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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
{ X } QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 2, 1995
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the transition period from to
COMMISSION FILE NUMBER 0-3085
WYMAN-GORDON COMPANY
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-1992780
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
244 WORCESTER STREET, BOX 8001, NO. GRAFTON, MASSACHUSETTS 01536-8001
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 508-839-4441
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past
90 days.
Yes X No
Indicate the number of shares outstanding of each of
the issuer's classes of common stock, as of the latest
practicable date.
Outstanding at
Class September 2, 1995
Common Stock, $1 Par Value 35,116,751
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Part I.
Item 1. FINANCIAL STATEMENTS
WYMAN-GORDON COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
SEPTEMBER 2, SEPTEMBER 3,
1995 1994
(000's omitted, except per share data)
Revenue $114,077 $95,725
Less:
Cost of goods sold 95,897 86,150
Selling, general and
administrative expenses 9,197 9,572
Other charges 900 -
$105,994 $95,722
Income from operations 8,083 3
Other deductions:
Interest expense 2,886 2,900
Miscellaneous, net 96 424
2,982 3,324
Net income (loss) $ 5,101 $(3,321)
Net income (loss) per share $ .14 $ (.10)
Shares used to compute earnings (loss)
per share 35,889 34,715
The accompanying notes to the consolidated condensed financial
statements are an integral part of these financial statements.
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WYMAN-GORDON COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
SEPTEMBER 2, JUNE 3,
1995 1995
(000's omitted)
ASSETS
Cash and cash equivalents $ 21,436 $ 13,856
Accounts receivable 76,725 79,219
Inventories 80,318 78,813
Prepaid expenses 14,541 15,671
Total current assets 193,020 187,559
Property, plant and equipment, at cost 384,997 385,372
Less accumulated depreciation 247,913 243,975
Net property, plant and equipment 137,084 141,397
Intangible assets 25,119 25,295
Other assets 15,396 14,813
$370,619 $369,064
LIABILITIES
Borrowings due within one year $ 4,812 $ 3,915
Accounts payable 31,699 34,729
Accrued liabilities and other 43,605 45,634
Accrued restructuring, integration,
disposal and environmental 8,961 10,219
Total current liabilities 89,077 94,497
Restructuring, integration, disposal
and environmental 18,887 19,648
Long-term debt 90,308 90,308
Pension liability 9,570 9,589
Deferred income tax and other 24,614 21,699
Postretirement benefits 52,395 52,468
STOCKHOLDERS' EQUITY
Preferred stock - none issued - -
Common stock issued - 37,052,720 shares 37,053 37,053
Capital in excess of par value 38,699 40,118
Retained earnings 44,087 39,763
119,839 116,934
Less treasury stock at cost
September 2, 1995 - 1,935,969 shares
June 3, 1995 - 2,044,178 shares (34,071) (36,079)
85,768 80,855
$370,619 $369,064
The accompanying notes to the consolidated condensed financial
statements are an integral part of these financial statements.
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WYMAN-GORDON COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
SEPTEMBER 2, SEPTEMBER 3,
1995 1994
(000's omitted)
Operating activities:
Net income (loss) $ 5,101 $ (3,321)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 4,227 4,582
Provision for equity investment 900 -
Changes in assets and liabilities net
of purchase price activity:
Accounts receivable 2,494 786
Inventories (1,505) 7,408
Prepaid expenses and other assets (354) 790
Accrued restructuring, disposal
and environmental (2,019) (2,662)
Income and other taxes 2,760 721
Accounts payable and accrued
liabilities (4,974) (6,108)
Net cash provided by operating
activities 6,630 2,196
Investing activities:
Capital expenditures (1,840) (4,503)
Proceeds from sale of fixed assets 1,393 837
Other, net (89) (145)
Net cash used by investing
activities (536) (3,811)
Financing activities:
Cash paid to Cooper Industries for
factored accounts receivable - (18,599)
Borrowings due within one year 897 -
Net proceeds from issuance of
common stock 589 180
Net cash provided (used) by
financing activities 1,486 (18,419)
Increase (Decrease) in cash 7,580 (20,034)
Cash, beginning of year 13,856 42,179
Cash, end of period $ 21,436 $ 22,145
The accompanying notes to the consolidated condensed financial
statements are an integral part of these financial statements.
