-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ROTY37+2QQMN3T9kxdT0bJ2OUza12km4YvWDQUILtaSBXez87aVFNaHlJw1Esro6 TfW+JAmOfS3NG5BhK8D+lA== 0000108703-96-000002.txt : 19960416 0000108703-96-000002.hdr.sgml : 19960416 ACCESSION NUMBER: 0000108703-96-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960302 FILED AS OF DATE: 19960412 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: WYMAN GORDON CO CENTRAL INDEX KEY: 0000108703 STANDARD INDUSTRIAL CLASSIFICATION: METAL FORGING & STAMPINGS [3460] IRS NUMBER: 041992780 STATE OF INCORPORATION: MA FISCAL YEAR END: 0528 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-03085 FILM NUMBER: 96546409 BUSINESS ADDRESS: STREET 1: 244 WORCHESTER ST STREET 2: BOX 8001 CITY: NORTH GRAFTON STATE: MA ZIP: 01536 BUSINESS PHONE: 5088394441 10-Q 1 WYMAN-GORDON FORM 10-Q 3RD QUARTER FISCAL 1996 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 March 2, 1996 OR { } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from to COMMISSION FILE NUMBER 0-3085 WYMAN-GORDON COMPANY (Exact name of registrant as specified in its charter) MASSACHUSETTS 04-1992780 (State or other jurisdiction (I.R.S. Employer incorporation or organization) Identification No.) 244 WORCESTER STREET, BOX 8001, NO. GRAFTON, MASSACHUSETTS 01536-8001 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 508-839-4441 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Outstanding at Class March 2, 1996 Common Stock, $1 Par Value 35,342,972
Page 1 of 16 2 PART I. ITEM 1. FINANCIAL STATEMENTS WYMAN-GORDON COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED MAR. 2, MAR. 4, MAR. 2, MAR. 4, 1996 1995 1996 1995 (000's omitted, except per share data) Revenue $121,517 $96,238 $353,674 $286,937 Less: Cost of goods sold 103,210 83,623 298,222 254,878 Selling, general and administrative expenses 9,107 8,995 27,775 27,668 Other charges 110 - 1,010 - $112,427 $92,618 $327,007 $282,546 Income from operations 9,090 3,620 26,667 4,391 Other deductions: Interest expense 2,727 2,621 8,267 7,836 Miscellaneous, net 286 443 1,172 1,342 3,013 3,064 9,439 9,178 Net income (loss) $ 6,077 $ 556 $ 17,228 $ (4,787) Net income (loss) per share $ .17 $ .02 $ .48 $ (.14) Shares used to compute earnings (loss) per share 36,269 35,051 36,061 34,770
The accompanying notes to the consolidated condensed financial statements are an integral part of these financial statements. -2- 3 WYMAN-GORDON COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 2, JUNE 3, 1996 1995 (000's omitted) ASSETS Cash and cash equivalents $ 13,670 $ 13,856 Accounts receivable 88,529 79,219 Inventories 85,653 78,813 Prepaid expenses 10,031 15,671 Total current assets 197,883 187,559 Property, plant and equipment, at cost 392,142 385,372 Less accumulated depreciation 255,958 243,975 Net property, plant and equipment 136,184 141,397 Intangible assets 24,767 25,295 Other assets 17,173 14,813 $376,007 $369,064 LIABILITIES Borrowings due within one year $ 2,064 $ 3,915 Accounts payable 37,878 34,729 Accrued liabilities and other 41,938 45,634 Accrued restructuring, integration, disposal and environmental 6,847 10,219 Total current liabilities 88,727 94,497 Restructuring, integration, disposal and environmental 17,291 19,648 Long-term debt 90,308 90,308 Pension liability 9,560 9,589 Deferred income tax and other 18,688 21,699 Postretirement benefits 52,349 52,468 STOCKHOLDERS' EQUITY Preferred stock - none issued - - Common stock issued - 37,052,720 shares 37,053 37,053 Capital in excess of par value 36,302 40,118 Retained earnings 55,818 39,763 129,173 116,934 Less treasury stock at cost March 2, 1996 - 1,709,748 shares June 3, 1995 - 2,044,178 shares 30,089 36,079 99,084 80,855 $376,007 $369,064
The accompanying notes to the consolidated condensed financial statements are an integral part of these financial statements. -3- 4 WYMAN-GORDON COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 2, MARCH 4, 1996 1995 (000's omitted) Operating activities: Net income (loss) $17,228 $ (4,787) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 12,785 13,872 Provision for equity investment 1,010 - Changes in assets and liabilities: Accounts receivable (9,310) (4,486) Inventories (6,840) 703 Prepaid expenses and other assets 2,270 8,661 Accrued restructuring, disposal and environmental (5,729) (8,614) Income and other taxes 2,267 702 Accounts payable and accrued liabilities (5,942) (7,781) Net cash provided (used) by operating activities 7,739 (1,730) Investing activities: Capital expenditures (9,742) (15,512) Proceeds from sale of fixed assets 1,686 1,289 Other, net (191) (1,351) Net cash provided (used) by investing activities (8,247) (15,574) Financing activities: Cash paid to Cooper Industries for factored accounts receivable - (20,561) Net proceeds from issuance of common stock 2,174 2,259 (Decrease) Increase in borrowings due within one year (1,852) 3,703 Net cash provided (used) by financing activities 322 (14,599) Decrease in cash (186) (31,903) Cash, beginning of year 13,856 42,179 Cash, end of period $13,670 $ 10,276
The accompanying notes to the consolidated condensed financial statements are an integral part of these financial statements. -4- 5 WYMAN-GORDON COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS March 2, 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 March 2, 1996 and its results of operations for the three months and nine months ended March 2, 1996 and March 4, 1995 and cash flows for the nine months ended March 2, 1996 and March 4, 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 June 3, 1995 Annual Report on Form 10-K/A, the Company filed audited consolidated financial statements which included all information and footnotes necessary for a fair presentation of its financial position at June 3, 1995 and May 28, 1994 and its results of operations and cash flows for the year ended June 3, 1995, the five months ended May 28, 1994 and the years ended December 31, 1993 and 1992 in conformity with generally accepted accounting principles. Where appropriate, prior period amounts have been reclassified to permit comparison. NOTE B - INVENTORIES Inventories consisted of:
MARCH 2, 1996 JUNE 3, 1995 (000's omitted) Raw material $32,839 $26,440 Work-in-process 54,989 54,310 Supplies 2,306 3,228 90,134 83,978 Less progress payments 4,481 5,165 $85,653 $78,813
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 $21,584,000 higher than reported at March 2, 1996 and June 3, 1995. LIFO inventory credits to cost of goods sold in the three months ended March 4, 1995 were $780,000. LIFO inventory credits to cost of goods sold in the nine months ended March 4, 1995 were $2,793,000. -5- 6 WYMAN-GORDON COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued) March 2, 1996 NOTE C - COMMITMENTS AND CONTINGENCIES At March 2, 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 totalling $11,930,000 at March 2, 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 month and nine month periods ended March 2, 1996 and March 4, 1995, respectively, were not material. -6- 7 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 identifing 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 "Risk Factors" on pages 7-10 of the Company's prospectus relating to the registration of 15,000,000 shares of the Company's common stock, which may be delivered by Cooper Industries, Inc. ("Cooper") pursuant to the terms of Cooper's 6.0% Exchangeable Notes Due January 1, 1999, dated December 14, 1995. The principal markets served by the Company are aerospace and power generation. Revenue by market for the respective periods was as follows (thousands):
THREE MONTHS ENDED THREE MONTHS ENDED MARCH 2, 1996 MARCH 4, 1995 % OF % OF AMOUNT TOTAL AMOUNT TOTAL Aerospace $ 87,325 72% $ 73,141 76% Power generation 23,783 20% 14,436 15% Other 10,409 8% 8,661 9% $121,517 100% $ 96,238 100%
NINE MONTHS ENDED NINE MONTHS ENDED MARCH 2, 1996 MARCH 4, 1995 % OF % OF AMOUNT TOTAL AMOUNT TOTAL Aerospace $258,546 73% $218,072 76% Power generation 68,615 19% 43,041 15% Other 26,513 8% 25,824 9% $353,674 100% $286,937 100%
-7- 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) RESULTS OF OPERATIONS AND FINANCIAL CONDITION THREE MONTHS ENDED MARCH 2, 1996 ("third quarter of fiscal year 1996") COMPARED TO THREE MONTHS ENDED MARCH 4, 1995 ("third quarter of fiscal year 1995") The Company's revenue increased 26.3% to $121.5 million in the third quarter of fiscal year 1996 from $96.2 million in the third quarter of fiscal year 1995 due to higher sales volume in the Company's aerospace power generation and other markets. These sales volume increases during the third quarter of fiscal year 1996 as compared to the third quarter of fiscal year 1995 are reflected by market as follows: a $14.2 million (19.4%) increase in aerospace, a $9.3 million (64.7%) increase in power generation and a $1.7 million (20.2%) increase in other. The cause of the strength in these markets was higher demands for spares from aerospace engine prime contractors and higher extruded pipe shipments to energy customers. The higher spares demand will continue to be reflected in fourth quarter of fiscal year 1996 revenues. Revenues in the third quarter of fiscal year 1995 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 $500.7 million at March 2, 1996 from $457.5 million at March 4, 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 15.1% in the third quarter of fiscal year 1996 as compared to 13.1% in the third quarter of fiscal year 1995. This improvement resulted from higher production volumes and productivity gains resulting from the Company's 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. Additionally, continuing realization of cost reductions from synergies associated with the integration of Cameron Forged Products Company ("Cameron") contributed to this higher ratio. There were no LIFO credits recorded during the third quarter of fiscal year 1996. Gross margins benefitted from LIFO credits of $0.8 million during the third quarter of fiscal year 1995. The Company's gross margins in the third quarter of fiscal year 1996 of 15.1% were below the 16% average gross margin during the first two quarters of the year. The higher spares demand referred to above 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, -8- 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) RESULTS OF OPERATIONS AND FINANCIAL CONDITION THREE MONTHS ENDED MARCH 2, 1996 ("third quarter of fiscal year 1996") COMPARED TO THREE MONTHS ENDED MARCH 4, 1995 ("third quarter of fiscal year 1995")(Continued) the Company must purchase raw materials at market prices. The current rebound in demand for many of these raw materials, especially nickel and titanium, have resulted in significant price increases by the Company's vendors which have negatively affected the Company's gross margins. The Company is not likely to see 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. These new LTAs are anticipated to begin in January 1997. Until the new LTAs are finalized, the Company may continue to experience pressures on its gross margins. Selling, general and administrative expenses were $9.1 million during the third quarter of fiscal year 1996 and $9.0 million during the third quarter of fiscal year 1995. However, selling, general and administrative expenses as a percentage of revenues improved to 7.5% in the third quarter of fiscal year 1996 from 9.4% in the third quarter of fiscal year 1995. The improvement as a percent of revenues is the result of the Company's general company-wide cost containment efforts, cost reductions associated with the