-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, HbfxN25NFAkDFUshm/JXwZ1CG7Otz+yERRm6Bj2uCezmhTQE7QBXcMQI64OD1mSn sAI19ZQenS82vDXUHs/mzQ== 0000950135-94-000220.txt : 19940420 0000950135-94-000220.hdr.sgml : 19940420 ACCESSION NUMBER: 0000950135-94-000220 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WYMAN GORDON CO CENTRAL INDEX KEY: 0000108703 STANDARD INDUSTRIAL CLASSIFICATION: 3460 IRS NUMBER: 041992780 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-03085 FILM NUMBER: 94519358 BUSINESS ADDRESS: STREET 1: 244 WORCHESTER ST STREET 2: BOX 8001 CITY: N GRAFTON STATE: MA ZIP: 01536 BUSINESS PHONE: 5088394441 10-K 1 FORM 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required) For the fiscal year ended December 31, 1993 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required) 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 of (I.R.S. Employer incorporation or organization) Identification No.) 244 WORCESTER STREET, BOX 8001, GRAFTON, MASSACHUSETTS 01536-8001 (Address of Principal Executive Offices) (Zip Code) 508-839-4441 (Registrant's telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- ------------------- NONE NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Common Stock, $1 Par Value (Title of Class) Indicate by a 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, and (2) has been subject to such filing requirements for the past 90 days. Yes X No _____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Aggregate market value of the voting stock held by non-affiliates of the registrant as of March 28, 1994: $65,762,687 Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. CLASS OUTSTANDING AT MARCH 28, 1994 Common Stock, $1 Par Value 18,040,150 Shares DOCUMENTS INCORPORATED BY REFERENCE With the exception of these sections which are specifically incorporated by reference in this Form 10-K, the following document is not deemed filed as part of this report: (1) Annual Report for the year ended December 31, 1993 (Form 10-K Parts I, II & IV) 2 PART I ITEM 1. BUSINESS GENERAL Wyman-Gordon Company, founded in 1883, is a leading producer of highly engineered, technically advanced components, primarily for the aerospace industry. The Company uses forging and investment casting technologies to produce components to exacting customer specifications for demanding applications such as jet turbine engines and airframes. The Company also designs and produces prototype products using composite technologies. JET ENGINE COMPONENTS The Company manufactures numerous forged and cast components for jet engines for both commercial and defense aircraft produced by all of the major manufacturers, including General Electric, Pratt & Whitney, Rolls-Royce and CFM International. The Company's forged engine parts include fan discs, compressor discs, turbine discs, seals, spacers and cases. Cast engine parts include thrust reversers, valves and fuel system parts such as combustion chamber swirl guides. Jet engines may produce in excess of 100,000 pounds of thrust and may subject parts produced by the Company to temperatures reaching 1,350oF. Components for such extreme conditions require precision manufacturing and expertise with high-purity titanium and nickel-based superalloys. Rotating parts such as fan, compressor and turbine discs must be manufactured to precise quality specifications. AIRFRAME STRUCTURAL COMPONENTS The Company manufactures forged and cast structural parts for fixed-wing aircraft and helicopters. These products include wing spars, engine mounts, struts, landing gear beams, landing gear, wing hinges, wing and tail flaps, housings, and bulkheads. These parts may be made of titanium, steel, aluminum and other alloys, as well as composite materials. The Company also produces dynamic rotor forgings for helicopters. Forging is particularly well-suited for airframe parts because of its ability to impact greater proportional strength to metal than other manufacturing processes. Investment casting can produce complex shapes to precise, repeatable dimensions. The Company has been a major supplier for many years of the beams that support the main landing gear assemblies on the Boeing 747 and has begun shipment of main landing gear beams for the new Boeing 777 widebody. The Company forges landing gear and other airframe structural components for the Boeing 747, 757, 767 and 777, the McDonnell Douglas MD-11 and the Airbus A330 and A340. The Company produces structural forgings for the F-15, F-16 and F-18 fighter aircraft and the Sikorsky Black Hawk helicopter. The Company also produces large, one-piece bulkheads for Lockheed and Boeing for the new F-22 advanced tactical fighter. OTHER PRODUCTS The Company produces steam turbine and gas turbine generator components for land-based power generation applications. The Company also manufactures shafts, cases, compressor and turbine discs for marine gas turbines. The Company's investment castings operations produces components for medical devices, power equipment, food processing equipment, land-based military equipment such as tanks, and various other applications. The Company derived approximately 5% of its 1993 and 1992 revenues from sales of non-aerospace products. In 1992, the Company received preliminary vendor qualification to provide components to a major producer of land-based gas turbines. The Company expects to receive final vendor qualifications in the second quarter of 1994 and has received an order to produce those components beginning in 1994. -1- 3 MARKETS The principal markets served by the Company are commercial aerospace and defense equipment. Revenue from these markets over the last three years, excluding the Company's divested automotive crankshaft operations, have been as follows:
YEARS ENDED DECEMBER 31, ---------------------------------------------------------------------- 1993 1992 1991 ---------------- -------------------- ------------------ % OF % OF % OF MARKET REVENUE TOTAL REVENUE TOTAL REVENUE TOTAL ------ ------- ----- ------- ----- ------- ----- (000'S OMITTED) Commercial aerospace $127,635 53% $171,312 57% $161,075 53% Defense equipment 101,329 42 113,029 38 135,573 44 Other 10,797 5 14,540 5 9,982 3 -------- --- -------- --- -------- --- Total $239,761 100% $298,881 100% $306,630 100% ======== === ======== === ======== ===
COMMERCIAL AEROSPACE The Company manufactures high-technology forged and cast products for virtually all models of commercial aircraft produced. Forged and investment cast parts include a wide variety of components for both the jet engines and structural airframes of these aircraft. The Company's composite operation designs and produces aerospace prototypes. The Company also produces products utilized in general aviation and business jet aircraft. DEFENSE EQUIPMENT The Company is a supplier to builders of military aircraft and missiles, manufacturing forged and investment cast components for jet engines as well as structural components and systems for defense and defense related industries. The Company manufactures fan, compressor and turbine discs, seals and spacers for jet engines, structural components such as aluminum, steel and titanium bulkheads for military aircraft and various fittings, spars and landing gear components. The Company also produces weapon cases for missiles and rockets. For naval defense applications, the Company manufactures components for nuclear propulsion plants, as well as pump, valve, structural and non-nuclear propulsion forgings. OTHER MARKETS The Company also participates in a number of other markets, principally in the nuclear and non-nuclear power generation, marine and food processing industries. The Company is actively seeking to identify alternative applications for its capabilities, such as in the automotive and other commercial markets. CUSTOMERS The Company has approximately 100 active customers that purchase forgings, approximately 425 active customers that purchase investment castings and approximately ten active customers that purchase composite structures. The Company's principal customers are similar across all of these production processes. Five customers, General Electric Company, United Technologies Corporation (principally its Pratt & Whitney Division), Boeing Company, McDonnell Douglas Corporation and Mitsui & Company U.S.A., accounted for approximately 54% of the Company's revenues during 1993 and approximately 53% of the Company's revenues during 1992. General Electric and United Technologies each accounted for more than 10% of revenues for 1993 and 1992. -2- 4 The Company has organized its operations into product groups which focus on specific customers or groups of customers with similar needs. The Company has become actively involved with its aerospace customers through joint development relationships and cooperative research and development, engineering, quality control, just-in-time inventory control and computerized design programs. This involvement begins with the design of the tooling and processes to manufacture the customer's components to its precise specifications. The Company increasingly participates with its customers in joint development projects. The Company's plasma arc melting ("PAM") unit is being developed in cooperation with General Electric Company in order to develop new processing techniques and materials, including alloys for use in components for the new GE90 jet engine. In addition, General Electric has contracted with the Company to produce tooling for several components for the GE90 engine. Another customer partnership involves the creation of a joint venture with Pratt & Whitney and Australian investors to produce aerospace grade, nickel-based superalloy ingot in Perth, Australia. Pratt & Whitney has committed to purchase a portion of the joint venture's output, and the Company anticipates that a part of such commitment will be satisfied through orders of forgings produced by the Company. MARKETING AND SALES The Company markets its products principally through its own sales engineers and makes only limited use of manufacturers' representatives. Substantially all sales are made directly to original equipment manufacturers. The Company's sales are not subject to significant seasonal fluctuations, although production in the third quarter normally tends to be somewhat less than that of other quarters as a result of scheduled plant shutdowns. A substantial portion of the Company's revenues is derived from long-term, fixed price contracts with major engine and aircraft manufacturers. These contracts are typically "requirements" contracts under which the purchaser commits to purchase a given portion of its requirements of a particular component from the Company. Actual purchase quantities are typically not determined until shortly before the year in which products are to be delivered. BACKLOG The backlog of unfilled orders from customers at the following dates in the commercial aerospace, defense and other markets served by the Company was as follows:
YEARS ENDED DECEMBER 31, ---------------------------------------------------------------------- 1993 1992 1991 ---------------- -------------------- ------------------ % OF % OF % OF MARKET BACKLOG TOTAL BACKLOG TOTAL BACKLOG TOTAL ------ ------- ----- ------- ----- ------- ----- (000'S OMITTED) Commercial aerospace $167,740 65% $205,771 66% $266,103 69% Defense equipment 82,000 32 97,224 31 103,648 27 Other 6,519 3 6,684 3 17,154 4 -------- --- -------- --- -------- --- Total $256,259 100% $309,679 100% $386,905 100% ======== === ======== === ======== ===
The decreased level of backlog at December 31, 1993 is attributable primarily to (1) continuing lower levels of demand in the commercial aerospace and defense equipment markets, (2) the inclusion at December 31, 1992 of backlog of approximately $12.9 million related to the Company's Wyman-Gordon Composites, Inc. operation which was sold in November 1993 and (3) the continued effect of the implementation of just-in-time delivery schedules by customers. -3- 5 At December 31, 1993 approximately $153.0 million of total backlog was scheduled to be shipped within one year and the remainder in subsequent years, although there can be no assurances that products ordered will not be subject to schedule changes. The decreased level of backlog at December 31, 1992 is attributable primarily to (1) delays by the Company's two largest engine component customers releasing long-term supply agreements to their supplier base, (2) more rapid production cycle times which require shorter lead order times and (3) the implementation of just-in-time delivery schedules by customers. MANUFACTURING PROCESSES The Company employs three manufacturing processes: forging, investment casting and composites production. FORGING Forging is the process by which desired shapes, metallurgical characteristics, and mechanical properties are imparted to metal by heating and shaping it through hammering, pressing or ring-rolling. The Company forges alloys of titanium, aluminum and steel as well as high temperature nickel-based superalloys. The Company manufactures most of its forged aerospace components at its facilities in Grafton and Worcester, Massachusetts (although the Company continues to consolidate its forging operations at the Grafton facility). The Company has three large closed- die hydraulic forging presses rated at 18,000, 35,000 and 50,000 tons, an open-die cogging press rated at 2,000 tons and a hydraulic isothermal forging press rated at 8,000 tons. The Company also operates forging hammers rated up to 35,000 pounds, a 220-ton ring- roll and supporting facilities. The Company employs all major forging processes, including the following: Open-Die Forging. In this process, the metal is forged between dies that never completely surround the metal, thus allowing the metal to be observed during the process. Typically, open-die forging is used to create relatively simple, preliminary shapes. Closed-Die Forging. Closed-die forging involves hammering or pressing heated metal into the required shapes and size determined by machined impressions in specially prepared dies which exert three dimensional control on the metal. In hot-die forging, a type of closed-die process, the dies are heated to a temperature approaching the transformation temperature of the materials being forged so as to allow the metal to flow more easily within the die cavity, which enhances the repeatability of the part shapes and allows greater metallurgical control. Both titanium and nickel-based superalloys are forged using this process, in which the dies are heated to a temperature of approximately 1,300oF. Isothermal Forging. Isothermal forging is a closed-die process in which the dies are heated to the same temperature as the metal being forged, typically in excess of 1,900oF. The forged material typically consists of nickel-based superalloy powders. Because of the extreme temperatures necessary for forming these alloys, the dies must be made of refractory metal (such as molybdenum) so that the die retains its strength and shape during the forging process. Because the dies may oxidize at these elevated temperatures, the forging process is carried on in a vacuum or inert gas atmosphere. The Company's isothermal press also allows it to produce near-net shape components (requiring less machining by the customer) made from titanium alloys, which can be an important competitive advantage in times of high titanium prices. The Company carries on this process in its 8,000-ton isothermal press. Ring-Rolling. This process, conducted on the Company's 220-ton ring-roll, involves rotating heated metal rings between two rotating rolls to produce seamless metal rings for use as seals, cases, spacers and similar parts for jet turbine engines. The Company can produce rings up to 80 inches in diameter and 20 inches in height. -4- 6 Titanium and Superalloy Production. The Company has backward-integrated into the manufacturing of raw materials used in its forging processes. In 1987 the Company began to cast titanium scrap and "sponge" into ingot and convert the ingot to billet by forging the ingot in its forging presses. Such billet may be used as raw material for the Company's forgings or may be converted or sold for other uses. The Company markets titanium ingots, billets, engineered mults and open-die forgings for use outside the Company's forging activities. The Company's PAM unit produces high quality titanium and can also be modified for the manufacture of nickel-based superalloy powders through an atomization process. The Company expects that the PAM unit will be certified by certain customers for the manufacture of some of their components in late 1994 and will thereafter produce the high-purity materials required for future high performance jet engines. The Company entered into a joint venture with Pratt & Whitney and certain Australian investors to produce nickel-based superalloy ingots in Perth, Australia. The Company expects that these ingots will be utilized as raw materials for the Company's forging and casting products. See "Business - Customers". Support Operations. The Company manufactures its own forging dies out of high-strength steel and molybdenum. These dies can weigh in excess of 100 tons and can be up to 25 feet in length. In manufacturing its dies, the Company takes its customers' drawings and engineers the dies using CAD/CAM equipment and sophisticated metal flow computer models that simulate metal flow during the forging process. This activity improves die design and process control and permits the Company to enhance the metallurgical characteristics of the forging. The Company also has a large machine shop with computer aided profiling equipment, vertical turret lathes and other equipment that it employs to rough machine products to a shape required to allow inspection of the products. The Company also operates rotary and car-bottom heat treating furnaces that enhance the performance characteristics of the forgings. These furnaces have sufficient capacity to handle all the Company's forged products. The Company subjects its products to extensive quality inspection and contract qualification procedures involving zyglo, chemical etching, ultrasonic, red dye, and electrical conductivity testing facilities. INVESTMENT CASTINGS The Company's investment castings operations use modern, automated, high volume production equipment and both air-melt and vacuum-melt furnaces to produce a wide variety of complex investment castings. Castings are made of a range of metal alloys including aluminum, magnesium, steel, titanium and nickel-based superalloys. The Company's castings operations are conducted in facilities located in Connecticut, New Hampshire, Nevada and California. These plants house air and vacuum-melt furnaces, wax injection machines and investment dipping tanks. The Company's Groton, Connecticut facility was recently expanded to produce high quality titanium castings. Investment castings are produced in four major stages. First, aluminum molds, known as "tools," are fabricated in the shape of the component to the specifications of the customer. Tools are primarily purchased from outside die makers, although the Company maintains internal tool-making capabilities. Wax is injected into the mold from a heated reservoir to form a "pattern." In the second stage, the wax patterns are mechanically coated with a sand and silicate-bonded slurry. This forms a ceramic shell which is subsequently air-dried under controlled environmental conditions. The wax inside this shell is then melted and removed in a high temperature steam autoclave and the molten wax is recycled. In the third, or foundry stage, metal is melted in an electric furnace in either an air or vacuum environment and poured into the ceramic shell. After cooling, the ceramic shells are removed by vibration. The metal parts are then cleaned in a high temperature caustic bath, followed by water rinsing. In the fourth, or finishing stage, the castings are finished to remove excess metal. The final product then undergoes a lengthy series of inspections (radiography, fluorescent penetrant, magnetic particle and dimensional) to ensure quality and consistency. -5- 7 COMPOSITES The Company's composites operation, Scaled Composites, Inc., designs, fabricates and tests prototypes for aerospace, automotive and other customers. These customers include Lawrence Livermore Laboratories, Orbital Sciences Corp. and McDonnell Douglas. In November 1993, the Company sold substantially all of the net assets and business operations of its Wyman-Gordon Composites, Inc. operations. Accordingly, such operations are not included in the above discussion. FACILITIES The following table sets forth certain information with respect to the Company's major facilities at December 31, 1993. The Company believes that its facilities are well-maintained, are suitable to support the Company's business and are adequate for the Company's present and anticipated needs. At December 31, 1993, the Company's forging, investment castings and composites facilities were operating at approximately 35%, 55% and 97% of their total productive capacity, respectively.
APPROX. SQUARE OWNED/ LOCATION FOOTAGE PRIMARY FUNCTION LEASED -------- ------- ---------------- ------ Grafton, Massachusetts 85,420 Administrative Offices Owned Grafton, Massachusetts 843,200 Forging Owned Worcester, Massachusetts 43,200 Currently idle Owned Worcester, Massachusetts 323,700 Forging Owned Millbury, Massachusetts 104,125 Research and Owned Development, Metals Production Groton, Connecticut (2 plants) 162,550 Casting Owned Franklin, New Hampshire 43,200 Currently idle Owned Tilton, New Hampshire 94,000 Casting Owned Carson City, Nevada 46,000 Casting Owned San Leandro, California 45,000 Casting Owned Mojave, California 67,000 Composites Owned
RAW MATERIALS Raw materials used by the Company in its forgings and castings include alloys of titanium, nickel, steel, aluminum and other high-temperature alloys. The composites operation uses high strength fibers such as fiberglass or graphite, as well as materials such as foam and epoxy, to fabricate composite structures. The major portion of metal requirements for forged and cast products are purchased from major non-ferrous metal suppliers producing forging and casting quality material as needed to fill customer orders. The Company has two or more sources of supply for all significant raw materials. The Company satisfies some of its titanium requirements internally by producing titanium alloy from titanium scrap and "sponge." The Company's PAM unit will also produce high quality titanium and advanced nickel alloys. The titanium and nickel-based superalloys utilized by the Company have a high dollar value. Accordingly, the Company attempts to recover and recycle scrap materials such as machine turnings, forging flash, scrapped forgings, test pieces and casting sprues, risers and gates. In the event of customer cancellation, the Company may, under certain circumstances, obtain reimbursement from the customer if the material cannot be diverted to other uses. Costs of material already on hand, along with any conversion costs incurred, have generally been billed to the customer unless transferable to another order. -6- 8 ENERGY USAGE The Company is a large consumer of energy. Energy is required primarily for heating materials to be forged and cast, melting of ingots, heat-treating materials after forging and casting, operating forging hammers, forging presses, melting furnaces, ring-rolls, die-sinking, mechanical manipulation and pollution control equipment and space heating. The Company uses natural gas, oil and electricity in varying amounts at its manufacturing facilities. In recent years, the Company's production facilities experienced no energy shortages which caused them to curtail their operations. EMPLOYEES As of December 31, 1993, the Company had 1,853 employees of whom approximately 612 were executive, administrative, engineering, research, sales and clerical and 1,241 production and craft. Approximately 44% of the production and craft employees, consisting of employees in the forging business, are represented by a union. In April 1992, the Company entered into a new three year collective bargaining agreement with the forging operation's employees. RESEARCH AND PATENTS The Company maintains a research and development center at Millbury, Massachusetts which is engaged in applied research and development work primarily relating to the Company's forging operations. The Company works closely with customers, universities and government technical agencies in developing advanced forging materials and processes. The Company's composites operation conducts research and development related to aerospace composite structures at the Mojave, California facility. The Company expended approximately $2.8 million on applied research and development work during 1993. Although the Company owns patents covering certain of its processes, the Company does not consider that these patents are of material importance to the Company's business as a whole. All of the Company's products are manufactured to customer specifications and, consequently, there are no proprietary products. COMPETITION Most of the Company's production capabilities are possessed in varying degrees by other companies in the industry, including both domestic and foreign manufacturers. Competition is intense among the companies currently involved in the industry. Competitive advantages are afforded to those with high quality products, low cost manufacturing, excellent customer service and delivery and engineering and production expertise. ENVIRONMENTAL REGULATIONS 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 continues to design and implement a system of programs and facilities for the management of its raw materials, production processes and industrial waste to promote compliance with environmental requirements. In the fourth quarter of 1991, the Company recorded a pre-tax charge of $7.0 million with respect to environmental investigation and remediation costs at the Grafton facility and a pre-tax charge of $5.0 million against potential environmental remediation costs upon the eventual sale of the Worcester facility. Pursuant to an agreement entered into with the U.S. Air Force upon the acquisition of the Grafton facility from the federal government in 1982, the Company has agreed to make additional expenditures of approximately $10.1 million for environmental management and remediation projects at that site during the period 1992 through 1999, including $4.4 million for new waste water treatment facilities -7- 9 to be constructed during 1993 and 1994 in accordance with an administrative compliance order entered into with the United States Environmental Protection Agency (the "EPA"). The Company, together with numerous other parties, has also been alleged to be a potentially responsible party ("PRP") at the following four federal or state superfund sites: Operating Industries, Monterey Park, California; Cedartown Municipal Landfill, Cedartown, Georgia; PSC Resources, Palmer, Massachusetts; and the Gemme site, Leicester, Massachusetts. The Company believes that any liability it may incur with respect to these sites will not be material. In view of the relatively small number of PRP's identified at the Gemme site, the possibility exists that the Company could ultimately be liable for remediation costs in excess of its pro rata share of the wastes disposed of at that site. Preliminary engineering studies of the potential remediation costs associated with this site estimate that such costs could range from $0.5 million to $9.9 million depending on the levels of toxicity ultimately found and the method or methods of remediation selected. No allocation of liability has yet been agreed upon by the PRPs. The Company's Grafton, Massachusetts plant location is one of 46 sites throughout the country included in the U.S. Nuclear Regulatory Commission's ("NRC") May 1992 Site Decommissioning Management Plan ("SDMP") for low-level radioactive waste. The SDMP identifies the Company's site as a "Priority C" (lowest priority) site. The NRC conducted a long-range dose assessment in 1992 to determine what action, if any, it would order with respect to the site; its draft report states that the site should be remediated. However, the Company believes that the NRC's draft assessment was flawed and has retained an environmental engineering firm to challenge that draft assessment. The Company has submitted the environmental engineering firm's Dose Assessment Review to the NRC for consideration but has had no response from the NRC to date. The Company has provided $1.5 million for the estimated cost of the remediation. The Company believes that it may have meritorious claims for reimbursement from the U.S. Air Force in respect of any liabilities it may have for such remediation. PRODUCT LIABILITY EXPOSURE The Company produces many critical engine and structural parts for commercial and military aircraft. As a result, the Company faces an inherent business risk of exposure to product liability claims. The Company maintains insurance against product liability claims, but there can be no assurance that such coverage will continue to be available on terms acceptable to the Company or that such coverage will be adequate for liabilities actually incurred. The Company has not experienced any material loss from product liability claims and believes that its insurance coverage is adequate to protect it against any claims to which it may be subject. LEGAL PROCEEDINGS At December 31, 1993, the Company was involved in certain legal proceedings arising in the normal course of its business. The Company believes the outcome of these matters will not have a material adverse effect on the Company. In December 1992, the Company made a number of modifications to the Company's retiree health plans to limit the Company's obligations thereunder. In 1993, two separate class action suits were filed by certain retirees from the Company's Massachusetts and Michigan facilities contesting the Company's actions. The Company believes that it has meritorious defenses to these lawsuits and intends to defend its actions vigorously. The Company further believes that the outcome of this litigation will not have a material adverse effect on the Company. -8- 10 EXECUTIVE OFFICERS OF THE REGISTRANT The following table set forth certain biographical information with respect to executive officers of the Company.
