<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, 1996
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 6, 1996 was $2,022,667,812. On
November 6, 1996, there were 62,042,200 shares of common stock issued and
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
l. Portions of Echlin's 1996 Annual Report to Shareholders are incorporated
into Parts I and II.
2. Portions of Echlin's 1996 Annual Proxy Statement are incorporated into
Part III.
1
<PAGE>
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, hoses and electric brake controllers and antilock brake systems. In
addition, wheel oil seals, compressors, air dryers, valves, power boosters,
pressure converters, air brake actuating products, spring brakes, brake block,
remanufactured brake shoes, hose assemblies, pneumatic and electrical
connectors, slack adjusters, gladhands, hubs and trailer draw bars are
manufactured for the heavy duty brake market. Engine system parts include
condensers, contacts, complete distributors, distributor caps, ignition coils,
rotors, control modules, sensors, actuators, electronic voltage regulators, wire
and cable products, carburetor and emission control parts, fuel pumps, water
pumps, oil pumps, power steering pumps, filters, gaskets, heating and air-
conditioning and power steering coupled hose assemblies, oil coolers, 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, universal joints, drive shafts, engine mounts, airhorns,
steering and air suspension system components, heavy duty windshield wiper
systems, shifters and linkage, traction bars, shock absorbers, ball pins, track
rod ends, king pins, tie-rods, rubber bushings and mounts, louvers, lug nuts,
wheel and chrome accessories, mirrors, electrical connectors, body paints and
finishes and cleaners for the high performance market. Non-vehicular products
include security access control products, small engine parts, marine engine
parts 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 1996 1995 1994
- ------------- ---- ---- ----
<S> <C> <C> <C>
Brake System Parts $1,253.3 $1,181.2 $1,053.4
Engine System Parts 969.5 848.6 617.3
Other Vehicle Parts 736.2 576.1 508.6
Non-Vehicular Products 169.7 112.0 50.2
-------- -------- --------
Total $3,128.7 $2,717.9 $2,229.5
======== ======== ========
</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.
2
<PAGE>
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.
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 8.6% of consolidated net
sales for the year ended August 31, 1996. Included in this number were sales to
Genuine Parts Company and its affiliates, the largest member of NAPA, which
accounted for 8.5% of consolidated net sales in fiscal 1996. 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 relationships 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.
3
<PAGE>
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 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 to reduce the impact on the environment. These efforts 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 27,700 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, 1996, 1995 and 1994, Echlin spent
$44,711,000, $34,652,000 and $22,535,000, 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 1996, 1995 and 1994, see Note 9 to the consolidated financial statements
appearing on page 44 of Echlin's 1996 Annual Report to Shareholders, which pages
are incorporated herein by reference. Export sales represent less than 10% of
the company's consolidated net sales.
ITEM 2. PROPERTIES
- -------------------
The following table sets forth a summary description of Echlin's principal
physical properties as of November 1, 1996:
<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
La Mirada, CA Parts distribution center 80,000/*/ 2000
Modesto, CA Parts distribution center 150,000/*/ 1999
Vernon, CA Parts distribution center 80,000/*/ 2001
Branford, CT Ignition and electrical parts 426,000
Newark, DE Parts distribution center 146,000/*/ 2000
Medley, FL Parts distribution center 73,000/*/ 1998
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
ITEM 2. (continued)
- ---------------------
Lease
Approximate Expiration
Location Principal Business Activity Square Feet Dates
- -------- --------------------------- ----------- ----------
<S> <C> <C> <C>
Pensacola, FL Carburetor and emission
control parts 128,000
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
Angola, IN Fuel system parts 135,000
Columbia City, IN Coupled hose assemblies 241,000
Elkhart, IN Electronic components 249,000
Kendallville, IN Fuel system parts 118,000
Michigan City, IN Heavy duty windshield wiper
systems 106,000/*/ 1998
Mishawaka, IN Wire and cable products 160,000
Mitchell, IN Coupled hose assemblies 90,000
Columbus, KS Electrical rebuilder parts 169,000
Independence, KS Ignition and electrical parts 389,000
Iola, KS Air brake parts 173,000
McPherson, KS Extruded plastic sheet products 101,000
Stanford, KY Brake parts 95,000
Cuba, MO Brake parts 128,000
Kansas City, MO Heavy duty parts distribution 150,000/*/ 1998
center
Marion, NC Remanufactured heavy duty
parts 85,000
Archbold, OH Fuel system parts 135,000
Cleveland, OH High performance products 404,000
Dover, OH Fuel system parts 156,000
Upper Sandusky, OH Brake parts 206,000
Nashville, TN Parts distribution center 437,000/*/ 1997,1998
Paris, TN Brake parts and clutches 120,000
Fredericksburg, VA Remanufactured brake parts 118,000/*/ 1998
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
ITEM 2. (continued)
- ---------------------------
Lease
Principal Business Approximate Expiration
Location Activity Square Feet Dates
- --------------------------- ------------------------- ------------ ----------
<S> <C> <C> <C>
Sydney, Australia Warehouse and 179,000/*/ 2002,2003
distribution center
Sao Paulo, Brazil Ignition and electrical 82,000/*/ 2000
parts; water pumps
77,000
Anjou, Canada Brake parts 206,000/*/ 1998,2005
Guelph, Canada Brake parts 87,000
Milton, Canada Brake parts 72,000/*/ 2004
Mississauga, Canada Parts distribution center 129,000/*/ 2002
Montreal, Canada Brake parts 206,000/*/ 1998,2005
Rexdale, Canada Parts distribution center 97,000
Sudbury, Canada Disc brake rotor castings 147,000
Thetford Mines, Canada Brake parts 71,000/*/ 1996
Birmingham, England Carburetor and other fuel
system parts 216,000
Nuneaton, England Product distribution 154,000/*/ 2001
center
Redditch, England Clutches; air brake parts 336,000
Strood, England Oil pumps; power steering
components 354,000
Ebern, Germany Brake parts; clutches 887,000
Heidelberg, Germany Brake parts 140,000
Los Reyes, Mexico Brake parts 169,000
Mexico City, Mexico Brake and electrical 195,000/*/ 1996,1997
parts
Ponce, Puerto Rico Brake and engine system 151,000/*/ 1999
parts
Johannesburg,
South Africa Electrical and brake 146,000
parts
Llodio, Spain Shock absorbers 138,000
Caracas, Venezuela Electrical components 118,000/*/ 1996
Colwyn Bay, Wales Water pumps; steering and
suspension system
components 225,000
</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
<PAGE>
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 70) Chairman of the Board and Chief Executive
- ----------------------
Officer since 1969; a Director since 1963.
C. Scott Greer (age 46) President and Chief Operating Officer since September
- --------------
1994; President since 1990; a Director since 1990.
Jon P. Leckerling (age 48) Vice President, General Counsel and Corporate
- -----------------
Secretary since 1990.
Milton J. Makoski (age 50) Vice President-Human Resources since 1986.
- -----------------
Joseph A. Onorato (age 47) Vice President and Treasurer since 1994; Treasurer
- -----------------
from 1990 to 1994.
Robert F. Tobey (age 51) Vice President-Corporate Development since 1994;
- ---------------
various managerial positions within Echlin's International Group from 1991 to
1994.
Kenneth T. Flynn Jr. (age 47) Assistant Corporate Controller since 1985.
- --------------------
Thomas P. Marchese (age 53) Assistant Vice President-Corporate Development
- ------------------
since 1994; Director Business Development U.S. from 1991-1994.
Charles W. O'Connor (age 66) Assistant General Counsel and Assistant Secretary
- -------------------
since 1990.
Edward C. Shalagan (age 44) Assistant Treasurer since 1988.
- ------------------
Edward D. Toole Jr. (age 66) Associate General Counsel and Assistant Secretary
- -------------------
since 1990.
7
<PAGE>
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 6, 1996 was 3,763. The quarterly
market price and dividend data appearing on page 48 of Echlin's 1996 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 1996
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 1996 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 1996 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 6 in Echlin's 1996 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 and
5 and 7 through 17, respectively, in Echlin's 1996 Annual Proxy Statement and is
incorporated herein by reference.
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 6 in Echlin's 1996 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 1996 Annual Proxy
Statement on pages 2 through 6 and page 11 are incorporated herein by reference.
8
<PAGE>
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, 1996, 1995 and 1994
(ii) Consolidated Balance Sheets at August 31, 1996 and 1995
(iii) Consolidated Statements of Cash Flows for the three years ended
August 31, 1996, 1995 and 1994
(iv) Consolidated Statements of Changes in Shareholders' Equity
for the three years ended August 31, 1996, 1995 and 1994
(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) (a) 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;
(b)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; (c) 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.
(ii) By-Laws, as amended on December 22, 1987, June 21, 1988,
October 30, 1991, and June 29, 1994 is being filed as an
Exhibit.
(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.
9
<PAGE>
ITEM 14. (continued)
- --------------------
(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) Amended and Restated Unfunded, Non-Qualified Deferred
Compensation Agreement dated as of April 8, 1996, filed as
Exhibits 3 (10)(i) to the Annual Report on Form 10-K for the
fiscal year ended August 31, 1996; (ii) Amended and Restated
Supplemental Executive Retirement Plan dated as of October 25,
1996, filed as Exhibit 3(10)(ii) to the Annual Report on Form
10-K for the fiscal year ended August 31, 1996, (iii)
Supplemental Senior Executive Retirement Plan dated as of
October 25, 1996, filed as Exhibit 3 (10)(iii) to the Annual
Report on Form 10-K for the year ended August 31, 1996; (iv)
Echlin Inc. Non-Executive Director Stock Option Plan filed as
Appendix A the 1996 Annual Proxy Statement, is incorporated
herein by reference; (v) 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; (vi)
information set forth under the caption "Executive Bonus Plan"
in the 1992 Annual Proxy Statement is incorporated herein by
reference; (vii) the Echlin Inc. 1992 Stock Option Plan, filed
as Appendix A to the 1992 Annual Proxy Statement, is
incorporated herein by reference; (viii) 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.
(13) The financial section of Echlin's 1996 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, 1996.
10
<PAGE>
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 18, 1996
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 18, 1996.
/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/ Kenneth T. Flynn, Jr.
- --------------------------
Kenneth T. Flynn, Jr. Assistant Corporate
Controller, Acting 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
<PAGE>
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 24, 1996 appearing on page 31 of the 1996 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 24, 1996
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 24, 1996 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 18, 1996
12
<PAGE>
ECHLIN INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED AUGUST 31, 1996, 1995 AND 1994
<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 (c) of period
- -----------------------------------------------------------------------------------------------------------------------
Allowance for doubtful accounts:
- --------------------------------
<S> <C> <C> <C> <C> <C>
Year ended August 31, 1996 $8,489,000 (a) $6,340,000 $ 419,000 $(9,627,000) $5,621,000
Year ended August 31, 1995 $5,986,000 (b) $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
</TABLE>
(a) Restated to include valuation accounts for Moto Mirror Inc., Plains
Plastics Inc. and American Electronic Components, Inc. due to the pooling
of interests transactions.
(b) Restated to include the valuation accounts for Theodore Bargman Company due
to the pooling of interests transaction.
(c) Includes translation adjustments on allowance for doubtful account balances
of non-U.S. divisions.
13
<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
American Electronic Components, Inc. Delaware 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
Ai Che Distribution Co. Ltd. China 80
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
Echlin India Private Limited India 50
Move Brems - und Kupplungsschlauch GmbH Germany 100
Echlin International, V.I., Inc. Virgin Islands 100
Echlin-Ponce, Inc. Delaware 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
Inversora Sabana, S.A. Venezuela 100
Echlin de Venezuela, C.A. Venezuela 100
Echlin de Colombia, Ltda. Colombia 100
Midland Brake, Inc. Delaware 100
Moto Mirror Inc. Texas 100
Mr. Gasket, Inc. Delaware 100
Pacer Industries, Inc. Missouri 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>
PAH Mexico Inc. Delaware 100
Balatas American Brakebloks, S.A. de C.V. Mexico 100
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
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
3125025 Canada Inc. Canada 100
</TABLE>
<PAGE>
Exhibit (3)(10)(i)
AN UNFUNDED, NON-QUALIFIED DEFERRED
COMPENSATION AGREEMENT BY AND
BETWEEN ECHLIN INC.
