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Echlin Inc.
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[ECHLIN LOGO]
Larry W. McCurdy
Chairman of the Board, President
and Chief Executive Officer
April 7, 1998
Dear Shareowner:
In our ongoing effort to improve communications with you, and because
events are happening each day, we have chosen to send you copies of our most
recent news releases in lieu of a quarterly letter.
These cover the latest developments on the unsolicited takeover
proposal by SPX Corporation; the completion of the sale of our Midland-Grau
heavy-duty brake business; and, our second-quarter operating results.
The company's fiscal year-to-date performance has been very positive,
and we are working extremely hard to build shareowner value.
We will continue to keep you informed of major developments. Thank you
for your ongoing loyalty and support.
Sincerely,
/s/ Larry McCurdy
<PAGE>
[ECHLIN LOGO]
For Further Information Contact:
Paul Ryder
Vice President
Investor Relations
ECHLIN'S EARNINGS UP 11%;
RAPID REPOSITIONING OVERCOMES WEAK AFTERMARKET
BRANFORD, Conn., March 26, 1998--Echlin Inc. (NYSE:ECH), the
global motor vehicle parts manufacturer, today reported second-quarter basic
earnings of 42 cents per share, up 11% from the previous year's 38 cents per
share. It is the company's first year-over-year increase in quarterly
earnings since 1995. Echlin Chairman, President and Chief Executive Officer
Larry McCurdy announced the favorable results.
"The substantial, strategic repositioning plan which Echlin
initiated last fall continues to strengthen operations at a rapid pace,
improve the bottom line and build value for our shareholders," Mr. McCurdy
explained. "We expect momentum will accelerate as our associates accomplish
the many action plans we established six months ago. We are encouraged,
especially in light of a generally weak sales environment."
Comparable Sales Flat
Second quarter net sales totaled $835.7 million, down 1% from
last year's $842.2 million. The decline was primarily due to the loss of
revenue from five businesses the company divested as part of its
repositioning strategy. Excluding acquisitions and divestments, comparable
sales were essentially flat with the prior year. Price increases of 1.7%
and a 3.0% gain from new products, offset a unit volume decline 2.5% and
the negative impact of changes in translation rates of 2.0%.
"Our heavy-duty brake and original equipment business units
reported good sales increases," Mr. McCurdy said. "However, industry-wide
softness hurt our North American aftermarket business, while the ongoing
strength of the British pound, vis-a-vis other European currencies, reduced
demand for our products there."
Net Income Increased 14%
Net income in the second quarter amounted to $26.9 million, 14%
better than the $23.6 million Echlin reported the prior year. This year's
results included $1 million pre-tax, or 1 cent per share, of costs associated
with the unsolicited takeover proposal initiated by SPX Corporation.
Margins were down from the previous quarter because the second
quarter is historically Echlin's weakest quarter. This is due to fewer
shipping and production days, and higher returned goods from customers at
calendar year-end. However, year-over-year, Echlin's gross profit-to-sales
ratio improved a full percentage point, while its operating profit and net
profit margins gained 0.7 and 0.4 percentage points, respectively.
Cost of goods sold fell 2% vs. last year, while selling,
general and administrative expenses rose 1%. The increase in expenses was
largely the result of higher research and development activities related
primarily to new products for our Echlin Automotive group, which manufactures
and sells fluid handling systems to vehicle manufacturers.
Repositioning Actions Ahead of Plan
Echlin's strategic repositioning plan called for the divestment
of underperforming and non-core businesses. This year, to date, the company
has sold three businesses representing combined annual sales of $150 million.
Echlin also announced last month the signing of an agreement to sell its
Midland-Grau heavy-duty brake business to the Haldex Group of Sweden. The
sale of Midland-Grau, with annual sales of $330 million, should be
completed next month.
Another important part of the company's repositioning plan is
the rationalization of 14 facilities, and a related workforce reduction of
1,200 employees. So far, four rationalizations are complete, eight are in
progress, and planning is underway on the remaining two. More than one-third
of the employment level adjustments have been achieved.
The financial impact of all repositioning actions has been
favorable. Earnings included 7 cents per share from these actions during the
second quarter, and 15 cents per share during the first half of fiscal 1998.
Latest Acquisition Being Assimilated
In January, Echlin announced it completed the purchase of
General Automotive Speciality Company (GAS), a $50 million (sales)
manufacturer of a broad line of motor vehicle switches and locks. The company
is quickly folding GAS's operations into its North American Engine Systems
Group, closing one facility and moving distribution to other operations.
Echlin has identified many near-term synergies which should result from
combining the resources of the two businesses.
