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EXHIBIT 13
WYMAN-GORDON COMPANY ANNUAL REPORT 1995
Wyman-Gordon Company
1995 Annual Report for the fiscal year ended June 3, 1995
112th year of operation
On the Front and Back Covers:
Paul Stewart, a die sinker at the company's Grafton, MA forging
facility, performs an in-process inspection of impressions in a
die used to forge a mid-fuselage titanium bulkhead for the F-22
New Generation Air Superiority Fighter. Its size - the largest
titanium closed-die forging ever produced by the company - and
complex geometry made this single-piece bulkhead a major
challenge to design and produce.
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ABOUT THE COMPANY
Wyman-Gordon is a leading manufacturer of high quality,
technology advanced forging and investment casting components,
and composite airframe structures for the commercial aviation,
commercial power and defense industries. The company employs
approximately three thousand people in eleven plants in the
United States and one in Scotland.
TABLE OF CONTENTS
Financial Highlights
Letter to Stockholders
Company Highlights
Management's Discussion
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Corporate Information
Investor Information
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WYMAN-GORDON COMPANY AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
(In millions, except per-share data)
TWELVE MONTHS ENDED
JUNE 3, 1995 MAY 28, 1994(a)
Revenues $396.6 $224.7
Income (loss) from operations 13.7 (63.7)
EBITDA 30.2 (45.4)
Net Income (loss) 1.0 (72.4)
Working Capital 93.1 91.7
Total Assets 369.1 394.7
Stockholders' equity 80.9 72.5
Order Backlog 468.8 389.4
Shares Outstanding 35.0 34.5
Per-share data:
Net Income (loss) $ .03 $(4.02)
Stockholders' equity $ 2.30 $ 2.10
Market Price $11.00 $ 6.25
[FN]
(a) 1994 amounts exclude Cameron revenues and operating results,
but include Cameron backlog and assets, and $35.0 million of
restructuring, disposal and other charges (pre-tax).
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TO OUR STOCKHOLDERS
During the past year, we achieved many of our goals in the
transformation of Wyman-Gordon Company. We are working on the
priorities that drive sustainable growth and profitability:
maintaining strong customer positions in the commercial aircraft
industry; continuing cost reduction; focusing our factories to
improve accuracy, speed, service and quality; and enhancing our
ability to work with challenging metals to meet customer needs
and open new market opportunities.
We have accomplished the very important first step of being
profitable at low business levels. It was a year that saw the
beginning of what many observe as a slow, steady recovery in the
commercial aviation business which will continue and accelerate
throughout the last half of the 1990s. Recent successful cost
reduction efforts have positioned us to realize major benefits as
the market improves.
We and our customers are seeing the anticipated economic,
manufacturing and competitive advantages from the acquisition of
Cameron Forged Products Company. Together we are a much stronger
company than either would be standing alone. Wyman-Gordon
enhanced its core strengths in metallurgy and added new skills,
facilities and processes. Dramatic productivity gains are
already evident, and cost reductions total over $25 million. We
have unique talent for manufacturing large dimensional forged
parts that ever-larger aircraft and engines require. For
example, Boeing's new 777 widebody aircraft and the GE90, Pratt &
Whitney 4086 and Rolls Royce Trent 800 engines which power it,
will contribute to our anticipated success.
Our investment casting division, which pursued a similar
course of integration and synergy savings several years ago,
achieved strong revenue growth, improved profitability and cash
generation. We also continue to be encouraged by the profits and
cash flows generated by our Scaled Composites division.
While the aerospace market will continue to be central to
our success, we are actively engaging new market opportunities
such as heavy wall seamless steel pipe for commercial power
plants, and large forged components and investment castings for
land-based gas turbines. The Wyman-Gordon of the future will
continue to be built on core strengths: the technologies of
metals, processed by world class manufacturing operations.
Customers will receive fully-machined and ready-to-assemble parts
having extremely high reliability, very short production cycles
and competitive values.
Wyman-Gordon will endeavor to provide stockholders with
financial returns which compare favorably with those which bring
about investment grade debt ratings. Such returns are achievable
and we will strive to reach them.
We are most appreciative of the support and sacrifices of
Wyman-Gordon employees throughout the company. Their efforts and
contributions to our overall improvement have been impressive.
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The following pages describe the strengths of our company
and will convey the optimism that we hold about the future.
/S/ JOHN M. NELSON /S/ DAVID P. GRUBER
John M. Nelson David P. Gruber
Chairman President and Chief Executive
Officer
(A picture of John M. Nelson and David P. Gruber is located under
their titles)
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COMPANY HIGHLIGHTS
LEADERSHIP
Leadership is claimed by many companies, achieved by few.
And if it is achieved, fewer still are able to sustain it.
Wyman-Gordon has been the number one supplier of forgings to the
aerospace industry for decades; its leadership as the prime
producer of forged parts traces back almost to the beginnings of
aviation. Its mastery of metals brought leadership, abetted by
unrivaled ability to process titanium alloys, nickel-based
superalloys, steel and aluminum. A unique manufacturing
infrastructure - of talent, experience and equipment - enables
Wyman-Gordon to forge large structural airframe and engine
components, an advantage which enables it to satisfy current
requirements for larger parts.
The company is the world leader in the production of nickel-
based powder billet used to forge aircraft engine turbine discs.
Further, we are the only totally integrated company in the world
which produces this powder, extrudes it into billet and forges it
isothermally into aircraft engine components.
We possess unique castings capabilities and offer the widest
choice of alloys in the investment castings industry, ranging
from titanium and nickel-based superalloys to magnesium and
aluminum. Parts can be cast that weigh as little as a gram or as
much as 600 pounds. An adeptness in geometric complexity,
another hallmark of our investment castings business, is leading
to new opportunities in the aerospace market and in recreational
and other commercial performance products markets.
Our Scaled Composites subsidiary is the world leader in
design and rapid development of composite airframe structures.
(A picture of D'Lena Brooks, a member of the dimensional layout
team at the company's Groton, CT investment castings facility,
observes inspection of a 30 inch diameter as-cast combustor dome
by a computerized coordinate measuring machine. The use of a
high temperature metal alloy and demanding dimensional profile
requirements presented engineering challenges. Using rapid
prototyping techniques to eliminate conventional blueprint and
tooling methods, prototyping was completed in two weeks and
delivery was made only eleven weeks after the part was ordered,
at costs which were favorable to alternative manufacturing
processes.)
(A caption above a graph states: Wyman-Gordon's leadership is
clearly demonstrated by recent successes in reducing industrial
accident rates. A comprehensive safety program and increased
employee training have led to these notable results. The
company's safety record now outpaces the Forging Industry and
U.S. Industrial averages.)
(A graph is shown for Industrial Accidents per 200,000 man-hours
worked. Forging Industry Average is 7.5 from 1991 to 1995; U.S.
Industrial Average is 6.8 in 1991 and 1992 and 4.2 thereafter;
Wyman-Gordon's performance was 3.8 in 1991, 4.0 in 1992, 3.7 in
1993, 1.3 in 1994, and 1.0 in 1995)
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METALLURGY
Wyman-Gordon is a materials engineering company. We
engineer metals from basic raw materials through melting,
conversion, investment casting and forging to meet the most
exacting structural and mechanical properties required by our
customers.
Our engineers have mastered the controls necessary to
formulate titanium alloys at our Millbury, Massachusetts
facility, nickel-base powder alloys at our Brighton, Michigan
facility and nickel-base superalloys at our jointly owned melting
facility in Western Australia.
These carefully formulated materials are then subjected to
the same exacting controls, when they are processed in our
investment casting facilities or deformed on our forging presses
to develop the optimum microstructures and strengths throughout
the required shape. These shapes are subsequently heat treated
to produce the desired balance of mechanical properties and
residual stress. The control of this entire metallurgical
process assures that our customers receive product that is
consistent in mechanical properties and stable through their
machining operations.
As we increase the speed of product through our facilities
through cycle time and batch size reduction, we know it is
imperative that key controls are established, monitored and
verified to assure consistency and reproducibility through total
process control.
These challenges are presented daily to our metallurgical,
design and process engineers as they process a variety of
materials such as aluminum, titanium, nickel-base, both
conventionally melted and atomized into powder, and steel close
die forgings, investment castings and seamless extruded pipe. At
Wyman-Gordon, we process these metals into finished shapes using
closed-die forging, investment casting or extrusion. This
metallurgical process experience and versatility provide an
increasing breadth of market with strong technical support.
(Phase diagrams, such as this titanium-aluminum binary diagram,
shown below this caption, are one of many tools used by our
metallurgists. Their use facilitates the development of
thermomechanical processing routes to enhance the mechanical
properties and producibility of alloys such as Ti6Al-4V. This
alloy is 89% titanium, 6% aluminum, 4% vanadium and 1% other
elements.)
(A picture of Calvin Tubbs, a pipe processor in our Houston, TX
forging facility checks the dimensions of a P91 steel seamless
extruded pipe. This pipe is part of a multi-million dollar order
being prepared for shipment to Korea Heavy Industries &
Construction Company, for use in six new fossil-fueled power
plants being constructed in South Korea.)
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PROCESS
The addition of Cameron Forged Products Company to the
Wyman-Gordon world presented an opportunity to consolidate
forging operations with resulting significant economies not
feasible before the acquisition. Best practice management of
products and processes has been undertaken to ensure that each
part is made at the plant most conducive to its efficient
production, where specific capabilities assure best quality and
lowest cost manufacture. As a result, there is a continuing
improvement of forging operations, with accompanying efficiencies
and economic benefits.
Focusing our factories on the products they each make best
has led to plant specialization and to the grouping of related
product manufacturing across our forging and casting operations.
Set up time reductions have brought about more immediate
validation of process and continuous improvement. Tangible
benefits from these measures are significant improvements in lot
sizes, cycle times, inventory levels, tooling expenses and
quality.
We are taking actions to align the company's forging and
investment castings operations with the best practices known in
the world - practices which improve quality, inventory turns,
cycle times, productivity, delivery performance and customer
satisfaction. This entrepreneurial spirit underscores our
company's resolution to be the best, quickest, most responsive
supplier, one that customers will value highly and rely upon, and
one that offers them best products, fastest delivery and the best
value - a winning combination. Wyman-Gordon's goal for all
plants is world class status, and we have made substantial
progress toward this goal.
(A picture of Terry Dyer, a sourcing technical leader at GE
Aircraft Engines and Taylor Norris, Wyman-Gordon manager of
continuous improvement programs, conduct a Kaizen action workout
at our ultrasonic facility in Houston, TX. In process is a stage
1 HPT disk for GE's CF6-80C2 engine. Cooperative continuous
improvement efforts with our customers have contributed greatly
to operating advances beneficial both to our customers and to
Wyman-Gordon.)
(A caption above a graph states: Process improvements are
instrumental in allowing the production of increasing volumes
without corresponding personnel additions. In our Houston
forging facility, for example, cycle time reductions have been
consistent and dramatic. These "best practices" are being
implemented in our Grafton forging facility also.)
(A graph is shown for the company's Average Production Cycle in
Weeks. 21 in 1991, 17 in 1992, 16 in 1993, 9 in 1994, 7 in 1995)
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CUSTOMERS
Our customers are increasingly expecting the closest
collaboration with their suppliers. The term "team" aptly
describes the bond which exists between Wyman-Gordon engineers,
other support employees and our customers. We are partners in
problem-solving, especially in the design of new products. The
development of a series of single-piece large titanium bulkheads
with Lockheed Martin/Boeing for the F-22 new generation air
superiority fighter aircraft demonstrates the effectiveness of a
partnership approach to customer support.
Wyman-Gordon engineers saw an opportunity to produce a
single piece bulkhead as a replacement for an assembly of four
parts. Working with the customer, a new one-piece design was
accepted, qualified and produced, yielding a better product at
much lower cost. Lockheed Martin recognized Wyman-Gordon with
its "Outstanding F-22 Team Supplier Award," noting the close and
effective collaboration of employees from both companies.
Similar cooperative efforts with General Electric Company
were successful in developing parts for the GE90 jet engine, and
the GE land-based gas turbine engine series. A long, cooperative
program with Pratt & Whitney led to the development of a new,
critical shaft for the PW 4086 turbine jet engine. And close
work with Rolls Royce facilitated development of a critical fan
disk for the Trent 800 turbine jet engine.
