Worthington Industries Inc (WOR) SEC Quarterly Report (10-Q) for Q3 2015

Item 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations

Selected statements contained in this "Item 2. – Management's Discussion and Analysis of Financial Condition and Results of Operations" constitute "forward-looking statements" as that term is used in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based, in whole or in part, on management's beliefs, estimates, assumptions and currently available information. For a more detailed discussion of what constitutes a forward-looking statement and of some of the factors that could cause actual results to differ materially from such forward-looking statements, please refer to the "Safe Harbor Statement" in the beginning of this Quarterly Report on Form 10-Q and "Part I - Item 1A. - Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended May 31, 2015.

Introduction

The following discussion and analysis of market and industry trends, business developments, and the results of operations and financial position of Worthington Industries, Inc., together with its subsidiaries (collectively, "we," "our," "Worthington," or our "Company"), should be read in conjunction with our consolidated financial statements and notes thereto included in "Item 1. – Financial Statements" of this Quarterly Report on Form 10-Q. Our Annual Report on Form 10-K for the fiscal year ended May 31, 2015 ("fiscal 2015") includes additional information about Worthington, our operations and our consolidated financial position and should be read in conjunction with this Quarterly Report on Form 10-Q.

As of August 31, 2015, excluding our joint ventures, we operated 33 manufacturing facilities worldwide, principally in three operating segments, which correspond with our reportable business segments: Steel Processing, Pressure Cylinders and Engineered Cabs. Our remaining operating segments, which do not meet the applicable aggregation criteria or quantitative thresholds for separate disclosure, are combined and reported in the "Other" category. These include Construction Services and Worthington Energy Innovations ("WEI"). The Company is in the process of exiting the businesses within Construction Services.

We also held equity positions in 13 active joint ventures, which operated 51 manufacturing facilities worldwide, as of August 31, 2015. Six of these joint ventures are consolidated with the equity owned by the other joint venture member(s) shown as noncontrolling interests in our consolidated balance sheets, and the other joint venture member(s)' portion of net earnings and other comprehensive income shown as net earnings or comprehensive income attributable to noncontrolling interests in our consolidated statements of earnings and consolidated statements of comprehensive income, respectively. The remaining seven of these joint ventures are accounted for using the equity method.

Overview

The Company generated solid earnings during the first quarter of fiscal 2016 despite challenging market conditions resulting from declining steel and oil prices. Inventory holding losses in Steel Processing and lower volume in the oil and gas equipment business in Pressure Cylinders weighed on earnings; however, lower overall manufacturing costs and improved operations in the industrial gas and consumer product end markets in Pressure Cylinders helped to offset the impact. Demand remained steady in most of our key end markets, with the exception of the oil and gas equipment, construction and agriculture end markets. The Company continues to take action to reduce the cost structure of certain facilities serving these markets in order to remain cash flow positive. During the current quarter, the Company announced an additional workforce reduction at three of its five oil and gas equipment facilities. The previously announced closure of the Company's Engineered Cabs facility in Florence, South Carolina, remains on track, as the Company ceased production at the facility on September 30, 2015, and is in the process of transferring certain business to the Engineered Cabs facility in Greeneville, Tennessee.

Equity in net income of unconsolidated affiliates ("equity income") was down 5% from the prior year quarter driven by $1.7 million of product development expenses related to the alternative fuels business and lower earnings at Serviacero, which was negatively impacted by lower steel prices. Record earnings at WAVE and higher contributions from ClarkDietrich, Samuel and ArtiFlex partially offset the overall decrease in equity income. We received cash distributions of $21.1 million from our unconsolidated affiliates during the first quarter of fiscal 2016.

Recent Business Developments

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•

On September 23, 2015, the board of directors declared a quarterly dividend of $0.19 per share payable on December 29, 2015 to shareholders of record on December 15, 2015.

Market & Industry Overview

We sell our products and services to a diverse customer base and a broad range of end markets. The breakdown of our net sales by end market for the first three months of each of fiscal 2016 and fiscal 2015 is illustrated in the following chart:

The automotive industry is one of the largest consumers of flat-rolled steel, and thus the largest end market for our Steel Processing operating segment. Approximately 60% of the net sales of our Steel Processing operating segment are to the automotive market. North American vehicle production, primarily by Chrysler, Ford and General Motors (the "Detroit Three automakers"), has a considerable impact on the activity within this operating segment. The majority of the net sales of four of our unconsolidated joint ventures are also to the automotive end market.

Approximately 10% of the net sales of our Steel Processing operating segment, 60% of the net sales of our Engineered Cabs operating segment and substantially all of the net sales of our Construction Services operating segment are to the construction market. The construction market is also the predominant end market for two of our unconsolidated joint ventures: WAVE and ClarkDietrich. While the market price of steel significantly impacts these businesses, there are other key indicators that are meaningful in analyzing construction market demand, including U.S. gross domestic product ("GDP"), the Dodge Index of construction contracts and, in the case of ClarkDietrich, trends in the relative price of framing lumber and steel.