integration of Cameron Forged Products Company ("Cameron") with the Company's forging operations and higher revenues. Interest expense was $2.7 million in the third quarter of fiscal year 1996 as compared to $2.6 million in the third quarter of fiscal year 1995. The increase in interest expense during the third quarter of fiscal 1996 as compared to the same period of fiscal 1995 is due to interest on borrowings on the Company's U.K. Credit Agreement. The Company recorded no provision for income taxes in the third quarters of fiscal years 1996 and 1995. Net income was $6.1 million, or $.17 per share, in the third quarter of fiscal year 1996 and $0.6 million, or $.02 per share in the third quarter of fiscal year 1995. The $5.5 million improvement results from the items described above. -9- 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) RESULTS OF OPERATIONS AND FINANCIAL CONDITION NINE MONTHS ENDED MARCH 2, 1996 ("first nine months of fiscal year 1996") COMPARED TO NINE MONTHS ENDED MARCH 4, 1995 ("first nine months of fiscal year 1995") The Company's revenue increased 23.3% to $353.7 million in the first nine months of fiscal year 1996 from $286.9 million in the first nine months of fiscal year 1995 due to higher sales volume in the Company's aerospace, power generation and other markets. These sales volume increases during the first nine months of fiscal year 1996 as compared to the first nine months of fiscal year 1995 are reflected by market as follows: a $40.5 million (18.6%) increase in aerospace, a $25.6 million (59.4%) increase in power generation and a $0.7 million (2.7%) increase in other. The cause of the strength in these markets was higher demands for spares from aerospace engine prime contractors and higher extruded pipe shipments to energy customers. The higher spares demand will continue to be reflected in fourth quarter of fiscal year 1996 revenues. Revenues in the first nine months of fiscal year 1995 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 $500.7 million at March 2, 1996 from $457.5 million at March 4, 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 15.7% in the first nine months of fiscal year 1996 as compared to 11.1% in the first nine months of fiscal year 1995. This improvement resulted from higher production volumes and productivity gains resulting from the Company's 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. Additionally, continuing realization of cost reductions from synergies associated with the integration of Cameron contributed to this higher ratio. There were no LIFO credits recorded during the first nine months of fiscal year 1996. Gross margins benefitted from LIFO credits of $2.8 million during the first nine months of fiscal year 1995. Selling, general and administrative expenses for the first nine months of fiscal 1996 increased slightly to $27.8 million from $27.7 million as compared to the same period of fiscal 1995. However, selling, general and administrative expenses as a percentage of revenues improved to 7.9% in the first nine months of fiscal year 1996 from 9.6% in the first nine months of fiscal year 1995. The improvement as a percent of revenues is the result of general company-wide cost containment efforts, cost reductions associated with the integration of Cameron with the Company's Forgings operations and higher revenues. -10- 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) RESULTS OF OPERATIONS AND FINANCIAL CONDITION NINE MONTHS ENDED MARCH 2, 1996 ("first nine months of fiscal year 1996") COMPARED TO NINE MONTHS ENDED MARCH 4, 1995 ("first nine months of fiscal year 1995")(Continued) During the first nine 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 quarter of fiscal year 1996. Additionally, the Company provided $0.1 million relating to expenditures for an investment in an additional joint venture. Interest expense was $8.3 million in the first nine months of fiscal year 1996 as compared to $7.8 million during the first nine months of fiscal year 1995. The increase in interest expense during the first nine months of fiscal 1996 as compared to the first nine months of fiscal 1995 is due to interest on borrowings on the Company's U.K. Credit Agreement. The Company recorded no provision for income taxes in the first nine months of fiscal years 1996 and 1995. Net income was $17.2 million, or $.48 per share, in the first nine months of fiscal year 1996 and net loss was $(4.8) million, or $(.14) per share in the first nine months of fiscal year 1995. The $22.0 million improvement results from the items described above. LIQUIDITY AND CAPITAL RESOURCES The decrease in the Company's cash of $0.2 million to $13.7 million at March 2, 1996 from $13.9 million at June 3, 1995 resulted from cash provided by operating activities of $7.7 million offset by cash used by investing activities of $8.2 million and cash provided by financing activities of $0.3 million. As of June 3, 1995, the Company estimated the remaining cash requirements for the integration of Cameron and direct costs associated with the acquisition of Cameron to be $8.6 million. Of such amount, the Company expects to spend approximately $6.5 million during its fiscal year ending June 1, 1996 ("fiscal year 1996") and $2.1 million thereafter. In the first nine months of fiscal year 1996, spending related to the integration of Cameron and associated direct costs amounted to $4.2 million. The 1991 restructuring plan is substantially complete. The Company expects to expend an additional $3.8 million over the next several years related to the 1991 restructuring plan, approximately $1.9 million in fiscal year 1996 and $1.9 million thereafter. In the first nine months of fiscal year 1996, spending related to the 1991 restructure plan amounted to $1.0 million. -11- 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) LIQUIDITY AND CAPITAL RESOURCES, (Continued) As of June 3, 1995, the Company expected to spend $1.8 million in fiscal year 1996 and $15.1 million thereafter on non- capitalizable environmental activities. In the first nine months of fiscal year 1996, $0.1 million was expended for non- capitalizable environmental projects and the Company believes that expenditures will not exceed $0.6 million during fiscal year 1996. However, total future expenditures are still estimated to be $16.8 million. 