<PAGE> 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.
<TABLE>
<CAPTION>
OUTSTANDING AT
CLASS NOVEMBER 30, 1996
<S> <C>
Common Stock, $1 Par Value 35,927,921
</TABLE>
Page 1 of 20<PAGE>
<PAGE> 2
PART I.
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
WYMAN-GORDON COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<CAPTION>
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)
<S> <C> <C> <C> <C>
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
</TABLE>
The accompanying notes to the consolidated condensed
financial statements are an integral part of these financial
statements.
-2-<PAGE>
<PAGE> 3
<TABLE>
WYMAN-GORDON COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<CAPTION>
NOVEMBER 30, MAY 31,
1996 1996
(000's omitted)
<S> <C> <C>
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
</TABLE>
The accompanying notes to the consolidated condensed
financial statements are an integral part of these financial
statements.
-3-<PAGE>
<PAGE> 4
<TABLE>
WYMAN-GORDON COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<CAPTION>
SIX MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
1996 1995
(000's omitted)
<S> <C> <C>
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
</TABLE>
The accompanying notes to the consolidated condensed
financial statements are an integral part of these financial
statements.
-4-<PAGE>
<PAGE> 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:
<TABLE>
<CAPTION>
NOVEMBER 30, 1996 MAY 31, 1996
(000's omitted)
<S> <C> <C>
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
</TABLE>
-5-<PAGE>
<PAGE> 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-<PAGE>
<PAGE> 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-<PAGE>
<PAGE> 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):
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
NOVEMBER 30, 1996 NOVEMBER 30, 1995
% OF % OF
AMOUNT TOTAL AMOUNT TOTAL
<S> <C> <C> <C> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 30, 1996 NOVEMBER 30, 1995
% OF % OF
AMOUNT TOTAL AMOUNT TOTAL
<S> <C> <C> <C> <C>
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%
</TABLE>
-8-<PAGE>
<PAGE> 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-<PAGE>
<PAGE> 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-<PAGE>
<PAGE> 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-<PAGE>
<PAGE> 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-<PAGE>
<PAGE> 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-<PAGE>
<PAGE> 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-<PAGE>
<PAGE> 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-<PAGE>
<PAGE> 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-<PAGE>
<PAGE> 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-<PAGE>
<PAGE> 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-<PAGE>
<PAGE> 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:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
27 Financial Data Schedule for the Six Months Ended
November 30, 1996.
</TABLE>
(b) No reports on Form 8-K have been filed with the Commission
during the period covered by this report.
-19-<PAGE>
<PAGE> 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-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> NOV-30-1996
<CASH> 36,277
<SECURITIES> 7
<RECEIVABLES> 95,654
<ALLOWANCES> 0
<INVENTORY> 84,150
<CURRENT-ASSETS> 230,710
<PP&E> 416,613
<DEPRECIATION> 270,230
<TOTAL-ASSETS> 404,501
<CURRENT-LIABILITIES> 96,523
<BONDS> 90,231
0
0
<COMMON> 37,053
<OTHER-SE> 96,140
<TOTAL-LIABILITY-AND-EQUITY> 404,501
<SALES> 271,571
<TOTAL-REVENUES> 272,890
<CGS> 237,823
<TOTAL-COSTS> 237,823
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,382
<INCOME-PRETAX> (2,732)
<INCOME-TAX> 0
<INCOME-CONTINUING> 16,948
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,948
<EPS-PRIMARY> .46
<EPS-DILUTED> .46
</TABLE>
