<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 March 31, 1998
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 May 9, 1998
Common Stock (one class): 8,682,914
<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, 1997.
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>
3/31/98 12/31/97
------- --------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 17,090 $ 13,539
ACCOUNTS RECEIVABLE (NET) 160,761 144,985
INVENTORIES 58,504 56,207
OTHER CURRENT ASSETS 26,903 25,924
-------- --------
TOTAL CURRENT ASSETS 263,258 240,655
PROPERTY, PLANT & EQUIPMENT:
LAND, BUILDINGS & IMPROVEMENTS 96,304 95,329
MACHINERY & EQUIPMENT 298,457 297,032
-------- --------
SUBTOTAL 394,761 392,361
LESS: ACCUMULATED DEPRECIATION (123,962) (116,991)
-------- --------
NET PROPERTY, PLANT & EQUIPMENT 270,799 275,370
OTHER ASSETS:
GOODWILL (NET) 32,668 32,803
JOINT VENTURES, INVESTMENTS & OTHER 62,781 61,765
-------- --------
TOTAL OTHER ASSETS 95,449 94,568
-------- --------
TOTAL ASSETS $629,506 $610,593
======== ========
</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>
3/31/98 12/31/97
------- --------
LIABILITIES (Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
CURRENT PORTION LONG-TERM DEBT $ 13,938 $ 13,960
NOTES PAYABLE-BANKS 23,940 26,204
ACCOUNTS PAYABLE 100,884 84,209
ACCRUED LIABILITIES 45,181 41,009
-------- --------
TOTAL CURRENT LIABILITIES 183,943 165,382
LONG-TERM LIABILITIES:
LONG-TERM DEBT, NET OF CURRENT 293,804 291,393
OTHER LONG-TERM LIABILITIES 15,572 14,952
-------- --------
TOTAL LONG-TERM LIABILITIES 309,376 306,345
COMPANY-OBLIGATED MANDATORILY REDEEMABLE CON-
VERTIBLE PREFERRED SECURITIES OF WALBRO CAPITAL
TRUST HOLDING SOLELY CONVERTIBLE DEBENTURES 69,000 69,000
STOCKHOLDERS' EQUITY
COMMON STOCK, $.50 PAR VALUE; 4,341 4,341
AUTHORIZED 25,000,000;
OUTSTANDING 8,682,914 IN 1998 AND
8,682,595 IN 1997
PAID-IN CAPITAL 66,151 66,151
RETAINED EARNINGS 34,508 33,938
ACCUMULATED OTHER COMPREHENSIVE INCOME (37,813) (34,564)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 67,187 69,866
-------- --------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $629,506 $610,593
======== ========
</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
03/31/98 03/31/97
--------- --------
(Unaudited)
<S> <C> <C>
NET SALES $ 169,292 $ 154,019
COST OF SALES & EXPENSES:
COST OF SALES 144,058 129,821
SELLING AND ADMINISTRATIVE EXPENSES 12,951 12,120
RESEARCH & DEVELOPMENT EXPENSES 4,007 3,350
---------- ----------
OPERATING INCOME 8,276 8,728
OTHER EXPENSE (INCOME):
INTEREST EXPENSE 7,665 6,023
INTEREST INCOME (162) (131)
OTHER (INCOME) EXPENSE (1,468) (1,089)
---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES,
MINORITY INTEREST, AND JOINT VENTURES 2,241 3,925
PROVISION FOR INCOME TAXES 752 1,380
MINORITY INTEREST 1,391 984
EQUITY IN (INCOME) OF JOINT VENTURES (474) (801)
---------- ----------
NET INCOME (LOSS) $ 572 $ 2,362
========== ==========
BASIC NET INCOME PER SHARE $ 0.07 $ 0.27
========== ==========
DILUTED NET INCOME PER SHARE $ 0.07 $ 0.27
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 8,682,602 8,652,737
DILUTIVE OPTIONS ISSUED TO EXECUTIVES 3,885 21,710
---------- ----------
DILUTED SHARES OUTSTANDING 8,686,487 8,674,447
========== ==========
</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>
THREE MONTHS ENDED
03/31/98 03/31/97
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES: (Unaudited)
<S> <C> <C>
NET INCOME $ 572 $ 2,362
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
DEPRECIATION & AMORTIZATION 9,718 8,180
(GAIN) LOSS ON DISPOSITION OF ASSETS (549) 123
MINORITY INTEREST 26 110
(INCOME) OF JOINT VENTURES (474) (801)
CHANGES IN ASSETS AND LIABILITIES:
DEFERRED INCOME TAXES (612) 108
PENSION OBLIGATIONS & OTHER 583 (592)
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 34,819 (4,182)
ACCOUNTS RECEIVABLE, NET (19,703) (20,412)
INVENTORIES (2,640) 1,646
PREPAID EXPENSES AND OTHER (5,284) (578)
-------- --------
TOTAL ADJUSTMENTS 15,884 (16,398)
-------- --------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 16,456 (14,036)
