1 FORM 10-Q/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) { } QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended OR { X } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from January 1, 1994 to May 28, 1994 COMMISSION FILE NUMBER 0-3085 WYMAN-GORDON COMPANY (Exact name of registrant as specified in its charter) AMENDMENT NO. 2 MASSACHUSETTS 04-1992780 (State or other jurisdiction (I.R.S. Employer incorporation or organization) Identification No.) 244 WORCESTER STREET, BOX 8001, NO. GRAFTON, MASSACHUSETTS 01536-8001 (Address of principal executive offices) Registrant's telephone number, including area code 508-839-4441 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at May 28, 1994 Common Stock, $1 Par Value 34,548,180 2 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND CHANGES IN FINANCIAL CONDITION Results of Operations The principal markets served by the Company are commercial aerospace and defense equipment. Revenue by market for the respective periods were as follows (000's omitted): Two Months Ended Two Months Ended May 28, 1994 May 29, 1993 % of % of Amount Total Amount Total Commercial Aerospace $18,322 53% $21,912 56% Defense equipment 14,919 43% 16,042 41% Other 1,467 4% 1,174 3% $34,708 100% $39,128 100% Five Months Ended Five Months Ended May 28, 1994 May 29, 1993 % of % of Amount Total Amount Total Commercial Aerospace $48,942 56% $ 55,103 54% Defense equipment 33,928 39% 42,858 42% Other 4,106 5% 4,082 4% $86,976 100% $102,043 100% Two Months Ended May 28, 1994 ("Two Months 1994") vs. Two Months Ended May 29, 1993 ("Two Months 1993") Revenues for the Two Months 1994 decreased $4.4 million or 11.3% from the comparable period of 1993. This decline in revenues was primarily attributable to continued sluggishness in the aerospace industry. Also, $1.4 million was attributable to Wyman-Gordon Composites, Inc., which was sold by the Company during November 1993, are included in Two Months 1993 revenues. The Company's gross margins were a negative 19.4% in the Two Months 1994 as compared to 5.8% in the Two Months 1993. Primarily, the decline in gross margins is the result of several significant charges totalling $8.7 million recorded in the Two Months 1994 and are identified as: (1) a change in an accounting estimate for workers' compensation which resulted in a charge to cost of sales of $4.2 million or 12.1% as a percent of revenues, (2) $.6 million charge or 2% as a percent of revenues recognized for futures contract hedging losses and (3) $3.9 million or -17- 3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND CHANGES IN FINANCIAL CONDITION (Continued) Two Months Ended May 28, 1994 (Second Quarter 1994) vs. Two Months Ended May 29, 1993 (Second Quarter 1993)(Continued) 11.2% of revenues for excess inventory. Additionally, customer invoked pricing pressures coupled with lower production volume continued to have a negative impact on margins. Gross margins benefitted from an inventory LIFO credit of $2.6 million in the Two Months 1994 as compared to $1.0 million in the same period of 1993. Excluding the benefit of the LIFO credit and significant charges, the Company's gross margins were (1.7%) and 3.3% in the Two Months 1994 and 1993, respectively. Selling, general and administrative expenses were $10.7 million or 30.8% as a percent of revenues in the Two Months 1994 as compared to $3.4 million or 8.6% as a percent of revenues in the same period of 1993. The increase in selling, general and administrative expenses is due to significant charges totalling $7.6 million recorded in the Two Months 1994 and are identified as follows: (1) $4.2 million of employee benefit related accruals including $1.4 million from changes in an accounting estimate for workers' compensation, (2) $2.9 million for resolution of contractual matters and (3) $.5 million of other significant charges. Excluding the effect of significant charges, the Company's selling, general and administrative expenses in the Two Months 1994 were $3.1 million or 8.8% as a percent of revenues as compared to $3.4 million or 8.6% as a percent of revenues in the same period of 1993. The Company recorded restructuring charges of $30.6 million during the Two Months 1994, no such charges were recognized during the corresponding period of 1993. These charges include $24.1 million of planned costs of integrating the Company's forgings operations with those of Cameron Forged Products Company ("Cameron") which the Company acquired on May 26, 1994. Restructuring charges of $5.2 million relate to the closure of a castings facility and $1.3 million in asset write-downs. The Company recorded a $2.0 million environmental charge which represents anticipated future environmental expenses related to the Company's Grafton, Massachusetts facility. Interest expense was $2.6 million in the Two Months 1994 as compared to $1.5 million for the same period of 1993. The increase in interest expense is mainly due to the write-off of $1.2 million of bank fees related to refinancing of the prior credit facility. Miscellaneous, net expense was $.1 million for the Two Months 1994 as compared to $.3 million for the same period of 1993. -18- 4 