Edgar Filing: WORTHINGTON INDUSTRIES INC

Quarterly Report

LOGO

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended February 28, 2017

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-08399

WORTHINGTON INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)


Ohio		31-1189815

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

200 Old Wilson Bridge Road, Columbus, Ohio		43085

(Address of principal executive offices)		(Zip Code)

(614) 438-3210

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES ☒ NO ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES ☒ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐ (Do not check if a smaller reporting company)	Smaller reporting company	☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES ☐ NO ☒

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the Issuer’s classes of common stock, as of the latest practicable date. On March 31, 2017, the number of Common Shares, without par value, issued and outstanding was 63,680,574.

TABLE OF CONTENTS


Safe Harbor Statement		ii

Part I. Financial Information

Item 1.	Financial Statements (Unaudited)

	Consolidated Balance Sheets – February 28, 2017 and May 31, 2016	1

	Consolidated Statements of Earnings – Three and Nine Months Ended February 28, 2017 and February 29, 2016	2

	Consolidated Statements of Comprehensive Income – Three and Nine Months Ended February 28, 2017 and February 29, 2016	3

	Consolidated Statements of Cash Flows – Three and Nine Months Ended February 28, 2017 and February 29, 2016	4

	Notes to Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38

Item 4.	Controls and Procedures	38

Part II. Other Information

Item 1.	Legal Proceedings	39

Item 1A.	Risk Factors	39

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39

Item 3.	Defaults Upon Senior Securities (Not applicable)	40

Item 4.	Mine Safety Disclosures (Not applicable)	40

Item 5.	Other Information (Not applicable)	40

Item 6.	Exhibits	40

Signatures		41

Index to Exhibits		42

SAFE HARBOR STATEMENT

Selected statements contained in this Quarterly Report on Form 10-Q, including, without limitation, in “PART I – 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 (the “Act”). Forward-looking statements reflect our current expectations, estimates or projections concerning future results or events. These statements are often identified by the use of forward-looking words or phrases such as “believe,” “expect,” “anticipate,” “may,” “could,” “intend,” “estimate,” “plan,” “foresee,” “likely,” “will,” “should” or other similar words or phrases. These forward-looking statements include, without limitation, statements relating to:

•

outlook, strategy or business plans;

•

the ability to correct performance issues at operations;

•

future or expected growth, forward momentum, performance, sales, volumes, cash flows, earnings, balance sheet strengths, debt, financial condition or other financial measures;

•

pricing trends for raw materials and finished goods and the impact of pricing changes;

•

demand trends for us or our markets;

•

additions to product lines and opportunities to participate in new markets;

•

expected benefits from Transformation efforts;

•

anticipated capital expenditures and asset sales;

•

anticipated improvements and efficiencies in costs, operations, sales, inventory management, sourcing and the supply chain and the results thereof;

•

projected profitability potential, capacity, and working capital needs;

•

the ability to make acquisitions and the projected timing, results, benefits, costs, charges and expenditures related to acquisitions, newly-created joint ventures, headcount reductions and facility dispositions, shutdowns and consolidations;

•

the alignment of operations with demand;

•

the ability to operate profitably and generate cash in down markets;

•

the ability to maintain margins and capture and maintain market share and to develop or take advantage of future opportunities, customer initiatives, new businesses, new products and new markets;

•

expectations for Company and customer inventories, jobs and orders;

•

expectations for the economy and markets or improvements therein;

•

expectations for increasing volatility or improving and sustainable earnings, earnings potential, margins or shareholder value;

•

effects of judicial rulings; and

•

other non-historical matters.

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, those that follow:

•

the effect of national, regional and global economic conditions generally and within major product markets, including an economic downturn;

•

the effect of conditions in national and worldwide financial markets;

•

lower oil prices as a factor in demand for products;

•

product demand and pricing;

•

changes in product mix, product substitution and market acceptance of our products;

•

fluctuations in the pricing, quality or availability of raw materials (particularly steel), supplies, transportation, utilities and other items required by operations;

•

effects of facility closures and the consolidation of operations;

•

the effect of financial difficulties, consolidation and other changes within the steel, automotive, construction, oil and gas, and other industries in which we participate;

•

failure to maintain appropriate levels of inventories;

•

financial difficulties (including bankruptcy filings) of original equipment manufacturers, end-users and customers, suppliers, joint venture partners and others with whom we do business;

•

the ability to realize targeted expense reductions from headcount reductions, facility closures and other cost reduction efforts;

•

the ability to realize other cost savings and operational, sales and sourcing improvements and efficiencies, and other expected benefits from Transformation initiatives, on a timely basis;

•

the overall success of, and the ability to integrate, newly-acquired businesses and joint ventures, maintain and develop their customers, and achieve synergies and other expected benefits and cost savings therefrom;

•

capacity levels and efficiencies, within facilities, within major product markets and within the industries as a whole;

•

the effect of disruption in the business of suppliers, customers, facilities and shipping operations due to adverse weather, casualty events, equipment breakdowns, civil unrest, international conflicts, or terrorist activities or other causes;

•

changes in customer demand, inventories, spending patterns, product choices, and supplier choices;

•

risks associated with doing business internationally, including economic, political and social instability, foreign currency exposure and the acceptance of our products in markets;

•

the ability to improve and maintain processes and business practices to keep pace with the economic, competitive and technological environment;

•

the outcome of adverse claims experience with respect to workers’ compensation, product recalls or product liability, casualty events or other matters;

•

deviation of actual results from estimates and/or assumptions used by us in the application of our significant accounting policies;

•

level of imports and import prices in our markets;

•

the impact of judicial rulings and governmental regulations, both in the United States and abroad, including those adopted by the United States Securities and Exchange Commission and other governmental agencies as contemplated by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010;

•

the effect of changes to healthcare laws in the United States, which may increase our healthcare and other costs and negatively impact our operations and financial results;

•

cyber security risks; and

•

other risks described from time to time in our filings with the United States Securities and Exchange Commission, including those described in “PART I – Item 1A. — Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended May 31, 2016.

We note these factors for investors as contemplated by the Act. It is impossible to predict or identify all potential risk factors. Consequently, you should not consider the foregoing list to be a complete set of all potential risks and uncertainties. Any forward-looking statements in this Quarterly Report on Form 10-Q are based on current information as of the date of this Quarterly Report on Form 10-Q, and we assume no obligation to correct or update any such statements in the future, except as required by applicable law.

iii

PART I. FINANCIAL INFORMATION

Item 1. – Financial Statements

WORTHINGTON INDUSTRIES, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)


	February 28, 2017		May 31, 2016
Assets
Current assets:
Cash and cash equivalents	$	227,281	$	84,188
Receivables, less allowances of $3,134 and $4,579 at February 28, 2017 and May 31, 2016, respectively		466,689		439,688
Inventories:
Raw materials		164,295		162,427
Work in process		98,683		86,892
Finished products		77,226		70,016

Total inventories		340,204		319,335
Income taxes receivable		15,554		10,535
Assets held for sale		13,617		10,079
Prepaid expenses and other current assets		53,596		51,290

Total current assets		1,116,941		915,115
Investments in unconsolidated affiliates		205,008		191,826
Goodwill		244,941		246,067
Other intangible assets, net of accumulated amortization of $59,577 and $49,532 at February 28, 2017 and May 31, 2016, respectively		85,289		96,164
Other assets		24,976		29,254
Property, plant and equipment:
Land		16,543		18,537
Buildings and improvements		257,190		256,973
Machinery and equipment		1,001,232		945,951
Construction in progress		26,403		48,156

Total property, plant and equipment		1,301,368		1,269,617
Less: accumulated depreciation		731,348		686,779

Total property, plant and equipment, net		570,020		582,838

Total assets	$	2,247,175	$	2,061,264


Liabilities and equity
Current liabilities:
Accounts payable	$	351,998	$	290,432
Short-term borrowings		167		2,651
Accrued compensation, contributions to employee benefit plans and related taxes		75,618		75,105
Dividends payable		13,557		13,471
Other accrued items		45,054		45,056
Income taxes payable		2,508		2,501
Current maturities of long-term debt		878		862

Total current liabilities		489,780		430,078
Other liabilities		64,441		63,487
Distributions in excess of investment in unconsolidated affiliate		67,722		52,983
Long-term debt		576,002		577,491
Deferred income taxes, net		27,183		17,379

Total liabilities		1,225,128		1,141,418
Shareholders’ equity—controlling interest		898,468		793,371
Noncontrolling interests		123,579		126,475

Total equity		1,022,047		919,846

Total liabilities and equity	$	2,247,175	$	2,061,264

See notes to consolidated financial statements.

WORTHINGTON INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended						Nine Months Ended
	February 28, 2017			February 29, 2016			February 28, 2017			February 29, 2016
Net sales	$	703,436		$	647,080		$	2,168,765		$	2,105,043
Cost of goods sold		592,446			551,157			1,787,690			1,786,925

Gross margin		110,990			95,923			381,075			318,118
Selling, general and administrative expense		75,276			70,149			232,819			218,822
Impairment of long-lived assets		—			—			—			25,962
Restructuring and other expense		1,394			702			5,994			5,294

Operating income		34,320			25,072			142,262			68,040
Other income (expense):
Miscellaneous income, net		749			3,305			2,484			3,723
Interest expense		(7,674	)		(7,886	)		(23,202	)		(23,539	)
Equity in net income of unconsolidated affiliates		22,697			24,994			84,365			80,822

Earnings before income taxes		50,092			45,485			205,909			129,046
Income tax expense		11,141			11,342			48,555			34,157

Net earnings		38,951			34,143			157,354			94,889
Net earnings attributable to noncontrolling interests		3,062			4,296			9,333			9,698

Net earnings attributable to controlling interest	$	35,889		$	29,847		$	148,021		$	85,191


Basic
Average common shares outstanding		62,750			61,747			62,325			62,810

Earnings per share attributable to controlling interest	$	0.57		$	0.48		$	2.37		$	1.36


Diluted
Average common shares outstanding		64,977			63,871			64,758			64,923

Earnings per share attributable to controlling interest	$	0.55		$	0.47		$	2.29		$	1.31


Common shares outstanding at end of period		62,776			61,285			62,776			61,285

Cash dividends declared per share	$	0.20		$	0.19		$	0.60		$	0.57

See notes to consolidated financial statements.