Our goal is simple: to be the supplier of choice, essential
to a customer's success; creating an interdependence between us
in an atmosphere of mutual trust. We know too that being the low
cost supplier is an equally critical part of customer
relationships, and we have made significant progress to bring the
greatest value to our customers.
(A caption above the pie chart states: With the addition of
Cameron, Wyman-Gordon made a major advance toward becoming a more
essential supplier of choice for our customers.)
(A pie chart shows Sales by Market with dollars in millions for
1995 and 1994. 1995 shows Power generation $60.0, Other $36.5,
Aerospace $300.1,; 1994 shows Power generation $10.1, Other
$26.1, Aerospace $188.5)
(A pictures shows at Lockheed/Martin's production facility in
Fort Worth, TX, assembly worker Francisco Delgado drills one of
approximately 1,500 fastener holes on the inlet duct of Wyman-
Gordon-produced F-22 bulkhead. All four of the large single-
piece titanium bulkheads used in Lockheed/Martin's F-22 assembly
are supplied by Wyman-Gordon fully machined and painted, "ready-
to-assemble.")
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POSITIONING
Fundamental and permanent changes in traditional markets and
in ways of doing business characterize the atmosphere of the mid-
1990s. The company has "right-sized" itself, adjusting to
diminished markets. It is clearly stronger and better positioned
to capitalize on traditional strengths in anticipation of
recovering markets. The synergies of combining forging
operations of Wyman-Gordon and Cameron Forged Products Company
are yielding cost savings, process improvements, expanded
capabilities and a wider global reach.
A favorable market outlook for large engine and structural
parts complements our special capabilities to produce these
products. The larger part capabilities also generate
opportunities in promising markets such as land-based gas turbine
power generation. Our wide array of presses and computerized
process controls facilitate the reliable production of parts for
the largest engines through the smallest auxiliary power units.
Wyman-Gordon's ongoing positioning efforts include the
establishment of business relationships domestically and in
China, Turkey and Russia with companies whose capabilities
complement ours. We expect to be instrumental in supporting our
customers' advances into aerospace and power markets in the Far
East.
Faster cycle times, on-time delivery and parts delivered
fully-machined and ready-to-assemble will support customer needs
and drive profitability. Our conviction to be world class in all
that we do is supported by significant investments in facilities,
process improvements and training.
Wyman-Gordon has achieved profitability in a difficult
market environment. Recovering markets, leading metallurgical
skills, highly efficient operations, a low cost structure,
committed employees, solid customer relationships and new product
development will lead to superior financial results in the
future.
(A picture of Sue Zanauskas, shipping supervisor in Grafton, MA
facility, inspects a titanium fan shaft for a jet turbine engine.
Five titanium hemisphere forgings in the background and a steel
disk for a land-based gas turbine engine in the foreground make
up an assortment of products processed in the company's Grafton,
MA and Livingston, Scotland facilities.)
(A caption above the 1995 Profitability Trend graph states: In
1995, stockholders saw consistent enhancement of profitability
and return on capital as the synergy savings from the Cameron
integration were realized.)
(A graph of 1995 Profitability Trend shows EBIT/Average
Capitalization, -2% in Q1, 2% in Q2, 9% in Q3, 22% in Q4;
EBITDA/Revenues, 4% in Q1, 6% in Q2, 9% in Q3, 12% in Q4)
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(A quote stands alone on a page states: "During the past year,
we achieved many of our goals in the transformation of Wyman-
Gordon Company. We are working on the priorities that drive
sustainable growth and profitability: maintaining strong customer
positions in the commercial aircraft industry; continuing cost
reduction; focusing our factories to improve accuracy, speed,
service and quality; and enhancing our ability to work with
challenging metals to meet customer needs and open new market
opportunities.")
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MANAGEMENT'S DISCUSSION
PRODUCTS AND MARKETS
Wyman-Gordon Company is a leading producer of highly
engineered, technically advanced components for both the
commercial and defense aerospace market and the commercial power
generation market. The company uses die forging, extrusion and
investment casting processes to produce metal components to
exacting customer specifications for technically demanding
applications such as jet turbine engines, airframes and land-
based gas turbine engines. The company also extrudes seamless
heavy-wall steel pipe for use primarily in commercial power
generation plants, and designs and produces prototype aircraft
using composite technologies. The company produces components
for most of the major commercial and U.S. defense aerospace
programs. Metallurgical skills, a unique asset base and a broad
offering of capabilities allow the company to serve competing
customers effectively and to lead the development and use of new
metal technologies for its customers' uses.
The company is the leading producer of rotating components
for use in turbine aircraft engines. These parts are forged from
purchased ingots converted to billet in the company's cogging
presses and from superalloy metal powders which are produced,
consolidated and extruded into billet entirely at the company's
own facilities. Forging is conducted in Massachusetts, Texas and
Scotland on a number of hydraulic presses which are rated from
8,000 to 55,000 tons capacity. The company forges these engine
components primarily from alloys of high-temperature nickel.
Additionally, the company uses modern, automated, high-volume
production equipment and both air-melt and vacuum-melt furnaces
in its investment casting operations to produce complex non-
rotating jet engine parts from high-temperature nickel-based
alloys.
Structural airframe components are produced from alloys of
steel, aluminum and titanium on the company's forging presses and
by its investment casting process. The company often designs new
parts, stretching metallurgical and manufacturing capabilities to
new levels in accommodating customer needs for larger, stronger
structural parts forged from new superalloy metals. These parts
are produced mostly at the company's Massachusetts forging plant.
The company's investment casting capabilities, described
previously, are employed in the production of smaller, nearer
net-shape structural parts for aircraft.
The company supplies the domestic and international power
generation markets with a variety of mechanical and structural
tubular forged products, primarily in the form of extruded
seamless pipe. The power generation market for such product
includes nuclear and fossil fueled power plants, as well as co-
generation projects and retrofit and life extension applications.
Additionally, ordnance and other military applications are
available for this product. Aluminum, steel, titanium and
superalloys are extruded at the company's Houston, Texas forging
facility. Here the world's largest vertical extrusion press
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extrudes pipe up to 48 inches in diameter and 7 inches in wall
thickness and bar stock from 6 to 32 inches in diameter. Lengths
of pipe and bar stock vary from 10 to 45 feet with a maximum
forged weight of 20 tons. Similar equipment and capabilities are
in operation at the company's Livingston, Scotland forging
facility. Additionally, the Houston press extrudes powder
billets for use in aircraft turbine engine forgings.
The company's composite operation, Scaled Composites, Inc.,
plans, designs, fabricates and tests composite airframe
structures for the aerospace market.
Revenues by market for the respective periods were as
follows:
YEAR ENDED YEAR ENDED
JUNE 3, 1995 MAY 28, 1994
% OF % OF
REVENUE TOTAL REVENUE TOTAL
(000's omitted)
Aerospace $300,143 76% $188,518 84%
Power generation 60,038 15 10,112 4
Other 36,458 9 26,064 12
Total $396,639 100% $224,694 100%
YEAR ENDED YEAR ENDED
DECEMBER 31, 1993 DECEMBER 31, 1992
% OF % OF
REVENUE TOTAL REVENUE TOTAL
(000's omitted)
Aerospace $205,077 85% $263,961 88%
Power generation 9,214 4 12,717 4
Other 25,470 11 22,203 8
Total $239,761 100% $298,881 100%
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The backlog of unfilled orders from customers in the various
markets has been as follows:
JUNE 3, 1995 MAY 28, 1994
% OF % OF
BACKLOG TOTAL BACKLOG TOTAL
(000's omitted)
Aerospace $382,982 82% $342,007 88%
Power generation 57,248 12 33,700 9
Other 28,531 6 13,700 3
Total $468,761 100% $389,407 100%
DECEMBER 31, 1993 DECEMBER 31, 1992
% OF % OF
BACKLOG TOTAL BACKLOG TOTAL
(000's omitted)
Aerospace $234,221 91% $290,479 94%
Power generation 12,044 5 9,290 3
Other 9,994 4 9,910 3
Total $256,259 100% $309,679 100%
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RESULTS OF OPERATIONS AND FINANCIAL CONDITION
YEAR ENDED JUNE 3, 1995 COMPARED TO YEAR ENDED MAY 28, 1994
Wyman-Gordon Company's acquisition of Cameron Forged
Products Company from Cooper Industries, Inc. in May 1994 united
two of the country's largest and most technically advanced
forgings companies and had a pervasive impact on Wyman-Gordon
Company during fiscal 1995. As a result of the acquisition, the
company has broadened its revenue base and expanded into new
markets. The company is also realizing substantial operating and
processing efficiencies through the consolidation of systems and
facilities and the reduction of personnel performing duplicate
functions.
Wyman-Gordon Company's revenues increased during the year
ended June 3, 1995 ("fiscal 1995") as compared to the year ended
May 28, 1994 ("fiscal 1994") to $396.6 million in fiscal 1995
from $224.7 million in fiscal 1994, or 76.5%. The increase in
revenues is the result of (1) the acquisition of Cameron (68.8%)
and (2) higher sales volume at the company's forgings and
castings divisions during fiscal 1995 as compared to fiscal 1994
(7.7%). The acquisition of Cameron provides a broader revenue
base in the company's traditional markets of commercial and
defense aerospace as well as providing diversification into the
power generation market. Capacity limitations on the part of the
company's suppliers resulted in raw material shortages and
production delays. Although this situation improved during the
second half of fiscal 1995, it had a negative impact on overall
revenues. Additionally, $4.7 million of revenues for fiscal 1994
were from Wyman-Gordon Composites, Inc. which was sold by the
company during November 1993.
The company's gross margins were 12.5% in fiscal 1995, a
significant improvement from 3.1% in fiscal 1994. Higher
production volumes, particularly in the company's castings
division, productivity gains in factory operations and
realization of certain synergy benefits associated with the
integration of Cameron with Wyman-Gordon's forgings operations
are among the factors that contributed to this higher ratio.
Also, the gross margins at the company's composites divisions for
fiscal 1995 were well above fiscal 1994 levels. These favorable
impacts identified above were offset somewhat by production
delays resulting from raw material shortages experienced most
significantly in the first half of fiscal 1995. Gross margins
benefited from LIFO credits of $6.2 million in fiscal 1995 as
compared to $8.1 million in fiscal 1994. Gross margin in fiscal
1994 was negatively impacted by significant charges amounting to
$8.7 million related mainly to a change in accounting estimate
for workers' compensation of $4.2 million and excess inventories
of $2.8 million.
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RESULTS OF OPERATIONS AND FINANCIAL CONDITION
YEAR ENDED JUNE 3, 1995 COMPARED TO YEAR ENDED MAY 28, 1994
(Continued)
Selling, general and administrative expenses improved as a
percentage of revenues in fiscal 1995 to 9.2% from 15.8% in
fiscal 1994. The change is largely due to $7.6 million of
significant charges incurred during fiscal 1994. Absent the
significant charges, fiscal 1994 selling, general and
administrative expenses were 12.4% of sales. The remaining
improvement is the result of certain savings associated with the
integration of Cameron with Wyman-Gordon's forgings operations,
and higher revenues.
During fiscal 1995, the company recognized $1.4 million of
other charges for its 25% equity share of the losses of its
Australian Joint Venture for the production of nickel-based
superalloy.
In fiscal 1994, the company recognized other charges of
$35.0 million which included $24.1 million for Cameron
integration costs, $6.5 million for castings division
restructuring costs, $2.0 million for anticipated environmental
charges, and $2.4 million related to the disposition of
production facilities. After a year of evaluating the combined
forgings operations and concluding that most of the integration
activities had been completed or were adequately provided for
within the remaining integration restructuring reserves, the
company determined that the total integration restructuring cost
estimate could be lowered. As a result, the company took into
income an integration restructuring credit of $2.1 million.
Interest expense remained relatively constant in fiscal 1995
as compared to fiscal 1994. Fiscal 1995 includes higher
financing fees associated with the May 1994 inception of a
receivables backed credit facility. Fiscal 1994 interest expense
includes the write-off of deferred financing fees associated with
the company's former revolving credit agreement.
Fiscal 1994 miscellaneous, net includes a $3.3 million gain
on the sale of marketable securities.
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RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)
FIVE MONTHS ENDED MAY 28, 1994 ("FIVE MONTHS 1994") COMPARED TO
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 5.7% for Five
Months 1994 as compared to positive 9.7% in the Five Months 1993.
