<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Mark One
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For fiscal year ended August 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission File Number 1-4651
ECHLIN INC.
(Exact name of registrant as specified in its charter)
CONNECTICUT NO: 06-0330448
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
100 DOUBLE BEACH ROAD
BRANFORD, CONNECTICUT 06405
(Address of principal (Zip code)
executive offices)
Registrant's telephone number, including area code: (203) 481-5751
Securities registered pursuant to Section 12(b) of the Act:
NEW YORK STOCK EXCHANGE INC.
COMMON STOCK, THE PACIFIC STOCK EXCHANGE INCORPORATED
$1.00 PAR VALUE INTERNATIONAL STOCK EXCHANGE IN LONDON
(Title of Class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
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, and (2) has been subject to such filing requirements
for the past 90 days. YES X NO
--- ---
The aggregate market value of the voting stock of the registrant held by non-
affiliates of the registrant on November 3, 1995 was $2,125,553,921. On
November 3, 1995, there were 59,657,560 shares of common stock issued and
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
l. Portions of Echlin's 1995 Annual Report to Shareholders are incorporated
into Parts I and II.
2. Portions of Echlin's 1995 Annual Proxy Statement are incorporated into
Part III.
1
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PART I
------
ITEM 1. BUSINESS
- -----------------
Echlin Inc. was incorporated in the state of Connecticut in 1959 and is
engaged in only one business segment as a worldwide supplier of products to
maintain or improve the efficiency and safety of motor vehicles. During the
past fiscal year, Echlin Inc. and its subsidiaries ("Echlin" or the "company")
continued to conduct its business in a manner consistent with prior years.
The company's principal products can be classified into the following
categories: brake system, engine system, other vehicle parts and non-vehicular
products. Brake system parts include hydraulic brake master cylinders, push
rods for master cylinders, brake shoes, drums, brake cables, hardware and wheel
cylinders for drum brake systems, disc pads, rotors and calipers for disc brake
systems, repair kits for hydraulic brakes, hoses and controllers for electrical
brakes. In addition, wheel oil seals, compressors, air dryers, valves, power
boosters, pressure converters, air brake actuating products, antilock brake
systems, spring brakes, brake block, remanufactured brake shoes, pneumatic and
electrical connectors and slack adjustors are manufactured for the heavy duty
brake market. Engine system parts include condensers, contacts, complete
distributors, distributor caps, ignition coils, rotors, control modules,
sensors, electronic voltage regulators, wire and cable products, carburetor and
emission control parts, fuel pumps, starter drives, solenoids, electronic fuel
injection systems, oxygen sensors, EGR valves, LPG carburetion parts and PCV
valves. Other vehicle parts include new and remanufactured clutches, bell
housings, automatic transmission parts, timing gears and chains, U-joints,
engine mounts, airhorns, mirrors, water pumps, power steering pumps, oil pumps
and steering and suspension system components, heavy duty windshield wiper
systems and shifters, traction bars, filters, gaskets, shock absorbers, heating
and air-conditioning and power steering, coupled hose assemblies, lights and
accessories for the high performance market. Non-vehicular products include
small engine parts, security access control products, and extruded plastic.
Sales by product class for the last three fiscal years ended August 31 were as
follows:
<TABLE>
<CAPTION>
(In millions of dollars)
Product Class 1995 1994 1993
- ------------- ---- ---- ----
<S> <C> <C> <C>
Brake System Parts $1,183.0 $1,053.4 $ 872.6
Engine System Parts 680.8 617.3 588.8
Other Vehicle Parts 761.5 508.6 423.0
Non-Vehicular Products 92.6 50.2 60.1
-------- -------- --------
Total $2,717.9 $2,229.5 $1,944.5
======== ======== ========
</TABLE>
The company's products are sold primarily as replacement products for use by
professional mechanics and by car and truck owners. Sales are made to automotive
warehouse distributors, heavy duty distributors, retailers, other parts
manufacturers and parts remanufacturers. The company also sells its products to
original equipment manufacturers in both the automotive and heavy duty markets.
Raw Materials
- -------------
Echlin's principal requirements for raw materials consist of copper, brass,
steel, plastic, paperboard, rubber, resin, iron, zinc and aluminum. Echlin is
not dependent on any one source for the raw materials essential to its business,
and during the last year encountered no difficulties in obtaining raw materials.
2
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Patents and Licenses
- --------------------
Echlin holds a number of patents on its air brake system parts, hydraulic
brake system parts, engine system parts, high performance products and security
access control products. The loss or expiration of any of these patents would
not, however, have a significant effect on Echlin's operations.
Seasonal Effects
- ----------------
Echlin's business does not have material seasonal characteristics.
Working Capital Items
- ---------------------
Inventories are kept at a sufficient level to service customer orders but are
not disproportionate to Echlin's sales. Echlin grants customers the right to
return goods where the conditions of Echlin's obsolescence and return policies
are met. This practice has not had materially adverse effects on its business.
Customers
- ---------
Members of the National Automotive Parts Association (NAPA) represent the
company's largest group of customers and accounted for 9.6% of consolidated net
sales for the year ended August 31, 1995. Included in this number were sales to
Genuine Parts Company and its affiliates, the largest member of NAPA, which
accounted for 9.4% of consolidated net sales in fiscal 1995. This long-standing
relationship with NAPA started in 1928. Products identified by the trademarks
"NAPA Echlin" and "NAPA United" are sold exclusively in the United States to
NAPA distribution centers. Echlin believes its relationship with NAPA and its
members are good, however, the loss of the NAPA members as customers would have
a materially adverse effect on its business.
Backlog
- -------
Most of Echlin's sales are from its inventory so that the amount of backlog
is not material to an understanding of its business.
Government Contracts
- --------------------
Government contracts are not material to Echlin's business.
Competitive Conditions
- ----------------------
As Echlin sells different product lines in various markets, there is no one
company which serves as its major competitor. There are a number of large
independent manufacturers of parts and supplies and the leading original
equipment manufacturers also supply virtually every part sold by Echlin. In
addition, the company faces competition in domestic markets from foreign
manufacturers.
Competition in all markets served by Echlin is based on product quality,
delivery, warranty, customer service and price. Echlin believes that its
products command good acceptance, and that it is one of the leading
manufacturers in the industry.
Environmental Regulations
- -------------------------
The company is involved with a number of waste disposal sites as to which it
has been named a potentially responsible party (PRP) under the Federal Superfund
law. The extent of the company's financial contribution to the
3
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cleanup of these sites is expected to be limited based on the volume of waste
attributable to the company and the number and financial strength of other named
PRPs. The company is also involved in remedial and voluntary environmental
cleanup projects at several other sites which are not the subject of any
Superfund law proceeding. Although it is impossible at this time to quantify
the potential financial impact of compliance with environmental protection laws,
management does not believe that compliance with Federal, state or local
provisions will have a material effect on capital expenditures, earnings or its
competitive position. The company continues to modify, on an ongoing, regular
basis, certain of its processes in order to reduce the impact on the
environment. Efforts in this regard include removal of many of its underground
storage tanks and reduction or elimination of certain materials and wastes from
use in operations.
Employees
- ---------
Echlin employs approximately 23,400 people worldwide. The company believes
that relations with its employees are satisfactory.
Research and Development
- ------------------------
Echlin's basic parts and supplies business does not require it to make
substantial expenditures on research and development activities.
However, Echlin has developed several new products and continues to make
expenditures for the modification and improvement of existing products and
services. In addition, as a result of recent acquisitions, the company is
developing new products for use by original equipment manufacturers in the
United States and Europe. For the years ended August 31, 1995, 1994 and 1993,
Echlin spent approximately $34,652,000, $22,535,000 and $18,442,000,
respectively, on research and developmental efforts, substantially all of which
was sponsored by Echlin.
Financial Information About Foreign and Domestic Operations and Export Sales
- ----------------------------------------------------------------------------
For information relating to Echlin's foreign and domestic operations for
fiscal 1995, 1994 and 1993, see Note 9 to the consolidated financial statements
appearing on page 44 of Echlin's 1995 Annual Report to Shareholders, which pages
are incorporated herein by reference. Export sales represent less than 10% of
the company's consolidated trade sales.