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WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 2, 1995
NOTE A - BASIS OF PRESENTATION
In the opinion of the Company, the accompanying unaudited
consolidated condensed financial statements contain all
adjustments necessary to present fairly its financial position at
September 2, 1995 and its results of operations and cash flows
for the three months ended September 2, 1995 and September 3,
1994. All such adjustments are of a normal recurring nature.
The accompanying unaudited consolidated condensed financial
statements have been prepared in accordance with Article 10 of
Securities and Exchange Commission Regulation S-X and, therefore,
do not include all information and footnotes necessary for a fair
presentation of the financial position, results of operations and
cash flows in conformity with generally accepted accounting
principles. In conjunction with its June 3, 1995 Annual Report
on Form 10-K, the Company filed audited consolidated financial
statements which included all information and footnotes necessary
for a fair presentation of its financial position at June 3, 1995
and May 28, 1994 and its results of operations and cash flows for
the year ended June 3, 1995, the five months ended May 28, 1994
and the years ended December 31, 1993 and 1992 in conformity with
generally accepted accounting principles. Where appropriate,
prior period amounts have been reclassified to permit comparison.
NOTE B - INVENTORIES
Inventories consisted of:
SEPTEMBER 2, 1995 JUNE 3, 1995
(000's omitted)
Raw material $32,577 $26,440
Work-in-process 49,787 54,310
Supplies 3,705 3,228
86,069 83,978
Less progress payments 5,751 5,165
$80,318 $78,813
If all inventories valued at LIFO cost had been valued at first-
in, first-out (FIFO) cost or market which approximates current
replacement cost, inventories would have been $21,584,000 higher than
reported at September 2, 1995 and June 3, 1995.
LIFO inventory credits to cost of goods sold in the three months
ended September 3, 1994 were $1,122,000.
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WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
September 2, 1995
NOTE C - COMMITMENTS AND CONTINGENCIES
At September 2, 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 September 2, 1995, the Company had invested $4.5
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 an additional investment
of $3.0 million to the joint venture. The joint venture has
entered into a credit agreement with an Australian bank. The
Company has guaranteed 25.0% of the joint venture's obligations
under the credit agreement totalling $17.3 million. This
guarantee expires at such time as the joint venture demonstrates
its ability to produce commercially acceptable products.
The Company is subject to extensive, stringent and changing
federal, state and local environmental laws and regulations,
including those regulating the use, handling, storage, discharge
and disposal of hazardous substances and the remediation of
alleged environmental contamination. Accordingly, the Company is
involved from time to time in administrative and judicial
inquiries and proceedings regarding environmental matters.
Nevertheless, the Company believes that compliance with these
laws and regulations will not have a material adverse effect on
the Company's operations as a whole.
The Company had foreign exchange contracts totalling $9.3
million at September 2, 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. Transaction gains and losses
included in the first quarter of fiscal year 1996's Consolidated
Condensed Statements of Operations were not material.
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The principal markets served by the Company are aerospace
and power generation. Revenue by market for the respective
periods was as follows (000's omitted):
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 2, 1995 SEPTEMBER 3, 1994
% OF % OF
AMOUNT TOTAL AMOUNT TOTAL
Aerospace $ 82,211 72% $72,915 76%
Power generation 22,823 20% 14,523 15%
Other 9,043 8% 8,287 9%
$114,077 100% $95,725 100%
RESULTS OF OPERATIONS AND FINANCIAL CONDITION THREE MONTHS ENDED
SEPTEMBER 2, 1995 ("first quarter of fiscal year 1996") COMPARED
TO THREE MONTHS ENDED SEPTEMBER 3, 1994 ("first quarter of fiscal
year 1995")
The Company's revenue increased 19.2% to $114.1 million in
the first quarter fiscal year 1996 from $95.7 million in the
first quarter fiscal year 1995 due to higher sales volume at the
Company's Forgings and Castings Divisions. These sales volume
increases during the first quarter of fiscal year 1996 as
compared to the first quarter of fiscal year 1995 are reflected
by market as follows: a $9.3 million (12.8%) increase in
aerospace, a $8.3 million (57.2%) increase in power generation
and a $0.8 million (9.1%) increase in other. Revenues in the
first quarters of fiscal years 1996 and 1995 were limited by raw
material shortages and production delays caused by capacity
constraints of the Company's suppliers. While the severity of
the raw material shortages was not as extensive in the first
quarter of fiscal year 1996 as compared to the first quarter of
fiscal year 1995, the Company is seeking to improve upon its
ability to receive raw material such that there is no disruption
to its production schedule. The revenue increases mentioned
above have occurred while the Company's backlog has grown
steadily to $477.0 million at September 2, 1995 from $400.1
million at September 3, 1994.
