-----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, LbedJujEQbYZfi2+0fP3U++u4kT/A5Al//WqfE1FQB7fGzeLVoPaFnkF8H3J6eSG gmmSw6zbFkKJVBzGtU2lgg== 0000108703-99-000007.txt : 19991018 0000108703-99-000007.hdr.sgml : 19991018 ACCESSION NUMBER: 0000108703-99-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990831 FILED AS OF DATE: 19991015 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: SEC FILE NUMBER: 001-14579 FILM NUMBER: 99728981 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 1ST QUARTER FISCAL 2000 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 August 31, 1999 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 OCTOBER 2, 1999 Common Stock, $1 Par Value 36,103,428
Page 1 of 21 2 PART I. ITEM 1. FINANCIAL STATEMENTS WYMAN-GORDON COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
THREE MONTHS ENDED AUGUST 31, AUGUST 31, 1999 1998 (000's omitted, except per share data) Revenue $176,495 $189,664 Less: Cost of goods sold 147,767 161,067 Selling, general and administrative expenses 11,976 13,480 Other charges(credits) (1,200) (5,000) 158,543 169,547 Income from operations 17,952 20,117 Other deductions: Interest expense 3,599 3,529 Miscellaneous, net 305 256 3,904 3,785 Income before income taxes 14,048 16,332 Provision for income taxes 5,057 4,480 Net income $ 8,991 $ 11,852 Net income per share: Basic $ .25 $ .32 Diluted $ .25 $ .32 Shares used to compute net income per share: Basic 35,911 36,542 Diluted 36,557 37,207
The accompanying notes to the interim consolidated condensed financial statements are an integral part of these financial statements. -2- 3 WYMAN-GORDON COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS
AUGUST 31, MAY 31, 1999 1999 (Unaudited) (000's omitted) ASSETS Cash and cash equivalents $ 74,855 $ 73,867 Accounts receivable 156,112 156,042 Inventories 95,118 97,603 Prepaid expenses 4,386 6,768 Deferred income taxes 6,400 6,400 Total current assets 336,871 340,680 Property, plant and equipment, net 213,629 214,604 Intangible and other assets 30,521 26,426 Total assets $581,021 $581,710 LIABILITIES Borrowings due within one year $ 968 $ 965 Accounts payable 46,904 52,561 Accrued liabilities and other 51,338 57,127 Total current liabilities 99,210 110,653 Restructuring, integration, disposal and environmental 15,279 15,444 Long-term debt 164,315 164,338 Pension liability 1,605 1,771 Deferred income tax and other 13,890 13,857 Postretirement benefits 41,352 41,885 Total liabilities 335,651 347,948 STOCKHOLDERS' EQUITY Preferred stock - none issued - - Common stock issued - 37,052,720 shares 37,053 37,053 Capital in excess of par value 26,467 27,360 Retained earnings 194,866 185,875 Accumulated other comprehensive income 1,264 1,267 Less treasury stock at cost August 31, 1999 - 950,292 shares May 31, 1999 - 1,417,737 shares (14,280) (17,793) Total stockholders' equity 245,370 233,762 Total liabilities and stockholders' equity $581,021 $581,710
The accompanying notes to the interim 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 (Unaudited)
THREE MONTHS ENDED AUGUST 31, AUGUST 31, 1999 1998 (000's omitted) OPERATING ACTIVITIES: Net income $ 8,991 $ 11,852 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,353 6,799 Gain on sale of operating assets - (5,000) Changes in assets and liabilities: Accounts receivable (70) (471) Inventories 2,485 (12,861) Prepaid expenses and other assets (1,892) (3,561) Accrued restructuring, integration disposal and environmental (4,050) 37 Income and other taxes payable 5,194 3,542 Accounts payable and accrued other liabilities (13,254) 10,292 Net cash provided (used) by operating activities 4,757 10,629 INVESTING ACTIVITIES: Capital expenditures (6,403) (12,573) Proceeds from sale of fixed assets 159 5,283 Other, net (124) (215) Net cash provided (used) by investing activities (6,368) (7,505) FINANCING ACTIVITIES: Payment to Cooper Industries, Inc. - (2,300) Repayments of debt (21) - Net proceeds from issuance of common stock 2,620 946 Net cash provided (used) by financing activities 2,599 (1,354) Increase (decrease) in cash 988 1,770 Cash, beginning of year 73,867 64,561 Cash, end of period $ 74,855 $ 66,331
The accompanying notes to the interim consolidated condensed financial statements are an integral part of these financial statements. -4- 5 WYMAN-GORDON COMPANY AND SUBSIDIARIES NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS August 31, 1999 (Unaudited) 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 August 31, 1999 and its results of operations and cash flows for the three months ended August 31, 1999 and August 31, 1998. 