Ladies and gentlemen, good afternoon, and welcome to the Worthington Industries Third Quarter 2014 Earnings Conference Call. (Operator Instructions) This conference is being recorded at the request of Worthington Industries. If anyone objects, you may disconnect at this time. I'd like to introduce Ms. Cathy Lyttle, Vice President of Corporate Communications and Investor Relations. Ms. Lyttle, you may begin.

Thanks John. Good afternoon. Thanks for joining us on our third quarter conference call. As a reminder, certain statements made on this call are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties and could cause actual results to differ from those suggested. Please review our earnings release that we issued this morning for more detail on those factors that could cause actual results to differ materially. If you’d like to listen to today’s call again, a replay will be made available later on our company website, worthingtonindustries.com. In the room with me are John McConnell, Chairman and Chief Executive Officer; Mark Russell, President and Chief Operating Officer; Andy Rose, Vice President and Chief Financial Officer. John will start us off.

Well, thank you, Cathy, and good afternoon everyone. We appreciate you joining us. I’m once again very proud of our employee for producing results in our third quarter which meet our internal objectives of improving year-over-year. In fact, we produced the best third quarter earnings in our company’s history. And we did so when our results were adversely impacted by extreme weather conditions during the quarter. The impact of which is very difficult to predict or quantify, so we won’t even attempt to, but I mention it, because I think it help heightened your appreciation for the achievement of the record quarter. Now, Andy and Mark will provide the financial and operating highlights from the quarter. So, Andy?

Thank you, John, and good afternoon. The company continued to perform well in the third quarter of fiscal 2014 led by our very strong performances deal, good growth in cylinders, partially offset by lingering weakness in the Engineered Cabs business and larger than expected losses from our Construction businesses, which we are in the process of exiting. While it is difficult to quantify severe weather did affects results as some of our facilities and some of our -- and our customers facilities were forced to close down operations, shipments were delayed and in a few cases power supplies curtailed. We expect that much of the impact will be made up in the next quarter. Quarterly earnings per share of $0.58 were up 12% or $0.06 per share from last year after excluding restructuring charges. Inventory holding gains were modest $0.01 per share during the quarter as steel prices overall remained relatively stable. Several unique items impacted the quarter as follows, $1.4 million of restructuring charges in steel processing related to the closure of our Baltimore processing facility. Despite the closure, most of this business was successfully transferred to other Worthington locations. $1.8 million of non-recurring SG&A expenses for acquisition fees and legal expense accruals in pressure cylinders. $2.5 million of discrete tax items benefited the company during the quarter, contributing to an estimated annual effective tax rate of 27.3%. Our core rate remained higher at 32.3%. SG&A increased $12.5 million or 20% year-over-year but much of that was due to acquisitions and as a percentage of sales, which we believe is the more important indicator it is declined from 10.2% to 9.8%. Cylinders operating income was up 20% to $21.7 million driven by strong contributions from our branded consumer products, alternative fuels in the U.S. and a large propane system…

For our Pressure Cylinder segment overall, it was a good quarter with 14% increase in revenues and improved gross margin percentages. Our energy business continued their transformation process launch with focus on increasing operating margins and going both organically and geographically to serve our rapidly expanding customer base across North America. Our new cryogenic cylinder product line launched in the U.S. market during the quarter and will soon expand to other countries as regulatory approvals are obtained. Our 75% investment in ARITAS will accelerate our global cryogenic growth. ARITAS, based in Turkey, is a pioneer in large cryogenic vessels and systems including liquefied natural gas, fuel systems from marine engine applications, LNG transport trailers, LNG iso-containers as well as LNG satellite stations for both marine port and land re-gassification applications, which are all critical parts of the growing virtual or mobile pipeline infrastructure. The world will need to take advantage of the abundant, cheap and clean natural gas. Our now significantly expanded cryogenic team is already working hard to develop innovative cryogenic LNG solutions for heavy truck and off-road vehicle applications as well, which will complement our growing compressed natural gas and propane alternative fuels businesses. We’re well situated to continue to realize significant growth as the global economy begins to capitalize on decades worth of cheap and clean natural gas supply starting here in North America. Compressed or liquefied natural gas is significantly cheaper and cleaner than diesel or gasoline and should be the fuel of choice for virtually anything that moves. Worthington is determined to be a global leader in supplying the solutions that the world needs to take advantage of that. Engineered Cabs continues to operate in a weak North American environment although most mobile equipment manufacturers have forecast a flat 2014. There are some signs of…

Mark, thank you and Andy. Reviewed it very nicely for everyone. We will be happy to take any questions you have.