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASE OF FIXED ASSETS (11,826) (14,232)
PURCHASE OF OTHER ASSETS (12) (206)
INVESTMENT IN JOINT VENTURES & OTHER (1,838) (2,654)
PROCEEDS FROM DISPOSAL OF ASSETS 3,689 24
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (9,987) (17,068)
CASH FLOWS FROM FINANCING ACTIVITIES:
BORROWINGS UNDER LINES-OF-CREDIT 21,713 32,187
REPAYMENTS UNDER LINES-OF-CREDIT (23,600) (61,562)
DEBT REPAYMENTS (156) (143)
PROCEEDS FROM ISSUANCE OF STOCK
& OPTIONS - 69,000
FINANCING FEES PAID (366) (3,241)
CASH DIVIDENDS PAID (868) (865)
-------- --------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (3,277) 35,376
EFFECT OF EXCHANGE RATE CHANGES ON CASH 359 (2,014)
-------- --------
NET INCREASE (DECREASE) IN CASH 3,551 2,258
CASH AND CASH EQUIVALENTS BEGINNING BALANCE 13,539 18,213
-------- --------
CASH AND CASH EQUIVALENTS ENDING BALANCE $ 17,090 $ 20,471
======== ========
</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) NEW CREDIT FACILITY
In April 1998 the Company received a commitment (Commitment) for a $150
million line of credit, consisting of a $125 million revolving line of credit
(Revolving Credit Facility) and a $25 million capital expenditure facility
(Capital Expenditure Facility). Closing of the transaction contemplated by the
Commitment is subject to various terms and conditions.
Under the terms of the Commitment, for the first year of the transaction,
the Revolving Credit Facility will bear interest at either the London Interbank
Offered Rate (LIBOR), plus 2.25% or at the Prime Rate, plus 0.25%. Availability
under the Revolving Credit Facility is subject to a borrowing base, consisting
of 85% of eligible accounts receivable of the Company and certain of its
subsidiaries, 60% of certain raw materials and finished goods inventory and 70%
of commodity raw material resin inventory, less customary reserves. In
addition, the Revolving Credit Facility provides for a $25 million sub-facility
for the issuance of letters of credit. The Capital Expenditure Facility
initially bears interest at the rate equal to the prime rate, plus 0.50% or
LIBOR, plus 2.50%. Amounts drawn under the Capital Expenditure Facility are
repayable in 20 equal quarterly principal installments, beginning one quarter
after such draw.
Each of the Revolving Credit Facility and the Capital Expenditure Facility
(collectively, the New Credit Facility) is available for a period of five years
after closing. If the Revolving Credit Facility is terminated by the Company
during the first three years, certain pre-payment fees may be applicable.
The New Credit Facility will contain numerous covenants, including
financial covenants such as a fixed charge ratio and a senior secured funded
indebtedness to EBITDA (earnings before interest, taxes, depreciation and
amortization) ratio, and restrictions on additional indebtedness, liens, capital
expenditures, mergers and sales of assets, and events of default. Obligations
outstanding under the Revolving Credit Facility will be secured by accounts
receivable, inventory and general intangibles of the Company and certain
subsidiaries, and also will be secured by a pledge of the stock of certain of
the material domestic subsidiaries of the Company and 65% of the stock of the
material foreign subsidiaries of the Company. Each advance under the Capital
Expenditure Facility will be secured by the item of equipment purchased with the
proceeds of such advance. The collateral for the Capital Expenditure Facility
will not constitute collateral for the Revolving Credit Facility. In addition,
certain of the subsidiaries of the Company will provide guarantees of the
obligations under the New Credit Facility. The proceeds of the New Credit
Facility will be used to replace the existing credit facility and the existing
purchase money loan
6
<PAGE> 8
WALBRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Con't)
agreement, to refinance the Senior Notes due 2004 including
an early retirement premium of approximately $2.3 million, for capital
expenditures and for general working capital purposes.