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, 1999 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, 1999 and 1998 and its results of operations and cash flows for the years ended May 31, 1999, 1998, and 1997, in conformity with generally accepted accounting principles. Where appropriate, prior period amounts have been reclassified to permit comparison. NOTE B - RECENTLY ISSUED ACCOUNTING STANDARDS In June, 1998, the Financial Accounting Standards Board issued Statement No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). This Statement requires companies to record derivatives on the balance sheet as assets and liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. SFAS 133 is not expected to have material impact on the Company's consolidated financial statements. This Statement is effective for fiscal years beginning after June 15, 2000. The Company will adopt this accounting standard as required in fiscal 2002. -5- 6 WYMAN-GORDON COMPANY AND SUBSIDIARIES NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS August 31, 1999 (Unaudited) NOTE C - INVENTORIES Inventories consisted of:
AUGUST 31, 1999 MAY 31, 1999 (000's omitted) Raw material $ 35,897 $ 36,849 Work-in-process 62,084 65,654 Other 3,970 3,204 101,951 105,707 Less progress payments 6,833 8,104 $ 95,118 $ 97,603
If all inventories valued at LIFO cost had been valued at the lower of first-in, first-out (FIFO) cost or market, which approximates current replacement cost, inventories would have been $16,446,000 higher than reported at August 31, 1999 and May 31, 1999. There were no LIFO inventory credits or charges to cost of goods sold in the three months ended August 31, 1999 or August 31, 1998. NOTE D - NET INCOME PER SHARE There were no adjustments required to be made to net income (loss) for purposes of computing basic and diluted net income per share. A reconciliation of the average number of common shares outstanding used in the calculation of basic and diluted net income per share is as follows:
THREE MONTHS ENDED AUGUST 31, AUGUST 31, 1999 1998 Shares used to compute basic net income per share 35,911,474 36,542,318 Dilutive effect of stock options 645,507 664,735 Shares used to compute diluted net income per share 36,556,981 37,207,053
-6- 7 WYMAN-GORDON COMPANY AND SUBSIDIARIES NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS August 31, 1999 (Unaudited) NOTE E - SEGMENT INFORMATION The following table summarizes segment information by markets served:
THREE MONTHS ENDED AUGUST 31, AUGUST 31, 1999 1998 Net sales Aerospace products $145,645 $152,951 Energy products 25,735 29,574 Other products 5,115 7,139 Consolidated net sales $176,495 $189,664 EBITDA(1) Aerospace products $ 23,016 $ 19,200 Energy products 2,237 3,066 Other products 491 1,261 Corporate (1,944) (1,867) Total EBITDA 23,800 21,660 Depreciation and Amortization 7,353 6,799 Other charges (credit) (1,200) (5,000) Interest expense 3,599 3,529 Income before income taxes $ 14,048 $ 16,332
[FN] (1) Earnings before interest, taxes, depreciation, amortization, extraordinary items and other charges (credits). The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. Expenses that are not directly identifiable to a business market are allocated. Common administrative expenses are allocated based on revenue, common period costs are allocated based on value added. The Company's management uses Revenues and EBITDA by business market as its primary information for decision-making purposes. The Company's revenues are predominantly generated in the Aerospace market segment. All plants with the exception of the Buffalo, New York facility, which has approximately $23,000,000 of total assets and generates most of its revenues from the Energy market segment, generate the majority of their revenues from the Aerospace market. Certain plants manufacture products for all segments; however, due to the significance of the Aerospace market segment (82% of revenues), assets of the -7- 8 WYMAN-GORDON COMPANY AND SUBSIDIARIES NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS August 31, 1999 (Unaudited) NOTE E - SEGMENT INFORMATION, Continued Company are not managed by business markets but are managed on a plant-by-plant basis. Because the Company does not prepare and management does not use asset information by the segments identified, assets by segments are not presented in these financial statements. NOTE F - COMMITMENTS AND CONTINGENCIES At August 31, 1999, certain lawsuits arising in the normal course of business were pending. In the opinion of management, the outcome of these legal matters will not have a material adverse effect on the Company's financial position and results of operations. 