<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, 1996
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 11, 1996
Common Stock (one class): 8,637,003
<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 condensed consolidated financial statements of the Company
should be 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, 1995.
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>
9/30/96 12/31/95
------- --------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
CASH $ 15,227 $ 19,792
ACCOUNTS RECEIVABLE (NET) 140,784 113,346
INVENTORIES 54,408 50,723
OTHER CURRENT ASSETS 16,565 15,843
----------- -----------
TOTAL CURRENT ASSETS 226,984 199,704
PROPERTY, PLANT & EQUIPMENT:
LAND, BUILDINGS & IMPROVEMENTS 63,387 57,986
MACHINERY & EQUIPMENT 272,913 211,707
----------- -----------
SUBTOTAL 336,300 269,693
LESS: ACCUMULATED DEPRECIATION (76,044) (63,928)
----------- -----------
NET PROPERTY, PLANT & EQUIPMENT 260,256 205,765
OTHER ASSETS:
GOODWILL (NET) 32,667 33,299
JOINT VENTURES, INVESTMENTS & OTHER 54,951 54,705
----------- -----------
TOTAL OTHER ASSETS 87,618 88,004
----------- -----------
TOTAL ASSETS $ 574,858 $ 493,473
=========== ===========
</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>
9/30/96 12/31/95
------- --------
LIABILITIES (Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
CURRENT PORTION LONG-TERM DEBT $ 983 $ 1,086
NOTES PAYABLE-BANKS 14,385 14,921
ACCOUNTS PAYABLE 76,396 52,774
ACCRUED LIABILITIES 29,496 35,210
------------ -----------
TOTAL CURRENT LIABILITIES 121,260 103,991
LONG-TERM LIABILITIES:
LONG-TERM DEBT, NET OF CURRENT 295,489 233,389
OTHER LONG-TERM LIABILITIES 18,126 20,666
------------ -----------
TOTAL LONG-TERM LIABILITIES 313,615 254,055
STOCKHOLDERS' EQUITY
COMMON STOCK, $.50 PAR VALUE; 4,301 4,290
AUTHORIZED 25,000,000;
OUTSTANDING 8,601,796 IN 1996 AND
8,579,976 IN 1995
PAID-IN CAPITAL 64,762 64,381
RETAINED EARNINGS 75,380 66,256
OTHER STOCKHOLDERS' EQUITY (4,460) 500
------------ -----------
TOTAL STOCKHOLDERS' EQUITY 139,983 135,427
------------ -----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 574,858 $ 493,473
============ ===========
</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
09/30/96 09/30/95 09/30/96 09/30/95
-------- -------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET SALES $ 132,545 $ 124,495 $ 440,501 $ 312,786
COST OF SALES & EXPENSES:
COST OF SALES 111,116 105,444 361,951 256,030
SELLING AND ADMINISTRATIVE EXPENSES 11,078 8,438 39,415 25,604
RESEARCH & DEVELOPMENT EXPENSES 4,986 3,710 13,432 10,371
---------- ----------- ----------- ----------
OPERATING INCOME 5,365 6,903 25,703 20,781
OTHER EXPENSE (INCOME):
INTEREST EXPENSE 5,059 4,461 15,652 7,127
INTEREST INCOME (384) (362) (1,008) (489)
OTHER (INCOME) EXPENSE (45) 9 (28) 425
---------- ----------- ----------- ----------
INCOME BEFORE INCOME TAXES, MINORITY
INTEREST, AND JOINT VENTURES 735 2,795 11,087 13,718