(2) 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>
March 31, December 31,
1998 1997
------------ ------------
(in thousands)
<S> <C> <C>
Raw materials and components $33,701 $30,857
Work-in-process 9,585 6,545
Finished products 15,218 18,805
------- ------
$58,504 $56,207
======= =======
</TABLE>
(3) COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted SFAS No. 130 "Reporting
Comprehensive Income." The impact of adoption has been to include changes in
deferred compensation, unrealized gain or loss on securities and foreign
currency translation, which have not been recognized in determining net income,
in a new presentation of comprehensive income, as presented below.
WALBRO CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Three Months Ended
03/31/98 03/31/97
-------- --------
(in thousands)
<S> <C> <C>
Net income $ 572 $ 2,362
--------- --------
Foreign currency translation (3,386) (8,452)
Unrealized gains (losses) on securities (1) (95)
Deferred compensation 138 299
--------- --------
Other comprehensive income (loss) (3,249) (8,248)
--------- --------
Comprehensive income (loss) $ (2,677) $ (5,886)
========= ========
</TABLE>
7
<PAGE> 9
WALBRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) Supplemental Guarantor Condensed Consolidating Financial Statements
<TABLE>
<CAPTION>
as of March 31, 1998
----------------------------------------------------------------------------
Walbro
Corporation Consolidation
Guarantor Nonguarantor (Parent and Elimination Consolidated
Subsidiaries Subsidiaries Corporation) Entries Total
------------ ------------ ------------ ------- -----
(in thousands, except share data)
ASSETS
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents $ (841) $ 8,297 $ 9,634 $ - $ 17,090
Accounts receivable, net 86,045 73,964 752 160,761
Accounts receivable, intercompany (130,438) (42,355) 163,810 8,983 -
Inventories 25,689 31,873 942 58,504
Prepaid expenses and other 11,219 5,324 657 - 17,200
Deferred and refundable income taxes 491 1,428 7,784 - 9,703
---------------------------------------------------------------------------
Total current assets (7,835) 78,531 183,579 8,983 263,258
---------------------------------------------------------------------------
PLANT AND EQUIPMENT, NET 124,977 141,169 4,545 108 270,799
----------------------------------------------------------------------------
OTHER ASSETS:
Funds held for construction - - - - -
Joint ventures 10,778 16,276 - - 27,054
Investments 125,284 24,492 52,471 (197,948) 4,299
Goodwill, net 14,228 11,443 (1,524) 8,541 32,688
Notes receivable - 10,719 191,599 (202,182) 136
Deferred income taxes - 4,054 4,178 - 8,232
Other 8,847 2,441 11,752 - 23,040
---------------------------------------------------------------------------
Total other assets 159,137 69,425 258,476 (391,589) 95,449
---------------------------------------------------------------------------
Total assets $ 276,279 $ 289,125 $ 446,600 $ (382,498) $ 629,506
===========================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 7,026 $ 54 $ 6,858 $ - $ 13,938
Bank and other borrowings - 23,940 - - 23,940
Accounts payable 40,256 54,789 5,839 - 100,884
Accrued liabilities 5,585 20,043 19,421 (788) 44,261
Dividends payable - 920 - - 920
---------------------------------------------------------------------------
Total current liabilities 52,867 99,746 32,118 (788) 183,943
---------------------------------------------------------------------------
LONG-TERM LIABILITIES
Long-term debt, less current portion 164,425 12,236 340,219 (223,076) 293,804
Pension obligations 2,818 2,765 7,076 - 12,659
Deferred income taxes - 1,964 - - 1,964
Minority interest - 949 - - 949
---------------------------------------------------------------------------
Total long-term liabilities 167,243 17,914 347,295 (223,076) 309,376
---------------------------------------------------------------------------
REDEEMABLE PREFERRED STOCK - 69,000 - - 69,000
STOCKHOLDERS' EQUITY
Common stock, $.50 par value;
authorized 25,000,000; outstanding
8,682,914 in 1998; 8,682,595 in 1997 - 23,935 4,341 (23,935) 4,341
Paid-in capital - 72,770 66,151 (72,770) 66,151
Retained earnings 58,756 31,439 34,508 (90,195) 34,508