Customer invoked pricing pressures coupled with lower production
volume continued to have a negative impact on margins.
Additionally, gross margins were negatively affected by several
significant charges totalling $8.7 million recorded in the Five
Months 1994 and are identified as: (1) $4.2 million charge for a
change in accounting estimate for workers' compensation, (2) $0.6
million charge recognized on futures contract hedging losses, (3)
$2.8 million charge for excess inventory and (4) $1.1 million of
other charges. Gross margins benefited 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 0.1% and 6.9% in the Five Months 1994 and 1993,
respectively.
Selling, general and administrative expenses were $18.3
million or 21.1% as a percent of revenues for the Five Months
1994 as compared to $10.5 million or 10.3% 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) $0.5 million of
other charges. Excluding the effect of significant charges, the
company's selling, general and administrative expenses for the
Five Months 1994 were $10.7 million or 12.3% as a percent of
revenues as compared to $10.5 million or 10.3% 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.
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RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)
FIVE MONTHS ENDED MAY 28, 1994 ("FIVE MONTHS 1994") COMPARED TO
FIVE MONTHS ENDED MAY 29, 1993 ("FIVE MONTHS 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 $5.4 million in the Five Months 1994 as
compared to $4.7 million for the same period of 1993. Interest
expense increased $0.7 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 prior credit facilities amounting to
$1.2 million and $1.7 million in the Five Months 1994 and 1993,
respectively.
YEAR ENDED DECEMBER 31, 1993 COMPARED TO YEAR ENDED DECEMBER 31,
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 $20.7 million or 8.6% of revenues
as compared to $55.6 million or 18.6% of revenues in 1992. 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 continued 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.
Selling, general and administrative expenses decreased to
$26.6 million in 1993 from $28.3 million in 1992, but increased
as a percent of revenues from 9.4% in 1992 to 11.1% in 1993
resulting from the revenue decline. The decrease in selling,
general and administrative expenses is mainly due to lower
payroll costs from reductions in personnel.
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 $10.8 million in 1993 from
$7.5 million in 1992 primarily as a result of higher interest
rates on the 10.75% Senior Notes due 2003 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.
-18-
19
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)
YEAR ENDED DECEMBER 31, 1993 COMPARED TO YEAR ENDED DECEMBER 31,
1992 (Continued)
Miscellaneous income was $2.2 million in 1993 and $2.0
million in 1992. Miscellaneous income in 1993 reflects primarily
the gain of $3.3 million on the sale of marketable securities.
Miscellaneous income in 1992 reflects primarily the gain of $0.9
million on the sale of marketable securities and a gain of $0.6
million from a settlement of an overfunded pension plan
terminated in a prior year.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1994, the company recognized costs to be
incurred for the integration of Cameron totalling $24.1 million
of which $12.7 million were estimated to require cash outlays.
Additionally, the company estimated $12.2 million in cash outlays
from direct costs associated with the acquisition and
integration. Therefore, combined reserves for Cameron
integration costs totalled $36.3 million of which $24.9 million
were estimated to require cash. During May 1994, $11.4 million
of non-cash asset write-offs were charged to these reserves.
During fiscal 1995, the company incurred $11.1 million in charges
on the integration of Cameron which were charged to these
reserves, $6.7 million of which required the use of cash.
Additionally, the company reduced its estimates of costs to be
incurred for the integration of Cameron and direct costs
associated with the acquisition by a total of $7.3 million. Such
reduction is reflected by an adjustment in the purchase price of
$5.2 million and a credit to income of $2.1 million on the fiscal
1995 Statement of Operations. See Footnote F to the Consolidated
Financial Statements for a summary of cash outlays relating to
restructuring charges.
As of June 3, 1995, the company estimates the remaining cash
requirements for the integration of Cameron and direct costs
associated with the acquisition to be $8.6 million, and expects
to spend approximately $6.5 million in fiscal 1996 and $2.1
million thereafter.
The 1991 restructuring plan is substantially complete. The
company incurred cash charges of $2.7 million during fiscal 1995
and expects to expend an additional $3.8 million over the next
several years, approximately $1.9 million in fiscal 1996 and $1.9
million thereafter. For fiscal 1996 and thereafter, these
expenditures include consolidation and reconfiguration of
existing facilities of $1.7 million in fiscal 1996 and $0.6
million thereafter, and payments under a deferred compensation
agreement of approximately $1.5 million.
As of June 3, 1995, the company expects to spend $1.8
million in fiscal 1996 and $15.1 million thereafter on non-
capitalizable environmental activities. The company has completed
all environmental projects within establish timetables and is
continuing to do so at the present time.
-19-
20
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)
LIQUIDITY AND CAPITAL RESOURCES (Continued)
The company from time to time expends cash on capital
expenditures for more cost effective operations, environmental
projects and joint development programs with customers. Capital
expenditures amounted to $18.7 million, $2.4 million, $13.9
million and $11.2 million for the year ended June 3, 1995, the
five months ended May 28, 1994 and the years ended December 31,
1993 and 1992, respectively. Capital expenditures in the
foreseeable future are expected to increase somewhat from fiscal
year 1995 levels.
As of June 3, 1995, the company had invested $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 invest an additional
$3.4 million to the joint venture. The joint venture has entered
into a credit agreement with an Australian bank. 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.
On May 20, 1994, the company entered into a revolving
receivables-backed credit facility (the "Receivables Financing
Program") among the company, certain subsidiaries and Wyman-
Gordon Receivables Company ("WGRC") and a Revolving Credit
Agreement dated as of May 20, 1994 among WGRC, the financial
institutions party thereto and the Issuing Banks Facility Agent
and Collateral Agent. The aggregate maximum borrowing capacity
under the Receivables Financing Program is $65.0 million, with a
letter of credit sub-limit of $35.0 million. The term of the
Receivables Financing Program is five years, with an evergreen
feature. As of June 3, 1995, under this credit facility, the
total availability based on eligible receivables was $44.8
million, there were no borrowings and letters of credit amounting
to $10.0 million were outstanding.
Wyman-Gordon Limited, the company's subsidiary located in
Livingston, Scotland, entered into a credit agreement effective
November 28, 1994. The maximum borrowing capacity under the U.K.
Credit Agreement is 3.0 million pound sterling with a separate
letter of credit limit or guarantee of 1.0 million pound
sterling. The term of the U.K. Credit Agreement is one year with
an evergreen feature. There were 2.4 million pound sterling or
$3.8 million of borrowings outstanding at June 3, 1995 and the
company had issued 0.4 million pound sterling or $0.6 million of
letters of credit or guarantees under the U.K. Credit Agreement.
The primary sources of liquidity available to the company in
fiscal 1996 to fund operations, anticipated expenditures in
connection with the integration of Cameron, planned capital
expenditures and planned environmental expenditures include
available cash ($13.9 million at June 3, 1995), borrowing
availability under the company's Receivables Financing Program,
cash generated by operations and reductions in working capital
requirements through planned inventory reductions and accounts
receivable management.
-20-
21
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)
LIQUIDITY AND CAPITAL RESOURCES (Continued)
Cash from operations and debt are expected to be the
company's primary sources of liquidity beyond fiscal 1996. The
company believes that it has adequate resources to provide for
its operations and the funding of restructuring, integration,
capital and environmental expenditures.
The company's current plans to improve operating results
include completing the integration of Cameron, further reductions
of personnel and various other cost reduction measures. Programs
to expand the company's revenue base include participation in new
aerospace programs and expansion of participation in the land-
based gas turbine and extruded pipe markets and other markets in
which the company has not traditionally participated. The
company anticipates that, in addition to the growth in commercial
aviation, the aging current commercial airline fleet will require
future orders for its replacement.
IMPACT OF INFLATIONS
The company's earnings may be affected by changes in price
levels and in particular, changes in the price of basic metals.
The company's contracts generally provide for fixed prices for
finished products with limited protection against cost increases.
The company would therefore be affected by changes in prices of
the raw materials during the term of any such contract. The
company attempts to minimize this risk by entering into fixed
price arrangements with raw material suppliers.
ACCOUNTING AND TAX MATTERS
In March 1995, the Financial Accounting Standards Board
issued Statement No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS
121") which must be adopted by the company no later than fiscal
1997. SFAS 121 prescribes the accounting for the impairment of
long-lived assets that are to be held and used in the business
and similar assets to be disposed of. The company has not
determined the impact of adopting SFAS 121 on its financial
position or results of operations.
Effective January 1, 1994, the Company adopted Statement of
Financial Accounting Standards No. 112, "Employers' Accounting
for Postemployment Benefits" ("SFAS 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, including the cumulative
effect, has not had a material affect on earnings or the
financial position of the company.
The company is seeking refunds of prior year's federal taxes
paid, which, if fully realized, could have a material favorable
impact on the company's financial position. A reasonable
estimation of the potential recovery cannot be made at this time
and, accordingly, no adjustment has been made in the financial
statements with respect to the claim.
-21-
22
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)
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 January 1, 1993 through June 3, 1995. The quarterly
price range per share is based on the high and low sales prices.
The company has not paid dividends since the fourth quarter of
1991. At June 3, 1995 there were approximately 1,600 holders of
record of the company's common stock.
FIVE YEAR ENDED
YEAR ENDED MONTHS ENDED DECEMBER 31,
JUNE 3, 1995 MAY 28, 1994 1993
HIGH LOW HIGH LOW HIGH LOW
First quarter $ 7 $5 3/4 $7 1/8 $4 5/8 $6 3/4 $4 5/8
Second quarter 6 1/2 5 3/8 6 1/2 4 1/2 5 1/4 4
Third quarter 6 3/8 4 3/4 N/A N/A 5 1/8 3 1/2
Fourth quarter 12 3/8 5 3/4 N/A N/A 5 1/8 4
-22-
23
WYMAN-GORDON COMPANY
REPORT OF INDEPENDENT AUDITORS
To the Stockholders of Wyman-Gordon Company:
We have audited the accompanying consolidated balance sheets
of Wyman-Gordon Company and Subsidiaries as of June 3, 1995 and
May 28, 1994, and the related consolidated statements of
operations, stockholders' equity and cash flows for the year
ended June 3, 1995, for the five months ended May 28, 1994, and
for each of the two years in the period ended December 31, 1993.
These consolidated 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.
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
June 3, 1995 and May 28, 1994, and the consolidated results of
their operations and their cash flows for the year ended June 3,
1995, for the five months ended May 28, 1994, and for each of the
two years in the period ended December 31, 1993 in conformity
with generally accepted accounting principles.
As discussed in Notes I and J to the consolidated financial
statements, in 1993 the company changed its method of accounting
for postretirement benefits other than pensions and income taxes.
/s/ERNST & YOUNG LLP
Boston, Massachusetts
June 26, 1995
-23-
24
REPORT OF MANAGEMENT
To the Stockholders of Wyman-Gordon Company:
We have prepared the financial statements and other sections
of this annual report and are responsible for all information and
representations contained therein. Such financial information
was prepared in accordance with generally accepted accounting
principles appropriate in the circumstances, based on our best
estimates and judgements.
Wyman-Gordon maintains accounting and internal control
systems which are designed to provide reasonable assurance that
assets are safeguarded from loss or unauthorized use and to
produce records adequate for preparation of financial
information. These systems are established and monitored in
accordance with written policies which set forth management's
responsibility for proper internal accounting controls and the
adequacy of these controls subject to continuing independent
review by our external auditors, Ernst & Young LLP.
To assure the effective administration of internal control,
we carefully select and train our employees, develop and
disseminate written policies and procedures and provide
appropriate communication channels. We believe that it is
essential for the company to conduct its business affairs in
accordance with the highest ethical standards.
The financial statements have been audited by Ernst & Young
LLP, Independent Auditors, in accordance with generally accepted
auditing standards. In connection with their audit, Ernst &
Young LLP has developed an understanding of our accounting and
financial controls, and conducted such tests and related
procedures as it considers necessary to render their opinion on
the financial statements.
The financial data contained in this annual report were
subject to review by the Audit Committee of the Board of
Directors. The Audit Committee meets periodically during the year
with Ernst & Young LLP and with management to review accounting,
auditing, internal control and financial reporting matters.
We believe that our policies and procedures provide
reasonable assurance that operations are conducted in conformity
with applicable laws and with our commitment to a high standard
of business conduct.
