1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
{ X } QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1996
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 AUGUST 31, 1996
Common Stock, $1 Par Value 35,714,766
Page 1 of 16
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Part I.
Item 1. FINANCIAL STATEMENTS
WYMAN-GORDON COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
AUGUST 31, AUGUST 31,
1996 1995
(000's omitted, except per share data)
Revenue $134,235 $114,077
Less:
Cost of goods sold 122,744 95,897
Selling, general and
administrative expenses 10,052 9,197
Other charges 15,779 900
148,575 105,994
Income (loss) from operations (14,340) 8,083
Other deductions (income):
Interest expense 2,722 2,886
Miscellaneous, net (5,197) 96
(2,475) 2,982
Income (loss) before income taxes (11,865) 5,101
Provision (credit) for income taxes (19,680) -
Net income $ 7,815 $ 5,101
Net income per share $ .21 $ .14
Shares used to compute net income
per share 36,619 35,889
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
AUGUST 31, MAY 31,
1996 1996
(000's omitted)
ASSETS
Cash and cash equivalents $ 27,904 $ 30,134
Tax and interest receivable 20,258 -
Accounts receivable 89,469 94,928
Inventories 72,820 65,873
Prepaid expenses 11,154 14,338
Total current assets 221,605 205,273
Property, plant and equipment, net 141,928 140,408
Intangible assets 19,723 19,899
Other assets 7,306 10,310
$390,562 $375,890
LIABILITIES
Borrowings due within one year $ 77 $ 77
Accounts payable 43,442 40,484
Accrued liabilities and other 52,563 48,178
Total current liabilities 96,082 88,739
Restructuring, integration, disposal
and environmental 17,569 18,275
Long-term debt 90,231 90,231
Pension liability 5,478 1,698
Deferred income tax and other 14,106 17,717
Postretirement benefits 47,727 49,287
STOCKHOLDERS' EQUITY
Preferred stock - none issued - -
Common stock issued - 37,052,720 shares 37,053 37,053
Capital in excess of par value 32,172 33,291
Retained earnings 73,689 65,653
Less treasury stock at cost
August 31, 1996 - 1,337,954 shares
May 31, 1996 - 1,480,448 shares (23,545) (26,054)
119,369 109,943
$390,562 $375,890
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
AUGUST 31, AUGUST 31,
1996 1995
(000's omitted)
Operating activities:
Net income (loss) $ 7,815 $ 5,101
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 4,956 4,227
Other charges 13,045 -
Provision for equity investment 2,734 900
Changes in assets and liabilities net
of purchase price activity:
Accounts receivable 5,261 2,494
Tax and interest receivable (20,258) -
Inventories (7,723) (1,505)
Prepaid expenses and other assets 709 (354)
Accrued restructuring, disposal
and environmental (782) (2,019)
Income and other taxes (4,343) 2,760
Accounts payable and accrued
liabilities 2,241 (4,974)
Net cash provided by operating
activities 3,655 6,630
Investing activities:
Capital expenditures (7,184) (1,840)
Proceeds from sale of fixed assets 323 1,393
Other, net (413) (89)
Net cash used by investing
activities (7,274) (536)
Financing activities:
Issuance (payment) of debt - 897
Net proceeds from issuance of
common stock 1,389 589
Net cash provided (used) by
financing activities 1,389 1,486
Increase (Decrease) in cash (2,230) 7,580
Cash, beginning of year 30,134 13,856
Cash, end of period $27,904 $21,436
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
August 31, 1996
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
August 31, 1996 and its results of operations and cash flows for
each of the three months ended August 31, 1996 and 1995. 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 May 31, 1996 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 May 31, 1996
and 1995 and its results of operations and cash flows for the
years ended May 31, 1996 and 1995, the five months ended May 31,
1994 and the year ended December 31, 1993 in conformity with
generally accepted accounting principles. Where appropriate,
prior period amounts have been reclassified to permit comparison.
NOTE B - ADOPTION OF RECENT ACCOUNTING STANDARDS
Effective June 1, 1996, the Company adopted Statement of
Financial Accounting Standard No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of" ("SFAS 121"). 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
adoption has not had a material effect on earnings or the
financial position of the Company.
