<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, 1999
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.)
1227 Centre Road, Auburn Hills, MI 48236
(Address of principal executive offices) (Zip Code)
(248) 377-1800
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 14, 1999:
Common Stock (one class): 8,688,294
<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, 1998.
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>
3/31/99 12/31/98
------- --------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 13,407 $ 19,647
ACCOUNTS RECEIVABLE, NET 156,328 154,416
INVENTORIES, NET 59,572 60,871
OTHER CURRENT ASSETS 26,275 22,469
--------- ----------
TOTAL CURRENT ASSETS 255,582 257,403
PROPERTY, PLANT & EQUIPMENT:
LAND, BUILDINGS & IMPROVEMENTS 99,242 99,747
MACHINERY & EQUIPMENT 290,889 308,151
--------- ----------
SUBTOTAL 390,131 407,898
LESS: ACCUMULATED DEPRECIATION (131,419) (129,357)
--------- ----------
NET PROPERTY, PLANT & EQUIPMENT 258,712 278,541
OTHER ASSETS:
GOODWILL, NET 31,419 31,887
JOINT VENTURES, INVESTMENTS & OTHER 76,642 80,836
--------- ----------
TOTAL OTHER ASSETS 108,061 112,723
--------- ----------
TOTAL ASSETS $ 622,355 $ 648,667
========= ==========
</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>
3/31/99 12/31/98
------- --------
LIABILITIES (Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
CURRENT PORTION LONG-TERM DEBT $ 2,243 $ 2,403
NOTES PAYABLE-BANKS 4,535 12,012
ACCOUNTS PAYABLE 121,074 114,133
ACCRUED LIABILITIES 35,839 31,929
--------- ---------
TOTAL CURRENT LIABILITIES 163,691 160,477
LONG-TERM LIABILITIES:
LONG-TERM DEBT, NET OF CURRENT 312,485 324,289
OTHER LONG-TERM LIABILITIES 16,584 17,345
--------- ---------
TOTAL LONG-TERM LIABILITIES 329,069 341,634
COMPANY-OBLIGATED MANDATORILY REDEEMABLE
CONVERTIBLE PREFERRED SECURITIES OF WALBRO CAPITAL
TRUST HOLDING SOLELY CONVERTIBLE DEBENTURES 69,000 69,000
STOCKHOLDERS' EQUITY
COMMON STOCK, $.50 PAR VALUE; 4,344 4,344
AUTHORIZED 25,000,000;
OUTSTANDING 8,688,294 IN 1999 AND
8,688,294 IN 1998
PAID-IN CAPITAL 66,026 66,088
RETAINED EARNINGS 38,728 37,656
DEFERRED COMPENSATION 0 (125)
ACCUMULATED OTHER COMPREHENSIVE INCOME (48,503) (30,407)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 60,595 77,556
--------- ---------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 622,355 $ 648,667
========= =========
</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
03/31/99 03/31/98
-------- --------
(Unaudited)
<S> <C> <C>
NET SALES $ 188,706 $ 169,292
COST OF SALES & EXPENSES:
COST OF SALES 161,072 144,058
SELLING AND ADMINISTRATIVE EXPENSES 14,207 12,951
RESEARCH & DEVELOPMENT EXPENSES 2,649 4,007
RESTRUCTURING CHARGES (825) 0
----------- -----------
OPERATING INCOME 11,603 8,276
OTHER EXPENSE (INCOME):
INTEREST EXPENSE 7,637 7,665
INTEREST INCOME (119) (162)
ROYALTY INCOME, NET (676) (951)
OTHER (INCOME) EXPENSE 71 (517)
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES,
MINORITY INTEREST, AND JOINT VENTURES 4,690 2,241
PROVISION FOR INCOME TAXES (1,135) (752)
MINORITY INTEREST (1,577) (1,391)
EQUITY IN INCOME OF JOINT VENTURES (906) 474
----------- -----------
NET INCOME $ 1,072 $ 572
=========== ===========
BASIC NET INCOME PER SHARE $ 0.12 $ 0.07
=========== ===========
DILUTED NET INCOME PER SHARE $ 0.12 $ 0.07
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 8,688,294 8,682,602
DILUTIVE OPTIONS ISSUED TO EXECUTIVES 0 3,885
----------- -----------
DILUTED SHARES OUTSTANDING 8,688,294 8,686,487
=========== ===========
NET INCOME $ 1,072 $ 572
OTHER COMPREHENSIVE INCOME, NET OF TAX:
UNREALIZED LOSS ON SECURITIES AVAILABLE FOR SALE (51) (1)
CUMULATIVE TRANSLATION ADJUSTMENTS (18,045) (3,386)
----------- -----------
OTHER COMPREHENSIVE INCOME (LOSS) (18,096) (3,387)
----------- -----------
COMPREHENSIVE INCOME (LOSS) $ (17,024) $ (2,815)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE> 6