/S/ DAVID P. GRUBER
David P. Gruber
President and
Chief Executive Officer
/S/ ANDREW C. GENOR
Andrew C. Genor
Vice President, Chief Financial
Officer and Treasurer
-24-
25
Wyman-Gordon Company and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
FIVE
YEAR YEAR MONTHS
ENDED ENDED ENDED
JUNE 3, MAY 28, MAY 28,
1995 1994 1994
(Unaudited)
(000's omitted, except per share data)
Revenue $396,639 $224,694 $ 86,976
Cost of goods sold 347,251 217,816 91,907
Selling, general and
administrative expenses 36,380 35,532 18,324
Other charges (credits) (710) 33,003 30,550
Environmental charge - 2,000 2,000
382,921 288,351 142,781
Income (loss) from operations 13,718 (63,657) (55,805)
Other deductions (income):
Interest expense 11,027 11,135 5,383
Miscellaneous, net 1,652 (2,389) 182
12,679 8,746 5,565
Income (loss) before cumulative
effect of changes in accounting
principles 1,039 (72,403) (61,370)
Cumulative effect of changes in
accounting principles - - -
Net income (loss) $ 1,039 $(72,403) $(61,370)
INFORMATION PER SHARE
Income (loss) before cumulative
effect of changes in accounting
principles $ .03 $ (4.02) $ (3.32)
Cumulative effect of changes in
accounting principles - - -
Net income (loss) $ .03 $ (4.02) $ (3.32)
Shares used to compute earnings
per share 35,148 17,992 18,490
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these financial statements.
-25-
26
Wyman-Gordon Company and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(Continued)
YEAR ENDED
DECEMBER 31,
1993 1992
(000's omitted, except per share data)
Revenue $239,761 $298,881
Cost of goods sold 219,088 243,291
Selling, general and
administrative expenses 26,648 28,315
Other charges (credits) 2,453 -
Environmental charge - -
248,189 271,606
Income (loss) from operations (8,428) 27,275
Other deductions (income):
Interest expense 10,823 7,521
Miscellaneous, net (2,247) (2,041)
8,576 5,480
Income (loss) before cumulative
effect of changes in accounting
principles (17,004) 21,795
Cumulative effect of changes in
accounting principles (43,000) -
Net income (loss) $(60,004) $ 21,795
INFORMATION PER SHARE
Income (loss) before cumulative
effect of changes in accounting
principles $ (.95) $ 1.21
Cumulative effect of changes in
accounting principles (2.39) -
Net income (loss) $ (3.34) $ 1.21
Shares used to compute earnings
per share 17,965 18,078
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these financial statements.
-26-
27
Wyman-Gordon Company and Subsidiaries
CONSOLIDATED BALANCE SHEETS
JUNE 3, MAY 28,
1995 1994
(000's omitted)
ASSETS
Cash and cash equivalents $ 13,856 $ 42,179
Accounts receivable 79,219 77,019
Inventories 78,813 65,737
Prepaid expenses 15,671 15,192
Total current assets 187,559 200,127
Property, plant and equipment, net 141,397 139,689
Intangible assets 25,295 27,759
Other assets 14,813 27,172
Total assets $369,064 $394,747
LIABILITIES
Borrowings due within one year $ 3,915 $ 77
Obligation to Cooper Industries - 20,561
Accounts payable 34,729 27,650
Accrued liabilities and other 55,853 60,151
Total current liabilities 94,497 108,439
Restructuring, integration, disposal
and environmental 19,648 26,201
Long-term debt 90,308 90,385
Pension liability 9,589 14,462
Deferred income taxes and other 21,699 30,929
Postretirement benefits 52,468 51,848
STOCKHOLDERS' EQUITY
Preferred stock, no par value: Authorized
5,000,000 shares; none issued - -
Common stock, par value $1.00 per share:
Authorized 70,000,000 shares; issued
37,052,720 and 36,902,720 shares at
June 3, 1995 and May 28, 1994 37,053 36,903
Capital in excess of par value 40,118 43,884
Retained earnings 39,700 38,661
Equity adjustments 63 (5,408)
Treasury stock, 2,044,178 shares at
June 3, 1995 and 2,354,540 shares
at May 28, 1994 (36,079) (41,557)
Total stockholders' equity 80,855 72,483
Total liabilities and stockholders'
equity $369,064 $394,747
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these financial statements.
-27-
28
Wyman-Gordon Company and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR YEAR
ENDED ENDED
JUNE 3, MAY 28,
1995 1994
(000's omitted) (Unaudited)
OPERATING ACTIVITIES:
Net income (loss) $ 1,039 $(72,403)
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Depreciation and amortization 18,122 15,888
Loss from disposal of production facilities - 2,453
Environmental and other charges (credits) (2,100) 32,550
Losses of equity investment 1,390 -
Cumulative effect of changes in accounting
principles - -
Changes in assets and liabilities net of
purchase price activity:
Accounts receivable (2,200) 9,545
Inventories (13,076) 16,219
Prepaid expenses and other assets 11,542 5,078
Accrued restructuring, integration,
disposal and environmental (14,646) (8,224)
Income and other taxes 628 (623)
Accounts payable and accrued liabilities 7,073 5,515
Deferred income taxes - 1,009
Net cash provided (used) by operating
activities 7,772 7,007
INVESTING ACTIVITIES:
Investment in acquired subsidiaries (3,591) (3,450)
Capital expenditures (18,714) (11,888)
Deferred program costs - 16,408
Proceeds from disposal of production
facilities - 4,345
Proceeds from sale of fixed assets 1,563 62
Other, net (415) 4,071
Net cash provided (used) by investing
activities (21,157) 9,548
FINANCING ACTIVITIES:
Cash received from Cooper Industries for
factored accounts receivable - 20,561
Cash paid to Cooper Industries for
factored accounts receivable (20,561) -
Payment of debt (77) (77)
Issuance of debt 3,838 -
Net proceeds from issuance of common stock 1,862 572
Net cash provided (used) by financing
activities (14,938) 21,056
Increase (decrease) in cash (28,323) 37,611
Cash, beginning of period 42,179 4,568
Cash, end of period $ 13,856 $ 42,179
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these financial statements.
-28-
29
Wyman-Gordon Company and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
FIVE MONTHS YEAR
ENDED ENDED
MAY 28, DEC. 31,
1994 1993
(000's omitted)
OPERATING ACTIVITIES:
Net income (loss) $(61,370) $(60,004)
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Depreciation and amortization 6,782 15,569
Loss from disposal of production facilities - 2,453
Environmental and other charges (credits) 32,550 -
Losses of equity investment - -
Cumulative effect of changes in accounting
principles - 43,000
Changes in assets and liabilities net of
purchase price activity:
Accounts receivable 3,228 15,139
Inventories 4,215 8,474
Prepaid expenses and other assets 2,255 (7,114)
Accrued restructuring, integration,
disposal and environmental (1,352) (9,653)
Income and other taxes 585 (940)
Accounts payable and accrued liabilities 6,429 311
Deferred income taxes 1,009 (58)
Net cash provided (used) by operating
activities (5,669) 7,177
INVESTING ACTIVITIES:
Investment in acquired subsidiaries (3,450) -
Capital expenditures (2,404) (13,866)
Deferred program costs 16,063 (22)
Proceeds from disposal of production
facilities - 4,345
Proceeds from sale of fixed assets - 393
Other, net 2,137 1,650
Net cash provided (used) by investing
activities 12,346 (7,500)
FINANCING ACTIVITIES:
Cash received from Cooper Industries for
factored accounts receivable 20,561 -
Cash paid to Cooper Industries for
factored accounts receivable - -
Payment of debt (77) (70,077)
Issuance of debt - 84,680
Net proceeds from issuance of common stock 201 537
Net cash provided (used) by financing
activities 20,685 15,140
Increase (decrease) in cash 27,362 14,817
Cash, beginning of period 14,817 -
Cash, end of period $ 42,179 $ 14,817
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these financial statements.
-29-
30
Wyman-Gordon Company and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
YEAR
ENDED
DEC. 31,
1992
(000's omitted)
OPERATING ACTIVITIES:
Net income (loss) $ 21,795
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Depreciation and amortization 15,875
Loss from disposal of production facilities -
Environmental and other charges (credits) -
Losses of equity investment -
Cumulative effect of changes in accounting
principles -
Changes in assets and liabilities net of
purchase price activity:
Accounts receivable 14,699
Inventories 16,345
Prepaid expenses and other assets 986
Accrued restructuring, integration,
disposal and environmental (25,735)
Income and other taxes 2,789
Accounts payable and accrued liabilities (15,951)
Deferred income taxes -
Net cash provided (used) by operating
activities 30,803
INVESTING ACTIVITIES:
Investment in acquired subsidiaries (3,700)
Capital expenditures (11,156)
Deferred program costs (2,086)
Proceeds from disposal of production
facilities 451
Proceeds from sale of fixed assets 2,282
Other, net 742
Net cash provided (used) by investing
activities (13,467)
FINANCING ACTIVITIES:
Cash received from Cooper Industries for
factored accounts receivable -
Cash paid to Cooper Industries for
factored accounts receivable -
Payment of debt (22,077)
Issuance of debt -
Net proceeds from issuance of common stock 220
Net cash provided (used) by financing
activities (21,857)
Increase (decrease) in cash (4,521)
Cash, beginning of period 4,521
Cash, end of period $ -
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these financial statements.
-30-
31
Wyman-Gordon Company and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
Common Stock Capital in
Shares Par Excess of Retained
Issued Value Par Value Earnings
(000's omitted)
Balance, December 31, 1991 20,403 $20,403 $16,616 $138,240
Net income 21,795
Stock plans (567)
Pension equity adjustment
Balance, December 31, 1992 20,403 20,403 16,049 160,035
Net loss (60,004)
Stock plans (984)
Savings/Investment Plan
match (769)
Pension equity adjustment
Balance, December 31, 1993 20,403 20,403 14,296 100,031
Net loss (61,370)
Stock plans (429)
Savings/Investment Plan
match (171)
Pension equity adjustment
Issuance of common stock 16,500 16,500 30,188
Balance, May 28, 1994 36,903 36,903 43,884 38,661
Net income 1,039
Stock plans 150 150 (2,354)
Savings/Investment Plan
match (1,412)
Pension equity adjustment
Currency translation
Balance, June 3, 1995 37,053 $37,053 $40,118 $ 39,700
The accompanying Notes to the Consolidated Financial Statements are
an integral part of these financial statements.
-31-
32
Wyman-Gordon Company and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
(Continued)
Equity Treasury
Adjustments Stock
(000's omitted)
Balance, December 31, 1991 $ (1,788) $(45,383)
Net income
Stock plans 735
Pension equity adjustment (535)
Balance, December 31, 1992 (2,323) (44,648)
Net loss
Stock plans 1,250
Savings/Investment Plan
match 1,040
Pension equity adjustment (1,700)
Balance, December 31, 1993 (4,023) (42,358)
Net loss
Stock plans 546
Savings/Investment Plan
match 255
Pension equity adjustment (1,385)
Issuance of common stock
Balance, May 28, 1994 (5,408) (41,557)
Net income
Stock plans 3,355
Savings/Investment Plan
match 2,123
Pension equity adjustment 3,952
Currency translation 1,519
Balance, June 3, 1995 $ 63 $(36,079)
The accompanying Notes to the Consolidated Financial Statements are an
integral part of these financial statements.
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33
Wyman-Gordon Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The company is engaged principally in the design,
engineering, production and marketing of high-technology forged
and investment cast metal and composite components used for a
wide variety of aerospace and power generation applications.
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.
On May 26, 1994, the Company acquired Cameron Forged
Products Company ("Cameron") from Cooper Industries. The
accompanying consolidated financial statements include the
accounts of Cameron from the date of the acquisition. Cameron's
operating results from May 26, 1994 to May 28, 1994 are not
material to the consolidated statement of operations for the five
month period ended May 28, 1994. The unaudited statement of
operations and cash flows for the year ended May 28, 1994 are
presented for comparative purposes only.
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 both the lower of first-
in, first-out (FIFO) cost or market, or for certain forgings and
castings raw material and work-in-process inventories, the
last-in, first-out (LIFO) method. On certain orders, usually
involving lengthy raw material procurement and production cycles,
progress payments are reflected as a reduction of inventories.
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 available information indicates that
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34
Wyman-Gordon Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
the sales price is less than a fully allocated cost projection.
