<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For The Quarterly Period ended September 30, 1995
Commission File Number 0-6955
WALBRO CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State of incorporation)
38-1358966
(I.R.S. Employer ID No.)
6242 Garfield Street, Cass City, MI 48726
(Address of principal executive offices) (Zip Code)
(517) 872-2131
Registrant's telephone number, including area code
Indicate by check mark whether the registrant 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 (of for such shorter period that the registrant
was required to file such reports) and 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 November 10, 1995
Common Stock (one class): 8,579,976
<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
INTRODUCTION TO THE CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated financial statements of Walbro Corporation and
subsidiaries (the "Company") have been prepared by the Company without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. The Company believes that the disclosures are adequate to make
the information presented not misleading when read in conjunction with the
financial statements and the notes thereto included in the Company's Form 10-K
as filed with the Securities and Exchange Commission for the year ended
December 31, 1994.
The financial information presented reflects all adjustments (consisting
only of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair statement of the results for interim periods presented.
The results for the interim periods are not necessarily indicative of the
results to be expected for the year.
1
<PAGE> 3
WALBRO CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
9/30/95 12/31/94
----------- ------------
ASSETS (Unaudited)
CURRENT ASSETS:
<S> <C> <C>
CASH $ 20,322 $ 4,540
ACCOUNTS RECEIVABLE (NET) 130,885 66,333
INVENTORIES 48,732 31,439
OTHER CURRENT ASSETS 11,295 7,664
------------ ------------
TOTAL CURRENT ASSETS 211,234 109,976
PROPERTY, PLANT & EQUIPMENT:
LAND, BUILDINGS & IMPROVEMENTS 48,821 45,902
MACHINERY & EQUIPMENT 225,431 93,127
------------ ------------
SUBTOTAL 274,252 139,029
LESS: ACCUMULATED DEPRECIATION (72,906) (50,737)
------------ ------------
NET PROPERTY, PLANT & EQUIPMENT 201,346 88,292
OTHER ASSETS:
GOODWILL (NET) 34,591 16,905
JOINT VENTURES, INVESTMENTS &
OTHER 53,456 42,193
------------ ------------
TOTAL OTHER ASSETS 88,047 59,098
------ ------
TOTAL ASSETS $ 500,627 $ 257,366
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
2
<PAGE> 4
WALBRO CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
9/30/95 12/31/94
-------------- ------------
LIABILITIES (Unaudited)
CURRENT LIABILITIES:
<S> <C> <C>
CURRENT PORTION LONG-TERM DEBT $ 10,109 $ 8,442
NOTES PAYABLE-BANKS 6,593 6,970
ACCOUNTS PAYABLE 45,927 23,252
ACCRUED LIABILITIES 40,326 12,934
------------ ------------
TOTAL CURRENT LIABILITIES 102,955 51,598
LONG-TERM DEBT, NET OF CURRENT 246,918 66,136
OTHER LONG-TERM LIABILITIES 15,696 11,717
------------ ------------
TOTAL LONG-TERM LIABILITIES 262,614 77,853
STOCKHOLDERS' EQUITY
COMMON STOCK, $.50 PAR VALUE; 4,289 4,282
AUTHORIZED 25,000,000;
OUTSTANDING 8,579,976 IN 1995 AND 8,564,576
IN 1994
PAID-IN CAPITAL 64,371 64,221
RETAINED EARNINGS 64,497 55,855
OTHER STOCKHOLDERS' EQUITY 1,901 3,557
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 135,058 127,915
------- -------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 500,627 $ 257,366
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
3
<PAGE> 5
WALBRO CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
9/30/95 9/30/94 09/30/95 09/30/94
--------- ---------- ----------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET SALES $ 124,495 $ 75,251 $ 312,786 $ 241,433
COST OF SALES & EXPENSES:
COST OF SALES 105,444 62,130 256,030 193,437
SELLING AND ADMINISTRATIVE EXPENSES 12,577 9,601 36,728 28,955
INTEREST EXPENSE, NET 4,100 921 6,638 2,457
OTHER EXPENSE (272) 484 144 1,147
------------- ------------- ------------ -------------
TOTAL 121,849 73,136 299,540 225,996
INCOME BEFORE INCOME TAXES AND
JOINT VENTURES 2,646 2,115 13,246 15,437
PROVISION FOR INCOME TAXES 895 542 4,646 5,496
EQUITY IN (INCOME) OF JOINT VENTURES (538) (1,401) (2,612) (1,993)
------------- ------------- ------------ -------------
NET INCOME $ 2,289 $ 2,974 $ 11,212 $ 11,934
============= ============= ============ =============
NET INCOME PER SHARE $0.27 $0.35 $1.30 $1.39
AVERAGE SHARES OUTSTANDING 8,610,864 8,599,219 8,599,392 8,603,979
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE> 6
WALBRO CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
9/30/95 9/30/94
------- --------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
NET INCOME $ 11,212 $ 11,934
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION & AMORTIZATION 13,568 10,552
(GAIN) LOSS ON DISPOSITION OF ASSETS 144 170
(INCOME) OF JOINT VENTURES (2,612) (1,993)
(GAIN) ON BUSINESS INTERRUPT INSURANCE (700) 0
CHANGES IN ASSETS AND LIABILITIES, NET OF ACQUISITION:
DEFERRED INCOME TAXES (393) 0
DEFERRED PENSION & OTHER 1,929 (756)
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 13,996 (5,240)
ACCOUNTS RECEIVABLE, NET (16,645) (15,524)
INVENTORIES (279) (1,068)
PREPAID EXPENSES AND OTHER (2,497) 2,604
------------ -------------
TOTAL ADJUSTMENTS (6,511) (11,255)