PROVISION FOR INCOME TAXES 23 895 3,032 4,646
MINORITY INTEREST 110 149 320 472
EQUITY IN (INCOME) OF JOINT VENTURES (1,744) (538) (3,969) (2,612)
---------- ----------- ----------- ----------
NET INCOME $ 2,346 $ 2,289 $ 11,704 $ 11,212
========== =========== =========== ==========
NET INCOME PER SHARE $0.27 $0.27 $1.35 $1.30
AVERAGE SHARES OUTSTANDING 8,645,041 8,610,864 8,642,598 8,599,392
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE> 6
WALBRO CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited; In thousands) NINE MONTHS ENDED
9/30/96 9/30/95
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 11,704 $ 11,212
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
DEPRECIATION & AMORTIZATION 20,201 13,568
(GAIN) LOSS ON DISPOSITION OF ASSETS (94) 144
MINORITY INTEREST (234) 479
(INCOME) OF JOINT VENTURES (3,969) (2,612)
(GAIN) ON BUSINESS INTERUPT INSURANCE (700)
CHANGES IN ASSETS AND LIABILITIES:
DEFERRED INCOME TAXES 175 (393)
DEFERRED PENSION OBLIGATIONS & OTHER (1,498) 1,450
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 14,027 13,996
ACCOUNTS RECEIVABLE, NET (28,597) (16,645)
INVENTORIES (4,548) (279)
PREPAID EXPENSES AND OTHER (5,894) (2,497)
------------ -----------
TOTAL ADJUSTMENTS (10,431) 6,511
------------ -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 1,273 17,723
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASE OF FIXED ASSETS (70,453) (33,319)
ACQUISITIONS, NET OF CASH ACQUIRED 0 (124,176)
PURCHASE OF OTHER ASSETS (3,238) (6,665)
INVESTMENT IN JOINT VENTURES & OTHER (259) (5,634)
PROCEEDS FROM DISPOSAL OF ASSETS 3,533 115
------------ -----------
NET CASH USED IN INVESTING ACTIVITIES (70,417) (169,679)
CASH FLOWS FROM FINANCING ACTIVITIES:
NET BORROWINGS UNDER LINE-OF-CREDIT
AGREEMENTS 68,692 62,321
DEBT REPAYMENTS 0 (1,793)
PROCEEDS FROM ISSUANCE OF DEBT 110,526
PROCEEDS FROM ISSUANCE OF
COMMON STOCK & OPTIONS 392 157
CASH DIVIDENDS PAID (2,578) (2,569)
------------ -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 66,506 168,642
EFFECT OF EXCHANGE RATE CHANGES ON CASH (1,927) (904)
------------ -----------
NET INCREASE (DECREASE) IN CASH (4,565) 15,782
CASH BEGINNING BALANCE 19,792 4,540
------------ -----------
CASH ENDING BALANCE $ 15,227 $ 20,322
============= ===========
</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 OF DYNO INDUSTRIER FUEL SYSTEMS BUSINESS
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.
This acquisition was accounted for as a purchase and, accordingly, the
operating results of Dyno have been included in the accompanying financial
statements since the date of the acquisition. The results of operations for
the three months and nine months ended September 30, 1996 include the results
of Dyno, while the results of operations for the three months and nine months
ended September 30, 1995 only include the results of Dyno after July 27, 1995.
