<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
For fiscal year ended August 31, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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 5, 1997 was $2,052,325,267. On
November 5, 1997, there were 63,149,304 shares of common stock issued and
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
1. Portions of Echlin's 1997 Annual Report to Shareholders are incorporated
into Parts I and II.
2. Portions of Echlin's 1997 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, 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, lines and rails, water pumps, oil pumps, filters,
gaskets, heating and air-conditioning coupled hose assemblies, oil coolers,
electronic fuel injection systems, oxygen sensors, EGR and PCV valves. Other
vehicle parts include power steering pumps, power steering coupled hose
assemblies, new and remanufactured clutches, slave cylinders, bell housings,
transmission oil cooler, timing gears and chains, universal joints, drive
shafts, engine mounts, airhorns, air suspension system components, heavy duty
windshield wiper systems, shifters and linkage, shock absorbers, ball pins,
track rod ends, king pins, tie-rods, rubber bushings and mounts, louvers, lug
nuts, wheel and chrome accessories, HVAC controls, window lift systems, mirrors,
lights, trailer hitches, electrical connectors, body paints and finishes and
cleaners for the high performance market. Non-vehicular products include marine
and power equipment parts.
Sales by product class for the last three fiscal years ended August 31 were as
follows:
(In millions of dollars)
<TABLE>
<CAPTION>
Product Class 1997 1996 1995
- ------------- ---- ---- ----
<S> <C> <C> <C>
Brake System Parts $1,357.6 $1,253.3 $1,181.2
Engine System Parts 1,176.9 969.5 848.6
Other Vehicle Parts 868.8 736.2 576.1
Non-Vehicular Products 165.3 169.7 112.0
-------- -------- --------
Total $3,568.6 $3,128.7 $2,717.9
======== ======== ========
</TABLE>
The company's products are sold primarily as replacement products for use by
professional technicians 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, and fluid system parts. 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
- ---------
Echlin does not have any one customer which represents 10 percent or more of
consolidated net sales.
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 global 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 a 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 31,300 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,
Europe and South America. For the years ended August 31, 1997, 1996 and 1995,
Echlin spent $51,844,000, $44,711,000 and $34,652,000, respectively, on
research and developmental efforts, substantially all of which were 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 1997, 1996 and 1995, see Note 11 to the consolidated financial statements
appearing on page 48 of Echlin's 1997 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, 1997:
<TABLE>
<CAPTION>
Lease
Approximate Expiration
Location Principal Business Activity Square Feet Dates
- -------- --------------------------- ----------- ----------
<S> <C> <C> <C>
Prattville, AL Heavy-duty brake parts 108,000
Pine Bluff, AR Trailer hitches 138,000* 1998
Modesto, CA Parts distribution center 150,000* 1999
Branford, CT Ignition and electrical parts 426,000
Newark, DE Parts distribution center 146,000* 2000
Pensacola, FL Carburetor and emission
control parts 128,000
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
ITEM 2. (continued)
- ---------------------------
Lease
Approximate Expiration
Location Principal Business Activity Square Feet Dates
- ---------------- ----------------------------- ----------- ----------
<S> <C> <C> <C>
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 612,000
Naperville, IL Parts distribution center 100,000* 1998
Ottawa, IL Clutches 125,000
Andrews, IN Coupled hose assemblies 153,000
Angola, IN Fuel system parts 162,000
Columbia City, IN Coupled hose assemblies 241,000
Elkhart, IN Electronic components 249,000
Kendallville, IN Fuel system parts 115,000
Michigan City, IN Heavy-duty windshield wiper
systems 106,000* 1998
Mishawaka, IN Wire and cable products 160,000
Independence, KS Ignition and electrical parts 389,000
Iola, KS Air brake parts 173,000
Cuba, MO Brake parts 128,000
Kansas City, MO Heavy-duty parts distribution
center 350,000* 1998,2002
Archbold, OH Fuel system parts 135,000
Cleveland, OH High performance products 404,000
Upper Sandusky, OH Brake parts 133,000
Nashville, TN Parts distribution center 437,000* 1998,2000
Paris, TN Brake parts and clutches 120,000
Fredericksburg, VA Remanufactured brake parts 118,000* 1998
Buenos Aires, Argentina Brake friction products 102,000
Sao Paulo, Brazil Ignition and electrical parts;
water pumps; fuel system parts 776,000* 2000
Anjou, Canada Brake parts 206,000* 1998,2005
Cambridge, Canada Motor vehicle heat exchange units
and air-conditioning evaporators 100,000
Mississauga, Canada Parts distribution center 209,000* 2002,2003
</TABLE>
5
<PAGE>
ITEM 2. (continued)
- -------------------
<TABLE>
<CAPTION>
Lease
Approximate Expiration
Location Principal Business Activity Square Feet Dates
- -------- --------------------------- ----------- ----------
<S> <C> <C> <C>
Oakville, Canada Motor vehicle heat exchange units
and air-conditioning evaporators 133,000
Sudbury, Canada Brake castings 147,000
Birmingham, England Carburetor and other fuel
system parts 216,000
Nuneaton, England Parts distribution center 192,000
Redditch, England Clutches; air brake parts 336,000
Strood, England Oil pumps; power steering
components 354,000
Guiscard, France Coupled hose assemblies 134,000
Vitry, France Coupled hose assemblies 161,000* 2006
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 parts 237,000* 1997,1998
Puebla, Mexico Brake and clutch components 394,000
Ponce, Puerto Rico Brake and engine system parts 151,000* 1999
Johannesburg,
South Africa Electrical and brake parts 146,000
Llodio, Spain Shock absorbers 138,000
Caracas, Venezuela Electrical components 118,000* 1997
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:
Larry W. McCurdy (age 62) President and Chief Executive Officer since 1997;
- ----------------
Executive Vice President - Operations, Cooper Industries, Inc. from 1994-1997;
President and Chief Executive Officer, Moog Automotive, Inc. from 1985-1994.
Jon P. Leckerling (age 49) Executive Vice President-Administration, General
- -----------------
Counsel and Corporate Secretary since 1997; Vice President, General Counsel and
Corporate Secretary from 1990-1997.
Joseph A. Onorato (age 48) Vice President and Chief Financial Officer since
- -----------------
1997; Vice President and Treasurer from 1994-1997; Treasurer from 1990 to 1994.
Kenneth T. Flynn Jr. (age 48) Vice President and Corporate Controller since
- --------------------
1997; Assistant Corporate Controller from 1985-1997.
Milton J. Makoski (age 51) Vice President-Human Resources since 1986.
- -----------------
Paul R. Ryder (age 47) Vice President-Investor Relations since 1997; Director
- -------------
Investor Relations from 1984-1997.
Edward C. Shalagan (age 45) Treasurer since 1997; Assistant Treasurer from 1988-
- ------------------
1997.
Robert F. Tobey (age 52) Vice President-Corporate Development since 1994;
- ---------------
various managerial positions within Echlin's International Group from 1991 to
1994.
Edward D. Toole Jr. (age 67) Vice President, Associate General Counsel and
- -------------------
Assistant Secretary since 1997; Associate General Counsel and Assistant
Secretary from 1990-1997.
Thomas P. Marchese (age 54) Assistant Vice President-Corporate Development
- ------------------
since 1994; Director Business Development U.S. from 1991-1994.
Charles W. O'Connor (age 67) Assistant General Counsel and Assistant Secretary
- -------------------
since 1990.
Stephen D. Vivier (age 45) Assistant Treasurer-Tax since 1997; Director Taxes
- -----------------
from 1990-1997.
