<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, 1997
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, 1997
Common Stock (one class): 8,664,420
<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, 1996.
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>
9/30/97 12/31/96
------- --------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
CASH $ 12,723 $ 18,213
ACCOUNTS RECEIVABLE (NET) 158,545 126,509
INVENTORIES 59,402 50,588
OTHER CURRENT ASSETS 16,050 16,206
---------- ---------
TOTAL CURRENT ASSETS 246,720 211,516
PROPERTY, PLANT & EQUIPMENT:
LAND, BUILDINGS & IMPROVEMENTS 101,036 74,931
MACHINERY & EQUIPMENT 293,127 285,376
---------- ---------
SUBTOTAL 394,163 360,307
LESS: ACCUMULATED DEPRECIATION (103,790) (80,420)
---------- ---------
NET PROPERTY, PLANT & EQUIPMENT 290,373 279,887
OTHER ASSETS:
GOODWILL (NET) 34,661 35,998
JOINT VENTURES, INVESTMENTS & OTHER 67,124 62,248
---------- ---------
TOTAL OTHER ASSETS 101,78 98,246
---------- ---------
TOTAL ASSETS $ 638,878 $ 589,649
========== ==========
The accompanying notes are an integral part of these consolidated balance sheets.
</TABLE>
2
<PAGE> 4
WALBRO CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
9/30/97 12/31/96
------- --------
<S> <C> <C>
LIABILITIES (Unaudited)
CURRENT LIABILITIES:
CURRENT PORTION LONG-TERM DEBT $ 1,020 $ 1,089
NOTES PAYABLE-BANKS 24,513 22,072
ACCOUNTS PAYABLE 88,493 77,939
ACCRUED LIABILITIES 46,098 42,141
---------- ----------
TOTAL CURRENT LIABILITIES 160,124 143,241
LONG-TERM LIABILITIES:
LONG-TERM DEBT, NET OF CURRENT 277,249 291,723
OTHER LONG-TERM LIABILITIES 15,559 16,952
---------- ----------
TOTAL LONG-TERM LIABILITIES 292,808 308,675
COMPANY-OBLIGATED MANDATORILY REDEEMABLE CON-
VERTIBLE PREFERRED SECURITIES OF WALBRO CAPITAL
TRUST HOLDING SOLELY CONVERTIBLE DEBENTURES 69,000 -
STOCKHOLDERS' EQUITY
COMMON STOCK, $.50 PAR VALUE; 4,332 4,326
AUTHORIZED 25,000,000;
OUTSTANDING 8,664,420 IN 1997 AND
8,652,737 IN 1996
PAID-IN CAPITAL 65,844 65,674
RETAINED EARNINGS 73,801 74,039
OTHER STOCKHOLDERS' EQUITY (27,031) (6,306)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 116,946 137,733
---------- ----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 638,878 $ 589,649
========== ==========
The accompanying notes are an integral part of these consolidated balance sheets.
</TABLE>
3
<PAGE> 5
WALBRO CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
09/30/97 09/30/96 09/30/97 09/30/96
-------- -------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET SALES $ 146,523 $ 132,545 $ 454,384 $ 440,501
COST OF SALES & EXPENSES:
COST OF SALES 125,911 111,116 387,169 361,951
SELLING AND ADMINISTRATIVE EXPENSES 12,151 11,078 37,310 39,415
RESEARCH & DEVELOPMENT EXPENSES 4,727 4,986 11,951 13,432
---------- ---------- ---------- ----------
OPERATING INCOME 3,734 5,365 17,954 25,703
OTHER EXPENSE (INCOME):
INTEREST EXPENSE 6,029 5,059 17,672 15,652
INTEREST INCOME (337) (384) (652) (1,008)
OTHER (INCOME) EXPENSE (343) (45) (2,396) (28)
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES,
MINORITY INTEREST, AND JOINT VENTURES (1,615) 735 3,330 11,087
PROVISION FOR INCOME TAXES (1,019) 23 474 3,032
MINORITY INTEREST 1,318 110 3,715 320
EQUITY IN (INCOME) OF JOINT VENTURES (728) (1,744) (3,219) (3,969)
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ (1,186)$ 2,346 $ 2,360 $ 11,704
========== ========== ========== ==========
NET INCOME (LOSS) PER SHARE ($0.14) $0.27 $0.27 $1.35
AVERAGE SHARES OUTSTANDING 8,721,761 8,645,041 8,684,595 8,642,598
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
4
<PAGE> 6
WALBRO CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(In thousands) NINE MONTHS ENDED
09/30/97 09/30/96
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES: (Unaudited)
<S> <C> <C>
NET INCOME $ 2,360 $ 11,704
