1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) { X } QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 3, 1994 OR { } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from to COMMISSION FILE NUMBER 0-3085 WYMAN-GORDON COMPANY (Exact name of registrant as specified in its charter) MASSACHUSETTS 04-1992780 (State or other jurisdiction (I.R.S. Employer incorporation or organization) Identification No.) 244 WORCESTER STREET, BOX 8001, NO. GRAFTON, MASSACHUSETTS 01536-8001 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 508-839-4441 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Outstanding at Class December 3, 1994 Common Stock, $1 Par Value 34,763,931 Page 1 of 14 2 Part I. Item 1. FINANCIAL STATEMENTS WYMAN-GORDON COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS Three Months Ended Six Months Ended Dec. 3, Nov. 27, Dec. 3, Nov. 27, 1994 1993 1994 1993 (000's omitted, except per share data) Revenue $94,974 $56,233 $190,700 $114,685 Less: Cost of goods sold 85,105 53,014 171,255 103,447 Selling, general and administrative expenses 9,101 7,151 18,674 13,284 Disposition of production facilities - 2,366 - 2,366 $94,206 $62,531 $189,929 $119,097 Income (loss) from operations 768 (6,298) 771 (4,412) Other deductions: Interest on debt 2,309 2,096 4,696 4,412 Amortization of financing fees and other costs 275 234 787 459 Miscellaneous, net 205 (2,986) 631 (2,825) 2,789 (656) 6,114 2,046 Net loss $(2,021) $(5,642) $ (5,343) $ (6,458) Net loss per share $ (.06) $ (.31) $ (.15) $ (.36) Average shares outstanding 34,750 17,954 34,734 17,942 The accompanying notes to the consolidated condensed financial statements are an integral part of these financial statements. -2- 3 WYMAN-GORDON COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS December 3, May 28, 1994 1994 (000's omitted) ASSETS Cash and cash equivalents $ 9,272 $ 42,179 Accounts receivable 81,795 77,019 Inventories 69,691 76,671 Prepaid expenses 7,647 11,275 Total current assets 168,405 207,144 Property, plant and equipment, at cost 376,929 368,368 Less accumulated depreciation 237,195 229,612 Net property, plant and equipment 139,734 138,756 Intangible assets 20,080 21,232 Pension intangible 6,527 6,527 Other assets 27,525 27,172 $362,271 $400,831 LIABILITIES Current maturities of long-term debt $ 77 $ 77 Obligation to Cooper Industries - 20,561 Accounts payable 40,818 45,134 Other accrued liabilities 17,075 22,252 Accrued restructuring, integration, disposal and environmental 16,598 20,415 Total current liabilities 74,568 108,439 Restructuring, integration, disposal and environmental 28,324 29,945 Long-term debt 90,385 90,385 Pension liability 17,937 17,912 Deferred income tax and other 29,789 29,819 Postretirement benefits 52,736 51,848 STOCKHOLDERS' EQUITY Preferred stock - none issued - - Common stock issued December 3, 1994 - 37,052,720 shares May 28, 1994 - 36,902,720 shares 37,053 36,903 Capital in excess of par value 43,023 43,884 Retained earnings 28,852 33,253 108,928 114,040 Less treasury stock at cost December 3, 1994 - 2,288,789 shares May 28, 1994 - 2,354,540 shares 40,396 41,557 68,532 72,483 $362,271 $400,831 The accompanying notes to the consolidated condensed financial statements are an integral part of these financial statements. -3- 4 WYMAN-GORDON COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended December 3, November 27, 1994 1993 (000's omitted) Operating activities: Net loss $ (5,343) $(6,458) Adjustments to reconcile net loss to net cash provided (used) by operating activities: Depreciation and amortization 9,151 7,991 Changes in assets and liabilities net of purchase price activity: Accounts receivable (4,776) 12,737 Inventories 6,980 7,472 Prepaid expenses and other assets 3,275 1,537 Accrued restructuring, disposal and environmental (5,437) (5,093) Income and other taxes 875 (248) Accounts payable and accrued liabilities (8,710) (4,728) Net cash provided (used) by operating activities (3,985) 13,210 Investing activities: Capital expenditures (8,922) (6,378) Deferred program costs - 1,418 Other, net 561 2,070 Net cash used by investing activities (8,361) (2,890) Financing activities: Net cash paid to Cooper Industries for Cameron accounts receivable factored at acquisition (21,807) - Net cash received from Cameron accounts receivable factored at acquisition 1,246 - Net cash used by financing activities (20,561) - Increase (Decrease) in cash (32,907) 10,320 Cash, beginning of year 42,179 4,568 Cash, end of period $ 9,272 $14,888 The accompanying notes to the consolidated condensed financial statements are an integral part of these financial statements. -4- 5 WYMAN-GORDON COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS December 3, 1994 Note A - Basis of Presentation In the opinion of the