ITEM 2. PROPERTIES
- -------------------
The following table sets forth a summary description of Echlin's principal
physical properties as of November 1, 1995:
<TABLE>
<CAPTION>
Lease
Approximate Expiration
Location Principal Business Activity Square Feet Dates
- -------- --------------------------- ----------- ----------
<S> <C> <C> <C>
Prattville, AL Heavy duty brake parts 108,000
123,000/*/ 2000
Azusa, CA Parts distribution center 145,000/*/ 1996
Irvine, CA Remanufactured brake parts 68,000/*/ 1998
La Mirada, CA Parts distribution center 80,000/*/ 2000
Los Angeles, CA Parts distribution center 109,000/*/ 1995
Modesto, CA Parts distribution center 150,000/*/ 1999
Branford, CT Ignition and electrical parts 426,000
</TABLE>
4
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ITEM 2. (continued)
- ------------------
<TABLE>
<CAPTION>
Lease
Approximate Expiration
Location Principal Business Activity Square Feet Dates
- -------- --------------------------- ----------- ----------
<S> <C> <C> <C>
Newark, DE Parts distribution center 146,000/*/ 2000
Medley, FL Parts distribution center 73,000/*/ 1998
Pensacola, FL Carburetor and emission
control parts 122,000
Chicago, IL Fuel pumps 217,000
Franklin Park, IL Parts distribution center 142,000/*/ 2001
Litchfield, IL Brake and small engine parts 525,000
McHenry, IL Brake parts 562,000
Naperville, IL Distribution center 100,000/*/ 1998
Ottawa, IL Remanufactured clutches 185,000
Andrews, IN Coupled hose assemblies 153,000/*/ 2091
Columbia City, IN Coupled hose assemblies 241,000
Michigan City, IN Heavy duty windshield wiper
systems 106,000/*/ 1998
Mishawaka, IN Wire and cable products 172,000
Mitchell, IN Coupled hose assemblies 90,000/*/ 1998
Columbus, KS Electrical rebuilder parts 169,000
Independence, KS Ignition and electrical parts 389,000
Iola, KS Air brake parts 183,000/*/ 1996
Cuba, MO Heavy duty and automotive
brake parts 128,000
Kansas City, MO Heavy duty parts distribution 150,000/*/ 1998
center
Marion, NC Remanufactured heavy duty
parts 85,000
Cleveland, OH Gaskets and high performance
products 404,000
Upper Sandusky, OH Hydraulic and air brake products 194,000
Pittsburgh, PA Remanufactured brake shoes,
clutches and calipers 70,000/*/ 1997
Nashville, TN Parts distribution center 449,000/*/ 1997, 1998
Paris, TN Air brake parts 120,000
Fredericksburg, VA Remanufactured brake parts 118,000/*/ 1998
Ponce, Puerto Rico Ignition, electrical and brake
parts; carburetor and emission
control parts 153,000/*/ 1999
</TABLE>
5
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ITEM 2. (continued)
- ------------------
<TABLE>
<CAPTION>
Lease
Approximate Expiration
Location Principal Business Activity Square Feet Dates
- -------- --------------------------- ----------- ----------
<S> <C> <C> <C>
Sydney, Australia Warehouse and distribution center 195,000 2002
75,000/*/
Sao Paulo, Brazil Ignition and electrical parts; 82,000/*/ 2000
water pumps 77,000
Anjou, Canada Brake parts 206,000/*/ 1998, 2005
Milton, Canada Brake parts 72,000/*/ 2004
Mississauga, Canada Parts distribution center 129,000/*/ 2002
Montreal, Canada Brake parts 206,000/*/ 1994, 2005
Guelph, Canada Brake parts 87,000
Rexdale, Canada Parts distribution center 97,000
Sudbury, Canada Disc brake rotor castings 147,000
Thetford Mines, Canada Brake parts 72,000/*/ 1995
Nuneaton, England Product distribution center 154,000/*/ 2001
Birmingham, England Carburetor and other fuel
system parts 216,000
Redditch, England Clutches; air brake parts 246,000
Strood, England Oil pumps and power steering 354,000
Ebern, Germany Brake and clutch manufacturer 887,000
Furth im Wald, Germany Brake hose assembly 80,000
Colwyn Bay, Wales Water pumps and steering and
suspension system components 225,000
Heidelberg, Germany Air brake systems 140,000/*/ 1999
Los Reyes, Mexico Brake parts 169,000
Mexico City, Mexico Brake and electrical parts 204,000/*/ 1995
Johannesburg, Electrical and brake parts 64,000
South Africa 34,000/*/ 1995
Alava, Spain Shock absorbers 138,000
</TABLE>
/*/Leased facility
In addition to the properties listed above, Echlin owns or leases other
smaller facilities both in the United States and abroad. Echlin believes it
will be able to renew all leases upon expiration. Inability to do so, however,
would not have a materially adverse effect on Echlin's operations.
In the opinion of Echlin's management, its properties are in good condition
and provide adequate capacity for its current operations.
6
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ITEM 3. LEGAL PROCEEDINGS
- ---------------------------
The company and its consolidated subsidiaries are parties to various legal
proceedings arising in the normal course of business including administrative
and judicial proceedings in connection with environmental matters that involve
claims for damages and/or potential monetary sanctions. In management's
opinion, based on the advice of counsel, the outcome of such proceedings will
not in the aggregate have a materially adverse effect on the financial condition
of the company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------------------------------------------------------------
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------
Officers are elected to hold their offices until their respective successors
are duly elected or until their earlier resignation or removal. There is no
family relationship between the executive officers.
Listed below is the name, age, position and business experience of each
officer of the company during the past five years:
Frederick J. Mancheski (age 69) Chairman of the Board and Chief Executive
- ----------------------
Officer since 1969; a Director since 1963.
C. Scott Greer (age 45) President and Chief Operating Officer since September
- --------------
1994; President since 1990; various managerial positions within Echlin's
International Group from 1980 through 1990; a Director since 1990.
Jon P. Leckerling (age 47) Vice President, General Counsel and Corporate
- -----------------
Secretary since 1990.
Milton J. Makoski (age 49) Vice President-Human Resources since 1986.
- -----------------
Joseph A. Onorato (age 46) Vice President and Treasurer since 1994; Treasurer
- -----------------
from 1990 to 1994; Assistant Treasurer from 1985 to 1990.
Robert F. Tobey (age 50) Vice President-Corporate Development since 1994;
- ---------------
various managerial positions within Echlin's International Group from 1991 to
1994; Vice President - Corporate Development from 1985 to 1991.
Richard A. Wisot (age 49) Vice President and Controller since 1990; Treasurer
- ----------------
from 1981 to 1990.
Kenneth T. Flynn Jr. (age 46) Assistant Corporate Controller since 1985.
- --------------------
Thomas P. Marchese (age 52) Assistant Vice President-Corporate Development
- ------------------
since 1994; Director Business Development U.S. from 1991-1994; Director Business
Planning and Analysis from 1983 to 1991.
Charles W. O'Connor (age 65) Assistant General Counsel and Assistant Secretary
- -------------------
since 1990; Attorney and Assistant Secretary from 1980 to 1990.
7
<PAGE>
ITEM 4. (continued)
- --------------------
Edward C. Shalagan (age 43) Assistant Treasurer since 1988.
- ------------------
Edward D. Toole Jr. (age 65) Associate General Counsel and Assistant Secretary
- -------------------
since 1990.
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
- --------------------------------------------------------------
SECURITY HOLDER MATTERS
- -----------------------
Echlin's common stock is listed on the New York Stock Exchange, the Pacific
Stock Exchange and the International Stock Exchange in London. Options on
Echlin's stock are also traded on the Pacific Stock Exchange. The number of
record holders of common stock on November 3, 1995 was 3,953. The quarterly
market price and dividend data appearing on page 48 of Echlin's 1995 Annual
Report to Shareholders is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
- ---------------------------------
The presentation under "Historical Data" on pages 46 and 47 of Echlin's 1995
Annual Report to Shareholders is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- -------------------------------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
"Review of Operations and Financial Condition" on pages 7 through 9 of
Echlin's 1995 Annual Report to Shareholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- -----------------------------------------------------
The Consolidated Statements of Income, Consolidated Balance Sheets,
Consolidated Statements of Cash Flows, Consolidated Statements of Changes in
Shareholders' Equity, Notes to Consolidated Financial Statements, Quarterly
Financial Data and the Report of Independent Accountants as set forth on pages
31 through 45 of Echlin's 1995 Annual Report to Shareholders are incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- -------------------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------
There have been no changes in independent accountants or disagreements on
accounting and financial disclosure.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------------------------------------------------------------
Information relating to Directors is set forth under the caption "Election of
Directors" on pages 2 through 7 in Echlin's 1995 Annual Proxy Statement and is
incorporated herein by reference. Certain information regarding Executive
Officers of the Registrant is contained in Item 4 of Part I of this Annual
Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
- ---------------------------------
Information relating to Executive Compensation is set forth under the
captions "Compensation of Directors" and "Executive Compensation" on pages 4
through 7 and 7 through 16, respectively, in Echlin's 1995 Annual Proxy
Statement and is incorporated herein by reference.
8
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------------------------------------------------------------------------
Information relating to Security Ownership of Certain Beneficial Owners and
Management is set forth under the caption "Beneficial Ownership" on pages 5
through 7 in Echlin's 1995 Annual Proxy Statement and is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ---------------------------------------------------------
Information relating to Certain Relationships and Related Transactions is set
forth under the caption "Election of Directors" in Echlin's 1995 Annual Proxy
Statement on pages 2 through 7 and page 12 are incorporated herein by reference.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- ---------------------------------------------------------------------------
14. (a) Document List
-------------
1. Financial Statements
--------------------
Among the responses to this Item 14 (a) are the following financial
statements which are incorporated herein by reference in Item 8 above:
(i) Consolidated Statements of Income for the three years
ended August 31, 1995, 1994 and 1993
(ii) Consolidated Balance Sheets at August 31, 1995 and 1994
(iii) Consolidated Statements of Cash Flows for the three years ended
August 31, 1995, 1994 and 1993
(iv) Consolidated Statements of Changes in Shareholders' Equity
for the three years ended August 31, 1995, 1994 and 1993
(v) Notes to Consolidated Financial Statements
(vi) Report of Independent Accountants
2. Financial Statement Schedules
-----------------------------
(A) Schedule Description Page
-------- ----------- ----
Report of Independent Accountants on
Financial Statement Schedule 12
Consent of Independent Accountants 12
II Valuation and qualifying accounts 13
All other schedules are omitted because they are not required, are
inapplicable, or the information is otherwise shown in the financial statements
or notes thereto.
3. Exhibits Required by Item 601 of Securities and Exchange Commission
-------------------------------------------------------------------
Regulation S-K.
--------------
(3)(i) By-Laws, as amended on December 22, 1987, June 21, 1988,
October 30, 1991, and June 29, 1994 is being filed as an
Exhibit.
(ii) Certificate of Incorporation, filed as Exhibit 3 (3)(ii) to
the Annual Report on Form 10-K for the fiscal year ended
August 31, 1987, is incorporated herein by reference.
(iii) Certificate of Amendment amending the Certificate of
Incorporation to Establish Series A Cumulative Participating
Preferred Stock, filed as Exhibit 3 (3)(iii) to the Annual
Report on Form 10-K for the fiscal year ended August 31, 1989,
is incorporated herein by reference.
9
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ITEM 14 (continued)
- -------------------
(iv) Certificate of Amendment, amending the Certificate of
Incorporation, to limit the liability of directors for
monetary damages under certain circumstances, filed as Item 2
to the 1989 Annual Proxy Statement, is incorporated herein by
reference.
(4)(i) Specimen of Common Stock Certificate, filed as Exhibit 2(1) to
Registration No. 2-63494, is incorporated herein by reference.
(ii) Rights Agreement, dated as of June 21, 1989, between Echlin
Inc. and The Connecticut Bank and Trust Company, N.A., as
Rights Agent, which includes the form of Amendment to the
company's Certificate of Incorporation as Exhibit A, the form
of Right Certificate as Exhibit B and the Summary of Rights to
Purchase Preferred Stock as Exhibit C, filed as Exhibit 1 to
the Current Report on Form 8-K dated June 21, 1989 is
incorporated herein by reference.
(iii) Successor Rights Agent Agreement between Echlin Inc. and The
First National Bank of Boston appointing The First National
Bank of Boston as successor Rights Agent to replace The
Connecticut Bank and Trust Company, N.A. as Rights Agent,
filed as Exhibit 3(3)(iv) to the Annual Report on Form 10-K
for the fiscal year ended August 31, 1990, is incorporated
herein by reference.
