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 February 28, 1995
------------------------
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.
- ---------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Connecticut 06-0330448
- ------------------------------------------- ----------------------
(State of incorporation) (I.R.S. employer
identification no.)
100 Double Beach Road
Branford, Connecticut 06405
- ------------------------------------------- ----------------------
(Address of principal executive offices) (Zip code)
(203) 481-5751
---------------------------------------
(Registrant's telephone number, including area code)
- ---------------------------------------------------------------------------
(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
---- ----
(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 March 31, 1995
- -------------------------- -----------------------------
Common stock, $1 par value 59,527,405
<PAGE>
ECHLIN INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
- ------------------------------ ----
<S> <C>
Item 1. Financial Statements
Consolidated balance sheets at February 28, 1995
and August 31, 1994. 3
Consolidated statements of income for the three
months ended February 28, 1995 and February 28, 1994;
for the six months ended February 28, 1995 and
February 28, 1994. 4
Consolidated statements of cash flows for the
six months ended February 28, 1995 and 1994. 5
Notes to consolidated financial statements at
February 28, 1995. 6-7
Item 2. Management's Financial Analysis 8-10
PART II. OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
</TABLE>
2
<PAGE>
PART I: FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ECHLIN INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
February 28, August 31,
1995 1994
----------- ----------
(unaudited) (A)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,832 $ 53,816
Accounts receivable, less-allowance for
doubtful accounts of $7,575 and $5,691 347,740 277,682
Inventories, at lower of cost (first-in,
first-out) or market:
Raw materials and component parts 171,770 143,766
Work in process 78,284 67,771
Finished goods 405,813 347,031
---------- ----------
Total inventories 655,867 558,568
Other current assets 35,705 22,777
---------- ----------
Total current assets 1,047,144 912,843
---------- ----------
Property, plant and equipment, at cost 914,230 830,660
Accumulated depreciation (419,427) (386,494)
---------- ----------
Property, plant and equipment, net 494,803 444,166
---------- ----------
Marketable securities 110,404 115,549
---------- ----------
Intangible assets, net 166,723 59,496
---------- ----------
Other assets 47,123 45,352
---------- ----------
Total assets $1,866,197 $1,577,406
========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Notes payable to banks $ 1,721 $ 8,712
Current portion of long-term debt 1,960 2,285
Accounts payable, trade 187,888 168,175
Accrued taxes on income 38,627 43,439
Accrued liabilities 194,512 202,684
---------- ----------
Total current liabilities 424,708 425,295
---------- ----------
Long-term debt 551,373 297,307
---------- ----------
Deferred income taxes 61,900 55,833
---------- ----------
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 59,781,364 and 59,354,461 59,781 59,354
Capital in excess of par value 332,136 329,521
Retained earnings 493,810 452,550
Foreign currency translation adjustment (54,516) (39,459)
Treasury stock, at cost, 270,264 shares (2,995) (2,995)
---------- ----------
Total shareholders' equity 828,216 798,971
---------- ----------
Total liabilities and shareholders' equity $1,866,197 $1,577,406
========== ==========
</TABLE>
See notes to consolidated financial statements.
(A) The balance sheet at August 31, 1994 has been derived from the audited
financial statements at that date.
