<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM 10-K/A
(Amendment No. 1)
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1998
Commission File Number 0-6955
WALBRO CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 38-1358966
(STATE OF INCORPORATION) (I.R.S. EMPLOYER ID NO.)
1227 Centre Road, Auburn Hills, Michigan 48236
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(248) 377-1800
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.50 par value
(TITLE OF CLASS)
Indicate by check mark whether the registrant: (1) 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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant, based upon the last reported sale price of the
registrant's Common Stock on March 18, 1999.
$79,474,260
The number of shares outstanding of the registrant's Common Stock, par value
$.50, as of March 18, 1999.
8,688,294
---------------------------
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections of the registrant's Notice of Annual Meeting of
Stockholders and Proxy Statement for its Annual Meeting of Stockholders to be
held on May 4, 1999 are incorporated by reference into Part III of this report.
================================================================================
<PAGE> 2
PART I
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. Walbro Corporation
cautions readers of this discussion that a number of important factors could
cause Walbro'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, Walbro. 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 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 Walbro's results
are more fully discussed in Walbro'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.
ITEM 1. BUSINESS
GENERAL
Walbro Corporation is a global leader in the design, development and
manufacture of precision fuel storage and delivery systems and products for
automotive and small engine markets worldwide. The Company manufactures plastic
fuel tanks, fuel pumps, fuel modules, plastic fuel rails and fuel level sensors
for sale to automotive original equipment manufacturers ("OEMs"). Products
manufactured for the small engine market include carburetors and ignitions for
chain saws, outboard marine engines, two-wheeled vehicles, industrial engines
and lawn and garden equipment, such as lawn mowers and weed trimmers. From 1993
to 1998, the Company increased net sales at the compound rate of approximately
20% per year. This growth was primarily due to the introduction of new
automotive products, penetration of additional automotive platforms and a
recovery in the small engine industry from depressed levels in the late 1980s.
The Company had net sales of $619.9 million and $678.0 million in 1997 and 1998.
Approximately 73% of the Company's net sales for 1998 were generated by
Walbro Automotive. Through Walbro Automotive, the Company designs, develops and
manufactures fuel storage and delivery systems and components for a broad range
of U.S. and foreign manufacturers of passenger automobiles and light trucks
(including minivans). The Company and its joint ventures hold a strong market
position in North America, Europe and South America and a growing market
presence in Asia. In July 1995, the Company substantially expanded its European
automotive business by acquiring the fuel systems business of Dyno Industrier
A.S. ("Dyno"). In 1998, management estimates that the Company supplied Chrysler
(Chrysler refers to the former Chrysler portion of DaimlerChrysler) with
approximately 75% of its fuel pump and fuel module requirements, including all
requirements for Chrysler's passenger cars and minivans and approximately 45% of
the requirements for Chrysler's light trucks. Management believes that the
Company manufactures substantially all of the fuel tank systems for Saab and
Volvo light vehicles and all of the fuel tanks for the Mercedes-Benz C Class,
Volkswagen Polo and Renault Twingo. Other automotive
1
<PAGE> 3
customers of the Company and its joint ventures include Audi, Daewoo, Fiat,
Ford, General Motors, Hyundai, Kia, Nedcar, Peugeot and Rover.
Approximately 21% of the Company's net sales for 1998 were generated by
Walbro Engine Management. Through Walbro Engine Management, the Company designs,
develops and manufactures diaphragm carburetors for portable engines (such as
those used in chain saws and weed trimmers), float feed carburetors for ground
supported engines (such as those used in lawn mowers and marine engines) and
ignition systems and other components for a variety of small engine products.
The Company believes that it is the world's largest independent manufacturer of
small engine carburetors, with an approximate 70% share of the global diaphragm
carburetor market including sales to such leading chain saw and weed trimmer
manufacturers as Poulan/Weedeater, Deere and Company (Homelite), Stihl
Incorporated, McCulloch Corporation, Ryobi Ltd. and Kioritz (Echo) Corporation.
The Company believes it has an approximate 10% share of the global float feed
carburetor market, including sales to Briggs & Stratton Corporation, the world's
largest small engine manufacturer, Kohler Company, Tecumseh Products Co., and
Mercury Marine, a major manufacturer of outboard marine engines. The Company
produces substantial volumes of float feed carburetors for the Chinese
two-wheeled vehicle market.
The remaining 6% of the Company's net sales for 1998 were primarily
related to replacement products for both the automotive and small engine
aftermarkets. The Company has recently begun pursuing initiatives to expand its
aftermarket customer base and product lines in an effort to grow this segment of
its business.
The Company was incorporated in Michigan in 1950 and reincorporated in
Delaware in 1972. The Company's principal executive offices are located at 1227
Centre Road, Auburn Hills, Michigan 48236, and its telephone number is (248)
377-1800.
WALBRO AUTOMOTIVE
AUTOMOTIVE INDUSTRY OVERVIEW
A number of trends within the global automotive market have had and
will continue to have a fundamental impact on the Company's future profitability
and growth prospects, including: the shift by OEMs to the purchase of "systems"
rather than individual components, the globalization of the OEM supplier base,
the expansion of OEM supplier responsibilities and increased emissions
regulation. These trends have contributed to a consolidation of OEM suppliers
which the Company expects will continue.
Purchase of Integrated Systems. Automotive OEMs are relying
increasingly on suppliers who can provide entire systems rather than a number of
different parts. OEMs can reduce their own internal engineering efforts and the
number of suppliers by purchasing systems rather than components. Management
believes the engineering and technological challenges facing systems suppliers
will continue to grow as these systems become more complex. To strengthen the
Company's position as a major supplier of automotive fuel systems, the Company
is investing in its engineering and testing capabilities and actively pursuing
its systems philosophy. The Company believes that the systems approach is being
adopted outside North America and that the Company will be able to provide
systems to the European market in the future.
Globalization of the OEM Supplier Base. Several OEMs, including Ford,
General Motors and Volkswagen, are introducing automobile models which are
designed for the world automotive market ("World Cars"). This departure from the
historical practice of designing separate models for each regional market is
requiring suppliers to establish international development and manufacturing
facilities capable
2
<PAGE> 4
of providing system components with consistent quality on a worldwide basis. The
Company believes it is well positioned as a major supplier of fuel storage and
delivery systems ("FSDS") to the world automotive markets.
Expansion of OEM Supplier Responsibilities. Since the 1980s, Ford,
DaimlerChrysler and General Motors have been actively reducing their respective
supplier bases to those who accept significant responsibility for product
management and meet increasingly strict standards for product quality, on time
delivery and manufacturing costs. These suppliers are expected to control all
aspects of production of system components, including design, development,
component sourcing, manufacturing, quality assurance, testing and delivery to
the customer's assembly plant. The Company believes that many suppliers do not
have the resources to meet these OEM requirements and that the automotive OEM
supplier market will be divided among a smaller group of key suppliers. The
Company has received a number of quality awards from its OEM customers,
including the Ford Q1 Award, DaimlerChrysler QE Award and General Motors
Supplier of the Year Award, and believes that this supplier consolidation
provides an opportunity for the Company's increased penetration of the OEM
market.
Increasing Emissions Regulation. Beginning in the late 1970s, U.S.
environmental regulations, including fuel economy regulations and the Clean Air
Act and its Amendments, have had a significant impact on fuel systems and the
controls placed on mobile source emissions. As a result, U.S. automotive fuel
systems have evolved from mechanically controlled carbureted systems to more
sophisticated, electronically controlled fuel injection systems. Governmental
action in many other parts of the world is forcing a similar transition to
engine management systems which produce less emissions. For example, the
European Economic Community, which previously had less stringent automotive
exhaust regulations, adopted exhaust standards effective January 1, 1993 which
are comparable to 1983 U.S. requirements.
Compliance with these regulations has resulted in efforts to reduce
evaporative emissions and the development of new "flexible" fuels such as
ethanol and methanol blends. In response to these changes, the Company has
developed a number of products including electric pumps designed for electronic
fuel injection systems, onboard running and vapor recovery ("ORVR") systems and
plastic fuel tanks which reduce hydrocarbon permeation and are corrosion
resistant to flexible fuels.
AUTOMOTIVE BUSINESS STRATEGY
The Company intends to capitalize on trends in the automotive industry
through the development of its fuel systems technology and expansion of its
product line and customer base. The key elements of the Company's strategy
include:
Systems Approach to Product Development. The Company is utilizing its
expertise to develop integrated FSDS which reduce evaporative emissions, are
compatible with the corrosive nature of flexible fuels and provide customers
with the cost savings and convenience of purchasing complete systems rather than
numerous individual components. The Company's "systems" approach to product
development is designed to allow the Company to increase product content on each
vehicle in which its products are installed while providing customers with
substantial performance and cost benefits. This systems approach has made
possible an increase in the dollar value of the Company's products per vehicle.
For example, the new Dodge Durango, which began volume production in the third
quarter of 1997, is equipped with the Company's fuel storage and delivery
system. These products have a selling price that range from $100 to $190,
compared to a typical 1987 vehicle equipped with only $15 of the Company's
products. The Company's ability to assume responsibility for the development of
FSDS allows OEMs to reduce internal engineering efforts and use fewer suppliers
through the purchase of systems rather than components.
3
<PAGE> 5
Global Capabilities. The Company's international manufacturing and
market presence allows the Company to offer its current and future FSDS
technology to the global automotive market. The Company's presence in Europe
provides it with additional resources and marketing contacts to supply
integrated fuel systems to both European and North American OEMs assembling
vehicles in Europe and European OEMs assembling vehicles in the United States.
The Company's international sales for 1998 were 39% of the Company's net sales
(excluding joint ventures) compared to 20% in 1994. The Company's plastic tank
manufacturing capability allows it to pursue its systems strategy in Europe and
serve OEM customers as they confront new environmental and regulatory challenges
worldwide and introduce World Cars designed for sale to the global automotive
market. In addition, the Company has a market presence in Brazil, South Korea
and Japan and it has entered into joint ventures with manufacturers in Brazil,
France, Japan, Mexico and Argentina which enable the Company to access those
foreign markets.
Technical and Product Development Capabilities. The Company's engineers
focus their research and development efforts to respond to the technical
challenges facing their customers. The Company has designed its current line of
FSDS products in response to U.S. fuel economy and emission regulations and
changing consumer demands over the past two decades. Management believes that
the Company is well positioned to capitalize on the emergence of more stringent
global emission regulations through the development of a new generation of
products and systems with greater fuel efficiency, reduced component weight,
improved durability, fuel vapor control and flexible fuel compatibility. An
example of these products is the ORVR system which captures fuel vapors from the
fuel system and routes them to a carbon canister for storage and reuse.
The Company has made substantial investments in fuel systems
technology, product design and test capability and technical personnel to
advance FSDS technology and respond to customer needs. A state-of-the-art
systems center in Auburn Hills, Michigan provides the Company with the
full-service product management capability which OEMs require of key suppliers
and provides the Company with a competitive advantage in the development of
proprietary fuel systems technology. Similarly, the Company opened a new systems
center during 1998 in Rastatt, Germany to provide product design and test
capabilities for European customers.
AUTOMOTIVE PRODUCTS
The Company's product development engineers design fuel storage and
delivery systems in response to customer needs and in anticipation of evolving
trends in the market. Today's electronic fuel injected engines demand an
uninterrupted supply of fuel under pressure and some vehicles require complex
fuel tank configurations. The Company specializes in technology employed in the
FSDS and currently manufactures and sells fuel pumps, fuel modules, fuel level
sensors, plastic fuel tanks, bracket assemblies and plastic fuel rails.
In response to the environmental and fuel efficiency demands on today's
automobiles, the Company has developed, and is continually taking steps to
improve, an electric pump designed to deliver fuel under pressure to electronic
fuel injection equipped engines. The pump is fastened to a bracket and flange
assembly, which allows the pump to be mounted in the fuel tank. The assembly has
been increasingly replaced with a single integrated unit, called a fuel module,
which performs all of the functions of the assembly described above. The fuel
module is a complete, value-added package for specific applications composed of
a fuel pump, plastic reservoir, fuel level sensor and related parts. These
injection-molded plastic units fit inside the fuel tank, ensuring continuous
fuel delivery under low fuel conditions, maximum vehicle driving range and
enhanced fuel delivery under high temperature conditions, all at a reduced noise
level. Although vehicles were not equipped with fuel modules until 1988,
4
<PAGE> 6
approximately 70% of cars and light trucks manufactured by General Motors, Ford
and DaimlerChrysler in North America in 1998 used fuel modules. In 1998, the
Company supplied approximately 20% of all of the fuel modules purchased in North
America, principally to Ford and Chrysler.
Approximately 40% of North American vehicles and 80% of European
vehicles produced in 1998 contained plastic fuel tanks. Plastic fuel tanks offer
several advantages over conventional steel tanks, including lighter weight,
greater corrosion resistance to new, cleaner-burning fuels like methanol and the
ability to be produced in unusual shapes to better use available space. In
anticipation of customer demand in North America for more sophisticated fuel
tanks, the Company built a new facility in Ossian, Indiana in 1993 to produce
plastic multi-layer fuel tanks. The Company produced three-layer plastic fuel
tanks during the fourth quarter of 1994, and during 1995 and 1996 for the Ford
Windstar. The multi-layer construction of the Company's new, six-layer plastic
tank substantially eliminates fuel permeation, making this one of the first
plastic tanks which complies with the EPA permeability requirements which became
effective beginning in model year 1996. The first production run of six-layer
tanks began in 1996 for the GM T600 and was followed in 1997 by production of
fuel tanks for the 1998 Saturn, the 1998 GM Yukon/Tahoe and the 1998 Chassis
Cab. In addition a new facility in Meriden, Connecticut began production of the
fuel tanks for the 1998 Dodge Durango in September 1997.
The Company is currently producing mono-layer plastic fuel tanks, which
include coatings and permeation barriers that meet European emission
requirements, for Audi, Mercedes-Benz, Nedcar, Peugeot, Renault, Rover, Saab,
Volkswagen and Volvo. The Company launched multi-layer tanks for Volvo during
1998, and expects that as other customers require more sophisticated fuel tanks,
the Company will likely provide additional multi-layer blow molding machines to
provide the Company's OEM customers in Europe with advanced, plastic fuel tank
technology.
The Company also produces plastic fuel rails suitable for a variety of
engine applications. An extension of the FSDS concept, these under-hood
components, located on the engine, deliver fuel to the individual fuel injectors
used in electronic multi-point fuel injection systems. The Company has designed
a plastic fuel rail which is superior to metal fuel rails in cost, weight and
handling of more corrosive flexible fuels. In 1994, Ford began to install this
new rail on the 3.0 liter engine in the Windstar. In 1997 Ford began to install
this new fuel rail on 3.0 liter 2-valve engines for Taurus and Sable vehicles,
as well as the 3.0 liter engines in the Windstar vans.
An important advantage of the Company's systems approach is that it
assists customers in responding to developments in safety and environmental
standards. For example, current environmental regulations call for a FSDS that
minimizes or eliminates the escape of fuel vapors during refueling, storage and
operation. In January 1994, the EPA announced regulations governing ORVR systems
as mandated by the 1990 Clean Air Act. The regulations require installation of
devices which trap hydrocarbon vapors on a phase-in basis for passenger cars
beginning in model year 1998 and for light trucks in model year 2001. In
anticipation of these regulations, the Company has developed a variety of ORVR
devices which help prevent fuel vapor loss from fuel delivery systems. The first
of these devices entered production during 1997.
AUTOMOTIVE MARKETS AND CUSTOMER BASE
The Company currently provides a wide variety of products to a diverse
customer base in a number of geographic areas.
North America. DaimlerChrysler is the Company's largest customer,
representing approximately 26% of net sales in 1998 (21% former Chrysler and 5%
former Daimler/Mercedes-Benz). General
5
<PAGE> 7
Motors, the Company's second largest customer, with approximately 11% of sales,
has become a significant customer as a result of substantial plastic fuel tank
programs launched since 1996. These customers have ongoing supply relationships
with the Company which are subject to continued satisfactory price, quality and
delivery. The Company is the primary outside supplier of fuel pumps, the core of
the FSDS, to DaimlerChrysler. In the past, the Company has capitalized on its
fuel system components penetration to supply additional fuel system products,
such as fuel modules and fuel rails, to DaimlerChrysler and Ford, and to assume
a key role in the development of new fuel system products, such as ORVR devices.
General Motors historically developed and produced substantially all of its fuel
storage and delivery systems internally but recently has sourced a significant
portion of plastic fuel tank programs to outside suppliers, including the
Company.
The Company has formed a joint venture ("VITEC") with a group of
minority business owners to produce automotive components in Detroit's
Empowerment Zone. VITEC is expected to manufacture FSDS products (including
blow-molded plastic fuel tanks). General Motors has awarded $450 million of new
business to the joint venture over a five-year period commencing in 1999.
Chrysler has also awarded new business to the joint venture. In September 1996,
the Company received a tax credit worth an estimated $13.6 million from the
Michigan Economic Growth Authority for this new facility.
Europe. In 1991, the Company began operations in Europe with the
establishment of its Marwal Systems joint venture in France with Magneti Marelli
S.p.A. of Italy to serve customers that include Fiat, Nissan, Peugeot, Renault,
Rover, Saab and Volvo. The Company is the only integrated FSDS supplier in
Europe, which has provided the Company with the immediate opportunity to
increase its participation in the European automotive market. In addition, the
Company is using its relationships in the U.S. to increase its sales to North
American manufacturers in Europe. Similarly, the Company is leveraging its
relationships with Mercedes-Benz, Peugeot, Renault, Saab, Volkswagen, Volvo and
other European manufacturers to enhance the Company's marketing efforts with
these European manufacturers around the world. Approximately 80% of the European
light duty vehicles and 40% of the North American light duty vehicles are
equipped with plastic fuel tanks. Management estimates that operations in Europe
produced plastic fuel tanks accounting for approximately 19% of the European
plastic fuel tank market in 1998.
South America. In January 1993, operations began at the Company's
Marwal do Brasil joint venture, which targets the South American automotive
market of approximately two million units per year. In September 1995, the
Company established Walbro Automotive do Brasil to manufacture plastic fuel
tanks for the Brazilian automotive market. It began production of plastic fuel
tanks for Volkswagen in November 1996. In 1996, the Company received an order
from Ford for a supply of plastic fuel tanks for Ranger trucks to be produced in
Argentina.
Asia. In December 1986, the Company entered into a joint venture in
Japan known as Mitsuba-Walbro, Inc. with Mitsuba Electric Manufacturing Company
to manufacture fuel pump components. In January 1998, the Company began
production and sale of FSDS products in South Korea for the domestic South
Korean automotive market.
AUTOMOTIVE COMPETITION
The Company competes with several other manufacturers, including the
OEMs themselves, many of which have greater sales and financial resources than
the Company. In the fuel pump market, the Company's major competitors include
Robert Bosch GmbH, Denso Corp., Ltd., VDO (a division of Mannesmann), Visteon
Automotive (Ford's component group) and Delphi Automotive Systems (formerly GM's
component group). In the fuel rail market, the Company's major competitors
include Delphi, Visteon Automotive, Echlin Inc. (which was acquired by Dana
Corporation in 1998) and Siemens A.G. The
6
<PAGE> 8
Company has competition in the fuel module market from Delphi, Robert Bosch
GmbH, Denso Corp., VDO and Visteon Automotive. The Company's largest competitors
in the plastic fuel tank market include Kautex Werke Reinold Hagen A.G. (which
was acquired by Textron Inc. in January 1997), Solvay S.A., Plastic Omnium
Industries, Inc. and Visteon Automotive. Steel tanks, manufactured primarily by
the OEMs, also compete with the Company's plastic fuel tanks.
The Company competes for new business both at the beginning of the
development of new models and upon the redesign of existing models. New model
development generally begins two to three years prior to a product introduction.
Once a producer has been designated to supply parts for a new program, an OEM
usually will continue to purchase those parts from the designated producer for
the life of the program, although not necessarily for a redesign. Competitive
factors in the market for fuel storage and delivery products include product
quality and reliability, cost and timely delivery, technical expertise and
development capability and new product innovation.
AUTOMOTIVE SALES AND ENGINEERING SUPPORT
Sales of the Company's FSDS products to automotive OEMs are made
directly by the Company's sales/engineering force, who not only sell the
products but assist customers with related engineering matters. Because of the
automobile design process, the Company is generally able to determine a few
years in advance the models for which it will supply products. The Company's
sales force works closely with the Company's engineering departments and systems
center in Auburn Hills in the research, design, development and improvement of
its products. Since the Company's systems center in Europe was completed in
1998, the Company has additional design and research capabilities to provide
OEMs in Europe with full-service product management. Because the Company has the
capability to provide comprehensive engineering resources with respect to its
product line and assume increasing responsibility for the development of FSDS
products, the Company has been successful in responding to the decisions by OEMs
to consolidate suppliers and reduce internal engineering resources.
AUTOMOTIVE WARRANTY AND OTHER PRODUCT EXPOSURE
The design and manufacture of fuel systems entails an inherent risk
that a governmental authority or a customer may require the recall of one of the
Company's products or a product in which one of the Company's products has been
installed. The Company has taken and intends to continue to take all reasonable
precautions to avoid the risk of exposure to an expensive recall campaign which
could have a material adverse effect on the business and financial condition of
the Company.
WALBRO ENGINE MANAGEMENT
SMALL ENGINE INDUSTRY OVERVIEW
The small engine industry is facing a number of environmentally-driven
changes which will require an increased emphasis on fuel systems technology and
the development of new fuel systems products. Growth opportunities outside of
the U.S. are expected to be driven by growth in the use of two-wheeled vehicles
and the increased use of gasoline-powered portable equipment in developing
countries.
Emphasis on Engine Management Systems and New Product Development.
Historically, exhaust emissions of gasoline-powered small engines were
unregulated. In 1992, the California Air Resources Board promulgated
comprehensive air quality regulations limiting small engine emissions, which
regulations became effective in August 1995. A more stringent phase is scheduled
to become effective in 1999. In addition, the EPA has implemented similar
regulations that became effective in August 1996, with a more stringent phase
expected to be phased in beginning 2002. The products designed to meet these new
emission standards in the small engine market will require more sophisticated
product research and
7
<PAGE> 9
new production capabilities. The increased technological content and
sophistication required to meet emission regulations is expected to result in
lower unit sales with greater value added per product and higher unit prices.
Growing Demand in Developing Countries. The Company expects significant
growth in the demand for float feed carburetors in developing countries as per
capita income increases and two-wheeled vehicles become more affordable.
Production of two-wheeled vehicles in the People's Republic of China, for
example, increased from approximately 49,000 units in 1980 to approximately 3.4
million in 1993, 5.2 million in 1994, 7.8 million in 1995 and management
estimates 1997 and 1998 production to have been approximately 10.0 million units
each year. In addition, management believes demand for diaphragm carburetors
used in gasoline-powered portable tools will grow in these developing countries.
The inaccessibility of electrical power distribution and geographic isolation of
many projects, such as the clearing of land and highway construction, hinder the
use of electric-powered equipment.
SMALL ENGINE BUSINESS STRATEGY
To respond to the promulgation of increasingly strict emission
regulations in the small engine industry, the Company is working to develop a
small engine management system which will comply with new emission standards. As
the leading developer of fuel systems technology for portable engines, the
Company is well positioned to draw upon its expertise in carburetor and ignition
system design and development, as well as its experience in responding to
emissions-driven challenges in the automotive sector. The Company's advanced
product design and development facilities in Michigan and Japan, which are
equipped with sophisticated emission measurement instruments, provide the
Company with the facilities necessary to develop more sophisticated small engine
management systems.
In addition to developing new technologies, the Company intends to grow
its small engine business through expansion into foreign markets. The Company's
presence in developing countries such as the People's Republic of China will
allow it to benefit from the growing market for carburetors for two-wheeled
vehicles and from infrastructure development which requires portable power
tools.
SMALL ENGINE PRODUCTS
The Company was founded as a manufacturer of carburetors for small
engine products such as lawn mowers and marine engines, and later expanded its
customer base to include manufacturers of chain saws, weed trimmers, snow
blowers and two-wheeled vehicles. The Company's carburetor technology has
continually evolved, with the Company now manufacturing diaphragm and float feed
carburetors, ignition systems and other components for small engine products and
aftermarket applications. The Company's diaphragm carburetor, float feed
carburetor and ignition system sales accounted for 50%, 28% and 15%,
respectively, of the Company's 1998 small engine net sales.
The diaphragm carburetor uses a diaphragm and a series of
interconnected passages to draw and regulate the amount of fuel delivered to the
engine from the fuel tank. The Company manufactures several basic models of
diaphragm carburetors from which are derived numerous variations. Diaphragm
carburetors are used on chain saw and weed trimmer engines because they will
operate in any position and minimize vapor lock. The Company believes that it is
the world's largest manufacturer of small engine diaphragm carburetors.
The float feed carburetor uses a float in a reservoir of fuel to
regulate the amount of fuel delivered to the engine. In contrast to the
diaphragm carburetor, which operates in all positions, the float feed carburetor
operates only in an upright position. The Company manufactures several basic
models of float
8
<PAGE> 10
feed carburetors from which are derived numerous variations. The Company's float
feed carburetors are used on engines for lawn mowers, garden tractors,
two-wheeled vehicles, marine outboard engines, generators and industrial
engines.
The ignition system uses rotating magnets in a flywheel, which induce
an electrical charge in the ignition module. The ignition module releases this
charge to the spark plug. The Company's ignition systems are used predominantly
in chain saw and weed trimmer applications.