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 5, 1997 was 3,295. The quarterly
market price and dividend data appearing on page 52 of Echlin's 1997 Annual
Report to Shareholders is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
- ---------------------------------
The presentation under "Historical Data" on pages 50 and 51 of Echlin's 1997
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 9 through 11 of
Echlin's 1997 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
33 through 49 of Echlin's 1997 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 8 in Echlin's 1997 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 5
through 6 and 9 through 19, respectively, in Echlin's 1997 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 6
through 8 in Echlin's 1997 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 1997 Annual Proxy
Statement on pages 2 through 8 and page 13 are incorporated herein by reference.
8
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, 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, 1997, 1996 and 1995
(ii) Consolidated Balance Sheets at August 31, 1997 and 1996
(iii) Consolidated Statements of Cash Flows for the three years ended
August 31, 1997, 1996 and 1995
(iv) Consolidated Statements of Changes in Shareholders' Equity
for the three years ended August 31, 1997, 1996 and 1995
(v) Notes to Consolidated Financial Statements
(vi) Report of Independent Accountants
2. Financial Statement Schedule
----------------------------
(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, June 29, 1994, December 18, 1996 and April
3, 1997, filed as an Exhibit 6(3)(ii) to Form 10-Q for the
fiscal quarter ended February 28, 1997, is herein incorporated
by reference.
(4) (i) Specimen of Common Stock Certificate, filed as Exhibit 2(1) to
Registration No. 2-63494, is incorporated herein by reference.
(ii) Rights Agreement, dated as of June 21, 1989, between Echlin
Inc. and The Connecticut Bank and Trust Company, N.A., as
Rights Agent, which includes the form of Amendment to the
company's Certificate of Incorporation as Exhibit A, the form
of Right Certificate as Exhibit B and the Summary of Rights to
Purchase Preferred Stock as Exhibit C, filed as Exhibit 1 to
the Current Report on Form 8-K dated June 21, 1989 is
incorporated herein by reference.
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 1997 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, 1997.
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/ Larry W. McCurdy
-----------------------
Larry W. McCurdy
President
and Chief Executive Officer
Date: November 18, 1997
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, 1997.
/s/ Larry W. McCurdy
- --------------------------
Larry W. McCurdy, President
and Chief Executive Officer
/s/ Joseph A. Onorato
- --------------------------
Joseph A. Onorato, Vice President
and Chief Financial Officer
/s/ Trevor O. Jones
- --------------------------
Trevor O. Jones, Chairman
of the Board
/s/ John F. Creamer Jr.
- --------------------------
John F. Creamer Jr., Vice
Chairman of the Board
/s/ Richard E. Dauch
- --------------------------
Richard E. Dauch, 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/ Phillip S. Myers
- --------------------------
Phillip S. Myers, Director
/s/ William P. Nusbaum
- --------------------------
William P. Nusbaum, Director
/s/ Jerome G. Rivard
- --------------------------
Jerome G. Rivard, Director
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 October 3, 1997 appearing on page 33 of the 1997 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
October 3, 1997
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 October 3, 1997 appearing on page 33
of the 1997 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, 1997
12
<PAGE>
ECHLIN INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED AUGUST 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Additions
-----------------------------------
Balances assumed
in business
Balance at acquisitions net Write-offs,
beginning Charged to costs of sale of net of Balance at end
Description of period and expenses businesses recoveries (c) of period
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
- --------------------------------
Year ended August 31, 1997 $5,621,000 $4,605,000 $76,000 $(5,797,000) $4,505,000
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
</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>
ECHLIN INC. 1997 ANNUAL REPORT 9
=================================
REVIEW OF OPERATIONS AND FINANCIAL CONDITION
In fiscal 1997, Echlin's sales rose 14.1%, from $3.13 to $3.57 billion.
Comparable operations brought 2.0% of the gain. This consisted of price
increases (1.0%) and new products (2.8%), offset by a decline in unit volume
(1.4%) and unfavorable currency translations (0.4%). The balance, 12.1%, came
from acquisitions, net of two divisions we sold, Sensor Engineering and
Preferred Plastic Sheet.
We purchased five major companies this year: Long Manufacturing, Nobel
Plastiques, Brosol, Iroquois Tool Systems and the North American Aftermarket
division of ITT Automotive. Our sales also included 12 months of revenue from
the Automotive Segment of Handy & Harman, a company we bought in December 1995.
Last year, sales climbed 15.1%. Existing businesses added 4.1% of the growth,
while acquired businesses accounted for the remainder. Unit volume was flat, but
new products and new prices contributed 3.4% and 1.6%, respectively.
Domestic Business Up 2.6%
U.S. operations, excluding acquisitions, advanced 2.6%. The products we
introduced boosted sales 3.0%, plus prices rose 0.9%; at the same time, unit
volume declined 1.3%.
Several industry factors caused business to slump. To begin with, the demand
for aftermarket components, especially under-the-hood items, softened. New
builds of heavy-duty trucks were down as well. Further, goods were returned at
above-normal rates, as customers trimmed their inventories in response to
sluggish sales.
In 1996, domestic business improved 3.7%. Growth from product introductions
(3.8%), coupled with price raises (1.3%), countered a 1.4% drop in unit volume,
as sales fell in all areas except our automotive brake and original equipment
lines. Heavy-duty parts suffered the most, due to a 25% cutback in the North
American production of tractors and trailers.
Offshore Operations Flat
Without acquisitions, the company's foreign revenues inched up 0.4%. We posted
gains from the roll out of new products (2.2%) and new prices (1.1%), which were
offset by a 1.7% decrease in unit volume. Currency fluctuations also lowered
sales, by 1.2%.
Throughout 1997, Echlin's automotive companies in Europe and Mexico performed
well. Business was depressed, however, in our European divisions that supply
heavy-duty parts, and in other aftermarket operations around the world. Changes
in translation rates dampened sales, as during the year, the dollar weakened
against all currencies except the British pound. This had the greatest impact on
our German subsidiaries.
Last year, international operations grew 5.1%. Increases from unit volume
(3.2%), prices (2.3%), and new products (2.5%) all outweighed declines (2.9%)
due to unfavorable changes in currency exchange rates.
<PAGE>
10 ECHLIN INC. 1997 ANNUAL REPORT
==================================
Gross Margin Down 2.1 Points
In 1997, our gross profit margin edged down 2.1 percentage points, from 26.2% to
24.1%. There were many reasons for this drop. A high number of returned goods,
along with changes in our customer and product mix, played key roles. We also
absorbed less manufacturing expense than planned, as we scaled back production
to accommodate slower demand. In addition, several of the acquisitions we made
are OE producers, which realize, in general, lower gross margins than
aftermarket suppliers.
These same factors affected last year's margin. Echlin's 1996 level was 2.7
percentage points below fiscal 1995's.
Sales Outpaced Expenses
Selling and administrative expenses moved up 11.4% in 1997. Part of the increase
stemmed from research and development activities, which we expanded to design
new products for future vehicles.
Although operating expenses rose, they fell -- for the seventh year in a
row -- as a percentage of sales, trending down from 19.5% in 1995, to 18.4% in
1996, and 17.9% in 1997. This reflects our success in cutting costs. It also
points to the impact of our OE businesses, which tend to have lower expense-to-
sales ratios than replacement parts providers.
Interest Expense Advanced 20.4%
Interest expense climbed 20.4% in fiscal 1997. Borrowing rates remained the same
as last year's; nevertheless, the company incurred more debt, mainly to fund
acquisitions. Interest income went up as well, due to higher yields on our
investment portfolio in Puerto Rico.
In fiscal 1996, interest rates were down, but greater debt levels drove
interest expense up 11.8%.