AND
-------------------
(Participant)
-------------------
-----------------------
AS AMENDED AND RESTATED
AS OF APRIL 8, 1996
<PAGE>
THIS AGREEMENT made as of ___________, 19__, by and between ECHLIN
INC. ("Echlin"), a Connecticut corporation, 100 Double Beach Road, Branford,
Connecticut 06405 and ________________ ("Participant") residing at ________
_______, _____________.
W I T N E S S E T H:
WHEREAS, effective as of January 1, 1977, Echlin established an
Unfunded, Non-Qualified Deferred Compensation Plan; and
WHEREAS, the parties desire to enter into an agreement pursuant to said
Plan.
NOW, THEREFORE, in consideration of the premises, and the mutual
promises and agreements herein contained, the parties hereto agree as follows:
1. Definitions
-----------
As used in this Agreement, the following words and phrases shall
have the meanings indicated:
(a) "Account Fund" - All compensation that is deferred under
this Agreement plus interest added thereto as provided hereunder.
(b) "Average Prime Rate" - The Prime Rate in effect on the last
business day of each month, aggregated and divided by 12.
(c) "Beneficiary" - The individual or entity designated in
Schedule B annexed hereto, or if none is designated or living at the time of the
Participant's death, the Participant's estate.
(d) "Commercial Paper Average Interest Rate" - The weighted
average interest rate paid for commercial paper by Echlin for each month during
the preceding fiscal year, aggregated and divided by 12.
(e) "Committee" - The Compensation and Management Development
Committee of the Board of Directors of Echlin.
(f) "Deferred Compensation" - The amount of Participant's
Employee's Compensation or Director's Fees deferred pursuant to Section 2 of
this Agreement.
(g) "Deferred Compensation Account" or "Account" - The account
described in Section 3 of this Agreement.
1
<PAGE>
(h) "Director" - Director means persons elected to serve on
the Board of Directors of Echlin who are not full-time salaried officers or
employees of Echlin.
(i) "Director's Fees" - For purposes of this Agreement,
"Director's Fees" shall mean fees paid to Directors as annual retainers, for
attending meetings of the Board of Directors or of Committees of the Board of
Directors in person or by telephone.
(j) "Disability" - Medical certification by a licensed
physician, selected by or satisfactory to Echlin, that Participant is no longer
able to continue to perform his or her present job or serve on the Board of
Directors and will not be able to do so for at least a period of twelve months.
(k) "Employee" - For purposes of this Agreement, "Employee"
shall mean such full-time officers and salaried employees of Echlin or its
subsidiaries who are approved by the Committee for participation under the
Deferred Compensation Plan.
(l) "Employee's Compensation" - For purposes of this
Agreement, "Employee's Compensation" shall mean "Annual Base Salary", "Bonus"
and "Performance Unit Plan Payments" as such terms are defined below.
(i) "Annual Base Salary" - The annual rate of salary of the
Participant in effect at any time, excluding all fringe benefits.
(ii) "Bonus" - Compensation that may be payable to an
Employee under the Executive Bonus Plan of Echlin.
(iii) "Performance Unit Plan Payments" - Amounts payable to
an Employee under The Echlin Inc. Performance Unit Plan.
(m) "Net Earnings" - The after tax earnings of Echlin and its
subsidiaries for the fiscal year, as reported in the Annual Report submitted to
the stockholders of Echlin for such fiscal year.
(n) "Participant" - For the purposes of this Agreement,
"Participant" means either a Director or an Employee approved for participation
under this Plan by the Committee.
(o) "Prime Rate" - The Corporate Base Rate (the interest charged
to the largest and most credit-worthy commercial borrower on 90-day commercial
loans) of The First National Bank of Chicago.
2 - 4/8/96
<PAGE>
(p) "Retirement" - As used in this Agreement, "Retirement", as
applied to an Employee, shall have the same meaning as it does under the Pension
Plan for Echlin Inc. Employees. "Retirement", as applied to a Director, shall
mean that the Director's service on the Board of Directors of Echlin has ended
for any reason other than the death or disability of the Director.
(q) "Total Assets" - The total value of the assets of Echlin and
its subsidiaries at the end of a fiscal year, as reported in the Annual Report
submitted to the stockholders of Echlin for such fiscal year.
2. Deferral of Earnings
--------------------
Echlin and the Participant agree to irrevocably defer (i) if the
Participant is an Employee (a) a portion of the Employee's Annual Base Salary
and of the Bonus awarded to him or her as may be designated by him or her
pursuant to Schedule A; provided, however, that the amount to be deferred in any
calendar year shall not exceed twenty-five (25) percent of the aggregate of the
Participant's Annual Base Salary and Bonus which would otherwise be payable to
him or her in such year; and (b) up to 100% of Performance Unit Plan Payments
which would otherwise be payable to him or her in said year; or (ii) if the
Participant is a Director, all or a portion of his or her Director's Fees as may
be designated by him or her pursuant to Schedule A.
With respect to the next succeeding year or years, an Employee
may elect to change the portion of his or her Annual Base Salary, Bonus and
Performance Unit Plan Payments to be deferred by him or her, and a Director may
elect to change the portion of his or her Director's Fees to be deferred by him
or her. Schedule A shall be amended in writing to reflect such change. In the
first year of this Agreement or in the first year of Participant's eligibility
for participation in this Agreement, an election may be made to defer for a part
of the year. Participant understands that he or she may elect only to defer
prospectively.
3. Deferred Compensation Account
-----------------------------
(a) Echlin shall establish a Deferred Compensation Account for
each Participant which shall be credited with an amount equal to one hundred
percent of the Deferred Compensation as of the end of the month in which such
Deferred Compensation would have otherwise been payable to the Participant.
(b) Echlin shall maintain the Deferred Compensation Account as
if Echlin had invested the Deferred Compensation on the first business day after
such Deferred Compensation was credited to the Account.
3 - 4/8/96
<PAGE>
(c) (i) As of the end of each calendar year, Echlin shall
credit the Deferred Compensation Account with an amount obtained by multiplying
the amount of said Account by the greater of (i) the Commercial Paper Average
Interest Rate, or (ii) a fraction, the numerator of which is the Net Earnings
and the denominator being the Total Assets, both as of the end of the preceding
fiscal year. Amounts deferred during the calendar year shall be included in such
computation only for the number of full months in which such deferrals were a
part of the Account. The amounts so credited will then become a part of the
Account Fund in the Participant's Deferred Compensation Account.
(ii) All amounts credited to the Participant's Deferred
Compensation Account shall immediately vest to the benefit of the Participant.
(iii) Title to and beneficial ownership of the Account Fund
shall at all times remain in Echlin and the Participant shall not have any
property interest whatsoever in any specific assets of Echlin.
(iv) The value of the Deferred Compensation Account shall
be determined in accordance with this Section 3. On or before March 31 of each
year, Echlin shall notify the Participant in writing of the value of his or her
Deferred Compensation Account as of the preceding December 31.
4. Distribution of Deferred Compensation Account
---------------------------------------------
(a) Distribution Upon Retirement, Disability or Death. Unless
--------------------------------------------------
the Participant has elected otherwise, in accordance with Subsection 4(b)(i)
below, commencing not later than six (6) months following the date of the
Participant's retirement, disability or death, Echlin shall pay to Participant
or Beneficiary, in ten annual installments, the unpaid balance of the Deferred
Compensation Account multiplied by a fraction, the numerator of which is one and
the denominator of which is the number of installments remaining to be paid. As
of the end of each calendar year during the period of distribution of the
Account Fund, the undistributed balance of such Account Fund shall be credited
with interest thereon at the Average Prime Rate during such calendar year plus
one (1) percent.
(b) Distribution Prior to Retirement, Disability or Death
-----------------------------------------------------
(i) Election to Receive Distribution at a Specific Age. By
---------------------------------------------------
irrevocable election on Schedule C, annexed hereto and made a part of this
Agreement, the Participant may elect to have the distribution from the Deferred
Compensation Account commence on the date the Participant reaches the age
4 - 4/8/96
<PAGE>
specified in Schedule C, provided the Participant has not retired, is not
disabled or has not died prior to such date. If he or she does so elect,
commencing not later than sixty (60) days after the Participant reaches the age
specified in Schedule C, Echlin shall pay to the Participant or Beneficiary, in
ten annual installments, the unpaid balance of the Deferred Compensation Account
multiplied by a fraction, the numerator of which is one and the denominator of
which is the number of installments remaining to be paid. As of the end of each
calendar year during the period of distribution of the Account Fund, the
undistributed balance of such Account Fund shall be credited with interest
thereon at the Average Prime Rate in effect during such calendar year, but not
to exceed seven and one half (7 1/2) percent.
(ii) Distribution Resulting From Termination Prior to
------------------------------------------------
Retirement. Unless the Participant has elected otherwise in accordance with
- -----------
Subsection 4(b)(i) above, commencing not later than six (6) months following the
date the Participant is terminated (other than for retirement, disability or
death), Echlin shall pay in annual installments equal in number to the number of
years from the date that the deferral commenced until the Participant's
termination date, but in no more than ten annual installments, the unpaid
balance of the Deferred Compensation Account multiplied by a fraction, the
numerator of which is one and the denominator of which is the number of
installments remaining to be paid. As of the end of each calendar year during
the period of distribution of the Account Fund, the undistributed balance of
such Account Fund shall be credited with interest thereon at the Average Prime
Rate in effect during such calendar year, but not to exceed seven and one-half
(7 1/2) percent.
(c) Petitions of the Participant or Beneficiary. If the
--------------------------------------------
Participant dies either before distribution starts, or after it has commenced
but has not yet been completed, the Beneficiary designated on Schedule B assumes
the place of the Participant as to the remaining annual installments to be paid.
The Committee may be petitioned by the Participant (in the case of disability)
or the Beneficiary (in the case of death) for approval by the Committee of more
frequent installments and/or installments of greater amount. The Committee will
respond to the petition within sixty (60) days, and the decision of the
Committee shall be binding.
(d) Irrevocable Election. The Participant acknowledges that the
---------------------
election made prior to the deferral of Annual Base Salary, Bonus, Performance
Unit Plan Payments or Director's Fees is irrevocable.
(e) Hardship. The Committee or the Board of Directors (if a
---------
Committee member/Participant is involved), in its sole
5 - 4/8/96
<PAGE>
discretion, may elect to make more frequent installments than required by this
Section 4, but will do so only under circumstances of hardship, as determined by
the Committee or the Board of Directors, if applicable.
(f) Subsidiaries of Echlin. For the purpose of this Section 4, a
-----------------------
Participant who is an Employee shall not be deemed to have terminated his or her
employment if he is transferred from the employ of Echlin to the employ of a
corporation in which Echlin owns more than fifty (50%) percent of the equity
interest.
5. Emergency Condition
-------------------
If a Participant establishes to the satisfaction of the Committee
or the Board of Directors (if a Committee member/Participant is involved), the
existence of an emergency condition in his or her personal financial affairs
resulting from illness, disability, the need to pay educational expenses, or any
other circumstances deemed by the Committee to be a financial hardship, the
Committee or Board, if applicable, may, in its sole discretion, pay to the
Participant from the Account Fund the value of his or her Deferred Compensation
Account (as determined in accordance with Section 3 of this Agreement).
6. No Assignment
-------------
Neither the Participant nor his or her Beneficiary shall have any
right to commute, sell, assign, transfer or otherwise convey or encumber the
right to receive any payments hereunder, which payments and all the rights
thereto are expressly declared and agreed to be non-assignable and non-
transferable.