------------ -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 17,723 679
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASE OF FIXED ASSETS (33,319) (13,943)
ACQUISITIONS, NET OF CASH ACQUIRED (124,176) 0
INCREASE OF OTHER ASSETS (6,665) (1,242)
INVESTMENT IN JOINT VENTURES & OTHER (5,634) (1,707)
PROCEEDS FROM DISPOSAL OF ASSETS (115) 115
------------ -------------
NET CASH USED IN INVESTING ACTIVITIES (168,642) (16,777)
CASH FLOWS FROM FINANCING ACTIVITIES:
NET BORROWINGS UNDER LINE-OF-CREDIT
AGREEMENTS 62,321 15,982
DEBT REPAYMENTS (1,793) (408)
PROCEEDS FROM ISSUANCE OF DEBT 110,526 153
PROCEEDS FROM ISSUANCE OF COMMON STOCK 157 219
CASH DIVIDENDS PAID (2,569) (2,568)
------------ -------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 207,973 13,378
EFFECT OF EXCHANGE RATE CHANGES ON CASH (904) (1,217)
------------ -------------
NET DECREASE IN CASH 15,782 (3,937)
CASH BEGINNING BALANCE 4,540 4,605
------------ -------------
CASH ENDING BALANCE $ 20,322 $ 668
============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE> 7
WALBRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ACQUISITION
On July 27, 1995, the Company, through certain of its wholly-owned
subsidiaries, acquired the plastic fuel tank business of Dyno Industrier
A.S,(Dyno) Oslo, Norway. The plastic fuel tank division of Dyno supplies
plastic fuel tank systems to most European vehicle manufacturers through its
operations in France, Spain, Norway, Great Britain, Germany, and Belgium. Dyno
Fuel Systems Business sales approximated $147 million in 1994. The net
purchase price for the acquisition of Dyno's Fuel Systems Business was
approximately $124 million (approximately $138 million less approximately $14
million in cash acquired by the Company), exclusive of expenses of the
transaction. The purchase price is subject to certain post-closing
adjustments. The Company financed the acquisition through a combination of a
private placement of $110 million of 9 7/8% Senior Notes due 2005 (the Notes)
and a new $135 million credit facility (the New Credit Facility) with a group
of Commercial Banks.
The Notes are general unsecured obligations of the Company with
interest payable semi-annually. The Notes are guaranteed by each of the
significant domestic wholly-owned subsidiaries.
Except as noted below, the Notes are not redeemable at the Company's
option prior to July 15, 2000. Thereafter, the Notes will be redeemable, in
whole or part, at the option of the Company at various redemption prices as set
forth in the Note Indenture, plus accrued and unpaid interest thereon to the
redemption date. In addition, prior to July 15, 1998, the Company may, at its
option, redeem up to an aggregate of 30% of the principal amount of the Notes
originally issued with the net proceeds from one or more public equity
offerings at the redemption price specified in the Note Indenture plus accrued
interest to the date of redemption.
Also, in the event of a change in control, the Company will be
obligated to make an offer to purchase all of the outstanding Notes at a
redemption price of 101% of the principal amount thereof plus accrued interest
to the date of repurchase. Also, in certain circumstances, the Company will be
required to make an offer to repurchase the Notes at a price equal to 100% of
the principal amount thereof, plus accrued interest to the date of repurchase,
with the net cash proceeds of certain asset sales.
The New Credit Facility consists of a $135,000,000 multi-currency
revolving loan facility for the Company and certain of its wholly-owned
domestic and foreign subsidiaries, including a $5,000,000 swing line facility
and a $17,000,000 letter of credit facility. The New Credit Facility has an
initial term of five years, with annual one year extensions of the revolving
credit portion of the facility available in the lender's discretion.
At any time within three years after closing of the New Credit
Facility, the Company may convert up to $70,000,000 of revolving credit loans
under the New Credit Facility to term loans in minimum amounts of $15,000,000
with maturities not exceeding seven years from the closing of the New Credit
Facility.
Borrowings under the New Credit Facility bear interest at a per annum
rate equal to the agent's base rate or the prevailing interbank offered rate in
the applicable offshore currency market, plus an additional margin ranging from
0.5% to 1.75% based on certain financial ratios of the Company. The annual
letter of credit fee will range from 0.5% to 1.5% based on the same financial
ratios. The Company will also be required to pay a quarterly unused facility
fee.
Borrowings under the New Credit Facility are secured by first liens on
the inventory, accounts receivable and certain intangibles of the Company and
its wholly-owned domestic subsidiaries and by a pledge of 100% of the stock of
wholly-owned domestic subsidiaries, and 65% of the stock of wholly-owned
foreign subsidiaries. Collateral for the New Credit Facility secures the 2004
Notes on an equal and ratable basis. The Company and its wholly-owned domestic
subsidiaries guarantee payment of domestic and foreign borrowings under the New
Credit Facility. The Company's wholly-owned foreign subsidiaries guarantee
payment of foreign borrowings under the New Credit Facility.