Repositioning Charge Reported
This year, Echlin took steps to reposition the company and build future
shareowner value. We recorded a pre-tax charge of $254.1 million to cover,
first, the write-off of impaired or idle assets; second, the costs of closing
and consolidating plants; and third, the selling of non-core and low-profit
divisions.
We also divested two businesses in fiscal 1997, Sensor Engineering and
Preferred Plastic Sheet. Together, they provided a pre-tax gain of $28.7
million.
All told, these actions reduced net income by $164.3 million and earnings per
share by $2.63.
Cash Flow Down
Cash flow from operations totaled $183.3 million in 1997. This was $43.7 million
less than last year's $227.0 million, due to the timing of our liability
payments, which offset the gains we achieved from receivable collections.
In 1996, the company's cash flow benefited from its efforts to thin inventory.
Our scheduling of liability payments had a positive influence as well.
<PAGE>
ECHLIN INC. 1997 ANNUAL REPORT 11
==================================
Financial Condition Changed
By year-end, Echlin had assumed additional debt of $262.0 million, prompting our
debt-to-capital ratio to go up 12.3 points, from 33.0% to 45.3%. The money we
borrowed helped finance acquisitions.
In fiscal 1996, we sold $75 million of accounts receivable, then used the
proceeds to pay down debt.
Changes in currency translation rates eroded the value of our net assets in
Mexico, Germany and Great Britain. As a result, shareholder's equity was
diminished $20.8 million this year and $17.1 million last year.
Market Risks Disclosed
Echlin conducts most of its global business in local markets with local
currencies. When we do sell across borders, we help guard against currency
swings through "short-term, forward foreign exchange" contracts. At the close
of fiscal 1997, we had no material contracts outstanding.
Our investment portfolio, commercial paper and fixed-rate debt also carry
risk, which is related to shifts in interest rates. There is, however, no hedge
against this. If rates go up, Echlin pays more interest on paper and debt, but
could earn more on its portfolio; if rates go down, the reverse happens.
Based upon our current financial position, a 10% movement of foreign exchange
or interest rates would not have a material affect on the company's fair value,
cash flows or operating results.
Capital Expenditures Rose
Our outlay of capital, $149.2 million, topped last year's amount by $44.8
million. Capital spent by recent acquisitions represented some of the increase.
Also, we equipped a new factory in Mexico, and purchased a building we formerly
leased in Great Britain.
In 1997, we invested primarily in machinery and tooling. As in years past,
this allowed us to manufacture new parts, and enhance the productivity and
efficiency of our plants worldwide.
Bar graph showing Percentage Change in Reported and
Comparable Operations Net Sales for fiscal years 1991-1997.
Bar graph showing Inventory Turns for fiscal years 1991-1997.
Bar graph showing Working Capital to Sales Percentages for
fiscal years 1991-1997.
<PAGE>
ECHLIN INC. 1997 ANNUAL REPORT 33
==================================
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 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/ Larry McCurdy
- -------------------------------------
Larry W. McCurdy
President and Chief Executive Officer
/s/ Joseph A. Onorato
- -------------------------------------
Joseph A. Onorato
Vice President and Chief Financial Officer
REPORT OF INDEPENDENT ACCOUNTANTS
[LOGO OF PRICE WATERHOUSE 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, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended August 31, 1997, 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
October 3, 1997
<PAGE>
34 ECHLIN INC. 1997 ANNUAL REPORT
==================================
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Income
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended August 31,
(In thousands, except per share data) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $3,568,572 $3,128,728 $2,717,866
Cost of goods sold 2,707,081 2,309,037 1,932,461
- --------------------------------------------------------------------------------
Gross profit on sales 861,491 819,691 785,405
Selling and administrative expenses 640,108 574,592 531,286
Repositioning and other special
charges 254,115 -- --
Gain on sales of businesses (28,652) -- --
- --------------------------------------------------------------------------------
Income (loss) from operations (4,080) 245,099 254,119
- --------------------------------------------------------------------------------
Interest expense 52,914 43,933 39,313
Interest income (12,246) (10,990) (15,674)
- --------------------------------------------------------------------------------
Interest expense, net 40,668 32,943 23,639
- --------------------------------------------------------------------------------
Income (loss) before taxes (44,748) 212,156 230,480
Provision for taxes 2,158 69,946 76,058
- --------------------------------------------------------------------------------
Net income (loss) $ (46,906) $ 142,210 $ 154,422
================================================================================
Average shares outstanding 62,601 61,919 59,476
================================================================================
Earnings (loss) per share $(0.75) $2.30 $2.60
================================================================================
</TABLE>
See notes to consolidated financial statements.
[PIE CHART APPEARS AS FOLLOWS]
1997 Sales by Product Groups:
Brake System Parts 38%
Engine System Parts 33%
Power Transmission System Parts 10%
Steering and Suspension Systems
Components 7%
Other Motor Vehicle Parts 7%
Additional Products 5%
[PIE CHART APPEARS AS FOLLOWS]
1997 Sales by Channels of Distribution:
Warehouse Distributors 45%
Vehicle Manufacturers 32%
Other Manufacturers 12%
Retailers 7%
Non-Vehicle 4%
<PAGE>
ECHLIN INC. 1997 ANNUAL REPORT 35
==================================
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
August 31,
(In thousands, except share and per share data) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 22,239 $ 16,106
Accounts receivable, less allowance for doubtful
accounts of $4,505 and $5,621 438,558 370,837
Inventories:
Raw materials and component parts 179,599 167,215
Work in process 92,389 87,140
Finished goods 422,650 425,027
- --------------------------------------------------------------------------------
Total inventories 694,638 679,382
Other current assets 54,134 42,687
- --------------------------------------------------------------------------------
Total current assets 1,209,569 1,109,012
- --------------------------------------------------------------------------------
Property, plant and equipment:
Land 39,216 36,881
Buildings 235,028 218,086
Machinery and equipment 1,084,004 900,528
- --------------------------------------------------------------------------------
Property, plant and equipment, at cost 1,358,248 1,155,495
Accumulated depreciation (635,717) (534,186)
- --------------------------------------------------------------------------------
Property, plant and equipment, net 722,531 621,309
- --------------------------------------------------------------------------------
Marketable securities 82,418 83,578
- --------------------------------------------------------------------------------
Intangible assets 323,060 226,292
- --------------------------------------------------------------------------------
Other assets 36,625 90,563
- --------------------------------------------------------------------------------
Total assets $2,374,203 $2,130,754
================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable to banks $ 42,746 $ 21,596
Current portion of long-term debt 4,693 6,286
Accounts payable 296,123 264,532
Accrued taxes on income 13,097 33,985
Accrued compensation 84,712 67,265
Other accrued liabilities 232,652 130,563
- --------------------------------------------------------------------------------
Total current liabilities 674,023 524,227
- --------------------------------------------------------------------------------
Long-term debt 710,422 468,013
- --------------------------------------------------------------------------------
Deferred income taxes 76,057 129,640
- --------------------------------------------------------------------------------
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 63,373,683
and 62,242,279 63,374 62,242
Capital in excess of par value 372,197 350,935
Retained earnings 557,153 658,235
Foreign currency translation adjustments (82,725) (61,953)
Net unrealized investment gains 6,697 2,410
Treasury stock, at cost, 270,264 shares (2,995) (2,995)
- --------------------------------------------------------------------------------
Total shareholders' equity 913,701 1,008,874
- --------------------------------------------------------------------------------
Total liabilities and shareholders' equity $2,374,203 $2,130,754
================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
