NOTES TO FINANCIAL STATEMENTS
Worthington Industries, Inc.
Deferred Profit Sharing Plan
The
following description of the Worthington Industries, Inc. Deferred Profit Sharing Plan (the Plan) provides only general information. Participants should refer to the Plan document for a complete description of the Plans provisions.
General:
The Plan is a defined contribution plan covering all non-union employees of Worthington Industries, Inc. (Worthington) and its subsidiaries who are participating employers under the Plan
(collectively the Company) who meet the hour and age requirements. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). The trustee for the Plan is Fidelity Management Trust
Company (the Trustee). Worthington is the Plan Sponsor.
The Plan is one of two plans within the Worthington
Deferred Profit Sharing Plan Master Trust (the Master Trust). The other plan is the Worthington Industries, Inc. Retirement Savings Plan for Collectively Bargained Employees. Effective December 31, 2015, the Plan was amended to
remove the Dietrich Industries, Inc. Salaried Employees Profit Sharing Plan (the Dietrich Plan) from the Master Trust, as the Dietrich Plan was terminated and all assets were disbursed as of this date.
Eligibility:
All non-union, full-time employees of the Company age eighteen and older are eligible to participate in the Plan. These employees are eligible to participate in the employer contribution component of the
Plan after six months of employment. All seasonal and part-time employees of the Company age eighteen and older who are employed for one year are eligible to participate in the Plan, and become eligible to participate in the employer contribution
component of the Plan at that time as well.
Contributions:
Employee deferral Participants may make pre-tax and/or ROTH contributions up to a maximum of 90% of their annual compensation.
Contributions are subject to annual addition and other limitations imposed by the Internal Revenue Code (IRC) as defined in the Plan document.
New participants in the Plan who have otherwise not made an enrollment designation are subject to an automatic enrollment arrangement whereby 4% of their compensation is automatically contributed to the
Plan. The automatic enrollment designation can be cancelled by the employee.
Employer contributions The Company matches
50 cents per dollar of voluntary contributions of the first 4% of such participants compensation (3% of compensation for an Engineered Cabs participating employee). The Company also makes an employer contribution of 3% of compensation to
eligible participants. This contribution is made each pay period. As a safe harbor plan, the Company guarantees a minimum contribution of at least 3% of participants eligible compensation.
-8-
Additional Company contributions may be contributed at the option of the Plan Sponsor and
will be allocated based on the unit credit method. The unit credit method uses the employees years of service and compensation to allocate any additional contribution.
Participant Accounts Each participants account is credited with the participants contributions, employer matching contributions, employer contributions, earnings and losses thereon and
an allocation of the Plans administrative expenses. Substantially all administrative fees are paid by the Plan, through allocation, both direct and indirect, to its participants.
Rollover contributions from other plans are also accepted, provided certain specified conditions are met.
Investment Options:
Participants direct their contributions among a choice of the Plans investment options. All contributions are allocated to the designated investment options according to each participants
election, although, to the extent that a participant receiving a contribution made no allocation election, the participants contribution is invested in the applicable Fidelity Freedom Fund, as determined by the age of the participant.
Contributions to the Worthington Industries, Inc. Common Stock fund are limited to not more than 25% of the total
contributions made by or for a participant to the Plan. A participant will be prohibited from making investment exchanges to the Worthington Industries, Inc. Common Stock fund if the participants investment in the fund equals or exceeds 25% of
such persons total accounts.
Vesting:
Beginning in 1995, all participants are 100% vested in all contributions and related earnings credited to their accounts.
Forfeitures:
Non-vested account balances are forfeited either upon full distribution of vested balances or completion of five consecutive one-year breaks in service, as defined by the Plan document. Forfeitures are
either used to reduce Company contributions to the Plan or to pay reasonable expenses of the Plan, as determined by the Plan Sponsor.
During 2013, the Company discovered that the Plan did not allocate non-vested amounts held in the Plans forfeiture accounts annually, as required by the provisions of the Plan document in effect
prior to March 1, 1995. For the 1995 through 2013 Plan years, the Company held non-vested amounts in the Plans forfeiture account, thus maintaining an unallocated suspense account for a period of more than one year in violation of IRS
regulations. The Company disclosed this error to the IRS through a Voluntary Compliance Program (VCP) filing in June 2014. In its VCP filing, the Company proposed that the amounts held in the Plans forfeiture accounts be allocated
to participants who were both a) employed by the Company or other participating employer on December 31, 1995; and b) remained employed on the date of the approved allocation. The IRS approved the Companys proposed correction in January
2016, and the amounts were allocated to participants in February 2016 based on their total 2015 compensation.
