<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 August 31, 1997
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 AUGUST 31, 1997
<S> <C>
Common Stock, $1 Par Value 36,278,579
</TABLE>
Page 1 of 21<PAGE>
<PAGE> 2
PART I.
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
WYMAN-GORDON COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
THREE MONTHS ENDED
AUGUST 31, AUGUST 31,
1997 1996
(000's omitted, except per share data)
<S> <C> <C>
Revenue $180,009 $134,235
Less:
Cost of goods sold 146,764 122,744
Selling, general and
administrative expenses 13,395 10,052
Other charges(credits) (1,900) 15,779
158,259 148,575
Income (loss) from operations 21,750 (14,340)
Other deductions (income):
Interest expense 2,890 2,722
Miscellaneous, net 331 (5,197)
3,221 (2,475)
Income (loss) before income taxes 18,529 (11,865)
Provision (benefit) for income taxes 6,670 (19,680)
Net income $ 11,859 $ 7,815
Net income per share $ .32 $ .21
Shares used to compute net
income per share 37,421 36,619
</TABLE>
The accompanying notes to the interim 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>
AUGUST 31, MAY 31,
1997 1997
(Unaudited)
(000's omitted)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 26,584 $ 51,971
Accounts receivable 125,431 119,159
Inventories 113,244 92,332
Other current assets 10,189 7,789
Deferred income taxes 2,500 6,500
Total current assets 277,948 277,751
Property, plant and equipment, net 162,077 153,737
Intangible assets 19,079 19,255
Other assets 3,587 3,628
$462,691 $454,371
LIABILITIES
Borrowings due within one year $ 77 $ 77
Accounts payable 63,687 62,092
Accrued liabilities and other 44,391 49,377
Total current liabilities 108,155 111,546
Restructuring, integration, disposal
and environmental 18,452 18,172
Long-term debt 96,154 96,154
Pension liability 1,092 1,102
Deferred income tax and other 11,565 15,861
Postretirement benefits 46,632 47,138
STOCKHOLDERS' EQUITY
Preferred stock - none issued - -
Common stock issued - 37,052,720 shares 37,053 37,053
Capital in excess of par value 28,692 27,608
Retained earnings 126,816 114,957
Equity adjustments 2,205 2,763
Less treasury stock at cost
August 31, 1997 - 774,141 shares
May 31, 1997 - 1,001,199 shares (14,125) (17,983)
180,641 164,398
$462,691 $454,371
</TABLE>
The accompanying notes to the interim 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
(Unaudited)
<CAPTION>
THREE MONTHS ENDED
AUGUST 31, AUGUST 31,
1997 1996
(000's omitted)
<S> <C> <C>
Operating activities:
Net income $ 11,859 $ 7,815
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 5,435 4,956
Deferred taxes 4,000 -
Other charges - 13,045
Provision for equity investment - 2,734
Changes in assets and liabilities:
Accounts receivable (6,272) 5,261
Tax and interest receivable - (20,258)
Inventories (20,912) (7,723)
Prepaid expenses and other assets (2,359) 709
Accrued restructuring, disposal
and environmental (392) (782)
Income and other taxes 1,943 (4,343)
Accounts payable and accrued
liabilities (7,164) 2,241
Net cash provided (used) by
operating activities (13,862) 3,655
Investing activities:
Capital expenditures (13,673) (7,184)
Proceeds from sale of fixed assets 222 323
Other, net (716) (413)
Net cash provided (used) by
investing activities (14,167) (7,274)
Financing activities:
Payment to Cooper Industries, Inc. (2,300) -
Net proceeds from issuance of
common stock 4,942 1,389
Net cash provided by
financing activities 2,642 1,389
Increase (decrease) in cash (25,387) (2,230)
Cash, beginning of year 51,971 30,134
Cash, end of period $ 26,584 $27,904
</TABLE>
The accompanying notes to the interim consolidated condensed
financial statements are an integral part of these financial
statements.
-4-<PAGE>
<PAGE> 5
WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
August 31, 1997
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, 1997 and its results of operations and cash flows for
the three months ended August 31, 1997 and 1996. 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, 1997 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, 1997
and 1996 and its results of operations and cash flows for the
years ended May 31, 1997, 1996 and 1995, 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
Two new accounting rules, FAS 130 - Reporting Comprehensive
Income and FAS 131 - Disclosures about Segments of an Enterprise
and Related Information were issued in June 1997. The
implementation of FAS 130 will require that the components of
comprehensive income be reported in the financial statements.