(10)(i) (a) Deferred Compensation Plan filed as Exhibits (10)(c)(i) to
the Annual Report on Form 10-K for the fiscal year ended
August 31, 1981, is incorporated herein by reference; (b)
information set forth under the caption "Executive Bonus Plan"
in the 1992 Annual Proxy Statement is incorporated herein by
reference; (c) the Echlin Inc. 1992 Stock Option Plan, filed
as Appendix A to the 1992 Annual Proxy Statement, is
incorporated herein by reference; (d) Supplemental Executive
Retirement Plan dated as of December 19, 1990, as amended,
filed as Exhibit 3(10)(ii) to the Annual Report on Form 10-K
for the fiscal year ended August 31, 1991, is incorporated
herein by reference; (e) Change in Control Severance Policy
dated as of December 19, 1990, as amended, filed as Exhibit
3(10)(ii) to the Annual Report on Form 10-K for the fiscal
year ended August 31, 1991, is incorporated herein by
reference; (f) the Echlin Inc. Performance Unit Plan, filed as
Appendix A to the 1994 Annual Proxy Statement, together with
the First Amendment to the Echlin Inc. Performance Unit Plan,
filed as Appendix A to the 1995 Annual Proxy Statement, are
incorporated herein by reference.
(13) The financial section of Echlin's 1995 Annual Report to
Shareholders, which contains the information incorporated by
reference in this Annual Report on Form 10-K, is being filed
as an Exhibit.
(22) List of Subsidiaries of Echlin Inc. is being filed as an
Exhibit.
(27) Financial Data Schedule is being filed as an Exhibit.
All other exhibits are omitted because they are not applicable.
14 (b) Reports on Form 8-K
- ---------------------------
No Current Report on Form 8-K was required to be filed for the three months
ended August 31, 1995.
10
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SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Echlin Inc.
By: /s/ Frederick J. Mancheski
-----------------------------
Frederick J. Mancheski
Chairman of the Board
and Chief Executive Officer
Date: November 20, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities* indicated on November 20, 1995.
/s/ Frederick J. Mancheski
- ---------------------------
Frederick J. Mancheski, Chairman of the Board
and Chief Executive Officer
/s/ C. Scott Greer
- --------------------------
C. Scott Greer, President and Chief Operating Officer, and Director
/s/ Richard A. Wisot
- --------------------------
Richard A. Wisot, Vice President and
Controller, Chief Accounting Officer
/s/ D. Allan Bromley
- --------------------------
D. Allan Bromley, Director
/s/ John F. Creamer Jr.
- --------------------------
John F. Creamer Jr., Director
/s/ Milton P. DeVane
- --------------------------
Milton P. DeVane, Director
/s/ John E. Echlin Jr.
- --------------------------
John E. Echlin Jr., Director
/s/ John F. Gustafson
- --------------------------
John F. Gustafson, Director
/s/ Donald C. Jensen
- --------------------------
Donald C. Jensen, Director
/s/ Trevor O. Jones
- --------------------------
Trevor O. Jones, Director
/s/ Phillip S. Myers
- --------------------------
Phillip S. Myers, Director
/s/ Jerome G. Rivard
- --------------------------
Jerome G. Rivard, Director
*The position of Chief Financial Officer of the company is presently vacant.
11
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REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
ON FINANCIAL STATEMENT SCHEDULE
-------------------------------
To the Shareholders and Board of Directors of Echlin Inc.
Our audits of the consolidated financial statements referred to in our report
dated September 22, 1995 appearing on page 31 of the 1995 Annual Report to
Shareholders of Echlin Inc. (which report and consolidated financial statements
are incorporated by reference in this Annual Report on Form 10-K) also included
an audit of the Financial Statement Schedule listed in Item 14(a) of this Form
10-K. In our opinion, this Financial Statement Schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
/s/ Price Waterhouse LLP
- -----------------------------
Price Waterhouse LLP
Stamford, Connecticut
September 22, 1995
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-66422, No. 33-15813, No. 2-92426, and No. 33-
15814) of Echlin Inc. of our report dated September 22, 1995 appearing on page
31 of the Annual Report to Shareholders which is incorporated in this Annual
Report on Form 10-K. We also consent to the incorporation by reference of our
report on the Financial Statement Schedule, which appears above.
/s/ Price Waterhouse LLP
- -----------------------------
Price Waterhouse LLP
Stamford, Connecticut
November 20, 1995
12
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ECHLIN INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Additions
------------------------------------
Balance at Balances assumed Write-offs,
beginning Charged to costs in business net of Balance at end
Description of period and expenses acquisitions recoveries (b) of period
- --------------------------------------------------------------------------------------------------------------
Allowance for doubtful accounts:
- --------------------------------
<S> <C> <C> <C> <C> <C>
Year ended August 31, 1995 $5,986,000 (a) $2,950,000 $2,745,000 $(3,593,000) $8,088,000
Year ended August 31, 1994 $4,299,000 $3,288,000 - $(1,896,000) $5,691,000
Year ended August 31, 1993 $4,925,000 (c) $1,433,000 $1,425,000 $(3,484,000) $4,299,000
</TABLE>
(a) Restated to include the valuation accounts for Theodore Bargman Company due
to the pooling of interests transaction.
(b) Includes translation adjustments on allowance for doubtful account balances
of non-U.S. divisions.
(c) Restated to include the valuation accounts for Sprague Devices, Inc. and
Frictiontech Inc. due to the pooling of interests transactions.
13
<PAGE>
- --------------------------------------------------------------------------------
- ------------------------------------------------
Review of Operations and Financial Condition
- ------------------------------------------------
During fiscal 1995, Echlin's dollar sales rose 22 percent to $2.72 billion.
Comparable operations (those part of the company for at least a year) produced
almost half of the gain, with unit volume contributing 3 percent. Acquisitions,
primarily Preferred Technical Group International, Inc. (PTG), provided the
remainder.
In 1994, sales climbed 15 percent to $2.23 billion. Existing businesses
added about half of the growth, which included a unit volume gain of 3 percent;
acquired businesses accounted for the balance.
Domestic Business Advanced
Excluding acquisitions, sales in our U.S. divisions moved up 7 percent in fiscal
1995. Unit volume, coupled with price changes, comprised most of the increase.
Each product group displayed year-over-year growth, but sales in our automotive
brake operation were particularly strong, as we continued to secure new
business.
In the third and fourth quarters, sales softened in all product areas.
This was prompted by an uncommonly mild winter, which slowed business, forcing
our customers to adjust their inventory levels.
Domestic revenue expanded 7 percent in 1994; nearly half of the growth
came from unit volume.
Foreign Sales Climbed
Echlin's international business grew 15 percent this year -- four times the rate
of 1994's foreign sales, and over twice that of 1995's U.S. sales.
Several factors caused this rise in revenue. Unit volume, which was up
6 percent, had the biggest impact, and along with price increases, represented
more than half of the gain. Overall, our European and Brazilian subsidiaries
showed the best performance, a result of favorable market conditions.
Exchange rates supplied some of this year's growth as well. With the
devaluation of the Mexican peso, revenue fell; however, this was more than
offset by the weakening of the U.S. dollar against other currencies, especially
the British pound, German mark and Australian dollar.
In fiscal 1994, non-domestic sales advanced 4 percent. Unit volume
gains of 4 percent, combined with higher prices, countered a 4 percent decline
due to changes in currency translations.
Profit Margins Improved
The company reported gross margins of 28.9 percent in 1995, versus 29.5 percent
in 1994. PTG, our largest acquisition to date, affected this year's
----------
7
----------
<PAGE>
- --------------------------------------------------------------------------------
percentage, as it sells to original equipment manufacturers at gross margins
below Echlin's historical average.
Both domestic and foreign margins strengthened this year, reflecting
our efforts to build sales, cut costs and boost productivity.
In 1994, gross margins edged up 0.4 of a percentage point. They
improved in the majority of our divisions, which compensated for inflationary
pressures on our Brazilian operation.
Selling and administrative expenses increased $62.8 million in 1995, to
$531.3 million. Despite this rise, Echlin's growth in sales outpaced its
operating costs. Expenses as a percentage of sales, therefore, went down for the
fourth year in a row -- since 1991, they've dropped 2.6 percentage points, from
22.1 to 19.5 percent.
Interest Expense Increased
In 1995, the company's interest expense climbed 67 percent. Our borrowing rates
went up; additionally, we incurred more debt, mainly to fund acquisitions and
meet working capital needs.
Interest expense rose 21 percent in 1994. This stemmed from higher
interest rates and debt levels.
Tax Rate Adjusted
Echlin's effective tax rate was 33 percent in fiscal 1995, up 1 percentage point
from 1994. Acquisitions were responsible, in part, for the increase, as were
statutory changes in the tax laws governing our Puerto Rican operation.
Last year, we adopted the provisions of the Financial Accounting
Standards Board Statement No. 109, "Accounting for Income Taxes." The provisions
changed the way we recognize deferred taxes, resulting in a one-time gain of
$2.6 million in net income, or four cents a share in earnings.
Cash Flow Positive
Cash flow from operations totaled $107.0 million in 1995, compared with $149.9
million in 1994 and $165.1 million in 1993. This year, higher net income was
offset by greater spending for working capital items. To maintain competitive
fill rates on customers' orders, we built up our inventory; the timing of
liability payments also reduced our cash levels.
Financial Condition Strong
The company's total debt rose by $198.8 million in 1995. Consequently, debt as a
percentage
- ----------
8
- ----------
<PAGE>
- --------------------------------------------------------------------------------
of capitalization moved to 36 percent, up from 1994's 28 percent and 1993's
19 percent.
Much of the increase centered on our purchase of PTG, which we
completed early in the year. Echlin, nonetheless, has a good record for working
down acquisition-related debt, and we retained our excellent ratings from both
Moody's and Standard & Poor's.
The company positioned itself for future financing in 1995. To begin
with, it renegotiated its revolving credit agreement (RCA). Under the old terms,
we could borrow up to $375 million through September 1999, while the new RCA,
which expires in March 2000, boosts our maximum to $530 million.
We also extended an agreement for the sale of accounts receivable
through March 1998. Further, in the fourth quarter, the company sold matured
investments from its Puerto Rican portfolio, and paid down its domestic debt
with the proceeds.
Shareholders' equity grew 14 percent, or $110.3 million, this year. It
would have been greater, but a drop in the Mexican peso reduced it by $19.8
million; this was tempered $14.4 million, largely by the strength of the British
pound and German mark, netting a $5.4 million decrease.