WALBRO CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(In thousands) THREE MONTHS ENDED
03/31/99 03/31/98
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES: (Unaudited)
<S> <C> <C>
NET INCOME $ 1,072 $ 572
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
DEPRECIATION & AMORTIZATION 9,014 9,718
(GAIN) LOSS ON DISPOSITION OF ASSETS 9 (549)
MINORITY INTEREST 197 26
(INCOME)LOSS OF JOINT VENTURES 906 (474)
CHANGES IN ASSETS AND LIABILITIES:
DEFERRED INCOME TAXES (77) (612)
PENSION OBLIGATIONS & OTHER 654 583
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 13,587 34,819
ACCOUNTS RECEIVABLE, NET (7,688) (19,703)
INVENTORIES (28) (2,640)
PREPAID EXPENSES AND OTHER (607) (5,284)
--------- ----------
TOTAL ADJUSTMENTS 15,967 15,884
--------- ----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 17,039 16,456
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASE OF FIXED ASSETS (3,060) (11,826)
PURCHASE OF OTHER ASSETS (236) (12)
INVESTMENT IN JOINT VENTURES & OTHER 0 (1,838)
PROCEEDS FROM DISPOSAL OF ASSETS 40 3,689
--------- ----------
NET CASH USED IN INVESTING ACTIVITIES (3,256) (9,987)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
BORROWINGS UNDER LINES-OF-CREDIT 72,622 21,713
REPAYMENTS UNDER LINES-OF-CREDIT (83,965) (23,600)
DEBT REPAYMENTS (6,761) (156)
FINANCING FEES PAID (348) (366)
CASH DIVIDENDS PAID 0 (868)
--------- ----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (18,452) (3,277)
--------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (1,571) 359
--------- ----------
NET INCREASE (DECREASE) IN CASH (6,240) 3,551
CASH AND CASH EQUIVALENTS BEGINNING BALANCE 19,647 13,539
--------- ----------
CASH AND CASH EQUIVALENTS ENDING BALANCE $ 13,407 $ 17,090
========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE> 7
WALBRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUBSEQUENT EVENT
Walbro Corporation announced April 28, 1999 that it had entered into a
definitive merger agreement with TI Group plc, headquartered in London, England,
pursuant to which Walbro will become a wholly-owned subsidiary of TI Group. The
all-cash transaction of $20.00 per share values Walbro at $570 million
(including debt) and is subject to customary regulatory approvals. The Board of
Directors of both companies have unanimously approved the merger agreement and
will be effected through a tender offer launched by TI Group.
NOTE 2: RESTRUCTURING OF OPERATIONS AND OTHER ACTIONS.
During the fourth quarter of 1997, the Company recorded a $27,000,000
pre-tax charge for restructuring its operations and other actions. The charge
was comprised of a $17,000,000 charge for restructuring and a $10,000,000 charge
associated with asset impairments. In addition, the Company recorded a pre-tax
charge of $5,700,000 for warranty costs (included in cost of sales) which became
known during the fourth quarter of 1997.
The components of the restructuring charge included $15,100,000 million for
the divestiture of non-strategic businesses and facilities, $1,200,000 for
personnel reductions and $700,000 for other actions. The divestiture component
included $8,100,000 related to the divestiture of the Company's Ligonier,
Indiana, steel fuel rail manufacturing facility, $5,700,000 related to the
planned disposition of its interest in U.S. Coexcell Inc., a manufacturer of
blow-molded plastic drums in Maumee, Ohio, $400,000 related to the movement of
small engine operations in Mexico to a larger facility, $500,000 related to the
divestiture of the Company's share of an automotive joint venture in Korea and
$400,000 related to the consolidation of small engine operations in the
Asia-Pacific region. Amounts paid to consolidate these small engine operations
were charged against the reserve during 1998 at approximately the amount
established as of December 31, 1997.