WORTHINGTON INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)


	Three Months Ended						Nine Months Ended
	February 28, 2017			February 29, 2016			February 28, 2017			February 29, 2016
Net earnings	$	38,951		$	34,143		$	157,354		$	94,889
Other comprehensive income (loss):
Foreign currency translation		905			8,646			(7,277	)		1,255
Pension liability adjustment, net of tax		(35	)		(90	)		(35	)		(98	)
Cash flow hedges, net of tax		(921	)		5,430			1,356			3,537

Other comprehensive income (loss)		(51	)		13,986			(5,956	)		4,694

Comprehensive income		38,900			48,129			151,398			99,583
Comprehensive income attributable to noncontrolling interests		3,071			7,476			9,198			12,207

Comprehensive income attributable to controlling interest	$	35,829		$	40,653		$	142,200		$	87,376

See notes to consolidated financial statements.

WORTHINGTON INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Three Months Ended						Nine Months Ended
	February 28, 2017			February 29, 2016			February 28, 2017			February 29, 2016
Operating activities:
Net earnings	$	38,951		$	34,143		$	157,354		$	94,889
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		21,677			20,761			65,154			62,748
Impairment of long-lived assets		—			—			—			25,962
Provision for (benefit from) deferred income taxes		7,609			9,322			9,946			(6,069	)
Bad debt (income) expense		(41	)		187			110			195
Equity in net income of unconsolidated affiliates, net of distributions		(1,256	)		(622	)		(182	)		(16,524	)
Net (gain) loss on sale of assets		1,875			(3,385	)		3,358			(7,633	)
Stock-based compensation		4,304			3,627			11,264			11,284
Changes in assets and liabilities, net of impact of acquisitions:
Receivables		(44,719	)		10,688			(34,920	)		76,791
Inventories		(2,346	)		37,211			(20,869	)		61,032
Prepaid expenses and other current assets		(13,379	)		(19,309	)		(7,954	)		9,324
Other assets		(423	)		(1,216	)		1,987			(4,019	)
Accounts payable and accrued expenses		89,736			13,756			66,849			(17,464	)
Other liabilities		718			1,052			2,813			5,352

Net cash provided by operating activities		102,706			106,215			254,910			295,868


Investing activities:
Investment in property, plant and equipment		(21,128	)		(14,973	)		(52,174	)		(75,465	)
Acquisitions, net of cash acquired		—			(31,256	)		—			(34,206	)
Investments in unconsolidated affiliates		—			(3,683	)		—			(5,596	)
Proceeds from sale of assets		2			431			958			9,887

Net cash used by investing activities		(21,126	)		(49,481	)		(51,216	)		(105,380	)


Financing activities:
Net repayments of short-term borrowings		(330	)		(16,716	)		(2,484	)		(57,728	)
Proceeds from long-term debt		—			—			—			921
Principal payments on long-term debt		(218	)		(216	)		(655	)		(644	)
Proceeds from issuance of common shares, net of tax withholdings		(12,197	)		2,747			(9,225	)		5,811
Payments to noncontrolling interests		(3,360	)		(4,206	)		(10,141	)		(9,106	)
Repurchase of common shares		—			(28,352	)		—			(99,848	)
Dividends paid		(13,374	)		(11,913	)		(38,096	)		(35,529	)

Net cash used by financing activities		(29,479	)		(58,656	)		(60,601	)		(196,123	)


Increase (decrease) in cash and cash equivalents		52,101			(1,922	)		143,093			(5,635	)
Cash and cash equivalents at beginning of period		175,180			27,354			84,188			31,067

Cash and cash equivalents at end of period	$	227,281		$	25,432		$	227,281		$	25,432

See notes to consolidated financial statements.

WORTHINGTON INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE A – Basis of Presentation

The consolidated financial statements include the accounts of Worthington Industries, Inc. and consolidated subsidiaries (collectively, “we,” “our,” “Worthington,” or the “Company”). Investments in unconsolidated affiliates are accounted for using the equity method. Significant intercompany accounts and transactions are eliminated.

We own controlling interests in the following five joint ventures: Spartan Steel Coating, LLC (“Spartan”) (52%), TWB Company, L.L.C. (“TWB”) (55%), Worthington Ar1taş Bas1nçl1 Kaplar Sanayi (“Worthington Aritas”) (75%), Worthington Energy Innovations, LLC (“WEI”) (75%), and Worthington Specialty Processing (“WSP”) (51%). These joint ventures are consolidated with the equity owned by the other joint venture members shown as noncontrolling interests in our consolidated balance sheets, and their portions of net earnings and other comprehensive income (loss) (“OCI”) shown as net earnings or comprehensive income attributable to noncontrolling interests in our consolidated statements of earnings and consolidated statements of comprehensive income, respectively.

These unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, which are of a normal and recurring nature, except those which have been disclosed elsewhere in this Quarterly Report on Form 10-Q, necessary for a fair presentation of the consolidated financial statements for these interim periods, have been included. Operating results for the three and nine months ended February 28, 2017 are not necessarily indicative of the results that may be expected for the fiscal year ending May 31, 2017 (“fiscal 2017”). For further information, refer to the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the fiscal year ended May 31, 2016 (“fiscal 2016”) of Worthington Industries, Inc. (the “2016 Form 10-K”).

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Recently Adopted Accounting Standards

In February 2015, amended accounting guidance was issued that revised consolidation requirements in order to provide financial statement users with a more useful presentation of an entity’s economic and operational results. The amended guidance revises the consolidation requirements for limited partnerships, the considerations surrounding the primary beneficiary determination and the consolidation of certain investment funds. The Company adopted this amended guidance on a prospective basis effective June 1, 2016. The adoption of this guidance did not impact our consolidated financial position or results of operations.

In April 2015, amended accounting guidance was issued that requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of the corresponding debt liability itself. The amended guidance does not apply to line-of-credit arrangements. Accordingly, issuance costs related to line-of-credit arrangements will continue to be presented as an asset and amortized ratably over the term of the arrangement. The Company adopted this guidance on a retrospective basis effective June 1, 2016. As a result, debt issuance costs totaling $2,233,000 and $2,491,000 as of February 28, 2017 and May 31, 2016, respectively, have been presented as a component of the carrying amount of long-term debt reported in our consolidated balance sheets. Fiscal 2016 amounts were previously capitalized and reported within other assets.

In September 2015, amended accounting guidance was issued regarding adjustments to provisional amounts recorded in conjunction with a business combination. The amended guidance requires the acquirer to recognize adjustments to provisional amounts identified during the measurement period in the reporting period in which such adjustments are identified, rather than retrospectively adjusting previously reported amounts. The Company adopted this amended guidance on a prospective basis effective June 1, 2016. The adoption of this guidance did not impact our consolidated financial position or results of operations.

In March 2016, amended accounting guidance was issued that simplifies the accounting for share-based payments. The amended guidance impacts several aspects of the accounting for share-based payment transactions, including the income tax consequences, forfeitures, statutory withholding requirements, and classification in the statement of cash flows. The Company early adopted this guidance during the fourth quarter of fiscal 2016. As required for early adoption in an interim period, all adjustments have been reflected as of the beginning of fiscal 2016. Accordingly, income tax expense for the three and nine months ended February 29, 2016 has been restated to reflect excess tax benefits associated with share-based payments totaling $271,000 and $965,000, respectively, in income tax expense, rather than in paid-in capital.

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. Subsequently, additional guidance was issued on several areas including guidance intended to improve the operability and understandability of the implementation of principal versus agent considerations and clarifications on the identification of performance obligations and implementation of guidance related to licensing. The amended guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The amended guidance permits the use of either the retrospective or cumulative effect transition method. We are in the process of evaluating the effect this guidance will have on the presentation of our consolidated financial statements and related disclosures. While we have not yet identified any material changes in the timing of revenue recognition, our evaluation is ongoing and not complete. We plan to adopt the amended guidance in the first quarter of fiscal 2019 and expect to make a determination as to the method of adoption by the end of fiscal 2017.

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

In February 2016, amended accounting guidance was issued that replaces most existing lease accounting guidance under U.S. GAAP. Among other changes, the amended guidance requires that lease assets and liabilities be recognized on the balance sheet by lessees for those leases classified as operating leases under previous guidance. The amended guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted, and the change is to be applied using a modified retrospective approach as of the beginning of the earliest period presented. We are in the process of evaluating the effect this guidance will have on our consolidated financial position, results of operations and cash flows, and we have not determined the effect of the amended guidance on our ongoing financial reporting.

In March 2016, amended accounting guidance was issued regarding derivative instruments designated as hedging instruments. The amended guidance clarifies that a change in the counterparty to such a hedging instrument does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. The amended guidance is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted, and the change may be applied either prospectively or retrospectively. We do not expect the adoption of this amended accounting guidance to have a material impact on our consolidated financial position or results of operations.

In June 2016, amended accounting guidance was issued related to the measurement of credit losses on financial instruments. The amended guidance changes the impairment model for most financial assets to require measurement and recognition of expected credit losses for financial assets held. The amended guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We are in the process of evaluating the effect this guidance will have on our consolidated financial position and results of operations, and we have not determined the effect of the amended guidance on our ongoing financial reporting.

In August 2016, amended accounting guidance was issued to clarify the proper cash flow presentation of certain specific types of cash payments and cash receipts. The amended guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. We are in the process of evaluating the effect this guidance will have on our consolidated financial position, results of operations and cash flows, and we have not determined the effect of the amended guidance on our ongoing financial reporting.

In October 2016, amended accounting guidance was issued that requires the income tax consequences of an intra-entity transfer of an asset other than inventory to be recognized when the transfer occurs. The amended guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. We are in the process of evaluating the effect this guidance will have on our consolidated financial position, results of operations and cash flows, and have not determined the effect of the amended guidance on our ongoing financial reporting.

In November 2016, amended accounting guidance was issued that requires amounts generally described as restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amended guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. We do not expect the adoption of this amended guidance to have a material impact on our consolidated cash flows.

In January 2017, amended accounting guidance was issued to clarify the definition of a business to provide additional guidance to assist in evaluating whether transactions should be accounted for as an acquisition (or disposal) of either an asset or business. The amended guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. We do not expect the adoption of this amended guidance to have a material impact on our consolidated financial position or results of operations.

In January 2017, amended accounting guidance was issued to simplify the goodwill impairment calculation, by removing Step 2 of the goodwill impairment test. Goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of the goodwill. The amended guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. We are in the process of evaluating the effect this guidance will have on our consolidated financial position and results of operations, and have not determined the effect on our ongoing financial reporting.

NOTE B – Investments in Unconsolidated Affiliates

Our investments in affiliated companies that we do not control, either through majority ownership or otherwise, are accounted for using the equity method. These include ArtiFlex Manufacturing, LLC (“ArtiFlex”) (50%), Clarkwestern Dietrich Building Systems LLC (“ClarkDietrich”) (25%), Samuel Steel Pickling Company (31.25%), Serviacero Planos, S. de R. L. de C.V. (“Serviacero”) (50%), Worthington Armstrong Venture (“WAVE”) (50%), and Zhejiang Nisshin Worthington Precision Specialty Steel Co., Ltd. (10%).