Capital Expenditures Went Up
In response to escalating product demand, Echlin invested $103.9 million in
equipment and facilities in 1995. This exceeded 1994's expenditures by $28.2
million.
Part of the outlay helped us tool for new parts, and upgrade machinery
and equipment. The company also expanded a heavy duty brake plant in England,
bought a wire factory in Indiana, and finished the construction of a
distribution center in Illinois for light duty brake products.
Last year, we increased our spending by $27.9 million. Most of this
involved our automotive brake group in the United States, where we stepped up
our manufacturing capacity and tooled for new parts.
----------
9
----------
<PAGE>
- ------------------------ Echlin Inc. 1995 Annual Report ------------------------
- --------------------------------------------------------
Management's Responsibility for Financial Statements
- --------------------------------------------------------
Management is responsible for the fairness, integrity and objectivity of Echlin
Inc.'s financial statements including all related information presented in this
annual report. These statements have been prepared in accordance with generally
accepted accounting principles and include amounts based on management's best
estimates and judgements.
Management maintains and relies on a system of internal controls which
provides reasonable assurance that assets are safeguarded and transactions are
properly recorded. The system includes written policies and procedures and an
organizational structure that provides for segregation of responsibilities and
the selection and training of qualified personnel. In addition, the company has
an internal audit function which evaluates existing controls and recommends
changes and improvements whenever deemed necessary.
The Audit Committee of the Board of Directors, which is composed of four
non-management directors, meets several times a year with management, the
independent accountants and the internal auditors. They review significant
financial transactions, the scope and major findings of the independent
accountants' and internal auditors' examinations and the adequacy of the system
of internal controls.
Management believes that Echlin's policies, procedures, internal control
system, and the activities of the internal auditors, the independent accountants
and the Audit Committee, provide you, the shareholder, with reasonable assurance
as to the integrity of the financial statements.
/s/ Fred Mancheski
Chairman of the Board and Chief Executive Officer
/s/ C. Scott Greer
President and Chief Operating Officer
- -------------------------------------
Report of Independent Accountants
- -------------------------------------
[LOGO OF PRICE WATERHOUSE LLP APPEARS HERE]
To the Shareholders and Board of Directors of Echlin Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of cash flows and of changes in shareholders'
equity present fairly, in all material respects, the financial position of
Echlin Inc. and its subsidiaries at August 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the three years in the period
ended August 31, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 7 to the financial statements, the company changed its
method of accounting for income taxes in fiscal 1994.
/s/ Price Waterhouse LLP
Stamford, Connecticut
September 22, 1995
----------
31
----------
<PAGE>
- ------------------------ Echlin Inc. 1995 Annual Report ------------------------
- -------------------------------------
Consolidated Financial Statements
- -------------------------------------
<TABLE>
<CAPTION>
Consolidated Statements of Income
- -------------------------------------------------------------------------------------------------------------------------
Year ended August 31,
(In thousands, except per share data) 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $2,717,866 $2,229,474 $1,944,463
Cost of goods sold 1,932,461 1,571,256 1,377,954
- -------------------------------------------------------------------------------------------------------------------------
Gross profit on sales 785,405 658,218 566,509
Selling and administrative expenses 531,286 468,511 420,460
- -------------------------------------------------------------------------------------------------------------------------
Income from operations 254,119 189,707 146,049
- -------------------------------------------------------------------------------------------------------------------------
Interest expense 39,313 23,504 19,403
Interest income 15,674 11,843 10,930
- -------------------------------------------------------------------------------------------------------------------------
Interest expense, net 23,639 11,661 8,473
- -------------------------------------------------------------------------------------------------------------------------
Income before taxes 230,480 178,046 137,576
Provision for taxes 76,058 56,975 44,025
- -------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting change 154,422 121,071 93,551
Cumulative effect of accounting change -- 2,583 --
- -------------------------------------------------------------------------------------------------------------------------
Net income $ 154,422 $ 123,654 $ 93,551
=========================================================================================================================
Average shares outstanding 59,476 58,996 58,560
=========================================================================================================================
Earnings per share:
Income before cumulative effect of accounting change $2.60 $2.06 $1.60
Cumulative effect of accounting change -- 0.04 --
- -------------------------------------------------------------------------------------------------------------------------
Net income $2.60 $2.10 $1.60
=========================================================================================================================
</TABLE>
See notes to consolidated financial statements.
Sales Dollar
Cost of Goods Sold
73.1% 71.1%
Selling and Administrative Expenses
22.0% 19.5%
1991 $1.7 Billion Interest Expense 1995 $2.7 Billion
[PIE CHART APPEARS HERE] 1.2% 0.9% [PIE CHART APPEARS HERE]
Income Taxes
1.2% 2.8%
Profit After Tax
2.5% 5.7%
- ----------
32
- ----------
<PAGE>
- ------------------------ Echlin Inc. 1995 Annual Report ------------------------
<TABLE>
<CAPTION>
Consolidated Balance Sheets
- ------------------------------------------------------------------------------------------------------------------------
August 31,
(In thousands, except share and per share data) 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 27,700 $ 53,816
Accounts receivable, less allowance for doubtful accounts of $8,088 and $5,691 340,406 277,682
Inventories:
Raw materials and component parts 169,024 143,766
Work in process 83,494 67,771
Finished goods 426,267 347,031
- ------------------------------------------------------------------------------------------------------------------------
Total inventories 678,785 558,568
Other current assets 29,593 22,777
- ------------------------------------------------------------------------------------------------------------------------
Total current assets 1,076,484 912,843
- ------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment:
Land 35,595 23,613
Buildings 187,795 160,960
Machinery and equipment 753,309 646,087
- ------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, at cost 976,699 830,660
Accumulated depreciation (451,171) (386,494)
- ------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net 525,528 444,166
- ------------------------------------------------------------------------------------------------------------------------
Marketable securities 102,462 115,549
- ------------------------------------------------------------------------------------------------------------------------
Intangible assets 187,592 59,496
- ------------------------------------------------------------------------------------------------------------------------
Other assets 68,942 45,352
- ------------------------------------------------------------------------------------------------------------------------
Total assets $1,961,008 $1,577,406
========================================================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable to banks $ 20,810 $ 8,712
Current portion of long-term debt 4,146 2,285
Accounts payable 201,692 168,175
Accrued taxes on income 43,208 43,439
Accrued compensation 80,741 72,669
Other accrued liabilities 135,161 130,015
- ------------------------------------------------------------------------------------------------------------------------
Total current liabilities 485,758 425,295
- ------------------------------------------------------------------------------------------------------------------------
Long-term debt 482,169 297,307
- ------------------------------------------------------------------------------------------------------------------------
Deferred income taxes 83,814 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 59,893,824 and 59,354,461 59,894 59,354
Capital in excess of par value 334,191 329,521
Retained earnings 563,024 452,550
Foreign currency translation adjustments (44,847) (39,459)
Treasury stock, at cost, 270,264 shares (2,995) (2,995)
- ------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 909,267 798,971
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $1,961,008 $1,577,406
========================================================================================================================
</TABLE>
See notes to consolidated financial statements.
----------
33
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<PAGE>
- ------------------------ Echlin Inc. 1995 Annual Report ------------------------
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
- -----------------------------------------------------------------------------------------------------------------------------
Year ended August 31,
(In thousands) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 154,422 $ 123,654 $ 93,551
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 76,609 64,174 59,671
Cumulative effect of accounting change -- (2,583) --
Changes in assets and liabilities, excluding acquisitions' balance sheets:
Accounts receivable (9,448) (62,610) (15,056)
Inventories (94,133) (20,305) (15,091)
Other current assets (5,314) 2,141 (3,213)
Accounts payable 576 24,295 8,251
Accrued taxes on income (4,173) (21,108) 16,835
Deferred income taxes 22,869 12,166 1,582
Accrued liabilities (11,762) 42,759 7,830
Other (22,602) (12,702) 10,690
- -----------------------------------------------------------------------------------------------------------------------------
Cash provided by operating activities 107,044 149,881 165,050
- -----------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Long-term and short-term borrowings 721,232 361,129 93,429
Long-term and short-term repayments (524,664) (231,127) (150,275)
Sale of accounts receivable -- -- 25,000
Proceeds from common stock issuances 5,200 3,905 7,840
Dividends paid (46,987) (43,067) (40,573)
- -----------------------------------------------------------------------------------------------------------------------------
Cash provided by (used for) financing activities 154,781 90,840 (64,579)
- -----------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (103,894) (75,645) (47,738)
Net book value of property, plant and equipment disposals 1,515 1,842 6,210
Marketable securities proceeds (purchases) 13,087 (25,547) (16,898)
Purchases of businesses:
Net working capital items (25,382) (22,103) (7,930)
Property, plant and equipment and intangibles (176,830) (102,256) (34,641)
Debt assumed -- 7,101 5,835
- -----------------------------------------------------------------------------------------------------------------------------
Cash used for investing activities (291,504) (216,608) (95,162)
- -----------------------------------------------------------------------------------------------------------------------------
Impact of foreign currency changes on cash 3,563 1,131 (6,569)
- -----------------------------------------------------------------------------------------------------------------------------
(Decrease) increase in cash and cash equivalents (26,116) 25,244 (1,260)
Cash and cash equivalents at beginning of year 53,816 28,572 29,832
- -----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 27,700 $ 53,816 $ 28,572
=============================================================================================================================
</TABLE>
See notes to consolidated financial statements.