The $8,100,000 charge related to the divestiture of the Company's steel fuel
rail facility is comprised of $7,800,000 of non-cash asset revaluations and
$300,000 of exit cost liabilities. This facility was sold as of May 31, 1998,
resulting in a gain of approximately $500,000. Exit costs were paid and charged
against the reserve during 1998 at approximately the amount established as of
December 31, 1997.
<PAGE> 8
The $5,700,000 charge related to the planned disposition of the Company's
interest in U.S. Coexcell Inc. is comprised of $5,300,000 of non-cash asset
revaluations and $400,000 of exit cost liabilities. The Company did not complete
the disposition of U.S. Coexcell Inc. during 1998 or the first quarter of 1999
and continued to operate the facility. The Company is continuing to evaluate its
options for U.S. Coexcell Inc. As such, no payments were made or charged
against the reserve during 1998 nor the first quarter 1999.
The $400,000 related to the movement of small engine operations in Mexico to
a larger facility represents primarily remaining lease payments on the old
facility for the period of time in which the Company will no longer use the
facility. Of the amount established as of December 31, 1997, $300,000 was paid
and charged against the reserve during 1998 and $100,000 during the first
quarter of 1999.
The $500,000 related to the divestiture of the Company's share of an
automotive joint venture in Korea represents a non-cash charge to reduce the
Company's investment to zero. During 1998, the Company divested its share of the
joint venture.
The $1,200,000 charge for personnel reductions relates to severance costs
associated with a corporate-wide headcount reduction program including
reductions related to the divestitures and restructuring. The Company planned to
reduce the overall work force by approximately 10% or 500 employees, working in
both manufacturing and administrative capacities. During 1998, approximately
$1,000,000 was paid and charged against the reserve. The remainder will be paid
and charged against the reserve during 1999.
The components of the $10,000,000 charge for asset impairments include
$4,200,000 to write-down to net realizable value certain tooling, machinery and
equipment, $2,800,000 to reserve for uncertainties related to its Korean
automotive activities, $1,300,000 to write-off its interest in Saginaw Plastics,
an injection molder in Saginaw, Michigan and $1,700,000 associated with other
impairment issues. No further circumstances arose during 1998 to question the
net realizable value of these assets. However, during the first quarter 1999,
improving business conditions and a reduction of the level of assets at risk
associated with the Korean automotive activities allowed an $825,000 reduction
in these reserves.
NOTE 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
<PAGE> 9
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,
1999 1998
---- ----
(in thousands)
<S> <C> <C>
Raw materials and components $33,677 $34,804
Work-in-process 7,085 6,287
Finished products 18,810 19,780
------- -------
$59,572 $60,871
======= =======
</TABLE>
<PAGE> 10
Note 4. Business Segment Information.
The Company has adopted SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for
reporting information about operating segments in annual financial statements
and requires selected information about operating segments in interim financial
reports issued to stockholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
Management uses information at the plant level for evaluating performance and
allocating resources. Management also uses information from the plants at the
product line and geographic levels as the basis for management decisions. The
Company's reportable segments are managed separately as each business utilizes
different technology and marketing strategies. The Company's reportable segments
are grouped as follows:
1. Automotive, which designs, develops and manufactures fuel storage and
delivery products for a broad range of U.S. and non U.S. manufacturers of
passenger automobiles and light trucks (including minivans),
2. Small Engine, which designs, develops and manufactures diaphragm
carburetors for portable engines, float feed carburetors for ground supported
engines and ignition systems and other components for a variety of small engine
products.
3. Aftermarket, which provides replacement parts for both the automotive and
small engine markets.
4. Corporate, which includes corporate headquarters and direct investments.
The accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies which are included
in the Company's Form 10-K, as filed. The Company evaluates performance based on
earnings before interest, income taxes, minority interest, equity in income of
joint ventures and extraordinary items (EBIT). The Company accounts for
intercompany sales as if they were to third parties, that is, at current market
prices. The Company accounts for property transfers at net book value.
