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, 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
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(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 June 30, 1995
- -------------------------- ----------------------------
Common stock, $1 par value 59,582,175
<PAGE>
ECHLIN INC.
INDEX
<TABLE>
PART I. FINANCIAL INFORMATION Page
- ------------------------------ ----
<S> <S>
Item 1. Financial Statements
Consolidated balance sheets at May 31, 1995
and August 31, 1994. 3
Consolidated statements of income for the three
months ended May 31, 1995 and May 31, 1994;
for the nine months ended May 31, 1995 and
May 31, 1994. 4
Consolidated statements of cash flows for the
nine months ended May 31, 1995 and 1994. 5
Notes to consolidated financial statements at
May 31, 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)
May 31, August 31,
1995 1994
----------- ----------
(unaudited) (A)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 14,356 $ 53,816
Accounts receivable, less-allowance for
doubtful accounts of $7,934 and $5,691 372,484 277,682
Inventories, at lower of cost (first-in,
first-out) or market:
Raw materials and component parts 166,675 143,766
Work in process 85,431 67,771
Finished goods 431,338 347,031
---------- ----------
Total inventories 683,444 558,568
Other current assets 38,912 22,777
---------- ----------
Total current assets 1,109,196 912,843
---------- ----------
Property, plant and equipment, at cost 944,407 830,660
Accumulated depreciation (437,252) (386,494)
---------- ----------
Property, plant and equipment, net 507,155 444,166
---------- ----------
Marketable securities 105,060 115,549
---------- ----------
Intangible assets, net 176,464 59,496
---------- ----------
Other assets 48,586 45,352
---------- ----------
Total assets $1,946,461 $1,577,406
========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Notes payable to banks $ 14,071 $ 8,712
Current portion of long-term debt 1,889 2,285
Accounts payable, trade 214,291 168,175
Accrued taxes on income 60,852 43,439
Accrued liabilities 199,391 202,684
---------- ----------
Total current liabilities 490,494 425,295
---------- ----------
Long-term debt 520,469 297,307
---------- ----------
Deferred income taxes 62,256 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 59,835,269 and 59,354,461 59,835 59,354
Capital in excess of par value 333,133 329,521
Retained earnings 529,371 452,550
Foreign currency translation adjustment (46,102) (39,459)
Treasury stock, at cost, 270,264 shares (2,995) (2,995)
---------- ----------
Total shareholders' equity 873,242 798,971
---------- ----------
Total liabilities and shareholders' equity $1,946,461 $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 Nine Months Ended
May 31, May 31,
---------------------- ---------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $745,064 $610,034 $1,993,811 $1,606,451
Cost of goods sold 532,357 426,274 1,418,944 1,134,949
-------- -------- ---------- ---------
Gross profit on sales 212,707 183,760 574,867 471,502
Selling and administrative
expenses 134,470 123,024 396,180 338,913
-------- -------- ---------- --------
Income from operations 78,237 60,736 178,687 132,589
-------- -------- ---------- --------
Interest expense 11,586 6,512 28,265 16,353
Interest income 4,645 3,141 11,597 8,542
-------- -------- ---------- --------
Interest expense, net 6,941 3,371 16,668 7,811
-------- -------- ---------- --------
Income before taxes 71,296 57,365 162,019 124,778
Provision for taxes 23,528 18,357 53,466 39,929
-------- -------- ---------- --------
Income before cumulative
effect of accounting
change 47,768 39,008 108,553 84,849
Cumulative effect of
accounting change - - - 2,583
-------- -------- ---------- --------
Net income $ 47,768 $ 39,008 $ 108,553 $ 87,432
======== ======== ========== ========
Average shares outstanding 59,539 59,048 59,438 58,972
======== ======== ========== ========
Per share data:
Income before accounting
change $0.81 $0.66 $1.83 $1.44
Cumulative effect of
accounting change - - - 0.04
-------- -------- ---------- --------
Net income $0.81 $0.66 $1.83 $1.48
======== ======== ========== ========
Cash dividends $0.205 $0.19 $0.585 $0.54
======== ======== ========== ========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
ECHLIN INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Nine Months Ended
May 31,
---------------------
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $108,553 $87,432
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 58,849 50,325
Cumulative effect of accounting change - (2,583)
Changes in assets and liabilities, excluding
acquisitions' balance sheets:
Accounts receivable (39,032) (82,378)
Inventories (98,123) (28,968)
Other current assets (14,236) (3,059)
Accounts payable 13,169 2,460
Taxes on income 20,765 (6,646)
Accrued liabilities (17,956) 13,097
Other (7,259) (816)
-------- --------
Cash provided by operating activities 24,730 28,864
-------- --------
Cash flows from financing activities:
Long-term and short-term borrowings 552,995 293,891