NAME POSITION AGE ---- -------- --- John M. Nelson........... Chairman of the Board of Directors and 62 Chief Executive Officer David P. Gruber.......... President, Chief Operating Officer and 52 Director Luis E. Leon............. Vice President - Finance and Treasurer 41 Sanjay N. Shah........... Vice President and Assistant General 43 Manager, Aerospace Forgings Division Wallace F. Whitney, Jr. . Vice President, General Counsel and Clerk 51 Frank J. Zugel........... Vice President, Investment Castings 49
John M. Nelson was elected Chairman and Chief Executive Officer of the Company in May 1991. On the date of the Special Meeting to be held in lieu of the 1993 Annual Meeting of Shareholders of the Company, Mr. Nelson will turnover his duties as Chief Executive Officer to David P. Gruber, currently the President and Chief Operations Officer, but will continue as Chairman of the Board of Directors. Prior to election to his present position, he served for many years in a series of executive positions with Norton Company, a manufacturer of abrasives and ceramics based in Worcester, Massachusetts, and was Norton's Chairman and Chief Executive Officer from 1988 to 1990 and its President and Chief Operating Officer from 1986 to 1988. Mr. Nelson is also a Director of Brown & Sharpe Manufacturing Company, Cambridge Biotechnology, Inc., TSI Corporation, Commerce Holdings, Inc. and the TJX Companies, Inc., Vice President of the Worcester Art Museum and Chairman of the Worcester Area Chamber of Commerce. David P. Gruber was elected President and Chief Operating Officer of the Company in October 1991 and was elected a Director of the Company in August 1992. Mr. Gruber will become President and Chief Executive Officer of the Company on the date of the Special Meeting to be held in lieu of the 1993 Annual Meeting of Shareholders of the Company. Prior to joining the Company, Mr. Gruber served as Vice President, Advanced Ceramics, of Compagnie de Saint Gobain (which acquired Norton Company in 1990), a position he held with Norton Company since 1987. Mr. Gruber previously held various executive and technical positions with Norton Company since 1978. Luis E. Leon joined the Company as Vice President-Treasurer in May 1991. In May 1993, he was elected Vice President - Finance and Treasurer. Prior to joining the Company, he had served since 1986 as Treasurer of Milton Roy Company, a manufacturer of fluid control products. From 1983 to 1986 he served as Manager of Treasury Operations of Kerr-McGee Corporation, a diversified energy company. Sanjay N. Shah serves as Vice President and Assistant General Manager of the Company's Aerospace Forgings Division. Previously he had served as Vice President - Operations since 1990. He has held a number of research, engineering and manufacturing positions at the Company since joining the Company in 1975. Wallace F. Whitney, Jr. joined the Company in 1991. Prior to that time, he had been Vice President, General Counsel and Secretary of Norton Company since 1988, where he had been employed in various legal capacities since 1973. -9- 11 Frank J. Zugel joined the Company in June 1993 when he was elected Vice President - General Manager, Investment Castings. Prior to that time he had served as President of Stainless Steel Products, Inc., a metal fabricator for aerospace applications, since 1992 and before then as Vice President of Pacific Scientific Company, a supplier of components to the aerospace industry, since 1988. None of the executive officers has any family relationship with any other executive officer. All officers are elected annually. ITEM 2. PROPERTIES The response to Item 2. - Properties incorporates by reference the paragraphs captioned "Facilities" included in Item 1. - Business. ITEM 3. LEGAL PROCEEDINGS The response to Item 3. - Legal Proceedings incorporates by reference the paragraphs captioned "Environmental Regulations" and "Legal Proceedings" included in Item 1. - Business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of 1993. -10- 12 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The response to Item 5. - Market for the Registrant's Common Equity and Related Stockholder Matters incorporates by reference the "Market and Dividend Information" section of the Company's 1993 Annual Report to Stockholders. ITEM 6. SELECTED FINANCIAL DATA The response to Item 6. - Selected Financial Data incorporates by reference the 1989 through 1993 columns of the following lines which are included in the "Consolidated Ten-Year Financial Review" section of the Company's 1993 Annual Report: revenue, total assets, long-term debt, income (loss) from continuing operations, net income (loss) per share - continuing operations and dividends paid (per share). Also incorporated by reference is the "Accounting and Tax Matters" section of the Company's 1993 Annual Report. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The response to Item 7. - Management's Discussion and Analysis of Financial Condition and Results of Operations incorporates by reference the "Management's Discussion" section of the Company's 1993 Annual Report. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The response to Item 8. - Financial Statements and Supplementary Data incorporates by reference the following sections of the Company's 1993 Annual Report: Consolidated Statements of Operations and Retained Earnings Consolidated Balance Sheets Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Report of Independent Auditors ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE On June 17, 1992, the Company changed its independent accountants from Coopers & Lybrand to Ernst & Young. Cooper & Lybrand's report for the year ended December 31, 1991 contained no adverse opinion, disclaimer or qualification as to uncertainty, audit scope or accounting principles. Through the date of dismissal, there were no disagreements between the Company and Coopers & Lybrand on any matter of accounting principles or practices, financial statement disclosures, or auditing scope or procedures that if not resolved to the satisfaction of Coopers & Lybrand would have caused such firm to make reference thereto in connection with its reports on the financial statements of the Company. The Company's decision to change its independent accountants was approved by the Audit Committee of the Company's Board of Directors and by the full Board. -11- 13 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information regarding executive officers is incorporated by reference to PART I, Item 1. BUSINESS, under the caption "Executive Officers of the Registrant." ELECTION OF DIRECTORS Four directors will be elected at the Special Meeting in lieu of the Annual Meeting of Shareholders (the "Meeting") each to hold office until the 1997 annual meeting of shareholders and until his or her successor is elected and qualified. All of the nominees are currently directors of the Company. Unless authority to do so has been withheld or limited in the proxy, it is the intention of the persons named as proxies to vote the Shares to which the proxy relates for the election to the Board of Directors the four nominees listed below. The affirmative vote of a majority of the Shares of common stock, par value $1.00 per share, of the Company ("Shares") voting at the Meeting is required for election. Edouard C. Thys, a director since 1988, retired from the Company in October 1993 and, in accordance with Company policy regarding employee directors, no longer serves as a member of the Board of Directors. NOMINEES FOR THREE-YEAR TERM The following is certain information about the directors of the Company who are standing for reelection at the Meeting. Robert G. Foster, age 55, President and Director of Commonwealth BioVentures, Inc., Worcester, Massachusetts (a venture capital company engaged in biotechnology). Director of the Company since 1989. Member of the Management Resources and Compensation Committee. Term expires in 1994. Mr. Foster was President and Chairman of Ventrex Laboratories, Inc. from 1976 to 1987, when he assumed his present position. He is also a Director of United Timber Corp. Judith S. King, age 59, Community Volunteer, Personal Investments. Director of the Company since 1990. Member of the Audit, Directors and Management Resources and Compensation Committees. Term expires in 1994. Mrs. King is also a Trustee and Treasurer of the Stoddard Charitable Trust. Jon C. Strauss, age 54, President of Worcester Polytechnic Institute, Worcester, Massachusetts. Director of the Company since 1989. Member of the Audit and Finance Committees. Term expires in 1994. Prior to assuming his current position in 1985, Dr. Strauss was Chief Administrative Officer at the University of Southern California and, before that, Chief Financial Officer at the University of Pennsylvania. He is a Director of Computervision Corporation, a Regional Director of Shawmut Bank, a Trustee of the Massachusetts Biotechnology Research Institute and a Trustee of The Medical Center of Central Massachusetts. Charles A. Zraket, age 70, Adjunct Research Scholar, Kennedy School of Government, Harvard University. Trustee and Former President and Chief Executive Officer of the MITRE Corporation, Bedford, Massachusetts (a not-for-profit corporation engaged in systems engineering and research primarily for United States government departments and agencies). Director of the Company since 1990. Chairman of the Management Resources and Compensation Committee and member of the Directors Committee. Term expires in 1994. Mr. Zraket was President and Chief Executive Officer of the MITRE Corporation from 1986 to 1990 after having served as Executive Vice President and Chief Operating Officer. He is a Director of Bank of Boston, Boston Edison Company, Advanced Photovoltaics Systems, Inc. and Aspect Medical Systems. Mr. Zraket also serves as a Trustee of Northeastern University, Beth Israel Hospital and the Hudson Institute. -12- 14 CONTINUING DIRECTORS The following is certain information about the directors of the Company who are continuing in office. E. Paul Casey, age 64, Chairman and General Partner, Metapoint Partners, Peabody, Massachusetts (an investment partnership). Director of the Company since 1993. Member of the Audit and Management Resources and Compensation Committees. Term expires in 1996. Mr. Casey established Metapoint Partners in 1988. He served as Vice Chairman of Textron, Inc. from 1986 to 1987 and as Chief Executive Officer and President of Ex-Cell-O Corporation during 1978 to 1986. Mr. Casey is a Director of Comerica, Inc. and Hood Enterprises, Inc. and is a Trustee of the Henry Ford Health Care System. Warner S. Fletcher, age 49, Attorney and Director of the law firm of Fletcher, Tilton & Whipple, P.C., Worcester, Massachusetts. Director of the Company since 1987. Chairman of the Finance Committee and member of the Audit Committee. Term expires in 1996. Mr. Fletcher is a Director of Mechanics Bank. He is also Chairman of The Stoddard Charitable Trust and a Trustee of the Fletcher Foundation, the Worcester Foundation for Experimental Biology, the Bancroft School and the Worcester Art Museum. M Howard Jacobson, age 60, Senior Advisor, Bankers Trust, New York. Director of the Company since 1993. Member of the Finance and Directors Committees. Term expires in 1996. Mr. Jacobson was for many years Chief Executive Officer, President, Treasurer and a Director of Idle Wild Foods, Inc. until that company was sold in 1986. From 1989 to 1991 he was a Senior Advisor to Prudential Bache Capital Funding. Mr. Jacobson is a Director of Allmerica Property & Casualty Cos. Inc., Immulogic Pharmaceutical Corporation, Stoneyfield Farm, Inc., Cyplex, and Boston Chicken, Inc. He is Chairman of the Board of Trustees of Worcester Polytechnic Institute, Chairman of the Board of Directors of the Foundation of The Medical Center of Central Massachusetts, an Overseer of WGBH/National Public Broadcasting and a Trustee of the Worcester Foundation for Experimental Biology. George S. Mumford, Jr., age 65, Professor, Department of Physics and Astronomy, Tufts University. Director of the Company since 1968. Chairman of the Audit Committee and member of the Finance Committee. Term expires in 1996. Mr. Mumford formerly served as Dean of the Graduate School of Arts and Sciences at Tufts University. He was President and a Director of The Manufacturers Company until 1986, and he is a former member of the Board of Directors of the Council of Graduate Schools in the United States and Past President of the Northeast Association of Graduate Schools. Russell E. Fuller, age 67, Chairman of REFCO, INC., Boylston, Massachusetts (a supplier of specialty industrial products). Director of the Company since 1988. Chairman of the Directors Committee and member of the Finance Committee. Term expires in 1995. Mr. Fuller is Chairman and Treasurer of The George F. and Sybil H. Fuller Foundation and a Trustee of The Medical Center of Central Massachusetts. He is also a Trustee of the Massachusetts Biotechnology Research Institute and the Worcester County Horticultural Society. John M. Nelson, age 62, Chairman and Chief Executive Officer of the Company. Director of the Company since 1991. Member (ex officio) of the Audit, Finance and Directors Committees. Term expires in 1995. Mr. Nelson will become Chairman of the Board of Directors of the Company on the date of the Meeting. He was elected to his present position in May 1991. Prior to that time, he served for many years in a series of executive positions with Norton Company (a manufacturer of abrasives and ceramics) and was that company's Chairman and Chief Executive Officer from 1988 to 1990 and its President and Chief Operating Officer from 1986 to 1988. Mr. Nelson is also a Director of Brown & Sharpe Manufacturing Company, Cambridge Biotechnology, Inc., TSI Corporation, Commerce Holdings, Inc. and the TJX Companies, Inc. He is also President of the Greater Worcester Community Foundation, Vice President of the Worcester Art Museum and Chairman of the Worcester Area Chamber of Commerce. At the time of his election to his present position, Mr. Nelson and the Company entered into an agreement that provides for a five-year term of employment, defined pension benefits upon completion of such term and certain other employee benefits. The agreement also provides -13- 15 for accelerated vesting of stock options and pension benefits and continuation of employee benefits in the event of termination of his employment under specified conditions. David P. Gruber, age 52, President and Chief Operating Officer of the Company. Director of the Company since 1992. Term expires in 1995. In addition to retaining his present office as President of the Company, Mr. Gruber will become Chief Executive Officer of the Company on the date of the Meeting. He was elected to his current position in October 1991. He was previously employed by Norton Company since 1978 and served as its Vice President, Advanced Ceramics from 1987 to 1991 and Vice President- Coated Abrasives from 1986 to 1987. Mr. Fletcher and Mrs. King are cousins. None of the other Directors has any family relationships. ITEM 11. EXECUTIVE COMPENSATION MEETINGS OF THE BOARD The Board of Directors held nine meetings during 1993. Non-employee directors of the Company received annual remuneration of $10,000 for their services plus a fee of $600 for each Board meeting attended. Those non-employee directors who are also members of the Audit, Finance, Management Resources and Compensation or Directors Committees of the Board receive additional compensation of $600 for each Committee meeting attended. Each director attended at least seventy-five percent of the total number of Board and Committee meetings held while he or she served as a director or member of a Committee. COMPENSATION COMMITTEE REPORT OVERALL POLICY The Management Resources and Compensation Committee (the "Committee") of the Board of Directors is composed entirely of independent outside directors. The Committee is responsible for setting and administering the policies which govern the Company's executive compensation and stock ownership programs. The Company's executive compensation program is designed to be closely linked to corporate performance and return to stockholders. To this end, the Company maintains an overall compensation policy and specific compensation plans that tie a significant portion of executive compensation to the Company's success in meeting specified annual performance goals and to appreciation in the price of Shares. To overall objectives of this strategy are to attract and retain talented executives, to motivate those executives to achieve the goals inherent in the Company's business strategy, to link executive and stockholder interests through equity based incentive plans and, finally, to provide a compensation package that recognizes individual contributions as well as overall business results. The Committee approves the compensation of John M. Nelson, the Company's Chief Executive Officer, and Messrs. Gruber, Leon and Whitney, the three corporate executives who report directly to Mr. Nelson. Each of these officers' compensation is detailed below. The Committee also sets policies in order to ensure consistency throughout the executive compensation program. In reviewing the individual performance of the executives whose compensation is determined by the Committee (other than Mr. Nelson), the Committee takes into account Mr. Nelson's evaluation of their performance. -14- 16 There are three principal elements of the Company's executive compensation program: base salary, annual bonus and stock options. The Committee's policies with respect to each of these elements, including the bases for the compensation awarded to Mr. Nelson, are discussed below. In addition, while the elements of compensation described below are considered separately, the Committee takes into account the full compensation package provided by the Company to the individual, including pension benefits, supplemental retirement benefits, savings plans, severance plans, insurance and other benefits, as well as the programs described below. The Committee did not rely on compensation surveys or the services of consultants in making its determinations regarding compensation amounts or the relative proportions of fixed and variable compensation; rather its decision was based on its own judgment as to the most efficient manner of achieving the Company's compensation objective specified above. BASE SALARIES Base salaries for new executive officers are initially determined by evaluating the responsibilities of the position held and the experience of the individual, taking into account the competitive marketplace. Annual salary adjustments are determined by evaluating the performance of the Company and of each executive officer, and also take into account changed responsibilities. The Committee, where appropriate, also considers non-financial performance measures such as increase in market share, manufacturing efficiency gains, improvements in product quality and improvements in relations with customers, suppliers and employees. Mr. Nelson serves as Chief Executive Officer of the Company pursuant to a May 21, 1991 employment agreement. Mr. Nelson's employment agreement calls for the payment of an annual base salary of $300,000 during his service as the Company's Chief Executive Officer. In determining Mr. Nelson's base salary, the Committee took into account a comparison of base salaries of chief executive officers of other companies, the Company's financial situation and Mr. Nelson's experience as chief executive officer of a Fortune 500 company. Mr. Nelson's base salary is approximately 35% lower than that of his predecessor. Pursuant to his employment agreement, the Committee granted Mr. Nelson an option in 1991 to purchase 300,000 Shares at a price of $6.625 per Share. This mix of compensation was determined by the Committee based on its philosophy that executive compensation should be variable as much as possible. ANNUAL BONUS The Company maintains a Management Incentive Plan ("MIP") under which executive officers (as well as other key employees) are eligible for an annual cash bonus. The Committee establishes individual and corporate performance objectives at the beginning of each year. Eligible executives are assigned threshold, target and maximum bonus levels. The Committee determines the corporate performance targets for bonus payments based on the corporate financial plan for the ensuing year and may use such measures as operating income and cash generation. If minimum objectives are not met, no bonuses are paid. As in the case of base salary, the Committee may consider individual non-financial performance measures and, where appropriate, unit performance measures, in determining bonus amounts. The Committee has final authority in interpreting the MIP and discretion in making any awards under the MIP. In 1993, as in 1992, the Committee determined that in view of the Company's financial condition, it would be inappropriate to adopt a bonus plan under the MIP and thus no bonuses have been or will be paid under the MIP for 1993 performance. At the recommendation of Mr. Nelson, the Committee authorized the grant of special bonuses in 1993 to Messrs. Gruber, Leon and Whitney to recognize their efforts in successfully refinancing the Company's debt in adverse circumstances during the year. Such bonuses were granted apart from the operation of the MIP and are reported in the Summary Compensation Table following this report. -15- 17 STOCK OPTIONS Under the Company's Long-Term Incentive Plan, options with respect to Shares may be granted to the Company's key employees, including executive officers. The Committee sets guidelines for the size of stock option awards based on factors similar to those used to determine base salaries and annual bonus. Stock options are designed to align the interests of executives with those of the shareholders. Stock options may be exercised over a ten-year period at an exercise price equal to the market price of the Shares on the date of grant and vest over three years. This approach is designed to provide an incentive for the creation of shareholder value over the long-term since the full benefit of the compensation package cannot be realized unless appreciation of the price of Shares occurs over a number of years. In 1993 the Committee granted options to a total of 48 key employees; the Committee believes that broad dissemination of options within the Company enhances the benefits to the Company of stock-based incentives. In 1993, Mr. Nelson was granted options to purchase 25,000 Shares with an exercise price of $5.125 per Share and now has options to purchase a total of 375,000 Shares. The 1993 grant was made to further the Committee's view that executive compensation ought to be dependent in large measure on the performance of the Company and the Shares. Mr. Nelson now beneficially owns 52,000 Shares that he purchased on the open market since he became Chief Executive Officer. The Committee believes that significant equity interests in the Company held by the Company's management better align the interests of shareholders and management. CONCLUSION Through the incentive and stock option programs described above, a significant portion of the Company's executive compensation is linked directly to individual and corporate performances and stock price appreciation. The Committee intends to continue the policy of linking executive compensation to corporate performance and returns to stockholders, recognizing that the ups and downs of the business cycle from time to time may result in an imbalance for a particular period. Charles A. Zraket, Chairman E. Paul Casey Robert G. Foster Judith S. King EXECUTIVE COMPENSATION The remuneration of the Company's Chief Executive Officer and each of the four most highly compensated executive officers at December 31, 1993 for services rendered to the Company during 1993, 1992 and 1991 is reported in the table set forth below. The remuneration of Edouard C. Thys, who retired from the Company in October 1993, is also reported. SUMMARY COMPENSATION TABLE
LONG-TERM ANNUAL COMPENSATION COMPENSATION ------------------- --------------------- NUMBER ALL OTHER NAME AND OF COMPENSA- PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS TION(1) - - ------------------ ---- ------ ----- ------- ---------- John M. Nelson 1993 $300,000 25,000 $ 4,440 Chairman and Chief 1992 300,000 50,000 11,934 Executive Officer 1991 163,731(2) 300,000 6,224 David P. Gruber 1993 200,000 $50,000 50,000 9,124 President and Chief 1992 200,000 45,000 3,168 Operating Officer 1991 50,000(2) 100,000 793
-16- 18
LONG-TERM ANNUAL COMPENSATION COMPENSATION ------------------- --------------------- NUMBER ALL OTHER NAME AND OF COMPENSA- PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS TION(1) - - ------------------ ---- ------ ----- ------- --------- Luis E. Leon 1993 $150,000 $40,000 6,000 $ 7,143 Vice President, 1992 150,000 31,000 5,068 Finance and Treasurer 1991 96,154(2) 45,000(3) 50,000 30,949 Wallace F. Whitney, Jr. 1993 144,000 30,000 6,000 6,494 Vice President, General 1992 144,000 31,000 1,329 Counsel and Clerk 1991 79,749(2) 50,000 711 Sanjay N. Shah 1993 135,204 6,000 5,522 Vice President, 1992 116,434 21,000 611 Assistant General 1991 107,195 50,000 1,244 Manager, Forgings Division Edouard C. Thys 1993 127,379 17,178(4) 4,936 Group Vice President, 1992 158,949 17,441(4) 2,818 4,532 Wyman-Gordon 1991 160,492 22,832(4) 4,090 4,532 Investment Castings, Inc. (1) Consists of Company contributions to the Savings/Investment Plan described elsewhere in this report, group term life insurance premiums and, in the case of Mr. Leon in 1991, moving expense reimbursement and related income tax gross-up. (2) Salary stated represents payment for remainder of the year after becoming employed by the Company. (3) Mr. Leon's 1991 bonus was paid pursuant to contractual arrangements entered into at the time of his employment. (4) Mr. Thys' bonuses were paid pursuant to a profit-sharing plan covering all employees of Wyman-Gordon Investment Castings, Inc.
The table below presents information with respect to stock options ("Options") granted during 1993 to the Chief Executive Officer and those executive officers named in the Summary Compensation Table who received Options pursuant to the terms of the 1991 Long-Term Incentive Plan (the "Option Plan"). No options were granted to Mr. Thys in 1993. No stock appreciation rights ("SARs") are attached to the Options granted in 1993. OPTION GRANTS IN 1993
% OF TOTAL POTENTIAL REALIZABLE OPTIONS VALUE AT GRANTED TO ASSUMED ANNUAL NUMBER EMPLOYEES RATE OF STOCK OF IN EXERCISE EXPIRA- PRICE APPRECIATION OPTIONS FISCAL PRICE(PER TION FOR OPTION TERM NAME GRANTED YEAR SHARE)(1) DATE 5% 10% ---- ------- ---------- --------- ------- -------- -------- J.M. Nelson 25,000 8.8 $5.125 10/19/03 $ 80,577 $204,198 D.P. Gruber 50,000 17.5 5.125 10/19/03 161,154 408,397 L.E. Leon 6,000 2.1 5.125 10/19/03 19,339 49,008 W.F. Whitney, Jr. 6,000 2.1 5.125 10/19/03 19,339 49,008 S.N. Shah 6,000 2.1 5.125 10/19/03 19,339 49,008 (1) Exercise price of each option grant was equal to the market price of the Shares on the date of grant.
-17- 19 The following table relates to aggregate grants of Options and SARs under the Option Plan and the 1975 Executive Long-Term Incentive Program, which expired on December 31, 1992 and under which no additional grants may be made. AGGREGATED OPTION/SAR EXERCISES IN 1993 AND 12/31/93 OPTION/SAR VALUES
VALUE OF NUMBER OF UNEXERCISED UNEXERCISED IN-THE-MONEY NUMBER OPTIONS/SARS OPTIONS/SARS OF SHARES AT 12/31/93 AT 12/31/93(1) ACQUIRED VALUE (EXERCISABLE/ (EXERCISABLE/ NAME ON EXERCISE REALIZED UNEXERCISABLE) UNEXERCISABLE) ---- ----------- -------- -------------- -------------- J.M. Nelson - - 216,667/158,333 $ -/- D.P. Gruber - - 81,667/113,333 58,334/29,333 L.E. Leon - - 43,666/43,334 23,333/11,734 W.F. Whitney, Jr. - - 43,666/43,334 29,333/14,667 S.N. Shah - - 49,798/36,667 29,333/14,667 E.C. Thys - - 6,994/7,418 2,340/1,199 (1) The value of an SAR attached to an Option granted prior to 1992 is equal to 80% of the excess of the fair market value of a Share on the date of exercise over the exercise price of such Option.
PENSION BENEFITS All salaried employees and executive officers of the Company participate in a defined benefit pension plan (the "Pension Plan"). Under the terms of the Pension Plan each eligible employee receives a retirement benefit based on the number of years of his or her credited service (to a maximum 35 years) and average annual total earnings (salary plus incentive bonus only) for the five consecutive most highly paid years during the ten years preceding retirement. In addition, with the exception of Messrs. Nelson and Thys, the executive officers covered by the Summary Compensation Table and certain other key executives designated by the Committee are eligible to receive benefits under the Supplemental Retirement Plan for Senior Executives (the "Supplemental Pension Plan"). Under the Supplemental Pension Plan, participants who have been employed by the Company for at least 15 years and who retire on or after their 62nd birthday receive an annual pension which, when added to other retirement benefits received from the Company, totals 50% of their highest average annual earnings during any preceding 60-consecutive-month period. This supplemental benefit is reduced if the participant has been employed for less than 15 years or retires prior to age 62 and may be further reduced by certain other income benefits payable to participants. Benefits under the Pension Plan are not offset for Social Security payments but Supplemental Pension Plan benefits are offset for such payments. If the Committee so determines, payments under the Supplemental Pension Plan may be terminated if a retired participant becomes "substantively employed," as defined in the Supplemental Pension Plan, by another employer before age 65. The following table indicates the aggregate estimated annual benefits payable, as single life annuity amounts, under both the Pension Plan and the Supplemental Pension Plan to participants retiring in various categories of earnings and years of service. To the extent that an annual retirement benefit exceeds the limit imposed by the Code, the difference will be paid from the general operating funds of the Company. As of December 31, 1993, the individuals named in the Summary Compensation Table had full credited years of service with the Company as follows: Mr. Nelson, 2; Mr. Gruber, 2; Mr. Leon, 2; Mr. Whitney, 2; Mr. Shah, 18; and Mr. Thys, 35. -18- 20 PENSION BENEFITS
YEARS OF SERVICE -------------------------------------------------------------- REMUNERATION 10 16 25 38 - - ------------ -------- -------- -------- -------- $125,000 $ 50,000 $ 62,500 $ 62,500 $ 62,500 150,000 60,000 75,000 75,000 75,000 175,000 70,000 87,500 87,500 87,500 200,000 80,000 100,000 100,000 100,118 225,000 90,000 112,500 112,500 113,243 250,000 100,000 125,000 125,000 126,368 300,000 120,000 150,000 150,000 152,618 400,000 160,000 200,000 200,000 205,118
SAVINGS/INVESTMENT PLAN All full-time salaried employees with at least one year's service with the Company may participate in the Savings/Investment Plan (the "S/I Plan"). Participating employees may through payroll deductions make a basic contribution of up to five percent of their covered compensation and a supplemental contribution of up to an additional ten percent of their covered compensation. The Company currently contributes an amount equal to 50% of participant's basic contribution. The Company's contributions are made in the form of Shares. The right of a participant with less than five years of Company service to such Company contributions vests at the rate of 20% per year. Supplemental employee contributions beyond the five percent limit, when made, receive no matching Company contributions. The S/I Plan allows participants to take advantage of Section 401(k) of the Internal Revenue Code by realizing a federal income tax deferral through a voluntary salary reduction and equivalent contribution by the Company to the participant's special S/I Plan account for that purpose. Such tax-deferred savings are not available for withdrawal by an employee before age 59 1/2 except in circumstances of financial hardship. A participant may elect deductions for regular savings and tax-deferred savings in any combination not exceeding fifteen percent of the participant's covered compensation, provided, however, that tax-deferred savings may not exceed $9,240 in 1994. Participants currently have a choice of six investment funds and may allocate both their personal and Company contributions and earnings as they wish among them. They include Income Accumulation, Growth Stock, S&P 500 Stock, U.S. Treasury and Asset Allocation Funds and a Wyman-Gordon Stock Fund that invests primarily in Shares. A participant retiring under a Company retirement income plan may elect among several methods of distribution of his S/I Plan account. The S/I Plan is administered by the Savings/Investment Plan Committee, whose members are appointed by the Chief Executive Officer. AGREEMENTS WITH MANAGEMENT In addition to the employment agreement with John M. Nelson described in "- Compensation Committee Report - Base Salaries," the Company has entered into agreements with each of its executive officers, other than Messrs. Nelson and Thys, that would provide such officers with specified benefits in the event of termination of employment within three years following a change of control of the Company when both employment termination and such change in control occur under conditions defined in the agreements. Such benefits include a payment equal to a maximum of 250% of the executive officer's annual compensation, continuation of insurance coverages for up to twenty-four months following termination and accelerated vesting of existing options and stock appreciation rights. No benefits are payable under the agreements in the event of an executive officer's termination for cause, in the event of retirement, disability or death or in cases of voluntary termination in circumstances other than those specified in the agreements that would entitle an executive officer to benefits. -19- 21 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The response to Item 12. - Security Ownership of Certain Beneficial Owners and Management incorporates by reference the information under the caption "Executive Compensation" included in the Company's response to Item 11 above. BENEFICIAL OWNERSHIP OF SHARES The following table shows as of March 28, 1994 information with respect to holdings of Shares by shareholders beneficially owning 5% or more of all outstanding Shares and the Company's directors and executive officers. As of March 28, 1994, there were 18,025,718 Shares outstanding. The Shares are the only class of the Company's stock outstanding.
SHARES NAME AND ADDRESS OF BENEFICIALLY EXERCISABLE PERCENT BENEFICIAL OWNERS(1) OWNED OPTIONS OF CLASS(2) - - -------------------- ------------ ----------- ----------- The Stoddard Charitable Trust(3) 1,665,080 9.2% 340 Main Street Worcester, MA 01608 George F. & Sybil H. Fuller 3,369,344 18.7% Foundation(5) 730 Main Street P.O. Box 252 Boylston, MA 01505 Directors & Officers: E. Paul Casey 5,000 Warner S. Fletcher(3)(4) 2,736,524 15.2% Robert G. Foster 200 Russell E. Fuller(5) 3,374,344 18.7% David P. Gruber 984 81,667 M Howard Jacobson 1,000 Judith S. King(3) 2,139,629 11.9% Luis E. Leon 2,801 43,666 George S. Mumford, Jr. 88,904 John M. Nelson 52,000 216,667 Sanjay N. Shah 1,708 49,798 Jon C. Strauss 1,200 Edouard C. Thys(6) 34,582 6,994 Wallace F. Whitney, Jr. 1,549 43,666 Charles A. Zraket 6,000 All directors and executive officers as a group 6,603,161 445,140 39.2% _____________ (1) The address of all directors and executive officers is Wyman-Gordon Company, 244 Worcester Street, North Grafton, MA 01536. (2) Unless otherwise indicated, less than one percent; includes exercisable options. (3) Warner S. Fletcher and Judith S. King are two of the five trustees of The Stoddard Charitable Trust (the "Stoddard Trust") and the Shares beneficially owned by the Stoddard Trust are therefore reported in the above table. Mr. Fletcher and Mrs. King disclaim any beneficial interest in the Shares beneficially owned by the Stoddard Trust. (4) Mr. Fletcher is a trustee of the Fletcher Foundation, which holds 378,350 Shares and of other trusts that hold 179,880 Shares for the benefit of Judith S. King and her sister, who are his cousins, and the Shares beneficially owned by the Fletcher Foundation and by such trusts are therefore reported in the above table. Mr. Fletcher disclaims beneficial ownership of such Shares.
-20- 22 [FN] (5) Russell E. Fuller is one of seven trustees of the George F. and Sybil H. Fuller Foundation (the "Fuller Foundation") and the Shares beneficially owned by the Fuller Foundation are therefore reported in the above table. Mr. Fuller disclaims any beneficial ownership in the Shares beneficially owned by the Foundation. (6) Mr. Thys has retired from the Company and is no longer a director. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The response to Item 13. - Certain Relationships and Related Transactions incorporates by reference the information under the captions "Nominees for Three-Year Term" and "Continuing Directors" included in the Company's response to Item 10 above and the information under the captions "Compensation Committee Report" and "Agreements with Management" included in the Company's response to Item 11 above. -21- 23 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K EXHIBITS The exhibit listing required by Item 601 of Regulation S-K is included on page E-1. FINANCIAL STATEMENTS The following financial statements, together with the report thereon of Ernst & Young dated February 11, 1994 appearing in the 1993 Annual Report are incorporated by reference in this Form 10-K: Consolidated Statements of Operations and Retained Earnings Consolidated Balance Sheets Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements SCHEDULES The following additional financial data should be read in conjunction with the consolidated financial statements in the 1993 Annual Report. Schedules other than those listed below have been omitted because they are inapplicable or are not required.
