-----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, GRYAaKSAVUnOHR+Aje1WYgLWWLDgy05eR3n6kerhTSINcTsgEKZpRpUZsryGHVIu pvPBkz41pyNJQSUPPWS9rA== 0000950124-99-003396.txt : 19990518 0000950124-99-003396.hdr.sgml : 19990518 ACCESSION NUMBER: 0000950124-99-003396 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 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-Q SEC ACT: SEC FILE NUMBER: 001-11567 FILM NUMBER: 99628865 BUSINESS ADDRESS: STREET 1: 6242 GARFIELD ST CITY: CASS CITY STATE: MI ZIP: 48726 BUSINESS PHONE: 5178722131 MAIL ADDRESS: STREET 1: 6242 GARFIELD STREET CITY: CASS CITY STATE: MI ZIP: 48726 10-Q 1 FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For The Quarterly Period ended March 31, 1999 Commission File Number 0-6955 WALBRO CORPORATION (Exact name of registrant as specified in its charter) Delaware (State of incorporation) 38-1358966 (I.R.S. Employer ID No.) 1227 Centre Road, Auburn Hills, MI 48236 (Address of principal executive offices) (Zip Code) (248) 377-1800 Registrant's telephone number, including area code Indicate by check mark whether the registrant has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (of for such shorter period that the registrant was required to file such reports) and has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of May 14, 1999: Common Stock (one class): 8,688,294 2 PART I FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS INTRODUCTION TO THE CONSOLIDATED FINANCIAL STATEMENTS The condensed consolidated financial statements of Walbro Corporation and subsidiaries (the "Company") have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated financial statements of the Company should be read in conjunction with the financial statements and the notes thereto included in the Company's Form 10-K as filed with the Securities and Exchange Commission for the year ended December 31, 1998. The financial information presented reflects all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the results for interim periods presented. The results for the interim periods are not necessarily indicative of the results to be expected for the year. 1 3 WALBRO CORPORATION & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands)
3/31/99 12/31/98 ------- -------- ASSETS (Unaudited) CURRENT ASSETS: CASH AND CASH EQUIVALENTS $ 13,407 $ 19,647 ACCOUNTS RECEIVABLE, NET 156,328 154,416 INVENTORIES, NET 59,572 60,871 OTHER CURRENT ASSETS 26,275 22,469 --------- ---------- TOTAL CURRENT ASSETS 255,582 257,403 PROPERTY, PLANT & EQUIPMENT: LAND, BUILDINGS & IMPROVEMENTS 99,242 99,747 MACHINERY & EQUIPMENT 290,889 308,151 --------- ---------- SUBTOTAL 390,131 407,898 LESS: ACCUMULATED DEPRECIATION (131,419) (129,357) --------- ---------- NET PROPERTY, PLANT & EQUIPMENT 258,712 278,541 OTHER ASSETS: GOODWILL, NET 31,419 31,887 JOINT VENTURES, INVESTMENTS & OTHER 76,642 80,836 --------- ---------- TOTAL OTHER ASSETS 108,061 112,723 --------- ---------- TOTAL ASSETS $ 622,355 $ 648,667 ========= ==========
The accompanying notes are an integral part of these consolidated balance sheets. 2 4 WALBRO CORPORATION & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
3/31/99 12/31/98 ------- -------- LIABILITIES (Unaudited) CURRENT LIABILITIES: CURRENT PORTION LONG-TERM DEBT $ 2,243 $ 2,403 NOTES PAYABLE-BANKS 4,535 12,012 ACCOUNTS PAYABLE 121,074 114,133 ACCRUED LIABILITIES 35,839 31,929 --------- --------- TOTAL CURRENT LIABILITIES 163,691 160,477 LONG-TERM LIABILITIES: LONG-TERM DEBT, NET OF CURRENT 312,485 324,289 OTHER LONG-TERM LIABILITIES 16,584 17,345 --------- --------- TOTAL LONG-TERM LIABILITIES 329,069 341,634 COMPANY-OBLIGATED MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED SECURITIES OF WALBRO CAPITAL TRUST HOLDING SOLELY CONVERTIBLE DEBENTURES 69,000 69,000 STOCKHOLDERS' EQUITY COMMON STOCK, $.50 PAR VALUE; 4,344 4,344 AUTHORIZED 25,000,000; OUTSTANDING 8,688,294 IN 1999 AND 8,688,294 IN 1998 PAID-IN CAPITAL 66,026 66,088 RETAINED EARNINGS 38,728 37,656 DEFERRED COMPENSATION 0 (125) ACCUMULATED OTHER COMPREHENSIVE INCOME (48,503) (30,407) --------- --------- TOTAL STOCKHOLDERS' EQUITY 60,595 77,556 --------- --------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 622,355 $ 648,667 ========= =========
The accompanying notes are an integral part of these consolidated balance sheets. 3 5 WALBRO CORPORATION & SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands, except share data)
THREE MONTHS ENDED 03/31/99 03/31/98 -------- -------- (Unaudited) NET SALES $ 188,706 $ 169,292 COST OF SALES & EXPENSES: COST OF SALES 161,072 144,058 SELLING AND ADMINISTRATIVE EXPENSES 14,207 12,951 RESEARCH & DEVELOPMENT EXPENSES 2,649 4,007 RESTRUCTURING CHARGES (825) 0 ----------- ----------- OPERATING INCOME 11,603 8,276 OTHER EXPENSE (INCOME): INTEREST EXPENSE 7,637 7,665 INTEREST INCOME (119) (162) ROYALTY INCOME, NET (676) (951) OTHER (INCOME) EXPENSE 71 (517) ----------- ----------- INCOME (LOSS) BEFORE INCOME TAXES, MINORITY INTEREST, AND JOINT VENTURES 4,690 2,241 PROVISION FOR INCOME TAXES (1,135) (752) MINORITY INTEREST (1,577) (1,391) EQUITY IN INCOME OF JOINT VENTURES (906) 474 ----------- ----------- NET INCOME $ 1,072 $ 572 =========== =========== BASIC NET INCOME PER SHARE $ 0.12 $ 0.07 =========== =========== DILUTED NET INCOME PER SHARE $ 0.12 $ 0.07 =========== =========== WEIGHTED AVERAGE SHARES OUTSTANDING 8,688,294 8,682,602 DILUTIVE OPTIONS ISSUED TO EXECUTIVES 0 3,885 ----------- ----------- DILUTED SHARES OUTSTANDING 8,688,294 8,686,487 =========== =========== NET INCOME $ 1,072 $ 572 OTHER COMPREHENSIVE INCOME, NET OF TAX: UNREALIZED LOSS ON SECURITIES AVAILABLE FOR SALE (51) (1) CUMULATIVE TRANSLATION ADJUSTMENTS (18,045) (3,386) ----------- ----------- OTHER COMPREHENSIVE INCOME (LOSS) (18,096) (3,387) ----------- ----------- COMPREHENSIVE INCOME (LOSS) $ (17,024) $ (2,815) =========== ===========