Assuming the acquisition had taken place as of the beginning of 1995, the
consolidated pro forma results of operations of the Company for the three
months and nine months ended September 30, 1995 would have been as follows,
after giving effect to certain adjustments consisting principally of
management's estimates of depreciation and amortization expense resulting from
the market valuation of Dyno net assets acquired, interest expense on
acquisition debt and related tax adjustments (Unaudited; in thousands, except
per share data):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended 9/30/95 Ended 9/30/95
------------- -------------
<S> <C> <C>
Net Sales $138,338 $434,461
Net Income 1,681 9,725
Net Income Per Share .19 1.13
</TABLE>
6
<PAGE> 8
WALBRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
as of Sept. 30, 1996
---------------------------------------------------------------------------
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 $ 52 $ 11,893 $ 3,282 $ - $ 15,227
Accounts receivable, net 82,170 58,093 521 - 140,784
Inventories 25,206 26,354 2,501 347 54,408
Prepaid expenses and other (83,059) 12,163 91,103 (9,070) 11,137
Deferred and refundable income taxes 561 803 4,064 - 5,428
-----------------------------------------------------------------------
Total current assets 24,930 109,306 101,471 (8,723) 226,984
-----------------------------------------------------------------------
PLANT AND EQUIPMENT, NET 110,696 141,501 7,950 109 260,256
-----------------------------------------------------------------------
OTHER ASSETS:
Funds held for construction 1,102 - - - 1,102
Joint ventures 11,422 17,952 - - 29,374
Investments 122,532 29,063 111,536 (256,984) 6,147
Goodwill, net 14,912 7,063 (87) 10,779 32,667
Notes receivable - - 199,331 (198,595) 736
Deferred income taxes - 278 - - 278
Other 8,403 2,794 6,931 (814) 17,314
-----------------------------------------------------------------------
Total other assets 158,371 57,150 317,711 (445,614) 87,618
-----------------------------------------------------------------------
Total assets $293,997 $307,957 $427,132 $(454,228) $574,858
=======================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 555 $ 20 $ 408 $ - $ 983
Bank and other borrowings - 14,385 - - 14,385
Accounts payable 29,442 55,865 4,260 (13,171) 76,396
Accrued liabilities 11,287 15,807 3,106 (1,564) 28,636
Dividends payable - - 860 - 860
-----------------------------------------------------------------------
Total current liabilities 41,284 86,077 8,634 (14,735) 121,260
-----------------------------------------------------------------------
LONG-TERM LIABILITIES
Long-term debt, less current portion 165,573 92,730 266,768 (229,583) 295,488
Pension obligations - 3,719 9,835 - 13,554
Deferred income taxes - 1,337 1,912 - 3,249
Minority interest - 1,324 - - 1,324
-----------------------------------------------------------------------
Total long-term liabilities 165,573 99,110 278,515 (229,583) 313,615
-----------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock, $.50 par value;
authorized 25,000,000; outstanding
8,601,796 in 1996; 8,579,976 in 1995 - 19,403 4,301 (19,403) 4,301
Paid-in capital - 72,040 64,762 (72,040) 64,762
Retained earnings 86,217 32,011 75,380 (118,228) 75,380
Deferred compensation - - (375) - (375)
Minimum pension liability adjustment - - (63) - (63)
Unrealized gain on securities available for sale - - 828 - 828
Cumulative translation adjustments 923 (684) (4,850) (239) (4,850)
-----------------------------------------------------------------------
Total stockholders' equity 87,140 122,770 139,983 (209,910) 139,983
-----------------------------------------------------------------------
Total liabilities and stockholders' equity $293,997 $307,957 $427,132 $(454,228) $574,858
=======================================================================
</TABLE>
7
<PAGE> 9
WALBRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
as of December 31, 1995
---------------------------------------------------------------------------
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 $ 19,219 $ 498 $ - $ 19,792
Accounts receivable, net 20,598 51,455 49,116 (7,823) 113,346
Inventories 24,416 25,342 965 - 50,723
Prepaid expenses and other 8,519 2,264 678 (495) 10,966
Deferred and refundable income taxes 349 464 4,064 - 4,877
------------------------------------------------------------------------
Total current assets 53,957 98,744 55,321 (8,318) 199,704
------------------------------------------------------------------------
PLANT AND EQUIPMENT, NET 85,437 111,190 9,030 108 205,765