PAGE ---- V - Property, Plant and Equipment S-1 VI - Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment S-2 VIII - Valuation and Qualifying Accounts S-3 IX - Short-term Borrowings S-4 X - Supplementary Income Statement Information S-4
REPORTS ON FORM 8-K No reports on Form 8-K were filed with the Commission during the fourth quarter of 1993. -22- 24 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of Wyman-Gordon Company and Subsidiaries of our report dated February 11, 1994, included in the 1993 Annual Report. Our audits also included the financial statement schedules of Wyman-Gordon Company listed in Item 14. These schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the Registration Statements (Form S-8, File Numbers 2-56547, 2-75980, 33-26980 and 33-48068) pertaining to the Wyman-Gordon Company Executive Long-Term Incentive Program (1975) - Amendment No. 6, the Wyman-Gordon Company Stock Purchase Plan, the Wyman-Gordon Company Savings/Investment Plan and the Wyman-Gordon Company Long-Term Incentive Plan and in the related Prospectuses of our report dated February 11, 1994, with respect to the consolidated financial statements of Wyman-Gordon Company and Subsidiaries incorporated by reference in the Annual Report (Form 10-K) for the years ended December 31, 1993 and 1992. Worcester, Massachusetts ERNST & YOUNG March 28, 1994 -23- 25 REPORT OF INDEPENDENT ACCOUNTANTS Our report on the consolidated financial statements of Wyman-Gordon Company and Subsidiaries has been incorporated by reference in this Form 10-K from page 18 of the 1991 Annual Report to Shareholders of Wyman-Gordon Company. In connection with our audits of such financial statements, we have also audited the related financial statement schedules listed in Item 14 on page 22 of this Form 10-K. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects, the information required to be included therein. Boston, Massachusetts COOPERS & LYBRAND February 19, 1992 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Wyman-Gordon Company on Forms S-8 (File Numbers 2-56547, 2-75980, 33-26980 and 33-48068) of our report dated February 19, 1992, on our audit of the consolidated financial statements and financial statement schedules of Wyman-Gordon Company as of December 31, 1991, and for the year then ended, which report is included or incorporated by reference in this Annual Report on Form 10-K. Boston, Massachusetts COOPERS & LYBRAND March 28, 1994 -24- 26 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 (REGISTRANT) By /s/ LUIS E. LEON March 30, 1994 --------------------------------------- -------------- Luis E. Leon Date Vice President - Finance and Treasurer Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ JOHN M. NELSON Chief Executive Officer March 30, 1994 - - -------------------------------- and Chairman of the -------------- John M. Nelson Board of Directors Date /s/ DAVID P. GRUBER President, Chief Operating March 30, 1994 - - -------------------------------- Officer and Director -------------- David P. Gruber Date /s/ LUIS E. LEON Vice President, Finance and March 30, 1994 - - -------------------------------- Treasurer and Principal Financial -------------- Luis E. Leon Officer Date /s/ JEFFREY B. LAVIN Manager, Corporate Accounting March 30, 1994 - - -------------------------------- and Principal Accounting Officer -------------- Jeffrey B. Lavin Date /s/ E. PAUL CASEY Director March 30, 1994 - - -------------------------------- -------------- E. Paul Casey Date /s/ WARNER S. FLETCHER Director March 30, 1994 - - -------------------------------- -------------- Warner S. Fletcher Date /s/ ROBERT G. FOSTER Director March 30, 1994 - - -------------------------------- -------------- Robert G. Foster Date /s/ RUSSELL E. FULLER Director March 30, 1994 - - -------------------------------- -------------- Russell E. Fuller Date /s/ M HOWARD JACOBSON Director March 30, 1994 - - -------------------------------- -------------- M Howard Jacobson Date /s/ JUDITH S. KING Director March 30, 1994 - - -------------------------------- -------------- Judith S. King Date /s/ GEORGE S. MUMFORD, JR. Director March 30, 1994 - - -------------------------------- -------------- George S. Mumford, Jr. Date /s/ JON C. STRAUSS Director March 30, 1994 - - -------------------------------- -------------- Jon C. Strauss Date /s/ CHARLES A. ZRAKET Director March 30, 1994 - - -------------------------------- -------------- Charles A. Zraket Date
-25- 27 WYMAN-GORDON COMPANY AND SUBSIDIARIES SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT (000's omitted)
BALANCE AT BEGINNING OTHER BALANCE OF RETIRE- CHANGES AT CLOSE DESCRIPTION PERIOD ADDITIONS MENTS ADD(DEDUCT) OF PERIOD ----------- ---------- --------- ------- ----------- --------- 1993 ----------------------------------------------------------------------- Land $ 2,463 $ - $ - $ - $ 2,463 Land Improvements 2,930 4 - - 2,934 Buildings 63,696 2,652 - (1,182)(2) 65,166 Machinery & Equipment 244,189 10,050 3,791 (286)(1) 246,311 (3,851)(2) Construction in Progress 8,746 1,160 - (1,361)(1) 8,545 -------- -------- -------- --------- -------- $322,024 $ 13,866 $ 3,791 $ (6,680) $325,419 ======== ======== ======== ========= ======== 1992 ----------------------------------------------------------------------- Land $ 2,463 $ - $ - $ - $ 2,463 Land Improvements 2,930 - - - 2,930 Buildings 62,562 1,492 358 - 63,696 Machinery & Equipment 256,713 9,812 22,520 184 (1) 244,189 Construction in Progress 10,642 (148) - (1,748)(1) 8,746 -------- -------- -------- --------- -------- $335,310 $ 11,156 $ 22,878 $ (1,564) $322,024 ======== ======== ======== ========= ======== 1991 ----------------------------------------------------------------------- Land $ 3,863 $ - $ 195 $ (974)(1) $ 2,463 (231)(2) Land Improvements 3,851 10 - (32)(1) 2,930 (899)(2) Buildings 80,616 1,620 663 (10,130)(1) 62,562 (8,881)(2) Machinery & Equipment 345,633 8,612 3,727 (23,450)(1) 256,713 (70,355)(2) Construction in Progress 14,651 (50) - (3,801)(1) 10,642 (158)(2) -------- -------- -------- --------- -------- $448,614 $ 10,192 $ 4,585 $(118,911) $335,310 ======== ======== ======== ========= ======== Depreciation and amortization methods and useful lives are included in Note A to the 1993 Annual Report (Summary of significant accounting policies). (1) Represents the disposal and write-down of non-productive assets to their estimated net realizable value and the sale of certain assets in connection with the restructuring of the Company's operations. (2) Disposals related to the sale of the Danville, Illinois operation, Wyman-Gordon Composites, Inc. and liquidation of the Jackson, Michigan operation.
S-1 28 WYMAN-GORDON COMPANY AND SUBSIDIARIES SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT (000's omitted)
BALANCE AT BEGINNING OTHER BALANCE OF RETIRE- CHANGES AT CLOSE DESCRIPTION PERIOD ADDITIONS MENTS ADD(DEDUCT) OF PERIOD ----------- ---------- --------- ------- ----------- --------- 1993 ----------------------------------------------------------------------- Land $ 99 $ - $ - $ - $ 99 Land Improvements 2,111 106 - - 2,217 Buildings 41,355 2,157 - (1,131)(2) 42,381 Machinery & Equipment 175,779 12,158 3,444 (2,115)(2) 182,378 -------- -------- -------- --------- -------- $219,344 $ 14,421 $ 3,444 $ (3,246) $227,075 ======== ======== ======== ========= ======== 1992 Land $ 99 $ - $ - $ - $ 99 Land Improvements 1,994 117 - - 2,111 Buildings 39,407 2,185 237 - 41,355 Machinery & Equipment 183,410 12,357 19,835 (153)(1) 175,779 -------- -------- -------- --------- -------- $224,910 $ 14,659 $ 20,072 $ (153) $219,344 ======== ======== ======== ========= ======== 1991 Land $ 99 $ - $ - $ - $ 99 Land Improvements 2,437 176 - (619)(2) 1,994 Buildings 39,224 3,537 217 (3,137)(2) 39,407 Machinery & Equipment 220,763 20,483 2,356 (322)(1) 183,410 (55,158)(2) -------- -------- -------- --------- -------- $262,523 $ 24,196 $ 2,573 $ (59,236) $224,910 ======== ======== ======== ========= ======== Depreciation and amortization methods and useful lives are included in Note A to the 1993 Annual Report (Summary of significant accounting policies). (1) Represents the disposal and write-down of non-productive assets to their estimated net realizable value in connection with the restructuring of the Company's operations. (2) Disposals related to the sale of the Danville, Illinois operation, Wyman-Gordon Composites, Inc. and liquidation of the Jackson, Michigan operation.
S-2 29 WYMAN-GORDON COMPANY AND SUBSIDIARIES SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS (000's omitted) ADDITIONS
BALANCE AT CHARGED BEGINNING CHARGED TO TO OTHER BALANCE OF COSTS AND ACCOUNTS DEDUCTIONS- AT END DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD - - ----------- ---------- ---------- -------- ----------- --------- 1993 ------------------------------------------------------------------------------ Accumulated Amortization of Goodwill $6,482 $1,148 - - $ 7,630 ====== ====== ======= ======= ======= 1992 ------------------------------------------------------------------------------ Accumulated Amortization of Goodwill $5,266 $1,216 - - $ 6,482 ====== ====== ======= ======= ======= 1991 ------------------------------------------------------------------------------ Accumulated Amortization of Goodwill $4,143 $1,123 - - $ 5,266 ====== ====== ======= ======= =======
S-3 30 WYMAN-GORDON COMPANY AND SUBSIDIARIES SCHEDULE IX - SHORT TERM BORROWINGS (000's omitted)
MAXIMUM AVERAGE WEIGHTED CATEGORY OF BALANCE WEIGHTED AMOUNT AMOUNT AVERAGE AGGREGATE AT AVERAGE OUTSTANDING OUTSTANDING INTEREST SHORT-TERM END OF INTEREST DURING DURING RATE DURING BORROWINGS PERIOD RATE THE PERIOD THE PERIOD THE PERIOD - - ----------- ------- -------- ----------- ----------- ----------- 1993 ------------------------------------------------------------------------------- None - - - - - ======= ======= ======= ======= ======= 1992 ------------------------------------------------------------------------------- Bank Loans - - $33,000 $ 9,333 10.0% ======= ======= ======= ======= ======= 1991 ------------------------------------------------------------------------------- Commercial Paper - - $31,375 $ 9,473 8.6% ======= ======= ======= ======= ======= Bank Loans $26,500 10.7% $41,000 $23,857 9.2% ======= ======= ======= ======= =======
Commercial paper represents paper sold by Wyman-Gordon Company. Bank loans are evidenced by renewable 90-day notes bearing interest at money market rates. The maximum and average amounts outstanding during the period were computed using month-end balances. The weighted average interest rates during 1992 and 1991 were calculated based upon the weighted average interest cost of borrowings throughout the year. Additional information is included in Note C to the 1993 Annual Report. SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
CHARGED TO COSTS ITEM AND EXPENSES (000's omitted) 1993 1992 1991 ---- ---- ---- Maintenance and repairs $12,374 $15,021 $20,233 ======= ======= =======
S-4 31 EXHIBIT INDEX
EXHIBIT PAGE - - ------- ---- 3A - Articles of Organization of Wyman-Gordon Company, as E-3 amended through October 25, 1989. 3B - Bylaws of Wyman-Gordon Company, as amended through E-4 December 15, 1993. 4A - Amended and Restated Rights Agreement, dated as of - January 10, 1994 between the Company and State Street Bank & Trust Company, as Rights Agent - incorporated by reference to Exhibit 1 to the Company's Report on Form 8-A/A dated January 21, 1994. 4B - Indenture dated as of March 16, 1993 among Wyman-Gordon - Company, its Subsidiaries and State Street Bank and Trust Company as Trustee with respect to Wyman-Gordon Company's 10.75% Senior Notes due 2003 - incorporated by reference to Exhibit 4C to the Company's Report on Form-10K for the year ended December 31, 1992. 4C - Instruments defining the rights of holders of long-term - debt are omitted pursuant to paragraph (b)(4)(iii) of Regulation S-K Item 601. The Company agrees to furnish such instruments to the Commission upon request. 10A - Wyman-Gordon Company Executive Long-Term Incentive - Program, as amended February 17, 1988 - incorporated by reference to Appendix A to the Company's Proxy Statement dated March 25, 1988. 10B - Wyman-Gordon Company Long-Term Incentive Plan - - incorporated by reference to Appendix A to the Company's Proxy Statement dated April 1, 1992. 10C - John M. Nelson employment agreement dated May 21, 1991 - - incorporated by reference to Exhibit 10C to the Company's Report on Form 10-K for the year ended December 31, 1991. 10D - David P. Gruber executive severance agreement dated - October 16, 1991 - incorporated by reference to Exhibit 10G to the Company's Report on Form 10-K for the year ended December 31, 1991. 10E - Luis E. Leon executive severance agreement dated - July 12, 1991 - incorporated by reference to Exhibit 10I to the Company's Report on Form 10-K for the year ended December 31, 1991. 10F - Sanjay N. Shah executive severance agreement dated - July 12, 1991 - incorporated by reference to Exhibit 10I to the Company's Report on Form 10-K for the year ended December 31, 1991. 10G - Wallace F. Whitney executive severance agreement dated - July 12, 1991 - incorporated by reference to Exhibit 10L to the Company's Report on Form 10-K for the year ended December 31, 1991. 10H - Raymond L. Raboin executive severance agreement dated - May 13, 1992 - incorporated by reference to Exhibit 10.9 to the Company's Registration Statement on Form S-2 as filed with the Securities and Exchange Commission on December 11, 1992.
E-1 32
EXHIBIT PAGE - - ------- ---- 10I - Financing Agreement dated March 8, 1993 among the CIT - Group/Business Credit Inc., Wyman-Gordon Company, Wyman-Gordon Composites, Inc. and Scaled Composites, Inc. 10J - Consent Release and First Amendment dated November 2, E-5 1993 to the Financing Agreement dated March 8, 1993 among CIT Group/Business Credit Inc., Wyman-Gordon Company, Wyman-Gordon Composites, Inc., Wyman-Gordon Investment Castings, Inc., Precision Founders, Inc., Wyman-Gordon Composite Technologies, Inc., Wyman-Gordon Fisc, Ltd., Reisner metals, Inc., W-G Rome Corporation, Wyman-Gordon Securities Corporation and Scaled Composites, Inc. 10K - Waiver and Second Amendment dated January 27, 1994 to E-6 the Financing Agreement dated March 8, 1993 among CIT Group/Business Credit Inc., Wyman-Gordon Company, Wyman-Gordon Composites, Inc., Wyman-Gordon Investment Castings, Inc., Precision Founders, Inc., Wyman-Gordon Composite Technologies, Inc., Wyman-Gordon Fisc, Ltd., Reisner metals, Inc., W-G Rome Corporation, Wyman-Gordon Securities Corporation and Scaled Composites, Inc. 10L - Purchase and Sale Agreement between Wyman-Gordon Company - and Krupp Gerlach Crankshaft Company dated as of May 29, 1991 - incorporated by reference to Exhibit 10.15 to the Company's Registration Statement on Form S-2 as filed with the Securities and Exchange Commission on March 9, 1993. 10M - Stock Purchase Agreement dated as of January 10, 1994 - between Cooper Industries, Inc. and the Company incorporated by reference to Annex A to the Company's preliminary Proxy Statement filed with the Securities and Exchange Commission on March 8, 1994. 10N - Investment Agreement dated as of January 10, 1994 - between Cooper Industries, Inc. and the Company incorporated by reference to Annex B to the Company's preliminary Proxy Statement filed with the Securities and Exchange Commission on March 8, 1994. 13 - 1993 Annual Report (such report, except for those E-7 portions thereof which are expressly incorporated by reference in this Report on Form 10-K, is furnished for the information of the Commission and is not to be deemed "filed" as part of the Company's Report on Form 10-K). 16 - Letter regarding change in certifying accountants - - incorporated by reference to Exhibit 16.1 to the Company's Registration Statement on Form S-2 filed with the Securities and Exchange Commission on December 11, 1992. 22 - List of Subsidiaries E-8 24A - Consent of Ernst & Young 23 24B - Consent of Coopers & Lybrand 24
NOTE: Exhibits not physically located in this Form 10-K can be obtained from the Company upon written request to the Assistant Clerk at the address on the cover of this Form 10-K at a cost of $.25 per page. E-2 EX-3.A 2 ARTICLES OF ORGANIZATION 1 EXHIBIT 3.A ARTICLES OF ORGANIZATION As Amended October 25, 1989 ________________________________________________________________________ THE COMMONWEALTH OF MASSACHUSETTS 1. The name by which the corporation shall be known is Wyman-Gordon Company. 2. The purposes for which the corporation is formed are as follows: forgings, forgings of all kinds, castings, machinery, tools, metal work of any kind and any and all things made in whole or in part from metals. To carry on a general forging business. To carry on a general manufacturing business and to do all things necessary or incidental to any of the above purposes or powers. To carry on the general business of merchants and dealers in any or all things manufactured by the company or used or acquired in connection with such manufacture. To acquire personal property of any kind and any amount, and real property, so far as the same may be necessary or desirable in connection with any of the foregoing powers, and to sell, mortgage, pledge, lease or otherwise dispose of such personal and real property. To acquire, hold, use, sell and deal in patented articles, patent rights, patents, licenses under patents, trade-marks, trade names, processes and formulae. To acquire, hold and dispose of its own stock and securities and stocks, bonds or securities of any other corporations and associations. To carry on the business heretofore conducted by the Wyman and Gordon Company, a Massachusetts corporation. To do any and all acts desirable in connection with or incidental to any of the above powers or purposes or calculated to enhance the value of the company's business or property. 3.(a) The total number of shares of Common Stock which the Company is authorized to issue is Thirty-five Million (35,000,000) having a par value of one dollar ($1.00) per share. (b) The total number of shares of Preferred Stock which the Company is authorized to issue is Five Million (5,000,000) having no par value. 4. If more than one class is authorized, a description of each of the different classes of stock with, if any, the preferences, voting powers, qualifications, special or relative rights or privileges as to each class thereof and any series now established: Shares of Preferred Stock may be issued from time to time in one or more series, each such series to have such distinctive designation or title as may be fixed by the Board of Directors prior to the issuance of any shares of such series. Each such series of Preferred Stock shall have such preferences, voting powers, qualifications, restrictions, and special or 2 relative rights or privileges, and to the fullest extent now or hereafter permitted under Massachusetts law, as shall be stated in such resolution or resolutions providing for the issuance of shares of Preferred Stock as may be adopted from time to time by the Board of Directors in accordance with the laws of the Commonwealth of Massachusetts. 5. The restrictions, if any, imposed by the articles of organization upon the transfer of shares of stock of any class are as follows: None. 6.(a) The Board of Directors may make, amend or repeal the Bylaws in whole or in part except with respect to any provision thereof which by law the Articles of Organization or the Bylaws requires action by the Stockholders. (b) No director of the Company shall have any personal liability to the Company or its Stockholders for monetary damages for breach of fiduciary duty as a director notwithstanding any provision of law imposing such liability; provided, however, that this Article 6(b) shall not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the Company or its Stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 61 or 62 of Chapter 156B of the Massachusetts General Laws, or (iv) for any transaction from which the director derived an improper personal benefit. The preceding sentence shall not eliminate or limit the liability of a director for any act or omission occurring prior to the date upon which this Article 6(b) becomes effective. No amendment to or repeal of this Article 6(b) shall apply to or have any effect on the elimination pursuant hereto of liability or alleged liability of any director of the Company for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. Nothing in this Article 6(b) shall limit any lawful right to indemnification existing independently of this Article. (c) No Business Combination (as hereinafter defined) shall be consummated or effected unless such Business Combination shall have been approved by the affirmative vote of the holders of not less than eighty-five percent (85%) of the total voting power of all outstanding shares of voting stock of the Company, voting as a single class. Such vote shall be required notwithstanding the fact that no vote for such a transaction may be required by law or that approval by some lesser percentage of stockholders may be specified by law or in any agreement with any national -2- 3 securities exchange or otherwise; provided, however, that such eighty-five percent (85%) vote shall not be required, and the provisions of Massachusetts law relating to the vote required for the approval of stockholders, if any, shall apply to any such Business Combination if either of the following conditions is satisfied: 1. The aggregate amount of the cash and the Fair Market Value (as hereinafter defined) of the property, securities or other consideration to be received per share of capital stock of the Company incident to the consummation of such Business Combination by a holder of such stock, other than an Interested Stockholder (as hereinafter defined) involved in such Business Combination, is not less than the highest of (a) the Highest Per Share Price or the Highest Equivalent Price (as those terms are hereinafter defined), paid by such Interested Stockholder in acquiring any of its holdings of the Company's capital stock during the five-year period preceding the announcement of such Business Combination; (b) a price that includes the same or a greater premium over the market price of such capital stock immediately prior to the announcement of such Business Combination as the greatest premium over market price paid by such Interested Stockholder in the purchase of any shares of any class of the Company's capital stock during the five-year period preceding the announcement of such Business Combination; or (c) the Highest Per Share Price or the Highest Equivalent Price that such Interested Stockholder shall, during the five-year period preceding the announcement of such Business Combination, have offered to the stockholders of the Company for any shares of the Company's capital stock or indicated in writing that it would be prepared to offer under specified conditions; or 2. The Continuing Directors (as hereinafter defined) shall have expressly approved such Business Combination by a two-thirds vote either in advance of or subsequent to the acquisition of outstanding shares of capital stock of the Company that caused the Interested Stockholder involved to become an Interested Stockholder. In determining whether or not to approve any such Business Combination, the Continuing Directors may give due consideration to all factors they consider relevant, including without limitation (a) the long-term and short-term effects on the profitability of the Company, (b) its social, legal, environmental and economic effects, both short-term and long-term, on the employees of the Company and its subsidiaries and on the communities and the geographic areas in which the Company and its subsidiaries operate or are located, and on any of the business and properties of the Company and its subsidiaries, and (c) the adequacy -3- 4 of the consideration offered in relation not only to the current market price of the Company's outstanding securities, but also to the current value of the Company in a freely negotiated transaction and the Continuing Directors' estimate of the Company's future value (including the unrealized value of its properties and assets) as an independent going concern. (d) Prior to the consummation of any Business Combination and prior to any vote of the Company's stockholders under Section (c) of this Article 6, a proxy statement or information statement complying with the requirements of the Securities Exchange Act of 1934, as amended, shall have been mailed to all stockholders of the Company for the purpose of informing the Company's stock- holders about such proposed Business Combination and, if their approval is required by Section (c) of this Article 6, for the purpose of soliciting stockholder approval of such Business Combination. Such proxy statement or information statement shall contain at the front thereof, in a prominent place, a statement by the Continuing Directors of their position on the advisability (or inadvisability) of the proposed Business Combination. (e) For the purpose of Sections (c), (d), (e) and (f) of this Article 6: 1. The term "Business Combination" shall mean (a) any merger, consolidation or share exchange of the Company or any of its subsidiaries with or into an Interested Stockholder, in each case irrespective of which corpora- tion or company is to be the surviving entity; (b) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with an Interested Stockholder (in a single transaction or a series of related transactions) of all or a substantial part of the assets of the Company (including without limitation any securities of a subsidiary of the Company) or all or a substantial part of the assets of any of its subsidiaries; (c) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the Company, or to or with any of its subsidiaries (in a single transaction or series of related transactions) of all or a substantial part of the assets of an Interested Stockholder; (d) the issuance or transfer by the Company or any of its subsidiaries of any securities of the Company or any of its subsidiaries to an Interested Stockholder (other than an issuance or transfer of securities which is effected on a pro-rata basis to all stockholders of the Company); (e) any acquisition by the Company or any of its subsidiaries of any securities issued by an Interested Stockholder; (f) any recapitalization or reclassification of shares of any class of voting stock of the -4- 5 Company or any merger or consolidation of the Company with any of its subsidiaries which would have the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of capital stock of the Company (or any securities convertible into any class of such capital stock) owned by any Interested Stockholder; (g) any merger or consolidation of the Company with any of its subsidiaries after which the provisions of Sections (c), (d), (e) and (f) of this Article 6 shall not appear in the articles of organization (or the equivalent charter documents) of the surviving entity; (h) any plan or proposal for the liquidation or dissolution of the Company; and (i) any agreement, contract or other arrangement providing for any of the transactions described in this definition of Business Combination. 2. The term "Interested Stockholder" shall mean any individual, corporation, partnership or other person or entity which, as of the record date for the determination of stockholders entitled to notice of and to vote on any Business Combination, or immediately prior to the consummation of any such Business Combination, is a "Beneficial Owner" (as defined in Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934 as in effect at the date of the adoption of the provisions contained in Sections (c), (d), (e) and (f) of this Article 6 by the stockholders of the Company) (the "Exchange Act") of shares of any class or series of capital stock of the Company which, when combined with the shares of such class or series of stock of which any "Affiliates" or "Associates" (as defined in Rule 12b-2 under the Exchange Act) of such individual, corporation, partnership or other person or entity are Beneficial Owners, amount to ten percent (10%) or more of the outstanding shares of such class or series of stock and any Affiliate or Associate of any such Interested Stockholder. 3. The term "Continuing Director" shall mean any director of the Company who was a director on February 22, 1989, and any other director whose election as a director was recommended or approved by a majority of Continuing Directors. 4. Any action required to be taken by vote of the Continuing Directors shall be effective only if taken at a meeting at which a Continuing Director Quorum is present. A Continuing Director Quorum shall mean two-thirds of the Continuing Directors capable of exercising the powers conferred upon them under the provisions of these Articles of Organization or the Bylaws of the Company or by law. -5- 6 5. Whether or not any proposed sale, lease, exchange, mortgage, pledge, transfer or other disposition of part of the assets of any entity involves a "substantial part" of the assets of such entity shall be conclusively determined by a two-thirds vote of the Continuing Directors; provided, however, that any such determination shall be effective only if made at a meeting at which a Continuing Director Quorum was present; and provided further that assets involved in any single transaction or series of related transactions having an aggregate Fair Market Value of more than fifteen percent (15%) of the total consolidated assets of an entity and its subsidiaries as at the end of such entity's last full fiscal year prior to such determination shall always be deemed to constitute a "substantial part." 6. For the purposes of Subsection (1) of Section (c) of this Article 6, the term "other consideration to be received" shall include, without limitation, Common Stock or other capital stock of the Company retained by stockholders of the Company other than any Interested Stockholders or parties to such Business Combination in the event of a Business Combination in which the Company is the surviving corporation. 7. An "Interested Stockholder" shall be deemed to have acquired a share of the capital stock of the Company at the time when such Interested Stockholder became the Beneficial Owner thereof. With respect to shares owned by Affiliates or Associates of an Interested Stockholder or other persons whose ownership is attributed to an Interested Stockholder under the foregoing definition of Interested Stockholder, for purposes of Subsection 8 of this Section (e), such Interested Stockholder shall be deemed to have purchased such shares at the higher of (a) the price paid upon the acquisition thereof by the Affiliate, Associate or other person who owns such shares, or (b) the market price of the shares in question at the time when the Interested Stockholder became the Beneficial Owner thereof. 8. The terms "Highest Per Share Price" and "Highest Equivalent Price" shall mean the following: If there is only one class of capital stock of the Company issued and outstanding, the Highest Per Share Price shall mean the highest price that can be determined to have been paid or offered to be paid during the preceding five years by the Interested Stockholder involved for any share or shares of that class of capital stock. If there is more than one class of -6- 7 capital stock of the Company issued and outstanding, the Highest Equivalent Price shall mean with respect to each class and series of capital stock of the Company, the amount determined by two-thirds of the Continuing Directors, on whatever basis they believe to be appropriate, to be the highest per share price equivalent to the highest price that can be determined to have been paid or offered to be paid during the preceding five years by the Interested Stockholder involved or any Affiliate or Associate of such Interested Stockholder for any share or shares of any other class or series of capital stock of the Company. In determining the Highest Per Share Price and Highest Equivalent Price, all purchases by such Interested Stockholder or any such Affiliate or Associate shall be taken into account regardless of whether the shares were purchased before or after such Interested Stockholder became an Interested Stock- holder. The Highest Per Share Price and the Highest Equivalent Price shall include any brokerage commis- sions, transfer taxes and soliciting dealers' fees paid by such Interested Stockholder or any such Affiliate or Associate with respect to the shares of capital stock of the Company acquired by such Interested Stockholder or such Affiliate or Associate. In the event any Business Combination involving an Interested Stockholder shall be proposed, the Continuing Directors shall determine the Highest Equivalent Price for each class and series of the capital stock of the Company of which there are shares issued and outstanding. 9. The term "Fair Market Value" shall mean (a) in the case of stock, the highest closing sale price during the thirty day period immediately preceding the date in question of a share of such stock on the Composite Tape for New York Stock Exchange Listed Stocks, or, if such stock is not quoted on the Composite Tape, on the New York Stock Exchange, or if such stock is not listed on the New York Stock Exchange, or the principal United States securities exchange registered under the Exchange Act on which such stock is listed, or if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock during the thirty day period preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotations System or any system then in use, or, if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by a two-thirds vote of the Continuing Directors, and (b) in the case of property on the date in question as determined by a two-thirds vote of the Continuing Directors; provided, however, that any determination -7- 8 made by the Continuing Directors pursuant to this Subsection 9 shall be effective only if made at a meeting at which a Continuing Director Quorum was present; and provided further than in the event the number of Continuing Directors in office shall be less than a Continuing Director Quorum, any determination of fair market value that would otherwise be made by a vote of the Continuing Directors shall be made by a court of competent jurisdiction. (f) No proposal to amend or repeal Sections (c), (d), (e) or (f) of this Article 6 may be authorized and approved except by the affirmative vote of the holders of voting stock entitling them to exercise eighty-five percent (85%) of the voting power of the Company voting together as a class, unless required to vote separately by law or by other provisions of those Articles of Organization or by the terms of the stock entitling them to vote and, if a proposal upon which holders of shares of a particular class or classes are so required to vote separately, then by the affirmative vote of the holders of shares entitling them to exercise eighty-five percent (85%) of the voting power of each such class or classes; provided, however, that the provisions of this Section (f) shall not apply to any such amendment or repeal of this Article 6 that has been favorably recommended to the stockholders by resolution of the Board of Directors adopted by a two-thirds vote of the Continuing Directors at a meeting at which a Continuing Director Quorum was present, in which case any such amendment or repeal of Sections (c), (d), (e) or (f) of this Article 6 may be authorized and approved by the affirmative vote of such number of the holders of voting stock as may be required by law. -8- EX-3.B 3 BYLAWS 1 EXHIBIT 3.B BYLAWS December 31, 1993 ___________________________________________________________________________ ARTICLE I OFFICES 1. PRINCIPAL OFFICE The principal office for the transaction of the business of the Corporation shall be located in the City of Worcester, Commonwealth of Massachusetts. 