The implementation of FAS 131 will require the disclosure of
segment information utilizing the approach that the Company uses
to manage its internal organization. The Company is currently
assessing the impact that the new standards will have on its
financial statements. Implementation of both of these new
standards is required for the year ending May 31, 1999 ("fiscal
year 1999").
A new accounting rule, FAS 128 - Earnings per Share (EPS),
was issued in February 1997. The implementation will require the
disclosure of basic (currently referred to as primary) and
diluted (currently referred to as fully diluted) EPS. The
calculation of basic EPS under the new rule will not change from
the current calculation of primary EPS. The calculation of
diluted EPS under the new rule will not be materially different
from the current calculation of fully diluted EPS.
Implementation of this new standard is required for the third
quarter ending February 28, 1998 of the year ending May 31, 1998
("fiscal year 1998").
-5-<PAGE>
<PAGE> 6
WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
August 31, 1997
NOTE C - INVENTORIES
Inventories consisted of:
<TABLE>
<CAPTION>
AUGUST 31, 1997 MAY 31, 1997
(000's omitted)
<S> <C> <C>
Raw material $ 51,486 $ 36,990
Work-in-process 67,619 61,741
Supplies 7,138 6,906
126,243 105,637
Less progress payments 12,999 13,305
$113,244 $ 92,332
</TABLE>
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 $18,262,000 higher than reported at August 31, 1997 and May
31, 1997.
There were no LIFO inventory credits or charges to cost of
goods sold in the three months ended August 31, 1997 or August
31, 1996.
NOTE D - COMMITMENTS AND CONTINGENCIES
At August 31, 1997, 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 $34,815,000 at August 31, 1997. 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 Income for the three months ended August 31, 1997
and 1996 were not material.
-6-<PAGE>
<PAGE> 7
WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
August 31, 1997
NOTE D - COMMITMENTS AND CONTINGENCIES, Continued
On December 22, 1996, a serious industrial accident occurred
at the Houston, Texas facility of WGFI, a wholly-owned subsidiary
of the Company. The accident occurred while a crew of ten men
was performing maintenance on the accumulator system that
supplies hydraulic power for WGFI's 35,000 ton press. The
maintenance required that the system be completely depressurized
which the crew believed to be the case. However, subsequent
examination has shown that a valve on one of the pressure vessels
was closed thereby containing pressure in that vessel. The crew
was in the process of removing the bolts on the vessel when the
few remaining bolts could no longer hold the pressure and the lid
was blown off, killing eight crew members and seriously injuring
two others. WGFI has also received claims from several employees
of a subcontractor claiming to have been injured at the time of
the accident as well as from some current employees.
OSHA conducted an investigation of the accident. On June
18, 1997, WGFI reached an agreement with OSHA, settling citations
resulting from the accident. Under the terms of the settlements,
WGFI agreed to pay a fine of $1.8 million and not to contest the
OSHA citations. The $1.8 million fine was paid in the first
quarter of fiscal year 1998.
Although no lawsuits have yet been filed, the injured
workers and the decedents' families have all retained attorneys
to represent them in the matter and who have notified the Company
that they intend to assert claims against the Company on behalf
of their clients. The Company has cooperated with such attorneys
by providing them information and allowing them and their experts
access to Company facilities. In general under Texas statutory
law, an employee's exclusive remedy against an employer for an
on-the-job injury is the benefits of the Texas Workers
Compensation Act. WGFI, the employer of the deceased employees,
has workers compensation insurance coverage and the injured
employees and beneficiaries of the deceased employees are
receiving workers compensation payments. Under applicable law,
however, statutory beneficiaries of employees killed in the
course and scope of their employment may recover punitive (but
not compensatory) damages in excess of workers compensation
benefits. However, to do so they must prove that the employer
was grossly negligent. The protection of the workers
compensation exclusive remedy provision does not extend to WGFI's
parent corporation, Wyman-Gordon Company. Therefore, if lawsuits
on behalf of the victims in the Houston accident are brought
against Wyman-Gordon Company and if the evidence supports a
finding that Wyman-Gordon Company acted negligently in its
supervision of WGFI and such negligence had a causal connection
with the accident, the plaintiffs would be able to recover
damages, both compensatory and punitive, if applicable, against
the parent company even in the absence of gross negligence.