------------------------------------------------------------------------
OTHER ASSETS:
Funds held for construction 1,102 - - - 1,102
Joint ventures 10,181 13,285 - - 23,466
Investments 144,588 295 101,386 (237,045) 9,224
Goodwill, net 15,254 18,045 - - 33,299
Notes receivable - - 189,134 (188,674) 460
Deferred income taxes - 2,805 - - 2,805
Other 8,352 1,987 7,309 - 17,648
------------------------------------------------------------------------
Total other assets 179,477 36,417 297,829 (425,719) 88,004
------------------------------------------------------------------------
Total assets $318,871 $246,351 $362,180 $(433,929) $493,473
========================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 555 $ 123 $ 408 $ - $ 1,086
Bank and other borrowings - 14,921 - - 14,921
Accounts payable 27,113 36,988 2,057 (13,384) 52,774
Accrued liabilities 13,278 15,360 6,029 (315) 34,352
Dividends payable - - 858 - 858
------------------------------------------------------------------------
Total current liabilities 40,946 67,392 9,352 (13,699) 103,991
------------------------------------------------------------------------
LONG-TERM LIABILITIES
Long-term debt, less current portion 204,435 45,387 205,448 (221,881) 233,389
Pension obligations 618 4,455 10,029 - 15,102
Deferred income taxes - 2,003 1,924 - 3,927
Minority interest - 1,637 - - 1,637
------------------------------------------------------------------------
Total long-term liabilities 205,053 53,482 217,401 (221,881) 254,055
------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock, $.50 par value;
authorized 25,000,000; outstanding
8,601,796 in 1996; 8,579,976 in 1995 - 19,392 4,290 (19,392) 4,290
Paid-in capital - 78,633 64,381 (78,633) 64,381
Retained earnings 72,301 23,993 66,256 (96,294) 66,256
Deferred compensation - - (817) - (817)
Minimum pension liability adjustment - - (63) - (63)
Unrealized gain on securities available for sale - - 827 - 827
Cumulative translation adjustments 571 3,459 553 (4,030) 553
------------------------------------------------------------------------
Total stockholders' equity 72,872 125,477 135,427 (198,349) 135,427
------------------------------------------------------------------------
Total liabilities and stockholders' equity $318,871 $246,351 $362,180 $(433,929) $493,473
========================================================================
</TABLE>
8
<PAGE> 10
WALBRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Nine Months Ended Sept. 30, 1996
---------------------------------------------------------------------------
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>
NET SALES $249,705 $212,287 $ 1,454 $(22,945) $440,501
COSTS AND EXPENSES:
Cost of sales 202,308 181,529 1,059 (22,945) 361,951
Selling, administration & other expenses 27,176 18,104 7,567 - 52,847
-----------------------------------------------------------------------
OPERATING INCOME (LOSS) 20,221 12,654 (7,172) - 25,703
OTHER EXPENSE (INCOME):
Interest expense 11,400 4,321 15,735 (15,804) 15,652
Interest income (3,269) (1,362) (12,181) 15,804 (1,008)
Foreign currency exchange loss(gain) (113) 37 208 - 132
Other (7) 107 (260) - (160)
-----------------------------------------------------------------------
Income before provision for income taxes,
minority interest, equity in (income) loss
of joint ventures and subsidiaries 12,210 9,551 (10,674) - 11,087
Provision (credit) for income taxes 3,244 3,559 (3,771) - 3,032
Minority Interest - 320 - - 320
Equity in (income) loss of joint ventures (632) (3,337) - - (3,969)
Equity in (income) of subsidiaries (9,411) (336) (18,607) 28,354 -
-----------------------------------------------------------------------
Net Income $ 19,009 $ 9,345 $ 11,704 $(28,354) $ 11,704
=======================================================================
</TABLE>
9
<PAGE> 11
WALBRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Nine Months Ended Sept. 30, 1995
----------------------------------------------------------------------------
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>
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 22,744 4,575 8,656 - 35,975
------------------------------------------------------------------------
OPERATING INCOME (LOSS) 21,731 6,946 (7,896) - 20,781
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
Other 3 2 - - 5
------------------------------------------------------------------------
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 - - 472
Equity in (income) loss of joint 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