We received distributions from unconsolidated affiliates totaling $84,183,000 during the nine months ended February 28, 2017. We have received cumulative distributions from WAVE in excess of our investment balance totaling $67,722,000 at February 28, 2017. In accordance with the applicable accounting guidance, these excess distributions are reclassified to the liabilities section of our consolidated balance sheet. We will continue to record our equity in the net income of WAVE as a debit to the investment account, and if it becomes positive, it will again be shown as an asset on our consolidated balance sheet. If it becomes obvious that any excess distribution may not be returned (upon joint venture liquidation or otherwise), we will recognize any balance classified as a liability as income immediately.

We use the “cumulative earnings” approach for determining cash flow presentation of distributions from our unconsolidated joint ventures. Distributions received are included in our consolidated statements of cash flows as operating activities, unless the cumulative distributions received, less distributions received in prior periods that were determined to be returns of investment, exceed our portion of the cumulative equity in the net earnings of the joint venture, in which case the excess distributions are deemed to be returns of the investment and are classified as investing activities in our consolidated statements of cash flows.

Combined financial information for our unconsolidated affiliates is summarized as follows:


(in thousands)	February 28, 2017		May 31, 2016
Cash	$	62,723	$	112,122
Other current assets		511,798		446,796
Noncurrent assets		365,343		352,370

Total assets	$	939,864	$	911,288

Current liabilities	$	141,266	$	112,491
Short-term borrowings		6,285		11,398
Current maturities of long-term debt		4,207		3,297
Long-term debt		268,032		266,942
Other noncurrent liabilities		20,558		21,034
Equity		499,516		496,126

Total liabilities and equity	$	939,864	$	911,288


	Three Months Ended				Nine Months Ended
(in thousands)	February 28, 2017		February 29, 2016		February 28, 2017		February 29, 2016
Net sales	$	384,261	$	376,448	$	1,188,568	$	1,170,096
Gross margin		84,645		83,251		305,383		257,036
Operating income		55,140		54,801		216,902		171,857
Depreciation and amortization		6,983		7,905		20,776		24,070
Interest expense		2,089		2,038		6,388		6,333
Income tax expense		5,065		2,625		16,128		7,348
Net earnings		49,098		51,994		198,609		186,063

The financial results of WSP have been included in the amounts presented in the tables above through March 1, 2016. Effective March 1, 2016, the Company obtained effective control over the operations of WSP. As a result, WSP’s results have been consolidated within the financial results of Steel Processing since that date with the minority member’s portion of net earnings eliminated within net earnings attributable to noncontrolling interests.

NOTE C – Impairment of Long-Lived Assets

We review the carrying value of our long-lived assets, including intangible assets with definite 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 of long-lived assets with definite useful lives 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 statement of earnings.

No impairment charges were recognized during the nine months ended February 28, 2017.

Impairment charges during the nine months ended February 29, 2016, consisted of $3,000,000 related to the then remaining long-lived assets of the Company’s Engineered Cabs facility in Florence, South Carolina, which ceased operations on September 30, 2015, and $22,962,000 for the impairment of the long-lived assets of two oil & gas equipment facilities triggered by a significant decrease in the long-term cash flow projections of that business. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s 2016 Form 10-K.

NOTE D – Restructuring and Other Expense

We consider restructuring activities to be programs whereby we fundamentally change our operations such as closing and consolidating manufacturing facilities, moving manufacturing of a product to another location, and rationalizing headcount.

A progression of the liabilities associated with our restructuring activities, combined with a reconciliation to the restructuring and other expense financial statement caption in our consolidated statement of earnings for the nine months ended February 28, 2017 is summarized as follows:


(in thousands)	Beginning Balance		Expense		Payments			Adjustments		Ending Balance (1)
Early retirement and severance	$	1,831	$	1,795	$	(3,071	)	$	58	$	613
Facility exit and other costs		653		3,190		(3,369	)		45		519

	$	2,484		4,985	$	(6,440	)	$	103	$	1,132

Net loss on sale of assets				1,009

Restructuring and other expense			$	5,994

1)	The total liability as of February 28, 2017 is expected to be paid in the next twelve months.

During the nine months ended February 28, 2017, the following activities were taken related to the Company’s restructuring activities:

•

The Company announced certain organizational changes impacting its Pressure Cylinders operating segment, including the consolidation of the Cryogenics business unit into the Industrial Products business unit. In connection with this matter, the Company recognized severance expense of $1,356,000 related to permanent headcount reductions.

•

In connection with the closure of the Company’s stainless steel business, Precision Specialty Metals, Inc. (“PSM”), the Company recognized $1,666,000 of facility exit costs and a credit to severance expense of $106,000.

•

In connection with the closure of the Engineered Cabs facility in Florence, South Carolina, the Company recognized facility exit costs of $459,000. The Company also recognized a net loss of $101,000 related to the disposal of assets.

•

In connection with the consolidation of the Company’s existing cryogenics facility in Istanbul, Turkey, to its Greenfield facility in Bandirma, Turkey, the Company recognized facility exit costs of $1,113,000 and severance expense of $640,000. The consolidation is substantially complete.

•

The Company sold the remaining real estate of the legacy Advanced Component Technologies, Inc. (“ACT”) business within Engineered Cabs for cash proceeds of $700,000, resulting in a loss of $822,000.

•

In connection with other non-significant restructuring activities, the Company recognized a credit to severance expense of $95,000 and a credit to facility exit costs of $48,000. The Company also recognized a net loss on disposal of assets of $86,000.

NOTE E – Contingent Liabilities and Commitments

We are defendants in certain legal actions. In the opinion of management, the outcome of these actions, which is not clearly determinable at the present time, would not significantly affect our consolidated financial position or future results of operations or cash flows. We believe that environmental issues will not have a material effect on our capital expenditures, consolidated financial position or future results of operations or cash flows.

NOTE F – Guarantees

We do not have guarantees that we believe are reasonably likely to have a material current or future effect on our consolidated financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. However, as of February 28, 2017, 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 $9,566,000 at February 28, 2017. Based on current facts and circumstances, we have estimated the likelihood of payment pursuant to this guarantee is not probable and, therefore, no amount has been recognized in our consolidated financial statements.

We also had in place $15,893,000 of outstanding stand-by letters of credit issued to third-party service providers at February 28, 2017. The fair value of these guarantee instruments, based on premiums paid, was not material and no amounts were drawn against them at February 28, 2017.

NOTE G – Debt and Receivables Securitization

We maintain a $500,000,000 multi-year revolving credit facility (the “Credit Facility”) with a group of lenders that matures in April 2020. Borrowings under the Credit Facility typically have maturities of less than one year. However, we can extend the term of amounts borrowed by renewing these borrowings for the term of the Credit Facility. We have the option to borrow at rates equal to an applicable margin over the LIBOR, Prime rate or Fed Funds rate. The applicable margin is determined by our credit rating. There were no borrowings outstanding under the Credit Facility at February 28, 2017. As discussed in “NOTE F – Guarantees,” we provided $15,893,000 in letters of credit for third-party beneficiaries as of February 28, 2017. While not drawn against at February 28, 2017, $13,600,000 of these letters of credit were issued against availability under the Credit Facility, leaving $486,400,000 available under the Credit Facility at February 28, 2017.

We also maintain a $100,000,000 revolving trade accounts receivable securitization facility (the “AR Facility”) which matures in January 2018. Pursuant to the terms of the AR Facility, certain of our subsidiaries sell their accounts receivable without recourse, on a revolving basis, to Worthington Receivables Corporation (“WRC”), a wholly-owned, consolidated, bankruptcy-remote subsidiary. In turn, WRC may sell without recourse, on a revolving basis, up to $100,000,000 of undivided ownership interests in this pool of accounts receivable to a third-party bank. We retain an undivided interest in this pool and are subject to risk of loss based on the collectability of the receivables from this retained interest. Because the amount eligible to be sold excludes receivables more than 90 days past due, receivables offset by an allowance for doubtful accounts due to bankruptcy or other cause, concentrations over certain limits with specific customers and certain reserve amounts, we believe additional risk of loss is minimal. As of February 28, 2017, no undivided ownership interests in this pool of accounts receivable had been sold.

NOTE H – Other Comprehensive Income

The following table summarizes the tax effects on each component of OCI for the three months ended:


	February 28, 2017								February 29, 2016
	Before-Tax			Tax		Net-of-Tax			Before-Tax			Tax			Net-of-Tax
(in thousands)
Foreign currency translation	$	905		$	-	$	905		$	8,646		$	-		$	8,646
Pension liability adjustment		(117	)		82		(35	)		(90	)		-			(90	)
Cash flow hedges		(1,299	)		378		(921	)		8,505			(3,075	)		5,430

Other comprehensive income (loss)	$	(511	)	$	460	$	(51	)	$	17,061		$	(3,075	)	$	13,986

The following table summarizes the tax effects on each component of OCI for the nine months ended:


	February 28, 2017									February 29, 2016
	Before-Tax			Tax			Net-of-Tax			Before-Tax			Tax			Net-of-Tax
(in thousands)
Foreign currency translation	$	(7,277	)	$	-		$	(7,277	)	$	1,255		$	-		$	1,255
Pension liability adjustment		(117	)		82			(35	)		(98	)		-			(98	)
Cash flow hedges		1,836			(480	)		1,356			5,938			(2,401	)		3,537

Other comprehensive income (loss)	$	(5,558	)	$	(398	)	$	(5,956	)	$	7,095		$	(2,401	)	$	4,694

NOTE I – Changes in Equity

The following table provides a summary of the changes in total equity, shareholders’ equity attributable to controlling interest, and equity attributable to noncontrolling interests for the nine months ended February 28, 2017:


	Controlling Interest
(in thousands)	Additional Paid-in Capital			Accumulated Other Comprehensive Loss, Net of Tax			Retained Earnings			Total			Non- controlling Interests			Total
Balance at May 31, 2016	$	298,984		$	(28,565	)	$	522,952		$	793,371		$	126,475		$	919,846
Net earnings		-			-			148,021			148,021			9,333			157,354
Other comprehensive loss		-			(5,821	)		-			(5,821	)		(135	)		(5,956	)
Common shares issued, net of withholding tax		(9,225	)		-			-			(9,225	)		-			(9,225	)
Common shares in NQ plans		1,058			-			-			1,058			-			1,058
Stock-based compensation		10,599			-			-			10,599			-			10,599
Cash dividends declared		-			-			(38,600	)		(38,600	)		-			(38,600	)
Dividends to noncontrolling interest		-			-			-			-			(10,141	)		(10,141	)
Purchase of noncontrolling interest in dHybrid (1)		(935	)		-			-			(935	)		(1,953	)		(2,888	)

Balance at February 28, 2017	$	300,481		$	(34,386	)	$	632,373		$	898,468		$	123,579		$	1,022,047

1)	On January 1, 2017, the Company acquired the minority membership interests in dHybrid Systems, LLC (“dHybrid”) from the noncontrolling member in a non-cash transaction.