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
DEPRECIATION & AMORTIZATION 25,741 20,201
(GAIN) LOSS ON DISPOSITION OF ASSETS 1,802 (94)
MINORITY INTEREST 148 (234)
(INCOME) OF JOINT VENTURES (3,219) (3,969)
CHANGES IN ASSETS AND LIABILITIES:
DEFERRED INCOME TAXES 141 175
PENSION OBLIGATIONS & OTHER (1,829) (1,498)
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 21,692 14,027
ACCOUNTS RECEIVABLE, NET (30,831) (28,597)
INVENTORIES (11,651) (4,548)
PREPAID EXPENSES AND OTHER (1,476) (5,894)
---------- ---------
TOTAL ADJUSTMENTS 518 (10,431)
---------- ---------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 2,878 1,273
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASE OF FIXED ASSETS (54,383) (70,453)
PURCHASE OF OTHER ASSETS (1,364) (2,789)
INVESTMENT IN JOINT VENTURES & OTHER (2,450) (259)
PROCEEDS FROM DISPOSAL OF ASSETS 6,221 3,533
---------- ---------
NET CASH USED IN INVESTING ACTIVITIES (51,976) (69,968)
CASH FLOWS FROM FINANCING ACTIVITIES:
BORROWINGS UNDER LINES-OF-CREDIT 124,686 192,410
REPAYMENTS UNDER LINES-OF-CREDIT (138,462) (122,898)
DEBT REPAYMENTS (936) (820)
PROCEEDS FROM ISSUANCE OF STOCK
& OPTIONS 69,176 392
FINANCING FEES PAID (3,491) (449)
CASH DIVIDENDS PAID (2,596) (2,578)
---------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 48,377 66,057
EFFECT OF EXCHANGE RATE CHANGES ON CASH (4,769) (1,927)
---------- ---------
NET INCREASE (DECREASE) IN CASH (5,490) (4,565)
CASH BEGINNING BALANCE 18,213 19,792
---------- ---------
CASH ENDING BALANCE $ 12,723 $ 15,227
========== =========
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
5
<PAGE> 7
WALBRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) PREFERRED SECURITIES OFFERING
In February 1997, the Company completed an offering of 2,760,000 shares,
or $69 million of Convertible Preferred Securities of Walbro Capital Trust, a
wholly-owned subsidiary of the Company, at a face value of $25 per share and an
interest rate of 8% per annum. The preferred securities are convertible into
common stock of the Company at the option of the security holder anytime after
April 4, 1997. Each share of preferred stock will yield 1.1737 shares of
common stock of the Company upon conversion. Net proceeds of the offering were
approximately $66 million and were used to repay a portion of the Company's
credit facility.
(2) EARNINGS PER SHARE
During 1997, the Financial Accounting Standards Board "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share", which changes the calculation of earnings per share to be more
consistent with countries outside of the United States. In general, the
statement requires two calculations of earnings per share to be disclosed,
basic EPS and diluted EPS. Basic EPS is to be computed using only weighted
average shares outstanding. Diluted EPS is to be computed using the average
share price for the period when calculating the dilution of options and
warrants. This statement must be adopted by the Company in its December 31,
1997 consolidated financial statements and early adoption is not permitted. If
this statement had been adopted for the periods presented, the net income and
per share amounts would have been as follows:
Three Months Ended Nine Months Ended
------------------ -----------------
(unaudited; in thousands, except per share data)
9/30/97 9/30/96 9/30/97 9/30/96
-------- ------- ------- -------
Net income $(1,186) $2,346 $2,360 $11,704
Basic income (loss) per share $(0.14) $0.27 $0.27 $1.35
Diluted income (loss) per share $(0.14) $0.27 $0.27 $1.35
6
<PAGE> 8
(3) INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market. Inventories include raw material and component parts, work-in-process
and finished products. Work-in-process and finished products inventories
include material, labor and manufacturing overhead costs.