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 $18.7 million for the year ended June 3, 1995 ("fiscal year 1995"). Although capital expenditures in the first nine months of fiscal year 1996 amounted to $9.7 million, capital expenditures in the foreseeable future are expected to increase somewhat from fiscal year 1995 levels. As of March 2, 1996, the Company had invested $4.5 million in cash towards its share of the capital requirements of the Australian Joint Venture for the production of nickel-based superalloy. The book value of the Company's investment in the Australian Joint Venture as of March 2, 1996 is approximately $2.2 million. As of March 22, 1996, the Australian Joint Venture has entered into a $3.0 million loan agreement with a bank. The Company has guaranteed 50% of the Australian Joint Venture's obligations under the loan agreement. This guarantee expires on February 28, 1997. The Australian Joint Venture has not generated sufficient cash flow to service its debt, and if the operations do not become profitable in the future, the Company may be required to write-off all or a portion of the remaining book value of its investment and repay up to 50% of the joint ventures debt under the loan agreement which is guaranteed by the Company. The Company's revolving receivables-backed credit facility (the "Receivables Financing Program") among the Company, certain subsidiaries and Wyman-Gordon Receivables Company ("WGRC") and a Revolving Credit Agreement among WGRC and the financial institutions party thereto provide 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 March 2, 1996, under the credit facility, the total availability based on eligible receivables was $45.8 million, there were no borrowings and letters of credit amounting to $9.4 million were outstanding. -12- 13 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, has entered into a credit agreement ("the U.K. Credit Agreement") with a bank. The maximum borrowing capacity under the U.K. Credit Agreement is 3.0 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 1.3 million pounds sterling or $2.0 million of borrowings outstanding at March 2, 1996 and the Company had issued .9 million pounds sterling or $1.3 million of letters of credit or guarantees under the U.K. Credit Agreement. The primary sources of liquidity available to the Company in fiscal year 1996 to fund operations, anticipated expenditures in connection with the integration of Cameron, planned capital expenditures and planned environmental expenditures include available cash ($13.7 million at March 2, 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, reductions of working capital requirements and debt are expected to be the Company's primary sources of liquidity during fiscal 1997 and beyond. 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 completing the integration of Cameron, further reductions of personnel and various other 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. ACCOUNTING AND TAX MATTERS In March 1995, the Financial Accounting Standards Board issued Statement 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 Company has not determined the impact of adopting SFAS 121 on its financial position or results of operations. -13- 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) ACCOUNTING AND TAX MATTERS, (Continued) In December 1995, the Financial Accounting Standards Board Issued Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") which must be adopted by the Company no later than fiscal year 1997. SFAS 123 prescribes the accounting and disclosure of compensation of all stock-based awards to employees. The Company has not determined the impact of adopting SFAS 123 on its financial position or results of operations. As of June 3, 1995, the Company had net operating loss carryforwards ("NOLs") of approximately $67.0 million, which begin expiring in year 2006. The Company is seeking to utilize a substantial portion of such NOLs to obtain a refund in excess of $20.0 million of prior years' taxes. To the extent that the Company is not successful in recovering a refund of prior years' taxes, the NOLs will be available to offset future taxable income, if any. A reasonable estimation of the potential recovery cannot be made at this time and, accordingly, no adjustment has been made in the financial statements with respect to the claim for such refund. The Company has purchased and is named as beneficiary on approximately 1,650 life insurance policies with an aggregate cash surrender value of approximately $11.1 million as of March 2, 1996, 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. -14- 15 PART II. ITEM 6. EXHIBITS AND REPORTS FILED ON FORM 8-K (a) Exhibits The following exhibits are being filed as part of this Form 10-Q:
EXHIBIT NO. DESCRIPTION 10 Employment Agreement dated January 17, 1996 by and between Wyman-Gordon Company and Frank J. Zugel 27 Financial Data Schedule for the Nine Months Ended March 2, 1996
