<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 June 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 August 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>
6/30/97 12/31/96
------- --------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
CASH $ 17,308 $ 18,213
ACCOUNTS RECEIVABLE (NET) 146,843 126,509
INVENTORIES 49,558 50,588
OTHER CURRENT ASSETS 16,747 16,206
-------- --------
TOTAL CURRENT ASSETS 230,456 211,516
PROPERTY, PLANT & EQUIPMENT:
LAND, BUILDINGS & IMPROVEMENTS 90,012 74,931
MACHINERY & EQUIPMENT 290,281 285,376
-------- --------
SUBTOTAL 380,293 360,307
LESS: ACCUMULATED DEPRECIATION (92,978) (80,420)
-------- --------
NET PROPERTY, PLANT & EQUIPMENT 287,315 279,887
OTHER ASSETS:
GOODWILL (NET) 35,096 35,998
JOINT VENTURES, INVESTMENTS & OTHER 66,728 62,248
-------- --------
TOTAL OTHER ASSETS 101,824 98,246
-------- --------
TOTAL ASSETS $619,595 $589,649
======== ========
</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>
6/30/97 12/31/96
------- --------
(Unaudited)
<S> <C> <C>
LIABILITIES
CURRENT LIABILITIES:
CURRENT PORTION LONG-TERM DEBT $ 1,048 $ 1,089
NOTES PAYABLE-BANKS 24,921 22,072
ACCOUNTS PAYABLE 75,425 77,939
ACCRUED LIABILITIES 42,270 42,141
-------- --------
TOTAL CURRENT LIABILITIES 143,664 143,241
LONG-TERM LIABILITIES:
LONG-TERM DEBT, NET OF CURRENT 266,136 291,723
OTHER LONG-TERM LIABILITIES 17,431 16,952
-------- --------
TOTAL LONG-TERM LIABILITIES 283,567 308,675
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; 4,331 4,326
AUTHORIZED 25,000,000;
OUTSTANDING 8,662,381 IN 1997 AND
8,652,737 IN 1996
PAID-IN CAPITAL 65,806 65,674
RETAINED EARNINGS 75,853 74,039
OTHER STOCKHOLDERS' EQUITY (22,626) (6,306)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 123,364 137,733
-------- --------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $619,595 $589,649
======== ========
</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 SIX MONTHS ENDED
06/30/97 06/30/96 06/30/97 06/30/96
-------- -------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET SALES $ 153,841 $ 155,086 $ 307,861 $ 308,052
COST OF SALES & EXPENSES:
COST OF SALES 131,436 126,752 261,258 250,931
SELLING AND ADMINISTRATIVE EXPENSES 12,791 14,478 25,159 28,639
RESEARCH & DEVELOPMENT EXPENSES 3,874 3,489 7,224 8,447
---------- ---------- ---------- ----------
OPERATING INCOME 5,740 10,367 14,220 20,035
OTHER EXPENSE (INCOME):
INTEREST EXPENSE 5,868 5,538 11,643 10,593
INTEREST INCOME (184) (456) (315) (624)
OTHER (INCOME) EXPENSE (964) (280) (2,053) (286)
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES, MINORITY
INTEREST, AND JOINT VENTURES 1,020 5,565 4,945 10,352
PROVISION FOR INCOME TAXES 113 1,723 1,493 3,009
MINORITY INTEREST 1,413 112 2,397 210
EQUITY IN (INCOME) OF JOINT VENTURES (1,690) (1,094) (2,491) (2,225)
---------- ---------- ---------- ----------
NET INCOME $ 1,184 $ 4,824 $ 3,546 $ 9,358
========== ========== ========== ==========
NET INCOME PER SHARE $0.14 $0.56 $0.41 $1.08
AVERAGE SHARES OUTSTANDING 8,669,264 8,658,608 8,665,882 8,645,755
</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>
SIX MONTHS ENDED
06/30/97 06/30/96
-------- --------
(Unaudited)
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 3,546 $ 9,358
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
DEPRECIATION & AMORTIZATION 16,645 13,878
(GAIN) LOSS ON DISPOSITION OF ASSETS 1,854 (194)
MINORITY INTEREST 128 (334)
(INCOME) OF JOINT VENTURES (2,491) (2,225)
CHANGES IN ASSETS AND LIABILITIES:
DEFERRED INCOME TAXES (655) 494
PENSION OBLIGATIONS & OTHER (497) 327
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (11,366) 8,783
ACCOUNTS RECEIVABLE, NET (11,688) (14,644)
INVENTORIES (424) 1,785
PREPAID EXPENSES AND OTHER (996) (209)
-------- --------
TOTAL ADJUSTMENTS (9,490) 7,661
-------- --------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (5,944) 17,019
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASE OF FIXED ASSETS (35,842) (52,227)
PURCHASE OF OTHER ASSETS (743) (957)
INVESTMENT IN JOINT VENTURES & OTHER 144 (259)
PROCEEDS FROM DISPOSAL OF ASSETS 1,072 3,148
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (35,369) (50,295)
CASH FLOWS FROM FINANCING ACTIVITIES:
BORROWINGS UNDER LINES-OF-CREDIT 81,674 133,648
REPAYMENTS UNDER LINES-OF-CREDIT (101,462) (89,198)
DEBT REPAYMENTS (340) (1,347)
PROCEEDS FROM ISSUANCE OF STOCK
& OPTIONS 69,137 392
