-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GZNH/dFDBx8EQpfJE2zX+kiw0TOeyu+lASX02wloYIN9XV/mthZVt+zm2/V1MIfb 604dB2pNQ/M6pwv7R+oH4w== 0000950124-96-001397.txt : 19960401 0000950124-96-001397.hdr.sgml : 19960401 ACCESSION NUMBER: 0000950124-96-001397 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: WALBRO CORP CENTRAL INDEX KEY: 0000104174 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 381358966 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11567 FILM NUMBER: 96540517 BUSINESS ADDRESS: STREET 1: 6242 GARFIELD ST CITY: CASS CITY STATE: MI ZIP: 48726 BUSINESS PHONE: 5178722131 MAIL ADDRESS: STREET 1: 6432 GARFIELD ST CITY: CASS CITY STATE: MI ZIP: 48726 10-K 1 FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------- FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1995 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.) 6242 Garfield Street, Cass City, Michigan 48726 (Address of principal executive offices) (Zip Code) (517) 872-2131 (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 12, 1996. $151,888,551 The number of shares outstanding of the registrant's Common Stock, par value $.50, as of March 12, 1996. 8,601,796 DOCUMENTS INCORPORATED BY REFERENCE Certain sections of the registrant's Annual Report to Stockholders for the fiscal year ended December 31, 1995 and of the registrant's Notice of Annual Meeting of Stockholders and Proxy Statement for its Annual Meeting of Stockholders to be held on April 17, 1996 are incorporated by reference into Parts II and III of this report. 2 PART I ITEM 1. BUSINESS GENERAL Walbro Corporation (the "Company") is a global leader in the design, development and manufacture of precision fuel systems and products for automotive and small engine markets worldwide. The Company manufactures fuel pumps, fuel modules, fuel level sensors, plastic fuel tanks and fuel rails for sale to Original Equipment Manufacturers ("OEMs") of vehicles. On July 27, 1995, the Company, through certain of its wholly-owned subsidiaries, acquired the fuel systems business of Dyno Industrier A.S ("Dyno"), Oslo, Norway. See "Dyno" below. 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 1990 to 1995, the Company (excluding Dyno) increased net sales at the compound rate of approximately 17% 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. The Company had 1995 net sales of $459.3 million including Dyno sales subsequent to the acquisition. Through its subsidiary, Walbro Automotive Corporation, the Company designs, develops and manufactures fuel storage and delivery products for a broad range of U.S. and foreign manufacturers of passenger automobiles and light trucks (including minivans). The Company holds a strong market position in the U.S. and, through the Dyno Acquisition and the Company's joint ventures in France, Brazil, India, Japan and South Korea, has diversified its business across a number of geographic markets. In 1995, management believes that, in the North American automotive market, the Company manufactured fuel pumps for approximately 38% of Ford's automobiles and light trucks. The Company also manufactured all fuel module requirements for Ford light trucks, and, according to management's estimates, manufactured approximately 25% of Ford's fuel rail needs. In addition, management estimates that the Company supplied Chrysler with approximately 74% of its fuel pump and fuel module requirements, including all requirements for Chrysler's passenger cars and minivans and approximately 50% of its requirements for Chrysler's light trucks. Other automotive customers of the Company, including the Company's joint ventures, include Audi, Daewoo, Fiat, General Motors, Hyundai, Kia, Mercedes-Benz, Nedcar, Peugeot, Renault, Rover, Saab, Volkswagen and Volvo. Management believes that the Company manufactures substantially all of the fuel tank systems for Volvo and Saab and the fuel tank for the Mercedes 190/C Class, Volkswagen Polo and Renault Twingo. Approximately 76% of the Company's 1995 net sales, including Dyno on a pro forma basis, were generated by its automotive operations. Through its subsidiary, Walbro Engine Management Corporation, 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 76% share of the global diaphragm carburetor market including sales to such leading chain saw and weed trimmer manufacturers as Poulan/Weedeater (a Division of Electrolux, A.B.), Homelite (a Division of Deere & Company), Stihl, Incorporated, McCulloch, 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 to Mercury Marine (a Division of Brunswick Corporation), a major manufacturer of outboard marine engines. The Company also manufactures replacement products for both the automotive and small engine aftermarkets, sales of which 1 3 are included within its small engine product business. Approximately 24% of the Company's 1995 net sales, including Dyno on a pro forma basis, were generated by its small engine operations. The Company was incorporated in Michigan in 1950 and reincorporated in Delaware in 1972. Unless the context indicates otherwise, all references to "the Company" include Walbro Corporation and its consolidated subsidiaries. The Company's principal executive offices are located at 6242 Garfield Street, Cass City, Michigan 48726-1325, and its telephone number is (517) 872-2131. DYNO On July 27, 1995, the Company acquired Dyno for approximately $114 million (the "Dyno Acquisition"). Dyno is a leading designer, manufacturer and marketer of plastic mono-layer fuel tank systems and components to many European vehicle manufacturers, including Audi, Mercedes-Benz, Nedcar, Peugeot, Renault, Rover, Saab, Volkswagen and Volvo, and has operations in France, Norway, Germany, Great Britain, Spain and Belgium. Dyno produced approximately 1.75 million plastic fuel tanks in 1995, which management estimates to be approximately 20% of the European plastic fuel tank market. In addition to manufacturing fuel tanks, Dyno manufactures plastic fill pipes, fluid overflow containers, and other automobile blow-molded components for cooling, heating and air conditioning systems. These products, in the aggregate, accounted for approximately 10% of Dyno's 1995 revenues. Dyno has increased its revenues from $147.1 million in 1994 to $210.5 million in 1995 (based on the average Norwegian Kroner("NOK")/U.S. Dollar exchange rates for each of 1994 and 1995). Dyno has achieved this growth by capitalizing on the European OEMs' increased use of plastic instead of steel fuel tanks. Plastic blow molding techniques are especially suited for the short automobile production runs common in Europe. In addition, Dyno's results have improved as production in its Spanish, Belgium and German plants has increased and as Dyno has added new platforms. The Dyno Acquisition is a continuation of the Company's efforts to strengthen its position as a key supplier of integrated fuel systems to the global automotive market, and it will create the only integrated provider of plastic fuel tank and fuel pump systems in Europe. The Dyno Acquisition has provided the Company with a number of benefits, including: - - Further diversification of the Company's geographic markets and the increased ability to participate in the European automotive market. The Company's international sales, on a pro forma basis for the Dyno Acquisition, would have been 54% of the Company's net sales (excluding joint ventures) in 1995 compared to 27% excluding Dyno. - - An increased opportunity for the Company to sell its fuel system products to Dyno's European-based OEM customers and for Dyno to sell its products to the European operations of Chrysler, Ford and General Motors. - - The ability to share blow molding process technology, especially with respect to the eventual transfer of the Company's multi-layer blow molding technology to Dyno's European facilities. 2 4 WALBRO AUTOMOTIVE CORPORATION 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. North American 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 will also be adopted outside North America and that the acquisition of Dyno will allow the Company to provide systems to the European market in the future. Globalization of the OEM Supplier Base. Several OEMs, including Ford, the Company's largest customer, 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 will require suppliers to establish international development and manufacturing facilities capable of providing system components with consistent quality on a worldwide basis. Through the Dyno Acquisition and the Company's joint ventures, 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, Chrysler and General Motors have been actively reducing their supplier base 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, Chrysler 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. 3 5 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 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 value of the Company's products per vehicle from $15 in 1987 to as much as $100 in 1995. The 1995 Ford Windstar with a three-liter engine, for example, is equipped with $54 of the Company's products, whereas a similar Ford model was equipped with only $15 of the Company's products in 1987. 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. Global Capabilities. The Company's international manufacturing and market presence will allow the Company to offer its current and future FSDS technology to the global automotive market. The Dyno Acquisition significantly expands the Company's presence in Europe and 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. Dyno's plastic tank manufacturing capability will assist the Company in pursuing its systems strategy in Europe and in serving 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 entered into joint ventures with foreign manufacturers in Brazil, France, India, Japan and South Korea which enable the Company to access those foreign markets. In the future, the Company may make additional strategic acquisitions of, or enter into strategic alliances with, fuel systems product manufacturers whose products could be integrated with the Company's existing product lines as part of the Company's focus on systems development and global capability. 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. Examples of these products include the idle air solenoid, which regulates engine idle speed in concert with the engine management system, and ORVR systems, which capture fuel vapors from the fuel system and route them to a carbon canister for storage and use. 4 6 The Company has made substantial investments in fuel system technology, product design and test capability and technical personnel to advance FSDS technology and respond to customer needs. The Company's new 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 intends to build a new systems center in Europe to provide product design and test capabilities, thereby enabling the Company to be a full-service FSDS supplier to European and North American OEMs manufacturing vehicles in Europe. 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 injection system equipped 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 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, approximately 28% of cars and light trucks currently sold by General Motors, Ford and Chrysler in North America use fuel modules. The Company supplies approximately 70% of all of the fuel modules purchased in North America, principally to Ford and Chrysler. Approximately 20% of North American vehicles and 65% of European vehicles produced in 1995 contain 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 began production of three-layer plastic fuel tanks during the fourth quarter of 1994 for the 1995 Ford Windstar and during the fourth quarter of 1995 for the Ford Escort. 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 future EPA permeability requirements due to become effective beginning in model year 1996. The first production run of six-layer tanks will begin in 1996 for the 1996 GM T600 Truck. Through Dyno, the Company is currently producing single-layer plastic tanks for Audi, Mercedes-Benz, Nedcar, Peugeot, Renault, Rover, Saab, Volkswagen and Volvo. As Dyno's customers require more sophisticated fuel tanks, the Company will likely supplement a portion of Dyno's single-layer blow molding machines with multi-layer blow-molding machines to provide the Company's OEM customers in Europe with advanced, plastic fuel tank process technology. 5 7 The Company also produces metal and 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 three-liter engine in the Windstar. In 1996, Chrysler will begin to install this rail on the V-8 engine for its Dodge Ram and Dakota trucks. Because of the conversion from metal to plastic fuel rails and, therefore, the declining volume of the metal rail business, the Company has decided to sell its steel fuel rail business. The Company intends to concentrate on plastic fuel rails which use more of one of its core competencies - plastic injection molding. An important advantage of the Company's systems philosophy 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 developed a variety of ORVR devices which help prevent fuel vapor loss from fuel delivery systems. These devices are expected to enter 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. Net sales to the Company's largest customer, Ford, accounted for 21% of the Company's consolidated net sales in 1995, 30% in 1994 and 30% in 1993. Net sales to Chrysler accounted for 19%, 23% and 21% of the Company's consolidated net sales in 1995, 1994 and 1993, respectively. Including the Dyno Acquisition, on a pro forma basis, net sales to Ford and Chrysler would have accounted for 17% and 15%, respectively, of the Company's consolidated net sales in 1995. Both of 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 Ford and Chrysler. 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 Ford and Chrysler, and to assume a key role in the development of new fuel system products, such as ORVR devices. General Motors currently develops and produces substantially all of its fuel storage and delivery systems internally but recently has sourced a significant portion of future plastic fuel tank programs to outside suppliers. 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. This joint venture has expanded to include ventures in Brazil and Mexico. Marwal's net sales were $113.9 million in 1995 to customers which included Peugeot, Renault, Fiat, Rover, Volvo, Saab and Nissan. Following the Dyno Acquisition, on a pro forma basis, the Company's international sales (excluding joint ventures) have increased from approximately 27% to approximately 54% of the Company's consolidated net sales, and the Company will become the only integrated FSDS company in Europe. Dyno has provided the Company with the immediate opportunity to increase its participation in the European automotive market. In addition, the Company intends to use its relationships in the U.S. to increase Dyno's sales to American manufacturers in Europe. Similarly, the Company intends to take advantage of Dyno's relationships with 6 8 Mercedes-Benz, Renault, Volkswagen, Peugeot and other European manufacturers to enhance the Company's marketing efforts with these European manufacturers around the world. South America. In January 1993, operations began at the Company's Marwal do Brasil joint venture in Brazil, which targets the South American automotive market of approximately two million units per year. In September 1995, the Company established Walbro Automotive do Brazil to manufacture plastic fuel tanks for the Brazilian automotive market. Asia. In November 1995, the Company established Mutual Walbro P. Ltd., a joint venture with Mutual Industries Ltd. in India to manufacture plastic fuel tanks for the Indian automotive market. In November 1994, the Company established Korea Automotive Fuel Systems Ltd., a joint venture with Daewoo Precision Industries Ltd. in South Korea, to manufacture and market fuel sending units (which include a fuel pump, bracket and level sensor) for the domestic Korean automotive market (estimated at approximately 1.5 million units per year) and additional export markets established by Korean OEMs. 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. AUTOMOTIVE COMPETITION The Company competes with several other manufacturers, including the OEMs themselves, all 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, Nippondenso Co., Ltd., VDO (a division of Mannesmann), Electronics and Fuel Handling Division of Ford, and Delphi Automotive Systems (GM's component group). In the fuel rail market, the Company's major competitors include Delphi, Ford, Echlin Inc. and Siemens A.G. The Company has competition in the fuel module market from Delphi and Ford. The Company's largest competitors in the plastic fuel tank market include Kautex Werke Reinold Hagen A.G., Solvay S.A., Plastic Omnium Industries, Inc. and Ford. Steel tanks, manufactured primarily by the OEMs, also compete with the Company's plastic fuel tanks. The Company principally 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 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 new products. Upon completion of the Company's systems center in Europe, Dyno and Marwal will also have 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 7 9 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. Dyno through its former parent, Dyno Industrier A.S, carried recall insurance against losses of up to 50 million NOK, or approximately $7 million, which insurance covered certain costs incurred in connection with a recall. The Company is uncertain whether it will insure its European operations against recall losses and does not believe that recall insurance in the United States is cost effective. WALBRO ENGINE MANAGEMENT CORPORATION 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 U.S. Environmental Protection Agency ("EPA") has implemented similar regulations scheduled to become 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 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 and 7.8 million in 1995. 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, 8 10 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 53%, 23% and 6%, respectively, of the Company's 1995 small engine revenues. The remaining 18% of small engine revenue consisted of aftermarket 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 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 has begun to integrate 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 in California in 1995 and scheduled to take effect 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. 9 11 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/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 (a Division of Electrolux, A.B.), Homelite (a Division of Deere & Company), Stihl, Incorporated, McCulloch, 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 Division of Brunswick Corporation), a major outboard engine manufacturer, buys all of its outboard engine carburetors from the Company. Ten of the Company's small engine customers in 1995 collectively accounted for approximately 60% of small engine product sales and approximately 14% of the Company's net sales, including Dyno on a pro forma basis. 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 near Beijing to provide additional capacity to take advantage of growth in the two-wheeled vehicle market. 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, both of which have greater sales and financial resources than the Company. The Company's major competitor in the ignition systems market is R.E. Phelon Company Inc. AFTERMARKET PRODUCTS The Company's aftermarket sales of both automotive and small engine products are consolidated within the small engine business. The Company sells automotive aftermarket products for both carbureted vehicle applications and electronic fuel injection vehicle applications through independent distributors, such as Federal Mogul and Standard Motor Products, 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. Aftermarket sales accounted for $25.2 million in 1995 compared to $11.3 million in 1990. 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. 10 12 MANUFACTURING AND FACILITIES The Company (including Dyno and the Company's joint ventures) conducts operations in approximately 1.75 million square feet of space in a total of 31 locations. The Company believes that substantially all of its property and equipment is 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 Chrysler QE Award. In connection with its sales to Saab, which is partially owned by General Motors, Dyno's Norway facility has been named a General Motors Supplier of the Year four years in a row beginning in 1991. Various other Company factories have been recognized by Mercury Marine, Stihl and Federal Mogul for excellence in product quality and delivery. 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 190/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 150 U.S. patents and 600 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 rails, 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's engineering departments also engage in design, development and testing. In 1995, 1994 and 1993, the Company (excluding Dyno) spent approximately $14.0 million, $12.2 million and $9.5 million, respectively, for engineering and research and product development. After giving effect to the Dyno Acquisition the Company has spent approximately $16.7 million in 1995 for engineering and research and product development. 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 utilize 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. 11 13 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 supply basis and does not maintain a finished product inventory of any significance. The Company does not believe the Dyno Acquisition has had a material effect on the Company's materials sourcing or inventory management. EMPLOYEES As of February 29, 1996, the Company had approximately 4,400 employees. The Company believes that its relations with its employees are satisfactory. All of the Company's approximately 900 European plant employees are unionized. All of the Company's United States plant employees are non-unionized except approximately 450 employees at its Michigan locations. The Company's three-year contract with the bargaining unit for these Michigan plants expires in November 1998. 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. 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 fuel system product manufacturers such as Dyno whose products can be integrated with the Company's traditional products as part of the Company's system development focus. 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 the company 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 such acquisitions or joint ventures. 12 14 ITEM 2. PROPERTIES The Company believes that substantially all of its property and equipment is in good condition. In total, the Company owns approximately 915,000 square feet of space and leases an additional approximately 614,000 square feet of space in a total of 27 locations. In addition, through various joint ventures described above, the Company has access to manufacturing facilities of approximately 100,000 square feet in Chalons, France (Marwal Systems), 30,000 square feet in Kiryu City, Japan (Mitsuba-Walbro), 40,000 square feet in Sao Paulo, Brazil (Marwal do Brasil), and 50,000 square feet in Jochi-Won, South Korea (Korea Automotive Fuel Systems Ltd.). 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 1995. 13 15 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Incorporated by reference to "Common Stock Price and Dividend Information" on page 12 of the Company's Annual Report to Stockholders for the fiscal year ended December 31, 1995 (the "1995 Annual Report"). ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA Incorporated by reference to "Selected Financial Data" on page 12 of the 1995 Annual Report. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Incorporated by reference to "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 13 through 18 of the 1995 Annual Report. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Incorporated by reference herein from the following sections of the 1995 Annual Report. The consolidated statements of income, cash flows and stockholders' equity are for each of the years ended December 31, 1995, 1994 and 1993 and the consolidated balance sheets are as of December 31, 1995, 1994 and 1993: Report of Independent Public Accountants, page 19. Consolidated Balance Sheets, page 20. Consolidated Statements of Income, page 21. Consolidated Statements of Stockholders' Equity, page 22. Consolidated Statements of Cash Flows, page 23. Notes to Consolidated Financial Statements, pages 24 through 39. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 14 16 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Incorporated by reference to "Election of Directors" on pages 2 through 6, "Identification of Other Executive Officers" on page 9 and "Compliance with Section 16(a) of the Exchange Act" on page 10 of the Company's Notice of Annual Meeting of Stockholders and Proxy Statement for its Annual Meeting of Stockholders to be held on April 17, 1996 (the "1996 Proxy Statement"). ITEM 11. EXECUTIVE COMPENSATION Incorporated by reference to "Executive Compensation" on pages 11 through 15 and "Compensation of the Board of Directors" on pages 5 and 6 of the 1996 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated by reference to "Security Ownership of Management" on page 8 of the 1996 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated by reference to "Indebtedness of Management" on page 10 of the 1996 Proxy Statement. 15 17 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, included in the 1995 Annual Report, are incorporated by reference in Item 8: Report of Independent Public Accountants. Consolidated Balance Sheets at December 31, 1995, 1994 and 1993. Consolidated Statements of Income for the years ended December 31, 1995, 1994 and 1993. Consolidated Statements of Stockholders' Equity for the years ended December 31, 1995, 1994 and 1993. Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993. Notes to Consolidated Financial Statements. 2. The following consolidated financial information of the Company and its subsidiaries for the three years ended December 31, 1995 is filed as part of this Form 10-K on pages 22 to 34. Report of Independent Public Accountants. Supplemental Notes to Consolidated Financial Statements. (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 Notes 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 1989 Annual Report on Form 10-K, incorporated herein by reference. 3.2 By-laws of the Company, as amended, filed as Exhibit 3.2 to the Company's 1989 Annual Report on Form 10-K, incorporated herein by reference. 16 18 3.3 Amendment to Section 2.9 of the By-laws of the Company, filed as Exhibit 3.3 to the Company's 1994 Annual Report on Form 10-K, incorporated herein by reference. 4.1 Shareholder Rights Plan, dated December 8, 1988, filed as the Exhibit to the Company's Registration Statement on Form 8-A for Shareholder Stock Purchase Rights filed December 12, 1988, incorporated herein by reference. 4.2 First Amendment to Rights Agreement, dated February 6, 1991, filed as Exhibit 4.8 to the Company's 1990 Annual Report on Form 10-K, incorporated herein by reference. 4.3 Loan Agreement between City of Ligonier, Indiana and Sharon Manufacturing Company, dated as of June 1, 1992, filed as Exhibit 4.12 to the Company's 1992 Annual Report on Form 10-K, incorporated herein by reference. 4.4 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 1993 Annual Report on Form 10-K, incorporated herein by reference. 4.5 Note Agreement among the Company and the purchasers named therein, dated as of October 1, 1994, relating to the 7.68% Senior Notes of the Company, filed as Exhibit 4.9 to the Company's 1994 Annual Report on Form 10-K, incorporated herein by reference. 4.6 Indenture for the Notes, dated as of July 27, 1995, among the Company, 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 (the "Form 8-K"), incorporated herein by reference. 4.7 Amended and Restated Credit Agreement dated as of September 22, 1995, among the Company, certain of its subsidiaries, Comerica Bank, as agent, and Harris Bank, as co-agent, filed as Exhibit 4.2 to the Company's Registration Statement on Form S-4, filed September 27, 1995, incorporated herein by reference. 4.8 First Amendment, dated March 8, 1996, to the Amended and Restated Credit Agreement among the Company, certain of its subsidiaries, Comerica Bank, as agent, and Harris Bank, as co-agent. 4.9 First Amendment, dated as of July 26, 1995, to the Note Agreement among the Company and the purchasers named therein, relating to the 7.68% Senior Notes of the Company. 10.1 The Company's 1983 Incentive Stock Option Plan, filed as the Exhibit to the Company's Registration Statement on Form S-8, filed November 15, 1989, incorporated herein by reference.** 10.2 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 1986 Annual Report on Form 10-K, incorporated herein by reference. 10.3 The Company's Equity Based Long-Term Incentive Plan, filed as Exhibit 4.5 to the Company's Registration Statement on Form S-8, filed June 15, 1992, incorporated herein by reference.** 17 19 10.4 Executive Disability Plan adopted July 8, 1988, filed as Exhibit 10.10 to the Company's 1988 Annual Report on Form 10-K, incorporated herein by reference.** 10.5 Retirement Income Plan for Directors, dated February 9, 1988, filed as Exhibit 10.11 to the Company's 1988 Annual Report on Form 10-K, incorporated herein by reference.** 10.6 Equipment Leasing Agreement between the Company and NEMLC Leasing Associates No. 3, without supplements, dated July 1, 1988, filed as Exhibit 10.13 to the Company's 1988 Annual Report on Form 10-K, incorporated herein by reference. 10.7 The Company's Employee Stock Ownership Plan, dated August 15, 1989, filed as Exhibit 10.14 to the Company's 1989 Annual Report on Form 10-K, incorporated herein by reference. 10.8 Walbro Engine Management Incentive Compensation Plan, filed as Exhibit 10.21 to the Company's 1990 Annual Report on Form 10-K, incorporated herein by reference.** 10.9 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, incorporated herein by reference. 10.10 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 1992 Annual Report on Form 10-K, incorporated herein by reference. 10.11 Agreement among AB Svenska Elektromagneter, Opcon AB, Cartona Fastighetsforvaltning K.B., Erling Edmundson, Four Seasons Venture Capital AB, SEM-Walbro Corporation and the Company, effective as of January 2, 1991, filed as Exhibit 10.20 to the Company's 1991 Annual Report on Form 10-K, incorporated herein by reference. 10.12 The Company's Advantage Plan, filed as the Exhibit to the Company's Registration Statement on Form S-8, filed October 28, 1991, incorporated herein by reference.** 10.13 Aircraft Lease Agreement between the Company and C.I.T. Leasing Corporation, dated as of October 27, 1992, filed as Exhibit 10.13 to the Company's 1992 Annual Report on Form 10-K, incorporated herein by reference. 10.14 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 1994 Annual Report on Form 10-K, incorporated herein by reference. 18 20 10.15 Severance Compensation and Consulting Agreement between the Company and R. H. Whitehead III, dated as of February 26, 1990, filed as Exhibit 10.15 to the Company's 1994 Annual Report on Form 10-K, incorporated herein by reference.** 10.16 Employment Agreement between the Company and L. E. Althaver, dated August 6, 1993, filed as Exhibit 10.16 to the Company's 1994 Annual Report on Form 10-K, incorporated herein by reference.** 10.17 Severance Compensation and Consulting Agreement between the Company and L. E. Althaver, dated as of February 26, 1990, filed as Exhibit 10.17 to the Company's 1994 Annual Report on Form 10-K, incorporated herein by reference.** 10.18 Employment Agreement between the Company and Robert H. Walpole, dated October 1, 1993, filed as Exhibit 10.18 to the Company's 1994 Annual Report on Form 10-K, incorporated herein by reference.** 10.19 Severance Compensation and Consulting Agreement between the Company and Robert H. Walpole, dated as of February 26, 1990, filed as Exhibit 10.19 to the Company's 1994 Annual Report on Form 10-K, incorporated herein by reference.** 10.20 Employment Agreement between the Company and Gary L. Vollmar, dated August 6, 1993, filed as Exhibit 10.20 to the Company's 1994 Annual Report on Form 10-K, incorporated herein by reference.** 10.21 Severance Compensation and Consulting Agreement between the Company and Gary L. Vollmar, dated as of February 26, 1990, filed as Exhibit 10.21 to the Company's 1994 Annual Report on Form 10-K, incorporated herein by reference.** 10.22 Employment Agreement between the Company and Daniel L. Hittler, dated August 6, 1993, filed as Exhibit 10.22 to the Company's 1994 Annual Report on Form 10-K, incorporated herein by reference.** 10.23 Severance Compensation and Consulting Agreement between the Company and Daniel L. Hittler, dated as of February 26, 1990, filed as Exhibit 10.23 to the Company's 1994 Annual Report on Form 10-K, incorporated herein by reference.** 10.24 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 1994 Annual Report on Form 10-K, incorporated herein by reference.** 10.25 Joint Venture Agreement between the Company and Daewoo Precision Industries, Ltd., dated November 30, 1994, filed as Exhibit 10.25 to the Company's 1994 Annual Report on Form 10-K, incorporated herein by reference.** 19 21 10.26 Employment Agreement between the Company and Michael A. Shope, dated December 20, 1993.** 10.27 Severance Compensation and Consulting Agreement between the Company and Michael A. Shope, dated as of December 20, 1993.** 10.28 Purchase and Sale Agreement dated as of April 7, 1995 by and between the Company and Dyno, filed as Exhibit 2.1 to the Company's Quarterly Report on Form 10-Q, for the quarter ended March 31, 1995, incorporated herein by reference. 10.29 Addendum to Purchase and Sale Agreement by and between the Company and Dyno dated as of July 27, 1995, filed as Exhibit 2.2 to the Form 8-K, incorporated herein by reference. 10.30 Joint Venture Agreement between Walbro Automotive Corporation and Mutual Industries Ltd., dated November 28, 1995, relating to the Mutual Walbro P. Ltd. joint venture. 10.31 General Partnership Agreement dated August 18, 1995 between Iwaki Diecast U.S.A., Inc. and Walbro Tucson Corp. 13.1 1995 Annual Report to Stockholders. With the exception of the information incorporated by reference into Items 5, 6, 7, 8 and 14(a)(1) of this Form 10-K, the 1995 Annual Report to Stockholders is not deemed filed as part of this report. 21.1 Subsidiaries of the Company. 23.1 Consent of Arthur Andersen LLP, independent public accountants. 27.1 Financial Data Schedule. - -------------- ** Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K. (b) Reports on Form 8-K: The Company did not file any reports on Form 8-K during the last quarter of the period covered by this Form 10-K. 20 22 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 21st day of March, 1996. 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.