- ----------
34
- ----------
<PAGE>
- ------------------------ Echlin Inc. 1995 Annual Report ------------------------
<TABLE>
<CAPTION>
Consolidated Statements of Changes in Shareholders' Equity
- ---------------------------------------------------------------------------------------------------------------------------------
Capital Foreign
in Excess Currency Total
Common of Par Retained Translation Treasury Shareholders'
(In thousands, except per share data) Stock Value Earnings Adjustments Stock Equity
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at August 31, 1992 $56,483 $320,357 $309,449 $ 10,654 $(2,995) $693,948
Net income -- -- 93,551 -- -- 93,551
Cash dividends paid ($0.70 per share) -- -- (40,573) -- -- (40,573)
Shares issued under stock option plans 613 7,227 -- -- -- 7,840
Foreign currency translation adjustment -- -- -- (50,770) -- (50,770)
Shares issued for acquisitions 2,009 (1,719) 9,536 -- -- 9,826
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at August 31, 1993 59,105 325,865 371,963 (40,116) (2,995) 713,822
Net income -- -- 123,654 -- -- 123,654
Cash dividends paid ($0.73 per share) -- -- (43,067) -- -- (43,067)
Shares issued under stock option plans 249 3,656 -- -- -- 3,905
Foreign currency translation adjustment -- -- -- 657 -- 657
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at August 31, 1994 59,354 329,521 452,550 (39,459) (2,995) 798,971
Net income -- -- 154,422 -- -- 154,422
Cash dividends paid ($0.79 per share) -- -- (46,987) -- -- (46,987)
Shares issued under stock option plans 323 4,877 -- -- -- 5,200
Foreign currency translation adjustment -- -- -- (5,388) -- (5,388)
Shares issued for acquisition 217 (207) 3,039 -- -- 3,049
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at August 31, 1995 $59,894 $334,191 $563,024 $(44,847) $(2,995) $909,267
=================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
[GRAPH OF PROFIT AFTER TAX APPEARS HERE]
Echlin Inc.'s profit after tax for the years 1959 to 1995. The compound growth
rate for that period is 15.9%
----------
35
----------
<PAGE>
- ------------------------ Echlin Inc. 1995 Annual Report ------------------------
- ----------------------------------------------
Notes to Consolidated Financial Statements
- ----------------------------------------------
Note 1
Summary of Accounting Policies
Principles of Consolidation--The consolidated financial statements include the
accounts of Echlin and all majority-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Translation of Foreign Currencies--Balance sheets and monthly income statements
of most foreign subsidiaries have been translated into U.S. dollars at the
current exchange rate with any resulting adjustment being charged or credited to
shareholders' equity. In countries with highly inflationary economies, balance
sheet accounts (principally inventory and fixed assets) and the related income
statement accounts (cost of sales and depreciation) have been translated at
historical exchange rates, and all translation adjustments have been included in
the determination of net income.
Cash and Cash Equivalents--Cash and cash equivalents include short-term interest
bearing securities with maturities of three months or less. Cash equivalents
were $11,404,000 and $21,558,000 at August 31, 1995 and 1994, respectively.
These securities are carried at cost which approximates market.
Accounts Receivable--During April 1995, the company renewed its agreement
through March 1998 with a financial institution to sell, without recourse,
undivided fractional interests in designated pools of trade receivables.
Accounts receivable at August 31, 1995 and 1994 were net of $125,000,000
representing receivables sold.
Inventories--Inventories are stated at the lower of cost (first-in, first-out)
or market.
Property, Plant and Equipment and Depreciation--Property, plant and equipment
are stated at cost. At the time property, plant and equipment are sold or
otherwise disposed of, the accounts are relieved of the cost of the assets and
the related accumulated depreciation, and any resulting profit or loss is
credited or charged to income. Depreciation is computed principally on the
straight-line method over the estimated useful lives of the assets.
Intangible Assets--The excess of cost over fair value of the net assets of
businesses acquired is amortized using the straight-line method over periods
expected to be benefited (currently up to forty years). Costs of acquired
patents and trademarks are amortized using the straight-line method over the
shorter of their estimated useful lives or thirty years.
Marketable Securities--Marketable securities consist principally of investments
in mortgage-backed securities held by Echlin's subsidiary in Puerto Rico, which
are carried at cost and will be held to maturity. The aggregate market value of
securities held at August 31, 1995 and 1994 was $105,698,000 and $120,782,000,
respectively.
Revenue Recognition--The company recognizes revenues from product sales upon
shipment to its customers.
Research and Development Costs--Research and development costs are charged to
income as incurred and aggregated $34,652,000, $22,535,000 and $18,442,000 in
fiscal years 1995, 1994 and 1993, respectively.
- ----------
36
- ----------
<PAGE>
- ------------------------ Echlin Inc. 1995 Annual Report ------------------------
Income Taxes--Deferred income taxes have been provided due to temporary
differences in the reporting of certain items for financial accounting and
income tax purposes. As it is the company's intention to reinvest the
undistributed earnings of its foreign subsidiaries, federal income taxes have
not been provided thereon. Any additional federal income taxes payable upon the
remittance of these undistributed earnings would not be material, after
utilization of available foreign tax credits. The impact of adopting Financial
Accounting Standards Board Statement of Financial Accounting Standards No. 109
(FAS 109) during fiscal 1994 is described in Note 7.
Earnings Per Share--Earnings per share are calculated by dividing net income by
the average number of shares of common stock outstanding. Employee stock options
have been excluded from the calculations as their dilutive effect is not
significant.
Note 2
Business Combinations
In December 1994, the company purchased the common stock of Preferred Technical
Group International, Inc. (PTG), based in Michigan, for $198,345,000. PTG
manufactures coupled hose assemblies for motor vehicle brake, power steering,
air conditioning and heating systems, and extruded plastic products for truck
and industrial applications. The acquisition was accounted for by the purchase
method. The proforma results for the years ended August 31, 1995 and 1994, as if
the acquisition had occurred on September 1, 1993, are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Year ended August 31,
(In thousands, except per share data) 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $2,795,800 $2,476,439
- ----------------------------------------------------------------------------------------------
Income before cumulative effect of accounting change $158,421 $126,552
- ----------------------------------------------------------------------------------------------
Net income $158,421 $129,135
- ----------------------------------------------------------------------------------------------
Earnings per share:
Income before cumulative effect of accounting change $2.66 $2.15
Net income $2.66 $2.19
==============================================================================================
</TABLE>
The proforma results are not necessarily indicative of what actual earnings of
the two companies would have been if combined for the entire periods, or what
they will be in the future.
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 was
accounted for as a pooling of interests, and therefore the financial statements
for the twelve months ended August 31, 1995 include Theodore Bargman's results
of operations. As of the date of the acquisition, Theodore Bargman had net
current assets of $1,756,000 and property, plant and equipment of $1,718,000.
Since the acquisition did not have a material impact on the company, prior
years' results were not restated.
In June 1994, Echlin purchased Import Parts America (IPA), based in
California, for $27,146,000. IPA is a nationwide distributor of automotive
products used for the repair and maintenance of non-U.S. made vehicles. The
acquisition was accounted for by the purchase method.
----------
37
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<PAGE>
- ------------------------ Echlin Inc. 1995 Annual Report ------------------------
In February 1994, the company purchased Neelon Casting Ltd. (Neelon),
located in Canada, for $23,049,000. 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
$67,357,000. In addition, if this business 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 $15,120,000. The acquisition was
accounted for by the purchase method.
In June 1993, the company acquired the outstanding common stock of
Frictiontech Inc., a Canadian manufacturer of integrally molded, non-asbestos
brake pads for the motor vehicle replacement parts market, by issuing 768,138
shares of Echlin Inc. common stock. At the date of the acquisition, Frictiontech
had property, plant and equipment of $3,713,000, net current liabilities of
$1,598,000 and long-term debt of $1,264,000. The transaction was accounted for
as a pooling of interests. Since the acquisition did not have a material impact
on the company, prior years' results were not restated.
In May 1993, the company purchased certain assets of Mr. Gasket Company,
located in Ohio, for $34,400,000. Mr. Gasket manufactures and distributes a
broad range of products for the high performance car parts market. The
acquisition was accounted for by the purchase method.
In September 1992, the company acquired the outstanding common stock of
Sprague Devices, Inc., an Indiana-based manufacturer of windshield wiper systems
for the heavy duty truck market, by issuing 1,240,794 shares of Echlin Inc.
common stock. At the time of the acquisition, Sprague had net working capital
items of $8,379,000, property, plant and equipment and intangibles of $6,608,000
and long-term debt of $5,884,000. The transaction was accounted for as a pooling
of interests. Since the acquisition did not have a material impact on the
company, prior years' results were not restated.
Note 3
Borrowing Arrangements
Notes payable to banks of $20,810,000 and $8,712,000 at August 31, 1995 and
1994, respectively, were comprised of local borrowings by Echlin's foreign
subsidiaries, due within ninety days. Interest rates were between 4.20% and
18.00% at August 31, 1995, and between 4.20% and 15.00% at August 31, 1994.
Long-term debt was comprised of the following:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
August 31,
(In thousands) 1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial paper $238,000 $105,000
Domestic note 125,000 --
8.90%-9.22% Senior note 75,000 125,000
4.75% and 5.25% Notes 19,278 57,330
4.61% Note 19,040 --
6.20%-10.36% Foreign obligations, repayable in varying installments to 1998 4,850 6,248
3.75% Obligation under terms of a lease agreement with a municipality,
repayable at $740 per year from 1997 to 2001 3,700 3,700
7.50%-17.30% Capitalized lease obligations, net of interest of $288 and $337,
repayable in varying installments to 1999 1,447 2,314
- ----------------------------------------------------------------------------------------------------------------
Total 486,315 299,592
Less-current portion 4,146 2,285
- ----------------------------------------------------------------------------------------------------------------
Total long-term debt $482,169 $297,307
================================================================================================================
</TABLE>
- ----------
38
- ----------
<PAGE>
- ------------------------ Echlin Inc. 1995 Annual Report ------------------------
At August 31, 1995 and 1994, the weighted average interest rates on
commercial paper were 5.80% and 4.68%, respectively. The domestic note at
August 31, 1995 represents an unsecured obligation with a U.S. bank which bears
interest at 5.91%. Both the commercial paper and domestic note mature within
sixty days of year-end. The commercial paper and domestic note have been
classified as long term because of the company's intent to refinance these
obligations on a long-term basis and the availability of such financing under
the terms of the revolving credit agreement (RCA).
The company's senior note matures as follows: $45,000,000 due March 1, 1996
and $30,000,000 due March 1, 1998. As the company intends to refinance the
March 1, 1996 repayment on a long-term basis, and has available financing under
its RCA, this obligation has been classified as long term.
The 4.75% and 5.25% notes at August 31, 1995 and 1994, respectively, are
unsecured obligations with a German bank. The 4.75% note maturing in October
1995 has been classified as long term because of the company's intent to
refinance it on a long-term basis and the availability of such financing under
the terms of the RCA.
The 4.61% note was borrowed under a credit agreement with a United Kingdom
bank and will mature in October 1995. This credit agreement was renegotiated in
March 1995, enabling the company to borrow up to $20,000,000 through March 1,
1998. The previous agreement, which expired at the time of the renegotiation,
provided for maximum borrowings of $15,000,000. This debt has also been
classified as long term because of the company's intent to refinance it on a
long-term basis.