FINANCING FEES PAID (3,320) (423)
CASH DIVIDENDS PAID (1,731) (1,718)
-------- --------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 43,958 41,354
EFFECT OF EXCHANGE RATE CHANGES ON CASH (3,550) (1,703)
-------- --------
NET INCREASE (DECREASE) IN CASH (905) 6,375
CASH BEGINNING BALANCE 18,213 19,792
-------- --------
CASH ENDING BALANCE $ 17,308 $ 26,167
======== ========
</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) 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:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
(unaudited; in thousands, except per share data)
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $1,184 $4,824 $3,546 $9,358
Basic net income per share $0.14 $0.56 $0.41 $1.08
Diluted net income per share $0.14 $0.56 $0.41 $1.08
</TABLE>
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:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Raw materials and components $26,362 $23,964
Work-in-process 10,075 10,620
Finished products 13,121 16,004
------- -------
Total $49,558 $50,588
======= =======
</TABLE>
(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-cancellable 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 June 30, 1997, there were no contracts outstanding. For the three months
ended June 30, 1997, the Company had three forward currency exchange contracts
which matured during the quarter and exchanged 261 million Yen. The contracts
were used to hedge specific Yen commitments.
7
<PAGE> 9
WALBRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
as of June 30, 1997
--------------------------------------------------------------------------------
Walbro
Corporation Consolidation
Guarantor Nonguarantor (Parent and Elimination Consolidated
Subsidiaries Subsidiaries Corporation) Entries Total
------------ ------------ ------------ --------------- ------------
(in thousands, except share date)
---------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 371 $ 16,912 $ 25 $ -- $ 17,308
Accounts receivable, net 80,241 66,149 453 -- 146,843
Accounts receivable, intercompany (111,919) (16,259) 141,238 (13,060) --
Inventories 24,859 21,810 2,889 -- 49,558
Prepaid expenses and other 3,475 6,295 992 -- 10,762
Deferred and refundable income taxes 1,191 1,348 3,446 -- 5,985
--------------------------------------------------------------------------------
Total current assets (1,782) 96,255 149,043 (13,060) 230,456
--------------------------------------------------------------------------------
PLANT AND EQUIPMENT, NET 136,590 143,138 7,479 108 287,315
--------------------------------------------------------------------------------
OTHER ASSETS:
Funds held for construction 1,140 -- -- -- 1,140
Joint ventures 13,101 16,189 -- -- 29,290
Investments 113,987 24,718 95,999 (229,255) 5,449
Goodwill, net 23,111 12,160 (175) -- 35,096
Notes receivable 1,116 75,306 199,604 (272,756) 3,270
Deferred income taxes -- 1,720 4,871 -- 6,591
Other 9,309 2,097 9,582 -- 20,988
--------------------------------------------------------------------------------
Total other assets 161,764 132,190 309,881 (502,011) 101,824
--------------------------------------------------------------------------------
Total assets $ 296,572 $371,583 $466,403 $(514,963) $619,595
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 598 $ 41 $ 409 $ -- $ 1,048
Bank and other borrowings -- 25,775 -- (854) 24,921
Accounts payable 31,905 50,544 6,068 (13,092) 75,425
Accrued liabilities 16,288 20,299 12,445 (8,548) 40,484
Dividends payable -- 920 866 -- 1,786
--------------------------------------------------------------------------------
Total current liabilities 48,791 97,579 19,788 (22,494) 143,664
--------------------------------------------------------------------------------
LONG-TERM LIABILITIES
Long-term debt, less current portion 171,281 76,786 312,697 (294,628) 266,136
Pension obligations -- 2,067 7,144 -- 9,211
Deferred income taxes -- 3,350 3,410 -- 6,760
Minority interest -- 1,460 -- -- 1,460
--------------------------------------------------------------------------------
Total long-term liabilities 171,281 83,663 323,251 (294,628) 283,567
--------------------------------------------------------------------------------
REDEEMABLE PREFERRED STOCK -- 69,000 -- -- 69,000
STOCKHOLDERS' EQUITY
Common stock, $.50 par value;
authorized 25,000,000; outstanding
8,662,381 in 1997; 8,652,737 in 1996 -- 20,204 4,331 (20,204) 4,331