The components of the changes in accumulated other comprehensive loss were as follows:


(in thousands)	Foreign Currency Translation			Pension Liability Adjustment			Cash Flow Hedges			Accumulated Other Comprehensive Loss
Balance as of May 31, 2016	$	(18,728	)	$	(17,061	)	$	7,224		$	(28,565	)
Other comprehensive income (loss) before reclassifications		(7,142	)		(117	)		10,112			2,853
Reclassification adjustments to income (a)		-			-			(8,276	)		(8,276	)
Income taxes		-			82			(480	)		(398	)

Balance as of February 28, 2017	$	(25,870	)	$	(17,096	)	$	8,580		$	(34,386	)

(a)	The statement of earnings classification of amounts reclassified to income for cash flow hedges is disclosed in “NOTE N – Derivative Instruments and Hedging Activities.”

NOTE J – Stock-Based Compensation

Non-Qualified Stock Options

During the nine months ended February 28, 2017, we granted non-qualified stock options covering a total of 111,000 common shares under our stock-based compensation plans. The option price of $42.30 per share was equal to the market price of the underlying common shares at the grant date. The fair value of these stock options, based on the Black-Scholes option-pricing model, calculated at the grant date, was $11.60 per share. The calculated pre-tax stock-based compensation expense for these stock options, after an estimate for forfeitures, is $1,146,000 and will be recognized on a straight-line basis over the three-year vesting period. The following assumptions were used to value these stock options:


Dividend yield	2.59	%
Expected volatility	36.86	%
Risk-free interest rate	1.15	%
Expected term (years)	6.0

Expected volatility is based on the historical volatility of our common shares and the risk-free interest rate is based on the United States Treasury strip rate for the expected term of the stock options. The expected term was developed using historical exercise experience.

Service-Based Restricted Common Shares

During the nine months ended February 28, 2017, we granted an aggregate of 520,850 service-based restricted common shares under our stock-based compensation plans. The fair value of these restricted common shares was equal to the weighted average closing market price of the underlying common shares on the date of grant, or $42.27 per share. The calculated pre-tax stock-based compensation expense for these restricted common shares, after an estimate for forfeitures, is $19,695,000 and will be recognized on a straight-line basis over the three-year service-based vesting period.

Performance Share Awards

We have awarded performance shares to certain key employees under our stock-based compensation plans. These performance shares are earned based on the level of achievement with respect to corporate targets for cumulative corporate economic value added, earnings per share growth and, in the case of business unit executives, business unit operating income targets for the three-year periods ending May 31, 2017, 2018 and 2019. These performance share awards will be paid, to the extent earned, in common shares of the Company in the fiscal quarter following the end of the applicable three-year performance period. The fair values of our performance shares are determined by the closing market prices of the underlying common shares at their respective grant dates and the pre-tax stock-based compensation expense is based on our periodic assessment of the probability of the targets being achieved and our estimate of the number of common shares that will ultimately be issued. During the nine months ended February 28, 2017, we granted performance share awards covering an aggregate of 66,200 common shares (at target levels). The calculated pre-tax stock-based compensation expense for these performance shares is $2,973,000 and will be recognized over the three-year performance period.

NOTE K – Income Taxes

Income tax expense for the nine months ended February 28, 2017 and February 29, 2016 reflected estimated annual effective income tax rates of 27.2% and 29.6%, respectively. The annual effective income tax rates exclude any impact from the inclusion of net earnings attributable to noncontrolling interests in our consolidated statements of earnings. Net earnings attributable to noncontrolling interests are primarily a result of our WSP, Spartan, Worthington Aritas, and TWB consolidated joint ventures. The earnings attributable to the noncontrolling interests in WSP, Spartan and TWB’s U.S. operations do not generate tax expense to Worthington since the investors in WSP, Spartan and TWB’s U.S. operations are taxed directly based on the earnings attributable to them. The tax expense of Worthington Aritas (a foreign corporation), and TWB’s wholly-owned foreign corporations, is reported in our consolidated tax expense. Management is required to estimate the annual effective income tax rate based upon its forecast of annual pre-tax income for domestic and foreign operations. Our actual effective income tax rate for fiscal 2017 could be materially different from the forecasted rate as of February 28, 2017.

NOTE L – Earnings per Share

The following table sets forth the computation of basic and diluted earnings per share attributable to controlling interest for the three and nine months ended February 28, 2017 and February 29, 2016:


	Three Months Ended				Nine Months Ended
(in thousands, except per share amounts)	February 28, 2017		February 29, 2016		February 28, 2017		February 29, 2016
Numerator (basic & diluted):
Net earnings attributable to controlling interest-income available to common shareholders	$	35,889	$	29,847	$	148,021	$	85,191
Denominator:
Denominator for basic earnings per share attributable to controlling interest—weighted average common shares		62,750		61,747		62,325		62,810
Effect of dilutive securities		2,227		2,124		2,433		2,113

Denominator for diluted earnings per share attributable to controlling interest—adjusted weighted average common shares		64,977		63,871		64,758		64,923

Basic earnings per share attributable to controlling interest	$	0.57	$	0.48	$	2.37	$	1.36
Diluted earnings per share attributable to controlling interest	$	0.55	$	0.47	$	2.29	$	1.31

Stock options covering 107,224 and 352,830 common shares for the three months ended February 28, 2017 and February 29, 2016, respectively, and 97,638 and 343,454 common shares for the nine months ended February 28, 2017 and February 29, 2016, respectively, have been excluded from the computation of diluted earnings per share because the effect of their inclusion would have been “anti-dilutive.”

NOTE M – Segment Operations

Summarized financial information for our reportable segments is shown in the following table:


	Three Months Ended						Nine Months Ended
(in thousands)	February 28, 2017			February 29, 2016			February 28, 2017			February 29, 2016
Net sales
Steel Processing	$	478,174		$	419,026		$	1,492,654		$	1,377,638
Pressure Cylinders		198,433			200,721			598,303			626,288
Engineered Cabs		23,547			25,553			71,591			92,869
Other		3,282			1,780			6,217			8,248

Total net sales	$	703,436		$	647,080		$	2,168,765		$	2,105,043

Operating income (loss)
Steel Processing	$	26,026		$	21,294		$	116,256		$	71,574
Pressure Cylinders		10,071			8,969			35,480			15,479
Engineered Cabs		(2,001	)		(4,053	)		(7,225	)		(17,634	)
Other		224			(1,138	)		(2,249	)		(1,379	)

Total operating income	$	34,320		$	25,072		$	142,262		$	68,040

Impairment of long-lived assets
Steel Processing	$	-		$	-		$	-		$	-
Pressure Cylinders		-			-			-			22,962
Engineered Cabs		-			-			-			3,000
Other		-			-			-			-

Total impairment of long-lived assets	$	-		$	-		$	-		$	25,962

Restructuring and other expense (income)
Steel Processing	$	212		$	1,068		$	1,496		$	3,788
Pressure Cylinders		1,056			(1,031	)		3,165			(316	)
Engineered Cabs		169			416			1,379			3,059
Other		(43	)		249			(46	)		(1,237	)

Total restructuring and other expense	$	1,394		$	702		$	5,994		$	5,294


(in thousands)	February 28, 2017		May 31, 2016
Total assets
Steel Processing	$	885,244	$	819,853
Pressure Cylinders		751,131		787,786
Engineered Cabs		65,633		75,124
Other		545,167		378,501

Total assets	$	2,247,175	$	2,061,264

NOTE N – Derivative Instruments and Hedging Activities

We utilize derivative instruments to manage exposure to certain risks related to our ongoing operations. The primary risks managed through the use of derivative instruments include interest rate risk, foreign currency exchange rate risk and commodity price risk. While certain of our derivative instruments are designated as hedging instruments, we also enter into derivative instruments that are designed to hedge a risk, but are not designated as hedging instruments and therefore do not qualify for hedge accounting. These derivative instruments are adjusted to current fair value through earnings at the end of each period.

Interest Rate Risk Management – We are exposed to the impact of interest rate changes. Our objective is to manage the impact of interest rate changes on cash flows and the market value of our borrowings. We utilize a mix of debt maturities along with both fixed-rate and variable-rate debt to manage changes in interest rates. In addition, we enter into interest rate swaps to further manage our exposure to interest rate variations related to our borrowings and to lower our overall borrowing costs.

Foreign Currency Rate Risk Management – We conduct business in several major international currencies and are therefore subject to risks associated with changing foreign currency exchange rates. We enter into various contracts that change in value as foreign currency exchange rates change to manage this exposure. Such contracts limit exposure to both favorable and unfavorable currency fluctuations. The translation of foreign currencies into United States dollars also subjects us to exposure related to fluctuating foreign currency exchange rates; however, derivative instruments are not used to manage this risk.

Commodity Price Risk Management – We are exposed to changes in the price of certain commodities, including steel, natural gas, zinc and other raw materials, and our utility requirements. Our objective is to reduce earnings and cash flow volatility associated with forecasted purchases and sales of these commodities to allow management to focus its attention on business operations. Accordingly, we enter into derivative contracts to manage the associated price risk.

We are exposed to counterparty credit risk on all of our derivative instruments. Accordingly, we have established and maintain strict counterparty credit guidelines. We have credit support agreements in place with certain counterparties to limit our credit exposure. These agreements require either party to post cash collateral if its cumulative market position exceeds a predefined liability threshold. Amounts posted to the margin accounts accrue interest at market rates and are required to be refunded in the period in which the cumulative market position falls below the required threshold. We do not have significant exposure to any one counterparty, and management believes the risk of loss is remote and, in any event, would not be material.

Refer to “NOTE O – Fair Value” for additional information regarding the accounting treatment for our derivative instruments, as well as how fair value is determined.

The following table summarizes the fair value of our derivative instruments and the respective financial statement caption in which they were recorded in our consolidated balance sheet at February 28, 2017:


	Asset Derivatives				Liability Derivatives
(in thousands)	Balance Sheet Location		Fair Value		Balance Sheet Location		Fair Value
Derivatives designated as hedging instruments:
Commodity contracts		Receivables	$	14,053		Accounts payable	$	-
		Other assets		176		Other liabilities		-

				14,229				-

Interest rate contracts		Receivables		-		Accounts payable		83
		Other assets		-		Other liabilities		228

				-				311

Totals			$	14,229			$	311

Derivatives not designated as hedging instruments:
Commodity contracts		Receivables	$	2,964		Accounts payable	$	233
		Other assets		-		Other liabilities		36

				2,964				269

Foreign currency contracts		Receivables		511		Accounts payable		-

Totals			$	3,475			$	269

Total derivative instruments			$	17,704			$	580

The amounts in the table above reflect the fair value of the Company’s derivative instruments on a net basis. Had these amounts been recognized on a gross basis, the aggregate impact would have been a $91,000 increase in receivables with a corresponding increase in accounts payable.