(2) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Nine Months Ended Sept. 30, 1996
---------------------------------------------------------------------------
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>
Net cash provided by (used in) operating activities $38,282 $31,010 $(68,019) $ - $ 1,273
----------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of plant and equipment (24,433) (46,412) 392 - (70,453)
Acquisitions, net of cash acquired - - - - -
Purchase of other assets (2,301) (438) (499) - (3,238)
Investment in joint ventures and other (13,744) 3,719 9,766 - (259)
Proceeds/(payments) of intercompany note rec. - - - - -
Proceeds from disposal of assets - 385 3,148 - 3,533
----------------------------------------------------------------------
Net cash provided by(used in) investing activities (40,478) (42,746) 12,807 - (70,417)
----------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under revolving
line-of-credit agreements 2,173 5,228 61,291 - 68,692
Debt repayments - - - - -
Proceeds from issuance of long-term debt - - - - -
Proceeds from issuance of common stock
and options - - 392 - 392
Financing fees paid - - - - -
Cash dividends paid - - (2,578) - (2,578)
----------------------------------------------------------------------
Net cash provided by(used in) financing activities 2,173 5,228 59,105 - 66,506
----------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH - (818) (1,109) - (1,927)
----------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH (23) (7,326) 2,784 - (4,565)
CASH AT BEGINNING OF YEAR 75 19,219 498 - 19,792
----------------------------------------------------------------------
CASH AT END OF PERIOD $ 52 $11,893 $ 3,282 $ - $15,227
======================================================================
</TABLE>
11
<PAGE> 13
WALBRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Nine Months Ended Sept. 30, 1995
--------------------------------------------------------------------------
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>
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 rec. - - - - -
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
Financing fees paid - - - - -
Cash dividends paid - - (2,569) - (2,569)
------------------------------------------------------------------------
Net cash provided by(used in) financing activities 107,282 (1,844) 63,204 - 168,642
------------------------------------------------------------------------
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
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" operating as Walbro Automotive Europe "WAE"). WAE supplies
plastic fuel tanks to most European vehicle manufacturers through production
facilities in Belgium, France, Germany, Norway, Spain and the United Kingdom.
Dyno's sales, on a pro forma basis, were $210.2 million in 1995. Except as
noted below, the results of operations for the three months and nine months
ended September 30, 1996 include the results of WAE, while the results of
operations for the three months and nine months ended September 30, 1995 only
include the results of WAE after July 27, 1995.
THREE MONTHS ENDED SEPTEMBER 30, 1996 VS. THREE MONTHS ENDED SEPTEMBER 30, 1995
Net sales in the third quarter of 1996 increased 6.4% to $132.5 million
compared to $124.5 million for the same period of 1995. Sales of automotive
products increased 5.9% to $98.6 million for the third quarter of 1996 compared
to $93.1 million for the same period of 1995, primarily because of the
inclusion of Dyno sales in the WAE results for the entire 1996 period. Sales
at WAE were $49.2 million in the third quarter of 1996 compared to $35.2
million for the two months in the third quarter of 1995.
Sales of automotive products excluding WAE declined 14.7% to $49.4 million
in the third quarter of 1996 compared to $57.9 million for the same period of
1995 due to lower sales of fuel pumps and fuel modules to the Company's second
largest customer because of the customer's increased in-house production.
Sales to this customer in the third quarter of 1996 declined $12.4 million to
$10.0 million and this level is expected to continue in the fourth quarter of
1996. These reduced sales were partially offset by increased sales of fuel
modules to the Company's largest customer because of higher production by the
customer, sales of additional applications to that customer and increased
dollar content per vehicle produced by that customer.
Sales of small engine products increased 7.2% to $26.8 million for the
third quarter of 1996 compared to $25.0 million for the same period in 1995.