NOTE C - INVENTORIES
Inventories consisted of:
AUGUST 31, 1996 MAY 31, 1996
(000's omitted)
Raw material $34,914 $21,608
Work-in-process 44,554 51,125
Supplies 2,710 3,168
82,178 75,901
Less progress payments 9,358 10,028
$72,820 $65,873
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WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
August 31, 1996
NOTE C - INVENTORIES (Continued)
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 $16,662,000
higher than reported at August 31, 1996 and May 31, 1996.
There were no LIFO inventory credits to cost of goods sold
in the three months ended August 31, 1996 or August 31, 1995.
NOTE D - COMMITMENTS AND CONTINGENCIES
At August 31, 1996, 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.
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 totaling
approximately $19,900,000 at August 31, 1996. 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 Consolidated Condensed
Statements of Operations for the three months ended August 31,
1996 and 1995 were not material.
NOTE E - INCOME TAX REFUND
In the three months ended August 31, 1996, the Company
recognized the net benefit of a refund of prior years' income
taxes amounting to $19,680,000, plus interest of $3,484,000. The
refund relates to the carryback of tax net operating losses to
tax years 1981, 1984 and 1986 under the provisions of Internal
Revenue Code Section 172(f). The amount of net operating losses
carried back to such years was approximately $48,500,000. At
August 31, 1996, the Company has approximately $38,000,000 of net
operating loss carryforwards available to offset future taxable
income.
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WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
August 31, 1996
NOTE F - LONG-TERM, FIXED PRICE CONTRACTS
In the three months ended August 31, 1996, the Company's
evaluation of its accruals for losses on long-term, fixed price
contracts took into consideration its new market-focused business
operations management and continuing efforts toward focusing its
factories, current raw material prices and changes in its cost
structure. Based on this evaluation, the Company projected that
the fully allocated cost to produce certain aerospace structural
products at the Company's Grafton, Massachusetts facility exceeds
the sales price provided in the long-term, fixed price contracts
for such products. Cost of goods sold in the three months ended
August 31, 1996 includes a net charge of $5,800,000 to recognize
losses on such products included in the Company's backlog.
NOTE G - OTHER CHARGES
In the three months ended August 31, 1996, the Company
recorded other charges of $15,779,000. Such other charges
include $8,000,000 to provide for the costs of workforce
reductions at the Company's Grafton, Massachusetts facility and
the write-off and disposal of certain equipment. Other charges
also include $2,300,000 to reduce the carrying value of certain
assets of the Company's titanium castings operations, $2,485,000
to recognize the Company's 25.0% share of the net losses of its
Australian Joint Venture and to reduce the carrying value of such
joint venture, $250,000 relating to expenditures for an
investment in another joint venture and $2,745,000 to reduce the
carrying value of the cash surrender value of certain company-
owned life insurance policies.
In the three months ended August 31, 1995, the Company
provided $900,000 in order to recognize its 25.0% share of the
net losses of its Australian Joint Venture and to reserve for
amounts loaned to such joint venture during the first quarter of
fiscal year 1996 and to provide for expenditures for an
investment in an additional joint venture.
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
"FORWARD-LOOKING INFORMATION IS SUBJECT TO RISK AND UNCERTAINTY"
Certain statements in Management's Discussion and Analysis
of Financial Condition and Results of Operations contain
"forward-looking" information (as defined in the Private
Securities Litigation Reform Act of 1995) that involves risk and
uncertainty, including discussions of continuing raw material
prices and availability and their impact on gross margins and
business trends as well as liquidity and sales volume. Actual
future results and trends may differ materially depending on a
variety of factors, including the Company's successful
negotiation of long-term customer pricing contracts and raw
material prices and availability. For a discussion identifying
important factors that could cause actual results to differ
materially from those anticipated in forward-looking statements,
see the Company's SEC filings, in particular see the Company's
Annual Report on Form 10-K for the fiscal year ended May 31, 1996
Part I, Item 1 - "Markets and Products - Aerospace", "Customers",
"Marketing and Sales", "Raw Materials", "Employees",
"Competition", "Environmental Regulations" and "Product Liability
Exposure".
