-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TwS1BXAWKuTlk4ZcBZJXZ8a4UkrjsE+1VaS5BeQpsc7WSdrqqMYFXw/XHhjguC4b uhZO58w7kUNzMXiTRNG3Jw== 0000108703-97-000001.txt : 19970114 0000108703-97-000001.hdr.sgml : 19970114 ACCESSION NUMBER: 0000108703-97-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961130 FILED AS OF DATE: 19970113 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: WYMAN GORDON CO CENTRAL INDEX KEY: 0000108703 STANDARD INDUSTRIAL CLASSIFICATION: METAL FORGING & STAMPINGS [3460] IRS NUMBER: 041992780 STATE OF INCORPORATION: MA FISCAL YEAR END: 0528 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-03085 FILM NUMBER: 97504607 BUSINESS ADDRESS: STREET 1: 244 WORCHESTER ST STREET 2: BOX 8001 CITY: NORTH GRAFTON STATE: MA ZIP: 01536 BUSINESS PHONE: 5088394441 10-Q 1 WYMAN-GORDON FORM 10-Q 2ND QUARTER FISCAL 1997 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) { X } QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended November 30, 1996 OR { } 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 0-3085 WYMAN-GORDON COMPANY (Exact name of registrant as specified in its charter) MASSACHUSETTS 04-1992780 (State or other jurisdiction (I.R.S. Employer incorporation or organization) Identification No.) 244 WORCESTER STREET, BOX 8001, NO. GRAFTON, MASSACHUSETTS 01536-8001 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 508-839-4441 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 X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
OUTSTANDING AT CLASS NOVEMBER 30, 1996 Common Stock, $1 Par Value 35,927,921
Page 1 of 20 2 PART I. ITEM 1. FINANCIAL STATEMENTS WYMAN-GORDON COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED NOV. 30, NOV. 30, NOV. 30, NOV. 30, 1996 1995 1996 1995 (000's omitted, except per share data) Revenue $138,655 $118,080 $272,890 $232,157 Less: Cost of goods sold 115,079 99,113 237,823 195,012 Selling, general and administrative expenses 11,049 9,473 21,102 18,669 Other charges - - 15,779 900 126,128 108,586 274,704 214,581 Income from operations 12,527 9,494 (1,814) 17,576 Other deductions (income): Interest expense 2,659 2,883 5,382 5,769 Miscellaneous, net 735 561 (4,464) 656 3,394 3,444 918 6,425 Income (loss) before income taxes 9,133 6,050 (2,732) 11,151 Provision (credit) for income tax - - (19,680) - Net income (loss) $ 9,133 $ 6,050 $ 16,948 $ 11,151 Net income (loss) per share $ .25 $ .17 $ .46 $ .31 Shares used to compute net income (loss) per share 37,124 36,092 36,896 36,010
The accompanying notes to the consolidated condensed financial statements are an integral part of these financial statements. -2- 3 WYMAN-GORDON COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS
NOVEMBER 30, MAY 31, 1996 1996 (000's omitted) ASSETS Cash and cash equivalents $ 36,277 $ 30,134 Accounts receivable 98,392 94,928 Inventories 84,150 65,873 Prepaid expenses 11,891 14,338 Total current assets 230,710 205,273 Property, plant and equipment, net 146,382 140,408 Intangible assets 19,547 19,899 Other assets 7,862 10,310 $404,501 $375,890 LIABILITIES Borrowings due within one year $ 77 $ 77 Accounts payable 46,394 40,484 Accrued liabilities and other 50,052 48,178 Total current liabilities 96,523 88,739 Restructuring, integration, disposal and environmental 17,170 18,275 Long-term debt 90,231 90,231 Pension liability 5,538 1,698 Deferred income tax and other 14,086 17,717 Postretirement benefits 47,760 49,287 STOCKHOLDERS' EQUITY Preferred stock - none issued - - Common stock issued - 37,052,720 shares 37,053 37,053 Capital in excess of par value 30,357 33,291 Retained earnings 85,646 65,653 Less treasury stock at cost November 30, 1996 - 1,124,799 shares May 31, 1996 - 1,480,448 shares (19,863) (26,054) 133,193 109,943 $404,501 $375,890
The accompanying notes to the consolidated condensed financial statements are an integral part of these financial statements. -3- 4 WYMAN-GORDON COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED NOVEMBER 30, NOVEMBER 30, 1996 1995 (000's omitted) Operating activities: Net income (loss) $16,948 $11,151 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 10,099 8,372 Other charges 13,045 - Provision for equity investment 2,734 900 Changes in assets and liabilities: Accounts receivable (3,663) (109) Inventories (19,052) (6,678) Prepaid expenses and other assets (584) 2,263 Accrued restructuring, disposal and environmental (1,600) (3,750) Income and other taxes (4,452) 2,933 Accounts payable and accrued liabilities 3,223 (5,182) Net cash provided (used) by operating activities 16,698 9,900 Investing activities: Capital expenditures (14,303) (6,782) Proceeds from sale of fixed assets - 1,664 Other, net 491 123 Net cash provided (used) by investing activities (13,812) (4,995) Financing activities: Issuance (payment) of debt - (2,183) Net proceeds from issuance of common stock 3,257 1,221 Net cash provided (used) by financing activities 3,257 (962) Increase (decrease) in cash 6,143 3,943 Cash, beginning of year 30,134 13,856 Cash, end of period $36,277 $17,799