-7-<PAGE>
<PAGE> 8
WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
August 31, 1997
NOTE D - COMMITMENTS AND CONTINGENCIES, Continued
It is not possible at this time to determine the extent, if
any, to which WGFI or Wyman-Gordon Company could be held liable
in connection with the accident. The Company maintains general
liability and employer's liability insurance for itself and its
subsidiaries under various policies with aggregate coverage
limits of approximately $29 million. WGFI has tendered the
defense of the various claims to the Company's insurance
carriers, there can be no assurance that the full insurance
coverage will be available. Counsel for the Company has been
engaged for several months in settlement discussions with
attorneys representing persons who have threatened to assert
claims against the Company and/or WGFI relating to the deaths of
those killed in the accident. At this time, however, none of the
survivors of those decedents (nor any other potential private
plaintiff claims to have been injured by the accident) has
settled any claims against the Company and/or WGFI relating to
the accident. There is a substantial risk that the Company will
not be able to settle all threatened and potential claims
relating to the accident for an aggregate amount within its
insurance coverage limits. If the Company is not successful in
settling all such claims or terms acceptable to the Company, the
Company anticipates that one or more lawsuits relating to the
accident will be filed against it and WGFI. The Company
anticipates that, if such lawsuits are filed, they will include
claims for compensatory as well as punitive damages in amounts
that in aggregate may be significantly in excess of available
insurance coverage. The Company intends vigorously to defend any
such lawsuits as may be filed relating to the accident. However,
if one or more such lawsuits were to be prosecuted successfully
by the plaintiffs and a judgment were to be obtained by one or
more plaintiffs in such lawsuits and sustained on appeal,
litigation costs, including the cost of pursuing any appeals, and
the cost of paying such a judgment, to the extent not covered by
insurance, could have a material adverse effect on the Company's
financial condition and its results of operations, particularly
if such judgment includes an award for punitive damages.
The costs of the accident through May 31, 1997 were
approximately $11.9 million, including substantial property
damage at the Houston facility and costs of business interruption
as a result of the 35,000 ton press having been out of operation
until the first week of March 1997. The Company has recovered
$6.9 million under property damage and business interruption
insurance policies it maintains leaving approximately $5.0
million of costs that were recorded in fiscal year 1997. As of
August 31, 1997, the Company has not incurred any additional
costs and does not anticipate any future costs related to the
accident.
-8-<PAGE>
<PAGE> 9
WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
August 31, 1997
NOTE E - OTHER CHARGES (CREDITS)
In the three months ended August 31, 1997, the Company
recorded other credits of $1,900,000 resulting from the disposal
of a building held for sale.
In the three months ended August 31, 1996, the Company
recorded other charges of $15,779,000. Such other charges
include $4,600,000 to provide for the costs of workforce
reductions at the Company's Grafton, Massachusetts Forging
facility and $3,400,000 to write-off and disposal of certain
Forging 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.
-9-<PAGE>
<PAGE> 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; the Company's ability to
obtain required raw materials 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, 1997 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".
The principal markets served by the Company are aerospace and
energy. Revenue by market for the respective periods was as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
AUGUST 31, 1997 AUGUST 31, 1996
(000's omitted)
% OF % OF
AMOUNT TOTAL AMOUNT TOTAL
<S> <C> <C> <C> <C>
Aerospace $145,747 81% $ 93,062 69%
Energy 26,667 15% 30,636 23%
Other 7,595 4% 10,537 8%
$180,009 100% $134,235 100%
</TABLE>
-10-<PAGE>
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS THREE MONTHS ENDED AUGUST 31, 1997 ("first
quarter of fiscal year 1998") COMPARED TO THREE MONTHS ENDED
AUGUST 31, 1996 ("first quarter of fiscal year 1997")
The Company's revenue increased 34.1% to $180.0 million in
the first quarter of fiscal year 1998 from $134.2 million in the
first quarter of fiscal year 1997 as a result of higher sales
volume and higher sales prices at the Company's Forgings and
Castings Divisions. These revenue increases during the first
quarter of fiscal year 1998 as compared to the first quarter of
fiscal year 1997 are reflected by market as follows: a $52.7
million (56.6%) increase in aerospace, a $4.0 million (13.0%)
decrease in energy and a $2.9 million (27.9%) decrease in other.
