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Exhibit 99.1
PRECISION PARTNERS, INC.
5606 N. MacArthur Blvd.
Suite 760
Irving, TX 75038
CONTACT: FRANK REILLY
EVP & CFO
(972) 580-1550
[email protected]
PRECISION PARTNERS, INC. ANNOUNCES THIRD
QUARTER FINANCIAL RESULTS, MANAGEMENT
REORGANIZATION AND RESTRUCTURING OF
TWO BUSINESS UNITS
Dallas, TX - November 14, 2000 -- Precision Partners, Inc., a leading
supplier of precision machined metal parts, tooling and assemblies, today
announced results for the third quarter and nine months ended September 30,
2000. The Company also announced a management reorganization and the
restructuring of two of its business units, Galaxy and Certified Fabricators
(Certified).
Net sales for the third quarter of 2000 rose 6.3 percent to $37.6
million from $35.4 million in the comparable period in 1999. The Company
generated operating losses of $1.3 million before non-recurring and special
charges related to reorganization and restructuring at Galaxy and Certified,
compared to an operating loss of $0.2 million in the third quarter of 1999.
Before special charges, operating income (loss) plus depreciation and
amortization (EBITDA) for the third quarter was a positive $3.3 million versus a
positive pro forma $4.3 million during the comparable period in 1999. The
Company generated a net loss including special charges of $12.3 million for the
third quarter of 2000 compared to a net loss of $2.4 million in the same period
of 1999. Pro forma net sales and operating profits for the third quarter of 1999
were $38.2 million and $0.4 million, respectively.
Net sales for the nine months ended September 30, 2000 were $125.7
million, compared to historical net sales of $81.3 million and pro forma net
sales of $107.9 million for the same period in 1999. For the nine months ended
September 30, 2000, the Company generated operating income of $3.9 million
before the special charges and EBITDA of $16.6 million. For the nine months
ended September 30, 1999, the Company had a pro forma operating profit of $7.4
million and pro forma EBITDA of $19.0 million.
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John Raos, President and Chief Executive Officer, said, "Overall sales
and backlogs continued strong in the third quarter, with power generation, light
truck and business machine component sales continuing to exceed expectations.
The third quarter results also reflect a full quarter contribution from Gillette
Machine and Tool (Gillette), which was acquired in September 1999. Operating
results were negatively impacted by a three week shutdown in September at
Galaxy's new engine block facility, a depressed aerospace tooling marketplace,
reorganization and severance costs at Galaxy and Certified, as well as more
competitive market conditions in the automotive components sector."
Operating losses before special charges for the third quarter and nine
months ended September 30, 2000 included aggregate operating losses of $2.5
million and $7.7 million, respectively, reported by Galaxy and Certified. As a
result of the reorganization and restructuring of Galaxy and Certified, the
Company incurred a non-cash, after-tax charge of approximately $9.0 million
($10.9 million pre-tax) for the quarter ended September 30, 2000. Additional
cash costs of approximately $1.4 million ($1.9 million pre-tax), related to the
reorganization and plant consolidation at Galaxy and Certified, are expected to
be incurred in the fourth quarter of 2000. These additional costs are expected
to be partially offset by the sale of real estate and other assets no longer
being utilized by the Company.
Galaxy's new engine block operation is now under the management of
Nationwide Precision Products Corp. (Nationwide), a Precision Partners company
headquartered in Rochester, New York, which specializes in long-run production
processes for auto and light truck components. Galaxy's other three plants are
now under the management of Gillette, also based in Rochester, N.Y., which
specializes in short-run precision machined production for the business machine,
medical, and railroad switching equipment industries. To improve operational
performance, management intends to consolidate the three Galaxy manufacturing
operations under Gillette's management into one facility. This consolidation is
expected to be completed in the first quarter of 2001 and will reduce Galaxy's
total workforce, including workers at the Galaxy plant being managed by
Nationwide, by approximately 47 percent, from 117 to 62.
As a result of the Galaxy reorganization and plant consolidation, the
Company incurred a non-cash charge of approximately $5.7 million ($7.5 million
pre-tax) for the quarter ended September 30, 2000. The non-cash charge related
to a write-down of fixed assets as a result of the closure of the plants, the
determination that certain fixed assets were no longer useful in the business, a
write-down of inventory carrying value and an impairment of goodwill. Additional
cash costs of approximately $1.1 million ($1.5 million pre-tax) are expected to
be incurred by the Company in the fourth quarter of 2000 in connection with the
closure of the two plants. Management expects these costs to be partially
mitigated by the sale of real estate and equipment no longer useful in Galaxy's
business.
Earlier this year, Precision Partners began a similar reorganization at
Certified, a Precision Partners company headquartered in California. Since
January 1, 2000, Certified's workforce has been reduced by approximately 36
percent, from 127 to 81.