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
AUGUST 31, 1996 AUGUST 31, 1995
% OF % OF
AMOUNT TOTAL AMOUNT TOTAL
Aerospace $ 93,062 69% $ 82,211 72%
Power generation 30,636 23% 22,823 20%
Other 10,537 8% 9,043 8%
$134,235 100% $114,077 100%
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS THREE MONTHS ENDED AUGUST 31, 1996
("first quarter of fiscal year 1997") COMPARED TO THREE MONTHS
ENDED AUGUST 31, 1995 ("first quarter of fiscal year 1996")
The Company's revenue increased 17.7% to $134.2 million in
the first quarter fiscal year 1997 from $114.1 million in the
first quarter fiscal year 1996 due to higher sales volume at the
Company's Forgings and Castings Divisions. These sales volume
increases during the first quarter of fiscal year 1997 as
compared to the first quarter of fiscal year 1996 are reflected
by market as follows: a $10.9 million (13.2%) increase in
aerospace, a $7.8 million (34.2%) increase in power generation
and a $1.5 million (16.5%) increase in other. The causes of the
strength in these markets was higher engine build rates and
higher demands for spares by aerospace engine prime contractors
and higher extruded pipe shipments to energy customers. Revenues
in the first quarter of fiscal year 1996 and, to a lesser extent,
in the first quarter of fiscal year 1997, were limited by raw
material shortages and production delays caused by capacity
constraints of the Company's suppliers. The revenue increases
mentioned above have occurred while the Company's backlog has
grown to $690.6 million at August 31, 1996 from $477.1 million at
August 31, 1995. The Company believes that the higher order
activity reflects continued higher spares demand and new business
resulting from increasing production rates on commercial aircraft
by commercial airframe primes.
The Company's gross margins were 8.6% in the first quarter
of fiscal year 1997 as compared to 15.9% in the first quarter of
fiscal year 1996. In the first quarter of fiscal year 1997, the
Company's evaluation of its accruals for losses on long-term,
fixed price contracts took into consideration its new market-
focused business operations management and continuing efforts
toward focusing its factories, current raw material prices and
changes in its cost structure. Based on this evaluation, the
Company projected that the fully allocated cost to produce
certain aerospace structural products at the Company's Grafton,
Massachusetts facility exceeds the sales price provided in the
long-term, fixed price contracts for such products. Cost of
goods sold in the three months ended August 31, 1996 includes a
net charge of $5.8 million to recognize losses on such products
included in the Company's backlog. Excluding the $5.8 million
charge discussed above, gross margin was 12.9% in the first
quarter of fiscal year 1997. Higher production volumes and
productivity gains resulting from the Company's continuing
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 Grafton,
Massachusetts facility and continuing realization of cost
reductions from synergies associated with the integration of
Cameron Forged Products Company ("Cameron") favorably impacted
gross margins in the first quarter of fiscal year 1997. These
improvements have been more than offset by higher raw material
costs. Beginning in the second half of fiscal year 1996, the
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS THREE MONTHS ENDED AUGUST 31, 1996
("first quarter of fiscal year 1997") COMPARED TO THREE MONTHS
ENDED AUGUST 31, 1995 ("first quarter of fiscal year 1996")
(Continued)
higher spares demand referred to above has required the Company
to purchase certain raw materials under terms not covered by
long-term agreements ("LTAs") with its vendors. The Company
simultaneously entered into supply (customer) and purchase
(vendor) LTAs and minimized its raw material price exposure to an
anticipated volume level. To the extent that the demand is
greater than anticipated by the LTAs, the Company must purchase
raw materials at market prices. The current rebound in demand
for many of these raw materials, especially nickel and titanium,
has resulted in significant market price increases which have
negatively affected the Company's gross margins.
The Company is not likely to see significant pricing relief
for its products until early calendar 1997 when new LTAs that the
Company expects to negotiate with its customers will go into
effect. Until the new LTAs are finalized, the Company may
continue to experience pressures on its gross margins.
Gross margins in the first quarter of fiscal year 1997 were
also negatively impacted by price and demand declines within the
titanium golf club head business during competitor capacity
additions and increasing costs of non-integrated finishing
services.
