<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark one)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 29, 1996
------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file no. 1-4651
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ECHLIN INC.
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(Exact name of registrant as specified in its charter)
Connecticut 06-0330448
- ------------------------------------------- ----------------------
(State of incorporation) (I.R.S. employer
identification no.)
100 Double Beach Road
Branford, Connecticut 06405
- ------------------------------------------- ----------------------
(Address of principal executive offices) (Zip code)
(203) 481-5751
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO
---- ----
(APPLICABLE ONLY TO CORPORATE ISSUERS)
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Title of class Outstanding at March 31, 1996
- -------------------------- -----------------------------
Common stock, $1 par value 61,432,774
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ECHLIN INC.
<TABLE>
INDEX
<CAPTION>
PART I. FINANCIAL INFORMATION Page
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<S> <S>
Item 1. Financial Statements
Consolidated balance sheets at February 29, 1996
and August 31, 1995. 3
Consolidated statements of income for the three
months ended February 29, 1996 and February 28, 1995;
for the six months ended February 29, 1996 and
February 28, 1995. 4
Consolidated statements of cash flows for the
six months ended February 29, 1996 and
February 28, 1995. 5
Notes to consolidated financial statements at
February 29, 1996. 6-7
Item 2. Management's Financial Analysis 8-10
PART II. OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
</TABLE>
2
<PAGE> PART I: FINANCIAL INFORMATION
<TABLE>
ECHLIN INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<CAPTION>
February 29, August 31,
1996 1995
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(unaudited) (A)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 9,895 $ 27,700
Accounts receivable, less-allowance for
doubtful accounts of $6,854 and $8,088 360,344 340,406
Inventories, at lower of cost (first-in,
first-out) or market:
Raw materials and component parts 175,973 169,024
Work in process 92,529 83,494
Finished goods 445,277 426,267
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Total inventories 713,779 678,785
Other current assets 47,409 29,593
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Total current assets 1,131,427 1,076,484
---------- ----------
Property, plant and equipment, at cost 1,098,212 976,699
Accumulated depreciation (497,949) (451,171)
---------- ----------
Property, plant and equipment, net 600,263 525,528
---------- ----------
Marketable securities 83,025 102,462
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Intangible assets, net 224,385 187,592
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Other assets 87,185 68,942
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Total assets $2,126,285 $1,961,008
========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Notes payable to banks $ 23,039 $ 20,810
Current portion of long-term debt 3,900 4,146
Accounts payable, trade 212,679 201,692
Accrued taxes on income 16,630 43,208
Accrued liabilities 188,993 215,902
---------- ----------
Total current liabilities 445,241 485,758
---------- ----------
Long-term debt 628,982 482,169
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Deferred income taxes 109,526 83,814
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Shareholders' equity:
Preferred stock, without par value:
Authorized 1,000,000 shares, issued none - -
Common stock, $1 par value:
Authorized 150,000,000 shares,
issued 61,694,273 and 59,893,824 61,694 59,894
Capital in excess of par value 349,228 334,191
Retained earnings 600,848 563,024
Foreign currency translation adjustment (66,239) (44,847)
Treasury stock, at cost, 270,264 shares (2,995) (2,995)
---------- ----------
Total shareholders' equity 942,536 909,267
---------- ----------
Total liabilities and shareholders' equity $2,126,285 $1,961,008
========== ==========
</TABLE>
See notes to consolidated financial statements.
(A) The balance sheet at August 31, 1995 has been derived from the audited
financial statements at that date.