The following table summarizes the fair value of our derivative instruments and the financial statement caption in which they were recorded in the consolidated balance sheet at May 31, 2016:


	Asset Derivatives				Liability Derivatives
(in thousands)	Balance Sheet Location		Fair Value		Balance Sheet Location		Fair Value
Derivatives designated as hedging instruments:
Commodity contracts		Receivables	$	13,224		Accounts payable	$	696
		Other assets		3,589		Other liabilities		80

				16,813				776

Interest rate contracts		Receivables		-		Accounts payable		155
		Other assets		-		Other liabilities		306

				-				461

Totals			$	16,813			$	1,237

Derivatives not designated as hedging instruments:
Commodity contracts		Receivables	$	4,660		Accounts payable	$	761
		Other assets		317		Other liabilities		-

				4,977				761

Foreign currency contracts		Receivables		-		Accounts payable		15

				-				15

Totals			$	4,977			$	776

Total derivative instruments			$	21,790			$	2,013

The amounts in the table above reflect the fair value of the Company’s derivative instruments on a net basis. Had these amounts been recognized on a gross basis, the aggregate impact would have been a $300,000 decrease in receivables with a corresponding decrease in accounts payable.

Cash Flow Hedges

We enter into derivative instruments to hedge our exposure to changes in cash flows attributable to interest rates and commodity price fluctuations associated with certain forecasted transactions. These derivative instruments are designated and qualify as cash flow hedges. Accordingly, the effective portion of the gain or loss on the derivative instrument is reported as a component of OCI and reclassified into earnings in the same financial statement caption associated with the forecasted transaction and in the same period during which the hedged transaction affects earnings. The ineffective portion of the gain or loss on the derivative instrument is recognized in earnings immediately.

The following table summarizes our cash flow hedges outstanding at February 28, 2017:


(in thousands)	Notional Amount		Maturity Date
Commodity contracts	$	40,570	March 2017 - December 2018
Interest rate contracts		16,183	September 2019

The following table summarizes the gain (loss) recognized in OCI and the gain (loss) reclassified from accumulated OCI into earnings for derivative instruments designated as cash flow hedges during the three months ended February 28, 2017 and February 29, 2016:

Location of

Gain (Loss)

Gain

Reclassified

(Ineffective

Gain (Loss)

from

Portion)

Recognized

Accumulated

and Excluded

in OCI

OCI

from

(Effective

Effectiveness

(in thousands)

Portion)

Testing

For the three months ended February 28, 2017:

Commodity contracts

2,037

Cost of goods sold

3,397

Cost of goods sold

Interest rate contracts

Interest expense

(36

)

Interest expense

Totals

2,062

3,361

For the three months ended February 29, 2016:

Commodity contracts

707

Cost of goods sold

(7,775

)

Cost of goods sold

Interest rate contracts

(107

)

Interest expense

(130

)

Interest expense

Totals

600

(7,905

)

The following table summarizes the gain (loss) recognized in OCI and the gain (loss) reclassified from accumulated OCI into earnings for derivative instruments designated as cash flow hedges during the nine months ended February 28, 2017 and February 29, 2016:


				Location of				Location of
				Gain (Loss)	Gain (Loss)			Gain	Gain
				Reclassified	Reclassified			(Ineffective	(Ineffective
	Gain (Loss)			from	from			Portion)	Portion)
	Recognized			Accumulated	Accumulated			and Excluded	and Excluded
	in OCI			OCI	OCI			from	from
	(Effective			(Effective	(Effective			Effectiveness	Effectiveness
(in thousands)	Portion)			Portion)	Portion)			Testing	Testing
For the nine months ended February 28, 2017:
Commodity contracts	$	9,963		Cost of goods sold	$	8,882		Interest expense	$	-
Interest rate contracts		149		Interest expense		(606	)	Cost of goods sold		-

Totals	$	10,112			$	8,276			$	-

For the nine months ended February 29, 2016:
Commodity contracts	$	(17,629	)	Cost of goods sold	$	(23,422	)	Interest expense	$	-
Interest rate contracts		(274	)	Interest expense		(415	)	Cost of goods sold		-
Foreign currency contracts		-		Miscellaneous income, net		(4	)	Miscellaneous income, net		-

Totals	$	(17,903	)		$	(23,841	)		$	-

The estimated net amount of the losses recognized in accumulated OCI at February 28, 2017 expected to be reclassified into net earnings within the succeeding twelve months is $10,088,000 (net of tax of $5,725,000). This amount was computed using the fair value of the cash flow hedges at February 28, 2017, and will change before actual reclassification from OCI to net earnings during the fiscal years ending May 31, 2017 and 2018.

Economic (Non-designated) Hedges

We enter into foreign currency contracts to manage our foreign currency exchange rate exposure related to inter-company and financing transactions that do not meet the requirements for hedge accounting treatment. We also enter into certain commodity contracts that do not qualify for hedge accounting treatment. Accordingly, these derivative instruments are adjusted to current market value at the end of each period through earnings.

The following table summarizes our economic (non-designated) derivative instruments outstanding at February 28, 2017:


(in thousands)	Notional Amount		Maturity Date(s)
Commodity contracts	$	22,971	March 2017 - December 2018
Foreign currency contracts		15,450	March 2017 - August 2017

The following table summarizes the gain recognized in earnings for economic (non-designated) derivative financial instruments during the three months ended February 28, 2017 and February 29, 2016:


			Gain (Loss) Recognized
			in Earnings for the
			Three Months Ended
(in thousands)	Location of Gain (Loss) Recognized in Earnings		February 28, 2017			February 29, 2016
Commodity contracts		Cost of goods sold	$	258		$	173
Foreign currency contracts		Miscellaneous income, net		(172	)		47

Total			$	86		$	220

The following table summarizes the gain (loss) recognized in earnings for economic (non-designated) derivative financial instruments during the nine months ended February 28, 2017 and February 29, 2016:


			Gain (Loss) Recognized
			in Earnings for the
			Nine Months Ended
(in thousands)	Location of Gain (Loss) Recognized in Earnings		February 28, 2017			February 29, 2016
Commodity contracts		Cost of goods sold	$	5,169		$	(7,972	)
Foreign currency contracts		Miscellaneous income, net		(837	)		117

Total			$	4,332		$	(7,855	)

The gain (loss) on the foreign currency derivatives significantly offsets the gain (loss) on the hedged item.

NOTE O – Fair Value

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is an exit price concept that assumes an orderly transaction between willing market participants and is required to be based on assumptions that market participants would use in pricing an asset or a liability. Current accounting guidance establishes a three-tier fair value hierarchy as a basis for considering such assumptions and for classifying the inputs used in the valuation methodologies. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair values are as follows:


Level 1	–	Observable prices in active markets for identical assets and liabilities.

Level 2	–	Inputs other than quoted prices included within Level 1 that are observable for the assets and liabilities, either directly or indirectly.

Level 3	–	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities.

Recurring Fair Value Measurements

At February 28, 2017, our assets and liabilities measured at fair value on a recurring basis were as follows:


(in thousands)	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Totals
Assets
Derivative instruments (1)	$	-	$	17,704	$	-	$	17,704

Total assets	$	-	$	17,704	$	-	$	17,704

Liabilities
Derivative instruments (1)	$	-	$	580	$	-	$	580
Contingent consideration obligations (2)		-		-		4,557		4,557

Total liabilities	$	-	$	580	$	4,557	$	5,137

At May 31, 2016, our assets and liabilities measured at fair value on a recurring basis were as follows:


(in thousands)	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Totals
Assets
Derivative instruments (1)	$	-	$	21,790	$	-	$	21,790

Total assets	$	-	$	21,790	$	-	$	21,790

Liabilities
Derivative instruments (1)	$	-	$	2,013	$	-	$	2,013
Contingent consideration obligations (2)		-		-		4,519		4,519

Total liabilities	$	-	$	2,013	$	4,519	$	6,532

(1)

The fair value of our derivative instruments is based on the present value of the expected future cash flows considering the risks involved, including non-performance risk, and using discount rates appropriate for the respective maturities. Market observable, Level 2 inputs are used to determine the present value of the expected future cash flows. Refer to “NOTE N – Derivative Instruments and Hedging Activities” for additional information regarding our use of derivative instruments.

(2)	The fair value of the contingent consideration obligations is determined using a probability weighted cash flow approach based on management’s projections of future cash flows of the acquired businesses. The fair value measurement was based on Level 3 inputs not observable in the market.

The fair value of non-derivative financial instruments included in the carrying amounts of cash and cash equivalents, receivables, notes receivable, income taxes receivable, other assets, accounts payable, short-term borrowings, accrued compensation, contributions to employee benefit plans and related taxes, other accrued items, income taxes payable and other liabilities approximate carrying value due to their short-term nature. The fair value of long-term debt, including current maturities, based upon models utilizing market observable (Level 2) inputs and credit risk, was $602,907,000 and $609,245,000 at February 28, 2017 and May 31, 2016, respectively. The carrying amount of long-term debt, including current maturities, was $576,880,000 and $578,353,000 at February 28, 2017 and May 31, 2016, respectively.

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, 2016.

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, 2016 (“fiscal 2016”) 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 February 28, 2017, excluding our joint ventures, we operated 30 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 segment consists of Worthington Energy Innovations (“WEI”), which does not meet the applicable aggregation criteria or quantitative thresholds for separate disclosure, and therefore is combined and reported in the “Other” category.

We also held equity positions in 11 active joint ventures, which operated 50 manufacturing facilities worldwide, as of February 28, 2017. Five 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 their portions of net earnings and other comprehensive income (loss) shown as net earnings or comprehensive income attributable to noncontrolling interests in our consolidated statements of earnings and consolidated statements of comprehensive income, respectively. The remaining six of these joint ventures are accounted for using the equity method.

Overview

The Company’s performance during the third quarter of fiscal 2017 was highlighted by near record earnings at Steel Processing, modest improvement at Pressure Cylinders and Engineered Cabs, and a modest decline at our unconsolidated joint ventures. The Company delivered overall sales growth of 9% on higher average direct selling prices in Steel Processing and contributions from the consolidation of the WSP joint venture effective March 1, 2016. Margins also improved during the quarter on a favorable pricing spread in Steel Processing, which benefited from lower inventory holding losses, and strength in the consumer products business within Pressure Cylinders. Demand continues to be soft in the oil & gas equipment market; however, volumes appear to have stabilized and certain geographic regions are beginning to show signs of improvement. We have reduced costs in an attempt to match demand in this market while maintaining capacity to respond to an eventual market upturn.