36 ECHLIN INC. 1997 ANNUAL REPORT
==================================
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year ended August 31,
(In thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (46,906) $ 142,210 $ 154,422
Adjustments to reconcile net income (loss)
to net cash provided by
operating activities:
Depreciation and amortization 113,938 90,875 76,609
Repositioning and other special charges 252,041 -- --
Gain on sales of businesses (28,652) -- --
Changes in assets and liabilities,
excluding acquisitions' balance sheets:
Accounts receivable (11,056) (83,286) (9,448)
Inventories (8,512) 24,427 (94,133)
Other current assets (5,146) (11,892) (5,314)
Accounts payable 4,590 44,486 576
Accrued taxes on income (23,252) (6,660) (4,173)
Deferred income taxes (54,847) 42,797 22,869
Accrued liabilities (3,035) (12,948) (11,762)
Other (5,907) (3,001) (22,602)
- --------------------------------------------------------------------------------
Cash provided by operating activities 183,256 227,008 107,044
- --------------------------------------------------------------------------------
Cash flows from financing activities:
Long-term and short-term borrowings 917,172 615,532 721,232
Long-term and short-term repayments (690,454) (647,626) (524,664)
Sales of accounts receivable -- 75,000 --
Proceeds from common stock issuances 4,560 2,770 5,200
Dividends paid (55,623) (51,806) (46,987)
- --------------------------------------------------------------------------------
Cash provided by (used for) financing
activities 175,655 (6,130) 154,781
- --------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (149,195) (104,384) (103,894)
Net book value of property, plant and
equipment disposals 8,454 3,143 1,515
Proceeds from sales of marketable securities 9,823 22,592 13,087
Proceeds from sales of businesses 73,253 -- --
Purchases of businesses:
Net working capital items (80,021) (93,232) (25,382)
Property, plant and equipment and
intangibles (252,099) (57,305) (176,830)
Debt assumed 38,877 1,013 --
- --------------------------------------------------------------------------------
Cash used for investing activities (350,908) (228,173) (291,504)
- --------------------------------------------------------------------------------
Impact of foreign currency changes on cash (1,870) (4,299) 3,563
- --------------------------------------------------------------------------------
Increase (decrease) in cash and cash
equivalents 6,133 (11,594) (26,116)
Cash and cash equivalents at beginning of
year 16,106 27,700 53,816
- --------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 22,239 $ 16,106 $ 27,700
================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
ECHLIN INC. 1997 ANNUAL REPORT 37
==================================
<TABLE>
<CAPTION>
Consolidated Statements of Changes in Shareholders' Equity
- ---------------------------------------------------------------------------------------------------------------
Capital Foreign Net
in Excess Currency Unrealized Total
(In thousands, except Common of Par Retained Translation Investment Treasury Shareholders'
per share data) Stock Value Earnings Adjustments Gains Stock Equity
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
Net loss -- -- (46,906) -- -- -- (46,906)
Cash dividends paid
($0.89 per share) -- -- (55,623) -- -- -- (55,623)
Shares issued under
stock option plans 273 4,293 -- -- -- -- 4,566
Foreign currency
translation adjustments -- -- -- (20,772) -- -- (20,772)
Net unrealized investments
gains -- -- -- -- 4,287 -- 4,287
Shares issued for
acquisitions 859 16,969 1,447 -- -- -- 19,275
- ---------------------------------------------------------------------------------------------------------------
Balance at August 31, 1997 $63,374 $372,197 $557,153 $(82,725) $ 6,697 $ (2,995) $913,701
===============================================================================================================
</TABLE>
See notes to consolidated financial statements.
1997 Sales by Geographic Areas
[PIE CHART APPEARS AS FOLLOWS]
<TABLE>
<S> <C>
1997 Sales by Geographic Areas:
United States and Canada 75%
Europe 18%
Central and South America 3%
Other 4%
</TABLE>
<PAGE>
38 ECHLIN INC. 1997 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 $3,231,000 and $771,000 at August 31, 1997 and 1996, respectively. These
securities are carried at cost which approximates market.
Accounts Receivable--The company has an agreement with a financial institution,
under which it may sell without recourse, undivided fractional interests in
designated pools of trade receivables up to $200,000,000 through March 1999.
Accounts receivable at August 31, 1997 and 1996 were net of $200,000,000,
representing receivables sold.
Inventories--Inventories are stated at the lower of cost (first-in, first-out)
or market.
Property, Plant and Equipment and Depreciation--Property, plant and equipment
are stated at cost. At the time property, plant and equipment are sold or
otherwise disposed of, the accounts are relieved of the cost of the assets and
the related accumulated depreciation, and any resulting profit or loss is
credited or charged to income. Depreciation is computed principally on the
straight-line method over the estimated useful lives of the assets.
Intangible Assets--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. The company periodically evaluates whether the remaining net book
value of intangible assets is recoverable using estimates of cash flows over the
remaining life of the assets.
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, 1997 and 1996 was
$82,418,000 and $83,578,000, respectively. These investments are classified as
available for sale and had, at August 31, 1997 and 1996, a historical cost of
$72,114,000 and $79,870,000, respectively. As a result, unrealized investment
gains of $4,287,000 and $2,410,000, which are net of applicable income taxes,
are included as a component of shareholders' equity at August 31, 1997 and 1996,
respectively.
Revenue Recognition--The company recognizes revenues from product sales upon
shipment to its customers.
Research and Development Costs--Research and development costs are charged to
income as incurred and aggregated $51,844,000, $44,711,000 and $34,652,000 for
the years ended August 31, 1997, 1996 and 1995, respectively.
<PAGE>
ECHLIN INC. 1997 ANNUAL REPORT 39
==================================
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.
The Financial Accounting Standards Board has implemented Statement of
Financial Accounting Standards No. 128, "Earnings Per Share", which requires
companies to disclose basic and diluted earnings per share. Basic earnings per
share is calculated by dividing net income by the weighted average number of
common shares outstanding, which is equal to what has been historically
reported. Diluted earnings per share is arrived at by dividing net income by the
weighted average number of common shares outstanding plus the number of shares
which would be issued assuming the exercise of outstanding employee stock
options. For the twelve months ended August 31, 1997, the proforma diluted loss
per share would have been less than the reported loss per share.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Changes in such estimates may affect amounts reported in
future periods.
2 Business Combinations
=======================
In June 1997, the company acquired the North American Aftermarket division of
ITT Automotive (ITT), a unit of ITT Industries, Inc. for $89,400,000. The
business manufactures and distributes motor vehicle brake system parts. In May
1997, Echlin purchased the Brazilian engine-components business of Industria e
Commercio Brosol (Brosol) Ltda. by issuing $17,500,000 of Echlin common stock
(531,108 shares). Brosol produces motor-vehicle fuel system parts. Both the ITT
and Brosol transactions were accounted for using the purchase method of
accounting.
During December 1996, the company acquired the outstanding common stock of
Iroquois Tool Systems, Inc. (Iroquois), a brake rotor manufacturer, located in
North East, Pennsylvania by issuing 335,474 shares of common stock. As of the
date of this acquisition, net current assets were $934,000, property, plant and
equipment was $3,258,000, and debt assumed was $2,411,000. This transaction was
accounted for as a pooling of interests and as a result, the financial
statements for the year ended August 31, 1997 include Iroquois' results of
operations. Since the acquisition did not have a material impact on the company,
prior years' results were not restated.
<PAGE>
40 ECHLIN INC. 1997 ANNUAL REPORT
==================================
In October 1996, the company acquired Nobel Plastiques SA (Nobel), located in
France and Spain, for $16,880,000. Nobel manufactures fluid, hydraulic and
pneumatic servo control lines. During September 1996, the company acquired Long
Manufacturing, Ltd. (Long), headquartered in Oakville, Ontario, Canada, for
$172,986,000. Long manufactures and distributes motor vehicle heat exchange
products and air-conditioning evaporators. Both the Long and Nobel acquisitions
were accounted for using the purchase method of accounting.