Inventories are comprised of the following:
September 30, December 31,
1997 1996
---- ----
(in thousands)
Raw materials and components $32,280 $23,964
Work-in-process 9,201 10,620
Finished products 17,921 16,004
------- -------
Total $59,402 $50,588
======= =======
(4) ACCOUNTING POLICIES FOR FINANCIAL INSTRUMENTS
In order to manage exposure to fluctuations in foreign currency exchange rates,
the Company regularly enters into forward currency exchange contracts. Gains
or losses on contracts that hedge specific foreign currency commitments are
deferred and recognized in net income in the period in which the related
transaction is consummated. A foreign currency commitment qualifies for hedge
accounting treatment when the related transaction is firm in nature and
non-cancelable by the Company. Gains or losses on contracts that hedge net
investments in foreign joint ventures or subsidiaries are recognized as
cumulative translation adjustments in stockholders' equity. Gains or losses on
forward currency exchange contracts that do not qualify as hedges are
recognized as other income or expense in the current period.
As of September 30, 1997, there were no contracts outstanding. For the three
months ended September 30, 1997, the Company had no forward currency exchange
contracts.
7
<PAGE> 9
WALBRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
as of September 30, 1997
-----------------------------------------------------------------------
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 $ (709) $ 12,609 $ 823 $ - $ 12,723
Accounts receivable, net 84,363 73,455 727 - 158,545
Accounts receivable, intercompany (120,068) (26,394) 146,348 114 -
Inventories 28,308 28,757 2,337 - 59,402
Prepaid expenses and other 3,823 5,427 961 - 10,211
Deferred and refundable income taxes 694 1,699 3,446 - 5,839
---------------------------------------------------------------------
Total current assets (3,589) 95,553 154,642 114 246,720
---------------------------------------------------------------------
PLANT AND EQUIPMENT, NET 134,118 148,843 7,304 108 290,373
---------------------------------------------------------------------
OTHER ASSETS:
Funds held for construction - - - - -
Joint ventures 13,233 16,875 - - 30,108
Investments 119,815 24,690 92,397 (231,330) 5,572
Goodwill, net 22,997 11,869 (205) - 34,661
Notes receivable 1,116 75,446 197,384 (270,672) 3,274
Deferred income taxes - 1,545 4,871 - 6,416
Other 9,230 2,868 9,656 - 21,754
---------------------------------------------------------------------
Total other assets 166,391 133,293 304,103 (502,002) 101,785
---------------------------------------------------------------------
Total assets $296,920 $377,689 $466,049 $(501,780) $638,878
=====================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 597 $ 14 $ 409 $ - $ 1,020
Bank and other borrowings - 27,972 - (3,459) 24,513
Accounts payable 29,201 46,712 12,580 - 88,493
Accrued liabilities 18,906 27,473 6,974 (9,042) 44,311
Dividends payable - 920 867 - 1,787
---------------------------------------------------------------------
Total current liabilities 48,704 103,091 20,830 (12,501) 160,124
---------------------------------------------------------------------
LONG-TERM LIABILITIES
Long-term debt, less current portion 171,160 78,291 318,898 (291,100) 277,249
Pension obligations - 1,998 6,166 - 8,164
Deferred income taxes - 2,941 3,209 - 6,150
Minority interest - 1,245 - - 1,245
---------------------------------------------------------------------
Total long-term liabilities 171,160 84,475 328,273 (291,100) 292,808
---------------------------------------------------------------------
REDEEMABLE PREFERRED STOCK - 69,000 - - 69,000
STOCKHOLDERS' EQUITY
Common stock, $.50 par value;
authorized 25,000,000; outstanding
8,664,420 in 1997; 8,652,737 in 1996 - 22,036 4,332 (22,036) 4,332
Paid-in capital - 70,440 65,844 (70,440) 65,844
Retained earnings 77,308 45,435 73,801 (122,743) 73,801
Deferred compensation - - (425) - (425)
Minimum pension liability adjustment - - - - -
Unrealized gain on securities available for sale - - 202 - 202
Cumulative translation adjustments (252) (16,788) (26,808) 17,040 (26,808)
---------------------------------------------------------------------
Total stockholders' equity 77,056 121,123 116,946 (198,179) 116,946
---------------------------------------------------------------------
Total liabilities and stockholders' equity $296,920 $377,689 $466,049 $(501,780) $638,878
=====================================================================
</TABLE>
8
<PAGE> 10
WALBRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