In response to California and proposed EPA air quality regulations, the
Company is integrating its carburetor and ignition technology to develop an
engine management system which will electronically control both fuel delivery
and ignition functions to limit exhaust emissions. The Company has successfully
refined existing carburetors through the incorporation of extremely close
tolerances which provide more accurate control of the fuel/air mixture to meet
the first set of standards that became effective in California in 1995 and
nationwide in 1996. Company engineers are developing new technology to meet the
subsequent requirements which will become effective in California in 1999 and
nationwide during the period 2002 to 2005. This development effort focuses on
complete engine management systems that control air flow, fuel delivery and
ignition timing to enhance fuel efficiency and reduce pollution.
SMALL ENGINE MARKETS AND CUSTOMER BASE
The Company sells its small engine products in a global market.
Carburetors and small engine ignitions are sold by the Company's sales and
engineering staff directly to engine manufacturers. The Company sells a major
portion of its diaphragm carburetors to most of the leading chain saw and weed
trimmer manufacturers, including Poulan/Weedeater, Deere and Company (Homelite),
Stihl Incorporated, McCulloch Corporation, Ryobi Ltd. and Kioritz (Echo)
Corporation. The Company sells float feed carburetors to several of the leading
manufacturers of small engines, including Briggs & Stratton Corporation, the
world's largest small engine manufacturer. Mercury Marine, a major outboard
engine manufacturer, buys approximately 75% of its outboard engine carburetors
from the Company.
One of the Company's opportunities for growth in the small engine
industry is the Chinese market. In January 1994, the Company acquired a 60%
interest, increased to 70% in 1995, in Fujian Hualong Carburetor Co., Ltd.
(Fujian) which manufactures and markets carburetors for two-wheeled vehicles in
the People's Republic of China. In addition, the Company has built a new
manufacturing facility in Tianjin to provide additional capacity to take
advantage of growth in the two-wheeled vehicle market. This new facility began
production in October 1996.
SMALL ENGINE COMPETITION
The Company has several competitors that manufacture diaphragm
carburetors for the global small engine market, including Zama Industries, Ltd.,
Tillotson Commercial Motors Ltd. and Dell' Orto, some of which are divisions of
large diversified organizations which have total sales and financial resources
exceeding those of the Company. In the market for float feed carburetors, the
Company has several competitors, including Briggs & Stratton and Tecumseh
Products, both of which have greater sales and financial resources than the
Company. The Company's major competitors in the ignition systems market are R.E.
Phelon Company Inc. in the U.S.; Ikeda Denki, Oppama Kougyou, Iida Denki,
Kokusan Denki in Japan; and other internal suppliers to engine manufacturers.
AFTERMARKET PRODUCTS
The Company sells automotive aftermarket products for both carbureted
vehicle applications and electronic fuel injection vehicle applications through
independent distributors, such as Federal-Mogul
9
<PAGE> 11
Corporation and Standard Motor Products, Inc., and jobbers and dealers
worldwide. Some automotive products are also sold to national manufacturing and
distribution organizations for sale under private brand names or to industrial
customers for use in special applications. The Company has recently begun
pursuing initiatives to expand its aftermarket customer base and product lines
in an effort to grow this segment of its business. Such initiatives include
entry into components for performance vehicles and recreational vehicles, as
well as broader coverage of fuel pumps and fuel modules.
The Company sells automotive aftermarket products to support its OEM
customers and to benefit from higher margins on aftermarket sales. Management
believes that the overall market size for automotive electronic fuel injection
systems components sold to the aftermarket will continue to grow as the
population of vehicles equipped with electronic fuel injection systems ages.
The Company sells its own brand name small engine aftermarket products
through independent distributors, jobbers and dealers worldwide. Some of these
products are also sold to national manufacturing and distribution organizations
for sale under private brand names or to industrial customers for use in special
applications.
ACQUISITION AND JOINT VENTURE STRATEGY
As part of a long-term strategy for growth and expansion into new
geographic and product markets, the Company may undertake select acquisitions
and strategic alliances in the form of joint ventures. The Company may make
select acquisitions of companies which can enhance the Company's traditional
products and technologies and can provide additional growth opportunities. These
acquisitions would contribute new product technology and open new markets to the
Company. In evaluating these acquisitions, the Company seeks high quality
operations which fit with the Company's expertise in markets where it has an
established customer base and a clear vision of opportunities, thus decreasing
transition costs and other financial risks associated with corporate
acquisitions. Similarly, each of the Company's joint ventures provides the
Company with the opportunity to benefit from established customer relationships
or a unique technological advancement which the Company could not develop on its
own without the risk and expense of establishing marketing and manufacturing
organizations alone. In management's opinion, the Company's joint ventures
ultimately reduce the cost of penetrating new markets and limit the Company's
financial exposure with respect to these operations. At the present time the
Company has no specific agreements with respect to any new acquisitions or joint
ventures.
MANUFACTURING AND FACILITIES
The Company conducts operations in approximately 2.4 million square
feet of space in 28 locations. Six additional sites are operated as joint
venture operations. The Company believes that substantially all of its property
and equipment are in good condition. The Company has not experienced significant
limitations on its ability to transfer products between, or sell products in,
various countries.
Each of the Company's manufacturing facilities practices advanced
inventory control procedures and has installed statistical process controls to
insure high levels of quality. In that regard, some of the Company's factories
have received the Ford Q1 Award and the DaimlerChrysler QE Award. In connection
with its sales to Saab, which is partially owned by General Motors, the
Company's Norway facility has been named a General Motors supplier of the year
five years in a row beginning in 1991. In 1995, Walbro Automotive was named
Supplier of the Year by General Motors. Various other Company factories have
been recognized by customers such as Mercury Marine, Stihl and Federal-Mogul
Corporation for excellence in product quality and delivery.
10
<PAGE> 12
In addition, the Company's domestic automotive customers have
cooperated in the development of a broad based quality procedure for which their
suppliers are required to be certified. The procedure, known as QS 9000, has
been derived from the International Standards Organization's ISO 9000 procedure
and has become the primary quality discipline within the automotive industry.
All but one of the Company's automotive manufacturing locations around the world
have been certified.
When justified by volume, the Company has invested in labor-saving
automated machining, assembly and testing equipment. For example, the operation
in Meriden, Connecticut employs computer controlled molding machines to form the
Company's plastic in-tank reservoirs. These machines are individually
programmable so that variations can be reduced and refined as part of the
continuous control process. Another example is the Caro, Michigan manufacturing
facility's automated fuel pump assembly line, which is capable of producing
1,000 pumps per hour using only six persons. Over the past several years, the
Company has reduced the cost to manufacture its fuel pumps at this facility by
reducing both labor and material costs. In Ettlingen, Germany, the Company uses
a fully automated assembly line for production of plastic fuel tanks for the
Mercedes-Benz C Class. In addition to these examples of purchased automation,
the Company designs and builds major portions of its own machining and assembly
equipment. This in-house capability permits close control over the manufacturing
process and helps the Company stay competitive in both cost and quality.
PATENTS, RESEARCH AND PRODUCT DEVELOPMENT
The Company owns approximately 165 U.S. patents plus 400 international
patents in the fuel systems field and has a number of applications pending.
These patents include proprietary ownership of designs for control devices for
engines and engine systems, fuel pumps, fuel delivery systems, fuel regulators,
fuel level sensors, fuel reservoirs and fuel system vapor control devices,
carburetors and throttle bodies, as well as ancillary devices for engine and
vehicle applications.
Although these patents are significant to the Company, management
believes that in many cases the adaptation and use of the technology involved
and the proprietary process technology employed to manufacture these products
are more important. The Company maintains a systems center in Michigan for the
research, design and development of new products. The Company opened its new
European engineering center in 1998. The Company's engineering departments also
engage in design, development and testing. In 1998, 1997 and 1996, the Company
spent approximately $12.9 million, $17.3 million and $18.4 million,
respectively, for research and product development. The decrease in 1998 was
almost entirely due to the reclassification of certain product engineering and
testing expenses from research and development to cost of goods sold.
COMPONENTS, MATERIALS AND INVENTORY
The Company has a number of sources for the components used in
manufacturing its products. The suppliers who manufacture components often use
tools and dies owned by the Company. If a supplier were to discontinue supplying
any component, it could take the Company some time to replace the supplier;
however, the Company believes its operations would not be materially adversely
affected.
The Company's principal customers provide it with estimates of their
annual needs and make monthly purchase commitments. As a result, the Company
does not experience material backlog. Consequently, the Company manages its
manufacturing facilities on a just-in-time production basis.
11
<PAGE> 13
EMPLOYEES
As of December 31, 1998, the Company had approximately 5,422 employees.
The Company believes that its relations with its employees are satisfactory. All
of the Company's approximately 600 European plant employees are unionized under
their traditional national organizations. The Company's United States plant
employees at two manufacturing sites in Michigan and one site in Connecticut
(approximately 707) are unionized. All other United States employees are
non-unioned. The Company's five-year contract with the bargaining unit for these
Michigan plants expires in November 2003. A three-year contract with the
Company's bargaining unit employees at Meriden, Connecticut expires March 20,
2002.
REGULATION
The Company's operations are subject to increasingly stringent
environmental laws and regulations governing air emissions, waste water
discharges, the generation, treatment, storage, disposal and remediation of
hazardous substances and wastes, and employee health and safety. Certain of
these laws can impose joint and several liability for releases or threatened
releases of material upon certain statutorily defined parties, including the
Company, regardless of fault or the lawfulness of the original activity or
disposal.
The Company believes it is currently in material compliance with
applicable environmental laws and regulations. The Company's compliance with
environmental laws and regulations has not materially affected the results of
its operations or the conduct of its business; however, the Company cannot
predict the future effects of such laws and regulations.
12
<PAGE> 14
ITEM 2. PROPERTIES
The Company conducts operations in approximately 2.4 million square
feet of space in a total of 28 locations. Six additional sites are operated as
joint venture operations. The Company believes that substantially all of its
property and equipment are in good condition.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any litigation, and is not aware of any
pending or threatened litigation, that would have a material adverse effect on
the Company or its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of 1998.
13
<PAGE> 15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
<TABLE>
<CAPTION>
Market Price DIVIDENDS
QUARTERS ENDED HIGH Low PER SHARE
---- --- ---------
<S> <C> <C> <C>
December 31, 1998........ 8 1/2 6 3/16 $ --
September 30, 1998....... 12 15/16 7 1/2 --
June 30, 1998............ 14 1/8 8 5/8 --
March 31, 1998........... 15 11 --
--
$ --
December 31, 1997........ 24 1/8 12 $.10
September 30, 1997....... 24 1/4 191/2 .10
June 30, 1997............ 21 1/2 15 .10
March 31, 1997........... 19 1/4 161/2 .10
--
$.40
</TABLE>
On February 23, 1999, the closing per share price was $10.00. The above prices
do not include retail markup, markdown, or commission. As of February 23, 1999,
the approximate number of shareholders was 1,024. Walbro is traded on the NASDAQ
National Market ("NNM") and reported by NNM under the symbol "WALB".
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The results of operations of the Company for each of the years in the three-year
period ended December 31, 1998 and balance sheet data as of December 31, 1998
and 1997, respectively, were derived from the audited Consolidated Financial
Statements of the Company, and the notes thereto, appearing elsewhere in this
Form 10-K.
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C>
From Continuing Operations:
Net Sales.................... $677,990 $ 619,905 $585,389 $459,272 $325,205
Cost of Sales................ 571,992 538,751 488,134 377,755 261,501
Income (Loss) Before Extraordinary
Item...................... 5,191 (36,627) 11,229 13,830 14,595
Income (Loss) Per Share Before
Extraordinary Item
(basic and diluted)....... 0.60 (4.23) 1.30 1.61 1.70
Cash Dividends Per Share....... -- 0.40 0.40 0.40 0.40
Working Capital................ 96,926 75,273 68,275 95,713 58,378
Total Assets................... 648,667 610,593 589,649 493,473 257,366
Long-Term Debt................. 324,289 291,393 291,723 233,389 66,136
Stockholders' Equity........... 77,556 69,866 137,733 135,427 127,915
</TABLE>
14
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following is a discussion of the financial condition and results of
operations of the Company for the years ended December 31, 1998, 1997 and 1996.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO 1997, 1997 COMPARED TO 1996
SALES. The Company reported sales in 1998 of $678.0 million, an
increase of 9.4% from $619.9 million in 1997. The 1998 increase was generated by
a 8.6% increase in sales to the automotive original equipment market, a 13.1%
increase to the small engine market and a 12.8% increase in aftermarket sales.
Sales in 1997 of $619.9 million were 5.9% higher than the 1996 sales of $585.4
million. The 1997 sales increase came from increased automotive product sales in
North and South America and increased sales to the small engine market partially
offset by lower sales to the European automotive market caused by lower foreign
currency exchange rates. In addition, aftermarket sales increased by 17.5% in
1997 compared to 1996.
Sales of the Company's automotive products were $497.4 million in 1998
compared to $458.0 million in 1997, an increase of 8.6%. In 1998, North American
automotive product sales were up 11.4%, despite the General Motors strike that
affected sales in the second and third quarters by approximately $7.0 million
and several other factors which are described as follows. The Company sold its
automotive steel fuel rail operations in 1998, which represented a $17.2 million
decline in automotive sales for 1998 compared to 1997. The Company also began to
phase out the sale of component parts for fuel pumps to its joint ventures (the
joint ventures now buy direct from the parts manufacturers) which reduced U.S.
automotive sales by $17.3 million for 1998. The North American and European
automotive sales increase in 1998 resulted from increased sales of plastic fuel
tank systems as plastic fuel tanks continue to replace steel fuel tanks in both
markets. Sales of the Company's automotive products in Europe were up 5.0% for
1998 compared to 1997. However, automotive product sales in Brazil were down
22.0% due to the economic disruptions and reduced vehicle sales in that market.
The Company's new plastic fuel tank plant in South Korea started production in
January 1998 and added $2.6 million of new sales.
The 1997 sales of automotive products were $458.0 million, an increase
of 4.4% compared to $438.6 million in 1996. The increase resulted from increased
sales of plastic fuel tank systems to both North and South American OEM
customers, partially offset by lower sales of steel fuel rails in the U.S. and
lower sales dollars from the Company's European operations due to foreign
currency exchange rates, which declined 16% compared to the U.S. dollar. The
lower sales growth in North America during 1997 was due to insourcing of fuel
pumps and fuel modules by Ford Motor Company, and lower shipments to Chrysler in
the second quarter of 1997 because of a strike at Chrysler's Mound Road Engine
Plant.
Sales of the Company's small engine products were $142.4 million in
1998, an increase of 13.1%, compared to $125.9 million in 1997, which had
increased by 7.5% in 1997 compared to $117.1 million in 1996. The most
significant factors driving the 1998 sales increase was an 11.8% increase in
diaphragm carburetor sales, a 23.7% increase in ignition systems sales and an
80.4% increase in float feed carburetor sales in The People's Republic of China
("PRC"). For both ignition systems and PRC carburetors, the Company increased
its production capacity and broadened its product offering during 1997 and 1998,
which resulted in increased sales during 1998. The Company also gained market
share in The PRC during 1998 as importers lost sales due to higher import taxes.
The 1997 increase in small engine products was driven by a 25.9% increase in
ignition systems and a 6.4% increase in motorcycle carburetor sales in The
15
<PAGE> 17
PRC. The 1997 PRC sales were less than expected as the Company experienced a
significant reduction in orders during the second half of 1997 as customers
reduced excess motorcycle inventories.
Sales of the Company's aftermarket products were $33.2 million in 1998,
an increase of 12.5%, compared to $29.5 million in 1997, which had increased by
17.5% compared to $25.1 million in 1996. Aftermarket sales growth in both years
was primarily due to growth in automotive product sales generated by the
addition of new products offered to aftermarket customers and by adding new
customers.
COST OF SALES. Cost of sales was $572.0 in 1998 compared to $538.8
million in 1997 compared to $488.1 million in 1996. Cost of sales as a percent
of sales was 84.4% in 1998 compared to 86.9% in 1997 compared to 83.4% in 1996
and consequently gross margin was 15.6% in 1998 compared to 13.1% in 1997
compared to 16.6% in 1996. Gross margin increased in 1998 due to higher
production volumes at most plants, lower launch costs for new plastic tank
programs and the benefits of the restructuring program started during the fourth
quarter of 1997. The restructuring program resulted in headcount reductions,
closure of the Company's small engine carburetor plant in Singapore and sale of
the Company's automotive steel fuel rail operations -- all of which contributed
to higher gross margin in 1998.
Gross margin declined in 1997 compared to 1996 because of lower margins
in both automotive and small engine products. Lower automotive gross margin was
due to a number of factors including the following: change in the mix of
products sold in the U.S., high launch costs for new plastic fuel tank programs,
start-up cost for new plants in Argentina and South Korea, relocation of two
plants in Europe and increased warranty costs. The change in mix of products
sold involved increased volume of new plastic fuel tank systems, which carry
lower gross margins since they include a high level of purchased components. In
addition, sales volume for steel fuel rails, fuel pumps and fuel modules was
lower in 1997 because of Ford in-sourcing of fuel systems, the Chrysler strike
and lower production of U.S. passenger cars.
The lower gross margin in 1997 for small engine products was caused by
start-up costs for the new plant in The PRC, lower volume at both facilities in
The PRC, the one-time cost of moving two plants in Mexico and increased warranty
costs.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and Administrative ("S&A")
expenses were $55.6 million in 1998, a decrease of 8.6%, compared to $60.8
million in 1997. S&A expenses in 1997 included a number of one-time items
totaling $5.1 million which included increased professional fees, financing fees
for modifications to bank loan agreements, legal fees, settlement of legal
claims and other one-time charges. 1997 S&A expenses were also higher due to the
addition of new facilities in Argentina, South Korea and The PRC. The decrease
in 1998 was primarily due to headcount reductions and the sale of the Company's
steel fuel rail operations when compared to 1997 excluding the one-time charges
in 1997. As a percent of sales, S&A expenses were 8.2% in 1998, 9.8% in 1997 and
8.9% in 1996.
RESEARCH AND DEVELOPMENT EXPENSES. Research and Development ("R&D")
expenses were $12.9 million in 1998, a decrease of 25.4%, compared to $17.3
million in 1997 which declined by 6.0% compared to $18.4 million in 1996. The
decline in both 1998 and 1997 was caused by a shift of engineers out of R&D
activities and into product engineering activities, which is included in cost of
sales.
RESTRUCTURING AND IMPAIRMENT CHARGES. During the fourth quarter of
1997, the Company recorded a $27.0 million pretax charge for restructuring its
operations and other actions. The charge was comprised of a $17.0 million charge
for restructuring and a $10.0 million charge associated with asset impairments.
The restructuring actions included divestiture of the Company's Ligonier,
Indiana steel fuel rail manufacturing facility and disposition of its interest
in U.S. Coexcell Inc., a manufacturer of blow-
16
<PAGE> 18
molded plastic drums in Maumee, Ohio. In addition, the Company consolidated its
small engine operations in the Asia Pacific region and restructured its European
automotive fuel tank operations. The asset impairment charge included the write
down to net realizable value certain tooling, machinery and equipment, write off
of its interest in Saginaw Plastics, an injection molder in Saginaw, Michigan
and charges related to its Korean automotive activities. Lastly, the
restructuring charge included a corporate-wide headcount reduction of
approximately 10 percent including reductions related to the divestitures and
restructuring. All of the restructuring activities were completed during 1998
except for the divestiture of U.S. Coexcell Inc.
INTEREST EXPENSE. Interest expense was $31.8 million in 1998 compared
to $25.4 million in 1997 and $20.5 million in 1996. In May 1998, the Company
obtained a new $150 million bank secured credit facility and in December 1997
the Company sold $100 million of its 10.125% senior notes and used the proceeds
to repay the previous secured credit facilities, for working capital and for
capital expenditures. The higher interest expense in both 1998 and 1997 was due
to higher levels of borrowing in each year and the shift to a higher percentage
of long-term fixed rate debt which raised the average cost of borrowing in each
year.
INTEREST INCOME. Interest income was $3.2 million in 1998 compared to
$0.7 million in 1997 and $2.7 million in 1996. The higher amounts in 1998 and
1996 were the result of interest income recorded for interest from the Internal
Revenue Service for interest due related to income tax refunds for prior years.
ROYALTY INCOME. Royalty income was $3.2 million in 1998 compared to
$3.9 million in 1997 and $1.4 million in 1996. The increased royalty income in
1997 versus 1996 was the result of receiving royalty income from the Marwal
joint ventures starting in the fourth quarter of 1996 and receiving a full year
in 1997. The decline in 1998 compared to 1997 resulted from lower sales by the
Marwal joint ventures in Brazil and Argentina.
INCOME TAXES. The provision for income taxes was $4.0 million in 1998
compared to a credit for income taxes of $10.1 million in 1997 and a provision
of $3.1 million in 1996. The effective tax rate in 1998 was 28.1% due to a large
portion of the taxable income earned in France, Germany and Japan, which have
higher income tax rates than the U.S. which was more than offset by the benefit
from tax deductible preferred stock dividends. The credit in 1997 was the result
of the taxable loss recorded in 1997 from the restructuring and other one-time
charges.
JOINT VENTURE INCOME. The Company's equity in income of joint ventures
was $0.8 million in 1998 compared to $3.1 million in 1997 and $4.2 million in
1996. The decrease in 1998 resulted from start-up costs at VITEC, the Company's
joint venture in Detroit's Empowerment Zone and by reduced earnings at other
automotive joint ventures around the world which were adversely affected by the
strong U.S. dollar. In addition, the Marwal joint ventures in Brazil and
Argentina were also affected by the difficult economic conditions in that
region. The decline in 1997 compared to 1996 resulted from lower earnings at the
Marwal joint ventures due to the payment of royalties to the Company, start-up
costs for Marwal Argentina and losses at Korea Automotive Fuel Systems, the
Company's joint venture in South Korea.
MINORITY INTEREST. Minority interest was $5.8 million in 1998 compared
to $5.0 million in 1997 and $0.5 million in 1996. The 1998 increase was due to a
full year of preferred dividends paid in 1998 on the Convertible Preferred
Securities of Walbro Capital Trust issued in February 1997. The 1996 minority
interest represented only minority earnings from less than wholly owned
subsidiaries.
17
<PAGE> 19
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM AND INCOME (LOSS) PER SHARE
BEFORE EXTRAORDINARY ITEM. Income before extraordinary item was $5.2 million in
1998 compared to a loss of $36.6 million in 1997 and income of $11.2 million in
1996. Income per share before extraordinary item was $0.60 in 1998 compared to
loss per share before extraordinary item of $4.23 in 1997 and income per share
of $1.30 in 1996.
EXTRAORDINARY ITEM. The extraordinary item in 1998 was $1.5 million net
of tax for the early payment premium for the retirement of the 2004 Senior Notes
that occurred in May 1998.
NET INCOME (LOSS) AND INCOME (LOSS) PER SHARE. Net income in 1998 was
$3.7 million compared to a net loss of $36.6 million in 1997 and net income of
$11.2 million in 1996. Net income per share was $0.43 in 1998 compared to net
loss per share of $4.23 in 1997 and net income per share of $1.30 in 1996. The
net loss for 1997 was the result of the reasons stated above including the
restructuring charge, warranty reserve and other one-time charges.
INFLATION. Inflation potentially affects the Company in two principal
ways. First, a portion of the Company's debt is tied to prevailing short-term
interest rates which may change as a result of inflation rates, translating into
changes in interest expense. Second, general inflation can impact material
purchases, labor and other costs. In many cases, the Company has limited ability
to pass through inflation-related cost increases due to the competitive nature
of the markets that the Company serves. In the past three years, however,
inflation has not been a significant factor for the Company.
FOREIGN CURRENCY TRANSACTIONS. Approximately 49% of the Company's sales
during 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 (31% of sales), Asia (8% of
sales) and South America (2% of sales) are measured in local currency of the
countries in which they operate and translated into U.S. dollars. The effects of
foreign currency fluctuations in those regions 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 Mexico (8% 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 versus the U.S. dollar.
Approximately 44% of the Company's assets at December 31, 1998, are
based in its foreign operations and are translated into U.S. dollars at foreign
currency exchange rates in effect as of the end of each period. Accordingly, the
Company's consolidated stockholders' equity will fluctuate depending upon the
strengthening or weakening of the U.S. dollar. In addition, the Company has
equity investments in unconsolidated joint ventures in Argentina, 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 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 firm commitments in foreign
currencies.
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
18
<PAGE> 20
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
replacement computer hardware for non-compliant systems. This phase is expected
to be complete by June 30, 1999. The estimated cost associated with the purchase
of these items is approximately $2.3 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 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, we are 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 December 31, 1998, the Company
had outstanding $14.4 million in short-term debt, including current portion of
long-term debt, and $324.3 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.
In May 1998, the Company obtained a $150 million Credit Facility
consisting of $125 million revolving line of credit and a $25 million capital
expenditure facility. The new credit facility is available for five years.
Proceeds of the new credit facility were initially used to retire $30 million
under the previous 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 $2.0 million. In addition, the facility will be used to
finance capital expenditures and to meet working capital needs. At December 31,
1998, the Company had borrowed $93.1 million on the revolving line of credit and
$2.5 million of the capital expenditure facility.
19
<PAGE> 21
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 credit facility, potential lease
financing, funds available in the capital markets and cash from operations.
As of December 31, 1998, accounts receivable amounted to $154.4
million, an increase of $9.4 million, compared to $145.0 million at December 31,
1997. The increase in accounts receivable was due to higher sales, larger
amounts of accounts receivable for customer tooling and additional sales to
foreign customers with longer payment terms. The average collection period at
December 31, 1998 was 90.2 days compared to the average collection period at
December 31, 1997 of 85.3 days.
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates and foreign
currency exchange rates in the normal course of business. The Company manages
these risks through the use of derivative financial instruments in accordance
with management's guidelines. The Company does not enter into derivative
financial instruments for trading purposes. A discussion of the Company's
accounting policies for these instruments is included in Note 1 to the Company's
consolidated financial statements and further disclosure is provided in Note 12
to the Company's consolidated financial statements.
