SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark one)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1996
------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file no. 1-4651
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ECHLIN INC.
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(Exact name of registrant as specified in its charter)
Connecticut 06-0330448
- ------------------------------------------- ----------------------
(State of incorporation) (I.R.S. employer
identification no.)
100 Double Beach Road
Branford, Connecticut 06405
- ------------------------------------------- ----------------------
(Address of principal executive offices) (Zip code)
(203) 481-5751
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO
---- ----
(APPLICABLE ONLY TO CORPORATE ISSUERS)
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Title of class Outstanding at June 30, 1996
- ------------------------- ----------------------------
Common stock, $1 par value 61,454,789
<PAGE>
ECHLIN INC.
<TABLE>
INDEX
<CAPTION>
PART I. FINANCIAL INFORMATION Page
- ------------------------------ ----
<S> <S>
Item 1. Financial Statements
Consolidated balance sheets at May 31, 1996
and August 31, 1995. 3
Consolidated statements of income for the three
months ended May 31, 1996 and May 31, 1995;
for the nine months ended May 31, 1996 and
May 31, 1995. 4
Consolidated statements of cash flows for the
nine months ended May 31, 1996 and 1995. 5
Notes to consolidated financial statements at
May 31, 1996. 6-7
Item 2. Management's Financial Analysis 8-9
PART II. OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
</TABLE>
2
<PAGE>
PART I: FINANCIAL INFORMATION
<TABLE>
ECHLIN INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<CAPTION>
May 31, August 31,
1996 1995
----------- ----------
(unaudited) (A)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,474 $ 27,700
Accounts receivable, less-allowance for
doubtful accounts of $5,616 and $8,088 428,193 340,406
Inventories, at lower of cost (first-in,
first-out) or market:
Raw materials and component parts 174,786 169,024
Work in process 88,804 83,494
Finished goods 426,691 426,267
---------- ----------
Total inventories 690,281 678,785
Other current assets 43,527 29,593
---------- ----------
Total current assets 1,171,475 1,076,484
---------- ----------
Property, plant and equipment, at cost 1,116,339 976,699
Accumulated depreciation (515,503) (451,171)
---------- ----------
Property, plant and equipment, net 600,836 525,528
---------- ----------
Marketable securities 81,397 102,462
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Intangible assets, net 224,148 187,592
---------- ----------
Other assets 89,760 68,942
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Total assets $2,167,616 $1,961,008
========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Notes payable to banks $ 26,435 $ 20,810
Current portion of long-term debt 4,718 4,146
Accounts payable, trade 215,266 201,692
Accrued taxes on income 35,236 43,208
Accrued liabilities 184,539 215,902
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Total current liabilities 466,194 485,758
---------- ----------
Long-term debt 621,046 482,169
---------- ----------
Deferred income taxes 110,240 83,814
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Shareholders' equity:
Preferred stock, without par value:
Authorized 1,000,000 shares, issued none - -
Common stock, $1 par value:
Authorized 150,000,000 shares,
issued 61,717,278 and 59,893,824 61,717 59,894
Capital in excess of par value 349,728 334,191
Retained earnings 630,105 563,024
Foreign currency translation adjustment (68,419) (44,847)
Treasury stock, at cost, 270,264 shares (2,995) (2,995)
---------- ----------
Total shareholders' equity 970,136 909,267
---------- ----------
Total liabilities and shareholders' equity $2,167,616 $1,961,008
========== ==========
</TABLE>
See notes to consolidated financial statements.
(A) The balance sheet at August 31, 1995 has been derived from the audited
financial statements at that date.
3
<PAGE>
ECHLIN INC.
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share data)
<CAPTION>
Three Months Ended Nine Months Ended
May 31, May 31,
---------------------- ---------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $839,616 $745,064 $2,281,782 $1,993,811
Cost of goods sold 619,538 532,357 1,685,508 1,418,944
-------- -------- ---------- ---------
Gross profit on sales 220,078 212,707 596,274 574,867
Selling and administrative
expenses 146,731 134,470 420,000 396,180
-------- -------- ---------- --------
Income from operations 73,347 78,237 176,274 178,687
-------- -------- ---------- --------
Interest expense 10,908 11,586 33,090 28,265
Interest income 2,617 4,645 7,775 11,597
-------- -------- ---------- --------
Interest expense, net 8,291 6,941 25,315 16,668
-------- -------- ---------- --------
Income before taxes 65,056 71,296 150,959 162,019
Provision for taxes 22,119 23,528 51,326 53,466
-------- -------- ---------- --------
Net income $ 42,937 $ 47,768 $ 99,633 $ 108,553
======== ======== ========== ========
Average shares outstanding 61,435 59,539 61,392 59,438
======== ======== ========== ========
Earnings per share $0.70 $0.81 $1.62 $1.83
======== ======== ========== ========
Dividends per share $0.22 $0.205 $0.63 $0.585
======== ======== ========== ========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
ECHLIN INC.