The reasons for the strength in the aerospace market were higher
airplane and engine build rates and higher demands for spares by
aerospace engine prime contractors. The decrease in energy
revenue was a result of lower shipments of extruded pipe during
the first quarter of fiscal year 1998 as compared to the first
quarter of fiscal year 1997. Revenues in the first quarter of
fiscal year 1997 were limited by raw material shortages and
production delays caused by capacity constraints of the Company's
suppliers. Revenues in the first quarter of fiscal year 1998
were limited due to lower than anticipated productivity of recent
equipment and personnel additions and inconsistencies in raw
material deliveries corresponding to customer requirements.
The Company's backlog has increased to $935.3 million at
August 31, 1997 from $895.8 million at May 31, 1997 and from
$690.6 million at August 31, 1996. The increase from May 31,
1997 resulted primarily from higher bookings of aerospace
structural parts. The increase from August 31, 1996 resulted
from the following factors:
1. Higher build rates of the Company's engine and airframe
customers,
2. Higher prices for the Company's aerospace products,
particularly as reflected in new long-term agreements
("LTAs") which went into effect on January 1, 1997, and
3. An increase in overdue orders to customer delivery
dates as a result of shipping delays at the Company due
to capacity constraints and raw material unavail-
ability.
The Company does not expect that this rate of increase in backlog
will continue since it expects that customer orders will not
increase at the same rates as in the recent past, that prices
will moderate and that recent capacity additions at the Company
and its suppliers will enable the Company to meet its customer
delivery requirements in a more timely fashion.
-11-<PAGE>
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS THREE MONTHS ENDED AUGUST 31, 1997 ("first
quarter of fiscal year 1998") COMPARED TO THREE MONTHS ENDED
AUGUST 31, 1996 ("first quarter of fiscal year 1997")
(Continued)
The Company's gross margin was 18.5% in the first quarter of
fiscal year 1998 as compared to 8.6% in the first quarter of
fiscal year 1997. The improvement in gross margin resulted from
higher production volumes, improved pricing and continued
emphasis on controlling costs. Gross margin in the first quarter
of fiscal 1998 was negatively affected by production inefficiency
costs related to recent personnel additions and the
reinstallation and start-up of two major forge presses. The
Company expects that the addition of these presses will increase
the Company's ability to meet its customers' requirements.
Gross margin in the first quarter of fiscal year 1997 was
negatively affected by a net charge of $5.8 million to recognize
losses on long-term, fixed price contracts for the production of
certain aerospace structural products, and by higher raw material
costs which could not be passed on to customers as a result of
the then existing long-term agreements with customers.
Selling, general and administrative expenses increased 33.3%
to $13.4 million during the first quarter of fiscal year 1998
from $10.1 million during the first quarter of fiscal year 1997.
Selling, general and administrative expenses as a percentage of
revenues improved to 7.4% (6.4% excluding the non-cash
compensation expense charge noted in the second following
sentence) in the first quarter of fiscal year 1998 from 7.5% in
the first quarter of fiscal year 1997. The improvement as a
percent of revenues was primarily the result of higher revenues.
Selling, general and administrative expenses in the first quarter
of fiscal year 1998 included approximately $1.9 million of non-
cash compensation expense associated with the Company's
performance share program.
During the first quarter of fiscal year 1998, the Company
recorded other credits of $1.9 million resulting from the
disposal of a building held for sale.
During the first quarter of fiscal year 1997, the Company
recorded other charges of $15.8 million. Such other charges
include $4.6 million to provide for the costs of workforce
reductions at the Company's Grafton, Massachusetts Forging
facility and $3.4 million to write-off and dispose of certain
Forging 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.
-12-<PAGE>
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS THREE MONTHS ENDED AUGUST 31, 1997 ("first
quarter of fiscal year 1998") COMPARED TO THREE MONTHS ENDED
AUGUST 31, 1996 ("first quarter of fiscal year 1997")
(Continued)
Interest expense increased $0.2 million to $2.9 million in
the first quarter of fiscal year 1998 compared to $2.7 million in
the first quarter of fiscal year 1997.
Miscellaneous, net was an expense of $0.3 million in the
first quarter of fiscal year 1998 as compared to income of $5.2
million in the first quarter of fiscal year 1997. Miscellaneous,
net in the first quarter of fiscal 1997 included interest income
on a refund of prior years' income taxes amounting to $3.5
million and a $1.7 million gain on the sale of fixed assets.