The Company uses a combinantion of fixed rate and variable rate debt to manage
its exposure to changes in interest rates based on its financing and cash
management activities. The table below provides information about the
Company's long term debt obligations that are sensitive to changes in interest
rates. The table presents principal cash flows and related weighted average
interest rates by expected maturity dates. Weighted average interest rates are
based on implied forward rates in the yield curve at the reporting date. The
information is presented in U.S. dollar equivalents, which is the Company's
reporting currency. The instrument's actual cash flows are denominated in both
U.S. dollars ($US) and Belgian Francs (BEF), as indicated in parentheses (in
thousands).
<TABLE>
<CAPTION>
December 31, 1998 Expected Maturity Date
- --------------------- ------------------------------------------------------------------------------
1999 2000 2001 2002 2003 Thereafter Total Fair Value
----- ----- ----- ----- ------ ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate (US$) $ 910 $1,080 $1,134 $ 481 $ 387 $212,254 $216,246 $212,250
Average interest rate 7.1% 7.0% 7.1% 6.7% 6% 9.9% 9.9%
Fixed rate (BEF) - - - - 5,550 - 5,550 2,805
Average interest rate 5.4% 5.4%
Variable rate (US$) 1,493 1,493 1,493 1,493 89,924 9,000 104,896 104,896
Average interest rate 8.0% 8.0% 8.1% 8.1% 8.1% 4.7% 7.8%
</TABLE>
The Company enters into foreign currency forward contracts to manage its
exposure to changes in foreign currency exchange rates related to buying,
selling, and financing in foreign currencies and to manage exposure related to
uncertainty to which future earnings or assets and liability values are exposed
to operating cash flows and financial instruments denominated in foreign
currencies. These commitments are generally for terms of less than one year.
The Company has performed a quantitative analysis of its overall currency rate
exposure at December 31, 1998. Based on this analysis, a 10% change in
currency rates would not have a material effect on its earnings.
20
<PAGE> 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated balance sheets are as of December 31, 1998 and 1997
and the consolidated statements of income, cash flows and stockholders equity
are for each of the years ended December 31, 1998, 1997 and 1996.
Report of Independent Public Accountants, page F-1.
Consolidated Balance Sheets, page F-2.
Consolidated Statements of Income, page F-3.
Consolidated Statements of Stockholders' Equity, page F-4.
Consolidated Statements of Cash Flows, page F-5.
Notes to Consolidated Financial Statements, pages F-6 through F-22.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
21
<PAGE> 23
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference to "Election of Directors" on pages 2 through
5, "Identification of Other Executive Officers" on page 7 and "Section 16(a)
Beneficial Ownership Reporting Compliance" on page 7 of the Company's Notice of
Annual Meeting of Stockholders and Proxy Statement for its Annual Meeting of
Stockholders to be held on May 4, 1999 (the "1999 Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to "Executive Compensation" on pages 8
through 11 and "Compensation of the Board of Directors" on page 5 of the 1999
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Incorporated by reference to "Security Ownership of Certain Beneficial
Owners and Management" on pages 13 and 14 of the 1999 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to "Indebtedness of Management" on page 7 of
the 1999 Proxy Statement.
22
<PAGE> 24
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a) The following documents are filed as part of this Form 10-K:
1. The following consolidated financial statements of the
Company and its subsidiaries, together with the applicable
report of independent public accountants, are included in Item
8:
Report of Independent Public Accountants, page F-1.
Consolidated Balance Sheets at December 31, 1998 and 1997, page
F-2.
Consolidated Statements of Income for the years ended December
31, 1998, 1997 and 1996, page F-3.
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1998, 1997 and 1996, page F-4.
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996, page F-5.
Notes to Consolidated Financial Statements, page F-6 through
F-22.
2. The following consolidated supplemental financial information of
the Company and its subsidiaries for the three years ended December 31,
1998, 1997 and 1996 is filed as part of this Form 10-K.
Report of Independent Public Accountants, page S-1.
Supplemental Notes to Consolidated Financial Statements, page S-2
through S-12.
(1) Valuation and Qualifying Accounts.
(2) Supplemental Guarantor Condensed Consolidating Financial
Statements.
The information required to be submitted in Schedule II is
included in the Supplemental Note 1 to Consolidated Financial
Statements.
3. The following exhibits are filed with this report or incorporated
by reference as set forth below.
EXHIBIT NO.
3.1 Restated Certificate of Incorporation of the Company, filed as
Exhibit 3.1 to the Company's Registration Statement on Form S-3,
File No. 333-18317. (2)
3.2 By-laws of the Company, as amended, filed as Exhibit 3.2 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1989. (2)
23
<PAGE> 25
EXHIBIT NO.
3.3 Amendment to Section 2.9 of the By-laws of the Company, filed as
Exhibit 3.3 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994. (2)
4.1 Indenture for the 10 1/8% Senior Notes due 2007 dated as of
December 15, 1997 among the Company, Walbro Automotive
Corporation, Walbro Engine Management Corporation, Sharon
Manufacturing Company, Whitehead Engineered Products, Inc. and
Bankers Trust Company, as Trustee (including form of the Exchange
Note and form of Guarantee), filed as Exhibit 4.1 to the Company's
Registration Statement on Form S-4, File No. 333-45693. (2)
4.2 Purchase Agreement dated December 11, 1997 among the Company,
Walbro Automotive Corporation, Walbro Engine Management
Corporation, Sharon Manufacturing Company, Whitehead Engineered
Products, Inc. and Salomon Brothers Inc., filed as Exhibit 4.2 to
the Company's Registration Statement on Form S-4, File No.
333-45693. (2)
4.3 Registration Rights Agreement dated December 11, 1997 among the
Company, Walbro Automotive Corporation, Walbro Engine Management
Corporation, Sharon Manufacturing Company, Whitehead Engineered
Products, Inc. and Salomon Brothers Inc., filed as Exhibit 4.3 to
the Company's Registration Statement on Form S-4, File No.
333-45693. (2)
4.4 Form of the Exchange Note (included in Exhibit 4.1).
4.5 Form of Guarantee (included in Exhibit 4.1).
4.6 Loan Agreement between Walbro Automotive Corporation and the Town
of Ossian, Indiana, dated as of December 1, 1993, filed as Exhibit
4.13 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993. (2)
4.7 Indenture for the 9 7/8% Senior Notes due 2005 dated as of July
27, 1995 among the Company, Walbro Automotive Corporation, Walbro
Engine Management Corporation, Sharon Manufacturing Company,
Whitehead Engineered Products, Inc. and Bankers Trust Company, as
Trustee (including form of Exchange Note), filed as Exhibit 2.3 to
the Company's Current Report on Form 8-K dated July 27, 1995. (2)
4.8 Certificate of Trust of Walbro Capital Trust dated December 17,
1996 filed as Exhibit 4.10 to the Company's Registration Statement
on Form S-3, File No. 333-18317. (2)
4.9 Amended and Restated Declaration of Trust of Walbro Capital Trust
dated as of February 3, 1997 among Walbro Corporation, as Sponsor,
Bankers Trust (Delaware), as Delaware Trustee, and Lambert E.
Althaver, Daniel L. Hittler and Michael A. Shope, as Regular
Trustees, filed as Exhibit 4.11 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996. (2)
4.10 Indenture between Walbro Corporation and Bankers Trust Company, as
Indenture Trustee, dated as of February 3, 1997, filed as Exhibit
4.12 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996. (2)
4.11 Form of Preferred Security issued by Walbro Capital Trust,
included as Exhibit A-1 to Exhibit 4.11 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996.
(2)
4.12 Convertible Debenture issued by Walbro Corporation to Walbro
Capital Trust, included as Exhibit A to Exhibit 4.12 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996. (2)
4.13 Preferred Securities Guarantee Agreement between Walbro
Corporation, as Guarantor, and Bankers Trust Company, as Guarantee
Trustee, with respect to the Preferred Securities of Walbro
Capital Trust dated as of February 3, 1997, filed as Exhibit 4.15
to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996. (2)
24
<PAGE> 26
EXHIBIT NO.
4.14 Rights Agreement dated as of June 30, 1998 between Walbro
Corporation and Harris Trust and Savings Bank, filed as
Exhibit 1 to the Company's Registration Statement on Form 8-A
filed on July 8, 1998. (2)
4.15 Financing and Security Agreement between the Company and
NationsBank N.A., as Administrative Agent and Lender, dated
May 29, 1998, filed as exhibit 4.15 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1998. (2)
4.16 Amendment No. 1 to the Financing and Security Agreement
between the Company and NationsBank, N.A., as Administrative
Agent and Lender, dated December 31, 1998, filed as exhibit
4.16 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998. (2)
10.1 Joint Venture Agreement between the Company and Mitsuba
Electric Manufacturing Company, Ltd. dated December 12, 1986,
filed as Exhibit 10.4 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1986. (2)
10.2 The Company's Amended and Restated Equity Based Long-Term
Incentive Plan effective as of June 20, 1994, filed as exhibit
10.2 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998. (2)(3)
10.3 Retirement Income Plan for Directors dated February 9, 1988,
filed as Exhibit 10.11 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1988. (2)(3)
10.4 The Company's Employee Stock Ownership Plan dated August 15,
1989, filed as Exhibit 10.14 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1989. (2)
10.5 Walbro Engine Management Incentive Compensation Plan, filed as
Exhibit 10.21 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1990.
(2)(3)
10.6 Joint Venture Agreement dated June 17, 1991 between the
Company and Jaeger S.A., an indirect, majority-controlled
subsidiary of Magneti Marelli S.p.A., relating to the Marwal
Systems S.A. joint venture, filed as Exhibit 10.23 to the
Company's Registration Statement on Form S-2, File No.
33-41425. (2)
10.7 Joint Venture Agreement between the Company and Jaeger S.A.
dated as of January 1, 1993 relating to the Marwal do Brasil
joint venture, filed as Exhibit 10.10 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1992. (2)
10.8 The Company's Advantage Plan, filed as the Exhibit to the
Company's Registration Statement on Form S-8 filed October 28,
1991. (2)(3)
10.9 Joint Venture Contract among Walbro Engine Management
Corporation, Fujian Fuding Carburetor Factory and Twin Winner
Trading Co., Ltd. dated December 30, 1993 relating to the
Fujian Hualong Carburetor Co. Ltd. joint venture, filed as
Exhibit 10.14 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994. (2)
10.10 Agreement among the Company, Walbro Automotive Corporation and
Magneti Marelli France S.A. dated February 7, 1995, filed as
Exhibit 10.24 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994. (2)
10.11 Purchase and Sale Agreement dated as of April 7, 1995 between
the Company and Dyno Industrier AS, filed as Exhibit 2.1 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995. (2)
10.12 Addendum to Purchase and Sale Agreement between the Company
and Dyno Industrier AS dated as of July 27, 1995, filed as
Exhibit 2.2 to the Company's Current Report on Form 8-K dated
July 27, 1995. (2)
10.13 General Partnership Agreement dated August 18, 1995 between
Iwaki Diecast U.S.A., Inc. and Walbro Tucson Corp., filed as
Exhibit 10.31 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995. (2)
10.14 Employment Agreement between the Company and Daniel L. Hittler
dated August 16, 1996, filed as Exhibit 10.23 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1996. (2)(3)
25
<PAGE> 27
EXHIBIT NO.
10.15 Termination and Change of Control Agreement between the
Company and Daniel L. Hittler dated August 16, 1996, filed as
Exhibit 10.24 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996. (2)(3)
10.16 Employment Agreement between the Company and Michael A. Shope
dated August 16, 1996, filed as Exhibit 10.25 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1996. (2)(3)
10.17 Termination and Change of Control Agreement between the
Company and Michael A. Shope dated August 16, 1996, filed as
Exhibit 10.26 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996. (2)(3)
10.18 Employment Agreement between the Company and Robert H. Walpole
dated August 16, 1996, filed as Exhibit 10.27 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1996. (2)(3)
10.19 Termination and Change of Control Agreement between the
Company and Robert H. Walpole dated August 16, 1996, filed as
Exhibit 10.28 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996. (2)(3)
10.20 Employment Agreement between the Company and R.H. Whitehead
III dated August 16, 1996, filed as Exhibit 10.29 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996. (2)(3)
10.21 Termination and Change of Control Agreement between the
Company and R.H. Whitehead III dated August 16, 1996, filed as
Exhibit 10.30 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996. (2)(3)
10.22 Amended and Restated Employment Agreement between the Company
and Frank E. Bauchiero effective as of April 17, 1998, filed
as exhibit 10.22 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998. (2)(3)
10.23 Amended and Restated Termination and Change of Control
Agreement between the Company and Frank E. Bauchiero effective
as of April 17, 1998, filed as exhibit 10.23 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1998. (2)(3)
10.24 The Company's Broad-Based Long Term Incentive Plan, filed as
Exhibit 10.33 to the Company's Registration Statement on Form
S-4, File No. 333-45693. (2)
23.1 Consent of Arthur Andersen LLP. (1)
23.2 Consent of Ernst & Young Audit. (1)
- ------------------
(1) Filed herewith.
(2) Incorporated by reference.
(3) Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K:
There was no report on Form 8-K filed during the last quarter of the
period covered by this Form 10-K.
(d) (1) The following Financial Statements of Marwal Systems
S.N.C. as of December 31, 1998, 1997 and 1996, and for the years ended
December 31, 1998, 1997 and 1996 are included as part of this Form 10-K/A on
pages F-23 through F-68:
Letter of Confirmation . . . . . . . . . . . . . . . . . . . . . . .F-23
Report of Independent Public Accountants for 1998 . . . . . . . . . .F-24
Balance Sheet as of December 31, 1998 . . . . . . . . . . . . . . . .F-25
Income Statement for the year ended December 31, 1998 . . . . . . . .F-27
Notes to the Financial Statements for 1998. . . . . . . . . . . . . .F-29
Report of Independent Public Accountants for 1997 . . . . . . . . . .F-39
Balance Sheet as of December 31, 1997 . . . . . . . . . . . . . . . .F-40
Income Statement for the year ended December 31, 1997 . . . . . . . .F-42
Notes to the Financial Statements for 1997. . . . . . . . . . . . . .F-44
Report of Independent Public Accountants for 1996 . . . . . . . . . .F-55
Balance Sheet as of December 31, 1996 . . . . . . . . . . . . . . . .F-56
Income Statement for the year ended December 31, 1996 . . . . . . . .F-58
Notes to the Financial Statements for 1996. . . . . . . . . . . . . .F-60
26
<PAGE> 28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 20th day of
April, 1999.
WALBRO CORPORATION
By: /s/ MICHAEL A. SHOPE
-----------------------------------------
Michael A. Shope, Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
PRESIDENT, CHIEF OPERATING OFFICER AND
/S/ FRANK E. BAUCHIERO DIRECTOR (PRINCIPAL EXECUTIVE OFFICER) APRIL 20, 1999
- -----------------------------
FRANK E. BAUCHIERO
CHIEF FINANCIAL OFFICER (PRINCIPAL FINANCIAL
/S/ MICHAEL A. SHOPE AND ACCOUNTING OFFICER) APRIL 20, 1999
- -----------------------------
MICHAEL A. SHOPE
/S/ JOHN E. UTLEY CHAIRMAN OF THE BOARD APRIL 20, 1999
- -----------------------------
John E. Utley
/S/ VERNON E. OECHSLE DIRECTOR APRIL 20, 1999
- -----------------------------
VERNON E. OECHSLE
/S/ ROBERT D. TUTTLE DIRECTOR APRIL 20, 1999
- ----------------------------
ROBERT D. TUTTLE
/S/ WILLIAM T. BACON, JR. DIRECTOR APRIL 20, 1999
- -----------------------------
WILLIAM T. BACON, JR.
/S/ ROBERT H. WALPOLE DIRECTOR APRIL 20, 1999
- -----------------------------
Robert H. Walpole
/S/ J. DWANE BAUMGARDNER DIRECTOR APRIL 20, 1999
- -----------------------------
J. DWANE BAUMGARDNER
</TABLE>
27
<PAGE> 29
REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
Walbro Corporation & Subsidiaries
TO THE BOARD OF DIRECTORS AND
STOCKHOLDERS OF WALBRO CORPORATION:
We have audited the accompanying consolidated balance sheets of Walbro
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1998
and 1997, and the related consolidated statements of income, comprehensive
income, stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of Marwal Systems, S.N.C. and Marwal do Brasil Ltda., the
investments in which are reflected in the accompanying consolidated financial
statements using the equity method of accounting. The investments in Marwal
Systems, S.N.C. and Marwal do Brasil Ltda. together represent 3.9% and 3.7% of
consolidated total assets in 1998 and 1997, respectively, and the equity in
their net income together represents income of $1,559,000, $3,710,000 and
$4,560,000 in 1998, 1997 and 1996, respectively. Those statements were audited
by other auditors whose reports have been furnished to us, and our opinion,
insofar as it relates to the amounts included for those entities, is based
solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the reports of
other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Walbro Corporation and subsidiaries as of December 31,
1998 and 1997, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Detroit, Michigan,
February 17, 1999.
F-1
<PAGE> 30
Walbro Corporation & Subsidiaries
- --------------------------------------------------------------------------------
CONSOLIDATED
BALANCE SHEETS
December 31,
1998 and 1997
<TABLE>
<CAPTION>
1998 1997
-------- --------
(In Thousands,
Except Share Data)
<S> <C> <C>
ASSETS
Current Assets:
Cash...................................................... $ 19,647 $ 13,539
Accounts receivable, net.................................. 154,416 144,985
Inventories............................................... 60,871 56,207
Prepaid expenses and other................................ 11,734 17,405
Deferred and refundable income taxes...................... 10,735 8,519
-------- --------
Total Current Assets................................... 257,403 240,655
-------- --------
Plant and Equipment, at cost:
Land...................................................... 4,905 5,230
Buildings and improvements................................ 94,842 90,099
Machinery and equipment................................... 308,151 297,032
-------- --------
407,898 392,361
Less--Accumulated depreciation............................ 129,357 116,991
-------- --------
Net Plant and Equipment................................ 278,541 275,370
-------- --------
Other Assets:
Assets held for sale...................................... 3,175 --
Joint ventures............................................ 38,435 26,681
Investments............................................... 2,690 3,261
Goodwill, net............................................. 31,887 32,803
Notes receivable.......................................... 2,023 126
Deferred income taxes..................................... 5,612 8,179
Other..................................................... 28,901 23,518
-------- --------
Total Other Assets..................................... 112,723 94,568
-------- --------
Total Assets........................................... $648,667 $610,593
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt......................... $ 2,403 $ 13,960
Bank and other borrowings................................. 12,012 26,204
Accounts payable.......................................... 114,133 84,209
Accrued liabilities....................................... 31,009 39,221
Dividends payable......................................... 920 1,788
-------- --------
Total Current Liabilities.............................. 160,477 165,382
-------- --------
Long-Term Liabilities:
Long-term debt, less current portion...................... 324,289 291,393
Pension obligations and other............................. 11,585 11,823
Deferred income taxes..................................... 4,535 2,077
Minority interest......................................... 1,225 1,052
-------- --------
Total Long-Term Liabilities............................ 341,634 306,345
-------- --------
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; authorized 25,000,000;
outstanding 8,688,294 in 1998 and 8,682,595 in 1997.... 4,344 4,341
Paid-in capital........................................... 66,088 66,151
Retained earnings......................................... 37,656 33,938
Deferred compensation..................................... (125) (379)
Accumulated other comprehensive income.................... (30,407) (34,185)
-------- --------
Total Stockholders' Equity............................. 77,556 69,866
-------- --------
Total Liabilities and Stockholders' Equity............. $648,667 $610,593
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE> 31
Walbro Corporation & Subsidiaries
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS
OF INCOME
For the years ended
December 31,
1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C>
Net Sales...................................... $677,990 $619,905 $585,389
Costs and Expenses:
Cost of sales................................ 571,992 538,751 488,134
Selling and administrative expenses.......... 55,643 60,786 52,177
Research and development expenses............ 12,883 17,289 18,400
Restructuring and impairment charges......... -- 27,000 --
-------- -------- --------
Operating Income (Loss)........................ 37,472 (23,921) 26,678
Other Expense (Income):
Interest expense, net of capitalized interest
of $204 in 1998, $1,207 in 1997 and $3,683
in 1996................................... 31,806 25,410 20,535
Interest income.............................. (3,177) (674) (2,716)
Royalty income, net.......................... (3,228) (3,878) (1,410)
Foreign currency exchange gain............... (1,262) (308) (70)
Other........................................ (785) 365 (63)
-------- -------- --------
Income (Loss) Before (Provision) Credit for
Income Taxes, Minority Interest, Equity in
Income of Joint Ventures and Extraordinary
item......................................... 14,118 (44,836) 10,402
(Provision) Credit for Income Taxes............ (3,967) 10,131 (3,075)
Minority Interest.............................. (5,806) (5,035) (285)
Equity in Income of Joint Ventures............. 846 3,113 4,187
-------- -------- --------
Income (Loss) before Extraordinary Item........ 5,191 (36,627) 11,229
Extraordinary Item (net of tax of $762)........ (1,473) -- --
-------- -------- --------
Net Income (Loss).............................. $ 3,718 $(36,627) $ 11,229
======== ======== ========
Basic and Diluted Income (Loss) Per Share
before Extraordinary Item.................... $ 0.60 $ (4.23) $ 1.30
Extraordinary Item............................. (0.17) -- --
-------- -------- --------
Basic and Diluted Net Income (Loss) Per
Share........................................ $ 0.43 $ (4.23) $ 1.30
======== ======== ========
CONSOLIDATED STATEMENTS
OF COMPREHENSIVE
INCOME
For the years ended
December 31,
1998, 1997 and 1996
Net Income (Loss).............................. $ 3,718 $(36,627) $ 11,229
Other Comprehensive Income, net of tax:
Minimum pension liability adjustment......... -- -- 63
Unrealized loss on securities available for
sale...................................... (207) (620) (139)
Cumulative translation adjustments........... 3,985 (28,226) (6,580)
-------- -------- --------
Other Comprehensive Income (Loss).............. 3,778 (28,846) (6,656)
-------- -------- --------
Comprehensive Income (Loss).................... $ 7,496 $(65,473) $ 4,573
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 32
Walbro Corporation & Subsidiaries
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS
OF STOCKHOLDERS' EQUITY
For the years ended
December 31,
1998, 1997 and 1996
<TABLE>
<CAPTION>
Accumulated Other
Comprehensive Income
---------------------------------------
Unrealized
Gain (Loss)
Minimum on Securities Cumulative
Common Paid-in Retained Deferred Pension Available Translation
Stock Capital Earnings Compensation Liability for Sale Adjustments
------ ------- -------- ------------ --------- ------------- -----------
(In Thousands, Except Share Data)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance--
December 31, 1995....... $4,290 $64,381 $ 66,256 $(817) $(63) $ 827 $ 553
Exercise of stock
options............... 21 750 -- -- -- -- --
ESOP debt payments...... -- -- -- 408 -- -- --
Restricted stock
issued................ 15 543 -- (558) -- -- --
Net income.............. -- -- 11,229 -- -- -- --
Adjust minimum pension
liability............. -- -- -- -- 63 -- --
Cash dividends ($.40 per
share)................ -- -- (3,446) -- -- -- --
Change in market value
of securities
available for sale.... -- -- -- -- -- (139) --
Translation
adjustments........... -- -- -- -- -- -- (6,580)
------ ------- -------- ----- ---- ----- --------
Balance--
December 31, 1996....... 4,326 65,674 74,039 (967) -- 688 (6,027)
Exercise of stock
options............... 15 477 -- -- -- -- --
ESOP debt payments...... -- -- -- 408 -- -- --
Change in restricted
stock................. -- -- -- 180 -- -- --
Net loss................ -- -- (36,627) -- -- -- --
Cash dividends ($.40 per
share)................ -- -- (3,474) -- -- -- --
Change in market value
of securities
available for sale.... -- -- -- -- -- (620) --
Translation
adjustments........... -- -- -- -- -- -- (28,226)
------ ------- -------- ----- ---- ----- --------
Balance--
December 31, 1997....... 4,341 66,151 33,938 (379) -- 68 (34,253)
Exercise of stock
options............... 3 54 -- -- -- -- --
ESOP debt payments...... -- -- -- 408 -- -- --
Change in restricted
stock................. -- (117) -- (154) -- -- --
Net income.............. -- -- 3,718 -- -- -- --
Change in market value
of securities
available for sale.... -- -- -- -- -- (207) --
Translation
adjustments........... -- -- -- -- -- -- 3,985
------ ------- -------- ----- ---- ----- --------
Balance--
December 31, 1998....... $4,344 $66,088 $ 37,656 $(125) $ -- $(139) $(30,268)
====== ======= ======== ===== ==== ===== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 33
Walbro Corporation & Subsidiaries
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS
OF CASH FLOWS
For the years ended
December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(In Thousands)
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss)........................ $ 3,718 $ (36,627) $ 11,229
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities--
Depreciation and amortization....... 36,683 31,417 29,736
(Gain) loss on disposition of
assets........................... (785) 1,459 774
Minority interest................... 286 (624) (238)
Equity in income of joint
ventures......................... (846) (3,113) (4,187)
Restructuring and impairment
charges.......................... -- 27,000 --
Change in assets and liabilities,
net of effects of
acquisitions--...................