7. No Employment Contract
----------------------
This Agreement does not constitute a contract for the continued
employment by Echlin of an Employee or of continued service as a Director.
Echlin reserves the right to modify the Employee's Compensation of any Employee
at any time and from time to time as it considers appropriate and to terminate
the employment of any Employee for any reason at any time notwithstanding this
Agreement and to modify the Director's Fees payable at any time and from time to
time as it considers appropriate.
8. Non-Competition
---------------
In consideration for the rights and privileges extended in this
Agreement to an Employee or Director, such Employee or Director agrees that he
or she will, for a period of three years after his or her termination or
retirement, refrain from working in any capacity with another organization which
is engaged in the
6 - 4/8/96
<PAGE>
manufacture and/or sale of any of the principal products of Echlin. Such
Employee or Director agrees that if at any time during the three-year period
following his or her termination from Echlin, the Committee, in its sole
discretion and judgment, determines that such Employee or Director has worked in
some capacity with another organization which is so engaged, the Committee may
elect to distribute all amounts in such Employee's Deferred Compensation Account
over a period of three years, and from and after such determination the
Employee's Deferred Compensation Account shall no longer be credited with any
interest.
9. Termination
-----------
Echlin may terminate this Agreement at any time. If Echlin
terminates this Agreement, Echlin may in satisfaction of its obligations
hereunder, at its option;
(a) pay the Participant, on the date this Agreement is
terminated, an amount equal to the value his or her Deferred Compensation
Account (as determined in accordance with Section 3 of this Agreement); or
(b) pay the Participant on termination of his or her employment
or his or her services as a Director an amount equal to the value of his or her
Deferred Compensation Account (as determined in accordance with Section 3 of
this Agreement) valued as of the date this Agreement is terminated plus interest
from the date of termination to the date of such payment at a rate to be
determined by the Committee, but not less then the Prime Rate plus one percent
(1%).
10. Notice
------
Any notice to the Participant hereunder may be given either by
delivering it to the Participant or by depositing it in the United States mail,
postage prepaid, addressed to his or her last-known address.
11. No Waiver
---------
Failure to insist upon strict compliance with any of the terms,
covenants, or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition, nor shall any waiver or relinquishment of any right or
power hereunder at any one or more times be deemed a waiver or relinquishment of
such right or power at any other time or times.
7 - 4/8/96
<PAGE>
12. Invalidity
----------
The invalidity or unenforceability of any provision hereof shall
in no way effect the validity or enforceability of any other provision.
13. Amendment
----------
This Agreement may be changed, modified, or amended only in
writing signed by both parties.
14. Benefit
-------
Except as otherwise provided herein, this Agreement shall inure
to the benefit of and be binding upon Echlin its successors and assigns
including, but not limited to, any corporation which may acquire all or
substantially all of Echlin's assets and businesses or into which Echlin may be
consolidated or merged.
15. Governing Law
-------------
This Agreement shall be governed by the laws of the State of
Connecticut.
16. Counterparts
------------
This Agreement has been executed in several counterparts each of
which shall be an original, but such counterparts shall together constitute but
one instrument. The Participant acknowledges that he or she has read all parts
of this Agreement and has sought and obtained satisfactory answer(s) to any
questions he or she may have had as to his or her rights, obligations and
potential liabilities under this Agreement prior to affixing his or her
-----
signature and initials to any part of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
ECHLIN INC.
ATTEST: By
--------------------------------
Vice President, Secretary
and General Counsel
- --------------------------
Title
--------------------------------
Participant
- --------------------------
Witness
8 - 4/8/96
<PAGE>
SCHEDULE A
ELECTIONS IN CONNECTION WITH
DEFERRED COMPENSATION AGREEMENT
Section 1.
- ----------
(a) Employee
--------
I hereby irrevocably elect to defer, effective on __________ until my
retirement or other termination of employment, (i) $__________ a month of my
Annual Base Salary, and further, I elect to defer _____ percent (____%) of my
bonus; provided, however, that the amount deferred under this Section 1(a)(i)
shall not exceed twenty-five percent (25%) of the aggregate of my Annual Base
Salary and Bonus in any calendar year; and (ii) _____ percent (____%) of all
Performance Unit Plan Payments.
Participant's initials: _______; Date ________.
(b) Director
--------
I hereby irrevocably elect to defer, effective on __________ until my
retirement or other termination of service, all or a portion of my Director's
Fees as follows:
Check only one:
______ All (100%)
______ A portion equal to ___%, or
______ Amount $_______
Participant's initials: _______; Date ________.
Section 2. Change in Election as to Compensation to be Deferred
- ---------- ----------------------------------------------------
NOTE: THIS SECTION IS TO BE USED ONLY IF YOU WANT TO MAKE A CHANGE IN THE
ELECTION THAT YOU PREVIOUSLY MADE UNDER PARAGRAPH 2 OF THIS AGREEMENT
(a) Employee
--------
I hereby irrevocably elect to change my election under my Deferred
Compensation Agreement dated __________ and to defer,
9 - 4/8/96
<PAGE>
until my retirement or other termination of employment, (i) $__________ a month
of my Annual Base Salary, and further, I elect to defer _____ percent (____%) of
my bonus; provided, however, that the amount deferred under this Section 2(a)(i)
shall not exceed twenty-five percent (25%) of the aggregate of my Annual Base
Salary and Bonus in any calendar year; and (ii) _____ percent (____%) of all
Performance Unit Plan Payments (up to 100%).
Participant's initials: _______; Date ________.
(b) Director
--------
I hereby irrevocably elect to change my election under my Deferred
Compensation Agreement dated __________ and to defer, effective on __________
until my retirement or other termination of service, all or a portion of my
Director's Fees as follows:
Check only one:
______ All (100%)
______ A portion equal to ___%, or
______ Amount $_______
Participant's initials: _______; Date ________.
Section 3. Employee or Director
- ---------- --------------------
I hereby irrevocably elect to discontinue deferring my Employee's
Compensation or Director's Fees.
Participant please initial here _______; Date ________.
- ------------------ -------------------
Witness Employee
Accepted by ECHLIN INC.
______ day of _________, 199_
By
------------------------------------
Vice President, Corporate Secretary
and General Counsel
10 - 4/8/96
<PAGE>
SCHEDULE B
DESIGNATION OF BENEFICIARY
For distribution of my Deferred Compensation Plan:
- -----------------------------------------------------------------
- -----------------------------------------------------------------
The undersigned hereby makes the above beneficiary designation(s) under the
foregoing Agreement in the event of the Participant's death prior to, or during
the distribution period therein and agrees that if no such designation is made,
the beneficiary thereunder shall be the Participant's estate.
- ----------------------- -------------------------
Witness Participant
Date:
-----------------
11 - 4/8/96
<PAGE>
Exhibit (3)(10)(ii)
ECHLIN INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
AS AMENDED AND RESTATED AS OF
OCTOBER 25, 1996
<PAGE>
Echlin Inc. Supplemental Executive Retirement Plan
--------------------------------------------------
ARTICLE I - Purpose
1.1 There is hereby established the Echlin Inc. Supplemental Executive
Retirement Plan to provide unfunded retirement benefits, to a selected
group of management and highly compensated employees of the Company
whose benefits from the Pension Plan are limited by various limitations
imposed by the Code and applicable regulations.
ARTICLE II - Definitions
Unless the context otherwise indicates, all terms used herein (other
than the Plan) shall have the same meaning as set forth in Article I of
the Pension Plan.
2.1 Applicable Interest Rate shall mean for any month of reference, an
annual interest rate determined from the average of the yields on 10
year U.S. Treasury notes during such month, adjusted for constant
maturity, and as reported by the Federal Reserve Board in the Wall
Street Journal.
2.2 Board of Directors - shall mean the Board of Directors of the Company.
2.3 Company - shall mean Echlin Inc.
2.4 Effective Date - shall mean September 1, 1996 for this amended and
restated Plan.
2.5 Member - shall mean any active executive employee of the Company on the
Effective Date who was a Member of the Plan prior to the Effective Date
and any active executive employee of the Company who works an Hour of
Service on or after the Effective Date and whose benefit from the
Pension Plan is limited by any of the requirements of the Sections
401(a)(17) or 415 of the Code included in the Pension Plan for purposes
of complying with the applicable requirements of the Code.
2.6 Pension Plan - shall mean the Pension Plan for Echlin Inc. Employees as
now in effect or hereafter amended.
2.7 Qualified Spouse - shall mean the legal spouse of a Member, who has
been married to the Member for at least a one year period ending on the
Member's date of death or Termination, if later.
2.8 SERP Earnings - shall have the meaning of Earnings as defined in the
Pension Plan but shall also include any amounts of base salary or
annual bonus deferred by the employee under the Echlin Inc. Unfunded
Non-qualified
1
SERP - 10/25/96
<PAGE>
Deferred Compensation Plan or any similar plan established by the
Company.
2.9 Termination - shall mean the later of the date the employment
relationship of the Member with the Company is terminated or the date
the Member stops earning additional Credited Service under the Pension
Plan.
2.10 Trust - shall mean the trust fund established pursuant to the Plan.
2.11 Trustee - shall mean the trustee named in the agreement establishing
the Trust and such successor and/or additional trustees as may be
named pursuant to the terms of the agreement establishing the Trust.
ARTICLE III - Benefits
3.1 Plan Benefit - The Plan Benefit shall be an amount equal to the excess
------------
of (a) over (b) where both (a) and (b) are determined as monthly
amounts payable at the later of the Member's Normal Retirement Date,
Termination or death prior to Termination as a life annuity and where
(a) is equal to the monthly benefit a Member would have received
from the Pension Plan if (1) the limitations imposed by
Sections 401(a)(17) or 415 or both of the Code and regulations
thereunder had not been included therein and (2) in
calculating a Member's benefit under the Pension Plan, SERP
Earnings are used instead of Earnings; and
(b) is equal to the monthly amount of the Member's Pension Plan
benefit.
Benefit payments shall commence on the first day of the month following
the date of a Member's Termination, and, if the benefit commencement
date precedes the Member's Normal Retirement Date, the Plan Benefit
shall be adjusted for early commencement as follows: (i) for each of
the first 120 months by which such payment commencement date precedes
such Member's Normal Retirement Date, by 1/2 of 1% for each month by
which the commencement date precedes such Member's Normal Retirement
Date; and (ii) for each month in excess of 120 by which such payment
commencement date precedes the Member's Normal Retirement Date an
additional amount that is the "Actuarial Equivalent" of the amount
payable after the adjustment of (i) above. For this purpose "Actuarial
Equivalent" shall mean an equivalent benefit using accepted actuarial
principles and using the 1983 GAM Mortality Tables and the Applicable
Interest Rate determined using the second month preceding the date of a
Member's Termination.
3.2 Method of Payment - Commencing on the first day of the month following
-----------------
the date of a Member's Termination, the Member's
2
SERP - 10/25/96
<PAGE>
Plan Benefit shall be paid to the Member or her or his Surviving Spouse
or beneficiary in the event of such Member's death prior to such
payment, for twelve (12) months on the first day of each month. On the
first day of the month following twelve months after the Member's
Termination, a final single sum payment shall be paid to the Member or
Surviving Spouse or beneficiary in the event of the death of the Member
prior to such payment. Such single sum payment shall be present value
of the Plan Benefit assuming the Plan Benefit is paid to the Member as
a single life annuity which commences on the date of the single sum
payment. The value of the single life annuity shall be calculated using
the 1983 GAM Mortality Table and the Applicable Interest Rate during
the 11th month after such Member's Termination.
3.3 Vesting - A Member shall be vested in his Plan Benefit as the date on
-------
which he becomes vested under the Pension Plan. In the event of a
Member's Termination prior to his being vested, all benefits under this
Plan shall be forfeited; provided that, in the event of his rehire and
subsequently becoming vested, his Plan Benefits shall be reinstated.