Substantially all of the net sales of our Pressure Cylinders operating segment, and approximately 30% and 40% of the net sales of our Steel Processing and Engineered Cabs operating segments, respectively, are to other markets such as consumer products, industrial, lawn and garden, agriculture, oil and gas equipment, heavy truck, mining, forestry and appliance. Given the many different products that make up these net sales and the wide variety of end markets, it is very difficult to detail the key market indicators that drive this portion of our business. However, we believe that the trend in U.S. GDP growth is a good economic indicator for analyzing these operating segments.

We use the following information to monitor our costs and demand in our major end markets:

		Three Months Ended August 31,
		2015				2014				Inc / (Dec)
U.S. GDP (% growth year-over-year) 1			1.4	%			2.8	%			-1.4	%
Hot-Rolled Steel ($ per ton) 2		$	461			$	671			($	210	)
Detroit Three Auto Build (000's vehicles) 3			2,355				2,238				117
No. America Auto Build (000's vehicles) 3			4,446				4,172				274
Zinc ($ per pound) 4		$	0.88			$	0.99			($	0.11	)
Natural Gas ($ per mcf) 5		$	2.78			$	4.61			($	1.83	)
On-Highway Diesel Fuel Prices ($ per gallon) 6		$	2.75			$	3.88			($	1.13	)

1	2014 figures based on revised actuals 2 CRU Hot-Rolled Index; period average 3 IHS Global 4 LME Zinc; period average 5 NYMEX Henry Hub Natural Gas; period average 6 Energy Information Administration; period average

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U.S. GDP growth rate trends are generally indicative of the strength in demand and, in many cases, pricing for our products. A year-over-year increase in U.S. GDP growth rates is indicative of a stronger economy, which generally increases demand and pricing for our products. Conversely, decreasing U.S. GDP growth rates generally indicate a weaker economy. Changes in U.S. GDP growth rates can also signal changes in conversion costs related to production and in selling, general and administrative ("SG&A") expense.

The market price of hot-rolled steel is one of the most significant factors impacting our selling prices and operating results. When steel prices fall we typically have higher-priced material flowing through cost of goods sold, while selling prices compress to what the market will bear, negatively impacting our results. On the other hand, in a rising price environment, our results are generally favorably impacted, as lower-priced material purchased in previous periods flows through cost of goods sold, while our selling prices increase at a faster pace to cover current replacement costs.

The following table presents the average quarterly market price per ton of hot-rolled steel during fiscal 2016, fiscal 2015 and fiscal 2014:

(Dollars per ton 1 )
		Fiscal Year
		2016				2015				2014
1st Quarter		$	461			$	671			$	627
2nd Quarter			N/A			$	651			$	651
3rd Quarter			N/A			$	578			$	669
4th Quarter			N/A			$	464			$	655
Annual Avg.			N/A			$	591			$	651

1	CRU Hot-Rolled Index, period average

No single customer contributed more than 10% of our consolidated net sales during the first quarter of fiscal 2016. While our automotive business is largely driven by the production schedules of the Detroit Three automakers, our customer base is much broader and includes other domestic manufacturers and many of their suppliers. During the first quarter of fiscal 2016, overall vehicle production for the Detroit Three automakers was up 5% and North American vehicle production as a whole increased 7%.

Certain other commodities, such as zinc, natural gas and diesel fuel, represent a significant portion of our cost of goods sold, both directly through our plant operations and indirectly through transportation and freight expense.

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Results of Operations

First Quarter - Fiscal 2016 Compared to Fiscal 2015

Consolidated Operations

The following table presents consolidated operating results for the periods indicated:

		Three Months Ended August 31,
(Dollars in millions)		2015				% of Net sales				2014				% of Net sales				Increase/ (Decrease)
Net sales		$	758.1				100.0	%		$	862.4				100.0	%		$	(104.3	)
Cost of goods sold			645.1				85.1	%			732.9				85.0	%			(87.8	)
Gross margin			113.0				14.9	%			129.5				15.0	%			(16.5	)
Selling, general and administrative expense			75.9				10.0	%			75.3				8.7	%			0.6
Impairment of long-lived assets			3.0				0.4	%			1.9				0.2	%			1.1
Restructuring and other expense			3.1				0.4	%			0.1				0.0	%			3.0
Operating income			31.0				4.1	%			52.2				6.1	%			(21.2	)
Miscellaneous income (expense)			(0.6	)			-0.1	%			0.3				0.0	%			(0.9	)
Interest expense			(7.9	)			-1.0	%			(9.5	)			-1.1	%			1.6
Equity in net income of unconsolidated affiliates			26.6				3.5	%			27.9				3.2	%			(1.3	)
Income tax expense			(14.7	)			-1.9	%			(22.1	)			-2.6	%			7.4
Net earnings			34.4				4.5	%			48.8				5.7	%			(14.4	)
Net earnings attributable to noncontrolling interests			3.0				0.4	%			4.6				0.5	%			1.6
Net earnings attributable to controlling interest		$	31.4				4.1	%		$	44.2				5.1	%		$	(12.8	)

Net earnings attributable to controlling interest for the three months ended August 31, 2015 decreased $12.8 million from the comparable period in the prior year. Net sales and operating highlights were as follows:

•

Net sales decreased $104.3 million from the comparable period in the prior year. The decrease was driven by lower volume in all business segments, which reduced net sales by $79.4 million, combined with lower average selling prices in Steel Processing driven by the decline in the market price of steel.