Accounts receivable, net....... (10,499) (28,299) (16,956)
Inventories.................... (4,362) (8,674) (473)
Prepaid expenses and other..... 5,012 (10,933) (5,943)
Deferred and refundable income
taxes....................... 2,208 (8,631) (762)
Accounts payable and accrued
liabilities................. 22,874 12,687 25,507
Pension obligations and
other....................... 313 (1,888) (2,049)
--------- --------- ---------
Total adjustments................ 50,884 10,401 25,409
--------- --------- ---------
Net cash provided by (used in)
operating activities........... 54,602 (26,226) 36,638
--------- --------- ---------
Cash Flows From Investing Activities:
Purchase of plant and equipment.......... (42,006) (62,019) (99,147)
Acquisitions, net of cash acquired....... -- -- (1,018)
Purchase of other assets................. (5,476) (3,087) (3,434)
Investment in joint ventures and other... (11,569) 1,756 (1,451)
Proceeds from disposal of assets......... 8,379 5,415 4,156
--------- --------- ---------
Net cash used in investing
activities..................... (50,672) (57,935) (100,894)
--------- --------- ---------
Cash Flows From Financing Activities:
Borrowings under revolving
lines-of-credit....................... 230,453 199,981 200,548
Repayments under revolving
lines-of-credit....................... (157,109) (283,116) (135,298)
Debt repayments.......................... (68,831) (1,210) (1,104)
Proceeds from issuance of debt........... -- 105,404 2,772
Proceeds from issuance of convertible
preferred securities.................. -- 69,000 --
Proceeds from issuance of common stock
and options........................... 57 492 771
Financing fees paid...................... (2,603) (5,680) (508)
Cash dividends paid...................... (868) (3,463) (3,439)
--------- --------- ---------
Net cash provided by financing
activities..................... 1,099 81,408 63,742
--------- --------- ---------
Effect of Exchange Rate Changes on Cash.... 1,079 (1,921) (1,065)
--------- --------- ---------
Net Increase (Decrease) in Cash............ 6,108 (4,674) (1,579)
Cash at Beginning of Year.................. 13,539 18,213 19,792
--------- --------- ---------
Cash at End of Year........................ $ 19,647 $ 13,539 $ 18,213
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 34
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(continued)
Walbro Corporation & Subsidiaries
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
Principles of Consolidation:
- -----------------------------
The consolidated financial statements include the accounts of Walbro Corporation
and its wholly-owned and majority-owned subsidiaries (the Company). Investments
in joint ventures are accounted for under the equity method (Note 8).
Significant transactions and balances among the Company and its subsidiaries
have been eliminated in the consolidated financial statements.
Foreign Currency Translation:
- --------------------------------
The assets and liabilities of the Company's foreign operations are generally
translated into U.S. dollars at current exchange rates, and revenues and
expenses are translated at average exchange rates for the year. Resulting
translation adjustments are reflected as a separate component of stockholders'
equity.
Transaction gains and losses that arise from exchange rate fluctuations on
transactions denominated in a currency other than the functional currency,
except those transactions which operate as a hedge of an identifiable foreign
currency commitment or as a hedge of a foreign currency investment position, are
included in the results of operations as incurred.
Accounts Receivable:
- -----------------------
Accounts receivable are net of allowances for doubtful accounts of $4,159,000
and $809,000 as of December 31, 1998 and 1997, respectively.
Inventories:
- ------------
Inventories are stated at the lower of cost (first-in, first-out) or market.
Inventories include raw materials and component parts, work-in-process and
finished products. Work-in-process and finished products inventories include
material, labor and manufacturing overhead costs.
Inventory at December 31 consisted of the following:
<TABLE>
<CAPTION>
1998 1997
------- -------
(In Thousands)
<S> <C> <C>
Raw materials and
components.......... $34,804 $30,857
Work-in-process....... 6,287 6,545
Finished products..... 19,780 18,805
------- -------
$60,871 $56,207
======= =======
</TABLE>
Plant and Equipment:
- -----------------------
The Company provides for depreciation of plant and equipment based upon the
acquisition costs and the estimated service lives of depreciable assets. The
straight-line method is the principal method used to compute depreciation for
financial reporting purposes. However, the units-of-production method is used to
compute depreciation of certain equipment. Estimated service lives of
depreciable assets are as follows: buildings and improvements - 10 to 40 years,
machinery and equipment - 5 to 15 years.
Investments:
- -------------
The carrying value of marketable equity securities is market value.
The Company classifies certain investments in common stock securities as
"available-for-sale", recording these investments at fair market value with the
gross unrealized gains and losses, after-tax, included as a separate component
of stockholders' equity.
At December 31, 1998, the Company had no investments classified as "trading."
At December 31, 1997, the fair market value of investments classified as
"trading" was $687,000.
Goodwill:
- ----------
Goodwill consists of purchase price and related acquisition costs in excess of
the fair value of the identifiable net assets acquired. Goodwill is amortized on
a straight-line basis over 15 to 40 years. The Company evaluates the carrying
value of goodwill for potential impairment on an ongoing basis. Such evaluations
compare the undiscounted expected future cash flows of the operations to which
the goodwill relates to the carrying value of the goodwill. The Company also
considers future anticipated operating results, trends and other circumstances
in making such evaluations.
Goodwill consisted of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
------- -------
(In Thousands)
<S> <C> <C>
Goodwill.............. $39,559 $39,449
Less: Accumulated
amortization........ (7,672) (6,646)
------- -------
$31,887 $32,803
======= =======
</TABLE>
Income Taxes:
- ---------------
Deferred income taxes represent the effect of cumulative temporary differences
between income and expense items reported for financial statement and tax
purposes, and between the bases of various assets and liabilities for financial
statement and tax purposes. Deferred tax assets are reduced by a valuation
allowance if, based on the
F-6
<PAGE> 35
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(continued)
Walbro Corporation & Subsidiaries
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (continued)
weight of evidence, it is deemed more likely than not that the assets will not
be realized.
Financial Instruments:
In order to manage exposure to fluctuations in foreign currency exchange rates,
the Company enters into forward currency exchange contracts. Gains and 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. Gains and losses on contracts that hedge net investments in foreign
joint ventures or subsidiaries are recognized as cumulative translation
adjustments in stockholders' equity. Gains and losses on forward currency
exchange contracts that do not qualify as hedges are recognized as foreign
currency exchange gain or loss.
Asset Impairments:
The Company continually evaluates whether events and circumstances have occurred
that indicate that the carrying amount of certain long-lived assets may not be
recoverable. When events and circumstances indicate that a long-lived asset
should be evaluated for possible impairment, the Company uses an estimate of the
expected undiscounted future cash flows to be generated by the asset to
determine whether the carrying amount is recoverable or if an impairment exists.
When it is determined that an impairment exists, the Company uses the fair
market value of the asset, usually measured by the expected discounted future
cash flows to be generated by the asset, to determine the amount of impairment
to be recorded in the financial statements.
Comprehensive Income:
During 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income",
which establishes standards for the reporting and display of comprehensive
income. Comprehensive income is defined as all changes in a Company's net assets
except changes resulting from transactions with shareholders. It differs from
net income in that certain items currently recorded to equity are included in
comprehensive income. Prior years have been restated to conform to the
requirements of SFAS No. 130.
Reclassifications:
Certain amounts in prior years' consolidated financial statements have been
reclassified to conform with the presentation used in 1998.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period. Actual
results could differ from these estimates.
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
F-7
<PAGE> 36
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(continued)
Walbro Corporation & Subsidiaries
NOTE 2. RESTRUCTURING OF OPERATIONS AND OTHER ACTIONS. (continued)
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.
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 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.
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 remains accrued at
December 31, 1998 for 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.
NOTE 3. CONVERTIBLE TRUST PREFERRED SECURITIES.
In February 1997, the Company sold 2,760,000 Convertible Trust 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 at a rate of 1.1737 shares of common stock for
each preferred security. Net proceeds of the offering were approximately
$66,000,000 and were used to repay a portion of the Company's Old Revolving
Credit Facility.
NOTE 4. STOCKHOLDERS' EQUITY.
The Company has a stock rights plan which entitles the holder of each right,
upon the occurrence of certain events, to purchase one-hundredth of a share of a
new series of preferred stock (Series A Junior Participating Preferred Stock)
for $45. The rights will be exercisable only if a person or group acquires 15%
or more of the Company's common stock or announces a tender offer upon
consummation of which such person or group would own 15% or more of the
Company's common stock.
F-8
<PAGE> 37
Walbro Corporation & Subsidiaries
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(continued)
NOTE 5. LONG-TERM DEBT AND LINES OF CREDIT.
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(In Thousands)
<S> <C> <C>
Senior notes due 2005, unsecured, stated interest at 9.875%
(9.92% effective interest rate), net of unamortized
discount of $253 and $292 at December 31, 1998 and 1997,
respectively(b)........................................... $109,747 $109,708
Senior notes due 2007, unsecured, interest at 10.125%(b).... 100,000 100,000
New Revolving Credit Facility, secured, interest at the
LIBOR or prime rate, plus an additional margin. (a)....... 93,312 --
New Purchase Money Loan Agreement, secured, interest at the
LIBOR or prime rate, plus an additional margin (a)........ 2,584 --
Old Revolving Credit Facility, repaid during 1998 (a)....... -- 19,700
Old Purchase Money Loan Agreement, repaid during 1998 (a)... -- 2,852
2004 Senior Notes, repaid during 1998 (a)................... -- 45,000
Industrial revenue bond, secured, issued by Town of Ossian,
Indiana, interest at a variable municipal bond rate, due
in 2023................................................... 9,000 9,000
Industrial revenue bond, issued by City of Ligonier,
Indiana, repaid during 1998............................... -- 6,300
Term loan, interest at 5.44% payable in Belgian Francs in
quarterly amounts from 2003 to 2007....................... 5,550 5,163
Term loan from the State of Connecticut, secured, interest
at 6% per annum, payable in monthly amounts from 1998 to
2006...................................................... 3,400 3,400
Capital lease obligation, interest at 7.5%, payable in
monthly amounts through February 2002..................... 2,399 3,042
Other....................................................... 700 1,188
-------- --------
326,692 305,353
Less--current portion....................................... 2,403 13,960
-------- --------
$324,289 $291,393
======== ========
</TABLE>
(a) In May 1998, the Company executed a new $150,000,000 multi-currency
revolving credit facility (New Credit Facility) for the Company and certain of
its wholly-owned domestic and foreign subsidiaries. The proceeds of the New
Credit Facility were used to retire the Old Revolving Credit Facility, the Old
Purchase Money Loan Agreement and the 2004 Senior Notes. The early retirement of
these debt instruments resulted in an extraordinary charge of $1,473,000 (net of
tax) during 1998. The New Credit Facility consists of a $125,000,000 revolving
line of credit (New Revolving Credit Facility) and a $25,000,000 capital
expenditure facility (New Purchase Money Loan Agreement). The New Credit
Facility is available through May 2003. Borrowings under the New Revolving
Credit Facility bear interest at either the London interbank offered rate
(LIBOR), plus 2.25% or at the prime rate, plus 0.25%. Availability under the New
Revolving Credit Facility is subject to a borrowing base, consisting of 85% of
the eligible accounts receivable of the Company and certain of its subsidiaries,
plus the lesser of (i) 60% of certain raw materials and finished products
inventory and 70% of commodity raw material resin inventory or (ii) $50,000,000,
less customary reserves. The New Purchase Money Loan Agreement bears interest at
either the LIBOR, plus 2.50% or at the prime rate, plus 0.50%. Amounts drawn
under the New Purchase Money Loan Agreement are repayable in 20 equal quarterly
principal installments, beginning one quarter after such draw. If the New
Revolving Credit Facility is terminated by the Company during the first three
years, certain pre-payment fees may be applicable.
The New Credit Facility contains numerous covenants, including financial
covenants such as a fixed charge coverage 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 New Revolving Credit Facility are secured by accounts
receivable, inventory capital expenditure line equipment and general intangibles
of the Company and certain of its subsidiaries, and are also 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 New Purchase Money Loan Agreement is secured by the item of
equipment purchased with the proceeds of such advance. The collateral for the
New
F-9
<PAGE> 38
Walbro Corporation & Subsidiaries
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(continued)
NOTE 5. LONG-TERM DEBT AND LINES OF CREDIT. (continued)
Purchase Money Loan Agreement does not constitute collateral for the New
Revolving Credit Facility. In addition, certain of the subsidiaries of the
Company provide guarantees of the obligation under the New Credit Facility.
(b) In July 1995, the Company sold $110,000,000 in aggregate principal amount
of 9.875% Senior Notes due 2005 (the 2005 Notes). In December 1997, the Company
sold $100,000,000 in aggregate principal amount of 10.125% Senior Notes due 2007
(the 2007 Notes). The 2005 Notes and 2007 Notes are general unsecured
obligations of the Company with interest payable semi-annually. The 2005 Notes
and 2007 Notes are guaranteed on a senior unsecured basis, jointly and
severally, by each of the Company's principal wholly-owned domestic operating
subsidiaries and certain of its indirect wholly-owned subsidiaries. Except as
noted below, the 2005 Notes and 2007 Notes are not redeemable at the Company's
option prior to July 15, 2000 and December 15, 2002, respectively. Thereafter,
the 2005 Notes and 2007 Notes will be redeemable, in whole or part, at the
option of the Company at various redemption prices as set forth in the 2005 Note
Indenture and 2007 Note Indenture. In the event of a change in control, the
Company will be obligated to make an offer to purchase all of the outstanding
2005 Notes and 2007 Notes at a premium. Also, in certain circumstances, the
Company will be required to make an offer to repurchase the 2005 Notes at a
price equal to 100% of the principal amount thereof, plus accrued interest to
the date of repurchase, with the net cash proceeds of certain asset sales.
As of December 31, 1998 and 1997, assets recorded under capital lease
obligations were approximately $4,793,000 and $5,127,000, respectively, net of
accumulated amortization of approximately $1,140,000 and $806,000, respectively.
Aggregate minimum principal payment requirements on long-term debt, including
capital lease obligations, in each of the five years subsequent to December 31,
1998 are as follows: 1999 - $2,403,000; 2000 - $2,573,000; 2001 - $2,627,000;
2002 - $1,974,000; 2003 - $95,861,000; thereafter - $221,254,000.
In addition to long-term debt, the Company and its subsidiaries have line of
credit arrangements with foreign banks for short-term borrowings of
approximately $15,493,000 and $27,600,000 at December 31, 1998 and 1997,
respectively. The weighted average interest rate on short-term bank borrowings
outstanding under these arrangements was 4.7% and 4.1% at December 31, 1998 and
1997, respectively.
- --------------------------------------------------------------------------------
NOTE 6. LEASES.
The Company leases certain of its buildings, equipment and vehicles under
operating leases. The leases involving buildings contain options enabling the
Company to renew the leases at the end of the respective lease terms. Rent
expense was approximately $6,313,000, $6,178,000 and $7,702,000 for the years
ended December 31, 1998, 1997 and 1996, respectively.
Aggregate minimum future payments under noncancellable leases are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
(In Thousands)
<S> <C> <C>
1999.................. $ 900 $ 7,234
2000.................. 883 6,531
2001.................. 862 6,244
2002.................. 142 5,723
2003.................. -- 4,731
Thereafter............ -- 18,536
------ -------
Total minimum lease
payments......... 2,787 $48,999
=======
Amount representing
interest............ 315
------
Present value of
minimum lease
payments......... $2,472
======
</TABLE>
F-10
<PAGE> 39
Walbro Corporation & Subsidiaries
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(continued)
NOTE 7. INCOME TAXES.
A summary of income (loss) before (provision) credit for income taxes, minority
interest, equity in income of joint ventures and extraordinary item and
components of the (provision) credit for the years ended December 31, are as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- -------- -------
(In Thousands)
<S> <C> <C> <C>
Income (loss) before (provision) credit for
income taxes, minority interest, equity in
income of joint ventures and extraordinary item:
Domestic...................................... $ 4,255 $(31,095) $ 1,774
Foreign....................................... 9,863 (13,741) 8,628
------- -------- -------
$14,118 $(44,836) $10,402
======= ======== =======
(Provision) credit for income taxes:
Currently payable--
Domestic...................................... $ 632 $ (3,297) $ (384)
Foreign....................................... (1,185) (1,334) (2,456)
------- -------- -------
(553) (4,631) (2,840)
------- -------- -------
Deferred--
Domestic...................................... (2,511) 14,053 (988)
Foreign....................................... (1,946) 3,264 (1,544)
Utilization of tax credits.................... 2,861 1,000 2,517
Change in valuation allowance................. (1,818) (3,555) (220)
------- -------- -------
(3,414) 14,762 (235)
------- -------- -------
$(3,967) $ 10,131 $(3,075)
======= ======== =======
</TABLE>
Reconciliations of the U.S. Federal statutory income tax rates to the
Company's consolidated effective income tax rates for the years ended December
31, are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
U.S. Federal statutory income tax rate............... 35.0% (35.0)% 35.0%
Increase (decrease) in effective income tax rate
resulting from--
Differences between U.S. and foreign income tax
rates.............................................. (2.3) 6.4 9.4
Utilization of tax credits......................... (20.2) (2.2) (15.9)
Increase in valuation allowance.................... 12.9 7.9 2.1
Foreign taxes and dividends........................ 10.8 3.4 --
Goodwill amortization.............................. 4.3 .4 1.5
Tax benefit on deductible preferred stock
dividends....................................... (13.7) (3.9) --
Other, net......................................... 1.3 .4 (2.5)
----- ----- -----
Effective income tax rates........................... 28.1% (22.6)% 29.6%
===== ===== =====
</TABLE>
F-11
<PAGE> 40
Walbro Corporation & Subsidiaries
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(continued)
NOTE 7. INCOME TAXES. (continued)
The components of the net deferred income tax asset at December 31 are
summarized as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(In Thousands)
<S> <C> <C>
Deferred income tax liabilities:
Depreciation and basis differences........................ $ 12,927 $ 8,715
Other..................................................... 756 279
-------- --------
13,683 8,994
-------- --------
Deferred income tax assets:
Estimated net operating loss carryforwards................ (7,406) (5,533)
Employee benefits......................................... (2,927) (2,802)
Foreign tax credit carryforwards.......................... (659) (980)
Accruals.................................................. (1,845) (3,444)
Other tax credit carryforwards............................ (8,965) (5,783)
Inventory................................................. (1,709) (931)
Accounts receivable reserve............................... (268) (114)
Write-down of investment.................................. (368) (368)
Loss on joint ventures.................................... (819) (1,086)
Other..................................................... (1,103) (1,936)
-------- --------
(26,069) (22,977)
Valuation allowance....................................... 6,337 4,519
-------- --------
(19,732) (18,458)
-------- --------
Net deferred income tax asset............................... $ (6,049) $ (9,464)
======== ========
</TABLE>
At December 31, 1998, the cumulative amount of undistributed earnings of foreign
subsidiaries was approximately $26,500,000. No deferred U.S. income taxes have
been provided on these earnings as such amounts are deemed to be permanently
reinvested. If such earnings were remitted, the impact of additional U.S. income
taxes or foreign withholding taxes would not be significant.
As of December 31, 1998, the Company has net operating loss carryforwards of
approximately $23,515,000, which expire in varying amounts between 2003 and
2012, available from certain of its subsidiaries. The Company has recorded a
deferred tax asset of $7,406,000 associated with these carryforwards.
Realization of the related deferred tax asset is dependent on generating
sufficient taxable income in specific countries prior to the expiration of the
loss carryforwards. Although realization is not assured, management believes it
is more likely than not that all of the deferred tax asset will be realized. The
amount of the net deferred tax asset considered realizable, however, could be
reduced in the near term if estimates of future taxable income during the
carryforward period are reduced.
Provisions (credits) for state income taxes are included in selling and
administrative expenses and amounted to $410,000 in 1998, $(22,000) in 1997 and
$197,000 in 1996.
F-12
<PAGE> 41
Walbro Corporation & Subsidiaries
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(continued)
NOTE 8. JOINT VENTURES.
The investments in joint ventures as of December 31 are as follows:
<TABLE>
<CAPTION>
Percent Beneficial
Ownership
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Marwal Systems, S.N.C.
(France)............. 49% 49% 49%
Mitsuba-Walbro, Inc.
(Japan).............. 50% 50% 50%
Marwal do Brasil,
Ltda................. 49% 49% 49%
Korea Automotive Fuel
Systems, Ltd......... -- 49% 49%
Marwal de Mexico S.A.
de C.V............... 52% 52% 52%
Marwal Argentina
S.A. ................ 49% 49% --
Vitec L.L.C............ 48% -- --
</TABLE>
The above joint ventures are generally involved in the design and manufacture of
precision fuel systems products for the global automotive market.
All of the above investments in joint ventures are accounted for using the
equity method. Certain adjustments are made to the joint ventures' income so
that recorded income is stated in accordance with United States generally
accepted accounting principles. At December 31, 1998 and 1997, the cumulative
effect of these adjustments was to increase the Company's equity in its joint
ventures by approximately $3,884,000 and $3,158,000, respectively. At December
31, 1998, the amount included in retained earnings as undistributed earnings of
foreign joint ventures was approximately $8,056,000.
In 1996, the Company entered into a joint venture (Marwal de Mexico S.A. de
C.V.) with its 49% owned joint venture, Marwal Systems, S.N.C. The Company owns
5% of the venture directly and Marwal Systems S.N.C. owns the remaining 95%.
Marwal de Mexico S.A. de C.V. manufactures fuel pumps and fuel modules for the
Central American and Mexican automotive markets.
In 1996, the Company expanded its Marwal joint venture locations to include
Marwal Argentina S.A. This is a joint venture 1% owned by the Company, 1% owned
by Magneti Marelli and 98% owned by Marwal Systems S.N.C. Marwal Argentina S.A.
builds fuel sending units for the Argentinean automotive market.
In 1998, the Company reduced its equity in its Korean joint venture to zero.
Additionally, the Company invested in Vitec L.L.C., a joint venture in Detroit's
Empowerment Zone. Vitec manufactures and assembles fuel storage and delivery
systems for the U.S. automotive market.
Summarized combined financial information for joint ventures accounted for
using the equity method is as follows (Unaudited, in Thousands):
<TABLE>
<CAPTION>
As of
December 31,
1998 1997
------- -------
<S> <C> <C>
Balance sheet data:
Current assets............................................ $93,934 $90,358
Long-term assets.......................................... 58,395 44,365
Current liabilities....................................... 81,936 65,162
Long-term liabilities..................................... 11,666 13,355
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended December 31,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Income statement data:
Net sales.................................... $209,627 $248,527 $200,276
Gross margin................................. 30,435 31,846 24,806
Income before provision for income taxes..... 2,998 12,769 14,510
Net income................................... 1,715 5,978 7,515
</TABLE>
Dividends from joint ventures of approximately $1,052,000 and $3,418,000 were
received by the Company during 1998 and 1997, respectively. No dividends were
received from joint ventures during 1996. The Company had sales to joint
ventures of approximately $37,125,000, $64,109,000 and $42,413,000 during 1998,
1997 and 1996, respectively. Included in accounts receivable are trade
receivables from joint ventures of approximately $4,675,000 and $12,741,000 as
of December 31, 1998 and 1997,
F-13
<PAGE> 42
Walbro Corporation & Subsidiaries
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(continued)
NOTE 8. JOINT VENTURES. (continued)
respectively and royalty receivables of $1,012,000 and $1,674,000 as of December
31, 1998 and 1997, respectively. The Company had purchases from joint ventures
of approximately $35,558,000, $41,447,000 and $33,149,000 during 1998, 1997 and
1996, respectively. Included in accounts payable are trade payables to joint
ventures of approximately $8,295,000 and $5,277,000 as of December 31, 1998 and
1997, respectively.
- --------------------------------------------------------------------------------
NOTE 9. STOCK OPTION PLANS AND LONG-TERM INCENTIVE PLANS.
Under the Walbro Corporation Equity Based Long Term Incentive Plan (Equity
Plan), 856,457 shares of common stock are reserved for issuance to officers,
directors and key employees. Options are granted yearly based on certain
financial performance criteria as compared to the annual business plan and other
factors. In addition, Stock Performance Award Grants (Grants) are awarded
annually when the common stock price appreciates and Grants are exchanged for
common stock at the end of the five-year term. If the Company's common stock
price appreciates at a 17% compounded rate over the term, the number of Grants
awarded, valued at the common stock price, will equal the dollar amount
necessary to exercise the stock options. Participants will receive a greater or
lesser number of Grants based on the actual market performance of the common
stock over the term. The number of Grants outstanding was 2,331 and 4,900 as of
December 31, 1998 and 1997, respectively.
Effective December 1997, the Company approved a Broad-Based Long Term
Incentive Plan (Broad-Based Plan), which consists of 572,129 shares of common
stock that are reserved and available for distribution to employees and
consultants to the Company, its subsidiaries and affiliates. The purpose of the
Broad-Based Plan is to enable these persons to participate in the Company's
future and to aid in retaining employees of merit.
Effective January 1, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation." The Company continues to apply Accounting Principles
Board Opinion No. 25 for expense recognition. All stock options issued by the
Company are exercisable at a price equal to the market price at the date of the
grant. Accordingly, no compensation cost has been recognized for any of the
options granted.
A summary of the stock option transactions of the 1983 Plan (closed with no
options outstanding as of December 31, 1998), the Equity Plan, and the
Broad-Based Plan for the years ended December 31, 1998, 1997 and 1996 is as
follows:
<TABLE>
<CAPTION>
Number of Options
Exercisable Outstanding Option price (per share)
----------- ----------- ------------------------
<S> <C> <C> <C>
December 31, 1995.................... 321,695 432,092 $ 9.25-33.25
Granted............................ 117,385 18.19-21.75
Exercised.......................... (12,279) 9.25-18.00
Canceled........................... (5,458) 26.00-33.25
--------
December 31, 1996.................... 418,936 531,740 9.25-33.25
Granted............................ 19,804 13.75-22.75
Exercised.......................... (29,480) 9.25-19.125
Canceled........................... (83,698) 9.25-33.25
--------
December 31, 1997.................... 424,016 438,366 9.25-33.25
Granted............................ 493,966 9.25-13.25
Exercised.......................... (3,700) 9.25
Canceled........................... (164,679) 13.25-33.25
--------
December 31, 1998.................... 663,953 763,953 $9.25-27.125
========
</TABLE>
The weighted-average fair value of options granted during the year is $7.15
and $5.01 for the years ended December 31, 1998 and 1997, respectively.