The Note Indenture and the New Credit Facility contain numerous
restrictive covenants including, but not limited to, the following matters:
(i) maintenance of certain financial ratios and compliance with certain
financial tests and limitations; (ii) limitations on payment of dividends,
incurrence of additional indebtedness and granting of certain liens; (iii)
restrictions on mergers, acquisitions, asset sales, sales of subsidiary stock,
capital expenditures and investments; (iv) issuance of preferred stock by
subsidiaries and (v) sale and leaseback transactions.
6
<PAGE> 8
WALBRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The acquisition has been accounted for by the purchase method of
accounting and the net assets are included in the Company's Consolidated
Balance Sheets as of July 27, 1995 based upon their estimated fair values at
the transaction date. The Company's Consolidated Statements of Income include
the revenues and expenses of the acquired business subsequent to the
transaction date. The excess of the purchase price over the estimated fair
value of the net assets acquired (goodwill) is estimated to be $17 million
since the purchase price is subject to post closing adjustments and the
purchase price allocation is based on preliminary estimates of the fair value
of the net assets acquired and is subject to adjustment as additional
information becomes available during 1995.
SUPPLEMENTAL PRO FORMA RESULTS OF OPERATIONS
The following unaudited pro forma summary presents supplemental
earnings statement information as if the acquisition had occurred at the
beginning of the periods presented (in thousands except net income per share):
Nine Months
Ended September 30
1995 1994
---- ----
Net Sales $434,461 $342,778
Net Income 9,725 4,759
Net Income per Share 1.13 .55
Adjustments reflect estimated adjustments to depreciation and
amortization expense resulting from the revaluation of Dyno net assets
acquired, interest expense on acquisition debt, a 1994 litigation claim
retained by Dyno Industrier A.S and related tax adjustments. The above
supplemental pro forma results of operations includes Dyno Industrier
information for seven months ended July 27, 1995 and for nine months ended
September 30, 1994.
7
<PAGE> 9
WALBRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
September 30, 1995
----------------------------------------------------------------------------------
Walbro
Corporation Consolidation
Guarantor Nonguarantor (Parent and Elimination Consolidated
Subsidiaries Subsidiaries Corporation) Entries Total
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash 75 27,116 (6,869) 20,322
Accounts receivable, net 19,835 55,261 57,475 (1,686) 130,885
Inventories 25,599 21,965 1,168 48,732
Prepaid expenses and other 4,522 2,167 516 (17) 7,188
Deferred and refundable income taxes 6,376 (1,162) (1,104) (3) 4,107
----------------------------------------------------------------------------------
Total current assets 56,407 105,347 51,186 (1,706) 211,234
----------------------------------------------------------------------------------
PLANT AND EQUIPMENT, NET 86,232 104,884 10,121 109 201,346
----------------------------------------------------------------------------------
OTHER ASSETS:
Funds held for construction 1,061 1,061
Joint ventures 9,978 12,970 22,948
Investments 150,334 231 99,994 (240,836) 9,723
Goodwill, net 15,368 2,787 16,436 34,591
Plant and equipment held for resale 80 80
Notes receivable 196,301 (195,679) 622
Other 5,944 4,484 9,413 (819) 19,022
-----------------------------------------------------------------------------------
Total other assets 182,685 20,472 305,788 (420,898) 88,047
-----------------------------------------------------------------------------------
Total assets 325,324 230,703 367,095 (422,495) 500,627
===================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt 515 9,186 408 10,109
Bank and other borrowings 6,593 6,593
Accounts payable 26,773 35,600 184 (16,630) 45,927
Accrued liabilities 9,902 14,718 4,540 10,309 39,469
Dividends payable 857 857
-----------------------------------------------------------------------------------
Total current liabilities 37,190 66,097 5,989 (6,321) 102,955
-----------------------------------------------------------------------------------
LONG-TERM LIABILITIES
Long-term debt, less current portion 209,873 78,605 218,306 (259,866) 246,918
Pension obligations 832 3,160 7,645 1 11,638
Deferred income taxes 1,944 412 98 2,454
Minority interest 1,604 1,604
-----------------------------------------------------------------------------------
Total long-term liabilities 212,649 83,781 226,049 (259,865) 262,614
-----------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock, $.50 par value;
authorized 25,000,000; outstanding
8,564,576 in 1994, 8,579,976 in 1995 12,485 4,289 (12,485) 4,289
Paid-in capital 49,876 64,371 (49,876) 64,371
Retained earnings 73,567 12,199 64,497 (85,766) 64,497
Deferred compensation (845) (845)
Unrealized gain on securities
available for sale 1,225 1,225
Cumulative translation adjustments 1,918 1,214 1,520 (3,131) 1,521
-----------------------------------------------------------------------------------
Total stockholders' equity 75,485 75,774 135,057 (151,258) 135,058
-----------------------------------------------------------------------------------
Total liabilities and
stockholders' equity 325,324 225,652 367,095 (417,444) 500,627
===================================================================================
</TABLE>
8
<PAGE> 10
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1994
---------------------------------------------------------------------------
WALBRO
CORPORATION CONSOLIDATION
GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL
------------ ------------ ------------ --------------- ------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash..................................... $ 75 $ 2,525 $ 1,940 $ -- $ 4,540
Accounts receivable, net................. 40,316 20,311 18,495 (12,789) 66,333
Inventories.............................. 24,732 6,120 587 -- 31,439