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 medium- and heavy-duty trucks. In
January 1996, the company acquired the outstanding common stock of Plains
Plastics, Inc., a custom plastic extruder located in Kansas, by issuing 229,450
shares of common stock. 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.
In October 1994, the company acquired the outstanding common stock of the
Theodore Bargman Company (Bargman), 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 Bargman's results of
operations. As of the date of the acquisition, 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.
3 Sales of Businesses
=====================
In August 1997, the company sold its Preferred Plastic Sheet Division, a
manufacturer of extruded plastic sheets, for approximately $64,500,000. This
resulted in a pre-tax gain of $21,292,000, or $0.21 per share.
During October 1996, the company sold certain assets of Sensor Engineering, a
division that manufactured cards and readers for access control systems, for
$11,400,000. This resulted in a pre-tax gain of $7,360,000, or $0.07 per share.
<PAGE>
ECHLIN INC. 1997 ANNUAL REPORT 41
==================================
4 Repositioning and Other Special Charges
=========================================
During the fourth quarter of fiscal 1997, the company recorded repositioning and
other special charges of $254,115,000, pre-tax, which is intended to enhance the
company's competitiveness and productivity. Repositioning actions are generally
expected to be completed in twelve months.
The repositioning charge included expenses related to facility realignments
and rationalizations, and the write-down to net realizable value of businesses
to be disposed ($101,154,000) including severance costs of $14,507,000. In
addition, goodwill associated with brand names no longer in use was written off
($27,164,000), inventory related to discontinued and rationalized product lines
was written down ($43,606,000), property, plant and equipment idled by facility
closures and product line rationalizations were reduced ($21,868,000), and other
investments and deferred customer acquisition costs were written off
($60,323,000).
Cash expenditures in fiscal 1997 for repositioning actions totaled $2,074,000,
primarily for employee severance costs.
5 Borrowing Arrangements
========================
Notes payable to banks of $42,746,000 and $21,596,000 at August 31, 1997 and
1996, respectively, were comprised of local borrowings by Echlin's foreign
subsidiaries, due within ninety days. Weighted average interest rates were 8.16%
and 7.70% at August 31, 1997 and 1996, respectively.
Long-term debt was comprised of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
August 31,
(In thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Commercial paper $324,940 $289,000
Domestic notes 329,000 125,000
9.22% Senior Note -- 30,000
3.50% Note -- 569
3.519% and 3.675% Notes 13,695 18,760
3.60%-8.75% Foreign obligations, repayable in varying
installments to 2002 27,776 5,503
3.40% Obligation under terms of a lease agreement with a
municipality, repayable at maturity in 2022 3,700 3,700
3.65% Obligation under terms of a lease agreement with a
municipality, repayable at $400 per year from 1998
through 2002 and at $300 per year from 2003 through 2007 3,500 --
7.00%-17.30% Capitalized lease obligations, net of
interest of $4,717 and $560, repayable in varying
installments to 2006 12,504 1,767
- --------------------------------------------------------------------------------
Total 715,115 474,299
Less-current portion 4,693 6,286
- --------------------------------------------------------------------------------
Total long-term debt $710,422 $468,013
================================================================================
</TABLE>
At August 31, 1997 and 1996, the weighted average interest rates on commercial
paper were 5.62% and 5.40%, respectively. The domestic notes at August 31, 1997
and 1996 represent unsecured obligations with U.S. banks with weighted average
interest rates at 5.74% and 5.36%, respectively. A majority of the commercial
paper and the domestic notes mature within sixty days of year-end. The
commercial paper and domestic notes 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).
<PAGE>
42 ECHLIN INC. 1997 ANNUAL REPORT
==================================
The company's senior note matured on March 1, 1997 and the 3.50% note matured
in September 1996.
Under a credit agreement with a United Kingdom bank, there were 3.519% and
3.675% notes outstanding at August 31, 1997 and 1996, respectively. The 3.519%
note matured in September 1997. The 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
and the availability of such financing under the terms of the RCA.
Minimum annual principal repayments of long-term debt, excluding commercial
paper, the domestic notes, and the 3.519% note, in each of the next five fiscal
years are as follows: 1998 - $4,693,000; 1999 - $3,125,000; 2000 - $2,905,000;
2001 - $1,648,000; and 2002 - $26,773,000.
For the years ended August 31, 1997, 1996 and 1995, interest paid was
$53,788,000, $45,579,000 and $40,638,000, respectively.
Under the terms of an RCA with eleven banking institutions, the company has
available, through September 1, 2001, maximum borrowings of $700,000,000. At
August 31, 1997 and 1996, 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 $122,437,000 and
$66,488,000 at August 31, 1997 and 1996, 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.
6 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.
<PAGE>
ECHLIN INC. 1997 ANNUAL REPORT 43
==================================
7 Stock Option Plans
====================
Under the 1992 Echlin Inc. 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 this plan is as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Number of Weighted-Average
Shares Price
- -------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at August 31, 1994 1,882,960 $18.85
Granted 292,375 $30.75
Exercised (322,335) $16.17
Terminated (20,375) $19.08
- ---------------------------------------------------------
Outstanding at August 31, 1995 1,832,625 $21.22
Granted 231,125 $37.25
Exercised (137,775) $19.96
Terminated (22,815) $27.51
- ---------------------------------------------------------
Outstanding at August 31, 1996 1,903,160 $23.23
Granted 441,934 $32.62
Exercised (340,695) $19.93
Terminated (39,265) $29.98
- ---------------------------------------------------------
Outstanding at August 31, 1997 1,965,134 $26.02
===============================================================================
</TABLE>
The following table summarizes information about employee stock options
outstanding and exercisable at August 31, 1997:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Options Outstanding Options Exercisable
------------------------------------- ----------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (years) Price Exercisable Price
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$10.25-$19.75 779,450 3.5 $14.82 779,450 $14.82
$30.75-$37.25 1,185,684 8.0 $32.93 743,750 $33.28
----------- ---------
$10.25-$37.25 1,965,134 6.3 $26.02 1,523,200 $23.90
===============================================================================
</TABLE>
Shares available for future grants at August 31, 1997 and 1996 were 1,656,249
and 2,187,842, respectively. There were no options outstanding with stock
appreciation rights at August 31, 1997 and 1996.
<PAGE>
44 ECHLIN INC. 1997 ANNUAL REPORT
==================================
At the annual meeting held on December 18, 1996, shareholders approved the
1996 Non-Executive Director Stock Option Plan under which 250,000 shares of
Echlin common stock were authorized for issuance to members of the Board of
Directors who are not current employees of Echlin Inc. 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 non-executive director. Upon the
exercise of stock options, payment may be made using cash, shares of the
company's common stock or any combination thereof. During fiscal 1997, 79,150
options were granted at a weighted-average price per share of $31.125. No
exercises or terminations of these stock options were made during fiscal 1997.
In October 1995, Statement of Financial Accounting Standards 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 adopted Statement No. 123
during fiscal 1997. The Black-Scholes option pricing model was used to estimate
the fair value of these options on the date of grant. The weighted-average
assumptions used in the model for 1997 and 1996, respectively, are as follows:
expected life of the option 3.8 to 5.5 years, 6.2 years; risk-free interest rate
6.13% to 6.50%, 5.73%; expected volatility 20.5%, 24.3%; and dividend yields
2.5%, 2.8%. The weighted average fair value of options granted during 1997 and
1996 are $7.66 and $9.61, respectively. Proforma net income (loss) would have
been ($48,864,000) and $141,188,000, while proforma earnings (loss) per share
would have been ($0.78) and $2.28 for the years ended August 31, 1997 and 1996,
respectively.