Deferred compensation - (241) - (241)
Minimum pension liability adjustment - - - - -
Unrealized gain on securities available for sale - - 67 - 67
Cumulative translation adjustments (2,587) (25,679) (37,639) 28,266 (37,639)
---------------------------------------------------------------------------
Total stockholders' equity 56,169 102,465 67,187 (158,634) 67,187
---------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 276,279 $ 289,125 $ 446,600 $ (382,498) $ 629,506
===========================================================================
</TABLE>
8
<PAGE> 10
WALBRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) Supplemental Guarantor Condensed Consolidating Financial Statements
<TABLE>
<CAPTION>
Walbro
Corporation Consolidation
Guarantor Nonguarantor (Parent and Elimination Consolidated
Subsidiaries Subsidiaries Corporation) Entries Total
----------- ------------ ----------- ------- -----
(in thousands, except share data)
ASSETS
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents $ (744) $ 13,431 $ 852 $ - $ 13,539
Accounts receivable, net 80,936 63,194 855 144,985
Accounts receivable, intercompany (144,222) (37,755) 171,052 10,925 -
Inventories 26,086 29,012 1,109 56,207
Prepaid expenses and other 5,988 9,549 1,868 - 17,405
Deferred and refundable income taxes 470 1,253 6,796 - 8,519
-----------------------------------------------------------------------------
Total current assets (31,486) 78,684 182,532 10,925 240,655
-----------------------------------------------------------------------------
PLANT AND EQUIPMENT, NET 123,635 144,423 7,204 108 275,370
-----------------------------------------------------------------------------
OTHER ASSETS:
Funds held for construction - - - - -
Joint ventures 10,739 15,942 - - 26,681
Investments 117,720 24,433 50,959 (189,851) 3,261
Goodwill, net 14,342 11,444 (1,524) 8,541 32,803
Notes receivable - 6,499 196,198 (202,571) 126
Deferred income taxes - 4,001 4,178 - 8,179
Other 9,045 2,860 11,613 - 23,518
-----------------------------------------------------------------------------
Total other assets 151,846 65,179 261,424 (383,881) 94,568
-----------------------------------------------------------------------------
Total assets $ 243,995 $ 288,286 $ 451,160 $ (372,848) $ 610,593
=============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 7,026 $ 76 $ 6,858 $ - $ 13,960
Bank and other borrowings - 26,204 - - 26,204
Accounts payable 21,540 55,730 6,939 - 84,209
Accrued liabilities 1,103 18,699 20,127 (708) 39,221
Dividends payable - 920 868 - 1,788
-----------------------------------------------------------------------------
Total current liabilities 29,669 101,629 34,792 (708) 165,382
-----------------------------------------------------------------------------
LONG-TERM LIABILITIES
Long-term debt, less current portion 164,581 11,818 339,809 (224,815) 291,393
Pension obligations 2,505 2,625 6,693 - 11,823
Deferred income taxes - 2,077 - - 2,077
Minority interest - 1,052 - - 1,052
-----------------------------------------------------------------------------
Total long-term liabilities 167,086 17,572 346,502 (224,815) 306,345
-----------------------------------------------------------------------------
REDEEMABLE PREFERRED STOCK - 69,000 - - 69,000
STOCKHOLDERS' EQUITY
Common stock, $.50 par value;
authorized 25,000,000; outstanding
8,682,914 in 1998; 8,682,595 in 1997 - 23,935 4,341 (23,935) 4,341
Paid-in capital - 72,819 66,151 (72,819) 66,151
Retained earnings 49,827 28,747 33,938 (78,574) 33,938
Deferred compensation - - (379) - (379)
Minimum pension liability adjustment - - - - -
Unrealized gain on securities available for sale - - 68 - 68
Cumulative translation adjustments (2,587) (25,416) (34,253) 28,003 (34,253)
-----------------------------------------------------------------------------
Total stockholders' equity 47,240 100,085 69,866 (147,325) 69,866
-----------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 243,995 $ 288,286 $ 451,160 $ (372,848) $ 610,593
=============================================================================
</TABLE>
9
<PAGE> 11
WALBRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) Supplemental Guarantor Condensed Consolidating Financial Statements
