938 $120,619 $107,461 Noncurrent assets................................. 124,263 129,699 130,822 Current liabilities............................... 54,772 55,220 41,697 Noncurrent liabilities............................ 66,165 85,568 57,350 Net sales......................................... 416,532 377,630 324,306 Gross margin...................................... 84,825 89,931 87,365 Net income........................................ 51,335 55,921 51,448
The Company's share of undistributed earnings of unconsolidated affiliates included in consolidated retained earnings was $18,286,000 at May 31, 2001. NOTE K -- ACQUISITIONS The Company acquired a 51% majority interest in Gastec spol. s.r.o. ("Worthington Gastec") in February 1999 and purchased the cylinder manufacturing assets of Metalurgica Progresso de Vale de Cambra, Lda. ("Worthington Portugal") in May 1999. Worthington Gastec, based in Hustopece, Czech Republic, and Worthington Portugal, based in Vale de Cambra, Portugal, produce small- and medium-sized low-pressure gas cylinders used in heating and industrial applications. The Worthington Gastec and Worthington Portugal acquisitions were business combinations accounted for as purchases. The results of operations for these acquisitions are included in the financial statements of the Company since the respective dates of acquisition. Goodwill in the amount of $1,146,000 relating to Worthington Gastec and $3,158,000 relating to Worthington Portugal resulting from these purchases was amortized using the straight-line method over 40 years. During June 1998, the Company acquired the stock of Jos. Heiser vormals J. Winter's Sohn, GmbH ("Worthington Heiser") for $26,718,000 (net of cash acquired) plus $7,327,000 of debt assumed in a business combination accounted for as a purchase. Based in Kienberg, Austria, Worthington Heiser produces high- pressure industrial gas cylinders. The results of operations for Worthington Heiser are included in the financial statements of the Company since the date of acquisition. Goodwill in the amount of $12,872,000 resulting from the purchase was amortized using the straight-line method over 40 years. Pro forma results including the acquired companies since the beginning of the earliest period presented would not be materially different than actual results. 25 52 NOTE L -- EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share from continuing operations:
YEAR ENDED MAY 31 ----------------------------------------- 2001 2000 1999 DOLLARS IN THOUSANDS, EXCEPT PER SHARE ----------- ----------- ----------- Numerator (Basic & Diluted): Earnings from Continuing Operations -- income available to common shareholders......................... $ 35,565 $ 94,151 $ 83,633 Denominator: Denominator for basic earnings per share -- weighted average shares..... 85,590,089 88,410,804 93,015,707 Effect of dilutive securities -- employee stock options.............................. 33,288 187,009 90,347 ----------- ----------- ----------- Denominator for diluted earnings per share -- adjusted weighted average shares.................................. 85,623,377 88,597,813 93,106,054 =========== =========== =========== Basic earnings from continuing operations per share............................... $ 0.42 $ 1.06 $ 0.90 Diluted earnings from continuing operations per share.................... 0.42 1.06 0.90
Stock options of 4,143,873, 1,559,315 and 2,876,429 for fiscal 2001, fiscal 2000 and fiscal 1999 have been excluded from the computation of diluted earnings per share because the effect would have been antidilutive for those periods. NOTE M -- DISCONTINUED OPERATIONS As a result of a fiscal 1998 strategic review, the Company adopted a plan and subsequently sold its Custom Products and Cast Products segments consisting of subsidiaries Worthington Custom Plastics, Inc., Worthington Precision Metals, Inc. and Buckeye Steel Castings Company. Accordingly, the Company has reported the results of these entities as discontinued operations. The Company completed the sale of the components of its Custom Products and Cast Products segments for aggregate proceeds of approximately $139,000,000 and $85,000,000, respectively, in fiscal 1999. The aggregate proceeds included $30,000,000 in preferred stock and notes receivable issued by the acquirers, the ultimate realization of which is dependent on the financial performance of the acquirers. The Company periodically monitors its credit risk exposure for evaluation of impairment indicators and potential write-down in value of its investment in the preferred stock and notes receivable. 26 53 At May 31, 1999, all components of discontinued operations were disposed. Summarized results of discontinued operations and other information for fiscal 1999 follow:
CUSTOM CAST PRODUCTS PRODUCTS TOTAL IN THOUSANDS -------- -------- -------- Net Sales.......................................... $275,996 $95,593 $371,589 Earnings (Loss) Before Income Taxes................ (6,515) 12,192 5,677 Income Taxes (Benefit)............................. (2,241) 4,207 1,966 -------- ------- -------- Net Earnings (Loss) from Operations................ (4,274) 7,985 3,711 Gain (Loss) on Sales............................... (59,960) 28,917 (31,043) Income Taxes (Benefit)............................. (21,281) 14,834 (6,447) -------- ------- -------- Net Gain (Loss) on Sales........................... (38,679) 14,083 (24,596) -------- ------- -------- Net Income (Loss) from Discontinued Operations..... $(42,953) $22,068 $(20,885) ======== ======= ======== Depreciation and Amortization Expense.............. $ 10,915 $ 3,488 $ 14,403 Capital Expenditures............................... 3,572 5,783 9,355
NOTE N -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a summary of the unaudited quarterly results of operations for the years ended May 31:
THREE MONTHS ENDED -------------------------------------------- AUGUST NOVEMBER FEBRUARY MAY IN THOUSANDS, EXCEPT PER SHARE -------- -------- -------- -------- 2001 Net sales....................................... $484,224 $457,369 $418,717 $465,790 Gross margin.................................... 63,878 56,621 53,583 70,840 Net Earnings.................................... 12,477 6,880 1,778 14,430 Earnings per share (Diluted).................... $ 0.15 $ 0.08 $ 0.02 $ 0.17 2000 Net sales....................................... $462,911 $473,331 $486,535 $539,829 Gross margin.................................... 83,175 85,042 79,641 85,293 Net Earnings.................................... 24,258 24,726 23,212 21,955 Earnings per share (Diluted).................... $ 0.27 $ 0.28 $ 0.26 $ 0.25
Results for the quarter ended February 28, 2001 include a pre-tax restructuring expense of $6,474,000 ($0.04 per share, net of tax). Results for the quarter ended May 31, 2000 include a pre-tax loss of $8,553,000 ($0.06 per share, net of tax) relating to the Company's investment in the common stock of Rouge. NOTE O -- OPERATING LEASES The Company leases certain property and equipment from third parties under non-cancelable operating lease agreements. Rent expense under non-cancelable operating leases was $4,969,000 in fiscal 2001, $3,210,000 in fiscal 2000 and $2,534,000 in fiscal 1999. Future minimum lease payments under these agreements at May 31, 2001 are as follows (in thousands): 2002................................................ $ 3,766 2003................................................ 3,261 2004................................................ 2,739 2005................................................ 2,107 2006................................................ 826 Thereafter.......................................... 2,441 ------- Total............................................... $15,140 =======
27 54 NOTE P -- SALE OF ACCOUNTS RECEIVABLE On November 30, 2000, the Company and certain of its subsidiaries entered into a $120,000,000 revolving trade receivables securitization facility. In May 2001, this facility was expanded to include other subsidiaries and was increased to $190,000,000. Pursuant to the terms of the facility, these subsidiaries sell their accounts receivable, on a revolving basis, to a wholly-owned, bankruptcy-remote subsidiary of the Company, Worthington Receivables Corporation ("WRC"). In turn, WRC sells, on a revolving basis, up to $190,000,000 undivided ownership interest in the purchased accounts receivable to independent third parties. The Company continues to service the accounts receivable. No servicing asset or liability has been recognized, as the Company's cost to service the accounts receivable is expected to approximate the servicing income. As of May 31, 2001, WRC had sold $110,000,000 of undivided ownership interest in accounts receivable. The proceeds from the sale were reflected as a reduction of accounts receivable on the consolidated balance sheets and as operating cash flows in the consolidated statements of cash flows. The sale proceeds were used to pay down short-term debt. NOTE Q -- RESTRUCTURING On February 1, 2001, the Company announced the shutdown of a portion of its Malvern, Pennsylvania, facility, which is included in the Processed Steel Products segment. Selected assets, including two rolling mills, a cleaning line, a tension leveler, a pickle line and a slitter, were idled. As a result, 160 hourly and salaried positions were to be eliminated, 146 through termination and 14 