Equity in net income of unconsolidated affiliates (“equity income”) decreased $2.3 million from the prior year quarter, as lower contributions from ArtiFlex and Serviacero more than offset improvements at ClarkDietrich, where equity income more than doubled to $2.8 million on strong demand. Strong automotive and construction markets in the U.S. are benefiting these businesses. We received distributions from unconsolidated joint ventures of $21.4 million during the third quarter of fiscal 2017.

Recent Business Developments

•

The Company completed the exit of the businesses within its former Construction Services operating segment during the first quarter of fiscal 2017.

•

The Company’s laser blanking joint venture, TWB, commissioned two new production lines in Mexico during the second quarter of fiscal 2017.

•

During the second quarter of fiscal 2017, the Company announced certain organizational changes impacting its Pressure Cylinders operating segment, including the consolidation of the Cryogenics business unit into the Industrial Products business unit.

•

On March 29, 2017, the Board of Directors of Worthington Industries, Inc. (the “Board”) declared a quarterly dividend of $0.20 per share payable on June 29, 2017, to shareholders of record on June 15, 2017.

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 third quarter of each of fiscal 2017 and fiscal 2016 is illustrated in the following chart:

LOGO

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 63% of the net sales of our Steel Processing operating segment are to the automotive market. North American vehicle production, primarily by Ford, General Motors and FCA US (the “Detroit Three automakers”), has a considerable impact on the activity within this operating segment. The majority of the net sales of three of our unconsolidated joint ventures are also to the automotive end market.

Approximately 13% of the net sales of our Steel Processing operating segment and 49% of the net sales of our Engineered Cabs 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 24% and 51% 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 & 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 these portions 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									Nine Months Ended
	Feb 28, 2017			Feb 29, 2016			Inc / (Dec)			Feb 28, 2017			Feb 29, 2016			Inc / (Dec)
U.S. GDP (% growth year-over-year) ¹		1.7	%		1.8	%		-0.1	%		1.6	%		2.0	%		-0.4	%
Hot-Rolled Steel ($ per ton) ²	$	608		$	381		$	227		$	590		$	420		$	170
Detroit Three Auto Build (000’s vehicles) ³		2,166			2,159			7			6,876			6,972			(96	)
No. America Auto Build (000’s vehicles) ³		4,283			4,246			37			13,690			13,526			164
Zinc ($ per pound) ⁴	$	1.25		$	0.72		$	0.53		$	1.10		$	0.79		$	0.31
Natural Gas ($ per mcf) ⁵	$	3.27		$	2.07		$	1.20		$	2.96		$	2.43		$	0.53
On-Highway Diesel Fuel Prices ($ per gallon) ⁶	$	2.59		$	2.15		$	0.44		$	2.59		$	2.47		$	0.12
Crude Oil—WTI ($ per barrel) ⁶	$	52.64		$	33.06		$	19.58		$	48.52		$	42.99		$	5.53

¹ 2016 figures based on revised actuals ² CRU Hot-Rolled Index; period average ³ IHS Global ⁴ LME Zinc; period average ⁵ NYMEX Henry Hub Natural Gas; period average ⁶ Energy Information Administration; period average

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 2017 (first, second and third quarters), fiscal 2016 and fiscal 2015:


(Dollars per ton ¹)
	Fiscal Year
	2017		2016		2015
1st Quarter	$	617	$	461	$	673
2nd Quarter	$	544	$	419	$	651
3rd Quarter	$	608	$	381	$	578
4th Quarter		N/A	$	486	$	464
Annual Avg.	$	590	$	437	$	592

¹CRU Hot-Rolled Index, period average

No single customer contributed more than 10% of our consolidated net sales during the third quarter of fiscal 2017. 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 third quarter of fiscal 2017, overall North American vehicle production was essentially flat as was production at the Detroit Three automakers.

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 manufacturing operations and indirectly through transportation and freight expense.

Results of Operations

Third Quarter – Fiscal 2017 Compared to Fiscal 2016

Consolidated Operations

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


	Three Months Ended
	Feb 28,			% of			Feb 29,			% of			Increase/
(In millions)	2017			Net sales			2016			Net sales			(Decrease)
Net sales	$	703.4			100.0	%	$	647.1			100.0	%	$	56.3
Cost of goods sold		592.4			84.2	%		551.2			85.2	%		41.2

Gross margin		111.0			15.8	%		95.9			14.8	%		15.1
Selling, general and administrative expense		75.3			10.7	%		70.1			10.8	%		5.2
Restructuring and other expense		1.4			0.2	%		0.7			0.1	%		0.7

Operating income		34.3			4.9	%		25.1			3.9	%		9.2
Miscellaneous income, net		0.7			0.1	%		3.2			0.5	%		(2.5	)
Interest expense		(7.7	)		-1.1	%		(7.9	)		-1.2	%		(0.2	)
Equity in net income of unconsolidated affiliates (1)		22.7			3.2	%		25.0			3.9	%		(2.3	)
Income tax expense		(11.1	)		-1.6	%		(11.3	)		-1.7	%		(0.2	)

Net earnings		38.9			5.5	%		34.1			5.3	%		4.8
Net earnings attributable to noncontrolling interests		3.0			0.4	%		4.3			0.7	%		(1.3	)

Net earnings attributable to controlling interest	$	35.9			5.1	%	$	29.8			4.6	%	$	6.1


(1) Equity income by unconsolidated affiliate
WAVE	$	18.4					$	18.7					$	(0.3	)
ClarkDietrich		2.8						1.3						1.5
Serviacero		0.5						1.7						(1.2	)
ArtiFlex		1.1						3.0						(1.9	)
WSP		—						0.2						(0.2	)
Other		(0.1	)					0.1						(0.2	)

Total	$	22.7					$	25.0					$	(2.3	)

Net earnings attributable to controlling interest for the three months ended February 28, 2017 increased $6.1 million from the comparable period in the prior year. Net sales and operating highlights were as follows:

•

Net sales increased $56.3 million from the comparable period in the prior year. The increase was driven primarily by higher average direct selling prices in Steel Processing, which increased net sales by $43.8 million. The remaining increase was driven by the consolidation of WSP, which contributed net sales of $16.7 million.

•

Gross margin increased $15.1 million from the comparable period in the prior year. The improvement was driven primarily by a favorable pricing spread in Steel Processing, which benefited from lower inventory holding losses, and strength in the consumer products business within Pressure Cylinders.

•

SG&A expense increased $5.2 million over the comparable period in the prior year on higher profit sharing and bonus expense, the consolidation of WSP and an increase in accrued legal costs. Overall, SG&A expense is trending in line with the prior year quarter at 10.7% of consolidated net sales.

•

Restructuring and other expense totaled $1.4 million in the current period and consisted primarily of costs related to a plant consolidation at our cryogenics joint venture in Turkey. For additional information regarding the Company’s restructuring activities, refer to “Item 1. – Financial Statements – Notes to Consolidated Financial Statements – NOTE D – Restructuring and Other Expense” of this Quarterly Report on Form 10-Q.

•

Interest expense decreased $0.2 million from the comparable period in the prior year due to lower short-term borrowings.

•

Equity income decreased $2.3 million from the comparable period in the prior year as lower contributions from ArtiFlex and Serviacero more than offset improvements at ClarkDietrich, where equity income more than doubled to $2.8 million on strong demand. Equity income at Serviacero was negatively impacted by foreign currency fluctuations and the related income tax effects. Strong automotive and construction markets in the U.S. are benefiting these businesses. We received distributions of $21.4 million from our unconsolidated affiliates during the quarter. For additional 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 $0.2 million from the comparable period in the prior year. Increased tax expense due to higher overall earnings and an unfavorable change in the mix of business generated between various tax jurisdictions was more than offset by a $5.1 million tax benefit associated with share-based payment awards. The current quarter expense was calculated using an estimated annual effective income tax rate of 27.2% versus 29.6% 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
	Feb 28,		% of			Feb 29,		% of			Increase/
(Dollars in millions)	2017		Net sales			2016		Net sales			(Decrease)
Net sales	$	478.2		100.0	%	$	419.0		100.0	%	$	59.2
Cost of goods sold		417.6		87.3	%		366.6		87.5	%		51.0

Gross margin		60.6		12.7	%		52.4		12.5	%		8.2
Selling, general and administrative expense		34.4		7.2	%		30.0		7.2	%		4.4
Restructuring and other expense		0.2		0.0	%		1.1		0.3	%		(0.9	)

Operating income	$	26.0		5.4	%	$	21.3		5.1	%	$	4.7

Material cost	$	324.3				$	284.4				$	39.9
Tons shipped (in thousands)		944					801					143

Net sales and operating highlights were as follows:

•

Net sales increased $59.2 million from the comparable period in the prior year driven primarily by higher average direct selling prices, which increased net sales by $43.8 million. The remaining increase was driven by the consolidation of WSP, which contributed net sales of $16.7 million. The mix of direct versus toll tons processed was 52% to 48% compared to 60% to 40% in the prior year quarter. The change in mix was primarily the result of the consolidation of WSP.

•

Operating income increased $4.7 million from the comparable period in the prior year on higher gross margin, partially offset by higher SG&A expense. Gross margin was up on a favorable pricing spread, which benefited from lower inventory holding losses, partially offset by higher manufacturing expenses due to production/start-up costs associated with new production lines at our TWB joint venture and higher healthcare costs. The net impact of these factors increased gross margin by $7.8 million. SG&A expense increased $4.4 million on higher allocated corporate costs and the consolidation of WSP.

Pressure Cylinders

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


	Three Months Ended
	Feb 28,		% of			Feb 29,			% of			Increase/
(Dollars in millions)	2017		Net sales			2016			Net sales			(Decrease)
Net sales	$	198.4		100.0	%	$	200.7			100.0	%	$	(2.3	)
Cost of goods sold		152.1		76.7	%		157.4			78.4	%		(5.3	)

Gross margin		46.3		23.3	%		43.3			21.6	%		3.0
Selling, general and administrative expense		35.1		17.7	%		35.3			17.6	%		(0.2	)
Restructuring and other (income) expense		1.1		0.6	%		(1.0	)		-0.5	%		2.1

Operating income		10.1		5.1	%		9.0			4.5	%		1.1


Material cost	$	83.8				$	84.9					$	(1.1	)

Net sales by principal class of products:
Consumer products	$	54.3				$	51.1					$	3.2
Industrial products		105.8					110.1						(4.3	)
Alternative fuels		23.0					22.3						0.7
Oil & gas equipment		15.3					17.2						(1.9	)

Total Pressure Cylinders	$	198.4				$	200.7					$	(2.3	)

Units shipped by principal class of products:
Consumer products		10,818,423					10,478,006						340,417
Industrial products		6,923,044					6,481,937						441,107
Alternative fuels		100,509					96,123						4,386
Oil & gas equipment		481					640						(159	)

Total Pressure Cylinders		17,842,457					17,056,706						785,751

Net sales and operating highlights were as follows:

•

Net sales decreased $2.3 million from the comparable period in the prior year on declines in the industrial products and oil & gas equipment businesses, partially offset by improvements in consumer products. The most significant decline was in the industrial products business, where net sales decreased $4.3 million on an unfavorable change in product mix due to weak demand across our refillable propane cylinder products and softness for high pressure industrial cylinders in Europe. Demand continues to be soft in the oil & gas equipment market, however, volumes appear to have stabilized and certain geographic regions are beginning to show signs of improvement.