The accompanying notes to the consolidated condensed financial statements are an integral part of these financial statements. -4- 5 WYMAN-GORDON COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS November 30, 1996 NOTE A - BASIS OF PRESENTATION In the opinion of the Company, the accompanying unaudited consolidated condensed financial statements contain all adjustments necessary to present fairly its financial position at November 30, 1996 and its results of operations and cash flows for the three months and six months ended November 30, 1996 and November 30, 1995. All such adjustments are of a normal recurring nature. The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with Article 10 of Securities and Exchange Commission Regulation S-X and, therefore, do not include all information and footnotes necessary for a fair presentation of the financial position, results of operations and cash flows in conformity with generally accepted accounting principles. In conjunction with its May 31, 1996 Annual Report on Form 10-K, the Company filed audited consolidated financial statements which included all information and footnotes necessary for a fair presentation of its financial position at May 31, 1996 and 1995 and its results of operations and cash flows for the years ended May 31, 1996 and 1995, the five months ended May 31, 1994 and the year ended December 31, 1993 in conformity with generally accepted accounting principles. Where appropriate, prior period amounts have been reclassified to permit comparison. NOTE B - ADOPTION OF RECENT ACCOUNTING STANDARDS Effective June 1, 1996, the Company adopted Statement of Financial Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121"). SFAS 121 prescribes the accounting for the impairment of long-lived assets that are to be held and used in the business and similar assets to be disposed of. The adoption has not had a material effect on earnings or the financial position of the Company. NOTE C - INVENTORIES Inventories consisted of:
NOVEMBER 30, 1996 MAY 31, 1996 (000's omitted) Raw material $32,745 $21,608 Work-in-process 56,034 51,125 Supplies 5,278 3,168 94,057 75,901 Less progress payments 9,907 10,028 $84,150 $65,873
-5- 6 WYMAN-GORDON COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued) November 30, 1996 NOTE C - INVENTORIES (Continued) If all inventories valued at LIFO cost had been valued at first-in, first-out (FIFO) cost or market which approximates current replacement cost, inventories would have been $16,662,000 higher than reported at November 30, 1996 and May 31, 1996. There were no LIFO inventory credits to cost of goods sold in the six months ended November 30, 1996 or November 30, 1995. NOTE D - COMMITMENTS AND CONTINGENCIES At November 30, 1996, certain lawsuits arising in the normal course of business were pending. The Company denies all material allegations of these complaints. In the opinion of management, the outcome of legal matters will not have a material adverse effect on the Company's financial position, results of operations or liquidity. The Company is subject to extensive, stringent and changing federal, state and local environmental laws and regulations, including those regulating the use, handling, storage, discharge and disposal of hazardous substances and the remediation of alleged environmental contamination. Accordingly, the Company is involved from time to time in administrative and judicial inquiries and proceedings regarding environmental matters. Nevertheless, the Company believes that compliance with these laws and regulations will not have a material adverse effect on the Company's operations as a whole. The Company had foreign exchange contracts totaling approximately $18,954,000 at November 30, 1996. These contracts hedge certain normal operating purchase and sales transactions. The exchange contracts generally mature within six months and require the Company to exchange U.K. pounds for non-U.K. currencies or non-U.K. currencies for U.K. pounds. Transaction gains and losses included in the Consolidated Condensed Statements of Operations for the three and six months ended November 30, 1996 and November 30, 1995 were not material. In December 1996, the Company's Houston Plant experienced an explosion. The incident occurred while a work crew was performing routine maintenance and caused eight fatalities and injuries to two others. The explosion is currently under investigation by OSHA. A parallel investigation by the Company is