SIGNATURE TITLE DATE --------- ----- ---- /s/ LAMBERT E. ALTHAVER Chairman of the Board, March 21, 1996 - ------------------------------- President and Lambert E. Althaver Chief Executive Officer (Principal Executive Officer) /s/ MICHAEL A. SHOPE Chief Financial Officer March 21, 1996 - ------------------------------- (Principal Financial Michael A. Shope and Accounting Officer) /s/ WILLIAM T. BACON, JR. Director March 21, 1996 - ------------------------------- William T. Bacon, Jr. /s/ FRANK E. BAUCHIERO Director March 21, 1996 - ------------------------------- Frank E. Bauchiero /s/ HERBERT M. KENNEDY Director March 21, 1996 - ------------------------------- Herbert M. Kennedy /s/ VERNON E. OECHSLE Director March 21, 1996 - ------------------------------- Vernon E. Oechsle /s/ ROBERT D. TUTTLE Director March 21, 1996 - ------------------------------- Robert D. Tuttle /s/ JOHN E. UTLEY Director March 21, 1996 - ------------------------------- John E. Utley /s/ ROBERT H. WALPOLE Director March 21, 1996 - ------------------------------- Robert H. Walpole
21 23 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 incorporated by reference in this Form 10-K, and have issued our report thereon dated February 13, 1996. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The supplemental notes to the consolidated financial statements on pages 23 to 34 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 the 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. Arthur Andersen LLP Detroit, Michigan, February 13, 1996 22 24 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,:
1995 1994 1993 -------- -------- -------- RESERVE FOR LOSS ON DISCONTINUANCE AND PLANT CLOSINGS: Balance Beginning of Year $ -- $ -- $ 258 Additions charged to operations -- -- -- Deductions (A) -- -- (258) -------- -------- -------- Balance End of Year $ -- $ -- $ -- ======== ======== ======== ALLOWANCE FOR DOUBTFUL ACCOUNTS: Balance Beginning of Year $ 368 $ 413 $ 340 Additions charged to operations 352 115 86 Additions due to acquisition 309 -- -- Deductions for uncollectible accounts written off, net of recoveries (51) (160) (13) -------- -------- -------- Balance End of Year $ 978 $ 368 $ 413 ======== ======== ======== RESERVE FOR INVENTORY VALUATION: Balance Beginning of Year $ 238 $ 482 $ 669 Additions charged to operations 194 159 2 Additions due to acquisition 376 -- -- Deductions for inventory disposal -- (403) (189) -------- -------- -------- Balance End of Year $ 808 $ 238 $ 482 ======== ======== ======== ALLOWANCE FOR NOTES RECEIVABLE: Balance Beginning of Year $ 454 $ 214 $ 214 Additions charged to operations -- 240 -- Deductions (454) -- -- -------- -------- -------- Balance End of Year $ -- $ 454 $ 214 ======== ======== ======== VALUATION ALLOWANCE FOR DEFERRED TAX ASSETS: Balance Beginning of Year $ 744 $ 355 $ -- Additions charged to operations -- 389 355 Deductions -- -- -- -------- -------- -------- Balance End of Year $ 744 $ 744 $ 355 ======== ======== ========
- ------------------------------------------- (A) Represents costs of discontinuance incurred subsequent to decision date. 23 25 WALBRO CORPORATION AND SUBSIDIARIES SUPPLEMENTAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (2) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
DECEMBER 31, 1995 --------------------------------------------------------------------------- WALBRO CORPORATION CONSOLIDATION GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ------------ ------------ ------------ --------------- ------------ (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS CURRENT ASSETS: Cash..................................... $ 75 $ 19,219 $ 498 $ -- $ 19,792 Accounts receivable, net................. 20,598 51,455 49,116 (7,823) 113,346 Inventories.............................. 24,416 25,342 965 -- 50,723 Prepaid expenses and other............... 8,519 2,264 678 (495) 10,966 Deferred and refundable income taxes..... 349 464 4,064 -- 4,877 ------------------------------------------------------------------------- Total current assets................... 53,957 98,744 55,321 (8,318) 199,704 ------------------------------------------------------------------------- PLANT AND EQUIPMENT, NET................... 85,437 111,190 9,030 108 205,765 ------------------------------------------------------------------------- OTHER ASSETS: Funds held for construction.............. 1,102 -- -- -- 1,102 Joint ventures........................... 10,181 13,285 -- -- 23,466 Investments.............................. 144,588 295 101,386 (237,045) 9,224 Goodwill, net............................ 15,254 18,045 -- -- 33,299 Notes receivable......................... -- -- 189,134 (188,674) 460 Deferred income taxes.................... -- 2,805 -- -- 2,805 Other.................................... 8,352 1,987 7,309 -- 17,648 ------------------------------------------------------------------------- Total other assets..................... 179,477 36,417 297,829 (425,719) 88,004 ------------------------------------------------------------------------- Total assets............................... $ 318,871 $ 246,351 $ 362,180 $ (433,929) $ 493,473 ========================================================================= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt........ $ 555 $ 123 $ 408 $ -- $ 1,086 Bank and other borrowings................ -- 14,921 -- -- 14,921 Accounts payable......................... 27,113 36,988 2,057 (13,384) 52,774 Accrued liabilities...................... 13,278 15,360 6,029 (315) 34,352 Dividends payable........................ -- -- 858 -- 858 ------------------------------------------------------------------------- Total current liabilities.............. 40,946 67,392 9,352 (13,699) 103,991 ------------------------------------------------------------------------- LONG-TERM LIABILITIES: Long-term debt, less current portion..... 204,435 45,387 205,448 (221,881) 233,389 Pension obligations and other............ 618 4,455 10,029 -- 15,102 Deferred income taxes.................... -- 2,003 1,924 -- 3,927 Minority interest........................ -- 1,637 -- -- 1,637 ------------------------------------------------------------------------- Total long-term liabilities............ 205,053 53,482 217,401 (221,881) 254,055 ------------------------------------------------------------------------- STOCKHOLDERS' EQUITY: Common stock, $.50 par value; authorized 25,000,000; outstanding 8,579,976 in 1995...................... -- 19,392 4,290 (19,392) 4,290 Paid-in capital.......................... -- 78,633 64,381 (78,633) 64,381 Retained earnings........................ 72,301 23,993 66,256 (96,294) 66,256 Deferred compensation.................... -- -- (817) -- (817) Minimum pension liability adjustment..... -- -- (63) -- (63) Unrealized gain on securities available for sale..................... -- -- 827 -- 827 Cumulative translation adjustments....... 571 3,459 553 (4,030) 553 ------------------------------------------------------------------------- Total stockholders' equity............. 72,872 125,477 135,427 (198,349) 135,427 ------------------------------------------------------------------------- Total liabilities and stockholders' equity............................... $ 318,871 $ 246,351 $ 362,180 $ (433,929) $ 493,473 =========================================================================
24 26 WALBRO CORPORATION AND SUBSIDIARIES SUPPLEMENTAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (2) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 --------------------------------------------------------------------------- WALBRO CORPORATION CONSOLIDATION GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ------------ ------------ ------------ --------------- ------------ (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS CURRENT ASSETS: Cash..................................... $ 75 $ 2,525 $ 1,940 $ -- $ 4,540 Accounts receivable, net................. 40,316 20,311 18,495 (12,789) 66,333 Inventories.............................. 24,732 6,120 587 -- 31,439 Prepaid expenses and other............... 3,728 733 701 (1,161) 4,001 Deferred and refundable income taxes..... 5,656 (1,169) (824) -- 3,663 -------- -------- -------- --------- -------- Total current assets................... 74,507 28,520 20,899 (13,950) 109,976 -------- -------- -------- --------- -------- PLANT AND EQUIPMENT, NET................... 64,044 14,292 9,848 108 88,292 -------- -------- -------- --------- -------- OTHER ASSETS: Funds held for construction.............. 1,061 -- -- -- 1,061 Joint ventures........................... 6,598 9,920 -- -- 16,518 Investments.............................. 4,395 239 89,092 (82,929) 10,797 Goodwill, net............................ 15,710 1,195 -- -- 16,905 Notes receivable......................... -- -- 55,916 (51,550) 4,366 Deferred income taxes.................... -- 871 -- -- 871 Other.................................... 2,399 721 5,460 -- 8,580 -------- -------- -------- --------- -------- Total other assets..................... 30,163 12,946 150,468 (134,479) 59,098 -------- -------- -------- --------- -------- Total assets............................. $168,714 $ 55,758 $181,215 $(148,321) $257,366 ======== ======== ======== ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt........ $ 515 $ 7,519 $ 408 $ -- $ 8,442 Bank and other borrowings................ -- 6,970 -- -- 6,970 Accounts payable......................... 28,322 6,868 472 (12,410) 23,252 Accrued liabilities...................... 10,218 4,152 (775) (1,518) 12,077 Dividends payable........................ -- -- 857 -- 857 -------- -------- -------- --------- -------- Total current liabilities.............. 39,055 25,509 962 (13,928) 51,598 -------- -------- -------- --------- -------- LONG-TERM LIABILITIES: Long-term debt, less current portion..... 71,112 348 46,226 (51,550) 66,136 Pension obligations and other............ 648 949 6,556 -- 8,153 Deferred income taxes.................... 2,120 763 (444) -- 2,439 Minority interest........................ -- 1,125 -- -- 1,125 -------- -------- -------- --------- -------- Total long-term liabilities............ 73,880 3,185 52,338 (51,550) 77,853 -------- -------- -------- --------- -------- STOCKHOLDERS' EQUITY: Common stock, $.50 par value; authorized 15,000,000; outstanding 8,564,576 in 1994...................... -- 1,999 4,282 (1,999) 4,282 Paid-in capital.......................... -- 3,632 64,221 (3,632) 64,221 Retained earnings........................ 55,416 18,934 55,855 (74,350) 55,855 Deferred compensation.................... -- -- (1,225) -- (1,225) Unrealized gain on securities available for sale............................... -- -- 1,428 -- 1,428 Cumulative translation adjustments....... 363 2,499 3,354 (2,862) 3,354 -------- -------- -------- --------- -------- Total stockholders' equity............. 55,779 27,064 127,915 (82,843) 127,915 -------- -------- -------- --------- -------- Total liabilities and stockholders' equity............................... $168,714 $ 55,758 $181,215 $(148,321) $257,366 ======== ======== ======== ========= ========
25 27 WALBRO CORPORATION AND SUBSIDIARIES SUPPLEMENTAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (2) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993 --------------------------------------------------------------------------- WALBRO CORPORATION CONSOLIDATION GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ------------ ------------ ------------ --------------- ------------ (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS CURRENT ASSETS: Cash..................................... $ 431 $ 1,732 $ 2,442 $ -- $ 4,605 Accounts receivable, net................. 44,729 13,826 (3,208) (10,671) 44,676 Inventories.............................. 21,887 4,621 390 -- 26,898 Prepaid expenses and other............... 2,910 985 4,991 (1,620) 7,266 Deferred and refundable income taxes..... 983 188 3,700 -- 4,871 -------- -------- -------- --------- -------- Total current assets................... 70,940 21,352 8,315 (12,291) 88,316 -------- -------- -------- --------- -------- PLANT AND EQUIPMENT, NET 54,415 11,971 7,682 108 74,176 -------- -------- -------- --------- -------- OTHER ASSETS: Funds held for construction.............. 2,710 -- -- -- 2,710 Joint ventures........................... 2,793 8,485 -- -- 11,278 Investments.............................. 2,479 -- 62,086 (56,508) 8,057 Goodwill, net............................ 16,166 771 -- -- 16,937 Notes receivable......................... -- -- 63,666 (60,050) 3,616 Deferred income taxes.................... -- 41 -- -- 41 Other.................................... 2,615 1,432 6,117 -- 10,164 -------- -------- -------- --------- -------- Total other assets..................... 26,763 10,729 131,869 (116,558) 52,803 -------- -------- -------- --------- -------- Total assets............................... $152,118 $ 44,052 $147,866 $(128,741) $215,295 ======== ======== ======== ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt........ $ -- $ -- $ 408 $ -- $ 408 Bank and other borrowings................ -- 5,375 -- -- 5,375 Accounts payable......................... 22,567 8,931 418 (11,925) 19,991 Accrued liabilities...................... 16,630 1,754 (6,439) (445) 11,500 Dividends payable........................ -- -- 855 -- 855 -------- -------- -------- --------- -------- Total current liabilities.............. 39,197 16,060 (4,758) (12,370) 38,129 -------- -------- -------- --------- -------- LONG-TERM LIABILITIES: Long-term debt, less current portion..... 75,350 6,709 30,383 (60,050) 52,392 Pension obligations and other............ 45 783 7,243 -- 8,071 Deferred income taxes.................... 1,015 690 852 -- 2,557 -------- -------- -------- --------- -------- Total long-term liabilities............ 76,410 8,182 38,478 (60,050) 63,020 -------- -------- -------- --------- -------- STOCKHOLDERS' EQUITY: Common stock, $.50 par value; authorized 15,000,000; outstanding 8,551,782 in 1993................................... -- 1,985 4,276 (1,985) 4,276 Paid-in capital.......................... -- 1,770 63,997 (1,770) 63,997 Retained earnings........................ 36,511 14,328 44,686 (50,839) 44,686 Deferred compensation.................... -- -- (1,634) -- (1,634) Minimum pension liability adjustment..... -- -- (520) -- (520) Cumulative translation adjustments....... -- 1,727 3,341 (1,727) 3,341 -------- -------- -------- --------- -------- Total stockholders' equity............. 36,511 19,810 114,146 (56,321) 114,146 -------- -------- -------- --------- -------- Total liabilities and stockholders' equity............................ $152,118 $ 44,052 $147,866 $(128,741) $215,295 ======== ======== ======== ========= ========
26 28 WALBRO CORPORATION AND SUBSIDIARIES SUPPLEMENTAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (2) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995 ------------------------------------------------------------------------------ WALBRO CORPORATION CONSOLIDATION GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ------------ ------------ ----------- --------------- ------------ (IN THOUSANDS) NET SALES......................... $335,896 $156,280 $ 2,091 $(34,995) $459,272 COSTS AND EXPENSES: Cost of sales................... 277,196 134,219 1,335 (34,995) 377,755 Selling and administrative expenses..................... 39,660 13,467 4,368 -- 57,495 -------------------------------------------------------------------------- OPERATING INCOME (LOSS)........... 19,040 8,594 (3,612) -- 24,022 OTHER EXPENSE (INCOME): Interest expense................ 10,387 4,300 10,503 (13,119) 12,071 Interest income................. (2,974) (797) (10,308) 13,119 (960) Foreign currency exchange loss (gain).................. (324) (68) 1,875 -- 1,483 Other........................... 3 (255) (3) -- (255) -------------------------------------------------------------------------- Income before provision (credit) for income taxes, minority interest, equity in (income) loss of joint ventures and subsidiaries.................... 11,948 5,414 (5,679) -- 11,683 Provision (credit) for income taxes........................... 1,237 1,958 (1,937) -- 1,258 Minority interest................. -- 472 -- -- 472 Equity in (income) loss of joint ventures........................ (1,222) (2,655) -- -- (3,877) Equity in (income) of subsidiaries.................... (6,417) -- (17,572) 23,989 -- -------------------------------------------------------------------------- Net income........................ $ 18,350 $ 5,639 $ 13,830 $(23,989) $ 13,830 ==========================================================================
27 29 WALBRO CORPORATION AND SUBSIDIARIES SUPPLEMENTAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (2) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1994 ---------------------------------------------------------------------------- WALBRO CORPORATION CONSOLIDATION GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ------------ ------------ ------------ --------------- ------------- (IN THOUSANDS) NET SALES............................. $296,779 $ 58,903 $ 1,021 $ (31,498) $ 325,205 COSTS AND EXPENSES: Cost of sales....................... 242,155 49,910 934 (31,498) 261,501 Selling and administrative expenses......................... 26,765 3,576 8,977 -- 39,318 -------- -------- -------- --------- --------- OPERATING INCOME (LOSS)............... 27,859 5,417 (8,890) -- 24,386 OTHER EXPENSE (INCOME): Interest expense.................... 4,911 1,366 2,428 (4,843) 3,862 Interest income..................... -- (4) (4,930) 4,843 (91) Foreign currency exchange loss (gain)........................... 260 (42) 2,384 -- 2,602 Other............................... (2) 18 95 -- 111 -------- -------- -------- --------- --------- Income before provision (credit) for income taxes, minority interest, equity in (income) loss of joint ventures and subsidiaries........... 22,690 4,079 (8,867) -- 17,902 Provision (credit) for income taxes... 7,741 1,213 (3,130) -- 5,824 Minority interest..................... -- 92 -- -- 92 Equity in (income) loss of joint ventures............................ (1,509) (1,491) 391 -- (2,609) Equity in (income) of subsidiaries.... (4,265) -- (20,723) 24,988 -- -------- -------- -------- --------- --------- Net income............................ $ 20,723 $ 4,265 $ 14,595 $ (24,988) $ 14,595 ======== ======== ======== ========= =========
28 30 WALBRO CORPORATION AND SUBSIDIARIES SUPPLEMENTAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (2) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1993 ------------------------------------------------------------------------------ WALBRO CORPORATION CONSOLIDATION GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ------------ ------------ ----------- --------------- ------------ (IN THOUSANDS) NET SALES.......................... $249,866 $ 51,647 $ 1,478 $ (29,528) $273,463 COSTS AND EXPENSES: Cost of sales.................... 201,092 43,372 1,868 (29,528) 216,804 Selling and administrative expenses...................... 24,445 3,587 5,011 -- 33,043 Reorganization and restructuring charges....................... -- -- 1,760 -- 1,760 -------- -------- --------- ---------- -------- OPERATING INCOME (LOSS)............ 24,329 4,688 (7,161) -- 21,856 OTHER EXPENSE (INCOME): Interest expense................. 5,282 482 1,833 (5,003) 2,594 Interest income.................. (8) (4) (5,026) 5,003 (35) Foreign currency exchange loss... 567 211 717 -- 1,495 Other............................ 255 123 194 -- 572 -------- -------- --------- ---------- -------- Income before provision (credit) for income taxes, equity in (income) loss of joint ventures and subsidiaries and cumulative effect of accounting change............. 18,233 3,876 (4,879) -- 17,230 Provision (credit) for income taxes............................ 5,411 1,412 (2,249) -- 4,574 Equity in (income) loss of joint ventures......................... 303 (214) -- -- 89 Equity in (income) of subsidiaries..................... (2,678) -- (15,197) 17,875 -- -------- -------- --------- ---------- -------- Income before cumulative effect of accounting change................ 15,197 2,678 12,567 (17,875) 12,567 Cumulative effect of accounting change, net of tax benefit of $1,494........................... -- -- 2,900 -- 2,900 -------- -------- --------- ---------- -------- Net income......................... $ 15,197 $ 2,678 $ 9,667 $ (17,875) $ 9,667 ======== ======== ========= ========= ========
29 31 WALBRO CORPORATION AND SUBSIDIARIES SUPPLEMENTAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (2) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995 ----------------------------------------------------------------------------- WALBRO CONSOLIDATION CORPORATION AND GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ------------ ------------ ------------ ------------- ------------ (IN THOUSANDS) Net cash provided by (used in) operating activities............ $ 50,509 $ 11,254 $ (30,875) $ -- $ 30,888 --------- ---------- ----------- ----------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of plant and equipment.................... (31,237) (14,531) (472) -- (46,240) Acquisitions, net of cash acquired..................... (131,952) 15,774 (60) -- (116,238) Purchase of other assets........ (6,398) (608) (257) -- (7,263) Investment in joint ventures and other........................ 118,704 3,901 (124,659) -- (2,054) Proceeds/(payments) of intercompany note receivable................... -- 500 (500) -- -- Proceeds from disposal of assets....................... 167 7 3,953 -- 4,127 --------- ---------- ----------- ----------- ---------- Net cash provided by (used in) investing activities............ (50,716) 5,043 (121,995) -- (167,668) --------- ---------- ----------- ----------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings (repayments) under revolving line-of-credit agreements................... -- 13,797 50,000 -- 63,797 Debt repayments................. (516) (12,659) (366) -- (13,541) Proceeds from issuance of long - term debt.................... 815 120 109,615 -- 110,550 Proceeds from issuance of common stock and options............ -- -- 168 -- 168 Financing fees paid............. -- -- (4,778) -- (4,778) Cash dividends paid............. -- -- (3,428) -- (3,428) --------- ---------- ----------- ----------- ---------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES............ 299 1,258 151,211 -- 152,768 --------- ---------- ----------- ----------- ---------- EFFECT OF EXCHANGE RATE CHANGES ON CASH............................ (92) (861) 217 -- (736) --------- ---------- ----------- ----------- ---------- NET INCREASE (DECREASE) IN CASH... -- 16,694 (1,442) -- 15,252 CASH AT BEGINNING OF YEAR......... 75 2,525 1,940 -- 4,540 --------- ---------- ----------- ----------- ---------- CASH AT END OF YEAR............... $ 75 $ 19,219 $ 498 $ -- $ 19,792 ========= ========== =========== =========== ==========
30 32 WALBRO CORPORATION AND SUBSIDIARIES SUPPLEMENTAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (2) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1994 --------------------------------------------------------------------------- WALBRO CORPORATION CONSOLIDATION GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ------------ ------------ ------------ --------------- ------------ (IN THOUSANDS) Net cash provided by (used in) operating activities.............. $ 25,141 $ 2,323 $(16,987) $ -- $ 10,477 -------- -------- -------- ------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of plant and equipment.................... (12,428) (2,729) (3,687) -- (18,844) Acquisitions, net of cash acquired..................... (1,480) -- -- -- (1,480) Purchase of other assets....... (985) -- (1,630) -- (2,615) Investment in joint ventures and other.................... (1,508) -- -- -- (1,508) Proceeds/(payments) of intercompany note receivable................... (8,500) -- 8,500 -- -- Proceeds from disposal of assets....................... 402 407 654 -- 1,463 -------- -------- -------- ------- -------- Net cash provided by (used in) investing activities.............. (24,499) (2,322) 3,837 -- (22,984) -------- -------- -------- ------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings (repayments) under revolving line-of-credit agreements................... -- 1,011 (28,750) -- (27,739) Debt repayments................ (416) -- (408) -- (824) Proceeds from issuance of long-term debt............... -- -- 45,000 -- 45,000 Proceeds from issuance of common stock and options..... -- -- 230 -- 230 Cash dividends paid............ -- -- (3,424) -- (3,424) -------- -------- -------- ------- -------- Net cash provided by (used in) financing activities.............. (416) 1,011 12,648 -- 13,243 -------- -------- -------- ------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH.............................. (582) (219) -- -- (801) -------- -------- -------- ------- -------- NET INCREASE (DECREASE) IN CASH..... (356) 793 (502) -- (65) CASH AT BEGINNING OF YEAR........... 431 1,732 2,442 -- 4,605 -------- -------- -------- ------- -------- CASH AT END OF YEAR................. $ 75 $ 2,525 $ 1,940 $ -- $ 4,540 ======== ======== ======== ======= ========
31 33 WALBRO CORPORATION AND SUBSIDIARIES SUPPLEMENTAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (2) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1993 -------------------------------------------------------------------------- WALBRO CORPORATION CONSOLIDATION GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ------------ ------------ ----------- --------------- ------------ (IN THOUSANDS) Net cash provided by operating activities......................... $ 7,836 $ 1,220 $ 6,325 $ -- $ 15,381 -------- -------- ------- ----- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of plant and equipment..................... (17,688) (2,259) (313) -- (20,260) Acquisitions, net of cash acquired...................... 1,312 -- -- -- 1,312 Purchase of other assets........ (66) -- (1,981) -- (2,047) Investment in joint ventures and other......................... (1,333) -- -- -- (1,333) Proceeds/(payments) of intercompany note receivable.................... (3,000) -- 3,000 -- -- Proceeds from disposal of assets........................ 1,254 1,780 115 -- 3,149 -------- -------- ------- ----- -------- Net cash provided by (used in) investing activities............... (19,521) (479) 821 -- (19,179) -------- -------- ------- ----- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings (repayments) under revolving line-of-credit agreements.................... -- 2,609 (6,300) -- (3,691) Debt repayments................. -- (2,209) (408) -- (2,617) Proceeds from issuance of long-term debt................ 9,000 -- -- -- 9,000 Proceeds from issuance of common stock and options............. -- -- 610 -- 610 Cash dividends paid............. -- -- (3,359) -- (3,359) -------- -------- ------- ----- -------- Net cash provided by (used in) financing activities............... 9,000 400 (9,457) -- (57) -------- -------- ------- ----- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH............................... -- 212 -- -- 212 -------- -------- ------- ----- -------- NET INCREASE (DECREASE) IN CASH...... (2,685) 1,353 (2,311) -- (3,643) CASH AT BEGINNING OF YEAR............ 3,116 379 4,753 -- 8,248 -------- -------- ------- ----- -------- CASH AT END OF YEAR.................. $ 431 $ 1,732 $ 2,442 $ -- $ 4,605 ======== ======== ======= ====== ========
32 34 WALBRO CORPORATION AND SUBSIDIARIES SUPPLEMENTAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (2) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED) Basis of Presentation -- In connection with the acquisition (the Dyno Acquisition) by the Company of the fuel systems business of Dyno Industrier A.S (Dyno) and the execution of a new $135,000,000 credit facility, the Company issued $110,000,000 in aggregate principal amount of Senior Notes due in 2005 (the Notes). The 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 24 through 32 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. Postretirement Health Benefits -- The Company provides postretirement health care, dental benefit and prescription drug coverage to a limited number of current retirees. Effective January 1, 1993, the Company changed its method of accounting for the cost of these benefits from a pay-as-you-go (cash) method to an accrual method as required by SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions," and recognized the unfunded transition obligation of $4,394,000 ($2,900,000 after-tax) as a one-time cumulative effect of change in accounting in 1993. The net periodic postretirement benefit cost amounted to $350,000 in 1995, $413,000 in 1994 and $321,000 in 1993. These amounts are recorded under Parent Corporation in the accompanying Supplemental Guarantor Condensed Consolidating Financial Statements. As these costs relate to existing retirees, they have not been allocated to the Guarantors. 33 35 WALBRO CORPORATION AND SUBSIDIARIES SUPPLEMENTAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (2) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED) Combined Long-Term Debt of the Parent Corporation and Guarantor Subsidiaries -- Long-term debt of the Issuer and the Guarantors consisted of the following at December 31 (in thousands):
1995 1994 1993 ------ ------- ------- Senior notes due 2005, unsecured, states interest at 9.875% (9.92% effective interest rate) net of unamortized discount of $369,000 ................................................... $109,631 $ -- $ -- Revolving credit facility, secured, interest at the agent's base rate plus an additional margin ................................ 50,000 -- -- Term loan from the State of Connecticut, secured, interest at 6% per annum, payable in monthly amounts from 1997 to 2005 ....... 800 -- -- Senior notes, secured, interest at 7.68%, payable in annual amounts from 1998 to 2004...................................... 45,000 45,000 -- Revolving credit facility, interest rate from LIBOR plus 5/8% to prime, unsecured............................................... -- -- 28,750 Industrial revenue bond, issued by Town of Ossian, Indiana, interest at a variable municipal bond rate, due in 2023........ 9,000 9,000 9,000 Industrial revenue bond, issued by City of Ligonier, Indiana, interest at a variable municipal bond rate plus 1%, payable in annual amounts from 2003 to 2007............................... 6,300 6,300 6,300 ESOP credit agreement, interest rate which approximates 86% of prime, payable in annual installments of $408,000.............. 1,225 1,634 2,042 Capital lease obligations, interest at 7.5%, payable in monthly installments through February 2002............................. 4,195 4,710 -- Other............................................................ 82 67 -- -------- ------- ------- 226,233 66,711 46,092 Less -- Current portion.......................................... 963 923 408 -------- ------- ------- $225,270 $65,788 $45,684 ======== ======= =======
For a more detailed description of the above indebtedness, see Note 8 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, 1995 are as follows: 1996 - $963,000; 1997 - $1,036,000; 1998 - $7,863,000; 1999 - $7,504,000; 2000 - $57,248,000 and thereafter - $151,619,000. 34 36 INDEX TO EXHIBITS Sequential Exhibits Description Page No. -------- ----------- ---------- 4.8 First Amendment, dated March 8, 1996, to the Amended and Restated Credit Agreement among the Company, certain of its subsidiaries, Comerica Bank, as agent, and Harris Bank, as co-agent. 4.9 First Amendment, dated as of July 26, 1995, to the Note Agreement among the Company and the purchasers named therein, relating to the 7.68% Senior Notes of the Company. 10.26 Employment Agreement between the Company and Michael A. Shope, dated December 20, 1993. 10.27 Severance Compensation and Consulting Agreement between the Company and Michael A. Shope, dated as of December 20, 1993. 10.30 Joint Venture Agreement between Walbro Automotive Corporation and Mutual Industries Ltd., dated November 28, 1995, relating to the Mutual Walbro P. Ltd. joint venture. 10.31 General Partnership Agreement dated August 18, 1995 between Iwaki Diecast U.S.A., Inc. and Walbro Tucson Corp. 13.1 1995 Annual Report to Stockholders. With the exception of the information incorporated by reference into Items 5, 6, 7, 8 and 14(a)(1) of this Form 10-K, the 1995 Annual Report to Stockholders is not deemed filed as part of this report. 21.1 Subsidiaries of the Company. 23.1 Consent of Arthur Andersen LLP, independent public accountants. 27.1 Financial Data Schedule. EX-4.8 2 EX-4.8 1 EXHIBIT 4.8 ================================================================= FIRST AMENDMENT TO WALBRO CORPORATION $135,000,000 CREDIT AGREEMENT COMERICA BANK, AS AGENT ================================================================= 2 FIRST AMENDMENT TO WALBRO CREDIT AGREEMENT THIS FIRST AMENDMENT ("First Amendment") is made as of this 8th day of March, 1996 by and among Walbro Corporation, a Michigan corporation ("Company"), Comerica Bank and the other banks signatory hereto (individually, a "Bank" and collectively, the "Banks") and Comerica Bank, as agent for the Banks (in such capacity, "Agent"). RECITALS: A. Company, Agent and the Banks entered into that certain Amended and Restated Walbro Corporation $135,000,000 Credit Agreement dated as of September 22, 1995 (as amended from time to time, the "Credit Agreement") under which the Banks renewed and extended (or committed to extend) credit to the Company and the Permitted Borrowers, as set forth therein. B. At the Company's request, Agent and the Banks have agreed to make certain amendments to the Credit Agreement, but only on the terms and conditions set forth in this First Amendment. NOW THEREFORE, Company, Agent and the Banks agree: 1. Section 1 of the Credit Agreement is amended as follows: (a) Section 1.36 is amended to replace the word "and" in the seventh line thereof (following the reference to "9.8") with a comma and to add, following the reference to "9.11", the words "and 9.15,". (b) Section 1.50A is added, immediately following Section 1.50, as follows: "1.50A. 'EBIT' shall mean, with respect to any period, net earnings (or loss) before gross interest expense and taxes and before reflecting extraordinary gains (losses), gains (losses) from discontinued operations and gains (losses) from Minority Interests and Joint Ventures for such period, as determined in accordance with GAAP." (c) Section 1.68 (the definition of "Fixed Charge Coverage Ratio") is hereby deleted and replaced with the word "[Reserved]." (d) Section 1.88A is added, immediately following Section 1.88, as follows: "1.88A. 'Interest Coverage Ratio' shall mean a ratio, the numerator of which consists of EBIT of the Company and its Subsidiaries for the four fiscal quarters immediately preceding the 3 applicable date of determination and the denominator of which consists of the gross interest expense of Company and its Subsidiaries for such period, all determined without duplication in accordance with GAAP on a Consolidated basis." (e) Section 1.110 (the definition of "Net Income Adjustment") is amended to delete, in the fifth line thereof (following the words "fiscal year ending" the words "on or." (f) Section 1.172A is added, immediately following Section 1.172, as follows: "1.172A. 'U.S. Coexcell' shall mean U.S. Coexcell, Inc., an Ohio corporation." 2. Section 8 of the Credit Agreement is amended as follows: (a) Section 8.5 (establishing a maximum Funded Debt Ratio) is amended and restated in its entirety, as follows: "8.5 Funded Debt Ratio. On a Consolidated basis, have and causes its Subsidiaries to have, as of the end of each fiscal quarter, a Funded Debt Ratio which will at no time exceed: (a) from the date hereof through December 30, 1995, 6.0 to 1.0; (b) from December 31, 1995 through March 30, 1996, 5.5 to 1.0; (c) from March 31, 1996 through June 29, 1996, 5.2 to 1.0; (d) from June 30, 1996 through September 29, 1996, 4.8 to 1.0; (e) from September 30, 1996 to December 30, 1996, 4.5 to 1.0; (f) from December 31, 1996 to December 30, 1997, 4.20 to 1.0; (g) from December 31, 1997 to December 30, 1998, 3.65 to 1.0; (h) from December 31, 1998 to December 30, 1999, 3.0 to 1.0; and (i) from and after December 31, 1999, 2.75 to 1.0."
