SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark one)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1994
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file no. 1-4651
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ECHLIN INC.
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(Exact name of registrant as specified in its charter)
Connecticut 06-0330448
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(State of incorporation) (I.R.S. employer
identification no.)
100 Double Beach Road
Branford, Connecticut 06405
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(Address of principal executive offices) (Zip code)
(203) 481-5751
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report.)
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
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(APPLICABLE ONLY TO CORPORATE ISSUERS)
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Title of class Outstanding at June 30, 1994
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Common stock, $1 par value 59,328,911
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ECHLIN INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
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<S> <C>
Item 1. Financial Statements
Consolidated balance sheets at May 31, 1994
and August 31, 1993. 3
Consolidated statements of income for the three
and nine months ended May 31, 1994 and 1993 4
Consolidated statements of cash flows for the
nine months ended May 31, 1994 and 1993. 5
Notes to consolidated financial statements at
May 31, 1994. 6
Item 2. Management's Financial Analysis 7
PART II. OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
</TABLE>
2
<PAGE>
PART I: FINANCIAL INFORMATION
ECHLIN INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
May 31, August 31,
1994 1993
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(unaudited) (A)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 26,049 $ 28,572
Accounts receivable, less-allowance for
doubtful accounts of $5,038 and $4,299 288,511 201,177
Inventories, at lower of cost (first-in,
first-out) or market:
Raw materials and component parts 149,403 137,646
Work in process 66,670 47,985
Finished goods 329,684 302,459
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Total inventories 545,757 488,090
Other current assets 24,493 21,006
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Total current assets 884,810 738,845
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Property, plant and equipment, at cost 798,447 671,741
Accumulated depreciation (379,376) (342,360)
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Property, plant and equipment, net 419,071 329,381
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Marketable securities 113,625 90,002
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Other assets 91,504 105,033
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Total assets $1,509,010 $1,263,261
========== ==========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Notes payable to banks $ 9,869 $ 3,034
Current portion of long-term debt 2,495 3,658
Accounts payable, trade 140,814 135,569
Accrued taxes on income 50,125 64,053
Accrued liabilities 180,883 150,542
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Total current liabilities 384,186 356,856
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Long-term debt 310,679 157,540
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Deferred income taxes 42,673 35,043
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Shareholders' equity:
Preferred stock, without par value:
Authorized 1,000,000 shares, issued none - -
Common stock, $1 par value:
Authorized 150,000,000 shares,
issued 59,323,601 and 59,105,321 59,324 59,105
Capital in excess of par value 329,069 325,865
Retained earnings 427,551 371,963
Foreign currency translation adjustment (41,477) (40,116)
Treasury stock, at cost, 270,264 shares (2,995) (2,995)
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Total shareholders' equity 771,472 713,822
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Total liabilities and shareholders' equity $1,509,010 $1,263,261
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</TABLE>
See notes to consolidated financial statements.
(A) The balance sheet at August 31, 1993 has been derived from the audited
financial statements at that date.
