SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark one)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1996
------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file no. 1-4651
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ECHLIN INC.
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(Exact name of registrant as specified in its charter)
Connecticut 06-0330448
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(State of incorporation) (I.R.S. employer
identification no.)
100 Double Beach Road
Branford, Connecticut 06405
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(Address of principal executive offices) (Zip code)
(203) 481-5751
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO
---- ----
(APPLICABLE ONLY TO CORPORATE ISSUERS)
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Title of class Outstanding at December 31, 1996
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Common stock, $1 par value 62,395,864
<PAGE>
ECHLIN INC.
<TABLE>
INDEX
<CAPTION>
PART I. FINANCIAL INFORMATION Page
- ------------------------------ ----
<S> <C>
Item 1. Financial Statements
Consolidated balance sheets--November 30, 1996
and August 31, 1996. 3
Consolidated statements of income--Three months ended
November 30, 1996 and 1995. 4
Consolidated statements of cash flows--Three months
ended November 30, 1996 and 1995. 5
Notes to consolidated financial statements--
November 30, 1996. 6
Item 2. Management's Financial Analysis 7
PART II. OTHER INFORMATION
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Item 4. Submission of Matters to a Vote of Security Holders 8
Item 6. Exhibits and Reports on Form 8-K 8
SIGNATURES 9
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</TABLE>
2
<PAGE>
PART I: FINANCIAL INFORMATION
<TABLE>
ECHLIN INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<CAPTION>
November 30, August 31,
1996 1996
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(unaudited) (A)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 19,257 $ 16,106
Accounts receivable, less-allowance for
doubtful accounts of $5,937 and $5,621 421,350 370,837
Inventories, at lower of cost (first-in,
first-out) or market:
Raw materials and component parts 180,986 167,215
Work in process 90,971 87,140
Finished goods 471,114 425,027
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Total inventories 743,071 679,382
Other current assets 58,815 42,687
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Total current assets 1,242,493 1,109,012
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Property, plant and equipment, at cost 1,238,530 1,155,495
Accumulated depreciation (554,748) (534,186)
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Property, plant and equipment, net 683,782 621,309
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Marketable securities 84,671 83,578
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Intangible Assets 357,323 226,292
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Other assets 85,552 90,563
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Total assets $2,453,821 $2,130,754
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Notes payable to banks $ 69,044 $ 21,596
Current portion of long-term debt 10,258 6,286
Accounts payable 252,805 264,532
Accrued taxes on income 37,152 33,985
Accrued liabilities 225,525 197,828
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Total current liabilities 594,784 524,227
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Long-term debt 690,585 468,013
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Deferred income taxes 128,909 129,640
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Shareholders' equity:
Preferred stock, without par value:
Authorized 1,000,000 shares, issued none - -
Common stock, $1 par value:
Authorized 150,000,000 shares,
issued 62,321,564 and 62,242,279 62,322 62,242
Capital in excess of par value 352,280 350,935
Retained earnings 682,533 658,235
Foreign currency translation adjustment (57,007) (61,953)
Net unrealized investment gains 2,410 2,410
Treasury stock, at cost, 270,264 shares (2,995) (2,995)
---------- ----------
Total shareholders' equity 1,039,543 1,008,874
---------- ----------
Total liabilities and shareholders' equity $2,453,821 $2,130,754
========== ==========
</TABLE>
See notes to consolidated financial statements.
(A) The balance sheet at August 31, 1996 has been derived from the audited
financial statements at that date.