Paid-in capital -- 74,170 65,806 (74,170) 65,806
Retained earnings 76,756 38,578 75,853 (115,334) 75,853
Deferred compensation -- -- (554) -- (554)
Minimum pension liability adjustment -- -- -- -- --
Unrealized gain on securities available
for sale -- -- 575 -- 575
Cumulative translation adjustments (256) (11,611) (22,647) 11,867 (22,647)
--------------------------------------------------------------------------------
Total stockholders' equity 76,500 121,341 123,364 (197,841) 123,364
--------------------------------------------------------------------------------
Total liabilities and stockholders'
equity $ 296,572 $371,583 $466,403 $(514,963) $619,595
================================================================================
</TABLE>
8
<PAGE> 10
WALBRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) 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
8,662,381 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
(5) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Six Months Ended June 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 $ 166,548 $ 152,764 $ 653 $ (12,104) $ 307,861
COSTS AND EXPENSES:
Costs of sales 139,499 133,362 501 (12,104) 261,258
Selling, administration
& other expenses 17,080 10,193 5,110 -- 32,383
--------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) 9,969 9,209 (4,958) -- 14,220
OTHER EXPENSE (INCOME):
Interest expense 8,272 3,604 13,168 (13,401) 11,643
Interest income (2,275) (2,553) (8,888) 13,401 (315)
Foreign currency exchange
loss(gain) 30 128 29 -- 187
Other (2,140) (113) 13 -- (2,240)
-------------------------------------------------------------------------------------------------
Income before provision
for income taxes,
miniority interest,
equity in (income) loss
of joint ventures and
subsidiaries 6,082 8,143 (9,280) -- 4,945
Provision (credit) for
income taxes 2,150 2,692 (3,349) -- 1,493
Minority Interest -- 2,397 -- -- 2,397
Equity in (income
loss of joint ventures (952) (1,539) -- -- (2,491)
Equity in (income) of
subsidiaries (4,797) (160) (9,477) (14,434) --
-------------------------------------------------------------------------------------------------
Net Income $ 9,681 $ 4,753 $ 3,546 $ (14,434) $ 3,546
=================================================================================================
</TABLE>
10
<PAGE> 12
WALBRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Six Months Ended June 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 $ 176,266 $ 145,079 $ 1,240 $ (14,533) $ 308,052
COSTS AND EXPENSES:
Costs of sales 142,483 122,047 934 (14,533) 250,931
Selling, administration
& other expenses 19,543 11,947 5,596 -- 37,086
----------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) 14,240 11,085 (5,290) -- 20,035
OTHER EXPENSE (INCOME):
Interest expense 7,751 3,608 10,117 (10,883) 10,593
Interest income (2,147) (1,346) (8,014) 10,883 (624)
Foreign currency exchange
loss(gain) (137) 52 362 -- 277
Other (797) 508 (274) -- (563)
----------------------------------------------------------------------------------------------------
Income before provision for
income taxes, minority
interest, equity in (income)
loss of joint ventures and
subsidiaries 9,570 8,263 (7,481) -- 10,352
Provision (credit) for
income taxes 2,833 2,709 (2,533) -- 3,009
Minority Interest -- 210 -- -- 210
Equity in (income)
loss of joint ventures (427) (1,798) -- -- (2,225)
Equity in (income) of
subsidiaries (7,383) -- (14,306) 21,689 --
----------------------------------------------------------------------------------------------------
Net Income $ 14,547 $ 7,142 $ 9,358 $ (21,689) $ 9,358
====================================================================================================
</TABLE>
11
<PAGE> 13
WALBRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Six Months Ended June 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 $ 30,411 $ 7,453 $(43,808) $ -- $ (5,944)
------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of plant and equipment (21,284) (14,654) 96 -- (35,842)
Acquisitions, net of cash acquired -- -- -- -- --
Purchase of other assets (872) 35 94 -- (743)
Investment in joint ventures and other (7,904) 3,090 4,958 -- 144
Proceeds/(payments) of intercompany
note rec. -- -- -- -- --
Proceeds from disposal of assets 12 272 788 -- 1,072
------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities (30,048) (11,257) 5,936 -- (35,369)
