<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark one)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 1998
------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------- -------------
Commission file no. 1-4651
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ECHLIN INC.
- ---------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Connecticut 06-0330448
- ------------------------------------------- ----------------------
(State of incorporation) (I.R.S. employer
identification no.)
100 Double Beach Road
Branford, Connecticut 06405
- ------------------------------------------- ----------------------
(Address of principal executive offices) (Zip code)
(203) 481-5751
---------------------------------------
(Registrant's telephone number, including area code)
- ---------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO
---- ----
(APPLICABLE ONLY TO CORPORATE ISSUERS)
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Title of class Outstanding at March 31, 1998
- -------------------------- -----------------------------
Common stock, $1 par value 63,594,700
<PAGE> ECHLIN INC.
<TABLE> INDEX
<CAPTION>
PART I. FINANCIAL INFORMATION Page
- ------------------------------ ----
<S> <C>
Item 1. Financial Statements
Consolidated balance sheets at February 28, 1998
and August 31, 1997. 3
Consolidated statements of income for the three
months ended February 28, 1998 and 1997; for the
six months ended February 28, 1998 and 1997. 4
Consolidated statements of cash flows for the
six months ended February 28, 1998 and 1997. 5
Notes to consolidated financial statements at
February 28, 1998. 6-8
Item 2. Management's Financial Analysis 9-11
PART II. OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
</TABLE>
2
<PAGE>
PART I: FINANCIAL INFORMATION
[CAPTION]
ECHLIN INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<S> <C> <C>
February 28, August 31,
1998 1997
----------- ----------
(unaudited) (A)
ASSETS
Current assets:
Cash and cash equivalents $ 4,633 $ 22,239
Accounts receivable, less-allowance for
doubtful accounts of $4,943 and $4,505 443,236 438,558
Inventories, at lower of cost (first-in,
first-out) or market:
Raw materials and component parts 198,482 179,599
Work in process 100,832 92,389
Finished goods 410,943 422,650
---------- ----------
Total inventories 710,257 694,638
Other current assets 48,916 54,134
---------- ----------
Total current assets 1,207,042 1,209,569
---------- ----------
Property, plant and equipment, at cost 1,390,419 1,358,248
Accumulated depreciation (660,264) (635,717)
---------- ----------
Property, plant and equipment, net 730,155 722,531
---------- ----------
Marketable securities 80,343 82,418
---------- ----------
Intangible assets, net 318,602 323,060
---------- ----------
Other assets 45,741 36,625
---------- ----------
Total assets $2,381,883 $2,374,203
========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Notes payable to banks $ 55,295 $ 42,746
Current portion of long-term debt 4,264 4,693
Accounts payable 244,418 296,123
Accrued taxes on income 37,868 13,097
Accrued liabilities 275,444 317,364
---------- ----------
Total current liabilities 617,289 674,023
---------- ----------
Long-term debt 742,247 710,422
---------- ----------
Deferred income taxes 76,823 76,057
---------- ----------
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 63,741,822 and 63,373,683 63,742 63,374
Capital in excess of par value 381,219 372,197
Retained earnings 588,244 557,153
Foreign currency translation adjustments (91,383) (82,725)
Net unrealized investment gains 6,697 6,697
Treasury stock, at cost, 270,264 shares (2,995) (2,995)
---------- ----------
Total shareholders' equity 945,524 913,701
---------- ----------
Total liabilities and shareholders' equity $2,381,883 $2,374,203
========== ==========
</TABLE>
See notes to consolidated financial statements.
(A) The consolidated balance sheet at August 31, 1997 has been derived from
the audited financial statements at that date.