3
<PAGE>
<TABLE>
ECHLIN INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share data)
<CAPTION>
Three Months Ended
November 30,
--------------------
1996 1995
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<S> <C> <C>
Net sales $846,045 $713,767
Cost of goods sold 630,808 520,665
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Gross profit on sales 215,237 193,102
Selling and administrative expenses 148,895 133,866
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Income from operations 66,342 59,236
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Interest expense 11,159 10,718
Interest income 3,194 2,829
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Interest expense, net 7,965 7,889
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Income before taxes 58,377 51,347
Provision for taxes 20,432 17,674
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Net income $ 37,945 $ 33,673
========= =========
Average shares outstanding 62,012 61,853
========= =========
Earnings per share $0.61 $0.54
========= =========
Dividends per share $0.22 $0.205
========= =========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
<TABLE>
ECHLIN INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<CAPTION>
Three Months Ended
November 30,
---------------------
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 37,945 $ 33,673
Adjustment to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 27,051 22,105
Gain on sale of business (7,283) --
Changes in assets and liabilities, excluding
acquisitions' balance sheets:
Accounts receivable (12,719) (32,675)
Inventories (46,228) (31,728)
Other current assets (7,964) (3,935)
Accounts payable (31,356) 5,517
Taxes on income 239 11,423
Accrued liabilities 12,364 (18,351)
Other (5,659) (267)
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Cash used for operating activities (33,610) (14,238)
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Cash flows from financing activities:
Long-term and short-term borrowings 354,897 163,390
Long-term and short-term repayments (119,345) (117,797)
Proceeds from common stock issuances 1,425 1,140
Dividends paid (13,647) (12,229)
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Cash provided by financing activities 223,330 34,504
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Cash flows from investing activities:
Capital expenditures, net of disposals (27,361) (22,436)
Sale of marketable securities 436 17,576
Net assets of businesses acquired and sold (160,928) (36,935)
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Cash used for investing activities (187,853) (41,795)
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Translation impact on cash 1,284 (1,592)
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Increase (decrease) in cash and cash
equivalents 3,151 (23,121)
Cash and cash equivalents at beginning of period 16,106 27,700
-------- --------
Cash and cash equivalents at end of period $ 19,257 $ 4,579
======== ========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
ECHLIN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. General:
- ----------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair statement have been included. Operating
results for the three-month period ended November 30, 1996 are not
necessarily indicative of the results that may be expected for the year
ending August 31, 1997. For further information, refer to the consolidated
financial statements and footnotes thereto included in the company's Annual
Report on Form 10-K for the year ended August 31, 1996.
NOTE 2. Business Combinations:
- ------------------------------
During September 1996, the company acquired Long Manufacturing, Ltd.
(Long), headquartered in Oakville, Ontario, Canada, for approximately
$158.8 million. Long manufactures and distributes motor vehicle heat
exchange products and air-conditioning evaporators to original equipment
manufacturers and aftermarket customers.
In October 1996, the company acquired Nobel Plastiques SA (Nobel), located
in France and Spain, for approximately $16 million. Nobel manufactures
fluid, hydraulic and pneumatic servo control lines.
Both acquisitions were accounted for using the purchase method of
accounting.
NOTE 3. Borrowing Arrangements:
- -------------------------------
Commercial paper, domestic notes payable and certain notes payable with
foreign banks at November 30, 1996 have been classified as long-term debt
because of the company's intent to refinance this debt on a long-term basis
and the availability of such financing under the terms of the company's
revolving credit agreement. The weighted average interest rates at
November 30, 1996 were 5.4% for commercial paper, 5.8% for domestic notes
payable and 3.3% for foreign notes payable.
NOTE 4. Sale of Business:
- -------------------------
During October 1996, the company sold certain assets of Sensor Engineering,
a division of the company that manufactures cards and readers for access
control systems, for $11.4 million. The pre-tax gain resulting from the
sale, in the amount of $7,283,000, was deducted from selling and
administrative expenses in the accompanying consolidated statement of
income. The gain on the sale added $0.07 to earnings per share for the
quarter.
6
<PAGE>
ECHLIN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 5. Subsequent Event:
- -------------------------
During December 1996, the company acquired the outstanding common
stock of Iroquois Tool Systems, Inc., a brake rotor manufacturer,
located in Erie, Pennsylvania by issuing 335,474 shares of common
stock. This acquisition will be accounted for as a pooling of
interests and as a result the financial statements for fiscal 1997
will be restated during the second quarter to include Iroquois
results.
MANAGEMENT'S FINANCIAL ANALYSIS
Results of Operations:
- ----------------------
Net sales for the first three months of fiscal 1997 increased
$132,278,000 or 18.5% as compared to the same period a year ago.
This growth was primarily due to the acquisitions of EPIC Technical
Group, formerly known as the Automotive Segment of Handy & Harman,
and Long Manufacturing Ltd.
Net sales of comparable operations, those part of Echlin for at
least twelve months, rose 4.0%. Domestic comparable operations rose
5.3% while foreign comparable operations were 1.0% above a year ago.
Domestically the sales growth was due to the introduction of new
products, price increases and a slight increase in unit volume. The
non-U.S. operations sales increase was attributable to price
increases and the introduction of new products, partially offset by
lower unit volume and the effect of translation. European heavy
duty operations began to experience weaker customer demand during
the period.