2 4 (b) Section 8.6 (establishing a minimum Fixed Charge Coverage Ratio) is deleted in its entirety. (c) New Section 8.6 is added to the Credit Agreement, as follows: "8.6. Maintain Interest Coverage Ratio. On a Consolidated basis, have and cause its Subsidiaries to have, as of the end of each fiscal quarter, an Interest Coverage Ratio of not less than: (a) from the date hereof through December 30, 1996, 1.40 to 1.0; (b) from December 31, 1996 to December 30, 1997, 1.50 to 1.0; (c) from December 31, 1997 to December 30, 1998, 2.0 to 1.0; (d) from December 31, 1998 to December 30, 1999, 2.50 to 1.0; and (e) from and after December 31, 1999, 3.0 to 1.0." 3. Section 9 of the Credit Agreement is amended as follows: (a) Section 9.8(a) is amended to change the reference to One Million Dollars ($1,000,000) in the fifth and sixth lines thereof to Two Million Dollars ($2,000,000). (b) Section 9.8(c) is amended and restated in its entirety as follows: "(c) (i) Investments in the Company's Subsidiaries existing as of the date of this Agreement, and (ii) any future investments, loans and/or advances to or in U.S. Coexcell in an aggregate amount not to exceed Four Million Dollars ($4,000,000) (without regard to any repayment of such loans, advances or investments, other than the repayment of capital or principal), provided that at all times while any such investment, loan or advance to or in U.S. Coexcell is outstanding, Company shall own, directly or indirectly, not less than eighty percent (80%) of the share capital of U.S. Coexcell;". (c) Section 9.8(h) is amended and restated in its entirety as follows: 3 5 "(h) loans, advances, or investments (without regard to any repayment of such loans, advances or investments, other than the repayment of capital or principal) to any Joint Venture or Subsidiary which does not constitute a 100% Subsidiary, expressly excluding for all purposes of this Section 9.8(h) any loan, advance or investment to or in U.S. Coexcell, but including without limitation (i) all other loans, advances or investments permitted under any other provision of this Agreement and (ii) guaranties by the Company or any Subsidiary (valued on the basis of the aggregate amount of such indebtedness covered by a guaranty) of third party indebtedness of any such Joint Venture or non-100% Subsidiary, in an aggregate amount, for all such loans, advances, and investments under this subsection (h), at any time not to exceed the greater of Twenty-Six Million Dollars ($26,000,000) or twenty percent (20%) of Consolidated Tangible Net Worth;". (d) Section 9.15 is added to the Credit Agreement, as follows: "9.15. Capital Expenditures Limitation. Incur or make Capital Expenditures (determined on a Consolidated basis) in aggregate amounts in any fiscal year greater than: (a) during its fiscal year ending December 31, 1996, the sum of Eighty Million Dollars ($80,000,000); (b) during its fiscal year ending December 31, 1997, the sum of Sixty Million Dollars ($60,000,000); and (c) during each of its fiscal years thereafter, the sum of Forty Million Dollars ($40,000,000), in each case on a non-cumulative basis." 4. This First Amendment shall become effective (according to the terms hereof), upon the satisfaction by the Company of the following conditions (the "Conditions"): (a) Agent shall have received counterpart originals of this First Amendment, duly executed and delivered in form satisfactory to Agent and the Banks; and 4 6 (b) Company shall have paid to Agent, for distribution to the Banks, an amendment fee in the amount and on the terms described in the Agent's memorandum to the Banks dated March 1, 1996; provided however that, subject to the foregoing, the amendments set forth in paragraphs 1(a), 1(c), 1(e), 1(f), 2(b), 3(a), 3(b) and 3(c) of this First Amendment shall be given retroactive effect to December 31, 1995. 5. Each of Company, the undersigned Permitted Borrowers and the undersigned Guarantors hereby represents and warrants that, after giving effect to the amendments contained herein, (a) execution, delivery and performance of this First Amendment are within such undersigned's corporate powers, have been duly authorized, are not in contravention of law or the terms of its articles of incorporation or bylaws or other organic documents of the parties thereto, as applicable, and except as have been previously obtained (or as referred to in Section 7.15 of the Credit Agreement) do not require the consent or approval, material to the amendments contemplated in this First Amendment or the Credit Agreement as so amended, of any governmental body, agency or authority, and this First Amendment will constitute the valid and binding obligations of such undersigned parties enforceable in accordance with its terms, except as enforcement thereof may be limited by applicable bankruptcy, reorganization, insolvency, moratorium, ERISA or similar laws affecting the enforcement of creditors' rights generally and by general principles of equity (whether enforcement is sought in a proceeding in equity or at law), and (b) the continuing representations and warranties set forth in Sections 7.1 through 7.20, inclusive, of the Credit Agreement are true and correct on and as of the date hereof, and such representations and warranties are and shall remain continuing representations and warranties during the entire life of the Credit Agreement. 6. Except as specifically set forth above, this First Amendment shall not be deemed to amend or alter in any respect the terms and conditions of the Credit Agreement, any of the Notes issued thereunder, or any of the other Loan Documents, or to constitute a waiver by Banks or Agent of any right or remedy under the Credit Agreement, any of the Notes issued thereunder or any of the other Loan Documents. 7. Unless otherwise defined to the contrary herein, all capitalized terms used in this First Amendment shall have the meanings set forth in the Credit Agreement. 8. This First Amendment may be executed in counterpart, in accordance with Section 14.10 of the Credit Agreement. [SIGNATURES FOLLOW ON SUCCEEDING PAGES] 5 7 IN WITNESS WHEREOF, Company, the Banks and Agent have each caused this First Amendment to be executed by their respective duly authorized officers or agents, as applicable, all as of the date first set forth above. COMERICA BANK, WALBRO CORPORATION as Agent By: /s/ A. J. ANDERSON By: /s/ M. A. SHOPE ---------------------------- ------------------------------------- Its: FIRST VICE PRESIDENT Its: TREASURER & CHIEF FINANCIAL OFFICER --------------------------- ------------------------------------ One Detroit Center 6242 Garfield Street 500 Woodward Avenue Cass City, Michigan 48726 8th Floor MC 3265 Attn: MICHAEL A. SHOPE Detroit, Michigan 48226 ----------------------------------- Attention: Cheryl W. Ewers BANKS: COMERICA BANK By: /s/ A. J. ANDERSON ------------------------------------- Its: FIRST VICE PRESIDENT ------------------------------------- One Detroit Center 500 Woodward Avenue Detroit, Michigan 48226 Attention: Cheryl W. Ewers Telephone: (313) 222-9168 Facsimile No. (313) 222-9516 HARRIS TRUST & SAVINGS BANK By: /s/ PETER L. DANCY ------------------------------------- Its: VICE PRESIDENT ------------------------------------- 2 West 111 W. Monroe Chicago, Illinois 60690 Attn: Peter Dancy Fax No.: (312) 461-2591 6 8 NATIONAL CITY BANK By: /s/ JED M. PARKER ------------------------------------- Its: Vice President ------------------------------------- 1900 East 9th Street Cleveland, Ohio 44114 Attn: Andrew Walshaw Fax No.: (216) 575-9396 THE MITSUBISHI BANK, LIMITED, CHICAGO BRANCH By: /s/ NOBORU KOBAYASHI ------------------------------------- NOBORU KOBAYASHI Its: JOINT GENERAL MANAGER ------------------------------------ Suite 2100 115 South LaSalle Street Chicago, Illinois 60603 Attn: Diane Tkach Fax No.: (312) 263-2555 THE BANK OF NEW YORK By: /s/ WILLIAM M. BARNUM JR. ------------------------------------- Its: VICE PRESIDENT ------------------------------------- 22nd Floor One Wall Street New York, New York 10286 Attn: William M. Barnum Fax No.: (212) 635-6434 SOCIETE GENERALE By: /s/ JOSEPH A. PHILBIN ------------------------------------- Its: JOSEPH A. PHILBIN ------------------------------------- 181 West Madison Street Chicago, Illinois 60602 Attn: Joseph A. Philbin Fax No.: (312) 578-5099 7 9 COOPERATIEVE CENTRALE RAIFFEISEN- BOERENLEENBANK B.A. "RABOBANK NEDERLAND", NEW YORK BRANCH By: /s/ RONALD E. LITTLE ------------------------------------- RONALD E. LITTLE Its: VICE PRESIDENT ------------------------------------- And By: /s/ W. JEFFREY VOLLACK ---------------------------------- W. JEFFREY VOLLACK Its: VICE PRESIDENT, MANAGER ------------------------------------ 245 Park Avenue New York, New York 10167 Attn: Corporate Services Department Fax No.: (212) 818-0233 Acknowledged and Agreed by the undersigned as of March 8, 1996: WALBRO AUTOMOTIVE CORPORATION, a Delaware corporation By: /s/ M. A. SHOPE ------------------------------------ Its: TREASURER ------------------------------------ SHARON MANUFACTURING COMPANY, a Michigan corporation By: /s/ M. A. SHOPE ------------------------------------ Its: TREASURER ------------------------------------ 8 10 WALBRO ENGINE MANAGEMENT CORPORATION, a Delaware corporation By: /s/ M. A. SHOPE ------------------------------------ Its: TREASURER ------------------------------------ WHITEHEAD ENGINEERED PRODUCTS, INC., a Delaware corporation By: /s/ M. A. SHOPE ------------------------------------ Its: TREASURER ------------------------------------ WALBRO JAPAN, INC., a Japanese company By: /s/ M. A. SHOPE ------------------------------------ Its: ATTORNEY IN FACT ------------------------------------ WALBRO AUTOMOTIVE GMBH, a German company By: JAN SVERRE ROSSTAD ------------------------------------ Its: MANAGING DIRECTOR ------------------------------------ WALBRO NETHERLANDS B.V., a Dutch company By: /s/ L. E. ALTHAVER ------------------------------------ Its: DIRECTOR & CEO ------------------------------------ WALBRO AUTOMOTIVE S.A, a French company By: /s/ BRUNO DE SAINTE MARIE ------------------------------------ Its: CHAIRMAN OF THE BOARD ------------------------------------ 9 11 WALBRO AUTOMOTIVE N.V., a Belgian company By: /s/ KAREL L. MATTHYS ------------------------------------ Its: MANAGING DIRECTOR ------------------------------------ WALBRO AUTOMOTIVE A.S., a Norwegian company By: /s/ GARY L. VOLLMAR ------------------------------------ Its: PRESIDENT ------------------------------------ WALBRO AUTOMOTIVE LIMITED, an English Company By: NICOLAI MUNSTER ------------------------------------ Its: DIRECTOR ------------------------------------ WALBRO AUTOMOTIVE S.A., a Spanish company By: /s/ SERGIO MORELLA BADILLO ------------------------------------ Its: CONSEJERO DELEGADO ------------------------------------ 10 EX-4.9 3 EX-4.9 1 EXHIBIT 4.9 WALBRO CORPORATION FIRST AMENDMENT DATED AS OF JULY 26, 1995 RE: NOTE AGREEMENT DATED AS OF OCTOBER 1, 1994 2 TABLE OF CONTENTS
SECTION HEADING PAGE SECTION 1. CLOSING CONDITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 1.1. Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 (a) Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 (b) Company's and Subsidiaries' Existence and Authority . . . . . . . . . . . . 2 (c) Collateral Agent's Existence and Authority . . . . . . . . . . . . . . . . 2 (d) Security Agreements, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . 2 (e) Filing and Recording . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 (f) Related Transactions on the Amendment Closing Date . . . . . . . . . . . . 2 (g) Satisfactory Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 1.2. Waiver of Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 SECTION 2. AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Section 2.1. Amendment of Section 5.11 . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Section 2.2. Amendment of Section 6.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Section 2.3. Amendment of Section 8.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 2.4. Amendment of Annex B to Exhibit C of the Note Agreement . . . . . . . . . . . 4 SECTION 3. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 3.1. Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 3.2. Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 3.3. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 3.4. Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
i 3 WALBRO CORPORATION FIRST AMENDMENT To the Institutions Named on Schedule I Hereto Ladies and Gentlemen: Reference is made to that certain Note Agreement, dated as of October 1, 1994 (the "Note Agreement"), between Walbro Corporation, a Delaware corporation (the "Company"), and the Purchasers named in Schedule I attached thereto, under which $45,000,000 aggregate principal amount of 7.68% Senior Notes due October 1, 2004 of the Company (the "Notes") were originally issued. The Company hereby certifies that Schedule I hereto contains the names of all of the Holders of all of the Notes outstanding on the date hereof under the Note Agreement. Pursuant to that certain Walbro Corporation $135,000,000 Credit Agreement dated as of the date hereof (the "Credit Agreement"), among the Company, certain of its Subsidiaries, each of the banks named on the signature pages thereof (collectively, the "Banks") and Comerica Bank, a Michigan banking corporation, as agent for the Banks (the "Agent"), the Banks have agreed, subject to the satisfaction of certain terms and conditions, to make advances to the Company and certain of its Subsidiaries and to provide for the issuance of letters of credit for the account of the Company, individually, or jointly and severally with certain of its Subsidiaries, as provided therein. Pursuant to and in accordance with the Credit Agreement and the Note Agreement, the Banks and each of you have required that the Company and certain Subsidiaries provide to Comerica Bank, a Michigan banking corporation, as collateral agent for the Banks and the Holders (the "Collateral Agent"), various grants of collateral, security interests, liens and other encumbrances as security for the Company's and certain of its Subsidiaries' obligations under the Credit Agreement, the Note Agreement, the Notes, the Guaranty Agreements and certain guaranty agreements issued for the benefit of the Banks, as evidenced by (i) that certain Company Stock Pledge and Security Agreement dated as of the date hereof (the "Company Security Agreement") between the Company and the Collateral Agent, (ii) that certain Guarantor Stock Pledge and Security Agreement dated as of the date hereof (the "Guarantor Security Agreement") between the Company and the Domestic Subsidiaries and (iii) those certain pledge agreements dated on or about the date hereof (the "Foreign Pledge Agreements") from certain of the Subsidiaries for the benefit of the Collateral Agent. The Company Security Agreement, the Guarantor Security Agreement and the Foreign Pledge Agreements are hereinafter collectively referred to as the "Security Agreements." Pursuant to that certain Intercreditor Agreement dated as of the date hereof (the "Intercreditor Agreement") among the Company, the Collateral Agent, the Agent, the other Banks and each of you, the Banks and each of you have entered into certain intercreditor arrangements with respect to the above-described transactions. Capitalized terms used herein and not otherwise defined shall have the meanings as defined in the Note Agreement. As used herein, the term "Amendment Closing Date" shall mean the date on which the Company and the Holders of at least 66-2/3% in aggregate principal amount of outstanding Notes execute this First Amendment. In connection with the above-described transactions, the Company desires to amend certain provisions of the Note Agreement and, upon the execution and delivery of this First Amendment by the Company and the Holders of at least 66-2/3% in aggregate principal amount of outstanding Notes, certain provisions of the Note Agreement shall be amended as of the date hereof in the manner described in Section 2 hereof. 4 SECTION 1. CLOSING CONDITIONS. Section 1.1. Conditions. Your execution and delivery of this First Amendment shall be subject to the performance by the Company of its agreements hereunder which by the terms hereof are to be performed at or prior to the time of the execution and delivery of this First Amendment and to the following further conditions precedent: (a) Legal Opinions. You shall have received from Katten, Muchin & Zavis, special counsel for the Company and its Subsidiaries and from Bodman, Longley & Dahling, counsel for the Collateral Agent, their respective opinions dated the Amendment Closing Date, in form and substance satisfactory to you. (b) Company's and Subsidiaries' Existence and Authority. On or prior to the Amendment Closing Date, you shall have received, in form and substance reasonably satisfactory to you and your special counsel, such documents and evidence with respect to the Company and the Subsidiaries which are parties to the Company Security Agreement and the Guarantor Security Agreement as you may reasonably request in order to establish the existence and good standing of the Company and such Subsidiaries and the authorization of the transactions contemplated by this First Amendment, the Company Security Agreement, the Guarantor Security Agreement and the Intercreditor Agreement. (c) Collateral Agent's Existence and Authority. On or prior to the Amendment Closing Date, you shall have received, in form and substance satisfactory to you and your special counsel, such documents and evidence with respect to the Collateral Agent as you may reasonably request in order to establish the existence and good standing of the Collateral Agent and the authorization of the transactions contemplated by the Security Agreements and the Intercreditor Agreement. (d) Security Agreements, Etc. On or prior to the Amendment Closing Date, the Company Security Agreement, the Guarantor Security Agreement and the Intercreditor Agreement in the forms attached hereto as Exhibits B, C and D, respectively, shall have been duly executed and delivered by the parties thereto and shall be in full force and effect and you shall have received true, correct and complete copies of each thereof. (e) Filing and Recording. On or prior to the Amendment Closing Date, the Company Security Agreement and the Guarantor Security Agreement and/or UCC-1 financing statements or other notices with respect thereto shall have been executed and shall be in proper form of recordation or filing in all public offices as may be necessary or appropriate in order to perfect the liens and security interests granted or conveyed thereby. (f) Related Transactions on the Amendment Closing Date. The Company shall have consummated the transactions contemplated by the Credit Agreement. (g) Satisfactory Proceedings. All proceedings taken in connection with the transactions contemplated by this First Amendment, and all documents necessary to the consummation thereof, shall be reasonably satisfactory in form and substance to you and your special counsel, and you shall have received a copy (executed or certified as may be appropriate) of all legal documents or proceedings taken in connection with the consummation of said transactions. Section 1.2. Waiver of Conditions. If on the Amendment Closing Date, the conditions specified in Section 1.1 have not been fulfilled, you may thereupon elect to be relieved of all further obligations under this First Amendment. Without limiting the foregoing, if the conditions specified in Section 1.1 have not been fulfilled, you may waive compliance by the Company with any such condition to such extent as you may in your sole discretion determine. Nothing in this Section 1.2 2 5 shall operate to relieve the Company of any of its obligations hereunder or to waive your rights against the Company. SECTION 2. AMENDMENTS. Section 2.1. Amendment of Section 5.11. Section 5.11 of the Note Agreement is hereby amended in its entirety so that the same shall henceforth read as follows: "Section 5.11. Guaranties. The Company will not, and will not permit any Subsidiary to, become or be liable in respect of any Guaranty except: (a) Guaranties by the Company which are limited in amount to a stated maximum dollar exposure or which constitute Guaranties of obligations incurred by any Subsidiary in compliance with the provisions of this Agreement, (b) Guaranties by any Subsidiary which constitute Guaranties of obligations incurred by any other Subsidiary pursuant to the terms of the Credit Agreement and in compliance with the provisions of this Agreement (including, but not limited to, Section 5.7(a)(3)), and (c) Guaranties by one or more Subsidiaries of Indebtedness of the Company incurred within the limitations of Section 5.7(a)(3), provided that, as a condition precedent to entering into any such Guaranty, (i) each such Subsidiary shall have guaranteed the Notes equally and ratably with such other Indebtedness of the Company under a form of Guaranty which has the prior written approval of the Holder or Holders of the Notes, and (ii) the Holder or Holders of the Notes shall have received the favorable written opinion of independent counsel designated by such Holder or Holders to the effect that such Guaranty of the Notes is the legal, valid and binding obligations of each such Subsidiary, enforceable against each such Subsidiary in accordance with its terms." Section 2.2. Amendment of Section 6.1. Clauses (h) and (i) of Section 6.1 of the Note Agreement is hereby amended as follows: "(h) The Company shall fail to observe or perform any other provision of this Agreement or the Company or any Subsidiary shall fail to observe or perform any provision of any Security Agreement or the Intercreditor Agreement, in each case, which is not remedied within 30 business days after the earlier of (i) the day on which the Company or such Subsidiary first obtains knowledge of such default, or (ii) the day on which written notice thereof is given to the Company or such Subsidiary by any Holder; or (i) Any representation or warranty made by the Company or any Subsidiary herein, in the Intercreditor Agreement, or any Security Agreement or any statement or certificate furnished by the Company or any Subsidiary in connection with the consummation of the issuance and delivery of the Notes or furnished by the Company or any Subsidiary pursuant hereto or thereto, is untrue in any material respect as of the date of the issuance or making thereof; or" 3 6 Section 2.3. Amendment of Section 8.1. Section 8.1 of the Note Agreement is hereby amended as follows: (a) The definition of "Credit Agreement" is hereby deleted in its entirety and the following is inserted in lieu thereof: "Credit Agreement" shall mean that certain Walbro Corporation $135,000,000 Credit Agreement dated as of July 26, 1995 among the Company, certain of its Subsidiaries, Comerica Bank, as agent and the other banks named on the signature pages thereof, as the same may be amended, modified or supplemented from time to time, and any extension, renewal or replacement thereof." (b) The following definitions are hereby incorporated into Section 8.1 in their correct alphabetical order: "Intercreditor Agreement" shall mean that certain Intercreditor Agreement dated as of July 26, 1995 among the Company, the Holders, the banks named on the signature pages thereof, Comerica Bank, as agent for such banks and as collateral agent for such banks and the Holders, as the same may be amended, modified or supplemented from time to time. "Security Agreements" shall mean (i) that certain Company Stock Pledge and Security Agreement dated as of July 26, 1995 between the Company and Comerica Bank, as collateral agent, (ii) that certain Guarantor Stock Pledge and Security Agreement dated as of July 26, 1995 between the Domestic Subsidiaries and Comerica Bank, as collateral agent and (iii) those certain pledge agreements dated on or about July 26, 1995 from certain of the Subsidiaries for the benefit of Comerica Bank, as collateral agent, in each case, as the same may be amended, modified or supplemented from time to time." Section 2.4. Amendment of Annex B to Exhibit C of the Note Agreement. Annex B to Exhibit C of the Note Agreement is hereby amended by inserting the following at the end of paragraph 4 of thereof: "ESOP Credit Agreement - $1,633,875." SECTION 3. MISCELLANEOUS. Section 3.1. Execution in Counterparts. Two or more duplicate originals of this First Amendment may be signed by the parties hereto, each of which shall be an original but all of which together shall constitute one and the same instrument. This First Amendment may be executed in one or more counterparts and will be effective (as of the effective date set forth below), when at least one counterpart has been executed by the Company and the Holders of at least 66-2/3% in aggregate principal amount of outstanding Notes, and each set of counterparts which, collectively, show execution by each such party shall constitute one duplicate original. Section 3.2. Fees and Expenses. All fees and expenses relating to the subject matter of this First Amendment, including, without limitation, all fees and expenses of special counsel to the Holders, shall be paid by the Company. Section 3.3. Governing Law. This First Amendment shall be governed by and construed in accordance with Illinois law. 4 7 Section 3.4. Captions. The descriptive headings of the various Sections or parts of this First Amendment are for convenience only and shall not affect the meaning or construction of any of the provisions hereof. If this First Amendment is satisfactory to you, please so indicate by signing the acceptance at the foot of a counterpart of this First Amendment and return such counterpart to the Company, and upon receipt by the Company of counterparts of this First Amendment executed by the Holders of at least 66-2/3% in aggregate principal amount of outstanding Notes, the Note Agreement shall be amended as set forth above, but all other terms and provisions of the Note Agreement shall remain unchanged and are in all respects ratified, confirmed and approved. If and to the extent that any of the terms or provisions of the Note Agreement, as amended prior to the date hereof, are in conflict with or are inconsistent with any of the terms or provisions of this First Amendment, this First Amendment shall govern. This First Amendment shall be effective as of July 26, 1995. WALBRO CORPORATION By: --------------------------------------- Its Treasurer Accepted and Agreed to: PRINCIPAL MUTUAL LIFE INSURANCE COMPANY By: --------------------------------------- Its By: --------------------------------------- Its THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK By: --------------------------------------- Its MONY LIFE INSURANCE COMPANY OF AMERICA By: --------------------------------------- Its FINANCIAL HORIZONS LIFE INSURANCE COMPANY By: --------------------------------------- Its 5 8 This First Amendment shall be effective as of July _____, 1995. WALBRO CORPORATION By: ------------------------------- Its Accepted and Agreed to: PRINCIPAL MUTUAL LIFE INSURANCE COMPANY By: ------------------------------- Its By: ------------------------------- Its THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK By: ------------------------------- Its MONY LIFE INSURANCE COMPANY OF AMERICA By: ------------------------------- Its FINANCIAL HORIZONS LIFE INSURANCE COMPANY By: ------------------------------- Its NATIONWIDE LIFE INSURANCE COMPANY By: ------------------------------- Its 6 9 The undersigned Domestic Subsidiaries hereby (i) consent and agree to the terms of this First Amendment and (ii) reaffirm that (A) the representations and warranties of the Domestic Subsidiaries contained in Exhibit C to the Note Agreement are true and correct as of the date hereof and (B) the Guaranty Agreements remain in full force and effect. WALBRO AUTOMOTIVE CORPORATION By: -------------------------------------------------- Its WALBRO ENGINE MANAGEMENT CORPORATION By: -------------------------------------------------- Its SHARON MANUFACTURING COMPANY By: -------------------------------------------------- Its WHITEHEAD ENGINEERED PRODUCTS By: -------------------------------------------------- Its 7 10 SCHEDULE I
PRINCIPAL AMOUNT NAME OF OF NOTES HELD REGISTERED HOLDER BY SUCH HOLDER Principal Mutual Life Insurance Company $20,000,000 The Mutual Life Insurance Company of New York $9,000,000 MONY Life Insurance Company of America $6,000,000 Financial Horizons Life Insurance Company $2,000,000 Nationwide Life Insurance Company $8,000,000
8 11 EXHIBIT A REPRESENTATIONS AND WARRANTIES A. The Company and each Subsidiary which is a party to any Security Agreement represents and warrants to each Holder as follows: 1. Representations Contained in the Note Agreement. The representations and warranties contained in paragraphs 2 through 4 and paragraphs 6 through 19 of Exhibit C to the Note Agreement and contained in the Credit Agreement are, after giving effect to the First Amendment and the transactions contemplated thereby, true and correct on and as of the date hereof. 2. Company Documents. The execution and delivery of the First Amendment, the Security Agreement to which the Company is a party and the Intercreditor Agreement and compliance by the Company with all of the provisions thereof - (a) are within the corporate powers of the Company; (b) will not violate any provisions of any law or any order of any court or governmental authority or agency and will not conflict with or result in any breach of any of the terms, conditions or provisions of, or constitute a default under the Certificate of Incorporation or By-laws of the Company or any indenture or other agreement or instrument to which the Company is a party or by which it may be bound or result in the imposition of any Liens or encumbrances on any property of the Company (other than as expressly provided therein); and (c) have been duly authorized by proper corporate action on the part of the Company (no action by the stockholders of the Company being required by law, by the Certificate of Incorporation or By-laws of the Company or otherwise), executed and delivered by the Company and the First Amendment, the Security Agreement to which the Company is a party and the Intercreditor Agreement constitute the legal, valid and binding obligations, contracts and agreements of the Company enforceable in accordance with their respective terms. 3. Subsidiary Documents. (a) The execution of each Security Agreement by the Subsidiary which is or, with respect to the Foreign Pledge Agreements, will be a party thereto and compliance by such Subsidiary with all of the provisions of such Security Agreement - (i) are within the corporate powers of such Subsidiary; (ii) will not violate any provisions of any law or any order of any court or governmental authority or agency and will not conflict with or result in any breach of any of the terms, conditions or provisions of, or constitute a default under the Articles of Incorporation or By-laws of such Subsidiary or any indenture or other agreement or instrument to which such Subsidiary is a party or by which it may be bound or result in the imposition of any Liens or encumbrances on any property of such Subsidiary (other than as expressly provided therein); and (iii) has been or, with respect to the Foreign Pledge Agreements, will be duly authorized by proper corporate action on the part of such Subsidiary (no action by the stockholders of such Subsidiary being required by law, by the Articles of Incorporation or By-laws of such Subsidiary or otherwise), and such Security Agreement has been or, with A-1 12 respect to the Foreign Pledge Agreements, will constitute the legal, valid and binding obligation, contract and agreement of such Subsidiary enforceable in accordance with its terms. 4. Governmental Consent. No approval, consent or withholding of objection on the part of any regulatory body, state, Federal or local, is necessary in connection with (i) the execution and delivery by the Company of the First Amendment, the Intercreditor Agreement or the Security Agreement to which it is a party or compliance by the Company with any of the provisions thereof or (ii) the execution and delivery by each Subsidiary of the Security Agreement to which it is a party or compliance by such Subsidiary with any of the provisions of such Security Agreement. 5. Compliance with Law. Neither the Company nor any Subsidiary (a) is in violation of any law, ordinance, franchise, governmental rule or regulation to which it is subject; or (b) has failed to obtain any license, permit, franchise or other governmental authorization necessary to the ownership of its property or to the conduct of its business, which violation or failure to obtain would materially adversely affect the business, prospects, profits, properties or condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole, impair the ability of the Company to perform its obligations contained in the First Amendment, the Security Agreement to which the Company is a party or the Intercreditor Agreement or impair the ability of any Subsidiary to perform its obligations under the Security Agreement to which it is or, with respect to the Foreign Pledge Agreements, will be a party. 6. Perfection of Security Interest. On and as of the Amendment Closing Date, the Security Agreements and financing statements or other notices with respect thereto have been executed and shall be in proper form for filing or recordation in all the public offices wherein such filing or recordation is necessary to perfect the liens and security interests of the Collateral Agent in the property described therein (to the extent such liens and security interests can be perfected by recordation or filing) as against creditors of and purchasers from the Company and each Subsidiary which is a party thereto, and the Security Agreements have created or, with respect to the Foreign Pledge Agreements, will create valid and, upon such recordations and filings and, with respect to the Pledged Domestic Shares and Pledged Foreign Shares (as such terms are defined in the Security Agreements), possession of such Pledge Domestic Shares and Pledged Foreign Shares by the Collateral Agent, perfected priority liens on and security interests in, the right, title and interest of the Company and each Subsidiary which is a party thereto in and to the property described therein, effective as against creditors of and purchasers from the Company and each Subsidiary which is or, with respect to the Foreign Pledge Agreements, will be a party thereto. A-2 EX-10.26 4 EX-10.26 1 EXHIBIT 10.26 December 20, 1993 Mr. Michael A. Shope Walbro Corporation 6242 Garfield Cass City, MI 48726 Dear Mr. Shope: This agreement supersedes all prior agreements or contracts, both written and oral, between the undersigned employee and Walbro concerning the terms and conditions described hereunder. The parties specifically agree that this agreement is the sole understanding between the parties concerning the terms and conditions described herein. Walbro Corporation (hereinafter referred to as the "Company") is desirous of retaining your services as Chief Financial Officer. 1. Commencing with your acceptance of this letter the Company hereby agrees to employ you as Chief Financial Officer, a staff position reporting directly to the President of the Company. As such, you will have the duties and authority, and will render services, that the President and/or Board of Directors of the Company may from time to time direct. Subject to the provisions of paragraph 4, below, the term of this agreement shall be one year; provided, however, that commencing on the date one year after the date of this agreement and each anniversary date of the agreement thereafter, the term of this agreement shall be automatically extended for one additional year, unless, terminated in writing prior to the anniversary date of this agreement. 2. Your annual compensation while you are so employed will be at the base rate of not less than $125,000 per annum, payable semi-monthly. It is recognized that as President, I may from time to time review the compensation to be paid to you hereunder during the initial term and any renewal term and increase the compensation in such amounts as may be proper. 3. In addition to the base compensation, you will continue to be entitled to the following benefits: a. a minimum of three weeks paid vacation; b. the use of a vehicle leased by the Company on your behalf; c. coverage under the Company's "Choice" and "Advantage" Plans; d. subject to satisfactory review by June 30, 1994, participation in the Walbro Corporation Equity Based Long Term Incentive Plan, a summary of which is set forth in Exhibit A attached hereto and hereby incorporated by reference (it is recognized that the opportunity to participate in this incentive plan carries with it corresponding accountability and an expectation of minimum, or threshold, financial results); e. participation in such other standard benefits customarily provided to the Company's executives of your rank. 2 4. If during the initial term of this agreement or a renewal term, your employment is terminated by the Company other than as a result of your (i) Disability; or (ii) for Cause, then you shall be entitled to a severance benefit which, when added to the sum payable to you, for any unexpired portion of the term of this Agreement or renewal of it, shall be equal to the rate of annual base compensation being paid to you at the date notice is given to you ("Total Termination Pay"). The Total Termination Pay shall be payable in equal semi-monthly installments. The Total Termination Pay hereunder shall be offset by the amount of compensation received by you from any and all other employers, independent contracting or consulting arrangements during the twelve months immediately following the date notice of termination is given to you by the Company. In the event you become entitled to and receive Total Termination Pay under this paragraph, the Company's duties and obligations under paragraph 1 shall cease. It is further understood and agreed that if your employment is terminated following a Change in Control with the result that you are entitled to receive severance compensation or consulting fees under the terms of the SEVERANCE COMPENSATION AND CONSULTING AGREEMENT between you and the Company dated as of the date of your employment hereunder (the "Change of Control Agreement"), then this agreement shall have no effect, and the Change of Control Agreement shall control. 5. If you die or become Disabled, the term of this agreement shall end with the last day of the month following the month in which such death or Disability shall occur, and you shall receive no other benefits under paragraph 4 of this Agreement. 6. If during the initial term of this Agreement or a renewal term your employment is terminated for Cause, as that term is defined in Paragraph 7 of this Agreement, this Agreement will terminate immediately and, subsequent to the date of your termination, you will be entitled to no payments or benefits of any kind under this Agreement except as required by law. 7. For purposes of this Agreement, the following terms whenever used in the following capitalized form shall have the meaning set forth below: a. "Cause" means 1) an act or acts of dishonesty by you constituting a felony under applicable law and resulting or intending to result directly or indirectly in gain or personal enrichment of you at the expense of the Company; and/or 2) gross negligence or willful misconduct on your part in the performance of your duties. b. "Disability" or "Disabled" means an incapacity due to physical or mental illness, which renders you unable to engage in an occupation or employment substantially similar in nature to the employment in which you were engaged at the time of the illness and such condition is expected to continue indefinitely or for a substantial period of time. c. For purposes of this Agreement, the delivery by the Company of notice pursuant to paragraph 1 that the term of this agreement will not be extended another year shall be deemed a termination under paragraph 4 entitling you to severance pay. 3 8. This Agreement shall be binding on the Company and any successor company into or with which the Company may be merged, consolidated, or to which it may sell or distribute, by way of liquidation or otherwise, substantially all of its assets. 