Fast Progress Made On EVA[Registered] Implementation
Echlin's EVA (economic value added) steering committee has
established three teams to oversee associate training and communication; to
establish an EVA-based incentive compensation program; and to incorporate EVA
into financial planning. Since adopting the EVA approach last October, the
company has trained all key managers throughout its organization. In total,
460 managers and staff will be trained by July, and roll-out is on target for
full implementation by September 1, 1998. In fact, Echlin managers are
already using EVA methods in capital spending and acquisition analyses.
Joel Stern, a partner of Stern Stewart & Company and co-founder
of the EVA concept, recently commented, "Echlin is making significant progress
with EVA -- implementation is among the fastest we've seen for a company of
their size and complexity."
Cash Flow Improved
There were no significant changes in Echlin's balance sheet
items since the end of the first quarter. Inventories increased $25 million
due in large part to the GAS acquisition, plus some normal seasonal buildup.
More than half of the $40 million increase in total debt was also attributable
to the GAS acquisition.
For the first six months of fiscal 1998, cash flow from
operations increased $74 million compared to the first half last year.
156th Consecutive Dividend Declared
Echlin's board of directors has declared a cash dividend of
22.5 cents per share, payable April 18, 1998 to shareholders of record on
April 8, 1998. This represents the 156th consecutive quarterly dividend
Echlin has paid since 1959 when it became a publicly traded company. After
taking into effect six stock splits and 32 payout increases, the company's
dividend has grown at an average compounded rate of 12% annually over the last
39 years.
Echlin's Future is Bright
"We continually seek ways to increase sales through greater
global penetration, new products and acquisitions. Of equal importance, we are
aggressively reducing costs to improve profits and maximize shareholder return,"
Mr. McCurdy stated. "Any recovery in our aftermarket business should fall
quickly to our bottom line."
"In addition to the value-building benefits of our
repositioning actions, we're working on a 'shared services' approach to
eliminate unnecessary administrative expenses. We're converting to BaaN
software to integrate our operating systems. And, we've achieved positive
results from our previously announced, worldwide sourcing initiative for
materials and services," Mr. McCurdy continued.
"With all these efforts, and extraordinary employee dedication,
there is no doubt in my mind that the company's future is bright," Mr. McCurdy
emphasized.
Caution Given on Forward-Looking Statements
Certain statements included in this news release are
"forward-looking" within the meaning of the Private Securities Litigation
Reform Act of 1995 (the "Act"), and are made in good faith by Echlin pursuant
to the Act's "safe harbor" provisions. To the extent that such statements
are deemed issued in connection with a tender or exchange offer, it should
be noted that the safe harbor provisions of the Act do not apply to tender
or exchange offers. Such forward-looking statements are not guarantees of
future performance, and may involve known and unknown risks, uncertainties
and other factors that could cause actual results to differ materially from
those expressed or implied. Risks and uncertainties include, without
limitation, global and regional economic conditions, business conditions in
the overall automotive industry, and the cost and timing of the company's
repositioning-plan implementation. They also include other factors
discussed herein and those detailed from time to time in the company's
filings with the Securities and Exchange Commission.
Comparative Results
The following are results for the second quarter and first half
of fiscal year 1998 and 1997:
Three Months Ended February 28,
-------------------------------
1998 1997
---------- ----------
Net Sales $835,712,000 $842,219,000
Net Income $26,943,000 $23,601,000
Average shares outstanding:
Basic 63,244,000 62,409,000
Diluted 63,803,000 63,209,000
Earnings per share:
Basic $0.42 $0.38
Diluted $0.42 $0.37
Six Months Ended February 28,
-------------------------------
1998 1997
---------- ----------
Net Sales $1,725,185,000 $1,693,127,000
Net Income $59,510,000 $61,718,000(1)
Average shares outstanding:
Basic 63,194,000 62,377,000
Diluted 63,670,000 63,225,000
Earnings per share:
Basic $0.94 $0.99
Diluted $0.93 $0.98
- ------------
(1) Includes a gain from the sale of Sensor Engineering of
$4,563,000, or $0.07 per share.
<PAGE>
[ECHLIN LOGO]
For Further Information Contact:
Paul Ryder
Vice President
Investor Relations
ECHLIN UNVEILS AGGRESSIVE BUSINESS PLAN
-- McCurdy Tells Investors That Success in Repositioning Programs
Could Result in EPS of About $2.40-$2.50 in 1998, $3.65-$3.80 in 1999
and $4.40-$4.55 in 2000 --
NEW YORK, New York, March 31, 1998--At a presentation to
financial analysts and investors held here today, Larry McCurdy, chairman,
president and chief executive officer of Echlin Inc. (NYSE: ECH), discussed
the bright outlook for the company. He explained how, under the present
repositioning program being implemented at Echlin, the momentum the company
experienced thus far in fiscal 1998 will continue. As a result, Echlin
projects it will generate earnings that are considerably higher than analysts'
current expectations.