As part of the company's acquisition of Cameron on May 26, 1994,
loss reserves on backlog and long-term pricing agreements are
included on the balance sheet (see Footnote C).
DEPRECIABLE ASSETS: 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, 10 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.
BANK FEES: Bank fees and related costs of obtaining credit
facilities are recorded as other assets and amortized over the
term of the facilities.
EARNINGS (LOSS) PER SHARE: Per-share data are computed based on
the weighted average number of common shares outstanding during
each year. Common stock equivalents related to outstanding stock
options are included in per-share computations unless their
inclusion would be antidilutive.
CONCENTRATION OF CREDIT RISK: Financial instruments that
potentially subject the company to concentration of credit risk
consist primarily of temporary cash investments and trade
receivables. The company restricts investment of temporary cash
investments to financial institutions with high credit standing.
The company has approximately 550 active customers. However, the
company's accounts receivable are concentrated with a small
number of Fortune 500 companies with whom the company has long-
standing relationships. Accordingly, management considers credit
risk to be low. Five customers accounted for 50.0% of the
company's revenues during the year ended June 3, 1995, 50.6% for
the five months ended May 28, 1994, 55.6% for the year ended
December 31, 1993 and 52.7% for the year ended December 31, 1992.
General Electric Company ("GE")and United Technologies
Corporation "UT") each accounted for more than 10% of the
company's revenues as follows:
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35
Wyman-Gordon Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
($000's omitted)
FIVE
YEAR MONTHS
ENDED ENDED YEAR ENDED
JUNE 3, MAY 28, DECEMBER 31,
1995 % 1994 % 1993 % 1992 %
GE $101,261 26 $17,226 20 $55,585 23 $62,740 21
UT 58,873 15 13,930 16 37,060 16 48,920 17
CURRENCY TRANSLATION: For foreign operations, the local currency
is the functional currency. Assets and liabilities are
translated at year-end exchange rates, and statement of
operations items are translated at the average exchange rates for
the year. Translation adjustments are reported in equity
adjustments as a separate component of stockholders' equity which
also includes exchange gains and losses on certain intercompany
balances of a long-term investment nature.
RESEARCH AND DEVELOPMENT: Research and development expenses,
including related depreciation, amounted to $2,213,000, $733,000,
$2,778,000 and $3,013,000 for the year ended June 3, 1995, five
months ended May 28, 1994 and for the years ended December 31,
1993 and 1992, respectively.
INTANGIBLE ASSETS: Intangible assets consists primarily of costs
of acquired businesses in excess of net assets acquired and are
amortized on a straightline basis over periods up to 35 years.
B. ACQUISITION
On May 26, 1994, the company acquired all of the outstanding
stock of Cameron from Cooper Industries Inc. for 16,500,000
shares of the company's common stock valued at $46,687,000,
direct costs of $3,050,000, a note payable to Cooper Industries,
Inc. of $3,186,000 net of discount of $1,414,000, $400,000 in
cash at closing and a final cash settlement of $3,591,000.
Cameron and its subsidiaries operate forging facilities in
Houston, Texas and Livingston, Scotland, as well as a powder
metal operation in Brighton, Michigan. The integration of
Cameron's operations with the company's is progressing
substantially as planned. The acquisition was accounted for as a
purchase transaction. The company's results of operations for
fiscal 1995 include the accounts of Cameron. The final
allocation of the purchase price of this transaction is reflected
in the May 28, 1994 balance sheet as follows:
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36
Wyman-Gordon Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(000's omitted)
Cost of acquisition:
Issuance of 16,500 shares of common
stock to Cooper, direct expenses of
$3,050 and $3,591 final price
adjustment $53,328
Note payable to Cooper net of discount
of $1,414 (included in other long-term
liabilities on the balance sheet) 3,186
Cash paid to Cooper at closing 400
56,914
Estimated costs to integrate Cameron into
the company 6,993
$63,907
Allocation of cost of acquisition:
Fair value of property, plant and equipment $81,183
Less excess of fair value of net assets
acquired over purchase price (30,712)
50,471
Other assets acquired and liabilities assumed 13,436
$63,907
The allocation of the cost of the acquisition has been made
on the basis of the fair market value of the individual assets
and liabilities acquired. Direct costs of the acquisition of
Cameron and liabilities assumed are $5,200,000 and $900,000,
respectively, lower than originally estimated at May 28, 1994.
The Unaudited Pro Forma Combined financial data of the
company with Cameron as though Cameron had been acquired as of
the beginning of each period presented are as follows:
FIVE MONTHS
ENDED YEAR ENDED
MAY 28, DECEMBER 31,
1994 1993
(000's omitted, except per-share data)
Revenue $151,834 $389,295
Income (loss) before
cumulative effect of
changes in accounting
principles $(71,525) $(39,271)
Net income (loss) $(71,525) $(82,271)
Income (loss) per share
before cumulative effect
of changes in accounting
principles $ (2.07) $ (1.14)
Net income (loss) per share $ (2.07) $ (2.38)
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37
Wyman-Gordon Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
C. BALANCE SHEET INFORMATION
Components of selected captions in the consolidated balance
sheets follow:
JUNE 3, May 28,
1995 1994
(000's omitted)
PROPERTY, PLANT AND EQUIPMENT:
Land, buildings and improvements $100,399 $ 92,150
Machinery and equipment 278,691 272,429
Under construction 6,282 4,722
385,372 369,301
Less accumulated depreciation 243,975 229,612
$141,397 $139,689
INTANGIBLE ASSETS:
Pension intangible $ 5,568 $ 6,527
Costs in excess of net assets
acquired 28,786 29,586
Less: Accumulated amortization (9,059) (8,354)
$ 25,295 $ 27,759
OTHER ASSETS:
Cash surrender value of company-
owned life insurance policies $ 7,974 $ 12,341
Other 6,839 14,831
$ 14,813 $ 27,172
ACCRUED LIABILITIES AND OTHER:
Accrued payroll and benefits $ 11,511 $ 9,900
Restructuring, integration,
disposal and environmental
reserves 10,219 19,082
Payroll and other taxes 3,139 2,511
Loss on long-term contracts 7,407 8,334
Other 23,577 20,324
$ 55,853 $ 60,151
DEFERRED INCOME TAXES AND OTHER:
Deferred income taxes $ 2,623 $ 2,623
Loss on long-term contracts 3,413 12,000
Other long-term liabilities 15,663 16,306
$ 21,699 $ 30,929
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38
Wyman-Gordon Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
D. INVENTORIES
Inventories consisted of the following:
JUNE 3, MAY 28,
1995 1994
(000's omitted)
Raw material $26,440 $13,706
Work-in-process 54,310 54,570
Other 3,228 2,286
83,978 70,562
Less progress payments 5,165 4,825
$78,813 $65,737
If all inventories valued at LIFO cost had been valued at
FIFO cost or market which approximates current replacement cost,
inventories would have been $21,584,000 and $27,758,000 higher
than reported at June 3, 1995 and May 28, 1994, respectively.
LIFO inventory quantities were reduced in each of the
periods presented below, resulting in the liquidation of LIFO
inventories carried at the lower costs prevailing in prior years
compared with the cost of current purchases which has a favorable
effect on income from operations. Inflation and deflation have
negative and positive effects on income from operations,
respectively. The effects of lower quantities, inflation or
deflation were as follows:
FIVE
YEAR MONTHS
ENDED ENDED YEAR ENDED
JUNE 3, MAY 28, DECEMBER 31,
1995 1994 1993 1992
(000's omitted)
Lower quantities $ 7,567 $2,050 $5,469 $18,388
(Inflation) deflation (1,393) 1,085 4,450 2,448
Net increase to income
from operations $ 6,174 $3,135 $9,919 $20,836
-38-
39
Wyman-Gordon Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
E. SHORT-TERM AND LONG-TERM DEBT
Short-term and long-term debt consisted of the following:
JUNE 3, MAY 28,
1995 1994
(000's omitted)
Borrowings due within one year:
Current portion of long-term debt $ 77 $ 77
Borrowings under U.K. Credit
Agreement 3,838 -
Total borrowings due within
one year $ 3,915 $ 77
Long-term debt:
Senior Notes $90,000 $90,000
Other 308 385
Total long-term debt $90,308 $90,385
During 1993, the company issued $90,000,000 of 10 3/4%
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. 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 estimated fair value of the Senior Notes was $86,400,000
and $88,200,000 at June 3, 1995 and May 28, 1994 based on third
party valuations.
On May 20, 1994, the company initiated, through a new
subsidiary, Wyman-Gordon Receivables Corporation ("WGRC"), a
revolving credit agreement with a group of five banks
("Receivables Financing Program"). WGRC is a separate corporate
entity from Wyman-Gordon Company and its other subsidiaries, with
its own separate creditors. WGRC's business is the purchase of
accounts receivable from Wyman-Gordon Company and certain of its
subsidiaries ("Sellers"), and neither WGRC on the one hand nor
the Sellers (or subsidiaries or affiliates of the Sellers) on the
other have agreed to pay or make their assets available to pay
creditors of others. WGRC's creditors have a claim on its assets
prior to those assets becoming available to any creditors of any
of the Sellers. The facility provides for a total commitment by
the banks of up to $65,000,000, including a letter of credit
subfacility of up to $35,000,000.
-39-
40
Wyman-Gordon Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
There were no borrowings outstanding at June 3, 1995 and May
28, 1994, but the company had issued $10,009,000 and $5,139,000
of letters of credit under the Receivables Financing Program,
respectively. As of June 3, 1995 and May 28, 1994, total
availability based on eligible receivables was $44,816,000 and
$15,418,000, respectively. Cameron's accounts receivable became
eligible on October 21, 1994.
Wyman-Gordon Limited, the company's subsidiary located in
Livingston, Scotland, entered into a credit agreement ("U.K.
Credit Agreement") with a bank ("the Bank") effective November
28, 1994. The maximum borrowing capacity under the U.K. Credit
Agreement is 3,000,000 pound sterling with a separate letter of
credit or guarantee limit of 1,000,000 pound sterling.
Borrowings bear interest at 1% over the Bank's base rate. In the
event that borrowings by way of overdraft are allowed to exceed
the agreed limit, interest on the excess borrowings will be
charged at the rate of 2% over the Bank's base rate. The company
is obligated to pay a commitment fee of .75% on letters of credit
issued under the U.K. Credit Agreement. The U.K. Credit
Agreement is secured by a debenture from Wyman-Gordon Limited and
is senior to any intercompany loans. The term of the U.K. Credit
Agreement is one year with an evergreen feature. There were
2,415,000 pound sterling or $3,838,000 borrowings outstanding at
June 3, 1995 and the company had issued pound sterling 380,000 or
$604,000 of letters of credit or guarantees under the U.K. Credit
Agreement.
For the year ended June 3, 1995, the weighted average
interest rate on short-term borrowings was 7.3%.
Annual maturities of long-term debt in the next five years
amount to $77,000 per year and $90,000,000 thereafter. The
company's promissory note to Cooper Industries, Inc. in the
principal amount of $4,600,000, will be payable in annual
installments beginning on June 30, 1997 and each June 30
thereafter until paid in full in amounts provided under the terms
of the "Stock Purchase Agreement" with Cooper Industries, Inc.
FIVE
YEAR MONTHS
ENDED ENDED YEAR ENDED
JUNE 3, MAY 28, DECEMBER 31,
1995 1994 1993 1992
(000's omitted)
Interest on debt $ 9,929 $3,973 $ 8,741 $5,171
Capitalized interest (397) (152) (544) (218)
Amortization of
financing fees and
other 1,495 1,562 2,626 2,568
Interest expense $11,027 $5,383 $10,823 $7,521
Total interest paid approximates "Interest on debt" stated
in the table above.
-40-
41
Wyman-Gordon Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
F. RESTRUCTURING OF OPERATIONS
1991 RESTRUCTURING:
During 1991, the company incurred 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 forging division, respectively.
A significant portion of this charge related to the
consolidation of forging operations, including severance and
other personnel costs. The company has nearly completed its 1991
restructuring plan. Some consolidation activities still remain
to be completed requiring cash outlays of approximately
$1,700,000 and $600,000 in fiscal 1996 and 1997, respectively.
Deferred compensation of approximately $1,500,000 will be payable
over the next several years under the terms of a severance
agreement. The divestiture of the company's automotive
crankshaft forging division is virtually complete with minor
costs remaining.