The Company recorded a provision for income taxes of $6.7
million in the first quarter of fiscal year 1998 compared to a
net benefit of a refund of prior years' income taxes amounting to
$19.7 million in the first quarter of fiscal year 1997.
The Company expects that in fiscal year 1998, income tax
provisions will approximate statutory rates subject to
utilization of state net operating losses ("NOLs"). The
effective tax rate in the first quarter of fiscal 1998 was 36%.
Net income was $11.9 million, or $.32 per share, in the
first quarter of fiscal year 1998 and $7.8 million, or $.21 per
share in the first quarter of fiscal year 1997. The $4.1 million
improvement resulted from the items described above.
LIQUIDITY AND CAPITAL RESOURCES
The decrease in the Company's cash of $25.4 million to $26.6
million at August 31, 1997 from $52.0 million at May 31, 1997
resulted primarily from cash used by operating activities of
$13.9 million, capital expenditures of $13.7 million and the $2.3
million payment to Cooper Industries, Inc. ("Cooper") offset by
the issuance of common stock of $4.9 million in connection with
employee compensation and benefit plans. The $2.3 million
payment to Cooper was made in accordance with the Company's $4.6
million promissory note payable to Cooper under the terms of the
"Stock Purchase Agreement" with Cooper related to the acquisition
of Cameron Forged Products Company in May 1994. The remaining
$2.3 million is payable on June 30, 1998.
-13-<PAGE>
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
LIQUIDITY AND CAPITAL RESOURCES (Continued)
The increase in the Company's working capital of $3.6
million to $169.8 million at August 31, 1997 from $166.2 million
at May 31, 1997 resulted primarily from (in millions):
<TABLE>
<CAPTION>
<S> <C>
Net Income $11.9
Decrease in:
Intangible and other assets .3
Long-term benefit liabilities (.5)
Deferred taxes and other (4.3)
Increase in:
Long-term restructuring, integration
disposal and environmental .3
Property, plant and equipment, net (8.4)
Other changes in stockholders' equity (.6)
Issuance of common stock 4.9
Increase in working capital $ 3.6
</TABLE>
Earnings before interest, taxes, depreciation, amortization
and changes in accounting principles ("EBITDA") increased $31.0
million to $26.9 million in the first quarter of fiscal year 1998
from $(4.2) million in the first quarter of fiscal year 1997.
Earnings before interest, taxes, depreciation, amortization,
other charges (credits) and changes in accounting principles
("Adjusted EBITDA") increased $13.4 million to $25.0 million in
the first quarter of fiscal year 1998 from $11.6 million in the
first quarter of fiscal year 1997. The EBITDA and Adjusted EBITDA
increases reflect higher profitability as discussed above.
Neither EBITDA nor Adjusted EBITDA should 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 and Adjusted 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, 1997, the Company estimated the remaining cash
requirements for the restructuring in 1997 to be $5.5 million.
Of such amount, the Company expects to spend approximately $5.2
million during fiscal year 1998 and $0.3 million thereafter. In
the first quarter of fiscal year 1998, spending related to the
1997 Restructuring amounted to $0.4 million.
-14-<PAGE>
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
LIQUIDITY AND CAPITAL RESOURCES (Continued)
As of May 31, 1997, the Company estimated the remaining cash
requirements for the integration of Cameron and direct costs
associated with the acquisition of Cameron to be $2.1 million, of
which the Company expects to spend approximately $0.7 million
during fiscal year 1998 and $1.4 million thereafter. In the
first quarter of fiscal year 1998, spending related to the
integration of Cameron and associated direct costs amounted to
$0.1 million.
The Company expects to spend $0.9 million in fiscal year
1998 and $15.3 million thereafter on non-capitalizable
environmental activities. In the first quarter of fiscal year
1998, $0.2 million was expended for non-capitalizable
environmental projects.
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 quarter of fiscal year 1998, capital expenditures amounted
to $13.7 million and are expected to be approximately $30.0
million in fiscal year 1998.
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, 1997, the total
availability under the Receivables Financing Program was $57.7
million, there were no borrowings and letters of credit amounting
to $6.9 million were outstanding.