2. OTHER OFFICES The Corporation may also establish offices at such other places, both within and without the Commonwealth of Massachusetts, as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II MEETING OF STOCKHOLDERS 1. PLACE OF MEETINGS All meetings of stockholders shall be held at the principal office of the Corporation or at any other place within the United States which may be (a) designated by the Board of Directors, or (b) consented to by the written consent of all stockholders entitled to vote thereat, given either before or after the meeting and filed with the Clerk of the Corporation. 2. ANNUAL MEETINGS Unless otherwise determined by the Board of Directors, the annual meeting of stockholders shall be held on the third Wednesday of April in each year at an hour fixed by the Board of Directors or the Chief Executive Officer. Should said third Wednesday in April fall upon a legal holiday and the Board of Directors not have established a different date for such annual meeting, however, said annual meeting shall be held at the same time and place on the next day thereafter ensuing which is not a legal holiday. At each such annual meeting Directors shall be elected, reports of officers of the Corporation shall be considered, and any other business may be transacted which is within the power of the stockholders. 3. SPECIAL MEETINGS Special meetings of the stockholders, for any purpose whatsoever, may be called at any time either by the Chief Executive Officer or by the Board of Directors, to be held at such a time as he or they may designate. In addition, a special meeting of the stockholders shall be called by the Clerk (or in the case of his death, absence, incapacity or refusal to act, by any other officer of the Corporation) upon written application of one or more stockholders holding not less than one-tenth of the issued and outstanding capital stock of the Corporation. The officer forthwith shall cause 2 notice to be given as provided in the next section that a meeting will be held at a time, fixed by the officer, not less than ten (10) nor more than sixty (60) days after the receipt of the request. 4. NOTICE OF MEETINGS The Clerk shall, not less than seven (7) days prior to any meeting of stockholders, give written notice to all stockholders, entitled to vote thereat, stating the place, date and hour of such meeting, and the purposes of the meeting. Such notice shall be given to any stockholder (a) by leaving such notice with the stockholder, or at his residence or usual place of business, or (b) by mail, postage prepaid, addressed to the stockholder at his address as it is shown upon the records of the Corporation. 5. QUORUM A majority of the shares of stock issued and outstanding and at the time entitled to vote represented at a meeting in person or by proxy shall constitute a quorum for the transaction of business except as otherwise provided in the Articles of Organization. 6. VOTING Each vote at a stockholders meeting shall be by voice vote or by ballot as determined by the officer presiding at the meeting; provided, however, that all elections for Directors must be by ballot upon demand made before the voting begins by a stockholder entitled to vote thereon. 7. PROXIES Every person entitled to vote or execute consents shall have the right to do so either in person or by one or more agents authorized by a written proxy executed by such person or his duly authorized agent and filed with the Clerk of the Corporation. A proxy with respect to stock held in the name of two or more persons shall be valid if executed by any one of them unless at or prior to exercise of the proxy the Corporation receives a specific written notice to the contrary from any one of them. A proxy purporting to be executed by or on behalf of a stockholder shall be deemed valid unless challenged at or prior to its exercise and the burden of proving invalidity shall rest on the challenger. 8. ADJOURNED MEETINGS AND NOTICE THEREOF Any meeting of stockholders, annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of a majority of the shares, the holders of which are either present in person or represented by proxy thereat, but in the absence of a quorum no other business may be transacted at such meeting. 2 3 When any meeting of stockholders, either annual or special, is adjourned for thirty (30) days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. Except as provided above, it shall not be necessary to give any notice of an adjournment or of the business to be transacted at an adjourned meeting, other than by announcement at the meeting at which such adjournment is taken. 9. ACTION WITHOUT MEETING Any action which may be taken at a meeting of stockholders, except approval of an agreement for merger or consolidation of the Corporation with other corporations, may be taken without a meeting if authorized by a writing signed by all of the persons who would be entitled to vote upon such action at a meeting, and filed with the Clerk of the Corporation. ARTICLE III DIRECTORS 1. POWERS Subject to limitations imposed by law or the Articles of Organization, all corporate powers shall be exercised by or under the authority of, and the business and affairs of the Corporation shall be controlled by, the Board of Directors. In the exercise of its powers, the Board may appoint an executive committee and other committees, and may delegate to the executive committee any of the powers and authority of the Board in the management of the business and affairs of the Corporation, except the powers expressly reserved to the Directors in Section 55 of the Massachusetts Business Corporation Law. The executive committee shall be composed of three or more Directors. 2. NUMBER AND CLASSIFICATION OF DIRECTORS The number of Directors of the Corporation shall not be less than seven nor more than thirteen, as determined from time to time by the Directors, and the number shall be nine until otherwise so determined. The Board of Directors shall be divided into three classes in respect of term of office, each class to contain as near as may be one-third of the whole number of the Board. Of the Board of Directors elected at the last annual meeting of stockholders held prior to the adoption of this Bylaw, the members of Class I shall serve until the annual meeting of stockholders held in the year following their election, the members of Class II shall serve until the annual meeting of stockholders held two years following their election, and the members of Class III shall serve until the annual meeting of stockholders held three years following their election; provided, however, that in each case Directors shall continue to serve until their successors shall be elected and shall qualify. At each annual meeting of stockholders following the adoption of this Bylaw, one class of Directors shall be elected to serve until the annual 3 4 meeting of stockholders held three years next following and until their successors shall be elected and shall qualify. If any annual meeting of stockholders is not held or Directors are not elected thereat, Directors may be elected at any special meeting of stockholders. Directors need not be stockholders of the Corporation. 3. VACANCIES In case a vacancy shall occur from any cause in the Board of Directors or in any other office, including action by the Directors to increase the number of Directors in accordance with Section 2 of this Article III, the remaining Directors then in office may elect a person to fill such vacancy for the balance of the term of the office vacated, except that, in the case of an increase in the number of Directors, such vacancy may be filled only until the next annual meeting of stockholders, at which time the vacancy shall be filled by vote of the stockholders. In case of a vacancy or vacancies in the Board of Directors being unfilled, the remaining Directors shall exercise all the powers of the Board. A vacancy in the Board of Directors shall be deemed to exist in the case of the death, resignation or removal of any Director, or if the authorized number of Directors is increased, or if the stockholders fail, at any annual or special meeting of stockholders at which any Director is elected, to elect the full authorized number of Directors to be voted for at that meeting. The Board of Directors may declare vacant the office of a Director if, within thirty (30) days after notice of his first election to the Board of Directors, he does not accept the office either in writing or by attending a meeting of the Board of Directors. The stockholders may elect a Director or Directors at any time to fill any vacancy or vacancies not filled by the remaining Director or Directors. If the Board of Directors accepts the resignation of a Director tendered to take effect at a future time, the Board, or if the Board has not acted, the stockholders, shall have the power to elect a successor to take office when the resignation is to become effective. 4. REMOVAL Any Director of the Corporation may be removed with or without cause at any regular meeting of the stockholders or at a special meeting called for the purpose, and by vote of the holders of a majority of the stock outstanding and entitled to vote, or may be removed with or without cause by the Board of Directors. 4 5 No reduction of the authorized number of Directors shall have the effect of removing any Director prior to the expiration of his term of office. 5. QUORUM A majority of the authorized number of Directors shall constitute a quorum of the Board for the transaction of business. Every act or decision done or made by a majority of the Directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the Board of Directors, unless a greater number be required by law. 6. PLACE OF DIRECTORS' MEETINGS Meetings of the Board of Directors shall be held at the principal office of the Corporation, or at any place within or without the Commonwealth of Massachusetts which has been designated from time to time by resolution of the Board or by written consent of all the members of the Board. 7. ORGANIZATION MEETINGS Immediately following each annual meeting of stockholders the Board of Directors shall hold a regular meeting for the purpose of organizing, electing officers, and transacting other business. No notice need be given of such meetings of the Board of Directors. 8. REGULAR MEETINGS Regular meetings of the Board of Directors shall be held at such day and hour as shall be from time to time determined by the Board. If said day shall fall upon a holiday, such meeting shall be held on the next succeeding business day thereafter. No notice need be given of such regular meetings of the Board of Directors. 9. SPECIAL MEETINGS Special meetings of the Board of Directors for any purpose or purposes shall be called by the Chief Executive Officer or, if he is absent or unable or refuses to act, by the President if the Chairman of the Board is the Chief Executive Officer, by any corporate Vice President, or by any two Directors. Written notice of the time and place of special meetings shall be delivered to each Director in person or by telephone, or sent to each Director by mail or other form of written communication, charges prepaid, addressed to him at his address as it is shown upon the records of the Corporation, or, if it is not so shown and if it is not readily ascertainable, addressed to him at the city or place where the meetings of the Directors are regularly held. Notices mailed or telegraphed shall be deposited in the United States mail or delivered to the telegraph company at the place where the principal office of the Corporation is located at least forty- 5 6 eight (48) hours prior to the time of the holding of the meeting; and notices given personally or by telephone shall be given at least twenty-four (24) hours prior to the time of the holding of the meeting. 10. NOTICE OF ADJOURNMENT Notice of the time and place of holding an adjourned meeting need not be given to absent Directors if the time and place are fixed at the meeting adjourned. 11. WAIVER OF NOTICE; CONSENT TO MEETING The transactions of any meeting of the Board of Directors, however called and noticed or whenever held, shall be as valid as though had at a meeting duly held after regular call and notice if a quorum is present and if, either before or after the meeting, each of the Directors not present signs a waiver of notice or a consent to hold such meeting, or an approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records and made a part of the minutes of the meeting. 12. ADJOURNMENT A quorum of the Directors may adjourn any meeting of the Board of Directors to meet again at a stated day and hour; and in the absence of a quorum, a majority of the Directors present may adjourn from time to time until the time fixed for the next regular meeting of the Board. 13. ACTION WITHOUT MEETING Any action required or permitted to be taken by the Board of Directors may be taken without a meeting, if all members of the Board shall individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the Board. Such action, by written consent, shall have the same force and effect as a unanimous vote of such Directors at a meeting of the Board of Directors. Directors of the Company may participate in meetings of the Board of Directors or any committee designated thereby by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time and participation by such means shall constitute presence in person at a meeting. 14. FEES AND COMPENSATION Directors shall receive such fees and compensation, if any, for their services as may be determined by vote of the Board, and shall receive reimbursement of reasonable expenses incurred in attending meetings of the Directors or committees thereof or otherwise in connection with attention to the 6 7 affairs of the Corporation. No Director who receives a salary as an officer or employee of the Corporation or any subsidiary thereof shall receive any remuneration as a Director or member of any committee of the Directors. ARTICLE IV OFFICERS 1. OFFICERS The officers of the Corporation shall be a President, a Treasurer and a Clerk. The Corporation may also have, at the discretion of the Board of Directors, a Chairman of the Board, one or more corporate Vice Presidents, one or more Assistant Treasurers and one or more Assistant Clerks, each of whom shall be elected by the Board of Directors in accordance with the provisions of Section 2 of this Article. Other officers may be appointed in accordance with the provisions of Section 3 of this Article; provided, however, that no such appointed officer shall be deemed to be a corporate officer. One person may hold two or more offices, except that the offices of President and Treasurer shall not be held by the same person. The Chief Executive Officer of the Corporation shall be the President or the Chairman of the Board, as determined by the Board of Directors. 2. ELECTION The officers of the Corporation, except such officers as may be appointed in accordance with the provisions of Sections 3 or 5 of this Article, shall be chosen annually by the Board of Directors, and each shall hold his office until he shall resign or shall be removed or otherwise disqualified to serve, or his successor shall be elected and qualified. 3. APPOINTED OFFICERS The Board of Directors may appoint and may empower the Chief Executive Officer to appoint, such other officers as the business of the Corporation may require, including without limitation, divisional vice presidents (who shall not be corporate officers). Each such appointed officer shall hold office for such period, have such authority and perform such duties as are provided in the Bylaws or as the Board of Directors or the Chief Executive Officer may from time to time determine. 4. REMOVAL AND RESIGNATION Any officer or agent may be removed, either with or without cause, by a majority of the Directors at the time in office, at any regular or special meeting of the Board, or, except in case of an officer elected by the Board of Directors, by the Chief Executive Officer or by any officer upon whom such power of removal may be conferred by the Board of Directors. 7 8 Any officer or agent may resign at any time by giving written notice to the Board of Directors or the Chief Executive Officer, or the Clerk of the Corporation. Any such resignation shall take effect on the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. 5. VACANCIES A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in the Bylaws for regular appointments to such office. 6. CHAIRMAN OF THE BOARD The Chairman of the Board, if any, shall, if present, preside at all meetings of the Board of Directors, and exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors. 7. CHIEF EXECUTIVE OFFICER Subject to the supervision and control of the Board of Directors, the Chief Executive Officer shall have general control of the business and financial affairs of the Corporation, shall have the general powers and duties of management usually vested in the chief executive officer of a corporation, and shall have such other powers and perform such other duties as are delegated to him by the Corporation or the Board of Directors or as may be imposed by law. He shall preside at all meetings of the stockholders and, in the absence of a Chairman of the Board who has not been designated Chief Executive Officer, at all meetings of the Board of Directors. He shall be ex officio a member of the executive committee and any other standing committees, other than the stock option committee and the compensation committee. 8. PRESIDENT Subject to the supervision and control of the Board of Directors, the President shall have the general powers and duties of management usually vested in the president of a corporation and shall have such other powers and duties as are delegated to him by the Corporation or the Board of Directors or as may be imposed by law. Unless the Chairman of the Board is specifically designated by the Board of Directors as the Chief Executive Officer, the President shall be the Chief Executive Officer of the Corporation with all of the powers and duties specified in Section 7 of this Article. If the Chairman of the Board is the Chief Executive Officer, the President, shall, in his absence or disability or in case of a vacancy in his office, perform all the duties of the Chief Executive Officer, and when so acting shall have all the 8 9 powers of, and be subject to all the restrictions upon, the Chief Executive Officer. 9. VICE PRESIDENT In the absence or disability of the President, or in case of a vacancy in his office, the corporate Vice Presidents, if any, in order of their rank as fixed by the Board of Directors, or if not ranked, the Vice President designated by the Board of Directors, shall perform all the duties of the President, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors. 10. TREASURER Subject to the supervision and control of the Chief Executive Officer, the Treasurer shall have general charge of the financial affairs of the Corporation and have the custody of the funds and of all the valuable papers of the Corporation. He shall keep the accounts of the Corporation in a clear manner and shall at all times when requested by the Directors or the Chief Executive Officer exhibit a true statement of the affairs of the Corporation. The Assistant or each of the Assistant Treasurers, in the absence or inability of the Treasurer, or in case of a vacancy in his office, may perform such part or all of the duties of the Treasurer as may be specified from time to time by the Directors or the Chief Executive Officer, and the written statement of any Assistant Treasurer as to such absence, inability or vacancy shall conclusively determine the fact so stated. The Treasurer shall, if required by the Directors or the Chief Executive Officer, give a bond for the faithful discharge of his duties at the expense of the Corporation with satisfactory sureties and in such penal sums as may be required by the Directors. The Assistant Treasurer or Treasurers shall also, if required by the Directors or the Chief Executive Officer, give a bond in like manner for the faithful discharge of their duties. The Treasurer and Assistant Treasurers shall perform such other duties as may be delegated to them respectively by the Corporation or the Chief Executive Officer or may be imposed by law. 11. CLERK The Clerk shall attend all meetings of the Board of Directors, the stockholders and the executive committee, if any, and if so directed by the Board of Directors, any other committee which may be constituted, and shall keep, or cause to be kept, at the principal office or such other place as the Board of Directors may direct, a book of minutes of all such meetings, showing the time of and place at which such meetings are held; whether regular or special; and if special, how authorized; 9 10 the notice thereof given; the names of those present at Directors' or committee meetings; the number of shares present or represented at stockholders' meetings; and a record of the proceedings of such meetings. In absence of the Clerk or an Assistant Clerk, a Temporary Clerk shall be appointed to keep the records of any meeting. The Clerk shall keep, or cause to be kept, at the principal office or at the office of the Corporation's transfer agent, a stock book, or a duplicate stock book, showing the names of the stockholders and their addresses; the number and classes of shares held by each; the number and date of certificates issued for the same; and the number and date of cancellation of every certificate surrendered for cancellation. The Clerk shall give, or cause to be given, notice of all the meetings of stockholders and of the Board of Directors required by these Bylaws to be given, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors. He shall keep in safe custody the seal of the Corporation and, when authorized by the Board of Directors, shall affix the same to any instrument requiring it and, when so affixed, it shall be attested by his signature or by the signature of an Assistant Clerk. The Assistant or each of the Assistant Clerks, in the absence or inability of the Clerk, or in case of a vacancy in his office, may perform such part or all of the duties of the Clerk as may be specified from time to time by the Directors or the Chief Executive Officer, and the written statement of any Assistant Clerk as to such absence, inability or vacancy shall conclusively determine the fact so stated. ARTICLE V INDEMNIFICATION 1. RIGHT OF INDEMNIFICATION Every person who is or was a Director, officer or employee of this Corporation or of any other corporation which he served at the request of the Corporation and in which the Corporation owns or owned shares of capital stock or of which it is a creditor shall have a right to be indemnified by this Corporation against all reasonable expenses incurred by him in connection with or resulting from any action, suit or proceeding in which he may become involved as a party or otherwise by reason of his being or having been a Director, officer or employee of the Corporation or such other corporation, provided (a) said action, suit or proceeding shall be prosecuted to a final determination and he shall be vindicated on the merits, or (b) in the absence of such final determination vindicating him on the merits, the Board of Directors shall determine that he acted in good faith in the reasonable belief that his action was in the best interests of 10 11 the Corporation or such other corporation and that he cooperated effectively with the Corporation in the defense and disposition of any said action, suit or proceeding, said determinations to be made by the Board of Directors acting through a quorum of disinterested directors, or in its absence on the opinion of the counsel. 2. DEFINITIONS For purposes of Section 1 of this Article V: (a) "reasonable expenses" shall include but not be limited to reasonable counsel fees and disbursements, amounts of any judgment, fine or penalty, and reasonable amounts paid in settlement, but in no event shall "reasonable expenses" include any item for which indemnification would be contrary to law; (b) "action, suit or proceeding" shall include every claim, action, suit or proceeding, whether civil or criminal, derivative or otherwise, administrative, judicial or legislative, any appeal relating thereto, and shall include any reasonable apprehension or threat of such a claim, action, suit or proceeding; and (c) a settlement plea of no contendere, consent judgment, adverse civil judgment, or conviction shall, not of itself create a presumption that the person seeking indemnification did not act in good faith in the reasonable belief that his action was in the best interests of this Corporation or such other corporation, but the Board of Directors shall be bound by a civil judgment or conviction which adjudges that the person did not act in good faith in the reasonable belief that his action was in the best interests of this Corporation or such other corporation. 3. PERSONS ENTITLED TO INDEMNIFICATION The right of indemnification shall extend to any person otherwise entitled to it under this Article V whether or not that person continues to be a director or officer of this Corporation at the time such liability or expense shall be incurred. The right of indemnification shall extend to the legal representatives and heirs of any person otherwise entitled to indemnification. If a person meets the requirements of this Article V with respect to some matters in an action, suit or proceeding, but not with respect to others, he shall be entitled to indemnification as to the former. Advances against liability and expenses may be made by the Corporation on terms fixed by the Board of Directors subject to an obligation to repay if indemnification proves unwarranted. 4. BYLAW NOT EXCLUSIVE This Article V shall not exclude any other rights of indemnification or other rights to which any Director, officer or employee may be entitled by contract, by vote of the Board of Directors, or as a matter of law. If any clause, provision or application of this Article V shall be determined to be 11 12 invalid, the other clauses, provisions or applications of these Bylaws shall not be affected but shall remain in full force and effect. The provisions of this Article V shall be applicable to actions, suits or proceedings commenced after the adoption hereof, whether arising from acts or omissions occurring before or after the adoption hereof. ARTICLE VI MISCELLANEOUS 1. RECORD DATE AND CLOSING STOCK BONDS The Board of Directors may fix a time in the future as a record date for the determination of stockholders entitled to notice of and to vote at any meeting of stockholders or entitled to receive any dividend or distribution, or any allotment of rights, or to exercise rights in respect to any change, conversion or exchange of shares. The record date so fixed shall be not more than sixty (60) days prior to the date of the meeting or event for the purposes of which it is fixed. When a record date is so fixed, only stockholders of record on that date are entitled to notice of and to vote at the meeting or to receive the dividend, distribution, or allotment of rights, or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the Corporation after the record date. The Board of Directors may close the books of the Corporation against transfers of shares during the whole or any part of a period not more than sixty (60) days prior to the date of a meeting of stockholders, the date when the right to any dividend, distribution, or allotment of rights vests, or the effective date of any change, conversion or exchange of shares. 2. INSPECTION OF CORPORATE RECORDS The stock book or duplicate stock book and minutes of proceedings of the incorporators and stockholders shall be open to inspection upon the written demand of any stockholder at any reasonable time, and for a purpose reasonably related to his interests as a stockholder. Such records shall be exhibited at any meeting of stockholders upon the demand by the holders of ten percent (10%) of the shares represented at the meeting. Such inspection may be made in person or by an agent or attorney, and shall include the right to make extracts. Demand of inspection other than at a meeting of stockholders shall be made in writing upon the President or Clerk of the Corporation. Every Director shall have the right, at any reasonable time, to inspect all books, records, documents of every kind, and the physical properties of the Corporation and of its subsidiary corporations, domestic or foreign; provided, however, that in the case of foreign subsidiary corporations 12 13 such right shall extend only to such books, records, documents and properties as are kept or located in the Commonwealth of Massachusetts. 3. CERTIFICATES FOR SHARES Certificates representing shares of common stock of the Corporation shall be of such form as the Board of Directors may approve and shall state the name of the record holder of the shares represented thereby; the number of the certificate; the date of issuance of the certificate; the number of shares for which it is issued; the par value, if any, or a statement that such shares are without par value; a statement of the rights, privileges, preferences and restrictions, if any; a statement as to redemption or conversion, if any; a statement of liens or restrictions upon transfer or voting, if any; if the shares be assessable, or, if the assessments are collectible by personal action, a plain statement of such facts. 4. EXECUTION OF CERTIFICATES Every certificate for shares must be signed by the President or a Vice President and the Treasurer, or an Assistant Treasurer, and may be by facsimiles of the signatures of the President and Treasurer or by a facsimile of the signature of the President and the written signature of its Treasurer or an Assistant Treasurer. No certificate for shares authenticated by a facsimile of a signature shall be valid until countersigned by the transfer agent. 5. TRANSFER OR STOCK Prior to due presentment for registration of transfer, the Corporation may treat the registered owner of shares as the person exclusively entitled to vote, to receive notifications and otherwise to exercise all the rights and powers of a stockholder. Shares may be transferred on the books of the Corporation only by the person named in the certificate as the owner thereof, or by his agent, attorney, or legal representative, upon surrender to the Clerk of the Corporation or, at the discretion of the Board of Directors, to any transfer agent, of a certificate, duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer. A new certificate shall thereupon be issued to the person entitled thereto and the old certificate shall be cancelled. 6. LOST CERTIFICATES New certificates for shares or other securities of the Corporation may be issued for and in the place of any such instrument theretofore issued which is alleged to have been lost, destroyed or wrongfully taken. The Directors may, in their discretion, require the owner of such instrument, or his legal representative, to give the Corporation a bond or other 13 14 security in an adequate amount as indemnity against any claim that may be made against the Corporation. A new instrument may be issued, however, without requiring any bond or other security when, in the judgment of the Directors, it is proper to do so. 7. CORPORATE SEAL A corporate seal shall be provided and adopted by the Board of Directors and shall contain the name of the Corporation and such other wording as the Board may deem suitable or as may be required by law. 8. FISCAL YEAR Except as from time to time otherwise determined by the Board of Directors, the fiscal year of the Corporation shall begin on the first day of January and end on the last day of December next succeeding. 9. ISSUANCE OF STOCK Any unissued capital stock from time to time authorized under the Articles of Organization may be issued by a vote of the Board of Directors. 10. EXECUTION OF CONTRACTS The Board of Directors may authorize any officer or officers, agents or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances; and unless so authorized by the Board of Directors, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or in any amount. 11. REPRESENTATION OF SHARES OF OTHER CORPORATIONS The Chairman of the Board, the President, any corporate Vice President and the Treasurer of this Corporation, or any one of them, are authorized to vote, represent and exercise on behalf of this Corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this Corporation. The authority herein granted to said officers to vote or represent on behalf of this Corporation any and all shares held by this Corporation in any other corporation or corporations may be exercised by such officers in person or by any person authorized so to do by proxy or power or attorney duly executed by said officers. 12. INSPECTION OF BYLAWS The Corporation shall keep in its principal office for the transaction of business the original or a copy of these Bylaws as amended or otherwise altered to date, certified by the 14 15 Clerk, which shall be open to inspection by the stockholders at all reasonable times during office hours. 13. CONSTRUCTION AND DEFINITIONS Unless the context otherwise requires, the general provisions, rules of construction and definitions contained in the Massachusetts Business Corporation Law shall govern the construction of these Bylaws. The Article and Section captions used in these Bylaws are for reference only and are not part of the Bylaws and shall not be used in construing or interpreting these Bylaws. ARTICLE VII AMENDMENTS 1. POWER OF STOCKHOLDERS New Bylaws may be adopted or these Bylaws may be amended or repealed by the vote of stockholders entitled to exercise a majority of the voting power of the Corporation, except as otherwise provided by the Articles of Organization. 2. POWER OF DIRECTORS Subject to the right of stockholders to adopt, amend or repeal Bylaws, these Bylaws may be amended or repealed by the Board of Directors, and new Bylaws may be adopted, at any regular or special meeting thereof. 