------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under revolving
line-of-credit agreements -- 5,675 (25,463) -- (19,788)
Debt repayments (293) (47) -- -- (340)
Proceeds from issuance of long-term debt -- (69,000) 69,000 -- --
Proceeds from issuance of stock
and options -- 69,000 137 -- 69,137
Financing fees paid -- -- (3,320) -- (3,320)
Cash dividends paid -- -- (1,731) -- (1,731)
------------------------------------------------------------------------------
Net cash provided by (used in) financing
activities (293) 5,628 38,623 -- 43,958
------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH -- (2,690) (860) -- (3,550)
------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 70 (866) (109) -- (905)
CASH AT BEGINNING OF YEAR 299 17,779 135 -- 18,213
------------------------------------------------------------------------------
CASH AT END OF PERIOD $ 369 $ 16,913 $ 26 $ -- $17,308
==============================================================================
</TABLE>
12
<PAGE> 14
WALBRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Six Months Ended June 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 $ 38,470 $ 30,674 $(52,125) $ - $ 17,019
-----------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of plant and equipment (26,751) (24,506) (970) - (52,227)
Acquisitions, net of cash acquired - - - - -
Purchase of other assets (592) (333) (32) - (957)
Investment in joint ventures and other (11,147) 3,485 7,403 - (259)
Proceeds/(payments) of intercompany note rec. - - - - -
Proceeds from disposal of assets - 180 2,968 - 3,148
-----------------------------------------------------------------------
Net cash provided by (used in) investing activities (38,490) (21,174) 9,369 - (50,295)
-----------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under revolving
line-of-credit agreements - (150) 44,600 - 44,450
Debt repayments (272) (1,075) - - (1,347)
Proceeds from issuance of long-term debt - - - - -
Proceeds from issuance of stock
and options - - -
Financing fees paid - - (392) - (392)
Cash dividends paid - - (1,718) - (1,718)
-----------------------------------------------------------------------
Net cash provided by (used in) financing activities (272) (1,225) 42,851 - 41,354
-----------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 423 (2,155) 29 - (1,703)
-----------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 131 6,120 124 - 6,375
CASH AT BEGINNING OF YEAR 75 19,219 498 - 19,792
-----------------------------------------------------------------------
CASH AT END OF PERIOD $ 206 $ 25,339 $ 622 $ - $ 26,167
=======================================================================
</TABLE>
13
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
THREE MONTHS ENDED JUNE 30, 1997 vs. THREE MONTHS ENDED JUNE 30, 1996
Net sales in the second quarter of 1997 decreased 0.8% to $153.8 million
compared to $155.1 million for the same period of 1996. Sales of automotive
products decreased 4.5% to $111.6 million for the second quarter of 1997
compared to $116.8 million for the same period of 1996. Sales of small engine
products increased 5.8% to $32.7 million for the second quarter of 1997
compared to $30.9 million for the same period of 1996. Sales of aftermarket
products increased 35.0% to $8.1 million for the second quarter of 1997
compared to $6.0 million for the same period of 1996.
Sales of automotive products were lower for the second quarter of 1997
because of the strike at the Chrysler Mound Road engine plant, continued
in-sourcing by a major U.S. customer and because of the strong U.S. dollar
impact on foreign sales. The Chrysler strike, which was settled before the end
of the quarter, resulted in reduced sales of $3.6 million. The in-sourcing
represented a $9.6 million decline in sales for the second quarter of 1997
compared to the same period of 1996 and the in-sourcing decline, which has
caused a negative comparison for the last four quarters, is now over. Sales of
plastic fuel tanks in Europe for the second quarter of 1997 decreased by 2.2%
because of foreign currency exchange rates. Without the currency effect,
European sales would have increased by approximately 9%. Sales of plastic fuel
tanks in Brazil, which began initial production in November 1996, added $3.5
million to sales for the second quarter of 1997.