3
<PAGE>
<TABLE>
ECHLIN INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share data)
<CAPTION>
Three Months Ended Six Months Ended
February 28, February 28,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
------- -------- -------- --------
Net sales $835,712 $842,219 $1,725,185 $1,693,127
Cost of goods sold 632,192 645,375 1,303,257 1,280,394
-------- -------- ---------- ----------
Gross profit on sales 203,520 196,844 421,928 412,733
Selling and administrative
expenses 153,250 151,858 312,495 301,062
-------- -------- ---------- ----------
Income from operations 50,270 44,986 109,433 111,671
-------- -------- ---------- ----------
Interest expense 13,128 11,806 25,980 23,015
Interest income 3,667 3,097 6,713 6,294
-------- -------- ---------- ----------
Interest expense, net 9,461 8,709 19,267 16,721
-------- -------- ---------- ----------
Income before taxes 40,809 36,277 90,166 94,950
Provision for taxes 13,866 12,676 30,656 33,232
-------- -------- ---------- ----------
Net income $ 26,943 $ 23,601 $ 59,510 $ 61,718
======== ======== ========== ==========
Earnings per share:
Basic $0.42 $0.38 $0.94 $0.99
Diluted $0.42 $0.37 $0.93 $0.98
Dividends per share $0.225 $0.22 $0.45 $0.44
Average shares outstanding:
Basic 63,244 62,409 63,194 62,377
Diluted 63,803 63,209 63,670 63,225
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
<TABLE>
ECHLIN INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<CAPTION>
Six Months Ended
February 28
----------------------
1998 1997
<S> <C> <C>
---- ----
Cash flows from operating activities:
Net income $ 59,510 $ 61,718
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 58,206 56,363
Gain on sale of business - (7,360)
Changes in assets and liabilities, excluding
acquisitions and divestitures:
Accounts receivable (14,350) (18,097)
Inventories (47,559) (49,734)
Other current assets 7,932 (12,241)
Accounts payable (47,112) (43,038)
Taxes on income 26,095 (15,350)
Accrued liabilities (24,652) (33,235)
Other (3,178) 2,170
-------- --------
Cash provided by (used for)
operating activities 14,892 (58,804)
-------- --------
Cash flows from financing activities:
Long-term and short-term borrowings 215,395 692,683
Long-term and short-term repayments (173,848) (377,842)
Proceeds from common stock issuances 9,390 2,094
Dividends paid (28,419) (27,380)
-------- --------
Cash provided by financing activities 22,518 289,555
-------- --------
Cash flows from investing activities:
Capital expenditures, net (66,358) (68,945)
Sales of marketable securities 2,075 2,142
Net assets of businesses acquired and sold 9,951 (177,425)
-------- --------
Cash used for investing activities (54,332) (244,228)
-------- --------
Impact of foreign currency changes on cash (684) 1,179
-------- --------
Decrease in cash and cash equivalents (17,606) (12,298)
Cash and cash equivalents at beginning
of period 22,239 16,106
-------- --------
Cash and cash equivalents at end of period $ 4,633 $ 3,808
======== ========
</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 of Echlin
Inc. (Echlin or the company) have been prepared in accordance with
generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered
necessary for a fair statement have been included. Operating results
for the six-month period ended February 28, 1998 are not necessarily
indicative of the results that may be expected for the year ending
August 31, 1998. 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, 1997.
NOTE 2. Borrowing Arrangements:
- -------------------------------
Commercial paper, domestic notes payable and certain notes payable with
foreign banks at February 28, 1998 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 were 5.75% and 5.39% for commercial paper, 5.66% and 5.44% for
notes payable and 4.00% and 3.54% for foreign notes payable at February
28, 1998 and 1997, respectively.
NOTE 3. Sales of Businesses:
- ----------------------------
During fiscal 1998, the company sold the assets of Echlin Australia Pty.
Ltd., an automotive parts distributor; Ace Electric, a producer of
starting and charging parts for engine systems; and WAWD-EAP, an
automotive parts distributor. Total consideration of $42,632,000
includes cash received and amounts to be received in the future. The
net assets of each company sold had been written down to net realizable
value as part of the repositioning and other special charges recorded in
the fourth quarter of fiscal 1997, therefore, there was no impact on
results of operations for the first six months of fiscal 1998. The
company used the proceeds from these sales to pay down existing bank
debt.
During February 1998, the company signed a definitive agreement to sell
its Midland-Grau heavy duty brake operations to The Haldex Group of
Sweden. The transaction was completed on April 3, 1998. The sales
price, which is subject to completion of the closing date balance sheet,
was approximately $150,000,000. Any gain from this transaction will be
included in the results of operations for the third quarter. The
company will use the proceeds from the sale to pay down existing bank
debt.
6
<PAGE>
ECHLIN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (cont.'d)
NOTE 4. Business Combinations:
- -------------------------------
During January 1998, the company acquired General Automotive Specialty
Company, Inc. (GAS), a manufacturer of motor vehicle switches and locks,
headquartered in North Brunswick, New Jersey, for approximately
$22,700,000. The acquisition was accounted for using the purchase
method of accounting.
NOTE 5. Earnings Per Share:
- ----------------------------
During the quarter ended February 28, 1998, the company adopted the
provisions of Statement of Financial Accounting Standards (SFAS) No. 128
"Earnings Per Share", which requires a dual presentation of basic and
diluted earnings per share. All prior period earnings per share data
have been restated to conform with SFAS No. 128. The computation of
basic and diluted earnings per share is presented below (in thousands,
except per share data):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
February 28, February 28,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
----- ----- ----- -----
Net income $26,943 $23,601 $59,510 $61,718
======= ======= ======= =======
Weighted average shares
outstanding-basic 63,244 62,409 63,194 62,377
Net effect of potential
common stock 559 800 476 848
------ ------ ------ ------
Weighted average shares
outstanding-diluted 63,803 63,209 63,670 63,225
====== ====== ====== ======
Earnings per share-basic $0.42 $0.38 $0.94 $0.99
===== ===== ===== =====
Earnings per share-diluted $0.42 $0.37 $0.93 $0.98
===== ===== ===== =====
</TABLE>
7
<PAGE>
ECHLIN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (cont.'d)
Note 6. Repositioning and Other Special Charges:
- -------------------------------------------------
During the fourth quarter of fiscal 1997, the company recorded a pre-tax
repositioning and other special charge of $254,115,000. The charge
included expenses related to facility realignments and rationalizations
and the write down to net realizable value of businesses to be disposed.