through retirement and normal attrition. The business affected by the shutdown would be transferred to other Company facilities and the idled assets would be sold. During the quarter ended February 28, 2001, the Company recorded a restructuring expense of $6,474,000, comprised of $2,000,000 for severance and employee related costs and $4,474,000 for the write-down of the idled assets to net realizable value. As of May 31, 2001, 110 employees had been terminated, and cash payments totaling $479,000 had been made against the severance reserve. The estimated net realizable value of the equipment being idled of $2,600,000 was reclassified to other current assets as equipment held for sale. The Company anticipates that the termination of employees and the sale of the idled equipment will be completed by the end of the 2001 calendar year. 28 55 REPORT OF MANAGEMENT The management of Worthington Industries, Inc. ("Worthington") is responsible for the preparation of the accompanying consolidated financial statements in conformity with generally accepted accounting principles appropriate in the circumstances. Management is also responsible for the determination of estimates and judgments used in the financial statements and the preparation of other financial information included in this Annual Report to Shareholders. The financial statements have been audited by Ernst & Young LLP, independent auditors. The management of Worthington has established and maintains an accounting system and related internal controls that it believes are sufficient to provide reasonable assurance that assets are safeguarded against unauthorized acquisition, use or disposition, that transactions are executed and recorded in accordance with management's authorization and that the financial records are reliable for preparing financial statements. The concept of reasonable assurance is based on the recognition that the cost of a system of internal control must be related to the benefits derived and that the balancing of the factors requires estimates and judgments. Management considers the recommendations of the independent certified public accountants concerning Worthington's system of internal control and takes appropriate actions which are cost effective in the circumstances. The Board of Directors of Worthington has an Audit Committee of directors who are not members of management. The Audit Committee meets periodically with Worthington's management and independent certified public accountants to review matters relating to financial reporting, auditing and internal control. To ensure auditor independence, the independent certified public accountants have full and free access to the Audit Committee. /s/ JOHN P. MCCONNELL ----------------------------------------- John P. McConnell, Chairman & Chief Executive Officer /s/ JOHN T. BALDWIN ----------------------------------------- John T. Baldwin, Vice President & Chief Financial Officer 29 56 REPORT OF INDEPENDENT AUDITORS Shareholders and Board of Directors Worthington Industries, Inc. We have audited the accompanying consolidated balance sheets of Worthington Industries, Inc. and subsidiaries as of May 31, 2001 and 2000, and the related consolidated statements of earnings, shareholders' equity, and cash flows for each of the three years in the period ended May 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Worthington Industries, Inc. and subsidiaries at May 31, 2001 and 2000, and the consolidated results of their operations and their cash flows for each of the three years in the period ended May 31, 2001 in conformity with accounting principles generally accepted in the United States. /s/ ERNST & YOUNG LLP ------------------------------------ Ernst & Young LLP Columbus, Ohio June 15, 2001 30 57 COMPANY LOCATIONS PROCESSED STEEL PRODUCTS WORTHINGTON STEEL Decatur, Alabama Porter, Indiana Louisville, Kentucky Baltimore, Maryland Jackson & Taylor, Michigan Columbus, Delta & Monroe, Ohio Malvern, Pennsylvania Rock Hill, South Carolina THE GERSTENSLAGER COMPANY Clyde, Ohio Wooster, Ohio METAL FRAMING DIETRICH METAL FRAMING Phoenix, Arizona Colton & Stockton, California Denver, Colorado Miami & Wildwood, Florida Atlanta, Georgia Kapolei, Hawaii Hammond & LaPorte, Indiana Lenexa, Kansas Baltimore, Maryland Lunenburg, Massachusetts East Brunswick, New Jersey Hicksville & Warren, Ohio Hutchins, Texas Fredericksburg, Virginia Renton, Washington PRESSURE CYLINDERS WORTHINGTON CYLINDER CORPORATION Citronelle, Alabama Columbus, Jefferson & Westerville, Ohio Claremore, Oklahoma Kienberg, Austria Tilbury, Ontario, Canada Vale De Cambra, Portugal OTHER WORTHINGTON BEAMALLOY CORPORATION Dublin, Ohio WORTHINGTON MACHINE TECHNOLOGY