$1.2 million of the increase was the result of increased sales of ignition
systems (up 56.7%) due to new contracts with existing customers and $0.6
million of the increase was due to increased carburetor sales in China (up
49.9%) because of the continued rapid growth of the sale of two-wheeled vehicles
on which the Company's
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<PAGE> 15
carburetors were used. Sales of carburetors in the U.S. were flat for the
third quarter. Increased sales of float feed carburetors were offset by lower
sales of diaphragm carburetors during the quarter. Sales of diaphragm
carburetors were below normal seasonal levels due to poor weather conditions.
The drought in the Southeast and Southwest U.S. and cold, wet spring conditions
in other areas resulted in reduced demand for handheld power equipment. Sales
of diaphragm carburetors also declined in Japan by 18.5% because of lower
demand and because of the lower yen-dollar exchange rate. The sales in yen for
the third quarter of 1996 decreased by 8.6% and the yen weakened by 9.9%
against the dollar compared to the same period in 1995.
Sales to the aftermarket increased 12.5% to $6.3 million for the third
quarter of 1996 compared to $5.6 million for the same period in 1995. Sales of
aftermarket products were low in the third quarter of 1995 because of a fire in
the aftermarket distribution center.
Cost of sales for the third quarter of 1996 increased 5.4% to $111.1
million compared to $105.4 million for the same period of 1995, while cost of
sales as a percent of net sales improved to 83.8% compared to 84.7% for the
same 1995 period. Cost of sales as a percent of sales at WAE was 89.8% for the
third quarter of 1996 compared to 91.4% for the two months ended September 30,
1995. For automotive products, gross margin increased because of higher sales
volumes of fuel tanks and fuel rails, partially offset by lower fuel pump and
fuel module volumes. In small engine products, gross margin decreased
primarily because of lower diaphragm carburetor volume, partially offset by
higher volume of ignition system products.
Selling and administrative ("S & A") expenses increased 27.1% (increased
12.5% without WAE) for the third quarter of 1996 compared to the third quarter
of 1995. S & A increased as a percent of sales (from 7.0% in the third quarter
of 1995 to 8.4% for the third quarter of 1996) because of start-up costs for
the Company's new plastic fuel tank facility near Sao Paulo, Brazil; its new
carburetor facility in Tianjin, China; and its new diecast facility in Tucson,
Arizona. S & A for WAE includes operations for three months in the third
quarter of 1996 versus two months for the 1995 period.
Research and development ("R & D") expenses increased 34.4% (increased
6.3% without WAE). Most of the increased R & D expenses were incurred by WAE
as increased levels of R & D were required to support new plastic tank programs.
The level of effort expended to develop new products to meet U.S. EPA
regulations for automotive evaporative emissions and for small engine exhaust
emissions has not changed.
Interest expense increased because of borrowings for the WAE acquisition
and increased borrowings for additional working capital required to
14
<PAGE> 16
support sales growth and for capital expenditures. A description of the
borrowings for the WAE acquisition is provided under Liquidity and Capital
Resources.
Provision for income taxes was lower for the third quarter of 1996
compared to the same period in 1995 because of lower taxable income and a
reduced year-to-date effective tax rate resulting from research and development
tax credits. The tax rate is expected to stay at the lower level in the
fourth quarter of 1996.
The equity in income from joint ventures in the third quarter of 1996 was
$1.7 million, $1.2 million higher than the comparable period in 1995. Stronger
European auto market sales and increased sales in South America caused increased
income at Marwal Systems (France) and Marwal Brasil, respectively.
Net income for the third quarter of 1996 was $2.35 million, an increase of
2.6% compared to $2.29 million for the same period last year, as a result of
the reasons described above. Net income per share for the third quarter of
both 1996 and 1995 was $.27.
NINE MONTHS ENDED SEPTEMBER 30, 1996 VS. NINE MONTHS ENDED SEPTEMBER 30, 1995
Net sales for the first nine months of 1996 increased 40.8% to $440.5
million compared to $312.8 million for the same period of 1995. WAE sales for
the first nine months of 1996 were $158.0 compared to $35.2 million for the
same period of 1995 which included sales for only two months during the period.