The Company's gross margins were 15.9% in the first quarter
of fiscal year 1996 as compared to 10.0% in the first quarter of
fiscal year 1995. This improvement resulted from higher
production volumes and productivity gains resulting from the
Company's efforts toward focusing forging production of rotating
parts for jet engines in its Houston, Texas facility and forging
production of airframe structures and large turbine parts in its
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS AND FINANCIAL CONDITION THREE MONTHS ENDED
SEPTEMBER 2, 1995 ("first quarter fiscal year 1996") COMPARED TO
THREE MONTHS ENDED SEPTEMBER 3, 1994 ("first quarter fiscal year
1995") (Continued)
Grafton, Massachusetts facility. Additionally, continuing
realization of cost reductions from synergies associated with the
integration of Cameron Forged Products Company ("Cameron")
contributed to this higher ratio. Gross margins benefitted from
LIFO credits of $1.1 million during the first quarter of fiscal
year 1995. There were no LIFO credits recorded during the first
quarter of fiscal year 1996.
Selling, general and administrative expenses decreased 3.9%
to $9.2 million during the first quarter of fiscal year 1996 from
$9.6 million during the first quarter of fiscal year 1995.
Selling, general and administrative expenses as a percentage of
revenues improved to 8.1% in the first quarter of fiscal year
1996 from 10.0% in the first quarter of fiscal year 1995. The
improvement as a percent of revenues is the result of cost
reductions associated with the integration of Cameron with the
Company's Forgings operations and higher revenues.
During the first quarter of fiscal year 1996, the Company
provided $0.8 million in order to recognize its 25.0% share of
the net losses of its Australian Joint Venture and to reserve for
amounts loaned to the Australian Joint Venture during the first
quarter of fiscal year 1996. Additionally, the Company provided
$0.1 million relating to expenditures for an investment in an
additional joint venture.
Interest expense was $2.9 million in both the first quarter
of fiscal year 1996 and the first quarter of fiscal year 1995.
Miscellaneous, net was an expense of $0.1 million in the
first quarter of fiscal year 1996 as compared to an expense of
$0.4 million in the first quarter of fiscal year 1995.
Miscellaneous, net in the first quarter of fiscal year 1996
includes a $0.2 million gain on the sale of marketable
securities.
The Company recorded no provision for income taxes in the
first quarters of fiscal years 1996 and 1995.
Net income was $5.1 million, or $.14 per share, in the first
quarter of fiscal year 1996 and net loss was $(3.3) million, or
$(.10) per share in the first quarter of fiscal year 1995. The
$8.4 million improvement results from the items described above.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
LIQUIDITY AND CAPITAL RESOURCES
The increase in the Company's cash of $7.5 million to $21.4
million at September 2, 1995 from $13.9 million at June 3, 1995
resulted primarily from cash provided by operating activities of
$6.6 million.
As of June 3, 1995, the Company estimated the remaining cash
requirements for the integration of Cameron and direct costs
associated with the acquisition of Cameron to be $8.6 million.
Of such amount, the Company expects to spend approximately $6.5
million during its fiscal year ending June 1, 1996 ("fiscal year
1996") and $2.1 million thereafter. In the first quarter of
fiscal year 1996, spending related to the integration of Cameron
and associated direct costs amounted to $1.5 million.
The 1991 restructuring plan is substantially complete. The
Company expects to expend an additional $3.8 million over the
next several years related to the 1991 restructuring plan,
approximately $1.9 million in fiscal year 1996 and $1.9 million
thereafter. In the first quarter of fiscal year 1996, spending
related to the 1991 restructure plan amounted to $0.4 million.
The Company expects to spend $1.8 million in fiscal year
1996 and $15.1 million thereafter on non-capitalizable
environmental activities. In the first quarter of fiscal year
1996, no amounts were expended for non-capitalizable
environmental projects. The Company has completed all
environmental projects within established timetables and is
continuing to do so at the present time.
The Company from time to time expends cash on capital
expenditures for more cost effective operations, environmental
projects and joint development programs with customers. Capital
expenditures amounted to $18.7 million for the year ended June 3,
1995 ("fiscal year 1995"). Capital expenditures in the
foreseeable future are expected to increase somewhat from fiscal
year 1995 levels. In the first quarter of fiscal year 1996,
capital expenditures amounted to $1.8 million.
As of September 2, 1995, the Company had invested $4.5
million in cash towards its share of the capital requirements of
the Australian Joint Venture for the production of nickel-based
superalloy. The Company is committed to invest an additional
$3.0 million in the Joint Venture. The Australian Joint Venture
has entered into a credit agreement with an Australian bank under
which it has $17.3 million in borrowings outstanding. The
Company has guaranteed 25.0% of the Australian Joint Venture's
obligations under the credit agreement. This guarantee expires
at such time as the Australian Joint Venture demonstrates its
ability to produce commercially acceptable products. The book
value of the Company's investment in the Australian Joint Venture
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
LIQUIDITY AND CAPITAL RESOURCES, (Continued)
as of September 2, 1995 is approximately $2.3 million. The
Australian Joint Venture has not generated sufficient cash flow
to service its debt, and if the operations do not become
profitable in the future, the Company may be required to make
further provisions or to write-off all or a portion of the
remaining book value of its investment and repay up to 25.0% of
the Australian Joint Venture's $17.3 million debt, which is
guaranteed by the Company.