also currently being performed. The explosion and investigation has interrupted the use of the 35,000 ton vertical extrusion press. The principle product lines affected are extrusions, for both pipe and powder metal processing, and large closed die forgings. The production from that press represents approximately 10% of total company revenues. The blast damage -6- 7 WYMAN-GORDON COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued) November 30, 1996 NOTE D - COMMITMENTS AND CONTINGENCIES (Continued) appears to be localized, but at this time we do not have sufficient knowledge to estimate how long the extrusion press will be incapacitated. We are working with our customers to reschedule deliveries or to supply them from other Wyman-Gordon plants. Employees have returned to work in other parts of the Houston plant, including in the machine shop and at the turbine die forge area. The effect of the incident on the Company's financial statements is currently being determined by Management. NOTE E - INCOME TAX REFUND In the six months ended November 30, 1996, the Company recognized the net benefit of a refund of prior years' income taxes amounting to $19,680,000, plus interest of $3,484,000. The refund relates to the carryback of tax net operating losses to tax years 1981, 1984 and 1986 under the provisions of Internal Revenue Code Section 172(f). The amount of net operating losses carried back to such years was approximately $48,500,000. At November 30, 1996, the Company has approximately $38,000,000 of net operating loss carryforwards available to offset future taxable income. NOTE F - OTHER CHARGES In the six months ended November 30, 1996, the Company recorded other charges of $15,799,000. Such other charges include $8,000,000 to provide for the costs of workforce reductions at the Company's Grafton, Massachusetts facility and the write-off and disposal of certain equipment. Other charges also include $2,300,000 to reduce the carrying value of certain assets of the Company's titanium castings operations, $2,485,000 to recognize the Company's 25.0% share of the net losses of its Australian Joint Venture and to reduce the carrying value of such joint venture, $250,000 relating to expenditures for an investment in another joint venture and $2,745,000 to reduce the carrying value of the cash surrender value of certain company- owned life insurance policies. In the six months ended November 30, 1995, the Company provided $900,000 in order to recognize its 25.0% share of the net losses of its Australian Joint Venture and to reserve for amounts loaned to such joint venture during the second quarter of fiscal year 1996 and to provide for expenditures for an investment in an additional joint venture. -7- 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS "FORWARD-LOOKING INFORMATION IS SUBJECT TO RISK AND UNCERTAINTY" Certain statements in Management's Discussion and Analysis of Financial Condition and Results of Operations contain "forward-looking" information (as defined in the Private Securities Litigation Reform Act of 1995) that involves risk and uncertainty, including discussions of continuing raw material prices and availability and their impact on gross margins and business trends as well as liquidity and sales volume. Actual future results and trends may differ materially depending on a variety of factors, including the Company's successful negotiation of long-term customer pricing contracts and raw material prices and availability. For a discussion identifying important factors that could cause actual results to differ materially from those anticipated in forward-looking statements, see the Company's SEC filings, in particular see the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1996 Part I, Item 1 - "Markets and Products - Aerospace", "Customers", "Marketing and Sales", "Raw Materials", "Employees", "Competition", "Environmental Regulations" and "Product Liability Exposure". The principal markets served by the Company are aerospace and power generation. Revenue by market for the respective periods was as follows (000's omitted):
THREE MONTHS ENDED THREE MONTHS ENDED NOVEMBER 30, 1996 NOVEMBER 30, 1995 % OF % OF AMOUNT TOTAL AMOUNT TOTAL Aerospace $106,556 77% $ 89,759 76% Power generation 23,818 17% 21,923 19% Other 8,281 6% 6,398 5% $138,655 100% $118,080 100%
SIX MONTHS ENDED SIX MONTHS ENDED NOVEMBER 30, 1996 NOVEMBER 30, 1995 % OF % OF AMOUNT TOTAL AMOUNT TOTAL Aerospace $199,617 73% $171,970 74% Power generation 54,454 20% 44,746 19% Other 18,819 7% 15,441 7% $272,890 100% $232,157 100%