3
<PAGE>
<TABLE>
<CAPTION>
ECHLIN INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share data)
Three Months Ended Six Months Ended
February 28, February 28,
---------------------- ---------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $648,132 $497,153 $1,248,747 $996,417
Cost of goods sold 462,031 354,511 886,587 708,675
-------- -------- ---------- --------
Gross profit on sales 186,101 142,642 362,160 287,742
Selling and administrative
expenses 135,412 107,823 261,710 215,889
-------- -------- ---------- --------
Income from operations 50,689 34,819 100,450 71,853
-------- -------- ---------- --------
Interest expense 10,134 5,306 16,679 9,841
Interest income 3,409 2,481 6,952 5,401
-------- -------- ---------- --------
Interest expense, net 6,725 2,825 9,727 4,440
-------- -------- ---------- --------
Income before taxes 43,964 31,994 90,723 67,413
Provision for taxes 14,975 10,238 29,938 21,572
-------- -------- ---------- --------
Income before cumulative
effect of accounting
change 28,989 21,756 60,785 45,841
Cumulative effect of
accounting change - - - 2,583
-------- -------- ---------- --------
Net income $ 28,989 $ 21,756 $ 60,785 $ 48,424
======== ======== ========== ========
Average shares outstanding 59,451 58,999 59,391 58,938
======== ======== ========== ========
Per share data:
Income before accounting
change $0.48 $0.37 $1.02 $0.78
Cumulative effect of
accounting change - - - 0.04
-------- -------- ---------- --------
Net income $0.48 $0.37 $1.02 $0.82
======== ======== ========== ========
Cash dividends $0.19 $0.175 $0.38 $0.35
======== ======== ========== ========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
ECHLIN INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Six Months Ended
February 28,
---------------------
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $60,785 $48,424
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 38,499 33,227
Cumulative effect of accounting change - (2,583)
Changes in assets and liabilities, excluding
acquisitions' balance sheets:
Accounts receivable (18,025) (15,245)
Inventories (78,094) (47,410)
Other current assets (11,411) (3,728)
Accounts payable (11,626) (965)
Taxes on income (568) (12,086)
Accrued liabilities (16,264) 5,762
Other (3,629) 3,362
-------- --------
Cash provided by operating activities (40,333) 8,758
-------- --------
Cash flows from financing activities:
Long-term and short-term borrowings 348,803 216,187
Long-term and short-term repayments (104,904) (62,431)
Proceeds from common stock issuances 3,032 3,155
Dividends paid (22,564) (20,623)
-------- --------
Cash provided by financing activities 224,367 136,288
-------- --------
Cash flows from investing activities:
Capital expenditures, net (46,902) (31,199)
Purchases of marketable securities 5,145 (20,226)
Net assets of businesses acquired (189,163) (90,467)
-------- --------
Cash used for investing activities (230,920) (141,892)
-------- --------
Impact of changes in foreign currency
translation on cash 902 (6)
-------- --------
(Decrease) Increase in cash and cash
equivalents (45,984) 3,148
Cash and cash equivalents at beginning
of period 53,816 28,572
-------- --------
Cash and cash equivalents at end of period $ 7,832 $31,720
======== ========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
ECHLIN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1.
- -------
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 six month period ended February 28, 1995 are not
necessarily indicative of the results that may be expected for the year
ending August 31, 1995. 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, 1994.
NOTE 2.
- -------
In December 1994, the company purchased the common stock of Preferred
Technical Group International, Inc. (PTG), based in Rochester Hills,
Michigan, for approximately $190 million. PTG manufactures coupled hose
assemblies for motor vehicle brake, power steering, air conditioning and
heating systems, and extruded plastic for automobile, truck and
industrial applications. The acquisition was accounted for by the
purchase method. The proforma results for the six months ended February
28, 1995 and 1994, as if the acquisition had occurred on September 1,
1993 are as follows:
<TABLE>
<CAPTION>
Six Months Ended
February 28,
--------------------------
(In thousands, except 1995 1994
per share data) ---- ----
<S> <C> <C>
Net sales $1,326,681 $1,108,584
========== ==========
Income before cumulative effect
of accounting change $64,406 $47,222
========== ==========
Net income $64,406 $49,805
========== ==========
Per share data:
Income before cumulative effect
of accounting change $1.08 $0.81
========== ==========
Net income $1.08 $0.85
========== ==========
</TABLE>
The proforma results are not necessarily indicative of what actual
earnings of the combined companies would have been if combined for the
periods or what they will be in the future.
6
<PAGE>
ECHLIN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (cont.'d)
Note 2. (cont.'d)
- -----------------
In October 1994, the company acquired the outstanding common stock of
the Theodore Bargman Company, an Indiana based manufacturer of lighting
products, electrical connectors and hardware for recreational vehicles
and mobile homes, by issuing 217,428 shares of Echlin Inc. common stock.