as of December 31, 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 $ 299 $ 17,779 $ 135 $ - $ 18,213
Accounts receivable, net 67,944 57,823 742 - 126,509
Accounts receivable, intercompany (81,610) 115 101,752 (20,257) -
Inventories 25,219 22,884 2,485 - 50,588
Prepaid expenses and other 4,464 5,851 920 - 11,235
Deferred and refundable income taxes 509 1,016 3,446 - 4,971
---------------------------------------------------------------------
Total current assets 16,825 105,468 109,480 (20,257) 211,516
---------------------------------------------------------------------
PLANT AND EQUIPMENT, NET 121,084 150,699 7,995 109 279,887
---------------------------------------------------------------------
OTHER ASSETS:
Funds held for construction 1,140 - - - 1,140
Joint ventures 10,629 18,326 - - 28,955
Investments 118,673 24,723 104,084 (241,753) 5,727
Goodwill, net 23,238 12,877 (117) - 35,998
Notes receivable 1,074 - 204,884 (204,690) 1,268
Deferred income taxes - 543 4,871 - 5,414
Other 8,890 2,926 7,928 - 19,744
---------------------------------------------------------------------
Total other assets 163,644 59,395 321,650 (446,443) 98,246
---------------------------------------------------------------------
Total assets $301,553 $315,562 $439,125 $(466,591) $589,649
=====================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 598 $ 82 $ 409 $ - $ 1,089
Bank and other borrowings - 22,072 - - 22,072
Accounts payable 34,690 61,068 8,981 (26,800) 77,939
Accrued liabilities 17,046 16,498 10,633 (2,901) 41,276
Dividends payable - - 865 - 865
---------------------------------------------------------------------
Total current liabilities 52,334 99,720 20,888 (29,701) 143,241
---------------------------------------------------------------------
LONG-TERM LIABILITIES
Long-term debt, less current portion 171,675 83,820 269,141 (232,913) 291,723
Pension obligations - 2,826 7,892 - 10,718
Deferred income taxes - 1,443 3,471 - 4,914
Minority interest - 1,320 - - 1,320
---------------------------------------------------------------------
Total long-term liabilities 171,675 89,409 280,504 (232,913) 308,675
---------------------------------------------------------------------
REDEEMABLE PREFERRED STOCK - - - - -
STOCKHOLDERS' EQUITY
Common stock, $.50 par value;
authorized 25,000,000; outstanding
8,664,420 in 1997; 8,652,737 in 1996 - 19,853 4,326 (19,853) 4,326
Paid-in capital - 74,637 65,674 (74,637) 65,674
Retained earnings 77,524 33,569 74,039 (111,093) 74,039
Deferred compensation - - (967) - (967)
Minimum pension liability adjustment - - - - -
Unrealized gain on securities available for sale - - 688 - 688
Cumulative translation adjustments 20 (1,626) (6,027) 1,606 (6,027)
---------------------------------------------------------------------
Total stockholders' equity 77,544 126,433 137,733 (203,977) 137,733
---------------------------------------------------------------------
Total liabilities and stockholders' equity $301,553 $315,562 $439,125 $(466,591) $589,649
=====================================================================
</TABLE>
9
<PAGE> 11
WALBRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1997
-----------------------------------------------------------------------
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 $232,577 $238,899 $ 1,594 $(18,686) $454,384
COSTS AND EXPENSES:
Cost of sales 198,273 206,124 1,458 (18,686) 387,169
Selling, administration & other expenses 24,930 16,535 7,796 - 49,261
---------------------------------------------------------------------
OPERATING INCOME (LOSS) 9,374 16,240 (7,660) - 17,954
OTHER EXPENSE (INCOME):
Interest expense 12,512 5,916 20,108 (20,864) 17,672
Interest income (3,762) (4,493) (13,261) 20,864 (652)
Foreign currency exchange loss(gain) (40) 337 26 - 323
Other (3,193) 461 13 - (2,719)
---------------------------------------------------------------------
Income before provision for income taxes,
minority interest, equity in (income) loss
of joint ventures and subsidiaries 3,857 14,019 (14,546) - 3,330
Provision (credit) for income taxes 1,373 5,025 (5,924) - 474
Minority Interest 279 3,436 - - 3,715
Equity in (income) loss of joint ventures (1,084) (2,135) - - (3,219)
Equity in (income) of subsidiaries (8,097) - (10,982) 19,079 -
---------------------------------------------------------------------
Net Income $ 11,386 $ 7,693 $ 2,360 $(19,079) $ 2,360
=====================================================================
</TABLE>
10
<PAGE> 12
WALBRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Nine Months Ended September 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 28,349 17,618 7,567 - 53,534
---------------------------------------------------------------------