-8- 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) RESULTS OF OPERATIONS THREE MONTHS ENDED NOVEMBER 30, 1996 ("second quarter of fiscal year 1997") COMPARED TO THREE MONTHS ENDED NOVEMBER 30, 1995 ("second quarter of fiscal year 1996") The Company's revenue increased 17.4% to $138.7 million in the second quarter of fiscal year 1997 from $118.1 million in the second quarter of fiscal year 1996 due to higher sales volume at the Company's Forgings and Castings Divisions. These sales volume increases during the second quarter of fiscal year 1997 as compared to the second quarter of fiscal year 1996 are reflected by market as follows: a $16.8 million (18.7%) increase in aerospace, a $1.9 million (8.6%) increase in power generation and a $1.9 million (29.4%) increase in other. The causes of the strength in these markets was higher engine build rates and higher demands for spares by aerospace engine prime contractors and higher extruded pipe shipments to energy customers. Revenues in the second quarter of fiscal year 1996 and, to a lesser extent, in the second quarter of fiscal year 1997, were limited by raw material shortages and production delays caused by capacity constraints of the Company's suppliers. The revenue increases mentioned above have occurred while the Company's backlog has grown to $809.1 million at November 30, 1996 from $487.8 million at November 30, 1995. The Company believes that the higher order activity reflects continued higher spares demand and new business resulting from increasing production rates on commercial aircraft by commercial airframe primes. The Company's gross margins were 17.0% in the second quarter of fiscal year 1997 as compared to 16.1% in the second quarter of fiscal year 1996. Higher production volumes and productivity gains resulting from the Company's continuing efforts toward focusing forging production of rotating parts for jet engines in its Houston, Texas facility and forging production of airframe structures and large turbine parts in its Grafton, Massachusetts facility and continuing realization of cost reductions from synergies associated with the integration of Cameron Forged Products Company ("Cameron") favorably impacted gross margins in the second quarter of fiscal year 1997. These improvements have been offset by higher raw material costs. Beginning in the second half of fiscal year 1996, the higher spares demand referred to above has required the Company to purchase certain raw materials under terms not covered by long-term agreements ("LTAs") with its vendors. The Company simultaneously entered into supply (customer) and purchase (vendor) LTAs and minimized its raw material price exposure to an anticipated volume level. To the extent that the demand is greater than anticipated by the LTAs, the Company must purchase raw materials at market prices. The current rebound in demand for many of these raw materials, especially nickel and titanium, has resulted in significant market price increases which have negatively affected the Company's gross margins. -9- 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) RESULTS OF OPERATIONS THREE MONTHS ENDED NOVEMBER 30, 1996 ("second quarter of fiscal year 1997") COMPARED TO THREE MONTHS ENDED NOVEMBER 30, 1995 ("second quarter of fiscal year 1996") The Company is not likely to see significant pricing relief for its products until early calendar 1997 when new LTAs that the Company expects to negotiate with its customers will go into effect. Until the new LTAs are finalized, the Company may continue to experience pressures on its gross margins. There were no LIFO credits recorded during the second quarter of fiscal year 1997 or 1996. Selling, general and administrative expenses increased 16.6% to $11.0 million during the second quarter of fiscal year 1997 from $9.5 million during the second quarter of fiscal year 1996. Selling, general and administrative expenses as a percentage of revenues improved to 7.9% in the second quarter of fiscal year 1997 from 8.0% in the second quarter of fiscal year 1996. The improvement as a percent of revenues is the result of higher revenues. Also, selling, general and administrative expenses in the second quarter of fiscal year 1997 includes approximately $1.0 million related to the compensation expense associated with the Company's performance share program. Interest expense was $2.7 million in the second quarter of fiscal year 1997 and $2.9 million in the second quarter of fiscal year 1996. The decrease results from lower borrowings outstanding under the Company's U.K. Credit Agreement. Miscellaneous, net was expense of $0.7 million in the second quarter of fiscal year 1997 as compared to an expense of $0.6 million in the second quarter of fiscal year 1996. The Company recorded no provision or benefit for income taxes in the second quarter of fiscal year 1997 or 1996. Net income was $9.1 million, or $.25 per share, in the second quarter of