(b) No reports on Form 8-K have been filed with the Commission during the period covered by this report. -15- 16 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: 4/12/96 By: /s/ ANDREW C. GENOR Andrew C. Genor Vice President, Chief Financial Officer and Treasurer Date: 4/12/96 By: /s/ JEFFREY B. LAVIN Jeffrey B. Lavin Assistant Corporate Controller -16- EX-10 2 EXHIBIT 10-EMPLOYEE AGREEMENT 1 EXECUTIVE SEVERANCE AGREEMENT This AGREEMENT ("Agreement") dated January 17, 1996 by and between Wyman-Gordon Company, a Massachusetts corporation (the "Company"), and Frank J. Zugel (the "Executive"). W I T N E S S E T H WHEREAS, the Company desires to have the services of the Executive as its President, Investment Castings Division; and WHEREAS, the Executive is willing to serve the Company as its President, Investment Castings Division, but desires assurance that he will not be materially disadvantaged by a change in control of the Company; NOW, THEREFORE, in consideration of the Executive's service to the Company and the mutual agreements herein contained, the Company and the Executive hereby agree, as follows: ARTICLE I ELIGIBILITY FOR BENEFITS SECTION 1.1. QUALIFYING TERMINATION. The Company shall not be required to provide any benefits to the Executive pursuant to this Agreement unless a Qualifying Termination occurs before the Agreement expires in accordance with Section 6.1 hereof. For purposes of this Agreement, a Qualifying Termination shall occur only if (a) a Change in Control occurs, and (b) within three years after the Change in Control, (i) the Company terminates the Executive's employment other than for Cause; or (ii) the Executive terminates his employment with the Company for Good Reason; provided, that a Qualifying Termination shall not occur if the Executive's employment with the Company terminates by reason of the Executive's Disability, death, or retirement. For the purposes hereof "retirement" shall mean any termination of employment which occurs at or after age 65. SECTION 1.2. CHANGE IN CONTROL. Except as provided below, a Change in Control shall be deemed to occur when and only when the first of the following events occurs: -1- 2 (a) the acquisition (including by purchase, exchange, merger or other business combination, or any combination of the foregoing) by any individuals, firms, corporations or other entities, other than a Major Stockholder on the date of this Agreement, acting in concert ("Person"), together with all Affiliates and Associates of such Person, of beneficial ownership of securities of the Company representing 20 percent or more of the combined voting power of the Company's then outstanding voting securities, or (b) members of the Incumbent Board cease to constitute a majority of the Board of Directors. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur pursuant to paragraph (a), above, (i) solely because 20 percent or more of the combined voting power of the Company's outstanding securities is acquired by one or more employee benefit plans maintained by the Company, or (ii) if the Executive is included among the individuals, firms, corporations or other entities that, acting in concert, acquire the Company's securities. For purposes of this Section 1.2, the terms "Affiliates" and "Associates shall have the meanings set forth in Rule 12b-2 of the General Rules and Regulations promulgated under the Securities Exchange Act of 1934 (the Exchange Act"); the terms "beneficial ownership" and "beneficially owned" shall have the meaning set forth in section 13(d) of the Exchange Act, as amended, and in Rule 13d-3 promulgated thereunder, the term "Major Stockholder" shall mean all shares beneficially owned by the Fuller Foundation, the Stoddard Charitable Trust, and descendants of Harry G. Stoddard and their spouses; the term "Board of Directors" shall mean the Board of Directors of the Company and the term "Incumbent Board" shall mean (i) the members of the Board of Directors on the date hereof, to the extent that they continue to serve as members of the Board of Directors, and (ii) any individual who becomes a member of the Board of Directors after the date hereof, if his election or nomination for election as a director was approved by a vote of at least three quarters of the then Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board of Directors. SECTION 1.3. TERMINATION FOR CAUSE. The Company shall have Cause to terminate the Executive's employment with the Company for purposes of Section 1.1 hereof only if the Executive (a) engages in unlawful acts intended to result in the substantial personal enrichment of the Executive at the Company's expense, or (b) engages (except (i) by reason of incapacity due to illness or injury or (ii) in connection with an actual or anticipated termination of employment by the Executive for Good Reason) in a material violation of his responsibilities to the Company that results in a material injury to the Company. -2- 3 SECTION 1.4. TERMINATION FOR GOOD REASON. The Executive shall have a Good Reason for terminating employment with the Company only if one or more of the following occurs after a Change in Control: (a) a change in the Executive's status or position (including for this purpose a change in the principal place of the Executive's employment on a basis that does not conform with the Company's present policies for executive relocation, but excluding required travel on the Company's business to an extent substantially consistent with the Executive's present business travel obligations) with the Company that, in the Executive's reasonable judgment, represents an adverse change from the Executive's status or position in effect immediately before the Change in Control; (b) the assignment to the Executive of any duties or responsibilities that, in the Executive's reasonable judgment, are inconsistent with the Executive's status or position in effect immediately before the Change in Control; (c) layoff or involuntary termination of the Executive's employment, except in connection with the termination of the Executive's