•

Operating income increased $1.1 million from the comparable period in the prior year driven by higher profitability in the consumer products business, partially offset by higher restructuring charges. Restructuring charges in the current period consisted primarily of costs related to a plant consolidation at our cryogenics joint venture in Turkey. Restructuring and other income in the prior year period was driven primarily by a gain related to the sale of the Worthington Nitin Cylinders joint venture in India.

Engineered Cabs

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


	Three Months Ended
(In millions)	Feb 28, 2017			% of Net sales			Feb 29, 2016			% of Net sales			Increase/ (Decrease)
Net sales	$	23.5			100.0	%	$	25.6			100.0	%	$	(2.1	)
Cost of goods sold		21.8			92.8	%		25.2			98.4	%		(3.4	)

Gross margin		1.7			7.2	%		0.4			1.6	%		1.3
Selling, general and administrative expense		3.5			14.9	%		4.1			16.0	%		(0.6	)
Restructuring and other expense		0.2			0.9	%		0.4			1.6	%		(0.2	)

Operating loss	$	(2.0	)		-8.5	%	$	(4.1	)		-16.0	%	$	2.1


Material cost	$	10.8					$	12.3					$	(1.5	)

Net sales and operating highlights were as follows:

•

Net sales decreased $2.1 million from the comparable period in the prior year on lower volume due to declines in market demand.

•

Operating loss improved $2.1 million to $2.0 million. The improvement was driven by a favorable pricing spread and successful cost reduction efforts, which led to higher overall margins and lower SG&A expense.

Other

The Other category includes the WEI operating segment, which does not meet the quantitative thresholds for separate disclosure. Certain income and expense items not allocated to our operating segments are also included in the Other category, including costs associated with our captive insurance company. The following table presents a summary of operating results for the Other category for the periods indicated:


	Three Months Ended
(In millions)	Feb 28, 2017		% of Net sales			Feb 29, 2016			% of Net sales			Increase/ (Decrease)
Net sales	$	3.3		100.0	%	$	1.7			100.0	%	$	1.6
Cost of goods sold		1.0		30.3	%		1.9			111.8	%		(0.9	)

Gross margin (loss)		2.3		69.7	%		(0.2	)		-11.8	%		2.5
Selling, general and administrative expense		2.1		63.6	%		0.7			41.2	%		1.4
Restructuring and other expense		-		0.0	%		0.2			11.8	%		(0.2	)

Operating income (loss)	$	0.2		6.1	%	$	(1.1	)		-64.7	%	$	1.3

Net sales and operating highlights were as follows:

•

Net sales increased $1.6 million from the comparable period in the prior year on higher volumes at WEI.

•

Operating income of $0.2 million in the current period was driven primarily by improvements at WEI, partially offset by higher SG&A expense, which was negatively impacted by a $1.3 million increase in accrued legal costs. The operating loss in the prior year period was driven primarily by losses within the Construction Services business, which has ceased operations.

Nine Months Year-to-Date – Fiscal 2017 Compared to Fiscal 2016

Consolidated Operations

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


	Nine Months Ended
	Feb 28,			% of			Feb 29,			% of			Increase/
(In millions)	2017			Net sales			2016			Net sales			(Decrease)
Net sales	$	2,168.8			100.0	%	$	2,105.0			100.0	%	$	63.8
Cost of goods sold		1,787.7			82.4	%		1,786.9			84.9	%		0.8

Gross margin		381.1			17.6	%		318.1			15.1	%		63.0
Selling, general and administrative expense		232.8			10.7	%		218.8			10.4	%		14.0
Impairment of long-lived assets		—			0.0	%		26.0			1.2	%		(26.0	)
Restructuring and other expense		6.0			0.3	%		5.3			0.3	%		0.7

Operating income		142.3			6.6	%		68.0			3.2	%		74.3
Miscellaneous income, net		2.4			0.1	%		3.7			0.2	%		(1.3	)
Interest expense		(23.2	)		-1.1	%		(23.5	)		-1.1	%		(0.3	)
Equity in net income of unconsolidated affiliates (1)		84.4			3.9	%		80.8			3.8	%		3.6
Income tax expense		(48.6	)		-2.2	%		(34.1	)		-1.6	%		14.5

Net earnings		157.3			7.3	%		94.9			4.5	%		62.4
Net earnings attributable to noncontrolling interests		9.3			0.4	%		9.7			0.5	%		(0.4	)

Net earnings attributable to controlling interest	$	148.0			6.8	%	$	85.2			4.0	%	$	62.8


(1) Equity income by unconsolidated affiliate
WAVE	$	57.9					$	59.8					$	(1.9	)
ClarkDietrich		15.7						10.3						5.4
Serviacero		4.5						2.9						1.6
ArtiFlex		6.1						7.2						(1.1	)
WSP		—						1.7						(1.7	)
Other		0.2						(1.1	)					1.3

Total	$	84.4					$	80.8					$	3.6

Net earnings attributable to controlling interest for the nine months ended February 28, 2017 increased $62.8 million from the comparable period in the prior year. Net sales and operating highlights were as follows:

•

Net sales increased $63.8 million from the comparable period in the prior year. The increase was the result of higher average direct selling prices in Steel Processing, which favorably impacted net sales by $80.9 million, partially offset by lower volume in Engineered Cabs and certain Pressure Cylinders businesses. Net sales were also favorably impacted by the consolidation of WSP, which contributed net sales of $52.0 million.

•

Gross margin increased $63.0 million from the comparable period in the prior year. A favorable pricing spread, primarily in Steel Processing and to a lesser extent in Pressure Cylinders, increased gross margin by $86.2 million. The impact of higher spreads was partially offset by higher overall manufacturing expenses, which reduced gross margin by $19.6 million.

•

SG&A expense increased $14.0 million over the comparable prior year period. The consolidation of WSP and the impact of prior year acquisitions in Pressure Cylinders accounted for $7.4 million of the increase. The remaining increase in SG&A expense was due to higher profit sharing and bonus expense and an increase in accrued legal costs.

•

Restructuring and other expense totaled $6.0 million in the current period. A total of $3.1 million related to activities within Pressure Cylinders, including $1.8 million of costs incurred in connection with a plant consolidation at our cryogenics joint venture in Turkey. The remaining activity related to ongoing costs associated with previously completed plant closures in Steel Processing and Engineered Cabs.

For additional information regarding the Company’s restructuring activities, refer to “Item 1. – Financial Statements – Notes to Consolidated Financial Statements – NOTE D – Restructuring and Other Expense” of this Quarterly Report on Form 10-Q.

•

Interest expense decreased $0.3 million from the comparable period in the prior year on lower short-term borrowings.

•

Equity income increased $3.6 million from the comparable period in the prior year on higher contributions from ClarkDietrich and Serviacero. Equity income at ClarkDietrich was $5.4 million higher than the prior year period despite a $4.0 million favorable impact related to legal settlements in the prior year. The contribution from Serviacero was also up on a favorable pricing spread driven by significant inventory holding gains in the current period. Strong automotive and construction markets in the U.S. are benefiting these businesses. We received distributions of $84.2 million from our unconsolidated affiliates during the nine months ended February 28, 2017. For additional 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 increased $14.5 million from the comparable period in the prior year due to higher earnings. The increase in tax expense was partially offset by the following items recorded in the current year: (i) a $16.0 million tax benefit associated with share-based payment awards, and (ii) a $1.2 million tax benefit related to foreign tax credits. Tax expense of $48.6 million for the nine months ended February 28, 2017 was calculated using an estimated annual effective rate of 27.2% versus 29.6% in the prior year comparable period. 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:


	Nine Months Ended
	Feb 28,		% of			Feb 29,		% of			Increase/
(Dollars in millions)	2017		Net sales			2016		Net sales			(Decrease)
Net sales	$	1,492.7		100.0	%	$	1,377.6		100.0	%	$	115.1
Cost of goods sold		1,267.8		84.9	%		1,206.4		87.6	%		61.4

Gross margin		224.9		15.1	%		171.2		12.4	%		53.7
Selling, general and administrative expense		107.1		7.2	%		95.8		7.0	%		11.3
Restructuring and other expense		1.5		0.1	%		3.8		0.3	%		(2.3	)

Operating income	$	116.3		7.8	%	$	71.6		5.2	%	$	44.7

Material cost	$	976.0				$	955.2				$	20.8
Tons shipped (in thousands)		2,995					2,495					500

Net sales and operating highlights were as follows:

•

Net sales increased $115.1 million from the comparable period in the prior year driven primarily by higher average direct selling prices, which increased net sales by $80.9 million. The remaining increase was due to higher volume as a result of the consolidation of the WSP joint venture. The mix of direct versus toll tons processed was 51% to 49% compared to 61% to 39% in the comparable period of fiscal 2016. The change in mix was primarily the result of the consolidation of WSP.

•

Operating income increased $44.7 million from the comparable period in the prior year on higher gross margin, partially offset by higher SG&A expense. Margins improved on a favorable pricing spread, partially offset by higher manufacturing expenses driven by higher profit sharing and bonus expense, an increase in healthcare costs and production/start-up costs associated with new production lines at our TWB joint venture. The net impact of these factors increased gross margin by $51.6 million. SG&A expense increased $11.3 million on higher allocated corporate costs, the consolidation of WSP, and higher profit sharing and bonus expense. Restructuring and other expense in the nine months ended February 28, 2017 consisted primarily of costs related to the closure of PSM.