<TABLE>
<CAPTION>
Three Months Ended March 31, 1998
----------------------------------------------------------------------------
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 $ 93,868 $ 83,421 $ 667 $ (8,664) $ 169,292
COSTS AND EXPENSES:
Cost of sales 80,829 71,223 670 (8,664) 144,058
Selling, administration & other expenses 7,389 6,344 3,225 16,958
-------------------------------------------------------------------------
OPERATING INCOME (LOSS) 5,650 5,854 (3,228) - 8,276
OTHER EXPENSE (INCOME):
Interest expense 4,096 2,851 8,471 (7,753) 7,665
Interest income (1,853) (1,752) (4,310) 7,753 (162)
Foreign currency exchange loss(gain) (8) 96 - - 88
Other (1,062) 98 (592) - (1,556)
-------------------------------------------------------------------------
Income before provision for income taxes,
minority interest, equity in (income) loss
of joint ventures and subsidiaries 4,477 4,561 (6,797) - 2,241
Provision (credit) for income taxes 1,608 1,784 (2,640) - 752
Minority Interest - 1,391 - - 1,391
Equity in (income) loss of joint ventures (39) (435) - - (474)
Equity in (income) of subsidiaries (1,980) - (4,729) 6,709 -
=========================================================================
Net Income $ 4,888 $ 1,821 $ 572 $ (6,709) $ 572
=========================================================================
</TABLE>
10
<PAGE> 12
WALBRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) Supplemental Guarantor Condensed Consolidating Financial Statements
<TABLE>
<CAPTION>
Three Months Ended March 31, 1997
-------------------------------------------------------------------
Walbro
Corporation Consolidation
Guarantor Nonguarantor (Parent and Elimination
Subsidiaries Subsidiaries Corporation) Entries
------------ ------------ ----------- -------
(in thousands, except share data)
<S> <C> <C> <C> <C>
NET SALES $ 83,462 $ 76,336 $ 340 $ (6,119)
COSTS AND EXPENSES:
Cost of sales 69,021 66,641 278 (6,119)
Selling, administration & other expenses 8,162 5,293 2,263 -
-------------------------------------------------------------
OPERATING INCOME (LOSS) 6,279 4,402 (2,201) -
OTHER EXPENSE (INCOME):
Interest expense 4,009 1,737 6,335 (6,306)
Interest income (1,134) (899) (4,404) 6,306
Foreign currency exchange loss(gain) 28 (71) 15 -
Other (1,038) (23) - -
-------------------------------------------------------------
Income before provision for income taxes,
minority interest, equity in (income) loss
of joint ventures and subsidiaries 4,414 3,658 (4,147) -
Provision (credit) for income taxes 1,527 1,405 (1,552) -
Minority Interest - 984 - -
Equity in (income) loss of joint ventures (300) (501) - -
Equity in (income) of subsidiaries (1,793) (52) (4,957) 6,802
=============================================================
Net Income $ 4,980 $ 1,822 $ 2,362 $ (6,802)
=============================================================
<CAPTION>
Consolidated
Total
<S> <C>
NET SALES $ 154,019
COSTS AND EXPENSES:
Cost of sales 129,821
Selling, administration & other expenses 15,718
---------
OPERATING INCOME (LOSS) 8,480
OTHER EXPENSE (INCOME):
Interest expense 5,775
Interest income (131)
Foreign currency exchange loss(gain) (28)
Other (1,061)
---------
Income before provision for income taxes,
minority interest, equity in (income) loss
of joint ventures and subsidiaries 3,925
Provision (credit) for income taxes 1,380
Minority Interest 984
Equity in (income) loss of joint ventures (801)
Equity in (income) of subsidiaries -
=========
Net Income $ 2,362
=========
</TABLE>
11
<PAGE> 13
WALBRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) Supplemental Guarantor Condensed Consolidating Financial Statements
<TABLE>
<CAPTION>
Three Months Ended March 31, 1998
------------------------------------------------------------------------------
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 $ 8,494 $ 3,947 $ 4,015 $ - $ 16,456
-------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of plant and equipment (4,807) (7,011) (8) - (11,826)
Acquisitions, net of cash acquired - - - - -
Purchase of other assets (94) 89 (7) - (12)
Investment in joint ventures and other (3,534) (282) 1,978 - (1,838)