Company, the accompanying unaudited consolidated condensed financial statements contain all adjustments necessary to present fairly its financial position at December 3, 1994 and its results of operations for the three months and six months ended December 3, 1994 and November 27, 1993 and cash flows for the six months ended December 3, 1994 and November 27, 1993. All such adjustments are of a normal recurring nature. The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with Article 10 of Securities and Exchange Commission Regulation S-X and therefore, do not include all information and footnotes necessary for a fair presentation of the financial position, results of operations and cash flows in conformity with generally accepted accounting principles. In conjunction with its December 31, 1993 Annual Report on Form 10-K, the Company filed audited consolidated financial statements which included all information and footnotes necessary for a fair presentation of its financial position at December 31, 1993 and December 31, 1992 and its results of operations and cash flows for the years ended December 31, 1993, 1992 and 1991 in conformity with generally accepted accounting principles. Where appropriate, prior period amounts have been reclassified to permit comparison. On May 24, 1994, the Company's Board of Directors voted to change the Company's fiscal year-end from one which ended on December 31 to one which ends on the Saturday nearest to May 31. Accordingly, the Company filed a transition report on Form 10-Q for the five month transition period ended May 28, 1994. On May 26, 1994, the Company completed the acquisition of Cameron Forged Products Company ("Cameron"). The accompanying consolidated condensed statements of operations for the three months and six months ended December 3, 1994, balance sheets as of December 3, 1994 and May 28, 1994 and statement of cash flows for the six months ended December 3, 1994 include the accounts of Cameron. -5- 6 WYMAN-GORDON COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued) December 3, 1994 Note B - Inventories Inventories consisted of: December 3, 1994 May 28, 1994 (000's omitted) Raw material $23,237 $15,548 Work-in-process 45,394 59,746 Supplies 6,057 6,202 74,688 81,496 Less progress payments 4,997 4,825 $69,691 $76,671 </TABLE 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 $27,786,000 and $29,799,000 higher than reported at December 3, 1994 and May 28, 1994, respectively. LIFO inventory credits to cost of goods sold in the three months ended December 3, 1994 and November 27, 1993 were $951,000 and $1,973,000, respectively. LIFO inventory credits to cost of goods sold in the six months ended December 3, 1994 and November 27, 1993 were $2,013,000 and $3,946,000, respectively. Note C - Cameron Integration Costs During the five month transition period ended May 28, 1994, the Company recorded charges of $24,100,000 for the integration of Cameron of which $10,700,000 was estimated to require cash outlays. Additionally, the Company estimated $12,200,000 in cash outlays from direct costs associated with the acquisition and integration of Cameron. As of December 3, 1994, the activity charged against the reserves has been as anticipated and there have been no significant changes to the original estimates. -6- 7 WYMAN-GORDON COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued) December 3, 1994 Note D - Loss on long-term contracts and agreements In accordance with the Company's policy of recognizing losses on backlog and long-term pricing agreements, loss reserves of $13,616,000 and $19,000,000 are included in the accompanying balance sheets at December 3, 1994 and May 28, 1994 as follows: December 3, May 28, 1994 1994 (000's omitted) Other short-term liabilities $ 4,194 $ 7,000 Other long-term liabilities 9,422 12,000 Total $13,616 $19,000 These loss reserves were assumed as part of the acquisition of Cameron on May 26, 1994. Note E - Commitments and contingencies At December 3, 1994, 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. -7- 8 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): Three Months Ended Three Months Ended December 3, 1994 November 27, 1993 % of % of Amount Total Amount Total Commercial Aerospace $61,521 65% $28,679 51% Defense equipment 28,794 30% 24,743 44% Other 4,659 5% 2,811 5% $94,974 100% $56,233 100% Six Months Ended Six Months Ended December 3, 1994 November 27, 1993 % of % of Amount Total Amount Total Commercial Aerospace $124,901 65% $ 59,636 52% Defense equipment 57,825 30% 49,315 43% Other 7,974 5% 5,734 5% $190,700 100% $114,685 100% Three Months Ended December 3, 1994 vs. Three Months Ended November 27, 1993 Revenues for the three months ended December 3, 1994 increased $38.7 million or 68.9% from the comparable period of the