Pressure Cylinders

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


	Nine Months Ended
	Feb 28,		% of			Feb 29,			% of			Increase/
(Dollars in millions)	2017		Net sales			2016			Net sales			(Decrease)
Net sales	$	598.3		100.0	%	$	626.3			100.0	%	$	(28.0	)
Cost of goods sold		452.0		75.5	%		482.0			77.0	%		(30.0	)

Gross margin		146.3		24.5	%		144.3			23.0	%		2.0
Selling, general and administrative expense		107.7		18.0	%		106.1			16.9	%		1.6
Impairment of long-lived assets		—		0.0	%		23.0			3.7	%		(23.0	)
Restructuring and other (income) expense		3.1		0.5	%		(0.3	)		0.0	%		3.4

Operating income	$	35.5		5.9	%	$	15.5			2.5	%	$	20.0


Material cost	$	243.1				$	269.4					$	(26.3	)

Net sales by principal class of products:
Consumer products	$	170.4				$	155.5					$	14.9
Industrial products		305.0					324.6						(19.6	)
Alternative fuels		81.9					71.1						10.8
Oil & gas equipment		41.0					75.1						(34.1	)

Total Pressure Cylinders	$	598.3				$	626.3					$	(28.0	)

Units shipped by principal class of products:
Consumer products		33,291,082					32,979,643						311,439
Industrial products		19,403,628					19,709,251						(305,623	)
Alternative fuels		370,761					295,200						75,561
Oil & gas equipment		1,671					3,004						(1,333	)

Total Pressure Cylinders		53,067,142					52,987,098						80,044

Net sales and operating highlights were as follows:

•

Net sales decreased $28.0 million from the comparable period in the prior year. The decrease was driven by lower volumes in the oil & gas equipment and industrial products businesses, partially offset by improvements in consumer products and alternative fuels. The most significant decline was in oil & gas equipment, where net sales decreased 45%, or $34.1 million, on weak demand. Net sales in the industrial products business were down $19.6 million on lower volume due to weak demand across our refillable propane cylinder products, as well as softness for high pressure industrial cylinders in Europe.

•

Operating income increased $20.0 million from the comparable period in the prior year primarily on lower impairment and restructuring charges, which declined $19.6 million. Improvements in the consumer products and alternative fuels businesses were largely offset by declines in the oil & gas equipment and industrial products businesses.

Engineered Cabs

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


	Nine Months Ended
	Feb 28,			% of			Feb 29,			% of			Increase/
(In millions)	2017			Net sales			2016			Net sales			(Decrease)
Net sales	$	71.6			100.0	%	$	92.9			100.0	%	$	(21.3	)
Cost of goods sold		66.2			92.5	%		90.2			97.1	%		(24.0	)

Gross margin		5.4			7.5	%		2.7			2.9	%		2.7
Selling, general and administrative expense		11.2			15.6	%		14.2			15.3	%		(3.0	)
Impairment of long-lived assets		-			0.0	%		3.0			3.2	%		(3.0	)
Restructuring and other expense		1.4			2.0	%		3.1			3.3	%		(1.7	)

Operating loss	$	(7.2	)		-10.1	%	$	(17.6	)		-18.9	%	$	10.4


Material cost	$	32.2					$	43.7					$	(11.5	)

Net sales and operating highlights were as follows:

•

Net sales decreased $21.3 million from the comparable period in the prior year due to declines in market demand.

•

Operating loss improved $10.4 million to $7.2 million on lower impairment and restructuring charges and the impact of cost reduction efforts, which led to margin improvements and a 21% decline in SG&A expense.

Other


	Nine Months Ended
	Feb 28,			% of			Feb 29,			% of			Increase/
(In millions)	2017			Net sales			2016			Net sales			(Decrease)
Net sales	$	6.2			100.0	%	$	8.2			100.0	%	$	(2.0	)
Cost of goods sold		1.7			27.4	%		8.3			101.2	%		(6.6	)

Gross margin (loss)		4.5			72.6	%		(0.1	)		-1.2	%		4.6
Selling, general and administrative expense		6.8			109.7	%		2.5			30.5	%		4.3
Restructuring and other income		-			0.0	%		(1.2	)		-14.6	%		1.2

Operating loss		(2.3	)		-37.1	%		(1.4	)		-17.1	%		(0.9	)

Net sales and operating highlights were as follows:

•

Net sales decreased $2.0 million from the comparable period in the prior year as the former Construction Services operating segment ceased operations during the first quarter of fiscal 2017.

•

Operating loss of $2.3 million in the current period was driven primarily by higher SG&A expense, up $4.3 million due primarily to higher profit sharing and bonus expense and an increase in accrued legal costs. Gross margin improved $4.6 million on higher contributions from WEI and lower losses in Construction Services, which ceased operations during the first quarter of fiscal 2017.

Liquidity and Capital Resources

During the nine months ended February 28, 2017, we generated $254.9 million of cash from operating activities, invested $52.2 million in property, plant and equipment and paid dividends of $38.1 million on our common shares. The following table summarizes our consolidated cash flows for the nine months ended February 28, 2017 and February 29, 2016:


	Nine Months Ended
(in millions)	February 28, 2017			February 29, 2016
Net cash provided by operating activities	$	254.9		$	295.8
Net cash used by investing activities		(51.2	)		(105.4	)
Net cash used by financing activities		(60.6	)		(196.1	)

Increase (decrease) in cash and cash equivalents		143.1			(5.7	)
Cash and cash equivalents at beginning of period		84.2			31.1

Cash and cash equivalents at end of period	$	227.3		$	25.4

We believe we have access to adequate resources to meet the needs of our existing businesses for normal operating costs, mandatory capital expenditures, debt redemptions, dividend payments, and working capital. 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.

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 $254.9 million during the nine months ended February 28, 2017 compared to $295.8 million in the comparable period of fiscal 2016. The decrease was driven primarily by an increase in working capital levels as a result of higher average steel prices, partially offset by higher net earnings. Net cash provided by operating activities in the prior year period benefited from declining working capital levels as a result of declining steel prices and lower overall volumes.

Investing Activities

Net cash used by investing activities was $51.2 million during the nine months ended February 28, 2017 compared to $105.4 million in the prior year period. The decrease from the prior year period was driven primarily by the absence of acquisitions in the current year and lower capital expenditures, which decreased $23.3 million.

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 $60.6 million during the nine months ended February 28, 2017 compared to $196.1 million in the comparable prior year period. The decrease from the prior year period was driven primarily by the absence of share repurchases and lower repayments of short-term borrowings.

As of February 28, 2017, we were in compliance with our short-term and long-term financial debt covenants. These debt agreements do not include credit rating triggers or material adverse change provisions. Our credit ratings at February 28, 2017 were unchanged from those reported as of May 31, 2016.

Common shares - The Board of Directors of Worthington Industries, Inc. (the “Board”) declared a quarterly dividend of $0.20 per common share for the first, second and third quarters of fiscal 2017 compared to $0.19 per common share for the first, second and third quarters of fiscal 2016. Dividends paid on our common shares totaled $38.1 million and $35.5 million during the nine months ended February 28, 2017 and February 29, 2016, respectively. On March 29, 2017, the Board declared a quarterly dividend of $0.20 per share payable on June 29, 2017, to shareholders of record on June 15, 2017.

On June 25, 2014, the Board authorized the repurchase of up to 10,000,000 of our outstanding common shares. A total of 5,953,855 common shares have been repurchased under this authorization, leaving 4,046,145 common shares available for repurchase. No common shares were repurchased under this authorization during the first nine months of fiscal 2017.

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 2016 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 February 28, 2017, 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 $9.6 million at February 28, 2017. Based on current facts and circumstances, we have estimated the likelihood of payment pursuant to this guarantee is not probable and, therefore, no amounts have been recognized in our consolidated financial statements.

Recently Adopted Accounting Standards

In April 2015, amended accounting guidance was issued that requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of the corresponding debt liability itself. The amended guidance does not apply to line-of-credit arrangements. Accordingly, issuance costs related to line-of-credit arrangements will continue to be presented as an asset and amortized ratably over the term of the arrangement. The Company adopted this guidance on a retrospective basis effective June 1, 2016. As a result, debt issuance costs totaling $2.2 million and $2.5 million as of February 28, 2017 and May 31, 2016, respectively, have been presented as a component of the carrying amount of long-term debt reported in our consolidated balance sheets. Fiscal 2016 amounts were previously capitalized and reported within other assets.

Recently Issued Accounting Standards

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 2016 Form 10-K.

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 2016 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 February 28, 2017). 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

There were no changes that occurred during the period covered by this Quarterly Report on Form 10-Q (the fiscal quarter ended February 28, 2017) 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.

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, 2016 (the “2016 Form 10-K”), as filed with the Securities and Exchange Commission on August 1, 2016, 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 2016 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 2016 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 2016 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 February 28, 2017:


					Total Number of
					Common Shares
					Purchased as		Maximum Number of
	Total Number		Average Price		Part of Publicly		Common Shares that
	of Common		Paid per		Announced		May Yet Be
	Shares		Common		Plans or		Purchased Under the
Period	Purchased		Share		Programs		Plans or Programs (1)
December 1-31, 2016 (2)		178,020	$	58.85		-		4,046,145
January 1-31, 2017		-	$	-		-		4,046,145
February 1-28, 2017		-	$	-		-		4,046,145

Total		178,020	$	58.85		-

(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 26, 2014, Worthington Industries, Inc. announced that on June 25, 2014, the Board of Directors had authorized the repurchase of up to 10,000,000 of Worthington Industries’ outstanding common shares. A total of 4,046,145 common shares were available under this repurchase authorization at February 28, 2017.

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 178,020 common shares surrendered by employees in December 2016 to satisfy tax withholding obligations upon the vesting of restricted common shares. These common shares were not counted against the share repurchase authorization in effect throughout the third quarter of fiscal 2017 and discussed in footnote (1) above.

Item 3. – Defaults Upon Senior Securities

Not applicable.

Item 4. – Mine Safety Disclosures

Not applicable.

Item 5. – Other Information

Not applicable.

Item 6. – Exhibits



		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.

#	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 February 28, 2017 and May 31, 2016;

(ii)

Consolidated Statements of Earnings for the three and nine months ended February 28, 2017 and February 29, 2016;

(iii)

Consolidated Statements of Comprehensive Income for the three and nine months ended February 28, 2017 and February 29, 2016;

(iv)

Consolidated Statements of Cash Flows for the three and nine months ended February 28, 2017 and February 29, 2016; and

(v)

Notes to Consolidated Financial Statements.

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: April 10, 2017	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)

INDEX TO EXHIBITS


Exhibit No.	Description	Location

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 #

#	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 February 28, 2017 and May 31, 2016;

(ii)

Consolidated Statements of Earnings for the three and nine months ended February 28, 2017 and February 29, 2016;

(iii)

Consolidated Statements of Comprehensive Income for the three and nine months ended February 28, 2017 and February 29, 2016;

(iv)

Consolidated Statements of Cash Flows for the three and nine months ended February 28, 2017 and February 29, 2016; and

(v)

Notes to Consolidated Financial Statements.