15 EX-10.J 4 CONSENT RELEASE 1 EXHIBIT 10.J EXECUTION CONSENT, RELEASE AND FIRST AMENDMENT CONSENT, RELEASE AND FIRST AMENDMENT, dated as of November 2, 1993 (this "Consent and Amendment"), among Wyman-Gordon Company (the "Company"), Wyman-Gordon Composites, Inc. ("WG Composites"), Scaled Composites, Inc., Wyman-Gordon Investment Castings, Inc., Precision Founders Inc., Wyman-Gordon Composite Technologies, Inc., Wyman-Gordon Fisc, Ltd., Reisner Metals, Inc., WG-Rome Corporation and Wyman-Gordon Securities Corporation (together with the Company, the "Credit Parties") and The CIT Group/Business Credit, Inc. ("CITBC"). WITNESSETH: ----------- WHEREAS, the Credit Parties and CITBC are parties to a Financing Agreement, dated March 8, 1993, as amended (the "Financing Agreement"); WHEREAS, pursuant to an Asset Purchase Agreement (the "Purchase Agreement") dated as of October 22, 1993 among Kaiser Aerospace & Electronics Corporation (the "Buyer"), WG Composites and the Company, WG Composites and the Company desire to sell (the "Sale") to the Buyer the "Contracts Assets," as that term is defined in the Purchase Agreement; WHEREAS, pursuant to the Financing Agreement, WG Composites has granted a Lien to CITBC on certain of WG Composites' Contract Assets; WHEREAS, the Purchase Agreement requires that the Contract Assets to be sold by WG Composites to the Buyer pursuant to the Purchase Agreement be transferred to the Buyer on the date of the closing of the Sale (the Closing Date") free and clear of any Lien in favor of CITBC; WHEREAS, pursuant to Sections 5.3 and 7.9(c) of the Financing Agreement, the execution and delivery by WG Composites and the Company of the Purchase Agreement and the consummation of the Sale require the consent of CITBC; WHEREAS, the Credit Parties have requested that CITBC consent to the execution and delivery by WG Composites and the Company of the Purchase Agreement and the consummation of the Sale; WHEREAS, the Credit Parties have requested that CITBC release its Lien upon the Contract Assets to be sold by WG Composites to the Buyer pursuant to the Purchase Agreement; WHEREAS, CITBC is willing to so consent and so release on the condition that certain amendments herein set forth be made to 2 the Financing Agreement, and on the other terms and conditions herein set forth; NOW, THEREFORE, in considerations of the mutual conditions and agreements set forth in this Consent and Amendment and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each of the Credit Parties and CITBC hereby agree as follows: SECTION 1. DEFINED TERMS. As used in this Consent and Amendment, terms defined in the Financing Agreement and not otherwise defined herein shall have the meanings set forth in the Financing Agreement. SECTION 2. CONSENT. CITBC hereby consents to the execution and delivery by the Company and WG Composites of the Purchase Agreement and the consummation of the Sale and the other transactions contemplated therein; PROVIDED, HOWEVER, that such consent is subject to the following conditions: (a) The Sale shall be consummated strictly in accordance with the terms of the Purchase Agreement and of the Other Documents (as hereinafter defined); (b) CITBC shall have received for review and approval all Exhibits and Schedules to the Purchase Agreement and all other material documents and instruments ("Other Documents") to be executed and delivered in connection with the Purchase Agreement; CITBC or its counsel shall have furnished to the Company written confirmation that CITBC has reviewed and approved the form and substance of such Exhibits, Schedules, and Other Documents; and such Exhibits, Schedules and Other Documents shall be executed and delivered in the form so approved by CITBC; (c) The Sale shall have been consummated on or before November 19, 1993, or such later date to which CITBC shall have consented in writing prior thereto; (d) No Default or Event of Default shall exist immediately before or immediately after giving effect to the execution and delivery of the Purchase Agreement and the Other Documents or the consummation of the Sale or the other transactions contemplated in the Purchase Agreement or the Other Documents; (e) The representations and warranties contained in this Consent and Amendment shall be true and correct on and as of the dates of the execution and delivery of the Purchase Agreement and the consummation of the Sale and the other transactions contemplated in the Purchase Agreement and the Other Documents as though made on and as each of such dates; and 2 3 (f) All other conditions set forth in Section 6 thereof shall have been satisfied. SECTION 3. RELEASE. Upon the satisfaction of the terms and conditions set forth in Sections 2 and 6 thereof, CITBC's Lien on solely the Contract Assets being sold by WG Composites to the Buyer pursuant to the Purchase Agreement shall be released, with CITBC's Lien on all assets of WG Composites that are not sold to the Buyer pursuant to the Purchase Agreement continuing thereafter in full force and effect. Prior to the Closing Date, CITBC shall execute and deliver to an escrow agent satisfactory to it such UCC-3 Partial Releases as may be necessary to effectuate such release as of record, and upon the satisfaction of the terms and conditions set forth in Sections 2 and 6 hereof, CITBC shall instruct its escrow agent to deliver such UCC-3 Partial Releases to the Company or its counsel for delivery to the Buyer or its Counsel. SECTION 4. Additional Convenants of the Credit Parties. ------------------------------------------- 4.1 The Credit Parties shall, within ten (10) Business Days after the consummation of the Sale, deliver to CITBC a certificate executed by the Vice President and Treasurer of each of the Company and WG Composites certifying that (a) annexed thereto is a true, correct and complete copy of the Purchase Agreement, the Schedules and Exhibits thereto and all Other Documents executed and delivered in connection therewith and (b) the Sale was consummated on the Closing Date specified therein strictly in accordance with the terms of the Purchase Agreement, the Other Documents and this Consent and Amendment. 4.2 Simultaneously with the delivery of the "Seller's Statement of Purchase Price Adjustment," as that term is defined in the Purchase Agreement, to the Buyer, the Credit Parties shall deliver a true and correct copy thereof to CITBC. 4.3 Promptly upon CITBC's request therefor, the Company and WG Composites shall execute and deliver to CITBC, as additional collateral for the Obligations, an assignment, in form and substance satisfactory to CITBC, of all of the Company's and WG Composites' rights under the Purchase Agreement and Other Documents, together with such UCC Financing Statements and other documents and instruments as CITBC may require to perfect such assignment, and, if requested by CITBC, the Credit Parties shall use their best efforts to cause the Buyer to consent to such assignment and to agree to honor the same. 4.4 On and after the Closing Date, WG Composites shall not conduct any business, shall not have or acquire any material assets other than its assets existing on the Closing Date and not sold to the Buyer and, except for its liability for the Obligations and liabilities arising under or retained by WG Composites 3 4 pursuant to the Purchase Agreement, shall not have or incur any material liabilities. SECTION 5. AMENDMENTS TO FINANCING AGREEMENT. Effective as of the Closing Date, immediately after giving effect to the sale, the Financing Agreement shall be amended as follows: 5.1 The words ", WYMAN-GORDON COMPOSITES, INC." shall be deleted from the cover page of the Financing Agreement. 5.2 The preamble to the Financing Agreement shall be deleted in its entirety, and the following preamble shall be substituted therefor: THE CIT GROUP/BUSINESS CREDIT, INC., a New York corporation ("CITBC"), with offices located at 1211 Avenue of the Americas, New York, New York 10036, is please to confirm the terms and conditions under which CITBC shall make revolving loans, advances and other financial accommodations to WYMAN-GORDON COMPANY (the "Company"), a Massachusetts corporation with a principal place of business at 244 Worcester Street, Box 8001, Grafton, Massachusetts 01536-8001, and SCALED COMPOSITES, INC. ("Scaled Composites"), a California corporation with a principal place of business at Hangar 78, Mojave Airport, Mojave, California 93501 (the Company and Scaled Composites may hereinfafter be referred to collectively as the "Borrowers" and each, individually, as a "Borrower"). 5.3 The definition of the term "Borrowing Base" set forth in Section 1 of the Financing Agreement shall be deleted in its entirety, and the following shall be substituted therefor: BORROWING BASE shall mean, (a) as to the Company, the sum of (i) eighty percent (80%) of the outstanding Eligible Accounts Receivable of the Company and its Subsidiaries (other than the Composite Subsidiaries and WG Composites) and (ii) forty percent (40%) of the aggregate value of Eligible Inventory of the Company and its Subsidiaries (other than the Composites Subsidiaries and WG Composites) as determined at the lower of cost or market and (b) as to Scaled Composites, the sum of (i) eighty percent (80%) of outstanding Eligible Accounts Receivable of Scaled Composites and (ii) forty percent (40%) of the aggregate value of Eligible Inventory of Scaled Composites as determined at the lower of cost or market; provided, that, for purposes of calculating the "Borrowing Base" for any borrower at any time, the amount of the component of the Borrowing Base of all the Borrowers based on Eligible Inventory may not exceed an aggregate of $15,000,000. 4 5 5.4 The definition of the term "Composites Subsidiaries" set forth in Section 1 of the Financing Agreement shall be amended by deleting the words "WG Composites and" therefrom. 5.5 The definition of the term "Credit Parties" shall be amended by adding the words "and WG Composites" immediately before the period at the end thereof. 5.6 a new definition of the term "WG Composites" shall be added to Section 1 of the Financing Agreement in correct alphabetical order and shall read as follows: WG COMPOSITES shall mean Wyman-Gordon Composites, Inc., a Delaware corporation and a Subsidiary of the Company. 5.7 Subsection (b) of Section 7.9 of the Financing agreement shall be deleted in its entirety, and the following shall be substituted therefor: (b) NO ADDITIONAL INDEBTEDNESS. Borrow any money on the security of the Collateral of such Credit Party from sources other than CITBC, or incur or create any Indebtedness other than (i) the Permitted Indebtedness, (ii) Indebtedness of any Credit Party to any other Credit Party, except that Scaled Composites may not at any time be a net debtor with respect to the other Credit Parties in an aggregate amount greater than $5,000,000, and during any period that Scaled Composites is a net creditor with respect to the other Credit Parties in an aggregate amount in excess of $500,000, the Company's Availability shall be reduced by the amount of such excess, provided, that Scaled Composites may not make any borrowings from Scaled Composites, and (iii) guarantees of Specialty Alloys up to the amount set forth in Section 7.9(e). 5.8 Subsection (d) of Section 7.9 of the Financing Agreement shall be deleted in its entirety, and the following shall be substituted therefor: (d) MERGER; CONSOLIDATION, ETC. Merge, consolidate or otherwise alter or modify its corporate name, principal place of business, structure, status or existence, or enter into or engage in any operation or activity materially different from that presently being conducted by it, except that any Credit Party (other than the Company, Scaled Composites and WG Composites) may merge with any other Credit Party subject to the conditions that the Credit Parties shall have executed and delivered all documents and have taken all such actions as CITBC shall deem necessary or desirable in order to maintain the perfection and priority of CITBC's Liens on the Collateral; 5 6 5.9 Clause (iv) of Section 7.9(e) of the Financing Agreement shall be deleted in its entirety, and the following shall be substituted therefor: (iv) guarantees by one Credit Party of the obligations of another; except that Scaled Composites may not guarantee the obligations of another Credit Party (other than the guarantees of (x) the obligations of the Company under the Senior Notes and (y) the obligations of each other Credit Party under this Financing Agreement) and the aggregate amount of the obligations of Scaled Composites guaranteed by the Credit Parties may not exceed $750,000, other than as contemplated by clauses (i) through (iii) above; 5.10 Section 7.18 of the Financing Agreement shall be deleted in its entirety, and the following shall be substituted therefor: 7.18 BORROWING BASE CERTIFICATE. On the sixth Business Day following each week, each Borrower shall deliver to CITBC a Borrowing Base Certificate setting forth such Borrower's Borrowing Base as of the close of business on the last Business Day of such week, certified by the Vice President and Treasurer of such Borrower, provided, however, that Scaled Composites shall only be required to deliver such a Borrowing Base Certificate on the sixth Business Day following each month setting forth such Borrower's Borrowing Base as of the close of business on the last Business Day of such month in the event that and so long as it has no Revolving Loans outstanding. 5.11 The signature pages of the Financing Agreement shall be amended by deleting the signature of WG Composites as a signatory Borrower and by adding the signature of WG Composites as a signatory Credit Party SECTION 6. CONDITION TO EFFECTIVENESS. This Consent and Amendment shall be effective as of the date first above written when CITBC shall have received counterparts of this Consent and Amendment executed by all of the Credit Parties. SECTION 7. REPRESENTATIONS AND WARRANTIES. The Credit Parties hereby each represent and warrant to CITBC that (a) the execution, delivery and performance of this Consent and Amendment by each of the Credit Parties are within their respective corporate powers and have been duly authorized by all necessary corporate action, (b) no consent, approval, authorization of, or declaration or filing with, any Governmental Body, and no consent of any other Person, is required in connection with the execution, delivery and performance of this Consent and Amendment except for those already duly obtained, (c) this Consent and Amendment has been duly executed by each of the Credit Parties and constitutes the legal, valid and binding obligation of each 6 7 of the Credit Parties, enforceable against them in accordance with its terms, (d) the execution, delviery and performance by each of the Credit Parties of this Consent and Amendment does not and will not conflict with, or constitute a violation or breach of, or constitute a default under, or result in the creation or imposition of any Lien upon the property of any Credit Party or any of its Subsidiaries by reason of the terms of (i) any contract, mortgage, Lien, lease, agreement, indenture, or instrument to which such Credit Party or such Subsidiary is a party or which is binding upon it, (ii) any requirement of Governmental Rule applicable to such Credit Party or such Subsidiary, or (iii) the Certificate or Articles of Incorporation or By-Laws of such Credit Party or such Subsidiary, (e) the representations and warranties contained in the Financing Agreement and in each other Loan Document are true and correct in all material respects as though made on and as of the date hereof, except to the extent that such representations and warranties expressly relate solely to an earlier date (in which case such representations and warranties were true and accurate on and as of such earlier date); and (f) there exists no Default or Event of Default or condition which, after giving effect to the Sale, would result in a Default or Event of Default. SECTION 8. Reference To and Effect on Loan Documents. ----------------------------------------- 8.1 Upon the effectiveness of this Consent and Amendment, on and after the effective date hereof each reference in the Financing Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import, and each reference in the other Loan Documents to the Financing Agreement, shall mean and be a reference to the Financing Agreement as amended hereby. 8.2 Except as specifically amended herein, all of the terms of the Financing Agreement shall remain unchanged and in full force and effect. 8.3 Except as specifically provided herein, the execution, delivery and effectiveness of this Consent and Amendment shall not operate as waiver of any right, power or remedy of CITBC under the Financing Agreement or any of the other Loan Documents, nor constitute a waiver of any provision of the Financing Agreement or any of the other Loan Documents. SECTION 9. EXECUTION IN COUNTERPARTS. This Consent and Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute one and the same instrument. SECTION 10. GOVERNING LAW. This Consent and Amendment shall be governed by, and shall be construed and enforced in accordance with, the laws of the State of New York. 7 8 SECTION 11. HEADINGS. Section headings in this Consent and Amendment are included herein for convenience of reference only and shall not constitute a part of this Consent and Amendment or be given any substantive effect. IN WITNESS WHEREOF, this Consent and Amendment has been duly executed as of the date first above written. WYMAN-GORDON COMPANY By: /s/ Luis E. Leon --------------------------- Title: Vice President ------------------------ WYMAN-GORDON COMPOSITES, INC. By: /s/ Luis E. Leon --------------------------- Title: Vice President ------------------------ SCALED COMPOSITES, INC. By: /s/ Luis E. Leon --------------------------- Title: Vice President ------------------------ WYMAN-GORDON INVESTMENT CASTINGS, INC. By: /s/ Luis E. Leon --------------------------- Title: Vice President ------------------------ PRECISION FOUNDERS INC. By: /s/ Luis E. Leon --------------------------- Title: Vice President ------------------------ WYMAN-GORDON COMPOSITE TECHNOLOGIES, INC. By: /s/ Luis E. Leon --------------------------- Title: Vice President ------------------------ WYMAN-GORDON FISC, LTD. By: /s/ Luis E. Leon --------------------------- Title: Vice President ------------------------ 8 9 REISNER METALS, INC. By: /s/ Luis E. Leon --------------------------- Title: Vice President ------------------------ WG-ROME CORPORATION By: /s/ Luis E. Leon --------------------------- Title: Vice President ------------------------ WYMAN GORDON SECURITIES CORPORATION By: /s/ Luis E. Leon --------------------------- Title: Vice President ------------------------ THE CIT GROUP BUSINESS CREDIT, INC. By: /s/ Frank A. Grimaldi --------------------------- Title: AVP ------------------------ 9 EX-10.K 5 WAIVER 1 EXHIBIT 10.K WAIVER AND SECOND AMENDMENT WAIVER AND SECOND AMENDMENT, dated as of January 27, 1994 (this "Waiver and Amendment"), among Wyman-Gordon Company (the "Company"), Scaled Composites, Inc., Wyman-Gordon Investment Castings, Inc., Precision Founders Inc., Wyman-Gordon Composite Technologies, Inc., Wyman-Gordon FISC, Ltd., Reisner Metals, Inc., WG-Rome Corporation, Wyman-Gordon Securities Corporation and Wyman-Gordon Composites, Inc. (together with the Company, the "Credit Parties") and The CIT Group/Business Credit, Inc. ("CITBC"). W I T N E S S E T H: WHEREAS, the Credit Parties and CITBC are parties to a Financing Agreement, dated March 8, 1993, as heretofore amended (as so amended, the "Financing Agreement"); WHEREAS, the Company is in non-compliance with the provisions of Sections 7.8, 7.12 and 7.13 of the Financing Agreement as in effect immediately prior to the effectiveness of this Waiver and Amendment; WHEREAS, the Credit Parties have requested that CITBC waive such non-compliance and agree to certain amendments to the Financing Agreement; WHEREAS, CITBC is willing to so waive and agree on the condition that certain other amendments herein set forth be made to the Financing Agreement, and on the other terms and conditions herein set forth; NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth in this Waiver and Amendment and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each of the Credit Parties and CITBC hereby agree as follows: SECTION I.. DEFINED TERMS. As used in this Waiver and Amendment, terms defined in the Financing Agreement and not otherwise defined herein shall have the meanings set forth in the Financing Agreement. SECTION II.. AMENDMENTS TO FINANCING AGREEMENT. Effective as of October 30, 1993, the Financing Agreement shall be amended as follows: A. The definition of the term "Interest Coverage" set forth in Section 1 of the Financing Agreement shall be deleted in its entirety. 2 B. The definition of the term "Line of Credit Fee" set forth in Section 1 of the Financing Agreement shall be deleted in its entirety, and the following shall be substituted therefor: LINE OF CREDIT FEE shall: (i) mean the fee due CITBC at the end of each month for the Line of Credit, and (ii) be determined by multiplying the difference between the Line of Credit and the sum of (a) the average daily amount of the Liquidity Reserve for said month, (b) the average aggregate daily Revolving Loans of the Borrowers for said month and (c) the average aggregate daily amount available to be drawn under all outstanding Letters of Credit of the Borrowers for said month, by one-half of one percent (0.5%) per annum for the number of days in said month. C. A new definition of the term "Liquidity Reserve" shall be added to Section 1 of the Financing Agreement in correct alphabetical order and shall read as follows: LIQUIDITY RESERVE shall mean, as to all Borrowers, a reserve in the amount of up to Ten Million Dollars ($10,000,000) which CITBC shall establish and maintain as a reserve from, and reduction of, Availability on and after March 31, 1994, unless prior to such date either (i) the Company shall have received from General Electric Aircraft Engines or its affiliate, between January 1, 1994 and March 30, 1994, a sum of not less than Sixteen Million Dollars ($16,000,000) in cash pursuant to the GE90 Program (the "GEAE 1st Quarter Payment"); PROVIDED, HOWEVER, that if the amount received from General Electric Aircraft Engines or its affiliate shall be less than $16,000,000, then such reserve shall be established by CITBC in an amount equal to (a) $10,000,000 MINUS (b) the product of (1) the amount of the payment that the Company actually receives from General Electric Aircraft Engines or its affiliate and (2) a fraction, the numerator of which is five (5) and the denominator of which is eight (8), or (ii) the Company and General Electric Aircraft Engines shall have entered into an agreement or commitment, in form and substance satisfactory to CITBC, pursuant to which General Electric Aircraft Engines or its affiliate shall have agreed to pay to the Company the GEAE 1st Quarter Payment not later than the date or dates specified therein, in cash and without setoff or deduction; PROVIDED, HOWEVER, that such reserve shall be reinstated in the event that such agreement or commitment is terminated, waived, amended, supplemented or modified in a manner which, in CITBC's 2 3 judgment, materially adversely affects the payment terms thereof with respect to the Company, and which reserve, if established, shall be released (subject to clause (ii) above) when the Company shall have received the GEAE 1st Quarter Payment in full in cash from General Electric Aircraft Engines or entered into such agreement or commitment. D. The words "net interest expense" in the definition of the term "EBITDA" set forth in Section 1 of the Financing Agreement shall be deleted, and the words "Net Interest Expense" shall be substituted therefor. E. The second unnumbered paragraph of Section 3.1 of the Financing Agreement shall be deleted in its entirety, and the following shall be substituted therefor: Revolving Loans for any Borrower may be made from time to time, provided, that, any such Loan shall not when made exceed an amount (such amount being the "Availability") equal to the lesser of (x) the excess of (i) the Line of Credit MINUS the sum of the aggregate Availability Reserve applicable to all Borrowers and the applicable Liquidity Reserve, over (ii) the sum of the aggregate outstanding principal amount of Revolving Loans made to all Borrowers and the aggregate undrawn and unreimbursed amount of Letters of Credit issued on behalf of the Company and (y) the excess of (i) the Borrowing Base applicable to such Borrower, MINUS the sum of the Availability Reserve applicable to such Borrower and, if such Borrower is the Company, the applicable Liquidity Reserve, over (ii) the outstanding principal amount of Revolving Loans made to such Borrower,PLUS, with respect to the Company, the aggregate undrawn and unreimbursed amount of Letters of Credit issued on behalf of such Borrower. F. Subsection (b) of Section 4.1 of the Financing Agreement shall be deleted in its entirety, and the following shall be substituted therefor: (b) the aggregate undrawn and unreimbursed amount of all outstanding Letters of Credit issued on behalf of the Company, PLUS the aggregate outstanding principal amount of all Revolving Loans made to all Borrowers, may not at any time exceed the Line of Credit MINUS the sum of the aggregate Availability Reserve applicable to all Borrowers and the applicable Liquidity Reserve; G. Subsection (c) of Section 4.1 of the Financing Agreement shall be deleted in its entirety, and the following shall be substituted therefor: 3 4 1. the aggregate undrawn and unreimbursed amount of all outstanding Letters of Credit issued on behalf of the Company, PLUS the aggregate outstanding principal amount of all Revolving Loans made to the Company, may not at any time exceed the Company's Borrowing Base, MINUS the sum of the Company's Availability Reserve and the applicable Liquidity Reserve; and H. Section 7.8 of the Financing Agreement shall be deleted in its entirety, and the following shall be substituted therefor: 7.8 MINIMUM TANGIBLE NET WORTH. The Company shall maintain at all times during each fiscal period set forth below a Tangible Net Worth of not less than the amounts set forth opposite the respective fiscal periods:
Period Minimum Tangible Net Worth ------ -------------------------- Prior to and including November 30, 1993 $105,000,000 December 1, 1993 through December 31, 1993 $ 99,500,000 January 1, 1994 through March 31, 1994 $ 88,500,000 April 1, 1994 through June 30, 1994 $ 87,500,000 July 1, 1994 through November 30, 1994 $ 86,500,000 On December 1, 1994 and at all times thereafter $ 89,700,000
I. Section 7.12 of the Financing Agreement shall be deleted in its entirety, and the following shall be substituted therefor: 7.12 ADJUSTED QUICK RATIO. The Company shall maintain at all times during each fiscal quarter set forth below an Adjusted Quick Ratio of at least the ratio set forth opposite the respective fiscal quarters:
Fiscal Quarters Ratio --------------- ----- March 1994 1.32 June 1994 1.38 September 1994 1.42 December 1994 and at all times thereafter 1.58
4 5 J. Section 7.13 of the Financing Agreement shall be deleted in its entirety, and the following shall be substituted therefor: 7.13 EBITDA. The Company shall have, at the last day of each fiscal period set forth below, cumulative EBITDA of at least the amount set forth opposite the respective fiscal periods (it being understood that, if the amount set forth below for any such period is a negative number, the negative magnitude of the Company's cumulative EBITDA at the last day of such period shall not exceed such negative amount):
FISCAL PERIODS COVERAGE -------------- -------- 12 months ended December 31, 1993 ($ 2,500,000) 3 months ended March 31, 1994 ($11,400,000) 6 months ended June 30, 1994 ($ 9,000,000) 9 months ended September 30, 1994 ($ 6,300,000) 12 months ended December 31, 1994 ($ 2,000,000)
The required minimum cumulative EBITDA coverage for each fiscal period after December 31, 1994 shall be established by CITBC not later than December 31, 1994 based upon and consistent with the quarterly financial budget prepared by the Company pursuant to clause (a) of Section 7.7 hereof and approved by CITBC. SECTION III.. WAIVER. Upon the effectiveness of this Waiver and Amendment and in reliance upon the representations set forth in Section 6 hereof, CITBC hereby waives any Default or Event of Default that has occurred or exists arising from, or as a result of, solely the Company's noncompliance with the provisions of Sections 7.8, 7.12 and 7.13 of the Financing Agreement as such provisions were in effect immediately prior to the effectiveness of this Waiver and Amendment. SECTION IV.. WAIVER AND AMENDMENT FEE. In order to induce CITBC to enter into this Waiver and Amendment, the Borrowers, jointly and severally, shall, simultaneously with the execution of this Waiver and Amendment, pay to CITBC an amendment fee (the "Waiver and Amendment Fee") in the aggregate amount of $10,000. SECTION V.. CONDITIONS TO EFFECTIVENESS. This Waiver and Amendment shall be effective as of the date first above written when CITBC shall have received 1. counterparts of this Waiver and Amendment executed by all of the Credit Parties, and 2. payment of the Waiver and Amendment Fee. SECTION VI.. REPRESENTATIONS AND WARRANTIES. The 5 6 Credit Parties hereby each represent and warrant to CITBC that 1. the execution, delivery and performance of this Waiver and Amendment by each of the Credit Parties are within their respective corporate powers and have been duly authorized by all necessary corporate action, 2. no consent, approval, authorization of, or declaration or filing with, any Governmental Body, and no consent of any other Person, is required in connection with the execution, delivery and performance of this Waiver and Amendment except for those already duly obtained, 3. this Waiver and Amendment has been duly executed by each of the Credit Parties and constitutes the legal, valid and binding obligation of each of the Credit Parties, enforceable against them in accordance with its terms, 4. the execution, delivery and performance by each of the Credit Parties of this Waiver and Amendment does not and will not conflict with, or constitute a violation or breach of, or constitute a default under, or result in the creation or imposition of any Lien upon the property of any Credit Party or any of its Subsidiaries by reason of the terms of a. any contract, mortgage, Lien, lease, agreement, indenture, or instrument to which such Credit Party or such Subsidiary is a party or which is binding upon it, b. any requirement of Governmental Rule applicable to such Credit Party or such Subsidiary, or c. the Certificate or Articles of Incorporation or By-Laws of such Credit Party or such Subsidiary, 5. the representations and warranties contained in the Financing Agreement and in each other Loan Document are true and correct in all material respects as though made on and as of the date hereof, except to the extent that such representations and warranties expressly relate solely to an earlier date (in which case such representations and warranties were true and accurate on and as of such earlier date); and 6. other than the Company's noncompliance with the provisions of Sections 7.8, 7.12 and 7.13 of the Financing Agreement as such provisions were in effect immediately prior to the effectiveness of this Waiver and Amendment, there exists no Default or Event of Default (including, without limitation, no Default or Event of Default with respect to the provisions of Sections 7.8, 7.12 or 7.13 of the Financing Agreement as amended hereby). SECTION VII.. REFERENCE TO AND EFFECT ON LOAN DOCUMENTS. A. Upon the effectiveness of this Waiver and Amendment, on and after the effective date hereof each reference in the Financing Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import, and each reference in the other Loan Documents to the Financing Agreement, shall mean and be a reference to the Financing Agreement as amended hereby. B. Except as specifically amended herein, all of the terms of the Financing Agreement shall remain unchanged and in full force and effect. 6 7 C. Except as specifically provided herein, the execution, delivery and effectiveness of this Waiver and Amendment shall not operate as a waiver of any right, power or remedy of CITBC under the Financing Agreement or any of the other Loan Documents, nor constitute a waiver of any provision of the Financing Agreement or any of the other Loan Documents. SECTION VIII.. EXECUTION IN COUNTERPARTS. This Waiver and Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute one and the same instrument. SECTION IX.. GOVERNING LAW. This Waiver and Amendment shall be governed by, and shall be construed and enforced in accordance with, the laws of the State of New York. SECTION X.. HEADINGS. Section headings in this Waiver and Amendment are included herein for convenience of reference only and shall not constitute a part of this Waiver and Amendment or be given any substantive effect. SECTION XI.. ENTIRE AGREEMENT. This Waiver and Amendment, the Financing Agreement and the other Loan Documents constitute the entire agreement between the Credit Parties and CITBC; supersede any prior agreements; can be changed only by a writing signed by each Borrower and CITBC; and shall bind and benefit each Credit Party and CITBC and their respective successors and assigns. IN WITNESS WHEREOF, this Waiver and Amendment has been duly executed as of the date first above written. WYMAN-GORDON COMPANY By: /s/ Luis E. Leon ------------------------- Title: V.P. - Finance and Treasurer ----------------------- SCALED COMPOSITES, INC. By: /s/ Luis E. Leon ------------------------- Title: Vice President ----------------------- 7 8 WYMAN-GORDON INVESTMENT CASTINGS, INC. By: /s/ Luis E. Leon ------------------------- Title: V.P. and Treasurer ----------------------- PRECISION FOUNDERS INC. By: /s/ Luis E. Leon ------------------------- Title: V.P. and Treasurer ----------------------- WYMAN-GORDON COMPOSITE TECHNOLOGIES, INC. By: /s/ Luis E. Leon ------------------------- Title: Vice President ----------------------- WYMAN-GORDON FISC, LTD. By: /s/ Luis E. Leon ------------------------- Title: V.P. and Treasurer ----------------------- REISNER METALS, INC. By: /s/ Luis E. Leon ------------------------- Title: V.P. and Treasurer ----------------------- WG-ROME CORPORATION By: /s/ Luis E. Leon ------------------------- Title: V.P. and Treasurer ----------------------- WYMAN GORDON SECURITIES CORPORATION By: /s/ Luis E. Leon ------------------------- Title: V.P. and Treasurer ----------------------- 8 9 WYMAN-GORDON COMPOSITES, INC. By: /s/ Luis E. Leon ------------------------- Title: V.P. and Treasurer ----------------------- THE CIT GROUP/BUSINESS CREDIT, INC. By: /s/ Frank A. Grimaldi ------------------------- Title: AVP ----------------------- 9 EX-13 6 ANNUAL REPORT FINANCIAL STATEMENTS 1 EXHIBIT 13 WYMAN-GORDON COMPANY Annual Report 1993 2 FINANCIAL HIGHLIGHTS
1993 1992 1991 -------------------------------------- (000's omitted, except per share data) -------------------------------------- Revenue $239,761 $298,881 $355,390 Income (loss) before one-time charges and income taxes (17,004) 21,795 (19,287) Restructuring, disposals and other charges (pre-tax) - - (106,464) Income (loss) before cumulative effect of changes in accounting principles (17,004) 21,795 (99,681) Cumulative effect of changes in accounting principles (43,000) - - Net income (loss) (60,004) 21,795 (99,681) Cash at end of year 14,817 - 4,521 Working capital 90,685 96,057 110,859 Total assets 286,634 295,156 339,154 Total Indebtedness 90,538 70,615 92,692 Backlog 256,259 309,679 386,905 Per share data: Income (loss) before cumulative effect of changes in accounting principles (.95) 1.21 (5.59) Cumulative effect of changes in accounting principles (2.39) - - Net income (loss) (3.34) 1.21 (5.59) Dividends paid - - .30 Stockholders' equity 4.91 8.37 7.18