3
<PAGE>
ECHLIN INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
May 31, May 31,
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1994 1993 1994 1993
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<S> <C> <C> <C> <C>
Net sales $610,034 $519,726 $1,606,451 $1,423,600
Cost of goods sold 426,274 365,492 1,134,949 1,010,866
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Gross profit on sales 183,760 154,234 471,502 412,734
Selling and administrative
expenses 123,024 107,675 338,913 309,224
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Income from operations 60,736 46,559 132,589 103,510
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Interest expense 6,512 4,502 16,353 14,773
Interest income 3,141 2,219 8,542 7,950
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Interest expense, net 3,371 2,283 7,811 6,823
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Income before taxes 57,365 44,276 124,778 96,687
Provision for taxes 18,357 14,384 39,929 31,368
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Income before cumulative
effect of accounting
change 39,008 29,892 84,849 65,319
Cumulative effect of
accounting change - - 2,583 -
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Net income $ 39,008 $ 29,892 $ 87,432 $ 65,319
======== ======== ========== =========
Average shares outstanding 59,048 58,688 58,972 58,484
======== ======== ========== =========
Per share data:
Income before accounting
change $0.66 $0.51 $1.44 $1.12
Cumulative effect of
accounting change - - 0.04 -
-------- -------- ---------- ---------
Net income $0.66 $0.51 $1.48 $1.12
======== ======== ========== =========
Cash dividends $0.19 $0.175 $0.54 $0.525
======== ======== ========== =========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
ECHLIN INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
May 31,
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1994 1993
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<S> <C> <C>
Cash flows from operating activities:
Net income $87,432 $65,319
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 50,325 44,836
Cumulative effect of accounting change (2,583) -
Changes in assets and liabilities, excluding
acquisitions' balance sheets:
Accounts receivable (82,378) (34,544)
Inventories (28,968) (23,429)
Other current assets (3,059) (2,497)
Accounts payable 2,460 2,054
Taxes on income (6,646) 18,639
Accrued liabilities 13,097 5,717
Other (816) 6,721
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Cash provided by operating activities 28,864 82,816
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Cash flows from financing activities:
Long-term and short-term borrowings 293,891 199,729
Long-term and short-term repayments (141,616) (189,490)
Sale of accounts receivable - 25,000
Proceeds from common stock issuances 3,423 6,697
Dividends paid (31,844) (30,295)
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Cash provided by financing activities 123,854 11,641
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Cash flows from investing activities:
Capital expenditures, net (48,394) (29,414)
Purchases of marketable securities (23,623) (7,212)
Net assets of businesses acquired (83,257) (36,736)
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Cash used for investing activities (155,274) (73,362)
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Impact of changes in foreign currency
translation on cash 33 (6,166)
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(Decrease)Increase in cash and cash equivalents (2,523) 14,929
Cash and cash equivalents at beginning of period 28,572 29,832
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Cash and cash equivalents at end of period $26,049 $44,761
======== ========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
ECHLIN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1.
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The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair statement have been included. Operating
results for the nine month period ended May 31, 1994 are not necessarily
indicative of the results that may be expected for the year ending
August 31, 1994. For further information, refer to the consolidated
financial statements and footnotes thereto included in the company's
Annual Report on Form 10-K for the year ended August 31, 1993.
NOTE 2.
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Fiscal 1993 results have been restated for the Frictiontech Inc. pooling
of interests transaction which occurred in June 1993.
NOTE 3.
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During February 1994, Echlin acquired Neelon Casting Ltd.(Neelon),
located in Canada, for approximately $23,000,000. Neelon is a producer
of automotive disc brake rotor castings for the replacement and original
equipment markets. The acquisition was accounted for by the purchase
method.
In October 1993, the company purchased the Hydraulic Brake and Clutch
Division of FAG Kugelfischer Georg Schafer A.G., located in Germany, for
approximately $59,700,000. In addition, if this acquired operation
exceeds certain net income thresholds during the first five years
subsequent to the acquisition date, the purchase price will be increased
by not more than $14,000,000. The acquisition was accounted for by the
purchase method.
NOTE 4.
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During the first quarter of fiscal 1994, the company adopted the
provisions of Statement of Financial Accounting Standards No. 109 (FAS
109), "Accounting for Income Taxes." FAS 109 changes the accounting for
income taxes from the deferred to an asset and liability method. The
cumulative effect of adopting this accounting change was a $2,583,000
increase in net income.
6
<PAGE>
ECHLIN INC.