•

Gross margin decreased $16.5 million from the comparable period in the prior year on lower volume and the unfavorable impact of inventory holding losses in Steel Processing in the current period compared to gains in the prior year period. Lower manufacturing expenses partially offset the overall decrease in gross margin.

•

SG&A expense increased slightly over the comparable prior year period to $75.9 million as the impact of acquisitions was partially offset by lower profit sharing and bonus expense.

•

Impairment charges of $3.0 million in the current period related to the pending closure of the Engineered Cabs facility in Florence, South Carolina. Impairment charges in the comparable prior year period related to the Company's stainless steel business, Precision Specialty Metals, Inc. ("PSM"). For additional information, refer to "Item 1. – Financial Statements – Notes to Consolidated Financial Statements – NOTE C – Impairment of Long-Lived Assets" of this Quarterly Report on Form 10-Q.

•

Restructuring and other expense of $3.1 million in the current period consisted primarily of accruals for employee severance costs related to the pending closure of the Florence facility in Engineered Cabs ($1.9 million) and the recently announced workforce reductions in our oil and gas equipment businesses ($690,000).

•

Interest expense of $7.9 million was $1.6 million lower than the comparable period in the prior year. The decrease was driven by lower average debt levels.

•

Equity income decreased $1.3 million from the comparable period in the prior year. The decrease was driven by $1.7 million of product development expenses related to the alternative fuels business and lower earnings at Serviacero,

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which was negatively impacted by lower steel prices. Record earnings at WAVE and higher contributions from ClarkDietrich, Samuel and ArtiFlex partially offset the overall decrease in equity income. For additional financial information regarding our unconsolidated affiliates, refer to "Item 1. – Financial Statements – Notes to Consolidated Financial Statements – NOTE B – Investments in Unconsolidated Affiliates" of this Quarterly Report on Form 10-Q.

•

Income tax expense decreased $7.4 million from the comparable period in the prior year due primarily to lower earnings. The current quarter expense of $14.7 million was calculated using an estimated annual effective income tax rate of 31.8% versus 32.8% in the prior year quarter. Refer to "Item 1. – Financial Statements – Notes to Consolidated Financial Statements – NOTE K – Income Taxes" of this Quarterly Report on Form 10-Q for more information on our tax rates.

Segment Operations

Steel Processing

The following table presents a summary of operating results for our Steel Processing operating segment for the periods indicated:

		Three Months Ended August 31,
(Dollars in millions)		2015				% of Net sales				2014				% of Net sales				Increase/ (Decrease)
Net sales		$	490.8				100.0	%		$	552.3				100.0	%		$	(61.5	)
Cost of goods sold			433.8				88.4	%			482.6				87.4	%			(48.8	)
Gross margin			57.0				11.6	%			69.7				12.6	%			(12.7	)
Selling, general and administrative expense			32.9				6.7	%			31.9				5.8	%			1.0
Impairment of long-lived assets			-				0.0	%			1.9				0.3	%			(1.9	)
Restructuring and other expense			0.5				0.1	%			-				0.0	%			0.5
Operating income		$	23.6				4.8	%		$	35.9				6.5	%		$	(12.3	)
Material cost		$	348.2							$	394.9							$	(46.7	)
Tons shipped (in thousands)			866								905								(39	)

Net sales and operating highlights were as follows:

•

Net sales decreased $61.5 million from the comparable period in the prior year. Declining steel prices led to lower average selling prices, which reduced net sales by $41.8 million. Volume also declined in the current period reducing net sales by an additional $19.7 million as lower tolling volume more than offset contributions from the recent acquisition of Rome Strip Steel. The mix of direct versus toll tons processed was 63% to 37% compared to 60% to 40% in the first quarter of fiscal 2015.

•

Operating income decreased $12.3 million from the comparable period in the prior year. The decrease was driven primarily by the unfavorable impact of inventory holding losses in the current period compared to inventory holding gains in the prior year period. Restructuring and other expense in the current period consisted of severance accruals related primarily to the closure of PSM.

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Pressure Cylinders

The following table presents a summary of operating results for our Pressure Cylinders operating segment for the periods indicated:

		Three Months Ended August 31,
(Dollars in millions)		2015				% of Net sales				2014				% of Net sales				Increase/ (Decrease)
Net sales		$	224.4				100.0	%		$	249.0				100.0	%		$	(24.6	)
Cost of goods sold			170.0				75.8	%			194.4				78.1	%			(24.4	)
Gross margin			54.4				24.2	%			54.6				21.9	%			(0.2	)
Selling, general and administrative expense			36.9				16.4	%			35.0				14.1	%			1.9
Restructuring and other expense			0.7				0.3	%			-				0.0	%			0.7
Operating income		$	16.8				7.5	%		$	19.6				7.9	%		$	(2.8	)
Material cost		$	99.1							$	118.4							$	(19.3	)
Net sales by principal class of products:
Consumer Products		$	55.0							$	55.6							$	(0.6	)
Industrial Products			105.1								109.1								(4.0	)
Alternative Fuels			24.8								21.8								3.0
Oil and Gas Equipment			32.9								57.3								(24.4	)
Cryogenics			6.6								5.2								1.4
Total Pressure Cylinders		$	224.4							$	249.0							$	(24.6	)
Units shipped by principal class of products:
Consumer Products			11,977,945								12,346,630								(368,685	)
Industrial Products			7,147,952								7,916,492								(768,540	)
Alternative Fuels			91,956								104,089								(12,133	)
Oil and Gas Equipment			1,320								2,987								(1,667	)
Cryogenics			237								187								50
Total Pressure Cylinders			19,219,410								20,370,385								(1,150,975	)

Net sales and operating highlights were as follows:

•

Net sales decreased $24.6 million from the comparable period in the prior year on lower volume, particularly in the oil and gas equipment businesses.