Prepaid expenses and other............... 3,728 733 701 (1,161) 4,001
Deferred and refundable income taxes..... 5,656 (1,169) (824) -- 3,663
-------- -------- -------- --------- --------
Total current assets................... 74,507 28,520 20,899 (13,950) 109,976
-------- -------- -------- --------- --------
PLANT AND EQUIPMENT, NET................... 64,044 14,292 9,848 108 88,292
-------- -------- -------- --------- --------
OTHER ASSETS:
Funds held for construction.............. 1,061 -- -- -- 1,061
Joint ventures........................... 6,598 9,920 -- -- 16,518
Investments.............................. 4,395 239 89,092 (82,929) 10,797
Goodwill, net............................ 15,710 1,195 -- -- 16,905
Plant and equipment held for resale...... -- -- 80 -- 80
Notes receivable......................... -- -- 55,916 (51,550) 4,366
Deferred income taxes.................... -- 871 -- -- 871
Other.................................... 2,399 721 5,380 -- 8,500
-------- -------- -------- --------- --------
Total other assets..................... 30,163 12,946 150,468 (134,479) 59,098
-------- -------- -------- --------- --------
Total assets............................. $168,714 $ 55,758 $181,215 $(148,321) $257,366
======== ======== ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt........ $ 515 $ 7,519 $ 408 $ -- $ 8,442
Bank and other borrowings................ -- 6,970 -- -- 6,970
Accounts payable......................... 28,322 6,868 472 (12,410) 23,252
Accrued liabilities...................... 10,218 4,152 (775) (1,518) 12,077
Dividends payable........................ -- -- 857 -- 857
-------- -------- -------- --------- --------
Total current liabilities.............. 39,055 25,509 962 (13,928) 51,598
-------- -------- -------- --------- --------
LONG-TERM LIABILITIES:
Long-term debt, less current portion..... 71,112 348 46,226 (51,550) 66,136
Pension obligations and other............ 648 949 6,556 -- 8,153
Deferred income taxes.................... 2,120 763 (444) -- 2,439
Minority interest........................ -- 1,125 -- -- 1,125
-------- -------- -------- --------- --------
Total long-term liabilities............ 73,880 3,185 52,338 (51,550) 77,853
-------- -------- -------- --------- --------
STOCKHOLDERS' EQUITY:
Common stock, $.50 par value;
authorized 15,000,000; outstanding
8,564,576 in 1994...................... -- 1,999 4,282 (1,999) 4,282
Paid-in capital.......................... -- 3,632 64,221 (3,632) 64,221
Retained earnings........................ 55,416 18,934 55,855 (74,350) 55,855
Deferred compensation.................... -- -- (1,225) -- (1,225)
Unrealized gain on securities available
for sale............................... -- -- 1,428 -- 1,428
Cumulative translation adjustments....... 363 2,499 3,354 (2,862) 3,354
-------- -------- -------- --------- --------
Total stockholders' equity............. 55,779 27,064 127,915 (82,843) 127,915
-------- -------- -------- --------- --------
Total liabilities and stockholders'
equity............................... $168,714 $ 55,758 $181,215 $(148,321) $257,366
======== ======== ======== ========= ========
</TABLE>
9
<PAGE> 11
WALBRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
September 30, 1995
----------------------------------------------------------------------------------
Walbro
Corporation Consolidation
Guarantor Nonguarantor (Parent and Elimination Consolidated
Subsidiaries Subsidiaries Corporation) Entries Total
----------- ------------ ------------ ---------------- ------------
<S> <C> <C> <C> <C> <C>
NET SALES 248,449 92,623 1,474 (29,760) 312,786
COSTS AND EXPENSES:
Cost of sales 203,974 81,102 714 (29,760) 256,030
Selling, administration & other expenses 22,747 4,577 8,656 35,980
-------------------------------------------------------------------------------
OPERATING INCOME (LOSS) 21,728 6,994 7,896 - 20,776
OTHER EXPENSE (INCOME):
Interest expense 6,354 1,552 5,888 (6,667) 7,127
Interest income (1,775) 636 (6,017) 6,667 (489)
Foreign currency exchange loss(gain) (123) 52 491 420
-------------------------------------------------------------------------------
Income before provision for income
taxes, minority interest, equity in
(income) loss of joint ventures
and subsidiaries 17,272 4,704 (8,258) - 13,718
Provision (credit) for income taxes 5,988 1,059 (2,859) 458 4,646
Minority Interest 472
Equity in (income) loss of joint 472
ventures (414) (2,198) (2,612)
Equity in (income) of subsidiaries (5,841) (17,070) 22,911 -
-------------------------------------------------------------------------------
Net Income 17,539 5,371 11,671 (23,369) 11,212
===============================================================================
</TABLE>
10
<PAGE> 12
WALBRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
September 30, 1994
-------------------------------------------------------------------------
Walbro
Corporation Consolidation
Guarantor Nonguarantor (Parent and Elimination Consolidated
Subsidiaries Subsidiaries Corporation) Entries Total
------------ ------------ ----------- ------- -----
<S> <C> <C> <C> <C> <C>
NET SALES 221,955 42,495 901 (23,918) 241,433
COSTS AND EXPENSES:
Cost of sales 180,427 36,075 850 (23,915) 193,437
Selling, administration & other expenses 20,756 2,724 5,454 (3) 28,931
----------------------------------------------------------------------
OPERATING INCOME (LOSS) 20,772 3,696 (5,403) - 19,065
OTHER EXPENSE (INCOME):
Interest expense 4,126 367 1,646 (3,673) 2,466
Interest income (3) (3,679) 3,673 (9)
Foreign currency exchange loss(gain) (8) 17 1,117 1,126
----------------------------------------------------------------------
Income before provision for income taxes,
minority interest, equity in (income) loss
of joint ventures and subsidiaries 16,654 3,315 (4,487) - 15,482
Provision (credit) for income taxes 5,821 1,205 (1,530) 5,496
Minority Interest 45 45
Equity in (income) loss of joint ventures (1,127) (866) (1,993)
Equity in (income) of subsidiaries (2,931) (14,892) 17,823 -
----------------------------------------------------------------------