Sales of small engine products increased primarily because of increased
sales of ignition systems (up 24.1%) due to new contracts with existing
carburetor customers and increased carburetor sales in China (up 18.6%).
Notwithstanding this increase, the first signs of softness in demand for
two-wheeled vehicles in China were seen in the second quarter of 1997.
Customers reduced production levels in June to control their inventory levels.
Sales of float feed carburetors increased 8.9% for the second quarter of 1997
compared to the same period in 1996. These increases were partially offset by
flat sales of diaphragm carburetors which were below normal seasonal levels in
the U.S. due to poor weather conditions and continued excess inventory carried
over from last year.
14
<PAGE> 16
Sales to the aftermarket increased almost entirely due to higher sales of
automotive products to aftermarket customers.
Cost of sales for the second quarter of 1997 increased 3.6% to $131.4
million compared to $126.8 million for the same period of 1996. Cost of sales
as a percent of net sales was 85.4% compared to 81.7% for the same 1996 period
resulting in a gross margin decline of 3.7 percentage points. The automotive
products gross margin declined because of lower volume resulting from the
Chrysler strike and in-sourcing. In addition, cost of sales was higher at the
two U.S. plastic fuel tank plants because of new platform launches and was
higher in Brazil because of new plant start-up costs. Gross margin was also
lower in Europe because of lower volume in Germany and France. In small engine
products, gross margin decreased primarily because of higher costs due to
lower volume at all three diaphragm carburetor plants and because of the
start-up costs at the new plant in China.
Selling and administrative ("S & A") expenses decreased 11.7% for the
second quarter of 1997 compared to the second quarter of 1996. S & A expenses
decreased as a percent of sales (from 9.3% in the second quarter of 1996 to
8.3% for the second quarter of 1997) because of expense reduction programs in
effect at most locations.
Research and development ("R & D") expenses increased 11.0%. This
increase is primarily due to additional costs associated with increased efforts
to develop new products to meet EPA regulations for small engine exhaust
emissions.
Interest expense increased 6.0% for the second quarter of 1997 compared to
the same period in 1996 because of increased borrowings for additional working
capital and for capital expenditures.
Other income was $1.0 million for the second quarter of 1997 compared to
$0.3 million for the second quarter of 1996. The increase was due to higher
royalty income from the Company's joint ventures.
Provision for income taxes was substantially lower for the second quarter
of 1997 compared to the same period of 1996 because of lower taxable income.
Minority interest increased by $1.3 million in the second quarter of 1997
compared to the same period of 1996 because of the preferred dividends due on
the Convertible Preferred Securities of Walbro Capital Trust issued in February
1997.
15
<PAGE> 17
The equity in income of joint ventures in the second quarter of 1997 was
$0.6 million higher than the comparable period income in 1996. Increased
income at Marwal Systems (France), Marwal Brazil, Marwal Mexico and
Mitsuba-Walbro Inc. (Japan) was partially offset by continued start-up costs at
Korea Automotive Fuel Systems Ltd.
Net income for the second quarter of 1997 was $1.2 million, a decrease of
75.0% compared to $4.8 million for the same period last year, as a result of
the reasons described above. Net income per share for the second quarter of
1997 was $.14 compared with $.56 for the same 1996 period.
SIX MONTHS ENDED JUNE 30, 1997 vs. SIX MONTHS ENDED JUNE 30, 1996
Net sales for the first six months of 1997 were flat at $307.9 million
compared to $308.1 million for the same period of 1996. Sales of automotive
products decreased 2.6% to $225.3 million for the 1997 six-month period
compared to $231.2 million for the same 1996 period. The decreased automotive
product sales were primarily the result of lower sales during the second
quarter of 1997 for the reasons stated above.
Sales of small engine products increased 3.7% to $64.2 million for the
first six months of 1997 compared to $61.9 million for the same period of 1996.
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. for the reasons stated above.
Sales to the aftermarket increased 24.2% to $14.9 million for the first
six months of 1997 compared to $12.0 million for the same period of 1996.
Sales increased entirely because of higher automotive product sales to
aftermarket customers.
Cost of sales for the first six months of 1997 increased 4.1% to $261.3
million compared to $250.9 million for the same period of 1996. Cost of sales
as a percent of net sales was 84.9% for the first six months of 1997 compared
to 81.5% for the same period of 1996. The lower gross margin for the first six
months of 1997 was due to the same reasons stated above for the second quarter
of 1997.