•

Operating income decreased $2.8 million from the comparable period in the prior year as declines in oil and gas equipment more than offset improvements in the industrial gas and consumer products businesses resulting from lower manufacturing costs and an improved product mix. Restructuring expense in the current period consisted of an accrual for employee severance costs related to the recently announced workforce reductions in our oil and gas equipment businesses.

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Engineered Cabs

The following table presents a summary of operating results for our Engineered Cabs operating segment for the periods indicated:

		Three Months Ended August 31,
(Dollars in millions)		2015				% of Net sales				2014				% of Net sales				Increase/ (Decrease)
Net sales		$	38.6				100.0	%		$	49.6				100.0	%		$	(11.0	)
Cost of goods sold			37.6				97.4	%			44.9				90.5	%			(7.3	)
Gross margin			1.0				2.6	%			4.7				9.5	%			(3.7	)
Selling, general and administrative expense			5.4				14.0	%			6.8				13.7	%			(1.4	)
Impairment of long-lived assets			3.0				7.8	%			-				0.0	%			3.0
Restructuring and other expense			1.9				4.9	%			-				0.0	%			1.9
Operating loss		$	(9.3	)			-24.1	%		$	(2.1	)			-4.2	%		$	(7.2	)
Material cost		$	18.0							$	22.0							$	(4.0	)

Net sales and operating highlights were as follows:

•

Net sales decreased $11.0 million from the comparable period in the prior year due to the January 2015 sale of the assets of Advanced Component Technologies, Inc. and lower volume in the construction and agriculture end markets.

•

Operating loss increased $7.2 million due to higher impairment and restructuring charges and the unfavorable impact of lower volume. Impairment and restructuring charges totaled $4.9 million in the current period and related to the previously announced closure of the Engineered Cabs facility in Florence, South Carolina.

Other

The Other category includes the Construction Services and WEI operating segments, which do not meet the quantitative thresholds for separate disclosure. Certain expense items not allocated to our operating segments are also included in the Other category. The following table presents a summary of operating results for the Other category for the periods indicated:

		Three Months Ended August 31,
(Dollars in millions)		2015				% of Net sales				2014				% of Net sales				Increase/ (Decrease)
Net sales		$	4.3				100.0	%		$	11.6				100.0	%		$	(7.3	)
Cost of goods sold			3.7				86.0	%			11.1				95.7	%			(7.4	)
Gross margin			0.6				14.0	%			0.5				4.3	%			0.1
Selling, general and administrative expense			0.8				18.6	%			1.5				12.9	%			(0.7	)
Restructuring and other expense			-				0.0	%			0.1				0.9	%			(0.1	)
Operating loss		$	(0.2	)			-4.7	%		$	(1.1	)			-9.5	%		$	0.9

Net sales and operating highlights were as follows:

•

Net sales decreased $7.3 million from the comparable period in the prior year on lower volume in Construction Services, which the Company is exiting.

•

Operating loss of $0.2 million in the current period was driven primarily by losses within Construction Services.

Liquidity and Capital Resources

During the three months ended August 31, 2015, we generated $137.8 million of cash from operating activities, invested $38.5 million in property, plant and equipment and paid dividends of $11.6 million on our common shares.

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Additionally, we paid $27.6 million to repurchase 1,000,000 of our common shares. The following table summarizes our consolidated cash flows for the three months ended August 31, 2015 and 2014:

		Three Months Ended August  31,
(in millions)		2015				2014
Net cash provided by operating activities		$	137.8			$	54.5
Net cash used by investing activities			(40.1	)			(69.0	)
Net cash used by financing activities			(110.0	)			(28.7	)
Decrease in cash and cash equivalents			(12.3	)			(43.2	)
Cash and cash equivalents at beginning of period			31.1				190.1
Cash and cash equivalents at end of period		$	18.8			$	146.9

We believe we have access to adequate resources to meet our needs for normal operating costs, mandatory capital expenditures and debt redemptions, dividend payments and working capital for our existing businesses. These resources include cash and cash equivalents, cash provided by operating activities and unused lines of credit. We also believe that we have adequate access to the financial markets to allow us to be in a position to sell long-term debt or equity securities. However, uncertainty and volatility in the financial markets may impact our ability to access capital and the terms under which we can do so.

The cash and cash equivalents balance at August 31, 2015 included $4.4 million of cash held by subsidiaries outside of the United States that the Company intends to indefinitely reinvest. Although the majority of this cash is available for repatriation, bringing the money into the United States could trigger federal, state and local income tax obligations. We do not have any intentions to repatriate this cash.