Net sales for the first nine months of 1996 excluding WAE sales in both
periods increased 1.8%. Sales of automotive products increased 61.0% to
$329.8 million for the 1996 nine month period compared to $204.8 million for
the same 1995 period (1.3% increase excluding WAE sales). The increased
automotive product sales, excluding WAE sales, were primarily the result of
increased sales during the second quarter of 1996, partially offset by lower
sales during the third quarter of 1996 for the reasons stated above.
Sales of small engine products increased 2.7% to $88.7 million for the
first nine months of 1996 compared to $86.4 million for the same period of
1995. The increased small engine product sales were the result of increased
sales of ignition systems products and carburetors in China, mostly offset by
declines in diaphragm carburetors in the U.S. and Japan for the reasons stated
above.
Sales to the aftermarket decreased 4.7% to $18.3 million for the first
nine months of 1996 compared to $19.2 million for the same period of 1995.
Sales of automotive products declined during the first six months of 1996
because of increased in-house production by one of the Company's aftermarket
customers.
15
<PAGE> 17
Cost of sales for the first nine months of 1996 increased 41.4% to $362.0
million compared to $256.0 million for the same period of 1995 (0.5% increase
without WAE). Cost of sales as a percent of net sales was 82.2% (79.6% without
WAE) for the first nine months of 1996 compared to 81.9% for the same period of
1995. The improved gross margin, without WAE, for the first nine months of
1996 was achieved in the second and third quarters for the reasons stated
above.
S & A expenses increased by 52.3% (increased 14.3% without WAE) for the
first nine months of 1996 compared to the same period of 1995. The increase in
S & A expenses for the nine month period was due to the same reasons stated
above for the third quarter of 1996. R & D expenses increased by 29.5%
(decreased 0.2% without WAE) for the first nine months of 1996 compared to the
same period of 1995 for the reasons stated above.
The provision for income taxes was 34.7% lower for the first nine months
of 1996 compared to the same period of 1995 because of lower taxable income and
a lower effective tax rate of 28.2% for the 1996 nine month period compared to
35.1% for the same 1995 period. The lower effective tax rate resulted from
research and development tax credits.
The equity in income from joint ventures was $4.0 million for the first
nine months of 1996 compared to the 1995 income of $2.6 million for the same
period because of the increased sales and improved profitability at Marwal
Systems (France), Marwal Brasil and Mitsuba-Walbro (Japan) during the first
nine months of 1996 which more than offset the start-up costs at Korea
Automotive Fuel Systems.
Net income for the first nine months of 1996 was $11.7 million, an
increase of 4.4% compared to net income of $11.2 million for the same period of
1995. The increase was due to the reasons described above. Net income per
share was $1.35 for the first nine months of 1996 compared to $1.30 for the
first nine months of 1995.
Foreign Currency Transactions
Approximately 51% of the Company's sales during the first nine months of
1996 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 (36% of sales), Japan (4% of sales) and China
(1% of sales) are measured in the local currency of the countries in which they
operate and translated into U.S. dollars. The effects of foreign currency
16
<PAGE> 18
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 (3% 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 (7% of sales) operates as a maquiladora, or contract manufacturer, where
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.
Approximately 46% of the Company's assets at September 30, 1996, 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, Korea and Mexico. 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 certain of its firm transaction commitments in foreign currencies and
to hedge its equity investment in certain foreign joint ventures.
Liquidity and Capital Resources
As of September 30, 1996, the Company had outstanding $15.4 million in
short-term debt, including current portion of long-term debt, and $295.5
million in long-term debt. The approximate minimum principal payments required
on the Company's long-term debt in each of the five fiscal years subsequent to
December 31, 1995 are $1.1 million in 1996, $1.3 million in 1997, $7.9 million
in 1998, $7.6 million in 1999, $64.6 million in 2000 and $152.0 million
thereafter.
