Worthington Industries, Inc. (WOR)

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Worthington Industries, Inc. (WOR)

F1Q10 Earnings Call

September 30, 2009 10:30 am ET

Executives

Cathy Little - Vice President of Corporate Communications and Investor Relations

John P. McConnell - Chairman of the Board, Chief Executive Officer

B. Andrew Rose - Chief Financial Officer, Vice President

George P. Stoe - President, Chief Operating Officer

Harry A. Goussetis - President of Worthington Cylinder Corporation

Mark A. Russell - President of The Worthington Steel Company

Analysts

Richard Arch - Torino

Luke Folta - Longbow Research

Charles Bradford - Affiliated Research Group

Chris Haverland - Davenport & Company

Analyst for Mark Parr - Keybanc Capital Markets

Chyan Gochon - Citadel Investment Group

Tony Rizzuto - Dalman Rose & Company

Presentation

Operator

Good morning and welcome to Worthington Industries' first quarter earnings results conference call. (Operator Instructions) I would like to introduce Miss Cathy Little, Vice President of Corporate Communications and Investor Relations. Miss Little, you may begin.

Cathy Little

Thank you and good morning, everyone and welcome to our quarterly earnings conference call. Before we get started, I want to remind you that certain statements made in this conference call are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ from those suggested. Please refer to the news release for more detail on factors that could cause actual results to differ materially.

For those who are interested in listening to the call again, a replay will be available on our website, worthingtonindustries.com.

On the call today are John McConnell, Chairman and Chief Executive Officer; George Stoe, President and Chief Operating Officer; Andy Rose, Vice President and Chief Financial Officer; Bob McMaster, Senior Financial Advisor; and Richard Welch, Controller.

John McConnell will start us off. John.

John P. McConnell

Thank you, Cathy. Welcome to all of you participating and those of you listening this morning. All things considered, we believe we had a good solid quarter and we continue to feel very good about our operating performance throughout this period of historically low volumes. I will now turn the call over to Andy Rose, our Chief Financial Officer, and George Stoe, our Chief Operating Officer.

B. Andrew Rose

Thanks, John. Our first quarter of fiscal 2010 ended on August 31st with earnings of $0.08 a share. While we saw some improvement from the previous quarter, we were down substantially from last year’s record first quarter. Net earnings decreased $62 million from the prior year first quarter to $7 million. Net sales fell $496 million from the prior year to $418 million. Lower volumes in all business segments accounted for $364 million of the sales decline, most notably in metal framing and steel processing, where demand declined dramatically in the construction and automotive sectors.

Average selling prices also declined from the prior year due to falling steel prices, accounting for $132 million of the year-over-year decline in sales.

Gross margin declined $103 million from the prior year, primarily as a result of the lower volumes experienced in all of our business segments.

SG&A expense was down $13 million from the prior year, due to reduced compensation expense resulting from headcount reductions and decreased profit sharing, which declined on lower earnings. In addition, we temporarily reduced pay and suspended our 401K match. As of quarter end, we have reinstated normal pay rates and the 401K match.

Restructuring charges were $4 million compared to $9 million in the prior year. The majority of these charges were related to facility closures in our metal framing segment, one of which George Stoe will elaborate on in his comments.

Interest expense declined $3 million from the prior year due to lower average short-term borrowings and the repurchase of long-term notes completed in June. Equity and net income of unconsolidated affiliates of $16 million declined $9 million from the first quarter of fiscal 2009. Wave equity earnings of $16 million declined 27% from last year’s first quarter.

Income tax expense was down $27 million due to lower quarterly earnings. The effective tax rate for the quarter was 33% versus 31% in the prior year quarter. The change in the effective tax rate is due to the change in the mix of income among the jurisdictions in which we do business.

Now to the balance sheet -- total debt was $215 million at quarter end. Short-term borrowings totaled $115 million and long-term debt was 109. The company also securitized $55 million of its trade receivables as of August 31, 2009. On June 12th, we redeemed $119 million of the $138 million outstanding 670 notes due December 1, 2009, leaving $19 million of the notes outstanding at the end of the quarter. The repurchase was funded by a combination of cash on hand and borrowings under existing credit facilities and was done to drive down interest expense.

Availability on our $435 million revolving credit facility that matures in May 2013 was $340 million at quarter end.

We are in good shape with our debt covenants. At quarter end, our total debt to capitalization ratio was 29%, well below the maximum allowable of 55%. Our interest coverage ratio was 5.7 times, well above the required ratio of 3.25 times EBITDA to interest expense. We have been successful in maintaining an appropriate cushion on our covenants, thus preserving our access to low-cost capital. Assuming no major changes to our capital structure, we are well-positioned to continue to improve our interest coverage.

From a credit standpoint, we have successfully navigate the bankruptcies and ownership transitions related to the Detroit automakers. However, there have been and will continue to be smaller work-outs in the tier one and tier two supplier base. Our credit team continues to do an admirable job and while we did not have additional bad debt expense this quarter, there are still customers that we are monitoring very closely.

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