The following tables present financial information for the quarters ended March
31 by reportable segment
<TABLE>
<CAPTION>
3/31/99 3/31/98 3/31/97
-------- -------- --------
<S> <C> <C> <C>
Net sales to external customers
Automotive $136,006 $126,249 $113,724
Small Engine 41,551 33,323 31,473
Aftermarket 9,189 7,751 6,774
Corporate 1,960 1,969 2,048
-------- -------- --------
Total net sales to external customers 188,706 169,292 154,019
======== ======== ========
Intercompany sales
Automotive 19,463 18,093 16,171
Small Engine 11,515 11,320 10,146
Aftermarket 214 268 256
Corporate 373 18 66
-------- -------- --------
Total intercompany sales 31,565 29,699 26,639
Elimination of intercompany sales (31,565) (29,699) (26,639)
-------- -------- --------
Total net sales $188,706 $169,292 $154,019
======== ======== ========
EBIT
Automotive $ 12,459 $ 7,569 $ 8,537
Small Engine 978 2,690 3,227
Aftermarket 2,263 2,116 1,825
Corporate (3,492) (2,631) (3,772)
-------- -------- --------
Total EBIT 12,208 9,744 9,817
-------- -------- --------
Unallocated amounts
Interest income 119 162 131
Interest expense (7,637) (7,665) (6,023)
Minority Interest, net of tax (1,577) (1,391) (984)
Equity in income (loss)of joint ventures, net of tax (906) 474 801
-------- -------- --------
Total income (loss) before income taxes and
extraordinary item $ 2,207 $ 1,324 $ 3,742
======== ======== ========
</TABLE>
<PAGE> 11
WALBRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE (5) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
as of March 31, 1999
---------------------------------------------------------------------------
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 and cash equivalents $ (271) $ 12,287 $ 1,391 $ - $ 13,407
Accounts receivable, net 62,940 42,660 50,728 - 156,328
Accounts receivable, intercompany (77,786) (21,396) 101,225 (2,043) -
Inventories, net 19,926 38,606 1,040 59,572
Prepaid expenses and other 2,880 11,722 1,110 - 15,712
Deferred and refundable income taxes - 1,335 9,228 - 10,563
---------------------------------------------------------------------------
Total current assets 7,689 85,214 164,722 (2,043) 255,582
---------------------------------------------------------------------------
PLANT AND EQUIPMENT, NET 106,617 143,305 8,682 108 258,712
---------------------------------------------------------------------------
OTHER ASSETS:
Assets held for sale - 3,175 - - 3,175
Joint ventures 19,205 16,879 - - 36,084
Investments 129,887 24,753 58,947 (210,987) 2,600
Goodwill, net 13,772 9,106 - 8,541 31,419
Notes receivable 2,000 6,060 - (6,056) 2,004
Deferred income taxes - 3,947 346 - 4,293
Other 9,364 4,630 14,492 - 28,486
---------------------------------------------------------------------------
Total other assets 174,228 68,550 73,785 (208,502) 108,061
---------------------------------------------------------------------------
Total assets $ 288,534 $ 297,069 $247,189 $ (210,437) $ 622,355
===========================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 664 $ 86 $ 1,493 $ - $ 2,243
Bank and other borrowings - 4,535 - - 4,535
Accounts payable 40,232 74,889 5,953 - 121,074
Accrued liabilities 14,139 18,777 1,837 166 34,919
Dividends payable - 920 - - 920
---------------------------------------------------------------------------
Total current liabilities 55,035 99,207 9,283 166 163,691
---------------------------------------------------------------------------
LONG-TERM LIABILITIES
Long-term debt, less current portion 163,759 16,360 169,741 (37,375) 312,485
Pension obligations - 3,877 8,233 - 12,110
Deferred income taxes - 3,715 (663) - 3,052
Minority interest - 1,422 - - 1,422
---------------------------------------------------------------------------
Total long-term liabilities 163,759 25,374 177,311 (37,375) 329,069
---------------------------------------------------------------------------
REDEEMABLE PREFERRED STOCK - 69,000 - - 69,000
STOCKHOLDERS' EQUITY
Common stock, $.50 par value;
authorized 25,000,000; outstanding
8,688,294 in 1999; 8,688,294 in 1998 - 25,678 4,344 (25,678) 4,344
Paid-in capital - 72,884 66,026 (72,884) 66,026
Retained earnings 73,048 38,866 38,728 (111,914) 38,728
Deferred compensation - - - -
Accumulated other comprehensive income (3,308) (33,940) (48,503) 37,248 (48,503)
---------------------------------------------------------------------------
Total stockholders' equity 69,740 103,488 60,595 (173,228) 60,595
---------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 288,534 $ 297,069 $247,189 $ (210,437) $ 622,355
===========================================================================
</TABLE>
<PAGE> 12
WALBRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE (5) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
----------------------------------------------------------------------------