9. It is recognized by you that by accepting this assignment and entering into this Agreement, provided the Company honors its promise to pay you under Paragraph 4, the Company has no duty to renew this agreement beyond its initial term or any renewal term. The Company in its sole discretion and for any reason can choose during the term of this Agreement or any renewal term to give notice under Paragraph 1 of its decision not to renew the Agreement and thereby terminate your employment at the end of the term in question. Finally you understand that if you voluntarily quit your employment you will be entitled to no payments or benefits of any kind under the Agreement subsequent to the date of your voluntary termination except as required by law. If you agree with the foregoing please sign the duplicate original of this letter where indicated below and return it to me. Sincerely, /s/ L. E. Althaver ------------------------------------- L.E. Althaver, Chairman, President and Chief Executive Officer I hereby agree with and accept the foregoing offer of employment and I have signed this duplicate original this 20th day of December, 1993. /s/ Michael A. Shope ------------------------------------- Michael A. Shope EX-10.27 5 EX-10.27 1 EXHIBIT 10.27 SEVERANCE COMPENSATION AND CONSULTING AGREEMENT dated as of December 20, 1993 between WALBRO CORPORATION, a Delaware Corporation (the "Company"), and MICHAEL A. SHOPE, (the "Executive") The Company's Board of Directors has determined that, in light of the importance of the Executive's continued service to the stability and continuity of management of the Company and its subsidiaries, it is appropriate and in the best interests of the Company and its shareholders to reinforce and encourage the Executive's continued attention and undistracted dedication to his duties in the circumstances of a possible Change in Control of the Company (as defined below). The Company's Board of Directors has determined that in order to induce the Executive to remain in the employ of the Company, and to assist in assuring the Executive of a continuation in the management style and operating terms and conditions currently in effect at the Company, it is desirable to pay the Executive the severance pay and benefits set forth herein if the Executive's employment with the Company terminates following a Change in Control of the Company. The Company's Board of Directors has determined, in certain events following a termination of the Executive's employment subsequent to a Change in Control, it would be desirable to utilize the valuable knowledge and experience which the Executive possesses by retaining the Executive as a consultant to the Company. In consideration of the foregoing premises and the mutual covenants contained in this Agreement, the Company and the Executive agree as follows: 1. Definitions. For purposes of this Agreement, the following terms whenever used in the following capitalized form shall have the meaning set forth below unless the context clearly indicates otherwise: (a) "Board" or "Board of Directors" means the Board of Directors of the Company. (b) "Cause" means an act or acts of dishonesty by the Executive constituting a felony under applicable law and resulting or intending to result directly or indirectly in gain to or personal enrichment of the Executive at the Company's expense. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to him a copy of a resolution, duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board of Directors of the Company at a meeting of the Board called and held for that purpose (after reasonable notice to him has been given or has been made and an opportunity for him, together with his counsel, to be heard before the Board), finding that in the good faith opinion of the Board the Executive was guilty of conduct set forth above in the first sentence of this Section l(b) and specifying the particulars 2 thereof in detail. (c) "Change in Control" shall be deemed to have occurred on the first of any of the following dates: (1) on the date any individual, entity, or group (within the meaning of Sections 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") ("Person")) shall become the beneficial owner (within the meaning of Rule 13(d)-3 promulgated under the Exchange Act) of securities of the Company representing thirty percent or more of the Company's then outstanding securities having the right to vote in the election offer, open market purchases, privately negotiated purchases or otherwise; provided, however, that the following acquisitions shall not be considered in determining whether there has been a Change in Control: (a) any acquisition directly from the Company; (b) any acquisition by the Company; (c) any acquisition by a Person including the Executive or with whom or with which the Executive is affiliated; (d) any acquisition by a Person or Persons one or more of which is a member of the Board of Directors or an officer of the Company or an affiliate of any of the foregoing on the date hereof; (e) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by . the Company or any corporation controlled by the Company; or (f) any acquisition by any corporation pursuant to a reorganization, merger, consolidation, if following such reorganization, merger or consolidation, the conditions described in clauses (A), (B) and (C) of Subsection (2) of this Section (c) are satisfied; or (2) on the date of a reorganization, merger or consolidation, in each case, unless, following such reorganization, merger or consolidation, (A) more than 60% of the then outstanding securities having the right to vote in the election of directors of the corporation resulting from such reorganization, merger or consolidation is then beneficially owned, directly or indirectly, by all or substantially all of the individuals vi 1 c ;and entities who were the beneficial owners of the outstanding securities having the right to vote in the election of directors of the Company immediately prior to such reorganization, merger of consolidation, (B) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company or such corporation resulting from such reorganization, merger or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 30% or more of the outstanding securities having the right to vote in the election of directors of the Company) beneficially owns, directly or indirectly, 30t or more of the then outstanding securities having the right to vote in the election of directors of the corporation resulting from such reorganization, merger or consolidation, and (C) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation are Continuing Directors at the time of the execution of the initial agreement providing for such reorganization, merger or 3 consolidation: or (3) the date on which the shareholders of the Company approve (A) a complete liquidation or dissolution of the Company or (B) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation, with respect to which following such sale or other disposition, (1) more than 60t of the then outstanding-securities having the right to vote in the election of directors of such corporation is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners of the outstanding securities having the right to vote in the election of directors of the Company immediately prior to such sale or other disposition of such outstanding securities, (2) no Person (excluding the Company and any employee benefit plan (or related trust) of the Company or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 30% or more of the outstanding securities having the right to vote in the election of directors of the Company) beneficially owns, directly or indirectly, 30t or more of the then outstanding securities having the right to vote in the election of directors of such corporation and (3) at least a majority of the members of the board of directors of such corporation are Continuing Directors at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Company. (4) on the date, during any period of twenty-four (24) consecutive months commencing on or after the close of business on February 26, 1990, on which individuals who at the beginning of such period constitute the entire board of directors of the Company shall cease for any reason to constitute a majority thereof unless the election, or the nomination for election, by the Company's stockholders, of each new director was approved by a vote of at least two-thirds of the Continuing Directors, as hereinafter defined, in office on the date of such election or nomination for election for the new director. For purposes hereof, a "Continuing Director" shall mean: (i) any member of the board of directors of the Company at the close of business on February 26, 1990; or (ii) any member of the board of directors of the Company who succeeded any Continuing Director described in subparagraph (i) above if such successor's election, or nomination for election by the Company's stockholders, was approved by a vote of at least two-thirds of the Continuing Directors then still in office Continuing Director shall not include any individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such term is used in Rule 14a-11 of Regulation 14A 4 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board. (d) "Code" means the Internal Revenue Code of 1986, as amended and in effect from time to time. (e) "Compensation" means payments in the nature of compensation that arise out of an employment relationship or are associated with the performance of services and that are (i) paid or payable by the Company or any other entity to the extent permitted or required by Section 280G of the Code and the regulations thereunder and (ii) includible in the gross income of the Executive; provided that compensation is the maximum amount of compensation that would be calculated with respect to the Executive under Section 280G and the regulations thereunder if the Change in Control under this Agreement were a change in control under Section 280G and the regulations thereunder. In the event that Section 2(d) of this Agreement applies to the Executive, Compensation under this Section l(e) shall not exceed the Executive's annual compensation as determined under Department of Labor Regulation Section 2510.3-2(b). (f) "Disability" means an incapacity due to physical or mental illness, which renders the Executive unable to engage in an occupation or employment substantially similar in nature to the employment in which he was engaged at the time of the illness and such condition is expected to continue indefinitely or for a substantial period of time. (h) "Good Reason" means any of the following events unless it occurs with the Executive's express prior written consent: (i) the assignment to the Executive by the Company of any duties inconsistent with, or a diminution of, the Executive's position, duties, titles, offices, responsibilities and status with the Company, including without limitation, any diminution of the Executive's position or responsibility in the decision or management processes of the Company in effect, immediately prior to a Change in Control of the Company, or any removal of the Executive from, or any failure to reelect the Executive to, any of such positions, except in connection with the termination of the Executive's employment for Disability, Retirement or Cause or as a result of the Executive's death or by the Executive other than for Good Reason; (ii) a reduction by the Company in the Executive's base salary as in effect on the date hereof or as the same may be increased from time to time during the term of this Agreement or the Company's failure to increase (within twelve months of the Executive's last increase in base salary) the Executive's base salary after a Change in Control of the Company in an amount which is substantially similar, on a percentage basis, to the Executive's last increase in base salary prior to the Change in Control, other than (1) a reduction of the Executive's base salary pursuant to the terms of the Company's short-term disability plan or long-term disability plan during a period in which the Executive 5 is disabled (within the meaning of such plan or plans) and qualifies for benefits under such plan or plans; or (2) a reduction of the Executive's base salary in connection with the termination of the Executive's employment for Disability, Retirement or Cause, or as a result of the Executive's death or by the Executive other than for Good Reason; (iii) any failure by the Company to continue in effect any benefit plan or arrangement (including, without limitation, the Company's pension plan, profit sharing or stock bonus plan, the portion of any such plan which includes a cash or deferred arrangement described in Section 401(k) of the Code, group life insurance plan, medical, dental, accident and disability plans and annual social events in which the Executive is participating or eligible to participate or is an invitee at the time of a Change in Control of the Company) (or to substitute and continue other plans providing the Executive with substantially similar benefits) (hereinafter referred to as "Benefit Plans"), or the taking of any action by the Company which would adversely affect the Executive's participation in or materially reduce the Executive's benefits under any such Benefit Plan or deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of a Change in Control of the Company, or the failure, by the Company to provide the Executive with the number of paid vacation days to which the Executive is entitled or may become entitled upon the passage of time, in accordance with the vacation policies in effect at the time of a Change in Control of the Company; (iv) any failure by the Company to continue in effect any incentive plan or arrangement (including, without limitation, the Company's incentive compensation -plan, annual bonus and contingent bonus arrangements and credits and the right to receive performance awards and similar incentive compensation benefits) in which the Executive is participating at the time of a Change in Control of the Company (or to substitute and continue other plans or arrangements providing the Executive with substantially similar benefits) (hereinafter referred to as "Incentive Plans" or the taking of any action by the Company which would adversely affect the Executive's participation in any such Incentive Plan or reduce the Executive's benefits under any such Incentive Plan; (v) any failure by the Company to continue in effect any plan or arrangement to receive securities of the Company and any other plan or arrangement to receive and exercise stock options, stock appreciation rights, restricted stock or grants thereof or to acquire stock or other securities of the Company) in which the Executive is participating at the time of a Change in Control of the Company (or to substitute and continue plans or arrangements providing the Executive with substantially similar benefits) (hereinafter referred to as "Securities Plans") or the taking of any action by the Company which would adversely affect the Executive's participation in or materially reduce the Executive's benefits under any such Securities Plan; (vi) a relocation of the Company's principal executive offices or the Executive's relocation to any place other than the location at which the Executive performed the Executive's duties prior to a Change in Control of the 6 Company; (vii) a substantial increase in business travel obligations over such obligations as they existed at the time of a Change in Control of the Company; (viii) any material breach by the Company of any provision of this Agreement; (ix) any failure by the Company to obtain the assumption of this Agreement by any successor or assignee of the Company; (x) any purported termination of the Executive's employment which is not affected pursuant to the Company's stated policy at the time of the Change in Control; (xi) any change in the procedure for evaluating the Executive relative to compensation, bonus or promotion; (xii) any change in the employment security provisions of the Company's employment policy at the time of the Change in Control which results in such policy being less protective of the Executive's procedural or substantive rights; or (xiii) any reduction or elimination of the rehabilitation, athletic or medical facilities maintained by the Company, or a reduction or elimination of the Executive's privileges with respect to such facilities. (i) "Retirement" as used in this Agreement shall mean termination by the Company or the Executive of the Executive's employment based on (1) the Executive's retirement in accordance with the Company's retirement policy in effect immediately prior to the Change in Control, or (2) in the event the Company has no retirement policy, the Executives commencing to receive benefits under the Company's retirement or pension plan. Notwithstanding the foregoing, Retirement shall not include for purposes of this Agreement, the Executive's commencing to receive benefits under the Company's retirement or pension plan if the Executive's employment was terminated by the Executive for Good Reason or by the Company other than for Cause or not in accordance with the Company's retirement policy as previously described. 2. Severance Compensation Upon Termination. (a) If the Executive's employment with the Company is terminated at any time within the two year period immediately following the Change in Control other than as a result of (i) the Executive's death; (ii) the Executive's Disability; (iii) the Executive's Retirement; (iv) the Executive's termination by the Company for Cause; (v) the Executive's decision to terminate employment other than for Good Reason; or (vi) the Executive's decision to terminate employment for any reason within ninety days after the Change in Control, then the Executive shall be entitled to the severance pay and benefits provided below: 7 (i) The Company shall pay to the Executive as severance pay in a single sum, in cash, not later than the fifth business day following the termination of employment, an amount equal to three times the sum of the Executive's annual Compensation for the most recent five taxable years ending before the date on which the Change in Control occurs divided by five (or such number of years, if less than five, for which Compensation would be annualized under the next following sentence and during which the Executive performed personal services for the Company). If the Executive performed personal services for the Company for less than all of a taxable year prior to the Change in Control, the Executive's Compensation for such short taxable year shall be annualized before determining the amount under the preceding sentence. (ii) The Company shall, at its expense, provide the Executive, for a period of thirty-six months following the date of the termination of employment, life, health, dental, long-term disability and accident insurance substantially similar to the insurance or benefits in effect and provided by the Company at the time of the Change in Control of the Company and all other benefits and perquisites substantially similar to those which the Executive was eligible to receive at the time of the Change in Control. (b) If the Executive's employment with the Company is terminated in anticipation of a Change in Control or prior to the occurrence of a Change in Control, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to affect the Change in Control or (ii) otherwise arose in connection with or anticipation of the Change in Control, then the Executive shall be entitled to the severance pay and benefits provided below: (i) The Company shall pay to the Executive as severance pay in a single sum, in cash, not later than the fifth business day following the termination of employment, an amount equal to three times the sum of the Executive's annual Compensation for the most recent five taxable years ending on the date of termination divided by five (or such number of years, if less than five, for which Compensation would be annualized under the next following sentence and during which the Executive performed personal services for the Company). If the Executive performed personal services for the Company for less than all of a taxable year prior to the Change in Control, the Executive's Compensation for such short taxable year shall be annualized before determining the amount under the preceding sentence. (ii) The Company shall, at its expense, provide the Executive, for a period of thirty-six months following the date of the termination of employment, life, health, dental, long-term disability and accident insurance substantially similar to the insurance or benefits in effect and provided by the Company at the time of the termination of employment and all other benefits and perquisites substantially similar to those which the Executive was eligible to receive at the time of the termination of employment. (c) If the amount of any payment under this Section 2 cannot or is not made by 8 the date otherwise required, the Company shall pay to the Executive on such required date an estimate, as determined in good faith by the Company, of the minimum amount of such payment and shall pay the remainder (together with interest at the rate provided in Section 7872(f)(2)(A) of the Code) as soon as the amount thereof can be determined, but in no event later than thirty days following the date the payment was otherwise required. In the event that the amount of the estimated payment exceeds the amount subsequently determined to have been due, such excess shall be paid by the Executive to the Company on the fifth day following demand by the Company (together with interest at the rate provided in Section 7872(f)(2)(A) of the Code). (d) In the event that this Agreement constitutes an employee pension benefit plan within the meaning of Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") for an employee not included in a select group of management or highly compensated employees, then the severance pay and benefits under this Agreement shall be limited or reduced until this Agreement shall not constitute an employee pension benefit plan for an employee not included in a select group of management or highly compensated employees within the meaning of ERISA. 3. Consulting Services. (a) If a Change in Control of the Company shall occur while the Executive is an employee of the Company and if the Executive's employment with the Company is terminated by the Executive subsequent to a Change in Control other than for Retirement or Good Reason and has not or could not have been terminated at that time by the Company for Cause, death or Disability, the Executive shall have the right, upon written notice to the Company within thirty days following the termination of employment, to continue as a consultant to the Company for a period of one year, commencing on the date the notice of the election to render such services is delivered to the Company. Notwithstanding the foregoing, if the Executive's employment with the Company is terminated by the Executive less than ninety days after the Change in Control for any reason, the Executive shall not have the right to continue as a consultant to the Company as provided in this Section 3. During the one-year consulting period, the Executive shall be regarded as an independent contractor and not as an employee of the Company and shall render advisory services concerning the business affairs of the Company with which the Executive shall have had substantial familiarity in the course of his prior employment responsibilities. During the one-year consulting period, the Executive shall not be required to devote more than one day each week and three days each calendar month to such services, and shall not be required to render any services at a distance of more than fifty miles from his then home, it being understood that the Executive may move from the area in which he presently resides. The Executive's consulting services under this Agreement shall be required only at times and places consistent with his other employment or with his private activities. (b) In consideration for the Executive's agreement to provide consulting services, the Company shall pay to the Executive not later than the fifth day following the date the Executive provides notice under Section 3(a) an amount equal to the Executive's base salary (determined on an annual basis using the 9 rate in effect on the date of the termination of employment) plus bonus; provided, however, that if the Executive's base salary or bonus cannot be finally determined on or before such day, the Company shall pay to the Executive on such day the estimated minimum amount of such compensation, as determined in good faith by the Company and (i) the Company shall pay to the Executive any deficiency in such estimated amount as soon as it can be finally determined but in no event later than the thirtieth day after the date of termination or (ii) the Executive shall repay to the Company, not later than the fifth day after demand by the Company, any excess of such estimated amount over the Executive's compensation as finally determined (in each case, together with interest at the rate provided in Section 7872(f)(2)(A) of the Code.) (c) The Company shall, at its expense, provide the Executive, for the one-year consulting period, life, health, dental, long-term disability and accident insurance substantially similar to the insurance in effect and provided by the Company at the time of the election to render consulting services and all other benefits and perquisites substantially similar to those which the Executive was eligible to receive immediately prior to the election. 4. Term of Agreement. This Agreement shall terminate, except to the extent that any obligation of the Company hereunder remains unpaid as of such time and until such obligation is satisfied, two years from the date hereof. It is provided, however, that commencing on the date two years after the date of this Agreement and each anniversary date of the Agreement thereafter, the term of this Agreement shall be automatically extended for one additional year, unless, not later than six months prior to the date two years after the date of this Agreement or any subsequent anniversary date, the Company shall have delivered to the Executive or the Executive shall have delivered to the Company written notice that the term of this Agreement will not be extended. Notwithstanding the foregoing, in no event shall this Agreement terminate prior to two years after a Change in Control if the Executive is employed by the Company on the date of such Change in Control; provided that any obligation of the Executive or the Company arising under Section 3 shall continue until the Executive has rendered all services required thereunder and the Company has paid for all services thereunder. 5. No Obligation to Mitigate Damages: No Effect on Other Contractual Rights. (a) The Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by the Executive as the result of employment by the Company at any time or by another employer after the date of termination or otherwise. (b) The provisions of this Agreement, and any payment provided for hereunder, shall not reduce any amounts otherwise payable, or in any way diminish the Executive's existing rights, or rights which would accrue solely as a result of the passage of time, under any employment agreement contract, plan or arrangement to which the Executive is a party, a participant or a beneficiary. 10 6. Enforcement of Agreement; Resolution of Disputes. (a) The Company recognizes that in anticipation of a Change in Control or upon the occurrence of a Change in Control there may be an attempt to cause the Company to refuse to comply with its obligations under this Agreement, or to cause the Company to institute, or there may be instituted, litigation seeking to have this Agreement declared unenforceable, or there may be made an attempt to take other action to deny the Executive the benefits intended under this Agreement. In these circumstances, the purpose of this Agreement could be frustrated. It is the intent of the Company that the Executive not be required to incur the expenses associated with the enforcement of his rights under this Agreement by litigation or other legal action, or be bound to negotiate any settlement of his rights hereunder, because the cost and expense of such legal action or settlement would substantially detract from the benefits intended to be extended to the Executive hereunder. Accordingly, if it should appear to the Executive that the Company has failed to comply with any of its obligations under this Agreement or in the event that the Company or any other person takes any action to declare this Agreement void or unenforceable, or institutes any litigation or other legal action designed to deny, diminish or to recover from the Executive the benefits entitled to be provided to the Executive hereunder, and that Executive has complied with all of his obligations under this Agreement, the Company irrevocably authorizes the Executive from time to time to retain counsel of his choice, at the expense of the Company as provided in this Section 6, to represent the Executive in connection with the initiation or defense of any litigation or other legal action, whether such' action is by or against the Company or any Director, officer, shareholder or other person affiliated with the Company, in any jurisdiction. Notwithstanding any existing or prior attorney-client relationship between the Company and such counsel, the Company irrevocably consents to the Executive entering into an attorney client relationship with such counsel, and in that connection the Company and the Executive agree that a confidential relationship shall exist between the Executive and such counsel. The reasonable fees and expenses of counsel selected from time to time by the Executive, as hereinabove provided, shall be paid or reimbursed to the Executive by the Company on a regular, periodic basis upon presentation by the Executive of a statement or statements prepared by such counsel in accordance with its customary practices, up to a maximum aggregate amount of $500,000. Any legal expenses incurred by the Company by reason of any dispute between the parties as to the enforceability of or 'the terms contained in this Agreement, notwithstanding the outcome of any such dispute, shall be the sole responsibility of the Company, and the Company shall not take any action to seek reimbursement from the Executive for such expenses. (b) If there shall be any dispute between the Company and the Executive, then, unless and until there is a final, nonappealable judgment by a court of competent jurisdiction declaring that the Executive is not entitled to severance pay and benefits or to be a consultant under this Agreement, the Company shall pay all amounts, and provide all benefits, to the Executive and/or 11 the Executive's family or other beneficiaries, as the case may be, that the Company would be required to pay or provide pursuant to Section 2 or Section 3; provided, however, that the Company shall not be required to pay any disputed amounts pursuant to this Section except upon receipt of an undertaking by or on behalf of the Executive to repay all such amounts to which the Executive is ultimately adjudged by such court not to be entitled. 7. Successor to the Company. (a) The Company will require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Executive, expressly, absolutely and unconditionally to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place. As used in this Agreement, the term "Company" shall mean the Company, as hereinbefore defined, and any successor or assign to its business and/or assets 2S aforesaid which executes and delivers the agreement provided for in this Section 7 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. If at any time during the term of this Agreement the Executive is employed by any corporation, a majority of the voting securities of which is then owned by the Company, the term "Company" as used in this Agreement, except as used in Section l(c) hereof, prior to a Change in Control, shall also include such employer. In such event, the Company agrees that it shall pay or shall cause such employer to pay any amounts owed to the Executive pursuant to this Agreement. (b) This Agreement shall inure to the benefit of and be enforceable by the Executive's personal and legal representatives, executors, administrators, successors, heirs, distributees, devises and legatees. If the Executive shall die while any amounts are still payable to him hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee, or other designee or, if there be no such designee, to the Executive's estate. 8. Obligation of Executive to Provide Notice of Entitlement. Prior to providing the severance pay and benefits described in Section 2, the Company may require the Executive to submit a written notice indicating the facts and circumstances on which he has determined that he is entitled to severance pay and benefits under the Agreement'. If the Company determines that the Executive is not entitled to severance pay and benefits under the Agreement, the Executive may request the Company to provide a written notice indicating the facts and circumstances on which the Company has determined that the Executive is not entitled to severance pay and benefits under the Agreement. The failure by the Executive or the Company to set forth in the written notice any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. 12 9. Notice. For purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when mailed by first-class mail, postage prepaid, transmitted by customary electronic methods, delivered by courier or personally delivered, addressed as follows: If to the Company: Walbro Corporation 6242 Garfield Street Cass City, MI 48726 Attention: Secretary of the Company If to the Executive: Michael A. Shope Walbro Corporation 6242 Garfield Cass City, MI 48726 or such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 10. Source of Payment. The obligation of the Company under this Agreement shall be satisfied from the general funds of the Company, and no special or separate funds shall be established and no other segregation of assets shall be made to assure payment. The Executive shall have no right, title, or interest whatever in or to any investments which the Company may make to aid the Company in meeting its obligations hereunder. Nothing contained in this Agreement, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship, between the Company and the Executive. To the extent that the Executive acquires a right to receive payments from the Company hereunder, such right shall be no greater than the right of an unsecured creditor of the Company. The Board of Directors may in its discretion establish one or more irrevocable letters of credit, surety bonds, or trusts for the purpose of assisting the Company in fulfilling its obligation hereunder provided that such letters of credit, surety bonds or trusts shall be subject to the general creditors of the Company in the event of the Company's insolvency to be used as a reserve for the discharge of the Company's obligations under the Agreement to the Executive. Any payments made to the Executive under the separate letter of credit, surety bond or trust for his benefit shall reduce dollar for dollar the amount payable to the Executive from the general assets of the Company. The amounts payable under the Agreement shall be reflected on the accounting records of the Company but shall not be construed to create or require the creation of a trust, custodial or escrow account, except as described above in this section. 11. Mitigation of Excise Tax. If any severance pay or benefits payable under this Agreement (without the application of this Section 11), either alone or together with other payments pursuant to any agreement, plan or arrangement with the Company 13 ("Total Payments"), would constitute a "parachute payment" (as defined in Section 280G of the Code and regulations thereunder), such severance pay or benefits payable under this Agreement shall be reduced until no portion of the Total Payments is not deductible as a result of Section 280G of the Code and regulations thereunder or the severance pay and benefits provided in this Agreement are reduced to zero. In the event that the severance pay and benefits payable to the Executive under this Agreement are reduced in accordance with the foregoing sentence, the Executive shall elect whether either the severance pay or benefits (or a combination thereof) is reduced, unless the total severance pay and benefits is to be reduced to zero. The determination of whether the severance pay and benefits payable to the Executive are to be reduced under this Section 11 shall be made by the Executive in good faith after consultation with the Company. The Company shall cooperate in good faith with the Executive in making such determination and in providing the information necessary for such determination. For purposes of this Section 11, no portion of the Total Payments the receipt or enjoyment of which the Executive shall have effectively waived in writing prior to the Company providing the severance pay and benefits shall be taken into account. The provisions of this Section 11 shall apply to the Executive only if (a) the Executive's Total Payments reduced (i) by federal excise tax imposed by Section 4999 of the Code, (ii) by federal income taxes and (iii) by state and local income and excise taxes do not exceed (b) the Executive's Total Payments reduced (i) in accordance with the provisions of this Section 11, (ii) by federal income taxes and (iii) by state and local income and excise taxes. 12. Miscellaneous. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and the Company. No waiver by either party hereto at the time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar of dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. This Agreement shall be governed by and construed in accordance with the laws of the State of Michigan, except its law respecting choice of law. 13. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. EXECUTIVE WALBRO CORPORATION /s/ Michael A. Shope By: /s/ L. E. Althaver - -------------------- ------------------ Michael A. Shope L.E. Althaver, Chairman Chief Financial Officer President & CEO EX-10.30 6 EX-10.30 1 EXHIBIT 10.30 JOINT VENTURE AGREEMENT This Joint Venture Agreement (the "Agreement") is entered into on November 28, 1995, between WALBRO AUTOMOTIVE CORPORATION, a Delaware corporation whose registered office is located at Auburn Hills, Michigan 48326 USA ("Walbro"), and MUTUAL INDUSTRIES LTD., a company incorporated under the laws of India, whose registered office is located at 47 Government Industrial Estate, Charkop, Kandivili (W) Bombay-400067 ("Mutual"). Mutual is a subsidiary of Gandhi Sons Group, a company incorporated under the laws of India ("GSG"). Walbro and Mutual are sometimes referred to as a Party and collectively referred to as "the Parties". R E C I T A L S: A. Walbro designs and manufactures fuel storage and delivery subsystems as original equipment for application on automotive electronic fuel injection systems throughout the world. B. Mutual and its affiliates design and manufacture various products utilizing plastic injection molding throughout India. C. Walbro has advanced technology with respect to plastic blow molded manufacturing techniques, including fuel tanks, filler pipes and other automotive, truck and agricultural products. D. Walbro has worldwide automotive and truck customers which have requested it operate a manufacturing facility in India for sales in India. E. In light of the foregoing, the Parties desire to utilize their respective strengths by establishing a Joint Venture (the "JV"), to be jointly owned by Walbro and Mutual, to develop, manufacture and market fuel tanks, filler pipes and other plastic blow molded products in the automotive, truck, agriculture and any other markets ("JV Products"). NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and undertakings provided herein, the Parties agree as follows: ARTICLE I FORMATION OF THE JV 1.1 INCORPORATION. The Parties will cause the incorporation and registration of the JV as a private limited company ("PLC") organized under the laws of India. The JV shall be registered in the state of Maharashtra and its registered office shall be at 47 Government Industrial Estate, Charkop Kandivili (W) Bombay - 400067 India. The Articles of Association 2 and Memorandum of Association for the JV (collectively the "Articles") shall be substantially in the form of EXHIBIT 1.1(A) AND (B) attached hereto. 