3 CONTENTS Chairman's Letter A Special Note from the Chairman Management's Discussion Report of Independent Auditors Consolidated Statements of Income and Retained Earnings Consolidated Balance Sheets Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Consolidated Ten-Year Financial Review Corporate Information 4 CHAIRMAN'S LETTER Over the past several years, the financial results of the global aerospace industry have been slashed by a double-edged sword. Large and permanent reductions in defense spending on one edge...and, world wide economic malaise impacting commercial air travel on the other. Virtually every company involved in the aerospace industry has been affected...our customers...our vendors...ourselves. In 1993, Wyman-Gordon revenues were $239.8 million, a reduction of nearly 20% from 1992 revenues of $298.9 million. More importantly, the year-to-year fall in the aerospace market has been accelerating since 1991 and we have struggled to reduce our costs as fast as the decline in our revenues. A brief recap of the aggressive steps taken by the Company from the beginning of 1991 through 1993 includes... - the consolidation of our two forging facilities in Massachusetts, - a 43% reduction in personnel at continuing operations, - substantial and permanent reductions in working capital requirements, - a 45% improvement in production cycle times at our Forgings Division, - strategic, long-term partnerships with key customers, - divestiture of non-core operations, - the development of new products and markets. Unfortunately, this extensive program was not enough to return us to profitability in 1993. The aerospace market continued to free-fall through 1993 as evidenced by the decline in both the airframe and engine 5 markets, primarily the result of poor financial performance by the airlines, a current over abundance of airplanes, and the cancellation of certain military programs. While decreased revenue was one factor in the Company's net loss of $60.0 million, or $(3.34) per share in 1993, other financial events also had a major impact on our bottom-line. Principal among these was a one-time, non-cash charge of $43 million or $(2.39) per share recorded in connection with the Company's adoption of SFAS No. 106, "Accounting For Post- Retirement Benefits Other Than Pensions". Also, in the fourth quarter of 1993, the Company recorded one-time, non-cash charges which include the loss on the disposal of its Wyman-Gordon Composites, Inc. business located in Buena Park, California. In 1993, the Company refinanced existing debt through the successful issuance of $90 million of 10 3/4% ten-year term, unsecured Senior Notes, and the signing of a new $40 million working capital facility under which we have not had to borrow other than for letters of credit. Also in 1993, the Company improved liquidity as cash on hand increased by $14.8 million over the previous year. The following is a brief review of the operations that comprise Wyman-Gordon... As noted above, in 1993 we sold Wyman-Gordon Composites to Kaiser Aerospace & Electronics Corporation. This composites operation was losing money, and did not fit with our overall corporate plan to concentrate in those areas where we have strengths. Consequently we decided to stem our losses and to focus our aerospace composites business on Scaled Composites, Inc., our advanced composites research and design subsidiary. 6 Scaled Composites, which is located in Mojave, California, once again had a very successful year in 1993, both in terms of its financial performance and with several programs involving the design, fabrication and testing of advanced prototypes primarily for aerospace and automotive customers. Scaled Composites has established a leadership position in unmanned flight systems for specialized reconnaissance flights and communication missions. Scaled Composites' innovation and technology provide Wyman-Gordon with expansion opportunities in new markets. Wyman-Gordon Investment Castings' operations share many of the same commercial and military aerospace customers as our forgings operations. And, as a consequence, these castings operations also felt the recession in the aerospace marketplace and suffered a loss of revenue. Wyman-Gordon Investment Castings has reacted to the challenges of drastic cut-backs in both the military and commercial aircraft and engine markets by reducing costs, improving productivity, developing new products and markets, and eliminating non-profitable operations. With regard to the last, the Company shut down its facility in Franklin, New Hampshire in 1993. The Company's operations in Groton, Connecticut; Tilton, New Hampshire; San Leandro, California; and Carson City, Nevada are continuing to seek ways to reduce costs. In June of 1993, the Board of Directors of Wyman-Gordon Company elected Frank J. Zugel, Vice-President - General Manager of Wyman-Gordon Investment Castings. Since his arrival, Mr. Zugel has been instrumental in broadening our investment castings market focus. Examples of this include advanced components for machinery in the electrical power, transportation and sports equipment industries. 7 Castings manufacturing has also begun to move towards cellular manufacturing which improves customer focus and reduces costs while promoting employee involvement. Wyman-Gordon's Forgings Division continues to be the largest of the Company's operations. While we continue to focus on cost reduction at this division, we also plan to expand into new markets which use our core metallurgical and manufacturing strengths. We are very excited about recent developments regarding new products. New programs currently underway at our Forgings Division include... - Large diameter, high-temperature turbine disc forgings for Land Based Gas Turbine (LBGT) applications. A large market is developing here. Land based gas turbines, which are used to generate electricity, had traditionally used components which had been forged of alloy steel, a market which was served by integrated steel mill companies. Now, in order to improve fuel efficiency and address environmental concerns, land based gas turbine manufacturers have turned to high-temperature, nickel-based superalloys for the production of the 80 to 100-inch diameter turbine disc forgings required for these turbines. Our Forgings Division's experience with aerospace gas turbine technology, high- temperature alloys and our 50,000 ton press, fits quite well with the needs of this marketplace. We are currently producing a number of large land based gas turbine discs for General Electric Company and anticipate certification by GE by mid-1994. This will gain us entrance to a world-wide market with a significant potential for Wyman-Gordon. - Nuclear forgings for General Electric's Advanced Boiling 8 Water Reactor (ABWR). While nuclear power generation is languishing in the United States, it is the energy source of choice in numerous other countries, including Japan. The stainless steel forgings which the Forgings Division is producing for GE will be used as control rod drive housings and in-core monitor housings for two ABWR's currently under construction in Japan for the Tokyo Electric Power Company (TEPCO), the world's largest private utility. TEPCO began construction on its first ABWR unit in September of 1991 and broke ground on a second unit in 1992. Wyman-Gordon forging orders for these two stations amount to more than $5 million. Of greater significance, these two nuclear plants are considered the prototypes for many more planned throughout the balance of the century. - Massive titanium bulkhead forgings for the Lockheed/Boeing F-22. In what has to be considered a breakthrough in closed-die forging technology, the Forgings Division is producing a series of the largest closed-die titanium forgings ever made. The first of the series is a one-piece, proof-of-concept, Ti 6A1-4V aft fuselage engine bay frame forging for the Lockheed/Boeing F-22 advanced tactical fighter. This massive, single-piece bulkhead is 150 inches long, 66 inches wide, weighs 3,500 pounds and has a plan view area of over 8,000 square inches...about the same footprint as a standard pickup truck. Based upon the success of this proof-of-concept forging, the Company was awarded contracts for all four of the single-piece bulkheads for the F-22 and recently received orders to produce a number of large, titanium one-piece bulkheads for two new versions of the McDonnell Douglas/Northrop F/A-18 Hornet. Our success in pushing the state-of-the-art in the forging of huge, single-piece, titanium airframe components is sending aerospace 9 engineers back to their computers with a new outlook toward the design of large bulkhead parts, generally considered to be the essential building blocks of today's aircraft. The second, and equally important, facet of our internal strengthening plan at the Forgings Division involves process improvements which currently include... - Systems. In the first quarter of 1993, the Forgings Division introduced a new, completely integrated, computer controlled manufacturing and financial control system. This system was designed for the needs of job shop manufacturers. After some start-up problems, the new system is on-line and has greatly enhanced the flow of information to and from all areas of the Forgings Division. Ultimately, this system will give the Company another leading-edge management tool which will provide timely and accurate information to manage the business...increase productivity and "thruput"...and reduce costs. - Reorganization. 1993 saw the fine tuning of a new organizational structure which was implemented at our Forgings Division in 1992. Our organization of customer-based business units, each consisting of employees working in cross-functional teams, has empowered our people with responsibility, authority, accountability and, most importantly, the impetus to develop, prioritize, decide and act. - Quality (TQM/SPC). The critical GE90 engine program, which we will touch upon later in this letter, is literally changing our approach to quality and the way we do business. Since the inception of this program in 1990, our Forgings Division has been involved in concurrent design engineering with General Electric, and in the development of a quality system which will accommodate this new way of doing business. In 1993 our new quality system was approved by GE, 10 thus enabling a seamless flow of GE90 forgings from our shop floor to General Electric. We believe that this is the way that all future business will be conducted. In 1993, we installed computerized statistical process control (SPC) data acquisition systems at all of our key processing centers. And, we established statistical process capabilities for alloy process equipment families which are the bases of our continuous improvement efforts. Finally, as the overall structure of our Forgings Division has been reconfigured, we have been re-writing our quality business system using ISO-9000, an international quality standard, as the basic framework. - Cycle time reduction. This need is the result of external demands...the demands of our customers for shorter delivery times. Over the past two years we have reduced our cycle time from an average of 22 weeks to an average of 12 weeks. While we are pleased with this improvement, we also recognize that more needs to be done in this area in order to maintain our status as a world class manufacturer. Most of our shareholders are familiar with our outreach to and partnerships with major customers. These programs include our participation as a supplier-partner to General Electric on the production of all of the major forged rotating parts for the GE9O engine. The GE90 is scheduled to be certified for the Boeing 777 in November of 1994. General Electric has 88 firm orders and 58 options on this engine. Our partnership with Pratt & Whitney and Western Aerospace, an Australian firm, involving the design, construction and operation of a plant in Perth, Australia, for the production of aerospace grade, 11 nickel-based superalloy casting and forging stock, is progressing on schedule. Western Australian Specialty Alloys (WASA), began its melting trials in the fourth quarter of 1993 and is currently producing qualification heats for casting applications. Initial runs to produce forging ingot will begin in the second quarter of 1994 and, by the first quarter of 1995, it is anticipated that WASA will have shipped material to Wyman-Gordon for subsequent forging and qualification by Pratt & Whitney. Our Forgings Division is also involved in other plans which are an integral part of strengthening the Company through external sources. In 1993 we set up an office and a staff in Moscow, Russia, a preliminary step to establishing marketing and manufacturing relationships in Russia and in other states of the newly formed Confederation of Independent States. This action was undertaken in response to the opportunities which exist in this developing economic arena. Progress has been made and strong relationships are developing which have led to new orders. Of course the most significant factor of our plan to strengthen the Company is the acquisition of Cameron Forged Products, a company with one of the best reputations in the forging industry. On January 14, 1994, having obtained clearance for the transaction from the Federal Trade Commission, the Company entered into a Stock Purchase Agreement with Cooper which, if ratified by Wyman-Gordon stockholders, will complete the acquisition of Cameron Forged Products for 16.5 million new shares of Wyman-Gordon common stock and $5 million in cash, payable in future periods as provided in the Stock Purchase Agreement. Cameron produces high quality forgings and extrusions in major 12 manufacturing facilities in Houston, Texas (1,283,800 square foot plant) and in Livingston, Scotland (517,200 square foot plant). Cameron also operates a superalloy powder metals facility in Brighton, Michigan. Cameron has a wide range of forging presses including an 8,000 ton isothermal press and hydraulic presses from 11,000-ton to 55,000-ton capacities. Several of these presses are designed to utilize a multiple-ram forging technique, and three of the presses have exceptionally large extrusion capabilities. Most of Cameron's large presses are equipped with computer controls, as are Wyman-Gordon's, to ensure process repeatability. Both Wyman-Gordon and Cameron participate in the all-important jet engine market, and, combined with them, we will have the largest share of that market. Each company also has strengths in markets where the other does not...Wyman-Gordon in the large airframe forging market, Cameron in the power generation and offshore drilling extrusion market. Each of these companies brings its own uniqueness to the marketplace...and each brings certain similarities. The uniqueness of each company will increase market opportunities, while similarities will, in concert, add strength through efficiency and cost reduction. The combination of these companies will create a new and innovative forging company. One with extended global reach, enhanced technical expertise and exceptional manufacturing facilities. We enter a new chapter in the one hundred and eleven year history of Wyman-Gordon Company. We firmly believe that the employees who have been so dedicated to the success of both Wyman- Gordon and Cameron will bring that same sense of dedication to this unique new enterprise. 13 _______________________ John M. Nelson Chairman and Chief Executive Officer ________________________ David P. Gruber President and Chief Operating Officer 14 A special note from the Chairman... I am pleased to announce that, effective with this year's Annual Stockholders Meeting, I will turn over my duties as Chief Executive Officer to David P. Gruber. I have worked with David Gruber for sixteen years, both at the former Norton Company and at Wyman-Gordon. In October of 1991, five months after I became CEO at Wyman-Gordon, we hired Mr. Gruber as President and Chief Operating Officer with the anticipation that he would become CEO in two to three years. He has been totally responsible for running the Company's operations on a day-by-day basis, as well as participating in all top management decisions. Mr. Gruber is extremely qualified to step into the position of CEO, and I am pleased that the Board of Directors has approved this transition plan. I will continue as Chairman of the Board of Directors and both Mr. Gruber and I look forward to an exciting and challenging future for Wyman-Gordon. _______________________ John M. Nelson Chairman 15 MANAGEMENT'S DISCUSSION Business segment, products and markets Wyman-Gordon Company, founded in 1883, operates primarily in one business segment and is a leading producer of highly engineered, technically advanced components, primarily for the aerospace industry. The Company uses forging and investment casting technologies to produce components to exacting customer specifications for technically demanding applications such as jet turbine engines and airframes and designs and produces prototype products using composite technologies. The Company manufactures components for most of the major commercial and United States defense aerospace programs. The Company believes that it is the only firm to provide the aerospace industry with a combination of forging, casting and composites technologies for the production of high quality components and prototypes, and that it produces the broadest offering of aerospace forgings available on the market. The Company's Forgings Division operates a number of hydraulic forging presses which are rated from 8,000 tons to 50,000 tons capacity, steam-driven forging hammers from 1,000 pounds to 35,000 pounds and a 220 ton ring-rolling mill. This equipment is used to produce a wide range of open-and closed-die forgings and seamless rolled rings from alloys of aluminum, steel and titanium as well as high-temperature nickel-based alloys. The Forgings Division also uses advanced metal-working techniques such as hot-die forging and isothermal forging to produce highly configured near-net shape components. The Forgings Division melts titanium into ingot and converts ingot to billet in its cogging presses. These billets are principally used in the production of forgings, but may be sold as-is or converted into bar product or engineered mults for subsequent sale. The Company's investment castings operations, Wyman-Gordon Investment Castings, Inc. (WGIC) uses modern, automated, high-volume production equipment and both air-melt and vacuum-melt furnaces to produce a wide variety of sophisticated, complex investment castings. WGIC investment castings are made of a range of metal alloys including aluminum and magnesium, steel, titanium and high-temperature nickel-based alloys. The Company's composite operation, Scaled Composites, Inc., plans, proposes, designs, fabricates and tests prototypes for aerospace, automotive and other customers. 16 The principal markets served by the Company are commercial aerospace and defense equipment. Revenue from these markets over the last three years, excluding the Company's automotive crankshaft operations divested in 1991, has been as follows:
1993 1992 1991 -------------- -------------- -------------- % of % of % of Revenue Total Revenue Total Revenue Total ------- ----- ------- ----- ------- ----- Commercial aerospace $127,635 53% $171,312 57% $161,075 53% Defense equipment 101,329 42 113,029 38 135,573 44 Other 10,797 5 14,540 5 9,982 3 -------- --- -------- --- -------- --- Total $239,761 100% $298,881 100% $306,630 100% ======== === ======== === ======== ===
The backlog of unfilled orders from customers in the various markets at year-end over the last three years has been as follows:
1993 1992 1991 -------------- -------------- -------------- % of % of % of Backlog Total Backlog Total Backlog Total ------- ----- ------- ----- ------- ----- Commercial aerospace $167,740 65% $205,771 66% $266,103 69% Defense equipment 82,000 32 97,224 31 103,648 27 Other 6,519 3 6,684 3 17,154 4 -------- --- -------- --- -------- --- Total $256,259 100% $309,679 100% $386,905 100% ======== === ======== === ======== ===
17 Results of operations and financial condition 1993 Compared to 1992 Revenues for 1993 decreased $59.1 million or 19.8% from 1992. This decline in revenues was primarily attributable to continued sluggishness in the commercial aerospace industry during 1993. Gross margins in 1993 were $16.5 million or 6.9% of revenues as compared to $50.8 million or 17.0% of revenues in 1992. The Company's gross margins excluding depreciation were 12.4% and 21.5% of revenues in 1993 and 1992, respectively. The decline in gross margins during 1993 as compared to 1992 is a result of (1) lower production volume, (2) lower LIFO credits recorded in 1993 as compared to 1992 and (3) competitive pricing which is continuing to place pressure on the Company's gross margins. LIFO inventory credits, which include both LIFO liquidation and deflation effects, of $7.9 million and $22.8 million were recognized in 1993 and 1992, respectively. Excluding depreciation and the benefits of the LIFO credit, the Company's gross margins were 9.1% and 15.0% of revenues in 1993 and 1992, respectively. Selling, general and administrative expenses decreased to $22.5 million in 1993 from $23.5 million in 1992, but increased as a percent of revenues from 7.9% in 1992 to 9.4% in 1993 resulting from the revenue decline. Selling, general and administrative expenses, excluding depreciation, as a percent of revenues were 8.9% and 7.5% in 1993 and 1992, respectively. The decrease in selling, general and administrative expenses is mainly due to lower payroll costs from reductions in personnel. Selling, general and administrative expenses in 1993 include a $2.4 million fourth quarter charge resulting from a change in estimated cash surrender values provided by the Company's insurance actuaries on Company-owned life insurance policies. In November 1993, the Company sold substantially all of the net assets and business operations of its Wyman-Gordon Composites, Inc. operations. The Company recorded a non-cash charge on the sale in 1993 of $2.5 million. Interest expense increased to $9.9 million in 1993 from $5.8 million in 1992 primarily as a result of higher interest rates on the 10.75% Senior Notes due 2003 (the "Senior Notes") as compared to that on the debt retired with the proceeds of the Senior Notes. The average debt balance was $87.7 million and $84.8 million in 1993 and 1992, respectively. The Company also wrote off $1.7 million in bank fees related to the Company's prior credit facility during 1993. Miscellaneous, net income was $1.3 million in 1993 and $0.3 million in 1992. Miscellaneous income in 1993 reflects primarily the gain of approximately $3.3 million on the sale of an investment. Miscellaneous income in 1992 reflects primarily the gain of approximately $0.9 million on the sale of an investment and a gain of approximately $0.6 million from a settlement of an overfunded pension plan terminated in a prior year. 18 1992 Compared to 1991 Revenues for 1992 decreased $56.5 million or 15.9% from 1991, primarily as a result of the inclusion of $48.8 million in revenue from the Company's divested automotive crankshaft operations in 1991. Excluding the effects of the divested automotive crankshaft operations, in 1992 the Company experienced a decrease in revenues of $7.7 million or 2.5% from 1991. This decrease was primarily attributable to a decrease in revenues of approximately $22.5 million in the defense aerospace market, offset in part by an increase in revenues of approximately $10.2 million in the commercial aerospace market. The increase in commercial aerospace revenues was primarily attributable to shipments of parts for the larger jet engines manufactured by General Electric and Pratt & Whitney for widebody aircraft. The Company's gross margins excluding the divested crankshaft operations increased to 17.0% of revenues in 1992 from 5.2% of revenues in 1991. The Company's gross margins, excluding depreciation and the divested automotive crankshaft operations, improved to 21.5% of revenues in 1992 from 11.1% of revenues in 1991. The Company believes that the majority of this increase is attributable to the implementation of various management programs designed to improve operating performance of the Company. Specifically, the increase in gross margins is attributable to (1) a LIFO credit of $22.8 million in 1992 as compared to $2.6 million in 1991, (2) significant reductions in personnel, (3) improved production cycle times, and (4) lower energy expense due to the renegotiation of a power contract. Excluding the benefit of the LIFO credit, depreciation and the divested automotive crankshaft operations, the Company's gross margins increased to 13.9% of revenues in 1992 from 10.2% of revenues in 1991. 19 Selling, general and administrative expenses excluding the divested automotive crankshaft operations, as a percentage of revenue was 9.0% in 1991 and 7.9% in 1992. Selling, general and administrative expenses from ongoing operations, excluding depreciation, decreased from $26.3 million in 1991 to $22.4 million in 1992 or, as a percentage of revenues from ongoing operations, from 8.6% in 1991 to 7.5% in 1992. Selling, general and administrative expenses, excluding depreciation, from the divested automotive crankshaft operations totalled $3.1 million during 1991. The decrease in selling, general and administrative expenses from 1991 to 1992 was attributable to lower salary and fringe benefit expenses due to lower personnel levels and the divestiture of the automotive crankshaft operations. Interest expense and miscellaneous, net decreased from $10.6 million in 1991 to $5.5 million in 1992, or 48.1%. Interest expense decreased $2.3 million (or 28.3%) during 1992 when compared to 1991 as a result of lower interest rates (the average rate was 6.5% in 1992 compared to 8.2% in 1991) and lower debt balances (average debt was $84.8 million in 1992 compared to $96.6 million in 1991). The increase in miscellaneous income during 1992 is primarily attributable to the gain on the sale of an investment totaling approximately $0.9 million, and a gain of approximately $0.6 million from a settlement of an over-funded pension plan terminated in a prior year. No provision for income taxes was recorded in 1992 because the Company used tax deductions, primarily related to the restructuring reserve recorded in 1991, which had not been previously recognized as reductions in the tax provision in the prior years' financial statements. 20 Liquidity and Capital Resources Cash provided by operations in 1993 resulted primarily from $1.0 million in earnings before depreciation and amortization, the non-cash loss on the sale of production facilities and the adoption of SFAS 106 (see Accounting and Tax Matters) and decreases in working capital of $23.0 million, offset by increases in non-working capital items of $7.1 million and expenditures of $9.6 million for restructuring, disposal and environmental activities. As of December 31, 1993, the Company expects to spend $0.6 million in 1994 and $5.4 million thereafter on environmental activities. The Company has completed all environmental projects within establish timetables and is continuing to do so at the present time. In connection with its 1991 restructuring, the Company expects to expend an additional $12.7 million over the next several years, including approximately $3.8 million in 1994 and $8.9 million thereafter. For 1994 and thereafter, these expenditures include consolidation and reconfiguration of existing facilities of $3.0 million in 1994 and $7.1 million thereafter, and severance costs of $0.8 million in 1994 and $1.8 million thereafter. During 1991 and the years which followed, the Company has made substantial progress in implementing its 1991 restructuring plan. The consolidation and reconfiguration of the Company's two Massachusetts forging facilities is substantially complete, there are some retooling and relocation activities which still remain to be completed in 1994 and thereafter. The process of divesting the Company's automotive crankshaft operations is virtually complete with minor costs remaining. In 1991 the Company charged $52.6 million against the newly established reserve, $51.9 million of non-cash charges to write assets down to their realizable value and $0.7 million of cash charges incurred from consolidation and reconfiguration of existing facilities. In 1992 the Company charged $2.4 million of non-cash charges against the reserve in order to write-down certain assets after consolidation and reconfiguration to their realizable value, cash charges were made against the reserve for consolidation and reconfiguration of existing facilities of $21.1 million and for severance and related costs of $2.2 million. In 1993 the Company made non-cash charges against the reserve of $1.7 million due to a write-off of inventory which had been on hand prior to December 31, 1991 and was identified as excess or obsolete, cash charges were made against the reserve for consolidation and reconfiguration of existing facilities of $4.8 million and for severance and related costs of $2.0 million. 21 A summary of charges made or estimated against 1991 restructuring and disposal reserves is as follows: (000's millions): YEARS ENDED DECEMBER 31,
1991 1992 1993 1994 Thereafter Total CASH ---- ---- ---- ---- ---------- ----- ---- Consolidation and Reconfiguration of existing facilities $ 0.7 $21.1 $4.8 $3.0 $7.1 $36.7 Severance - 2.2 2.0 0.8 1.8 6.8 ----- ----- ---- ---- ---- ----- Total cash charges 0.7 23.3 6.8 3.8 8.9 43.5 Non-Cash Asset Revaluation 51.9 2.4 1.7 - - 56.0 ----- ----- ---- ---- ---- ----- Total charges against reserve $52.6 $25.7 $8.5 $3.8 $8.9 $99.5 ===== ===== ==== ==== ==== =====
The Company from time to time expends cash on capital expenditures for more cost effective operations and joint development programs with the Company's customers. Capital expenditures amounted to $10.2 million, $11.2 million and $13.9 million in the years ended December 31, 1991, 1992 and 1993, respectively. Capital expenditures in the foreseeable future are not expected to vary materially from historical levels. As of December 31, 1993, the Company had contributed $4.1 million in cash towards its share of the capital requirements of its Australian joint venture for the production of nickel-based superalloy. The Company is committed to contribute an additional $3.4 million to the joint venture. However, the joint venture has entered into a credit agreement with an Australian bank which the Company expects will provide sufficient liquidity to meet the joint venture's future cash requirements. The Company has guaranteed 25% of the joint venture's obligations under the credit agreement, this guarantee expires at such time as the joint venture demonstrates its ability to produce commercially acceptable products. In addition, the Company has committed to expend $5.7 million on a waste water treatment facility to comply with an administrative order, of which $1.4 million had been spent as of December 31, 1993. 22 On March 16, 1993, the Company issued $90.0 million of 10 3/4% Senior Notes due 2003. The Company used approximately $75.0 million of net proceeds from the sale of the Senior Notes, together with its new working capital credit facility discussed below, to retire indebtedness, replace outstanding letters of credit and terminate its Prior Credit Agreement. In conjunction with the issuance of the Senior Notes, the Company contemporaneously entered into a three year $40.0 million revolving credit agreement with a lending institution. With the exception of the issuance of letters of credit, there are no borrowings under this credit facility. The primary sources of liquidity available in 1994 to fund the Company's operations, anticipated expenditures in connection with its 1991 restructuring, planned capital expenditures and planned environmental expenditures include available cash ($14.8 million at December 31, 1993), borrowing availability under the Company's $40.0 million revolving credit agreement, cash generated by operations and reductions in working capital requirements through planned inventory reductions and accounts receivable management. Cash from operations and debt are expected to be the Company's primary sources of liquidity beyond 1994. The Company believes that it has adequate resources to provide for its operations and the funding of restructuring, capital and environmental expenditures. The Company's current plans to improve operating results include 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 entry into the land based gas turbine market and other markets in which the Company has not traditionally participated. Additionally, the Company anticipates that the aging of the current commercial airline fleet will result in future orders for the replacement of such fleet. The Company does not, however, expect to report a profit for 1994. 23 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 ordering raw materials as needed to fill specific orders, and by seeking fixed price arrangements with raw materials suppliers. Accounting and Tax Matters Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" ("SFAS 106"), and No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 106 requires postretirement benefit obligations to be accounted for on an accrual basis rather than the expense-as-incurred basis formerly used. The Company elected to recognize the cumulative effect of these accounting changes, resulting in a non-cash reduction in earnings for the year ended 1993 of $43.0 million or $2.39 per share. (See Note E to the Consolidated Financial Statements.) The adoption of SFAS 109 in 1993 has not had a material effect on earnings or the financial position of the Company. At December 31, 1993, the Company had approximately $57.2 million in tax net operating loss carryforwards and no tax benefits were recorded when the Company adopted SFAS 106. (See Note I to the Consolidated Financial Statements.) During 1992, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 112 "Employers Accounting for Post-employment Benefits." This standard provides that the Company follow an accrual method of accounting for benefits payable to employees when they leave the Company other than by reason of retirement. The Company currently accounts for these costs on an expense-as-incurred basis. The effect of adopting the new rule is not expected to be material to the Company's financial position or results of operations. 24 Market and dividend information Wyman-Gordon Company's common stock, par value $1.00 per share, is traded in the over-the- counter market and prices of its common stock appear daily in the NASDAQ national market quotation system. The table below lists the quarterly price range per share for the years 1993 and 1992. The quarterly price range per share is based on the high and low sales prices. In view of the Company's financial performance, the Board of Directors discontinued dividends beginning in the fourth quarter of 1991 and throughout 1992 and 1993. At December 31, 1993 there were approximately 1,600 holders of record of the Company's common stock.