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The Company also further rationalized Certified's product line,
resulting in a non-cash after-tax charge of $2.6 million ($3.4 million pre-tax)
for the quarter ended September 30, 2000 reflecting an impairment in value of
existing equipment. In addition, the Company expects to incur additional cash
costs of approximately $300,000 ($400,000 pre-tax) related to the ongoing
reorganization and restructuring at Certified in the fourth quarter of 2000.
On September 11, 2000, Dennis Williams was named President and CEO of
Certified Fabricators. Since March 1999, Mr. Williams has held various positions
at Certified, most recently as Director of Manufacturing. Prior to 1999, Mr.
Williams spent 13 years at the Boeing Commercial Airplane Group.
Mr. Raos commented "I am encouraged by the already apparent
improvements in operations at Certified and our Galaxy operations. Our
management teams at Nationwide and Gillette have moved quickly and we are
beginning to realize the benefits of the Galaxy restructuring programs put in
place. Our new engine block facility has been in production since late September
and is currently meeting its agreed schedule of customer delivery requirements.
At Certified, continuing cost reductions and a renewed focus on operating
performance are also beginning to show promise. We plan to continue to move
aggressively in our efforts toward significant improvement in operating income
and EBITDA in 2001."
On September 21, 2000, the Company notified its bank group of its
anticipated noncompliance with financial covenants applicable to the third
quarter of 2000. In recognition of the reorganization activity and the related
$10.9 million charge, on September 30, 2000, the bank group agreed to waive
compliance with the financial covenants through December 29, 2000. As of
September 30, 2000, the Company had $32.0 million of indebtedness outstanding
under its credit facilities.
Additionally, on November 1, 2000, General Electric Capital Corporation
(GECC) notified the Company that it was in default under a master lease
agreement between the parties as a result of the Company's noncompliance with
the same financial covenants as those contained in the credit agreement for the
third quarter and other unspecified covenants and representations. On November
14, 2000, GECC agreed to waive these defaults through November 30, 2000 on the
condition that the parties enter into an amendment to the lease on or prior to
such date. As of September 30, 2000, the Company had $18.5 million of operating
leases outstanding under the master lease.
On November 13, 2000, as a result of the existence of the defaults
under the GECC master lease agreement discussed above, the bank group notified
the Company of additional defaults under the credit facility. On November 14,
2000, the bank group waived these defaults through November 30, 2000 and amended
the September 30 waiver to apply only through that date.
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The Company is currently in negotiations with its bank group and GECC
and expects to negotiate permanent amendments to its credit agreement and master
lease agreement prior to November 30, 2000. In connection with these amendments,
the Company expects to receive a $6.0 million equity contribution from its
shareholders. The Company has postponed the filing of its quarterly report on
Form 10-Q for the third quarter pending the finalization and execution of the
amendments.
Precision Partners, Inc. is a leading supplier of precision machined
metal parts, tooling and assemblies for original equipment manufacturers
(OEM's). Our broad manufacturing capabilities and highly engineered processes
allow us to meet the critical specifications of our customers across a wide
range of industries. We have earned "Preferred" or "Qualified" supplier status
with most of our customers and are predominately the sole-source supplier to our
customers of the parts we manufacture.
* * * * * * *
IN ADDITION TO THE HISTORICAL FINANCIAL INFORMATION CONTAINED HEREIN,
THIS RELEASE CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING
STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES, WHICH MAY CAUSE
THE COMPANY'S ACTUAL RESULTS IN FUTURE PERIODS TO DIFFER MATERIALLY FROM
FORECASTED RESULTS. A NUMBER OF FACTORS, INCLUDING THOSE IDENTIFIED BELOW, COULD
ADVERSELY AFFECT THE COMPANY'S ABILITY TO OBTAIN THESE RESULTS: THE COMPANY'S
ABILITY TO ATTRACT NEW BUSINESS, THE COMPANY'S ABILITY TO ACQUIRE ADEQUATE RAW
MATERIALS AND TO OBTAIN FAVORABLE PRICING FOR SUCH MATERIALS, PRICING PRESSURES
FOR THE COMPANY'S PRODUCTS AND SERVICES, INCREASED COMPETITION IN THE PRECISION
MACHINING AND OEM MARKETS, THE ABILITY TO CONSUMMATE SUITABLE ACQUISITIONS, THE
CONTINUING ABILITY TO EFFECTIVELY INTEGRATE ACQUISITIONS, ECONOMIC FACTORS WHICH
AFFECT THE MANUFACTURING INDUSTRY AND CHANGES IN GOVERNMENT REGULATIONS. CERTAIN
OF THESE RISKS ARE DESCRIBED IN THE COMPANY'S FORM 10-Q FOR THE SECOND QUARTER
OF 2000. COPIES OF THIS REPORT MAY BE OBTAINED VIA THE WORLD WIDE WEB AT
WWW.PRECISIONPARTNERSINC.COM.