Proceeds/(payments) of intercompany note rec. - - - - -
Proceeds from disposal of assets - 51 3,638 - 3,689
-------------------------------------------------------------------------
Net cash provided by (used in) investing activities (8,435) (7,153) 5,601 - (9,987)
CASH FLOWS FROM FINANCING ACTIVITIES: -------------------------------------------------------------------------
Net borrowings (repayments) under revolving
line-of-credit agreements (2,287) 400 - (1,887)
Debt repayments (156) - - - (156)
Proceeds from issuance of long-term debt - - - - -
Proceeds from issuance of stock
and options - - - - -
Financing fees paid - - (366) - (366)
Cash dividends paid - - (868) - (868)
-------------------------------------------------------------------------
Net cash provided (used in) financing activities (156) (2,287) (834) - (3,277)
-------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH 359 - - 359
-------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH (97) (5,134) 8,782 - 3,551
CASH AND CASH EQUIV. AT BEGIN OF YEAR (744) 13,431 852 - 13,539
-------------------------------------------------------------------------
CASN AND CASH EQUIV. AT END OF PERIOD $ (841) $ 8,297 $ 9,634 $ - $ 17,090
=========================================================================
</TABLE>
12
<PAGE> 14
WALBRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) Supplemental Guarantor Condensed Consolidating Financial Statements
<TABLE>
<CAPTION>
Three Months Ended March 31, 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 $ 15,267 $ 8,273 $ (37,576) $ - $ (14,036)
-----------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of plant and equipment (8,192) (5,945) (95) - (14,232)
Acquisitions, net of cash acquired - - - - -
Purchase of other assets (359) 22 131 - (206)
Investment in joint ventures and other (4,329) (164) 1,839 - (2,654)
Proceeds/(payments) of intercompany note rec. - - - - -
Proceeds from disposal of assets (1) 25 - - 24
-----------------------------------------------------------------------
Net cash provided by(used in) investing activities (12,881) (6,062) 1,875 - (17,068)
-----------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under revolving
line-of-credit agreements - (1,813) (27,562) - (29,375)
Debt repayments (145) 2 - - (143)
Proceeds from issuance of long-term debt - (69,000) 69,000 - -
Proceeds from issuance of stock
and options - 69,000 - - 69,000
Financing fees paid - - (3,241) - (3,241)
Cash dividends paid - - (865) - (865)
-----------------------------------------------------------------------
Net cash provided by (used in) financing activities (145) (1,811) 37,332 - 35,376
-----------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH - (654) (1,360) - (2,014)
-----------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 2,241 (254) 271 - 2,258
CASH AND CASH EQUIV. AT BEGIN OF YEAR 299 17,779 135 - 18,213
-----------------------------------------------------------------------
CASH AND CASH EQUIV. AT END OF PERIOD $ 2,540 $ 17,525 $ 406 $ - $ 20,471
=======================================================================
</TABLE>
13
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
THREE MONTHS ENDED MARCH 31, 1998 VS. THREE MONTHS ENDED MARCH 31, 1997
Net sales in the first quarter of 1998 increased 9.9% to $169.3 million
compared to $154.0 million for the same period of 1997. Sales of automotive
products increased 11.1% to $126.3 million for the first quarter of 1998
compared to $113.7 million for the same period of 1997. Sales of small engine
products increased 5.7% to $33.3 million for the first quarter of 1998 compared
to $31.5 million for the same period of 1997. Sales of aftermarket products
increased 14.7% to $7.8 million for the first quarter of 1998 compared to $6.8
million for the first quarter of 1997.
Sales of automotive products increased in the first quarter of 1998
primarily because of higher plastic fuel tank sales in the U.S., which were up
by $18.3 million. U.S. automotive product sales in the 1998 quarter also
included $5.0 million (compared to $7.0 million in the 1997 quarter) from the
Company's steel fuel rail plant in Ligonier, Indiana which is being divested.