Wyman-Gordon Limited, the Company's subsidiary located in
Livingston, Scotland, has a credit agreement with a Scottish bank
("the U.K. Credit Agreement"). 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 or
guarantee limit of 2.0 million pounds sterling. The term of the
U.K. Credit Agreement is one year with a renewal option. There
were no borrowings outstanding at August 31, 1997 and the Company
had issued 0.7 million pounds sterling (approximately $1.2
million) of letters of credit or guarantees under the U.K. Credit
Agreement.
In December 1996, the Company borrowed the proceeds of an
Industrial Revenue Bond (the "IRB") amounting to $6.0 million
maturing in the year 2005. The Company maintains a letter of
credit to collateralize the IRB. The proceeds of the IRB are
restricted for the construction of the Scaled Manufacturing, Inc.
facility in Montrose, Colorado. As of August 31, 1997, cash and
cash equivalents includes $1.6 million restricted for such use.
-15-<PAGE>
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
LIQUIDITY AND CAPITAL RESOURCES (Continued)
The primary sources of liquidity available to the Company to
fund operations and other future expenditures include available
cash ($26.6 million at August 31, 1997), 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. The Company believes that it has adequate resources
to provide for its operations and the funding of restructuring,
integration, capital and environmental expenditures.
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
Two new accounting rules, FAS 130 - Reporting Comprehensive
Income and FAS 131 - Disclosures about Segments of an Enterprise
and Related Information were issued in June 1997. The
implementation of FAS 130 will require that the components of
comprehensive income be reported in the financial statements.
The implementation of FAS 131 will require the disclosure of
segment information utilizing the approach that the Company uses
to manage its internal organization. The Company is currently
assessing the impact that the new standards will have on its
financial statements. Implementation of both of these new
standards is required for the year ending May 31, 1999 ("fiscal
year 1999").
A new accounting rule, FAS 128 - Earnings per Share (EPS),
was issued in February 1997. The implementation will require the
disclosure of basic (currently referred to as primary) and
diluted (currently referred to as fully diluted) EPS. The
calculation of basic EPS under the new rule will not change from
the current calculation of primary EPS. The calculation of
diluted EPS under the new rule will not be materially different
from the current calculation of fully diluted EPS.
Implementation of this new standard is required for the third
quarter ending February 28, 1998 of fiscal year 1998.
-16-<PAGE>
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
ACCOUNTING AND TAX MATTERS (Continued)
The Company is in the process of conducting a review of its
computer systems to identify areas that could be affected by the
"Year 2000" issue. An implementation plan will then be developed
to resolve the issues identified. The Year 2000 issue is the
result of computer programs being written using two digits
(rather than four) to define the applicable year. This could
result in computational errors as dates are compared across the
century boundary. The total cost of altering the applicable
program code is being determined as part of the Company's
implementation plan.
OTHER MATTERS
On December 22, 1996, a serious industrial accident occurred
at the Houston, Texas facility of WGFI, a wholly-owned subsidiary
of the Company. The accident occurred while a crew of ten men
was performing maintenance on the accumulator system that
supplies hydraulic power for WGFI's 35,000 ton press. The
maintenance required that the system be completely depressurized
which the crew believed to be the case. However, subsequent
examination has shown that a valve on one of the pressure vessels
was closed thereby containing pressure in that vessel. The crew
was in the process of removing the bolts on the vessel when the
few remaining bolts could no longer hold the pressure and the lid
was blown off, killing eight crew members and seriously injuring
two others. WGFI has also received claims from several employees
of a subcontractor claiming to have been injured at the time of
the accident as well as from some current employees.
OSHA conducted an investigation of the accident. On June
18, 1997, WGFI reached an agreement with OSHA, settling citations
resulting from the accident. Under the terms of the settlements,
WGFI agreed to pay a fine of $1.8 million and not to contest the
OSHA citations. The $1.8 million fine was paid in the first
quarter of fiscal year 1998.