THE PRO FORMA FINANCIAL PRESENTATION RESTATES THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 TO INCLUDE ALL ACQUISITIONS COMPLETED IN 1999 AS IF THEY HAD
OCCURRED AT THE BEGINNING OF THE YEAR. THE ASSUMPTIONS USED IN THE PREPARATION
OF THE PRO FORMA FINANCIAL INFORMATION INCLUDE SIGNIFICANT SUBJECTIVE JUDGEMENT
ON THE PART OF MANAGEMENT AND PRECISION CANNOT ASSURE YOU THAT ALL INVESTORS
WOULD MAKE THE SAME ASSUMPTIONS. EBITDA AND PRO FORMA EBITDA ARE DEFINED AS
OPERATING INCOME (LOSS) PLUS DEPRECIATION AND AMORTIZATION. ADDITIONALLY, EBITDA
AND PRO FORMA EBITDA ARE NOT A MEASURE OF PERFORMANCE UNDER GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES. WHILE EBITDA AND PRO FORMA EBITDA SHOULD NOT BE USED IN
ISOLATION OR AS A SUBSTITUTE FOR FINANCIAL INFORMATION PREPARED IN ACCORDANCE
WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES, OR AS A MEASURE OF PROFITABILITY
OR LIQUIDITY, MANAGEMENT BELIEVES THAT IT MAY BE USED BY CERTAIN INVESTORS AS
SUPPLEMENTAL INFORMATION TO EVALUATE A COMPANY'S FINANCIAL PERFORMANCE AND ITS
ABILITY TO SERVICE ITS DEBT.
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PRECISION PARTNERS, INC.
UNAUDITED SELECTED CONDENSED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ------------------------------
SELECTED CONSOLIDATED STATEMENT OF
OPERATIONS INFORMATION 2000 1999 2000 1999
------------- ----------- -------------- ------------
<S> <C> <C> <C> <C>
Net sales $ 37,589 $ 35,371 $ 125,664 $ 81,301
Operating (loss) income (11,483) (185) (6,226) 4,620
Net interest expense (3,853) (3,514) (12,167) (8,396)
Net loss $ (12,304) $ (2,380) $ (14,644) $ (2,747)
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
SELECTED CONSOLIDATED BALANCE SHEET INFORMATION 2000 1999
----------------- ----------------
(audited)
<S> <C> <C>
Total assets $ 194,310 $ 206,391
Total net debt * $ 132,244 $ 134,235
Total stockholder's equity $ 21,497 $ 36,132
</TABLE>
* Short-term debt plus current installments of long term debt, plus long term
debt, less cash. Excludes operating lease obligations of $18.5 million under the
GECC master lease agreement which may be partially or totally capitalized as a
result of the negotiations with GECC and the bank group.
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PRECISION PARTNERS, INC.
UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
The following table sets forth Precision's unaudited selected condensed
historical consolidated statement of operations and other information for the
three and nine months ended September 30, 2000 and the selected condensed pro
forma statement of operations and other pro forma information for the three and
nine months ended September 30, 1999. The unaudited pro forma selected condensed
consolidated statement of operations for the three and nine months ended
September 30, 1999 includes the operations of Mid State and Galaxy for the
period and gives effect to the 1999 acquisitions of Nationwide, General
Automation, Certified and Gillette, as if the transactions had occurred on
January 1, 1999.
<TABLE>
<CAPTION>
THREE MONTHS ENDING NINE MONTHS ENDING
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------------- ------------------------------------
2000 1999 2000 1999
(PRO FORMA) (PRO FORMA)
<S> <C> <C> <C> <C>
Net sales $ 37,589 $ 38,160 $ 125,664 $ 107,862
Operating (loss) income (11,483) 380 (6,226) 7,432
Net interest expense (3,853) (3,769) (12,167) (11,803)
Net loss $ (12,304) $ (2,567) $ (14,644) $ (3,285)
EBITDA:
------
Operating (loss) income $ (11,483) $ 380 $ (6,226) $ 7,432
Depreciation 2,944 2,850 8,848 8,448
Goodwill amortization 1,664 1,025 3,804 3,075
--------- ---------- --------- ----------
Total EBITDA $ (6,875) $ 4,255 $ 6,426 $ 18,955
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDING NINE MONTHS ENDING
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------------- ------------------------------------
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Special Charges:
---------------
Goodwill impairment $ 2,318 $ --- $ 2,318 $ ---
Fixed asset impairment 4,453 --- 4,453 ---
Other assets 3,383 --- 3,383 ---
--------- ---------- --------- ----------
Included in Operating
Income $ 10,154 --- $ 10,154 ---
Other 727 --- 727 ---
Included in Pre-tax
Income $ 10,881 --- $ 10,881 ---
</TABLE>
EBITDA is not a measure of performance under generally accepted accounting
principles. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included in the Company's Form 10-Q for the quarterly
period ended June 30, 2000.
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In addition, the definition of EBITDA used in this report may not be
comparable to the definition of EBITDA used by other companies.
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