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 $ 90,346 $ 104,667 $ 890 $ (7,197) $ 188,706
COSTS AND EXPENSES:
Cost of sales 75,868 91,612 789 (7,197) 161,072
Selling, administration & other expenses 5,037 7,375 4,444 16,856
Restructuring expense (825) - - (825)
----------------------------------------------------------------------------
OPERATING INCOME (LOSS) 10,266 5,680 (4,343) - 11,603
OTHER EXPENSE (INCOME):
Interest expense, net 3,059 371 4,088 7,518
Royalty income, net (763) 87 - - (676)
Foreign currency exchange loss(gain) 135 (73) - - 62
Other 21 (12) - - 9
----------------------------------------------------------------------------
Income before provision for income taxes,
minority interest, equity in (income) loss
of joint ventures and subsidiaries 7,814 5,307 (8,431) - 4,690
Provision for income taxes (2,824) (1,129) 2,818 - (1,135)
Minority Interest - (1,577) - - (1,577)
Equity in income (loss) of joint ventures (964) 58 - - (906)
Equity in income (loss) of subsidiaries 2,788 - 6,685 (9,473) -
============================================================================
Net Income Before Extraordinary Item $ 6,814 $ 2,659 $ 1,072 $ (9,473) $ 1,072
============================================================================
Extraordinary Item $ - -
============================================================================
Net Income $ 6,814 $ 2,659 $ 1,072 $ (9,473) $ 1,072
============================================================================
Net Income $ 6,814 $ 2,659 $ 1,072 $ (9,473) $ 1,072
Other Comprehensive Income, Net of Tax
Unrealized loss on Securities Avail. for Sale - - (51) - (51)
Cumulative Translation Adjustments - (14,950) (18,045) 14,950 (18,045)
----------------------------------------------------------------------------
Other Comprehensive Income (Loss) $ - $ (14,950) $ (18,096) $ 14,950 $ (18,096)
----------------------------------------------------------------------------
Comprehensive Income $ 6,814 $ (12,291) $ (17,024) $ 5,477 $ (17,024)
============================================================================
</TABLE>
<PAGE> 13
WALBRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE(5) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
--------------------------------------------------------------------------
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 $ 813 $ 4,992 $ 11,234 $ - $ 17,039
-----------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of plant and equipment 233 (2,478) (815) - (3,060)
Acquisitions, net of cash acquired - - - - -
Purchase of other assets 419 (636) (19) - (236)
Investment in joint ventures and other (2,788) - 2,788 - -
Proceeds/(payments) of intercompany note rec. - - - - -
Proceeds from disposal of assets 13 27 - - 40
-----------------------------------------------------------------------
Net cash provided by(used in) investing activities (2,123) (3,087) 1,954 - (3,256)
-----------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under revolving
line-of-credit agreements - (11,343) - (11,343)
Debt repayments (151) (6,610) - - (6,761)
Proceeds from issuance of long-term debt - - - - -
Proceeds from issuance of stock
and options - - - - -
Financing fees paid - - (348) - (348)
Cash dividends paid - - - - -
-----------------------------------------------------------------------
Net cash provided by(used in) financing activities (151) (6,610) (11,691) - (18,452)
-----------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH - (1,571) - - (1,571)
-----------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH (1,461) (6,276) 1,497 - (6,240)
CASH AND CASH EQUIV. AT BEGIN OF YEAR 1,190 18,563 (106) - 19,647
-----------------------------------------------------------------------
CASH AND CASH EQUIV. AT END OF PERIOD $ (271) $ 12,287 $ 1,391 $ - $ 13,407
=======================================================================
</TABLE>
<PAGE> 14
WALBRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE(5) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
as of December 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>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,190 $ 18,563 $ (106) $ - $ 19,647
Accounts receivable, net 66,739 55,015 32,662 - 154,416
Accounts receivable, intercompany (103,735) (37,056) 141,663 (872) -
Inventories, net 21,898 37,918 1,055 60,871
Prepaid expenses and other 1,690 9,007 1,037 - 11,734
Deferred and refundable income taxes - 1,507 9,228 - 10,735
-------------------------------------------------------------------------------
Total current assets (12,218) 84,954 185,539 (872) 257,403
-------------------------------------------------------------------------------
PLANT AND EQUIPMENT, NET 109,941 160,478 8,014 108 278,541
-------------------------------------------------------------------------------
OTHER ASSETS:
Assets held for sale - 3,175 - - 3,175
Joint ventures 20,169 18,266 - - 38,435