-9-
At December 31, 2016 and 2015, forfeited non-vested accounts were $3,800 and $146,460,
respectively.
Notes Receivable from Participants:
Loans are permitted under certain circumstances and are subject to limitations. Participants may borrow from their fund accounts up to a
maximum equal to the lesser of $50,000 or 50% of their account balance. Loans are to be repaid over a period not to exceed 5 years, except when used for the purchase of a primary residence.
The loans are secured by the balances in the participants accounts and bear interest at rates established by the Trustee. Principal
and interest are paid ratably through payroll deductions. Loans are valued at unpaid principal plus accrued unpaid interest.
Other Plan Provisions:
Normal retirement age is 62, or when the sum of the participants age and years of service equals 70. The Plan also provides for early payment of benefits to in-service employees, with certain
restrictions, after reaching age 59-1/2.
Payment of Benefits:
Upon termination of service due to death, disability, retirement or other reasons, a participant may receive the value of the vested
interest in his or her account as a lump-sum distribution.
Hardship Withdrawals:
Hardship withdrawals are permitted in accordance with Internal Revenue Service (IRS) guidelines.
2.
|
Summary of Significant Accounting Policies
|
Basis of Accounting:
The Plans transactions are reported on
the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP).
Investment contracts held by a defined contribution plan are required to be reported at fair value.
Investment Valuation and Income Recognition:
The Master
Trusts investments in mutual funds and Worthington Industries, Inc. Common Stock are stated at fair value as of year-end. Fair values for mutual funds and Worthington Industries, Inc. Common Stock are determined by the respective quoted market
prices.
The Plan holds a stable value investment contract with the Trustee, which is structured as a common collective trust
(the CCT). The portfolio is an open-end commingled pool dedicated exclusively to the management of assets of defined contribution plans. The portfolio invests in
-10-
underlying assets, typically fixed-income securities or bond funds and enters into wrapper contracts issued by third parties. The Plan is credited with earnings on the underlying
investments and charged for participant withdrawals and administrative expenses. The wrapper contract issuer agrees to pay the portfolio an amount sufficient to cover unit holder redemptions and certain other payments (such as portfolio expenses),
provided all the terms of the wrapper contract have been met. Wrappers are normally purchased from issuers rated in the top three long-term ratings categories (equaling A- or above).
The primary goal of the CCT in which the Master Trust is invested is to seek current income while maintaining stability of invested
principal. The CCT is invested and reinvested primarily in a diversified portfolio of fixed-income instruments which may include traditional and separate account guaranteed investment contracts (obligations of creditworthy life insurance companies),
corporate investment contracts, synthetic GICs (high-quality debt securities including mortgage-backed, commercial mortgage-backed, asset-backed and corporate securities held by the CCT within contracts that are intended to minimize market
volatility), variable rate GICs, repurchase agreements, US treasury and agency securities, and cash and cash equivalents, including certificates of deposit and money market instruments. The CCT may also invest in a collective fund or group trust
(including but not limited to one maintained by The Bank of New York Mellon or its affiliate) that invests in such fixed income instruments. No investment contract in which the CCT invests will have a duration of more than six years from the date of
issuance. The CCT will operate with a weighted average duration selected by The Bank of New York Mellon, in its capacity as Trustee of the fund from time to time, but such weighted average duration generally will average between 1 and 3 years.
Participants may purchase or redeem units of the CCT for cash or securities based on the unit value determined as of the valuation date. Unit value is generally determined each business day of the year. All participants have a proportionate
undivided interest in the net assets of the CCT.
Life insurance contracts held by the Plan are valued at their cash surrender
value.
Purchases and sales of securities are recorded on a trade-date basis using fair market value. Dividends are recorded on
the ex-dividend date. Interest is recorded on the accrual basis.
Use of Estimates:
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the
reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates.
Plan Termination:
Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA.
Plan-to-Plan Transfers:
Participants within the Plan are permitted to transfer their account to another plan provided by the Company in the event they change employers within the affiliate group. This activity is presented on a
net-basis on the statements of changes in net assets available for benefits.