OPERATING INCOME (LOSS) 19,048 13,140 (7,172) - 25,016
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 (1,180) 593 (260) - (847)
---------------------------------------------------------------------
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>
11
<PAGE> 13
WALBRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1997
-----------------------------------------------------------------------
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 $ 34,727 $ 20,971 $(52,820) $ - $ 2,878
---------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of plant and equipment (27,638) (26,522) (223) - (54,383)
Acquisitions, net of cash acquired - - - - -
Purchase of other assets (545) (762) (57) - (1,364)
Investment in joint ventures and other (14,656) 4,109 8,097 - (2,450)
Proceeds/(payments) of intercompany note rec. 0 0 - - 0
Proceeds from disposal of assets 7,619 (2,862) 1,464 - 6,221
---------------------------------------------------------------------
Net cash provided by (used in) investing activities (35,220) (26,037) 9,281 - (51,976)
---------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under revolving
line-of-credit agreements 4,678 (18,454) - (13,776)
Debt repayments (515) (13) (408) - (936)
Proceeds from issuance of long-term debt - (69,000) 69,000 - -
Proceeds from issuance of stock
and options - 69,000 176 - 69,176
Financing fees paid - - (3,491) - (3,491)
Cash dividends paid - - (2,596) - (2,596)
---------------------------------------------------------------------
Net cash provided by (used in) financing activities (515) 4,665 44,227 - 48,377
---------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH - (4,769) - - (4,769)
---------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH (1,008) (5,170) 688 - (5,490)
CASH AT BEGINNING OF YEAR 299 17,779 135 - 18,213
---------------------------------------------------------------------
CASH AT END OF PERIOD $ (709) $12,609 $ 823 $ - $ 12,723
=====================================================================
</TABLE>
12
<PAGE> 14
WALBRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Nine Months Ended September 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) (50) - (2,789)
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) 13,256 - (69,968)
---------------------------------------------------------------------
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 stock
and options - - 392 - 392
Financing fees paid - - (449) - (449)
Cash dividends paid - - (2,578) - (2,578)
---------------------------------------------------------------------
Net cash provided by (used in) financing activities 2,173 5,228 58,656 - 66,057
---------------------------------------------------------------------
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>
13
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 VS. THREE MONTHS ENDED SEPTEMBER 30, 1996
Net sales in the third quarter of 1997 increased 10.6% to $146.5 million
compared to $132.5 million for the same period of 1996. Net sales of
automotive products increased 7.7% to $106.2 million for the third quarter of
1997 compared to $98.6 million for the same period of 1996, primarily because
of the launch of new plastic fuel tank programs in the U.S. partially offset by
lower sales in Europe. Net sales in Europe were $41.9 million in the third
quarter of 1997 compared to $49.2 million in the third quarter of 1996 with the
decline entirely due to foreign currency translation into a strong U.S. dollar
as net sales in local currency increased by approximately 6.0% in the quarter.
Net sales of small engine products increased 18.3% to $31.7 million for
the third quarter of 1997 compared to $26.8 million for the same period in
1996. Sales of all small engine products increased during the quarter except
for two-wheeled vehicle carburetors in the People's Republic of China as
customers reduced production levels to control their inventory levels starting
in June 1997 and continued throughout the third quarter. In the U.S. market,
customers increased production levels compared the third quarter of 1996.
Customer demand was down during the second half of 1996 and the first half of
1997 due to excess customer inventories left over from the weak spring 1996
selling season for lawn and garden equipment due to poor weather conditions.
Net sales to the aftermarket increased 11.1% to $7.0 million for the third
quarter of 1997 compared to $6.3 million for the same period in 1996. Sales of
aftermarket products increased in the third quarter of 1997 because of stronger
demand for automotive aftermarket products and the Company's efforts to expand
its customer base and product lines.