The accompanying notes are an integral part of these consolidated statements. 4 6 WALBRO CORPORATION & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) THREE MONTHS ENDED 03/31/99 03/31/98 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: (Unaudited) NET INCOME $ 1,072 $ 572 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: DEPRECIATION & AMORTIZATION 9,014 9,718 (GAIN) LOSS ON DISPOSITION OF ASSETS 9 (549) MINORITY INTEREST 197 26 (INCOME)LOSS OF JOINT VENTURES 906 (474) CHANGES IN ASSETS AND LIABILITIES: DEFERRED INCOME TAXES (77) (612) PENSION OBLIGATIONS & OTHER 654 583 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 13,587 34,819 ACCOUNTS RECEIVABLE, NET (7,688) (19,703) INVENTORIES (28) (2,640) PREPAID EXPENSES AND OTHER (607) (5,284) --------- ---------- TOTAL ADJUSTMENTS 15,967 15,884 --------- ---------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 17,039 16,456 --------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: PURCHASE OF FIXED ASSETS (3,060) (11,826) PURCHASE OF OTHER ASSETS (236) (12) INVESTMENT IN JOINT VENTURES & OTHER 0 (1,838) PROCEEDS FROM DISPOSAL OF ASSETS 40 3,689 --------- ---------- NET CASH USED IN INVESTING ACTIVITIES (3,256) (9,987) --------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: BORROWINGS UNDER LINES-OF-CREDIT 72,622 21,713 REPAYMENTS UNDER LINES-OF-CREDIT (83,965) (23,600) DEBT REPAYMENTS (6,761) (156) FINANCING FEES PAID (348) (366) CASH DIVIDENDS PAID 0 (868) --------- ---------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (18,452) (3,277) --------- ---------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (1,571) 359 --------- ---------- NET INCREASE (DECREASE) IN CASH (6,240) 3,551 CASH AND CASH EQUIVALENTS BEGINNING BALANCE 19,647 13,539 --------- ---------- CASH AND CASH EQUIVALENTS ENDING BALANCE $ 13,407 $ 17,090 ========= ==========
The accompanying notes are an integral part of these consolidated statements. 5 7 WALBRO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: SUBSEQUENT EVENT Walbro Corporation announced April 28, 1999 that it had entered into a definitive merger agreement with TI Group plc, headquartered in London, England, pursuant to which Walbro will become a wholly-owned subsidiary of TI Group. The all-cash transaction of $20.00 per share values Walbro at $570 million (including debt) and is subject to customary regulatory approvals. The Board of Directors of both companies have unanimously approved the merger agreement and will be effected through a tender offer launched by TI Group. NOTE 2: RESTRUCTURING OF OPERATIONS AND OTHER ACTIONS. During the fourth quarter of 1997, the Company recorded a $27,000,000 pre-tax charge for restructuring its operations and other actions. The charge was comprised of a $17,000,000 charge for restructuring and a $10,000,000 charge associated with asset impairments. In addition, the Company recorded a pre-tax charge of $5,700,000 for warranty costs (included in cost of sales) which became known during the fourth quarter of 1997. The components of the restructuring charge included $15,100,000 million for the divestiture of non-strategic businesses and facilities, $1,200,000 for personnel reductions and $700,000 for other actions. The divestiture component included $8,100,000 related to the divestiture of the Company's Ligonier, Indiana, steel fuel rail manufacturing facility, $5,700,000 related to the planned disposition of its interest in U.S. Coexcell Inc., a manufacturer of blow-molded plastic drums in Maumee, Ohio, $400,000 related to the movement of small engine operations in Mexico to a larger facility, $500,000 related to the divestiture of the Company's share of an automotive joint venture in Korea and $400,000 related to the consolidation of small engine operations in the Asia-Pacific region. Amounts paid to consolidate these small engine operations were charged against the reserve during 1998 at approximately the amount established as of December 31, 1997. The $8,100,000 charge related to the divestiture of the Company's steel fuel rail facility is comprised of $7,800,000 of non-cash asset revaluations and $300,000 of exit cost liabilities. This facility was sold as of May 31, 1998, resulting in a gain of approximately $500,000. Exit costs were paid and charged against the reserve during 1998 at approximately the amount established as of December 31, 1997. 8 The $5,700,000 charge related to the planned disposition of the Company's interest in U.S. Coexcell Inc. is comprised of $5,300,000 of non-cash asset revaluations and $400,000 of exit cost liabilities. The Company did not complete the disposition of U.S. Coexcell Inc. during 1998 or the first quarter of 1999 and continued to operate the facility. The Company is continuing to evaluate its options for U.S. Coexcell Inc. As such, no payments were made or charged against the reserve during 1998 nor the first quarter 1999. The $400,000 related to the movement of small engine operations in Mexico to a larger facility represents primarily remaining lease payments on the old facility for the period of time in which the Company will no longer use the facility. Of the amount established as of December 31, 1997, $300,000 was paid and charged against the reserve during 1998 and $100,000 during the first quarter of 1999. The $500,000 related to the divestiture of the Company's share of an automotive joint venture in Korea represents a non-cash charge to reduce the Company's