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 $12,541,000 at August 31, 1999. These contracts hedge certain normal operating purchase and sales transactions. The foreign 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 Income for the three months ended August 31, 1999 and August 31, 1998 were not material. On September 25, 1997, the Company received a subpoena from the United States Department of Justice informing it that the Department of Defense and other federal agencies had commenced an investigation with respect to the manufacture and sale of investment castings at the Company's Tilton, New Hampshire facility. The Company does not believe that the federal investigation is likely to result in a material adverse impact on the Company's financial condition or results of operations, although no assurance as to the outcome or impact of that investigation can be given. -8- 9 WYMAN-GORDON COMPANY AND SUBSIDIARIES NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS August 31, 1999 (Unaudited) NOTE G - OTHER CHARGES (CREDITS) In the three months ended August 31, 1999, the Company recorded other credits of $1,200,000 for the recovery of costs associated with the Houston industrial accident. In the three months ended August 31, 1998, the Company recorded other credits of $5,000,000 resulting from the sale of the operating assets of the Company's Millbury, Massachusetts vacuum remelting facility which produced titanium ingots for further processing into finished forgings to Titanium Metals Corporation "TIMET". NOTE H - PENDING MERGER On May 17, 1999, Precision Castparts, Corp. ("PCC") and the Company announced that PCC has agreed to acquire 100 percent of the Company's common stock in a cash tender offer of $20 per share, valued at approximately $825,000,000, including the assumption of $104,000,000 of net debt. Upon completion of the tender offer and subsequent merger, Wyman-Gordon will become a wholly-owned subsidiary of PCC. The completion of the tender offer is conditioned upon the tender of at least two-thirds of the outstanding shares of Wyman-Gordon and certain other conditions, including compliance with the requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976. PCC, headquartered in Portland, Oregon, is a worldwide manufacturer of complex metal components and products. -9- 10 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). The words "believe," "expect," "anticipate," "intend," "estimate", "assume" and other similar expressions which are predictions of or indicate future events and trends and which do not relate to historical matters identify forward-looking statements. In addition, information concerning raw material prices and availability, customer orders and pricing, and industry cyclicality and their impact on gross margins and business trends as well as liquidity and sales volume are forward-looking statements. Reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are in some cases beyond the control of the Company and may cause the actual results, performance or achievements of the Company to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. Certain factors that might cause such differences include, but are not limited to, the following: The Company's ability to successfully negotiate long-term contracts with customers and raw materials suppliers at favorable prices and other terms acceptable to the Company, the Company's ability to obtain required raw materials to supply its customers on a timely basis and the cyclicality of the aerospace industry. For further 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, 1999 Part I, Item 1 - "Business - The Company," "Customers," "Marketing and Sales," "Backlog," "Raw Materials," "Energy Usage," "Employees," "Competition," "Environmental Regulations," "Product Liability Exposure" and "Legal Proceedings". -10- 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued RESULTS OF OPERATIONS The principal markets served by the Company are aerospace and energy. Revenue by market for the respective periods was as follows:
THREE MONTHS ENDED AUGUST 31, 1999 AUGUST 31, 1998 (000's omitted) % OF % OF AMOUNT TOTAL AMOUNT TOTAL Aerospace $145,645 82% $152,951 81% Energy 25,735 15% 29,574 15% Other 5,115 3% 7,139 4% $176,495 100% $189,664 100%
RESULTS OF OPERATIONS THREE MONTHS ENDED AUGUST 31, 1999 ("first quarter of fiscal year 2000") COMPARED TO THREE MONTHS ENDED AUGUST 31, 1998 ("first quarter of fiscal year 1999") CONSOLIDATED RESULTS OF OPERATIONS Total revenues in the first quarter of fiscal year 2000 decreased by $13.2 million, or 6.9%, to $176.5 million compared to $189.7 million in the first quarter of fiscal year 1999. EBITDA improved to $23.8 million, or 13.5% of revenues compared to $21.7 million, or 11.4% of revenues in the first quarter of fiscal year 1999. The decline in revenues while maintaining EBITDA and gross margins consistent with those of fiscal year 1999 is in line with the Company's previous announcements. EBITDA should not be considered a substitute for net income as an indicator of operating performance or as an alternative to cash flow as a measure of liquidity, in each case determined in accordance with generally accepted accounting principles. Investors should be aware that EBITDA as reported within may not be comparable to similarly titled measures presented by other companies, and comparisons could be misleading unless all companies and analysts calculate this measure in the same