Cost of sales for the third quarter of 1997 increased 13.3% to $125.9
million compared to $111.1 million for the same period of 1996, while cost of
sales as a percent of net sales increased to 85.9% compared to 83.8% for the
same 1996 period. Cost of sales as a percent of sales in Europe was 86.3% for
the third quarter of 1997 compared to 89.8% for the third quarter of 1996
because of increased sales volume and the initial results from cost reduction
programs. For U.S. automotive products, gross margin declined to 13.3%
compared to 21.5% for the third quarter of 1996 because of high launch costs
for four new plastic fuel tank system programs some of which have lower margins
because of the higher level of purchased components. In addition, as a result
of lower passenger car sales during the quarter, lower fuel module volumes
contributed to lower gross margin.
14
<PAGE> 16
In small engine products, gross margin decreased to 14.0% for the quarter
compared to 14.9% for the same period in 1996 primarily because of lower
carburetor volume in the People's Republic of China and start-up costs from the
new replacement plant in Mexico, partially offset by higher volume of all other
small engine products.
Selling and administrative ("S & A") expenses increased 9.7% for the
third quarter of 1997 compared to 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, People's Republic of China; and
its new plastic fuel tank facility in Meriden, Connecticut. S & A decreased as
a percent of sales from 8.4% in the third quarter of 1996 to 8.3% third
quarter of 1997.
Research and development ("R & D") expenses decreased 5.2% for the third
quarter of 1997 compared to the same period in 1996. Most of the decreased R &
D expenses resulted from a temporary shift of R & D resources to support
production start-up of 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.
Other income was $0.3 million for the third quarter of 1997 compared to a
negligible amount for the third quarter of 1996. The additional income was due
to higher royalty income from the Company's joint ventures.
Interest expense increased because of increased borrowings for additional
working capital required to support sales growth and for capital expenditures.
A description of the borrowings is provided under Liquidity and Capital
Resources.
Provision for income taxes was negative for the third quarter of 1997
because of the negative taxable income. The tax rate is expected to stay at
approximately 35% for all of 1997.
The equity in income from joint ventures in the third quarter of 1997 was
$0.7 million, $1.0 million lower than the comparable period in 1996. Weaker
French auto sales and increased royalty expenses resulted in lower earnings at
Marwal Systems (France). Higher earnings from Marwal Brazil were offset by
start-up costs from Marwal Argentina and Korea Automotive Fuel Systems.
Net loss for the third quarter of 1997 was $1.2 million compared to net
income of $2.4 million for the same period last year, as a result of the
reasons described above. Net loss per share for the third quarter of 1997 was
$0.14 compared to net income per share of $0.27 for the third quarter of 1996.
NINE MONTHS ENDED SEPTEMBER 30, 1997 VS. NINE MONTHS ENDED SEPTEMBER 30, 1996
15
<PAGE> 17
Net sales for the first nine months of 1997 increased 3.2% to $454.4
million compared to $440.5 million for the same period of 1996. Almost all of
the increased net sales for the first nine months of 1997 compared to the same
period of 1996 occurred during the third quarter of 1997 for the reasons stated
above. Net sales of automotive products increased 0.5% to $331.6 million for
the first nine months of 1997 compared to $329.8 million for the same period of
1996. Net sales in Europe declined 5.1% to $149.9 million in 1997 compared to
$158.0 million for the first nine months of 1996, with the decline principally
due to foreign currency translations into a strong U.S. dollar.
Net sales of small engine products increased 8.1% to $95.9 million for the
first nine months of 1997 compared to $88.7 million for the same period of
1996. The increased net sales resulted from higher volume of ignition system
sales during the entire period and higher carburetor sales during the third
quarter. Net sales to the aftermarket increased 19.7% to $21.9 million for the
first nine months of 1997 compared to $18.3 million for the same period of 1996
for the reasons stated above.
Cost of sales for the first nine months of 1997 increased 7.0% to $387.2
million compared to $362.0 million for the same period of 1996. Cost of sales
as a percent of net sales was 85.2% for the first nine months of 1997 compared
to 82.2% for the same period of 1996. The lower gross margin for the first
nine months of 1997 resulted from the following: lower automotive product sales
related to in-sourcing by a major U.S. customer during the first six months of
1997 and the Chrysler strike during the second quarter of 1997, launch costs
for four new plastic fuel tank programs during the first nine months of 1997,
start-up costs for the new carburetor plant in the People's Republic of China
during the first nine months of 1997 and for the reasons as stated above.