3.4 Death Benefits - In the event of the death of a Member after
--------------
Termination and prior to payment of such Member's full benefit in
accordance with the provisions of Section 3.2, such unpaid amount shall
be paid to the Member's beneficiary designated in a form provided by,
and filed with, the Board of Directors or its designate. If no such
form has been filed, such unpaid benefits shall be paid to the Member's
Qualified Spouse and if there is no such Qualified Spouse, to the legal
representative of the Member's estate.
In the event of the death of a Member prior to Termination who is
survived by a Qualified Spouse, such Qualified Spouse shall be entitled
to 50% of the Member's accrued Plan Benefit Payable according to
section 3.2.
Except as provided in this Section 3.4, no benefits shall be payable
under this Plan as a result of a Member's death.
ARTICLE IV - Change In Control
4.1 If there is an event which constitutes a Change In Control (as
hereinafter defined) of Echlin Inc., and the Board of Directors
declares, in its sole discretion, that such event qualifies or will
qualify as a Change In Control under this Plan, and a Member's
employment is terminated without cause or the Member voluntarily
terminates employment for "good reason" (as hereinafter defined) within
two (2) years after the Change In Control has occurred, the Member
shall be deemed to have 'Terminated Employment Upon Change In Control'.
The Company agrees that it will pay to a Member who is deemed to have
"Terminated Employment Upon Change In
3
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<PAGE>
Control", whether or not vested immediately prior to having "Terminated
Employment Upon Change In Control", his or her Plan Benefit according
to the provisions of Section 3.2 hereof.
Also, if there is an event which constitutes a Change In Control (as
hereinafter defined) of Echlin Inc., and the Board of Directors
declares, in its sole discretion, that such event qualifies or will
qualify as a Change In Control under this Plan, the Company will
contribute to the Trust, as soon as practical after the determination
by the Board of Directors that a Change In Control has occurred, an
amount determined by the Plan's actuary which together with the
existing assets of the Trust is sufficient to insure that all vested
Plan Benefits for all Members as of the date the Board of Directors
determined a Change In Control has occurred can be paid from the Trust.
An event constituting a "Change In Control" shall occur when (and only
when) Echlin Inc. obtains actual knowledge that: (a) any person within
the meaning of Sections 13(d) and 14(d) of the Securities Exchange Act
of 1934 (the '1934 Act'), other than Echlin Inc. or any of its
subsidiaries, has become the beneficial owner, within the meaning of
Rule 13d-3 under the 1934 Act, of thirty percent (30%) or more of the
combined voting power of Echlin Inc.'s then outstanding voting
securities; or (b) the expiration of a tender offer or exchange offer,
other than an offer by Echlin Inc., to which twenty percent (20%) or
more of the combined voting power of Echlin Inc.'s then outstanding
shares of common stock have been purchased; or (c) the stockholders of
Echlin Inc. have approved an agreement to merger or consolidate with or
into another corporation and Echlin Inc. is not the surviving
corporation or an agreement to sell or otherwise dispose of all or
substantially all of Echlin Inc.'s assets (including a plan of
liquidation); or (d) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board of
Directors of Echlin Inc. would cease for any reason to constitute at
least a majority thereof, unless the election or the nomination for the
election by Echlin Inc.'s stockholders of each new director was
approved by a vote of at least two-thirds (2/3) of the directors then
still in office who were directors at the beginning of the period.
For purposes of this Plan, the termination of a Member shall be
considered to be for cause, whether it occurred by resignation or
discharge, if the reason for the termination of employment was the
Member's proven in a court of law or admitted embezzlement, dishonesty,
fraud, conviction on a felonious or other charge involving moral
turpitude, all in connection with the Company's affairs. The Board of
Directors shall make the determination as to whether the termination is
for cause and such determination shall be binding, final and conclusive
on all concerned. For
4
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<PAGE>
purposes of this Plan, a Member's voluntary termination shall be
considered to be for "good reason" if (a) without the express written
consent of the employee, he is assigned any duties substantially
inconsistent with his positions, duties, responsibilities and status
with an employer as in effect before the Change In Control, or his
reporting responsibilities, titles or offices as in effect immediately
prior to the Change In Control are substantially changed or he is
removed from or not re-elected to any of such positions, except as any
such change resulting from his termination of employment for cause, or
of his total and permanent disability or death (for example, without
limiting the generality of the foregoing, should the Chairman of the
Board and Chief Executive Officer not be named as the Chairman and
Chief Executive Officer of the surviving parent corporate entity upon a
qualifying Change In Control, then such Member would have Good Reason
to terminate his or her employment), (b) the compensation or benefit
entitlement of the employee as in effect immediately prior to the
Change In Control is substantially reduced; or (c) the employer
requires the employee without his agreement to be based anywhere other
than the employer's location where the employee is principally employed
or another location that is more than fifty (50) miles from the
location where he is principally employed immediately prior to the
Change In Control, except for required travel on the employer's
business to an extent substantially consistent with his business travel
obligations in effect immediately prior to the Change In Control.
ARTICLE V - Trust and Plan Funding
5.1 The Company will establish a Trust with the Trustee, pursuant to such
terms and conditions as are set forth in the Trust agreement to be
entered into between the Company and the Trustee. The Trust is intended
to be treated as a "grantor" trust under the Code, and the
establishment of the Trust is not intended to cause a Member to realize
income on amounts contributed thereto, and the Trust shall be so
interpreted.
5.2 At the discretion of the Company, Plan Benefits that become payable to
any Member's beneficiary or Qualified Spouse shall first be paid from
the Trust, then to the extent Plan Benefits for any Member are not paid
from the Trust, Plan Benefits shall be paid out of the general assets
of the Company.
ARTICLE VI - Forfeiture of Benefit Entitlement
6.1 Notwithstanding any other provision of this Plan, in the event a
Member's termination is due to his confession to or conviction of theft
or embezzlement from; or any misdemeanor (except a traffic offense) or
felony against the Company; or to dishonesty in connection with matters
as determined to
5
SERP - 10/25/96
<PAGE>
exist by the Company; or except as authorized by the Company, or as may
be required by applicable law or a duly constituted administrative
agency, such Member directly or indirectly during his service with the
Company, or thereafter uses or permits the use of any trade secrets,
customers lists, or other information of, or relating to, the Company,
or divulges such trade secrets, customers lists and other information
to any person, firm or corporation, then any benefit entitlement
otherwise provided under this Plan to such Member shall be terminated
and void.
ARTICLE VII - Miscellaneous
7.1 Nothing contained herein shall confer any right on any Member to be
continued in the employ of the Company or any other company or shall
affect the right of the Member to participate in and receive benefits
under and in accordance with any pension, profit sharing, incentive
compensation or other benefit plan or program of the Company.
7.2 This Plan shall continue in force with respect to the Member until the
termination of the right of such Member or his beneficiary to receive
benefits under this Plan and shall be binding upon any successor to
substantially all the assets of the Company. The Board of Directors
shall, however, have the right, at any time to modify, amend or
terminate the Plan in whole or in part provided no such amendment shall
deprive a Member of any vested Plan Benefit accrued hereunder prior to
the date of the amendment.
Notwithstanding the above, the Board may at any time amend this Plan
retroactively or otherwise if and to the extent that such action is
deemed necessary in light of government regulations or other legal
requirements or to ensure that the Plan continues to be characterized
as "top-hat" plan of deferred compensation maintained for a select
group of management or highly compensated employees as described under
ERISA Section 201(2), 301(a)(3), and 401(a)(l).
7.3 No right or interest of the Member and beneficiary under this Plan
shall be subject to voluntary or involuntary alienation, assignment or
transfer of any kind.
7.4 The administration of this Plan shall be the responsibility of the
Board of Directors or such other person or entity as the Board of
Directors shall designate. Decisions of the Board of Directors shall be
final and binding upon the Company which shall have adopted this Plan,
the Member and the Member's beneficiaries.
7.5 This Plan shall be construed, regulated and administered for all
purposes according to the laws of the State of Connecticut and the
United States of America.
6
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<PAGE>
7.6 Any provision of the Plan deemed in violation of any law or regulation
shall be null and void and of no effect and shall not affect the
validity of any other provision thereof.
Issued as of October 25, 1996.
ECHLIN INC.
/s/Milton J. Makoski
--------------------
Vice President - Human
Resources
ATTEST:
/s/Jon P. Leckerling
- --------------------
Secretary
APPROVED BY:
/s/Trevor O. Jones
- ------------------
Chairman, Compensation
and Management Development
Committee of the Board
of Directors
7
SERP - 10/25/96
<PAGE>
Exhibit (3)(10)(iii)
ECHLIN INC.
SUPPLEMENTAL SENIOR EXECUTIVE RETIREMENT PLAN
OCTOBER 25, 1996
<PAGE>
Echlin Inc. Supplemental Senior Executive Retirement Plan
---------------------------------------------------------
ARTICLE I - Purpose
1.1 There is hereby established the Echlin Inc. Supplemental Senior
Executive Retirement Plan to provide unfunded retirement benefits, to a
selected group of management and highly compensated employees of the
Company.
ARTICLE II - Definitions
Unless the context otherwise indicates, all terms used herein (other
than the Plan) shall have the same meaning as set forth in Article I of
the Pension Plan.
2.1 Applicable Interest Rate shall mean for any month of reference, an
annual interest rate determined from the average of the yields on 10
year U.S. Treasury notes during such month, adjusted for constant
maturity, and as reported by the Federal Reserve Board in the Wall
Street Journal.
2.2 Board of Directors - shall mean the Board of Directors of the Company.
2.3 Company - shall mean Echlin Inc.
2.4 Effective Date - shall mean September 1, 1996 for this amended and
restated Plan.
2.5 Member - shall mean those senior executives of the Company designated
by resolution of the Board of Directors.
2.6 Pension Plan - shall mean the Pension Plan for Echlin Inc. Employees
as now in effect or hereafter amended.
2.7 Qualified Spouse - shall mean the legal spouse of a Member, who has
been married to the Member for at least a one year period ending on the
Member's date of death or Termination, if later.
2.8 SERP Earnings - shall have the meaning of Earnings as defined in the
Pension Plan but shall also include any amounts of base salary or
annual bonus deferred by the employee under the Echlin Inc. Unfunded
Non-qualified Deferred Compensation Plan or any similar plan
established by the Company.
2.9 Termination - shall mean the later of the date the employment
relationship of the Member with the Company is terminated or the date
the Member stops earning additional Credited Service under the Pension
Plan.
2.10 Trust - shall mean the trust fund established pursuant to the Plan.
1
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<PAGE>
2.11 Trustee - shall mean the trustee named in the agreement establishing
the Trust and such successor and/or additional trustees as may be
named pursuant to the terms of the agreement establishing the Trust.
ARTICLE III - Benefits
3.1 Plan Benefit - The Plan Benefit shall be an amount equal to the excess
------------
of (a) over (b) where both (a) and (b) are determined as monthly
amounts payable at the later of the Member's Normal Retirement Date,
Termination or death prior to Termination as a life annuity and where
(a) is equal to 1/12 of the difference between (i) 60% of the
Member's Final Average Earnings (using SERP Earnings instead
of Earnings) and (ii) 50% of the Member's Primary Social
Security Benefit; and
(b) is equal to the monthly benefit a Member would have received
from the Pension Plan if (1) the limitations imposed by
Sections 401(a)(17) or 415 or both of the Code and regulations
thereunder had not been included therein and (2) in
calculating a Member's benefit under the Pension Plan, SERP
Earnings are used instead of Earnings.