Earnings Projections Raised
Mr. McCurdy pointed out that the First Call consensus earnings
estimate for Echlin's fiscal year 1998, ending August 31, now stands at $2.28
per share, whereas Echlin expects to achieve approximately $2.40 to $2.50 per
share. This represents a 28 to 33% gain over the $1.88 per share, before
special charges, earned in fiscal 1997. Mr. McCurdy also projected that the
company's upside improvement would continue beyond 1998, with earnings for
fiscal 1999 in the range of $3.65 to $3.80 per share, and for fiscal 2000,
$4.40 to $4.55 per share.
Mr. McCurdy attributed Echlin's stepped-up earnings outlook to
the rapid and successful implementation of Phase 1 of its repositioning
program, and to new initiatives which he outlined for Phase 2. Phase 1
consists of a reorganized and simplified corporate structure; adoption of
economic value added (EVA) principles; an extensive cost-reduction program;
divestiture of underperforming and non-core assets; and acquisitions of
complementary businesses. Phase 2 will include a worldwide sourcing
initiative; massive realignment of the company's North American distribution
operations; operational optimization through a shared services approach and
new system software; and strategic acquisitions which are not included in the
earnings projections. Together, these significant moves are expected to
provide not only top-line growth, but just as importantly, a more efficient
and streamlined organization.
"One year ago, Echlin's board of directors installed a new
management team to bring change to this company, and positive change-- together
with value creation--is now being successfully realized in a rapid and
effective fashion," Mr. McCurdy said. "The board believes that the current
program is building both short-term and long-term value for shareholders."
SPX Proposal Being Evaluated
Mr. McCurdy stated that Echlin's board continues to evaluate
the SPX Corporation proposal, even though SPX has not yet commenced a formal
offer. Nevertheless, McCurdy pointed out that the board is extremely
concerned about the lack of business logic of an Echlin-SPX combination, and
about the effects of such combination on Echlin shareholders, customers,
employees, suppliers and the communities in which it operates.
"It appears that there are very few synergies between Echlin's
operations and SPX's, and that the resultant cost savings of a combination
would be considerably less than those SPX currently estimates. Moreover, SPX
does not appear to understand Echlin's business, and a combination of our two
companies, along the lines SPX spelled out in its new distribution concept,
would be extremely destructive to our long-term relationships with customers.
There is solid historical precedent that demonstrates a sizable loss of
business occurs when an industry player naively attempts to reinvent the
established channels of distribution. Already, we have had many of our major
aftermarket customers voice overwhelmingly negative reactions, and warn us
that a combination with SPX would severely risk ongoing business with them.
This would result in a considerable loss of value for Echlin shareholders.
"Make no mistake--our independent board is committed to doing
what is best for Echlin shareholders and its other constituents. Unlike the
proposed SPX- controlled board, ours is not a self-interested board whose only
job, we believe, is to rubber-stamp a pre-ordained agenda," Mr. McCurdy
concluded.
Caution Given on Forward-Looking Statements
Certain statements included in this news release are
"forward-looking" within the meaning of the Private Securities Litigation
Reform Act of 1995 (the "Act"), and are made in good faith by Echlin
pursuant to the Act's "safe harbor" provisions. To the extent that such
statements are deemed issued in connection with a tender or exchange offer,
it should be noted that the safe harbor provisions of the Act do not apply
to tender or exchange offers. Such forward-looking statements are not
guarantees of future performance, and may involve known and unknown risks,
uncertainties and other factors that could cause actual results to differ
materially from those expressed or implied. Risks and uncertainties
include, without limitation, global and regional economic conditions,
business conditions in the overall automotive industry, and the cost and
timing of the company's repositioning-plan implementation. They also
include other factors discussed herein and those detailed from time to time
in the company's filings with the Securities and Exchange Commission.
<PAGE>
[ECHLIN LOGO]
For Further Information Contact:
Paul Ryder
Vice President
Investor Relations
ECHLIN COMPLETES SALE OF ITS HEAVY-DUTY BRAKE BUSINESS
-- McCurdy "Pleased with the Progress We are Making" on Echlin's
Repositioning Program --
BRANFORD, Conn., April 3, 1998 -- Echlin Inc. (NYSE: ECH) announced
today that it has completed the sale of its Midland-Grau heavy-duty brake
operations to The Haldex Group of Sweden.