fashion. Net income was $9.0 million, or $.25 per share (diluted), for the quarter, compared to $11.9 million, or $.32 per share (diluted) for the first quarter of fiscal year 1999. During the first quarter of fiscal year 2000, the Company recorded other credits of $1.2 million for the recovery of costs associated with the Houston industrial accident. During the first quarter of -11- 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued RESULTS OF OPERATIONS THREE MONTHS ENDED AUGUST 31, 1999 ("first quarter of fiscal year 2000") COMPARED TO THREE MONTHS ENDED AUGUST 31, 1998 ("first quarter of fiscal year 1999"), Continued CONSOLIDATED RESULTS OF OPERATIONS, Continued fiscal year 1999, the Company recorded a $5.0 million credit associated with the sale of operating assets from its Millbury, Massachusetts facility to TIMET and a $1.4 million tax benefit related to expected realization of certain tax assets. Notwithstanding these items, net income for the first quarter of fiscal year 2000 and the first quarter of fiscal year 1999 would have been $8.2 million, or $.23 per share (diluted) and $7.3 million, or $.20 per share (diluted), respectively. Selling, general and administrative expenses decreased 11.2% to $12.0 million during the first quarter of fiscal year 2000 from $13.5 million during the first quarter of fiscal year 1999. Selling, general and administrative expenses as a percentage of revenues improved to 6.8% in first quarter of fiscal year 2000 from 7.1% in the first quarter of fiscal year 1999. Selling, general and administrative expenses benefited from a $2.4 million credit associated with the demutualization of one of the Company's insurance carriers in which the Company holds certain life insurance policies. This benefit was offset by a charge of $1.2 million relating to the maturation of restricted stock and $1.4 million associated with incentive accruals. Excluding these items noted above, selling, general and administrative expenses would have been $11.8 million, or 6.7% of revenues. During the first quarter of fiscal year 2000, the Company provided $5.1 million, representing a 36% effective tax rate, for income taxes. The Company recorded a provision for income taxes of $4.5 million in the first quarter of fiscal year 1999. The provision was recorded net of a $1.4 million tax benefit related to reduction in the tax asset reserve for the capital loss related to the Company's investment in an Australian joint venture. The Company's backlog decreased to $644.3 million as of the end of the first quarter of fiscal year 2000 from $1,000.9 million as of the end of the first quarter of fiscal year 1999 and $734.8 million at May 31, 1999. This decrease resulted from the following factors: 1. Reduction in build rates of the Company's engine and airframe customers due to a downturn in the commercial aircraft cycle, 2. Inventory reduction programs initiated by certain major customers, and -12- 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued RESULTS OF OPERATIONS THREE MONTHS ENDED AUGUST 31, 1999 ("first quarter of fiscal year 2000") COMPARED TO THREE MONTHS ENDED AUGUST 31, 1998 ("first quarter of fiscal year 1999"), Continued CONSOLIDATED RESULTS OF OPERATIONS, Continued 3. A decrease in overdue orders to customer delivery dates as a result of increased capacity from recommissioning of major presses coupled with reduced bookings. Of the Company's total current backlog, $492.6 million is shippable in the next twelve months. The Company believes that it will be able to fulfill those twelve-month requirements. FINANCIAL RESULTS BY SEGMENT AEROSPACE MARKET The Aerospace Market segment produces components utilizing all of the Company's manufacturing disciplines: forging, investment casting and composites. The parts produced in this segment are used extensively by the major jet engine manufacturers and airframe builders within the commercial and military aircraft industry. A variety of engine parts produced by the Company include fan discs, compressor discs, turbine discs, seals, shafts, hubs, reversers and valves. Aerospace airframe components include landing gear, bulkheads, wing spars, engine mounts, struts, wing and tail flaps and bulkheads. The Company produces these components from titanium, nickel, steel, aluminum and composite materials. The Aerospace Market segment reported first quarter fiscal year 2000 revenues of $145.6 million and EBITDA of $23.0 million. Revenues for the first quarter of fiscal year 2000 decreased by 4.8% compared to first quarter of fiscal year 1999 revenues of $153.0 million, however, EBITDA as a percentage of revenues improved to 19.9% in first quarter of fiscal year 2000 from 12.6% in the first quarter of fiscal year 1999. The decrease in aerospace market revenues is a result of the downturn in the commercial aircraft cycle. The significant improvement in EBITDA is a result of continuous cost reduction