Benefit payments shall commence on the first day of the month following
the date of a Member's Termination, and, if the benefit commencement
date precedes the Member's Normal Retirement Date, the Plan Benefit
shall be adjusted for early commencement as follows: (i) for each of
the first 120 months by which such payment commencement date precedes
such Member's Normal Retirement Date, by 1/2 of 1% for each month by
which the commencement date precedes such Member's Normal Retirement
Date; and (ii) for each month in excess of 120 by which such payment
commencement date precedes the Member's Normal Retirement Date an
additional amount that is the "Actuarial Equivalent" of the amount
payable after the adjustment of (i) above. For this purpose "Actuarial
Equivalent" shall mean an equivalent benefit using accepted actuarial
principles and using the 1983 GAM Mortality Tables and the Applicable
Interest Rate determined using the second month preceding the date of a
Member's Termination.
3.2 Method of Payment - Commencing on the first day of the month following
-----------------
the date of a Member's Termination, the Member's Plan Benefit shall be
paid to the Member or her or his Surviving Spouse or beneficiary in the
event of such Member's death prior to such payment, for twelve (12)
months on the first day of each month.
On the first day of the month following twelve months after the
Member's Termination, a final single sum payment shall
2
SSERP - 10/25/96
<PAGE>
be paid to the Member or Surviving Spouse or beneficiary in the event
of the death of the Member prior to such payment. Such single sum
payment shall be present value of the Plan Benefit assuming the Plan
Benefit is paid to the Member as a single life annuity which commences
on the date of the single sum payment. The value of the single life
annuity shall be calculated using the 1983 GAM Mortality Table and the
Applicable Interest Rate during the 11th month after such Member's
Termination.
3.3 Vesting - A Member shall be vested on his Normal Retirement Date. In
-------
the event of a Member's Termination prior to his being vested, all
benefits under this Plan shall be forfeited; provided that, in the
event of his rehire and subsequently becoming vested, his Plan Benefits
shall be reinstated.
3.4 Death Benefits - In the event of the death of a Member after
--------------
Termination and prior to payment of such Member's full benefit in
accordance with the provisions of Section 3.2, such unpaid amount shall
be paid to the Member's beneficiary designated in a form provided by,
and filed with, the Board of Directors or its designate. If no such
form has been filed, such unpaid benefits shall be paid to the Member's
Qualified Spouse and if there is no such Qualified Spouse, to the legal
representative of the Member's estate.
In the event of the death of a Member prior to Termination who is
survived by a Qualified Spouse, such Qualified Spouse shall be entitled
to 50% of the Member's accrued Plan Benefit Payable according to
Section 3.2.
Except as provided in this Section 3.4, no benefits shall be payable
under this Plan as a result of a Member's death.
ARTICLE IV - Change In Control
4.1 If there is an event which constitutes a Change In Control (as
hereinafter defined) of Echlin Inc., and the Board of Directors
declares, in its sole discretion, that such event qualifies or will
qualify as a Change In Control under this Plan, and a Member's
employment is terminated without cause or the Member voluntarily
terminates employment for "good reason" (as hereinafter defined) within
two (2) years after the Change In Control has occurred, the Member
shall be deemed to have 'Terminated Employment Upon Change In Control'.
The Company agrees that it will pay to a Member who is deemed to have
"Terminated Employment Upon Change In Control", whether or not vested
immediately prior to having "Terminated Employment Upon Change In
Control", his or her Plan Benefit according to the provisions of
Section 3.2 hereof.
3
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<PAGE>
Also, if there is an event which constitutes a Change In Control (as
hereinafter defined) of Echlin Inc., and the Board of Directors
declares, in its sole discretion, that such event qualifies or will
qualify as a Change In Control under this Plan, the Company will
contribute to the Trust, as soon as practical after the determination
by the Board of Directors that a Change In Control has occurred, an
amount determined by the Plan's actuary which together with the
existing assets of the Trust is sufficient to insure that all vested
Plan Benefits for all Members as of the date the Board of Directors
determined a Change In Control has occurred can be paid from the Trust.
An event constituting a "Change In Control" shall occur when (and only
when) Echlin Inc. obtains actual knowledge that: (a) any person within
the meaning of Sections 13(d) and 14(d) of the Securities Exchange Act
of 1934 (the '1934 Act'), other than Echlin Inc. or any of its
subsidiaries, has become the beneficial owner, within the meaning of
Rule 13d-3 under the 1934 Act, of thirty percent (30%) or more of the
combined voting power of Echlin Inc.'s then outstanding voting
securities; or (b) the expiration of a tender offer or exchange offer,
other than an offer by Echlin Inc., to which twenty percent (20%) or
more of the combined voting power of Echlin Inc.'s then outstanding
shares of common stock have been purchased; or (c) the stockholders of
Echlin Inc. have approved an agreement to merger or consolidate with or
into another corporation and Echlin Inc. is not the surviving
corporation or an agreement to sell or otherwise dispose of all or
substantially all of Echlin Inc.'s assets (including a plan of
liquidation); or (d) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board of
Directors of Echlin Inc. would cease for any reason to constitute at
least a majority thereof, unless the election or the nomination for the
election by Echlin Inc.'s stockholders of each new director was
approved by a vote of at least two-thirds (2/3) of the directors then
still in office who were directors at the beginning of the period.
For purposes of this Plan, the termination of a Member shall be
considered to be for cause, whether it occurred by resignation or
discharge, if the reason for the termination of employment was the
Member's proven in a court of law or admitted embezzlement, dishonesty,
fraud, conviction on a felonious or other charge involving moral
turpitude, all in connection with the Company's affairs. The Board of
Directors shall make the determination as to whether the termination is
for cause and such determination shall be binding, final and conclusive
on all concerned. For purposes of this Plan, a Member's voluntary
termination shall be considered to be for "good reason" if (a) without
the express written consent of the employee, he is assigned any duties
substantially inconsistent with his positions,
4
SSERP - 10/25/96
<PAGE>
duties, responsibilities and status with an employer as in effect
before the Change In Control, or his reporting responsibilities, titles
or offices as in effect immediately prior to the Change In Control are
substantially changed or he is removed from or not re-elected to any of
such positions, except as any such change resulting from his
termination of employment for cause, or of his total and permanent
disability or death (for example, without limiting the generality of
the foregoing, should the Chairman of the Board and Chief Executive
Officer not be named as the Chairman and Chief Executive Officer of the
surviving parent corporate entity upon a qualifying Change In Control,
then such Member would have Good Reason to terminate his or her
employment), (b) the compensation or benefit entitlement of the
employee as in effect immediately prior to the Change In Control is
substantially reduced; or (c) the employer requires the employee
without his agreement to be based anywhere other than the employer's
location where the employee is principally employed or another location
that is more than fifty (50) miles from the location where he is
principally employed immediately prior to the Change In Control, except
for required travel on the employer's business to an extent
substantially consistent with his business travel obligations in effect
immediately prior to the Change In Control.
ARTICLE V - Trust and Plan Funding
5.1 The Company will establish a Trust with the Trustee, pursuant to such
terms and conditions as are set forth in the Trust agreement to be
entered into between the Company and the Trustee. The Trust is intended
to be treated as a "grantor" trust under the Code, and the
establishment of the Trust is not intended to cause a Member to realize
income on amounts contributed thereto, and the Trust shall be so
interpreted.
5.2 At the discretion of the Company, Plan Benefits that become payable to
any Member's beneficiary or Qualified Spouse shall first be paid from
the Trust, then to the extent Plan Benefits for any Member are not paid
from the Trust, Plan Benefits shall be paid out of the general assets
of the Company.
ARTICLE VI - Forfeiture of Benefit Entitlement
6.1 Notwithstanding any other provision of this Plan, in the event a
Member's termination is due to his confession to or conviction of theft
or embezzlement from; or any misdemeanor (except a traffic offense) or
felony against the company; or to dishonesty in connection with matters
as determined to exist by the Company; or except as authorized by the
Company, or as may be required by applicable law or a duly constituted
administrative agency, such Member directly or
5
SSERP - 10/25/96
<PAGE>
indirectly during his service with the Company, or thereafter uses or
permits the use of any trade secrets, customers lists, or other
information of, or relating to, the Company, or divulges such trade
secrets, customers lists and other information to any person, firm or
corporation, then any benefit entitlement otherwise provided under this
Plan to such Member shall be terminated and void.
ARTICLE VII - Miscellaneous
7.1 Nothing contained herein shall confer any right on any Member to be
continued in the employ of the Company or any other company or shall
affect the right of the Member to participate in and receive benefits
under and in accordance with any pension, profit sharing, incentive
compensation or other benefit plan or program of the Company.
7.2 This Plan shall continue in force with respect to the Member until the
termination of the right of such Member or his beneficiary to receive
benefits under this Plan and shall be binding upon any successor to
substantially all the assets of the Company. The Board of Directors
shall, however, have the right, at any time to modify, amend or
terminate the Plan in whole or in part provided no such amendment shall
deprive a Member of any vested Plan Benefit accrued hereunder prior to
the date of the amendment.
Notwithstanding the above, the Board may at any time amend this Plan
retroactively or otherwise if and to the extent that such action is
deemed necessary in light of government regulations or other legal
requirements or to ensure that the Plan continues to be characterized
as "top-hat" plan of deferred compensation maintained for a select
group of management or highly compensated employees as described under
ERISA Section 201(2), 301(a)(3), and 401(a)(l).
7.3 No right or interest of the Member and beneficiary under this Plan
shall be subject to voluntary or involuntary alienation, assignment or
transfer of any kind.
7.4 The administration of this Plan shall be the responsibility of the
Board of Directors or such other person or entity as the Board of
Directors shall designate. Decisions of the Board of Directors shall be
final and binding upon the Company which shall have adopted this Plan,
the Member and the Member's beneficiaries.
7.5 This Plan shall be construed, regulated and administered for all
purposes according to the laws of the State of Connecticut and the
United States of America.
6
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<PAGE>
7.6 Any provision of the Plan deemed in violation of any law or regulation
shall be null and void and of no effect and shall not affect the
validity of any other provision thereof.
Issued as of October 25, 1996.
ECHLIN INC.
/s/Milton J. Makoski
--------------------
Vice President - Human
Resources
ATTEST:
/s/Jon P. Leckerling
- --------------------
Secretary
APPROVED BY:
/s/Trevor O. Jones
- ------------------
Chairman, Compensation
and Management Development
Committee of the Board
of Directors
7
SSERP - 10/25/96
<PAGE>
REVIEW OF OPERATIONS AND FINANCIAL CONDITION
We strive to increase sales at least 15% a year. Acquisitions have been pivotal
to our success, not only in the last half decade, but since Echlin's founding.
Bar graph showing Percentage Change in Reported and Comparable Operations Net
Sales for fiscal years 1990-1996.
[GRAPH APPEARS HERE]
Net sales reached $3.1 billion in fiscal 1996, topping 1995's total by
15%. Comparable operations (those with Echlin a year or more) contributed 4% of
the growth, while the balance, 11%, came from acquisitions. These included four
new companies we bought -- American Electronic Components, Inc., the Automotive
Segment of Handy & Harman, Moto Mirror Inc. and Plains Plastic, Inc. -- plus 12
months of revenue from Preferred Technical Group International, Inc., which we
purchased in December 1994.
Last year, sales advanced 22% to $2.7 billion. Existing businesses
produced 9% of the increase, and newly acquired businesses provided 13%.
Domestic Divisions Up 4%
In the United States, sales by comparable operations rose 4%. New
products, paired with higher prices, accounted for the majority of the gain.
Unit volume edged down 1%, due to soft demand in all product categories
except two: automotive brake and fluid system parts. Our heavy duty business
suffered the biggest decline, caused, for the most part, by a 25% cutback in the
North American production of large trucks.
During fiscal 1995, sales moved up 7%. The growth stemmed primarily from
unit volume; the remainder was supplied by new product introductions.
International Operations Climbed 5%
Not counting acquisitions, our foreign sales grew 5% in 1996. Greater
unit volume, new parts and higher prices all played a role, while offsetting the
negative impact of changes in translation rates. This was rooted in a stronger
dollar, which especially dampened sales in the United Kingdom and Mexico.