The net purchase price of the acquisition of Dyno's Fuel Systems Business
was approximately $114 million (approximately $130 million less approximately
$16 million cash acquired by the Company). The Company financed the
acquisition through the combination of an issuance of $110 million in aggregate
principal amount of its 9 7/8% Senior Notes due 2005 and a new
17
<PAGE> 19
$135 million secured Credit Facility with a group of commercial banks. At
September 30, 1996, the Company had available to it approximately $9 million
under the Credit Facility.
In the first nine months of 1996, net working capital increased by $10.0
million and cash used for investing activities was $70.4 million. Financing
activities provided $66.5 million with the remaining cash generated from
operations. In the first nine months of 1995, net working capital increased by
$3.9 million, net of acquisition, while cash used for investing activities was
$169.8 million. Financing activities provided $168.6 million with the
remaining cash generated from operations.
The Company's plans for 1996 capital expenditures for facilities,
equipment and tooling total approximately $80 million, of which approximately
$70 million has been spent in the first nine months of 1996. The major
projects include new blow molding machines for plastic fuel tanks, expansion of
the Ossian, Indiana plant and new plants in Meriden, Connecticut, Belgium and
Brazil. The Company intends to finance the remaining 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, 1996, accounts receivable amounted to $140.8 million,
an increase of $9.9 million, compared to $130.9 million at September 30, 1995.
The increase was due to longer collection periods due to revised payment terms
with certain customers. The average collection period at September 30, 1996
was 89.2 days compared to the average collection period at September 30, 1995
of 77.8 days.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
The statements contained in this discussion that are not historical facts
are forward-looking statements subject to the safe harbor created by the
Securities Litigation Reform Act of 1995. The Company cautions readers of this
discussion that a number of important factors could cause the Company's actual
consolidated results for 1996 and beyond to differ materially from those
expressed in any forward-looking statements made by, or on behalf of, the
Company. These important factors include, without limitation, changes in
demand for automobiles and light trucks, relationships with significant
customers, price pressures, the timing and structure of future acquisitions or
18
<PAGE> 20
dispositions, the integration of the Dyno acquisition into the Company's
overall business, impact of environmental regulations, continued availability
of adequate funding sources, currency and other risks inherent in international
sales, and general economic and business conditions. These important factors
and other factors which would affect the Company's results are more fully
disclosed in the Company's filings with the Securities and Exchange Commission.
Readers of this discussion are referred to such filings.
19
<PAGE> 21
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibit is filed with this report:
Exhibit No.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter.
20
<PAGE> 22
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 13, 1996 /s/ L. E. Althaver
-------------------------------------
L. E. Althaver, Chairman and
Chief Executive Officer
Dated: November 13, 1996 /s/ Michael A. Shope
-------------------------------------
Michael A. Shope
Chief Financial Officer and Treasurer
21
<PAGE> 23
Exhibit Index
-------------
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 15,227
<SECURITIES> 0
<RECEIVABLES> 140,784
<ALLOWANCES> 0
<INVENTORY> 54,408
<CURRENT-ASSETS> 226,984
<PP&E> 336,300
<DEPRECIATION> 76,044
<TOTAL-ASSETS> 574,858
<CURRENT-LIABILITIES> 121,260
<BONDS> 295,489
0
0
<COMMON> 4,301
<OTHER-SE> 135,682
<TOTAL-LIABILITY-AND-EQUITY> 574,858
<SALES> 440,501
<TOTAL-REVENUES> 440,501
<CGS> 361,951
<TOTAL-COSTS> 361,951
<OTHER-EXPENSES> 52,819
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,644
<INCOME-PRETAX> 11,087
<INCOME-TAX> 3,032
<INCOME-CONTINUING> 11,704
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,704
<EPS-PRIMARY> 1.35
<EPS-DILUTED> 1.35
</TABLE>