Net Income 14,891 2,931 11,935 (17,823) 11,934
======================================================================
</TABLE>
11
<PAGE> 13
WALBRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
September 30, 1995
--------------------------------------------------------------------------
Walbro
Corporation Consolidation
Guarantor Nonguarantor (Parent and Elimination Consolidated
Subsidiaries Subsidiaries Corporation) Entries Total
------------ ----------- ----------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating activities 75,694 13,549 (50,359) (21,161) 17,723
--------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of plant and equipment (29,810) (2,873) (636) (33,319)
Acquisitions, net of cash acquired (138,378) (14,262) (60) (124,176)
Purchase of other assets (3,857) 2,190 (4,998) (6,665)
Investment in joint ventures and other (11,038) 194 (15,961) 21,171 (5,634)
Proceeds/(payments) of intercompany note receivable --
Proceeds from disposal of assets 107 7 1 115
--------------------------------------------------------------------------
Net cash provided by(used in) investing activities (182,976) 13,780 (21,654) 21,171 (169,679)
--------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under revolving
line-of-credit agreements (545) 62,866 62,321
Debt Repayments (383) (1,410) (1,793)
Proceeds from issuance of long-term debt 107,665 111 2,750 110,526
Proceeds from issuance of common stock
and options 157 157
Cash dividends paid (2,569) (2,569)
--------------------------------------------------------------------------
Net cash provided by(used in) financing activities 107,282 (1,844) 63,204 -- 166,642
--------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH (894) (10) (904)
--------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH -- 24,591 (8,809) -- 15,782
CASH AT BEGINNING OF YEAR 75 2,525 1,940 4,540
--------------------------------------------------------------------------
CASH AT END OF PERIOD 75 27,116 (6,869) -- 20,322
==========================================================================
</TABLE>
12
<PAGE> 14
WALBRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
September 30, 1994
---------------------------------------------------------------------------
Walbro
Corporation Consolidation
Guarantor Nonguarantor (Parent and Elimination Consolidated
Subsidiaries Subsidiaries Corporation) Entries Total
------------ ----------- ------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activites 18,405 1,027 (3,412) (15,340) 680
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of plant and equipment (9,462) (1,139) (3,376) 34 (13,943)
Acquisitions, net of cash acquired --
Purchase of other assets (272) (49) (921) (1,242)
Investment in joint ventures and other (3,761) 1,102 (14,892) 15,878 (1,707)
Proceeds/(payments) of intercompany note
receivable (5,500) 5,500 --
Proceeds from disposal of assets 109 6 115
--------------------------------------------------------------------
Net cash provided by (used in) investing
activities (18,886) (86) (13,683) 15,878 (16,777)
--------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under revolving
line-of-credit agreements 582 15,400 15,982
Debt Repayments (408) (408)
Proceeds from issuance of long-term debt 153 582 153
Proceeds from issuance of common stock
and options 219 219
Cash dividends paid (2,568) (2,568)
--------------------------------------------------------------------
Net cash provided by (used in) financing
activities 153 582 12,643 -- 13,378
--------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH (680) (538) (1,218)
--------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH (328) 843 (4,452) -- (3,937)
CASH AT BEGINNING OF YEAR 431 1,732 2,442 4,605
--------------------------------------------------------------------
CASH AT END OF PERIOD 103 2,575 (2,010) -- 668
====================================================================
</TABLE>
13
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
On July 27, 1995, the Company, through certain of its wholly-owned
subsidiaries, acquired the Fuel Systems Business of Dyno Industrier A.S, Oslo,
Norway ("Dyno"). Dyno supplies plastic fuel tanks to most European vehicle
manufacturers through production facilities in Belgium, France, Germany,
Norway, Spain and the United Kingdom. Dyno's Fuel Systems Business sales
approximated $147 million in 1994. Except as noted below the results of
operations for the three and nine month periods ended September 30, 1995 only
include the results of Dyno after July 27, 1995.
THREE MONTHS ENDED SEPTEMBER 30, 1995 VS. THREE MONTHS ENDED SEPTEMBER 30, 1994
Net sales in the third quarter of 1995 increased 65.3% to $124.5
million compared to $75.3 million for the same period of 1994. Net sales in
the third quarter of 1995 included $35.2 million of sales from Dyno. Net sales
in the third quarter of 1995 without Dyno sales increased 18.6% (11.4% increase
without Dyno sales and without component parts sales to unconsolidated joint
ventures of $5.5 million). Sales of automotive products increased 99.8% to
$93.1 million for the third quarter of 1995 compared to $46.6 million for the
same period of 1994 (24.3% increase without Dyno sales and 12.5% without Dyno
sales and component parts sales). Sales of automotive products were lower than
expected for the third quarter of 1995 because of lower U.S. passenger car
sales during the 1995 quarter and because of a slower than scheduled start-up
of a customer's major new vehicle line with significant product content by the
Company. Both of these factors caused lower sales of fuel pumps and fuel rails
compared to the prior year period. The slow start-up of the customer's new
line negatively affected fuel module sales, but stronger sales of light trucks
during the quarter caused an overall increase in sales of fuel modules. In
addition, sales of the Company's new plastic fuel tanks manufactured in the
U.S. contributed to the sales increase, the first sales of which were recorded
in the fourth quarter of 1994.