Our automotive divisions, in both England and Germany,
7
<PAGE>
performed exceptionally well this year. At the same time, our heavy duty
operations throughout Europe were sluggish, the result of less-than-robust
market conditions. In South America, depressed markets also diminished the
company's sales.
International business soared 15% in 1995. Higher volume sparked this
change, as did small price gains, the marketing of new products, and favorable
exchange rates for some foreign currencies.
Gross Margins Down
Echlin's gross profit margins dipped below last year's levels, dropping
2.7 percentage points to 26.2%. A couple of factors spurred this change. First,
we scaled back manufacturing levels in many factories, in response to slow
customer demand and the company's efforts to pare down inventory. This meant
less of our production costs, corporatewide, were absorbed. Second, the
companies we acquired in 1996 sell to original equipment manufacturers (OEM), a
segment of the industry that yields, in general, lower gross margins than the
aftermarket side.
Acquisitions caused our margins to fall last year as well. They stood at
28.9%, which represented a slight reduction --.6 percentage points -- from
fiscal 1994.
Selling and administrative expenses increased 8% in 1996, from $531.3 to
$574.6 million. They decreased, however, as a percentage of sales, moving down
from 19.5% to 18.4%. This reflects our success in trimming costs. It also points
to the impact of Echlin's recent acquisitions, which, because of their OEM
business, tend to have lower expense-to-sales ratios.
Total operating expenses went up $62.8 million in 1995. Nonetheless,
they declined as a percentage of sales, dropping 1.5 percentage points from
1994's 21.0%.
Interest Expense Increased
Echlin reported a 12% rise in interest expense this year. Borrowing
rates were down, but not enough to fully compensate for the higher debt we
incurred from acquisitions.
- ----------------------------------------------------
Since 1990, Echlin's working capital needs,
relative to growth in sales, has trended
downward. This has strengthened our operating
cash flow.
[BAR GRAPH SHOWING WORKING CAPITAL TO SALES PERCENTAGES
FOR FISCAL YEARS 1990-1996 APPEARS HERE.]
8
<PAGE>
Our efforts at thinning back inventory have steadily improved over the past
six years. In 1996, Echlin's inventory turns reached their highest levels in
recent history.
[BAR GRAPH APPEARS HERE]
[BAR GRAPH SHOWING INVENTORY TURNS FOR FISCAL YEAR 1990-1996]
In 1995, interest costs climbed 67%, due to higher interest rates and
greater debt levels.
Cash Flow More Than Doubled
Cash flow from operations was strong in 1996. At $227 million, it surged
to over twice that of fiscal 1995, which totaled $107 million, versus $150
million in 1994. We attribute this, to a large extent, to the progress we made
working down our inventories.
Financial Condition Positive
By year-end, Echlin had paid down its debt by $11.2 million. This
action, plus an 11% rise in equity to $1.0 billion, improved our debt-to-capital
ratio from 35.8% to 33.0%.
Two non-cash items affected shareholders' equity. The first was changes
in currency translation rates, which eroded the value of our net assets in
Mexico, Germany and Great Britain, reducing Echlin's book value by $17.1
million.
The second item, an accounting change, was positive. For the first time,
we included on our balance sheet the net, unrealized gains from our investments.
We classified the company's marketable securities as "available for sale,"
following Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." As a result, the market
value of our portfolio, less its historical cost and applicable income taxes,
increased our equity by $2.4 million.
In other activity, Echlin positioned itself for future financing. We
renegotiated our revolving credit agreement with 11 banks, which allows us to
now borrow up to $700 million. This compares with a previous cap of $530
million.
Capital Expenditures Flat
Echlin's outlay of capital in 1996 nearly equaled 1995's. We invested
$104.4 million in machinery and tooling this year to produce new parts, and
boost efficiency and productivity in our plants.
Last year, the company spent $103.9 million. These expenditures upgraded
equipment, as well as facilities in the United States and Great Britain.
9
<PAGE>
Echlin Inc. 1996 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, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended August 31, 1996, 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.
/s/ Price Waterhouse LLP
Stamford, Connecticut
September 24, 1996
31
<PAGE>
Echlin Inc. 1996 Annual Report
- --------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Consolidated Statements of Income
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year ended August 31,
(In thousands, except per share data) 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $3,128,728 $2,717,866 $2,229,474
Cost of goods sold 2,309,037 1,932,461 1,571,256
- --------------------------------------------------------------------------------
Gross profit on sales 819,691 785,405 658,218
Selling and administrative expenses 574,592 531,286 468,511
- --------------------------------------------------------------------------------
Income from operations 245,099 254,119 189,707
- --------------------------------------------------------------------------------
Interest expense 43,933 39,313 23,504
Interest income 10,990 15,674 11,843
- --------------------------------------------------------------------------------
Interest expense, net 32,943 23,639 11,661
- --------------------------------------------------------------------------------
Income before taxes 212,156 230,480 178,046
Provision for taxes 69,946 76,058 56,975
- --------------------------------------------------------------------------------
Income before cumulative effect of
accounting change 142,210 154,422 121,071
Cumulative effect of accounting change -- -- 2,583
- --------------------------------------------------------------------------------
Net income $ 142,210 $ 154,422 $ 123,654
================================================================================
Average shares outstanding 61,919 59,476 58,996
================================================================================
Earnings per share:
Income before cumulative effect of
accounting change $2.30 $2.60 $2.06
Cumulative effect of accounting change -- -- 0.04
- --------------------------------------------------------------------------------
Net income $2.30 $2.60 $2.10
- --------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
1996 SALES $3.1 BILLION
- --------------------------------------------------------------------------------
By Geographic Areas By Product Groups
[PIE CHARTS APPEAR HERE]
1996 Sales $3.1 Billion pie charts as follows:
Geographic Areas:
North America 73%
Europe 20%
Other 7%
Product Groups:
Brake Systems 40%
Engine Systems 31%
Additional Products 29%
32
<PAGE>
Echlin Inc. 1996 Annual Report
<TABLE>
<CAPTION>
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
August 31,
(In thousands, except share and per share data) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 16,106 $ 27,700
Accounts receivable, less allowance for doubtful
accounts of $5,621 and $8,088 370,837 340,406
Inventories:
Raw materials and component parts 167,215 169,024
Work in process 87,140 83,494
Finished goods 425,027 426,267
- --------------------------------------------------------------------------------
Total inventories 679,382 678,785
Other current assets 42,687 29,593
- --------------------------------------------------------------------------------
Total current assets 1,109,012 1,076,484
- --------------------------------------------------------------------------------
Property, plant and equipment:
Land 36,881 35,595
Buildings 218,086 187,795
Machinery and equipment 900,528 753,309
- --------------------------------------------------------------------------------
Property, plant and equipment, at cost 1,155,495 976,699
Accumulated depreciation (534,186) (451,171)
- --------------------------------------------------------------------------------
Property, plant and equipment, net 621,309 525,528
- --------------------------------------------------------------------------------
Marketable securities 83,578 102,462
- --------------------------------------------------------------------------------
Intangible assets 226,292 187,592
- --------------------------------------------------------------------------------
Other assets 90,563 68,942
- --------------------------------------------------------------------------------
Total assets $2,130,754 $1,961,008
================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable to banks $ 21,596 $ 20,810
Current portion of long-term debt 6,286 4,146
Accounts payable 264,532 201,692
Accrued taxes on income 33,985 43,208
Accrued compensation 67,265 80,741
Other accrued liabilities 130,563 135,161
- --------------------------------------------------------------------------------
Total current liabilities 524,227 485,758
- --------------------------------------------------------------------------------
Long-term debt 468,013 482,169
- --------------------------------------------------------------------------------
Deferred income taxes 129,640 83,814
- --------------------------------------------------------------------------------
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 62,242,279
and 59,893,824 62,242 59,894
Capital in excess of par value 350,935 334,191
Retained earnings 658,235 563,024
Foreign currency translation adjustments (61,953) (44,847)
Net unrealized investment gains 2,410 --
Treasury stock, at cost, 270,264 shares (2,995) (2,995)
- --------------------------------------------------------------------------------
Total shareholders' equity 1,008,874 909,267
- --------------------------------------------------------------------------------
Total liabilities and shareholders' equity $2,130,754 $1,961,008
================================================================================
</TABLE>
See notes to consolidated financial statements.
33
<PAGE>
Echlin Inc. 1996 Annual Report
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
- -----------------------------------------------------------------------------------
Year ended August 31,
(In thousands) 1996 1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $142,210 $154,422 $123,654
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 90,875 76,609 64,174
Cumulative effect of accounting change -- -- (2,583)
Changes in assets and liabilities, excluding
acquisitions' balance sheets:
Accounts receivable (83,286) (9,448) (62,610)
Inventories 24,427 (94,133) (20,305)
Other current assets (11,892) (5,314) 2,141
Accounts payable 44,486 576 24,295
Accrued taxes on income (6,660) (4,173) (21,108)
Deferred income taxes 42,797 22,869 12,166
Accrued liabilities (12,948) (11,762) 42,759
Other (3,001) (22,602) (12,702)
- -----------------------------------------------------------------------------------
Cash provided by operating activities 227,008 107,044 149,881
- -----------------------------------------------------------------------------------
Cash flows from financing activities:
Long-term and short-term borrowings 615,532 721,232 361,129
Long-term and short-term repayments (647,626) (524,664) (231,127)
Sales of accounts receivable 75,000 -- --
Proceeds from common stock issuances 2,770 5,200 3,905
Dividends paid (51,806) (46,987) (43,067)
- -----------------------------------------------------------------------------------
Cash (used for) provided by financing
activities (6,130) 154,781 90,840
- -----------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (104,384) (103,894) (75,645)
Net book value of property, plant and
equipment disposals 3,143 1,515 1,842
Marketable securities proceeds (purchases) 22,592 13,087 (25,547)
Purchases of businesses:
Net working capital items (93,232) (25,382) (22,103)
Property, plant and equipment and intangibles (57,305) (176,830) (102,256)
Debt assumed 1,013 -- 7,101
- -----------------------------------------------------------------------------------
Cash used for investing activities (228,173) (291,504) (216,608)
- -----------------------------------------------------------------------------------
Impact of foreign currency changes on cash (4,299) 3,563 1,131
- -----------------------------------------------------------------------------------
(Decrease) increase in cash and cash
equivalents (11,594) (26,116) 25,244
Cash and cash equivalents at beginning of year 27,700 53,816 28,572
- -----------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 16,106 $ 27,700 $ 53,816
===================================================================================
</TABLE>
See notes to consolidated financial statements.
34
<PAGE>
Echlin Inc. 1996 Annual Report
Consolidated Statements of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Foreign Net
in Excess Currency Unrealized Total
Common of Par Retained Translation Investment Treasury Shareholders'
(In thousands, except per share data) Stock Value Earnings Adjustments Gains Stock Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
adjustments -- -- -- 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
adjustments -- -- -- (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
Net income -- -- 142,210 -- -- -- 142,210
Cash dividends paid
($0.85 per share) -- -- (51,806) -- -- -- (51,806)
Shares issued under stock
option plans 135 2,635 -- -- -- -- 2,770
Foreign currency translation
adjustments -- -- -- (17,106) -- -- (17,106)
Net unrealized investment gains -- -- -- -- 2,410 -- 2,410
Shares issued for acquisitions 2,213 14,109 4,807 -- -- -- 21,129
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at August 31, 1996 $62,242 $350,935 $658,235 $(61,953) $2,410 $(2,995) $1,008,874
====================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
35
<PAGE>
Echlin Inc. 1996 Annual Report
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 $771,000 and $11,404,000 at August 31, 1996 and 1995, respectively. These
securities are carried at cost which approximates market.