F-14
<PAGE> 43
Walbro Corporation & Subsidiaries
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(continued)
NOTE 9. STOCK OPTION PLANS AND LONG-TERM INCENTIVE PLANS. (continued)
The following table summarizes information about options outstanding at
December 31, 1998:
<TABLE>
<S> <C> <C> <C>
Options Outstanding:
Range of Exercise Prices............. $ 9.25 $13.25-19.75 $20.00-27.25
Number Outstanding at 12/31/98....... 109,175 539,692 115,086
Weighted-Average:
Remaining Contractual Life
(years)......................... 9.03 8.17 5.55
Exercise Price.................... $ 9.25 $ 15.20 $ 25.48
Options Exercisable:
Number Exercisable at 12/31/98....... 9,175 539,692 115,086
Weighted Average Exercise Price...... $ 9.25 $ 15.20 $ 25.48
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions by year:
<TABLE>
<CAPTION>
ASSUMPTIONS 1998 1997 1996
- --------------------- ------- ------- -------
<S> <C> <C> <C>
Risk-free interest
rate............... 4.6% 5.7% 6.4%
Expected life........ 10 yrs. 10 yrs. 10 yrs.
Expected
volatility......... 37.8% 34.6% 35.2%
Expected dividends... 0.0% 2.0% 2.0%
</TABLE>
Had compensation cost for the plans been determined based on the fair value at
the grant dates for awards under those plans consistent with the method
described in SFAS No. 123, the Company's net income (loss) and basic net income
(loss) per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1998 1997 1996
------ -------- -------
(In thousands)
<S> <C> <C> <C> <C>
Net income (loss)................................ As reported $3,718 $(36,627) $11,229
Pro forma 1,422 (36,644) 10,601
Basic net income (loss) per share................ As reported 0.43 (4.23) 1.30
Pro forma 0.16 (4.23) 1.23
</TABLE>
The Company cautions that the pro forma net income (loss) and per share
results in the initial years of adoption are overstated due to the recognition
of pro forma compensation cost over the vesting period.
During 1996, the Walbro Engine Management Corporation Incentive Compensation
Plan reached the end of its five-year measurement term, and the first of four
annual payments was made. The second and third of four payments were made during
1997 and 1998, respectively. The Company accrued approximately $1,659,000 and
$3,287,000 as of December 31, 1998 and 1997, respectively, under this plan.
Participants can elect to receive their payments in either cash or common stock
of the Company.
- --------------------------------------------------------------------------------
NOTE 10. COMMITMENTS AND CONTINGENCIES.
The manufacture of automotive components entails the risk that a customer or
governmental authority may require the recall of one of the Company's products
or a product in which one of the Company's products has been installed. The
Company has taken and will continue to take all reasonable precautions to avoid
the risk of exposure to a recall or warranty claim that would have a material
effect on the financial position of the Company. The Company does not believe
that significant insurance coverage is available to protect against potential
product recall/warranty liability. The Company provides for warranty claims on
its products on a specific identification basis.
While there can be no assurance that the Company will not incur substantial
recall or warranty expense in the future, management believes that any liability
resulting from these matters will not have a material impact on the financial
position or future results of operations of the Company.
F-15
<PAGE> 44
Walbro Corporation & Subsidiaries
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(continued)
NOTE 11. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS.
The Company sponsors pension plans covering substantially all domestic
collectively bargained employees and certain foreign employees. The plan
covering domestic collectively bargained employees provides benefits of stated
amounts for each year of service. Plans covering certain foreign employees
provide payments at termination which are based upon length of service,
compensation rate and whether termination was voluntary or involuntary. The
Company annually contributes to the plans covering domestic employees and
certain foreign employees amounts which are actuarially determined to provide
the plans with sufficient assets to meet future benefit payment requirements.
The plans covering foreign employees in certain countries are not funded.
The Company also provides postretirement health care, dental benefit and
prescription drug coverage to a limited number of current retirees.
Postretirement benefits are not available for active employees.
Effective January 1, 1998, the Company adopted the Statement of Financial
Accounting Standards No. 132, "Employers Disclosures about Pensions and Other
Postretirement Benefits" (SFAS No. 132). In accordance with SFAS No. 132, the
following tables provide a reconciliation of the change in benefit obligation,
the change in plan assets and the net amount recognized in the consolidated
balance sheets (In Thousands).
<TABLE>
<CAPTION>
Other
Postretirement
Pension Benefits Benefits
------------------- --------------------
1998 1997 1998 1997
------- ------ ------- -------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year.... $ 6,573 $5,771 $ 3,800 $ 4,068
Service cost............................... 371 301 -- --
Interest cost.............................. 460 408 255 283
Foreign currency changes................... (3) (9) -- --
Amendments................................. 664 -- -- --
Actuarial (gain) loss...................... 658 227 40 (166)
Benefits paid.............................. (151) (125) (321) (385)
------- ------ ------- -------
Benefit obligation at end of year.......... $ 8,572 $6,573 $ 3,774 $ 3,800
======= ====== ======= =======
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of
year..................................... $ 6,617 $5,612 $ -- $ --
Actual return on plan assets............... 519 789 -- --
Employer contributions..................... 216 492 -- --
Foreign currency changes................... (32) (151) -- --
Benefits paid.............................. (151) (125) -- --
------- ------ ------- -------
Fair value of plan assets at end of year... $ 7,169 $6,617 $ -- $ --
======= ====== ======= =======
Funded status.............................. $(1,403) $ 44 $(3,774) $(3,800)
Unrecognized net actuarial (gain) loss..... 117 (210) (501) (606)
Unrecognized net asset at transition....... -- (9) -- --
Unrecognized prior service cost............ 1,613 780 -- --
------- ------ ------- -------
Net amount recognized...................... $ 327 $ 605 $(4,275) $(4,406)
======= ====== ======= =======
</TABLE>
F-16
<PAGE> 45
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(continued)
Walbro Corporation & Subsidiaries
- --------------------------------------------------------------------------------
NOTE 11. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS. (continued)
<TABLE>
<CAPTION>
Other
Postretirement
Pension Benefits Benefits
-------------------- --------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
AMOUNTS RECOGNIZED IN CONSOLIDATED BALANCE
SHEETS CONSIST OF:
Prepaid benefit cost...................... $ 1,070 $ 1,083 $ -- $ --
Accrued benefit liability................. (743) (478) (4,275) (4,406)
------- ------- ------- -------
Net amount recognized..................... $ 327 $ 605 $(4,275) $(4,406)
======= ======= ======= =======
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
WEIGHTED-AVERAGE ASSUMPTIONS
Discount rate............................. 6- 6 - 7% 6.75% 7.00%
6.75%
Expected return on plan assets............ 6- 6 - 7% -- --
6.75%
Rate of compensation increase............. 2.50- 3% -- --
3.00%
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost.............................. $ 371 $ 301 $ 255 $ 283
Interest cost............................. 460 408 -- --
Expected return on plan assets............ (455) (404) -- --
Amortization of transition (asset)
obligation.............................. (9) (22) -- --
Amortization of prior service cost........ 95 41 -- --
Amortization of unrecognized (gain)
loss.................................... -- -- (12) --
Recognized actuarial loss................. (21) -- -- --
------- ------- ------- -------
Net periodic benefit cost................. $ 441 $ 324 $ 243 $ 283
======= ======= ======= =======
</TABLE>
For measurement purposes, a 6.75% annual rate of increase was assumed in per
capita cost of covered health and dental care benefits for 1998. The rate was
assumed to gradually decrease to 4.75% by the year 2004 and remain at that level
thereafter. The health care cost trend rate assumption has a significant impact
on the accumulated postretirement benefit obligation and on future amounts
accrued. A one percentage point increase each year in the assumed health care
cost would increase the accumulated postretirement benefit obligation at
December 31, 1998 by $363,000 and the interest cost component of net periodic
postretirement benefit cost for the year ended December 31, 1998 by $24,000.
A one percentage point decrease each year in the assumed health care cost
would increase the accumulated postretirement benefit obligation at December 31,
1998 by $318,000 and the interest cost component of net periodic postretirement
benefit cost for the year ended December 31, 1998 by $21,000.
The Company also sponsors a defined contribution plan for non-union domestic
employees under which the Company makes matching contributions of 50% of each
participant's before-tax contribution of up to 6% of each participant's annual
income and retirement contribution of up to 3% (subject to change on an annual
basis) of each participant's annual income. The cost of defined contributions
charged to earnings during 1998, 1997 and 1996 was approximately $1,808,000,
$2,108,000 and $2,252,000, respectively.
Certain non-union employees, excluding officers, are eligible to participate
in the Walbro Corporation Employee Stock Ownership Plan (ESOP). The Company
makes annual contributions to a trust in the form of either cash or common stock
of the Company. The amount of the annual contribution is discretionary, except
that it must be sufficient to enable the trust to meet its current obligations.
Contribution expense related to the ESOP amounted to $408,000, $463,000 and
$416,000 during 1998, 1997 and 1996, respectively. Contribution expense is net
of dividends of $105,000 in 1997 and 1996. As of December 31, 1998 and 1997, the
ESOP held 207,000 and 238,000 shares, respectively, which are all allocated to
participant accounts.
F-17
<PAGE> 46
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(continued)
NOTE 12. DISCLOSURES ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF
FINANCIAL INSTRUMENTS.
The Company is a party to financial instruments with off-balance sheet risk in
the normal course of business to help meet financing needs and to reduce
exposure to fluctuating foreign currency exchange rates. The Company is exposed
to credit loss in the event of nonperformance by the other parties to the
financial instruments described below. However, the Company does not anticipate
nonperformance by the other parties. The Company does not engage in trading
activities with these financial instruments and does not generally require
collateral or other security to support these financial instruments. The
notional amounts of derivatives summarized below do not represent the amounts
exchanged by the parties and, thus, are not a measure of the exposure of the
Company through its use of derivatives. The amounts exchanged are calculated on
the basis of the notional amounts and the other terms of the derivatives.
Financial Instruments with Off-Balance
Sheet Risk
The Company enters into forward currency exchange contracts to manage its
foreign currency exchange risk. As of December 31, 1998 and 1997, the notional
amounts of contracts outstanding were approximately $2,125,000 and $885,000,
respectively.
The Company enters into forward currency exchange contracts to reduce its
exposure against fluctuations in foreign currency exchange rates. During 1998,
the Company had seventy-seven forward currency exchange contracts, sixty-eight
of which matured during 1998, which exchanged 65,200,000 Swedish krona,
4,400,000 Norwegian krone and 110,300,000 French francs. During 1997, the
Company had seventeen forward currency exchange contracts, thirteen of which
matured during 1997, which exchanged 540,000,000 Japanese yen, 1,626,900
Deutsche marks and 7,000,000 Swedish krona. During 1996, the Company had fifteen
forward currency exchange contracts, which matured during 1996, which exchanged
939,000,000 Japanese yen and 20,200,000 Deutsche marks. The amounts included in
foreign currency exchange (gain) loss in the accompanying consolidated
statements of income related to these contracts were zero for the year ended
December 31, 1998, a gain of approximately $483,000 for the year ended December
31, 1997 and a gain of approximately $339,000 for the year ended December 31,
1996.
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Notes Receivable
The fair value is estimated using the expected future cash flows discounted at
current interest rates.
Marketable Equity Securities
The fair value of marketable equity securities is estimated by quoted market
prices when the investment is traded on a public stock exchange. For investments
not publicly traded, a combination of book value and fair market value of assets
is used.
Long-Term Debt
The fair value of the Company's public debt is estimated using quoted market
prices. The fair value of the Company's other long-term debt is estimated using
the expected future cash flows discounted at the current interest rates offered
to the Company for debt of the same remaining maturities.
Forward Currency Exchange Contracts
The fair value of forward currency exchange contracts is estimated by obtaining
quotes from brokers.
F-18
<PAGE> 47
Walbro Corporation & Subsidiaries
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(continued)
- --------------------------------------------------------------------------------
NOTE 12. DISCLOSURES ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF
FINANCIAL INSTRUMENTS. (continued)
The estimated fair values of the Company's financial instruments at December
31 are as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------- -------------------------
Carrying Fair Carrying Fair
Value Value Value Value
-------- -------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C>
Notes receivable................ $ 2,023 $ 2,023 $ 140 $ 140
Long-term debt.................. 326,692 319,951 305,353 298,232
</TABLE>
- --------------------------------------------------------------------------------
NOTE 13. ACCRUED LIABILITIES.
Accrued liabilities consist of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
------- -------
(In Thousands)
<S> <C> <C>
Compensation related... $10,911 $13,760
Facilities and employee
relocation........... -- 606
Interest............... 6,367 7,385
Restructuring (Note
2)................... 700 5,697
Other.................. 13,031 11,773
------- -------
$31,009 $39,221
======= =======
</TABLE>
- --------------------------------------------------------------------------------
NOTE 14. 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 and,
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. 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.
F-19
<PAGE> 48
Walbro Corporation & Subsidiaries
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(continued)
- -----------------------------------------------------------------------
NOTE 14. BUSINESS SEGMENT INFORMATION. (continued)
The following tables present financial information at and for the year ended
December 31 by reportable segment:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(In Thousands)
<S> <C> <C> <C>
Net sales to external customers
Automotive...................................... $ 497,449 $ 458,057 $ 438,596
Small Engine.................................... 142,406 125,937 117,102
Aftermarket..................................... 33,239 29,466 25,102
Corporate....................................... 4,896 6,445 4,589
--------- --------- ---------
Total net sales to external customers............. 677,990 619,905 585,389
--------- --------- ---------
Intercompany sales
Automotive...................................... 76,465 66,304 64,330
Small Engine.................................... 44,805 38,161 37,357
Aftermarket..................................... 911 1,044 890
Corporate....................................... 1,253 225 634
--------- --------- ---------
Total intercompany sales.......................... 123,434 105,734 103,211
Elimination of intercompany sales................. (123,434) (105,734) (103,211)
--------- --------- ---------
Total net sales................................... $ 677,990 $ 619,905 $ 585,389
========= ========= =========
Depreciation and amortization
Automotive...................................... $ 27,309 $ 24,491 $ 20,779
Small Engine.................................... 6,594 5,553 6,150
Aftermarket..................................... 261 166 184
Corporate....................................... 2,519 1,207 2,623
--------- --------- ---------
Total depreciation and amortization............... $ 36,683 $ 31,417 $ 29,736
========= ========= =========
Restructuring and impairment charges
Automotive...................................... $ -- $ 19,608 $ --
Small Engine.................................... -- 750 --
Aftermarket..................................... -- -- --
Corporate....................................... -- 6,642 --
--------- --------- ---------
Total restructuring and impairment charges........ $ -- $ 27,000 $ --
========= ========= =========
EBIT
Automotive...................................... $ 45,121 $ 3,291 $ 25,541
Small Engine.................................... 6,651 6,545 5,920
Aftermarket..................................... 8,228 7,003 6,540
Corporate....................................... (17,253) (36,939) (9,780)
--------- --------- ---------
Total EBIT........................................ 42,747 (20,100) 28,221
--------- --------- ---------
Unallocated amounts
Interest income.............................. 3,177 674 2,716
Interest expense............................. (31,806) (25,410) (20,535)
Minority interest, net of tax................ (5,806) (5,035) (285)
Equity in income of joint ventures, net of
tax........................................ 846 3,113 4,187
--------- --------- ---------
Total income (loss) before income taxes and
extraordinary item.............................. $ 9,158 $ (46,758) $ 14,304
========= ========= =========
Investment in equity method investees
Automotive...................................... $ 38,435 $ 26,681 $ 28,955
Small Engine.................................... -- -- --
Aftermarket..................................... -- -- --
Corporate....................................... -- -- --
--------- --------- ---------
Total investment in equity method investees....... $ 38,435 $ 26,681 $ 28,955
========= ========= =========
</TABLE>
F-20
<PAGE> 49
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(continued)
Walbro Corporation & Subsidiaries
- -----------------------------------------------------------------------
NOTE 14. BUSINESS SEGMENT INFORMATION. (continued)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(In Thousands)
<S> <C> <C> <C>
Expenditures for fixed assets
Automotive...................................... $ 29,338 $ 46,464 $ 84,293
Small Engine.................................... 10,928 13,107 11,560
Aftermarket..................................... 197 180 209
Corporate....................................... 1,543 2,268 3,085
--------- --------- ---------
Total expenditures for fixed assets............... $ 42,006 $ 62,019 $ 99,147
========= ========= =========
Assets
Automotive...................................... $ 448,123 $ 477,238 $ 463,144
Small Engine.................................... 94,621 87,468 67,020
Aftermarket..................................... 9,051 10,574 7,640
Corporate....................................... 96,872 35,313 51,845
--------- --------- ---------
Total assets...................................... $ 648,667 $ 610,593 $ 589,649
========= ========= =========
</TABLE>
The following tables present financial information at and for the year ended
December 31 by geographic area:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Net sales to external customers(a)
United States...................................... $414,190 $372,600 $321,527
Other(b)........................................... 263,800 247,305 263,862
-------- -------- --------
Total net sales to external customers................ $677,990 $619,905 $585,389
======== ======== ========
Long-Lived Assets
United States...................................... $219,896 $210,062 $215,427
Other (b).......................................... 165,756 151,697 157,292
-------- -------- --------
Total long-lived assets.............................. $385,652 $361,759 $372,719
======== ======== ========
</TABLE>
(a) Net sales to external customers are attributed to countries based on
location of Walbro facility.
(b) Other includes Walbro facilities in Canada, Mexico, Italy, Netherlands,
France, Belgium, Germany, United Kingdom, Spain, Norway, Argentina, Brazil,
Korea, Japan, Singapore and China.
A majority of the Company's sales are to automobile manufacturing companies.
Sales to one customer amounted to $141,942,000, $117,040,000 and $115,090,000 in
1998, 1997 and 1996, respectively. Sales to another customer amounted to
$20,793,000, $33,421,000 and $59,176,000 in 1998, 1997 and 1996, respectively.
- --------------------------------------------------------------------------------
NOTE 15. SUPPLEMENTAL CASH FLOW INFORMATION.
In 1998, 1997 and 1996, the Company paid $4,738,000, $4,376,000 and $5,048,000
for income taxes and $31,260,000, $29,957,000 and $21,674,000 for interest,
respectively.
F-21
<PAGE> 50
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(continued)
Walbro Corporation & Subsidiaries
- --------------------------------------------------------------------------------
NOTE 16. EARNINGS PER SHARE.
In 1997, the Company adopted 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, SFAS No. 128 requires two calculations
of earnings per share to be disclosed, basic net income (loss) per share and
diluted net income (loss) per share. Basic net income (loss) per share is
computed using the weighted average common outstanding during the period.
Diluted net income (loss) per share is computed using the average share price
during the period when calculating the dilutive effect of stock options. The
following is the Company's calculation of diluted common shares outstanding:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Weighted average common shares outstanding........... 8,686,213 8,661,432 8,608,837
Dilutive effect of stock options..................... -- 6,664 40,543
--------- --------- ---------
Diluted common shares outstanding.................... 8,686,213 8,668,096 8,649,380
========= ========= =========
</TABLE>
- --------------------------------------------------------------------------------
NOTE 17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED).
Selected quarterly financial information for the years ended December 31, 1998
and 1997 is as follows:
<TABLE>
<CAPTION>
Quarter
First Second Third Fourth Total
-------- -------- -------- -------- --------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C>
1998--
Net sales..................... $169,292 $168,136 $165,648 $174,914 $677,990
Cost of sales................. 144,058 139,369 138,682 149,883 571,992
-------- -------- -------- -------- --------
Gross profit............... $ 25,234 $ 28,767 $ 26,966 $ 25,031 $105,998
======== ======== ======== ======== ========
Income before extraordinary
item....................... $ 572 $ 1,568 $ 538 $ 2,513 $ 5,191
======== ======== ======== ======== ========
Net income.................... $ 572 $ 95 $ 538 $ 2,513 $ 3,718
======== ======== ======== ======== ========
Basic and Diluted income per
share before extraordinary
item....................... $ 0.07 $ 0.18 $ 0.06 $ 0.29 $ 0.60
======== ======== ======== ======== ========
Basic and Diluted income per
share...................... $ 0.07 $ 0.01 $ 0.06 $ 0.29 $ 0.43
======== ======== ======== ======== ========
1997--
Net sales..................... $154,019 $153,842 $146,523 $165,521 $619,905
Cost of sales................. 129,821 131,437 125,911 151,582 538,751
-------- -------- -------- -------- --------
Gross profit............... $ 24,198 $ 22,405 $ 20,612 $ 13,939 $ 81,154
======== ======== ======== ======== ========
Net income (loss)............. $ 2,362 $ 1,184 $ (1,190) $(38,983) $(36,627)
======== ======== ======== ======== ========
Basic and Diluted net income
(loss) per share........... $ 0.27 $ 0.14 $ (0.14) $ (4.49) $ (4.23)
======== ======== ======== ======== ========
</TABLE>
Per share amounts and weighted average shares are computed independently for
each of the quarters presented. Therefore, the sum of the quarterly per share
amounts may not equal the per share total for the year.
F-22
<PAGE> 51
[ERNST & YOUNG LETTERHEAD]
Mr. Mike Shope
Walbro Corporation
6242 Garfield Street
Cass City, Michigan 48726-1325
U.S.A.
March 31, 1999
Dear Sirs,
With respect to the contemplated filing of a registration statement by Walbro
Corporation and the inclusion in this filing of the audited financial
statements under French GAAP of Marwal Systems for fiscal years ended December
31, 1996, 1997 and 1998, we confirm that our audits of these Marwal Systems
financial statements were conducted substantially in accordance with US
generally accepted auditing standards.
Yours faithfully,
ERNST & YOUNG AUDIT
/s/ GILLES MEYER
Gilles Meyer
Partner
F-23
*Commissaire aux comptes - Societe d'expertise comptable
inscrite au tableau de l'Ordre de la region de Paris - Ile de France.
Bureaux en France et en Afrique - Correspondant a Monaco.
<PAGE> 52
MARWAL SYSTEMS, S.N.C.
STATUTORY AUDITOR'S GENERAL REPORT
YEAR ENDED DECEMBER 31, 1998
In our capacity as statutory auditor, we present below our report on
- - the accompanying annual accounts of Marwal Systems,
- - the specific procedures and disclosures prescribed by law,
for the year ended December 31, 1998.
These annual accounts are the responsibility of the Company's management. Our
responsibility is to express an opinion on these annual accounts based on our
audit.
I. OPINION ON THE ANNUAL ACCOUNTS
We conducted our audit in accordance with French auditing standards. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the annual accounts are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the annual accounts. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall annual account presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the annual accounts present fairly, in all material respects,
the financial position of the Company at December 31, 1998 and the results of
its operations for the year then ended.
II. SPECIFIC PROCEDURES AND DISCLOSURES PRESCRIBED BY LAW
We have also carried out, in accordance with professional standards, the
specific procedures prescribed by law.
We have nothing to report with respect to the fairness of information contained
in the Directors' Report and its consistency with the annual accounts and other
information presented to shareholders concerning the financial position and
annual accounts.
The Statutory Auditor
ERNST & YOUNG Audit
Gilles Meyer
March 26, 1999
F-24
<PAGE> 53
MARWAL SYSTEMS, S.N.C.
Balance Sheet as of
December 31, 1998
(in French Francs)
<TABLE>
<CAPTION>
--------------------------------------------------------------
ASSETS
------
December 31, 1998
--------------------------------------------------------------
Gross Accumulated Net book value
depreciation
amortization and
allowances
--------------------------------------------------------------
<S> <C> <C> <C>
Fixed assets
- ------------
Intangible fixed assets 20,460,169 20,237,117 223,052
Tangible fixed assets 238,818,956 140,425,727 98,393,229
Financial investments:
- - Associates 22,791,879 60,564 22,731,315
- - Others 7,484,778 7,203,411 281,367
--------------------------------------------------------------
Sub-total 289,555,782 167,926,819 121,628,963
--------------------------------------------------------------
Inventories
- -----------
- - Raw materials 26,073,389 2,535,119 23,538,270
- - Work-in-progress 3,691,105 162,419 3,528,686
- - Finished goods 8,830,184 1,001,800 7,828,384
--------------------------------------------------------------
Sub-total 39,594,678 3,699,338 34,895,340
--------------------------------------------------------------
Current assets
- ---------------
Advances and payments on
accounts 732,467 732,467
Trade accounts and notes
receivable:
- - Customers and related accounts 133,667,070 2,006,909 131,660,161
- - Other 19,311,759 19,311,759
Other receivables 997,654 997,654
Cash and cash equivalent 104,295,959 104,295,959
Payments in advance 458,580 458,580
Deferred Charges - -
Foreign exchange translation
differences 268,230 268,230
--------------------------------------------------------------
Sub-total 259,731,721 2,006,909 257,724,811
--------------------------------------------------------------
TOTAL ASSETS 587,882,180 173,633,066 414,249,114
--------------------------------------------------------------
</TABLE>
F-25
<PAGE> 54
MARWAL SYSTEMS, S.N.C.
Balance Sheet as of
December 31, 1998
(in French Francs)
<TABLE>
<CAPTION>
------------------------------
LIABILITIES AND DECEMBER 31, 1998
---------------
SHAREHOLDERS'EQUITY
------------------- ------------------------------
SHAREHOLDERS' EQUITY
--------------------
<S> <C>
Share capital 90,660,000
Reserves 4,305,050
Revaluation reserve
Retained earnings at January 1st 69,472,276
Result for the year 9,866,415
------------------------------
Sub-total 174,303,743
------------------------------
Provisions for contingencies and
--------------------------------
charges 11,231,626
-------
Liabilities
-----------
Financial debts:
- Amounts owed to financial
institutions 19,052
- Other financial debts 19,454,834
- Government subsidies 2,300,000
Accounts payable and related
accounts 155,127,484
Social charges payable 15,819,413
Taxes 13,413,007
Other 2,993,884
Other creditors
- Accounts payable on fixed
assets 14,710,508
- Group -
- Other 24
Deferred income 4,117,125
Foreign exchange translation
differences 758,415
------------------------------
Sub-total 228,713,746
------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY 414,249,114
------------------------------
</TABLE>
F-26
<PAGE> 55
MARWAL SYSTEMS, S.N.C.