1993 DISPOSITION:
In 1993, the company sold substantially all of the net
assets and business operations of Wyman-Gordon Composites, Inc.
and recorded a non-cash charge on the sale in the fourth quarter
of 1993 of $2,453,000.
1994 RESTRUCTURING:
The company recorded a charge of $6,450,000 in May 1994,
$5,200,000 for closing a castings facility, of which $1,100,000
required cash, and $1,250,000 to write-down castings fixed assets
to their net realizable value. The non-cash items amounting to
$5,350,000 were charged against the reserve in May 1994. A
$600,000 cash charge was made against the reserve in fiscal 1995
and cash charges of $500,000 are expected to be incurred in
fiscal 1996.
1994 CAMERON INTEGRATION COSTS:
Based on the company's plans for the integration of Cameron,
in May 1994, the company recorded an integration restructuring
charge totalling $24,100,000 which consisted of estimated cash
costs of $12,700,000 and estimated non-cash charges of
$11,400,000 for asset revaluations. Cash costs include
relocating machinery, equipment, tooling and dies of the company
as well as relocation and severance costs related to personnel of
the company. Non-cash charges included the write-down of certain
assets of the company, including portions of metal production
facilities and certain forging, machining and testing equipment
to net realizable value as a result of consolidating certain
systems and facilities, idling certain machinery and equipment,
and eliminating certain processes, departments and operations as
a result of the acquisition.
-41-
42
Wyman-Gordon Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In the fourth quarter of fiscal 1995, after a year of
evaluating the combined forgings operations and concluding that
most of its integration activities had been completed or were
adequately provided for within the remaining integration
restructuring reserves, the company determined that severance and
other personnel costs were $1,900,000 lower and movement of
machinery, equipment and tooling and dies costs were $2,500,000
lower than originally estimated. Additionally, the company had
originally identified certain machinery and equipment expected to
become redundant as a result of the integration of Cameron's
operations with those of the company's. These redundancies were
$2,300,000 higher than the company's original estimates. As a
result, the company took into income from operations, an
integration restructuring credit in the amount of $2,100,000. At
June 3, 1995, the company estimates the remaining integration
activities will require cash outlays of approximately $4,100,000
in fiscal 1996 and $1,600,000 thereafter. Most of these future
expenditures represent costs associated with consolidation and
reconfiguration of production facilities and relocation or
severance costs.
CAMERON PURCHASE CASH COSTS:
Included as part of the Cameron purchase price allocation
the company recorded $12,200,000 for direct cash costs related to
the acquisition and integration of Cameron for relocation of
Cameron machinery and dies, severance of Cameron personnel and
other costs. At June 3, 1995, it was determined that the cash
costs of the acquisition were $5,200,000 lower than originally
estimated. The company made $4,100,000 of cash charges against
these reserves in fiscal 1995, and the remaining activities will
require estimated cash outlays of $2,900,000.
A summary of charges made or estimated to be made against
restructuring, integration and disposal reserves is as follows:
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43
Wyman-Gordon Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEAR
ENDED
DEC. 31,
TOTAL 1991
(000's omitted)
1991 RESTRUCTURING:
CASH:
Consolidation and reconfiguration of
facilities $32,600 $ 700
Severance and deferred compensation 6,400 -
Total cash charges 39,000 700
NON-CASH:
Asset revaluation 56,000 51,900
Total 1991 Other Charges $95,000 $52,600
1993 DISPOSITION:
NON-CASH:
Disposition of production facilities $ 2,453 $ -
Total 1993 Other Charges $ 2,453 $ -
1994 RESTRUCTURING:
1994 RESTRUCTURING:
CASH:
Casting facility closure $ 1,100 $ -
NON-CASH:
Casting facility closure 4,100 -
Other 1,250 -
Total non-cash charges 5,350 -
Total 1994 Restructuring 6,450 -
1994 CAMERON INTEGRATION COSTS:
CASH:
Movement of machinery, equipment and
tooling and dies 4,300 -
Severance and other personnel costs 4,000 -
Total cash charges 8,300 -
NON-CASH:
Asset revaluation 13,700 -
Credits to reserves 2,100 -
Total non-cash charges 15,800 -
Total 1994 Cameron integration costs 24,100 -
Total 1994 Other Charges $30,550 $ -
CAMERON PURCHASE CASH COSTS:
Cost of relocating Cameron's machinery and
equipment and tooling and dies $ 3,200 $ -
Severance of Cameron personnel 3,800 -
Total Cameron Purchase Cash Costs $ 7,000 $ -
1995 OTHER CHARGES:
NON-CASH:
Credits to 1994 Cameron integration costs $(2,100) $ -
Total 1995 Other Charges $(2,100) $ -
Total Cash $55,400 $ 700
Total Non-cash $77,503 $51,900
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44
Wyman-Gordon Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEAR YEAR
ENDED ENDED
DEC. 31, DEC. 31,
1992 1993
(000's omitted)
1991 RESTRUCTURING:
CASH:
Consolidation and reconfiguration of
facilities $21,100 $ 4,800
Severance and deferred compensation 2,200 2,000
Total cash charges 23,300 6,800
NON-CASH:
Asset revaluation 2,400 1,700
Total 1991 Other Charges $25,700 $ 8,500
1993 DISPOSITION:
NON-CASH:
Disposition of production facilities $ - $ 2,453
Total 1993 Other Charges $ - $ 2,453
1994 RESTRUCTURING:
1994 RESTRUCTURING:
CASH:
Casting facility closure $ - $ -
NON-CASH:
Casting facility closure - -
Other - -
Total non-cash charges - -
Total 1994 Restructuring - -
1994 CAMERON INTEGRATION COSTS:
CASH:
Movement of machinery, equipment and
tooling and dies - -
Severance and other personnel costs - -
Total cash charges - -
NON-CASH:
Asset revaluation - -
Credits to reserves - -
Total non-cash charges - -
Total 1994 Cameron integration costs - -
Total 1994 Other Charges $ - $ -
CAMERON PURCHASE CASH COSTS:
Cost of relocating Cameron's machinery and
equipment and tooling and dies $ - $ -
Severance of Cameron personnel - -
Total Cameron Purchase Cash Costs $ - $ -
1995 OTHER CHARGES:
NON-CASH:
Credits to 1994 Cameron integration costs $ - $ -
Total 1995 Other Charges $ - $ -
Total Cash $23,300 $ 6,800
Total Non-cash $ 2,400 $ 4,153
-44-
45
Wyman-Gordon Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FIVE MONTHS YEAR
ENDED ENDED
MAY 28, JUNE 3,
1994 1995
(000's omitted)
1991 RESTRUCTURING:
CASH:
Consolidation and reconfiguration of
facilities $ 1,400 $ 2,300
Severance and deferred compensation 300 400
Total cash charges 1,700 2,700
NON-CASH:
Asset revaluation - -
Total 1991 Other Charges $ 1,700 $ 2,700
1993 DISPOSITION:
NON-CASH:
Disposition of production facilities $ - $ -
Total 1993 Other Charges $ - $ -
1994 RESTRUCTURING:
1994 RESTRUCTURING:
CASH:
Casting facility closure $ - $ 600
NON-CASH:
Casting facility closure 4,100 -
Other 1,250 -
Total non-cash charges 5,350 -
Total 1994 Restructuring 5,350 600
1994 CAMERON INTEGRATION COSTS:
CASH:
Movement of machinery, equipment and
tooling and dies - 800
Severance and other personnel costs - 1,800
Total cash charges - 2,600
NON-CASH:
Asset revaluation 11,400 2,300
Credits to reserves - 2,100
Total non-cash charges 11,400 4,400
Total 1994 Cameron integration costs 11,400 7,000
Total 1994 Other Charges $16,750 $ 7,600
CAMERON PURCHASE CASH COSTS:
Cost of relocating Cameron's machinery and
equipment and tooling and dies $ - $ 1,700
Severance of Cameron personnel - 2,400
Total Cameron Purchase Cash Costs $ - $ 4,100
1995 OTHER CHARGES:
NON-CASH:
Credits to 1994 Cameron integration costs $ - $(2,100)
Total 1995 Other Charges $ - $(2,100)
Total Cash $ 1,700 $10,000
Total Non-cash $16,750 $ 2,300
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46
Wyman-Gordon Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEAR
ENDED
JUNE 1, THERE-
1996 AFTER
(000's omitted)
1991 RESTRUCTURING:
CASH:
Consolidation and reconfiguration of
facilities $ 1,700 $ 600
Severance and deferred compensation 200 1,300
Total cash charges 1,900 1,900
NON-CASH:
Asset revaluation - -
Total 1991 Other Charges $ 1,900 $ 1,900
1993 DISPOSITION:
NON-CASH:
Disposition of production facilities $ - $ -
Total 1993 Other Charges $ - $ -
1994 RESTRUCTURING:
1994 RESTRUCTURING:
CASH:
Casting facility closure $ 500 $ -
NON-CASH:
Casting facility closure - -
Other - -
Total non-cash charges - -
Total 1994 Restructuring 500 -
1994 CAMERON INTEGRATION COSTS:
CASH:
Movement of machinery, equipment and
tooling and dies 2,100 1,400
Severance and other personnel costs 2,000 200
Total cash charges 4,100 1,600
NON-CASH:
Asset revaluation - -
Credits to reserves - -
Total non-cash charges - -
Total 1994 Cameron integration costs 4,100 1,600
Total 1994 Other Charges $ 4,600 $ 1,600
CAMERON PURCHASE CASH COSTS:
Cost of relocating Cameron's machinery and
equipment and tooling and dies $ 1,100 $ 400
Severance of Cameron personnel 1,300 100
Total Cameron Purchase Cash Costs $ 2,400 $ 500
1995 OTHER CHARGES:
NON-CASH:
Credits to 1994 Cameron integration costs $ - $ -
Total 1995 Other Charges $ - $ -
Total Cash $ 8,900 $ 4,000
Total Non-cash $ - $ -
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47
Wyman-Gordon Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
G. ENVIRONMENTAL MATTERS
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. 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. In 1991, the company recorded a charge of $7,000,000 with
respect to environmental investigation and remediation costs at
one of the company's facilities. During the five months ended
May 28, 1994, the company provided an additional $2,000,000 to
the current estimated cost of remediation. Additionally, a
charge of $5,000,000 against potential environmental remediation
costs upon the eventual sale of another facility was included in
the 1991 restructuring charge.
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 agreed to make additional
expenditures for environmental management and remediation
projects at that site during the period 1982 through 1999.
Approximately $6,100,000 of future expenditures remain as of June
3, 1995. 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
included in the U.S. Nuclear Regulatory Commission's ("NRC") May
1992 Site Decommissioning Management Plan for low-level
radioactive waste as a "Priority C" (lowest priority) site. The
NRC conducted a long range dose assessment in 1992, and concluded
that the site should be remediated. However, the company
believes the NRC's draft assessment was flawed and has challenged
that draft assessment. 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.
The company has been named in a suit which relates to the
clean-up of a privately owned site in Massachusetts formerly used
as an impoundment lagoon from which hazardous material is alleged
to have spilled. A proposed agreement would allocate 33% of the
clean-up costs to the company. An insurance company is defending
the company's interests, and the company believes that any
recovery against the company would be covered by insurance. A
consulting firm retained by the PRP group has recently made a
preliminary remediation cost estimate of $300,000 to $9,900,000,
depending on the level of toxicity found and the method of
remediation ultimately used.
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48
Wyman-Gordon Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
H. BENEFIT 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. Company contributions
are determined based upon the funding requirements of U.S. and
other governmental laws and regulations.