Accounts Receivable--During February 1996, the company renewed its agreement
through March 1999 with a financial institution to sell, without recourse,
undivided fractional interests in designated pools of trade receivables. This
new agreement allows for the sale of up to $200,000,000 in receivables. Accounts
receivable at August 31, 1996 and 1995 were net of $200,000,000 and $125,000,000
respectively, 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--Intangible assets principally consist of the excess of cost
over fair value of the net assets of businesses acquired, and are 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. The
aggregate market value of securities held at August 31, 1996 and 1995 was
$83,578,000 and $105,698,000, respectively. During fiscal 1996, these
investments, which have a historical cost of $79,870,000, were classified as
available for sale in accordance with Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." As a result, unrealized investment gains of $2,410,000, which are
net of applicable income taxes, are included as a component of shareholders'
equity at August 31, 1996.
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 $44,711,000, $34,652,000 and $22,535,000 in
fiscal years 1996, 1995 and 1994, respectively.
36
<PAGE>
Echlin Inc. 1996 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.
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.
2
Business
Combinations
During August 1996, Echlin acquired the outstanding common stock of Moto Mirror
Inc., located in Texas, by issuing 511,001 shares of common stock. Moto Mirror
manufactures remote-control mirrors for the medium and heavy duty truck
aftermarket and new vehicle industry. 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.
During December 1995, the company acquired the outstanding common stock of
American Electronic Components, Inc., an Indiana-based designer, manufacturer
and marketer of motor vehicle electronic components, by issuing 1,459,187 shares
of common stock. All three transactions were accounted for as poolings of
interests and as a result the financial statements for the twelve months ended
August 31, 1996 include their results of operations. As of the date of these
acquisitions, net current assets were $4,647,000, property, plant and equipment
was $31,044,000 and long-term debt assumed was $14,957,000. Since the
acquisitions did not have a material impact on the company, prior years' results
were not restated.
During December 1995, the company acquired Handy & Harman's Automotive
Segment, based in Michigan, for approximately $65,000,000. The purchased
business manufactures fuel-delivery system components for motor vehicles. The
acquisition was accounted for using the purchase method.
In December 1994, Echlin 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
37
<PAGE>
Echlin Inc. 1996 Annual Report
Company, an Indiana-based manufacturer of lighting products, electrical
connectors and hardware for recreational vehicles and mobile homes, by issuing
230,795 shares of 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.
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.
3
Borrowing
Arrangements
Notes payable to banks of $21,596,000 and $20,810,000 at August 31, 1996 and
1995, respectively, were comprised of local borrowings by Echlin's foreign
subsidiaries, due within ninety days. Interest rates were between 3.90% and
10.50% at August 31, 1996, and between 4.20% and 18.00% at August 31, 1995.
Long-term debt was comprised of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
August 31,
(In thousands) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Commercial paper $289,000 $238,000
Domestic note 125,000 125,000
8.98%-9.22% Senior Note 30,000 75,000
3.50% and 4.75% Notes 569 19,278
3.675% and 4.613% Notes 18,760 19,040
6.20%-8.75% Foreign obligations, repayable in varying
installments to 1999 5,503 4,850
3.50% Obligation under terms of a lease agreement with a
municipality, repayable at $740 per year from 1997 to 2001 3,700 3,700
7.00%-17.30% Capitalized lease obligations, net of interest
of $560 and $288, repayable in varying installments to 2000 1,767 1,447
- --------------------------------------------------------------------------------
Total 474,299 486,315
Less-current portion 6,286 4,146
- --------------------------------------------------------------------------------
Total long-term debt $468,013 $482,169
================================================================================
</TABLE>
At August 31, 1996 and 1995, the weighted average interest rates on commercial
paper were 5.40% and 5.80%, respectively. The domestic note at August 31, 1996
and 1995 represents an unsecured obligation with a U.S. bank which bears
interest at 5.36% and 5.91%, respectively. A majority of the commercial paper
and the domestic notes 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 on March 1, 1998.
The 3.50% and 4.75% notes at August 31, 1996 and 1995, respectively, are
unsecured obligations with a German bank. The 3.50% note maturing in September
1996 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.
38
<PAGE>
Echlin Inc. 1996 Annual Report
Under a credit agreement with a United Kingdom bank, there were 3.675% and
4.613% notes outstanding at August 31, 1996 and 1995, respectively. The 3.675%
note matures in September 1996. This credit agreement enables the company to
borrow up to $20,000,000 through March 1, 1998. This debt has 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 3.50% note, the 3.675% note and the senior note,
in each of the next five fiscal years are as follows: 1997 - $6,286,000; 1998 -
$2,060,000; 1999 - $1,106,000; 2000 - $777,000; and 2001 - $740,000.
For the years ended August 31, 1996, 1995 and 1994, interest paid was
$45,579,000, $40,638,000 and $23,500,000, respectively.
In May 1996, the company renegotiated its RCA with eleven 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 August 31, 1996 and
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 $66,488,000 and
$75,432,000 at August 31, 1996 and 1995, 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.
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.
39
<PAGE>
Echlin Inc. 1996 Annual Report
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% 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, 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
Granted 231,125 $37.25
Exercised (137,775) $10.25-$32.25
Terminated (22,815) $10.25-$37.25
- ---------------------------------------------------------------------------
Outstanding at August 31, 1996 1,903,160 $10.25-$37.25
===========================================================================
</TABLE>
At August 31, 1996 there were 1,672,035 options exercisable. Shares available
for future grants at August 31, 1996 and 1995 were 2,187,842 and 2,288,600,
respectively. There were no options outstanding with stock appreciation rights
at August 31, 1996 and 1995.
In October 1995, Statement of Financial Accounting Standard No. 123 relating
to "Accounting for Stock Based Compensation" was issued. This pronouncement
establishes a fair value based method of accounting for stock option plans, the
impact of which may be included in net income or disclosed on a proforma basis
in the notes to the financial statements. The company will adopt Statement No.
123 during fiscal 1997 and include in a footnote the proforma net income and
earnings per share impacts of the statement.
6
Retirement
Plans
Echlin sponsors several noncontributory defined benefit pension plans covering a
majority of its domestic employees. A major portion of the employees is 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 to multi-employer
pension plans covering certain domestic employees and to pension plans for
employees of certain foreign subsidiaries.
40
<PAGE>
Echlin Inc. 1996 Annual Report
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 $2,133,000, $2,002,000 and $777,000 during the fiscal
years ended August 31, 1996, 1995 and 1994, respectively.
Net pension cost for all pension plans was $10,781,000, $10,124,000 and
$7,396,000 for the fiscal years ended August 31, 1996, 1995 and 1994,
respectively. Net pension cost included the following components:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
Year ended August 31,
1996 1995 1994
------------------- ------------------ -------------------
(In thousands) Domestic Foreign Domestic Foreign Domestic Foreign
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost--benefits earned
during the period $ 6,809 $ 5,100 $ 5,697 $ 4,777 $ 4,926 $ 4,663
Interest on projected benefit
obligation 8,424 7,990 7,678 7,578 6,778 6,053
Actual return on plan assets (15,095) (11,615) (10,869) (4,848) (5,624) (6,600)
Net amortization and deferrals 5,149 3,905 2,321 (2,600) (3,220) 210
Multi-employer plans 114 -- 390 -- 210 --
- ------------------------------------------------------------------------------------------------
Net pension cost $ 5,401 $ 5,380 $ 5,217 $ 4,907 $ 3,070 $ 4,326
================================================================================================
</TABLE>
The following table sets forth the funded status of the various company
pension plans:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
August 31,
1996 1995
--------------------------- -------------------------
(In thousands) Domestic Foreign Domestic Foreign
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of:
Vested benefit obligation $91,708 $89,088 $85,465 $78,977
Accumulated benefit obligation $95,056 $93,323 $88,132 $82,736
================================================================================================
Plan assets at fair value $125,143 $ 93,095 $106,608 $ 80,948
Projected benefit obligation 109,561 112,384 106,546 99,706
- ------------------------------------------------------------------------------------------------
Plan assets in excess of (less
than) projected benefit
obligation 15,582 (19,289) 62 (18,758)
Unrecognized net loss 5,808 11 19,403 244
Unrecognized prior service cost 3,834 2,612 3,407 2,698
Unrecognized net assets (1,882) (6,256) (2,778) (7,150)
Adjustment to minimum liability (141) (233) (60) (34)
- ------------------------------------------------------------------------------------------------
Prepaid (accrued) pension cost $ 23,201 $(23,155) $ 20,034 $(23,000)
================================================================================================
Actuarial assumptions:
Discount rate 8.25% 7.00%-8.75% 8.00% 7.00%-9.00%
Rate of increase in
compensation levels 4.31% 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 $2,434,000 and
$2,619,000 at August 31, 1996 and 1995, respectively, is included under domestic
in the table above.
41
<PAGE>
Echlin Inc. 1996 Annual Report
Pension plans in certain foreign countries are not funded. At August 31, 1996
and 1995, the company had recorded an accrued liability for $23,880,000 and
$23,163,000, respectively, relating to such plans which are included in the
table above.
The majority of domestic pension plan assets are invested in common stock,
including 50,000 shares of Echlin Inc. common stock, and long-term bonds. The
balance is primarily invested in short-term investments, preferred stocks,
mutual funds and limited partnership interests.
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) 1996 1995 1994
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 7,563 $12,537 $24,678
State 7,700 9,500 8,050
Foreign 8,857 31,439 20,390
- ---------------------------------------------------------------------
Total current provision 24,120 53,476 53,118
- ---------------------------------------------------------------------
Deferred:
Federal and state 19,400 17,348 324
Foreign 26,426 5,234 3,533
- ---------------------------------------------------------------------
Total deferred provision 45,826 22,582 3,857
- ---------------------------------------------------------------------
Total provision $69,946 $76,058 $56,975
=====================================================================
</TABLE>
The tax effect of major temporary differences is summarized below:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Year ended August 31,
(In thousands) 1996 1995 1994
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Depreciation $32,249 $21,433 $ 1,964
Valuation of inventories (1,522) (4,202) (1,971)
All other, net 15,099 5,351 3,864
- ---------------------------------------------------------------------
Total deferred provision $45,826 $22,582 $ 3,857
=====================================================================
</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,
(In thousands) 1996 1995 1994
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal tax rate 35.0% 35.0% 35.0%
Earnings in Puerto Rico not subject
to U.S. taxes (3.2) (2.9) (5.1)
Net tax effect relating to foreign
operations 0.2 1.5 2.7
State taxes 2.4 2.7 2.9
Other (1.4) (3.3) (3.5)
- ---------------------------------------------------------------------
Effective tax rate 33.0% 33.0% 32.0%
=====================================================================
</TABLE>
42
<PAGE>
Echlin Inc. 1996 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, 1996, 1995 and 1994, taxes paid were
$35,262,000, $52,752,000 and $54,216,000, 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) 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Inventories $ 6,900 $ 8,422
Accrued expenses 5,341 4,764
Other employee benefits 5,290 9,166
Other 6,727 4,078
- ------------------------------------------------------------------------------
Gross deferred assets 24,258 26,430
- ------------------------------------------------------------------------------
Liabilities:
Depreciation 103,265 71,016
Pension 13,654 11,924
Other 25,444 15,769
- ------------------------------------------------------------------------------
Gross deferred liabilities 142,363 98,709
- ------------------------------------------------------------------------------
Net deferred liabilities $118,105 $72,279
==============================================================================
</TABLE>
8
Rental
Commitments
Total rental expense for the years ended August 31, 1996, 1995 and 1994 was
$42,635,000, $35,274,000 and $31,179,000, 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>
1997 $19,726 $3,992 $ 5,295 $29,013
1998 14,531 2,817 3,884 21,232
1999 10,176 1,291 1,977 13,444
2000 8,204 158 999 9,361
2001 7,013 75 132 7,220
2002 and thereafter 10,946 -- 35 10,981
- ----------------------------------------------------------------------------
Total commitments $70,596 $8,333 $12,322 $91,251
============================================================================
</TABLE>
43
<PAGE>
Echlin Inc. 1996 Annual Report
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 area is as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Year ended August 31, United
(In thousands) States Europe All Other Eliminations Consolidated
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996
Sales to unaffiliated customers $2,158,405 $675,014 $295,309 -- $3,128,728
Sales between geographic areas 44,847 9,353 73,074 $(127,274) --
- ------------------------------------------------------------------------------------------------
Total sales $2,203,252 $684,367 $368,383 $(127,274) $3,128,728
================================================================================================
Income before taxes $ 111,997 $69,864 $30,295 -- $212,156
================================================================================================
Identifiable assets $1,183,809 $552,689 $330,837 -- $2,067,335
====================================================================================
Corporate assets 63,419
- ------------------------------------------------------------------------------------------------
Total assets $2,130,754
================================================================================================
1995
Sales to unaffiliated customers $1,838,059 $589,181 $290,626 -- $2,717,866
Sales between geographic areas 48,608 8,832 79,618 $(137,058) --
- ------------------------------------------------------------------------------------------------
Total sales $1,886,667 $598,013 $370,244 $(137,058) $2,717,866
================================================================================================
Income before taxes $135,492 $60,604 $34,384 -- $230,480
================================================================================================
Identifiable assets $1,063,413 $529,508 $319,701 -- $1,912,622
====================================================================================
Corporate assets 48,386
- ------------------------------------------------------------------------------------------------
Total assets $1,961,008
================================================================================================
1994
Sales to unaffiliated customers $1,513,543 $429,212 $286,719 -- $2,229,474
Sales between geographic areas 58,665 8,725 65,538 $(132,928) --
- ------------------------------------------------------------------------------------------------
Total sales $1,572,208 $437,937 $352,257 $(132,928) $2,229,474
================================================================================================
Income before taxes $123,218 $28,634 $26,194 -- $178,046
================================================================================================
Identifiable assets $787,238 $419,941 $311,276 -- $1,518,455
====================================================================================
Corporate assets 58,951
- ------------------------------------------------------------------------------------------------
Total assets $1,577,406
================================================================================================
</TABLE>
Sales between geographic areas are made at prices which approximate market
value. Income before taxes included realized and unrealized foreign currency
transaction gains (losses) for the years ended August 31, 1996, 1995 and 1994 of
$428,000, $(354,000) and $(416,000), respectively, and translation losses of
$54,000, $717,000 and $1,427,000, respectively. The company's foreign operations
had income before taxes of $100,159,000, $94,988,000 and $54,828,000 for the
years ended August 31, 1996, 1995 and 1994, respectively.