The transaction has been accounted for as a pooling of interests and as
a result the financial statements for the six months ended February 28,
1995 include Bargman's results of operations. Since the acquisition did
not have a material impact on the company, prior years' results have not
been restated.
Note 3.
- -------
In February 1995, the company renegotiated its revolving credit
agreement (RCA). Under the terms of the new agreement with twelve
banking institutions, the company has the availability through March 1,
2000 of maximum borrowings of $530,000,000. The prior agreement
provided for maximum borrowings of $375,000,000 and was due to expire on
September 1, 1999. At February 28, 1995, there were no borrowings under
the RCA.
In March 1995, the company entered into a new credit agreement with a
United Kingdom bank enabling it to borrow up to $20,000,000 through
March 1, 1998. The prior agreement with the same United Kingdom bank
provided for borrowings up to $15,000,000 and was due to expire on March
31, 1995. At February 28, 1995, there were no borrowings under the United
Kingdom credit agreement.
Commercial paper, domestic notes payable and a note with a German Bank
at February 28, 1995, have been classified as long-term debt because of
the company's intent to refinance this debt on a long-term basis and the
availability of such financing under the terms of the RCA. The weighted
average interest rates on commercial paper and domestic notes payable at
February 28, 1995, were 6.08 and 6.35 percent, respectively, while the
German note payable accrued interest at 5.31 percent.
7
<PAGE>
ECHLIN INC.
MANAGEMENT'S FINANCIAL ANALYSIS
Results of Operations:
- ----------------------
For the three and six months ended February 28, 1995, net sales
increased 30 percent and 25 percent, respectively, over the
corresponding periods of a year ago. The performance of both the
domestic and foreign operations is strong due to the growth in
market demand for automotive products. Recent acquisitions have
also favorably impacted this growth.
Net sales of comparable operations, those part of Echlin for at
least twelve months, rose 16 and 13 percent for the three and six
month periods, respectively, due to unit volume gains, price
increases, the introduction of new products, and the impact of
translation. For the quarter and six months, unit volume rose 10
and 7 percent, respectively, while sales for both periods increased
by 1 percent due to changes in translation rates. Higher reported
sales were the result of a weakening of the U.S. dollar in relation
to the German mark, British pound and Australian dollar partially
offset by the Mexican peso devaluation which lowered sales by
$3,900,000 and $4,900,000 for the quarter and six month periods.
Domestic comparable operations were up 14 percent for the quarter
and 11 percent for the six months. While sales of all product
lines show improvement over last year, our automotive brake group
continues to be the strongest performer. During the second quarter
and six month period, foreign comparable operations rose 19 and 20
percent, respectively, as our United Kingdom and German operations
showed the largest improvements.
The gross profit to sales percentage for the second quarter
remained flat at 28.7 percent, while for the six months the
percentage increased to 29.0 percent from 28.9 percent a year ago.
Both periods were impacted by the acquisition of PTG, whose sales
are primarily to original equipment manufacturers at gross profit
percentages below Echlin's historical levels. Excluding PTG, the
gross profit percentage exceeded the prior year by 1 percent for
the quarter and .6 percent for the six months due to increased
production levels and ongoing cost containment efforts.
Although selling and administrative expenses increased for the
three and six month periods, these expenses declined as a
percentage of sales. For the second quarter they declined to 20.9
percent from 21.7 percent a year ago, while for the six month
period expenses as a percentage of sales declined to 21.0 percent
vs 21.7 percent last year. The dollar increase for both periods
was primarily due to the higher sales volume and expense levels
generated by acquisitions during the past year, as well as higher
8
<PAGE>
ECHLIN INC.
MANAGEMENT'S FINANCIAL ANALYSIS (cont.'d)
research and development spending in the second quarter by our
German automotive operation. The acquisition of PTG had the impact
of lowering the selling and administrative expense percentage of
sales by 1.1 percent for the quarter and .5 percent for the six
months. PTG's operating expenses are lower than Echlin's
historical levels due to the customer class they service.
Net interest expense for the three month period increased
$3,900,000, while for the six month period it increased $5,287,000
as compared to the prior year, primarily due to higher average
interest rates and debt levels.