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND CHANGES IN FINANCIAL CONDITION (Continued) Five Months Ended May 28, 1994 ("Five Months 1994") vs. Five Months Ended May 29, 1993 ("Five Months 1993") Revenues for the Five Months 1994 decreased $15.1 million (or 14.8%) from the comparable period of 1993. This decline in revenues was primarily attributable to continued sluggishness in the aerospace industry. Also, $4.6 million in Five Months 1993 revenues were from Wyman-Gordon Composites, Inc. which was sold by the Company during November 1993. The Company's gross margins were a negative 7.8% for Five Months 1994 as compared to 8.0% in the Five Months 1993. Customer invoked pricing pressures coupled with lower production volume continued to have a negative impact on margins. Additionally, gross margin was negatively affected by several significant charges totalling $8.7 million recorded in the Five Months 1994 and are identified as: (1) a change in accounting estimate for workers' compensation resulted in a charge to cost of sales of $4.2 million or 4.8% as a percent of revenues, (2) $.6 million charge or 1% as a percent of revenues recognized on futures contract hedging losses and (3) $3.9 million or 4.5% of revenues for excess inventory. Gross margins benefitted from an inventory LIFO credit of $3.1 million in the Five Months 1994 as compared to $2.9 million in the same period of 1993. Excluding the benefit of the LIFO credit and significant charges, the Company's gross margins were (1.4%) and 5.1% in the Five Months 1994 and 1993, respectively. Selling, general and administrative expenses were $16.5 million or 19.0% as a percent of revenues for the Five Months 1994 as compared to $8.7 million or 8.5% as a percent of revenues in the same period of 1993. The increase in selling, general and administrative expenses is due to significant charges totalling $7.6 million recorded in the Five Months 1994 and are identified as follows: (1) $4.2 million of employee benefit related accruals including $1.4 million from changes in an accounting estimate for workers' compensation, (2) $2.9 million for resolution of contractual matters and (3) $.5 million of other significant charges. Excluding the effect of significant charges, the Company's selling, general and administrative expenses for the Five Months 1994 were $8.9 million or 10.2% as a percent of revenues as compared to $8.7 million or 8.5% as a percent of revenues in the same period of 1993. The Company recorded restructuring charges of $30.6 million during the Five Months 1994, no such charges were recognized during the corresponding period of 1993. These charges include $24.1 million of planned costs of integrating the Company's forgings operations with those of Cameron Forged Products Company which the Company acquired on May 26, 1994. Restructuring charges of $5.2 million relate to the closure of a castings facility and $1.3 million to asset write-downs. -19- 5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND CHANGES IN FINANCIAL CONDITION (Continued) Five Months Ended May 28, 1994 (First Five Months of 1994) vs. Five Months Ended May 29, 1993 (First Five Months of 1993) (Continued) The Company recorded a $2.0 million environmental charge which represents anticipated future environmental expenses related to the Company's Grafton, Massachusetts facility. Interest expense was $5.0 million in the Five Months 1994 as compared to $4.7 million for the same period of 1993. Interest expense increased $0.8 million for the Five Months 1994 as compared to the same period of 1993 due to a higher interest rate and higher average debt during the Five Months 1994 as compared to the same period of 1993. Additionally, the Company wrote-off financing fees relating to credit facilities amounting to $1.2 million and $1.7 million in the Five Months 1994 and 1993, respectively. Miscellaneous, net expense was $.5 million for the Five Months 1994 as compared to $0.7 million for the same period of 1993. Liquidity and Capital Resources Cash used by operations of $9.1 million resulted primarily from a $22.0 million loss from operations before restructuring and environmental charges and depreciation and amortization, increases in non-working capital items of $1.6 million and expenditures of $1.4 million for restructuring, disposal and environmental offset by decreases in working capital items of $15.9 million. 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 $13.9 million, $11.2 million and $10.2 million in the years ended December 31, 1993, 1992 and 1991, respectively. Capital expenditures in the foreseeable future are not expected to vary materially from historical levels. As of May 28, 1994, 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 ventures'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 $1.8 million had been spent as of May 28, 1994. -20- 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND CHANGES IN FINANCIAL CONDITION (Continued) Liquidity and Capital Resources (Continued) On March 30, 1994, the Company received $16.1 million as a cash payment for deferred program costs. Deferred program costs are primarily inventory, production, tooling, and other miscellaneous costs which are estimated to be