In addition, property plant and equipment, inventory, and various
tangible and intangible assets related to discontinued or rationalized
product lines were written down or written off. The impact on cash flow
for the first six months of 1998, including employee severance payments
of $3,614,000, was $5,690,000. The repositioning actions have improved
profitability in the second quarter and six months of fiscal 1998 by
$0.07 per share and $0.15 per share, respectively. At February 28,
1998, $54,900,000, including approximately $8,000,000 for severance
payments, remained to cover action plans which had not yet been
completed. Management anticipates the remaining actions to be
substantially completed by the end of fiscal 1998.
NOTE 7. Other:
- ---------------
On February 17, 1998, SPX Corporation (SPX), located in Muskegon,
Michigan announced its intent to commence an unsolicited offer to
acquire all of the outstanding shares of the company. The proposed
offer of $48.00 a share consists of $12.00 in cash and 0.4796 SPX shares
per Echlin share. Echlin's Board of Directors will evaluate any offer
SPX may commence in due course,consistent with its fiduciary and
statutory obligations. SPX is also attempting to call a special meeting
of the company's shareholders in connection therewith. Included in
selling and administrative expenses for the second quarter are
$1,000,000 of costs related to SPX's actions.
8
<PAGE>
ECHLIN INC.
MANAGEMENT'S FINANCIAL ANALYSIS
Results of Operations:
- ----------------------
Three Months Ended February 28, 1998 Compared to Three Months Ended
- -------------------------------------------------------------------
February 28, 1997
- -----------------
Net sales for the quarter ended February 28, 1998 decreased $6,507,000,
or 0.8%, compared to the corresponding period last year. The decline
was primarily due to the impact of divested businesses.
Net sales of comparable operations rose 0.2%, as price changes and new
product introductions increased net sales by 1.7% and 3.0%,
respectively, while unit volume and the impact of foreign currency
translation decreased net sales 2.5% and 2.0%, respectively. Comparable
domestic operations sales increased 1.2%, reflecting price increases and
new product introductions of 1.3% and 3.5%, respectively, partially
offset by a 3.6% decline in unit volume. The decline in unit volume was
attributed to softness in aftermarket demand for engine systems and
brake components offset by improvements in our fluid systems and heavy-
duty businesses. Net sales of our foreign comparable operations
declined 1.4%, as increased prices and the introduction of new products
added 2.3% and 2.1%, respectively, while unit volume declined 0.4%. In
addition, translation of foreign currencies reduced net sales 5.4%,
largely due to the weaker German mark in relation to the U.S. dollar.
Foreign unit volume slipped as increases in our heat exchange and brake
component businesses were offset by lower demand for automotive
aftermarket products in Europe.
The gross profit to sales percentage for the quarter increased from
23.4% last year to 24.4% this year. The gross profit percentage in the
current quarter, generally the company's weakest, was 0.6% higher than
in the fourth quarter of fiscal 1997 and flat with the current year's
first quarter. This improvement is attributed to the mix of products
sold, to the company's repositioning actions and to its ongoing programs
to reduce costs and increase efficiencies. Acquisitions and
divestitures did not have a material impact on reported gross profit
percentages for the quarter.
Selling and administrative expenses increased $1,392,000 compared to the
second quarter of last year. This increase included $1,000,000
associated with the unsolicited takeover proposed by SPX Corporation.
Excluding these costs, selling and administrative expenses increased
0.2% to 18.2% of net sales. Research and development costs increased
due to development of new products for our original equipment
businesses. The remaining selling and administrative expenses declined
due to our efforts to reduce operating costs. Acquisitions and
divestitures had a minimal impact on the changes in operating expenses
for the quarter.
9
<PAGE>
ECHLIN INC.
MANAGEMENT'S FINANCIAL ANALYSIS (cont.'d)
Results of Operations (cont'd):
- -------------------------------
Net interest expense increased $752,000 from last year primarily due to
higher interest rates and to changes in average debt levels.
The effect of repositioning actions improved profitability in the second
quarter by $0.07 per share, which approximates the savings expected by
management.
Six Months Ended February 28, 1998 Compared to Six Months Ended
- ---------------------------------------------------------------
February 28, 1997.