fiscal year 1997 and $6.1 million, or $.17 per share in the second quarter of fiscal year 1996. The $3.0 million improvement results from the items described above. -10- 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) RESULTS OF OPERATIONS SIX MONTHS ENDED NOVEMBER 30, 1996 ("first six months of fiscal year 1997") COMPARED TO SIX MONTHS ENDED NOVEMBER 30, 1995 ("first six months of fiscal year 1996") The Company's revenue increased 17.5% to $272.8 million in the first six months of fiscal year 1997 from $232.1 million in the first six months of fiscal year 1996 due to higher sales volume at the Company's Forgings and Castings Divisions. These sales volume increases during the first six months of fiscal year 1997 as compared to the first six months of fiscal year 1996 are reflected by market as follows: a $27.6 million (16.1%) increase in aerospace, a $9.7 million (21.7%) increase in power generation and a $3.4 million (21.9%) increase in other. The causes of the strength in these markets was higher engine build rates and higher demands for spares by aerospace engine prime contractors and higher extruded pipe shipments to energy customers. Revenues in the first six months of fiscal year 1996 and, to a lesser extent, in the first six months of fiscal year 1997, were limited by raw material shortages and production delays caused by capacity constraints of the Company's suppliers. The revenue increases mentioned above have occurred while the Company's backlog has grown to $809.1 million at November 30, 1996 from $487.8 million at November 30, 1995. The Company believes that the higher order activity reflects continued higher spares demand and new business resulting from increasing production rates on commercial aircraft by commercial airframe primes. The Company's gross margins were 12.9% in the first six months of fiscal year 1997 as compared to 16.0% in the first six months of fiscal year 1996. Higher production volumes and productivity gains resulting from the Company's continuing efforts toward focusing forging production of rotating parts for jet engines in its Houston, Texas facility and forging production of airframe structures and large turbine parts in its Grafton, Massachusetts facility and continuing realization of cost reductions from synergies associated with the integration of Cameron favorably impacted gross margins in the first six months fiscal year 1997. These improvements have been more than offset by higher raw material costs. Beginning in the second half of fiscal year 1996, the higher spares demand referred to above has required the Company to purchase certain raw materials under terms not covered by long-term agreements ("LTAs") with its vendors. The Company simultaneously entered into supply (customer) and purchase (vendor) LTAs and minimized its raw material price exposure to an anticipated volume level. To the extent that the demand is greater than anticipated by the LTAs, the Company must purchase raw materials at market prices. The current rebound in demand for many of these raw materials, especially nickel and titanium, has resulted in significant market price increases which have negatively affected the Company's gross margins. -11- 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) RESULTS OF OPERATIONS SIX MONTHS ENDED NOVEMBER 30, 1996 ("first six months of fiscal year 1997") COMPARED TO SIX MONTHS ENDED NOVEMBER 30, 1995 ("first six months of fiscal year 1996") (Continued) The Company is not likely to see significant pricing relief for its products until early calendar 1997 when new LTAs that the Company expects to negotiate with its customers will go into effect. Until the new LTAs are finalized, the Company may continue to experience pressures on its gross margins. Gross margins in the first six months of fiscal year 1997 were also negatively impacted by price and demand declines within the titanium golf club head business during competitor capacity additions and increasing costs of non-integrated finishing services. There were no LIFO credits recorded during the first six months of fiscal year 1997 or 1996. Selling, general and administrative expenses increased 13.0% to $21.1 million during the first six months of fiscal year 1997 from $18.6 million during the first six months of fiscal year 1996. Selling, general and administrative expenses as a percentage of revenues improved to 7.7% in the first six months of fiscal year 1997 from 8.0% in the first six months of fiscal year 1996. The improvement as a percent of revenues is the result of higher revenues. During the first six months of fiscal year 1997, the Company recorded other charges of $15.8 million. Such other charges include $8.0 million to provide for the costs of workforce reductions at