Investments 134,676 24,766 68,408 (225,160) 2,690
Goodwill, net 13,886 9,460 - 8,541 31,887
Notes receivable 2,000 8,310 - (8,287) 2,023
Deferred income taxes - 5,266 346 - 5,612
Other 9,705 4,740 14,456 - 28,901
-------------------------------------------------------------------------------
Total other assets 180,436 73,983 83,210 (224,906) 112,723
-------------------------------------------------------------------------------
Total assets $ 278,159 $ 319,415 $ 276,763 $ (225,670) $ 648,667
===============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 776 $ 134 $ 1,493 $ - $ 2,403
Bank and other borrowings - 12,012 - - 12,012
Accounts payable 28,094 79,454 6,585 - 114,133
Accrued liabilities 13,164 14,440 2,176 1,229 31,009
Dividends payable - 920 - - 920
-------------------------------------------------------------------------------
Total current liabilities 42,034 106,960 10,254 1,229 160,477
-------------------------------------------------------------------------------
LONG-TERM LIABILITIES
Long-term debt, less current portion 165,617 18,882 181,757 (41,967) 324,289
Pension obligations - 3,754 7,831 - 11,585
Deferred income taxes - 5,170 (635) - 4,535
Minority interest - 1,225 - - 1,225
-------------------------------------------------------------------------------
Total long-term liabilities 165,617 29,031 188,953 (41,967) 341,634
-------------------------------------------------------------------------------
REDEEMABLE PREFERRED STOCK - 69,000 - - 69,000
STOCKHOLDERS' EQUITY
Common stock, $.50 par value;
authorized 25,000,000; outstanding
8,688,294 in 1999; 8,688,294 in 1998 - 25,678 4,344 (25,678) 4,344
Paid-in capital - 73,618 66,088 (73,618) 66,088
Retained earnings 73,816 34,118 37,656 (107,934) 37,656
Deferred compensation - (125) - (125)
Accumulated other comprehensive income (3,308) (18,990) (30,407) 22,298 (30,407)
-------------------------------------------------------------------------------
Total stockholders' equity 70,508 114,424 77,556 (184,932) 77,556
-------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 278,159 $ 319,415 $ 276,763 $ (225,670) $ 648,667
===============================================================================
</TABLE>
<PAGE> 15
WALBRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE(5) 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
Restructuring expense - - - - -
--------------------------------------------------------------------------
OPERATING INCOME (LOSS) 5,650 5,854 (3,228) - 8,276
OTHER EXPENSE (INCOME):
Interest expense, net 4,096 2,851 8,471 (7,753) 7,665
Royalty income, net (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 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 (loss) of subsidiaries 1,980 - 4,729 (6,709) -
--------------------------------------------------------------------------
Net Income Before Extraordinary Item $ 4,888 $ 1,821 $ 572 $ (6,709) $ 572
==========================================================================
Extraordinary Item
--------------------------------------------------------------------------
Net Income $ 4,888 $ 1,821 $ 572 $ (6,709) $ 572
==========================================================================
Net Income $ 4,888 $ 1,821 $ 572 $ (6,709) $ 572
Other Comprehensive Income, Net of Tax
Unrealized loss on Securities Avail. for Sale - - (1) - (1)
Cumulative Translation Adjustments - (263) (3,386) 263 (3,386)
--------------------------------------------------------------------------
Other Comprehensive Income (Loss) $ - $ (263) $ (3,387) $ 263 $ (3,387)
--------------------------------------------------------------------------
Comprehensive Income $ 4,888 $ 1,558 $ (2,815) $ (6,446) $ (2,815)
==========================================================================
</TABLE>
<PAGE> 16
WALBRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE (5) 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 by(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
--------------------------------------------------------------------------
CASH AND CASH EQUIV. AT END OF PERIOD $ (841) $ 8,297 $ 9,634 $ - $ 17,090
==========================================================================
</TABLE>
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
THREE MONTHS ENDED MARCH 31, 1999 VS. THREE MONTHS ENDED MARCH 31, 1998
Net sales in the first quarter of 1999 increased 11.5% to $188.7
million compared to $169.3 million for the same period of 1998. Sales of
automotive products increased 7.8% to $136.0 million for the first quarter of
1999 compared to $126.2 million for the same period of 1998. Sales of small
engine products increased 24.9% to $41.6 million for the first quarter of 1999
compared to $33.3 million for the same period of 1998. Sales of aftermarket
products increased 17.9% to $9.2 million for the first quarter of 1999 compared
to $7.8 million for the first quarter of 1998.