- ------------------
Net sales for the six-month period ended February 28, 1998 increased
$32,058,000, or 1.9%, compared to the same period last year, primarily
due to increases in comparable operations.
Net sales of comparable operations increased 1.2%. Price increases and
new product introductions added 1.6% and 2.5%, respectively, while unit
volume declined 1.3% and translation of foreign currencies reduced sales
1.6%. Comparable domestic operations increased 2.1% as price increases
and the introduction of new products increased net sales 1.1% and 2.9%,
respectively, partially offset by a 1.9% decline in unit volume.
Foreign comparable operations declined 0.5% as price increases and new
product introductions added 2.4% and 1.8%, respectively, while unit
volume declined 0.2%. The impact of currency translation reduced sales
4.5% in the period, also due to the weaker German mark in relation to
the U.S. dollar. The year-to-date fluctuations in unit volume are
attributed to the same reasons discussed in relation to the second
quarter of fiscal 1998 compared to fiscal 1997.
The gross profit to net sales percentage increased 0.1% to 24.5%
compared to the same period last year. This improvement is attributed
to the same reasons noted in the discussion of the second quarter fiscal
1998 compared to fiscal 1997.
Selling and administrative expenses increased $11,433,000, or 0.3% to
18.1% of net sales compared to the same period of last year. This
increase is largely due to the effect of recording a pre-tax gain of
$7,360,000 from the sale of Sensor Engineering in the first quarter of
fiscal 1997. It is also attributed to the $1,000,000 related to the
takeover attempt by SPX Corporation previously discussed. Excluding
these items, selling and administrative expenses decreased 0.1% as a
percent of net sales compared to last year. Year to date, research and
development costs increased while other selling and administrative
expenses declined. Acquisitions, net of divestitures, did not have a
material effect on the change in selling and administrative expenses as
a percentage of net sales.
10
<PAGE>
ECHLIN INC.
MANAGEMENT'S FINANCIAL ANALYSIS (cont.'d)
Results of Operations (cont'd):
- -------------------------------
Net interest expense increased $2,546,000 from last year for the same
reasons previously discussed.
The effect of repositioning actions improved profitability $0.15 per
share during the first six months of fiscal 1998, which approximates the
savings expected by management.
Liquidity and Sources of Capital:
- ---------------------------------
During the first six months of fiscal 1998, operations generated cash of
$14,892,000, versus last year when they used $58,804,000. Working
capital requirements used $102,824,000 of cash versus $169,525,000 last
year. This improvement was primarily attributed to the timing of
payments for income taxes and lower disbursements for prepaid expenses
and other current assets.
The ratio of total debt to total capital was 46% and 45% at February 28,
1998 and August 31, 1997, respectively. Debt levels increased as funds
required for capital expenditures and the acquisition of General
Automotive Specialty Company exceeded funds provided by operations and
the divestiture of three companies.
Other - Year 2000:
- ------------------
The company is currently engaged in an assessment of its technology
systems to determine the impact of the year 2000. This includes not
only an evaluation of computer hardware, software, communication and
manufacturing systems within the company, but also issues impacting our
suppliers. Based upon work completed to date, the company expects that
costs incurred to remediate year 2000 problems will not have a material
impact on its future financial results.
11
<PAGE>
ECHLIN INC.
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
- ------------------------------------------
During the quarter ended February 28, 1998, the company did not file any
Reports on Form 8-K.
12
<PAGE>
SIGNATURES
------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Echlin Inc.
Date: April 9, 1998 /s/Joseph A. Onorato
-------------- --------------------------
Joseph A. Onorato
Senior Vice President and
Chief Financial Officer
Date: April 9, 1998 /s/Jon P. Leckerling
-------------- --------------------------
Jon P. Leckerling
Senior Vice President,
General Counsel and Corporate
Secretary
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's SEC Form 10-Q for the quarterly period ended February 28, 1998 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> FEB-28-1998
<CASH> 4633
<SECURITIES> 0
<RECEIVABLES> 448179
<ALLOWANCES> 4943
<INVENTORY> 710257
<CURRENT-ASSETS> 1207042
<PP&E> 1390419
<DEPRECIATION> 660264
<TOTAL-ASSETS> 2381883
<CURRENT-LIABILITIES> 617289
<BONDS> 742247
0
0
<COMMON> 63742
<OTHER-SE> 881782
<TOTAL-LIABILITY-AND-EQUITY> 2381883
<SALES> 1725185
<TOTAL-REVENUES> 1725185
<CGS> 1303257
<TOTAL-COSTS> 311401
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1094
<INTEREST-EXPENSE> 19267
<INCOME-PRETAX> 90166
<INCOME-TAX> 30656
<INCOME-CONTINUING> 59510
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 59510
<EPS-PRIMARY> .94
<EPS-DILUTED> .93
</TABLE>