Income Statement for the
year ended December 31, 1998
(in French Francs)
<TABLE>
<CAPTION>
-------------------------------------------------
INCOME STATEMENT FOR THE YEAR December 31, 1998
------------------------------
-------------------------------------------------
<S> <C> <C>
Operating revenues: 748,786,511
- -------------------
Sale of goods 711,375,580
Sale of services 27,732,194
Net sales 739,107,774
Movement in finished goods and work-in-progress 2,104,954
In-house production 116,579
Grants 1,255,876
Reversal of provisions and transfer of charges 5,809,857
Other income 391,471
-----------
748,786,511
Operating expenses 730,820,529
- ------------------
Purchases of raw materials and other supplies 402,455,415
Movements in raw materials stock -2,323,545
Other purchases and external charges 112,862,521
Taxes and similar charges 9,995,423
Wages & salaries 105,844,609
Social charges 45,104,922
Depreciation and amortisation expenses and
provisions:
- - Fixed assets 32,597,052
- - Current assets 1,611,799
- - Contingencies and charges 10,106,313
Other charges 12,566,021
-----------
730,820,529
Operating profit 17,965,982
- ----------------
Financial income: 10,205,051
- -----------------
From other investments -
Other interest and similar income 2,179,792
Reversal of provisions and transfer of charges 1,273,073
Foreign exchange gains 6,752,186
----------
10,205,051
Financial expenses: 19,596,147
- -------------------
Depreciation and provisions 7,532,205
Interest and similar charges 4,773,944
Foreign exchange losses 7,289,997
----------
19,596,147
Net financial income/(expenses) -9,391,096
- ------------------------------- -------------------------------------------------
</TABLE>
F-27
<PAGE> 56
MARWAL SYSTEMS, S.N.C.
Income Statement for the
year ended December 31, 1998
(in French Francs)
<TABLE>
<CAPTION>
-------------------------------------
INCOME STATEMENT FOR THE YEAR December 31, 1998
------------------------------
-------------------------------------
<S> <C> <C>
Profit before taxation 8,574,886
- -----------------------
Exceptional income: 2,879,553
- -------------------
From operating activities 2,464,082
From capital transactions 415,471
Reversal of provisions and transfer 0
of charges ----------
2,879,553
Exceptional charges: 1,588,024
- --------------------
From operating activities 860,323
From capital transactions 387,701
Depreciation and provisions 340,000
---------
1,588,024
1,291,530
Exceptional profit (loss)
- -------------------------
Profit before taxation 9,866,415
- ----------------------
Profit-Sharing -
Income tax -
Profit after taxation 9,866,415
- --------------------- -------------------------------------
</TABLE>
F-28
<PAGE> 57
MARWAL SYSTEMS, S.N.C.
Notes to the financial statements
(in thousands of French Francs)
EVENTS DURING THE YEAR
All shares and loans to be incorporated to the capital of Marwal Argentina S.A.
- - a Company 98% owned by Marwal SNC -, have been fully depreciated, given the
current situation of this Company.
NOTE 1: ACCOUNTING POLICIES
The accounts of the Company have been prepared based upon generally accepted
accounting principles in France which conform with the Chart of Accounts as set
out in the French law dated April 30, 1983 and the decree of November 29, 1983.
1.1 INTANGIBLE FIXED ASSESTS
Intangible fixed assets consist mainly of goodwill which is amortised on a
straight line basis over 5 years and totally amortised at the end of 1998.
The amortisation methods and the useful lives for other categories are as
follows:
- - Set-up costs 3 years straight line
- - Computer software 1-3 years straight line
1.2 Tangible fixed assets
Tangible fixed assets are valued at historical purchase price or cost of
production when they have been produced in house. The cost of production is made
up of the following elements: purchase price of raw materials, consumables and
direct production costs.
Assets are depreciated on a straight line basis or declining balance, when
applicable, for items purchased during or after 1992.
The depreciation methods and the useful lives applied are as follows:
Installations 10 years straight line
Machinery 5-6 2/3 straight line/declining balance
Toolings 1-5 years straight line/declining
balance
Leasehold improvements - Mac./Toolings 5-6 2/3 straight line/declining balance
Vehicles 4-5 years straight line
Fixtures and fittings 10 years straight line
Computer hardware 4-5 years straight line/declining balance
F-29
<PAGE> 58
MARWAL SYSTEMS, S.N.C.
Notes to the financial statements
(in thousands of French Francs)
1.3 Financial investments
- - The investments in associates are valued at their acquisition cost in the
assets of the Company.
- - A reserve is recorded when their fair value is less than their book value.
1.4 Inventory and work-in-progress
The policies used are as follows:
- - Inventory is valued at the total cost of production.
- - Raw materials and consumables are valued at the average weighted cost for
goods received in the last three months. This method is similar to FIFO.
- - The Cost of production includes direct and indirect production expenses and an
allocation of the costs of running the Head Office, to the extent that they
are related to the production.
- - The provision for obsolescence is determined based upon the anticipated sales.
1.5 Allowance for doubtful accounts
The receivables are valued at their face value, a provision is recorded when the
value recoverable is less than the book value.
1.6 Foreign exchange transactions
The receivables and payables denominated in foreign currency are translated into
French Francs at the December 31st exchange rate. The resulting differences with
amounts translated at historical exchange rates are shown in the balance sheet
as "foreign exchange translation differences".
A provision for exchange losses is recorded separately for unrealised losses.
All translation adjustments relating to the Euroland have been booked in the
profit and loss account since they are certain.
1.7 Retirement indemnity liabilities
The "Projected Benefit Obligation" has been applied to calculate the retirement
obligation.
The total obligation is covered by:
- - a fund run by La Mondiale, with a value of KFRF. 10,218,
- - a provision of KFRF. 1,092 included in the Marwal accounts at December
31, 1998,
- - an amount payable to La Mondiale of KFRF.475.
F-30
<PAGE> 59
MARWAL SYSTEMS, S.N.C.
Notes to the financial statements
(in thousands of French Francs)
NOTE 2: FIXED ASSETS
The movements in gross value are as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
12/31/97 Increase Decrease 12/31/98
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Intangible fixed assets 20,730 272 542 20,460
Tangible fixed assets 195,110 45,387 1,678 238,819
Financial investments 29,166 1,111 - 30,277
-------------------------------------------------------------------------------------
</TABLE>
The movements in amortisation and depreciation are analysed as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
12/31/97 Increase Decrease 12/31/98
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Intangible fixed assets 20,017 762 542 20,237
Tangible fixed assets 109,881 31,835 1,290 140,426
Financial investments 0 7,264 - 7,264
-----------------------------------------------------------------------------------
</TABLE>
NOTE 3. INVENTORIES AND WORK IN PROGRESS
The reserve for obsolescence for raw materials, consumables and finished goods
at 12/31/98 amounts to KFRF. 3,699.
NOTE 4. ACCOUNTS RECEIVABLE AND OTHER RECEIVABLES
At December 31,1999. accounts receivable can be split by maturity date as
follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------
Total Less than 1 year Greater than 1
year
------------------------------------------------------------------------
<S> <C> <C> <C>
Long term receivables 7,485 7,415 70
Current assets 154,709 154,709 -
------------------------------------------------------------------------
</TABLE>
NOTE 5: SHORT TERM INVESTMENTS
N/A.
F-31
<PAGE> 60
MARWAL SYSTEMS, S.N.C.
Notes to the financial statements
(in thousands of French Francs)
NOTE 6: PREPAYMENTS AND DEFERRED INCOME
<TABLE>
<CAPTION>
12/31/98
--------
Prepayments
- -----------
<S> <C>
Subscription fees 9
Language tuition fees 25
Transportation and custom 96
Leasing for equipment 63
Maintenance 59
Leasing (building) 207
---
459
<CAPTION>
12/31/98
--------
Deferred income
- ---------------
Long term contracts (tooling) 4,117
</TABLE>
NOTE 7: DEFERRED CHARGES
N/A
NOTE 8: SHAREHOLDERS' EQUITY
The capital stock is made up of 906,600 shares with a nominal value of FRF.100,
completely paid up.
The accounts of the Company are consolidated in the group accounts of the
Magneti Marelli Spa Group.
F-32
<PAGE> 61
MARWAL SYSTEMS, S.N.C.
Notes to the financial statements
(in thousands of French Francs)
NOTE 9: TAX PROVISIONS AND PROVISIONS FOR CONTINGENCIES AND CHARGES
The movements in the year are analysed as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
12/31/97 Additions Reversals 12/31/98
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Provisions for contingencies
and charges of which: 5,266 10,715 4,749 11,232
- -Provision for payments, on
retirement 1,000 1,093 1,000 1,093
- -Provision for guarantee 1,948 6,922 1,948 6,922
- -Provision for litigation 548 - 119 429
- -Provision for loss on foreign
exchange 1,273 268 1,273 268
- -Provision for charges 409 2,017 409 2,017
- -Miscellaneous 88 415 - 503
-------------------------------------------------------------------------
</TABLE>
NOTE 10: CREDITORS
At December 31, 1998, debts, excluding advances and deposits received, deferred
income and foreign exchange differences, can be analysed by maturity date as
follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
Total Less than 1 Between 1 and > 5 years
year 5 years
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Government subsidy 2,300 2,300
Other financial debts 19,455 19,455
Trade payables and other
liabilities* 202,064 202,064
Overdraft 19 19
-------------------------------------------------------------------------
</TABLE>
* of which trade bills payable: 59,954
F-33
<PAGE> 62
MARWAL SYSTEMS, S.N.C.
Notes to the financial statements
(in thousands of French Francs)
NOTE 11 : INFORMATION ON SUBSIDIARY
(In thousands of Pesos)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Share in % Detailed information Share Equity Last Last
capital capital closing closing
other than result sales
capital
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
95% Marwal de Mexico S.A. de C.V.
Tepotzotplan 58,891* -3,417* 8,575* 158,711
Estado de Mexico
98% Marwal Argentina S.A. 12,000 348 -339 5,705
Buenos Aires
Estado de Argentina
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* after reevaluation
(In thousands of Francs)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Detailed information Gross Net book Loans Guarantee Dividends
value value given given received
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Marwal de Mexico S.A. de C.V. 22,731 22,731 - - -
- ----------------------------------------------------------------------------------------------------------------
Marwal Argentina S.A. 60 0 7,203 - -
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Shares and loans to Marwal Argentina have been fully depreciated (100%) at
December 31, 1998, given the financial situation of this Company.
The exemption of sub-groups enables Marwal Systems to not consolidate its
subsidiaries.
NOTE 12: RELATED PARTIES
The related parties transactions are included in the different accounts in the
balance sheet as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
ASSETS LIABILITIES
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trade receivables 24,195 Trade payables 21,130
Other receivables 815 Other payables -
Cash and
cash equivalent 104,126 Financial debt -
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Interest expenses and financial income with related parties are as follows
<TABLE>
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating income 72,022 Operating expenses 46,092
Financial income 2,023 Interest expenses 2,410
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
F-34
<PAGE> 63
MARWAL SYSTEMS, S.N.C.
Notes to the financial statements
(in thousands of French Francs)
NOTE 13: ACCRUALS AND INCOME RECEIVABLE RELATING TO DIFFERENT BALANCE SHEET
ACCOUNTS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Assets Liabilities
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trade receivables
- - Customers 6,524 Trade payables
- - Suppliers 216 - Suppliers 6,514
- - Other 482 - Tax and social charges 15,259
- Customers 2,472
- Other 476
Other receivables Other liabilities -
Financial debts 3,773
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 14 : EXCHANGE DIFFERENCES RELATED TO BALANCE SHEET ACCOUNTS
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
Exchange difference Exchange difference
-----------------------------------------------------------------------------------
outside Euroland Inside Euroland
-----------------------------------------------------------------------------------
Asset Liability Asset Liability
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
- ------
Trade receivables 36 246
Liabilities
- ------------
Trade payables 232 758 1 15
-----------------------------------------------------------------------------------
</TABLE>
NOTE 15. SALES TURNOVER ANALYSIS
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Sales 739,108 692,154
- -----
Sales of goods 711,376 676,821
Sales of services 27,732 15,333
Split between export/dornestic
- ------------------------------
Domestic 303,016 290,827
Export 436,092 401,327
Sales 739,108 692,154
- -----
</TABLE>
F-35
<PAGE> 64
MARWAL SYSTEMS, S.N.C.
Notes to the financial statements
(in thousands of French Francs)
NOTE 16: DEFERRED TAX POSITION
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
12/31/97 Movements 12/31/98
-------------------------------------------------------------------------------------------------
Nature Asset Liability Asset Liability Asset Liability
- ------
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Timing differences
- ------------------
Accrued expenses
payable to La
Mondiale 450 476 450 476
Organic 797 914 797 914
Provision for
contingencies and
charges 1,459 1,421 1,459 1,421
Profit sharing 3,640 3,640 0
Reserve on Marwal 0 7,264 7,264
Argentina
-------------------------------------------------------------------------------------------------
</TABLE>
Elements having an impact on 1998 fiscal result
Vehicle leasing 68
Difference on foreign exchange unrealised gains 98
NOTE 17: EMPLOYEE INFORMATION
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
Permanent staff Temporary staff
-----------------------------------------------------------------------
<S> <C> <C>
Executives & Management 84
Employees 156 8
Workers 487 70
-----------------------------------------------------------------------
Total 727 78
-----------------------------------------------------------------------
</TABLE>
NOTE 18: LEASE COMMITMENTS
The company leases certain of its buildings:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Depreciation expense
Balance sheet Acquisition -------------------------- Net book
account cost Period ended Accumulated value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Buildings
---------
Chalons 5,000 172 805 4,195
Saint-Martin 8,059 504 604 7,455
- ------------------------------------------------------------------------------------------------
Total 13,059 676 1,409 11,650
- ------------------------------------------------------------------------------------------------
</TABLE>
NOTE 19: COMMITMENTS UNDERTAKEN AND RECEIVED
Discounted trade bills receivable but not matured 77,711
F-36
<PAGE> 65
MARWAL SYSTEMS, S.N.C.
Notes to the financial statements
(in thousands of French Francs)
Leasing:
* present value of lease payments based on the BT01 index (value at 01.01.98
= 551.1 francs)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Balance Lease payments FUTURE LEASE PAYMENTS Term
sheet ------------------------------------------------------------------------------------------- price
category Period Accu- Less than 1 Between 1 > 5 years Total
ended mulated year and 5 years
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Buildings
Chalons* 600.5 2,760.8 605.3 2,421.2 1,236.0 4,262.5 0
Saint- 569.2 683.0 927.9 3,391.6 5,127.9 9,447.4 0
Martin
- ----------------------------------------------------------------------------------------------------------------------------
Total 1,169.7 3,443.8 1,533.2 5,812.8 6,363.9 13,709.9 0
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 20: INFORMATION RELATING TO MANAGEMENT
N/A.
NOTE 21 - EXCEPTIONAL INCOME
<TABLE>
<S> <C> <C>
Exceptional income from operating activities 2,464
Account payable to Cirflex, liquidated 2,464
Exceptional income from capital transactions 415
Income from the sale of fixed assets 139
Grants received 276
Reversal of provisions and transfer of charges 0
NOTE 22: EXCEPTIONAL CHARGES
Exceptional charges on operating activities 860
Redundancy payments 792
Non-refunded IVA 68
Exceptional charges from capital transactions 388
Net book value of fixed assets sold 388
Depreciation and provisions 340
Miscellaneous 340
</TABLE>
F-37
<PAGE> 66
MARWAL SYSTEMS, S.N.C.
Notes to the financial statements
(in thousands of French Francs)
NOTE 23: CHANGE IN ACCOUNTING POLICIES
At December 31, 1998, tooling have been included in the value of raw
material and other consumable inventory for an amount of KFRF.2,329.
NOTE 24: ANALYSIS OF INCOME TAX
As Marwal Systems became a partnership as from 10/01/95, there is no
income tax booked.
<TABLE>
<CAPTION>
---------------------------------------------------------
Base Tax
---------------------------------------------------------
12/31/98
---------------------------------------------------------
<S> <C> <C>
Operating profit 8,575 0
- -----------------
Exceptional items 1,291 0
- ----------------- ------ ---
9,866
Profit before tax 0
Income tax credit 0
---
TOTAL INCOME TAX FOR THE COMPANY 0
---------------------------------------------------------
</TABLE>
F-38
<PAGE> 67
MARWAL SYSTEMS, S.N.C.
STATUTORY AUDITOR'S GENERAL REPORT
YEAR ENDED DECEMBER 31, 1997
In our capacity as statutory auditor, we present below our report on:
- - the accompanying annual accounts of Marwal Systems,
- - the specific procedures and disclosures prescribed by law,
for the year ended December 31, 1997.
These annual accounts are the responsibility of the Company's management. Our
responsibility is to express an opinion on these annual accounts based on our
audit.
1. OPINION ON THE ANNUAL ACCOUNTS
We conducted our audit in accordance with French auditing standards. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the annual accounts are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the annual accounts. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall annual account presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the annual accounts present fairly, in all material respects,
the financial position of the Company at December 31, 1997 and the results of
its operations for the year then ended.
11. SPECIFIC PROCEDURES AND DISCLOSURES PRESCRIBED BY LAW
We have also carried out, in accordance with professional standards, the
specific procedures prescribed by law.
We have nothing to report with respect to the fairness of information contained
in the Directors' Report and its consistency with the annual accounts and other
information presented to shareholders concerning the financial position and
annual accounts.
The Statutory Auditor
ERNST & YOUNG Audit
/s/ Gilles Meyer
March 6, 1998
F-39
<PAGE> 68
MARWAL SYSTEMS, S.N.C.
Balance Sheet as of
December 31, 1997
(in French Francs)
<TABLE>
<CAPTION>
ASSETS December 31, 1997
------------------------------------------------
Gross Accumulated Net book value
depreciation
amortization and
allowances
------------------------------------------------
<S> <C> <C> <C>
Fixed assets
Intangible fixed assets 20.729.684,88 20.016.820,12 712.864,76
Tangible fixed assets 195.110.282,11 109.881.452,28 85.228.829,83
Financial investments:
- - Associates 22.791.879,00 -- 22.791.879,00
- - Others 6.374.518,03 -- 6.374.518,03
------------------------------------------------
Sub-total 245.006.364,02 129.898.272,40 115.108.091,62
------------------------------------------------
Inventories
- - Raw materials 23.749.844,00 1.763.056,00 21.986.788,00
- - Work in-progress 2.791.156,00 114.766,00 2.676.390,00
- - Furnished goods 7.625.179,00 760.089,00 6.865.090,00
------------------------------------------------
Sub-total 34.166.179,00 2.637.911,00 31.528.268,00
------------------------------------------------
Current assets
Advances and payments on accounts 1.890.152,18 1.890.152,18
Trade accounts and notes receivable:
- - Customers and related accounts 133.366.850,61 3.783.169,22 129.583.681,39
- - Other 11.275.924,08 11.275.924,08
Other receivables 1.262.790,11 1.262.790,11
Cash and cash equivalent 106.831.529,38 106.831.529,38
Payments in advance 390.780,96 390.780,96
Deferred Charges -- --
Foreign exchange translation differences 1.273.073,37 1.273.073,37
------------------------------------------------
Sub-total 256.291.100,69 3.783.169,22 252.507.931,47
------------------------------------------------
TOTAL ASSETS 535.463.643,71 136.319.352,62 399.144.291,09
================================================
</TABLE>
F-40
<PAGE> 69
MARWAL SYSTEMS, S.N.C.
Balance Sheet as of
December 31, 1997
(in French Francs)
<TABLE>
<CAPTION>
---------------------
LIABILITIES AND December 31, 1997
SHAREHOLDERS' EQUITY ---------------------
<S> <C>
Shareholders' equity
Share capital 90.660.000,00
Reserves 4.305.050,83
Revaluation reserve
Retained earnings at January 1st 37.762.183,66
Result for the year 41.682.692,84
---------------------
Sub-total 174.409.927,33
---------------------
Provisions for contingencies and
charges 5.265.122,88
Liabilities
Financial debts:
- -Amounts owed to financial
institutions 234.153,20
- -Other financial debts 14.812.419,38
- -Government subsidies 2.300.000,00
Accounts payable and related
accounts 161.799.190,73
Social charges payable 20.560.799,82
Taxes 3.224.082,14
Other 4.927.588,11
Other creditors:
- - Accounts payable on fixed
assets 6.164.893,10
- - Group -
- - Other 24,00
Deferred income 4.785.923,26
Foreign exchange translation
differences 660.167,14
---------------------
Sub-total 219.469.240,88
---------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY 399.144.291,09
=====================
</TABLE>
F-41
<PAGE> 70
MARWAL SYSTEMS, S.N.C.
Income Statement for the
year ended December 31, 1997
(in French Francs)
<TABLE>
<CAPTION>
---------------------------------
INCOME STATEMENT FOR THE YEAR December 31, 1997
---------------------------------
<S> <C> <C>
Operating revenues: 701.704.308,65
Sale of goods 676.820.865,02
Sale of services 15.333.088,92
Net sales 692.153.953,94
Movement in finished goods and work-in progress (2.537.150,00)
In-home production 285.562,25
Grants 490.998,85
Reversal of provisions and transfer of charges 10.021.636,96
Other income 1.289.306,65
Operating expenses 652.633.885,77
Purchases of raw materials and other supplies 342.138.752,19
Movements in raw materials stock 4.649.952,00
Other purchases and extend charges 112.782.904,48
Taxes and similar charges 9.511.399,78
Wages & salaries 101.299.556,33
Social charges 42.615.435,07
Depreciation and amortisation expenses and
provisions:
- - Fixed assets 24.149.418,15
- - Current assets 1.205.055,28
- - Contingencies and charges 3.905.450,94
Other charges 10.377.961,55
--------------
652.633.885,77
Operating profit 49.070.422,88
Financial income:
From other investments --
Other interest and similar income 2.691.468,39
Reversal of provisions and transfer of charges 1.608.447,02
Foreign exchange gains 9.381.457,05
--------------
13.681.372,46
Financial expenses:
Depreciation and provisions 1.425.880,37
Interest and similar charges 4.846.615,22
Foreign gains 10.464.489,91
--------------
16.736.985,50
Net financial income/(expenses) (3.055.613,84)
</TABLE>
F-42
<PAGE> 71
MARWAL SYSTEMS, S.N.C.
Income Statement for the
year ended December 31, 1997
(in French Francs)
<TABLE>
<CAPTION>
-----------------------------
INCOME STATEMENT FOR THE YEAR December 31, 1997
-----------------------------
<S> <C> <C>
Profit before taxation 46.014.809,84
Exceptional income: 1.904.436,60
From operating activities --
From capital transactions 409.464,60
Reversal of provisions and transfer 1.494.972,00
of charges
------------
1.904.436,60
Exceptional charges: 2.596.473,60
From operating activities 2.320.049,99
From capital transactions 145.203,61
Depreciation and provisions 131.220,00
------------
2.596.473,60
Exceptional profit (loss) (692.037,00)
Profit before taxation 45.322.772,84
Profit-Sharing 3.640.080,00
Income Tax --
Profit after taxation 41.682.692,84
</TABLE>
F-43
<PAGE> 72
MARWAL SYSTEMS, S.N.C.
Notes to the financial statements
(in thousands of French Francs)
EVENTS DURING THE YEAR
The company owns 98% of the shares of Marwal Argentina S.A. as from 12/30/97
(11.760 shares), for an amount of 60,564 French Francs
NOTE 1: ACCOUNTING POLICIES
The accounts of the Company have been prepared based upon generally accepted
accounting principles in France which conform with the Chart of Accounts as set
out in the French law dated April 30, 1983 and the decree of November 29, 1983.
1.1 Intangible fixed assets
The intangible fixed assets consist mainly of goodwill which is amortised on
a straight line basis over 5 years and totally amortised at the end of 1997.
The amortisation methods and the useful lives for other categories are as
follows:
- - Set-up costs 3 years straight line
- - Computer software 1-3 years straight line
1.2 Tangible fixed assets
Tangible fixed assets are valued at historical purchase price or cost of
production when they have been produced in house. The cost of production is
made up of the following elements: purchase price of raw materials, consumables
and direct production costs.
Assets are depreciated on a straight line basis or declining balance, when
applicable, for items purchased during or after 1992.
The depreciation methods and the useful lives applied are as follows:
<TABLE>
<S> <C>
Installations 10 years straight line
Machinery 5-6 2/3 straight line / declining balance
Toolings 1-5 years straight line / declining balance
Leasehold improvements - Mac./Toolings 5-6 2/3 straight line / declining balance
Vehicles 4-5 years straight line
Fixtures and fittings 10 years straight line
Computer hardware 4-5 years straight line/ declining balance
</TABLE>
F-44
<PAGE> 73
MARWAL SYSTEMS, S.N.C.
Notes to the financial statements
(in thousands of French Francs)
1.3 Financial investments
The investments in associates are valued at their acquisition cost in the
assets of the Company. A reserve is recorded when their fair value is less
than their book value.
1.4 Inventory and work in progress
The policies used are as follows
- - Inventory is valued at the total cost of production.
- - Raw materials and consumables are valued at the average weighted cost for
goods received in the last three months. This method is similar to FIFO.