8 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 of 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.
A majority of domestic employees is 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 $972,000, $2,133,000 and $2,002,000 during the years
ended August 31, 1997, 1996 and 1995, respectively.
<PAGE>
ECHLIN INC. 1997 ANNUAL REPORT 45
====================================
Net pension cost for all pension plans was $10,602,000, $10,781,000 and
$10,124,000 for the years ended August 31, 1997, 1996 and 1995, respectively.
Net pension cost included the following components:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Year ended August 31,
1997 1996 1995
------------------- ------------------- ------------------
(In thousands) Domestic Foreign Domestic Foreign Domestic Foreign
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost-benefits earned
during the period $ 6,951 $ 5,883 $ 6,809 $ 5,100 $ 5,697 $ 4,777
Interest on projected benefit
obligation 9,104 9,457 8,424 7,990 7,678 7,578
Actual return on plan assets (21,114) (18,412) (15,095) (11,615) (10,869) (4,848)
Net amortization and deferrals 9,870 8,733 5,149 3,905 2,321 (2,600)
Multi-employer plans 130 -- 114 -- 390 --
- ------------------------------------------------------------------------------------------------
Net pension cost $ 4,941 $ 5,661 $ 5,401 $ 5,380 $ 5,217 $ 4,907
================================================================================================
</TABLE>
The following table sets forth the funded status of the various company
pension plans:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
August 31,
1997 1996
-------------------- --------------------
(In thousands) Domestic Foreign Domestic Foreign
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of:
Vested benefit obligation $106,422 $104,772 $ 91,708 $ 89,088
Accumulated benefit obligation $110,579 $109,657 $ 95,056 $ 93,323
================================================================================================
Plan assets at fair value $148,623 $116,678 $125,143 $ 93,095
Projected benefit obligation 127,250 131,943 109,561 112,384
- ------------------------------------------------------------------------------------------------
Plan assets in excess of
(less than)
projected benefit obligation 21,373 (15,265) 15,582 (19,289)
Unrecognized net loss 2,414 49 5,808 11
Unrecognized prior service cost 4,422 2,684 3,834 2,612
Unrecognized net assets (978) (5,670) (1,882) (6,256)
Adjustment to minimum liability (741) (157) (141) (233)
- ------------------------------------------------------------------------------------------------
Prepaid (accrued) pension cost $ 26,490 $(18,359) $ 23,201 $(23,155)
================================================================================================
Actuarial assumptions:
Discount rate 8.00% 6.50%-8.50% 8.25% 7.00%-8.75%
Rate of increase in
compensation levels 4.31% 2.50%-5.50% 4.31% 3.00%-6.50%
Expected long-term rate of
return on
plan assets 10.00% 8.50% 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. The company also provides a Supplemental Senior Executive
Retirement Plan covering selected senior executives. An unfunded projected
benefit obligation for both plans of $4,838,000 and $2,434,000 at August 31,
1997 and 1996, respectively, is included under domestic in the table above.
Pension plans in certain foreign countries are not funded. At August 31, 1997
and 1996, the company had recorded an accrued liability of $20,714,000 and
$23,880,000, 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. The balance is primarily
invested in short-term investments, preferred stocks, mutual funds and limited
partnership interests.
<PAGE>
46 ECHLIN INC. 1997 ANNUAL REPORT
==================================
9 Income Taxes
==============
The provision for taxes was comprised of the following:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Year ended August 31,
(In thousands) 1997 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 20,142 $ 7,563 $12,537
State 4,753 7,700 9,500
Foreign 55,553 8,857 31,439
- -----------------------------------------------------------------------------
Total current provision 80,448 24,120 53,476
- -----------------------------------------------------------------------------
Deferred:
Federal and state (54,712) 19,400 17,348
Foreign (23,578) 26,426 5,234
- -----------------------------------------------------------------------------
Total deferred provision (78,290) 45,826 22,582
- -----------------------------------------------------------------------------
Total provision $ 2,158 $69,946 $76,058
=============================================================================
</TABLE>
The tax effect of major temporary differences is summarized below:
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Year ended August 31,
(In thousands) 1997 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Depreciation $(47,267) $32,249 $21,433
Valuation of inventories (16,277) (1,522) (4,202)
All other, net (14,746) 15,099 5,351
- -----------------------------------------------------------------------------
Total deferred provision $(78,290) $45,826 $22,582
=============================================================================
</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,
1997 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal tax rate 35.0% 35.0% 35.0%
Earnings in Puerto Rico not
subject to U.S. taxes 10.6 (3.2) (2.9)
Net tax effect relating to
foreign operations (29.8) 0.2 1.5
State taxes 2.4 2.4 2.7
Asset write-offs (38.6) -- --
Other 15.6 (1.4) (3.3)
- -----------------------------------------------------------------------------
Effective tax rate (4.8%) 33.0% 33.0%
=============================================================================
</TABLE>
The company has a subsidiary operating in Puerto Rico under a tax exemption
grant which expires in 2009.
For the years ended August 31, 1997, 1996 and 1995, taxes paid were
$78,938,000, $35,262,000 and $52,752,000, respectively.
<PAGE>
ECHLIN INC. 1997 ANNUAL REPORT 47
==================================
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) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Inventories $23,177 $ 6,900
Accrued expenses 25,753 5,341
Other employee benefits 6,346 5,290
Other 20,196 6,727
- --------------------------------------------------------------------------------
Gross deferred assets 75,472 24,258
- --------------------------------------------------------------------------------
Liabilities:
Depreciation 55,998 103,265
Pension 15,180 13,654
Other 4,495 25,444
- --------------------------------------------------------------------------------
Gross deferred liabilities 75,673 142,363
- --------------------------------------------------------------------------------
Net deferred liabilities $ 201 $118,105
================================================================================
</TABLE>
10 Rental Commitments
=====================
Total rental expense for the years ended August 31, 1997, 1996 and 1995 was
$46,122,000, $42,635,000 and $35,274,000, 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>
1998 $26,584 $ 5,507 $ 7,236 $ 39,327
1999 17,237 4,636 5,264 27,137
2000 14,356 1,924 3,074 19,354
2001 10,329 122 545 10,996
2002 8,281 80 216 8,577
2003 and thereafter 16,506 -- 52 16,558
- --------------------------------------------------------------------------------
Total commitments $93,293 $12,269 $16,387 $121,949
================================================================================
</TABLE>
<PAGE>
48 ECHLIN INC. 1997 ANNUAL REPORT
==================================
11 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>
1997
Net sales to unaffiliated customers $2,414,486 $750,429 $403,657 -- $3,568,572
Net sales between geographic areas 55,273 19,427 111,921 $(186,621) --
- ------------------------------------------------------------------------------------------------------
Total net sales $2,469,759 $769,856 $515,578 $(186,621) $3,568,572
======================================================================================================
Income (loss) before taxes $ (100,787) $38,689 $17,350 -- $(44,748)
======================================================================================================
Identifiable assets $1,287,204 $658,831 $376,073 -- $2,322,108
=========================================================================================
Corporate assets 52,095
- ------------------------------------------------------------------------------------------------------
Total assets $2,374,203
======================================================================================================
1996
Net sales to unaffiliated customers $2,158,405 $675,014 $295,309 -- $3,128,728
Net sales between geographic areas 44,847 9,353 73,074 $(127,274) --
- ------------------------------------------------------------------------------------------------------
Total net 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
Net sales to unaffiliated customers $1,838,059 $589,181 $290,626 -- $2,717,866
Net sales between geographic areas 48,608 8,832 79,618 $(137,058) --
- ------------------------------------------------------------------------------------------------------
Total net 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
======================================================================================================
</TABLE>
Net 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, 1997, 1996 and 1995 of
$4,746,000, $428,000 and $(354,000), respectively, and translation losses of
$615,000, $54,000 and $717,000, respectively. The company's foreign operations
had income before taxes of $56,039,000, $100,159,000 and $94,988,000 for the
years ended August 31, 1997, 1996 and 1995, respectively.