investment to zero. During 1998, the Company divested its share of the joint venture. The $1,200,000 charge for personnel reductions relates to severance costs associated with a corporate-wide headcount reduction program including reductions related to the divestitures and restructuring. The Company planned to reduce the overall work force by approximately 10% or 500 employees, working in both manufacturing and administrative capacities. During 1998, approximately $1,000,000 was paid and charged against the reserve. The remainder will be paid and charged against the reserve during 1999. The components of the $10,000,000 charge for asset impairments include $4,200,000 to write-down to net realizable value certain tooling, machinery and equipment, $2,800,000 to reserve for uncertainties related to its Korean automotive activities, $1,300,000 to write-off its interest in Saginaw Plastics, an injection molder in Saginaw, Michigan and $1,700,000 associated with other impairment issues. No further circumstances arose during 1998 to question the net realizable value of these assets. However, during the first quarter 1999, improving business conditions and a reduction of the level of assets at risk associated with the Korean automotive activities allowed an $825,000 reduction in these reserves. NOTE 3: INVENTORIES Inventories are stated at the lower of cost (first-in, first-out) or market. Inventories include raw material and component parts, work-in-process and 9 finished products. Work-in-process and finished products inventories include material, labor and manufacturing overhead costs. Inventories are comprised of the following:
March 31, December 31, 1999 1998 ---- ---- (in thousands) Raw materials and components $33,677 $34,804 Work-in-process 7,085 6,287 Finished products 18,810 19,780 ------- ------- $59,572 $60,871 ======= =======
10 Note 4. Business Segment Information. The Company has adopted SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 establishes standards for reporting information about operating segments in annual financial statements and requires selected information about operating segments in interim financial reports issued to stockholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. Management uses information at the plant level for evaluating performance and allocating resources. Management also uses information from the plants at the product line and geographic levels as the basis for management decisions. The Company's reportable segments are managed separately as each business utilizes different technology and marketing strategies. The Company's reportable segments are grouped as follows: 1. Automotive, which designs, develops and manufactures fuel storage and delivery products for a broad range of U.S. and non U.S. manufacturers of passenger automobiles and light trucks (including minivans), 2. Small Engine, which designs, develops and manufactures diaphragm carburetors for portable engines, float feed carburetors for ground supported engines and ignition systems and other components for a variety of small engine products. 3. Aftermarket, which provides replacement parts for both the automotive and small engine markets. 4. Corporate, which includes corporate headquarters and direct investments. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies which are included in the Company's Form 10-K, as filed. The Company evaluates performance based on earnings before interest, income taxes, minority interest, equity in income of joint ventures and extraordinary items (EBIT). The Company accounts for intercompany sales as if they were to third parties, that is, at current market prices. The Company accounts for property transfers at net book value. The following tables present financial information for the quarters ended March 31 by reportable segment
3/31/99 3/31/98 3/31/97 -------- -------- -------- Net sales to external customers Automotive $136,006 $126,249 $113,724 Small Engine 41,551 33,323 31,473 Aftermarket 9,189 7,751 6,774 Corporate 1,960 1,969 2,048 -------- -------- -------- Total net sales to external customers 188,706 169,292 154,019 ======== ======== ======== Intercompany sales Automotive 19,463 18,093 16,171 Small Engine 11,515 11,320 10,146 Aftermarket 214 268 256 Corporate 373 18 66 -------- -------- -------- Total intercompany sales 31,565 29,699 26,639 Elimination of intercompany sales (31,565) (29,699) (26,639) -------- -------- -------- Total net sales $188,706 $169,292 $154,019 ======== ======== ======== EBIT Automotive $ 12,459 $ 7,569 $ 8,537 Small Engine 978 2,690 3,227 Aftermarket 2,263 2,116 1,825 Corporate (3,492) (2,631) (3,772) -------- -------- -------- Total EBIT 12,208 9,744 9,817 -------- -------- -------- Unallocated amounts Interest income 119 162 131 Interest expense (7,637) (7,665) (6,023) Minority Interest, net of tax (1,577) (1,391) (984) Equity in income (loss)of joint ventures, net of tax (906) 474 801 -------- -------- -------- Total income (loss) before income taxes and extraordinary item $ 2,207 $ 1,324 $ 3,742 ======== ======== ========
11 WALBRO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE (5) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