- - The Cost of production includes direct and indirect production expenses and
an allocation of the costs of running the Head Office, to the extent that
they are related to the production.
- - The provision for obsolescence is determined based upon the anticipated
sales.
1.5 Allowance for doubtful accounts
The receivables are valued at their face value, a provision is recorded when
the value recoverable is less than the book value.
1.6 Foreign exchange transactions
The receivables and payables denominated in foreign currency are translated
into French Francs at the December 31st exchange rate. The resulting
differences with amounts translated at historical exchange rates are shown in
the balance sheet as <<foreign exchange translation differences>>.
A provision for exchange losses is recorded separately for unrealized losses.
1.7 Retirement indemnity liabilities
The <<Projected Benefit Obligation>> has been applied to calculate the
retirement obligation.
The total obligation is covered by:
- - a fund run by La Mondiale, with a value of KFRF.9,680,
- - a provision of KFRF.1,000 included in the Marwal accounts at December 31,
1997,
- - an amount payable to La Mondiale of KFRF.450.
F-45
<PAGE> 74
MARWAL SYSTEMS, S.N.C.
Notes to the financial statements
(in thousands of French Francs)
NOTE 2: FIXED ASSETS
The movements in gross value are as follows:
<TABLE>
<CAPTION>
---------------------------------------------
12/31/96 Increase Decrease 12/31/97
---------------------------------------------
<S> <C> <C> <C> <C>
Intangible fixed assets 19761 969 -- 20730
Tangible fixed assets 156594 42804 4288 195110
Financial investments 27760 2029 623 29166
</TABLE>
The movements in amortisation and depreciation are analysed as follows:
<TABLE>
<CAPTION>
---------------------------------------------
12/31/96 Increase Decrease 12/31/97
---------------------------------------------
<S> <C> <C> <C> <C>
Intangible fixed assets 19075 942 -- 20017
Tangible fixed assets 90817 23207 4143 109881
</TABLE>
NOTE 3: INVENTORIES AND WORK IN PROGRESS
The reserve for obsolescence for raw materials, consumables and finished goods
at 12/31/97 amounts to KFRF.2.638.
NOTE 4: ACCOUNTS RECEIVABLE AND OTHER RECEIVABLES
At December 31, 1997, accounts receivable can be split by maturity date as
follows:
<TABLE>
<CAPTION>
---------------------------------------------
Greater than 1
Total Less than 1 year year
---------------------------------------------
<S> <C> <C>
Long term receivables 6375 6307 68
Current assets 147796 147796 --
</TABLE>
NOTE 5: SHORT TERM INVESTMENTS
N/A
F-46
<PAGE> 75
MARWAL SYSTEMS, S.N.C.
Notes to the financial statements
(in thousands of French Francs)
NOTE 6: PREPAYMENTS AND DEFERRED INCOME
12/31/97
--------
Prepayments
Fees 159
Prepaid maintenance 29
Leasing 203
---
391
12/31/97
--------
Deferred income
Finished goods sales 74
Long term contracts (tooling) 4712
----
4786
NOTE 7: DEFERRED CHARGES
----------------------------------------
Total Charged to 12/31/97
income statement
1997
----------------------------------------
Deferred charges
Amortised over 3 years 497 497 0
NOTE 8: SHAREHOLDERS' EQUITY
The capital stock is made up of 906,600 shares with a nominal value of FRF.100,
completely paid up.
The accounts of the Company are consolidated in the group accounts of the
Magneti Marelli Spa Group.
F-47
<PAGE> 76
MARWAL SYSTEMS, S.N.C.
Notes to the financial statements
(in thousands of French Francs)
NOTE 9: TAX PROVISIONS AND PROVISIONS FOR CONTINGENCIES AND CHARGES
The movements in the year are analysed as follows:
<TABLE>
<CAPTION>
--------------------------------------------
12/31/96 Additions Reversals 12/31/97
--------------------------------------------
<S> <C> <C> <C> <C>
Provisions for contingencies and
charges of which: 11223 5333 11290 5266
- - Provision for payments on
retirement 672 1000 672 1000
- - Provision for guarantee 5812 1948 5218 1948
- - Provision for reorganisation 70 0 70 0
- - Provision for litigation 2586 653 2691 548
- - Provision for loss on foreign
exchange 762 1273 762 1273
- - Provision for charges 1283 409 1283 409
- - Provision for unproductive
hours 38 50 -- 88
</TABLE>
NOTE 10: CREDITORS
At December 31, 1997, debts, excluding advances and deposits received, deferred
income and foreign exchange differences, can be analysed by maturity date as
follows:
<TABLE>
<CAPTION>
-------------------------------------------------
Total Less than 1 Between 1 and >5 years
year 5 years
-------------------------------------------------
<S> <C> <C> <C> <C>
Government subsidy 2300 2300
Other financial debts 14812 14812
Trade payables and other
liabilities++ 196677 193037 3640
Overdraft 234 234
</TABLE>
++ of which trade bills payable: 55338
F-48
<PAGE> 77
MARWAL SYSTEMS, S.N.C.
Notes to the financial statements
(in thousands of French Francs)
NOTE 11: INFORMATION ON SUBSIDIARY
(In thousands of Pesos)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Equity capital
other than Last closing
Share in % Detailed information Share capital capital result
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
95% Marwal de Mexico S.A. de C.V. 49655* (8739)* 8923*
Tepotzotplan
Estado de Mexico
98% Marwal Argentina S.A. 12000 Non available Non available
Buenos Aires
Estado de Argentina
</TABLE>
++ after reevaluation
(In thousands of Francs)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Gross Net book Loans Guarantee Dividends
Detailed information value value given given received
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Marwal de Mexico S.A. de C.V. 22731 22731 -- -- --
Marwal Argentina S.A. 60 60 6085 -- --
</TABLE>
The exemption of sub-groups enables Marwal Systems to not consolidate its
subsidiaries.
NOTE 12: RELATED PARTIES
The related parties transactions are included in the different accounts in the
balance sheet as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Assets Liabilities
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Trade receivables 51778 Trade payables 15020
Other receivables 2953 Other payables 2906
Cash and
cash equivalent 106522 Financial debt --
</TABLE>
Interest expenses and financial income with related parties are as follows:
<TABLE>
<S> <C> <C> <C>
Operating income 73062 Operating expenses 45322
Financial income 2953 Interest expenses 2812
</TABLE>
F-49
<PAGE> 78
MARWAL SYSTEMS, S.N.C.
Notes to the financial statements
(in thousands of French Francs)
NOTE 13: ACCRUALS AND INCOME RECEIVABLE RELATING TO DIFFERENT BALANCE SHEET
ACCOUNTS
- -------------------------------------------------------------------------
Assets Liabilities
- -------------------------------------------------------------------------
Trade receivables
- - Customers 6092 Trade payables
- - Suppliers 240 - Suppliers 12337
- - Other 3100 - Tax and social charges 16248
- Customers 1793
- Other 3135
Other liabilities -
Other receivables - Financial debts 2050
NOTE 14: EXCHANGE DIFFERENCES RELATED TO BALANCE SHEET ACCOUNTS
-----------------------------
Exchange difference
-----------------------------
Asset Liability
-----------------------------
Assets
Trade receivables 736 85
Liabilities
Trade payables 537 575
NOTE 15: SALES TURNOVER ANALYSIS
1996 1997
---- ----
Sales 610479 692154
Sales of goods 596746 676821
Sales of services 13733 15333
Split between export/domestic
Domestic 323428 290827
Export 287051 401327
Sales 610479 692154
F-50
<PAGE> 79
MARWAL SYSTEMS, S.N.C.
Notes to the financial statements
(in thousands of French Francs)
NOTE 16: DEFERRED TAX POSITION
<TABLE>
<CAPTION>
--------------------------------------------------------
12/31/96 Movements 12/31/97
--------------------------------------------------------
Nature Asset Liability Asset Liability Asset Liability
- ------ --------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Timing differences
Accrued expenses
payable to La
Mondiale 811 811 450 450
Organic 799 799 797 797
Provision for
contingencies and
charges 1976 1976 1459 1459
Profit sharing 6348 6348 3650 3640
Expenses to amortize 497 497 0
Elements having an impact on 1997 fiscal result
Vehicle leasing 4
Difference on foreign exchange unrealised gains (605)
</TABLE>
F-51
<PAGE> 80
MARWAL SYSTEMS, S.N.C.
Notes to the financial statements
(in thousands of French Francs)
NOTE 17: EMPLOYEE INFORMATION
<TABLE>
<CAPTION>
---------------------------------
Permanent staff Temporary staff
---------------------------------
<S> <C> <C>
Executives & Management 79
Employees 155 7
Labor and production 475 56
---------------------------------
TOTAL 709 63
=================================
</TABLE>
NOTE 18: LEASE COMMITMENTS
The company leases certain of its buildings:
<TABLE>
<Capion>
- --------------------------------------------------------------------
Depreciation expense
Balance sheet Acquisition -------------------------- Net book
account cost Period ended Accumulated value
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Buildings
Chalons 5000 172 632 4368
Saint-Martin 8059 101 101 7958
--------------------------------------------------
Total 13059 273 733 12326
====================================================================
</TABLE>
NOTE 19: COMMITMENTS UNDERTAKEN AND RECEIVED
Discounted trade bills receivable but not matured 83007
Leasing:
* present value of lease payments based on the BT01 index (value at 01.01.97 =
538.3 francs)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Lease payments Future lease payments Term
Balance ----------------- -------------------------------------------- price
sheet Period Accu- Less than 1 Between 1 > 5 years Total
category ended mulated year and 5 years
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Buildings
Chalons* 588.4 2160.3 591.0 2364.1 1797.9 4753.0
Saint- 113.8 113.8 535.4 3391.4 6089.8 10016.6
Martin
- ---------------------------------------------------------------------------------------
Total 702.2 2274.1 1126.4 5755.5 7887.7 14769.6 0
=======================================================================================
</TABLE>
NOTE 20: INFORMATION RELATING TO MANAGEMENT
N/A
F-52
<PAGE> 81
MARWAL SYSTEMS, S.N.C.
Notes to the financial statements
(in thousands of French Francs)
NOTE 21: EXCEPTIONAL INCOME
<TABLE>
<S> <C> <C>
Exceptional income from operating activities 0
Exceptional income from capital transactions 409
Income from the sale of fixed assets 409
Reversal of provisions and transfer of charges 1495
Provision for reorganisation 70
Provision for litigation 392
Provision for charges 1033
NOTE 22: EXCEPTIONAL CHARGES
Exceptional charges on operating activities 2320
Redundancy payments 1382
Reimplantation costs 531
Non refunded IVA 391
Other 16
Exceptional charges from capital transactions 145
Net book value of fixed assets sold 145
Depreciation and provisions 131
Provisions for risk 131
</TABLE>
F-53
<PAGE> 82
MARWAL SYSTEMS, S.N.C.
Notes to the financial statements
(in thousands of French Francs)
NOTE 23: CHANGE IN ACCOUNTING POLICIES
N/A
NOTE 24: ANALYSIS OF INCOME TAX
As Marwal Systems became a partnership as from 10/01/95, there is no income tax
booked.
<TABLE>
<CAPTION>
---------------------------
Base Tax
---------------------------
12/31/97
---------------------------
<S> <C> <C>
Operating profits 46015 0
Exceptional items (692) 0
----- ----
Profit before tax 45323 0
Income tax credit 0
----
TOTAL INCOME TAX FOR THE COMPANY 0
====
</TABLE>
NOTE 25: RECONCILIATION TO U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The accompanying financial statements of Marwal Systems S.N.C. have been
prepared in accordance with accounting principles required in France. A
reconciliation of these reported results to generally accepted principles in
the United States is as follows:
<TABLE>
<CAPTION>
1997
<S> <C>
Profit after taxation as shown in the financial statements 41,683
Adjust depreciable life of goodwill (375)
Adjust depreciable expense of fixed assets 1,821
Other (416)
------
Net income according to generally accepted 42,713
accounting principles in the United States
</TABLE>
F-54
<PAGE> 83
MARWAL SYSTEMS, S.N.C.
STATUTORY AUDITOR'S GENERAL REPORT
YEAR ENDED DECEMBER 31, 1996
In our capacity as statutory auditor, we present below our report on:
- - the accompanying annual accounts of Marwal Systems,
- - the specific procedures and disclosures prescribed by law,
for the year ended December 31, 1996.
These annual accounts are the responsibility of the Company's management. Our
responsibility is to express an opinion on these annual accounts based on our
audit.
1. OPINION ON THE ANNUAL ACCOUNTS
We conducted our audit in accordance with French auditing standards. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the annual accounts are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the annual accounts. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall annual account presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the annual accounts present fairly, in all material respects,
the financial position of the Company at December 31, 1996 and the results of
its operations for the year then ended.
II. SPECIFIC PROCEDURES AND DISCLOSURES PRESCRIBED BY LAW
We have also carried out, in accordance with professional standards, the
specific procedures prescribed by law.
We have nothing to report with respect to the fairness of information contained
in the Directors' Report and its consistency with the annual accounts and other
information presented to shareholders concerning the financial position and
annual accounts.
The Statutory Auditor
ERNST & YOUNG Audit
/s/ Gilles Meyer
March 7, 1997
F-55
<PAGE> 84
MARWAL SYSTEMS, S.N.C.
Balance Sheet as of
December 31, 1996
(in French Francs)
<TABLE>
<CAPTION>
ASSETS
December 31, 1996
----------------------------------------------------
Gross Accumulated Net book value
depreciation
amortization and
allowances
----------------------------------------------------
Fixed Assets
- ------------
<S> <C> <C> <C>
Intangible fixed assets 19.761.392,48 19.074.600,32 686.792,16
Tangible fixed assets 156.594.185,63 90.816.990,28 65.777.195,35
Financial investments:
- - Associates 22.731.315,00 - 22.731.315,00
- - Others 5.029.079,77 - 5.029.079,77
-------------- -------------- --------------
Sub-total 204.115.972,88 109.891.590,60 94.224.382,28
-------------- -------------- --------------
Inventories
- -----------
- - Raw materials 28.365.181,00 2.416.159,00 25.949.022,00
- - Work-in-progress 2.868.378,00 233.271,00 2.635.107,00
- - Finished goods 10.119.722,00 928.075,00 9.191.647,00
-------------- -------------- -------------
Sub-total 41.353.281,00 3.577.505,00 37.775.776,00
-------------- -------------- --------------
Current assets
- --------------
Advances and payments on
accounts 932.195,00 932.195,00
Trade accounts and notes
receivable:
- - Customers and related accounts 118.214.952,27 3.803.797,82 114.411.154,45
- - Other 9.530.704,08 9.530.704,08
Other receivables 1.489.686,35 1.489.686,35
Cash and cash equivalent 101.785.260,99 101.785.260,99
Payments in advance 244.063,94 244.063,94
Deferred charges 497.004,94 497.004,94
Foreign exchange translation
differences 761.691,02 761.691,02
-------------- -------------- --------------
Sub-total 233.455.558,59 3.803.797,82 229.651.760,77
-------------- -------------- --------------
TOTAL ASSETS 478.924.812,47 117.272.893,42 361.651.919,05
-------------- -------------- --------------
</TABLE>
F-56
<PAGE> 85
MARWAL SYSTEMS, S.N.C.
Balance Sheet as of
December 31, 1996
(in French Francs)
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C>
Shareholders' equity
Share capital 90.660.000,00
Reserves 1.470.178,30
Revaluation reserve
Retained earnings at January 1st 24.306.987,50
Result for the year 56.697.450,69
-----------------
Sub-total 173.134.616,49
-----------------
Provisions for contingencies and charges 11.222.783,62
Liabilities
Financial debts:
- - Amounts owed to financial institutions 71.741,14
- - Other financial debts 7.637.640,38
Accounts payable and related accounts 130.236.872,44
Social charges payable 21.804.322,68
Taxes 3.224.512,15
Other 4.710.583,24
Other creditors:
- - Accounts payable on fixed assets 7.006.722,04
- - Group 449,84
- - Other 64.874,81
Deferred income 1.271.517,00
Foreign exchange translation differences 1.265.283,22
-----------------
Sub-total 177.294.518,94
-----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 361.651.919,05
-----------------
</TABLE>
F-57
<PAGE> 86
MARWAL SYSTEMS, S.N.C.
Income Statement for the
year ended December 31, 1996
(in French Francs)
<TABLE>
<CAPTION>
INCOME STATEMENT FOR THE YEAR December 31, 1996
-----------------
<S> <C> <C>
Operating revenues: 616.818.427,92
Sale of goods 596.746.296,62
Sale of services 13.732.425,85
Net sales 610.478.722,77
Movement in finished goods and work-in-progress (1.616.414,00)
In-house production 568.066,00
Grants 493.725,00
Reversal of provisions and transfer of charges 5.013.288,15
Other income 1.881.040,00
Operating expenses 554.232.751,85
Purchases of raw materials and other supplies 284.395.019,10
Movements in raw materials stock (3.520.706,00)
Other purchases and external charges 95.604.496,22
Taxes and similar charges 9.677.879,14
Wages & salaries 91.916.790,49
Social charges 39.787.018,33
Depreciation and amortisation expenses and
provisions:
- - Fixed assets 23.855.292,82
- - Current assets 2.259.789,97
- - Contingencies and charges 8.262.354,05
Other charges 1.994.817,73
--------------
554.232.751,85
Operating profit 62.585.676,07
Financial income:
From other investments 136,92
Other interest and similar income 2.245.533,46
Reversal of provisions and transfer of charges --
Foreign exchange gains 10.316.211,72
--------------
12.561.882,10
Financial expenses:
Depreciation and provisions 1.022.855,69
Interest and similar charges 3.906.694,57
Foreign exchange losses 4.124.523,99
--------------
9.054.074,25
Net financial income / (expenses) 3.507.807,85
</TABLE>
F-58
<PAGE> 87
MARWAL SYSTEMS, S.N.C.
Income Statement for the
year ended December 31, 1996
(in French Francs)
<TABLE>
<CAPTION>
INCOME STATEMENT FOR THE YEAR December 31, 1996
- ----------------------------- -----------------
<S> <C> <C>
Profit before taxation 66.093.483,92
Exceptional income: 3.104.503,48
- ------------------
From operating activities 1.448.388,61
From capital transactions 431.443,87
Reversal of provisions and transfer
of charges 1.224.671,00
------------
3.104.503,48
Exceptional charges: 6.152.294,71
- -------------------
From operating activites 4.382.238,16
From capital transactions 275.084,55
Depreciation and provisions 1.494.972,00
------------
6.152.294,71
Exceptional profit (loss) (3.047.791,23)
- -------------------------
Profit before taxation 63.045.692,69
- -------------------------
Profit-Sharing 6.348.242,00
Income Tax --
Profit after taxation 56.697.450,69
- -------------------------
</TABLE>
F-59
<PAGE> 88
MARWAL SYSTEMS, S.N.C.
Notes to the financial statements
(in thousands of French Francs)
EVENTS DURING THE YEAR
The financial investment in Marwal de Mexico was raised from 36.369 French
Francs to 22.731.315 French Francs, which is 95% of the shares.
NOTE 1: ACCOUNTING POLICIES
The accounts of the Company have been prepared based upon generally accepted
accounting principles in France which conform with the Chart of Accounts as set
out in the French law dated April 30, 1983 and the decree of November 29, 1983.
1.1 Intangible fixed assets
The intangible fixed assets consist mainly of goodwill which is amortised on a
straight line basis over 5 years and totally amortised at the end of 1996.
The amortisation methods and the useful lives for other categories are as
follows:
- -Set-up costs 3 years straight line
- -Computer software 1-3 years straight line
1.2 Tangible fixed assets
Tangible fixed assets are valued at historical purchase price or cost of
production when they have been produced in house. The cost of production is
made up of the following elements: purchase price of raw materials, consumables
and direct production costs.
Assets are depreciated on a straight line basis or declining balance, when
applicable, for items purchased during or after 1992.
The depreciation methods and the useful lives applied are as follows:
Installations 10 years straight line
Machinery 5-6 2/3 straight line/declining balance
Toolings 1-5 years straight line/declining balance
Leasehold improvements-Mac/Toolings 5-6 2/3 straight line/declining balance
Vehicles 4-5 years straight line
Fixtures and fittings 10 years straight line
Computer hardware 4-5 years straight line/declining balance
F-60
<PAGE> 89
MARWAL SYSTEMS, S.N.C.
Notes to the financial statements
(in thousands of French Francs)
1.3 Financial investments
- -The investments in associates are valued at their acquisition cost in the
assets of the Company.
- -A reserve is recorded when their fair value is less than their book value.
1.4 Inventory and work-in-progress
The policies used are as follows:
- - Inventory is valued at the total cost of production.
- - Raw materials and consumables are valued at the average weighted cost for
goods received in the last month. This method is similar to FIFO.
- - The Cost of production includes direct and indirect production expenses and
an allocation of the costs of running the Head Office, to the extent that
they are related to the production.
- - The provision for obsolescence is determined based upon the anticipated
sales.
1.5 Allowance for doubtful accounts
The receivables are valued at their face value, a provision is recorded when
the value recoverable is less than the book value.
1.6 Foreign exchange transactions
The receivables and payables denominated in foreign currency are translated
into French Francs at the December 31st exchange rate. The resulting differences
with amounts translated at historical exchange rates are shown in the balance
sheet as << foreign exchange translation differences >>.
A provision for exchange losses is recorded separately for unrealised losses.
1.7 Retirement indemnity liabilities
The << Projected Benefit Obligation >> has been applied to calculate the
retirement obligation.
The total obligation is covered by:
- -a fund run by La Mondiale, with a value of KFRF.9,006,
- -a provision of KFRF.652 included in the Marwal accounts at December 31, 1996,
- -an amount payable to La Mondiale of KFRF.810.
F-61
<PAGE> 90
MARWAL SYSTEMS, S.N.C.
Notes to the financial statements
(in thousands of French Francs)
NOTE 2: FIXED ASSETS
The movements in gross value are as follows:
<TABLE>
<CAPTION>
-------------------------------------------
12/31/95 Increase Decrease 12/31/96
-------------------------------------------
<S> <C> <C> <C> <C>
Intangible fixed assets 18226 1535 - 19761
Tangible fixed assets 128952 28909 1267 156594
Financial investments 1047 26812 99 27760
-------------------------------------------
</TABLE>
The movements in amortisation and depreciation are analysed as follows:
<TABLE>
<CAPTION>
-------------------------------------------
12/31/95 Increase Decrease 12/31/96
-------------------------------------------
<S> <C> <C> <C> <C>
Intangible fixed assets 16433 2642 - 19075
Tangible fixed assets 70815 21213 1211 90817
-------------------------------------------
</TABLE>
NOTE 3: INVENTORIES AND WORK IN PROGRESS
The reserve for obsolescence for raw materials, consumables and finished goods
at 12/31/96 amounts to KFRF.3,577.
NOTE 4: ACCOUNTS RECEIVABLE AND OTHER RECEIVABLES
At December 31, 1996, accounts receivable can be split by maturity date as
follows:
<TABLE>
<CAPTION>
---------------------------------------------------
Total Less than 1 year Greater than 1 year
---------------------------------------------------
<S> <C> <C> <C>
Long term receivables 5029 5026 3
Current assets 130167 130167 -
----------------------------------------------------
</TABLE>
NOTE 5: SHORT TERM INVESTMENTS
N/A.
F-62
<PAGE> 91
MARWAL SYSTEMS, S.N.C.
Notes to the financial statements
(in thousands of French Francs)
NOTE 6: PREPAYMENTS AND DEFERRED INCOME
<TABLE>
<CAPTION>
12/31/96
--------
<S> <C>
Prepayments
- -----------
Documentation 2
Prepaid maintenance 43
Leasing 199
---
244
12/31/96
--------
Deferred income
Long term contracts (tooling) 1272
</TABLE>
NOTE 7: DEFERRED CHARGES
-----------------------------------------
Total Charged to 12/31/96
income statement
1996
-----------------------------------------
Deferred charges
Amortised over 3 years 2005 1508 497
-----------------------------------------
NOTE 8: SHAREHOLDERS' EQUITY
The capital stock is made up of 906,600 shares with a nominal value of FRF.100,
completely paid up.
The accounts of the Company are consolidated in the group accounts of the
Magneti Marelli Spa Group.
F-63
<PAGE> 92
MARWAL SYSTEMS, S.N.C.
Notes to the financial statements
(in thousands of French Francs)
NOTE 9: TAX PROVISIONS AND PROVISIONS FOR CONTINGENCIES AND CHARGES
The movements in the year are analysed as follows:
<TABLE>
<CAPTION>
12/31/95 Additions Reversals 12/31/96
-------------------------------------------
<S> <C> <C> <C> <C>
Provisions for contingencies and
charges of which: 5513 10953 5243 11223
- - Provision for payments on
retirement 357 672 357 672
- - Provision for guarantee 2523 5812 2523 5812
- - Provision for loss on foreign
exchange 433 762 433 762
- - Provision for litigation 455 1892 455 1892
- - Provision for reimplantation - 1033 - 1033
-------------------------------------------
</TABLE>
NOTE 10: CREDITORS
At December 31, 1996, debts, excluding advances and deposits received, deferred
income and foreign exchange differences, can be analysed by maturity date as
follows:
<TABLE>
<CAPTION>
Total Less than 1 Between 1 and > 5 years
year 5 years
------------------------------------------------
<S> <C> <C> <C>
Other financial debts 7638 7638
Trade payables and other
liabilities* 167048 160700* 6348
Overdraft 71 71
------------------------------------------------
</TABLE>
*of which trade bills payable: 46031
NOTE 11: INFORMATION ON SUBSIDIARY
(In thousands of Pesos)
<TABLE>
<CAPTION>
Share in % Detail information Share capital Equity capital Last closing
other than result
capital
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
95% Marwal de Mexico S.A.
de C.V.