1.2 OWNERSHIP. The equity interest in the JV ("Equity Interest") will be owned by the Parties based on their percentage share of capital contributions which is 50.1% for Walbro and 49.9% for Mutual, as set forth in SECTION 2.1 ("Capital Percentages"). Such Capital Percentages may be adjusted upon agreement of the parties subject to appropriate governmental approval. 1.3 PURPOSE. The purpose of the JV will be to develop, manufacture and market fuel tanks, filler pipes and other plastic blow molded products in the automotive, truck, agricultural and any other markets ("JV Products") in the JV Territory. Except as expressly provided in SECTION 4.3, the JV will be the exclusive vehicle through which each of the Parties and its affiliates develops, manufactures and markets JV Products in the JV Territory. It is intended that the JV shall be a self-sufficient and autonomous entity with its own plant, assets and employees. 1.4 TERRITORY. The designated market for the JV (the "JV Territory") will be India. 1.5 NAME. The Parties agree that the JV shall operate under the name Mutual Walbro P. Ltd. or such other name as chosen by the Board. Walbro shall license the JV the right to the use of the name Walbro pursuant to the Name License Agreement in the form of EXHIBIT 1.5. The Articles shall include name protection provisions for the benefit of Walbro. 1.6. ACCEPTANCE. The Parties agree to cause the JV to accept and adopt this Agreement. ARTICLE II CAPITALIZATION AND FUNDING OF THE JV 2.1 CAPITAL CONTRIBUTIONS. The JV will be formed and capitalized as follows: (a) The initial capitalization of the JV shall be $2,000,000 (70,000,000 rupees) of equity. The above amounts shall be contributed in cash to the JV by the Parties in proportion to their respective Capital Percentages. (b) The equity contributions constituting the initial capitalization shall be made at such times as requested by the Board. 2.2 OPERATING DEFICITS. Operating deficits of the JV beyond those provided for in the initial capitalization or needs for additional working capital will be funded by the Parties in proportion to their respective Capital Percentages. Unless otherwise agreed at the time of funding, such deficits will be funded by loans from the Parties. -2- 3 2.3 SUBSEQUENT CAPITAL OR LOANS. Additional capital requirements contemplated by the Business Plan will be made by the Parties in proportion to their respective Capital Percentages. No additional capital contributions or loans other than those contemplated by the Business Plan will be required unless approved by both Parties. ARTICLE III GOVERNANCE OF THE JV The Parties agree that the JV will be governed substantially as set forth below, and that these governance provisions are for the direct benefit of the JV and its business. The Parties further agree: (a) that the JV Articles will be structured to reflect this governance to the fullest extent permitted under applicable law; and (b) that, in the event of a conflict between the Articles and the following provisions, the following provisions will prevail to the extent such a result is not directly contrary to applicable public policy. 3.1 MANAGEMENT TEAM. The day-to-day operations of the JV will be conducted by a Chief Executive Officer ("CEO") and his staff. The CEO and key management people will be appointed by the Board of Directors. The initial Board of Directors will be Richard H. Whitehead, III and D.K. Gandhi. 3.2 BOARD OF DIRECTORS. 3.2.1 COMPOSITION. The JV will have a Board of Directors (the "Board") comprised of two persons. Mutual will designate one member (the "Mutual Member"), and Walbro will designate one member (the "Walbro Member"). Each of the Parties shall support the other's choices. The initial members shall be listed in the Articles. The Board will elect the Chairman who will be a designee of Walbro. Members of the Board shall be designated by Notice and will serve until replaced by the Party so designating. The Parties may each designate an alternative director to attend meetings and exercise the powers of a regular Board Member which alternative directors shall be appointed by the Board. 3.2.2 ROUTINE DECISIONS BY THE BOARD. For all matters other than those set forth in SECTION 3.2.3: (a) meetings shall be held at least four times annually on a quarterly basis and each member shall be given seven days' written notice (with acknowledgement of receipt) of any meeting of the Board; (b) attendance in person at such a meeting, without written objection to lack of sufficient notice, waives this notice requirement; (c) two members shall constitute a quorum; -3- 4 (d) the vote of a majority of all members present in person shall be decisive; (e) the vote of the Chairman will be decisive in a tie vote; and (f) whenever necessary under Indian law, decisions of the Board shall be confirmed by a general shareholder meeting. 3.2.3 SPECIAL MATTERS. With respect to each of the following situations, the Board will not have the power to act unless all Members vote in favor of a resolution; and whenever necessary under Indian law, decisions of the Board shall be confirmed by a general shareholder meeting. (a) payment of a dividend other than from current year's earnings; (b) approval, ratification or substantial change of the operating budget of the JV, including without limitation, the capital expenditures, additions or improvements for the year; (c) approval, ratification or substantial change of the Business Plan; (d) sale of substantially all of the assets of the JV; (e) authorization or approval of a merger, consolidation or a material change in the capital structure of the JV; (f) creation or incurrence of indebtedness for borrowed money if, after giving effect to the creation of such indebtedness, the total amount of the JV's indebtedness for borrowed money will exceed $2,000,000, except unsecured current liabilities incurred in the ordinary course of business; (g) creation or incurrence of any mortgage, pledge, lien, charge or encumbrance upon any property or assets now owned or hereinafter acquired by the JV except for (i) mortgages, pledges, liens, charges or encumbrances on, and incurred at the time of and in connection with the acquisition of property acquired in the ordinary course of business, (ii) minor liens and encumbrances, and (iii) other liens and encumbrances for amounts not exceeding $2,000,000 in the aggregate at any one time outstanding; (h) making, ratifying or causing the JV to become a Party to a contract or commitment, or to renew, extend or modify any contract or commitment between the JV and one of its equity holders or an "affiliate" of an equity holder which requires payment of an aggregate amount in excess of $250,000. For purposes of this subsection, an "affiliate" will mean: -4- 5 (i) a company, domestic or foreign, of which an equity holder in the JV owns or controls, directly or indirectly, at least 25% of the assets, voting stock or capital; (ii) a company or individual, domestic or foreign, which owns or controls, directly or indirectly, at least 25% of the assets, voting stock or capital of an equity holder of the JV; or (iii) a company, domestic or foreign, under common control with an equity holder through direct or indirect ownership of at least 25% of the assets, voting stock or capital of that company. (i) material agreement or commitment to any matter required of the JV pursuant to a contract or agreement, including Ancillary Documents, with Mutual, Walbro or an affiliate (as that term is defined in subsection (h) above) of Mutual or Walbro, including the modification or termination of any existing contract; (j) agreement or commitment to purchase services, from Walbro, Mutual or their affiliates (as that term is defined in subsection (h) above); and (k) approval of the licensing or sublicensing of any technology, licensed by Walbro to the JV. (l) any amendment to the Articles. In case of a deadlock over one or more of these issues, the provisions set forth in SECTION 3.2.4 below will control. 3.2.4 DEADLOCK. The following sets forth the Parties' agreement with respect to a deadlock situation. In the event that: (a) either of Mutual or Walbro (in this subsection called "the First Party") gives written notice to the other Party (in this subsection called "the Second Party") specifying as subject to this subsection a resolution requiring the affirmative vote of a majority of the Board, or the unanimous approval of the shareholders, which resolution was previously put to and not passed by a meeting of the Board or shareholders, as applicable, because the Second Party or its designee Member present did not vote in favor of the resolution or voted against the resolution, or the Second Party or its designee Member were not present for the vote; and (b) such resolution is again put at another such meeting called within 30 days of the original meeting and the First Party or its designee Member present, as the case may be, votes for the resolution but the Second Party or its designee Member, as the case may be, does not vote or votes against the resolution, or the Second Party or its -5- 6 designee Member, as the case may be, are not present for the vote, then a deadlock situation will be deemed to have arisen. Within seven days of such event arising, Walbro or Mutual, as the case may be, will prepare and circulate to the other a memorandum or other form of statement setting out its position on the matter in dispute and its reasons for adopting such position. Each such memorandum or statement will be considered by the Chief Executive Officers of Mutual and of Walbro who will respectively use their reasonable efforts to resolve such dispute. If the Parties agree upon a resolution of the dispute, they will jointly sign a statement setting forth the terms of such resolution and Walbro and Mutual will exercise all voting rights and other powers of control available to them in relation to the JV to procure that such resolution is fully and promptly carried into effect. If a resolution of the dispute is not agreed upon within 30 days after delivery of the memorandum or statements mentioned above or such longer period as Walbro and Mutual may agree in writing, the JV will automatically terminate as prescribed in ARTICLE VII. If a resolution is agreed upon by the Parties but is not implemented by the JV within 60 days after such agreement, or such longer period as Walbro and Mutual may agree in writing, the JV will automatically terminate as prescribed in ARTICLE VII. 3.3 SHAREHOLDERS MEETING. The JV shall hold an annual shareholders meeting in June, of each year at the offices of the JV or at such other time and place as the Parties may agree, subject to the requirements of the local law. Special shareholders meeting can be held on seven days' written notice at the request of the Board. In all shareholder votes, a majority in interest shall be decisive. A quorum shall only exist if representatives of both Parties are present. ARTICLE IV CONDUCT OF THE JV 4.1 BUSINESS PLAN. A five-year business plan (the "Business Plan") in the form attached as EXHIBIT 4.1 will be approved by the Board in accordance with SECTION 3.2.3 and will be implemented by the management of the JV. The Business Plan will include initial and subsequent funding requirements. The Business Plan will be revised and updated on an annual basis by the Board in accordance with SECTION 3.2.3. 4.2 FACILITIES - MANUFACTURING. The manufacturing facility for the JV will be in Pune. Construction of the facilities shall begin immediately after the necessary government approvals have been received. The JV will provide customer application engineering and manufacturing technology with substantial support from Walbro under the Engineering Support Agreement. The Parties acknowledge that fuel pumps and modules will be manufactured by Walbro and sold to the JV for addition to fuel tank assemblies to be sold to customers in India. -6- 7 4.3 EXCLUSIVITY. Notwithstanding SECTION 1.3, Walbro may continue its current practice of selling to U.S. aftermarket customers who export to the JV Territory. In addition, Walbro shall be permitted to enter into joint ventures to develop, manufacture and market JV Products with other existing joint venture partners or with affiliates of its customers in the JV Territory, outside of a 300 mile radius of the JV facilities. 4.4 CUSTOMER APPLICATION AND GENERAL ENGINEERING SUPPORT FROM WALBRO. The Business Plan provides for certain engineering services to be provided to the JV by Walbro. Walbro will provide such services to the JV pursuant to a Customer Application and General Engineering Support Agreement in substantially the form attached as EXHIBIT 4.4. 4.5 INTERIM ENGINEERING SUPPORT FROM WALBRO. The Business Plan provides for certain engineering services to be provided to the JV by Walbro. Walbro will provide such services to the JV pursuant to a Interim Engineering Support Agreement in substantially the form attached as EXHIBIT 4.5. ARTICLE V WALBRO LICENSE Walbro will provide technology with respect to plastic molded products to the JV via a non-exclusive license (the "Walbro License"), substantially in the form of EXHIBIT 5. The Walbro License shall provide that the sale of JV Products will be on a royalty-bearing basis. The Walbro License will provide Walbro with all modifications and improvements to the technology licensed thereby via a grant-back of such rights. ARTICLE VI RESTRICTIONS ON TRANSFER OF INTERESTS IN THE JV 6.1 NO TRANSFER WITHOUT APPROVAL. Neither Walbro nor Mutual may transfer any of its Equity Interest in the JV to any third party (other than direct or indirect Controlled Affiliates) without the prior written approval of the other Party. It is the intention of the Parties that there be only two owners of the JV; consequently, any attempted transfer of Equity Interest in the JV must encompass the entire Equity Interest of the transferring Party. Notwithstanding the above, transfers to Controlled Affiliates may be done without approval provided that (i) such transfer constitutes all of the transferor's Equity Interest, (ii) the transferee agrees to be bound by this Agreement, and (iii) the transferor remains liable for all obligations imposed by this Agreement. For purposes of this Agreement, a "Controlled Affiliate" of a Party means any person which controls, is controlled by or is under common control with, such Party; "control" means the ownership of a majority of both the voting power of, and the Equity Interest in, a person. -7- 8 6.2 RIGHT OF FIRST REFUSAL. If for any reason a transfer of Equity Interest in the JV cannot be restricted as provided in SECTION 6.1, then a transfer by either Party of any of its Equity Interest in the JV to any third Party (other than to a direct or indirect Controlled Affiliate), shall be subject to a right of first refusal by the other Party to acquire such interests as set forth below. 6.2.1 FIRST OFFER. If either of Walbro or Mutual receives from a third Party (the "Outsider") a bona fide written offer (a "Bona Fide Offer") to purchase all of its Equity Interest in the JV (the "Equity Interest"), such Party (the "Selling Party") agrees that prior to effecting any sale pursuant to such Bona Fide Offer, it will first make a written offer (the "Offer") upon the terms and conditions provided herein to sell its Equity Interest to the other Party (the "Offeree Party"). 6.2.2 NOTICE OF OFFER. The Offer will set forth the following: (a) the Selling Party's intention to sell its Equity Interest; (b) a photostatic copy of the Bona Fide Offer of the Outsider, and all written communications relating to the proposed sale and purchase of the Equity Interest; (c) a written offer to sell to the Offeree Party the Equity Interest of the Selling Party upon the same terms and conditions and for the same price as the Bona Fide Offer; and (d) the U.S. dollar equivalent of the price. 6.2.3 OFFEREE PARTY ACCEPTANCE. The Offeree Party may accept such Offer for all, but not less than all, of the offered Equity Interest by giving written notice within 30 days after receipt of the Offer to the Selling Party. If the sale to the Offeree Party is not consummated within 45 days after the expiration of this 30-day notice period (which 45-day period will be tolled by any waiting period or suspension of the transaction imposed or required by applicable law or any unnecessary delay caused by the Selling Party) or as provided in the Bona Fide Offer, the Selling Party will have the right to sell its interest to the Outsider as provided in SECTION 6.2.5 below. 6.2.4 PURCHASE BY THE OFFEREE PARTY. Any purchase by the Offeree Party pursuant to this ARTICLE VI will be consummated upon the same terms and conditions and for the U.S. dollar equivalent price as the Bona Fide Offer for the Equity Interest. Any terms and conditions not specified in the Bona Fide Offer will be mutually agreed upon by the Offeree Party and the Selling Party. 6.2.5 PURCHASE BY OUTSIDER. If the Offeree Party fails to accept the Offer pursuant to SECTION 6.2.3, the Selling Party will then have the right to sell its Equity Interest to such Outsider on the same terms and conditions as contained in the notice described in SECTION 6.2.2; -8- 9 provided that (i) the sale to the Outsider is consummated within 45 days after the expiration of the 30-day option period described in SECTION 6.2.3 (which 45-day period will be tolled by any waiting period or suspension of the transaction imposed or required by applicable law) or as provided in the Bona Fide Offer, and (ii) the Outsider becomes a Party to this Agreement contemporaneous with his purchase of the Equity Interest. If the Selling Party and the Outsider do not consummate the sale of the Equity Interest within the time period described in (i) above or intend to consummate such sale on materially different terms than the Bona Fide Offer, the Equity Interest may only be sold to said Outsider after again complying with the terms of this ARTICLE VI. ARTICLE VII TERM AND TERMINATION OF THE JV 7.1 TERM AND TERMINATION OF THE JV. Unless otherwise terminated as provided below, the JV will be of perpetual duration. The JV will be terminated: 7.1.1 BY MUTUAL CONSENT. At any time by the mutual consent of the Parties; 7.1.2 FOR BREACH. Upon the material breach, which is not cured within 90 days after notice thereof, by a Party of its obligations to the JV or otherwise under this Agreement, at the option of the non-breaching Party exercised within ten days after the expiration of the 90-day cure period; 7.1.3 BANKRUPTCY. Automatically upon the filing of a voluntary petition or answer admitting jurisdiction of the court and the material allegations, or the consent to, an involuntary petition pursuant to or purporting to be pursuant to any reorganization or insolvency law of any jurisdiction, or an assignment for the benefit of creditors, or an application for or consent to the appointment of a receiver or trustee of a substantial part of the property of a Party hereto; 7.1.4 DEADLOCK. Upon an unresolved deadlock as described in SECTION 3.2.4; 7.1.5 INVOLUNTARY REDUCTION OF WALBRO OWNERSHIP. At the option of Walbro upon the involuntary reduction of its Equity Interest in the JV to be less than 51%. 7.1.6 CHANGE OF CONTROL OF MUTUAL. At the option of Walbro, upon a change of control of Mutual. For purpose of this provision, a change of control will occur if Mutual is no longer controlled, directly or indirectly by the current owners of the Gandhi Sons Group. The current owners are listed in EXHIBIT 7.1.6 hereto. 7.1.7 FORCE MAJEURE. At the option of the non-offending Party, upon the failure of a Party to begin fully performing its obligations under this Agreement within six months after such Party declares an inability to perform due to force majeure as provided in SECTION 9.5; or -9- 10 7.1.8 EXPROPRIATION. Upon the expropriation, nationalization or seizure of a substantial portion of the JV's property. 7.2 CONSEQUENCES OF TERMINATION. 7.2.1 PURCHASE OPTION. Upon the occurrence of an event which would cause the termination of the JV pursuant to SECTION 7.1 above, Walbro will have the option, in lieu of proceeding with the dissolution of the JV, to purchase Mutual's Equity Interest by giving written notice within 30 days after the termination of the JV to Mutual that it desires to purchase for cash all of its Equity Interest. The Parties will then negotiate in good faith with respect to price. If the Parties cannot agree upon price within 30 days, then the price will be equal to the fair market value of the Equity Interest as determined by an investment banker with recognized standing in the international finance community and mutually acceptable to the Parties. In the event the Parties cannot agree on an investment banker, each Party will select one banker and the two bankers will select a third banker, which third banker will conclusively determine fair market value. For purposes of this section, "fair market value" of an Equity Interest will be the value of the JV as if it were being sold as a whole business and a going concern to one purchaser, multiplied by the selling Party's Capital Percentage at the time of the valuation. Notwithstanding anything herein to the contrary, this purchase option will not be available to Walbro if the termination is due to Walbro's breach or bankruptcy, pursuant to SECTION 7.1.2 or SECTION 7.1.3. 7.2.2 SALE OPTION. Upon the occurrence of an event which would cause the termination of the JV pursuant to SECTION 7.1 above, Mutual will have the option, in lieu of proceeding with the dissolution of the JV, to require Walbro to purchase its Equity Interest by giving written notice within 30 days after termination of the JV to Walbro. The terms of such purchase shall be the same as those described in SECTION 7.2.1. above. Notwithstanding anything herein to the contrary, this sale option will not be available to Mutual if the termination is due to Mutual's breach or bankruptcy pursuant to SECTION 7.1.2. or SECTION 7.1.3. 7.2.3 DISSOLUTION. If the above purchase or sale options are not exercised by either Party as provided, the Parties will use their best efforts to dissolve the JV and wind up its affairs in a manner designed to preserve the interests of both Parties in the JV Products in JV Territory. Until the JV is completely dissolved, the Parties shall be bound by all the provisions of this Agreement. 7.2.4 DAMAGES. Nothing herein shall prejudice the rights of a Party, in addition to the exercise of any other remedy hereunder, to recover money damages for any breach by a Party of this Agreement or any Ancillary Document (as defined). -10- 11 ARTICLE VIII REGULATORY MATTERS AND INVALIDITY 8.1 COOPERATION IN MAKING REGISTRATIONS AND OTHER GOVERNMENT FILINGS. Mutual shall cooperate fully in assisting Walbro in making, whenever required or necessary, registrations and other governmental filings including, but not limited to, filings for investment approval, technical assistance arrangements and license agreements. 8.2 CONSEQUENCES OF INVALIDITY. If for any reason whatever at any time, any provision of this Agreement or any of the Ancillary Documents is or becomes invalid, illegal or unenforceable, or is declared by any court of competent jurisdiction or any other competent authority to be invalid, illegal or unenforceable or if such competent authority: (i) refuses, or formally indicates an intention to refuse authorization of, or exemption to, any of the provisions of or arrangements contained in this Agreement or in any of the Ancillary Documents (in the case of a refusal either by way of outright refusal or by way of requiring an amendment or deletion of any provision of this Agreement or of any of the Ancillary Documents and/or the inclusion of any new provision in this Agreement or in the Ancillary Documents and/or the giving of undertakings as to future conduct before such authorization or exemption can be granted); or (ii) formally indicates that to continue to operate any provision of this Agreement or of any of the Ancillary Documents may expose the Parties to sanctions under any order, enactment or regulation, or requests any Party to give undertakings as to future conduct in order that such party may not be subject to such sanctions; and in all cases, whether initially or at the end of any earlier period or periods of exemption (each of which circumstances being referred to in this ARTICLE VIII as "a Relevant Invalidity"), then in any such case, at the request of either Party by notice or a series of notices to that effect to the other ("Negotiation Notice"), the Parties will meet to negotiate in good faith to agree upon valid, binding and enforceable substitute provisions while at the same time reconsidering the other terms of this Agreement and of any of the Ancillary Documents not so affected so as to reestablish an appropriate balance of the commercial interests of the Parties ("Substitute Provisions"). 8.3 FAILURE TO AGREE ON SUBSTITUTE PROVISIONS. If and to the extent that Substitute Provisions are formally agreed in writing within one month of the service of a Negotiation Notice, or such other period as may be formally agreed in writing between the Parties, then in -11- 12 that respect the matter shall be deemed to be settled and such substitute provisions shall be deemed part of this Agreement or of any of the Ancillary Documents. If, however, in respect of any Relevant Invalidity no Substitute Provisions can be agreed within such period, then if any Party considers on reasonable grounds that its commercial interests with regard to this Agreement and/or any of the Ancillary Documents is materially and adversely affected as a consequence of the Relevant Invalidity it may submit such matter to arbitration pursuant to SECTION 9.8. 8.4 DEFERRAL OF DETERMINATION OF ADVERSE EFFECT. If any Party considers that it is unable to assess the consequence of any Relevant Invalidity in the light of facts subsisting at the time, that Party may defer commencement of an arbitration in respect of the provision or provisions affected by such Relevant Invalidity until such time as it considers on reasonable grounds that its commercial interests with regard to this Agreement and/or any of the Ancillary Documents are materially and adversely affected in the light of events occurring subsequent to communication of the finding of invalidity to the Parties. Notwithstanding the foregoing, a Party must commence arbitration pursuant to SECTION 8.3 within 60 days of receipt of the Negotiation Notice. 8.5 REPATRIATION LIMITATIONS. If any monies owed by the JV to Walbro for any reason (including, but not limited to dividends, royalties or fees) cannot be paid due to government regulations, laws or otherwise, the JV shall segregate such funds into a separate account for the sole benefit of Walbro until such time as the funds can be repatriated. ARTICLE IX MISCELLANEOUS PROVISIONS 9.1 ANCILLARY DOCUMENTS; INTERPRETATION. The Parties agree that, in the event of an inconsistency or disagreement between this Agreement and any other agreement or document referred to herein to be entered into in connection with the JV (each an "Ancillary Document" and, collectively, the "Ancillary Documents"), this Agreement shall prevail. 9.2 PUBLIC ANNOUNCEMENTS AND CONFIDENTIALITY. The Parties agree that all data and information relating to the JV, including but not limited to any information relating to or provided under any Ancillary Document, the JV's trade secrets, know-how, inventions, discoveries, improvements, technologies, business practices and methods, whether or not patented, lists of suppliers, and information relating to the JV's financial statements, customer identities and utilization patterns, needs and participation levels, potential customers, suppliers, products, servicing methods, equipment, programs, analyses, profit margins and cost data, shall be kept confidential by both Parties and shall not, whether prior to or after the date hereof, be disclosed to any person, firm, or corporation, except to the extent that such data or information is generally known to the trade or in the public domain. The Parties, however, may provide the information to third parties (i) for the purpose of assisting in the evaluation of the JV, its performance, or its operations, (ii) for the purpose of determining the value of said Party's -12- 13 Equity Interest in the JV, and (iii) for any other purpose consistent with the activities contemplated by this Agreement and the Ancillary Documents; provided that in each case the disclosing Party takes reasonable precautions to maintain the confidential nature of the information. The Parties may also make any disclosures necessary to comply with applicable securities and other disclosure laws. The Parties recognize and acknowledge that any breach by them of the foregoing provisions of this section may cause irreparable harm to the other Party and the JV and, in the event of any such breach, such other Party or the JV shall, in addition to all other remedies available to it, at law or in equity, be entitled, if it so elects, to institute and prosecute proceedings in any court of competent jurisdiction to enjoin such breaching Party from doing any act in violation of such provisions, and that such other Party or the JV shall not be required to show actual monetary damages as a prerequisite to such relief. The above provisions shall survive any termination of this Agreement and any dissolution of the JV for a period of two years after such termination or dissolution. Each Party agrees not to make any public disclosure regarding the existence or the substance of the transactions contemplated hereby without the prior approval of the other Party, except to the extent that either Party reasonably determines that such disclosure is required by applicable law or regulation. 9.3 ACCOUNTING AND FISCAL YEAR. The JV's accounting methods will be in accordance with Indian law and Indian generally accepted accounting principles and all accounts shall be maintained in Indian currency units. The JV shall adopt the calendar year as its fiscal year. 9.4 INSURANCE. Insurance protection provided for the JV under this Agreement must apply both to each individual facility of the JV and to all facilities as a whole. The JV's insurance must also provide insurance coverage for all types of risk related to the construction and operation of the aforementioned facilities, including material and other property losses caused to fixed assets belonging to the JV, rented by it, or acquired on credit by it, as well as its civil liability for property or physical damage which may be caused to third Parties in connection with the JV's activity, either by defects in the goods its produces or by JV workers and employees in connection with their performance of their job responsibilities. 9.5 FORCE MAJEURE. Where either Party is unable, wholly or in part, by reason of force majeure to carry out its obligations under this Agreement, such obligations are suspended so far as they are affected by the force majeure during the continuance thereof; provided that an obligation to pay money is never excused by force majeure. The Party affected by the force majeure will give notice to the other Party of the particulars of the situation and the probable extent to which it will be unable to, or delayed in, performing its obligations under this Agreement, within 10 days after the occurrence of the force majeure. For purposes of this section, "force majeure" means an act of God, strike, lockout or other interference with work, war declared or undeclared, blockade, disturbance, lightning, fire, -13- 14 earthquake, storm, flood or explosion; governmental or quasi-governmental restraint action, expropriation, prohibition, intervention, direction or embargo; unavailability or delay in availability of equipment or transport; inability or delay in obtaining governmental or quasi-governmental approvals, consents, permits, licenses, authorities or allocations; and any other cause whether of the kind specifically enumerated above, or otherwise which is not reasonably within the control of the Party affected. 9.6 EXPENSES. The JV will pay the reasonable costs and expenses of the Parties and their lawyers, accountants and other advisors incurred in negotiating and drafting this Agreement and the Ancillary Documents and in otherwise forming the JV. 9.7 FURTHER ASSURANCES. Walbro and Mutual agree to execute and deliver such other instruments, agreements or documents and take such other action as may reasonably be necessary or desirable to consummate the transactions contemplated by this Agreement. 9.8 RESOLUTION OF DISPUTES. All disputes, controversies or claims arising in connection with this Agreement shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by three arbitrators appointed in accordance with said Rules. The place of the arbitration of shall be London, England. All arbitration proceedings shall be conducted in the English language. Documents prepared for use in the arbitration shall be prepared in the English language. Where a document other than in the English language is to be relied on by a party to the arbitration, a translation of that document into the English language, certified a true and fair translation by a recognized translator, shall be provided together with a certified copy of the original document. 9.9 SUCCESSORS AND ASSIGNS. This Agreement will be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns, but will not be assignable or delegable by any Party without the prior written consent of the other Party, except that either Party may assign, in whole or in part, its rights hereunder, subject to all obligations hereunder, to a Controlled Affiliate in connection with any transfer of Equity Interest in the JV permitted pursuant to ARTICLE VI; provided, however, that such assignment will not relieve that Party of any of its obligations or liabilities hereunder. 9.10 AMENDMENTS, SUPPLEMENTS, ETC. This Agreement may be amended or supplemented at any time by additional written agreements signed by both Parties, as may mutually be determined by the Parties to be necessary, desirable or expedient to further the purposes of this Agreement or to clarify the intention of the Parties. 9.11 NOTICES. All notices and other communications required or permitted hereunder will be in writing and, unless otherwise provided in this Agreement, will be deemed to have been duly given when delivered in person or one business day after having been dispatched by telegram or electronic facsimile transfer (confirmed in writing by mail simultaneously dispatched with a copy of the sender's machine printed facsimile confirmation) or three business days after -14- 15 having been dispatched by an internationally recognized overnight courier service to the appropriate Party at the address specified below. (a) If to Walbro, to: Walbro Automotive Corporation 1127 Centre Road Auburn Hills, Michigan 48326 Facsimile Number: (810) 377-6810 Attention: President With copies to: Katten Muchin & Zavis Walbro Automotive Europe 525 West Monroe Street, Suite 1600 2623 Rte du Jaillet Chicago, Illinois 60661-3693 74120, Megeve Facsimile Number: (312) 902-1061 Facsimile Number: (33) 50.58.90.72 Attention: Arnold S. Harrison Attention: R. H. Whitehead, III (b) If to Mutual, to: Mutual Industries Ltd. 47 Government Industrial Estate Charkop, Kandivili (W) Bombay - 400067 Facsimile Number: (022) 8058778 Attention: J. M. Gandhi 9.12 WAIVER. Waiver by either Party of a breach by the other Party of any obligation or requirement contained in, or arising from, this Agreement does not operate as a waiver of another or continuing breach by the other Party of the same, or any other, obligation or requirement hereunder. Any waiver by either Party must be in writing, signed by the waiving Party. 9.13 ENTIRE AGREEMENT. This Agreement and the Ancillary Documents represent the understanding of the Parties with respect to the subject matter hereof and thereof and supersede any other agreement, whether written or oral, that may have been made or entered into by Walbro or Mutual or their affiliates relating to the matters contemplated hereby. 9.14 NO STRICT CONSTRUCTION. The language used in this Agreement will be deemed to be the language chosen by the Parties hereto to express their mutual intent, and no rule of strict construction will be applied against either Party. -15- 16 9.15 SEVERABILITY. Subject to the provisions of ARTICLE VIII, if any provision of this Agreement or the application of any such provision to any person or circumstance is held invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision hereof. 9.16 GOVERNING LAW. This Agreement will be governed by and construed in accordance with the substantive laws of India. 9.17 THIRD PARTIES. Nothing in this Agreement express or implied is intended to confer any right or remedy under or by reason of this Agreement on any person other than the Parties, their respective heirs, representatives, successors and permitted assigns, affect or discharge the obligation or liability of any third persons to any Party to this Agreement, or give any third Party any right or subrogation or action over against any Party to this Agreement. 9.18 TITLES AND HEADINGS. Titles and headings to sections herein are inserted for convenience of reference only, and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 9.19 EXECUTION IN COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same agreement. 9.20 POWER AND AUTHORITY. Each of the Parties hereby acknowledges, represents and warrants that it has full power and authority to enter into this Agreement and the Ancillary Documents. 9.21 INDEPENDENT PARTIES. In making and performing this Agreement, the parties shall at all times act as independent entities and nothing contained in this Agreement shall be construed or implied to create an agency, partnership or employer/employee relationship between the parties. At no time shall either party make commitments or incur any charges or expenses for or in the name of the other party. 9.22 SURVIVAL. The covenants and agreements made in SECTIONS 7.2, 9.2, 9.4, 9.6 and 9.14 will survive any termination of this Agreement. -16- 17 IN WITNESS WHEREOF, the Parties hereto have executed this Agreement the day and year first above written. WALBRO AUTOMOTIVE CORPORATION By: ----------------------------------------------- Its: ----------------------------------------------- MUTUAL INDUSTRIES LTD. By: ----------------------------------------------- Its: ----------------------------------------------- -17- 18 EXHIBITS TO JOINT VENTURE AGREEMENT BETWEEN WALBRO AUTOMOTIVE CORPORATION AND MUTUAL INDUSTRIES LIMITED Exhibit 1.1(a) Articles of Association Exhibit 1.1(b) Memorandum of Association Exhibit 1.5 Name License Agreement Exhibit 4.1 Business Plan Exhibit 4.4 Customer Application and General Engineering Support Agreement Exhibit 4.5 Interim Engineering Support Agreement Exhibit 5 Walbro Technology License