employment for Cause or as a result of the Executive's Disability, death or retirement; (d) a reduction by the Company in the Executive's total compensation as in effect at the time of the Change in Control (which shall be deemed, for this purpose, to be equal to his base salary plus the most recent award that he has earned under the Company's Incentive Compensation Plan, as amended from time to time, or any successor thereto (the "ICP")) or as the same may be increased from time to time; (e) the failure by the Company to continue in effect any Plan in which the Executive is participating at the time of the Change in Control (or plans or arrangements providing the Executive with substantially equivalent benefits) other than as a result of the normal expiration of any such Plan in accordance with its terms as in effect at the time of the Change in Control; (f) any action or inaction by the Company that would adversely affect the Executive's continued participation in any Plan on at least as favorable a basis as was the case at the time of the Change in Control, or that would materially reduce the Executive's benefits in the future under the Plan or deprive him if any material benefits that he -3- 4 enjoyed at the time of the Change in Control, except to the extent that such action or inaction by the Company is required by the terms of the Plan as in effect immediately before the Change in Control, or is necessary to comply with applicable law or to preserve the qualification of the Plan under section 401(a) of the Internal Revenue Code, and except to the extent that the Company provides the Executive with substantially equivalent benefits; (g) the Company's failure to obtain the express assumption of this Agreement by any successor to the Company as provided by Section 6.3 hereof; (h) any material violation by the Company of any agreement (including this Agreement) between it and the Executive; or (i) the failure by the Company, without the Executive's consent, to pay to him any portion of his current compensation, or to pay to the Executive any portion of any deferred compensation, within 30 days of the date the Executive notifies the Company that any such compensation payment is past due. Notwithstanding the foregoing, no action by the Company shall give rise to a Good Reason if it results from the Executive's termination for Cause, death or retirement, and no action by the Company specified in paragraphs (a) through (d) of the preceding sentence shall give rise to a Good Reason if it results from the Executive's Disability. A Good Reason shall not be deemed to be waived by reason of the Executive's continued employment as long as the termination of the Executive's employment occurs within the time prescribed by Section 1.1(b) hereof. For purposes of this Section 1.4, "Plan" means any compensation plan, such as an incentive or stock option plan, or any employee benefit plan, such as a thrift, pension, profit-sharing, stock bonus, long-term performance award, medical, disability, accident, or life insurance plan, or any other plan, program or policy of the Company that is intended to benefit employees. SECTION 1.5. DISABILITY. For purposes of this Agreement, "Disability" shall mean illness or injury that prevents the Executive from performing his duties (as they existed immediately before the illness or injury) on a full-time basis for six consecutive months. SECTION 1.6. NOTICE. If a Change in Control occurs, the Company shall notify the Executive of the occurrence of the Change in Control within two weeks after the Change in Control. -4- 5 ARTICLE II BENEFITS AFTER A QUALIFYING TERMINATION SECTION 2.1. BASIC SEVERANCE PAYMENT. If the Executive incurs a Qualifying Termination following a Change in Control that occurs on or before termination of this Agreement as provided in Section 6.1 hereof, the Company shall pay within 30 days after the date of the Qualifying Termination to the Executive a single lump sum cash amount equal to his Total Annual Compensation multiplied by the lesser of (a) 2.50 or (b) .0833 multiplied by the number of full months remaining between termination and his attaining age 65. "Total Annual Compensation" shall mean the sum of annual base salary in effect immediately preceding termination or the Change of Control, whichever is higher, and annual incentive compensation earned under the "ICP" (annualized in the case of less than a full year's service) in the last full fiscal year immediately preceding termination or the Change in Control, whichever is higher. SECTION 2.2. INSURANCE. If the Executive incurs a Qualifying Termination following a Change in Control that occurs on or before termination of this Agreement as provided in Section 6.1 hereof, the Company shall provide the Executive, at the Company's expense, for a period beginning on the date of the Qualifying Termination, the same medical, accident, disability, life and any other insurance coverage as was provided to him by the Company immediately before the Change in Control (or, if greater, as in effect immediately before the Qualifying Termination occurs); such coverage shall end upon the earlier of (a) the expiration of 24 months after the Qualifying Termination or (b) with respect to each coverage, the date on which the Executive first becomes eligible for insurance coverage of a similar nature provided by a firm that employs him following the Qualifying Termination. SECTION 2.3. EXECUTIVE LONG-TERM INCENTIVE PROGRAM. If the Executive incurs a Qualifying Termination following a Change in Control that occurs on or before termination of this Agreement as provided in Section 6.1 hereof, all of the options to purchase common stock of the Company (and the alternative common stock appreciation rights) granted to the Executive