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<CAPTION>
Nine Months Ended
May 31,
---------------------
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 99,633 $108,553
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 69,794 58,849
Changes in assets and liabilities, excluding
acquisitions' balance sheets:
Accounts receivable (125,667) (39,032)
Inventories 10,500 (98,123)
Other current assets (9,101) (14,236)
Accounts payable (1,948) 13,169
Taxes on income 22,140 20,765
Accrued liabilities (20,491) (17,956)
Other (4,015) (7,259)
-------- --------
Cash provided by operating activities 40,845 24,730
-------- --------
Cash flows from financing activities:
Long-term and short-term borrowings 547,387 552,995
Long-term and short-term repayments (418,823) (328,850)
Sale of accounts receivables 55,000 -
Proceeds from common stock issuances 2,332 4,083
Dividends paid (38,286) (34,771)
-------- --------
Cash provided by financing activities 147,610 193,457
-------- --------
Cash flows from investing activities:
Capital expenditures, net (71,493) (72,773)
Sales of marketable securities 21,065 10,488
Net assets of businesses acquired (149,491) (199,352)
-------- --------
Cash used for investing activities (199,919) (261,637)
-------- --------
Impact of foreign currency changes
on cash (6,762) 3,990
-------- --------
Decrease in cash and cash equivalents (18,226) (39,460)
Cash and cash equivalents at beginning
of period 27,700 53,816
-------- --------
Cash and cash equivalents at end of period $ 9,474 $14,356
======== ========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
ECHLIN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1.
- -------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair statement have been included. Operating
results for the nine-month period ended May 31, 1996 are not necessarily
indicative of the results that may be expected for the year ending
August 31, 1996. For further information, refer to the consolidated
financial statements and footnotes thereto included in the company's
Annual Report on Form 10-K for the year ended August 31, 1995.
NOTE 2.
- -------
During December 1995, the company acquired the outstanding common stock
of the American Electronic Components, Inc. (AEC), an Indiana-based
designer, manufacturer and marketer of motor vehicle electronic
components, by issuing 1,459,187 shares of common stock. In January
1996, the company acquired the outstanding common stock of Plains
Plastics, Inc., by issuing 229,450 shares of common stock. Plains
Plastics is a custom plastic extruder located in Kansas. Both
transactions were accounted for as poolings of interests and as a result
the financial statements for the nine months ended May 31, 1996 include
AEC's and Plains Plastics' results of operations. Since the
acquisitions did not have a material impact on the company, prior years'
results were not restated.
During December 1995, the company purchased Handy & Harman's Automotive
Segment, based in Michigan, for approximately $65 million. The
purchased business manufactures fuel-delivery system components for
motor vehicles. The acquisition was accounted for using the purchase
method.
Note 3. Borrowing Arrangements:
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Commercial paper, domestic notes payable and notes with a German Bank at
May 31, 1996, have been classified as long-term debt because of
the company's intent to refinance this debt on a long-term basis and the
availability of such financing under the terms of the company's
revolving credit agreement (RCA). The weighted average interest rates
on commercial paper and domestic notes payable at May 31, 1996, were
5.33 and 5.48 percent, respectively, while the German notes payable
accrued interest at 3.66 percent.
6
<PAGE>
ECHLIN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (cont.'d)
Note 3. Borrowing Arrangements (cont.'d)
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In May 1996, the company renegotiated its RCA with twelve banking
institutions to provide availability, through September 1, 2001, of
maximum borrowings of $700,000,000. The previous agreement provided for
maximum borrowings of $530,000,000 and was due to expire on March 1,
2000. At May 31, 1996, there were no borrowings under the RCA.
During February 1996, the company renewed its agreement with a financial
institution to sell, without recourse, undivided fractional interests in
designated pools of accounts receivable. This new agreement allows for
the sale of up to $200,000,000 in receivables through March 1999.
Accounts receivable at May 31, 1996 and August 31, 1995 are net of
$180,000,000 and $125,000,000, respectively, representing receivables
sold.
7
<PAGE>
ECHLIN INC.
MANAGEMENT'S FINANCIAL ANALYSIS
Results of Operations:
- ----------------------
For the three and nine months ended May 31, 1996, net sales
increased 13 percent and 14 percent, respectively, over the
corresponding periods of a year ago. This sales growth was
primarily due to acquisitions, the introduction of new products and
price increases.
Net sales of comparable operations, those part of Echlin for at
least twelve months, rose 4 and 3 percent for the three- and nine-
month periods, respectively, reflecting price increases and the
introduction of new products, partially offset by the impact of
translation. The third quarter's unit volume rose .3 percent while
for the nine months unit volume declined .9 percent. A pickup in
business in May offset unit volume declines in March and April of
this year.