Operating Activities

Our business is cyclical and cash flows from operating activities may fluctuate during the year and from year to year due to economic conditions. We rely on cash and short-term borrowings to meet cyclical increases in working capital needs. These needs generally rise during periods of increased economic activity or increasing raw material prices due to higher levels of inventory and accounts receivable. During economic slowdowns, or periods of decreasing raw material costs, working capital needs generally decrease as a result of the reduction of inventories and accounts receivable.

Net cash provided by operating activities was $137.8 million during the three months ended August 31, 2015 compared to $54.5 million in the comparable period of fiscal 2015. The increase was driven primarily by declining working capital levels as a result of lower steel prices.

Investing Activities

Net cash used by investing activities was $40.1 million during the three months ended August 31, 2015 compared to $69.0 million in the prior year period. The decrease from the prior year period was driven primarily by the absence of acquisitions partially offset by higher capital expenditures. There were no acquisitions completed in the first quarter of fiscal 2016; however, in the comparable period in the prior year, the Company spent a combined $36.6 million, net of cash acquired, for the net assets of Midstream Equipment Fabrication LLC and James Russell Engineering Works, Inc.

Investment activities are largely discretionary, and future investment activities could be reduced significantly, or eliminated, as economic conditions warrant. We assess acquisition opportunities as they arise, and such opportunities may require additional financing. There can be no assurance, however, that any such opportunities will arise, that any such acquisitions will be consummated, or that any needed additional financing will be available on satisfactory terms when required.

Financing Activities

Net cash used by financing activities was $110.0 million during the three months ended August 31, 2015 compared to $28.7 million in the prior year period. Short-term borrowings declined $68.5 million during the first quarter of fiscal 2016 as the $60.0 million outstanding under our revolving trade accounts receivable securitization facility (the "AR Facility") at May 31, 2015, was paid in full. Additionally, we paid $27.6 million to repurchase 1,000,000 of our common shares and paid dividends of $11.6 million on our common shares.

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As of August 31, 2015, we were in compliance with our short-term and long-term debt covenants. These debt agreements do not include credit rating triggers or material adverse change provisions. Our credit ratings at August 31, 2015 were unchanged from those reported as of May 31, 2015.

Common shares - The Board declared a quarterly dividend of $0.19 per common share for the first quarter of fiscal 2016 compared to $0.18 per common share for the first quarter of fiscal 2015. Dividends paid on our common shares totaled $11.6 million during the three months ended August 31, 2015, compared to $10.1 million in the prior year period. On September 23, 2015, the Board declared a quarterly dividend of $0.19 per common share payable on December 29, 2015 to shareholders of record on December 15, 2015.

On June 25, 2014, the Board authorized the repurchase of up to 10,000,000 of our outstanding common shares. A total of 3,453,855 common shares have been repurchased under this authorization, including 1,000,000 during the first quarter of fiscal 2016, leaving 6,546,145 common shares available for repurchase.

The common shares available for repurchase under this authorization may be purchased from time to time, with consideration given to the market price of the common shares, the nature of other investment opportunities, cash flows from operations, general economic conditions and other relevant considerations. Repurchases may be made on the open market or through privately negotiated transactions.

Dividend Policy

We currently have no material contractual or regulatory restrictions on the payment of dividends. Dividends are declared at the discretion of the Board. The Board reviews the dividend quarterly and establishes the dividend rate based upon our consolidated financial condition, results of operations, capital requirements, current and projected cash flows, business prospects and other relevant factors. While we have paid a dividend every quarter since becoming a public company in 1968, there is no guarantee that payments will continue in the future.

Contractual Cash Obligations and Other Commercial Commitments

Our contractual cash obligations and other commercial commitments have not changed significantly from those disclosed in "Part II – Item 7. – Management's Discussion and Analysis of Financial Condition and Results of Operations – Contractual Cash Obligations and Other Commercial Commitments" of our 2015 Form 10-K, other than the changes in borrowings, as described in "Part I – Item 1. – Financial Statements - NOTE G – Debt and Receivables Securitization" of this Quarterly Report on Form 10-Q.

Off-Balance Sheet Arrangements

We do not have guarantees or other off-balance sheet financing arrangements that we believe are reasonably likely to have a material current or future effect on our consolidated financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. However, as of August 31, 2015, we were party to an operating lease for an aircraft in which we have guaranteed a residual value at the termination of the lease. The maximum obligation under the terms of this guarantee was approximately $11.4 million at August 31, 2015. We have also guaranteed the repayment of a term loan entered into by our unconsolidated affiliate, ArtiFlex, which had $1.3 million outstanding at August 31, 2015. In addition, we had in place approximately $16.2 million of outstanding letters of credit at August 31, 2015. These letters of credit were issued to third-party service providers and had no amounts drawn against them at August 31, 2015. Based on current facts and circumstances, we have estimated the likelihood of payment pursuant to these guarantees and determined that the fair value of our obligation under each guarantee based on those likely outcomes is not material.