prior to termination of this Agreement as provided in Section 6.1 hereof, under the Executive Long-Term Incentive Program shall become exercisable in accordance with the terms set forth in the applicable Certificate of Grant except that such options (and the alternative common stock appreciation rights) shall be exercised within three years after the Qualifying Termination. SECTION 2.4. NONDUPLICATION. Nothing in this Agreement shall require the Company to make any payment or to provide any benefit or service credit that the Company is otherwise required to provide under any other contract, agreement, policy, plan or arrangement. -5- 6 ARTICLE III EFFECT ON SEVERANCE POLICY SECTION 3.1. EFFECT ON SEVERANCE POLICY. If the Executive becomes entitled to receive benefits hereunder, the Executive shall not be entitled to any benefits under any other Company severance policy. ARTICLE IV TAX MATTERS SECTION 4.1. WITHHOLDING. The Company may withhold from any amount payable to the Executive hereunder all federal, state or other taxes that the Company may reasonably determine are required to be withheld pursuant to any application law or regulation. SECTION 4.2. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive that is considered paid or payable or distributed or distributable in connection with a Change in Control (a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, being collectively the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes on the Gross-up Payment (including, without limitation, any income taxes and Excise Tax imposed upon the Gross-Up Payment and any interest or penalties imposed with respect to such taxes), the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments (as determined without regard to the Gross-Up Payment). All determinations required to be made under this Section 4.2, including whether a Gross-Up Payment is required and the amount of such Gross-Up Payment, shall be made by a nationally recognized independent accounting firm selected by the Company (the "Accounting Firm") which shall provide detailed supporting calculations to the Company and the Executive within 30 business days following the date of the Qualifying Termination, if applicable, or such earlier time as the Company may request. All fees and expenses of the Accounting Firm shall be borne by the Company. The Gross-Up Payment, if any, as determined pursuant to this Section 4.2, shall be paid to the Executive within ten days following receipt by the Company of the Accounting Firm's determination. The Accounting Firm shall either make the determination that a Payment is subject to the Excise Tax or it shall furnish the Executive with an opinion that failure to report the Excise Tax on the Executive's applicable Federal income tax return would not result in the imposition of a -6- 7 negligence or similar penalty, and, in the latter case (subject to the last sentence of this paragraph), no Gross-Up Payment shall be required. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty to the application of Section 4999 of the Code, it is possible that Gross-Up Payments which will not have been made by the Company should have been made (an "Underpayment") or that Gross-Up Payments which have been made by the Company should not have been made (an "Overpayment"), consistent with the calculations required to be made hereunder. The Accounting firm shall determine the amount of any Underpayment or Overpayment that has occurred and (i) an amount equal to any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive and (ii) any amount refunded to the Executive as a result of such Overpayment shall be promptly paid by the Executive to the Company in an amount which will result in the Executive being made whole on an after-tax basis. ARTICLE V COLLATERAL MATTERS SECTION 5.1. NATURE OF PAYMENTS. All payments to the Executive under this Agreement shall be considered either payments in consideration of his continued service to the Company or severance payments in consideration of his past services thereto. SECTION 5.2. LEGAL EXPENSES. The Company shall pay all legal fees and expenses that the Executive may incur as a result of the Company's contesting the validity, the enforceability or the Executive's interpretation of, or determinations under, this Agreement. SECTION 5.3. MITIGATION. The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement either by seeking other employment or otherwise. The amount of any payment provided for herein shall not be reduced by an remuneration that the Executive may earn from employment with another employer or otherwise following his Qualifying Termination. SECTION 5.4. AUTHORITY. The execution of this Agreement has been authorized by the Board of Directors of the Company. ARTICLE VI GENERAL PROVISIONS SECTION 6.1. TERM OF AGREEMENT. This Agreement shall become effective on the date hereof and shall continue in effect until the earliest of (a) April 30, 1994, if no Change in Control has occurred before that date; provided, however, that commencing on May 1, 1994 and each May 1 thereafter, the term of this Agreement shall automatically be extended for an additional year -7- 8 unless, not later than January 30 of the same year, the Company shall have given notice that it does not wish to extend this Agreement; (b) the termination of the Executive's employment with the Company for any reason prior to a Change in Control; (c) the Company's termination of the Executive's employment for Cause, or the Executive's resignation for other than Good Reason, following a Change in Control and the Company's and the Executive's fulfillment of all of their obligations hereunder; and (d) the expiration following a Change in Control of three years and the fulfillment by the Company and the Executive of all of their