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, 1997
------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file no. 1-4651
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ECHLIN INC.
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(Exact name of registrant as specified in its charter)
Connecticut 06-0330448
- ------------------------------------------- ----------------------
(State of incorporation) (I.R.S. employer
identification no.)
100 Double Beach Road
Branford, Connecticut 06405
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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, 1997
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Common stock, $1 par value 63,169,129
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ECHLIN INC.
<TABLE>
INDEX
<S> <S>
PART I. FINANCIAL INFORMATION Page
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Item 1. Financial Statements
Consolidated balance sheets--November 30, 1997
and August 31, 1997. 3
Consolidated statements of income--Three months ended
November 30, 1997 and 1996. 4
Consolidated statements of cash flows--Three months
ended November 30, 1997 and 1996. 5
Notes to consolidated financial statements--
November 30, 1997. 6-7
Item 2. Management's Financial Analysis 8-9
PART II. OTHER INFORMATION
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Item 4. Submission of Matters to a Vote of Security Holders 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
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</TABLE>
2
<PAGE>
PART I: FINANCIAL INFORMATION
<TABLE>
ECHLIN INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<CAPTION>
November 30, August 31,
1997 1997
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(unaudited) (A)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 21,497 $ 22,239
Accounts receivable, less allowance for
doubtful accounts of $4,328 and $4,505 439,076 438,558
Inventories, at lower of cost (first-in,
first-out) or market:
Raw materials and component parts 189,403 179,599
Work in process 94,291 92,389
Finished goods 401,602 422,650
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Total inventories 685,296 694,638
Other current assets 52,628 54,134
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Total current assets 1,198,497 1,209,569
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Property, plant and equipment, at cost 1,377,400 1,358,248
Accumulated depreciation (651,430) (635,717)
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Property, plant and equipment, net 725,970 722,531
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Marketable securities 81,275 82,418
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Intangible assets 318,122 323,060
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Other assets 41,616 36,625
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Total assets $2,365,480 $2,374,203
========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Notes payable to banks $ 54,242 $ 42,746
Current portion of long-term debt 4,462 4,693
Accounts payable 260,485 296,123
Accrued taxes on income 35,434 13,097
Accrued liabilities 294,077 317,364
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Total current liabilities 648,700 674,023
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Long-term debt 702,740 710,422
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Deferred income taxes 77,035 76,057
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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 63,421,043 and 63,373,683 63,421 63,374
Capital in excess of par value 373,034 372,197
Retained earnings 575,515 557,153
Foreign currency translation adjustments (78,667) (82,725)
Net unrealized investment gains 6,697 6,697
Treasury stock, at cost, 270,264 shares (2,995) (2,995)
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Total shareholders' equity 937,005 913,701
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Total liabilities and shareholders' equity $2,365,480 $2,374,203
========== ==========
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.
</TABLE>
3
<PAGE>
<TABLE>
ECHLIN INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share data)
<CAPTION>
Three Months Ended
November 30,
1997 1996
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<S> <C> <C>
Net sales $889,473 $850,908
Cost of goods sold 671,065 635,019
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Gross profit on sales 218,408 215,889
Selling and administrative expenses 159,245 149,204
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Income from operations 59,163 66,685
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Interest expense 12,852 11,209
Interest income 3,046 3,197
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Interest expense, net 9,806 8,012
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Income before taxes 49,357 58,673
Provision for taxes 16,790 20,556
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Net income $ 32,567 $ 38,117
========= =========
Average shares outstanding 63,132 62,347
========= =========
Earnings per share $0.52 $0.61
========= =========
Cash dividends per share $0.225 $0.22
========= =========
See notes to consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
ECHLIN INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<CAPTION>
Three Months Ended
November 30,
1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 32,567 $ 38,117
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 29,722 27,195
Gain on sale of business - (7,283)
Changes in assets and liabilities, excluding
acquisitions' and divestitures' balance sheets:
Accounts receivable (11,389) (12,709)
Inventories (32,760) (46,241)
Other current assets 1,610 (7,904)
Accounts payable (33,010) (31,564)
Taxes on income 21,530 225
Accrued liabilities 1,750 12,538
Other (1,721) (5,589)
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Cash provided by (used for) operating
activities 8,299 (33,215)
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Cash flows from financing activities:
Long-term and short-term borrowings 117,594 355,312
Long-term and short-term repayments (118,154) (119,484)
Proceeds from common stock issuances 884 1,425
Dividends paid (14,205) (13,647)
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Cash (used for) provided by financing
activities (13,881) 223,606
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Cash flows from investing activities:
Capital expenditures, net of disposals (31,532) (28,051)
Proceeds from sales of marketable securities 1,143 436
Proceeds from sales of businesses 33,831 10,642
Purchases of businesses - (171,512)
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Cash provided by (used for) investing
activities 3,442 (188,485)
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Impact of foreign currency changes on cash 1,398 1,284
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(Decrease) increase in cash and cash
equivalents (742) 3,190
Cash and cash equivalents at beginning of period 22,239 16,106
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Cash and cash equivalents at end of period $ 21,497 $ 19,296
======== ========
See notes to consolidated financial statements.
</TABLE>
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 three-month period ended
November 30, 1997 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 November 30, 1997 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, 1997 were 5.8% for commercial paper and domestic notes payable
and 3.9% for foreign notes payable.
NOTE 3. Sales of Businesses:
- ----------------------------
During the first quarter of 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 during the quarter 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 the first quarter's results. The company used the proceeds from
these sales to pay down existing bank debt.
NOTE 4. Earnings Per Share:
- ----------------------------
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. 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 quarter ended
November 30, 1997, proforma diluted earnings per share would have been
$0.51.