-11-
Recently Issued Accounting Standards:
In May 2015, accounting guidance was issued to address diversity in practice related to how certain investments measured at net asset
value (NAV) are reported within the financial statement footnotes. The new guidance removes the requirement to categorize investments measured under the current NAV practical expedient within the fair value hierarchy for all investments.
The amendments also remove the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the NAV practical expedient. Rather, those disclosures are limited to investments for which the entity
has elected to measure the fair value using that practical expedient. The guidance is effective for fiscal years beginning after December 15, 2015 and is required to be applied retrospectively. Management concluded that the accounting guidance
will have no impact on the Plans financial statements.
In February 2017, accounting guidance was issued that clarifies
the presentation requirements under current U.S. GAAP for a plans interest in a master trust and requires more detailed disclosures of this interest. The guidance is effective for fiscal years beginning after December 15, 2018 and is
required to be applied retrospectively. Early adoption is permitted. The Plan is currently evaluating the potential impact of this guidance on its ongoing financial reporting.
The Plan
received a determination letter from the IRS dated April 5, 2016, stating that the Plan is qualified under Section 401(a) of the IRC, and, therefore, the related trust is exempt from taxation. Subsequent to this determination by the IRS,
the Plan was amended. Once qualified, the Plan is required to operate in conformity with the IRC to maintain its qualification. The Plan Sponsor believes the Plan, as amended, is being operated in compliance with the applicable requirements of the
IRC and, therefore, believes that the Plan is qualified and the related trust is tax-exempt.
U.S. GAAP requires plan
management to evaluate tax positions taken by the Plan and recognize a tax liability if the Plan has taken uncertain tax positions that more-likely-than-not would not be sustained upon examination by applicable taxing authorities. The Plan
administrator has analyzed tax positions taken by the Plan and has concluded that, as of December 31, 2016, there are no uncertain tax positions taken, or expected to be taken, that would require recognition of a liability or that would require
disclosure in the financial statements. The Plan is subject to routine audits by taxing jurisdictions.
The
Plans share of the investments held by the Master Trust was approximately 98% at both December 31, 2016 and 2015. Each participating retirement plan has a specific interest in the Master Trust. Net investment income for the Plan is based
upon its actual holdings of the net assets of the Master Trust.
-12-
Investments of Master Trust at Fair Value:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Mutual Funds
|
|
$
|
444,032,314
|
|
|
$
|
403,621,839
|
|
Worthington Industries, Inc. Common Stock
|
|
|
50,540,784
|
|
|
|
47,119,744
|
|
Common Collective Trust
|
|
|
42,197,318
|
|
|
|
35,254,199
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
536,770,416
|
|
|
$
|
485,995,782
|
|
|
|
|
|
|
|
|
|
|
Investment Income for the Master Trust:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Interest and Dividend Income
|
|
$
|
15,549,896
|
|
|
$
|
18,437,935
|
|
Net Appreciation (Depreciation) in Fair Value of Investments as Determined by Quoted Market Price:
|
|
|
|
|
|
|
|
|
Mutual Funds
|
|
|
17,514,230
|
|
|
|
(14,301,475
|
)
|
Worthington Industries, Inc. Common Stock
|
|
|
25,962,328
|
|
|
|
387,558
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
59,026,454
|
|
|
$
|
4,524,018
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2016 and 2015 the Master Trust held 1,065,273 and 1,563,247 common shares of
Worthington, respectively. The Master Trust received cash dividends from Worthington of $974,205 and $1,126,321 for the years ended December 31, 2016 and 2015, respectively.
5.
|
Party-in-Interest Transactions
|
Certain Plan investments are shares of mutual funds managed by the Trustee; therefore, transactions involving these funds qualify as party-in-interest transactions.
The Plan offers common shares of Worthington as an investment option. As a result, Worthington qualifies as a party-in-interest.
The Company provides certain administrative and accounting services at no cost to the Plan and may pay for the cost of
services incurred in the operation of the Plan.
6.
|
Risks and Uncertainties
|
The Plan provides for various investment options. These investments are exposed to various risks, such as interest rate, market and credit
risks. Due to the level of risk associated with certain investment securities and the level of uncertainty related to changes in the value of investment securities, it is possible that changes in the near or long term could materially affect
participants account balances and the amounts reported in the statements of net assets available for benefits and the statements of changes in net assets available for benefits.