EX-10.31 7 EX-10.31 1 EXHIBIT 10.31 GENERAL PARTNERSHIP AGREEMENT OF TUCSON PRECISION PRODUCTS THIS GENERAL PARTNERSHIP AGREEMENT is entered into this 18th day of August, 1995, by and between Iwaki Diecast U.S.A., Inc., a company organized and existing under the laws of Arizona ("IDC") and Walbro Tucson Corp., a company organized and existing under the laws of the State of Delaware ("Walbro") (each of the parties hereto are hereinafter referred to, individually, as a "Partner," and collectively as the "Partners"). ARTICLE I FORMATION OF PARTNERSHIP The parties hereby enter into a general partnership (the "Partnership") under the provisions of the Uniform Partnership Act of the State of Delaware (the "Act") and, except as herein otherwise expressly provided, the rights and liabilities of the Partners shall be as provided in that Act. ARTICLE II NAME The business of the Partnership shall be conducted under the name "Tucson Precision Products". The parties shall promptly comply with all laws regarding the use of such name as an assumed name by the Partnership, if necessary. ARTICLE III DEFINITIONS 3.1 "Agreement" means this Partnership Agreement, as amended, modified or supplemented from time to time. 3.2 "Capital Account" shall mean, with respect to any Partner, the separate "book" account which the Partnership shall establish and maintain for such Partner in accordance with Section 704(b) of the Code. 3.3 "Code" shall mean the Internal Revenue Code of 1986, as amended and in effect from time to time. Any reference herein to a specific section of the Code shall be deemed to include a reference to any corresponding provision of succeeding laws. 2 3.4 "Management Committee" shall mean a five-member committee, three of which shall be appointed by Walbro, in its sole discretion and two of which shall be appointed by IDC, in its sole discretion. 3.5 "Participating Percentage" means, with respect to any Partner, subject to adjustment in accordance with this Agreement, the percentage indicated on Schedule A, attached hereto which initially represents each Partner's interest received in exchange for its capital contribution. ARTICLE IV PURPOSE The purpose of the Partnership is to (i) engage in the manufacture and sale of certain die cast parts and assemblies (described in greater detail on Exhibit 4) in North America (Canada, Mexico and the United States), both as original equipment and replacement parts and (ii) engage in any and all operations, activities and businesses which are in the unanimous judgment of the Management Committee, convenient, necessary or incidental to the accomplishment of the foregoing Partnership purpose, including any operations, businesses or activities permitted under the Act and any other applicable law or regulation. ARTICLE V NAMES AND BUSINESS ADDRESSES OF PARTNERS The names and business addresses of the Partners are as set forth in Schedule A attached hereto and made a part hereof. ARTICLE VI TERM The Partnership shall continue until December 31, 2015, unless sooner terminated as hereinafter provided. -2- 3 ARTICLE VII PRINCIPAL PLACE OF BUSINESS The principal place of business of the Partnership shall be 6601 South Renaissance Drive, Tucson, Arizona 85746-6042 (USA) or such other place or places as the Partners may designate. ARTICLE VIII CAPITAL AND CONTRIBUTIONS 8.1 The initial capital of the Partnership is as set forth on Schedule A attached hereto, and, simultaneous with the execution hereof, each of the Partners shall contribute to the capital of the Partnership the amount of cash indicated on said Schedule A. 8.2 No Partner shall be obligated to make any additional capital contributions unless the Management Committee unanimously shall determine that such is required for the operation of the Partnership's business. In the event additional capital is contributed by the Partners pursuant to this SECTION 8.2, the Partners shall be obligated to contribute their pro rata portion (as determined by their respective Participating Percentage at the time of such contribution) of such additional capital requirement. No Partner shall be allowed to make any voluntary capital contributions without the prior written consent of the other Partner. 8.3 No withdrawal of capital shall be made by any Partner except with the unanimous approval of all of the members of the Management Committee, and no interest shall be paid on the capital contributed by any Partner. 8.4 If the Management Committee shall unanimously determine that additional financing is necessary or desirable, and that such financing can most advantageously be provided by loans from or guaranteed by the Partners, such loans or guarantees, as may be requested by the unanimous vote of the Management Committee, shall be provided simultaneously by each of the Partners in amounts that are in proportion to their respective Participating Percentages. The Partnership shall not accept any voluntary loans from any Partners without the prior written consent of every other non-lending Partner. ARTICLE IX DISTRIBUTIONS 9.1 Subject to the provisions of SECTION 9.2 below, when, in the discretion of all of the members of the Management Committee, the Partnership has cash available for distribution ("Distributions"), such funds shall be distributed among the Partners in accordance with their -3- 4 respective Partnership Percentages at the time of such Distribution. The Partnership shall comply with any federal, state, local or foreign tax withholding requirements in making such distributions. 9.2 Prior to making any annual Distributions, if any, the Partnership shall, for each taxable year in which the Partnership reports net taxable income, distribute to each Partner, no later than seventy-five days after the end of such taxable year, an amount equal to the sum of (i) the product of such Partner's taxable income as shown on its Schedule K-1 for such taxable year (such taxable income to be reduced, but not below zero, by the excess, if any, of the cumulative allocations of taxable deduction and loss pursuant to ARTICLE X to such Partner for all prior taxable years over the cumulative allocations of taxable income pursuant to ARTICLE X to such Partner for all prior taxable years), multiplied by the maximum marginal federal income tax rate in effect for such taxable year for non-S status corporations, plus (ii) an amount (which shall be proportionate as to all Partners based upon Participating Percentages) which is intended to approximate, as nearly as possible, such Partner's pro rata share (based on the taxable income shown on the Partners' Schedule K-1's) of any applicable state taxes (assuming maximum applicable tax rates for non-S status corporations) for which the Partners are responsible based on the income of the Partnership, all as determined in good faith by the unanimous determination of the Management Committee, whose determination shall be final and binding. Distributions pursuant to this SECTION 9.2 shall be treated as Distributions to each Partner for the purposes of determining the aggregate amount of available cash distributed to each Partner under SECTION 9.1 and SECTION 17.2. ARTICLE X ALLOCATIONS OF PROFITS AND LOSSES Except as otherwise required by Section 704(b) of the Code, each item of the Partnership's income, gain, loss, deduction or credit from operations shall be allocated to the Partners in accordance with their Participating Percentages. ARTICLE XI BOOKS OF ACCOUNT AND RECORDS Proper and complete records and books of account shall be kept by the Management Committee in which shall be entered fully and accurately all transactions and other matters relative to the Partnership's business as usually entered into records and books of account maintained by persons engaged in business of a like character. The Partnership books and records shall be kept on an accrual basis. The books and records shall at all times be open to the reasonable inspection and examination by the Partners or their duly authorized representatives during reasonable business hours. The Management Committee shall deliver to -4- 5 each Partner (i) audited financial statements for each fiscal year of the Partnership as soon as such audited statements are available, (ii) unaudited financial statements for each completed quarterly period of the Partnership and (iii) federal and state Schedule K-1's and any other tax information necessary for the preparation and timely filing of their respective federal and state income tax returns. All of the members of the Management Committee shall approve, in writing, the selection of an independent public accounting firm to render the necessary accounting and auditing services. ARTICLE XII FISCAL YEAR The fiscal year of the Partnership shall be the calendar year. ARTICLE XIII PARTNERSHIP FUNDS The funds of the Partnership shall be deposited in such bank account or accounts, or invested in such interest-bearing or non-interest- bearing investments, as shall be designated by the Partnership. All withdrawals from any such bank accounts shall be made by the authorized agent or agents of the Partnership. Partnership funds shall be separately identifiable from those of any other person or entity. ARTICLE XIV MANAGEMENT OF THE PARTNERSHIP 14.1 The Management Committee shall have exclusive authority to manage the operations and affairs of the Partnership and to make all decisions regarding the business of the Partnership. Pursuant to the foregoing, it is hereby agreed that the Management Committee shall have all of the rights and powers of a general partner as provided in the Act and as otherwise provided by law and any action taken by the Management Committee shall constitute the act of and serve to bind the Partnership. In dealing with the Management Committee acting on behalf of the Partnership, no person shall be required to inquire into the authority of the Management Committee to bind the Partnership. Persons dealing with the Partnership are entitled to rely conclusively on the power and authority of the Management Committee as set forth in this Agreement. Notwithstanding the foregoing or anything that may be contrary herein, Walbro shall, in its sole discretion, determine the products to be manufactured and sold by the Partnership, subject to prior consultation with IDC representatives; provided, however, in the event Walbro requires that any products be manufactured which represents a new product that -5- 6 is substantially different than any of the products set forth on Exhibit 4 and such new product requires significant capital expenditures by the Partnership, the Management Committee must unanimously determine that it is in the best interests of the Partnership to manufacture such new products. Subject to the foregoing, the unanimous approval of the Management Committee shall be required for (i) approval of any business plans, marketing plans and operating projections, (ii) any material change in the business of the Partnership, (iii) any borrowings by the Partnership in excess of $250,000 in principal amount, (iv) any material transactions between the Partnership and any Partner (or affiliate of any Partner). Furthermore, the written consent of both Partners shall be required for the consummation of (a) the admission of any additional partners, (b) any amendments to this Agreement, (c) any investment by the Partnership in another entity, (d) the sale of all or substantially all of the assets of the Partnership, (e) dissolution of the Partnership and (f) any sublicense of the technology which is the subject of the License Agreement (as defined below) by the Partnership to an unaffiliated third party. Any disagreement between the members of the Management Committee shall be submitted to all of the Partners for resolution; which resolution shall be approved by both Partners. 14.2 Subject to the foregoing, the Management Committee is hereby granted the right, power and authority to do on behalf of the Partnership all things which, in its sole judgment, are necessary, proper or desirable to carry out the aforementioned duties and responsibilities, including but not limited to the right, power and authority to lease, sell, exchange, refinance or grant an option for the sale of all or any portion of the property of the Partnership at such rental, price or amount, for cash, securities or other consideration and upon such other terms as the Management Committee in its sole discretion deems proper. 14.3 The Management Committee shall have the authority to delegate its day-to-day managerial authority to such officers, employees or agents of the Partnership, and to give such employees or agents such titles, as the Management Committee shall from time to time designate, and to revoke or change such managerial authority and change or eliminate such titles in the sole discretion of the Management Committee. Initially, the officers of the Partnership shall consist of a General Manager, Business Manager, and Engineering Manager. Walbro shall have the right to appoint the General Manager and the Business Manager and IDC shall have the right to appoint the Engineering Manager. Each of Walbro and IDC agree to consult with the other in connection with their respective appointments of such officer positions. As of the formation of the Partnership, the officers shall be as follows: General Manager Kuniaki Hohzawa Business Manager Wayne Heckman Engineering Manager Hiroto Yokoyama The authority of such officers shall be limited to the operations of the Partnership which occur in the normal and ordinary course of business. Any matters which arise in connection with the operations of the Partnership which are outside of the normal and ordinary course of business of the Partnership shall immediately be submitted to the Management Committee for -6- 7 approval, in accordance with the terms hereof. Upon such approval, the officers shall have the authority to bind the Partnership with respect to such matters. 14.4 The "Tax Matters Partner" of the Partnership shall be designated by the Management Committee. 14.5 Neither the Management Committee, any member or agent of the Management Committee or any officer of the Partnership shall be liable, responsible or accountable in damages or otherwise to the Partnership or any Partner for any action taken or failure to act on behalf of the Partnership within the scope of the authority conferred on the Management Committee or any such officer by this Agreement or by law unless such action or omission was performed or omitted fraudulently or in bad faith or constituted gross negligence. The Partners specifically acknowledge, without limiting the general applicability of this SECTION 14.5, that the Management Committee and the officers of the Partnership shall not be liable, responsible or accountable in damages or otherwise to the Partnership or any Partner with respect to any action taken by the Management Committee or any such officer in conjunction with an audit of the Partnership for income tax or other purposes. 14.6 The Management Committee shall not be required to manage the Partnership as its sole and exclusive function and may have other business interests and may engage in other activities in addition to those relating to the Partnership. Neither the Partnership nor any Partner shall have any right by virtue of this Agreement or the partnership relationship created hereby in or to such other ventures or activities or to the income or proceeds derived therefrom, and the pursuit of such ventures and activities, even if competitive with the business of the Partnership, shall not be deemed wrongful or improper. All expenses of the Management Committee incurred in the performance of its duties hereunder shall be borne by the Partnership. 14.7 No Partner shall have the authority to act for or bind the Partnership except with the approval of the Management Committee. 14.8 The Partnership shall indemnify and hold harmless all members of the Management Committee and all officers of the Partnership, from and against any loss, expense, damage or injury suffered or sustained either by reason of any acts, omissions or alleged acts or omissions arising out of their activities on behalf of the Partnership, including, but not limited to, any judgment, award, settlement, reasonable attorneys' fees and other costs or expenses incurred in connection with the defense of any actual or threatened action, proceeding or claim, if the acts, omissions or alleged acts or omissions upon which such actual or threatened action, proceeding or claim is based were for a purpose reasonably believed to be in the best interests of the Partnership and were not performed or omitted fraudulently or in bad faith. Any such indemnification shall only be from the assets of the Partnership. 14.9 Unless otherwise expressly provided herein, all decisions requiring the consent of the Partners shall be made by the affirmative vote of each Partner then entitled to vote. -7- 8 Unless otherwise expressly provided for herein, all decisions requiring the approval of the Management Committee shall require the unanimous consent of all of the members of the Management Committee. ARTICLE XV WITHDRAWALS AND TRANSFERS 15.1 Any Partner may withdraw from the Partnership upon one year's prior written notice to the Partnership. If a Partner withdraws, an "Event of Default" (as defined below) will be deemed to have occurred on the date such withdrawal notice is delivered, and the provisions set forth in ARTICLE XVI shall apply. 15.2 Each Partner agrees not to sell, transfer, assign, hypothecate, pledge or encumber all or any portion of such Partner's interest hereunder without the prior consent of all of the Partners. Notwithstanding the foregoing sentence, a Partner may sell, assign or transfer all, or a part of, its interest in the Partnership to any person or entity that is an affiliate of such Partner; provided, however, such transfer must not result in a deemed termination of the Partnership under Section 708(b)(1)(B) of the Code which results in adverse tax consequences to the Partnership or any other non-transferring Partner. The Partners agree that any transfer of a Partnership interest by any Partner to an affiliate pursuant to this SECTION 15.2 shall be conditioned upon the full assumption by such party of all of the obligations of the transferring party provided in this Agreement and the Basic Agreements (as defined below). ARTICLE XVI DEFAULTS 16.1 In the case of an "Event of Default" (as defined herein) by any Partner, then the defaulting party (the "Defaulting Partner") shall immediately have suspended any all of its rights as a Partner, including, without limitation, the right to vote and consent or otherwise approve or disapprove of any actions taken by the Partnership (including in connection with such Defaulting Partner's rights (or its designee) as a Management Committee member), except that such Defaulting Partner shall maintain the right to its economic interest in the Partnership. Unless otherwise specified herein, if an Event of Default occurs, then the non-defaulting party (the "Non-Defaulting Partner") may exercise any of the following remedies: (1) causing the Partnership to be dissolved or liquidated according to the terms set forth herein and all applicable laws, or -8- 9 (2) purchasing for cash all of the equity interest in the Partnership then held by the Defaulting Partner at a purchase price equal to the book value of such equity interest determined using generally accepted accounting practices, consistently applied. 16.2 In the event that an Event of Default occurs as a result of a material breach under any term of (i) the License and Technical Assistance Agreement (the "License Agreement") between the Partnership and Iwaki Diecast Co. Ltd., an affiliate of IDC, or (ii) the Walbro Sale Assistance and Administrative Service Agreement (the "Sales Agreement") between the Partnership and Walbro Engine Management Corporation, an affiliate of Walbro (together, the "Basic Agreements"), and such breach is not remedied within a period of thirty (30) days after receiving written notice of such breach, then the Non-Defaulting Partner may exercise any of the following remedies: (1) purchasing for cash all of the equity interest in the Partnership then held by the Defaulting Partner, at a purchase price equal to the book value of such equity interest determined using generally accepted accounting practices, consistently applied. (2) require that the Defaulting Partner purchase for cash all of the equity of the Partnership then held by the Non-Defaulting Partner, at a purchase price determined pursuant to SECTION 16.5 below. 16.3 The rights provided in this Agreement shall be in addition to and not in substitution of any other remedies that may be available to the Partnership or the Non-Defaulting Partner (including those set forth herein and/or as may be available by law), and any exercise of such rights shall not relieve the Defaulting Partner from any accrued obligation or any liability or damages which are incurred by the Partnership or the Non-Defaulting Partner as a result of the occurrence of an Event of Default. 16.4 For purposes of this Agreement, an "Event of Default" shall be deemed to have occurred upon any one of the following occurrences: (i) the failure by any Partner to make a required capital contribution which is not made within five (5) days of a delivery of written notice to such Partner of its failure to remit the required capital contribution, (ii) a Partner (or the holder of a majority of the equity interest of such Partner) being the subject of a voluntary or involuntary petition in bankruptcy or insolvency, or of a petition for relief or reorganization under any bankruptcy or insolvency law, (iii) breach by a Partner (or an affiliate of any Partner) of any of the terms of this Agreement or the Basic Agreements which is not cured pursuant to SECTION 16.2 above or (iv) the withdrawal of a Partner for any reason. 16.5 If an Event of Default occurs and the Non-Defaulting Partner wishes to require the Defaulting Partner to purchase its Partnership interest, pursuant to its rights under this ARTICLE XVI, the purchase price for such Partnership interest shall be equal to its fair market value, as determined by an independent nationally recognized appraiser, selected by each of the Defaulting Partner and Non- Defaulting Partner. In the event the Partners can not agree on an appraiser, each Partner shall choose an appraiser and the two appraisers shall agree on a third -9- 10 appraiser. The determination of such third appraiser and its appraisal shall be final and binding on the Partners. 16.6 If an Event of Default occurs as a result of a Partner being the subject of a voluntary or involuntary petition in bankruptcy or insolvency, or of a petition for relief or reorganization under any bankruptcy or insolvency law, and the Non-Defaulting Partner does not wish to exercise its remedies set forth in SECTION 16.1, then the Partnership shall continue in full force and effect; provided, however, that any successor of a dissolved, insolvent or bankrupt Partner, as the case may be, shall not become a substituted Partner in the Partnership. Such successor shall not have any of the rights of a Partner, except that such successor shall only be entitled to receive the share of profits and losses of the Partnership, the return of such capital contributions and any other payments to which such bankrupt Partner would have been entitled on the date of such Event of Default. ARTICLE XVII DISSOLUTION AND TERMINATION OF THE PARTNERSHIP 17.1 The Partnership shall dissolve upon the first to occur of the following: (a) expiration of the stated term of the Partnership on December 31, 2015, as provided in ARTICLE VI hereof; (b) the withdrawal of a Partner or Partners causing only one other Partner to remain in the Partnership; (c) the unanimous written consent or affirmative vote by the Partners, then entitled to vote, to dissolve the Partnership; (d) the disposition of all of the Partnership's interest in its property, including notes received in connection with the sale thereof; or (e) by the election of a Non-Defaulting Partner's pursuant to the terms set forth in ARTICLE XVI. 17.2 In the event of the dissolution of the Partnership, the Partnership shall terminate, be wound up and liquidated as herein provided. During such period, the Partners shall continue to share income and losses during the period of liquidation in the same proportion as immediately prior thereto, subject to the terms of this Agreement. The proceeds of the liquidation (after payment of all costs and expenses thereof and the establishment of reasonable reserves for contingent liabilities) shall be applied in order of priority as follows: (a) To the repayment of debts of the Partnership other than to Partners; -10- 11 (b) To the repayment of debts of the Partnership to the Partners pro rata according to the amount of the Partnership's indebtedness to each Partner; (c) To the Partners, to the extent of their respective Capital Accounts or (if the remaining assets are insufficient for such purposes), pro rata on the basis of the relative amounts of their respective Capital Accounts; and (d) To the Partners, to the extent of any balance remaining, based on their respective Participating Percentages at the time of such dissolution. 17.3 Each Partner shall look solely to the assets of the Partnership for all distributions with respect to the Partnership and such Partner's capital contributions thereto and shall have no recourse therefor against the other Partners. No Partner shall have any right to demand or receive property other than cash upon dissolution and termination of the Partnership or to demand the return of its capital contributions to the Partnership prior to dissolution and termination of the Partnership. ARTICLE XVIII NOTICES All notices and demands required or permitted under this Agreement shall be in writing and may be sent by U.S. mail, first class mail, postage prepaid, overnight air courier or personal delivery to the Partners at their addresses as shown from time to time on the records of the Partnership. Any Partner may specify a different address by notifying the other Partners in writing of such different address. ARTICLE XIX AMENDMENT OF PARTNERSHIP AGREEMENT This Agreement may be amended only upon the unanimous consent or affirmative vote of each Partner then entitled to vote. ARTICLE XX INDEMNIFICATION OF PARTNERS AND REIMBURSEMENT 20.1 The Partnership shall indemnify and hold harmless all Partners, from and against any loss, expense, damage or injury suffered or sustained by either by reason of any acts, omissions or alleged acts or omissions arising out of their activities on behalf of the Partnership, -11- 12 including, but not limited to, any judgment, award, settlement, reasonable attorneys' fees and other costs or expenses incurred in connection with the defense of any actual or threatened action, proceeding or claim, if the acts, omissions or alleged acts or omissions upon which such actual or threatened action, proceeding or claim is based were for a purpose reasonably believed to be in the best interests of the Partnership and were not performed or omitted fraudulently or in bad faith. Any such indemnification shall only be from the assets of the Partnership. 20.2 In the event any Partner pays any costs or expenses on behalf of the Partnership which relate directly to the operations of the Partnership, such Partner shall submit reasonable supporting documentation evidencing such payment to the Management Committee. Upon receipt of such supporting documentation and unanimous approval of the Management Committee, the Partnership shall promptly reimburse such Partner for such costs and expenses incurred. ARTICLE XXI MISCELLANEOUS 21.1 This Agreement constitutes the entire agreement among the parties. It supersedes any prior agreement or understandings among them, and it may not be modified or amended in any manner other than as set forth herein. 21.2 This Agreement and the rights of the parties hereunder shall be governed by and interpreted in accordance with the laws of the State of Delaware, without giving effect to provisions thereof regarding conflicts of laws. 21.3 If any controversy or claim between the Partners arise out of this Agreement, except as otherwise specifically provided in this Agreement: (a) Such disagreement or dispute shall be discussed in good faith during a ten-day period following the occurrence of such dispute. If the dispute or disagreement cannot be resolved by the parties after good faith discussion, it shall be submitted to binding arbitration in Tucson, Arizona, under the Commercial Arbitration Rules of the American Arbitration Association. (b) Three arbitrators shall be appointed under the Commercial Arbitration Rules of the American Arbitration Association. As soon as the panel has been convened, a hearing date shall be set within 45 days thereafter. Written submittals shall be presented and exchanged by both parties 15 days before the hearing date, including reports prepared by experts upon whom either party intends to rely. At such time the parties shall also exchange copies of all documentary evidence upon which they will rely at the arbitration hearing and a list of the witnesses whom they intend to call to testify at the hearing. Each party shall also make its respective experts available for deposition -12- 13 by the other party prior to the hearing date. The arbitrators shall make their award as promptly as practicable after conclusion of the hearing. (c) The arbitrators shall not be bound by the rules of evidence or civil procedure, but rather may consider such writings and oral presentations as reasonable businessmen would use in the conduct of their day-to-day affairs, and may require the parties to submit some or all of their presentation orally or in written form as the arbitrators may deem appropriate. It is the intention of the parties to limit live testimony and cross-examination to the extent necessary to insure a fair hearing to the parties on the matters submitted to arbitration, and to provide neither party more than five (5) complete business days to present its position. The parties have included the foregoing provisions limiting the scope and extent of the arbitration with the intention of providing for prompt, economic and fair resolution of any dispute submitted to arbitration. (d) The arbitrators shall have the discretion to award the costs of arbitration, arbitrators' fees and the respective attorneys' fees of each party to the party who the arbitrators determine, in their sole discretion, to have prevailed in the dispute. Judgment upon the award entered by the arbitrators may be entered in any court having jurisdiction thereof. The arbitrators shall make their award in accordance with applicable law and based on the evidence presented by the parties, and at the request of either party at the start of the arbitration shall include in their award findings of fact and conclusions of law both in law and equity which would be available in a court having jurisdiction over the parties and over the subject matter of the dispute. Such powers shall include, but not be limited to, the power to require specific performance. (e) The arbitration agreement set forth herein shall not limit a court from granting a temporary restraining order or preliminary injunction in order to preserve the status quo of the parties pending arbitration. Further the arbitrator(s) shall have power to enter such orders by way of interim award, and they shall be enforceable in court. 21.3 Except as herein otherwise specifically provided, this Agreement shall be binding upon and inure to the benefit of the parties and their legal representatives, heirs, administrators, executors, successors and assigns. 21.4 Wherever from the context it appears appropriate, each term stated in either the singular or the plural shall include the singular and the plural, and pronouns stated in either the masculine, the feminine or the neuter gender shall include the masculine, feminine and neuter. 21.5 Captions contained in the Agreement are inserted only as a matter of convenience and in no way define, limit or extend the scope or intent of this Agreement or any provisions thereto. 21.6 If any provision of this Agreement, or the application of such provision to any person or circumstance, shall be held invalid, the remainder of this Agreement, or the -13- 14 application of such provision to persons or circumstances other than those to which it is held invalid, shall not be affected hereby. 21.7 This Agreement may be executed in multiple counterparts, each of which shall be deemed an original but all of which shall constitute one and the same instrument. 21.8 This Agreement may be translated from English to Japanese. In the event any conflict or ambiguity exists as a result of, or in connection with, such translation, the original English version shall govern. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of this 18th day of August, 1995. WALBRO TUCSON CORP. By: -------------------------------------------------------- Its: -------------------------------------------------------- IWAKI DIECAST USA, INC. By: -------------------------------------------------------- Its: -------------------------------------------------------- -14- 15 SCHEDULE A TO GENERAL PARTNERSHIP AGREEMENT OF TUCSON PRECISION PRODUCTS
CAPITAL PARTICIPATING PARTNERS CONTRIBUTION PERCENTAGE - ------------------------------------------------------ -------------- --------------- Walbro Tucson Corp. $450,000 60% 6242 Garfield Cass City, Michigan 48726 U.S.A. Iwaki Diecast U.S.A., Inc. $300,000 40% 6601 South Renaissance Drive Tucson, Arizona 85746-6042
A-1 EX-13.1 8 EX-13.1 1 EXHIBIT 13.1 ITEM 6. SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31 (In Thousands, Except Per Share Data) 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- From Continuing Operations: Sales............................................... $459,272 $325,205 $273,463 $241,416 $200,130 Cost of Sales....................................... 377,755 261,501 216,804 185,712 158,743 Income Before Cumulative Effect of Accounting Change...................... 13,830 14,595 12,567 12,526 4,838 Income Per Share Before Cumulative Effect of Accounting Change (fully diluted)........................... 1.61 1.70 1.47 1.58 0.96 Cash Dividends Per Share............................ 0.40 0.40 0.40 0.40 0.10 Working Capital..................................... 95,713 58,378 50,187 43,742 25,760 Total Assets........................................ 493,473 257,366 215,295 193,020 161,243 Long-Term Debt...................................... 233,389 66,136 52,392 49,638 62,777 Redeemable Preferred Stock.......................... 0 0 0 0 7,500 Stockholders' Equity................................ 135,427 127,915 114,146 99,910 50,339