Sales of small engine products increased 11.1% to $25.0 million for the
third quarter of 1995 compared to $22.5 million for the same period in 1994.
Most of the increase was the result of increased sales of diaphragm
carburetors, as sales of float feed carburetors in the U.S. were lower in the
third quarter of 1995 compared to the third quarter of 1994. Sales of
diaphragm carburetors increased by 23.0% for the third quarter of 1995 with
approximately 75% of the increase derived from U.S. sales as 1994 third quarter
sales had been depressed due to customer order delays related to delays in the
Company's customers' engine certifications by the California Air Resources
Board during the last half of 1994. Float feed carburetor sales in the U.S.
declined by 19.0% for the third quarter of 1995 as poor weather caused lower
domestic sales of lawn and garden and outdoor power equipment. A significant
portion of the sales increase in small engine products, 22.9%, resulted from
increased sales at the Company's new subsidiary in China, sales of ignition
systems accounted for 9.8% of the increased sales.
14
<PAGE> 16
Sales to the aftermarket decreased 9.7% to $5.6 million for the third
quarter of 1995 compared to $6.2 million for the same period of 1994, as
lightning struck the Company's aftermarket warehouse in Cass City, Michigan
causing substantial smoke and water damage to the building and its contents.
Aftermarket operations were shut down for three weeks in August as a result of
the fire. Insurance proceeds from property coverage and business interruption
will cover most of the loss from the fire and should not affect earnings in
future periods.
Cost of sales for the third quarter of 1995 increased 69.7% to $105.4
million compared to $62.1 million for the same period of 1994 (17.9% increase
without Dyno), while cost of sales as a percent of net sales was 84.7% (82.1%
without Dyno) compared to 82.6% for the same 1994 period. Cost of sales as a
percent of sales at Dyno was 91.4% for the third quarter of 1995. The Dyno
gross margin was lower than normal because several plants were closed for the
annual European vacations in August. In automotive products (without Dyno),
the cost of sales as a percentage of net sales decrease resulted primarily from
higher sales volumes of fuel modules partially offset by lower fuel rail
volumes. In small engine products, the lower cost of sales as a percentage of
net sales was due to increased sales volumes of diaphragm carburetors in the
U.S.
Selling and administrative ("S & A") expenses increased 31.0%
(increased 22.7% without Dyno) for the third quarter of 1995 compared to the
third quarter of 1994 and increased as a percent of sales from 12.8% to 13.2%,
without Dyno, because of increased spending for research and development and
for expansion of the Company's automotive systems center in Auburn Hills,
Michigan and facilities expansion at Caro, Michigan and Meriden, Connecticut.
In addition, S & A expenses increased in Japan and Singapore because of the
weaker U.S. Dollar. Research and development expenses increased as efforts
were expanded to develop new products to meet EPA regulations for automotive
evaporative emissions and EPA regulations for small engine exhaust emissions.
Interest expense increased substantially because of borrowings for the
Dyno acquisition and increased borrowings for additional working capital and
for capital expenditures. A description of the borrowings for the Dyno
acquisition is provided under Liquidity and Capital Resources.
Provision for income taxes was 61.5% higher for the third quarter of 1995
compared to the same period of 1994 because of higher taxable income but with a
slightly lower year-to-date effective tax rate for 1995 of 35.1% compared to
35.6% for 1994. The equity in income from joint ventures in the third quarter
of 1995 was $0.54 million versus the comparable period income of $1.40 million
in 1994, primarily because of reduced profitability at Marwal Systems (France),
Mitsuba Walbro Inc. (Japan) and start-up costs at Korea Automotive Fuel Systems
Ltd. Lower profits at Marwal Systems for the 1995 third quarter resulted from
lower auto sales in France because of a terminated government incentive
program and lower sales and profits from Italian business because of the
15
<PAGE> 17
devalued Lira.
Net income for the third quarter of 1995 was $2.3 million, a decrease of
23.3% compared to $3.0 million for the same period last year, as a result of
the reasons described above. Net income per share for the third quarter or
1995 was $.27 compared with $.35 for the same 1994 period.
NINE MONTHS ENDED SEPTEMBER 30, 1995 VS. NINE MONTHS ENDED SEPTEMBER 30, 1994
Net sales for the first nine months of 1995 increased 29.6% to $312.8
million compared to $241.4 million for the same period of 1994 (15.1% increase
without Dyno sales and 9.7% increase without Dyno sales and without component
parts sales of $12.9 million). Sales of automotive products increased 41.2% to
$204.8 million for the 1995 nine-month period compared to $145.0 million for
the same 1994 period (17.0% increase without Dyno sales and 8.1% increase
without Dyno sales and component parts sales). The increased automotive
product sales were primarily the result of increased fuel module sales during
the first and third quarters of 1995.