Echlin Chairman, President and CEO Larry McCurdy said, "This
transaction completes the divestiture of the underperforming and non-core
businesses we had identified as part of our repositioning effort. We are
extremely pleased with the progress we are making with our program and with the
results we have realized to date, both organizationally and financially. We are
excited about the new efforts we are now initiating, such as global sourcing and
the reorganization of our distribution facilities, and are continuing with those
efforts already underway, such as establishing the use of EVA principles
throughout Echlin, rationalizing plants and cutting costs."
Annual sales for Midland-Grau are approximately $330 million. Echlin
will use proceeds from the sale to reduce outstanding debt.
The Haldex Group is a global producer of proprietary products for
trucks, cars and industrial vehicles, with special emphasis on performance and
safety items. The Group, listed on the Stockholm Exchange, has annual sales of
$310 million and 1,900 employees.
Echlin, with annual sales of $3.6 billion, manufactures a wide scope of
safety-and efficiency-related products for the world's 650 million vehicles. It
employs 30,000 associates in over 150 operations spread across six continents.
<PAGE>
[ECHLIN LOGO]
For Further Information Contact:
Paul Ryder
Vice President
Investor Relations
ECHLIN ANNOUNCES THAT SPX FAILED TO DELIVER VALID DEMANDS NECESSARY TO CALL A
SPECIAL MEETING; INITIATES SUIT AGAINST SPX FOR MAKING MISLEADING STATEMENTS
BRANFORD, CONN., April 6, 1998 -- Echlin Inc. (NYSE:ECH), global
motor vehicle parts manufacturer, today announced that, contrary to SPX
Corporation's announcement on March 24, 1998, SPX has not delivered sufficient
valid demands to Echlin to require Echlin to call a special meeting of Echlin
shareholders.
Echlin's Secretary and General Counsel, Jon Leckerling, stated,
"Echlin retained an independent public accounting firm, Coopers & Lybrand, to
conduct the count of demands delivered by SPX. Based on the count provided by
Coopers & Lybrand, Echlin has determined that, on March 25, 1998, SPX
delivered valid, unrevoked demands to call a special meeting of shareholders
of Echlin amounting to approximately 2% of the total outstanding shares."
Echlin is taking appropriate legal actions in connection with
the actions of SPX and the statements made by SPX in claiming to deliver valid
demands which were deficient. Mr. Leckerling stated, "Echlin is filing today
a complaint in the Connecticut federal district court against SPX alleging
violations of federal securities laws by SPX in connection with SPX's actions
and its false statements."
A letter sent by Mr. Leckerling to John Blystone, Chairman,
President and Chief Executive Officer of SPX, follows.
"Dear Mr. Blystone:
We received from you on March 25, 1998, demands for a
special meeting of Echlin shareholders, which purported to represent in
excess of 35% of the outstanding shares of Echlin. SPX made a public
announcement that Echlin will be required to call a special meeting of its
shareholders due to the delivery of such demands, and repeated that claim
on numerous occasions. As Secretary of Echlin, I have retained the
independent public accounting firm of Coopers & Lybrand to conduct the
count of the demands and revocations Echlin received. Based on the work of
Coopers & Lybrand, I have determined that shareholders representing only
1,189,040 shares (or 1.9% of the total outstanding stock) delivered valid
demands on March 25, 1998. Of course, this means that Echlin is not
required to call a special meeting of shareholders under Connecticut law
and, absent such requirement, Echlin does not intend to call such a special
meeting.
The vast majority of demands delivered by you were deficient in
several respects. First, although you selected February 17, 1998 as the
record date by signing and delivering your demand on that date, a large number
of the demands delivered by you were solicited using a different record date.
Therefore, those demands are invalid. Second, a large number of the demands
delivered by you cannot be traced by this corporation to the registered holder
of Echlin's stock. Specifically, you have delivered demands from persons and
institutions who do not have a necessary proxy from a registered holder of
this corporation's stock and, therefore, such demands come from persons and
institutions who are not authorized to vote on the affairs of this
corporation. Again, those demands are invalid.
Echlin believes that your misuse of the proxy solicitation
process and your false and misleading announcement that SPX obtained
sufficient valid demands to call for a special shareholder meeting irreparably
tainted the solicitation process, misled our shareholders and created
uncertainty in the marketplace. Moreover, you and your management team have
put Echlin and its shareholders through considerable, unnecessary expense and
disturbance when you knew or should have known that the entire process you
initiated was fatally flawed. Accordingly, Echlin has today filed an action
in the Connecticut federal court with the objective, inter alia, of ensuring
future compliance by SPX with the requirements of the federal securities laws."
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