Sales of automotive products in the U.S. increased to $74.0 million, an
increase of 3.0%, led by higher plastic fuel tank system sales.
Sales of automotive products in Europe for the first quarter of 1999
increased by 14.8%, but were below expectations due to delayed customer launches
in Europe and the economic conditions in Brazil.
Sales of small engine products increased in Asia Pacific due to new
product introductions and a strong market in the two-wheeled vehicle segment.
The largest increase in sales came from carburetor sales in the People's
Republic in China, up by 245.9%. In addition, sales of small engine products in
Japan increased by 35.0%.
Cost of sales for the first quarter of 1999 increased 11.8% to $161.1
million compared to $144.1 million for the same period of 1998. Cost of sales as
a percent of net sales was 85.4% for the first quarter of 1999 compared to 85.1%
for the same 1998 period, resulting in a gross margin of 14.6% in 1999, down
slightly from 14.9% in 1998.
Automotive products gross margin improvement resulted in general from
the cost reduction programs initiated in 1998 and improved performance in
Ossian, Indiana. Gross margin in Europe/South America declined 2.4 percentage
points due to delayed new product launches at customers of Belgium and the U.K.,
and the volume declines in Brazil. The small engine products gross margin
declined to 11.9% compared to 18.8% in 1998 due to continuing performance issues
associated with the consolidation of multiple facilities and product lines into
the Company's plant in Mexico, which more than offset the gross margin increases
in Asia Pacific.
<PAGE> 18
Selling and administrative ("S & A") expenses increased 9.7% for the
first quarter of 1999 compared to the first quarter of 1998, while Research and
Development ("R & D") expenses decreased 33.9% for the first quarter of 1999.
These changes were driven by a realignment in the product engineering and R & D
organization to increase the effectiveness of the product development activities
of the company. Overall, operating expenses were 8.9% of sales compared to 10.1%
in 1998.
Restructuring charges were a credit of $0.8 million for the quarter.
This was due to a continuing evaluation of the necessity for certain reserves
taken in the 1997 restructuring charge for activities in the Asia Pacific
region. The Company determined changes in business conditions and reduced level
of assets at risk which reduced the need for these reserves.
Royalty income decreased to $0.7 million in the first quarter of 1999
compared to $1.0 million in 1998 due to weaker performance in certain of the
company's joint ventures.
Equity income of the joint ventures was a loss of $.9 million for the
quarter compared to income of $.5 million in the same period of 1998. This loss
was driven by the start up costs of VITEC and the performance of the joint
venture in Brazil, which has been impacted by severe economic conditions.
Net income for the first three months of 1999 was $1.1 million compared
to net income of $.6 million for the same period of 1998. Net income per share
was $.12 for the first quarter of 1999 compared to $.07 for the same period of
1998.
Foreign Currency Transactions
Approximately 43% of the Company's sales during the first three months
of 1999 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 American (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. The reported
income of these subsidiaries will be higher or lower depending on a weakening or
strengthening of the U.S. dollar.
The Comprehensive (Loss) of $17,024 was primarily due to the impact of
the devaluation of the Brazilian real during the quarter. The revalued assets
are reflected in the consolidated balance sheet.