as of March 31, 1999 --------------------------------------------------------------------------- Walbro Corporation Consolidation Guarantor Nonguarantor (Parent and Elimination Consolidated Subsidiaries Subsidiaries Corporation) Entries Total ------------ ------------ ------------ ------- ----- (in thousands, except share data) --------------------------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ (271) $ 12,287 $ 1,391 $ - $ 13,407 Accounts receivable, net 62,940 42,660 50,728 - 156,328 Accounts receivable, intercompany (77,786) (21,396) 101,225 (2,043) - Inventories, net 19,926 38,606 1,040 59,572 Prepaid expenses and other 2,880 11,722 1,110 - 15,712 Deferred and refundable income taxes - 1,335 9,228 - 10,563 --------------------------------------------------------------------------- Total current assets 7,689 85,214 164,722 (2,043) 255,582 --------------------------------------------------------------------------- PLANT AND EQUIPMENT, NET 106,617 143,305 8,682 108 258,712 --------------------------------------------------------------------------- OTHER ASSETS: Assets held for sale - 3,175 - - 3,175 Joint ventures 19,205 16,879 - - 36,084 Investments 129,887 24,753 58,947 (210,987) 2,600 Goodwill, net 13,772 9,106 - 8,541 31,419 Notes receivable 2,000 6,060 - (6,056) 2,004 Deferred income taxes - 3,947 346 - 4,293 Other 9,364 4,630 14,492 - 28,486 --------------------------------------------------------------------------- Total other assets 174,228 68,550 73,785 (208,502) 108,061 --------------------------------------------------------------------------- Total assets $ 288,534 $ 297,069 $247,189 $ (210,437) $ 622,355 =========================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 664 $ 86 $ 1,493 $ - $ 2,243 Bank and other borrowings - 4,535 - - 4,535 Accounts payable 40,232 74,889 5,953 - 121,074 Accrued liabilities 14,139 18,777 1,837 166 34,919 Dividends payable - 920 - - 920 --------------------------------------------------------------------------- Total current liabilities 55,035 99,207 9,283 166 163,691 --------------------------------------------------------------------------- LONG-TERM LIABILITIES Long-term debt, less current portion 163,759 16,360 169,741 (37,375) 312,485 Pension obligations - 3,877 8,233 - 12,110 Deferred income taxes - 3,715 (663) - 3,052 Minority interest - 1,422 - - 1,422 --------------------------------------------------------------------------- Total long-term liabilities 163,759 25,374 177,311 (37,375) 329,069 --------------------------------------------------------------------------- REDEEMABLE PREFERRED STOCK - 69,000 - - 69,000 STOCKHOLDERS' EQUITY Common stock, $.50 par value; authorized 25,000,000; outstanding 8,688,294 in 1999; 8,688,294 in 1998 - 25,678 4,344 (25,678) 4,344 Paid-in capital - 72,884 66,026 (72,884) 66,026 Retained earnings 73,048 38,866 38,728 (111,914) 38,728 Deferred compensation - - - - Accumulated other comprehensive income (3,308) (33,940) (48,503) 37,248 (48,503) --------------------------------------------------------------------------- Total stockholders' equity 69,740 103,488 60,595 (173,228) 60,595 --------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 288,534 $ 297,069 $247,189 $ (210,437) $ 622,355 ===========================================================================
12 WALBRO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE (5) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Three Months Ended March 31, 1999 ---------------------------------------------------------------------------- Walbro Corporation Consolidation Guarantor Nonguarantor (Parent and Elimination Consolidated Subsidiaries Subsidiaries Corporation) Entries Total ------------ ------------ ------------ ------- ----- (in thousands, except share data) --------------------------------- NET SALES $ 90,346 $ 104,667 $ 890 $ (7,197) $ 188,706 COSTS AND EXPENSES: Cost of sales 75,868 91,612 789 (7,197) 161,072 Selling, administration & other expenses 5,037 7,375 4,444 16,856 Restructuring expense (825) - - (825) ---------------------------------------------------------------------------- OPERATING INCOME (LOSS) 10,266 5,680 (4,343) - 11,603 OTHER EXPENSE (INCOME): Interest expense, net 3,059 371 4,088 7,518 Royalty income, net (763) 87 - - (676) Foreign currency exchange loss(gain) 135 (73) - - 62 Other 21 (12) - - 9 ---------------------------------------------------------------------------- Income before provision for income taxes, minority interest, equity in (income) loss of joint ventures and subsidiaries 7,814 5,307 (8,431) - 4,690 Provision for income taxes (2,824) (1,129) 2,818 - (1,135) Minority Interest - (1,577) - - (1,577) Equity in income (loss) of joint ventures (964) 58 - - (906) Equity in income (loss) of subsidiaries 2,788 - 6,685 (9,473) - ============================================================================ Net Income Before Extraordinary Item $ 6,814 $ 2,659 $ 1,072 $ (9,473) $ 1,072 ============================================================================ Extraordinary Item $ - - ============================================================================ Net Income $ 6,814 $ 2,659 $ 1,072 $ (9,473) $ 1,072 ============================================================================ Net Income $ 6,814 $ 2,659 $ 1,072 $ (9,473) $ 1,072 Other Comprehensive Income, Net of Tax Unrealized loss on Securities Avail. for Sale - - (51) - (51) Cumulative Translation Adjustments - (14,950) (18,045) 14,950 (18,045) ---------------------------------------------------------------------------- Other Comprehensive Income (Loss) $ - $ (14,950) $ (18,096) $ 14,950 $ (18,096) ---------------------------------------------------------------------------- Comprehensive Income $ 6,814 $ (12,291) $ (17,024) $ 5,477 $ (17,024) ============================================================================