2 1 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS On July 27, 1995, the Company, through certain of its wholly-owned subsidiaries, acquired the Fuel Systems Business of Dyno Industrier A.S, Oslo, Norway (Dyno). Dyno supplies plastic fuel tanks to most European vehicle manufacturers through production facilities in Belgium, France, Germany, Norway, Spain and the United Kingdom. Dyno's Fuel Systems Business sales were approximately $147 million in 1994. Except as noted below, the results of operations for 1995 only include the results of Dyno after July 27, 1995. 1995 COMPARED TO 1994, 1994 COMPARED TO 1993 SALES - The Company reported record sales in 1995 of $459.3 million, an increase of 41.2%. Excluding sales of $88.5 million contributed by Dyno, 1995 sales still reflected an increase of 14.0%. Sales in 1994 were $325.2 million compared to sales of $273.5 million in 1993, an increase of 18.9%. The $134.1 million of additional sales in 1995 were divided primarily among the automotive market with a $119.8 million increase and the small engine market with a $10.8 million increase. On a percentage basis, sales to the automotive market increased 60.4% in 1995 (15.8% increase without Dyno sales) compared to an 18.6% increase in 1994, while sales to the small engine market increased 10.6% in 1995 compared to a 16.5% increase in 1994. Aftermarket sales were flat in 1995 compared to an increase of 32.8% in 1994. Sales of the Company's original equipment automotive products were $318.1 million in 1995 ($229.7 million without Dyno), up from $198.3 million in 1994 and $167.2 million in 1993. In 1995, the Company was able to increase U.S. based automotive product sales (representing all automotive sales other than those of Dyno) by $31.4 million or 15.8% in spite of the U.S. light vehicle market decline. The U.S. light vehicle market declined in 1995 to approximately 14.8 million vehicles compared to approximately 15.1 million in 1994, a 2.1% decrease. U.S. light vehicle sales increased by 8.4% in 1994 and by 8.0% in 1993. The Company was able to record a sales increase of its U.S. based automotive products in the face of a declining vehicle market due to increased sales of fuel modules (up 23.7%) because of increased use of fuel modules in the light truck market and increased sales of fuel modules with higher dollar content. Light trucks (which include minivans) experienced moderate sales growth in 1995. The increase in fuel module sales was partially offset by the slower than scheduled start-up of a customer's major new vehicle line with significant fuel module product content. The Company expects the growth in sales of fuel modules to continue as they are applied to more new models of passenger cars and light trucks. Fuel modules also continue to gain greater acceptance in the European and the South American markets. Sales of fuel pumps increased by 3.3% and sales of fuel rails declined by 14.9% in 1995 compared to 1994 because of the decline in U.S. passenger car sales during 1995. Plastic fuel tank sales in the U.S. added $3.0 million of revenue in 1995 compared to $0.6 million in 1994, as the Company's U.S. sales of plastic fuel tanks did not begin until the fourth quarter of 1994. Production of plastic fuel tanks increased in the fourth quarter of 1995 for a second vehicle platform and production is expected to increase again in 1996 for a third vehicle platform. Sales of component parts in 1995 added $20.4 million to U.S. based automotive product sales compared to $3.6 million in 1994. Dyno sales added $88.5 million to automotive product sales for the last five months of 1995. In 1994, the Company was able to increase automotive product sales by 18.6% while the U.S. light vehicle market grew by 8.4%. Automotive product sales benefited from the overall market growth, from increased penetration of existing products and from the development of new products for new models in 1994. In addition, the Company sold its first multi-layer plastic fuel 3 2 tanks in 1994. For 1994, sales of fuel pumps increased modestly while sales of fuel rails increased by 22.3% and sales of fuel modules increased by 32.2%. Sales of the Company's small engine products also hit a record level of $112.6 million in 1995, up from $101.8 million in 1994 and $87.4 million in 1993. Overall sales growth of small engine products was 10.6% in 1995 compared to 16.5% during 1994. Sales of diaphragm carburetors increased 16.1% in 1995 compared to 7.4% for 1994, from $58.3 million in 1993 to $62.6 million in 1994 to $72.7 million in 1995. Part of the 1995 increase was caused by the comparison to depressed U.S. diaphragm carburetor sales in the second half of 1994 because of delays in the emission certification by the California Air Resources Board for customers' engines during that period. Increases in U.S. sales of diaphragm carburetors in the first half of 1994 combined with increases in Europe and the Far East during all of 1994 more than offset the second half decline in the U.S., resulting in the overall increase of 7.4% for 1994. Sales of float feed carburetors decreased 8.7% in 1995 compared to a 27.7% increase for 1994, with $27.4 million of sales in 1995 versus $30.0 million in 1994 and $23.5 million in 1993. During 1995, float feed carburetor sales in the U.S. declined as heavy rain in the spring and a drought during the summer caused lower sales of lawn and garden products and outdoor power equipment. Also during 1995, the weak market for marine engines contributed to lower float feed carburetor sales. The significant increase in 1994 float feed carburetor sales was primarily due to a 36% increase in sales to the Company's largest lawn and garden customer and a 36% increase in sales of marine carburetors. Sales of small engine ignition systems added $7.9 million to small engine sales in 1995 compared to $7.1 million in 1994 and $5.1 million in 1993 as customer demand has grown for this expanding family of products. In addition, carburetor sales from the Company's subsidiary in China, Fujian Hualong Carburetor, which the Company acquired in January, 1994, added $4.6 million to small engine product sales in 1995 compared to $1.9 million in 1994. Management believes that ignition systems will play a more significant role in the future as small engines become subject to more stringent emissions regulations. In the past, environmental regulations have created growth opportunities for the Company through new product development. For example, the Company developed a new generation of carburetors to meet the first phase of the California exhaust emission standards which took effect in 1995. In addition, the U.S. Environmental Protection Agency has adopted similar emission standards which become effective in August, 1996. Management believes that these 1995 and 1996 emission standards will not adversely affect its business because the Company's products have been modified to meet these new standards. A 30% reduction of emissions required by the second phase of regulation is scheduled to be phased-in beginning in 2002 for the U.S., except California, which requires a 70% reduction of emissions in the second phase for California in 1999. A more stringent third phase of U.S. regulation is expected sometime after 2005. It is expected that the second phase of U.S. regulations can be met with more refined carburetors which are currently under development. The California second phase could affect unit sales of existing products in California due to a shifting of the low cost segment of the portable power equipment market from internal combustion engines to electric motors. Management believes the 1999 California regulations and the phase three U.S. regulations will require new levels of technology in engine management systems that meet the regulations within the tight cost constraints required by the small engine market. However, management believes that the Company has the capability to assist engine manufacturers by designing and producing ignition systems and fuel systems (engine management systems) capable of meeting reasonable emission standards within these constraints. Although certain of these regulations may have the effect of reducing unit sales, the 4 3 more sophisticated products required by stringent emissions regulations are expected to command higher unit prices. The Company's aftermarket business for both automotive and small engine products is consolidated as a business unit within Walbro Engine Management, but reported separately in this discussion. Aftermarket sales in 1995 were flat compared to 1994 for two significant reasons. First, the aftermarket distribution center in Cass City, Michigan was struck by lightning in August, 1995, causing substantial smoke and water damage to the building and its contents. Aftermarket operations were shut down for three weeks in August as a result of the fire and subsequent order levels were lower because of the reduced inventory available to fill orders. Secondly, a major aftermarket customer/competitor for fuel pumps chose to manufacture more of its requirements. The 32.8% increase in 1994 aftermarket sales was the result of the addition of several new aftermarket customers and the expansion of the product offering for aftermarket sales. COST OF SALES - The Company's cost of sales is composed primarily of material, labor, and manufacturing and engineering overhead. Cost of sales was $377.8 million in 1995 ($300.9 million without Dyno) compared to $261.5 million in 1994 and $216.8 million in 1993. Cost of sales as a percent of sales was 82.3% in 1995 (81.1% without Dyno) compared to 80.4% in 1994 and 79.3% in 1993. Cost of sales as a percent of sales for U.S. based automotive products increased in 1995 because of lower volumes of fuel rails partially offset by higher volumes of fuel modules and plastic gas tanks. The Company's Ligonier, Indiana plant, which makes steel fuel rails, experienced significantly higher costs in the second half of 1995 because of lower volumes related to lower passenger car sales. The Company announced in February, 1996 that it plans to sell the steel fuel rail business at the Ligonier, Indiana plant. This decision to exit the steel fuel rail market does not affect the Company's growing business in plastic fuel rails which are manufactured at its facility in Meriden, Connecticut. Cost of sales as a percent of sales at Dyno was 13.1% for the last five months of 1995. The Dyno gross margin was lower than anticipated because of higher raw material prices and lower volumes during the last five months of 1995 due to seasonally lower production schedules and because of a weaker European automotive market during this period. Also contributing to the higher cost of sales as a percent of sales were continuing startup costs at the Company's Ossian, Indiana plastic fuel tank plant. The 1994 cost of sales as a percent of sales increased because of the Ossian plant startup costs and additional costs of expanding production capacity for fuel modules at the Company's Meriden, Connecticut plant. The startup costs at the Company's Ossian, Indiana plant are expected to continue in the first half of 1996 as the production orders for multi-layer plastic fuel tanks have not yet reached the break-even level. The additional costs of expanding production at the Meriden, Connecticut plant declined in 1995 but will increase in 1996 as the second plant comes on line. Cost of sales as a percent of sales for small engine products increased for 1995 because of lower volume of float feed carburetors in the U.S. and lower gross margin at the Company's Singapore manufacturing facility due to lower production volumes and the stronger Singapore Dollar versus the U.S. Dollar. These increased costs were partially offset by higher volume of diaphragm carburetors in Japan and Mexico and higher volume of float feed carburetors in China. 5 4 The 1994 cost of sales as a percent of sales increased primarily because of lower volume of diaphragm carburetors in the U.S. during the second half of 1994. A secondary factor for this increased cost of sales as a percent of sales was the higher cost of manufacturing carburetors in Japan and Singapore as a result of the weaker U.S. Dollar during 1994. In December, 1990, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 106 (SFAS 106), Employer's Accounting for Post Retirement Benefits Other Than Pensions, and the Company changed its method of accounting for these benefits in 1993 as required by SFAS 106. See Note 12 of the Notes to the Consolidated Financial Statements for a detailed discussion of the impact of this change. SELLING AND ADMINISTRATIVE EXPENSES - Selling and administrative (S & A) expenses were $57.5 million in 1995, an increase of 46.3% (increased 25.6% without Dyno) compared to $39.3 million in 1994. The 1994 S & A expenses increased by 19.0% compared to $33.0 million in 1993. As a percent of sales, S & A expenses were 12.5% in 1995 (13.3% without Dyno), 12.1% in 1994 and 12.1% in 1993. In 1995, S & A expenses increased because of increased spending for research and development, for expansion of the Company's automotive systems center in Auburn Hills, Michigan and automotive testing center in Caro, Michigan and for general expenses related to adding manufacturing capacity in Meriden, Connecticut. In 1994, most S & A expense categories increased to support the sales growth. Research and development spending increased by 37.3% (increased 14.4% without Dyno) in 1995 and by 28.3% in 1994 to support the new product development efforts required by emission regulations for both automotive and small engine products. Incentive compensation expense in the small engine business increased in 1994 and again in 1995 because of higher profitability. REORGANIZATION CHARGES - In 1993, the Company recorded a $1.8 million reorganization charge reflecting the Company's actual and anticipated expenses from reorganization of the executive management team at Walbro Automotive. $1.0 million was paid in 1993 and the remaining $0.8 million was paid in 1994. See Note 7 of the Notes to the Consolidated Financial Statements. LOSS ON FOREIGN EXCHANGE TRANSACTIONS - Foreign exchange contracts are used primarily to manage the exposure to foreign currency losses from operations in foreign countries, from investments in foreign joint ventures and from commitments in foreign currencies. In 1992, the Company entered into forward foreign exchange contracts to hedge the Company's foreign currency exposure related to a sales commitment to a foreign customer. The loss on these contracts was treated as a hedge for accounting purposes and recorded as a deferred asset, which is being amortized as foreign currency exchange loss. In 1993 and 1994 the Company entered into foreign exchange contracts to hedge the Company's foreign currency risk from foreign currency commitments which did not qualify for deferred accounting treatment and the losses were recorded as foreign currency exchange loss in 1993 and 1994. The foreign currency exchange loss in 1995 was $1.5 million, $2.6 million in 1994 and $1.5 million in 1993. See Note 14 of the Notes to the Consolidated Financial Statements. NET INTEREST EXPENSE - Net interest expense was $11.1 million in 1995, an increase of $7.3 million, compared to $3.8 million in 1994. 1994 net interest expense increased by $1.2 million compared to $2.6 million in 1993. To finance the Dyno acquisition in July 1995, the Company sold $110 million in aggregate principal amount of its 9.875% senior notes and obtained a new $135 million secured credit facility. Borrowing levels were also higher in 1995 to support the higher level of capital expenditures for the facilities expansions. General interest rates declined during 1995 but the additional borrowings and the shift to a higher percentage of long-term fixed rate debt raised the average cost of capital and caused the higher interest expense. The 1994 increased interest expense resulted from higher interest rates and increased borrowings for additional working capital and the full year effect of financing the Company's Ossian, Indiana 6 5 plant. During October of 1994, the Company sold $45 million of 7.68% senior notes which contributed to the higher net interest expense. The average cost of borrowing was 7.4% in 1995, 5.9% in 1994 and 4.9% in 1993. See Note 8 of the Notes to Consolidated Financial Statements for details of the borrowings. INCOME TAXES - The provision for income taxes was lower for 1995 compared to 1994 because of a research and development (R & D) tax credit recorded in 1995. This tax credit resulted from a change by the Internal Revenue Service in defining the R & D activities which qualify for the tax credit. The $3.0 million credit results from R & D activities at the Company from 1988 through 1995. The R & D tax credit resulted in an effective tax rate of 10.8% for 1995 compared to 32.5% for 1994. JOINT VENTURE INCOME - The Company's equity in income of joint ventures was $3.9 million in 1995, $2.6 million in 1994 and a loss of $89,000 in 1993. The loss in 1993 was due primarily to first year losses of $538,000 in Brazil and the significant income in 1994 and 1995 resulted from increased sales and profits in all the Company's joint ventures. As detailed below, the Company has actively pursued joint venture opportunities as a means of expanding into new regions of the world market. The joint venture structure allows the Company to share the risks, capital requirements and early stage start-up losses with a partner. In November, 1995, the Company signed an agreement to form a joint venture, Mutual Walbro P. Ltd., with Mutual Industries Ltd., Bombay, India to produce automotive fuel tank assemblies in India. In November, 1994, the Company formed a joint venture, Korea Automotive Fuel Systems Ltd., with Daewoo Precision Industries Ltd. of South Korea to manufacture and market fuel sending units for the South Korean automobile market. In March, 1993, the Company acquired all of the outstanding shares of Walbro Korea Ltd., a joint venture with Siemens A.G. of Germany and Daesung Ltd. of South Korea. This joint venture was originally formed to manufacture and market EFI system components for the South Korean automotive market. In February, 1993, the Company acquired a 49% interest in Marwal do Brazil, a Brazilian joint venture with Magneti Marelli S.p.A. of Italy, to manufacture and market fuel sending units for the South American automotive market. In January, 1993, the Company sold its 50% interest in Orbital-Walbro Corporation to its joint venture partner, Orbital Engine Company Ltd. of Australia, in exchange for 3.7 million shares of Orbital stock and $5.5 million in cash. NET INCOME AND INCOME PER SHARE - Net income for 1995 was $13.8 million, a decrease of 5.5% compared to $14.6 million in 1994. Income before cumulative effect of accounting change was $12.6 million in 1993 with net income of $9.7 million for the same period. Net income per share was $1.61 for 1995 compared with $1.70 for 1994. Income per share before cumulative effect of accounting change was $1.47 with net income per share of $1.13 for 1993. All per share data is fully diluted. Net income as a percent of sales was 3.0% in 1995, 4.5% in 1994, and 4.6% in 1993 (income before accounting change as a percent of sales). The decline in net income as a percent of sales in 1995 was related to the Dyno acquisition which generated lower profit margins in 1995 and resulted in increased interest expense and because of higher S & A expenses as explained above. The decline in net income as a percent of sales during 1994 was the result of higher cost of sales, higher interest expense and foreign exchange losses as explained above. 7 6 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. The Company has limited ability to pass on inflation-related cost increases to its customers on a short-term basis. In addition, the markets served by the Company are competitive in nature, and competition limits the pass-through of inflation-related cost increases in many cases. In the past three years, however, inflation has not been a significant factor for the Company. FOREIGN CURRENCY TRANSACTIONS - Approximately 38% of the Company's sales during 1995 were derived from international manufacturing operations in Europe, Asia and Latin America. The financial position and the results of operations of the Company's subsidiaries in Europe (19% of sales), and Asia (11% 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 Europe and Asia, except Singapore, 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 subsidiaries in Singapore and Mexico (11% of sales) the expenses are generally incurred in the local currency, but sales are generated in U.S. dollars; therefore, results of operations are more directly influenced by a weakening or strengthening of the local currency. The acquisition of Dyno in July, 1995 (discussed below) resulted in a significant increase in the foreign component of the Company's operations. Specifically, giving effect to the Dyno acquisition on a pro forma basis, approximately 51% of the Company's sales for 1995 would have been related to foreign operations. Approximately 48% of the Company's net assets at December 31, 1995, are based in its foreign operations and are translated into U.S. dollars at foreign currency exchange rates in effect as of the end of each period. Accordingly, the Company's consolidated shareholders' equity will fluctuate depending upon the weakening or strengthening of the U.S. dollar. In addition, the Company has equity investments in unconsolidated joint ventures in France, Brazil, Japan and Korea. The Company's reported income from these joint ventures will be higher or lower depending upon a weakening or strengthening of the U.S. dollar. The Company's strategy for management of currency risk relies primarily upon the use of forward currency exchange contracts to manage its exposure to foreign currency fluctuations related to its operations in foreign countries, to manage its firm transaction commitments in foreign currencies and to hedge its equity investment in certain foreign joint ventures. LIQUIDITY AND CAPITAL RESOURCES - As of December 31, 1995, the Company had $16.0 million outstanding in short-term debt, including current portion of long-term debt, and $233.4 million in long-term debt. As of December 31, 1995, the approximate minimum principal payments required on the Company's long-term debt in each of the five fiscal years subsequent to December 31, 1995 are $1.1 million in 1996, $1.3 million in 1997, $7.9 million in 1998, $7.6 million in 1999, $64.6 million in 2000 and $152.0 million thereafter. The net purchase price of the Dyno acquisition was approximately $114 million (approximately $130 million less approximately $16 million in cash acquired by the Company). The Company financed the acquisition through the combination of a private placement of $110 million in aggregate principal amount of its 9.875% Senior Notes due 2005 and a new $135 million secured Credit Facility with a group of commercial banks. At December 31, 1995, the Company had available to it approximately $70 million under the New Credit Facility. See Note 8 of the Notes to consolidated Financial Statements for further discussion. 8 7 The Company's plans for 1996 capital expenditures for facilities, equipment and tooling total approximately $64 million, of which approximately $26 million represents expenditures to maintain and upgrade current facilities and $38 million represents capital expenditures for expansion. The 1996 expansion plan includes new plants in Brazil and Belgium, a second plant in Meriden, Connecticut, expansion of the Ossian, Indiana plant and a Technical Center in Europe. The Company intends to finance the capital expenditures with cash from operations, supplemented by borrowings under the New Credit Facility and potential lease financing. 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. As of December 31, 1995, accounts receivable amounted to $113.3 million, an increase of $47.0 million, compared to $66.3 million at December 31, 1994. The acquisition of Dyno added $35.4 million of accounts receivable. The average collection period at December 31, 1995 was 56.4 days or 71.5 days without Dyno, slightly lower than the average collection period during calendar 1994. The average collection period in calendar year 1994 was 62.3 days compared to 56.8 days in 1993. Approximately 45% of the accounts receivable increase in 1995, without Dyno accounts receivable, was due to increased sales in 1995, while the remaining increase was due to longer collection periods. As of December 31, 1995, inventories amounted to $50.7 million, an increase of $19.3 million, compared to $31.4 million at December 31, 1994, and the Dyno acquisition accounted for $17.4 million of this increase. 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. Walbro Corporation cautions readers of this discussion that a number of important factors could cause Walbro's actual consolidated results for 1996 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, the integration of the Dyno acquisition into Walbro's overall business, impact of environmental regulations, continued availability of adequate funding sources, currency and other risks inherent in international sales, and general economic and business conditions. These important factors and other factors which could affect 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. 9 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Report of Independent Public Accountants 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, 1995, 1994 and 1993, and the related consolidated statements of income, stockholders' equity and cash flows for each of the years then ended. 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 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 provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Walbro Corporation and subsidiaries as of December 31, 1995, 1994 and 1993, and the results of their operations and their cash flows for each of the years then ended in conformity with generally accepted accounting principles. As discussed in Note 3 to the consolidated financial statements, effective January 1, 1994, the Company changed its method of accounting for investments in debt and equity securities. In addition, as discussed in Note 12 to the consolidated financial statements, effective January 1, 1993, the Company changed its method of accounting for postretirement benefits other than pensions. Arthur Andersen LLP Detroit, Michigan, February 13, 1996 10 WALBRO CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1995, 1994 AND 1993
ASSETS 1995 1994 1993 ----------------------------------------------- (In Thousands, Except Share Data) Current Assets: Cash $ 19,792 $ 4,540 $ 4,605 Accounts receivable, net 113,346 66,333 44,676 Inventories 50,723 31,439 26,898 Prepaid expenses and other 10,966 4,001 7,266 Deferred and refundable income taxes 4,877 3,663 4,871 ----------------------------------------------- Total Current Assets 199,704 109,976 88,316 ----------------------------------------------- Plant and Equipment, at cost: Land 3,870 1,234 426 Buildings and improvements 54,116 44,668 43,689 Machinery and equipment 211,707 93,127 71,727 ----------------------------------------------- 269,693 139,029 115,842 Less- Accumulated depreciation 63,928 50,737 41,666 ----------------------------------------------- Net Plant and Equipment 205,765 88,292 74,176 ----------------------------------------------- Other Assets: Funds held for construction 1,102 1,061 2,710 Joint ventures 23,466 16,518 11,278 Investments 9,224 10,797 8,057 Goodwill, net 33,299 16,905 16,937 Notes receivable 460 4,366 3,616 Deferred income taxes 2,805 871 41 Other 17,648 8,580 10,164 ----------------------------------------------- Total Other Assets 88,004 59,098 52,803 ----------------------------------------------- Total Assets $493,473 $257,366 $215,295 =============================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt $ 1,086 $ 8,442 $ 408 Bank and other borrowings 14,921 6,970 5,375 Accounts payable 52,774 23,252 19,991 Accrued liabilities 34,352 12,077 11,500 Dividends payable 858 857 855 ----------------------------------------------- Total Current Liabilities 103,991 51,598 38,129 ----------------------------------------------- Long-Term Liabilities: Long-term debt, less current portion 233,389 66,136 52,392 Pension obligations and other 15,102 8,153 8,071 Deferred income taxes 3,927 2,439 2,557 Minority interest 1,637 1,125 -- ----------------------------------------------- Total Long-Term Liabilities 254,055 77,853 63,020 ----------------------------------------------- Stockholders' Equity: Common stock, $.50 par value; authorized 25,000,000; outstanding 8,579,976 in 1995, 8,564,576 in 1994, and 8,551,782 in 1993 4,290 4,282 4,276 Paid-in capital 64,381 64,221 63,997 Retained earnings 66,256 55,855 44,686 Deferred compensation (817) (1,225) (1,634) Minimum pension liability adjustment (63) -- (520) Unrealized gain on securities available for sale 827 1,428 -- Cumulative translation adjustments 553 3,354 3,341 ----------------------------------------------- Total Stockholders' Equity 135,427 127,915 114,146 ----------------------------------------------- Total Liabilities and Stockholders' Equity $493,473 $257,366 $215,295 ===============================================
The accompanying notes are an integral part of these statements. -2- 11 WALBRO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993 ----------------------------------------------- (In Thousands, Except Per Share Data) NET SALES $459,272 $325,205 $273,463 COSTS AND EXPENSES: Cost of sales 377,755 261,501 216,804 Selling and administrative expenses 57,495 39,318 33,043 Reorganization and restructuring charges - - 1,760 ----------------------------------------------- OPERATING INCOME 24,022 24,386 21,856 OTHER EXPENSE (INCOME): Interest expense, net of capitalized 12,071 3,862 2,594 interest of $518,000 in 1995 Interest income (960) (91) (35) Foreign currency exchange loss 1,483 2,602 1,495 Other (255) 111 572 ----------------------------------------------- Income before provision for income taxes, minority interest, equity in (income) loss of joint ventures and cumulative effect of accounting change 11,683 17,902 17,230 Provision for income taxes 1,258 5,824 4,574 Minority interest 472 92 - Equity in (income) loss of joint ventures (3,877) (2,609) 89 ----------------------------------------------- Income before cumulative effect of accounting change 13,830 14,595 12,567 Cumulative effect of accounting change, net of tax benefit of $1,494 - - 2,900 ----------------------------------------------- Net income $13,830 $ 14,595 $ 9,667 =============================================== INCOME PER SHARE: Income before cumulative effect of accounting change $ 1.61 $ 1.70 $ 1.47 Cumulative effect of accounting change, net of tax benefit - - (.34) ----------------------------------------------- Net income per share $ 1.61 $ 1.70 $ 1.13 ===============================================
The accompanying notes are an integral part of these statements. -3- 12 WALBRO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Unrealized Gain Minimum on Securities Common Paid-in Retained Deferred Pension Available Stock Capital Earnings Compensation Liability for Sale ------ ------- -------- ------------ --------- -------- (In Thousands, Except Share Data) BALANCE - $4,049 $57,139 $38,422 $(2,042) $(371) $- DECEMBER 31, 1992 Conversion of convertible subordinated notes into 404,429 shares of common stock 202 6,273 - - - - Exercise of stock options 25 585 - - - - ESOP debt payments - - - 408 - - Net income - - 9,667 - - - Additional minimum pension liability - - - - (149) - Cash dividends ($.40 per share) - - (3,403) - - - Translation adjustments - - - - - - -------------------------------------------------------------------------------------------- BALANCE - DECEMBER 31, 1993 4,276 63,997 44,686 (1,634) (520) - Change in accounting for securities available for sale - January 1, 1994 - - - - - 2,096 Exercise of stock options 6 224 - - - - ESOP debt payments - - - 409 - - Net income - - 14,595 - - - Adjust additional minimum pension liability - - - - 520 - Cash dividends ($.40 per share) - - (3,426) - - - Change in market value of securities available for sale - - - - - (668) Translation adjustments - - - - - - -------------------------------------------------------------------------------------------- BALANCE - DECEMBER 31, 1994 4,282 64,221 55,855 (1,225) - 1,428 Exercise of stock options 8 160 - - - - ESOP debt payments - - - 408 - - Net income - - 13,830 - - - Additional minimum pension liability - - - - (63) - Cash dividends ($.40 per share) - - (3,429) - - - Change in market value of securities available for sale - - - - - (601) Translation adjustments - - - - - - -------------------------------------------------------------------------------------------- BALANCE - DECEMBER 31, 1995 $4,290 $64,381 $66,256 $(817) $(63) $827 ============================================================================================
Cumulative Translation Adjustments ----------- (In Thousands, Except Share Data) --------------------------------- BALANCE - $2,713 DECEMBER 31, 1992 Conversion of convertible subordinated notes - Exercise of stock options - ESOP debt payments - Net income Additional minimum pension - liability - Cash dividends ($.40 per share) - Translation adjustments 628 ----------- BALANCE - DECEMBER 31, 1993 3,341 Change in accounting for securities available for sale - January 1, 1994 - Exercise of stock options - ESOP debt payments - Net income - Adjust additional minimum pension liability Cash dividends - ($.40 per share) - Change in market value of securities available for sale - Translation adjustments 13 ----------- BALANCE - DECEMBER 31, 1994 3,354 Exercise of stock options - ESOP debt payments - Net income - Additional minimum pension liability - Cash dividends ($.40 per share) - Change in market value of securities available for sale - Translation adjustments (2,801) ----------- BALANCE - DECEMBER 31, 1995 $553 ===========
The accompanying notes are an integral part of these statements. -4- 13 WALBRO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993 -------- -------- -------- (In Thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 13,830 $ 14,595 $ 9,667 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation and amortization 22,451 14,672 11,339 Cumulative effect of accounting change - - 2,900 (Gain)loss on disposition of assets (29) 449 372 Minority interest 472 92 - (Income) loss of joint ventures (3,877) (2,609) 89 Reorganization and restructuring charges - - 754 Change in assets and liabilities, net of effects of acquisitions- Deferred income taxes 1,721 (681) (1,324) Deferred pension obligations and other 3,327 519 544 Accounts payable and accrued liabilities 4,870 704 4,220 Accounts receivable, net (3,236) (18,463) (3,449) Inventories (2,034) (3,752) (2,752) Prepaid expenses and other (6,607) 4,951 (6,979) ------------------------------------------- Total adjustments 17,058 (4,118) 5,714 ------------------------------------------- Net cash provided by operating activities 30,888 10,477 15,381 ------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of plant and equipment (46,240) (18,844) (20,260) Acquisitions, net of cash acquired (116,238) (1,480) 1,312 Purchase of other assets (7,263) (2,615) (2,047) Investment in joint ventures and other (2,054) (1,508) (1,333) Proceeds from disposal of assets 4,127 1,463 3,149 ------------------------------------------- Net cash used in investing activities (167,668) (22,984) (19,179) ------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings (repayments) under revolving line-of-credit agreements 63,797 (27,739) (3,691) Debt repayments (13,541) (824) (2,617) Proceeds from issuance of long-term debt 110,550 45,000 9,000 Proceeds from issuance of common stock and options 168 230 610 Financing Fees Paid (4,778) - - Cash dividends paid (3,428) (3,424) (3,359) ------------------------------------------- Net cash provided by (used in) financing activities 152,768 13,243 (57) ------------------------------------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (736) (801) 212 ------------------------------------------- NET INCREASE (DECREASE) IN CASH 15,252 (65) (3,643) CASH AT BEGINNING OF YEAR 4,540 4,605 8,248 ------------------------------------------- CASH AT END OF YEAR $ 19,792 $ 4,540 $ 4,605 ===========================================
The accompanying notes are an integral part of these statements. -5- 14 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 generally accounted for under the equity method (Note 2). 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 $978,000, $822,000 and $413,000 as of December 31, 1995, 1994 and 1993, 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:
1995 1994 ------ ------- (In Thousands) Raw materials and components $29,769 $19,310 Work-in-process 7,666 6,915 Finished products 13,288 5,214 ------------ ------------ $50,723 $31,439 ============ ============
Amounts included in work-in-process and finished products in 1993 was not material. -6- 15 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 30 years, machinery and equipment - 5 to 10 years. Marketable Equity Securities: Effective January 1, 1994, the carrying value of marketable equity securities is market value (Note 3). During 1993, the carrying value of marketable equity securities was based on the lower of cost or quoted market value. Net unrealized losses on non-current marketable equity securities that were deemed to be other than temporary were reflected in income. Realized gains and losses on the sale of marketable equity securities are recognized in income on the specific identification basis. 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 operating income before amortization of goodwill of the operations to which goodwill relates to the amortization recorded. The Company also considers future anticipated operating results, trends and other circumstances in making such evaluations. Goodwill consisted of the following at December 31:
1995 1994 1993 -------- -------- ------- (In Thousands) Goodwill $36,365 $19,367 $18,943 Less: Accumulated amortization (3,066) (2,462) (2,006) ---------- ---------- --------- $33,299 $16,905 $16,937 ========== ========== =========
Income Taxes: The consolidated financial statements have been prepared in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." The adoption of SFAS No. 109 as of January 1, 1993 did not have a material impact on the consolidated financial statements of the Company. -7- 16 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 weight of evidence, it is deemed more likely than not that the asset will not be realized. Research and Development Costs: Research and development costs are charged to operations as incurred and amounted to $16,742,000, $12,199,000 and $9,484,000 for 1995, 1994 and 1993, respectively. Financial Instruments: In order to manage exposure to fluctuations in foreign currency exchange rates, the Company regularly 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 other income or expense. Per Share Information: Income per share is based on the weighted average number of shares outstanding during each period. Shares used in the per share calculations were 8,609,431 in 1995, 8,602,077 in 1994 and 8,537,375 in 1993. Reclassifications: Certain amounts in prior years' consolidated financial statements have been reclassified to conform with the presentation used in 1995. 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. -8- 17 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 2. JOINT VENTURES. The investments in joint ventures as of December 31 are as follows:
Percent Beneficial Ownership ------------------------------------- 1995 1994 1993 ---- ---- ---- Marwal Systems, S.A. 49% 49% 49% Mitsuba-Walbro, Inc. 50% 50% 50% Marwal do Brasil, Ltda. 49% 49% 49% Korea Automotive Fuel Systems, Ltd. 49% 49% --%
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, 1995 and 1994, the cumulative effect of these adjustments was to increase the Company's equity in its joint ventures by approximately $2,102,000 and $1,300,000, respectively. At December 31, 1995, the amount included in retained earnings as undistributed earnings of foreign joint ventures was approximately $4,380,000. In December 1994, the Company entered into a joint venture (Korea Automotive Fuel Systems, Ltd.) with Daewoo Precision Industries in Korea. Korea Automotive Fuel Systems, Ltd. manufactures fuel sending units for the Korean automotive market. In February 1993, the Company entered into a joint venture (Marwal do Brasil, Ltda.) with Magneti Marelli, S.p.A. in Brazil. Marwal do Brasil, Ltda. manufactures and markets fuel system components to customers in South America. -9- 18 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Summarized combined financial information for joint ventures accounted for under the equity method is as follows (unaudited, in thousands):
As of December 31, --------------------------------------- 1995 1994 1993 ------- ------- ------- Balance sheet data: Current assets $60,504 $53,160 $35,773 Non-current assets 36,629 26,069 20,140 Current liabilities 49,081 48,160 36,672 Non-current liabilities 1,657 786 882 Year Ended December 31, --------------------------------------- 1995 1994 1993 -------- ------- ------- Income statement data: Net sales $170,902 $137,873 $80,722 Gross margin 20,500 29,283 15,063 Income before provision for income taxes 11,641 8,136 962 Net income 7,366 5,164 466
Dividends from joint ventures of approximately $415,000, $38,000 and $45,000 were received by the Company during 1995, 1994 and 1993, respectively. The Company had sales to joint ventures of approximately $29,280,000, $20,407,000 and $20,456,000 for 1995, 1994 and 1993, respectively. Included in accounts receivable are trade receivables from joint ventures of approximately $9,583,000, $7,349,000 and $1,882,000 for 1995, 1994 and 1993, respectively. The Company had purchases from joint ventures of approximately $22,977,000, $15,329,000 and $11,820,000 for 1995, 1994 and 1993, respectively. Included in accounts payable are trade payables to joint ventures of approximately $3,995,000, $782,000 and $1,120,000 for 1995, 1994 and 1993, respectively. -10- 19 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 3. INVESTMENTS. Effective January 1, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." This Statement requires that certain investments be classified into three separate categories: "held-to-maturity", "available-for-sale", and "trading," each with different accounting treatment. The Company classified its investments in common stock securities as "available-for-sale" which required the Company to record these investments at fair market value and record the gross unrealized holding gains and losses, after-tax, as a separate component of stockholders' equity. The impact of adoption at January 1, 1994 was to increase investments by approximately $3,225,000 and to increase stockholders' equity by $2,096,000, net of income taxes. As of December 31, 1995 and 1994, the fair market value of the Company's investments classified as "available-for-sale" was approximately $5,456,000 and $6,256,000, respectively, including gross unrealized holding gains of approximately $1,272,000 ($827,000 after-tax) and $2,197,000 ($1,428,000 after-tax), respectively. At December 31, 1995 and 1994, the fair market value of the Company's investments classified as "trading" was $2,641,000 and $3,304,000, respectively. The change in net unrealized holding gain included in earnings was not significant. NOTE 4. DYNO ACQUISITION. On July 27, 1995, the Company acquired the plastic fuel tank business of Dyno Industrier A.S (Dyno), Oslo, Norway for $129,758,000 in cash which is subject to certain subsequent adjustments as defined in the Purchase Agreement. Dyno is a leading designer, manufacturer and marketer of plastic fuel tank systems and components to many European vehicle manufacturers and has operations in Belgium, France, Germany, Norway, Spain and the United Kingdom. -11- 20 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The acquisition was accounted for under the purchase method, and accordingly, the assets purchased and liabilities assumed in the acquisition are reflected in the accompanying consolidated balance sheet as of December 31, 1995 and the operations since the date of acquisition are included in the accompanying consolidated statement of income and cash flows for the year ended December 31, 1995. Goodwill resulting from this transaction is being amortized over 40 years using the straight-line method. The purchase price was allocated to the purchased assets and liabilities as follows (in thousands): Cash consideration paid to seller, net of cash acquired of $15,669 $ 114,089 Fees and expenses 2,194 --------------------------------------------------------------------------- Cost of acquisition, net of cash acquired $ 116,283 =========== Accounts receivable $ 42,237 Inventory 16,330 Property, plant and equipment 90,792 Accounts payable and accrued liabilities (43,709) Notes payable (5,663) Other assets purchased and liabilities assumed, net 1,636 Goodwill 14,660 --------------------------------------------------------------------------- Total cost allocation $ 116,283 ===========