Gross profit to sales for the quarter declined 1.7% to 25.4% as
compared to the prior year. This quarter we experienced higher than
normal returned goods from U.S. warehouse distributors and retailers
which have adversely impacted margins. In addition, weak customer
demand around the world caused us to lower production levels,
resulting in unabsorbed overhead costs.
Selling and administrative expenses increased $15,029,000 or 11.2%
over the prior year. The percentage of selling and administrative
expenses to sales declined 1.2% to 17.6% from a year ago. The
dollar increase was primarily attributable to expenses generated by
acquisitions, offset in part by the pre-tax gain of $7,283,000 from
the sale of Sensor Engineering.
Net interest expense increased $76,000 over the previous year due to
higher average debt levels, which was partially offset by lower
domestic short-term borrowing rates.
7
<PAGE>
ECHLIN INC.
MANAGEMENT'S FINANCIAL ANALYSIS
Liquidity and Sources of Capital:
- ---------------------------------
During the first three months of fiscal 1997, operations used
$33,610,000 of cash vs. $14,238,000 used during the same period last
year. Higher cash outflows due to timing of liability payments were
partially offset by improved cash inflows for accounts receivable.
During the quarter the company's debt levels, excluding amounts
added by acquisitions, increased $235,552,000. These funds were
used to fund acquisitions, working capital requirements and capital
expenditures.
The ratio of total debt to total capital was 43% at November 30,
1996 as compared to 33% at August 31, 1996 and 38% at November 30,
1995.
PART II: OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
- -------------------------------------------------------------
The Annual Meeting of Shareowners was held on December 18, 1996, for
the purpose of electing eleven Directors of the company, approving
the 1996 Non-Executive Director Stock Option Plan, and approving the
designation of Price Waterhouse LLP as independent accountants for
fiscal 1997. All of the company's nominees for directors as listed
in the proxy statement were elected. The vote for each nominee was
as follows:
<TABLE>
<CAPTION>
Shares Shares
voting "For" "Withheld"
----------- --------
<S> <C> <C>
John F. Creamer, Jr. 55,391,955 920,104
Milton P. DeVane 55,107,682 1,204,377
John E. Echlin, Jr. 55,839,958 472,101
C. Scott Greer 55,772,773 539,286
John F. Gustafson 55,137,688 1,174,371
Donald C. Jensen 55,836,845 475,214
Trevor O. Jones 55,827,947 484,112
Frederick J. Mancheski 55,710,870 601,189
Phillip S. Myers 54,827,854 1,484,205
William P. Nusbaum 55,707,636 604,423
Jerome G. Rivard 55,393,571 918,488
</TABLE>
The proposal for the approval of the 1996 Non-Executive Director
Stock Option Plan was adopted. The proposal received 53,955,776
"For" votes, 2,055,729 "Against" votes and 300,554 abstentions.
The proposal for the approval of Price Waterhouse LLP as independent
accountants for fiscal 1997 was adopted. The proposal received
55,930,614 "For" votes, 44,595 "Against" votes and 336,850
abstentions.
Item 6. Exhibits and Reports on Form 8-K.
- ------------------------------------------
During the quarter ended November 30, 1996, the company did not file
any reports on Form 8-K.
8
<PAGE>
SIGNATURES
------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Echlin Inc.
Date: January 9, 1997 /s/ Kenneth T. Flynn, Jr.
---------------- --------------------------
Kenneth T. Flynn, Jr.
Assistant Corporate
Controller, Acting Chief
Accounting Officer
Date: January 9, 1997 /s/ Jon P. Leckerling
---------------- --------------------------
Jon P. Leckerling
Vice President, General
Counsel and Corporate
Secretary
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S SEC FORM 10-Q FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<S> <C>
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<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> NOV-30-1996
<CASH> 19257
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<RECEIVABLES> 427,287
<ALLOWANCES> 5937
<INVENTORY> 743071
<CURRENT-ASSETS> 1242493
<PP&E> 1238530
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<TOTAL-ASSETS> 2453821
<CURRENT-LIABILITIES> 594784
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0
0
<COMMON> 62322
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<TOTAL-LIABILITY-AND-EQUITY> 2453821
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<OTHER-EXPENSES> 0
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<EPS-PRIMARY> .61
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</TABLE>