Minimum annual principal repayments of long-term debt, excluding commercial
paper, the domestic note, the 4.75% note, the 4.61% note and the senior note, in
each of the next five fiscal years are as follows: 1996 - $4,146,000; 1997 -
$2,101,000; 1998 - $1,416,000; 1999 - $747,000; and 2000 - $740,000.
For the years ended August 31, 1995, 1994 and 1993, interest paid was
$27,964,000, $23,500,000 and $19,632,000, respectively.
In February 1995, the company renegotiated its RCA with twelve banking
institutions to provide availability, through March 1, 2000, of maximum
borrowings of $530,000,000. The previous agreement provided for maximum
borrowings of $375,000,000 and was due to expire on September 1, 1999. At
August 31, 1995, there were no borrowings under the RCA.
The company also had available, from several international banks, credit
lines which provided the availability of maximum borrowings of $75,432,000 and
$71,237,000 at August 31, 1995 and 1994, respectively. Any borrowings under
these lines bear interest at the local equivalent of the prime rate.
Several of the company's long-term debt agreements contain restrictive
covenants regarding the payment of cash dividends, the maintenance of working
capital and shareholders' equity, and the issuance of new debt. The company is
in compliance with all covenants of these agreements.
Both the RCA and United Kingdom agreements require nominal commitment fees
to be paid on the unused portion of the credit.
----------
39
----------
<PAGE>
- ------------------------ Echlin Inc. 1995 Annual Report ------------------------
Note 4
Shareholder Rights Plan
Under the terms of a Shareholder Rights Plan approved by the Board of Directors
in June 1989, a Preferred Share Right (Right) is attached to and automatically
trades with each outstanding share of our common stock.
The Rights, which are redeemable, will become exercisable only in the event
that any person or group becomes a holder of 20% or more of the company's common
stock, or commences a tender or exchange offer which, if consummated, would
result in that person or group owning at least 20% of the common stock. Once the
Rights become exercisable they entitle all other shareholders to purchase, by
payment of a $65.00 exercise price, common stock (or, in certain circumstances,
other consideration) with a value of twice the exercise price. In addition, at
any time after a 20% position is acquired, the Board of Directors may, at its
option, require each outstanding Right (other than Rights held by the acquiring
person or group) to be exchanged for one share of common stock or its
equivalent. The Rights will expire on June 30, 1999 unless redeemed or exchanged
earlier.
Note 5
Stock Option Plan
Under the 1992 stock option plan, options may be granted to officers and key
employees in the form of incentive stock options or nonqualified stock options.
Options may be accompanied by stock appreciation rights which entitle a holder
to surrender an unexercised option and to receive in exchange a payment equal to
the difference between the option and the market price on the surrender date.
Options are granted at 100 percent of the fair market value on the date of
grant. They are exercisable one year from the date of grant and expire ten years
after the date of grant, except in the event of the retirement or death of the
employee. Upon the exercise of stock options, payment may be made using cash,
shares of the company's common stock or any combination thereof.
Information regarding the plan is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Number of Price per
Shares Share
- --------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at August 31, 1993 1,722,025 $10.25-$19.75
Granted 433,750 $32.25
Exercised (249,540) $10.25-$19.75
Terminated (23,275) $10.25-$32.25
- --------------------------------------------------------------------------------
Outstanding at August 31, 1994 1,882,960 $10.25-$32.25
Granted 292,375 $30.75
Exercised (322,335) $10.25-$32.25
Terminated (20,375) $11.75-$32.25
- --------------------------------------------------------------------------------
Outstanding at August 31, 1995 1,832,625 $10.25-$32.25
================================================================================
</TABLE>
At August 31, 1995 there were 1,540,500 options exercisable. Shares
available for future grants at August 31, 1995 and 1994 were 2,288,600 and
2,576,025, respectively. There were no options outstanding with stock
appreciation rights at August 31, 1995 and 1994.
Note 6
Retirement Plans
Echlin sponsors several noncontributory defined benefit pension plans covering a
majority of its domestic employees. A major portion of the employees are covered
by a plan which provides pension benefits based upon years of service and the
employee's compensation during the five highest consecutive years during the
ten-year period prior to retirement. Benefits under the plans covering other
employees are based upon a stated amount for each year of service. It is the
company's normal policy to fund the maximum amount that can be deducted for
federal income tax purposes. The company also contributes
- ----------
40
- ----------
<PAGE>
- ------------------------ Echlin Inc. 1995 Annual Report ------------------------
to multi-employer pension plans covering certain domestic employees and to
pension plans for employees of certain foreign subsidiaries.
A majority of domestic employees are eligible to make contributions to the
company's 401(k) retirement savings plan. The company matches a portion of the
employee's annual contributions based upon the company's return on assets.
Company contributions were $2,002,000, $777,000 and $503,000 during the fiscal
years ended August 31, 1995, 1994 and 1993, respectively.
Net pension cost for all pension plans was $10,124,000, $7,396,000 and
$6,429,000 for the fiscal years ended August 31, 1995, 1994 and 1993,
respectively. Net pension cost included the following components:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Year ended August 31,
1995 1994 1993
--------------------- --------------------- ----------------------
(In thousands) Domestic Foreign Domestic Foreign Domestic Foreign
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost--benefits earned during
the period $ 5,697 $ 4,777 $ 4,926 $ 4,663 $ 4,339 $ 3,575
Interest on projected benefit
obligation 7,678 7,578 6,778 6,053 5,949 5,431
Actual return on plan assets (10,869) (4,848) (5,624) (6,600) (9,074) (15,826)
Net amortization and deferrals 2,321 (2,600) (3,220) 210 1,067 10,734
Multi-employer plans 390 -- 210 -- 234 --
- --------------------------------------------------------------------------------------------------------------------------
Net pension cost $ 5,217 $ 4,907 $ 3,070 $ 4,326 $ 2,515 $ 3,914
==========================================================================================================================
</TABLE>
The following table sets forth the funded status of the various company
pension plans:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
August 31,
1995 1994
------------------------- ---------------------------
(In thousands) Domestic Foreign Domestic Foreign
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of:
Vested benefit obligation $85,465 $78,977 $75,264 $74,666
Accumulated benefit obligation $88,132 $82,736 $77,354 $78,718
======================================================================================================================
Plan assets at fair value $106,608 $80,948 $93,485 $77,020
Projected benefit obligation 106,546 99,706 95,111 94,207
- ----------------------------------------------------------------------------------------------------------------------
Plan assets in excess of (less than)
projected benefit obligation 62 (18,758) (1,626) (17,187)
Unrecognized net loss 19,403 244 20,307 3,235
Unrecognized prior service cost 3,407 2,698 3,794 2,440
Unrecognized net assets (2,778) (7,150) (3,690) (7,462)
Adjustment to minimum liability (60) (34) (2) (24)
- ----------------------------------------------------------------------------------------------------------------------
Prepaid (accrued) pension cost $ 20,034 $(23,000) $18,783 $(18,998)
======================================================================================================================
Actuarial assumptions:
Discount rate 8.00% 7.00%-9.00% 8.00% 7.00%-8.50%
Rate of increase in compensation levels 4.63% 3.00%-6.50% 4.63% 3.00%-6.50%
Expected long-term rate of return on
plan assets 10.00% 8.50%-9.50% 10.00% 8.50%-9.50%
======================================================================================================================
</TABLE>
The company also has a Supplemental Executive Retirement Plan which
provides certain key employees with pension benefits they would have received
under the normal company plan had there not been limitations imposed by the
Internal Revenue Code of 1986. An unfunded projected benefit obligation of
$2,619,000 and $1,882,000 at August 31, 1995 and 1994, respectively, is included
under domestic in the table above.
----------
41
----------
<PAGE>
- ------------------------ Echlin Inc. 1995 Annual Report ------------------------
Pension plans in certain foreign countries are not funded. At August 31,
1995 and 1994, the company had recorded an accrued liability for $23,163,000 and
$18,905,000, respectively, relating to such plans which are included in the
table above.
The majority of domestic pension plan assets are invested in short-term
investments and common stock including 50,000 shares of Echlin Inc. common
stock. The balance is primarily invested in corporate bonds, limited partnership
interests, preferred stocks and mutual funds.
Note 7
Income Taxes
Effective September 1, 1993 the company adopted FAS No. 109, "Accounting for
Income Taxes," which changed the method for determining the recognition of
deferred taxes from the deferred method to the liability method. The cumulative
effect of adopting this accounting change was a $2,583,000 increase in net
income in the year ended August 31, 1994.
The provision for taxes was comprised of the following:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Year ended August 31,
(In thousands) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $12,537 $24,678 $18,423
State 9,500 8,050 6,600
Foreign 31,439 20,390 20,066
- ----------------------------------------------------------------------------------------------------
Total current provision 53,476 53,118 45,089
- ----------------------------------------------------------------------------------------------------
Deferred:
Federal and state 17,348 324 (724)
Foreign 5,234 3,533 (340)
- ----------------------------------------------------------------------------------------------------
Total deferred provision 22,582 3,857 (1,064)
- ----------------------------------------------------------------------------------------------------
Total provision $76,058 $56,975 $44,025
====================================================================================================
</TABLE>
The tax effect of major temporary differences is summarized below:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Year ended August 31,
(In thousands) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Depreciation $21,433 $ 1,964 $ 1,083
Valuation of inventories (4,202) (1,971) (2,047)
All other, net 5,351 3,864 (100)
- ----------------------------------------------------------------------------------------------------
Total deferred provision $22,582 $ 3,857 $(1,064)
====================================================================================================
</TABLE>
A reconciliation setting forth the differences between Echlin's effective
tax rate and the U.S. statutory federal tax rate is as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Year ended August 31,
1995 1994 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal tax rate 35.0% 35.0% 34.7%
Earnings in Puerto Rico not subject to U.S. taxes (2.9) (5.1) (7.0)
Net tax effect relating to foreign operations 1.5 2.7 3.8
State taxes 2.7 2.9 3.1
Other (3.3) (3.5) (2.6)
- ----------------------------------------------------------------------------------------------------
Effective tax rate 33.0% 32.0% 32.0%
====================================================================================================
</TABLE>
- ----------
42
- ----------
<PAGE>
- ------------------------ Echlin Inc. 1995 Annual Report ------------------------
The company has a subsidiary operating in Puerto Rico under a tax exemption
grant which expires in 2009.