Long-term and short-term repayments (328,850) (141,616)
Proceeds from common stock issuances 4,083 3,423
Dividends paid (34,771) (31,844)
-------- --------
Cash provided by financing activities 193,457 123,854
-------- --------
Cash flows from investing activities:
Capital expenditures, net (72,773) (48,394)
Purchases of marketable securities 10,488 (23,623)
Net assets of businesses acquired (199,352) (83,257)
-------- --------
Cash used for investing activities (261,637) (155,274)
-------- --------
Impact of changes in foreign currency
translation on cash 3,990 33
-------- --------
Decrease in cash and cash equivalents (39,460) (2,523)
Cash and cash equivalents at beginning
of period 53,816 28,572
-------- --------
Cash and cash equivalents at end of period $14,356 $26,049
======== ========
</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 nine month period ended May 31, 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 $198.3 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 nine months ended May
31, 1995 and 1994, as if the acquisition had occurred on September 1,
1993 are as follows:
<TABLE>
<CAPTION>
Nine Months Ended
May 31,
--------------------------
(In thousands, except per share data) 1995 1994
---- ----
<S> <C> <C>
Net sales $2,071,745 $1,781,947
========== ==========
Income before cumulative effect
of accounting change $112,174 $88,006
========== ==========
Net income $112,174 $90,589
========== ==========
Per share data:
Income before cumulative effect
of accounting change $1.89 $1.49
========== ==========
Net income $1.89 $1.53
========== ==========
</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 nine months ended May 31, 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 May 31, 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 May 31, 1995 there was $19,880,000 in borrowings
outstanding under the United Kingdom Agreement with an interest rate of
4.80 percent.
During April 1995, the company renewed its' agreement with a financial
institution to sell, without recourse, undivided fractional interests
in designated pools of trade receivables. This new agreement expires in
March 1998. Accounts receivable at May 31, 1995 and August 31, 1994 are
net of $125,000,000 representing receivables sold.
Commercial paper, domestic notes payable and a note with a German Bank
at May 31, 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
May 31, 1995, were 6.05 and 6.20 percent, respectively, while the German
note payable accrued interest at 4.81 percent.
7
<PAGE>
ECHLIN INC.
MANAGEMENT'S FINANCIAL ANALYSIS
Results of Operations:
- ----------------------
For the three and nine months ended May 31, 1995, net sales
increased 22 percent and 24 percent, respectively, over the
corresponding periods of a year ago. Companies acquired during the
past year, primarily Preferred Technical Group ("PTG"), accounted
for 15 percent and 13 percent, respectively, of the overall
improvement.
Net sales of comparable operations, those part of Echlin for at
least twelve months, rose 7 and 11 percent for the three and nine
month periods, respectively, primarily due to price increases, the
introduction of new products, and the impact of translation. For
the quarter unit volume remained flat while for the nine months
unit volume rose 5 percent.
Domestic comparable operations were up 4 percent for the quarter
and 8 percent for the nine months. All U.S. product lines grew
slower than expected in the third quarter, a result primarily of
new customer timing differences, and unexpected warm winter weather
which impacted seasonal sales. For the nine months sales of all
product lines show improvement over last year, with our automotive
brake and heavy duty group being the strongest performers.
Foreign comparable operations increased 13 percent and 17 percent
over the same three and nine month period of a year ago,
respectively. Our non-U.S. businesses have shown improved sales
growth due to the strengthening of the economies abroad which are
recovering from downturns experienced in recent years. Translation
added $8,600,000 to sales for the quarter as the weakening of the
U.S. dollar in relation to the German mark and British pound offset
a $6,200,000 reduction caused by the devaluation of the Mexican
peso. Year to date sales increased by $18,500,000 as the weakening
of the dollar versus the German mark, British pound and Australian
dollar offset the $11,100,000 impact of the Mexican peso
devaluation.
The quarter's gross profit to sales percentage decreased to 28.5
percent, as compared to the prior year's 30.1 percent. The nine
month's gross profit to sales percentage decreased to 28.8 percent
from 29.4 percent for the same period last year. The margins in
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 was 29.8 percent and 29.6 percent for the
quarter and nine months, respectively. The slight margin decline
in the quarter reflected lower unit volume experienced by our
domestic units while the nine month improvement reflected cost
containment efforts and increased production levels.