<PAGE> 19
The Company's subsidiary in Mexico (2% 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, 1999, 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 Brazil,
France, Japan, 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 Year 2000 Issue
The year 2000 issue ("Y2K") 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 actively participating in the Automotive Industry
Action Group ("AIAG") for Y2K and is using AIAG procedures and standards as the
guideline for compliance. The Company's plan for compliance includes several
phases: (1) awareness, (2) assessment, (3) renovation, (4) validation and (5)
implementation. Each phase considers the impact of Y2K on information technology
systems, embedded technology (i.e. machinery and equipment with date sensitive
technology) and the Company's suppliers. None of the Company's products include
date sensitive technology.
The Company is currently at various stages of completion within each
phase. The Company has completed its assessment of its information technology
systems and embedded technology identifying those that need further evaluation.
The Company has also identified critical suppliers that need evaluation. This
phase of the process includes obtaining compliance certificates from suppliers
for all existing systems and embedded technology that are already Y2K compliant
and obtaining compliance certificates for all significant vendors.
The renovation phase, which is also in process, includes obtaining
revised software for existing systems and purchasing new computer programs and
<PAGE> 20
replacement computer hardware for non-compliant systems. This phase is expected
to be complete by June 30, 1999. The estimated remaining cost associated with
the purchase of these items is approximately $0.5 million. Existing staff will
do all of the implementation and testing. The Company does not have a project
tracking system that tracks the cost and time that its own internal employees
spend on the Y2K project. The validation and implementation phases are also in
process, and are expected to be substantially completed by June 30, 1999.
Management believes that this plan will effectively mitigate the risks
associated with Y2K. A worst-case scenario with respect to a Y2K failure in a
key internal system or supplier system would result in shipments of product to
customers to be temporarily interrupted. This could result in missing production
schedules with customers, which in turn could lead to lost sales and profits for
the Company and our customers.
As part of the Y2K strategy, the company is in the process of
developing contingency plans on a site-by-site, system-by-system basis. These
plans include identifying alternative sources of materials and components as
well as potentially stockpiling some key raw materials. All plans will be
documented and will be executed if necessary.
Liquidity and Capital Resources
As of March 31, 1999, the Company had outstanding $6.8 million in
short-term debt, including current portion of long-term debt, and $312.5 million
in long-term debt. The approximate minimum principal payments required on the
Company's long-term debt in each of the five fiscal years subsequent to December
31, 1998 are $2.4 million in 1999, $2.6 million in 2000, $2.6 million in 2001,
$2.0 million in 2002, $95.9 million in 2003 and $221.3 million thereafter.
As of March 31, 1999, accounts receivable amounted to $156.3 million, a
decline of $4.4 million compared to March 31, 1998. The average collection
period at March 31, 1999 was 75.0 days compared to 82.3 days at March 31, 1998.
The Company's plans for 1999 capital expenditures for facilities,
equipment and tooling total approximately $40 million. The Company intends to
finance the capital expenditures with the existing Credit Facilities, 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 1999 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.
<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
(a) Reports of Form 8-K
There were no forms 8-K filed during the quarter.
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 authorized.
WALBRO CORPORATION
(Registrant)
Dated: May 17, 1999 /s/ Frank E. Bauchiero
--------------------------------------
Frank E. Bauchiero, President and
Chief Executive Officer
Dated: May 17, 1999 /s/ Michael A. Shope
--------------------------------------
Michael A. Shope
Chief Financial Officer and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 13,407
<SECURITIES> 0
<RECEIVABLES> 156,328
<ALLOWANCES> 0
<INVENTORY> 59,572
<CURRENT-ASSETS> 255,582
<PP&E> 390,131
<DEPRECIATION> 131,419
<TOTAL-ASSETS> 622,355
<CURRENT-LIABILITIES> 163,691
<BONDS> 312,485
69,000
0
<COMMON> 4,344
<OTHER-SE> 56,251
<TOTAL-LIABILITY-AND-EQUITY> 622,355
<SALES> 188,706
<TOTAL-REVENUES> 188,706
<CGS> 161,072
<TOTAL-COSTS> 161,072
<OTHER-EXPENSES> 15,307
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,637
<INCOME-PRETAX> 4,690
<INCOME-TAX> 1,135
<INCOME-CONTINUING> 1,072
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,072
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