13 WALBRO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE(5) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Three Months Ended March 31, 1999 -------------------------------------------------------------------------- Walbro Corporation Consolidation Guarantor Nonguarantor (Parent and Elimination Consolidated Subsidiaries Subsidiaries Corporation) Entries Total ------------ ------------ ------------ ------- ----- (in thousands, except share data) --------------------------------- Net cash provided by (used in) operating activities $ 813 $ 4,992 $ 11,234 $ - $ 17,039 ----------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of plant and equipment 233 (2,478) (815) - (3,060) Acquisitions, net of cash acquired - - - - - Purchase of other assets 419 (636) (19) - (236) Investment in joint ventures and other (2,788) - 2,788 - - Proceeds/(payments) of intercompany note rec. - - - - - Proceeds from disposal of assets 13 27 - - 40 ----------------------------------------------------------------------- Net cash provided by(used in) investing activities (2,123) (3,087) 1,954 - (3,256) ----------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings (repayments) under revolving line-of-credit agreements - (11,343) - (11,343) Debt repayments (151) (6,610) - - (6,761) Proceeds from issuance of long-term debt - - - - - Proceeds from issuance of stock and options - - - - - Financing fees paid - - (348) - (348) Cash dividends paid - - - - - ----------------------------------------------------------------------- Net cash provided by(used in) financing activities (151) (6,610) (11,691) - (18,452) ----------------------------------------------------------------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH - (1,571) - - (1,571) ----------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH (1,461) (6,276) 1,497 - (6,240) CASH AND CASH EQUIV. AT BEGIN OF YEAR 1,190 18,563 (106) - 19,647 ----------------------------------------------------------------------- CASH AND CASH EQUIV. AT END OF PERIOD $ (271) $ 12,287 $ 1,391 $ - $ 13,407 =======================================================================
14 WALBRO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE(5) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
as of December 31, 1998 ------------------------------------------------------------------------------- Walbro Corporation Consolidation Guarantor Nonguarantor (Parent and Elimination Consolidated Subsidiaries Subsidiaries Corporation) Entries Total ------------ ------------ ------------ ------- ----- (in thousands, except share data) --------------------------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 1,190 $ 18,563 $ (106) $ - $ 19,647 Accounts receivable, net 66,739 55,015 32,662 - 154,416 Accounts receivable, intercompany (103,735) (37,056) 141,663 (872) - Inventories, net 21,898 37,918 1,055 60,871 Prepaid expenses and other 1,690 9,007 1,037 - 11,734 Deferred and refundable income taxes - 1,507 9,228 - 10,735 ------------------------------------------------------------------------------- Total current assets (12,218) 84,954 185,539 (872) 257,403 ------------------------------------------------------------------------------- PLANT AND EQUIPMENT, NET 109,941 160,478 8,014 108 278,541 ------------------------------------------------------------------------------- OTHER ASSETS: Assets held for sale - 3,175 - - 3,175 Joint ventures 20,169 18,266 - - 38,435 Investments 134,676 24,766 68,408 (225,160) 2,690 Goodwill, net 13,886 9,460 - 8,541 31,887 Notes receivable 2,000 8,310 - (8,287) 2,023 Deferred income taxes - 5,266 346 - 5,612 Other 9,705 4,740 14,456 - 28,901 ------------------------------------------------------------------------------- Total other assets 180,436 73,983 83,210 (224,906) 112,723 ------------------------------------------------------------------------------- Total assets $ 278,159 $ 319,415 $ 276,763 $ (225,670) $ 648,667 =============================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 776 $ 134 $ 1,493 $ - $ 2,403 Bank and other borrowings - 12,012 - - 12,012 Accounts payable 28,094 79,454 6,585 - 114,133 Accrued liabilities 13,164 14,440 2,176 1,229 31,009 Dividends payable - 920 - - 920 ------------------------------------------------------------------------------- Total current liabilities 42,034 106,960 10,254 1,229 160,477 ------------------------------------------------------------------------------- LONG-TERM LIABILITIES Long-term debt, less current portion 165,617 18,882 181,757 (41,967) 324,289 Pension obligations - 3,754 7,831 - 11,585 Deferred income taxes - 5,170 (635) - 4,535 Minority interest - 1,225 - - 1,225 ------------------------------------------------------------------------------- Total long-term liabilities 165,617 29,031 188,953 (41,967) 341,634 ------------------------------------------------------------------------------- REDEEMABLE PREFERRED STOCK - 69,000 - - 69,000 STOCKHOLDERS' EQUITY Common stock, $.50 par value; authorized 25,000,000; outstanding 8,688,294 in 1999; 8,688,294 in 1998 - 25,678 4,344 (25,678) 4,344 Paid-in capital - 73,618 66,088 (73,618) 66,088 Retained earnings 73,816 34,118 37,656 (107,934) 37,656 Deferred compensation - (125) - (125) Accumulated other comprehensive income (3,308) (18,990) (30,407) 22,298 (30,407) ------------------------------------------------------------------------------- Total stockholders' equity 70,508 114,424 77,556 (184,932) 77,556 ------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 278,159 $ 319,415 $ 276,763 $ (225,670) $ 648,667 ===============================================================================