the Company's Grafton, Massachusetts facility and the write-off and disposal of certain equipment. Other charges also include $2.3 million to reduce the carrying value of certain assets of the Company's titanium castings operations, $2.5 million to recognize the Company's 25.0% share of the net losses of its Australian Joint Venture and to reduce the carrying value of such joint venture, $0.3 million relating to expenditures for an investment in another joint venture and $2.7 million to reduce the carrying value of the cash surrender value of certain company-owned life insurance policies. During the first six months of fiscal year 1996, the Company provided $0.9 million in order to recognize its 25.0% share of the net losses of its Australian Joint Venture and to reserve for amounts loaned to the Australian Joint Venture during the first six months of fiscal year 1996 and to provide for expenditures for an investment in an additional joint venture. -12- 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) RESULTS OF OPERATIONS SIX MONTHS ENDED NOVEMBER 30, 1996 ("first six months of fiscal year 1997") COMPARED TO SIX MONTHS ENDED NOVEMBER 30, 1995 ("first six months of fiscal year 1996") (Continued) Interest expense was $5.4 million in the first six months of fiscal year 1997 and $5.8 million in the first six months of fiscal year 1996. The decrease results from lower borrowings outstanding under the Company's U.K. Credit Agreement. Miscellaneous, net was income of $4.5 million in the first six months of fiscal year 1997 as compared to an expense of $0.7 million in the first six months of fiscal year 1996. Miscellaneous, net in the first six months of fiscal year 1997 includes interest income on the refund of prior years' income taxes amounting to $3.5 million and a $1.7 million gain on the sale of fixed assets. Miscellaneous, net in the first six months of fiscal year 1996 includes a $0.2 million gain on the sale of marketable securities. In the first six months of fiscal year 1997, the Company recognized the net benefit of a refund of prior years' income taxes amounting to $19.7 million. The refund relates to the carryback of tax net operating losses. The Company recorded no provision or benefit for income taxes in the first six months of fiscal year 1996. Net income was $16.9 million, or $.46 per share, in the first six months of fiscal year 1997 and $11.2 million, or $.31 per share in the first six months of fiscal year 1996. The $5.7 million improvement results from the items described above. LIQUIDITY AND CAPITAL RESOURCES The increase in the Company's cash of $6.2 million to $36.3 million at November 30, 1996 from $30.1 million at May 31, 1996 resulted primarily from cash provided by operating activities of $16.7 million and the issuance of common stock of $3.3 million, offset by capital expenditures and other investing activities of $13.8 million. The increase in the Company's working capital of $17.7 million to $134.2 million as of November 30, 1996 from $116.5 million as of May 31, 1996 resulted primarily from net income of $16.9 million, a decrease in other assets of $3.1 million, a decrease in intangible assets of $0.4 million, net proceeds from the issuance of Common Stock of $3.3 million, other changes in stockholders' equity of $3.0 million and an increase in long-term benefit liabilities of $2.3 million, offset by net increases in fixed assets of $6.0 million, a decrease in deferred taxes and other of $3.6 million and a decrease in long-term restructuring, integration, disposal and environmental of $1.1 million. -13- 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) LIQUIDITY AND CAPITAL RESOURCES (Continued) Earnings before interest, taxes, depreciation and amortization ("EBITDA") decreased $12.8 million to $12.3 million in the first six months of fiscal year 1997 from $25.1 million in the first six months of fiscal year 1996. This decrease reflects primarily the $15.8 million of other charges provided in the first six months of fiscal year 1997. In the first six months of fiscal year 1997, the Company recorded other charges of $15.8 million, of which $10.1 million was non-cash and $5.7 million is expected to require the use of cash during the remainder of fiscal year 1997 and the fiscal year ending May 31, 1998, $2.2 million to pay severance and other employee costs and $3.5 million to dispose of certain equipment. As of May 31, 1996, the Company estimated the remaining cash requirements for the integration of Cameron and direct costs associated with the acquisition of Cameron to be $4.0 million. Of such amount, the Company expects to spend approximately $2.5 million during its fiscal year ending May 31, 1997 ("fiscal year 1997") and $1.5 million thereafter. In the