Sales of small engine products increased 10.9% to $86.4 million for the
first nine months of 1995 compared to $77.9 million for the same period of
1994. Sales of diaphragm carburetors increased by 16.0% for the first nine
months of 1995 while sales of float feed carburetors decreased by 10.0%
compared to the same period of 1994. Most of the increased sales of diaphragm
carburetors occurred in the second and third quarters and were derived
primarily from international sales in the second quarter and
domestic sales in the third quarter. The weather related decline in U.S.
sales of float feed carburetors during the second and third quarters of 1995
more than offset the small increase in sales during the first quarter of 1995.
Ignition products and carburetors for two-wheeled vehicles in the Peoples
Republic of China represented a significant portion of the small engine
product sales increase for the first nine months of 1995.
Sales to the aftermarket increased 3.2% to $19.2 million for the first
nine months of 1995 compared to $18.6 million for the same period of 1994.
Sales increased in all product areas during the first six months of 1995 but
declined in the third quarter of 1995 for the reasons stated above.
Cost of sales for the first nine months of 1995 increased 32.4% to $256.0
million compared to $193.4 million for the same period of 1994 (15.7% increase
without Dyno). Cost of sales as a percent of net sales was 81.8% (80.6%
without Dyno) for the first nine months of 1995 compared to 80.1% for the same
period of 1994. The increase in cost of sales as a percent of net sales,
without Dyno, occurred primarily in the second quarter as both automotive
products and
16
<PAGE> 18
small engine products reported lower gross margins. Automotive product margins
declined because of lower volumes of fuel pumps and fuel rails because of lower
passenger car sales and small engine margins declined because of lower volumes
of float feed carburetors related to weather. S & A expenses increased
by 26.8% (increased 24.1% without Dyno) for the first nine months of
1995 compared to the same period of 1994. The increases in all of the
categories of S & A expenses for the nine-month period were due to the same
reasons stated above for the third quarter of 1995.
The provision for income taxes was 15.5% lower for the first nine months
of 1995 compared to the same period of 1994 because of lower taxable income and
a slightly lower effective tax rate of 35.1% for the 1995 nine-month period
compared to 35.6% for the same 1994 period. The equity in income from joint
ventures was $2.61 million for the first nine months of 1995 compared to the
1994 income of $1.99 million for the same period because of the increased sales
and improved profitability at Marwal Systems (France) and Marwal do Brasil
during the first six months of 1995 which more than offset the decline in
profitability at Marwal Systems during the third quarter of 1995.
Net income for the first nine months of 1995 was $11.2 million, a
decrease of 5.9% compared to net income of $11.9 million for the same period of
1994. The decrease was due to the reasons described above. Net income per
share was $1.30 for the first nine months of 1995 compared to $1.39 for the
first nine months of 1994.
Foreign Currency Transactions
Approximately 32% of the Company's sales during the first nine months of
1995 were derived from international manufacturing operations in Europe, Asia
and Mexico. The financial position and the results of operations of the
Company's subsidiaries in Europe (11% of sales), Japan (8% of sales) and China
(1% of sales) are measured in local currency of the countries in which they
operate and translated into U.S. dollars. The effects of foreign currency
fluctuations in Europe, Japan and China are somewhat mitigated by the fact that
expenses are generally incurred in the same currencies in which sales are
generated and the reported income of these subsidiaries will be higher or lower
depending on a weakening or strengthening of the U.S. dollar.
For the Company's subsidiary in Singapore (5% of sales) the expenses are
generally incurred in the local currency, but sales are generated in U.S.
dollars; therefore, results of operations are more directly influenced by a
weakening or strengthening of the local currency. The Company's subsidiary in
Mexico (8% of sales) operates as a maquiladora, or contract manufacturer, where
only certain direct manufacturing expenses are incurred in the local currency
and sales are generated in U.S. dollars. Thus, results of operations of the
Company's subsidiary in Mexico are also more directly influenced by a weakening
or strengthening of the local currency.
17
<PAGE> 19
The acquisition of Dyno in July, 1995 (discussed below) resulted in a
significant increase in the foreign component of the Company's operations.
Specifically, giving effect to the Dyno acquisition on a pro forma basis,
approximately 47% of the Company's net sales for the nine months ended
September 30, 1995 would have been related to foreign operations.
Approximately 47% of the Company's net assets at September 30, 1995, are
based in its foreign operations and are translated into U.S. dollars at
foreign currency exchange rates in effect as of the end of each period.
Accordingly, the Company's consolidated shareholders' equity will fluctuate
depending upon the weakening or strengthening of the U.S. dollar. In addition,
the Company has equity investments in unconsolidated joint ventures in France,
Brazil, Japan and Korea. The Company's reported income from these joint
ventures will be higher or lower depending upon a weakening or strengthening of
the U.S. dollar.
The Company's strategy for management of currency risk relies primarily
upon the use of forward currency exchange contracts to manage its exposure to
foreign currency fluctuations related to its operations in foreign countries,
to manage its firm transaction commitments in foreign currencies and to hedge
its equity investment in certain foreign joint ventures.
18
<PAGE> 20
Liquidity and Capital Resources
As of September 30, 1995, the Company had outstanding $16.7 million in
short-term debt, including current portion of long-term debt, and $246.9
million in long-term debt. As of September 30, 1995, the approximate minimum
principal payments required on the Company's long-term debt in each of the five
fiscal years subsequent to December 31, 1994 are $8.5 million in 1995, $1.0
million in 1996, $1.4 million in 1997, $7.5 million in 1998 and $7.1 million in
1999.