15 WALBRO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE(5) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Three Months Ended March 31, 1998 ----------------------------------------------------------------------------- Walbro Corporation Consolidation Guarantor Nonguarantor (Parent and Elimination Consolidated Subsidiaries Subsidiaries Corporation) Entries Total ------------ ------------ ------------ ------- ----- (in thousands, except share data) --------------------------------- NET SALES $ 93,868 $ 83,421 $ 667 $ (8,664) $ 169,292 COSTS AND EXPENSES: Cost of sales 80,829 71,223 670 (8,664) 144,058 Selling, administration & other expenses 7,389 6,344 3,225 - 16,958 Restructuring expense - - - - - -------------------------------------------------------------------------- OPERATING INCOME (LOSS) 5,650 5,854 (3,228) - 8,276 OTHER EXPENSE (INCOME): Interest expense, net 4,096 2,851 8,471 (7,753) 7,665 Royalty income, net (1,853) (1,752) (4,310) 7,753 (162) Foreign currency exchange loss (gain) (8) 96 - - 88 Other (1,062) 98 (592) - (1,556) -------------------------------------------------------------------------- Income before provision for income taxes, minority interest, equity in (income) loss of joint ventures and subsidiaries 4,477 4,561 (6,797) - 2,241 Provision for income taxes (1,608) (1,784) 2,640 - (752) Minority Interest - (1,391) - - (1,391) Equity in income (loss) of joint ventures 39 435 - - 474 Equity in income (loss) of subsidiaries 1,980 - 4,729 (6,709) - -------------------------------------------------------------------------- Net Income Before Extraordinary Item $ 4,888 $ 1,821 $ 572 $ (6,709) $ 572 ========================================================================== Extraordinary Item -------------------------------------------------------------------------- Net Income $ 4,888 $ 1,821 $ 572 $ (6,709) $ 572 ========================================================================== Net Income $ 4,888 $ 1,821 $ 572 $ (6,709) $ 572 Other Comprehensive Income, Net of Tax Unrealized loss on Securities Avail. for Sale - - (1) - (1) Cumulative Translation Adjustments - (263) (3,386) 263 (3,386) -------------------------------------------------------------------------- Other Comprehensive Income (Loss) $ - $ (263) $ (3,387) $ 263 $ (3,387) -------------------------------------------------------------------------- Comprehensive Income $ 4,888 $ 1,558 $ (2,815) $ (6,446) $ (2,815) ==========================================================================
16 WALBRO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE (5) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Three Months Ended March 31, 1998 ---------------------------------------------------------------------------- Walbro Corporation Consolidation Guarantor Nonguarantor (Parent and Elimination Consolidated Subsidiaries Subsidiaries Corporation) Entries Total ------------ ------------ ------------ ------- ----- (in thousands, except share data) --------------------------------- Net cash provided by (used in) operating activities $ 8,494 $ 3,947 $ 4,015 $ - $ 16,456 -------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of plant and equipment (4,807) (7,011) (8) - (11,826) Acquisitions, net of cash acquired - - - - - Purchase of other assets (94) 89 (7) - (12) Investment in joint ventures and other (3,534) (282) 1,978 - (1,838) Proceeds/(payments) of intercompany note rec. - - - - - Proceeds from disposal of assets - 51 3,638 - 3,689 -------------------------------------------------------------------------- Net cash provided by(used in) investing activities (8,435) (7,153) 5,601 - (9,987) -------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings (repayments) under revolving line-of-credit agreements - (2,287) 400 - (1,887) Debt repayments (156) - - - (156) Proceeds from issuance of long-term debt - - - - - Proceeds from issuance of stock and options - - - - - Financing fees paid - - (366) - (366) Cash dividends paid - - (868) - (868) -------------------------------------------------------------------------- Net cash provided by(used in) financing activities (156) (2,287) (834) - (3,277) -------------------------------------------------------------------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH - 359 - - 359 -------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH (97) (5,134) 8,782 - 3,551 CASH AND CASH EQUIV. AT BEGIN OF YEAR (744) 13,431 852 - 13,539 -------------------------------------------------------------------------- CASH AND CASH EQUIV. AT END OF PERIOD $ (841) $ 8,297 $ 9,634 $ - $ 17,090 ==========================================================================
17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations THREE MONTHS ENDED MARCH 31, 1999 VS. THREE MONTHS ENDED MARCH 31, 1998 Net sales in the first quarter of 1999 increased 11.5% to $188.7 million compared to $169.3 million for the same period of 1998. Sales of automotive products increased 7.8% to $136.0 million for the first quarter of 1999 compared to $126.2 million for the same period of 1998. Sales of small engine products increased 24.9% to $41.6 million for the first quarter of 1999 compared to $33.3 million for the same period of 1998. Sales of aftermarket products increased 17.9% to $9.2 million for the first quarter of 1999 compared to $7.8 million for the first quarter of 1998. Sales of automotive products in the U.S. increased to $74.0 million, an increase of 3.0%, led by higher plastic fuel tank system sales. Sales of automotive products in Europe for the first quarter of 1999 increased by 14.8%, but were below expectations due to delayed customer launches in Europe and the economic conditions in Brazil. Sales of small engine products increased in Asia Pacific due to new product introductions and a strong market in the two-wheeled vehicle segment. The largest increase in sales came from carburetor sales in the People's Republic in