A reconciliation between the amounts recorded on the
consolidated balance sheets and the summary tables of the funding
status of the pension plans are as follows:
JUNE 3, MAY 28,
1995 1994
(000's omitted)
Pension liability per balance sheet $(9,589) $(14,462)
Prepaid pension expense included in
prepaid expenses in the balance
sheet 1,639 2,769
UK pension liability 789 750
Net pension liability $(7,161) $(10,943)
U.S. PENSION PLANS
Pension expense for the U.S. pension plans included the
following components:
FIVE
YEAR MONTHS
ENDED ENDED YEAR ENDED
JUNE 3, MAY 28, DECEMBER 31,
1995 1994 1993 1992
(000's omitted)
Service cost $ 2,938 $ 917 $ 1,720 $ 1,937
Interest cost on
projected benefit
obligation 10,842 4,373 10,955 11,083
Actual return on assets (8,205) (2,248) (18,107) (6,849)
Net amortization and
deferral of actuarial
gains (losses) (1,385) (1,798) 8,208 (3,403)
Net pension expense $ 4,190 $ 1,244 $ 2,776 $ 2,768
Assumed long-term rate
of return on plan
assets 9.0% 9.0% 9.0% 9.0%
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Wyman-Gordon Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A summary of the funding status of the U.S. pension plans
and a reconciliation to the amounts recorded in the consolidated
balance sheets are as follows:
JUNE 3, 1995
(000's omitted)
ASSETS ACCUMULATED
EXCEEDING BENEFITS
ACCUMULATED EXCEEDING
BENEFITS ASSETS TOTAL
Actuarial present value of
benefit obligations:
Vested $ 82,042 $ 46,202 $128,244
Nonvested 349 324 673
Accumulated benefit obligation 82,391 46,526 128,917
Impact of forecasted salary
increases during future
periods 5,737 339 6,076
Projected benefit obligation
for employee service to date 88,128 46,865 134,993
Current fair market value of
plan assets 101,933 30,967 132,900
Excess (shortfall) of plan
assets over (under) projected
benefit obligation 13,805 (15,898) (2,093)
Unrecognized net (gain) loss (10,261) 1,771 (8,490)
Unrecognized net (asset)
obligation at transition (455) 4,912 4,457
Unrecognized prior service cost 5,290 2,456 7,746
Adjustment required to
recognize minimum liability - (8,800) (8,800)
Net periodic pension cost
April 1, 1995 to June 3, 1995 (48) (650) (698)
Contributions April 1, 1995 to
June 3, 1995 - 717 717
Net prepaid pension expense
(pension liability) $ 8,331 $(15,492) $ (7,161)
Estimated annual increase in
future salaries 3-5%
Weighted average discount rate 9.0%
A measurement date of March 31 has been used for determining
the disclosure information. Expense recognition and contributions
received during the period April 1 through fiscal year-end are then
recognized to bring the accrued or prepaid expense to June 3, 1995
and May 28, 1994 balances.
-49-
50
Wyman-Gordon Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MAY 28, 1994
(000's omitted)
ASSETS ACCUMULATED
EXCEEDING BENEFITS
ACCUMULATED EXCEEDING
BENEFITS ASSETS TOTAL
Actuarial present value of
benefit obligations:
Vested $ 91,533 $ 50,639 $142,172
Nonvested 341 398 739
Accumulated benefit obligation 91,874 51,037 142,911
Impact of forecasted salary
increases during future
periods 6,798 235 7,033
Projected benefit obligation
for employee service to date 98,672 51,272 149,944
Current fair market value of
plan assets 103,349 31,390 134,739
Excess (shortfall) of plan
assets over (under) projected
benefit obligation 4,677 (19,882) (15,205)
Unrecognized net (gain) loss (1,274) 5,121 3,847
Unrecognized net (asset)
obligation at transition (522) 5,965 5,443
Unrecognized prior service cost 5,706 2,860 8,566
Adjustment required to
recognize minimum liability - (13,712) (13,712)
Net periodic pension cost
April 1, 1994 to May 28, 1994 34 (507) (473)
Contributions April 1, 1994 to
May 28, 1994 - 591 591
Net prepaid pension expense
(pension liability) $ 8,621 $(19,564) $(10,943)
Estimated annual increase in
future salaries 3-5%
Weighted average discount rate 7.5%
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51
Wyman-Gordon Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
U.K. PENSION PLAN
Pension expense for the U.K. pension plan included the
following:
YEAR ENDED
JUNE 3, 1995
(000's omitted)
Service cost $ 692
Interest cost 1,189
Expected return on assets (1,084)
Net pension expense $ 797
The U.K. pension plan's assets and liabilities were rolled
over from the former Cameron plan during fiscal 1995. The funded
status of the U.K. pension plan is as follows:
JUNE 3, 1995
(000's omitted)
Fair value of plan assets $14,682
Projected benefit obligation 15,247
Plan assets less than projected
benefit obligation (565)
Unrecognized net gain loss 498
Accrued pension cost $ (67)
Accumulated benefits $13,472
Vested benefits $13,472
Assumed long-term rate of return
on plan assets 9.0%
Weighted average discount rate 9.0%
Rate of salary increase 6.0%
The company also maintains a 401K plan for most full-time
salaried employees. Employer contributions to the defined
contribution plan are made at the company's discretion and are
reviewed periodically. Such contributions amounted to $136,000
for the year ended June 3, 1995, $591,000 for the five months
ended May 28, 1994, and $134,000 and $375,000 for the years ended
December 31, 1993 and 1992, respectively. Additionally, for the
year ended June 3, 1995, the five months ended May 28, 1994 and
the years ended December 31, 1993 and 1992, the company
contributed 120,261; 14,432; 58,927 and 0 shares of common stock
from Treasury to its defined contribution plan, respectively, and
recorded expense relating thereto of $711,000, $84,000, $271,000
and $0, respectively.
-51-
52
Wyman-Gordon Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
I. 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.
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.
Most of the 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. There are certain
retirees for which company cost and liability are affected by
future increases in health care cost. The liabilities have been
developed assuming a medical trend rate for growth in future
health care claim levels from the assumed 1994 level. The change
to the accumulated postretirement benefit obligation for each
1.0% change in these assumptions is $850,000. The change in the
annual SFAS 106 expense for each 1.0% change in these assumptions
is $78,000. The weighted average discount rate used in
determining the amortization of the accumulated postretirement
benefit obligation was 9.0% and 7.5% at June 3, 1995 and May 28,
1994, respectively, and the average remaining service life was 20
years.
Net periodic benefit expense consists of the following
components:
FIVE
YEAR MONTHS
ENDED ENDED YEAR ENDED
JUNE 3, MAY 28, DECEMBER 31,
1995 1994 1993
($000's omitted)
Service cost $ 350 $ 85 $ 170
Interest on the
accumulated benefit
obligation 3,990 1,540 3,660
Total postretirement
benefit expense $4,340 $1,625 $3,830
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53
Wyman-Gordon Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The company has no plans for funding the liability and will
continue to pay for retiree medical costs as they occur. The
components of the accumulated postretirement benefit obligation
are as follows:
JUNE 3, MAY 28,
1995 1994
(000's omitted)
Accumulated postretirement
benefit obligation:
Retirees $41,323 $43,285
Fully eligible active plan
participants 5,180 5,239
Other active plan participants 7,023 6,778
53,526 55,302
Plan assets at fair value - -
Accumulated postretirement benefit
obligation in excess of plan assets 53,526 55,302
Unrecognized net gain (loss) from
past experience different from
that assumed and from changes
in assumptions 901 (3,454)
Prior service cost not yet recognized
in net periodic postretirement
benefit cost (2,000) -
Accrued postretirement benefit cost $52,427 $51,848
J. FEDERAL, FOREIGN AND STATE INCOME TAXES
As of January 1, 1993, the company adopted financial
Accounting Standards Board Statement No. 109, "Accounting for
Income Taxes" ("SFAS 109"). 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.
The company has not recognized an income tax benefit
(provision) during the year ended June 3, 1995, the five months
ended May 28, 1994, or the years ended December 31, 1993 and
1992, respectively.
The company received income tax refunds of $0, $138,000,
$282,000 and $3,725,000 during the years ended June 3, 1995, the
five months ended May 28, 1994, and the years ended December 31,
1993 and 1992, respectively.
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54
Wyman-Gordon Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The benefit (provision) for income taxes is at a rate other
than the federal statutory tax rate for the following reasons:
FIVE
YEAR MONTHS
ENDED ENDED YEAR ENDED
JUNE 3, MAY 28, DECEMBER 31,
1995 1994 1993 1992
(000's omitted)
U.S. federal statutory
tax rate $ (363) $ 21,480 $ 5,781 $(7,410)
Recognition of previously
unrecognized deferred
tax assets 1,749 - - 7,410
Tax carryforwards without
current tax benefits
(foreign in 1995 and
U.S. federal in 1994
and 1993) (1,386) (21,480) (5,781) -
Income tax benefit
(provision) $ - $ - $ - $ -
Tax net operating loss carryforwards of $67,000,000 begin
expiring in the year 2006. The company has experienced
significant operating losses and there is no assurance that the
net operating loss carryforwards will be utilized, therefore, a
valuation allowance of $67,731,000 and $69,716,000 at June 3,
1995 and May 28, 1994 has been recognized, respectively.
The principal components of deferred tax assets and
liabilities were as follows:
JUNE 3, 1995 MAY 28, 1994
(000's omitted)
DEFERRED TAX ASSETS
Provision for postretirement
benefits $21,512 $21,228
Net operating loss carryforwards 23,585 19,230
Restructuring provisions 26,602 35,804
Other 6,496 5,768
78,195 82,030
Valuation allowance (67,731) (69,716)
10,464 12,314
DEFERRED TAX LIABILITIES
Accelerated depreciation 9,393 10,069
Other 3,694 4,868
13,087 14,937
Net deferred tax liability $ 2,623 $ 2,623
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55
Wyman-Gordon Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The net deferred tax liability is included in "Deferred
income taxes and other" on the accompanying consolidated balance
sheets.
The company is seeking refunds of prior year's federal taxes
paid, which, if fully realized, could have a material favorable
impact on the company's financial position. A reasonable
estimation of the potential recovery cannot be made at this time
and, accordingly, no adjustment has been made in the financial
statements with respect to the claim.
K. STOCK OPTION PLANS
The company's Long-Term Incentive Plan (the "Plan") is
administered 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, prescribe any performance criteria to be
met and any restrictions on exercise and determine 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.
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. During fiscal 1995,
awards of 150,000 shares of the company's common stock were made
subject to restrictions based upon continued employment for a
period of five years and the performance of the company.
Compensation expense totalling $330,000 relating to the awards
was recorded during the year ended June 3, 1995.
-55-
56
Wyman-Gordon Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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. The 1975 program expired on December 31, 1992,
except as to outstanding grants.
Option activity under the 1975 Program and the 1991 Plan in
the year ended June 3, 1995, the five months ended May 28, 1994
and the years ended December 31, 1993 and 1992 was as follows:
OPTION
PRICE RANGE SHARES
Outstanding at December 31, 1991 3.75 - 29.00 1,839,246
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
Granted 5.00 - 6.00 285,500
Terminated 3.75 - 29.00 (372,480)
Exercised 3.75 (70,831)
Outstanding at December 31, 1993 1,735,375
Granted 5.13 - 5.63 88,008
Terminated 3.75 - 19.00 (28,185)
Exercised 3.75 - 5.00 (30,943)
Outstanding at May 28, 1994 1,764,255
Granted 5.63 - 10.63 365,000
Terminated 3.75 - 21.50 (103,922)
Exercised 3.75 - 6.25 (190,098)
Outstanding at June 3, 1995 1,835,235
Options for 1,203,000; 930,000; 867,000 and 677,000 shares,
were exercisable at June 3, 1995, May 28, 1994 and December 31,
1993 and 1992, respectively. At June 3, 1995, 105,000 shares
were available for future grants.
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57
Wyman-Gordon Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
L. 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 $50 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 not 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.
-57-
58
Wyman-Gordon Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
M. COMMITMENTS AND CONTINGENCIES
At June 3, 1995, 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.
As of June 3, 1995, the company had invested $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 an additional investment
of $3,400,000 to the joint venture. The joint venture has
entered into a credit agreement with an Australian bank. The
company has guaranteed 25% of the joint venture's obligations
under the credit agreement totalling $17,300,000. This guarantee
expires at such time as the joint venture demonstrates its
ability to produce commercially acceptable products.
The company had foreign exchange contracts totalling
$11,600,000 at June 3, 1995. These contracts hedge certain
normal operating purchase and sales transactions. The exchange
contracts generally mature within six months and require the
company to exchange U.K. pounds for non-U.K. currencies or non-
U.K. currencies for U.K. pounds. Translation and transaction
gains and losses included in fiscal 1995's Consolidated
Statements of Operations were not significant.
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59
Wyman-Gordon Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
N. GEOGRAPHIC AND OTHER INFORMATION
Prior to May 28, 1994 the company operated solely in the
United States. Transfers between U.S. and international
operations, principally inventory transfers, are charged to the
receiving organization at prices sufficient to recover
manufacturing costs and provide a reasonable return.