first six months of fiscal year 1997, spending related to the integration of Cameron and associated direct costs amounted to $1.0 million. The Company expects to spend $1.2 million in fiscal year 1997 and $15.5 million thereafter on non-capitalizable environmental activities. In the first six months of fiscal year 1997, $0.2 million was expended for non-capitalizable environmental projects. The Company has completed all environmental projects within established timetables and is continuing to do so at the present time. The Company from time to time expends cash on capital expenditures for more cost effective operations, environmental projects and joint development programs with customers. Capital expenditures amounted to $18.3 million for the year ended May 31, 1996 ("fiscal year 1996"). Capital expenditures in the foreseeable future are expected to increase somewhat from fiscal year 1996 levels. In the first six months of fiscal year 1997, capital expenditures amounted to $14.3 million. The Company's revolving receivables-backed credit facility (the "Receivables Financing Program") provides the Company with an aggregate maximum borrowing capacity under the Receivables Financing Program of $65.0 million, with a letter of credit sub- limit of $35.0 million. The term of the Receivables Financing Program is five years, with an evergreen feature. As of November 30, 1996, under the credit facility, the total availability based on eligible receivables was $50.2 million, there were no borrowings and letters of credit amounting to $7.9 million were outstanding. -14- 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) LIQUIDITY AND CAPITAL RESOURCES (Continued) Wyman-Gordon Limited, the Company's subsidiary located in Livingston, Scotland, entered into a credit agreement ("the U.K. Credit Agreement"). The maximum borrowing capacity under the U.K. Credit Agreement is 2.0 million pounds sterling with a separate letter of credit or guarantee limit of 2.0 million pounds sterling. The term of the U.K. Credit Agreement is one year with an evergreen feature. There were no borrowings outstanding at November 30, 1996 and the Company had issued 0.5 million pounds sterling or $0.9 million of letters of credit or guarantees under the U.K. Credit Agreement. In the first six months of fiscal year 1997, the Company recognized the net benefit of a refund of prior years' income taxes amounting to $19.7 million, plus interest of $3.5 million. In September of 1996, the Company received $20.3 million relating to such refund. Previously, the Company had received $2.9 million related to certain refund claims filed. The refund relates to the carryback of tax net operating losses to tax years 1981, 1984 and 1986 under the provisions of Internal Revenue Code Section 172(f). The amount of net operating losses carried back to such years was approximately $48.5 million. At November 30, 1996, the Company has approximately $38.0 million of net operating loss carryforwards available to offset future taxable income. The primary sources of liquidity available to the Company in fiscal year 1997 to fund operations, anticipated expenditures in connection with workforce reductions and disposal of certain equipment, the integration of Cameron, planned capital expenditures and planned environmental expenditures include available cash ($36.2 million at November 30, 1996), borrowing availability under the Company's Receivables Financing Program, cash generated by operations and reductions in working capital requirements through planned inventory reductions and accounts receivable management. Cash from operations and debt are expected to be the Company's primary sources of liquidity beyond fiscal year 1997. The Company believes that it has adequate resources to provide for its operations and the funding of restructuring, integration, capital and environmental expenditures. The Company's current plans to improve operating results include various cost reduction measures. Programs to expand the Company's revenue base include participation in new aerospace programs and expansion of participation in the land-based gas turbine and extruded pipe markets and other markets in which the Company has not traditionally participated. The Company anticipates that, in addition to the growth in commercial aviation, the aging current commercial airline fleet will require future orders for its replacement. -15- 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) IMPACT OF INFLATION The Company's earnings may be affected by changes in price levels and in particular, changes in the price of basic metals. The Company's contracts generally provide for fixed prices for finished products with limited protection against cost increases. The Company would therefore