There were no LIFO credits recorded during the first quarter
of fiscal year 1997 or 1996.
Selling, general and administrative expenses increased 9.3%
to $10.1 million during the first quarter of fiscal year 1997
from $9.2 million during the first quarter of fiscal year 1996.
Selling, general and administrative expenses as a percentage of
revenues improved to 7.5% in the first quarter of fiscal year
1997 from 8.1% in the first quarter of fiscal year 1996. The
improvement as a percent of revenues is the result of higher
revenues.
During the first quarter of fiscal year 1997, the Company
recorded other charges of $15.8 million. Such other charges
include $8.0 million to provide for the costs of workforce
reductions at the Company's Grafton, Massachusetts facility and
the write-off and disposal of certain equipment. Other charges
also include $2.3 million to reduce the carrying value of certain
assets of the Company's titanium castings operations, $2.5
million to recognize the Company's 25.0% share of the net losses
of its Australian Joint Venture and to reduce the carrying value
of such joint venture, $0.3 million relating to expenditures for
an investment in another joint venture and $2.7 million to reduce
the carrying value of the cash surrender value of certain
company-owned life insurance policies.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS THREE MONTHS ENDED AUGUST 31, 1996
("first quarter of fiscal year 1997") COMPARED TO THREE MONTHS
ENDED AUGUST 31, 1995 ("first quarter of fiscal year 1996")
(Continued)
During the first quarter of fiscal year 1996, the Company
provided $0.9 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 and to provide for expenditures for
an investment in an additional joint venture.
Interest expense was $2.7 million in the first quarter of
fiscal year 1997 and $2.9 million in the first quarter of fiscal
year 1996. The decrease results from lower borrowings
outstanding under the Company's U.K. Credit Agreement.
Miscellaneous, net was income of $5.2 million in the first
quarter of fiscal year 1997 as compared to an expense of $0.1
million in the first quarter of fiscal year 1996. Miscellaneous,
net in the first quarter of fiscal year 1997 includes interest
income on the refund of prior years' income taxes amounting to
$3.5 million and a $1.7 million gain on the sale of fixed assets.
Miscellaneous, net in the first quarter of fiscal year 1996
includes a $0.2 million gain on the sale of marketable
securities.
In the first quarter of fiscal year 1997, the Company
recognized the net benefit of a refund of prior years' income
taxes amounting to $19.7 million. The refund relates to the
carryback of tax net operating losses. The Company recorded no
provision or benefit for income taxes in the first quarter of
fiscal year 1996.
Net income was $7.8 million, or $.21 per share, in the first
quarter of fiscal year 1997 and $5.1 million, or $.14 per share
in the first quarter of fiscal year 1996. The $2.7 million
improvement results from the items described above.
LIQUIDITY AND CAPITAL RESOURCES
The decrease in the Company's cash of $2.2 million to $27.9
million at August 31, 1996 from $30.1 million at May 31, 1996
resulted primarily from cash provided by operating activities of
$3.7 million and the issuance of common stock of $1.4 million,
offset by capital expenditures of $7.2 million.
The increase in the Company's working capital of $9.0
million to $125.5 million as of August 31, 1996 from $116.5
million as of May 31, 1996 resulted primarily from net income of
$7.8 million, a decrease in other assets of $3.0 million, a
decrease in intangible assets of $0.2 million, net proceeds from
the issuance of Common Stock of $1.4 million, other changes in
stockholders' equity of $0.2 million and an increase in long-term
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
LIQUIDITY AND CAPITAL RESOURCES (Continued)
benefit liabilities of $2.2 million, offset by net increases in
fixed assets of $1.5 million, a decrease in deferred taxes and
other of $3.6 million and a decrease in long-term restructuring,
integration, disposal and environmental of $0.7 million.
Earnings before interest, taxes, depreciation and
amortization ("EBITDA") decreased $16.4 million to $(4.2) million
in the first quarter of fiscal year 1997 from $12.2 million in
the first quarter of fiscal year 1996. This decrease reflects
primarily the $15.8 million of other charges provided in the
first quarter of fiscal year 1997.