S & A expenses decreased by 4.2% for the first nine months of 1997
compared to the same period of 1996. The decrease in S & A expenses for the
nine month period was due to cost reduction programs implemented in 1997. S &
A as a percent of net sales was 8.2% in the 1997 period as compared to 8.9%
during the 1996 period.
R & D expenses decreased by 11.0% for the first nine months of 1997
compared to the same period of 1996 for the reasons as stated above.
Other income was $2.4 million for the first nine months of 1997 compared
to a small amount of income for the same period of 1996. The increased income
was due to higher royalty income from the Company's joint ventures.
Net interest expense was $17.0 million for the first nine months of 1997
as compared to $14.6 million for the 1996 period. Interest expense increased
because of increased borrowings required to support sales growth and capital
expenditures.
The provision for income taxes was 84.4% lower for the first nine months
of 1997 compared to the same period of 1996 because of lower taxable income.
16
<PAGE> 18
The equity in income from joint ventures was $3.2 million for the first
nine months of 1997 compared to the 1996 income of $4.0 million for the same
period. All of the decrease occurred in the third quarter of 1997 for the
reasons as stated above.
Net income for the first nine months of 1997 was $2.4 million, a decrease
of 79.4% compared to net income of $11.7 million for the same period of 1996.
The decrease was due to the reasons described above. Net income per share was
$0.27 for the first nine months of 1997 compared to $1.35 for the first nine
months of 1996.
Foreign Currency Transactions
Approximately 51% of the Company's sales during the first nine months of
1997 were derived from international manufacturing operations in Europe, Asia,
South America and Mexico. The financial position and the results of operations
of the Company's subsidiaries in Europe (33% of sales), Japan (5% of sales),
South America (2% of sales) and People's Republic of 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 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 (2% 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
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 51% of the Company's assets at September 30, 1997, 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 Argentina, Brazil,
France, 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
17
<PAGE> 19
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, 1997, the Company had outstanding $25.5 million in
short-term debt, including current portion of long-term debt, and $277.2
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, 1996 are $1.1 million in 1997, $7.7 million in 1998, $7.4 million
in 1999, $121.6 million in 2000, $7.6 million in 2001 and $147.5 million
thereafter.
At September 30, 1997, the Company had available to it approximately $13
million under its $135 million credit facility with a group of commercial
banks. In February 1997, the Company completed an offering of 2,760,000 shares
or $69 million of Convertible Preferred Securities of Walbro Capital Trust.
The net proceeds were used to pay down borrowings on the credit facility.
The Company's plans for 1997 capital expenditures for facilities,
equipment and tooling total approximately $60 million of which $54.4 million
had been spent by September 30, 1997. The Company intends to finance the
capital expenditures with the 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, 1997, accounts receivable amounted to $158.5 million,
an increase of $17.7 million, compared to $140.8 million at September 30, 1996.
The increase was due to longer collection periods due to revised payment terms
with certain customers. The average collection period at September 30, 1997
was 92.2 days compared to the average collection period at September 30, 1996
of 89.2 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 1997 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
dispositions, impact of environmental regulations, continued availability
18
<PAGE> 20
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, 1997 /s/ L. E. Althaver
----------------------------
L. E. Althaver, Chairman and
Chief Executive Officer
Dated: November 13, 1997 /s/ Michael A. Shope
----------------------------
Michael A. Shope
Chief Financial Officer and Treasurer
<PAGE> 23
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
EXHIBIT 27.1 FINANCIAL DATA
SCHEDULE
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 12,723
<SECURITIES> 0
<RECEIVABLES> 158,545
<ALLOWANCES> 0
<INVENTORY> 59,402
<CURRENT-ASSETS> 246,720
<PP&E> 394,163
<DEPRECIATION> 103,790
<TOTAL-ASSETS> 638,878
<CURRENT-LIABILITIES> 160,124
<BONDS> 277,249
69,000
0
<COMMON> 4,332
<OTHER-SE> 112,614
<TOTAL-LIABILITY-AND-EQUITY> 638,878
<SALES> 454,384
<TOTAL-REVENUES> 454,384
<CGS> 387,169
<TOTAL-COSTS> 436,430
<OTHER-EXPENSES> (2,396)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,020
<INCOME-PRETAX> 3,330
<INCOME-TAX> 474
<INCOME-CONTINUING> 2,360
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,360
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
</TABLE>