Price per share ------------------------------------------- 1993 1992 ------------------- ----------------- High Low High Low ---- --- ---- --- First quarter $6 3/4 $4 5/8 $6 1/4 $3 5/8 Second quarter 5 1/4 4 5 1/2 3 3/4 Third quarter 5 1/8 3 1/2 5 1/4 3 3/4 Fourth quarter 5 1/8 4 5 5/8 4 1/8
25 REPORT OF INDEPENDENT AUDITORS To the Stockholders of Wyman-Gordon Company: We have audited the accompanying consolidated balance sheets of Wyman-Gordon and Subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of operations and retained earnings and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The consolidated financial statements of Wyman-Gordon Company and Subsidiaries as of December 31, 1991, and for the year then ended, were audited by other auditors whose report dated February 19, 1992 expressed an unqualified opinion on those statements. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Wyman-Gordon Company and Subsidiaries at December 31, 1993 and 1992, and the consolidated results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. As discussed in Notes E and I to the consolidated financial statements, in 1993 the Company changed its method of accounting for post-retirement benefits other than pensions and income taxes. Ernst & Young Worcester, Massachusetts February 11, 1994 26 Wyman-Gordon Company and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
For the years ended December 31, 1993 1992 1991 - - -------------------------------- -------- -------- -------- (000's omitted, except per share data) -------------------------------------- Revenue $239,761 $298,881 $355,390 -------- -------- -------- Less: Cost of goods sold 223,226 248,123 333,352 Selling, general and administrative expenses 22,510 23,483 30,734 Restructuring charges - - 87,966 Disposition of production facilities 2,453 - 11,498 Environmental charge - - 7,000 -------- -------- -------- 248,189 271,606 470,550 -------- -------- -------- Income (loss) from operations (8,428) 27,275 (115,160) -------- -------- -------- Other deductions (income): Interest expense 9,897 5,762 8,035 Miscellaneous, net (1,321) (282) 2,556 -------- -------- -------- 8,576 5,480 10,591 Income (loss) before income taxes and cumulative effect of changes in accounting principles (17,004) 21,795 (125,751) Income tax benefit - - 26,070 Income (loss) before cumulative effect of changes in accounting principles (17,004) 21,795 (99,681) Cumulative effect of changes in accounting principles (43,000) - - -------- -------- -------- Net income (loss) $(60,004) $ 21,795 $(99,681) ======== ======== ======== Information per share: Income (loss) before cumulative effect of changes in accounting principles $ (.95) $ 1.21 $ (5.59) Cumulative effect of changes in accounting principles (2.39) - - -------- -------- -------- Net income (loss) $ (3.34) $ 1.21 $ (5.59) ======== ======== ======== Retained earnings, beginning of year $157,712 $136,452 $240,521 Net income (loss) (60,004) 21,795 (99,681) Pension equity adjustment (1,700) (535) 961 Dividends declared - - (5,349) -------- -------- -------- Retained earnings, end of year $ 96,008 $157,712 $136,452 ======== ======== ======== Dividends declared per share $ - $ - $ .30 ======== ======== ========
The accompanying notes to the consolidated financial statements are an integral part of these financial statements. 27 Wyman-Gordon Company and Subsidiaries CONSOLIDATED BALANCE SHEETS
December 31, 1993 1992 - - ------------ -------- -------- (000's omitted) --------------- Assets Cash and cash equivalents $ 14,817 $ - Accounts receivable 51,287 68,789 Inventories 42,388 53,688 Prepaid expenses 12,480 8,685 -------- -------- Total current assets 120,972 131,162 -------- -------- Property, plant and equipment: Land, buildings and improvements 70,563 69,089 Machinery and equipment 246,311 244,189 Under construction 8,545 8,746 -------- -------- 325,419 322,024 Less accumulated depreciation 227,075 219,344 -------- -------- Net property, plant and equipment 98,344 102,680 -------- -------- Intangible assets 20,738 21,483 Pension intangible 8,368 10,617 Deferred program costs 13,561 13,539 Other assets 24,651 15,675 -------- -------- $286,634 $295,156 ======== ======== Liabilities Current maturities of long-term debt $ 77 $ 77 Accounts payable: Trade 15,177 14,874 Other 7,918 6,824 Accrued liabilities: Taxes and other - 535 Accrued payroll 2,559 2,948 Accrued restructuring, disposal and environmental 4,556 9,847 -------- -------- Total current liabilities 30,287 35,105 -------- -------- Restructuring, disposal and environmental 14,515 17,711 Long-term debt 90,461 70,538 Pension liability 14,065 14,615 Deferred income taxes and other 7,613 7,671 Postretirement benefits 41,344 - Stockholders' equity Preferred stock, no par value: Authorized 5,000,000 shares; none issued - - Common stock, par value $1.00 per share: Authorized 35,000,000 shares; issued 20,402,720 shares 20,403 20,403 Capital in excess of par value 14,296 16,049 Retained earnings 96,008 157,712 Less treasury stock, 2,399,917 shares at 1993 and 2,529,675 shares at 1992 42,358 44,648 -------- -------- 88,349 149,516 -------- -------- $286,634 $295,156 ======== ========
The accompanying notes to the consolidated financial statements are an integral part of these financial statements. 28 Wyman-Gordon Company and Subsidiaries CONSOLIDATED STATEMENT OF CASH FLOWS
For the years ended December 31, 1993 1992 1991 - - -------------------------------- --------- -------- --------- (000's omitted) ------------------------------ OPERATING ACTIVITIES: Net income (loss) $(60,004) $ 21,795 $(99,681) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 15,569 15,875 25,319 Loss from disposal of production facilities 2,453 - - Restructuring, disposal and environmental charges - - 106,464 Deferred income taxes (58) - (23,196) Cumulative effect of changes in accounting principles 43,000 - - Changes in assets and liabilities: Accounts receivable 15,139 14,699 25,013 Inventories 8,474 16,345 645 Prepaid expenses and other assets (7,114) 986 (16,777) Accrued restructuring, disposal and environmental (9,653) (25,735) - Income and other taxes (940) 2,789 (7,447) Accounts payable and accrued liabilities 311 (15,951) 8,663 -------- -------- -------- Net cash provided by operating activities 7,177 30,803 19,003 -------- -------- -------- INVESTING ACTIVITIES: Investment in acquired subsidiaries - (3,700) (770) Capital expenditures (13,866) (11,156) (10,192) Deferred program costs (22) (2,086) (9,145) Proceeds from disposal of production facilities 4,345 451 17,268 Proceeds from sale of fixed assets 393 2,282 1,066 Other, net 2,187 962 (338) -------- -------- -------- Net cash (used) by investing activities (6,963) (13,247) (2,111) -------- -------- -------- FINANCING ACTIVITIES: Payment of short-term borrowings - - (26,500) Payment of debt (70,077) (22,077) (83,810) Net proceeds from issuance of debt 84,680 - 96,644 Dividends paid - - (5,349) -------- -------- -------- Net cash provided (used) by financing activities 14,603 (22,077) (19,015) -------- -------- -------- Increase (decrease) in cash 14,817 (4,521) (2,123) Cash, beginning of year - 4,521 6,644 -------- -------- -------- Cash, end of year $ 14,817 $ - $ 4,521 ======== ======== ========
The accompanying notes to the consolidated financial statements are an integral part of these financial statements. 29 Wyman-Gordon Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. Summary of significant accounting policies Principles of Consolidation: The consolidated financial statements include the accounts of the Company and all subsidiaries. All intercompany accounts and transactions have been eliminated. Revenue Recognition: Sales and income are recognized at the time products are shipped. Reclassifications: Where appropriate, prior year amounts have been reclassified to permit comparison. Cash and Cash Equivalents: Cash equivalents include short-term investments with maturities of less than three months at the time of investment. Inventories: Inventories are valued at the lower of cost or market. For forging and casting related inventories of raw material and work-in-process, costs are determined using the last-in, first-out (LIFO) method. For remaining inventories, cost is determined using an average cost method. Most of the Company's products are produced to order and there is no finished product inventory. On certain orders, usually involving lengthy raw material procurement and production cycles, progress payments are reflected as a reduction of inventories. Production scrap and product repair costs are expensed as incurred. Long-term, Fixed Price Contracts: A substantial portion of the Company's revenues is derived from long-term, fixed price contracts with major engine and aircraft manufacturers. These contracts are typically "requirements" contracts under which the purchaser commits to purchase a given portion of its requirements of a particular component from the Company. Actual purchase quantities are typically not determined until shortly before the year in which products are to be delivered. Losses on such contracts are provided when purchase quantities of the components subject to the fixed price contract can be reasonably determined and the estimated costs to produce such components exceed the fixed price provided in the contract. Depreciable Assets and Cost in Excess of Net Assets Acquired: Property, plant and equipment, including significant renewals and betterments, are capitalized at cost and are depreciated on the straight-line method. Generally, depreciable lives range from 10 to 20 years for land improvements, 20 to 40 years for buildings and 5 to 15 years for machinery and equipment. Tooling production costs are primarily classified as machinery and equipment and are capitalized at cost less associated revenue and depreciated over 5 years. Cost of acquired businesses in excess of net assets acquired is amortized on a straight-line basis over periods up to 35 years. 30 Wyman-Gordon Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Deferred Costs: Deferred program costs are primarily inventory, production and tooling, and other miscellaneous costs which are estimated to be recoverable over future sales. Deferred program costs are classified as a long-term asset to the extent they will not be recovered within one year and are being recognized over projected production. Bank fees and related costs of obtaining credit facilities are recorded as other assets and amortized over the term of the facilities. Earnings Per Share: Per share data is computed based on the weighted average number of common shares outstanding during each year. Common stock equivalents, related to outstanding stock options and stock purchase rights of the Company, are included in per share computations unless their inclusion would not have a material effect or would be antidilutive. Impact of Adopting New Accounting Standards: During 1992, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 112 "Employers Accounting for Post-employment Benefits." This standard provides that the Company follow an accrual method of accounting for benefits payable to employees when they leave the Company other than by reason of retirement. The Company currently accounts for these costs on an as incurred basis. The effect of adopting the new rule is not expected to be material to the Company's financial position or results of operations. B. Inventories
DECEMBER 31, 1993 1992 - - ------------ ------- ------- (000'S OMITTED) ------------------ Raw material $ 9,486 $ 8,967 Work-in-process 34,476 43,886 Supplies 1,603 1,592 ------- ------- 45,565 54,445 Less progress payments 3,177 757 ------- ------- $42,388 $53,688 ======= =======
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 $33,448,000 and $41,365,000 higher than reported at December 31, 1993 and 1992, respectively. Inventory quantities were reduced in 1993, 1992 and 1991 resulting in the liquidation of LIFO inventories carried at lower costs prevailing in prior years as compared with the cost of current purchases. The effect of lower quantities decreased 1993 loss from operations by $5,469,000, increased 1992 income from operations by $18,388,000 and decreased 1991 loss from operations by $1,529,000, while the effect of deflation decreased the 1993 loss from operations by $2,448,000, increased 1992 net income from operations by $4,450,000 and had no effect on 1991 loss from operations. 31 C. Debt Long-term debt consisted of the following:
DECEMBER 31, 1993 1992 - - ------------ ------- ------- (000'S OMITTED) ------------------ Current portion of long-term debt $ 77 $ 77 ------- ------- Long-term debt Revolving credit agreement - 70,000 Senior Notes 90,000 - Other 461 538 ------- ------- Total long-term debt 90,461 70,538 ------- ------- Total $90,538 $70,615 ======= =======
From April 30, 1991 until March 16, 1993, the Company's principal credit facility was a three year Revolving Credit Agreement (the "Prior Credit Agreement") with seven institutions (the "Banks"). Under the terms of the Prior Credit Agreement, the Company could borrow up to the extent of its borrowing base comprised of eligible accounts receivable, inventory, and property, plant and equipment. Outstanding borrowings were evidenced by revolving notes bearing interest at rates based on either the Bank Base Rate (Prime) or the Eurodollar Rate. The borrowing rate in effect at December 31, 1992 was approximately 6%. The Prior Credit Agreement provided for the issuance of up to $15,000,000 of irrevocable letters of credit. The Prior Credit Agreement was collateralized by substantially all of the assets of the Company. The Prior Credit Agreement, as amended on December 31, 1991, provided that available loans could not exceed $90,000,000. The Company was obligated to pay a commitment fee of .5% on the unused portion of the facility. At December 31, 1992, there were approximately $10,970,000 of outstanding Letters of Credit. On March 16, 1993, the Company issued $90,000,000 of 10.75% Senior Notes due March 2003 (the "Senior Notes") under an indenture between the Company and a bank as trustee. The Senior Notes pay interest semi-annually commencing on September 15, 1993. The Senior Notes are general unsecured obligations of the Company, are non-callable for a five year period, and are senior to any future subordinated indebtedness of the Company. The indenture contains certain covenants including limitations on indebtedness, restrictive payments including dividends, liens, and disposition of assets. The indenture, however, does not include periodic maintenance covenants. The Company used approximately $75,000,000 of the net proceeds from the sale of the Senior Notes, together with its new working capital credit facility discussed below, to retire indebtedness, replace outstanding letters of credit and terminate the amended Prior Credit Agreement. The estimated fair value of the Senior Notes was $94,050,000 at December 31, 1993 based on quoted market price. 32 In conjunction with the issuance of the Senior Notes, the Company entered into a three year $40,000,000 Revolving Credit Agreement, (the "Credit Agreement") with a lending institution. Under the terms of the Credit Agreement, the Company may borrow or issue letters of credit to the extent of its borrowing base primarily comprised of eligible accounts receivable and inventories. Borrowings bear interest at rates based upon either the prime rate or the London Interbank Offered Rate (LIBOR Rate). This Agreement is collateralized by substantially all the current assets of the Company. The Company is obligated to pay a commitment fee of .5% on the unused portion and is subject to various covenants including financial covenants and limitations on the incurrence of additional indebtedness, capital expenditures, and dividends. There were no borrowings at December 31, 1993, but the Company had issued $5,505,000 of letters of credit under the agreement. Annual maturities of long-term debt in the next five years amount to $77,000 per year. During 1992 the Company repaid $22,077,000 of debt, representing borrowings under the Prior Credit Agreement. Total interest cost incurred amounted to $10,441,000, $5,980,000 and $8,519,000 in 1993, 1992 and 1991, respectively, and included capitalized amounts of $544,000 in 1993, $218,000 in 1992, $484,000 in 1991. Interest paid approximates the amount of interest incurred during each year. D. Pension plans The Company and its subsidiaries have pension plans covering substantially all employees. Benefits are generally based on years of service and a fixed monthly rate or average earnings during the last years of employment. Pension plan assets are invested in equity and fixed income securities, pooled funds including real estate funds and annuities. It is the Company's practice to fund pension costs to the extent that such costs are tax deductible and as required by ERISA. Contributions to the Company's pension plans were $1,897,000, $2,728,000 and $4,593,000 for the years ended 1993, 1992 and 1991, respectively. Pension expense for 1993, 1992 and 1991 included the following components:
FOR THE YEARS ENDED DECEMBER 31, 1993 1992 1991 - - -------------------------------- ------- ------- ------- (000'S OMITTED) Service cost $ 1,720 $ 1,937 $ 2,409 Interest cost on projected benefit obligation 10,955 11,083 11,136 Actual return on assets (18,107) (6,849) (22,207) Net amortization and deferral 8,208 (3,403) 13,377 ------- ------- ------- Net pension expense $ 2,776 $ 2,768 $ 4,715 ======= ======= ======= Assumed long-term rate of return on plan assets 9.0% 9.0% 9.0%
33 A minimum liability is recorded in connection with certain underfunded pension plans whose liabilities exceed assets. The minimum liability is computed each year and was $14,065,000 in 1993, offset by an intangible pension asset of $8,368,000 and a corresponding $1,700,000 reduction to stockholders' equity. In 1992 the minimum liability was $14,615,000 offset by an intangible pension asset of $10,617,000 and a corresponding $535,000 reduction to stockholders' equity. The net balance of the cumulative reduction to stockholders' equity was $4,115,000 and $2,415,000 as of December 31, 1993 and 1992, respectively. During 1993, the Company recorded a loss of approximately $900,000 from the curtailment of pension benefits resulting from reductions in employees during 1993. During 1992, the Company recorded a gain of approximately $600,000 from a settlement of an over-funded pension plan terminated in a prior year. A reconciliation between the amounts recorded on the balance sheet and the summary table of the funding status of the pension plans is as follows:
DECEMBER 31, 1993 1992 - - ------------ -------- --------- (000'S OMITTED) Pension liability per balance sheet $(14,065) $(14,615) Prepaid pension expense included in prepaid expenses in the balance sheet 2,827 3,651 -------- -------- Net prepaid pension expense (pension liability) $(11,238) $(10,964) ======== ========
34 A summary of the funding status of the pension plans and a reconciliation to the amounts recorded in the consolidated balance sheet are as follows:
DECEMBER 31, (000'S OMITTED) 1993 - - ----------------------------------------------------------------------- ASSETS ACCUMULATED EXCEEDING BENEFITS ACCUMULATED EXCEEDING BENEFITS ASSETS TOTAL ----------- ----------- ----- Actuarial present value of benefit obligations: Vested $ 88,960 $ 52,337 $141,297 Nonvested 491 426 917 -------- -------- -------- Accumulated benefit obligation 89,451 52,763 142,214 Impact of forecasted salary increases during future periods 7,346 62 7,408 -------- -------- -------- Projected benefit obligation for employee service to date 96,797 52,825 149,622 Current fair market value of plan assets 107,938 32,993 140,931 -------- -------- -------- Excess (shortfall) of plan assets over (under) projected benefit obligation 11,141 (19,832) (8,691) Unrecognized net (gain) loss (7,880) 4,938 (2,942) Unrecognized net (asset) obligation at transition (539) 6,228 5,689 Unrecognized prior service costs 5,810 2,961 8,771 Adjustment required to recognize minimum liability - (14,065) (14,065) -------- -------- -------- Net prepaid pension expense (pension liability) $ 8,532 $(19,770) $(11,238) ======== ======== ======== Estimated annual increase in future salaries 3.0 - 5.0% Weighted average discount rate 7.5%
35
DECEMBER 31, (000'S OMITTED) 1992 - - ------------------------------------------------------------------------ ASSETS ACCUMULATED EXCEEDING BENEFITS ACCUMULATED EXCEEDING BENEFITS ASSETS TOTAL ----------- ----------- ----- Actuarial present value of benefit obligations: Vested $ 86,023 $ 50,350 $136,373 Nonvested 411 511 922 -------- -------- -------- Accumulated benefit obligation 86,434 50,861 137,295 Impact of forecasted salary increases during future periods 8,879 135 9,014 -------- -------- -------- Projected benefit obligation for employee service to date 95,313 50,996 146,309 Current fair market value of plan assets 101,354 31,726 133,080 -------- -------- -------- Excess (shortfall) of plan assets over (under) projected benefit obligation 6,041 (19,270) (13,229) Unrecognized net (gain) loss (3,697) 3,168 (529) Unrecognized net (asset) obligation at transition (606) 8,074 7,468 Unrecognized prior service costs 6,433 3,508 9,941 Adjustment required to recognize minimum liability - (14,615) (14,615) -------- -------- -------- Net prepaid pension expense (pension liability) $ 8,171 $(19,135) $(10,964) ======== ======== ======== Estimated annual increase in future salaries 5.0% Weighted average discount rate 8.3%
The Company and its subsidiaries also maintain savings/investment plans for most full-time salaried employees. Employer contributions to these defined contribution plans are made at the Company's discretion and are reviewed periodically. Such contributions amounted to $134,000, $375,000 and $290,000 during 1993, 1992 and 1991, respectively. Additionally, the Company contributed 58,927 shares of stock from Treasury to one of its defined contribution plans. 36 E. Other postretirement benefits In addition to providing pension benefits, the Company and its subsidiaries provide most retired employees with health care and life insurance benefits. The majority of these health care and life insurance benefits are provided through insurance companies, some of whose premiums are computed on a cost plus basis. The annual cost of these benefits on the expense- as-incurred basis amounted to $4,849,000 in 1992 and $5,208,000 in 1991. Effective January 1, 1993, the Company adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." This standard requires companies to accrue postretirement benefits during the years the employees are working and earning benefits for retirement, as contrasted to the expense-as-incurred basis that the Company followed in 1992 and prior years. The Company elected to recognize the cumulative effect of the accounting change, resulting in a non-cash reduction in earnings in 1993 of $43,000,000 or $2.39 per share. Substantially all of the Aerospace Forgings Division and Corporate retirees and full-time employees are or become eligible for these postretirement health care and life insurance benefits if they meet minimum age and service requirements. Increases in the health care trend rate were assumed at 12%, 10% and 8% for 1993, 1994 and 1995, respectively. At that time, the Company contribution level is frozen and unaffected by inflation. A 1% increase in the health care trend rate over the next three years would increase the accumulated postretirement benefit obligation by approximately $1,464,000 and the ongoing service and interest cost by approximately $165,000 (both pre-tax). The weighted average discount rate used in determining the amortization of the accumulated postretirement benefit obligation was 7.5% and 9% at December 31, 1993 and 1992, respectively, and the average remaining service life was 20 years. The postretirement benefit expense in 1993 was $3,830,000, the components of which were service cost of $170,000 and interest cost on the benefit obligation of $3,660,000. The expense was $1,116,000 or $.06 per share less than what the Company would have recorded as expense under the expense as incurred basis in 1993. During 1993, the Company recorded a gain of approximately $540,000 from the curtailment of postretirement benefits resulting from reductions in employees during 1993. The Company has no plans for funding the liability and will continue to pay for retiree medical costs as they occur. The following cost components are included in the accumulated postretirement benefit obligation calculation at December 31, 1993 and 1992: 37
DECEMBER 31, DECEMBER 31, 1993 1992 ------------ ------------ Accumulated postretirement benefit obligation: Retirees $(39,141,000) $(38,449,000) Fully eligible active plan participants (2,690,000) (2,165,000) Other active plan participants (2,967,000) (2,386,000) ------------ ------------ (44,798,000) (43,000,000) Plan assets at fair value - - ------------ ------------ Accumulated postretirement benefit obligation in excess of plan assets (44,798,000) (43,000,000) Unrecognized net gain from past experience different from that assumed and from changes in assumptions 3,454,000 - Unrecognized transition obligation - 43,000,000 ------------ ------------ Accrued postretirement benefit cost $(41,344,000) $ - ============ ============
The accumulated postretirement benefit obligation for health insurance is $40,768,000 and $39,381,000 and for life insurance is $4,030,000 and $3,619,000 at December 31, 1993 and 1992, respectively. 38 F. Stock option plans On October 21, 1991, the Board of Directors adopted a Long-Term Incentive Plan (the "Plan"). The Plan was approved by the stockholders of the Company in April 1992 and is administered in all respects by the Management Resources and Compensation Committee of the Board (the "Committee"), which has plenary authority to interpret the Plan and to adopt rules relating thereto. The Committee may also determine the number, frequency and timing of awards, as well as the type of award and its exercise price, if any, prescribes any performance criteria to be met and any restrictions on exercise and determines any other terms or conditions, including schedules for vesting and exercisability and the conditions under which vesting and exercisability may be accelerated, such as in the event of a change in control of the Company. The Committee may grant awards in the form of non-qualified stock options or incentive stock options to those key employees of the Company and its subsidiaries, including executive officers, it selects to purchase in the aggregate up to 1,750,000 shares of newly-issued or treasury common stock. The exercise price of non-qualified stock options may not be less than 50% of the fair market value of such shares on the date of grant or, in the case of incentive stock options, 100% of the fair market value on the date of grant. Awards of stock appreciation rights ("SAR's") may also be granted, either in tandem with grants of stock options (and exercisable as an alternative to the exercise of stock options) or separately. SAR's allow the grantee to receive without payment upon surrender of the SAR's, and tandem options, if any, an amount payable in cash, shares or a combination thereof, at the Committee's discretion, not exceeding the value on the exercise date of the number of shares for which the SAR's are exercised over the exercise price of the SAR's. The exercise price of an SAR may not be less than 50% of the fair market value of a share on the date of grant or, in the case of an SAR related to an option, not less than the option exercise price. In addition, the Committee may grant other awards that consist of or are denominated in or payable in shares or that are valued by reference to shares, including, for example, restricted shares, phantom shares, performance units, performance bonus awards or other awards payable in cash, shares or a combination thereof at the Committee's discretion. The 1975 Executive Long-Term Incentive Program (the "Program"), as amended, provided for the granting of stock options, alternative common stock appreciation rights and performance bonus award units to key employees of the Company and its subsidiaries. 39 The 1975 program expired on December 31, 1992, except as to outstanding grants. Option activity under the 1975 Program and the 1991 Plan for the three years ended December 31, 1993 was as follows:
OPTION PRICE RANGE SHARES ----------- ------ Outstanding at December 31, 1990 $6.25 - $29.00 674,248 1991: Granted 3.75 - 6.63 1,263,325 Terminated 6.25 - 29.00 (45,407) Expired 19.00 (52,920) --------- Outstanding at December 31, 1991 3.75 - 29.00 1,839,246 1992: Granted 5.00 321,502 Terminated 3.75 (185,001) Exercised 3.75 (16,666) Cancelled 3.75 - 29.00 (65,895) --------- Outstanding at December 31, 1992 3.75 - 29.00 1,893,186 1993: Granted 5.00 - 6.00 285,500 Terminated 3.75 - 29.00 (370,275) Exercised 3.75 (70,831) --------- Outstanding at December 31, 1993 1,737,580 =========