3
<PAGE>
<TABLE>
ECHLIN INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share data)
<CAPTION>
Three Months Ended Six Months Ended
------------------------ ------------------------
February 29, February 28 February 29, February 28
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $732,424 $648,132 $1,442,166 $1,248,747
Cost of goods sold 547,344 462,031 1,065,970 886,587
-------- -------- ---------- ----------
Gross profit on sales 185,080 186,101 376,196 362,160
Selling and administrative
expenses 140,605 135,412 273,269 261,710
-------- -------- ---------- ----------
Income from operations 44,475 50,689 102,927 100,450
-------- -------- ---------- ----------
Interest expense (11,552) (10,134) (22,182) (16,679)
Interest income 2,329 3,409 5,158 6,952
-------- -------- ---------- ----------
Interest expense, net (9,223) (6,725) (17,024) (9,727)
-------- -------- ---------- ----------
Income before taxes 35,252 43,964 85,903 90,723
Provision for taxes 11,900 14,975 29,207 29,938
-------- -------- ---------- ----------
Net income $ 23,352 $ 28,989 $ 56,696 $ 60,785
======== ======== ========== ==========
Average shares outstanding 61,407 59,451 61,373 59,391
======== ======== ========== ==========
Per share data:
Net income $0.38 $0.48 $0.92 $1.02
======== ======== ========== ==========
Cash dividends $0.205 $0.19 $0.41 $0.38
======== ======== ========== ==========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
<TABLE>
ECHLIN INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<CAPTION>
Six Months Ended
February 29, February 28,
-------------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 56,696 $60,785
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 45,899 38,499
Changes in assets and liabilities, excluding
acquisitions' balance sheets:
Accounts receivable (56,469) (18,025)
Inventories (11,389) (78,094)
Other current assets (12,742) (11,411)
Accounts payable (4,694) (11,626)
Taxes on income 2,792 (568)
Accrued liabilities (17,684) (16,264)
Other (2,697) (3,629)
-------- --------
Cash used for operating activities (288) (40,333)
-------- --------
Cash flows from financing activities:
Long-term and short-term borrowings 371,589 348,803
Long-term and short-term repayments (239,356) (104,904)
Sale of accounts receivable 55,000 -
Proceeds from common stock issuances 1,809 3,032
Dividends paid (24,756) (22,564)
-------- --------
Cash provided by financing activities 164,286 224,367
-------- --------
Cash flows from investing activities:
Capital expenditures, net (48,118) (46,902)
Sales of marketable securities 19,437 5,145
Net assets of businesses acquired (146,879) (189,163)
-------- --------
Cash used for investing activities (175,560) (230,920)
-------- --------
Impact of foreign currency changes on cash (6,243) 902
-------- --------
Decrease in cash and cash equivalents (17,805) (45,984)
Cash and cash equivalents at beginning
of period 27,700 53,816
-------- --------
Cash and cash equivalents at end of period $ 9,895 $ 7,832
======== ========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
ECHLIN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. General:
- -----------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair statement have been included. Operating
results for the six month period ended February 29, 1996 are not
necessarily indicative of the results that may be expected for the year
ending August 31, 1996. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
company's Annual Report on Form 10-K for the year ended August 31, 1995.
NOTE 2. Business Combinations:
- -------------------------------
During December, 1995 the company acquired the outstanding common stock
of the American Electronic Components, Inc. (AEC), an Indiana-based
designer, manufacturer and marketer of motor vehicle electronic
components, by issuing 1,459,187 shares of common stock. In January,
1996 the company acquired the outstanding common stock of Plains
Plastics, Inc., by issuing 229,450 shares of common stock. Plains
Plastics is a custom plastic extruder located in Kansas. Both
transactions were accounted for as poolings of interests and as a result
the financial statements for the six months ended February 29, 1996
include AEC's and Plains Plastics' results of operations. Since the
acquisitions did not have a material impact on the company, prior years'
results were not restated.
During December, 1995 the company purchased Handy & Harman's Automotive
Segment, based in Michigan, for approximately $65 million. The
purchased business manufactures fuel-delivery system components for
motor vehicles. The acquisition was accounted for using the purchase
method.
Note 3. Borrowing Arrangements:
- --------------------------------
Commercial paper, domestic notes payable and a note with a German Bank
at February 29, 1996, have been classified as long-term debt because of
the company's intent to refinance this debt on a long-term basis and the
availability of such financing under the terms of the company's
revolving credit agreement. The weighted average interest rates on
commercial paper and domestic notes payable at February 29, 1996, were
5.36 and 5.45 percent, respectively, while the German note payable
accrued interest at 3.63 percent.
6
<PAGE>
Note 3. Borrowing Arrangements (cont.'d)
- ----------------------------------------
During February 1996, the company renewed its agreement with a financial
institution to sell, without recourse, undivided fractional interests in
designated pools of accounts receivable. This new agreement allows for
the sale of up to $200,000,000 in receivables through March 1999.
Accounts receivable at February 29, 1996 and August 31, 1995 are net of
$180,000,000 and $125,000,000, respectively, representing receivables
sold.
7
<PAGE>
ECHLIN INC.
MANAGEMENT'S FINANCIAL ANALYSIS
Results of Operations:
- ----------------------
For the three and six months ended February 29, 1996, net sales
increased 13.0 percent and 15.5 percent, respectively, over the
corresponding periods of a year ago. Recent acquisitions -
primarily Preferred Technical Group, American Electronic
Components, and the Automotive Segment of Handy and Harman -
accounted for the majority of the growth.