(Operator Instructions) And first, we will go to the line of Luke Folta with Jefferies. Please go ahead.

Hi. Good afternoon. Wanted to ask firstly on your Steel Processing segments, if we look over the last four years or so, the annual average earnings per tonne, EBIT per tonne has been somewhere in the neighborhood of $25 to $30. And each quarter this year, we have seen a number north of $30, in the second quarter north of $40 and the average to date is about $37. So, I want to understand what you think the biggest drivers of that upward shift has been?

It is a base improvement across almost everything they do though I will let Mark expand on that.

Right. As you see that that number moved up over recent years, I think it’s a combination of factors. As John alluded to, we are more efficient in acquiring steel. We are more efficient at processing it and we are more efficient at selling it. So we have a margin improvement on each of those factors. The other factor is the mix has changed slightly. As you recall, we’ve done two acquisitions and one of those significantly increased the mix of cold-rolled strip, which is a higher margin product for us and we have emphasized commercially trying to keep our higher value-added facilities full. So the proportion that is cold-rolled or galvanized or pickled and further processed such as blanking has gone up. So, factor all those things together and we see the trend that you cited.

Okay. And then I’m kind of excited about this cryogenic cylinder rollout that you announced during the quarter. Obviously, very strong prospects for that product globally. I wanted to see if we can quantify in some way what the market opportunity is, or how much capacity you’ve built, or what do you think the revenue potential is and just to try to shape up how we should think about trying to model this going forward over the next few years.

I don’t think we are going to be specific. I think the opportunity is large. Mark alluded to -- he didn’t alluded to. We talked about what we believe the future of natural gas is going to be and this is a significant part of that. It will take us two to three years to really ramp up a large amount of capacity, but it was a very exciting market. It was the last market. I think we needed to be in from a cylinder basis and our anticipation with ARITAS gives us access to great engineers who specialize in large cryogenic vessels, bring expertise where we are able to accelerate our entry in that market. Andy, Mark, anything to add?

Yes. The only thing I would say is, broadly speaking the cryogenics market globally is north of a $1 billion market. The product I think that we launched this quarter, maybe that you referenced early on is that in the U.S. I think that market is probably in the neighborhood of $40 million to $60 million, something like that, but that’s one product. So just give you order of magnitude.

Look what we launched in the quarter were industrial cylinders that were designed to hold industrial gases, but they are very similar to the ones we’re working on a design and in the design and introduction phase for alternative fuel systems. And of course the ARITAS connection kind of leaps us forward in that regard, especially on the larger tank sizes.

Okay. And then I guess just further on that, you’ve done a lot of work on the CNG side of the market, and that’s a pretty solid market, good growth prospects there. And it sort of also benefits from there only being a few producers of those products, and there has also been some consolidation in that area over the last couple of years. On the cryogenic side, can you give us some sense of what the competitive landscape looks like, both in the U.S. and globally?

Yes. It’s very similar. There is a limited number of players in the space. In fact, that’s one of the reasons that probably took us longer than we had hoped to get into the space. And I think the other thing I would say about this market is, there is a fair amount of technology in this product. So even if you have the capability of manufacturing a cylinder, it doesn’t necessarily mean you have the qualifications to really enter the cryogenics markets. And that’s why it was so important for us to acquire ARITAS because they have a very deep bench of technology already in the company that we can leverage with our global manufacturing footprint.

We thought that they were the best that we could find for the large cylinders.

Okay. And I guess lastly, on the cylinders, is there -- the acquisition that you’ve made and maybe just your estimates, can you give us some sense of what you think the margin profile of these products might look like relative to the rest of your business in cylinders?

Are you talking specifically about ARITAS and cryogenics?

Yes. I guess either or both.

Well, I guess the easy way to answer that question is, any investment that we make is going to raise the margins in the cylinder business and we fully expect that within the cryogenic space that would be the case as well. So when you compare it to existing margins in that business.

Everything we are looking at is higher than the current average.