MANAGEMENT'S FINANCIAL ANALYSIS
Results of Operations:
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Three Months Ended May 31, 1994 vs. Three Months Ended May 31, 1993
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Net sales for the three months ended May 31, 1994 increased 17.4 percent
while comparable operations increased 8.9 percent over the corresponding
quarter of a year ago. Both domestic and foreign comparable net sales
increased; 10.0 and 6.0 percent, respectively, over the same three month
period of a year ago. Domestic comparable operations increased
primarily due to unit volume gains, the impact of price increases and
new product sales. Overall domestic net sales performance was strong
for all product lines with the largest contributor continuing to be the
automotive brake group. Increased foreign net sales were primarily due
to the impact of price increases, higher unit volume and the
introduction of new products; partially offset by the negative impact of
translation. The negative translation impact was a result of the
strengthening of the U.S. dollar in relation to the British pound,
German mark, Canadian dollar, Mexican peso and South African rand.
The quarter's percentage of gross profit to sales increased to 30.1
percent from the prior year's third quarter 29.7 percent. The
improvements are primarily attributable to increased domestic and
foreign production levels and continued improvements in operational
efficiencies.
Selling and administrative expenses declined as a percentage of sales to
20.2 percent from 20.7 percent of a year ago. The dollar increase in
these expenses is primarily attributed to expense levels generated by
current year acquisitions and higher expenses as a result of the
increase in sales volume.
Net interest expense increased $1,088,000 primarily a result of higher
domestic average interest rates and debt levels. Interest income rose
due to the growth of our Puerto Rican investment portfolio.
Nine Months Ended May 31, 1994 vs. Nine Months Ended May 31, 1993
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For the nine month period net sales increased 12.8 percent. Domestic
comparable sales improved 7.0 percent due to increases in unit volume
and the introduction of new products, in addition to the positive impact
of price increases. All product groups reported improvements. Foreign
comparable operations are 1.0 percent above the prior year, as the
impact of increased unit volume and sales of new products was almost
totally offset by the negative effect of translation.
The percentage of gross profit to net sales for the nine months
increased to 29.4 percent from 29.0 percent a year ago. This
improvement is primarily attributable to increased domestic production
levels along with continued monitoring of costs.
7
<PAGE>
ECHLIN INC.
MANAGEMENT'S FINANCIAL ANALYSIS(cont.'d)
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Although selling and administrative expenses are $29,689,000 higher than
a year ago for the nine month period, as a percentage of sales they
declined favorably to 21.1 percent from 21.7 percent. The dollar
increase is primarily due to expense levels from current year
acquisitions.
Net interest expense rose $988,000 over last year due to higher domestic
average interest rates and debt levels. Average debt levels increased
due to funds required to acquire new businesses.
Net income for the nine months ended May 31, 1994 included income of
$2,583,000, which represented the cumulative effect of adopting the
provisions of FAS 109, "Accounting for Income Taxes," during the first
quarter.
Liquidity and Sources of Capital:
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During the first nine months of fiscal 1994, operations provided
$28,864,000 of cash flow as compared to the same period of fiscal 1993
when operations provided $82,816,000. This change reflected a higher
level of net income offset by larger cash outflows for working capital
items. Accounts receivable were higher due to the increased sales
levels while outflows for taxes are up as a result of the company's
higher earnings.
As a result of the increase in working capital, caused by the growth of
existing businesses and the need for funds to acquire new businesses,
debt levels rose $152,275,000 from year-end, net of debt assumed in the
acquisitions.
During the month of June 1994, the company renegotiated its revolving
credit agreement (RCA) which was due to expire on September 1, 1994.
Under the terms of the new agreement with twelve banking institutions,
the company has the availability through September 1, 1999 of maximum
borrowings of $375,000,000. The old agreement provided for maximum
borrowings of $350,000,000. There are currently no borrowings
outstanding under the RCA.
Net capital expenditures, which were $18,980,000 above last year,
represent outlays for new product development and manufacturing
improvements.
8
<PAGE>
ECHLIN INC.
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
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During the quarter ended May 31, 1994, the company did not file any
reports on Form 8-K.
9
<PAGE>
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Echlin Inc.
Date: July 12, 1994 Richard A. Wisot
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Richard A. Wisot
Vice President and
Controller
Date: July 12, 1994 Jon P. Leckerling
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Jon P. Leckerling
Vice President, General
Counsel and Corporate
Secretary
10