For the years ended August 31, 1995, 1994 and 1993, taxes paid were
$52,752,000, $54,216,000 and $27,376,000, respectively.
Deferred income taxes reflect the net tax effects of temporary differences
between the amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. The following is a summary of the
significant components of the company's deferred tax assets and liabilities:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
August 31,
(In thousands) 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C>
Assets:
Inventories $ 8,422 $ 4,220
Accrued expenses 4,764 5,361
Other employee benefits 9,166 8,942
Other 4,078 918
- -----------------------------------------------------------------------------
Gross deferred assets 26,430 19,441
- -----------------------------------------------------------------------------
Liabilities:
Depreciation 71,016 49,583
Pension 11,924 9,331
Other 15,769 2,352
- -----------------------------------------------------------------------------
Gross deferred liabilities 98,709 61,266
- -----------------------------------------------------------------------------
Net deferred liabilities $72,279 $41,825
=============================================================================
</TABLE>
Note 8
Rental Commitments
Total rental expense for the years ended August 31, 1995, 1994 and 1993 was
$35,274,000, $31,179,000 and $30,608,000, respectively.
Minimum rental commitments under noncapitalized, noncancelable lease
agreements are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Year ending August 31, Real All
(In thousands) Estate Computers Others Total
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996 $15,543 $3,645 $ 5,256 $24,444
1997 12,545 2,259 3,234 18,038
1998 10,311 923 1,761 12,995
1999 7,555 777 1,053 9,385
2000 6,328 18 575 6,921
2001 and thereafter 13,000 -- 263 13,263
- --------------------------------------------------------------------------------------------
Total commitments $65,282 $7,622 $12,142 $85,046
============================================================================================
</TABLE>
----------
43
----------
<PAGE>
- ------------------------ Echlin Inc. 1995 Annual Report ------------------------
Note 9
Business Segment Information
Echlin, as a worldwide supplier of parts and supplies for motor vehicles, is
engaged in only one business segment.
An analysis of the company's operations by geographic location is as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Year ended August 31, North
(In thousands) America Europe All Other Eliminations Consolidated
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995
Sales to unaffiliated customers $2,000,367 $589,181 $128,318 -- $2,717,866
Sales between geographic areas 9,445 8,832 788 $(19,065) --
- --------------------------------------------------------------------------------------------------------------------------
Total sales $2,009,812 $598,013 $129,106 $(19,065) $2,717,866
==========================================================================================================================
Income before taxes $160,645 $60,604 $9,231 -- $230,480
==========================================================================================================================
Identifiable assets $1,279,466 $529,508 $103,648 -- $1,912,622
=============================================================================================================
Corporate assets 48,386
- --------------------------------------------------------------------------------------------------------------------------
Total assets $1,961,008
==========================================================================================================================
1994
Sales to unaffiliated customers $1,688,347 $429,212 $111,915 -- $2,229,474
Sales between geographic areas 7,566 8,725 759 $(17,050) --
- --------------------------------------------------------------------------------------------------------------------------
Total sales $1,695,913 $437,937 $112,674 $(17,050) $2,229,474
==========================================================================================================================
Income before taxes $147,390 $28,634 $2,022 -- $178,046
==========================================================================================================================
Identifiable assets $1,011,388 $419,941 $87,126 -- $1,518,455
=============================================================================================================
Corporate assets 58,951
- --------------------------------------------------------------------------------------------------------------------------
Total assets $1,577,406
==========================================================================================================================
1993
Sales to unaffiliated customers $1,525,203 $304,455 $114,805 -- $1,944,463
Sales between geographic areas 5,839 7,561 839 $(14,239) --
- --------------------------------------------------------------------------------------------------------------------------
Total sales $1,531,042 $312,016 $115,644 $(14,239) $1,944,463
==========================================================================================================================
Income before taxes $124,694 $12,516 $366 -- $137,576
==========================================================================================================================
Identifiable assets $909,605 $222,948 $77,985 -- $1,210,538
=============================================================================================================
Corporate assets 52,723
- --------------------------------------------------------------------------------------------------------------------------
Total assets $1,263,261
==========================================================================================================================
</TABLE>
Sales between geographic areas are made at prices based upon standard cost
plus an appropriate markup. Income before taxes included realized and unrealized
foreign currency transaction (losses) gains for the years ended August 31, 1995,
1994 and 1993 of $(354,000), $(416,000) and $1,844,000, respectively, and
translation losses of $717,000, $1,427,000 and $6,176,000, respectively. The
company's foreign operations had income before taxes of $94,988,000, $54,828,000
and $41,663,000 for the years ended August 31, 1995, 1994 and 1993,
respectively.
Members of the National Automotive Parts Association (NAPA) represent the
company's largest group of customers and accounted for 9.6% of consolidated net
sales for the year ended August 31, 1995 (10.3% in 1994 and 11.2% in 1993).
Included in this number are sales to Genuine Parts Company and its affiliates,
the largest member of NAPA, which accounted for 9.4% of sales in 1995 (10.2% in
1994 and 10.8% in 1993).
- ----------
44
- ----------
<PAGE>
- ------------------------ Echlin Inc. 1995 Annual Report ------------------------
Note 10
Quarterly Financial Data (unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Year ended August 31, Net Gross Income From Net Earnings
(In thousands, except per share data) Sales Profit Operations Income Per Share
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995
First quarter $ 600,615 $176,059 $ 49,761 $ 31,796 $0.54
Second quarter 648,132 186,101 50,689 28,989 0.48
Third quarter 745,064 212,707 78,237 47,768 0.81
Fourth quarter 724,055 210,538 75,432 45,869 0.77
- ----------------------------------------------------------------------------------------------------------------------
Total $2,717,866 $785,405 $254,119 $154,422 $2.60
======================================================================================================================
1994
First quarter $ 499,264 $145,100 $ 37,034 $ 26,668 $0.45
Second quarter 497,153 142,642 34,819 21,756 0.37
Third quarter 610,034 183,760 60,736 39,008 0.66
Fourth quarter 623,023 186,716 57,118 36,222 0.62
- ----------------------------------------------------------------------------------------------------------------------
Total $2,229,474 $658,218 $189,707 $123,654 $2.10
======================================================================================================================
1993
First quarter $ 462,328 $133,467 $ 30,649 $19,107 $0.33
Second quarter 441,546 125,033 26,302 16,320 0.28
Third quarter 519,726 154,234 46,559 29,892 0.51
Fourth quarter 520,863 153,775 42,539 28,232 0.48
- ----------------------------------------------------------------------------------------------------------------------
Total $1,944,463 $566,509 $146,049 $93,551 $1.60
======================================================================================================================
</TABLE>
As a result of adopting FAS 109 in the first quarter of fiscal 1994, net
income and earnings per share were increased by $2,583,000 and $0.04,
respectively.
Note 11
Subsequent Event
In October 1995, the company entered into an agreement to acquire the
outstanding common stock of American Electronic Components, Inc., an
Indiana-based manufacturer of motor vehicle electronic components, for
approximately 1.5 million shares of Echlin common stock. The transaction, which
should be completed in the fourth calendar quarter, will be accounted for as a
pooling of interests.
----------
45
----------
<PAGE>
- ------------------------ Echlin Inc. 1995 Annual Report ------------------------
- -------------------
Historical Data
- -------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
10-year Growth
Compound 1995 vs.
(In thousands, except per share data) Growth 1994 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations:
Net sales 13.4% 21.9% $2,717,866 $2,229,474 $1,944,463
Cost of goods sold 13.7 23.0 1,932,461 1,571,256 1,377,954
---------------------------------------
Gross profit on sales 12.7 19.3 785,405 658,218 566,509
Selling and administrative expenses 12.9 13.4 531,286 468,511 420,460
---------------------------------------
Income from operations 12.2 34.0 254,119 189,707 146,049
---------------------------------------
Interest expense 13.4 67.3 39,313 23,504 19,403
Interest income 7.3 32.3 15,674 11,843 10,930
---------------------------------------
Interest expense, net 21.5 102.7 23,639 11,661 8,473
---------------------------------------
Income before taxes 11.6 29.4 230,480 178,046 137,576