China, up by 245.9%. In addition, sales of small engine products in Japan increased by 35.0%. Cost of sales for the first quarter of 1999 increased 11.8% to $161.1 million compared to $144.1 million for the same period of 1998. Cost of sales as a percent of net sales was 85.4% for the first quarter of 1999 compared to 85.1% for the same 1998 period, resulting in a gross margin of 14.6% in 1999, down slightly from 14.9% in 1998. Automotive products gross margin improvement resulted in general from the cost reduction programs initiated in 1998 and improved performance in Ossian, Indiana. Gross margin in Europe/South America declined 2.4 percentage points due to delayed new product launches at customers of Belgium and the U.K., and the volume declines in Brazil. The small engine products gross margin declined to 11.9% compared to 18.8% in 1998 due to continuing performance issues associated with the consolidation of multiple facilities and product lines into the Company's plant in Mexico, which more than offset the gross margin increases in Asia Pacific. 18 Selling and administrative ("S & A") expenses increased 9.7% for the first quarter of 1999 compared to the first quarter of 1998, while Research and Development ("R & D") expenses decreased 33.9% for the first quarter of 1999. These changes were driven by a realignment in the product engineering and R & D organization to increase the effectiveness of the product development activities of the company. Overall, operating expenses were 8.9% of sales compared to 10.1% in 1998. Restructuring charges were a credit of $0.8 million for the quarter. This was due to a continuing evaluation of the necessity for certain reserves taken in the 1997 restructuring charge for activities in the Asia Pacific region. The Company determined changes in business conditions and reduced level of assets at risk which reduced the need for these reserves. Royalty income decreased to $0.7 million in the first quarter of 1999 compared to $1.0 million in 1998 due to weaker performance in certain of the company's joint ventures. Equity income of the joint ventures was a loss of $.9 million for the quarter compared to income of $.5 million in the same period of 1998. This loss was driven by the start up costs of VITEC and the performance of the joint venture in Brazil, which has been impacted by severe economic conditions. Net income for the first three months of 1999 was $1.1 million compared to net income of $.6 million for the same period of 1998. Net income per share was $.12 for the first quarter of 1999 compared to $.07 for the same period of 1998. Foreign Currency Transactions Approximately 43% of the Company's sales during the first three months of 1999 were derived from international manufacturing operations in Europe, Asia, South America and Mexico. The financial position and the results of operations of the Company's subsidiaries in Europe (30% of sales), Japan (5% of sales), South American (2% of sales) and China (1% of sales) were measured in local currency of the countries in which they operated and translated into U.S. dollars. The effects of foreign currency fluctuations in Europe, South America, Japan and China are somewhat mitigated by the fact that expenses are generally incurred in the same currencies in which sales are generated. The reported income of these subsidiaries will be higher or lower depending on a weakening or strengthening of the U.S. dollar. The Comprehensive (Loss) of $17,024 was primarily due to the impact of the devaluation of the Brazilian real during the quarter. The revalued assets are reflected in the consolidated balance sheet. 19 The Company's subsidiary in Mexico (2% of sales) operates as a maquiladora, or contract manufacturer, where certain direct manufacturing expenses are incurred in the local currency and sales are generated in U.S. dollars. Thus, results of operations of the Company's subsidiary in Mexico are also more directly influenced by a weakening or strengthening of the local currency. Approximately 48% of the company's assets at March 31, 1999, were based in its foreign operations and these assets are translated into U.S. dollars at foreign currency exchange rates in effect as of the end of each period. Accordingly, the Company's consolidated stockholders' equity will fluctuate depending upon the weakening or strengthening of the U.S. dollar. In addition, the Company has equity investments in unconsolidated joint ventures in Brazil, France, Japan, and Mexico. The Company's reported income from these joint ventures will be higher or lower depending upon a weakening or strengthening of the U.S. dollar. The Year 2000 Issue The year 2000 issue ("Y2K") is the result of computer programs that were written using two digits (rather than four) to define the applicable year. Any of the Company's computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000, which could result in miscalculations or system failures. The Company is actively participating in the Automotive Industry Action Group ("AIAG") for Y2K and is using AIAG procedures and standards as the guideline for compliance. The Company's plan for compliance includes several phases: (1) awareness, (2) assessment, (3) renovation, (4) validation and (5) implementation. Each phase considers the impact of Y2K on information technology systems, embedded technology (i.e. machinery and equipment with date sensitive technology) and the Company's suppliers. None of the Company's products include date sensitive technology. The Company is currently at various stages of completion within each phase. The Company has completed its assessment of its information technology