Columbus, Ohio WORTHINGTON STEELPAC SYSTEMS York, Pennsylvania JOINT VENTURES ACEREX S.A. DE C.V. Steel Processing Monterrey, Mexico SPARTAN STEEL COATING, L.L.C. Steel Processing Monroe, Michigan TWB COMPANY, L.L.C. Laser Welded Blanks Monroe, Michigan Ramos Arizpe, Mexico WORTHINGTON ARMSTRONG VENTURE (WAVE) Suspended Ceilings Sparrows Point, Maryland Benton Harbor, Michigan North Las Vegas, Nevada Malvern, Pennsylvania Shanghai, China Team Valley, United Kingdom Valenciennes, France Madrid, Spain WORTHINGTON GASTEC, A.S. Pressure Cylinders Hustopece, Czech Republic WORTHINGTON S.A. Pressure Cylinders Itu, Brazil WORTHINGTON SPECIALTY PROCESSING (WSP) Steel Processing Jackson, Michigan WORTHINGTON TANK, LTDA. Pressure Cylinders Itu, Brazil 31 58 OFFICERS & DIRECTORS CORPORATE OFFICERS John H. McConnell Chairman Emeritus & Founder Director, 1955 Member of the Executive Committee John P. McConnell Chairman & Chief Executive Officer Director, 1975 Member of the Executive and Nominating Committees John S. Christie President & Chief Operating Officer Director, 1999 John T. Baldwin Vice President & Chief Financial Officer, 1997 Ralph V. Roberts Senior Vice President-Marketing, 1973 Virgil L. Winland Senior Vice President-Manufacturing, 1971 Dale T. Brinkman Vice President-Administration, General Counsel & Secretary, 1982 Jonathan B. Dove Chief Information Officer, 1998 Harry A. Goussetis Vice President-Human Resources, 1983 Cathy Mayne Lyttle Vice President-Communications, 1999 Bruce Ruhl Vice President-Purchasing, 1978 Richard G. Welch Controller, 1999 SUBSIDIARY OFFICERS Edward A. Ferkany President, 1974 The Worthington Steel Company John G. Lamprinakos President, 1979 Worthington Cylinder Corporation Edmund L. Ponko, Jr. President, 1981 Dietrich Industries, Inc. Kenneth L. Vagnini President, 1978 The Gerstenslager Company OUTSIDE DIRECTORS John B. Blystone Chairman, President & CEO SPX Corporation Director, 1997 Member of the Executive, Compensation and Stock Option and Nominating Committees William S. Dietrich, II Chairman, Dietrich Industries, Inc. Director, 1996 Michael J. Endres Partner Stonehenge Financial Holdings, Inc. Director, 1999 Member of the Executive, Audit and Compensation and Stock Option Committees OUTSIDE DIRECTORS (Cont'd.) Mary Fackler Schiavo Professor, The Ohio State University and Consultant, NBC News Director, 1998 Member of the Nominating and Audit Committees Peter Karmanos, Jr. Chairman, CEO & Co-Founder Compuware Corporation Director, 1997 Member of the Audit and Compensation and Stock Option Committees John R. Kasich Managing Director Lehman Brothers Director, 2001 Member of the Audit Committee Robert B. McCurry Retired Senior Advisor to President Toyota Motor Sales, U.S.A., Inc. Director, 1972 Member of the Nominating and Compensation and Stock Option Committees Sidney A. Ribeau President Bowling Green State University Director, 2000 Member of the Nominating Committee Note: Year listed indicates initial year of affiliation with Worthington Industries and its Subsidiaries. 32 59 [LOGO] VOTE BY INTERNET -- www.proxyvote.com WORTHINGTON Use the Internet to transmit your voting instructions INDUSTRIES and for electronic delivery of information up until 1205 DEARBORN DRIVE 11:59 P.M. EDT the day before the meeting date. Have COLUMBUS, OH 43085 your proxy card in hand when you access the web site. You will be prompted to enter your 12-digit Control Number which is located below to obtain your records and to create an electronic voting instruction form. VOTE BY PHONE -- 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. EDT the day before the meeting date. Have your proxy card in hand when you call. You will be prompted to enter your 12-digit Control Number which is located below and then follow the simple instructions the Vote Voice provides you. VOTE BY MAIL Mark, sign, and date your proxy card and return it in the postage-paid envelope we have provided or return it to Worthington Industries, Inc., c/o ADP, 51 Mercedes Way, Edgewood, NY 11717
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: X WORIND KEEP THIS PORTION FOR YOUR RECORDS - -------------------------------------------------------------------------------------------------------------- DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. WORTHINGTON INDUSTRIES, INC. 02 VOTE ON DIRECTORS
For Withhold For All To withhold authority to vote, mark "For All Except" 1. Election of three directors, each for a term of All All Except and write the nominee's number on the line below. three years, expiring in 2004. Nominees: 01) John P. McConnell, 02) John R. Kasich and [_] [_] [_] ___________________________________________________ 03) Mary Fackler Schiavo.