Net sales of comparable operations, those part of Echlin for at
least twelve months, rose 2.9 and 3.0 percent for the three and six
month periods, respectively. Domestically, comparable operations
for the three and six months increased 1.6 and 1.4 percent,
respectively. The positive impact of price changes and the
introduction of new products were partially offset by reduced unit
volume. The harsh winter weather experienced this year, the effect
of which should be a positive factor in our third and fourth
quarters, produced a short-term negative impact during the second
quarter. Inclement weather forced unexpected store and repair
facility closings, and prevented automotive repairs from being
performed. Foreign comparable operations for the quarter and six
month period rose 5.9 and 6.3 percent, respectively, reflecting
unit volume gains, price increases and the introduction of new
products. Sales were also increased by the impact of a weaker U.S.
dollar in relation to the German mark, however they were lowered by
the Mexican peso devaluation and a stronger U.S. dollar vs. the
British pound.
The gross profit to sales percentage for the six months declined
from 29.0 a year ago to 26.1, while for the second quarter the
percentage decreased to 25.3 from 28.7. Excluding the impact of
acquisitions, the gross profit-to-sales for the quarter declined
2.4 percentage points from last year, while for the six months the
percentage was down 1.8 points. These changes reflect the impact
of underabsorbed overhead costs as a result of fewer manufacturing
and shipping days caused by the weather.
Although selling and administrative expenses increased for the
three and six month periods, they declined as a percentage of
sales. For the second quarter, they declined to 19.2 percent from
20.9 percent a year ago, while for the six month period expenses
declined to 19.0 percent vs. 21.0 percent last year. The dollar
increase for both periods was primarily due to expense levels
generated by current-year acquisitions.
Net interest expense for the three month period increased
$2,498,000, while for the six month period it increased $7,297,000,
as compared to the prior year, primarily due to higher average debt
levels resulting from recent acquisitions.
8
<PAGE>
MANAGEMENT'S FINANCIAL ANALYSIS (cont.'d)
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Liquidity and Sources of Capital:
- ---------------------------------
During the first six months of fiscal 1996, operations used
$288,000 of cash, $40,045,000 less than a year ago. The
improvement primarily reflected the company's ongoing inventory
reduction efforts offset in part by accounts receivable increases
due to the higher sales.
Net debt increased $132,233,000 from year-end primarily due to
business acquisitions and current year capital expenditures. Total
debt to total capital was 41 percent, up from 40 percent a year ago
and 36 percent at August 31, 1995. During February, the company
sold an additional $55 million of accounts receivable, without
recourse, under its borrowing arrangement with a financial
institution. The proceeds were used to repay existing short-term
domestic obligations.
During the first six months, foreign currency translation changes
have reduced equity by $21,392,000. This primarily reflects a
reduction in the U.S. dollar value of the net assets invested in
Mexico, Germany and the United Kingdom.
9
<PAGE>
ECHLIN INC.
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
- ------------------------------------------
During the quarter ended February 29, 1996, the company did not
file any Reports on Form 8-K.
10
<PAGE>
SIGNATURES
------------
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Echlin Inc.
Date: April 10, 1996 Richard A. Wisot
-------------- --------------------------
Richard A. Wisot
Vice President and
Controller
Date: April 10, 1996 Jon P. Leckerling
-------------- --------------------------
Jon P. Leckerling
Vice President, General
Counsel and Corporate
Secretary
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S SEC FORM 10-Q FOR THE QUARTERLY PERIOD ENDED FEBRUARY 29,1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> FEB-29-1996
<CASH> 9895
<SECURITIES> 0
<RECEIVABLES> 367198
<ALLOWANCES> 6854
<INVENTORY> 713779
<CURRENT-ASSETS> 1131427
<PP&E> 1098212
<DEPRECIATION> 497949
<TOTAL-ASSETS> 2126285
<CURRENT-LIABILITIES> 445241
<BONDS> 0
0
0
<COMMON> 61694
<OTHER-SE> 880842
<TOTAL-LIABILITY-AND-EQUITY> 2126285
<SALES> 1442166
<TOTAL-REVENUES> 1442166
<CGS> 1065970
<TOTAL-COSTS> 273269
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17024
<INCOME-PRETAX> 85903
<INCOME-TAX> 29207
<INCOME-CONTINUING> 56696
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 56696
<EPS-PRIMARY> .92
<EPS-DILUTED> .92
</TABLE>