be affected by changes in prices of the raw materials during the term of any such contract. The Company attempts to minimize this risk by entering into fixed price arrangements with raw material suppliers. ACCOUNTING AND TAX MATTERS Effective June 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121") which must be adopted by the Company no later than fiscal year 1997. SFAS 121 prescribes the accounting for the impairment of long-lived assets that are to be held and used in the business and similar assets to be disposed of. The adoption has not had a material impact on the earnings or the financial position of the Company. The Company for several years maintained a program of Company-owned life insurance ("COLI") for certain of its employees. As of November 30, 1996, the Company is named as beneficiary on COLI policies with an aggregate cash surrender value of approximately $5.5 million, issued by Confederation Life Insurance Company (U.S.), which is currently in rehabilitation. Confederation Life Insurance Company is continuing to pay benefits under the policies but has ceased to redeem cash surrender values. No assurances can be given regarding to what extent the Company will be able to realize such cash surrender values in the future. OTHER MATTERS During the second quarter of fiscal 1997, the Company and Weber Metals, Inc. entered into a strategic forging alliance which will serve the Company's aluminum structural forgings customers. Under the arrangement, the Company will provide engineering, technical and marketing support to Weber and Weber will manufacture aluminum structural products previously manufactured in the Company's Grafton, Massachusetts facility. In December 1996, the Company's Houston Plant experienced an explosion. The incident occurred while a work crew was performing routine maintenance and caused eight fatalities and injuries to two others. The explosion is currently under investigation by OSHA. A parallel investigation by the Company is also currently being performed. The explosion and investigation has interrupted the use of the 35,000 ton vertical extrusion press. The principle product lines affected are -16- 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) OTHER MATTERS (Continued) extrusions, for both pipe and powder metal processing, and large closed die forgings. The production from that press represents approximately 10% of total company revenues. The blast damage appears to be localized, but at this time we do not have sufficient knowledge to estimate how long the extrusion press will be incapacitated. We are working with our customers to reschedule deliveries or to supply them from other Wyman-Gordon plants. Employees have returned to work in other parts of the Houston plant, including in the machine shop and at the turbine die forge area. The effect of the incident on the Company's financial statements is currently being determined by Management. -17- 18 PART II. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On October 16, 1996, the Company held the annual meeting of stockholders. The holders of approximately 83.54% of the 35,706,713 shares of common stock outstanding as of the record date were represented at the meeting either in person or by proxy. The following are the voting results from the meeting: 1. The stockholders elected the following directors of the Company: Three-Year Term: WITHHELD FOR AUTHORITY E. Paul Casey 29,795,985 33,529 Warner S. Fletcher 29,796,010 33,504 M Howard Jacobson 29,529,527 299,987 David A. White, Jr. 29,798,497 31,017 One-Year Term: Charles W. Grigg 29,798,806 30,708 2. The stockholders approved the selection of Ernst & Young, LLP independent public accountants, as the Company's auditors for the fiscal year 1997, with 29,726,909 votes in favor, 81,708 votes against, 20,897 abstentions, and no broker non-votes. -18- 19 ITEM 6. EXHIBITS AND REPORTS FILED ON FORM 8-K (a) Exhibits The following exhibits are being filed as part of this Form 10-Q:
EXHIBIT NO. DESCRIPTION 27 Financial Data Schedule for the Six Months Ended November 30, 1996.
(b) No reports on Form 8-K have been filed with the Commission during the period covered by this report. -19- 20 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. WYMAN-GORDON COMPANY Date: 1/13/97 By: /S/ ANDREW C. GENOR Andrew C. Genor Vice President, Chief Financial Officer and Treasurer Date: 1/13/97 By: /S/ JEFFREY B. LAVIN Jeffrey B. Lavin Corporate Controller -20- EX-27 2 FINANCIAL DATA SCHEDULE
5 6-MOS MAY-31-1997 JUN-01-1996 NOV-30-1996 36,277 7 95,654 0 84,150 230,710 416,613 270,230 404,501 96,523 90,231 0 0 37,053 96,140 404,501 271,571 272,890 237,823 237,823 0 0 5,382 (2,732) 0 16,948 0 0 0 16,948 .46 .46
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