S & A expenses decreased by 12.2% for the first six months of 1997
compared to the same period of 1996. The decrease in S & A expenses for the
six-month period was due to the same reasons stated above for the second
quarter of 1997. R & D expenses decreased by 14.5% for the first six months of
1997 compared to the same period of 1996. All of the decrease was reported for
the first quarter of 1997, while the second quarter increase was modest for
the
16
<PAGE> 18
reasons stated above. The first quarter decrease was due to moving $2.0
million of engineering expenses out of R & D expenses into cost of sales in
order to consistently report the activities of the automotive test centers.
Interest expense increased 9.9% for the first six months of 1997 compared
to the same period in 1996 due to the same reasons stated above for the second
quarter of 1997.
Other income was $2.1 million for the first six months of 1997 compared to
$0.3 million for the same period of 1996 due to the same reasons stated above
for the second quarter of 1997.
The provision for income taxes was 50.4% lower for the first six months of
1997 compared to the same period of 1996 because of lower taxable income.
The equity in income of joint ventures was $2.5 million for the first six
months of 1997 compared to $2.2 million for the same period of 1996 because of
increased sales and improved profitability at Marwal Brazil, Marwal Mexico and
Mitsuba-Walbro (Japan) during the first six months of 1997 which more than
offset the start-up costs at Korea Automotive Fuel Systems.
Net income for the first six months of 1997 was $3.5 million, a decrease
of 62.8% compared to net income of $9.4 million for the same period of 1996.
The decrease was due to the reasons described above. Net income per share was
$.41 for the first six months of 1997 compared to $1.08 for the first six
months of 1996.
Foreign Currency Transactions
Approximately 53% of the Company's sales during the first six months of
1997 were derived from manufacturing operations in Europe, Asia, South
America and Mexico. The financial position and the results of operations of the
Company's subsidiaries in Europe (35% of sales), Japan (5% of sales), South
America (2% 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 fluctuations in Europe, Japan, South
America 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
17
<PAGE> 19
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 June 30, 1997, were based in
its foreign operations and were 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,
and to manage certain of its firm transaction commitments in foreign
currencies.
Liquidity and Capital Resources
As of June 30, 1997, the Company had outstanding $26.0 million in
short-term debt, including current portion of long-term debt, and $266.1
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 June 30, 1997, the Company had available to it approximately $39
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. 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.
18
<PAGE> 20
As of June 30, 1997, accounts receivable were $146.8 million, an increase
of $13.7 million, compared to June 30, 1996. The increase was primarily due to
longer collection periods due to an increase in foreign receivables with longer
collection periods and revised payment terms with certain customers. The
average collection period at June 30, 1997 was 85.9 days compared to the
average collection period at June 30, 1996 of 77.2 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 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 could 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Stockholders of the Company was held on April 30,
1997.
(b) The Stockholders voted to elect two Class I directors to the Company's
Board of Directors, with the following votes:
<TABLE>
<CAPTION>
Authority Broker
Directors For Against Withheld Abstentions Non-Votes
- --------- --- ------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Robert D. Tuttle 7,604,122 --- 92,898 --- ---
Robert H. Walpole 7,628,387 --- 68,634 --- ---
</TABLE>
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: August 13, 1997 /s/ L. E. Althaver
-----------------------------------
L. E. Althaver, Chairman, President
and Chief Executive Officer
Dated: August 13, 1997 /s/ Michael A. Shope
-----------------------------------
Michael A. Shope
Chief Financial Officer and Treasurer
21
<PAGE> 23
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 17,308
<SECURITIES> 0
<RECEIVABLES> 146,843
<ALLOWANCES> 0
<INVENTORY> 49,558
<CURRENT-ASSETS> 230,456
<PP&E> 380,293
<DEPRECIATION> 92,978
<TOTAL-ASSETS> 619,595
<CURRENT-LIABILITIES> 143,664
<BONDS> 266,136
69,000
0
<COMMON> 4,331
<OTHER-SE> 119,033
<TOTAL-LIABILITY-AND-EQUITY> 619,595
<SALES> 307,861
<TOTAL-REVENUES> 307,861
<CGS> 261,258
<TOTAL-COSTS> 261,258
<OTHER-EXPENSES> 30,330
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,328
<INCOME-PRETAX> 4,945
<INCOME-TAX> 1,493
<INCOME-CONTINUING> 3,546
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,546
<EPS-PRIMARY> 0.41
<EPS-DILUTED> 0.41
</TABLE>