The net purchase price of the acquisition of Dyno's Fuel Systems
Business was approximately $124 million (approximately $138 million less
approximately $14 million in cash acquired by the Company). The Company
financed the acquisition through the combination of a private placement of $110
million in aggregate principal amount of its 9 7/8% Senior Notes due 2005,
Series A (the "Series A Notes") and a new $135 million secured Credit Facility
with a group of commercial banks.
On November 6, 1995, the Company commenced an exchange offer whereby it
agreed to exchange the Series A Notes for $110 million principal amount of 9
7/8% Senior Notes due 2005, Series B (the "Series B Notes"). The terms of the
Series A Notes and the Series B Notes are identical in all material respects
except for certain transfer restrictions and registration rights relating to
the Series A Notes. This exchange offer is expected to be completed in
mid-December 1995. At September 30, 1995, the Company had available to it
approximately $65 million under the New Credit Facility. See Note 1 of the
Notes to Consolidated Financial Statements for further discussion.
Cash generated from operations was sufficient to meet approximately 53%
and 5% of the Company's investment in fixed assets in the first nine months of
1995 and 1994, respectively. The remaining cash was provided from financing
activities. Of the $168.6 million of cash provided from financing activities
in 1995, approximately $130 million was used for the Dyno acquisition.
The Company's plans for 1995 capital expenditures for facilities,
equipment and tooling total approximately $45.1 million, of which approximately
$23.4 million represents maintenance capital expenditures. The Company
intends to finance the capital expenditures with the New Credit Facility and
cash from operations.
Management believes that the Company's long-term cash needs will continue
to be provided principally by operating activities supplemented, to the extent
required, by borrowing under the Company's existing and future credit
facilities. Management expects to replace these credit facilities as they
expire with comparable facilities.
As of September 30, 1995, accounts receivable amounted to $130.9 million,
an increase of $72.5 million, compared to $58.4 million at September 30, 1994.
The acquisition of Dyno added $36.6 million of accounts receivable at September
30, 1995. The average collection period at September 30, 1995 was 58.5 days
(62.0 days without Dyno) slightly lower than the average collection period
during calendar 1994. The average collection period should increase in future
periods after September 30, 1995 because of longer payment terms to Dyno
customers in Europe. The average collection period in calendar year
19
<PAGE> 21
1994 was 62.3 days compared to 56.8 days in 1993 and 55.0 days in 1992.
Approximately 55% of the accounts receivable increase in 1994 was due to
increased sales in 1994, while the remaining increase was due to longer
collection periods. The average collection period in 1994 increased primarily
because of a substantial increase in fuel pump sales to the Company's Marwal
joint ventures, which received longer payment terms consistent with customary
payment practices in Europe and South America.
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - none
(b) Reports on Form 8-K
The only report on Form 8-K filed by the Company during the quarter
ended September 30, 1995 was filed on August 9, 1995 reporting Items
2 and 7. Financial statements filed with the report on Form 8-K were:
Financial Statements of Fuel Systems Division of Dyno.
As of December 31, 1994 and 1993 and for the years ended
December 31, 1994 and 1993:
Report of Independent Public Accountants
Combined Balance Sheets
Combined Income Statements
Combined Statements of Cash Flows
Notes to the Combined Financial Statements
For the year ended December 31, 1992:
Report of Independent Public Accountants
Combined Statement of Revenues and Direct Costs and
Expenses Notes to the Financial Statements
As of March 31, 1995 and for the three months ended March 31,
1995 and 1994
Unaudited Combined Balance Sheets as of March 31, 1995 and
1994 Combined Income Statements (Unaudited)
20
<PAGE> 22
Combined Statements of Cash Flows (Unaudited)
Notes to the Combined Financial Statements (Unaudited)
Pro Forma Financial Information:
Pro Forma Unaudited Condensed Consolidated Statement of
Operations for the three months ended March 31, 1995 and
the year ended December 31, 1994
Notes to Pro Forma Unaudited Condensed Consolidated
Statements of Operations
Pro Forma Unaudited Condensed Consolidated Balance Sheet
as of March 31, 1995
Notes to Pro Forma Unaudited Condensed Consolidated
Balance Sheet
21
<PAGE> 23
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.
WALBRO CORPORATION
(Registrant)
Dated: November 14, 1995 /s/ L. E. Althaver
----------------------------------
L. E. Althaver, Chairman, President
and Chief Executive Officer
Dated: November 14, 1995 /s/Michael A. Shope
----------------------------------
Michael A. Shope
Chief Financial Officer and Treasurer
22
<PAGE> 24
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- --------
EX-27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 20,322
<SECURITIES> 0
<RECEIVABLES> 130,885
<ALLOWANCES> 0
<INVENTORY> 48,732
<CURRENT-ASSETS> 211,234
<PP&E> 274,252
<DEPRECIATION> 72,906
<TOTAL-ASSETS> 500,627
<CURRENT-LIABILITIES> 102,955
<BONDS> 246,918
<COMMON> 4,289
0
0
<OTHER-SE> 130,769
<TOTAL-LIABILITY-AND-EQUITY> 500,627
<SALES> 312,786
<TOTAL-REVENUES> 312,786
<CGS> 256,030
<TOTAL-COSTS> 256,030
<OTHER-EXPENSES> 36,872
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,638
<INCOME-PRETAX> 13,246
<INCOME-TAX> 4,646
<INCOME-CONTINUING> 11,212
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,212
<EPS-PRIMARY> 1.30
<EPS-DILUTED> 1.30
</TABLE>