Recently Issued Accounting Standards

In May 2014, amended accounting guidance was issued that replaces most existing revenue recognition guidance under U.S. GAAP. The amended guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The amended guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is not permitted. We are in the process of evaluating the effect this guidance will have on our consolidated financial position and results of operations. The amended guidance permits the use of either the retrospective or cumulative effect transition method. We have not selected a transition method nor have we determined the effect of the amended guidance on our ongoing financial reporting.

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In July 2015, amended accounting guidance was issued regarding the measurement of inventory. The amended guidance requires that inventory accounted for under the first-in, first-out (FIFO) or average cost methods be measured at the lower of cost and net realizable value, where net realizable value represents the estimated selling price of inventory in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amended guidance has no impact on inventory accounted for under the last-in, first-out (LIFO) or retail inventory methods. For public business entities, the amended guidance is effective prospectively for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early application is permitted as of the beginning of an interim or annual reporting period. We are in the process of evaluating the effect this guidance will have on our consolidated financial position and results of operations, and we have not determined the effect of the amended guidance on our ongoing financial reporting.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. We continually evaluate our estimates, including those related to our valuation of receivables, intangible assets, accrued liabilities, income and other tax accruals, and contingencies and litigation. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. These results form the basis for making judgments about the carrying values of assets and liabilities that are not readily obtained from other sources. Critical accounting policies are defined as those that require our significant judgments and involve uncertainties that could potentially result in materially different results under different assumptions and conditions. Although actual results historically have not deviated significantly from those determined using our estimates, our financial position or results of operations could be materially different if we were to report under different conditions or to use different assumptions in the application of such policies. Our critical accounting policies have not significantly changed from those discussed in "Part II – Item 7. – Management's Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies" of our 2015 Form 10-K.

We review our receivables on an ongoing basis to ensure they are properly valued. Based on this review, we believe our reserve for doubtful accounts is adequate. However, if the economic environment and market conditions deteriorate, particularly in the automotive and construction markets where our exposure is greatest, additional reserves may be required. We recognize revenue upon transfer of title and risk of loss provided evidence of an arrangement exists, pricing is fixed and determinable, and the ability to collect is probable. In circumstances where the collection of payment is not probable at the time of shipment, we defer recognition of revenue until payment is collected.

We review the carrying value of our long-lived assets, including intangible assets with finite useful lives, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable.

Impairment testing involves a comparison of the sum of the undiscounted future cash flows of the asset or asset group to its respective carrying amount. If the sum of the undiscounted future cash flows exceeds the carrying amount, then no impairment exists. If the carrying amount exceeds the sum of the undiscounted future cash flows, then a second step is performed to determine the amount of impairment, which would be recorded as an impairment charge in our consolidated statements of earnings.

On March 24, 2015, the Company announced its decision to close its Engineered Cabs facility in Florence, South Carolina. During the first quarter of fiscal 2016, management finalized its plan to close the facility and transfer the majority of the business to its Engineered Cabs facility in Greeneville, Tennessee. Certain machinery and equipment will be transferred to the Greeneville facility to support higher volume and the remaining long-lived assets will be liquidated. For the assets to be liquidated, this represents a change in intended use. As a result, management evaluated the recoverability of these assets and determined that long-lived assets with a carrying value of $4.1 million were no longer recoverable and were in fact impaired. As a result, these long-lived assets were written down to their estimated fair value of $1.1 million resulting in an impairment charge of $3.0 million during the three months ended August 31, 2015. The Company ceased production at the Florence facility on September 30, 2015.

As a result of the substantial fall in oil prices, management determined that the long-lived assets related to its oil and gas equipment business in Pressure Cylinders might be impaired. However, the Company's estimate of the undiscounted future cash flows for each of its five oil and gas equipment facilities indicated that the carrying amounts were expected to be recovered.

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The estimated undiscounted future cash flows for each plant were significantly higher than their respective carrying values except for the Garden City, Kansas, location, which had total long-lived assets of $36.7 million at August 31, 2015. The estimated undiscounted future cash flows for this location exceeded book value by less than 5%. It is possible that in the future the estimate of undiscounted cash flows may change resulting in the need to write down these assets to fair value.

Goodwill and intangible assets with indefinite lives are not amortized, but instead are tested for impairment annually, during the fourth quarter, or more frequently if events or changes in circumstances indicate that impairment may be present. Application of goodwill impairment testing involves judgment, including but not limited to, the identification of reporting units and the estimation of the fair value of each reporting unit. A reporting unit is defined as an operating segment or one level below an operating segment. We test goodwill at the operating segment level as we have determined that the characteristics of the reporting units within each operating segment are similar and allow for their aggregation in accordance with the applicable accounting guidance.

The goodwill impairment test consists of comparing the fair value of each operating segment, determined using discounted cash flows, to each operating segment's respective carrying value. If the estimated fair value of an operating segment exceeds its carrying value, there is no impairment. If the carrying amount of the operating segment exceeds its estimated fair value, a goodwill impairment is indicated. The amount of the impairment is determined by comparing the fair value of the net assets of the operating segment, excluding goodwill, to its estimated fair value, with the difference representing the implied fair value of the goodwill. If the implied fair value of the goodwill is lower than its carrying value, the difference is recorded as an impairment charge in the applicable consolidated statement of earnings. We performed our annual impairment evaluation of goodwill and other indefinite-lived intangible assets during the fourth quarter of fiscal 2015 and concluded that the fair value of each reporting unit exceeded its carrying value; therefore, no impairment charges were recognized. Additionally, no impairment indicators were present with regard to our goodwill or intangible assets with indefinite useful lives during the three months ended August 31, 2015.