obligations hereunder. Furthermore, nothing in this Article VI shall cause this Agreement to terminate before both the Company and the Executive have fulfilled all of their obligations hereunder. SECTION 6.2. GOVERNING LAW. Except as otherwise expressly provided herein, this Agreement and the rights and obligations hereunder shall be construed and enforced in accordance with the laws of The Commonwealth of Massachusetts. SECTION 6.3. SUCCESSOR TO THE COMPANY. This Agreement shall inure to the benefit of and shall be binding upon and enforceable by the Company and any successor thereto, including, without limitation, any corporation or corporations acquiring directly or indirectly all or substantially all of the business or assets of the Company, whether by merger, consolidation, sale or otherwise, but shall not otherwise be assignable by the Company. Without limitation of the foregoing sentence, the Company shall require any successor (whether direct or indirect, by merger, consolidation, sale or otherwise) to all of substantially all of the business or assets of the Company, by agreement in form satisfactory to the Executive, expressly, absolutely and unconditionally to assume and to agree to perform this Agreement in the same manner and to the same extent as the Company would have been required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as heretofore defined and any successor to all or substantially all of its business or assets that executes and delivers the agreement provided for in this Section 6.3 or that becomes bound by this Agreement either pursuant to this Agreement or by operation of law. SECTION 6.4. SUCCESSOR TO THE EXECUTIVE. This Agreement shall inure to the benefit of and shall be binding upon and enforceable by the Executive and his personal and legal representatives, executors, administrators, heirs, distributees, legatees and, subject to the Section 6.6 hereof, his designees ("Successors"). If the Executive should die while amounts are or may be payable to him under this Agreement, references hereunder to the "Executive" shall, where appropriate, be deemed to refer to his Successors; provided that nothing in this Section 6.5 shall supersede the terms of any plan or arrangement (other than this Agreement) that is affected by this Agreement. -8- 9 SECTION 6.5. NONALIENABILITY. No right of or amount payable to the Executive under this Agreement shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, hypothecation, encumbrance, charge, execution, attachment, levy or similar process or to setoff against any obligations or to assignment by operation of law. Any attempt, voluntary or involuntary, to effect any action specified in the immediately preceding sentence shall be void. However, this Section 6.6 shall not prohibit the Executive from designating one or more persons, on a form satisfactory to the Company, to receive amounts payable to him under this Agreement in the event that he should die before receiving them. SECTION 6.6. NOTICES. All notices provided for in this Agreement shall be in writing. Notices to the Company shall be deemed given when personally delivered or sent by certified or registered mail or overnight delivery service to Wyman-Gordon Company, 244 Worcester Street, North Grafton, Massachusetts 01613, Attention: V.P., General Counsel and Clerk. Notices to the Executive shall be deemed given when personally delivered or sent by certified or registered mail or overnight delivery service to the last address for the Executive shown on the records of the Company. Either the Company or the Executive may, by notice to the other, designate an address other than the foregoing for the receipt of subsequent notices. SECTION 6.7. AMENDMENT. No amendment to this Agreement shall be effective unless in writing and signed by both the Company and the Executive. SECTION 6.8. WAIVERS. No waiver of any provision of this Agreement shall be valid unless approved in writing by the party giving such waiver. No waiver of a breach under any provision of this Agreement shall be deemed to be a waiver of such provision or any other provision of this Agreement or any subsequent breach. No failure on the part of either the Company or the Executive to exercise, and no delay in exercising, any right or remedy conferred by law or this Agreement shall operate as waiver of such right or remedy, and no exercise or waiver, in whole or in part, or any right or remedy conferred by law or herein shall operate as a waiver of any other right or remedy. SECTION 6.9. SEVERABILITY. If any provision of this Agreement shall be held invalid or unenforceable in whole or in part, such invalidity or unenforceability shall not affect any other provision of this Agreement or part thereof, each of which shall remain in full force and effect. SECTION 6.10. CAPTIONS. The captions to this respective articles and section of this Agreement are intended for convenience of reference only and have no substantive significance. SECTION 6.11. COUNTERPARTS. This Agreement may be executed in a number of counterparts, each of which shall be deemed to be an original but all of which together shall constitute a single instrument. -9- 10 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. ATTEST: WYMAN-GORDON COMPANY /S/WALLACE F. WHITNEY, JR. By: /S/DAVID P. GRUBER Wallace F. Whitney, Jr. David P. Gruber, President and Chief Executive Officer ATTEST: /S/WALLACE F. WHITNEY, JR. /S/FRANK J. ZUGEL Wallace F. Whitney, Jr. Frank J. Zugel -10- EX-27 3 EXHIBIT 27-W-G 3RD QTR.
5 9-MOS JUN-01-1996 JUN-04-1995 MAR-02-1996 13,670 7 87,228 0 85,653 197,883 392,142 255,958 376,007 88,727 90,308 0 0 37,053 62,031 376,007 351,864 353,674 298,222 298,222 0 0 8,267 17,228 0 17,228 0 0 0 17,228 0.48 0.48
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