The company does not have any one customer or group of customers comprising
more than 10% of reported net sales.
44
<PAGE>
Echlin Inc. 1996 Annual Report
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>
1996
First quarter $ 713,767 $193,102 $ 59,236 $ 33,673 $0.54
Second quarter 735,902 186,849 44,986 23,554 0.38
Third quarter 843,018 221,730 73,846 43,360 0.70
Fourth quarter 836,041 218,010 67,031 41,623 0.68
- -----------------------------------------------------------------------------------------------------
Total $3,128,728 $819,691 $245,099 $142,210 $2.30
=====================================================================================================
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
=====================================================================================================
</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.
11
Subsequent
Event
In September 1996, the company purchased Long Manufacturing, Ltd. (Long), based
in Oakville, Ontario, Canada, for approximately $160,000,000. Long provides
motor vehicle heat exchange products and air-conditioning evaporators to vehicle
manufacturers and aftermarket customers primarily in North America. The
acquisition will be accounted for by the purchase method.
45
<PAGE>
Echlin Inc. 1996 Annual Report
- --------------------------------------------------------------------------------
HISTORICAL DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
10-year Change
Compound 1996
(In thousands, except per share data) Growth vs. 1995 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations:
Net sales 13.2% 15.1% $3,128,728 $2,717,866 $2,229,474
Cost of goods sold 14.2 19.5 2,309,037 1,932,461 1,571,256
------------------------------------
Gross profit on sales 11.0 4.4 819,691 785,405 658,218
Selling and administrative expenses 11.2 8.2 574,592 531,286 468,511
------------------------------------
Income from operations 10.7 -3.5 245,099 254,119 189,707
------------------------------------
Interest expense 13.5 11.8 43,933 39,313 23,504
Interest income 3.8 -29.9 10,990 15,674 11,843
------------------------------------
Interest expense, net 21.3 39.4 32,943 23,639 11,661
------------------------------------
Income before taxes 9.7 -8.0 212,156 230,480 178,046
Provision for taxes 7.1 -8.0 69,946 76,058 56,975
------------------------------------
Income before cumulative effect of accounting change 11.3 -7.9 142,210 154,422 121,071
Cumulative effect of accounting change -- -- -- -- 2,583
------------------------------------
Net income 11.3 -7.9 $ 142,210 $ 154,422 $ 123,654
====================================
Average shares outstanding 3.4 4.1 61,919 59,476 58,996
Earnings per share 7.6 -11.5 $2.30 $2.60 $2.10
Dividends per share 6.1 7.6 $0.85 $0.79 $0.73
Financial Position at Year-end:
Working capital 8.1 -1.0 $584,785 $590,726 $487,548
Current ratio -- -- 2.1/1 2.2/1 2.1/1
Working capital to sales -- -- 18.7% 21.7% 21.9%
Property, plant and equipment, net 13.9 18.2 $621,309 $525,528 $444,166
Total assets 12.0 8.7 $2,130,754 $1,961,008 $1,577,406
Total debt 17.2 -2.2 $495,895 $507,125 $308,304
Shareholders' equity 9.1 11.0 $1,008,874 $909,267 $798,971 --
--per share 6.4 6.8 $16.28 $15.25 $13.52
Total debt to capitalization -- -- 33.0% 35.8% 27.8%
Additional Data:
Capital expenditures, net of disposals 11.7 -1.1 $101,241 $102,379 $73,803
Depreciation and amortization 15.9 18.6 $90,875 $76,609 $64,174
Effective tax rate -- -- 33.0% 33.0% 32.0%
Income from operations as a percent of net sales -- -- 7.8% 9.3% 8.5%
Net income as a percent of:
Net sales -- -- 4.5% 5.7% 5.5%
Beginning shareholders' equity -- -- 15.6% 19.3% 17.3%
Average number of employees 9.3 12.7 26.6 23.6 20.6
=====================================================================================================================
</TABLE>
46
<PAGE>
Echlin Inc. 1996 Annual Report
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Year ended August 31,
1993 1992 1991 1990 1989 1988 1987 1986
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$1,944,463 $1,783,362 $1,685,876 $1,601,254 $1,454,492 $1,294,297 $1,099,703 $901,890
1,377,954 1,287,041 1,232,726 1,147,940 1,054,650 935,531 790,152 613,606
- --------------------------------------------------------------------------------------------------------
566,509 496,321 453,150 453,314 399,842 358,766 309,551 288,284
420,460 389,470 371,980 368,380 326,221 263,605 234,255 199,545
- --------------------------------------------------------------------------------------------------------
146,049 106,851 81,170 84,934 73,621 95,161 75,296 88,739
- --------------------------------------------------------------------------------------------------------
19,403 22,127 29,009 21,886 24,594 13,229 11,676 12,335
10,930 9,768 9,049 5,903 13,677 11,368 9,395 7,565
- --------------------------------------------------------------------------------------------------------
8,473 12,359 19,960 15,983 10,917 1,861 2,281 4,770
- --------------------------------------------------------------------------------------------------------
137,576 94,492 61,210 68,951 62,704 93,300 73,015 83,969
44,025 30,237 19,557 21,746 18,285 31,228 27,381 35,125
- --------------------------------------------------------------------------------------------------------
93,551 64,255 41,653 47,205 44,419 62,072 45,634 48,844
-- -- -- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------
$ 93,551 $ 64,255 $ 41,653 $ 47,205 $ 44,419 $ 62,072 $ 45,634 $ 48,844
========================================================================================================
58,560 55,976 55,835 55,797 55,733 55,613 52,098 44,123
$1.60 $1.15 $0.75 $0.85 $0.80 $1.12 $0.88 $1.11
$0.70 $0.70 $0.70 $0.70 $0.66 $0.59 $0.53 $0.47
$381,989 $417,407 $479,174 $509,260 $436,972 $347,500 $359,320 $268,654
2.1/1 2.3/1 2.9/1 3.0/1 2.8/1 2.2/1 3.1/1 2.9/1
19.6% 23.4% 28.4% 31.8% 30.0% 26.8% 32.7% 29.8%
$329,381 $325,312 $311,047 $310,381 $264,734 $242,169 $207,030 $168,355
$1,263,261 $1,241,193 $1,191,793 $1,192,496 $1,034,254 $1,086,568 $869,065 $685,750
$164,232 $210,948 $261,822 $262,069 $128,938 $130,651 $91,825 $101,549
$713,822 $693,948 $649,416 $662,430 $640,623 $634,267 $603,469 $423,043
$12.13 $12.34 $11.63 $11.87 $11.48 $11.39 $10.88 $8.79
18.7% 23.3% 28.7% 28.3% 16.8% 17.1% 13.2% 19.4%
$41,528 $48,255 $56,166 $63,170 $56,780 $55,871 $37,890 $33,420
$59,671 $55,896 $56,489 $47,282 $40,639 $35,230 $29,176 $20,836
32.0% 32.0% 32.0% 31.5% 29.2% 33.5% 37.5% 41.8%
7.5% 6.0% 4.8% 5.3% 5.1% 7.4% 6.8% 9.8%
4.8% 3.6% 2.5% 2.9% 3.1% 4.8% 4.1% 5.4%
13.5% 9.9% 6.3% 7.4% 7.0% 10.3% 10.8% 16.9%
18.6 17.9 17.8 17.3 16.2 14.7 13.5 10.9
========================================================================================================
</TABLE>
47
<PAGE>
Echlin Inc. 1996 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>
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
1996
First quarter $0.205 $39-1/2 $33-7/8 $36-1/2 14.0
Second quarter 0.205 38-3/4 33-5/8 33-7/8 13.6
Third quarter 0.22 36-7/8 32-5/8 34-3/8 14.4
Fourth quarter 0.22 37-7/8 30 30-1/2 13.3
-----
Total fiscal year $0.85 $39-1/2 $30 $30-1/2 13.3
=========================================================================================
<FN>
/1/Computed using closing price and most recent 4 quarters' earnings per share.
</FN>
</TABLE>
- --------------------------------------------------------------------------------
QUARTERLY DIVIDENDS PER SHARE
- --------------------------------------------------------------------------------
[BAR GRAPH APPEARS HERE]
Echlin Inc.'s Quarterly Dividends Per Share bar graph for fiscal years 1976,
1981, 1986, 1991 and 1996.
48
<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, 1996 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-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> AUG-31-1996
<CASH> 16,106
<SECURITIES> 0
<RECEIVABLES> 376,458
<ALLOWANCES> 5,621
<INVENTORY> 679,382
<CURRENT-ASSETS> 1,109,012
<PP&E> 1,155,495
<DEPRECIATION> 534,186
<TOTAL-ASSETS> 2,130,754
<CURRENT-LIABILITIES> 524,227
<BONDS> 0
0
0
<COMMON> 62,242
<OTHER-SE> 946,632
<TOTAL-LIABILITY-AND-EQUITY> 2,130,754
<SALES> 3,128,728
<TOTAL-REVENUES> 3,128,728
<CGS> 2,309,037
<TOTAL-COSTS> 574,592
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,943
<INCOME-PRETAX> 212,156
<INCOME-TAX> 69,946
<INCOME-CONTINUING> 142,210
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 142,210
<EPS-PRIMARY> 2.30
<EPS-DILUTED> 2.30
</TABLE>