Item 3. - Quantitative and Qualitative Disclosures About Market Risk

Market risks have not changed significantly from those disclosed in "Part II - Item 7A. – Quantitative and Qualitative Disclosures About Market Risk" of our 2015 Form 10-K.

Item 4. - Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures [as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")] that are designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Management, with the participation of our principal executive officer and our principal financial officer, performed an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q (the fiscal quarter ended August 31, 2015). Based on that evaluation, our principal executive officer and our principal financial officer have concluded that such disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period covered by this Quarterly Report on Form 10-Q.

Changes in Internal Control Over Financial Reporting

During the fiscal quarter ended August 31, 2015, the Company implemented a new enterprise performance management system. This system was implemented to increase the overall efficiency of the consolidation and financial reporting processes and not in response to any deficiency or material weakness in internal control over financial reporting. While the Company has not completed the testing of the operating effectiveness of all key controls in the new system, we believe that effective internal control over financial reporting was maintained during and after the conversion. There were no other changes that occurred during the period covered by this Quarterly Report on Form 10-Q (the fiscal quarter ended August 31, 2015) in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. - Legal Proceedings

Various legal actions, which generally have arisen in the ordinary course of business, are pending against the Company. None of this pending litigation, individually or collectively, is expected to have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Item 1A. – Risk Factors

There are certain risks and uncertainties in our business that could cause our actual results to differ materially from those anticipated. In "PART I – Item 1A. - Risk Factors" of the Annual Report on Form 10-K of Worthington Industries, Inc. for the fiscal year ended May 31, 2015 (the "2015 Form 10-K"), as filed with the Securities and Exchange Commission on July 30, 2015, and available at www.sec.gov or at www.worthingtonindustries.com, we included a detailed discussion of our risk factors. Our risk factors have not changed significantly from those disclosed in our 2015 Form 10-K. These risk factors should be read carefully in connection with evaluating our business and in connection with the forward-looking statements and other information contained in this Quarterly Report on Form 10-Q. Any of the risks described in our 2015 Form 10-K could materially affect our business, consolidated financial condition or future results and the actual outcome of matters as to which forward-looking statements are made. The risk factors described in our 2015 Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, also may materially adversely affect our business, financial condition and/or future results.

Item 2. – Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information about purchases made by, or on behalf of, Worthington Industries, Inc. or any "affiliated purchaser" (as defined in Rule 10b-18(a) (3) under the Securities Exchange Act of 1934, as amended) of common shares of Worthington Industries, Inc. during each month of the fiscal quarter ended August 31, 2015:

Period		Total Number of Common Shares Purchased				Average Price Paid per Common Share				Total Number of Common Shares Purchased as Part of Publicly Announced Plans or Programs				Maximum Number of Common Shares that May Yet Be Purchased Under the Plans or Programs (1)
June 1-30, 2015 (2)			70,408			$	29.32				-				7,546,145
July 1-31, 2015			280,000			$	27.97				280,000				7,266,145
August 1-31, 2015 (2)			726,212			$	27.43				720,000				6,546,145
Total			1,076,620			$	27.69				1,000,000

(1)

The number shown represents, as of the end of each period, the maximum number of common shares that could be purchased under the publicly announced repurchase authorization then in effect. On June 25, 2014, Worthington Industries, Inc. announced that the Board authorized the repurchase of up to 10,000,000 of Worthington Industries' outstanding common shares. A total of 6,546,145 common shares were available under this repurchase authorization at August 31, 2015.

The common shares available for repurchase under this authorization may be purchased from time to time, with consideration given to the market price of the common shares, the nature of other investment opportunities, cash flows from operations, general economic conditions and other appropriate factors. Repurchases may be made on the open market or through privately negotiated transactions.

(2)

Includes an aggregate of 70,408 and 6,212 common shares surrendered by employees in June 2015 and August 2015, respectively, to satisfy tax withholding obligations upon exercise of stock options and vesting of restricted common shares. These common shares were not counted against the share repurchase authorization in effect throughout the first quarter of fiscal 2016 and discussed in footnote (1) above.