prior year. This increase in revenues is attributable to the Company's acquisition of Cameron Forged Products Company from Cooper Industries during May 1994. Capacity limitations on the part of the Company's suppliers resulting in raw material shortages, continued to have a negative impact on revenues during the second quarter of fiscal 1995. Additionally, $2.3 million of revenues for the same period of the prior year were from Wyman- Gordon Composites, Inc. which was sold by the Company during November 1993. The Company's gross margins were 10.4% of sales for the second quarter of fiscal 1995 as compared to 5.7% for the same period of the prior year. The improvement was mainly due to $1.7 million or 3.0% of sales of one-time charges which negatively -8- 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND CHANGES IN FINANCIAL CONDITION (Continued) Three Months Ended December 3, 1994 vs. Three Months Ended November 27, 1993 (Continued) impacted the second quarter of fiscal 1994. Lower production volumes resulting from raw material shortages had a negative impact on margins during the second quarter of fiscal 1995. Customer invoked pricing pressures had a negative impact on margins in both fiscal 1995 and fiscal 1994. However, margins improved in the second quarter of fiscal 1995 as compared to the same period of the prior year resulting from improvements to operations and realization of synergy benefits associated with the integration of Cameron. Gross margins benefitted from an inventory LIFO credit of $1.0 million or 1.0% of revenues for the second quarter of fiscal 1995 as compared to $2.0 million or 3.5% of revenues for the same period of the prior year. Excluding the benefit of the LIFO credit, the Company's gross margins were 9.4% for the second quarter of fiscal 1995 as compared to 2.2% for the same period of the prior year. Selling, general and administrative expenses were $9.1 million or 9.6% of revenues in the second quarter of fiscal 1995 as compared to $7.1 million or 12.7% of revenues for the same period of the prior year. The increase in selling, general and administrative expense is attributable to the Company's newly acquired operations in May 1994. However, selling, general and administrative expense as a percent of sales declined reflecting the realization of certain savings associated with the integration of Cameron with Wyman-Gordon's Forging operations and lower costs associated with 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 fiscal 1994 of $2.4 million. Interest expense was $2.3 million for the second quarter of fiscal 1995 as compared to $2.1 million for the same period of the prior year. Amortization of financing fees and other costs increased from $0.2 million during the second quarter of the prior fiscal year to $0.3 million during the same period of fiscal 1995. Fiscal 1995 includes fees from the newly created receivables backed credit facility and bond fees. Miscellaneous, net expense was $0.2 million in the second quarter of fiscal 1995 as compared to miscellaneous, net income of $3.0 million during the same period of the prior year. The income recognized in the second quarter of fiscal 1994 resulted from a $3.3 million gain on the sale of marketable securities. -9- 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND CHANGES IN FINANCIAL CONDITION (Continued) Six Months Ended December 3, 1994 vs. Six Months Ended November 27, 1993 Revenues for the six months ended December 3, 1994 increased $76.0 million or 66.3% from the comparable period of the prior year. This increase in revenues is attributable to the Company's acquisition of Cameron Forged Products Company from Cooper Industries during May 1994. Capacity limitations on the part of the Company's suppliers resulting in raw material shortages, had a negative impact on revenues during the first six months of fiscal 1995. Additionally, $4.7 million of revenues for the same period of the prior year were from Wyman-Gordon Composites, Inc. which was sold by the Company during November 1993. The Company's gross margins were 10.2% of sales for the first six months of fiscal 1995 as compared to 9.8% for the same period of the prior year. Lower production volumes resulting from raw material shortages had a negative impact on margins during fiscal 1995. Customer invoked pricing pressures had a negative impact on margins during both fiscal 1995 and fiscal 1994. However, margins improved during the first six months of fiscal 1995 as compared to the same period of the prior year due to improvements to operations and realization of certain synergy benefits associated with the integration of Cameron. Gross margins benefitted from an inventory LIFO credit of $2.0 million or 1.1% of revenues for the first six months of fiscal 1995 as