Sales of plastic fuel tanks in Europe for the first quarter of 1998 decreased by
6.3% because of foreign currency exchange rates. Without the stronger dollar
currency effect European sales would have increased by approximately 3%.
Sales of small engine products increased as a result of higher sales of all
products except float feed carburetors in the U.S. The largest increases in
sales came from ignition system sales of 49.3% and increased sales of
carburetors in the People's Republic of China by 25.8%. Sales of small engine
products in Japan increased by 18.5% in spite of the lower yen/dollar exchange
rate. Without the currency effect Japan sales would have increased by
approximately 24%.
Sales to the aftermarket increased 14.7% to $7.8 million for the first
quarter of 1998 compared to $6.8 million for the same period of 1997. Sales of
both automotive products and small engine products increased to aftermarket
customers during the first quarter of 1998.
Cost of sales for the first quarter of 1998 increased 11.0% to $144.1
million compared to $129.8 million for the same period of 1997. Cost of sales as
a percent of net sales was 85.1% for the first quarter of 1998 compared to 84.3%
for the same 1997 period resulting in a gross margin decline of 0.8 percentage
14
<PAGE> 16
points from 15.7% in 1997 to 14.9% in 1998. The automotive products gross margin
decline resulted from slightly lower volume of fuel pumps and fuel modules in
the U.S., new plant start-up costs in South Korea and the significant new volume
of plastic fuel tank systems in the U.S. which carry lower margins due to
purchased components. Gross margin in Europe increased by 1.3 percentage points
to 12.2% as the result of cost saving initiatives and improved efficiency. The
small engine products gross margin decline of 0.4 percentage points resulted
from lower volume of float feed carburetors in the U.S.
Selling and administrative ("S & A") expenses increased 6.9% for the first
quarter of 1998 compared to the first quarter of 1997. S & A expenses increased
due to increased staff at corporate headquarters and the Asia Pacific region
including staff at the new plant in South Korea. S & A expenses as a percent of
net sales were 7.7% for the first quarter of 1998 compared to 7.9% for the same
period of 1997.
Research and development ("R & D") expenses increased 19.6%. The increase
was due to the new European systems center that is nearing completion in
Germany.
Interest expense increased 27.3% for the first quarter of 1998 compared to
the same period in 1997 because of higher borrowings for additional working
capital and for capital expenditures and because of the higher interest rate on
the new $100 million of Senior Notes due 2007 that were issued in December 1997
to refinance bank borrowings.
Other income was $1.5 million for the first quarter of 1998 compared to
$1.1 million for the first quarter of 1997. The increase was due to higher
income from the gain on the sale of fixed assets.
Provision for income taxes was lower for the first quarter of 1998 compared
to the same period of 1997 primarily due to lower taxable income.
Minority Interest increased by $0.5 million in the first quarter of 1998
compared to the same period of 1997 because of the preferred dividends due on
the Convertible Preferred Securities of Walbro Capital Trust issued in February
1997 were paid for the full quarter in 1998 and were paid for a partial quarter
in 1997.
The equity in income from joint ventures in the first quarter of 1998 was
$0.5 million versus the comparable period income of $0.8 million in 1997,
because of lower profitability at the joint ventures due to weaker foreign
economies; the stronger U.S. dollar; and start-up costs of the Company's new
VITEC joint venture in Detroit, Michigan.
15
<PAGE> 17
Net income for the first quarter of 1998 was $0.6 million compared to $2.4
million for the same period last year, as a result of the reasons described
above. Net income per share for the first quarter or 1998 was $.07 compared with
$.27 for the same 1997 period.
Foreign Currency Transactions
Approximately 48% of the Company's sales during the first three months of
1998 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 (30% of sales), Japan (5% of
sales), South America (2% of sales) and China (1% of sales) were measured in
local currency of the countries in which they operated and translated into U.S.
dollars.
The effects of foreign currency fluctuations in Europe, South America,
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 48% of the Company's assets at March 31, 1998, were based in
its foreign operations and these assets 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 stockholders' 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 or option contracts to
manage its exposure to foreign currency fluctuations.