6
<PAGE>
ECHLIN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (cont.'d)
NOTE 5. Restatement:
- ---------------------
The consolidated statements of income and cash flows for the three months
ended November 30, 1996 have been restated to reflect the acquisition of
Iroquois Tool Systems, Inc. in December 1996, which was accounted for as a
pooling of interests.
7
<PAGE>
ECHLIN INC.
MANAGEMENT'S FINANCIAL ANALYSIS
Results of Operations:
----------------------
Net sales for the first quarter of fiscal 1998 increased
$38,565,000, or 4.5%, compared to the first quarter of fiscal 1997.
Businesses acquired during the past year accounted for 2.5% of
this improvement.
Net sales of comparable operations rose 2.0%. Domestic comparable
operations increased 3.0% while foreign comparable operations were
flat compared with the first quarter of fiscal 1997. The domestic
sales growth was attributed to the introduction of new products and
increased prices. Unit volume was flat as improvements in the fluid
systems and heavy-duty businesses were offset by softness for engine
systems products. Comparable foreign operations saw increased
prices and new product introductions offset by the impacts of
foreign currency translation. The unfavorable foreign currency
impact was largely due to the weaker German mark in relation to the
U.S. dollar. Foreign unit volume was flat compared to the same
period last year as improvements in our original equipment
manufacturer and heavy-duty businesses were offset by lower demand
for automotive aftermarket products in Europe.
Gross profit to net sales for the quarter declined 0.8% to 24.6%
compared to the first quarter of fiscal 1997, largely due to changes
in customer and product mix. The current quarter's gross profit
was, however, 0.8% higher than the gross profit achieved in the
fourth quarter of fiscal 1997. This improvement was due to the
company's repositioning plan and to its ongoing programs to reduce
costs and increase efficiencies.
Selling and administrative expenses increased $10,041,000, or 6.7%,
over the first quarter of fiscal 1997 and increased 0.4% to 17.9% of
net sales. This was largely attributed to the effect of recording a
pre-tax gain of $7,283,000 from the sale of Sensor Engineering in
the first quarter of 1997. Excluding the effect of this gain,
selling and administrative expenses, as a percent of net sales,
declined 0.5% from the first quarter of last year. They were also
0.2% lower than in the fourth quarter of last year after excluding
the effect of the repositioning charge and the gain from the sale of
Preferred Plastic Sheet.
Net interest expense increased $1,794,000 over the previous year
primarily due to higher average debt levels and an increase in
interest rates.
8
<PAGE>
ECHLIN INC.
MANAGEMENT'S FINANCIAL ANALYSIS (cont.'d)
Liquidity and Sources of Capital:
---------------------------------
During the first three months of fiscal 1998, operations generated
cash of $8,299,000 versus last year when they used $33,215,000.
Working capital requirements used $53,990,000 of cash versus
$91,244,000, last year. This improvement was primarily attributed
to lower outflows for inventory and income taxes.
The ratio of total debt to total capital was 45% at November 30,
1997 and August 31, 1997. The increase in capital expenditures in
the current quarter was primarily due to capital expenditures made
by companies acquired during the past year.
9
<PAGE>
ECHLIN INC.
PART II: OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
-------------------------------------------------------------
The Annual Meeting of Shareowners was held on December 17, 1997, for
the purpose of electing nine Directors of the company and approving
the designation of Price Waterhouse LLP as independent accountants
for fiscal 1998. 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. 56,212,598 1,058,759
Richard E. Dauch 56,365,566 905,791
Milton P. DeVane 56,220,925 1,050,432
John E. Echlin Jr. 56,369,853 901,504
Donald C. Jensen 56,371,697 899,660
Trevor O. Jones 56,362,306 909,051
Larry W. McCurdy 56,216,223 1,055,134
William P. Nusbaum 56,220,465 1,050,892
Jerome G. Rivard 56,223,739 1,047,618
</TABLE>
The proposal for the approval of Price Waterhouse LLP as independent
accountants for fiscal 1998 was adopted. The proposal received
56,821,947 "For" votes, 38,668 "Against" votes and 410,743
abstentions.
Item 6. Exhibits and Reports on Form 8-K.
------------------------------------------
During the quarter ended November 30, 1997, the company did not file
any reports on Form 8-K.
10
<PAGE>
SIGNATURES
------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Echlin Inc.
Date: January 13, 1998 /s/ Joseph A. Onorato
---------------- --------------------------
Joseph A. Onorato
Senior Vice President and
Chief Financial Officer
Date: January 13, 1998 /s/ Jon P. Leckerling
---------------- --------------------------
Jon P. Leckerling
Senior Vice President,
General Counsel and
Corporate Secretary
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's SEC Form 10-Q for the quarterly period ended November 30, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> NOV-30-1997
<CASH> 21497
<SECURITIES> 0
<RECEIVABLES> 443404
<ALLOWANCES> 4328
<INVENTORY> 685296
<CURRENT-ASSETS> 1198497
<PP&E> 1377400
<DEPRECIATION> 651430
<TOTAL-ASSETS> 2365480
<CURRENT-LIABILITIES> 648700
<BONDS> 702740
0
0
<COMMON> 63421
<OTHER-SE> 873584
<TOTAL-LIABILITY-AND-EQUITY> 2365480
<SALES> 889473
<TOTAL-REVENUES> 889473
<CGS> 671065
<TOTAL-COSTS> 158669
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 576
<INTEREST-EXPENSE> 9806
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<INCOME-TAX> 16790
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<NET-INCOME> 32567
<EPS-PRIMARY> .52
<EPS-DILUTED> .52
</TABLE>