Although no lawsuits have yet been filed, the injured
workers and the decedents' families have all retained attorneys
to represent them in the matter and who have notified the Company
that they intend to assert claims against the Company on behalf
of their clients. The Company has cooperated with such attorneys
by providing them information and allowing them and their experts
access to Company facilities. In general under Texas statutory
law, an employee's exclusive remedy against an employer for an
on-the-job injury is the benefits of the Texas Workers
Compensation Act. WGFI, the employer of the deceased employees,
has workers compensation insurance coverage and the injured
employees and beneficiaries of the deceased employees are
receiving workers compensation payments. Under applicable law,
however, statutory beneficiaries of employees killed in the
-17-<PAGE>
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
OTHER MATTERS (Continued)
course and scope of their employment may recover punitive (but
not compensatory) damages in excess of workers compensation
benefits. However, to do so they must prove that the employer
was grossly negligent. The protection of the workers
compensation exclusive remedy provision does not extend to WGFI's
parent corporation, Wyman-Gordon Company. Therefore, if lawsuits
on behalf of the victims in the Houston accident are brought
against Wyman-Gordon Company and if the evidence supports a
finding that Wyman-Gordon Company acted negligently in its
supervision of WGFI and such negligence had a causal connection
with the accident, the plaintiffs would be able to recover
damages, both compensatory and punitive, if applicable, against
the parent company even in the absence of gross negligence.
It is not possible at this time to determine the extent, if
any, to which WGFI or Wyman-Gordon Company could be held liable
in connection with the accident. The Company maintains general
liability and employer's liability insurance for itself and its
subsidiaries under various policies with aggregate coverage
limits of approximately $29 million. WGFI has tendered the
defense of the various claims to the Company's insurance
carriers, there can be no assurance that the full insurance
coverage will be available. Counsel for the Company has been
engaged for several months in settlement discussions with
attorneys representing persons who have threatened to asset
claims against the Company and/or WGFI relating to the deaths of
those killed in the accident. At this time, however, none of the
survivors of those decedents (nor any other potential private
plaintiff claims to have been injured by the accident) has
settled any claims against the Company and/or WGFI relating to
the accident. There is a substantial risk that the Company will
not be able to settle all threatened and potential claims
relating to the accident for an aggregate amount within its
insurance coverage limits. If the Company is not successful in
settling all such claims or terms acceptable to the Company, the
Company anticipates that one or more lawsuits relating to the
accident will be filed against it and WGFI. The Company
anticipates that, if such lawsuits are filed, they will include
claims for compensatory as well as punitive damages in amounts
that in aggregate may be significantly in excess of available
insurance coverage. The Company intends vigorously to defend any
such lawsuits as may be filed relating to the accident. However,
if one or more such lawsuits were to be prosecuted successfully
by the plaintiffs and a judgment were to be obtained by one or
more plaintiffs in such lawsuits and sustained on appeal,
litigation costs, including the cost of pursuing any appeals, and
the cost of paying such a judgment, to the extent not covered by
insurance, could have a material adverse effect on the Company's
financial condition the results of operations, particularly if
such judgment includes an award for punitive damages.
-18-<PAGE>
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
OTHER MATTERS (Continued)
The costs of the accident through May 31, 1997 were
approximately $11.9 million, including substantial property
damage at the Houston facility and costs of business interruption
as a result of the 35,000 ton press having been out of operation
until the first week of March 1997. The Company has recovered
$6.9 million under property damage and business interruption
insurance policies it maintains leaving approximately $5.0
million of costs that were recorded in fiscal year 1997. As of
August 31, 1997, the Company has not incurred any additional
costs and does not anticipate any future costs related to the
accident.
-19-<PAGE>
<PAGE> 20
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:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
27 Financial Data Schedule for the Three Months
Ended August 31, 1997.
</TABLE>
(b) No reports on Form 8-K have been filed with the Commission
during the period covered by this report.
-20-<PAGE>
<PAGE> 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: 10/3/97 By: /S/ ANDREW C. GENOR
Andrew C. Genor
Vice President,
Chief Financial Officer
and Treasurer
Date: 10/3/97 By: /S/ JEFFREY B. LAVIN
Jeffrey B. Lavin
Corporate Controller
-21-
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> AUG-31-1997
<CASH> 26,584
<SECURITIES> 7
<RECEIVABLES> 125,355
<ALLOWANCES> 0
<INVENTORY> 113,244
<CURRENT-ASSETS> 277,948
<PP&E> 439,096
<DEPRECIATION> 277,019
<TOTAL-ASSETS> 462,691
<CURRENT-LIABILITIES> 108,155
<BONDS> 96,154
0
0
<COMMON> 37,053
<OTHER-SE> 143,588
<TOTAL-LIABILITY-AND-EQUITY> 462,691
<SALES> 179,016
<TOTAL-REVENUES> 180,009
<CGS> 146,764
<TOTAL-COSTS> 146,764
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 2,890
<INCOME-PRETAX> 18,529
<INCOME-TAX> 6,670
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