Fair value is
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. In determining fair value, the Plan utilizes certain assumptions that market
participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally
-13-
unobservable inputs. The Plan utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the examination of the inputs used in
the valuation techniques, the Plan is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets
and liabilities carried at fair value are classified and disclosed in one of the following three categories:
|
Level 1:
|
Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Plan has the ability to access.
|
|
Level 2:
|
Inputs to the valuation methodology include:
|
Quoted prices for similar assets or liabilities in active markets;
Quoted prices
for identical or similar assets or liabilities in inactive markets; and
Inputs other than quoted prices that are observable
for the asset or liability.
Inputs that are derived principally from or corroborated by observable market data by correlation
or other means.
|
Level 3:
|
Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
|
A financial instruments categorization within the valuation hierarchy is based upon the lowest level of input that is significant to
the fair value measurement. See the description within Footnote 2, Summary of Significant Accounting Policies, as to the investment valuation methodology for each class of assets noted in the below table. There have been no changes in
the methodologies used at December 31, 2016 and 2015.
For the years ended December 31, 2016 and 2015, there were no
significant transfers between Levels 1 and 2 and no transfers in or out of Level 3.
The following table shows the assets of
the Plan measured at fair value on a recurring basis, as of December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using:
|
|
Description
|
|
Total
|
|
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level
3)
|
|
Plans Interest in Master Trust Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual Funds
|
|
|
436,361,644
|
|
|
|
436,361,644
|
|
|
|
|
|
|
|
|
|
Common Collective Trust
|
|
|
41,485,632
|
|
|
|
|
|
|
|
41,485,632
|
|
|
|
|
|
Worthington Industries, Inc. Common Stock
|
|
|
50,242,260
|
|
|
|
50,242,260
|
|
|
|
|
|
|
|
|
|
Other Investments
|
|
|
19,154
|
|
|
|
|
|
|
|
19,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
528,108,690
|
|
|
$
|
486,603,904
|
|
|
$
|
41,504,786
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-14-
The following table shows the assets of the Plan measured at fair value on a recurring
basis, as of December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using:
|
|
Description
|
|
Total
|
|
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level
3)
|
|
Plans Interest in Master Trust Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual Funds
|
|
|
396,266,740
|
|
|
|
396,266,740
|
|
|
|
|
|
|
|
|
|
Common Collective Trust
|
|
|
34,471,616
|
|
|
|
|
|
|
|
34,471,616
|
|
|
|
|
|
Worthington Industries, Inc. Common Stock
|
|
|
46,934,346
|
|
|
|
46,934,346
|
|
|
|
|
|
|
|
|
|
Other Investments
|
|
|
28,891
|
|
|
|
|
|
|
|
28,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
477,701,593
|
|
|
$
|
443,201,086
|
|
|
$
|
34,500,507
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management evaluates events occurring subsequent to the date of the financial statements in determining the accounting for and disclosure
of transactions and events that affect the financial statements. Subsequent events have been evaluated through the filing date of this Form 11-K.
-15-
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES AT END OF YEAR
Form 5500, Schedule H, Part IV, Line 4i
Worthington Industries, Inc.
Deferred Profit Sharing Plan
EIN 31-1189815, Plan Number 333
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
(b)
|
|
(c)
|
|
(d)
|
|
|
(e)
|
|
|
|
Identity of Issue,
Borrower, Lessor,
or Similar Party
|
|
Description of Investment Including
Maturity Date, Rate of Interest,
Collateral, Par, or Maturity Value
|
|
Cost
|
|
|
Current
Value
|
|
|
|
|
|
|
*
|
|
Worthington Deferred Profit Sharing Plan Master Trust
|
|
Master Trust
|
|
|
N/A
|
|
|
$
|
528,089,536
|
|
|
|
|
|
|
|
|
Mass Mutual Life Insurance Company
|
|
Life Insurance contracts
|
|
|
N/A
|
|
|
|
19,154
|
|
|
|
|
|
|
*
|
|
Loans from Participants
|
|
Interest Rates Ranging From 3.25% to 6.00%
|
|
|
N/A
|
|
|
|
11,585,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
539,694,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Party-in-Interest to the Plan
|
-16-