In the first quarter of fiscal year 1997, the Company
recorded other charges of $15.8 million, of which $10.1 million
was non-cash and $5.7 million is expected to require the use of
cash during the remainder of fiscal year 1997 and the fiscal year
ending May 31, 1998, $2.2 million to pay severance and other
employee costs and $3.5 million to dispose of certain equipment.
As of May 31, 1996, the Company estimated the remaining cash
requirements for the integration of Cameron and direct costs
associated with the acquisition of Cameron to be $4.0 million.
Of such amount, the Company expects to spend approximately $2.5
million during its fiscal year ending May 31, 1997 ("fiscal year
1997") and $1.5 million thereafter. In the first quarter of
fiscal year 1996, spending related to the integration of Cameron
and associated direct costs amounted to $0.5 million.
The Company expects to spend $1.2 million in fiscal year
1997 and $15.5 million thereafter on non-capitalizable
environmental activities. In the first quarter of fiscal year
1997, $0.1 million was 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 $18.3 million for the year ended May 31,
1996 ("fiscal year 1996"). Capital expenditures in the
foreseeable future are expected to increase somewhat from fiscal
year 1996 levels. In the first quarter of fiscal year 1997,
capital expenditures amounted to $7.2 million.
The Company's revolving receivables-backed credit facility
(the "Receivables Financing Program") provides 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
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
LIQUIDITY AND CAPITAL RESOURCES (Continued)
program is five years, with an evergreen feature. As of August
31, 1996, under the credit facility, the total availability based
on eligible receivables was $42.5 million, there were no
borrowings and letters of credit amounting to $9.0 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 no borrowings
outstanding at August 31, 1996 and the Company had issued 0.9
million pounds sterling or $1.4 million of letters of credit or
guarantees under the U.K. Credit Agreement.
In the first quarter of fiscal year 1997, the Company
recognized the net benefit of a refund of prior years' income
taxes amounting to $19.7 million, plus interest of $3.5 million.
In September of 1996, the Company received $20.3 million relating
to such refund. Previously, the Company had received $2.9
million related to certain refund claims filed. The refund
relates to the carryback of tax net operating losses to tax years
1981, 1994 and 1986 under the provisions of Internal Revenue Code
Section 172(f). The amount of net operating losses carried back
to such years was approximately $48.5 million. At August 31,
1996, the Company has approximately $38.0 million of net
operating loss carryforwards available to offset future taxable
income.
The primary sources of liquidity available to the Company in
fiscal year 1996 to fund operations, anticipated expenditures in
connection with workforce reductions and disposal of certain
equipment, the integration of Cameron, planned capital
expenditures and planned environmental expenditures include
available cash ($27.9 million at August 31, 1996), 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 1997.
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
Effective June 1, 1996, the Company adopted Statement of
Financial Accounting Standards 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
adoption has not had a material impact on the earnings or the
financial position of the Company.
The Company for several years maintained a program of
Company-owned life insurance ("COLI") for certain of its
employees. As of August 31, 1996, the Company is named as
beneficiary on COLI policies with an aggregate cash surrender
value of approximately $5.2 million, 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 PAGE
10.A Form of Performance Stock Option E-1
Agreement under the Wyman-Gordon
Long-term Incentive Plan dated July 16,
1996 granted to 13 employees to the
Company for an aggregate of 485,875
shares of the Company's Common Stock.
10.B Form of Performance Share Agreement E-2
under the Wyman-Gordon Long-term
Incentive Plan dated July 16, 1996
granted to 13 employees of the Company
for an aggregate of 118,300 shares of
the Company's Common Stock.
10.C Form of Stock Option Agreement under E-3
the Wyman-Gordon Long-term Incentive
Plan dated July 16, 1996 granted to 13
employees of the Company for an
aggregate of 105,625 shares of the
Company's Common Stock.
27 Financial Data Schedule for the Three E-4
Months Ended August 31, 1996.
(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: 10/10/96 By: /S/ANDREW C. GENOR
Andrew C. Genor
Vice President,
Chief Financial Officer
and Treasurer
Date: 10/10/96 By: /S/JEFFREY B. LAVIN
Jeffrey B. Lavin
Corporate Controller and
Chief Accounting Officer
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