Provision for taxes 9.4 33.5 76,058 56,975 44,025
---------------------------------------
Income before cumulative effect of accounting change 13.0 27.5 154,422 121,071 93,551
Cumulative effect of accounting change -- -- -- 2,583 --
---------------------------------------
Net income 13.0 24.9 $ 154,422 $ 123,654 $ 93,551
=======================================
Average shares outstanding 3.6 0.8 59,476 58,996 58,560
Earnings per share:
Income before cumulative effect of accounting change 9.0 26.2 $2.60 $2.06 $1.60
Net income 9.0 23.8 $2.60 $2.10 $1.60
Dividends per share 6.8 8.2 $0.79 $0.73 $0.70
Financial Position at Year-end:
Working capital 11.7 21.2 $590,726 $487,548 $381,989
Current ratio -- -- 2.2/1 2.1/1 2.1/1
Working capital to sales -- -- 21.7% 21.9% 19.6%
Property, plant and equipment, net 14.3 18.3 $525,528 $444,166 $329,381
Total assets 13.1 24.3 $1,961,008 $1,577,406 $1,263,261
Total debt 14.7 64.5 $507,125 $308,304 $164,232
Shareholders' equity 12.1 13.8 $909,267 $798,971 $713,822
--per share 8.2 12.8 $15.25 $13.52 $12.13
Total debt to capitalization -- -- 35.8% 27.8% 18.7%
Other Data:
Capital expenditures, net of disposals 14.1 38.7 $102,379 $73,803 $41,528
Depreciation and amortization 16.5 19.4 $76,609 $64,174 $59,671
Effective tax rate -- -- 33.0% 32.0% 32.0%
Income from operations as a percent of net sales -- -- 9.3% 8.5% 7.5%
Net income as a percent of:
Net sales -- -- 5.7% 5.5% 4.8%
Beginning shareholders' equity -- -- 19.3% 17.3% 13.5%
Average number of employees 9.4 13.6 23.4 20.6 18.6
=================================================================================================================================
</TABLE>
- ----------
46
- ----------
<PAGE>
- ------------------------ Echlin Inc. 1995 Annual Report ------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Year ended August 31,
1992 1991 1990 1989 1988 1987 1986 1985
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$1,783,362 $1,685,876 $1,601,254 $1,454,492 $1,294,297 $1,099,703 $901,890 $771,390
1,287,041 1,232,726 1,147,940 1,054,650 935,531 790,152 613,606 533,195
- ---------------------------------------------------------------------------------------------------------------
496,321 453,150 453,314 399,842 358,766 309,551 288,284 238,195
389,470 371,980 368,380 326,221 263,605 234,255 199,545 158,164
- ---------------------------------------------------------------------------------------------------------------
106,851 81,170 84,934 73,621 95,161 75,296 88,739 80,031
- ---------------------------------------------------------------------------------------------------------------
22,127 29,009 21,886 24,594 13,229 11,676 12,335 11,155
9,768 9,049 5,903 13,677 11,368 9,395 7,565 7,770
- ---------------------------------------------------------------------------------------------------------------
12,359 19,960 15,983 10,917 1,861 2,281 4,770 3,385
- ---------------------------------------------------------------------------------------------------------------
94,492 61,210 68,951 62,704 93,300 73,015 83,969 76,646
30,237 19,557 21,746 18,285 31,228 27,381 35,125 31,043
- ---------------------------------------------------------------------------------------------------------------
64,255 41,653 47,205 44,419 62,072 45,634 48,844 45,603
-- -- -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------
$ 64,255 $ 41,653 $ 47,205 $ 44,419 $ 62,072 $ 45,634 $ 48,844 $ 45,603
===============================================================================================================
55,976 55,835 55,797 55,733 55,613 52,098 44,123 41,609
$1.15 $0.75 $0.85 $0.80 $1.12 $0.88 $1.11 $1.10
$1.15 $0.75 $0.85 $0.80 $1.12 $0.88 $1.11 $1.10
$0.70 $0.70 $0.70 $0.66 $0.59 $0.53 $0.47 $0.41
$417,407 $479,174 $509,260 $436,972 $347,500 $359,320 $268,654 $195,225
2.3/1 2.9/1 3.0/1 2.8/1 2.2/1 3.1/1 2.9/1 2.3/1
23.4% 28.4% 31.8% 30.0% 26.8% 32.7% 29.8% 25.3%
$325,312 $311,047 $310,381 $264,734 $242,169 $207,030 $168,355 $137,869
$1,241,193 $1,191,793 $1,192,496 $1,034,254 $1,086,568 $869,065 $685,750 $574,046
$210,948 $261,822 $262,069 $128,938 $130,651 $91,825 $101,549 $128,851
$693,948 $649,416 $662,430 $640,623 $634,267 $603,469 $423,043 $289,721
$12.34 $11.63 $11.87 $11.48 $11.39 $10.88 $8.79 $6.95
23.3% 28.7% 28.3% 16.8% 17.1% 13.2% 19.4% 30.8%
$48,255 $56,166 $63,170 $56,780 $55,871 $37,890 $33,420 $27,442
$55,896 $56,489 $47,282 $40,639 $35,230 $29,176 $20,836 $16,612
32.0% 32.0% 31.5% 29.2% 33.5% 37.5% 41.8% 40.5%
6.0% 4.8% 5.3% 5.1% 7.4% 6.8% 9.8% 10.4%
3.6% 2.5% 2.9% 3.1% 4.8% 4.1% 5.4% 5.9%
9.9% 6.3% 7.4% 7.0% 10.3% 10.8% 16.9% 17.5%
17.9 17.8 17.3 16.2 14.7 13.5 10.9 9.5
===============================================================================================================
</TABLE>
----------
47
----------
<PAGE>
- ------------------------ Echlin Inc. 1995 Annual Report ------------------------
- ------------------
Quarterly Data
- ------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Dividends Market Price Per Share Price to
Year ended August 31, Per Share High Low Close Earnings Ratio/1/
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1993
First quarter $0.175 $20 7/8 $18 $20 3/4 16.6
Second quarter 0.175 27 3/8 20 5/8 24 1/8 18.1
Third quarter 0.175 27 1/4 22 1/2 26 1/4 17.7
Fourth quarter 0.175 31 1/8 26 28 17.5
------
Total fiscal year $0.70 $31 1/8 $18 $28 17.5
1994
First quarter $0.175 $33 7/8 $27 3/4 $33 1/8 19.3
Second quarter 0.175 35 1/4 29 3/8 29 7/8 16.5
Third quarter 0.19 32 1/8 24 1/2 27 1/8 13.8
Fourth quarter 0.19 33 5/8 27 30 7/8 14.7
------
Total fiscal year $0.73 $35 1/4 $24 1/2 $30 7/8 14.7
1995
First quarter $0.19 $31 3/4 $27 $30 1/4 13.8
Second quarter 0.19 35 3/8 26 3/4 34 5/8 15.1
Third quarter 0.205 38 3/4 32 7/8 36 14.7
Fourth quarter 0.205 39 5/8 34 34 1/2 13.3
------
Total fiscal year $0.79 $39 5/8 $26 3/4 $34 1/2 13.3
==============================================================================================================
</TABLE>
/1/ Computed using closing price and most recent 4 quarters' earnings per share.
[GRAPH APPEARS HERE]
Echlin Inc.'s quarterly earnings per share for fiscal years 1991-1995.
- ----------
48
- ----------
<PAGE>
Exhibit 22. Subsidiaries of Echlin Inc. (indirect subsidiaries are indented)
<TABLE>
<CAPTION>
State or Jurisdiction Percentage of
Name Where Organized Securities Owned
- ---- --------------------- ----------------
<S> <C> <C>
Ace Electric Company, Inc. Missouri 100
Automotive Brake Company Inc. Delaware 100
Brake Parts Inc. Delaware 100
Friction Inc. Delaware 100
Hydraulics Inc. Delaware 100
Automotive Controls Corp. Connecticut 100
Beck/Arnley Worldparts Corp. Delaware 100
Blackstone Manufacturing Co., Inc. Illinois 100
BWD Automotive Corporation Delaware 100
BWD Automotive of Puerto Rico, Inc. Puerto Rico 70
Corporation Lusac and Comfhia, S.A. de C.V. Mexico 100
Frenos Lusac, S.A. de C.V. Mexico 100
Echlin Argentina S.A. Argentina 100
Echlin Asset Funding Corp. Connecticut 100
Echlin Australia (Pty.) Ltd. Australia 100
Echlin (Bermuda) Ltd. Bermuda 99
Echlin Canada Inc. Canada 100
Brake Parts Canada Inc. Ontario 100
Distex Ind. Inc. Ontario 100
Neelon Casting Ltd. Ontario 100
Echlin Charger Mfg. Co. (Pty.) Ltd. South Africa 92
Echlin China Limited Hong Kong 100
Echlin Comercial, S.A. de C.V. Mexico 100
Echlin Dominicana, S.A. Dominican Republic 100
Echlin Europe Limited England 100
Grau Limited England 100
Hobourn Automotive Limited England 100
Lipe Limited England 100
Preferred Technical Group. CHA Limited England 100
Quinton Hazell plc England 100
Motaproducts Automotive Limited England 100
Quinton Hazell Holdings Espana, S.A. England 100
La Industrial Plastica Y
Metalurgica, S.A. Spain 100
Echlin Holding Deutschland GmbH Germany 100
Echlin Grundstucksverwaltung
(Deutschland) GmbH Germany 100
Fahrzeugtechnik Ebern GmbH Germany 100
Move Brems - und Kupplungsschlauch GmbH Germany 100
Echlin International, V.I., Inc. Virgin Islands 100
Echlin-Ponce, Inc. Delaware 100
The Echlin Sales Company Connecticut 100
Echlin Taiwan Ltd. Taiwan 100
Emboabas Industria e Comercio Limitada Brazil 100
Echlin do Brasil S.A. Brazil 100
Grau GmbH Germany 100
Grupo Echlin Automotriz, S.A. de C.V. Mexico 100
Integrated Technologies Group, Inc. Connecticut 100
Inversiones Echlin, S.A. de C.V. Mexico 100
Echlin Mexicana, S.A. de C.V. Mexico 100
Itapsa, S.A. de C.V. Mexico 100
Servicios Administrativos Itapsa,
S.A. de C.V Mexico 100
Inversora Sabana, S.A. Venezuela 100
Echlin de Venezuela, C.A. Venezuela 100
Echlin de Colombia, Ltda. Colombia 100
Midland Brake, Inc. Delaware 100
Mr. Gasket, Inc. Delaware 100
Pacer Industries, Inc. Missouri 100
PAH Mexico Inc. Delaware 100
Balatas American Brakebloks, S.A. de C.V. Mexico 100
</TABLE>
<PAGE>
Exhibit 22. Subsidiaries of Echlin Inc. (continued)
<TABLE>
<CAPTION>
State or Jurisdiction Percentage of
Name Where Organized Securities Owned
- ---- ---------------------- ----------------
<S> <C> <C>
Prattville Mfg., Inc. Delaware 100
Preferred Technical Group International, Inc. Delaware 100
Multitech - PTG, Inc. Delaware 100
Preferred Technical Group, Inc. Delaware 100
Ristance Corporation Indiana 100
Echlin de Saltillo, S.A. de C.V. Mexico 100
Sierra International Inc. Illinois 100
Sprague Devices, Inc. Indiana 100
Tekonsha Engineering Company Michigan 100
Theodore Bargman Co. Michigan 100
United Brake Systems Inc. Delaware 100
WAWD-EAP Automotive Products, Inc. Delaware 100
W.M. Holding Co., Inc. Delaware 100
Producciones Automotrices, S.A. de C.V. Mexico 100
Windsor Products Company, Inc. New Jersey 100
3125025 Canada Inc. Canada 100
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED AUGUST 31, 1995, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> AUG-31-1995
<CASH> 27,700
<SECURITIES> 0
<RECEIVABLES> 348,494
<ALLOWANCES> 8,088
<INVENTORY> 678,785
<CURRENT-ASSETS> 1,076,484
<PP&E> 976,699
<DEPRECIATION> 451,171
<TOTAL-ASSETS> 1,961,008
<CURRENT-LIABILITIES> 485,758
<BONDS> 0
<COMMON> 59,894
0
0
<OTHER-SE> 849,373
<TOTAL-LIABILITY-AND-EQUITY> 1,961,008
<SALES> 2,717,866
<TOTAL-REVENUES> 2,717,866
<CGS> 1,932,461
<TOTAL-COSTS> 531,286
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,639
<INCOME-PRETAX> 230,480
<INCOME-TAX> 76,058
<INCOME-CONTINUING> 154,422
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 154,422
<EPS-PRIMARY> 2.60
<EPS-DILUTED> 2.60
</TABLE>