recoverable over future sales. At March 30, 1994, the Company had a net investment in the related program of $13.6 million. The excess funds received, amounting to $2.5 million, has been recorded as $0.8 million and $1.7 million of short-term and long-term deferred revenue, respectively, which will be recognized over future production related to such programs. No revenue has been recognized to date. The cash payment to the Company does not affect the long standing status as a supplier partner under its Agreement with the customer. During 1994, the Company incurred significant charges totalling $50 million of which $21.5 million will require future cash outlays (see Note G). Additionally, the Company estimates $12.2 million in future cash outlays from direct costs associated with the acquisition and integration of Cameron Forged Products Company (see Note F). A summary of these items follows: Cash Non-Cash Total (Millions) Significant Charges (Note G): Cameron Integration Costs (Note G): Movement of the Company's machinery and equipment and tooling dies $ 4.8 $ - $ 4.8 Relocation, severance and other costs related to personnel of the Company 5.9 - 5.9 Write-down of certain assets of the Company no longer intended to be used: Metal production facility - 7.6 7.6 Forging equipment - 3.2 3.2 Machining and testing equipment - 2.6 2.6 Subtotal Cameron Integration 10.7 13.4 24.1 Employee benefit-related accruals 1.1 2.3 3.4 Change in accounting estimate estimate (Note J) 5.6 - 5.6 Castings facility closure .5 4.7 5.2 Write-down of inventories - 2.8 2.8 Write-off of bank fees .2 1.0 1.2 Environmental - 2.0 2.0 Other 3.4 2.3 5.7 Subtotal significant charges 21.5 28.5 50.0 -21- 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND CHANGES IN FINANCIAL CONDITION (Continued) Liquidity and Capital Resources (Continued) Cash Non-Cash Total (Millions) Cameron Acquisition Direct Costs (Note F): Integration costs: Cost of relocating Cameron's machinery and equipment and tooling dies 4.4 - 4.4 Severance of Cameron personnel 4.9 - 4.9 Other Direct Costs: Environmental .7 - .7 Other 2.2 - 2.2 Subtotal Cameron Acquisition Direct Costs 12.2 - 12.2 Total significant charges and Cameron Acquisition Direct Costs $33.7 $28.5 $62.2 As of May 28, 1994, of the total cash items of $33.7 million above, the Company expects to spend approximately $20.0 million in fiscal 1995 and $13.7 million thereafter. The Company projects the potential cost savings that may be achieved by the Company and Cameron on a combined basis as a result of such measures to be approximately $25.0 million to $30.0 million annually following an initial period of consolidation. These projections are based upon a variety of estimates and assumptions which, though considered reasonable by the Company, might not be realized, and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the Company's control. The Company cautions that no assurances can be made as to the accuracy of these projections or as to the Company's ability to achieve the projected cost savings. While these projections represent the best judgment of the Company, such estimates and the circumstances and conditions affecting the Company and Cameron are likely to change substantially with the passage of time. As of May 28, 1994, the Company expects to spend $1.2 million in fiscal 1995 and $13.4 million thereafter on environmental activities. The Company has completed all environmental projects within established timetables and is continuing to do so at the present time. -22- 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND CHANGES IN FINANCIAL CONDITION (Continued) Liquidity and Capital Resources (Continued) In connection with its 1991 restructuring, the Company expects to expend an additional $5.1 million over the next several years, including approximately $2.4 million in fiscal 1995 and $2.7 million thereafter. For 1994 and thereafter, these expenditures include consolidation and reconfiguration of existing facilities of $2.3 million in fiscal 1995 and $2.7 million thereafter, and severance costs of $0.1 million in fiscal 1995. The primary sources of liquidity available in 1995 to fund the Company's operations, anticipated expenditures in connection with the acquisition and integration of Cameron, its 1991 restructuring, planned capital expenditures and planned environmental expenditures include available cash ($42.2 million at May 28, 1994), borrowing capacity under the Company's $65.0 million Receivables Financing Program (see Note I), 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 1995. The Company believes that it has adequate resources to provide for its operations and the funding of restructuring, integration of Cameron, capital and environmental expenditures. Accounting and Tax Matters Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" ("FAS 112"). This standard provides that the Company follow an accrual method of accounting, rather than on the as-incurred basis formerly used for benefits payable to employees when they leave the Company for reasons other than retirement. The adoption of FAS 112 in the first quarter of 1994 has not had a material affect on earnings or financial position of the Company. -23-