The company does not have any one customer or group of customers comprising
more than 10% of reported net sales.
<PAGE>
ECHLIN INC. 1997 ANNUAL REPORT 49
===================================
12 Quarterly Financial Data (unaudited)
======================================
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Income Net Earnings
Year ended August 31, Net Gross (Loss) From Income (Loss)
(In thousands, except per share data) Sales Profit Operations (Loss) Per Share
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997
First quarter $ 850,908 $ 215,889 $ 66,685 $ 38,117 $ 0.61
Second quarter 842,219 196,844 44,986 23,601 0.38
Third quarter 931,177 223,641 62,790 33,481 0.53
Fourth quarter 944,268 225,117 (178,541) (142,105) (2.27)
- -----------------------------------------------------------------------------------------------------------------
Total $3,568,572 $ 861,491 $ (4,080) $ (46,906) $(0.75)
=================================================================================================================
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
=================================================================================================================
</TABLE>
Income from operations for the first quarter of 1997 includes a gain from the
sale of Sensor Engineering of $7,283,000, or $0.07 per share. During the second
quarter the gain was increased by $77,000.
In the fourth quarter of 1997, a gain of $21,292,000 was included in income
from operations due to the sale of Preferred Plastic Sheet. As a result,
earnings per share were increased by $0.21. In addition, income from operations
and earnings per share were reduced by $254,115,000 and $2.91, respectively,
from repositioning and other special charges.
<PAGE>
50 ECHLIN INC. 1997 ANNUAL REPORT
===================================
HISTORICAL DATA
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
10-year Growth
Compound 1997
(In thousands, except per share data) Growth vs. 1996 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations:
Net sales 12.5% 14.1% $3,568,572 $3,128,728 $2,717,866
Cost of goods sold 13.1 17.2 2,707,081 2,309,037 1,932,461
----------------------------------------
Gross profit on sales 10.8 5.1 861,491 819,691 785,405
Selling and administrative expenses 10.6 11.4 640,108 574,592 531,286
Repositioning and other special charges -- -- 254,115 -- --
Gain on sales of businesses -- -- (28,652) -- --
----------------------------------------
Income (loss) from operations -- -- (4,080) 245,099 254,119
----------------------------------------
Interest expense 16.3 20.4 52,914 43,933 39,313
Interest income 2.7 11.4 (12,246) (10,990) (15,674)
----------------------------------------
Interest expense, net 33.4 23.4 40,668 32,943 23,639
----------------------------------------
Income (loss) before taxes -- -- (44,748) 212,156 230,480
Provision for taxes (22.4) (96.9) 2,158 69,946 76,058
----------------------------------------
Income (loss) before cumulative effect
of accounting change -- -- (46,906) 142,210 154,422
Cumulative effect of accounting change -- -- -- -- --
----------------------------------------
Net income (loss) -- -- $ (46,906) $ 142,210 $ 154,422
========================================
Average shares outstanding 1.9 1.1 62,601 61,919 59,476
Earnings (loss) per share -- -- $ (0.75) $ 2.30 $ 2.60
Dividends per share 5.3 4.7 $ 0.89 $ 0.85 $ 0.79
Financial Position at Year-end:
Working capital 4.1 (8.4) $ 535,546 $ 584,785 $ 590,726
Current ratio -- -- 1.8/1 2.1/1 2.2/1
Working capital to sales -- -- 15.0% 18.7% 21.7%
Property, plant and equipment, net 13.3 16.3 $ 722,531 $ 621,309 $ 525,528
Total assets 10.6 11.4 $2,374,203 $2,130,754 $1,961,008
Total debt 23.5 52.8 $ 757,861 $ 495,895 $ 507,125
Shareholders' equity 4.2 (9.4) $ 913,701 $1,008,874 $ 909,267
--per share 2.9 (11.1) $ 14.48 $ 16.28 $ 15.25
Total debt to capitalization -- -- 45.3% 33.0% 35.8%
Additional Data:
Capital expenditures, net of disposals 14.0 39.0 $ 140,741 $ 101,241 $ 102,379
Depreciation and amortization 14.6 25.4 $ 113,938 $ 90,875 $ 76,609
Effective tax rate* -- -- 35.0% 33.0% 33.0%
Income from operations as a percent of net sales* -- -- 6.2% 7.8% 9.3%
Net income as a percent of:*
Net sales -- -- 3.3% 4.5% 5.7%
Beginning shareholders' equity -- -- 11.6% 15.6% 19.3%
Average number of employees 8.4 13.9 30.3 26.6 23.6
==========================================================================================================================
</TABLE>
* Note: 1997 computations are before non-recurring items totaling $225,463 pre-
tax, or $164,303 after-tax ($2.63 per share).
<PAGE>
ECHLIN INC. 1997 ANNUAL REPORT 51
===================================
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Year ended August 31,
(In thousands, except per share data) 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------
Operations:
<S> <C> <C> <C> <C>
Net sales $2,229,474 $1,944,463 $1,783,362 $1,685,876
Cost of goods sold 1,571,256 1,377,954 1,287,041 1,232,726
- --------------------------------------------------------------------------------------------------------------------
Gross profit on sales 658,218 566,509 496,321 453,150
Selling and administrative expenses 468,511 420,460 389,470 371,980
Repositioning and other special charges -- -- -- --
Gain on sales of businesses -- -- -- --
- --------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 189,707 146,049 106,851 81,170
- --------------------------------------------------------------------------------------------------------------------
Interest expense 23,504 19,403 22,127 29,009
Interest income (11,843) (10,930) (9,768) (9,049)
- --------------------------------------------------------------------------------------------------------------------
Interest expense, net 11,661 8,473 12,359 19,960
- --------------------------------------------------------------------------------------------------------------------
Income (loss) before taxes 178,046 137,576 94,492 61,210
Provision for taxes 56,975 44,025 30,237 19,557
- --------------------------------------------------------------------------------------------------------------------
Income (loss) before cumulative effect
of accounting change 121,071 93,551 64,255 41,653
Cumulative effect of accounting change 2,583 -- -- --
- --------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 123,654 $ 93,551 $ 64,255 $ 41,653
====================================================================================================================
Average shares outstanding 58,996 58,560 55,976 55,835
Earnings (loss) per share $ 2.10 $ 1.60 $ 1.15 $ 0.75
Dividends per share $ 0.73 $ 0.70 $ 0.70 $ 0.70
Financial Position at Year-end:
Working capital $ 487,548 $ 381,989 $ 417,407 $ 479,174
Current ratio 2.1/1 2.1/1 2.3/1 2.9/1
Working capital to sales 21.9% 19.6% 23.4% 28.4%
Property, plant and equipment, net $ 444,166 $ 329,381 $ 325,312 $ 311,047
Total assets $1,577,406 $1,263,261 $1,241,193 $1,191,793
Total debt $ 308,304 $ 164,232 $ 210,948 $ 261,822
Shareholders' equity $ 798,971 $ 713,822 $ 693,948 $ 649,416