Domestic comparable operations were up 3 percent for the quarter
and 2 percent for the nine months, reflecting the positive impact
of price increases and the introduction of new products. Although
net sales increased, there has been a general slowdown in the North
American market. This is primarily attributed to vehicle owners
postponing maintenance and repairs, partly due to weather
conditions; customers paring inventories; and vehicle manufacturers
cutting production. Foreign comparable operations increased 6
percent over both the three- and nine-month periods of a year ago.
Non-U.S. businesses have shown improved sales growth due to unit
volume gains, price increases and the introduction of new products.
Sales for the quarter declined $9.1 million due to the impact of a
stronger U.S. dollar in relation to the German mark and British
pound and the Mexican peso devaluation. For the nine months,
translation decreased sales by $15.6 million as a result of the
Mexican peso devaluation along with the strengthening of the U.S.
dollar in relation to the British pound.
The quarter's gross profit to sales percentage decreased to 26.2,
as compared to the prior year's 28.5, while the nine month's gross
profit to sales percentage decreased to 26.1 from 28.8 for the same
period last year. Excluding the impact of acquisitions, the gross
profit-to-sales for the quarter declined 2.1 percentage points from
last year, while for the nine months the percentage was down 1.7
points. These declines are primarily a result of unabsorbed
overhead costs caused by lower production hours and reduced
inventory purchases.
Although selling and administrative expenses increased for the three-
and nine-month periods, they declined as a percentage of
8
<PAGE>
ECHLIN INC.
MANAGEMENT'S FINANCIAL ANALYSIS (cont.'d)
sales. For the third quarter they declined to 17.5 percent from
18.0 percent a year ago, while for the nine-month period expenses
declined to 18.4 percent vs. 19.9 percent last year. The dollar
increase for both periods was primarily due to expense levels
generated by acquisitions during the past year and higher research
and development spending.
Net interest expense for the three-month period increased
$1,350,000, while for the nine-month period it increased $8,647,000
as compared to the prior year, primarily due to higher domestic
average debt levels resulting from recent acquisitions.
Liquidity and Sources of Capital:
- ---------------------------------
During the first nine months of fiscal 1996 and 1995, operations
provided cash flow of $40,845,000 and $24,730,000, respectively.
The improvement was primarily due to the company's ongoing
inventory reduction efforts offset, in part, by accounts receivable
increases from higher sales.
Net debt levels increased $128,564,000 from year-end primarily due
to current-year business acquisitions. Total debt to total capital
was 40 percent at May 31, 1996, up from 38 percent a year ago and
36 percent at August 31, 1995. In May 1996, the company
renegotiated its revolving credit agreement with twelve banking
institutions to provide availability, through September 1, 2001, of
maximum borrowings of $700,000,000. The previous agreement
provided for maximum borrowings of $530,000,000 and was due to
expire on March 1, 2000. At May 31, 1996, there were no borrowings
under the RCA. During February, the company sold an additional $55
million of accounts receivable, without recourse, under its
borrowing arrangement with a financial institution. The proceeds
were used to repay existing short-term domestic obligations.
During the nine months of this fiscal year, foreign currency
translation changes have reduced equity by $23,572,000. This
primarily reflects a reduction in the U.S. dollar value of the net
assets invested in Mexico, Germany and the United Kingdom.
9
<PAGE>
ECHLIN INC.
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
- ------------------------------------------
During the quarter ended May 31, 1996, the company did not file a
Report on Form 8-K.
10
<PAGE>
SIGNATURES
------------
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Echlin Inc.
Date: July 11, 1996 Kenneth T. Flynn, Jr.
------------- --------------------------
Kenneth T. Flynn, Jr.
Assistant Corporate
Controller
Date: July 11, 1996 Jon P. Leckerling
------------- --------------------------
Jon P. Leckerling
Vice President, General
Counsel and Corporate
Secretary
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's SEC form 10-Q for the quarterly period ended May 31, 1996 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> MAY-31-1996
<CASH> 9474
<SECURITIES> 0
<RECEIVABLES> 433809
<ALLOWANCES> 5616
<INVENTORY> 690281
<CURRENT-ASSETS> 1171475
<PP&E> 1116339
<DEPRECIATION> 515503
<TOTAL-ASSETS> 2167616
<CURRENT-LIABILITIES> 466194
<BONDS> 0
0
0
<COMMON> 61717
<OTHER-SE> 908419
<TOTAL-LIABILITY-AND-EQUITY> 2167616
<SALES> 2281782
<TOTAL-REVENUES> 2281782
<CGS> 1685508
<TOTAL-COSTS> 420000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25315
<INCOME-PRETAX> 150959
<INCOME-TAX> 51326
<INCOME-CONTINUING> 99633
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 99633
<EPS-PRIMARY> 1.62
<EPS-DILUTED> 1.62
</TABLE>