In connection with the acquisition, the Company will be required to relocate certain facilities. The Company anticipates it will incur costs to move to the new facilities and involuntarily terminate or relocate employees in addition to other costs directly associated with the acquisition. The Company has recorded a liability of approximately $7,758,000 related to these costs in purchase accounting. The Company expects the relocation of these facilities and employees to be substantially completed during 1996. The purchase price and related allocation may be revised within one year from the acquisition based on revisions of preliminary estimates of fair values and final working capital acquired made at the date of purchase. Such changes are not expected to be significant. Assuming the acquisition had taken place as of the beginning of 1995 and 1994, the consolidated pro forma results of operations of the Company would have been as follows, after giving effect to certain adjustments, including depreciation and amortization adjustments, increased interest expense, elimination of certain costs assumed by the seller and the related income tax effects:
Year ended December 31, ------------------------ 1995 1994 ---- ---- (Unaudited, In Thousands) Net sales $581,291 $472,352 Net income $12,336 $6,297 Net income per common share $ 1.43 $ .73
-12- 21 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The pro forma information above does not purport to be indicative of the results that actually would have been achieved if the operations were combined during the periods presented, and is not intended to be a projection of future results or trends. NOTE 5. OTHER ACQUISITIONS. In January 1995, the Company acquired an 80% interest in U.S. CoEXCELL, Inc. for $60,000 in cash plus the forgiveness of debt owed to Walbro of $3,113,000. U.S. CoEXCELL, Inc. manufactures and markets blow molded plastic drums. The acquisition was accounted for under the purchase method, and accordingly, the assets purchased and liabilities assumed in the acquisition have been reflected in the accompanying consolidated balance sheet as of December 31, 1995 and the operations since the acquisition are included in the accompanying consolidated statement of income and cash flows for the year ended December 31, 1995. Goodwill resulting from this transaction is being amortized over 40 years using the straight-line method. The purchase price was allocated to the purchased assets and liabilities as follows (in thousands): Cash consideration paid to seller, net of cash $ 3,068 acquired of $ 105 Fees and expenses - --------------------------------------------------------------------------- Cost of acquisition, net of cash acquired $ 3,068 ========= Accounts receivable $ 146 Inventory 429 Property, plant and equipment 2,643 Accounts payable and accrued liabilities (1,614) Long-term debt (874) Goodwill 2,338 --------------------------------------------------------------------------- Total cost allocation $ 3,068 ========
In January 1994, the Company acquired a 60% interest in Fujian Hualong Carburetor Co., Ltd. (Fujian), which manufactures and markets carburetors for two-wheeled vehicles in China. In connection with the acquisition, the Company exchanged approximately $1,500,000 for a 60% ownership interest in Fujian. This acquisition was accounted for as a purchase. The purchase price approximated the fair value of the net assets acquired. Fujian is included in the Company's consolidated financial statements from the date of purchase. In November 1995, the Company acquired an additional 10% of Fujian for $250,000. In May 1994, the Company acquired a 100% ownership interest in an engineering firm in Canada (Walbro Canada) for an aggregate purchase price of $352,000. This acquisition was accounted for as a purchase. The excess of the purchase price over the fair value of the net assets acquired was approximately $424,000 and is being amortized over 15 years. Walbro Canada is included in the Company's consolidated financial statements from the date of purchase. -13- 22 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) In April 1993, the Company purchased the interests of its joint venture partners in Walbro Korea Ltd. for a purchase price of approximately $640,000, including related expenses. As a result, the Company now has 100% ownership. Prior to this purchase, the Company owned 50% of Walbro Korea Ltd.'s common stock and accounted for its investment under the equity method of accounting. This acquisition was accounted for as a purchase. The excess of the purchase price over the fair value of net assets acquired was approximately $800,000 and is being amortized over 40 years. Walbro Korea Ltd. is included in the Company's consolidated financial statements from the date of purchase. Pro forma results of these acquisitions, assuming they had taken place at the beginning of each year presented, would not be materially different from the results reported. NOTE 6. LONG LIVED ASSETS AND INTANGIBLES. As of January 1, 1996, the Company will adopt SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which requires a review of long-lived assets and identifiable intangibles for impairment whenever circumstances indicate that the carrying amount of the assets may not be realizable. The impact of adoption is not anticipated to be material. NOTE 7. REORGANIZATION AND RESTRUCTURING CHARGES. During 1993, the Company recorded a pretax charge of $1,760,000 for employee separation costs in connection with a management reorganization, of which $1,006,000 was paid during the year. The remaining amount of $754,000 was paid during 1994. -14- 23 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 8. LONG-TERM DEBT AND LINES OF CREDIT. Long-term debt consisted of the following at December 31:
1995 1994 1993 ------- ------- ------- (In Thousands) Senior notes due 2005, unsecured, stated interest at 9.875% (9.92% effective interest rate) net of unamortized discount of $369,000 $109,631 $ - $ - Revolving credit facility, secured, interest at the agent's base rate plus an additional margin(see below) 57,258 - - Term loan from the State of Connecticut, secured, interest at 6% per annum, payable in monthly amounts from 1997 to 2005 800 - - Senior notes, secured, interest at 7.68%, payable in annual amounts from 1998 to 2004 45,000 45,000 - Revolving credit loan, interest rate from LIBOR plus 5/8% to prime, unsecured - - 28,750 Industrial revenue bond, issued by Town of Ossian, Indiana, interest at a variable municipal bond rate, due in 2023 9,000 9,000 9,000 Industrial revenue bond, issued by City of Ligonier, Indiana, interest at a variable municipal bond rate plus 1%, payable in annual amounts from 2003 to 2007 6,300 6,300 6,300 Foreign bank note, payable in Japanese yen, interest at Japanese prime - 7,519 6,708 Foreign bank note, payable in Chinese renminbi, interest at 9.8%, repaid in 1995 - 348 - ESOP credit agreement, interest rate which approximates 86% of prime, payable in annual installments of $408,000 1,225 1,634 2,042 Capital lease obligations, interest at 7.5%, payable in monthly amounts through February 2002 4,195 4,710 - Term loan, unsecured, interest at 6%, payable in monthly amounts through 2005 563 - - Note payable to the City of Maumee, Ohio, interest at 4%, payable in monthly amounts through 2004 302 - - Other 201 67 - ---------------------------------------- 234,475 74,578 52,800 Less - current portion 1,086 8,442 408 ---------------------------------------- $ 233,389 $66,136 $52,392 ========================================
-15- 24 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) In July 1995, the Company sold $110,000,000 in aggregate principal amount of 9.875% Senior Notes due 2005 (the Notes). The Notes are general unsecured obligations of the Company with interest payable semi-annually. The 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 Notes are not redeemable at the Company's option prior to July 15, 2000. Thereafter, the Notes will be redeemable, in whole or part, at the option of the Company at various redemption prices as set forth in the Note Indenture, plus accrued and unpaid interest thereon to the redemption date. In addition, prior to July 15, 1998, the Company may, at its option, redeem up to an aggregate of 30% of the principal amount of the Notes originally issued with the net proceeds from one or more public equity offerings at the redemption price specified in the Note Indenture plus accrued interest to the date of redemption. Also in the event of a change in control, the Company will be obligated to make an offer to purchase all of the outstanding Notes at a redemption price of 101% of the principal amount thereof plus accrued interest to the date of repurchase. Also, in certain circumstances, the Company will be required to make an offer to repurchase the 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. In July 1995, the Company executed a new $135,000,000 credit facility (Credit Facility). The Credit Facility consists of a $135,000,000 multi-currency revolving loan facility for the Company and certain of its wholly-owned domestic and foreign subsidiaries, including a $5,000,000 swing line facility and a $17,000,000 letter of credit facility. The Credit Facility has an initial term of five years, with annual one year extensions of the revolving credit portion of the facility available at the lender's discretion. At any time within three years after closing of the Credit Facility, the Company may convert up to $70,000,000 of revolving credit loans under the Credit Facility to term loans in minimum amounts of $15,000,000 with maturities not exceeding seven years from the closing of the Credit Facility. Borrowings under the Credit Facility bear interest at a per annum rate equal to the agent's base rate or the prevailing interbank offered rate in the applicable offshore currency market, plus an additional margin ranging from 0.5% to 1.75% based on the specific financial ratios of the Company. Borrowings under the Credit Facility bore interest at rates ranging from 7.5% to 8.5% as of December 31, 1995. The Company will also be required to pay a quarterly unused facility fee of 0.08% to 0.5%, based on the Company's funded debt ratio. Borrowings under the Credit Facility are secured by first liens on the inventory, accounts receivable and certain intangibles of the Company and its wholly-owned domestic subsidiaries and by a pledge of 100% of the stock of wholly-owned domestic subsidiaries and 65% of the stock of wholly-owned foreign subsidiaries. Collateral for the Credit Facility secures the Senior Notes on an equal and ratable basis. The Company and its wholly-owned domestic subsidiaries guarantee payment of domestic and foreign borrowings under the Credit Facility. The Company's wholly-owned foreign subsidiaries guarantee payment of foreign borrowings under the Credit Facility. -16- 25 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) In November 1995, the Company executed with the State of Connecticut, a ten-year provisional term loan, in the original principal amount of $3,400,000, to be used exclusively for the purchase of equipment and certain construction costs. The loan requires payment of interest only for the first two years at a fixed rate equal to 6% per annum and then repayment in equal monthly installments of principal and interest over the remaining eight years with a balloon payment of $1,387,000 at the end of the ten year contractual agreement. However, if the Company meets certain employment targets and other measures, some or all of this loan is forgivable during this ten year period. In October 1994, the Company sold $45,000,000 of 7.68% senior notes (Senior Notes). The Senior Notes require quarterly interest payments due January 1, April 1, July 1 and October 1. The agreement requires the Company to maintain a funded debt to total capital ratio not greater than .65 to 1 among other measures. The Credit Facility contains numerous restrictive covenants including but not limited to, the following matters: (i) maintenance of certain financial ratios and compliance with certain financial tests and limitations which become increasingly restrictive with the passage of time; (ii) limitations on payment of dividends, incurrence of additional indebtedness and granting of certain liens; (iii) restrictions on mergers, acquisitions, asset sales, sales of subsidiary stock, capital expenditures and investments; (iv) issuance of preferred stock by subsidiaries and (v) sale and leaseback transactions. The Company received waivers and amendments to certain financial covenants from its lenders at December 31, 1995 due to non-compliance with such covenants. During 1994, the Company entered into an agreement to lease certain machinery under terms which qualified as a capital lease. As of December 31, 1995 and 1994, assets recorded under this capital lease were approximately $5,032,000 and $5,109,000, respectively, net of accumulated amortization of approximately $95,000 and $18,000, respectively. Aggregate minimum principal payment requirements on long-term debt, including capital lease obligations, in each of the five years subsequent to December 31, 1995 are as follows: 1996 - $1,086,000; 1997 - $1,252,000; 1998 - $7,949,000; 1999 - $7,596,000; 2000 - $64,603,000, and thereafter - $151,989,000. 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 $17,191,000, $11,919,000 and $7,200,000 at December 31, 1995, 1994 and 1993, respectively. The weighted average interest rate on short-term bank borrowings outstanding under these arrangements was 6.1%, 6.7% and 5.6% as of December 31, 1995, 1994 and 1993, respectively. -17- 26 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 9. 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. 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. NOTE 10. INCOME TAXES. A summary of income before provision for income taxes, minority interest, equity in (income) loss of joint ventures and cumulative effect of accounting change, and components of the provision are as follows:
1995 1994 1993 ------- ------- ------- (In Thousands) Income before provision for income taxes, minority interest, equity in (income) loss of joint ventures and cumulative effect of accounting change: Domestic $ 4,268 $12,873 $12,765 Foreign 7,415 5,029 4,465 ---------------------------------------- $11,683 $17,902 $17,230 ======================================== Provision for income taxes: Currently payable- Domestic $ 843 $ 3,313 $ 4,923 Foreign 2,977 1,674 1,931 Utilization of tax credits (3,182) (605) (1,075) ---------------------------------------- 638 4,382 5,779 ---------------------------------------- Deferred- Domestic 945 1,067 (1,161) Foreign (325) (14) (309) Effect of change in U.S. statutory rate - - (90) Change in beginning of year valuation allowance - 389 355 ---------------------------------------- 620 1,442 (1,205) ---------------------------------------- $1,258 $ 5,824 $ 4,574 ========================================
-18- 27 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Reconciliations of the U.S. Federal statutory income tax rates to the Company's consolidated effective income tax rates applicable to continuing operations are as follows:
1995 1994 1993 ------- ------- ------- 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 2.1 (1.2) .3 Utilization of tax credits (27.2) (3.4) (6.3) Increase in valuation allowance - 2.2 2.1 Goodwill amortization 1.4 .9 .9 Other, net (.5) (1.0) (5.5) ----------------------------------------- Effective income tax rates 10.8% 32.5% 26.5% =========================================
The components of the net deferred income tax (asset) liability at December 31 are summarized as follows:
1995 1994 1993 ------- ------- ------- (In Thousands) Deferred income tax liabilities: Depreciation and basis difference $ 9,534 $ 5,342 $ 4,958 Employee benefits 57 1,470 1,535 Income of joint ventures - - 556 Basis difference on foreign currency contracts 193 910 999 Unrealized gain on securities available for sale 416 739 - Other 80 483 660 ------------------------------------------ 10,280 8,944 8,708 ------------------------------------------ Deferred income tax assets: Estimated net operating loss carryforwards (4,231) (585) (585) Employee benefits (3,609) (3,552) (3,135) Accruals (208) (238) (1,276) Minimum pension liability adjustment (32) - (274) Inventory (585) (613) (611) Accounts and notes receivable reserve (36) (159) (179) Write-down of investment (368) (368) (368) Loss of joint ventures (1,032) (2,072) (2,646) Other (803) (207) (150) ------------------------------------------ (10,904) (7,794) (9,224) Valuation allowance 744 744 355 ------------------------------------------ (10,160) (7,050) (8,869) ------------------------------------------ Net deferred income tax (asset) liability $ 120 $ 1,894 $ (161) ==========================================
-19- 28 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) At December 31, 1995, the cumulative amount of undistributed earnings of foreign subsidiaries was approximately $21,300,000. 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 foreign withholding taxes would not be significant. As of December 31, 1995, the Company has net operating loss carryforwards of approximately $13,832,000, which expire in varying amounts between 2003 and 2010, available from certain of its subsidiaries. The Company has recorded a deferred tax asset of $4,231,000 associated with these carryforwards. Realization 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 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 for state income taxes are included in selling and administrative expenses and amounted to $1,369,000 in 1995, $1,203,000 in 1994 and $722,000 in 1993. NOTE 11. STOCK OPTION PLANS AND LONG-TERM INCENTIVE PLANS. The Company has a stock option plan, the Walbro Corporation 1983 Incentive Stock Option Plan (1983 Plan), under which 155,850 shares of common stock are reserved for issuance to officers and key employees. Options may be granted for periods of up to ten years at prices greater than or equal to the market value at the date of grant. In 1991, the Company adopted an incentive stock option plan, the Walbro Corporation Equity Based Long Term Incentive Plan (Incentive Plan) under which 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 stock over the term. The number of grants outstanding was 33,294, 30,915 and 31,912 as of December 31, 1995, 1994 and 1993, respectively. -20- 29 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) A summary of the stock option transactions of the 1983 Plan and the Incentive Plan for the years ended December 31, 1995, 1994 and 1993 is as follows:
Number of Shares ---------------------------------- Option Price Exercisable Outstanding (per share) ----------- ----------- ------------ December 31, 1992 187,859 $ 9.25-26.00 Granted 73,380 27.13-33.25 Exercised (49,111) 9.25-26.00 Canceled (9,116) 26.00 -------- December 31, 1993 152,132 203,012 9.25-33.25 Granted 88,701 17.00 Exercised (12,794) 10.88-26.00 Canceled (5,808) 10.88-33.25 -------- December 31, 1994 184,410 273,111 9.25-33.25 Granted 174,881 18.00-25.25 Exercised (15,400) 10.88 Canceled (500) 33.25 -------- December 31, 1995 321,695 432,092 $9.25-33.25 ========
In 1991, the Company approved the Walbro Engine Management Corporation (EMC) Incentive Compensation Plan (EMC Plan) which covers selected officers and key employees of EMC. The purpose of the plan is to increase the proportion of officer and key employee compensation tied to the profitability and cash flow of EMC, a wholly-owned subsidiary of the Company. The EMC Plan requires EMC management to amortize over a seven-year period, in annual installments of interest and principal, an amount approximating the fair market value (FMV) of EMC at July 1, 1991. If all required payments have been made at the end of the fifth plan year, the participants will receive an amount equal to 15% of the FMV of EMC. At that time, if the payments made are less than 100% but greater than 70% of the required amortization amount, the participants are eligible to receive a pro-rata share of the 15% of FMV of EMC based on the actual repayment percentage achieved. The Company has accrued approximately $5,044,000, $3,100,000 and $1,480,000 as of December 31, 1995, 1994 and 1993, respectively, under this plan. -21- 30 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 12. POSTRETIREMENT HEALTH BENEFITS. The Company 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, 1993, the Company changed its method of accounting for the cost of these benefits from a pay-as-you-go (cash) method to an accrual method as required by SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions," and recognized the unfunded transition obligation of $4,394,000 ($2,900,000 after-tax) as a one-time cumulative effect of change in accounting. The following table reconciles the status of the accrued postretirement benefit obligation at December 31:
1995 1994 1993 ------ ------- ------- (In Thousands) Retirees $4,587 $4,687 $ 5,572 Fully eligible active plan participants - - - Other active plan participants - - - --------------------------------------- 4,587 4,687 5,572 Plan assets at fair value - - - Accumulated postretirement benefit obligation in excess of plan assets 4,587 4,687 5,572 Unrecognized net loss (81) (190) (1,120) --------------------------------------- Accrued postretirement benefit obligation $4,506 $4,497 $ 4,452 =======================================
The discount rates used in 1995, 1994 and 1993 were 7.25%, 8.5% and 7.0%, respectively. Net periodic postretirement benefit cost consisted of the following for the years ended December 31:
1995 1994 1993 ---- ---- ---- (In Thousands) Interest cost $350 $378 $321 Amortization of unrecognized net loss - 35 - ------------------------------ $350 $413 $321 ==============================
-22- 31 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) For measurement purposes, an 8% annual rate of increase was assumed in per capita cost of covered health and dental care benefits for 1995. The rate was assumed to gradually decrease to 5% by the year 2003 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, 1995 by $407,000 and the interest cost component of net periodic postretirement benefit cost for the year ended December 31, 1996 by $30,000. NOTE 13. PENSION 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 plan with sufficient assets to meet future benefit payment requirements. The plans covering foreign employees in certain countries are not funded. Total pension expense amounted to $251,000 in 1995, $239,000 in 1994 and $280,000 in 1993. The Company recognizes currently the amount which would be payable if employees covered by certain foreign plans terminated voluntarily. Pension expense for the other plans is comprised of the following:
1995 1994 1993 ---- ---- ---- (In Thousands) Service cost $136 $165 $157 Interest on projected benefit obligation 263 219 197 Actual return on assets (240) (182) (297) Net amortization and deferral 12 16 171 ----------------------------- $171 $218 $228 =============================
-23- 32 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table summarizes the funded status of the Company's defined benefit pension plans and the related amounts recognized in the Company's consolidated balance sheets as of December 31:
1995 1994 1993 ------- ------- ------- (In Thousands) Actuarial present value of benefit obligation- Vested $(4,022) $(2,319) $(3,134) Nonvested (767) (314) (282) --------------------------------------- Accumulated benefit obligation (4,789) (2,633) (3,416) Effects of salary progression - - - --------------------------------------- Projected benefit obligation (4,789) (2,633) (3,416) --------------------------------------- Plan assets- Cash equivalents 270 321 344 Equity securities 3,435 2,438 2,350 --------------------------------------- 3,705 2,759 2,694 --------------------------------------- Projected benefit obligation under (over) plan assets (1,084) 126 (722) Unamortized net asset at transition (53) (75) (97) Unamortized net (gain) loss 227 (74) 891 Adjustment to recognize minimum liability (1,038) - (1,108) Unrecognized prior service cost 864 498 314 --------------------------------------- Pension asset (liability) recorded in the consolidated balance sheets $(1,084) $ 475 $ (722) =======================================
The assumptions used in determining the funded status information shown above were as follows:
1995 1994 1993 ---- ---- ---- Discount rate 7.25 - 7.5% 8.5% 6.5% Long-term rate of return on assets 8.5% 8.5% 6.5%
The Company also sponsors a defined contribution plan for non-union domestic employees under which the Company will make matching contributions of 50% of each participant's before-tax contribution (up to 6% of the participant's annual income) and retirement contribution of up to 3% (subject to change on an annual basis) of a participant's annual income. The cost of defined contributions charged to earnings during 1995, 1994 and 1993 was approximately $2,255,000, $1,431,000 and $1,416,000, respectively. -24- 33 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Certain non-union employees, excluding officers, are eligible to participate in the Walbro Corporation Employee Stock Ownership Plan (ESOP). The Company will make 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. The Company has guaranteed the ESOP's loan and is obligated to contribute sufficient cash to the trust to repay the loan. Contribution expense related to the ESOP amounted to $515,000, $365,000 and $302,000 in 1995, 1994 and 1993, respectively. Contribution expense is net of dividends of $105,000, $210,000 and $106,000 in 1995, 1994 and 1993, respectively. As of December 31, 1995, 1994 and 1993, the following are held by the ESOP: 194,000, 170,000 and 152,000 allocated shares, respectively, and 56,000, 82,000 and 109,000 suspense (unallocated) shares, respectively, which are all committed-to-be-released. NOTE 14. 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. There were no contracts outstanding as of December 31, 1995. As of December 31, 1994 and 1993, the notional amounts of contracts outstanding were $14,000,000 and $30,000,000, respectively. The Company enters into forward currency exchange contracts to manage its exposure against foreign currency fluctuations related to firm commitments. As of December 31, 1994, the Company had one forward currency exchange contract which matured in 1995 and exchanged 86,332,000 French francs. Total losses on this contract of approximately $1,800,000 were recorded as a deferred asset during 1994. This asset is being recognized based on actual purchases of the related commitments. The amounts included in the equity in (income) loss of joint ventures in the accompanying consolidated statements of income related to this contract for the year ending December 31, 1995 and 1994 is approximately $720,000 and $600,000, respectively. The balance remaining to be amortized at December 31,1995 and 1994 is $480,000 and $1,200,000, respectively. -25- 34 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The Company enters into forward currency exchange contracts to hedge its equity investments in certain foreign joint ventures. During 1994, the Company had one forward currency exchange contract, which matured during 1994, which exchanged 44,100,000 French francs. At December 31, 1994, losses of $1,020,000 on a hedge of a net investment in a foreign joint venture are included in stockholders' equity. The Company enters into forward currency exchange contracts to reduce its exposure against fluctuations in foreign currency exchange rates. During 1995, the Company had twenty-one forward currency exchange contracts which matured during 1995, which exchanged 1,015,000,000 Japanese yen and 15,300,000 Singapore dollars. During 1994, the Company had twenty-one forward currency exchange contracts which matured during 1994, which exchanged 1,133,000,000 Japanese yen, 20,100,000 Deutsche marks and 15,100,000 Singapore dollars. The amounts included in foreign currency exchange loss in the accompanying consolidated statements of income related to these contracts were a gain of $929,000 for the year ending December 31, 1995 and a loss of $1,200,000 for the year ending December 31, 1994. 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: Cash and short-term financial instruments The fair values are estimated to be equal to carrying values because of the short-term, highly liquid nature of these instruments. 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. -26- 35 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Forward currency exchange contracts The fair value of forward currency exchange contracts is estimated by obtaining quotes from brokers. The estimated fair values of the Company's financial instruments are as follows:
1995 1994 1993 ----------------- ----------------- ----------------- Carrying Fair Carrying Fair Carrying Fair Value Value Value Value Value Value -------- ------- -------- ------- -------- ------- (In Thousands) Notes receivable $ 460 $ 460 $ 4,366 $ 4,860 $ 3,616 $ 4,049 Long-term debt 234,475 232,865 74,578 73,513 52,800 52,542 Forward currency exchange contracts (1,200) (1,200) (1,800) (1,800) - (73)
NOTE 15. LEASES. The Company has leased 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 $4,761,000, $3,324,000 and $2,655,000 in 1995, 1994 and 1993, respectively. Aggregate minimum future rentals under noncancellable leases are as follows:
Capital Operating Leases Leases ------- --------- (In Thousands) 1996 $850 $6,318 1997 850 4,480 1998 850 3,683 1999 850 3,516 2000 850 1,952 Thereafter 1,000 234 ------------------------------ Total minimum lease payments 5,250 $20,183 ================ Amount representing interest 1,055 ------------ Present value of net future minimum lease payments $4,195 ============
-27- 36 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 16. ACCRUED LIABILITIES. Accrued liabilities consisted of the following at December 31:
1995 1994 1993 ------- ------- ------ (In Thousands) Compensation $ 4,680 $ 5,123 $ 3,941 Income taxes 6,690 2,239 1,498 Reorganization and restructuring 7,664 - 754 Interest 5,352 147 407 Other 9,966 4,568 4,900 ----------------------------------------- $34,352 $12,077 $11,500 =========================================
NOTE 17. 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 one-hundredth of a share of a new series of preferred stock for $75. Furthermore, if the Company is involved in a merger or other business combination at any time after the rights become exercisable, the rights will entitle the holder to buy the number of shares of common stock of the acquiring company having a market value of twice the then current exercise price of each right. Alternatively, if a 15% or more shareholder acquires the Company by means of a reverse merger in which the Company and its stock survives, or engages in self-dealing transactions with the Company, or if any person acquires 50% or more of the Company's common stock, then each right not owned by a 15% or more shareholder will become exercisable for the number of shares of common stock of the Company having a market value of twice the then current exercise price of each right. The rights, which do not have voting rights, expire in December 1998 and may be redeemed by the Company at a price of $.01 per right at any time prior to their expiration or the time they become exercisable. The Company has authorized 1,000,000 shares of $1.00 par value preferred stock. NOTE 18. BUSINESS SEGMENT INFORMATION. The Company operates through its subsidiaries in the following industry segments: 1. Automotive, which designs, develops and manufactures fuel storage and delivery products for a broad range of U.S. and foreign manufacturers of passenger automobiles and light trucks (including minivans), and 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. The Company includes aftermarket operations for both the automotive and small engine markets within its small engine business segment. -28- 37 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Selected financial information about the Company's business and geographic segments are as follows:
1995 1994 1993 -------- -------- -------- (In Thousands) Financial Information by Business Segment Net sales to customers: Automotive $324,963 $204,563 $173,510 Small Engine 144,273 134,483 112,660 Corporate 4,430 1,022 1,456 ------------------------------------------ 473,666 340,068 287,626 Eliminations (14,394) (14,863) (14,163) ------------------------------------------ Total net sales $459,272 $325,205 $273,463 ========================================== Operating profit (loss): Automotive $ 30,076 $ 24,883 $ 20,416 Small Engine 16,607 18,522 16,025 Corporate (31,595) (22,986) (19,300) ------------------------------------------ Income before provision for income taxes and cumulative effect of accounting change $ 15,088 $ 20,419 $ 17,141 ========================================== Identifiable assets: Automotive $377,975 $155,006 $122,440 Small Engine 65,485 64,494 58,121 Corporate 50,013 37,866 34,734 ------------------------------------------ Total identifiable assets $493,473 $257,366 $215,295 ========================================== Depreciation and amortization: Automotive $ 12,967 $ 6,320 $ 5,652 Small Engine 6,090 5,841 4,908 Corporate 3,394 2,511 779 ------------------------------------------ Total depreciation and amortization $ 22,451 $ 14,672 $ 11,339 ========================================== Capital Expenditures Automotive $ 35,609 $ 10,101 $ 15,439 Small Engine 9,692 5,113 4,508 Corporate 939 3,630 313 ------------------------------------------ Total capital expenditures $ 46,240 $ 18,844 $ 20,260 ==========================================
-29- 38 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1995 1994 1993 -------- -------- -------- (In Thousands) Financial Information by Geographic Segment Net sales to customers: United States $314,697 $260,710 $215,149 Europe 88,736 - - Far East and Other Foreign 55,839 64,495 58,314 ------------------------------------------- 459,272 325,205 273,463 Net sales between geographic areas 27,663 31,094 28,842 ------------------------------------------- 486,935 356,299 302,305 Eliminations (27,663) (31,094) (28,842) ------------------------------------------- Total net sales $459,272 $325,205 $273,463 =========================================== Operating profit: United States $ 35,225 $ 37,040 $ 31,791 Europe 5,352 - - Far East and Other Foreign 6,106 6,365 4,650 ------------------------------------------- 46,683 43,405 36,441 Corporate, net (31,595) (22,986) (19,300) ------------------------------------------- Income before provision for income taxes and cumulative effect of accounting change $ 15,088 $ 20,419 $ 17,141 =========================================== Identifiable assets: United States $262,020 $224,369 $191,999 Europe 193,876 - - Far East and Other Foreign 37,577 32,997 23,296 ------------------------------------------- Total identifiable assets $493,473 $257,366 $215,295 ===========================================
Worldwide operations are located in three geographic segments - United States, Europe and Far East and Other Foreign. The Europe geographic segment includes operations in Belgium, France, Germany, Norway, Spain and the United Kingdom. The Far East and Other Foreign geographic segment includes operations in Japan, Singapore, Korea, China, Mexico and Canada. Sales between geographic areas are accounted for at cost plus a margin for profit. Operating profit consists of total sales less operating expenses excluding general corporate expenses, interest expense and income taxes. Identifiable assets are those assets used in the operations in each geographic area. Export sales from domestic locations were approximately $45,485,000, $36,881,000 and $47,876,000 for 1995, 1994 and 1993, respectively. The net assets of the Company's foreign operations were $29,137,000, $24,598,000 and $17,240,000 at December 31, 1995, 1994 and 1993, respectively. The Company's share of foreign net income was $4,763,000, $3,369,000 and $2,843,000 in 1995, 1994 and 1993, respectively. -30- 39 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) A majority of the Company's sales are to automobile manufacturing companies. Sales to certain major customers which exceeded 10% of consolidated sales are as follows. Sales to one such customer amounted to 21%, 30% and 30% of consolidated sales in 1995, 1994 and 1993, respectively. Sales to another such customer amounted to 19%, 23% and 21% of consolidated sales in 1995, 1994 and 1993, respectively. Several other factors could have a significant impact on the continuing operations of the Company. These factors include changes in demand for automobiles and light trucks, relationships with significant customers, price pressures, the timing and structure of future acquisitions or dispositions, the integration of the Dyno acquisition into Walbro's overall business, impact of environmental regulations, continued availability of adequate funding sources, currency and other risks inherent in international sales, and general economic and business conditions. NOTE 19. SUPPLEMENTAL CASH FLOW INFORMATION. In 1995, 1994 and 1993, the Company paid $3,290,000, $6,749,000 and $4,458,000 for income taxes and $7,191,000, $4,122,000 and $2,591,000 for interest, respectively. NOTE 20. QUARTERLY FINANCIAL INFORMATION (UNAUDITED). Selected quarterly financial information for the years ended December 31, 1995 and 1994 is as follows:
Quarter ----------------------------------------------------- (In Thousands, Except Per Share Data) First Second Third Fourth Total ------- ------- ------- ------- -------- 1995- Net sales $98,257 $90,034 $124,495 $146,486 $459,272 Cost of sales 77,550 73,036 105,444 121,725 377,755 ------- ------- ------- ------- ------- Gross profit $20,707 $16,998 $ 19,051 $ 24,761 $ 81,517 ======= ======= ======= ======= ======= Net income $ 5,088 $ 3,835 $ 2,289 $ 2,618 $ 13,830 ======= ======= ======= ======= ======= Net income per share $ .59 $ .45 $ .27 $ .30 $ 1.61 ======= ======= ======= ======= ======= 1994- Net sales $82,205 $83,976 $75,251 $83,773 $325,205 Cost of sales 64,973 66,335 62,130 68,063 261,501 ------- ------- ------- ------- -------- Gross profit $17,232 $17,641 $13,121 $15,710 $ 63,704 ======= ======= ======= ======= ======== Net income $ 4,499 $ 4,461 $ 2,974 $ 2,661 $ 14,595 ======= ======= ======= ======= ======= Net income per share $ .52 $ .52 $ .35 $ .31 $ 1.70 ======= ======= ======= ======= ========
-31- 40 WALBRO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 21. SUBSEQUENT EVENT. In February 1996, the Company announced plans to sell its steel fuel rail business in Ligonier, Indiana. Sales at this facility were approximately $29,000,000 in 1995. -32- EX-21.1 9 EX-21.1 1 EXHIBIT 21.1 SUBSIDIARIES OF WALBRO CORPORATION
Name of Subsidiary Jurisdiction of Incorporation - ------------------ ----------------------------- Auburn Diecast Corporation Michigan U.S. Coexcell, Inc. Ohio Walbro Capital Pte. Ltd. Republic of Singapore Walbro Automotive Corporation Delaware Walbro Automotive A.S Norway Walbro Automotive do Brasil Ltda. Brazil Walbro Automotive Europe S.A. France Walbro Automotive FSC, Inc. U.S. Virgin Islands Walbro Automotive GmbH Germany Walbro Automotive Japan, Inc. Japan Walbro Automotive Limited Great Britain Walbro Automotive N.V. Belgium Walbro Automotive S.A. France Walbro Automotive S.A. Spain Walbro Korea, Ltd. Republic of Korea Walbro Netherlands B.V. Netherlands Sharon Manufacturing Company Michigan Whitehead Engineered Products, Inc. Delaware Walbro Engine Management Corporation Delaware Walbro de Mexico, S.A. de C.V. Mexico Walbro GmbH Germany Walbro Japan, Inc. Japan Walbro Singapore Pte. Ltd. Republic of Singapore Walbro Tuscon Corporation Delaware SEM-Walbro Corporation Delaware Tuscon Precision Products Delaware Fujian Hualong Carburetor Co., Ltd. People's Republic of China Tianjin Walbro Industries, Ltd. People's Republic of China
EX-23.1 10 EX-23.1 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included (or incoporated by reference) in this Form 10-K, into the Company's previously filed Registration Statement File Nos. 33-20841, 33-32068 and 33-48562. Arthur Andersen LLP Detroit, Michigan, March 25, 1996 EX-27.1 11 EX-27.1
5 1,000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 19,792 0 113,346 0 50,723 199,704 269,693 63,928 493,473 103,991 233,389 0 0 4,290 131,137 493,473 459,272 459,272 377,755 377,755 58,723 0 11,111 11,683 1,258 13,830 0 0 0 13,830 1.61 1.61
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