The Company's revolving receivables-backed credit facility
(the "Receivables Financing Program") among the Company, certain
subsidiaries and Wyman-Gordon Receivables Company ("WGRC") and a
Revolving Credit Agreement among WGRC and the financial
institutions party thereto provide the Company with an aggregate
maximum borrowing capacity under the Receivables Financing
Program of $65.0 million, with a letter of credit sub-limit of
$35.0 million. The term of the Receivables Financing Program is
five years, with an evergreen feature. As of September 2, 1995,
under the credit facility, the total availability based on
eligible receivables was $42.0 million, there were no borrowings
and letters of credit amounting to $9.7 million were outstanding.
Wyman-Gordon Limited, the Company's subsidiary located in
Livingston, Scotland, entered into a credit agreement ("the U.K.
Credit Agreement"). The maximum borrowing capacity under the
U.K. Credit Agreement is 6.0 million pounds sterling with a
separate letter of credit or guarantee limit of 1.0 million
pounds sterling. The term of the U.K. Credit Agreement is one
year with an evergreen feature. There were 3.0 million pounds
sterling or $4.7 million of borrowings outstanding at September
2, 1995 and the Company had issued 0.9 million pounds sterling or
$1.5 million of letters of credit or guarantees under the U.K.
Credit Agreement.
The primary sources of liquidity available to the Company in
fiscal year 1996 to fund operations, anticipated expenditures in
connection with the integration of Cameron, planned capital
expenditures and planned environmental expenditures include
available cash ($21.4 million at September 2, 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.
Cash from operations and debt are expected to be the
Company's primary sources of liquidity beyond fiscal year 1996.
The Company believes that it has adequate resources to provide
for its operations and the funding of restructuring, integration,
capital and environmental expenditures.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
LIQUIDITY AND CAPITAL RESOURCES, (Continued)
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 INFLATION
The Company's earnings may be affected by changes in price
levels and in particular, changes in the price of basic metals.
The Company's contracts generally provide for fixed prices for
finished products with limited protection against cost increases.
The Company would therefore be affected by changes in prices of
the raw materials during the term of any such contract. The
Company attempts to minimize this risk by 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
year 1997. SFAS 121 prescribes the accounting for the impairment
of long-lived assets that are to be held and used in the business
and similar assets to be disposed of. The Company has not
determined the impact of adopting SFAS 121 on its financial
position or results of operations.
As of June 3, 1995, the Company had net operating loss
carryforwards ("NOLS") of approximately $67.0 million, which
begin expiring in year 2006. The Company is seeking to utilize a
substantial portion of such NOLS to obtain a refund in excess of
$20.0 million of prior years' taxes. To the extent that the
Company is not successful in recovering a refund of prior years'
taxes, the NOLS will be available to offset future taxable
income, if any. A reasonable estimation of the potential
recovery cannot be made at this time and, accordingly, no
adjustment has been made in the financial statements with respect
to the claim for such refund.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
ACCOUNTING AND TAX MATTERS, (Continued)
The Company has purchased and is named as beneficiary on
approximately 1,650 life insurance policies with an aggregate
cash surrender value of approximately $9.0 million as of
September 2, 1995, issued by Confederation Life Insurance Company
(U.S.), which is currently in rehabilitation. Confederation Life
Insurance Company is continuing to pay benefits under the
policies but has ceased to redeem cash surrender values. No
assurances can be given regarding to what extent the Company will
be able to realize such cash surrender values in the future.
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Part II.
Item 6. EXHIBITS AND REPORTS FILED ON FORM 8-K
(a) Exhibits
The following exhibits are being filed as part of this Form
10-Q:
Exhibit No. Description
27 Financial Data Schedule for the Three Months
Ended September 2, 1995
(b) No reports on Form 8-K have been filed with the Commission
during the period covered by this report.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
WYMAN-GORDON COMPANY
Date: 10/16/95 By: /s/ ANDREW C. GENOR
Andrew C. Genor
Vice President,
Chief Financial Officer and Treasurer
Date: 10/16/95 By: /s/ JEFFREY B. LAVIN
Jeffrey B. Lavin
Assistant Corporate Controller
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