initiatives and shipment of a more favorable product mix compared to the first quarter of fiscal year 1999. Also, the first quarter of fiscal year 1999 EBITDA was negatively impacted by inefficiencies associated with bringing the 29,000 ton press back on-line in the Company's Houston, TX facility. -13- 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued RESULTS OF OPERATIONS THREE MONTHS ENDED AUGUST 31, 1999 ("first quarter of fiscal year 2000") COMPARED TO THREE MONTHS ENDED AUGUST 31, 1998 ("first quarter of fiscal year 1999"), Continued ENERGY MARKET The Company is a major supplier of products used in nuclear and fossil-fueled commercial power plants, co-generation projects and retrofit and life extension applications as well as in the oil and gas industry. Products produced within the energy product segment include extruded seamless thick wall pipe, connectors and valves. The Company produces rotating components, such as discs and spacers, and valve components for land-based steam turbine and gas turbine generators. Revenues for the Energy Market segment totaled $25.7 million for the first quarter of fiscal year 2000, as compared to $29.6 million in the first quarter of fiscal year 1999, a decrease of $3.8 million, or 13.0%. The segment's EBITDA saw some deterioration, falling to $2.2 million, or 8.7% of revenues for the first quarter of fiscal year 2000 from $3.1 million, or 10.4% of revenues in the first quarter of fiscal year 1999. The Energy Market segment continues to experience the lack of demand for oil exploration worldwide, which has dramatically affected sales of oil and gas products both domestically and internationally. OTHER MARKET The Company manufactures a variety of products for defense related applications. Some of the products produced within this segment include steel casings for bombs and rockets, components for propulsion systems for nuclear submarines and aircraft carriers as well as pump, valve, structural and non-nuclear propulsion forgings. The Company also manufactures products for commercial applications such as food processing, semiconductor manufacturing, diesel turbochargers and sporting equipment. The Other Market segment revenues decreased to $5.1 million in the first quarter of fiscal year 2000 compared to $7.1 million in first quarter of fiscal year 1999, a decrease of $2.0 million, or 28.4%. EBITDA dropped to $0.5 million, or 9.8% of revenues compared to $1.3 million, or 17.7% of revenues. The decrease in revenues and EBITDA was largely due to reduced sales of ordnance products and associated margins. LIQUIDITY AND CAPITAL RESOURCES The $1.0 million increase in the Company's cash to $74.9 million at August 31, 1999 from $73.9 million at May 31, 1999 resulted primarily from cash provided by operating activities of $4.8 million, issuance of common stock of $2.6 million in connection with employee compensation and benefit plans and $0.2 million of proceeds from the sale of fixed assets, offset by capital expenditures of $6.4 million and $0.2 million used for other, net investing and financing activities. -14- 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued LIQUIDITY AND CAPITAL RESOURCES, Continued The $7.7 million increase in the Company's working capital to $237.7 million at August 31, 1999 from $230.0 million at May 31, 1999 resulted primarily from (in millions):
Increase in: Cash and cash equivalents $ 1.0 Accounts receivable 0.1 Decrease in: Inventories (2.5) Prepaid expenses (2.4) Accounts payable 5.7 Accrued liabilities and other 5.8 Increase in working capital $ 7.7
Earnings before interest, taxes, depreciation, amortization and other charges (credits) ("EBITDA") increased $2.1 million to $23.8 million in the first three months of fiscal year 2000 from $21.7 million in the first three months of fiscal year 1999. The increase in EBITDA reflects the favorable impact from cost reduction initiatives and a more favorable mix of products shipped, primarily within the Company's aerospace market product lines. EBITDA should not be considered a substitute for net income as an indicator of operating performance or as an alternative to cash flow as a measure of liquidity, which, in each case is determined in accordance with generally accepted accounting principles. Investors should be aware that EBITDA as shown above may not be comparable to similarly titled measures presented by other companies, and comparisons could be misleading unless all companies and analysts calculate this measure in the same fashion. As of May 31, 1999, the Company estimated the remaining cash requirements for the 1997 restructuring to be $2.5 million. Of such amount, the Company expects to spend approximately $2.2 million during fiscal year 2000 and $0.3 million thereafter. In the first three months of fiscal year 2000, spending related to the 1997 restructuring amounted to $1.2 million. The Company expects to spend $1.3 million in