systems and embedded technology identifying those that need further evaluation. The Company has also identified critical suppliers that need evaluation. This phase of the process includes obtaining compliance certificates from suppliers for all existing systems and embedded technology that are already Y2K compliant and obtaining compliance certificates for all significant vendors. The renovation phase, which is also in process, includes obtaining revised software for existing systems and purchasing new computer programs and 20 replacement computer hardware for non-compliant systems. This phase is expected to be complete by June 30, 1999. The estimated remaining cost associated with the purchase of these items is approximately $0.5 million. Existing staff will do all of the implementation and testing. The Company does not have a project tracking system that tracks the cost and time that its own internal employees spend on the Y2K project. The validation and implementation phases are also in process, and are expected to be substantially completed by June 30, 1999. Management believes that this plan will effectively mitigate the risks associated with Y2K. A worst-case scenario with respect to a Y2K failure in a key internal system or supplier system would result in shipments of product to customers to be temporarily interrupted. This could result in missing production schedules with customers, which in turn could lead to lost sales and profits for the Company and our customers. As part of the Y2K strategy, the company is in the process of developing contingency plans on a site-by-site, system-by-system basis. These plans include identifying alternative sources of materials and components as well as potentially stockpiling some key raw materials. All plans will be documented and will be executed if necessary. Liquidity and Capital Resources As of March 31, 1999, the Company had outstanding $6.8 million in short-term debt, including current portion of long-term debt, and $312.5 million in long-term debt. The approximate minimum principal payments required on the Company's long-term debt in each of the five fiscal years subsequent to December 31, 1998 are $2.4 million in 1999, $2.6 million in 2000, $2.6 million in 2001, $2.0 million in 2002, $95.9 million in 2003 and $221.3 million thereafter. As of March 31, 1999, accounts receivable amounted to $156.3 million, a decline of $4.4 million compared to March 31, 1998. The average collection period at March 31, 1999 was 75.0 days compared to 82.3 days at March 31, 1998. The Company's plans for 1999 capital expenditures for facilities, equipment and tooling total approximately $40 million. The Company intends to finance the capital expenditures with the existing Credit Facilities, potential lease financing, access to capital markets and cash from operations. Management believes that the Company's long-term cash needs will continue to be provided principally by operating activities supplemented, to the extent required, by borrowing under the Company's existing and future credit facilities and by access to the capital markets. Management expects to replace these credit facilities as they expire with comparable facilities. Safe Harbor Statement Under The Private Securities Litigation Reform Act of 1995 - -------------------------------------------------------------------------------- The statements contained in this discussion that are not historical facts are forward-looking statements subject to the safe harbor created by the Securities Litigation Reform Act of 1995. Whenever possible, the Company has identified these forward-looking statements by words such as "anticipating," "believes," "estimates," "expects," and similar expressions. The Company cautions readers of this discussion that a number of important factors could cause the Company's actual consolidated results for 1999 and beyond to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. These important factors include, without limitation, changes in demand for automobiles and light trucks, relationships with significant customers, price pressures, the timing and structure of future acquisitions or dispositions including the restructuring program announced during the fourth quarter of 1997, impact of environmental regulations, the year 2000 computer issue, continued availability of adequate funding sources, currency and other risks inherent in international sales, and general economic and business conditions. These important factors and other factors which could affect the Company's results are more fully disclosed in the Company's filings with the Securities and Exchange Commission. Readers of this discussion are referred to such filings. The Company assumes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. 21 PART II OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibit is filed with this report EXHIBIT NO. 27.1 Financial Data Schedule (a) Reports of Form 8-K There were no forms 8-K filed during the quarter. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto authorized. WALBRO CORPORATION (Registrant) Dated: May 17, 1999 /s/ Frank E. Bauchiero -------------------------------------- Frank E. Bauchiero, President and Chief Executive Officer Dated: May 17, 1999 /s/ Michael A. Shope -------------------------------------- Michael A. Shope Chief Financial Officer and Treasurer EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 13,407 0 156,328 0 59,572 255,582 390,131 131,419 622,355 163,691 312,485 69,000 0 4,344 56,251 622,355 188,706 188,706 161,072 161,072 15,307 0 7,637 4,690 1,135 1,072 0 0 0 1,072 0.12 0.12
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