Tepotzotplan 42870 (5075) 1325
Estado de Mexico
</TABLE>
F-64
<PAGE> 93
MARWAL SYSTEMS, S.N.C.
Notes to the financial statements
(in thousands of French Francs)
(In thousands of Francs)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Detailed information Gross Net book Loans Guarantee Dividends
value value given given recevied
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Marwal de Mexico S.A. de C.V. 22731 22731 - - -
- -----------------------------------------------------------------------------------------------------
</TABLE>
The exemption of sub-groups enables Marwal Systems to not consolidate Marwal de
Mexico.
NOTE 12: RELATED PARTIES
The related parties transactions are included in the different accounts in the
balance sheet as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Assets Liabilities
------ -----------
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Trade receivables 42640 Trade payables 12212
Other receivables 1972 Other payables 2069
Cash and
cash equivalent 100323 Financial debt -
- --------------------------------------------------------------------------------
Interest expenses and financial income with related parties are as follows:
- --------------------------------------------------------------------------------
Operating income 57100 Operating expenses 46067
Financial income 1972 Interest expenses 3535
- --------------------------------------------------------------------------------
</TABLE>
NOTE 13: ACCRUALS AND INCOME RECEIVABLE RELATING TO DIFFERENT BALANCE SHEET
ACCOUNTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Assets Liabililties
------ ------------
- --------------------------------------------------------------------------------------
Trade receivables
<S> <C> <C>
- - Customers 8442 Trade payables
- - Suppliers - - Suppliers 14284
- - State 2000 - Tax and social charges 17107
- Other 1896
-
Other receivables Other liabilities -
Financial debts 804
- --------------------------------------------------------------------------------------
</TABLE>
F-65
<PAGE> 94
MARWAL SYSTEMS, S.N.C.
Notes to the financial statements
(in thousands of French Francs)
NOTE 14: EXCHANGE DIFFERENCES RELATED TO BALANCE SHEET ACCOUNTS
Exchange difference
--------------------------------
Asset Liability
Assets
Trade receivables 80 1257
Liabilities
Trade payables 682 8
--------------------------------
NOTE 15: SALES TURNOVER ANALYSIS
1995 1996
---- ----
Sales 559587 610479
Sales of goods 540479 596746
Sales of services 19108 13733
Split between export/domestic
Domestic 318495 323428
Export 241092 287051
Sales 559587 610479
NOTE 16: DEFERRED TAX POSITION
<TABLE>
<CAPTION>
12/31/95 Movements 12/31/96
-----------------------------------------------------------------
Nature Asset Liability Asset Liability Asset Liability
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Timing differences
Organic 730 730 799 799
-----------------------------------------------------------------
</TABLE>
Elements having an impact on 1996 fiscal result
None.
NOTE 17: EMPLOYEE INFORMATION
Permanent staff Temporary staff
-----------------------------------------------
Executives & Management 67
Employees 143 3
Labor and production 468 23
-----------------------------------------------
TOTAL 678 26
-----------------------------------------------
F-66
<PAGE> 95
MARWAL SYSTEMS, S.N.C.
Notes to the financial statements
(in thousands of French Francs)
NOTE 18: LEASE COMMITMENTS
None.
NOTE 19: COMMITMENTS UNDERTAKEN AND RECEIVED
Discounted trade bills receivable but not matured 82132
NOTE 20: INFORMATION RELATING TO MANAGEMENT
N/A.
NOTE 21: EXCEPTIONAL INCOME
Exceptional income from operating activities 1448
Grant relating to training 1400
Other 48
Exceptional income from capital transactions 431
Income from the sale of fixed assets 136
Other 295
Reversal of provisions and transfer of charges 1225
Provision for delocalisation 1225
NOTE 22: EXCEPTIONAL CHARGES
Exceptional charges on operating activities 4382
Redundancy payments 1543
Training costs 2756
Other 83
Exceptional charges from capital transactions 275
Net book value of fixed assets sold 55
Other 220
Depreciation and provisions 1495
Provision for risk 392
Other 70
Provision for charges 1033
F-67
<PAGE> 96
MARWAL SYSTEMS, S.N.C.
Notes to the financial statements
(in thousands of French Francs)
NOTE 23: CHANGE IN ACCOUNTING POLICIES
Effective January 1, 1996, the toolings participation with Walbro, that used to
be booked in deferred charges and amortized over 3 years, are recorded in
fixed assets. The amount involved is KFRF. 4,650 at 1996 year end. Past years
participations have not been reclassified and are still shown as deferred
charges for an amount of KFRF. 497 at December 31, 1996.
NOTE 24: ANALYSIS OF INCOME TAX
As Marwal Systems became a partnership as from 10/01/95, there is no income
tax booked.
Base Tax
12/31/96
--------------------------
Operating profit 66094 0
Exceptional items (3048) 0
--------------------------
Profit before tax 63046 0
Income tax credit 1994 0
--------------------------
TOTAL INCOME TAX FOR THE COMPANY 0
--------------------------
NOTE 25: RECONCILIATION TO U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The accompanying financial statements of Marwal Systems S.N.C. have been
prepared in accordance with accounting principles required in France. A
reconciliation of these reported results to generally accepted principles in
the United States is as follows:
<TABLE>
<CAPTION>
For the Year Ended December 31,
1996 1995 1994
---- ---- ----
(In Thousands of French Francs)
<S> <C> <C> <C>
Profit after taxation as shown in the financial
statements 56,697 25,473 15,534
Adjust depreciable life of goodwill 1,375 2,625 2,625
Adjust depreciation expense of fixed assets 1,361 1,597 4,827
Other 537 409 89
Deferred taxes -- 3,582 (1,657)
------ ------ ------
Net income according to generally accepted
accounting principles in the United States 59,970 33,686 21,418
====== ====== ======
</TABLE>
F-68
<PAGE> 97
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholders of Walbro Corporation:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in Walbro Corporation and
Subsidiaries' annual report to shareholders included or incorporated by
reference in this Form 10-K, and have issued our report thereon dated February
17, 1999. Our audits were made for the purpose of forming an opinion on those
consolidated statements taken as a whole. The supplemental notes to the
consolidated financial statements on pages S-2 to S-12 are the responsibility of
the Company's management and are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not a required part of the
basic consolidated financial statements. The information contained in these
supplemental notes has been subjected to the auditing procedures applied in our
audits of the basic consolidated financial statements and, in our opinion,
fairly states in all material respects the financial data required to be set
forth therein in relation to the basic consolidated financial statements taken
as a whole.
/s/ ARTHUR ANDERSEN LLP
Detroit, Michigan,
February 17, 1999.
S-1
<PAGE> 98
WALBRO CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) VALUATION AND QUALIFYING ACCOUNTS
Following is a summary of changes in the valuation and qualifying
accounts for the three years ended December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Balance Beginning of Year $ 809 $ 753 $ 978
Additions charged to operations 869 378 302
Other 2,818 -- --
Deductions for uncollectible accounts
written off, net of recoveries (470) (238) (508)
Currency translation adjustment 133 (84) (19)
-------- -------- --------
Balance End of Year $ 4,159 $ 809 $ 753
======== ======== ========
RESERVE FOR INVENTORY VALUATION:
Balance Beginning of Year $ 2,645 $ 668 $ 808
Additions charged to operations 1,033 3,425 724
Deductions for inventory disposal (2,299) (1,380) (870)
Currency translation adjustment 33 (68) 6
-------- -------- --------
Balance End of Year $ 1,412 $ 2,645 $ 668
======== ======== ========
</TABLE>
S-2
<PAGE> 99
WALBRO CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
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..................................... $ 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.............................. 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 and other............ -- 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
---------- --------- --------- ---------- ---------
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;
authorized 25,000,000; outstanding
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>
S-3
<PAGE> 100
WALBRO CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
DECEMBER 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>
ASSETS
CURRENT ASSETS:
Cash..................................... $ (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:
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 and refundable 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 and other............ 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
----------- ---------- ----------- -------------- ----------
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;
authorized 25,000,000; outstanding
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)
Accumulated other comprehensive income... (2,587) (25,416) (34,185) 28,003 (34,185)
----------- ---------- ----------- -------------- ----------
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>
S-4
<PAGE> 101
WALBRO CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
----------------------------------------------------------------------------
WALBRO
CORPORATION CONSOLIDATION
GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL
------------ ------------ ------------ --------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NET SALES............................. $357,379 $339,813 $ 2,624 $(21,826) $677,990
COSTS AND EXPENSES:
Cost of sales....................... 296,326 295,254 2,238 (21,826) 571,992
Selling, administrative, research
and development expenses......... 30,331 26,574 11,621 - 68,526
-------- -------- -------- -------- --------
OPERATING INCOME (LOSS)............... 30,722 17,985 (11,235) - 37,472
OTHER EXPENSE (INCOME):
Interest expense.................... 25,649 10,486 26,117 (30,446) 31,806
Interest income..................... (7,809) (6,823) (18,991) 30,446 (3,177)
Royalty income, net................ (3,667) 439 - - (3,228)
Foreign currency exchange loss
(gain)........................... (73) (1,173) (16) - (1,262)
Other............................... (721) 490 (554) - (785)
-------- -------- -------- -------- --------
Income before (provision) credit for
income taxes, minority interest,
equity in income (loss) of joint
ventures and subsidiaries and
extraordinary item.................. 17,343 14,566 (17,791) - 14,118
(Provision) credit for income taxes... (5,496) (3,110) 4,639 - (3,967)
Minority interest..................... - (5,806) - - (5,806)
Equity in income (loss) of joint
ventures............................ (353) 1,199 - - 846
Equity in income (loss) of
subsidiaries........................ 8,226 - 18,343 (26,569) -
-------- -------- -------- -------- --------
Income before extraordinary item...... 19,720 6,849 5,191 (26,569) 5,191
Extraordinary item.................... - - (1,473) - (1,473)
-------- -------- ------- -------- --------
Net income............................ $ 19,720 $ 6,849 $ 3,718 $(26,569) $ 3,718
======== ======== ======= ======== ========
Net income............................ $ 19,720 $ 6,849 $ 3,718 $(26,569) $ 3,718
Other comprehensive income, net of tax:
Unrealized loss on securities
for sale.......................... - - (207) - (207)
Cumulative translation adjustments.. (721) 6,426 3,985 (5,705) 3,985
-------- -------- -------- -------- --------
Other comprehensive income............ (721) 6,426 3,778 (5,705) 3,778
-------- -------- -------- -------- --------
Comprehensive income.................. $ 18,999 $ 13,275 $ 7,496 $(32,274) $ 7,496
======== ======== ======== ======== ========
</TABLE>
S-5
<PAGE> 102
WALBRO CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------------------------------
WALBRO
CORPORATION CONSOLIDATION
GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL
------------ ------------ ------------ --------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NET SALES............................. $323,189 $316,828 $ 2,302 $ (22,414) $ 619,905
COSTS AND EXPENSES:
Cost of sales and restructuring and.
impairment charges............... 299,913 286,119 2,133 (22,414) 565,751
Selling, administrative, research
and development expenses......... 38,423 27,354 12,298 78,075
-------- -------- -------- --------- ---------
OPERATING INCOME (LOSS)............... (15,147) 3,355 (12,129) -- (23,921)
OTHER EXPENSE (INCOME):
Interest expense.................... 23,060 14,720 22,313 (34,683) 25,410
Interest income..................... (11,671) (6,079) (17,607) 34,683 (674)
Royalty income, net................. (4,477) 599 -- -- (3,878)
Foreign currency exchange loss
(gain)........................... (900) 534 58 -- (308)
Other............................... 425 (50) (10) -- 365
-------- -------- -------- --------- ---------
Income before (provision) credit for
income taxes, minority interest,
equity in income (loss) of joint
ventures and subsidiaries........... (21,584) (6,369) (16,883) -- (44,836)
(Provision) credit for income taxes... 7,818 28 2,285 -- 10,131
Minority interest..................... (450) (4,585) -- -- (5,035)
Equity in income of joint
ventures............................ 1,007 2,106 -- -- 3,113
Equity in income (loss) of
subsidiaries........................ (4,036) -- (22,028) 26,064 --
-------- -------- -------- --------- ---------
Net income............................ $(17,245) $ (8,820) $(36,626) $ 26,064 $ (36,627)
======== ======== ======== ========= =========
Net income............................ $(17,245) $ (8,820) $(36,626) $ 26,064 $ (36,627)
Other comprehensive income, net of tax:
Unrealized loss on securities
available for sale................ -- -- (620) -- (620)
Cumulative translation adjustments.. (2,607) (23,790) (28,226) 26,397 (28,226)
-------- -------- -------- --------- ---------
Other comprehensive income............ (2,607) (23,790) (28,846) 26,397 (28,846)
-------- -------- -------- --------- ---------
Comprehensive income.................. $(19,852) $(32,610) $(65,472) $ 52,461 $ (65,473)
======== ======== ======== ========= =========
</TABLE>
S-6
<PAGE> 103
WALBRO CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------------------------------
WALBRO
CORPORATION CONSOLIDATION
GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL
------------ ------------ ----------- --------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NET SALES.......................... $325,547 $284,812 $ 1,671 $ (26,641) $585,389
COSTS AND EXPENSES:
Cost of sales.................... 264,824 248,589 1,362 (26,641) 488,134
Selling administrative, research
and development expenses...... 49,599 21,607 (629) -- 70,577
-------- -------- --------- --------- --------
OPERATING INCOME (LOSS)............ 11,124 14,616 938 -- 26,678
OTHER EXPENSE (INCOME):
Interest expense................. 14,824 5,773 22,214 (22,276) 20,535
Interest income.................. (5,416) (1,999) (17,577) 22,276 (2,716)
Royalty income, net.............. (2,042) 632 -- -- (1,410)
Foreign currency exchange
loss (gain)................... (309) (131) 370 -- (70)
Other............................ (4) 158 (217) -- (63)
-------- -------- --------- --------- --------
Income before (provision) credit
for income taxes, minority
interest, equity in income
of joint ventures and
subsidiaries .................... 4,071 10,183 (3,852) -- 10,402
(Provision) credit for income
taxes............................ (1,240) (4,155) 2,320 -- (3,075)
Minority interest ................. -- (285) -- -- (285)
Equity in income of joint
ventures......................... 552 3,635 -- -- 4,187
Equity in income of
subsidiaries..................... 9,932 518 12,761 (23,211) --
-------- -------- --------- --------- --------
Net income ........................ $ 13,315 $ 9,896 $ 11,229 $ (23,211) $ 11,229
======== ======== ========= ========= ========
Net income ........................ $ 13,315 $ 9,896 $ 11,229 $ (23,211) $ 11,229
Other comprehensive income, net of
tax:
Minimum pension liability
adjustment...................... -- -- 63 -- 63
Unrealized loss on securities
available for sale.............. -- -- (139) -- (139)
Cumulative translation
adjustments.................... (551) (5,085) (6,580) 5,636 (6,580)
-------- -------- --------- --------- --------
Other comprehensive income......... (551) (5,085) (6,656) 5,636 (6,656)
-------- -------- --------- --------- --------
Comprehensive income............... $ 12,764 $ 4,811 $ 4,573 $ (17,575) $ 4,573
======== ======== ========= ========= ========
</TABLE>
S-7
<PAGE> 104
WALBRO CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
---------------------------------------------------------------------------
WALBRO
CORPORATION CONSOLIDATION
GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL
------------ ------------ ------------ --------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities.............. $ 33,107 $ 53,196 $(31,701) $-- $ 54,602
--------- --------- --------- ----- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of plant and
equipment.................... (16,474) (25,237) (295) -- (42,006)
Acquisitions, net of cash
acquired..................... -- -- -- -- --
Purchase of other assets....... 12,235 (11,320) (6,391) -- (5,476)
Investment in joint ventures
and other.................... (22,201) 3,240 7,392 -- (11,569)
Proceeds/(payments) of
intercompany note
receivable................... -- -- -- -- --
Proceeds from disposal of
assets....................... 2,211 653 5,515 -- 8,379
-------- -------- -------- ----- --------
Net cash provided by (used in)
investing activities.............. (24,229) (32,664) 6,221 -- (50,672)
-------- -------- -------- ----- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net borrowings (repayments)
under revolving
line-of-credit
agreements................... -- -- 73,344 -- 73,344
Debt repayments................ (6,944) (16,479) (45,408) -- (68,831)
Proceeds from issuance of
long-term debt............... -- -- -- -- --
Proceeds from issuance of
common stock and options..... -- -- 57 -- 57
Financing fees paid............ -- -- (2,603) -- (2,603)
Cash dividends paid............ -- -- (868) -- (868)
-------- -------- -------- ----- --------
Net cash provided by (used in)
financing activities.............. (6,944) (16,479) 24,522 -- 1,099
-------- -------- -------- ----- --------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH.............................. -- 1,079 -- -- 1,079
-------- -------- -------- ----- --------
NET INCREASE (DECREASE) IN CASH..... 1,934 5,132 (958) -- 6,108
CASH AT BEGINNING OF YEAR........... (744) 13,431 852 -- 13,539
-------- -------- -------- ----- --------
CASH AT END OF YEAR................. $ 1,190 $ 18,563 $ (106) $-- $ 19,647
========= ======== ======== ===== ========
</TABLE>
S-8
<PAGE> 105
WALBRO CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
---------------------------------------------------------------------------
WALBRO
CORPORATION CONSOLIDATION
GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL
------------ ------------ ------------ --------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities.............. $ 25,529 $ 12,845 $(64,600) $ -- $(26,226)
-------- -------- -------- ------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of plant and
equipment.................... (29,952) (31,783) (284) -- (62,019)
Acquisitions, net of cash
acquired..................... -- -- -- -- --
Purchase of other assets....... (2,974) (27) (86) -- (3,087)
Investment in joint ventures
and other.................... (2,350) 8,142 (4,036) -- 1,756
Proceeds/(payments) of
intercompany note
receivable................... -- -- -- -- --
Proceeds from disposal of
assets....................... 9,370 (5,247) 1,292 -- 5,415
-------- -------- -------- ------- --------
Net cash provided by (used in)
investing activities.............. (25,906) (28,915) (3,114) -- (57,935)
-------- -------- -------- ------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net borrowings (repayments)
under revolving
line-of-credit
agreements................... -- 8,375 (91,510) -- (83,135)
Debt repayments................ (666) (136) (408) -- (1,210)
Proceeds from issuance of
long-term debt............... -- (63,596) 169,000 -- 105,404
Proceeds from issuance of
convertible preferred
securities................... -- 69,000 -- -- 69,000
Proceeds from issuance of
common stock and options..... -- -- 492 -- 492
Financing fees paid............ -- -- (5,680) -- (5,680)
Cash dividends paid............ -- -- (3,463) -- (3,463)
-------- -------- -------- ------- --------
Net cash provided by (used in)
financing activities.............. (666) 13,643 68,431 -- 81,408
-------- -------- -------- ------- --------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH.............................. -- (1,921) -- -- (1,921)
-------- -------- -------- ------- --------
NET INCREASE (DECREASE) IN CASH..... (1,043) (4,348) 717 -- (4,674)
CASH AT BEGINNING OF YEAR........... 299 17,779 135 -- 18,213
-------- -------- -------- ------- --------
CASH AT END OF YEAR................. $ (744) $ 13,431 $ 852 $ -- $ 13,539
======== ======== ======== ======= ========
</TABLE>
S-9
<PAGE> 106
WALBRO CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------------------------
WALBRO
CORPORATION CONSOLIDATION
GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL
------------ ------------ ----------- --------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities............... $ 61,606 $ 50,441 $(75,409) $ -- $ 36,638
-------- -------- -------- ----- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of plant and
equipment..................... (38,884) (60,417) 154 -- (99,147)
Acquisitions, net of cash
acquired...................... -- (1,018) -- -- (1,018)
Purchase of other assets........ (2,041) (1,297) (96) -- (3,434)
Investment in joint ventures and
other......................... (22,509) 10,609 10,449 -- (1,451)
Proceeds/(payments) of
intercompany note
receivable.................... -- -- -- -- --
Proceeds from disposal of
assets........................ 7 328 3,821 -- 4,156
-------- -------- -------- ----- --------
Net cash provided by (used in)
investing activities............... (63,427) (51,795) 14,328 -- (100,894)
-------- -------- -------- ----- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments)
under revolving line-of-credit
agreements.................... -- 1,189 64,061 -- 65,250
Debt repayments................. (555) (141) (408) -- (1,104)
Proceeds from issuance of
long-term debt................ 2,600 172 -- -- 2,772
Proceeds from issuance of common
stock and options............. -- -- 771 -- 771
Financing fees paid ............ -- -- (508) -- (508)
Cash dividends paid ............ -- -- (3,439) -- (3,439)
-------- -------- -------- ----- --------
Net cash provided by (used in)
financing activities............... 2,045 1,220 60,477 -- 63,742
-------- -------- -------- ----- --------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH............................... -- (1,306) 241 -- (1,065)
-------- -------- -------- ----- --------
NET INCREASE (DECREASE) IN CASH...... 224 (1,440) (363) -- (1,579)
CASH AT BEGINNING OF YEAR............ 75 19,219 498 -- 19,792
-------- -------- -------- ----- --------
CASH AT END OF YEAR.................. $ 299 $ 17,779 $ 135 $ -- $ 18,213
======== ======== ======== ===== ========
</TABLE>
S-10
<PAGE> 107
WALBRO CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(CONTINUED)
Basis of Presentation -- In July 1995, the Company issued
$110,000,000 in aggregate principal amount of 9.875% Senior Notes due in 2005
(the 2005 Notes). In December 1997, the Company sold $100,000,000 in aggregate
principal amount of 10.125% Senior Notes due in 2007 (the 2007 Notes). The
2005 and 2007 Notes are guaranteed on a senior unsecured basis, jointly and
severally, by each of the Company's principal wholly-owned domestic operating
subsidiaries and certain of its indirect wholly-owned subsidiaries (the
Guarantors). The Guarantors include Walbro Automotive Corporation, Walbro
Engine Management Corporation, Whitehead Engineered Products, Inc. and Sharon
Manufacturing Co. The condensed consolidating financial statements of the
Guarantors are presented on pages S-2 through S-10 and should be read in
connection with the consolidated financial statements of the Company. Separate
financial statements of the Guarantors are not presented because the Guarantors
are jointly, severally and unconditionally liable under the guarantees, and the
Company believes the condensed consolidating financial statements presented are
more meaningful in understanding the financial position of the Guarantors.
Distributions -- There are no significant restrictions on the ability
of the Guarantors to make distributions to Walbro Corporation.
Selling and Administrative Expenses -- During 1998, 1997 and 1996 the
Parent Corporation allocated $3,399,000, $5,267,000 and $10,422,000,
respectively, of corporate selling and administrative expenses to its
operating subsidiaries.
S-11
<PAGE> 108
WALBRO CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(CONTINUED)
Long-term debt of the Parent Corporation and the Guarantors consisted of
the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1998 1997
------ -------
<S> <C> <C>
Senior notes due 2005, unsecured, stated interest at 9.875%
(9.92% effective interest rate) net of unamortized discount
of $331 and $369 as of December 31, 1996 and 1995,
respectively. $109,747 $109,708
Senior notes due 2007, unsecured, interest at 10.125%............ 100,000 100,000
New Revolving Credit Facility, secured, interest at the LIBOR or
prime rate, plus an additional margin ......................... 93,312 --
New Purchase Money Loan Agreement, secured,
interest at the LIBOR or prime rate,
plus an additional margin...................................... 2,584 --
Old Revolving Credit Facility, repaid during 1998................ -- 19,700
Old Purchase Money Loan Agreement, repaid during 1998............ -- 2,852
Term loan from the State of Connecticut, secured, interest at 6%
per annum, payable in monthly amounts from 1997 to 2005 ....... 3,400 3,400
2004 Senior Notes, repaid during 1998............................ -- 45,000
Industrial revenue bond, issued by Town of Ossian, Indiana,
interest at a variable municipal bond rate, due in 2023........ 9,000 9,000
Industrial revenue bond, issued by City of Ligonier, Indiana,
repaid during 1998............................................. -- 6,300
Capital lease obligations, interest at 7.5%, payable in monthly
installments through February 2002............................. 2,399 3,042
Other............................................................ -- 462
-------- --------
320,442 299,464
Less -- Current portion.......................................... 2,269 13,884
-------- --------
$318,173 $285,580
======== ========
</TABLE>
For a more detailed description of the above indebtedness, see Note 5 of
Notes to Consolidated Financial Statements.
Aggregate minimum principal payment requirements on long-term debt,
including capital lease obligations, in each of the five years subsequent to
December 31, 1998 are as follows (in thousands): 1999 - $2,269; 2000 - $2,447;
2001 - $2,515; 2002 - $1,867; 2003 - $90,199 and thereafter - $221,145.
S-12
<PAGE> 109
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBITS DESCRIPTION PAGE NO.
<S> <C> <C>
23.1 Consent of Arthur Andersen
LLP, independent public
accountants.
23.2 Consent of Ernst & Young
Audit.
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports dated February 17, 1999 included (or incorporated by reference) in this
Form 10-K/A, into the Company's previously filed Registration Statement File
Nos. 33-20841, 33-32068 and 33-48562.
/s/ ARTHUR ANDERSEN LLP
Detroit, Michigan,
April 14, 1999.
<PAGE> 1
[ERNST & YOUNG LETTERHEAD]
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation of our reports dated March 7, 1997, March 6,
1998 and March 26, 1999, with respect to the balance sheets of Marwal Systems as
of December 31, 1996, December 31, 1997 and December 31, 1998 and the related
statements of income for the years then ended, which reports are included or
incorporated by reference in the Form 10-K/A of Walbro Corporation, into the
Company's previously filed Registration Statement File Numbers 33-20841,
33-32068 and 33-48562.
ERNST & YOUNG Audit
/s/ Gilles Meyer
Gilles Meyer
April 19, 1999