fiscal year 2000 and $14.2 million thereafter on non-capitalizable environmental activities. In the first three months of fiscal year 2000, $0.2 million was expended for non-capitalizable environmental projects. -15- 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) LIQUIDITY AND CAPITAL RESOURCES, Continued The Company from time to time expends cash on capital expenditures for more cost-effective operations, environmental projects and joint development programs with customers. In the first three months of fiscal year 2000, capital expenditures amounted to $6.4 million and are expected to be approximately $25.0 million in fiscal year 2000. On December 15, 1997, the Company issued $150.0 million of 8% Senior Notes due 2007 under an indenture between the Company and a bank as trustee. The 8% Senior Notes pay interest semi- annually in arrears on June 15 and December 15 of each year. The 8% Senior Notes are general unsecured obligations of the Company, are non-callable for a five year period, and are senior to any future subordinated indebtedness of the Company. The Company's revolving receivables-backed credit facility (the "Receivables Financing Program") provides the Company with an aggregate maximum borrowing capacity of $65.0 million (subject to a borrowing base), with a letter of credit sub-limit of $35.0 million. The term of the Receivables Financing Program is five years with a renewal option. As of August 31, 1999, the total availability under the Receivables Financing Program was $65.0 million, there were no borrowings and letters of credit amounting to $9.8 million were outstanding. Wyman-Gordon Limited, the Company's subsidiary located in Livingston, Scotland, entered into a credit agreement ("the U.K. Credit Agreement") with Clydesdale Bank PLC ("Clydesdale") effective May 24, 1999. The maximum borrowing capacity under the U.K. Credit Agreement is 2.0 million pounds sterling (approximately $3.2 million) with a separate letter of credit and guarantee limits of 1.0 million pounds sterling (approximately $1.6 million) each. The term of the U.K. Credit Agreement is one year with a renewal option. There were no borrowings outstanding at August 31, 1999. Wyman-Gordon Limited had outstanding 1.1 million pounds sterling (approximately $1.7 million) of letters of credit or guarantees under the U.K. Credit Agreement. The primary sources of liquidity available to the Company to fund operations and other future expenditures include available cash ($74.9 million at August 31, 1999), borrowing availability under the Company's Receivables Financing Program, cash generated by operations and reductions in working capital requirements through planned accounts receivable management. The Company believes that it has adequate resources to provide for its operations and the funding of restructuring, capital and environmental expenditures. -16- 17 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 and, where possible, negotiating price escalators into its customer contracts to offset a portion of raw material cost increases. ACCOUNTING AND TAX MATTERS In June, 1998, the Financial Accounting Standards Board issued Statement No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). This Statement requires companies to record derivatives on the balance sheet as assets and liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. SFAS 133 is not expected to have material impact on the Company's consolidated financial statements. This Statement is effective for fiscal years beginning after June 15, 2000. The Company will adopt this accounting standard as required in fiscal 2002. YEAR 2000 The Year 2000 computer issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the computer programs in the Company's computer systems and plant equipment systems that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculation causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices or engage in similar normal business activities. -17- 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) YEAR 2000, Continued The Company's overall Year 2000 project approach and status is as follows:
ESTIMATED STATE OF TIMETABLE DESCRIPTION OF APPROACH COMPLETION FOR COMPLETION Computer Systems: Assess systems for possible Year 2000 impact 100% Completed Modify or replace non-compliant systems 99% October 31, 1999 Test systems with system clocks set at current date 99% October 31, 1999 Test systems off-line with system clocks set at various Year 2000 related critical dates 99% October 31,1999 Plant Equipment: Computer-dependent plant equipment assessment and compliance procedures performed 99% October 31, 1999