compared to $3.9 million or 3.4% of revenues for the same period of the prior year. Excluding the benefit of the LIFO credit, the Company's gross margins were 9.1% for the first six months of fiscal 1995 as compared to 6.4% for the same period of the prior year. Selling, general and administrative expenses were $18.7 million or 9.8% of revenues in the first six months of fiscal 1995 as compared to $13.3 million or 11.6% of revenues for the same period of the prior year. The increase in selling, general and administrative expense is attributable to the Company's newly acquired operations in May 1994. However, selling, general and administrative expense as a percent of sales declined reflecting the integration of Cameron with Wyman-Gordon's Forging operations and lower costs associated with 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 $2.4 million. Interest expense was $4.7 million for the first six months of fiscal 1995 as compared to $4.4 million for the same period of the prior year. -10- 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND CHANGES IN FINANCIAL CONDITION (Continued) Six Months Ended December 3, 1994 vs. Six Months Ended November 27, 1993 (Continued) Amortization of financing fees and other costs increased from $0.5 million during the first six months of the prior fiscal year to $0.8 million during the same period of fiscal 1995. Fiscal 1995 includes fees from the newly created receivables backed credit facility and bond fees. Miscellaneous, net expense was $0.6 million in the first six months of fiscal 1995 as compared to miscellaneous, net income of $2.8 million during the same period of the prior year. The income recognized in the first six months of fiscal 1994 was from a $3.3 million gain on the sale of marketable securities. Liquidity and Capital Resources The decrease in the Company's cash from $42.2 million to $9.3 million was primarily the result of $20.6 million paid to Cooper Industries for Cameron accounts receivable factored at acquisition. Cash used by operations of $4.0 million resulted from increases in working capital items of $7.9 million offset by depreciation and amortization of $9.2 million, and the $5.3 million net loss. The Company from time to time expends cash on capital expenditures for environmental compliance, 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. During the five month transition period ended May 28, 1994, the Company recognized costs to be incurred for the integration of Cameron totalling $24.1 million of which, $10.7 million will require cash outlays. Additionally, the Company estimated $12.2 million in cash outlays from direct costs associated with the acquisition and integration of Cameron Forged Products Company. As of December 3, 1994, the activity against the reserves has been as anticipated and there have been no significant changes to the original estimates. The Company expects to spend $1.0 million in the remainder of 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. -11- 12 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 spend approximately $1.8 million in the remainder of fiscal 1995 and $2.7 million thereafter. As of December 3, 1994, the activity against the reserves has been as anticipated and there have been no significant changes to the original estimates. The primary sources of liquidity available in fiscal 1995 to fund the Company's operations, anticipated expenditures in connection with the integration of Cameron, its 1991 restructuring, planned capital expenditures and planned environmental expenditures include available cash ($9.3 million at December 3, 1994), borrowing capacity under the Company's receivables financing program, cash generated by operations and reductions in working capital requirements through planned inventory reductions and accounts receivable management. Cash from operations and borrowing capacity under the Company's receivables financing program are expected to be the Company's primary sources of liquidity beyond fiscal 1995. The Company believes that it has adequate resources to provide for its operations and the funding of restructuring, integration of Cameron and capital and environmental expenditures. -12- 13 Part II. Item 6. EXHIBITS AND REPORTS FILED ON FORM 8-K (a) Exhibits The following exhibits are being filed as part of this Form 10-Q: Exhibit No. Description 27 Financial Data Schedule for the Six Months Ended December 3, 1994 (b) No reports on Form 8-K have been filed with the Commission during the period covered by this report. -13- 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WYMAN-GORDON COMPANY Date: 1/13/95 By: /s/ DAVID P. GRUBER David P. Gruber President and Chief Executive Officer Date: 1/13/95 By: /s/ JEFFREY B. LAVIN Jeffrey B. Lavin Assistant Corporate Controller -14-