--per share $ 13.52 $ 12.13 $ 12.34 $ 11.63
Total debt to capitalization 27.8% 18.7% 23.3% 28.7%
Additional Data:
Capital expenditures, net of disposals $ 73,803 $ 41,528 $ 48,255 $ 56,166
Depreciation and amortization $ 64,174 $ 59,671 $ 55,896 $ 56,489
Effective tax rate* 32.0% 32.0% 32.0% 32.0%
Income from operations as a percent of net sales* 8.5% 7.5% 6.0% 4.8%
Net income as a percent of:*
Net sales 5.5% 4.8% 3.6% 2.5%
Beginning shareholders' equity 17.3% 13.5% 9.9% 6.3%
Average number of employees 20.6 18.6 17.9 17.8
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Year ended August 31,
(In thousands, except per share data) 1990 1989 1988 1987
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations:
Net sales $1,601,254 $1,454,492 $1,294,297 $1,099,703
Cost of goods sold 1,147,940 1,054,650 935,531 790,152
- --------------------------------------------------------------------------------------------------------------------
Gross profit on sales 453,314 399,842 358,766 309,551
Selling and administrative expenses 368,380 326,221 263,605 234,255
Repositioning and other special charges -- -- -- --
Gain on sales of businesses -- -- -- --
- --------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 84,934 73,621 95,161 75,296
- --------------------------------------------------------------------------------------------------------------------
Interest expense 21,886 24,594 13,229 11,676
Interest income (5,903) (13,677) (11,368) (9,395)
- --------------------------------------------------------------------------------------------------------------------
Interest expense, net 15,983 10,917 1,861 2,281
- --------------------------------------------------------------------------------------------------------------------
Income (loss) before taxes 68,951 62,704 93,300 73,015
Provision for taxes 21,746 18,285 31,228 27,381
- --------------------------------------------------------------------------------------------------------------------
Income (loss) before cumulative effect
of accounting change 47,205 44,419 62,072 45,634
Cumulative effect of accounting change -- -- -- --
- --------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 47,205 $ 44,419 $ 62,072 $ 45,634
====================================================================================================================
Average shares outstanding 55,797 55,733 55,613 52,098
Earnings (loss) per share $ 0.85 $ 0.80 $ 1.12 $ 0.88
Dividends per share $ 0.70 $ 0.66 $ 0.59 $ 0.53
Financial Position at Year-end:
Working capital $ 509,260 $ 436,972 $ 347,500 $ 359,320
Current ratio 3.0/1 2.8/1 2.2/1 3.1/1
Working capital to sales 31.8% 30.0% 26.8% 32.7%
Property, plant and equipment, net $ 310,381 $ 264,734 $ 242,169 $ 207,030
Total assets $1,192,496 $1,034,254 $1,086,568 $ 869,065
Total debt $ 262,069 $ 128,938 $ 130,651 $ 91,825
Shareholders' equity $ 662,430 $ 640,623 $ 634,267 $ 603,469
--per share $ 11.87 $ 11.48 $ 11.39 $ 10.88
Total debt to capitalization 28.3% 16.8% 17.1% 13.2%
Additional Data:
Capital expenditures, net of disposals $ 63,170 $ 56,780 $ 55,871 $ 37,890
Depreciation and amortization $ 47,282 $ 40,639 $ 35,230 $ 29,176
Effective tax rate* 31.5% 29.2% 33.5% 37.5%
Income from operations as a percent of net sales* 5.3% 5.1% 7.4% 6.8%
Net income as a percent of:*
Net sales 2.9% 3.1% 4.8% 4.1%
Beginning shareholders' equity 7.4% 7.0% 10.3% 10.8%
Average number of employees 17.3 16.2 14.7 13.5
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
52 ECHLIN INC. 1997 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>
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
1997
First quarter $0.22 $34 1/4 $29 3/4 $33 5/8 14.6
Second quarter 0.22 35 1/4 29 1/2 34 5/8 15.1
Third quarter 0.225 35 31 1/8 33 3/8 15.7
Fourth quarter 0.225 38 9/16 32 37 1/16 19.7
------
Total fiscal year $0.89 $38 9/16 $29 1/2 $37 1/16 19.7
================================================================================
</TABLE>
/1/ Computed using closing price and most recent 4 quarters' earnings per share,
excluding non-recurring charges.
Echlin Inc.'s Quarterly Dividends Per Share bar graph for fiscal years 1977,
1982, 1987, 1992, 1997.
[BAR GRAPH APPEARS HERE]
<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
Automotive Motion Technology England 51
Beck/Arnley Worldparts Corp. Delaware 100
Blackstone Manufacturing Co., Inc. Illinois 100
British Filters Limited England 100
BWD Automotive Corporation Delaware 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
Long Manufacturing 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 Dominicana, S.A. Dominican Republic 100
Echlin Europe Holding Limited England 100
Echlin (Southern) Holding Limited England 100
Echlin Europe Limited England 100
Grau Limited England 100
Midland-Grau S.A. Spain 100
Hobourn Automotive Limited England 100
Lipe Limited England 100
Preferred Technical Group.
CHA Limited England 100
Echlin Europe (Heavy Duty)
Holding 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
FTE Automotive 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
Frenos Lusac, S.A. de C.V. Mexico 100
Itapsa, S.A. de C.V. Mexico 100
Balatas American Brakeblok, S.A. de C.V. Mexico 100
Echlin Comercial, S.A. de C.V. Mexico 100
Inversiones Echlin, S.A. de C.V. Mexico 100
Long de Mexico, S.A. de C.V. Mexico 100
Producciones Automotrices, S.A. de C.V. Mexico 100
Echlin Mexicana, S.A. de C.V. Mexico 100
Integrated Technologies Group, Inc. Connecticut 100
Inversora Sabana, S.A. Venezuela 100
Echlin de Venezuela, C.A. Venezuela 100
Echlin de Colombia, Ltda. Colombia 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>
Iroquois Tool Systems, Inc. Pennsylvania 100
Long USA Inc. Delaware 100
Long Cooling Systems Inc. Delaware 100
Long Automotive, Inc. Texas 100
Midland Brake, Inc. Delaware 100
Moto Mirror Inc. Texas 100
Mr. Gasket, Inc. Delaware 100
Nobel Plastiques S.A. France 100
Nobel Plastiques Iberica S.A. Spain 100
Nobel Plastiques Climatisation S.A. Spain 65
Pacer Industries, Inc. Missouri 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
T. J. Filters Limited England 100
Tekonsha Engineering Company Michigan 100
Theodore Bargman Co. Michigan 100
United Brake Systems Inc. Delaware 100
WAWD-EAP Automotive Products, Inc. Delaware 100
3125025 Canada Inc. Canada 100
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED AUGUST 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENT.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> AUG-31-1997
<CASH> 22,239
<SECURITIES> 0
<RECEIVABLES> 443,063
<ALLOWANCES> 4,505
<INVENTORY> 694,638
<CURRENT-ASSETS> 1,209,569
<PP&E> 1,358,248
<DEPRECIATION> 635,717
<TOTAL-ASSETS> 2,374,203
<CURRENT-LIABILITIES> 674,023
<BONDS> 0
0
0
<COMMON> 63,374
<OTHER-SE> 850,327
<TOTAL-LIABILITY-AND-EQUITY> 2,374,203
<SALES> 3,568,572
<TOTAL-REVENUES> 3,568,572
<CGS> 2,707,081
<TOTAL-COSTS> 640,108
<OTHER-EXPENSES> 225,463
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,668
<INCOME-PRETAX> (44,748)
<INCOME-TAX> 2,158
<INCOME-CONTINUING> (46,906)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (46,906)
<EPS-PRIMARY> (.75)
<EPS-DILUTED> (.75)
</TABLE>