In their discretion, the Proxies are authorized to vote upon such other business (none known by the Company at the time of solicitation of this Proxy) as may properly come before the meeting and any adjournment. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY. PLEASE SIGN AND DATE THIS PROXY CARD ON THE LINES BELOW AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. Please sign your name exactly as it appears on this Proxy Card. Executors, administrators, trustees, guardians, attorneys and agents should give their full titles. If shareholder is a corporation, sign in full corporate name by authorized officer. If the Common Shares represented by this Proxy are held in joint tenancy, both holders should sign this Proxy Card. If any changes are required to your address, please cross through the current information and print the new information. The new address will be used by the Transfer Agent for all future communications, including proxies and dividend checks. MARK HERE FOR ADDRESS CHANGES [_] AND NOTE ON THE REVERSE MARK HERE FOR COMMENTS [_] AND NOTE ON THE REVERSE MARK HERE IF YOU PLAN TO [_] ATTEND THE MEETING
- ---------------------------------------------- --------------------------------------------------------- Signature (Please sign within box) Date Joint Owner Signature (Please sign within box) Date
60 [LOGO] WORTHINGTON INDUSTRIES NOTICE OF ANNUAL MEETING OF SHAREHOLDERS THURSDAY, SEPTEMBER 27, 2001 AT 2:00 P.M., EDT WORTHINGTON INDUSTRIES, INC. ATHLETIC CENTER 905 DEARBORN DRIVE COLUMBUS, OHIO A live audio webcast will be available via Internet link at www.worthingtonindustries.com and will be archived for ninety days. PLEASE, VOTE PROMPTLY EITHER BY: TELEPHONE, THE INTERNET, OR MARKING, SIGNING AND RETURNING YOUR PROXY CARD. - -------------------------------------------------------------------------------- WORTHINGTON INDUSTRIES, INC. PROXY CARD The undersigned hereby constitutes and appoints John P. McConnell, John S. Christie and Dale T. Brinkman, or any of them, the proxy or proxies of the undersigned to vote at the Annual Meeting of Shareholders of Worthington Industries, Inc. (the "Company") to be held at the Worthington Industries, Inc. Athletic Center, 905 Dearborn Drive, Columbus, Ohio on September 27, 2001 at 2:00 p.m. EDT and at any adjournment, all of the Common Shares of the Company that the undersigned is entitled to vote at such meeting or any adjournment. All Proxies previously given by the undersigned are hereby revoked. This Proxy will be voted as specified. UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR PROPOSAL 1. IF ANY OTHER MATTERS ARE BROUGHT BEFORE THE ANNUAL MEETING, OR IF A NOMINEE FOR ELECTION AS A DIRECTOR NAMED IN THE PROXY STATEMENT IS UNABLE TO SERVE OR FOR GOOD CAUSE WILL NOT SERVE, THE PROXY WILL BE VOTED IN THE DISCRETION OF THE PROXY HOLDER ON SUCH MATTERS OR FOR SUBSTITUTE NOMINEE(S) AS THE DIRECTORS MAY RECOMMEND. Address Change/Comments: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- If you noted address changes or comments above, please mark the corresponding box on the reverse side. CONTINUED AND TO BE SIGNED ON REVERSE SIDE -----END PRIVACY-ENHANCED MESSAGE-----