While sales for the quarter and six months were reduced due to the
Mexican devaluation, net income for both periods was not materially
impacted as a result of actions taken by the company to increase
exports, raise selling prices and control costs.
Net income for the six months ended February 28, 1994 included
income of $2,583,000, which represented the cumulative effect of
adopting the provisions of FAS 109, "Accounting for Income Taxes."
Liquidity and Sources of Capital:
- ---------------------------------
During the first six months of fiscal 1995, operations used
$40,333,000 vs a year ago when operations provided $8,758,000. The
increase in funds caused by the net income improvement was offset
by larger cash outflows for working capital items. Accounts
receivable were higher due to increased sales levels while
inventories have been increased in order to maintain customer line
fill levels during higher sales periods forecasted for the
remainder of the fiscal year. Higher outflows were also generated
due to the timing of liability payments.
Net debt levels increased $243,899,000 from year end primarily due
to working capital requirements, current year capital expenditures,
and funds required to acquire PTG. Total debt to total capital was
40 percent, up from 30 percent a year ago and 28 percent at August
31, 1994. During the current fiscal quarter, the Mexican peso
devaluation reduced shareholder's equity by approximately $16.7
million reflecting a reduction in the U.S. dollar value of the net
assets invested in Mexico.
The company recently renegotiated the terms of its revolving credit
agreement (RCA) and its credit line with a United Kingdom bank.
9
<PAGE>
ECHLIN INC.
MANAGEMENT'S FINANCIAL ANALYSIS (cont.'d)
Under the new RCA, the company has availability through March 1,
2000 of maximum borrowings of $530,000,000. This replaces an
agreement which provided for borrowings up to $375,000,000 through
September 1, 1999. In March, the company entered into a new
agreement with a United Kingdom bank which provides for the
availability of $20,000,000 through March 1, 1998. The prior
agreement, which was scheduled to expire on March 31, 1995,
provided for $15,000,000 of available funds.
Net capital expenditures, which were $15,703,000 above last year,
primarily represent outlays for the purchase of manufacturing
facilities in Indiana and the United Kingdom, tooling for new
products and machinery intended to increase and improve our
manufacturing capacity.
Echlin's Board of Directors increased the regular quarterly
dividend to 20.5 cents per share, payable April 18, 1995 to
shareholders of record on April 11, 1995. This increase represents
an 8 percent increase over the previous rate of 19 cents per share.
10
<PAGE>
ECHLIN INC.
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
- ------------------------------------------
During the quarter ended February 28, 1995, the company did file a
Report on Form 8-K concerning the acquisition of Preferred
Technical Group International, Inc.
11
<PAGE>
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 duly authorized.
Echlin Inc.
Date: April 11, 1995 Richard A. Wisot
-------------- --------------------------
Richard A. Wisot
Vice President and
Controller
Date: April 11, 1995 Jon P. Leckerling
-------------- --------------------------
Jon P. Leckerling
Vice President, General
Counsel and Corporate
Secretary
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This scedule contains financial information extracted from the company's SEC
Form 10-Q for the six month period ended February 28, 1995 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-END> FEB-28-1995
<CASH> 7,832
<SECURITIES> 0
<RECEIVABLES> 355,315
<ALLOWANCES> 7,575
<INVENTORY> 655,867
<CURRENT-ASSETS> 1,047,144
<PP&E> 914,230
<DEPRECIATION> 419,427
<TOTAL-ASSETS> 1,866,197
<CURRENT-LIABILITIES> 424,708
<BONDS> 0
<COMMON> 59,781
0
0
<OTHER-SE> 768,435
<TOTAL-LIABILITY-AND-EQUITY> 1,866,197
<SALES> 1,248,747
<TOTAL-REVENUES> 1,248,747
<CGS> 886,587
<TOTAL-COSTS> 886,587
<OTHER-EXPENSES> 261,710
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,727
<INCOME-PRETAX> 90,723
<INCOME-TAX> 29,938
<INCOME-CONTINUING> 60,785
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 60,785
<EPS-PRIMARY> 1.02
<EPS-DILUTED> 1.02
</TABLE>
