Worthington to Sell Decatur Facility
05/28/2004 -
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Worthington to Sell Decatur Facility
May 28, 2004 — Worthington Industries, Inc. announced an agreement to sell its Decatur, Ala., cold rolling assets to Nucor Corp. for $82 million cash.
Construction of the Decatur steel processing facility was announced in November 1996 and began in 1997. It was built next door to the Trico minimill, which is now Nucor-Decatur. The Decatur facility, which has a cold mill capacity of approximately 1 million annual tons, began operations in 1998. The Decatur facility’s cold mill currently processes approximately 500,000 tons of hot rolled steel into cold rolled wide sheet annually. The facility also performs more traditional steel processing services such as slitting, cutting-to-length and pickling. Annual net sales are expected to be $220 million in fiscal 2004 compared to $210 million in fiscal 2003. Since its 1998 opening, the Decatur facility has struggled with inconsistent feedstock, increased competition, challenging economic conditions and severe compression in the commodity price spreads between hot rolled sheet steel (the facility’s raw material) and cold rolled sheet steel (its product). As a result of these challenges, Decatur has not been profitable on a fully allocated operating income basis nor has it earned its cost of capital. |
Worthington will retain net working capital, estimated to be $37 million at the time of closing. After the sale, Worthington will remain in a portion of its current facility and will continue to serve its customers requiring steel processing services in Worthington's core business of slitting and cutting-to-length. Both companies will work closely to provide a seamless transition for all of Worthington's current customers.
Closing of the transaction is expected to occur within the next 60 days, after receiving the necessary approvals from government agencies.
"We are excited about the repositioning of our efforts to serve the growing southeastern market," said John McConnell, Chairman and CEO of Worthington Industries. "We will now be able to focus on our core value-added processing strengths supported by a strong supply relationship with Nucor, one of our country's strongest steel producers.
"We have made significant changes in Worthington's businesses over the last several years — divesting non-core assets or those that were not delivering appropriate returns on capital, like Decatur; consolidating facilities; and reinvesting in higher growth businesses such as Dietrich and, more recently, Unimast in our Metal Framing segment. As the economy and our volumes have improved, these actions have enhanced our current financial performance and provide a base for growth in the future," concluded McConnell.
The Decatur assets to be sold include the land and buildings, the four-stand tandem cold mill, temper mill, pickle line and annealing furnaces. The purchase does not include the hot roll and cold roll slitting and cut-to-length assets or the net working capital. Worthington will continue to operate those processing assets at the current site, under a long-term building lease from Nucor.
As a result of the sale agreement, Worthington will take an estimated $73 million pre-tax charge during its fourth quarter ending May 31, 2004, primarily for the impairment of assets at the Decatur facility. All but an estimated $5 million of the pre-tax charge is non-cash. The after-tax impact of this charge is expected to be approximately $46 million ($0.52 per diluted share).
Worthington also updated its quarterly forecast, commenting that it expects operating results to be very strong for the fourth quarter. All three of Worthington's business segments as well as its unconsolidated joint ventures have experienced normal seasonal strength which, when combined with improving economic and industry trends, has led to significantly increased volumes and pricing. Results will be affected by other one-time items including favorable settlements with the Enron bankruptcy estate (approximately $4 million or $0.03 per share) and of certain tax audits (approximately $6 million or $0.07 per share), offset by an impairment of certain assets related to the European operations of Pressure Cylinders (approximately $2 million or $0.02 per share). Collectively, these three items will have a net positive impact on earnings per share of approximately $0.08. Together with the $0.52 charge for Decatur, the net negative effect of all one-time items is expected to be approximately $0.44 per diluted share. After recognizing these items, the company expects earnings to be between $0.31 and $0.36 per diluted share for the fourth quarter ending May 31, 2004.
Worthington Industries is a leading diversified metal processing company with annual sales of more than $2 billion. The Columbus, Ohio, based company is a value-added steel processor and a leader in manufactured metal products such as automotive past model service stampings, pressure cylinders, metal framing, metal ceiling grid systems and laser welded blanks. Worthington employs more than 8,000 people and operates 61 facilities in 10 countries.
Founded in 1955, the company operates under a long-standing corporate philosophy rooted in the golden rule, with earning money for its shareholders as the first corporate goal. This philosophy, an unwavering commitment to the customer, and one of the strongest employee/employer partnerships in American industry serve as the company's foundation.