8
<PAGE>
ECHLIN INC.
MANAGEMENT'S FINANCIAL ANALYSIS (cont.'d)
Although selling and administrative expenses increased for the
three and nine month periods, these expenses declined as a
percentage of sales. For the third quarter they declined to 18.0
percent from 20.2 percent a year ago, while for the nine month
period expenses as a percentage of sales declined to 19.9 percent
vs. 21.1 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
research and development spending by our German automotive
operation. The acquisition of PTG had the impact of lowering the
selling and administrative expense percentage of sales by 1.4
percent for the quarter and 0.9 percent for the nine 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
$3,570,000, while for the nine month period it increased $8,857,000
as compared to the prior year, primarily due to higher domestic
average interest rates and debt levels.
While sales for the quarter and nine months were reduced due to the
Mexican devaluation, net income for both periods was not adversely
impacted as a result of actions taken by the company to increase
exports, raise selling prices and control costs.
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."
Liquidity and Sources of Capital:
- ---------------------------------
During the first nine months of fiscal 1995 and 1994, operations
provided cash flow of $24,730,000 and $28,864,000, respectively.
As compared to the prior year, higher net income was partially
offset by larger cash outflows for working capital items.
Inventories have been increased in order to maintain customer line
fill levels during higher sales periods forecasted for the
remainder of the fiscal year and by the stocking of new parts which
are being introduced. The company's ongoing accounts receivable
efforts and the timing of liability payments partially offset the
increase in inventory.
Net debt levels increased $224,145,000 from year end primarily due
to current year capital expenditures, and funds required to acquire
PTG. Total debt to total capital was 38 percent at May 31, 1995,
up from 30 percent a year ago and 28 percent at August 31, 1994.
9
<PAGE>
ECHLIN INC.
MANAGEMENT'S FINANCIAL ANALYSIS (cont.'d)
During the first nine months, foreign currency translation changes
have reduced equity by $6,643,000. While the Mexican peso
devaluation has reduced shareholders' equity by $18,800,000
reflecting a reduction in the U.S. dollar value of the net assets
invested in Mexico, this has been partially offset by a
strengthening of other currencies, principally the British pound
and German mark.
The company recently renegotiated the terms of its revolving credit
agreement (RCA) and its credit line with a United Kingdom bank.
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. During April 1995,
the company renewed its' agreement with a financial institution to
sell, without recourse, undivided fractional interests in
designated pools of trade receivables. This new agreement expires
in March 1998. Accounts receivable at May 31, 1995 and August 31,
1994 are net of $125,000,000 representing receivables sold.
Net capital expenditures, which were $24,379,000 above last year,
primarily represented outlays for the purchase of manufacturing
facilities in Indiana and the United Kingdom; tooling for new
products; and the acquisition of machinery intended to increase
capacity and improve manufacturing.
10
<PAGE>
ECHLIN INC.
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
- ------------------------------------------
During the quarter ended May 31, 1995, the company did not file a
Report on Form 8-K.
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: July 12, 1995 Richard A. Wisot
------------- --------------------------
Richard A. Wisot
Vice President and
Controller, Chief
Accounting Officer
Date: July 12, 1995 Edward D. Toole
------------- --------------------------
Edward D. Toole
Associate General Counsel
and Assistant Secretary
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains financial information extracted from the company's SEC
form 10-Q for the quarterly period ended May 31, 1995 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-END> MAY-31-1995
<CASH> 14356
<SECURITIES> 0
<RECEIVABLES> 380418
<ALLOWANCES> 7934
<INVENTORY> 683444
<CURRENT-ASSETS> 1109196
<PP&E> 944407
<DEPRECIATION> 437252
<TOTAL-ASSETS> 1946461
<CURRENT-LIABILITIES> 490494
<BONDS> 0
<COMMON> 59835
0
0
<OTHER-SE> 813407
<TOTAL-LIABILITY-AND-EQUITY> 1946461
<SALES> 1993811
<TOTAL-REVENUES> 1993811
<CGS> 1418944
<TOTAL-COSTS> 1418944
<OTHER-EXPENSES> 396180
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16668
<INCOME-PRETAX> 162019
<INCOME-TAX> 53466
<INCOME-CONTINUING> 108553
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 108553
<EPS-PRIMARY> 1.83
<EPS-DILUTED> 1.83
</TABLE>