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Item 3. – Defaults Upon Senior Securities

Not applicable

Item 4. – Mine Safety Disclosures

Not applicable

Item 5. – Other Information

Not applicable

Item 6. – Exhibits

		4.1		Amendment No. 1 to Note Agreement, dated June 10, 2015, among Worthington Industries, Inc., on the one hand, and The Prudential Insurance Company of America, Pruco Life Insurance Company of New Jersey, Pruco Life Insurance Company, Prudential Arizona Reinsurance Universal Company, Prudential Annuities Life Assurance Corporation, The Prudential Life Assurance Company, Ltd. and The Gibraltar Life Insurance Co., Ltd., on the other hand (incorporated herein by reference to Exhibit 4.9 to the Annual Report on Form 10-K of Worthington Industries, Inc. for the fiscal year ended May 31, 2015 (SEC File No. 1-8399))
		10.1		Summary of Annual Base Salaries Approved for Named Executive Officers of Worthington Industries, Inc. (effective September 2015) (incorporated herein by reference to Exhibit 10.69 to the Annual Report on Form 10-K of Worthington Industries, Inc. for the fiscal year ended May 31, 2015 (SEC File No. 1-8399))
		10.2		Summary of Annual Cash Incentive Bonus Awards, Long-Term Performance Awards, Stock Options and Restricted Common Shares Granted in Fiscal 2016 for Named Executive Officers (incorporated herein by reference to Exhibit 10.74 to the Annual Report on Form 10-K of Worthington Industries, Inc. for the fiscal year ended May 31, 2015 (SEC File No. 1-8399))
		31.1		Rule 13a - 14(a) / 15d - 14(a) Certifications (Principal Executive Officer) *
		31.2		Rule 13a - 14(a) / 15d - 14(a) Certifications (Principal Financial Officer) *
		32.1		Certifications of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
		32.2		Certifications of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
		101.INS		XBRL Instance Document #
		101.SCH		XBRL Taxonomy Extension Schema Document #
		101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document #
		101.LAB		XBRL Taxonomy Extension Label Linkbase Document #
		101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document #
		101.DEF		XBRL Taxonomy Extension Definition Linkbase Document #

*	Filed herewith.

**	Furnished herewith.

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#	Attached as Exhibit 101 to this Quarterly Report on Form 10-Q of Worthington Industries, Inc. are the following documents formatted in XBRL (Extensible Business Reporting Language):

(i)

Consolidated Balance Sheets at August 31, 2015 and May 31, 2015;

(ii)

Consolidated Statements of Earnings for the three months ended August 31, 2015 and August 31, 2014;

(iii)

Consolidated Statements of Comprehensive Income for the three months ended August 31, 2015 and August 31, 2014;

(iv)

Consolidated Statements of Cash Flows for the three months ended August 31, 2015 and August 31, 2014; and

(v)

Notes to Consolidated Financial Statements.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

				WORTHINGTON INDUSTRIES, INC.
Date: October 13, 2015				By:		/s/    B. Andrew Rose
				B. Andrew Rose, Executive Vice President and Chief Financial Officer (On behalf of the Registrant and as Principal Financial Officer)

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INDEX TO EXHIBITS

Exhibit No.		Description		Location
4.1		Amendment No. 1 to Note Agreement, dated June 10, 2015, among Worthington Industries, Inc., on the one hand, and The Prudential Insurance Company of America, Pruco Life Insurance Company of New Jersey, Pruco Life Insurance Company, Prudential Arizona Reinsurance Universal Company, Prudential Annuities Life Assurance Corporation, The Prudential Life Assurance Company, Ltd. and The Gibraltar Life Insurance Co., Ltd., on the other hand		Incorporated herein by reference to Exhibit 4.9 to the Annual Report on Form 10-K of Worthington Industries, Inc. for the fiscal year ended May 31, 2015 (SEC File No. 1-8399)
10.1		Summary of Annual Base Salaries Approved for Named Executive Officers of Worthington Industries, Inc. (effective September 2015)		Incorporated herein by reference to Exhibit 10.69 to the Annual Report on Form 10-K of Worthington Industries, Inc. for the fiscal year ended May 31, 2015 (SEC File No. 1-8399)
10.2		Summary of Annual Cash Incentive Bonus Awards, Long-Term Performance Awards, Stock Options and Restricted Common Shares Granted in Fiscal 2016 for Named Executive Officers		Incorporated herein by reference to Exhibit 10.74 to the Annual Report on Form 10-K of Worthington Industries, Inc. for the fiscal year ended May 31, 2015 (SEC File No. 1-8399)
31.1		Rule 13a - 14(a) / 15d - 14(a) Certifications (Principal Executive Officer)		Filed herewith
31.2		Rule 13a - 14(a) / 15d - 14(a) Certifications (Principal Financial Officer)		Filed herewith
32.1		Certifications of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002		Furnished herewith
32.2		Certifications of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002		Furnished herewith
101.INS		XBRL Instance Document		Submitted electronically herewith #
101.SCH		XBRL Taxonomy Extension Schema Document		Submitted electronically herewith #
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document		Submitted electronically herewith #
101.LAB		XBRL Taxonomy Extension Label Linkbase Document		Submitted electronically herewith #
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document		Submitted electronically herewith #
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document		Submitted electronically herewith #

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#	Attached as Exhibit 101 to this Quarterly Report on Form 10-Q of Worthington Industries, Inc. are the following documents formatted in XBRL (Extensible Business Reporting Language):

(i)

Consolidated Balance Sheets at August 31, 2015 and May 31, 2015;

(ii)

Consolidated Statements of Earnings for the three months ended August 31, 2015 and August 31, 2014;

(iii)

Consolidated Statements of Comprehensive Income for the three months ended August 31, 2015 and August 31, 2014;

(iv)

Consolidated Statements of Cash Flows for the three months ended August 31, 2015 and August 31, 2014; and

(v)

Notes to Consolidated Financial Statements.

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