Okay. All right, gentlemen. Thank you. I will it turn over.

Thank you.

Our next question is from John Tumazos of Very Independent Research. Please go ahead.

Thank you for the presentation. If you lost about two business days due to weather, should we estimate that something like 5% of revenues were lost, or do you think you made the business up on the other 58 or so days first? And second question, are the energy storage cylinders big enough to justify a separate segment? I don’t know if you would call it consumer versus industrial, or energy storage versus something else. We see that the revenues from your third and fourth segments are pretty smaller, although the assets in those two segments combine to 0.5 billion?

Was that it?

Just those two, John?

Okay. Thank you, John. As we said in the beginning, John, we aren’t even going to take a stab at actually quantifying the impacts of the weather. I think the Andy in his comments indicated we feel much of that will come back. It was real demand that was unable to move, produce. Customers couldn’t receive, any number of plants were shutdown and power interrupted. So there was a whole bunch of different things going on is almost impossible to give you a number with any great confidence. But again, I think the important thing is we think a lot of business just pushes into the next quarter. And I know you’d like to have a specific number, we just can’t get there. The second one on -- whether we -- I will take the part of the segmentation of this. It’s something as we expand in the some of the business we continually look at, I like to talk about that this morning. Do we have segmented properly? Should they be named something else? So that’s the topic that we are looking at. Does that address both of your questions?

Yes, sir. Thank you.

One point of reference, John, we don’t do it quarterly but annually for the last two years in our 10-K. We have segmented revenue into four different categories in the cylinder business, Industrial gas, retail, alternative fuels and other retail industrial alternative fuels and energy. Thank you.

Thank you.

Yes, sir. Thank you for joining us today.

Our next question is from Phil Gibbs with KeyBanc Capital Markets. Please go ahead.

Good afternoon. Thanks for taking my call. I just had a question on the tax line, Andy, you talked about, I think a $2.5 million discrete favorable item in the quarter. Is that more of a true up for the year and what are we expecting for the tax rate moving forward?

That’s the best guess for the year based on where we are. Within the quarter, it was actually a couple of different items. One was some international tax credit that we’re able to take. Another was on releasing our reserve related to a dispute that we had with the state that we resolved favorably. And so those are for the most part one-time items. But we’ve got sort of our best estimate of what the year is. But this year we had a number of favorable adjustments which is why the rate is in the 27% range.

Okay. And as far as the management of working capital here, inventory is up into the quarter, which makes sense relative to what you have done historically. But a big pickup in payables, just curious as to what led that real big upshot and what we should expect on the working capital side moving forward?

They are both very closely related. Steel purchases were up as volumes increased and as a result our payables were up. The payable increased is almost exclusively steel payables to our mill partners. The other thing I’ll say about that is it can be a little tricky in terms of the timing because if we close the quarter at the end of a month, we might make a payment the next day or two days later and those payments, I mean we buy north of a billion dollar worth of steel a year. So they’re pretty sizable payments and they can swing just based on where we make the payment relative to when the quarter ends.

Okay.

I wouldn’t say it’s anything that concerns us. We continue to do an excellent job of managing our working capital particularly in and around our steel purchases.

And the quarterly, CapEx here $22 million, I think the biggest quarterly number I’ve seen from you as a company going back here for at least decade. So where was the investment, call it aggressive during the quarter? And what should we expect for the balance of the year and maybe on a more normalized basis?

Our CapEx has increased this year and is going to remain somewhat elevated next year. The good news on that front is a good portion of what we’re spending is capacity expansions. We also have -- we’re building a new cryogenics facility in Turkey. That construction is just getting under way. We’re doing some work in Austria in our European cylinder facility. And we’ve also added some capacity here in the U.S. and particularly, we just talked about the industrial gas cryogenics cylinder. We actually added some manufacturing capacity of one of our existing facilities. The other thing that’s going on there is we now consolidate TWB. So we have their CapEx now in our numbers. And we’ll give you as we get to the next quarter, we’ll give you a good number for the following year. But I would say we’re going to probably stay at a similar level in fiscal 2015 as we were, we have been in 2014.

Okay. And then just last question just on cylinders, I know not all units at this point are created equal. We saw a pretty big sequential lift in volume. Can you talk about maybe some of the moving pieces there? Big lift in consumer, possibly from a seasonal perspective or are we seeing any, call it sequential lift in the energy business or what’s really driving that?