16
<PAGE> 18
The Year 2000 Issue
The year 2000 issue is the result of computer programs that were written
using two digits (rather than four) to define the applicable year. Any of the
Company's computer programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000, which could result
in miscalculations or system failures. The Company is working to resolve the
potential impact of the year 2000 on the processing of date-sensitive
information and is in the process of evaluation of the impact of the issue at
all locations. The evaluation includes computer programs used for management
information systems and computer programs used to electronically control
manufacturing equipment and other devices. The evaluation has not progressed
enough to allow management to assess whether the cost of addressing this issue
will have a material impact on the Company's financial position, results of
operations or cash flows in future periods. Management expects this evaluation
to be completed during 1998.
Liquidity and Capital Resources
As of March 31, 1998, the Company had outstanding $37.9 million in
short-term debt, including current portion of long-term debt, and $293.8 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, 1997 are $14.0 million in 1998, $7.4 million in 1999, $30.0 million in 2000,
$7.5 million in 2001, $6.8 million in 2002 and $239.6 million thereafter.
In April 1998, the Company received a commitment for a $150 million line of
credit ( the "New Credit Facility") consisting of $125 million revolving line of
credit and a $25 million capital expenditure facility. The New Credit Facility
will be available for five years after closing. Proceeds of the New Credit
Facility will be used to pay off $30 million under the existing credit facility;
to pay off the Purchase Money Loan Agreement; to pay off the $45 million Senior
Notes due 2004 including an early retirement premium of approximately $2.0
million; to finance capital expenditures; and to meet working capital needs.
Closing of the New Credit Facility is subject to customary conditions and is
expected to occur by May 31, 1998. Failure to close the New Credit Facility
would have a material adverse effect on the Company's liquidity.
As of March 31, 1998, accounts receivable amounted to $160.8 million, an
increase of $12.4 million, compared to March 31, 1997. The average collection
period at March 31, 1998 was 82.3 days compared to 80.7 days at March 31, 1997.
The increase in accounts receivable was due to higher sales, larger amounts of
accounts receivable for customer tooling and the addition of foreign customers
with longer payment terms.
17
<PAGE> 19
The Company's plans for 1998 capital expenditures for facilities, equipment
and tooling total approximately $50 million. The Company intends to finance the
capital expenditures with the New Credit Facility, potential lease financing,
access to capital markets 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
and by access to the capital markets. Management expects to replace these credit
facilities as they expire with comparable facilities.
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. Whenever possible, the Company has
identified these forward-looking statements by words such as "anticipating,"
"believes," "estimates," "expects," and similar expressions. The Company
cautions readers of this discussion that a number of important factors could
cause the Company's actual consolidated results for 1998 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 including the restructuring program announced
during the fourth quarter of 1997, impact of environmental regulations, the year
2000 computer issue, 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. The Company assumes no obligation to update publicly
any forward-looking statements, whether as a result of new information, future
events or otherwise.
18
<PAGE> 20
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.
19
<PAGE> 21
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: May 13, 1998 /s/ Frank E. Bauchiero
------------------------------------
Frank E. Bauchiero, President
and Chief Executive Officer
Dated: May 13, 1998 /s/Michael A. Shope
------------------------------------
Michael A. Shope
Chief Financial Officer and Treasurer
20
<PAGE> 22
Exhibit Index
Exhibit Number Description
- ------------- -----------
27.1 Financial Data Schedule
21
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 17,090
<SECURITIES> 0
<RECEIVABLES> 160,761
<ALLOWANCES> 0
<INVENTORY> 58,504
<CURRENT-ASSETS> 263,258
<PP&E> 394,761
<DEPRECIATION> 123,962
<TOTAL-ASSETS> 629,506
<CURRENT-LIABILITIES> 183,943
<BONDS> 293,804
69,000
0
<COMMON> 4,341
<OTHER-SE> 62,846
<TOTAL-LIABILITY-AND-EQUITY> 629,506
<SALES> 169,292
<TOTAL-REVENUES> 169,292
<CGS> 144,058
<TOTAL-COSTS> 161,016
<OTHER-EXPENSES> (1,468)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,503
<INCOME-PRETAX> 2,241
<INCOME-TAX> 752
<INCOME-CONTINUING> 572
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 572
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