Certain information on a geographic basis follows:
FIVE
YEAR MONTHS
ENDED ENDED
JUNE 3, MAY 28,
1995 1994
(000's omitted)
REVENUES FROM UNAFFILIATED
CUSTOMERS:
United States (including
direct export sales) $365,666 $ 86,976
United Kingdom 30,973 -
$396,639 $ 86,976
INTER AREA TRANSFERS:
United States $ 373 $ -
United Kingdom 2,528 -
$ 2,901 $ -
EXPORT SALES:
United States direct export sales $ 81,208 $ 13,254
INCOME (LOSS) FROM OPERATIONS:
United States $ 14,931 $(55,805)
United Kingdom (1,213) -
$ 13,718 $(55,805)
IDENTIFIABLE ASSETS
(EXCLUDING INTERCOMPANY):
United States $289,649 $312,462
United Kingdom 47,547 39,457
General corporate 31,868 42,828
$369,064 $394,747
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60
Wyman-Gordon Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
O. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for fiscal 1995 and fiscal
1994 were as follows:
QUARTER FIRST SECOND THIRD FOURTH
(000's omitted, except per-share data)
YEAR ENDED JUNE 3, 1995
Revenue $95,725 $94,974 $96,238 $109,702
Cost of goods sold 86,150 85,105 83,623 92,373
Other charges (credits) and
environmental charges - - - (710)
Income (loss) from
operations 3 768 3,620 9,327
Net income (loss) (3,321) (2,021) 556 5,825
Net income (loss) per share (.10) (.06) .02 .17
YEAR ENDED MAY 28, 1994
Revenue $58,452 $56,233 $50,896 $ 59,113
Cost of goods sold 50,433 53,014 50,375 63,994
Other charges (credits) and
environmental charges - 2,366 87 32,550
Income (loss) from
operations 1,886 (6,298) (8,447) (50,798)
Net income (loss) (816) (5,642) (11,282) (54,663)
Net income (loss) per share (.05) (.31) (.63) (3.02)
[FN]
(a) Income (loss) from operations during the third quarter of
the year ended May 28, 1994 reflects charges of $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) Income (loss) from operations during the fourth quarter of
the year ended May 28, 1994 reflects significant charges
amounting to $17,450,000.
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Wyman-Gordon Company and Subsidiaries
Consolidated Financial Review
FIVE
YEAR MONTHS
ENDED ENDED
JUNE 3, MAY 28,
1995 1994
(Unaudited)
(000's omitted, except per-share data and ratios)
OPERATIONS
Revenue $396,639 $ 86,976
Cost of goods sold 347,251 91,907
Other charges (credits) and environmental
charges (710) 32,550
Interest expense 11,027 5,383
Income tax benefit (expense) - -
Income (loss) before cumulative effect of
changes in accounting principles 1,039 (61,370)
Cumulative effect of changes in accounting
principles (a) - -
Net income (loss) 1,039 (61,370)
Earnings before interest, taxes, depreciation
and amortization and changes in accounting
principles 30,188 (49,205)
Dividends paid - -
Depreciation 17,417 6,058
Capital expenditures 18,714 2,404
Backlog 468,721 389,407
FINANCIAL POSITION
Inventories 78,813 65,737
Borrowings due within one year 3,915 77
Working capital 93,062 91,688
Working capital ratio 2.0 1.8
Property, plant and equipment, net $141,397 $139,689
Total assets 369,064 394,747
Long-term debt 90,308 90,385
Net long-term debt to total
capitalization (c) 44.7% 42.2%
Stockholders' equity $ 80,855 $ 72,483
Total capital 171,163 162,868
MEASURES OF PROFITABILITY
Income (loss) as a percent of:
Revenues (b) .3% (70.6)%
Average stockholders' equity during
the year (b) 1.4 (76.3)
PER SHARE DATA
Income (loss) per share $ .03 $ (3.32)
Income (loss) before cumulative effect of
changes in accounting principles .03 (3.32)
Cumulative effect of changes in accounting
principles (a) - -
Net income (loss) .03 (3.32)
Dividends paid - -
Stockholders' equity 2.30 3.92
AVERAGE SHARES OUTSTANDING 35,148 18,490
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Wyman-Gordon Company and Subsidiaries
Consolidated Financial Review (Continued)
YEAR YEAR
ENDED ENDED
DEC. 31, DEC. 31,
1993 1992
(000's omitted, except per-share data and ratios)
OPERATIONS
Revenue $239,761 $298,881
Cost of goods sold 219,088 243,291
Other charges (credits) and environmental
charges - -
Interest expense 10,823 7,521
Income tax benefit (expense) - -
Income (loss) before cumulative effect of
changes in accounting principles (17,004) 21,795
Cumulative effect of changes in accounting
principles (a) (43,000) -
Net income (loss) (60,004) 21,795
Earnings before interest, taxes, depreciation
and amortization and changes in accounting
principles 9,388 45,191
Dividends paid - -
Depreciation 14,421 14,659
Capital expenditures 13,866 11,156
Backlog 256,259 309,679
FINANCIAL POSITION
Inventories 36,092 48,462
Borrowings due within one year 77 77
Working capital 90,685 96,057
Working capital ratio 4.0 3.7
Property, plant and equipment, net $104,040 $107,906
Total assets 286,634 295,156
Long-term debt 90,461 70,538
Net long-term debt to total
capitalization (c) 42.3% 32.1%
Stockholders' equity $ 88,349 $149,516
Total capital 178,810 220,054
MEASURES OF PROFITABILITY
Income (loss) as a percent of:
Revenues (b) (7.1)% 7.3%
Average stockholders' equity during
the year (b) (14.3) 15.7
PER SHARE DATA
Income (loss) per share $ (.95) $ 1.21
Income (loss) before cumulative effect of
changes in accounting principles (.95) 1.21
Cumulative effect of changes in accounting
principles (a) (2.39) -
Net income (loss) (3.34) 1.21
Dividends paid - -
Stockholders' equity 4.91 8.37
AVERAGE SHARES OUTSTANDING 17,936 17,848
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63
Wyman-Gordon Company and Subsidiaries
Consolidated Financial Review (Continued)
YEAR YEAR
ENDED ENDED
DEC. 31, DEC. 31,
1991 1990
(000's omitted, except per-share data and ratios)
OPERATIONS
Revenue $355,390 $405,381
Cost of goods sold 327,028 349,086
Other charges (credits) and environmental
charges 106,464 -
Interest expense 10,472 8,727
Income tax benefit (expense) 26,070 (5,702)
Income (loss) before cumulative effect of
changes in accounting principles (99,681) 8,696
Cumulative effect of changes in accounting
principles (a) - -
Net income (loss) (99,681) 8,696
Earnings before interest, taxes, depreciation
and amortization and changes in accounting
principles (89,960) 50,599
Dividends paid 5,349 14,265
Depreciation 24,196 24,825
Capital expenditures 10,192 13,563
Backlog 386,905 392,857
FINANCIAL POSITION
Inventories 60,428 70,131
Borrowings due within one year 2,077 28,110
Working capital 110,859 124,030
Working capital ratio 2.7 2.7
Property, plant and equipment, net $120,259 $192,530
Total assets 339,154 421,886
Long-term debt 90,615 73,892
Net long-term debt to total
capitalization (c) 39.4% 22.0%
Stockholders' equity $128,088 $232,157
Total capital 218,703 306,049
MEASURES OF PROFITABILITY
Income (loss) as a percent of:
Revenues (b) (28.0)% 2.2%
Average stockholders' equity during
the year (b) (55.3) 3.7
PER SHARE DATA
Income (loss) per share $ (5.59) $ .49
Income (loss) before cumulative effect of
changes in accounting principles (5.59) .49
Cumulative effect of changes in accounting
principles (a) - -
Net income (loss) (5.59) .49
Dividends paid .30 .80
Stockholders' equity 7.18 13.02
AVERAGE SHARES OUTSTANDING 17,831 17,831
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64
Wyman-Gordon Company and Subsidiaries
Consolidated Financial Review (Continued)
[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 "expense-as-incurred" basis formerly used. The
company elected to recognize the cumulative effect of these
accounting changes.
(b) Excludes the cumulative effect of changes in accounting
principles in 1993.
(c) May 28, 1994 considers the Obligation to Cooper Industries as
an offset to the $42,179,000 cash balance.
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65
WYMAN-GORDON COMPANY AND SUBSIDIARIES
CORPORATE INFORMATION
DIRECTORS Judith S. King CORPORATE OFFICERS
Community Volunteer
John M. Nelson and Personal Invest- John M. Nelson
Chairman ments Chairman
E. Paul Casey George S. Mumford, Jr. David P. Gruber
Chairman Professor President and
Metapoint Partners Tufts University Chief Executive
Officer
Dewain K. Cross H. John Riley, Jr.
Retired Senior Vice President and Chief Andrew C. Genor
President, Finance Executive Officer Vice President,
Cooper Industries, Cooper Industries, Chief Financial
Inc. Inc. Officer and
Treasurer
Warner S. Fletcher Jon C. Strauss
Attorney and Director Chief Financial Sanjay N. Shah
Fletcher, Tilton & Officer Vice President,
Whipple, P.C. Howard Hughes Corporate Strategy
Medical Institute Planning and
Robert G. Foster Business Develop-
President and Director Charles A. Zraket ment
Commonwealth Former President and
BioVentures, Inc. CEO J. Douglas Whelan
The MITRE Corporation President,
Russell E. Fuller Forgings Division
Chairman HONORARY DIRECTOR
REFCO, Inc. Wallace F. Whitney,
Joseph R. Carter Jr.
David P. Gruber Former Chairman Vice President,
President and Chief Wyman-Gordon Company General Counsel
Executive Officer and Clerk
M Howard Jacobson Frank J. Zugel
Senior Advisor President, Invest-
Bankers Trust ment Castings
Division
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66
WYMAN-GORDON COMPANY AND SUBSIDIARIES
INVESTOR AND STOCKHOLDER INFORMATION
COMMON STOCK
Wyman-Gordon Company common stock is listed by the NASDAQ
under the abbreviated ticket symbol "WYMN".
TRANSFER AGENT AND REGISTRAR
The company's transfer agent and registrar, responsible for
stockholder records and issuance of stock certificates, is State
Street Bank and Trust Company, Corporate Stock Transfer Department,
P.O. Box 8200, Boston, MA 02266-8200, 1-800-426-5523. Report
changes of address directly to State Street Bank & Trust Company.
CORPORATE OFFICES
The company's principal corporate offices are located at 244
Worcester Street, North Grafton, MA 01536, 508-839-4441; Fax 508-
839-7500.
INDEPENDENT AUDITORS
Ernst & Young LLP, 200 Clarendon Street, Boston, MA 02116
FINANCIAL AND INVESTOR COMMUNICATIONS
Wyman-Gordon Investor Relations provides information to
stockholders and the financial community. We encourage inquiries
and will provide services which include:
* fulfilling requests for quarterly and annual reports,
form 10Q, form 10K, copies of press releases and other
company information.
* meetings with securities analyst and fund managers.
* presentations to securities analyst groups and
conferences.
Contact us by writing to Wyman-Gordon Investor Relations at
our corporate offices listed above, or by calling Mr. Gerard J.
Gould, Manager of Investor Relations at 508-839-8014. The clerk of
the corporation is Mr. Wallace F. Whitney, Jr. who can be reached
at the company's corporate address listed above or at 508-839-8110.
The company's form 10K, annual report and other recent
information are also available by accessing Wyman-Gordon's Internet
Home Page at: http://www.streetnet.com.
ANNUAL MEETING
The annual meeting of the company's stockholders will be held
on Wednesday, October 18, 1995 at Mechanics Hall in Worcester, MA.
A formal notice of the meeting together with a proxy statement has
been mailed to stockholders with this Annual Report.
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67
WYMAN-GORDON COMPANY
CORPORATE OFFICES
Grafton, Massachusetts
FORGINGS
Grafton, Massachusetts
Millbury, Massachusetts
Worcester, Massachusetts
Houston, Texas
Brighton, Michigan
Livingston, Scotland
INVESTMENT CASTINGS
Groton, Connecticut
Tilton, New Hampshire
Franklin, New Hampshire
San Leandro, California
Carson City, Nevada
COMPOSITES
Mojave, California
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