Yeah. Again, I mean you are right on top of this one, Phil. The volume numbers between our retail business and our energy business are tens of millions apart and so the energy volume, that's one of the reasons we're looking at segmentation, further segmentation in cylinders because we had a very strong quarter for our retail product lines, which the two largest in there are the camping, the 16 ounce camping cylinders and the hand torch cylinder. And if you think about a cold winter, propane fuel is obviously going to be big and a lot of bursting pipes. You think about a lot of hand torch has been used. So that's a lot of volume between those two right there. So it's hard to analyze what's going on relative to the energy business because those numbers just get buried.

Okay. And sorry, I had another one before I forget. I know, Mark, you gave a little bit of color on your growth in the base business in toll versus direct. But what should we look at as far as the mix? I know you have given it in the past as far as percentage direct versus toll. Thanks.

Long-term, you're still going to see it vary around 50-50. We happen to pick up a lot of total volume this past quarter on the coated side that’s what was driving that for this quarter. We're not trying to emphasize either part of the business, happy to grow both of them.

Do we have another question?

We will go to Sal Tharani with Goldman Sachs. Please go ahead.

Good afternoon.

Hello, Sal.

I wanted to ask you if you're seeing any increased activity on the aluminum side and tolling business as automotives are moving towards aluminum, and have you been retooling your equipment and are you capable of handling those?

Sal, so far, that has not affected our volumes in any material way what so ever and they have continued without much impact at all. We are prepared in couple of the businesses to be able to easily transition to processing aluminum. And that is not true to all of them, but several of them would not be hard at all. All we have to do is change some handling equipment from magnetic to pneumatic and we’d be there. And so that's an option for us. We have not done that, because we're full with what we've got. In longer-term, I will just take this opportunity to talk about the longer-term threat because the F-150 has been big news. And all I can say is that that affect on what we do is going to be long dated and happen over a period of years.

Great. Thank you.

(Operator Instructions) We do have a follow-up from Luke Folta. Please go ahead.

Hi. Thanks for taking my question.

Yes, sir.

I wanted to follow up on the hot-rolled coil outlook. We’ve heard from some of our contacts that we're hearing conflicting things. So we are hearing that there is some delay in terms of import volumes that could be showing up in the Midwest that could have some impact on pricing in the region going forward there, just given the logistical constraints. On the other side of it, we’re hearing that the price increases are being successfully implemented in some cases, and we're seeing some push-out in lead times following the announcements. So I guess I am just trying to get a sense of where we are heading directionally. Do you have any thoughts on that?

We don't see much more than you do and you probably see some things we don't. But scrap is up and the spot price is up slightly and the imports are coming. We track those by shipload if we can. And so we have some imports coming. And we see that balance is being reflected accurately in the forward curve of the market. So if you look at the forward curve in the futures market, it’s pretty flat so and that's out for more in 24 months. So that's the best guess by people who wanted to bet real money on their guesses. So that's the best indication we have.

Okay. And then on just on utilization across your facilities, your processing facilities, can you give us some sense of where utilization rates are, if you look at it that way?

I think across all the facilities we’re at like 55%, but you really have to go facility-by-facility and probably even more so product line by product line. So in some of the higher value-added markets we’re a little bit higher capacity utilization than we would be in some of the more commodity-oriented product line.

What would you be on say, on the cold-rolled strip asset?

I think we're getting up there in terms of capacity utilization.

Cold rolled strip, I would -- and also coating, I would call it closer to 90% of practical utilization.

Okay. And would you consider expanding in these areas anytime over the next 12 to 24 months?

If our customers need it, absolutely, yes.

And we've already made some investments in the cold-rolling market there.

And then in the last five years or so, we expanded both of the coating facilities by 20% in terms of capacity.

Okay. If you were to make a further expansion from here, what sort of investment would that entail and like what would the assets be?

I couldn't comment on that, Luke. We have obviously, both greenfield and acquisition options there.

Right. Okay. Thanks a lot.

Thank you.

And to the presenters, no further questions in queue.

Okay. We are very confident in our ability to finish the fiscal year '14 off with a very strong performance. Again, we appreciate your joining us today and we look forward to speaking with you in June. Thank you.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.