The Company has completed a comprehensive inventory of substantially all computer systems and programs. All hardware required for stand alone testing of systems has been installed in order to perform off-line testing for Year 2000 program compliance. The Company has identified all software supplied by outside vendors that is not Year 2000 compliant. With respect to all such non-compliant software the Company has acquired the most recent release and has completed testing such versions for Year 2000 compliance. All software developed in-house has been reviewed and necessary modifications have been completed. In addition to assessing the Company's Year 2000 readiness, the Company has also undertaken an action plan to assess and monitor the progress of third-party vendors in resolving Year 2000 issues. To date, the Company has generated correspondence to each of its third-party vendors to assure their Year 2000 readiness. At this time, correspondence received and communication with the Company's major suppliers indicates Year 2000 readiness plans are currently being developed and monitored. The Company used both internal and external resources to reprogram, or replace, and test software for Year 2000 modifications. The Year 2000 project is 99% complete and the Company anticipates completing the project by October 31, 1999. -18- 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) YEAR 2000, Continued Maintenance or modification costs will be expensed as incurred, while the costs of new information technology will be capitalized and amortized in accordance with Company policy. The Company estimates it will cost approximately $1.2 million to make its computer-dependent plant equipment Year 2000 compliant. The total estimated cost of the Year 2000 computer project, including software modifications, consultants, replacement costs for non-compliant systems and internal personnel costs, based on presently available information, is not material to the financial operations of the Company and is estimated at approximately $2.0 million. However, if such modifications and conversions are not made, or are not completed in time, the Year 2000 computer issue could have a material impact on the operations of the Company. The Company is currently assessing Year 2000 contingency plans. A contingency planning guideline has been established to address departmental requirements to develop plans for responding to the loss or degradation of system or services due to Year 2000 issues. The contingency planning involves the preparation and implementation of alternate work process (such as manual process and/or the use of an alternate compliant business system at another location) in the event of system failure due to Year 2000 noncompliance. The forecast costs and the date on which the Company believes it will complete its Year 2000 computer modifications are based on its best estimates, which, in turn, were based on numerous assumptions of future events, including third-party modification plans, continued availability of resources and other factors. The Company cannot be sure that these estimates will be achieved and actual results could differ materially from those anticipated. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company uses derivative financial instruments to limit exposure to changes in foreign currency exchange rates and interest rates. FOREIGN CURRENCY RISK The Company's subsidiary in Livingston, Scotland enters into foreign exchange contracts to manage risk on transactions conducted in foreign currencies. As discussed in the "Commitments and Contingencies" footnote, the Company had several foreign currency hedges in place at August 31, 1999 to reduce such exposure. The potential loss in fair value on such financial instruments from a hypothetical 10 percent adverse change in quoted foreign currency exchange rates would not have been material to the financial position of the Company as of the three months ended August 31, 1999 or August 31, 1998. -19- 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK, Continued INTEREST RATE RISK There were no borrowings under the Company's WGRC Revolving Credit Facility or the U.K. Credit Agreement during the three months ended August 31, 1999 or August 31, 1998. As such, if market rates would have averaged 10 percent higher than actual levels during these periods, there would have been no impact to interest expense or net income as reported. PART II. 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 Three Months Ended August 31, 1999
(b) Reports on Form 8-K NONE -20- 21 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: 10/15/99 By: /S/ WALLACE F. WHITNEY, JR Wallace F. Whitney, Jr. Vice President, General Counsel and Clerk Date: 10/15/99 By: /S/ DAVID J. SULZBACH David J. Sulzbach Vice President, Finance, Corporate Controller and Principal Accounting Officer -21- EX-27 2 FINANCIAL DATA SCHEDULE
5 U.S. DOLLARS 3-MOS MAY-31-2000 JUN-01-1999 AUG-31-1999 1,000 74,855 7 151,327 0 95,118 336,871 522,132 308,503 581,021 99,210 164,315 0 0 37,053 208,317 581,021 173,667 176,495 147,767 147,767 0 0 3,599 14,048 5,057 8,991 0 0 0 8,991 .25 .25
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