Options for 867,131, 676,527 and 428,564 shares, were exercisable at December 31, 1993, 1992 and 1991, respectively. At December 31, 1993, 619,500 shares were available for future grants. There were no options granted at less than fair value in the three years ended December 31, 1993. 40 G. Stock purchase rights In August 1988, the Company adopted a Rights Agreement (the "Rights Agreement"), and in October 1988, the Company declared a dividend distribution of one common stock purchase Right on each outstanding share of common stock. The Rights will become exercisable at a purchase price of $55 each on the distribution date which occurs if a person or group acquires or makes an offer to acquire 20% or more of the Company's common stock. In the event that at any time following the distribution date, (i) a person or group becomes the beneficial owner of 20% or more of the then outstanding shares of common stock (except pursuant to an offer for all outstanding shares of common stock which the continuing Directors determine to be fair to and otherwise in the best interests of the Company and its stockholders), (ii) the Company is the surviving corporation in a merger and its common stock is not changed or exchanged, (iii) an acquiring person engages in one or more self-dealing transactions as set forth in the Rights Agreement, or (iv) during such time as there is an acquiring person, an event occurs which results in such person's ownership interest being increased by more than 1%, each holder of a Right will thereafter have the right to receive, upon exercise of the Right and payment of the purchase price, common stock or a combination of common stock, cash, preferred stock or debt having a value equal to two times the purchase price of the Right. Alternatively, in such event and with the approval of the continuing Directors, each holder of a Right will have the right, or may be permitted only, to receive shares of common stock having a value equal to the purchase price upon surrender of the Right to the Company and without payment of the purchase price. Notwithstanding any of the foregoing, following the occurrence of any of the events set forth in this paragraph, all Rights that are beneficially owned by the acquiring person will be null and void. However, Rights are not exercisable following the occurrence of any of the events set forth above until such time as the Rights are no longer redeemable by the Company. In the event that, at any time following the date on which a person or group acquires 20% or more of the Company's outstanding shares (i) the Company is acquired in a merger or other business combination transaction in which the Company is not the surviving corporation (other than certain exceptions mentioned in the Rights agreement) or (ii) 50% or more of the Company's assets or earning power is sold or transferred, each holder of a Right which has not been previously voided shall thereafter have the right to receive, upon exercise, common stock of the acquiring company having a value equal to two times the purchase price of the Right. The Rights may generally be redeemed by the Company at a price of $.02 per Right and they expire in November 1998. H. Commitments and contingencies At December 31, 1993, 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. 41 As of December 31, 1993, the Company had contributed $4,100,000 in cash towards its share of the capital requirements of its Australian joint venture for the production of nickel-based superalloy. The Company is committed to contribute an additional $3,400,000 to the joint venture. However, the joint venture has entered into a credit agreement with an Australian bank which the Company expects will provide sufficient liquidity to meet the joint venture's future cash requirements. The Company has guaranteed 25% of the joint venture's obligations under the credit agreement totalling $17,500,000. This guarantee expires at such time as the joint venture demonstrates its ability to produce commercially acceptable products. I. Federal, foreign and state income taxes As of January 1, 1993, the Company adopted Financial Accounting Standards Board Statement No. 109, ("SFAS 109"), Accounting for Income Taxes. Under SFAS 109, the liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted marginal tax rates and laws that will be in effect when the differences are expected to reverse. Prior to the adoption of SFAS 109, income tax expense was determined using the liability method prescribed by Financial Accounting Standards Board Statement No. 96, ("SFAS 96"), Accounting for Income Taxes, which is superseded by SFAS 109. Among other changes, SFAS 109 relaxes the recognition and measurement criteria for deferred tax assets required by SFAS 96, and requires the recognition of a valuation reserve in those circumstances where it is more likely than not that some portion of the deferred tax asset will not be realized. As permitted under SFAS 109, the Company has elected not to restate the financial statements of prior years. The impact of this change on the results of operations for the year ended December 31, 1993 was immaterial. Income tax benefit (expense) is comprised of the following (000's omitted):
FOR THE YEARS ENDED DECEMBER 31, 1993 1992 1991 - - -------------------------------- ---- ---- ---- Current: Federal $ - $ - $ 3,725 State and foreign - - (250) ------- ------- ------- - - 3,475 Deferred tax benefits - - 22,595 ------- ------- ------- $ - $ - $26,070 ======= ======= =======
The Company received income tax refunds of $282,000 and $3,725,000 during 1993 and 1992, respectively, and made income tax payments of $1,145,000 during 1991. The deferred income tax benefit reflects changes in the expected impact of temporary differences between the amounts of assets and liabilities for financial statement purposes and the corresponding amounts determined under the applicable tax laws and regulations. 42 The benefit (provision) for income taxes is at a rate other than the federal statutory tax rate for the following reasons ($000's omitted):
FOR THE YEARS ENDED DECEMBER 31, - - -------------------------------- 1993 1992 1991 ---------------- ---------------- ---------------- U.S. federal statutory tax rate $ 5,781 34.0% $(7,410) (34.0)% $42,755 34.0% Recognition of previously unrecognized deferred tax assets - - 7,410 34.0 - - Tax carryforwards without current tax benefits (5,781) (34.0) - - (16,520) (13.3) State income taxes, net of federal tax benefit - - - - (165) - ------- ---- ------- --- ------- ---- Income tax benefit (expense) $ - -% $ - -% $26,070 20.7% ======= ==== ======= === ======= ====
Tax net operating loss carryforwards of $57,200,000 and book net operating loss carryforwards of $79,000,000 begin expiring in the year 2006. The principal components of deferred tax assets and liabilities were as follows (000's omitted):
AS ADJUSTED DECEMBER 31, JANUARY 1, 1993 1993 ------------ ----------- Deferred tax assets: Provision for postretirement benefits $ 14,057 $ 14,620 Net operating loss carryforwards 19,380 10,500 Restructuring provisions 6,134 10,841 -------- -------- 39,571 35,961 Valuation Allowance (27,714) (25,120) -------- -------- 11,857 10,841 -------- -------- Deferred tax liabilities: Accelerated depreciation 8,335 11,257 Other 6,145 2,207 -------- -------- 14,480 13,464 -------- -------- Net deferred tax liability $ 2,623 $ 2,623 ======== ========
The net deferred tax liability is included in Deferred Income Taxes and Other on the accompanying consolidated balance sheet and has not been disclosed separately on the face of the balance sheets. 43 J. Contributed capital and other information There have been no substantial changes in common stock for the two years ended December 31, 1993. At December 31, 1993, the Company had reserved 2,357,080 shares of common stock for stock options related to the 1975 Executive Long-Term Incentive Program and the 1991 Long-Term Incentive Plan. Capital in excess of par value decreased $1,753,000 and $567,000 in 1993 and 1992, respectively. The decrease resulted from Treasury stock activity when either stock options were exercised or when the Company matched employee contributions to one of its defined contribution plans. There were 17,936,000, 17,848,000 and 17,831,000 average shares outstanding during the years ended December 31, 1993, 1992 and 1991, respectively. Research and development expenses, including related depreciation, amounted to $2,778,000, $3,013,000 and $3,333,000 for the years ended December 31, 1993, 1992 and 1991, respectively. There were $20,738,000 of intangible assets net of accumulated amortization of $7,630,000 and $21,483,000 of intangible assets net of accumulated amortization of $6,482,000 at December 31, 1993 and 1992, respectively. The Company is engaged principally in the engineering, production and marketing of high-strength, high-technology forged, cast metal and composite components used for a wide variety of primarily aerospace applications and the design and production of prototype products using composite technologies. The Company's accounts receivable are concentrated with a small number of Fortune 500 companies participating in the aerospace industry, with whom the Company has long-standing relationships. Accordingly, management considers credit risk to be low. Sales to the Company's two largest customers amounted to $92,465,000, $111,660,000 and $130,209,000 during the years ended December 31, 1993, 1992 and 1991, respectively. K. Disposal of Operations During 1990 the Company decided to focus its resources upon aerospace markets and to divest itself of the automotive crankshaft production facilities which were no longer considered strategic. Accordingly, in 1991 the Company sold its automotive crankshaft forging facility in Danville, Illinois for approximately $16,000,000 and commenced liquidation of its automotive crankshaft machining facility in Jackson, Michigan. The Company provided $7,198,000 and $4,300,000 in the third and fourth quarters of 1991, respectively, for the estimated pre-tax costs of exiting the automotive crankshaft businesses. The provision included the write-down of assets to estimated realizable value, estimated operating losses to the date of the planned closing of machining operations, employee related costs, disposal, and other expenses. Proceeds from the sale of certain fixed assets of the Jackson, Michigan production facility approximated $451,000 in 1992 and $1,000,000 in 1991 and the remaining net assets, primarily fixed assets amounted to $2,216,000 and $3,281,000 at December 31, 1993 and 1992, respectively, and are classified as Property, Plant and Equipment on the accompanying consolidated balance sheets. Revenues of the automotive crankshaft businesses were not significant in 1992 while revenues of $48,800,000 in 1991 were included in consolidated revenues. 44 In November 1993, the Company sold substantially all of the net assets and business operations of its Wyman-Gordon Composites, Inc. operations. The Company recorded a non-cash charge on the sale in the fourth quarter of 1993 of $2,453,000. In November and December 1993, the Company received approximately $4,300,000 as the proceeds from the sale of its Wyman-Gordon Composites, Inc. operations. Revenues of the Wyman-Gordon Composites, Inc. operations of $9,149,000 in 1993, $12,847,000 in 1992 and $18,016,000 in 1991 were included in consolidated revenues, respectively. L. Restructuring of Operations and Environmental Matters During 1991, in response to the excess capacity in the forging industry and resulting declines in current and anticipated customer demand, the Company incurred pre-tax charges of $87,966,000 and $11,498,000 in connection with a restructuring program primarily at its forging operations and disposition of its automotive crankshaft operation, respectively. A significant portion of this charge related to the consolidation of all forging operations into a single facility. This facility is being reconfigured to improve production efficiencies. This program also includes, among other items, severance of employees, acceleration of certain employee benefit programs, and streamlining of equipment and manufacturing processes. During 1991 and the years which followed, the Company made substantial progress in implementing its 1991 restructuring plan. The consolidation and reconfiguration of the Company's two Massachusetts forging facilities is substantially complete, there are some retooling and relocation activities which still remain to be completed in 1994 and thereafter. The process of divesting the Company's automotive crankshaft forging division is virtually complete with minor costs remaining. The Company has completed all environmental projects within establish timetables and is continuing to do so at the present time. In 1991 the Company charged $52,600,000 against the newly established reserve, $51,900,000 of non-cash charges to write assets down to their realizable value and $700,000 of cash charges incurred from consolidation and reconfiguration of existing facilities. In 1992 the Company charged $2,400,000 of non-cash charges against the reserve in order to write-down certain assets after consolidation and reconfiguration to their realizable value, cash charges were made against the reserve for consolidation and reconfiguration of existing facilities of $21,100,000 and for severance and related costs of $2,200,000. In 1993 the Company made non- cash charges against the reserve of $1,700,000 due to a write-off of inventory which had been on hand prior to December 31, 1991 and was identified as excess or obsolete, cash charges were made against the reserve for consolidation and reconfiguration of existing facilities of $4,800,000 and for severance and related costs of $2,000,000. 45 A summary of charges made or estimated against 1991 restructuring and disposal reserves is as follows (000's omitted): YEARS ENDED DECEMBER 31, - - ------------------------
1991 1992 1993 1994 THEREAFTER TOTAL CASH ---- ---- ---- ---- ---------- ----- ---- Consolidation and Reconfiguration of existing facilities $ 700 $21,100 $4,800 $3,000 $7,100 $36,700 Severance - 2,200 2,000 800 1,800 6,800 ------- ------- ------ ------ ------ ------- Total cash charges 700 23,300 6,800 3,800 8,900 43,500 NON-CASH -------- Asset Revaluation 51,900 2,400 1,700 - - 56,000 ------- ------- ------ ------ ------ ------- Total charges against reserve $52,600 $25,700 $8,500 $3,800 $8,900 $99,500 ======= ======= ====== ====== ====== =======
46 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 continues to design and implement a system of programs and facilities for the management of its raw materials, production processes and industrial waste to promote compliance with environmental requirements. In 1991, the Company recorded a pre-tax charge of $7,000,000 with respect to environmental investigation and remediation costs at one of the Company's facilities. Additionally, a pre-tax charge of $5,000,000 against potential environmental remediation costs upon the eventual sale of another facility is included in the 1991 restructuring charge discussed above. Pursuant to an agreement entered into with the U.S. Air Force upon the acquisition of a facility from the federal government in 1982, the Company has agreed to make additional expenditures of approximately $10,100,000 for environmental management and remediation projects at that site during the period 1992 through 1999, including $4,400,000 of planned costs in 1994 for new wastewater treatment facilities to be constructed during 1993 and 1994 in accordance with an administrative compliance order entered into with the United States Environmental Protection Agency (the "EPA"). The Company, together with numerous other parties, has also been alleged to be a potentially responsible party at four federal or state Superfund sites. The Company does not believe that liabilities related to such sites will be material in the aggregate. The Company's Grafton, Massachusetts plant location is one of 46 sites throughout the country included in the U.S. Nuclear Regulatory Commission's ("NRC") May 1992 Site Decommissioning Management Plan ("SDMP") for low-level radioactive waste. The SDMP identifies the Company's site as a "Priority C" (lowest priority) site. The NRC conducted a long range dose assessment in 1992 to determine what action, if any, it would order with respect to the site; its draft report states that the site should be remediated. However, the Company believes the NRC's draft assessment was flawed and has retained an environmental engineering firm to challenge that draft assessment. The Company has submitted the environmental engineering firm's Dose Assessment Review to NRC for consideration but has had no response from NRC to date. The Company has provided $1,500,000 for the estimated cost of the remediation. The Company believes that it may have meritorious claims for reimbursement from the U.S. Air Force in respect of any liabilities it may have for such remediation. 47 M. Selected quarterly financial data (unaudited) Selected quarterly financial data for 1993 and 1992 were as follows:
Quarter 1st 2nd 3rd 4th - - ------------------------------ ------- -------- -------- -------- (000's omitted, except per share data) 1993 - - --------------------------------------------------------------------- Revenue $ 62,916 $66,665 $56,330 $53,850 Cost of goods sold 57,033 60,409 50,364 55,420 Income (loss) from operations 520 2,072 815 (11,836)(a) Income (loss) before income taxes and cumulative effect of changes in accounting principles (3,068) (620) 1,253 (14,569) Income (loss) before cumulative effect of changes in accounting principles (3,068) (620) 1,253 (14,569) Cumulative effect of changes in accounting principles (43,000) - - - Net income (loss) (46,068) (620) 1,253 (14,569) Net income (loss) per share before cumulative effect of changes in accounting principles (.17) (.03) .07 (.82) Cumulative effect of changes in accounting principles (2.39) - - - Net income (loss) per share (2.56) (.03) .07 (.82) 1992 - - --------------------------------------------------------------------- Revenue $82,401 $73,647 $65,960 $76,873 Cost of goods sold 74,461 65,912 54,270 53,480(b) Income (loss) from operations 1,363 4,312 6,270 17,029 Income (loss) before income taxes (1,032) 2,589 4,810 15,428 Net income (loss) (1,032) 2,589 4,810 15,428 Net income (loss) per share (.06) .15 .27 .85 (a) Income (loss) from operations during the fourth quarter of 1993 reflects charges of $2,453 on the sale of substantially all of the net assets of Wyman-Gordon Composites, Inc. and $2,400 resulting from a change in estimated cash surrender values provided by the Company's insurance actuaries on Company-owned life insurance policies. (b) Cost of goods sold during the fourth quarter of 1992 reflects a $15,300 LIFO credit as a result of higher year-end shipments.
48 N. Subsequent event On January 14, 1994, the Company and Cooper Industries, Inc. ("Cooper") entered into a Stock Purchase Agreement dated as of January 10, 1994 (the "Stock Purchase Agreement") for the Company to acquire from Cooper all of the issued and outstanding shares of Cameron Forged Products Company ("Cameron") common stock, par value $.208 1/3 per share ("Cameron Common Stock"). Under the terms of the Stock Purchase Agreement, the Company will pay a purchase price for the Cameron Common Stock equal to 16,500,000 shares of the Company's common stock, par value $1.00 per share (the "Shares") and $5,000,000 in cash payable in installments as provided in the Stock Purchase Agreement. The Purchase Price will be subject to a cash adjustment to be paid by either Cooper or the Company based upon certain changes in the balance sheet of Cameron between September 26, 1993 and the date of the closing of the acquisition. As of January 10, 1994, there were 18,002,803 Shares outstanding, and after giving effect to the acquisition, Cooper will own approximately 48% of the outstanding Shares. Pursuant to an Investment Agreement dated as of January 10, 1994, between the Company and Cooper (the "Investment Agreement"), the Shares to be issued to Cooper pursuant to the Stock Purchase Agreement will be subject to certain restrictions on voting and disposition as well as certain registration rights. The Investment Agreement provides that Cooper is entitled to designate two persons to serve on the Board of Directors of the Company so long as Cooper owns more than 5% of the outstanding Shares. For a period of ten years after the Closing Date, so long as Cooper owns 5% or more of the outstanding Shares, Cooper will be subject to certain limitations on transfer of its Shares and will be required to vote its Shares either in the manner recommended to shareholders by the Board of Directors of the Company, or, at Cooper's election, in the same proportion as the vote of the other shareholders of the Company, unless the matter being voted on by the shareholders of the Company would, if approved, result in a breach of the Investment Agreement. Furthermore, the limitations on Cooper's transfer of its Shares and the voting restrictions on Cooper's shares will terminate upon the occurrence of certain Trigger Events as defined in the Investment Agreement. Consummation of the acquisition is subject to certain conditions, including, among others, approval by the Company's shareholders and the obtaining of consents from certain lenders of the Company. 49 Wyman-Gordon Company and Subsidiaries Consolidated Ten-Year Financial Review
1993 1992 1991 -------- -------- -------- Operations Revenue $239,761 $298,881 $355,390 Cost of goods sold 223,226 248,123 333,352 Restructuring, disposal and environmental charges - - 106,464 Interest expense 9,897 5,762 8,035 Income tax benefit (expense) - - 26,070 Income (loss) from continuing operations (17,004) 21,795 (99,681) Income (loss) from discontinued operations (c) - - - Income (loss) before cumulative effect of changes in accounting principles (17,004) 21,795 (99,681) Cumulative effect of changes in accounting principles (a) (43,000) - - Net income (loss) (60,004) 21,795 (99,681) Dividends paid - - 5,349 Depreciation 14,421 14,659 24,196 Capital expenditures 13,866 11,156 10,192 Backlog 256,259 309,679 386,905 Financial position Inventories 42,388 53,688 70,287 Short-term borrowings - - - Working capital 90,685 96,057 110,859 Working capital ratio 4.0 3.7 2.7 Property, plant and equipment, net 98,344 102,680 110,400 Total assets 286,634 295,156 339,154 Long-term debt 90,461 70,538 90,615 Net debt to total capitalization 42.3% 32.1% 39.4% Stockholders' equity 88,349 149,516 128,088 Total capital 178,810 220,054 218,703 Measures of profitability Income (loss) from continuing operations as a percent of: Revenues (d) (7.1) 7.3 (28.0) Average stockholders' equity during the year (d) (14.3) 15.7 (55.3) Per share data Income (loss) per share: Continuing operations (.95) 1.21 (5.59) Discontinued operations - - - Income (loss) before cumulative effect of changes in accounting principles (.95) 1.21 (5.59) Cumulative effect of changes in accounting principles (a) (2.39) - - Net income (loss) (3.34) 1.21 (5.59) Dividends paid - - .30 Stockholders' equity 4.91 8.37 7.18 Average shares outstanding 17,936 17,848 17,831
50
1990 1989 1988(b) 1987 1986 1985 1984 - - -------- -------- -------- -------- -------- -------- -------- $405,381 $372,761 $273,950 $313,527 $343,917 $388,408 $408,503 355,055 344,466 242,641 263,309 302,936 317,178 314,767 - - - - 55,000 23,321 - 8,727 4,714 1,243 2,015 2,268 2,540 1,987 (5,702) 1,864 (3,814) (12,402) 20,774 (7,271) (26,775) 8,696 (3,184) 14,472 14,563 (20,590) 8,722 36,795 - - - - - (5,281) (1,433) 8,696 (3,184) 14,472 14,563 (20,590) 3,441 35,362 - - - - - - - 8,696 (3,184) 14,472 14,563 (20,590) 3,441 35,362 14,265 14,265 14,264 14,275 14,476 15,193 15,478 24,825 22,622 20,306 22,182 26,540 23,620 21,010 13,563 22,266 32,799 21,961 17,033 18,516 19,213 392,857 350,596 315,950 255,122 260,235 319,108 366,432 76,570 80,079 83,816 81,613 96,003 104,273 86,920 26,500 39,820 11,483 - - - - 124,030 91,011 103,402 143,751 148,657 168,523 188,492 2.7 2.1 2.9 4.1 3.9 4.5 4.8 186,091 173,595 172,508 158,288 160,798 204,173 179,796 421,886 400,251 352,372 359,479 368,517 435,980 442,049 73,892 33,511 17,113 16,875 19,264 21,562 25,185 22.0% 10.8% 5.2% (13.0)% (4.2)% (6.0)% (12.2)% 232,157 240,568 254,451 257,809 257,697 316,434 331,578 306,049 274,079 271,564 274,684 276,961 337,996 356,763 2.2 (.9) 5.3 4.6 (6.0) 2.2 9.0 3.7 (1.3) 5.7 5.6 (7.2) 2.7 11.2 .49 (.18) .81 .82 (1.13) .46 1.90 - - - - - (.28) (.07) .49 (.18) .81 .82 (1.13) .18 1.83 - - - - - - - .49 (.18) .81 .82 (1.13) .18 1.83 .80 .80 .80 .80 .80 .80 .80 13.02 13.49 14.27 14.46 14.44 16.80 17.32 17,831 17,831 17,830 17,846 18,152 19,025 19,350
51 [FN] (a) Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" ("SFAS 106"), and No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 106 requires postretirement benefit obligations to be accounted for on an accrual basis rather than the "pay-as-you-go" basis formerly used. The Company elected to recognize the cumulative effect of these accounting changes, resulting in a non-cash reduction in earnings for the year ended 1993 of $43,000,000 million or $2.39 per share. (b) The Company changes its method of accounting for income taxes in accordance with Statement of Financial Accounting Standards No. 96 effective January 1, 1988 which increased net income by $8,424,000 or $.47 per share during 1988. (c) The above information reflects the reclassification of amounts applicable to the discontinued agricultural and earthmoving equipment segment in 1985. (d) Excludes the cumulative effect of changes in accounting principles in 1993. 52 CORPORATE INFORMATION --------------------- DIRECTORS E. Paul Casey Jon C. Strauss WYMAN-GORDON COMPANY Chairman President Metapoint Partners Worcester Polytechnic Corporate Offices Investment partnership Institute Grafton, Massachusetts Warner S. Fletcher Charles A. Zraket FORGINGS DIVISION Attorney and Director Former President and Fletcher, Tilton CEO Grafton, Massachusetts & Whipple, P.C. The MITRE Corporation Millbury, Massachusetts attorneys systems engineering Worcester, Massachusetts and research Robert G. Foster HONORARY DIRECTOR SUBSIDIARIES President and Director Joseph R. Carter Commonwealth Former Chairman Wyman-Gordon BioVentures, Inc. Investment Castings,Inc. private venture capital Groton, Connecticut Tilton,New Hampshire Russell E. Fuller CORPORATE OFFICERS San Leandro, California Chairman Carson City, Nevada REFCO, Inc. John M. Nelson specialty industrial Chairman and products Chief Executive Officer David P. Gruber David P. Gruber Scaled Composites, Inc. President and Chief President and Chief Mojave, California Operating Officer Operating Officer M Howard Jacobson Luis E. Leon Senior Advisor Vice President-Finance Bankers Trust and Treasurer private banking Judith S. King Sanjay N. Shah Community Volunteer and Vice President Personal Investments Assistant General Manager Forgings Division George S. Mumford, Jr. Jeremy F. Swett Professor Associate General Counsel Tufts University and Assistant Clerk John M. Nelson Wallace F. Whitney, Jr. Chairman and Vice President Chief Executive Officer General Counsel and Clerk Frank J. Zugel Vice President General Manager Wyman-Gordon Investment Castings
53 SHAREHOLDER REFERENCE: Annual Meeting: The annual meeting of shareholders will be held at 10 A.M., Tuesday, May 10, 1994 at Mechanics Hall, 321 Main Street, Worcester, Massachusetts. A formal notice of the meeting with a proxy statement and form of proxy is being mailed to each stockholder separately. STOCK TRANSFER AGENT AND REGISTRAR: The Company's agent is responsible for shareholder records and issuance of stock certificates. To resolve questions concerning these matters contact: State Street Bank and Trust Company Corporate Stock Transfer Department P.O. Box 8200 Boston, MA 02266-8200 Telephone: (800) 426-5523 10K REPORT: Single copies of the Company's 1993 Annual Report on Securities and Exchange Commission Form 10K (without exhibits) will be provided without charge to shareholders after April 1, 1994, upon written request directed to the Clerk of the Corporation, Wyman-Gordon Company, 244 Worcester Street, Box 8001, North Grafton, Massachusetts 01536-8001. EX-22 7 LIST OF SUBSIDIARIES 1 Wyman-Gordon Company 1993 Form 10-K Exhibit 22 WYMAN-GORDON COMPANY AND SUBSIDIARIES The following is a list of Wyman-Gordon's subsidiaries as of December 31, 1993:
Place of Incorporation Name of Subsidiary or Organization - - -------------------------------------- ----------------- Wyman-Gordon Investment Castings, Inc. Delaware Precision Founders, Inc. California Scaled Composites, Inc. California Wyman-Gordon Composite Technologies, Inc. California
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