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, 1997
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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
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(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, 1997
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Common stock, $1 par value 62,434,094
ECHLIN INC.
INDEX
PART I. FINANCIAL INFORMATION Page
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Item 1. Financial Statements
Consolidated balance sheets at February 28, 1997
and August 31, 1996. 3
Consolidated statements of income for the three
months ended February 28, 1997 and February 29, 1996;
for the six months ended February 28, 1997 and
February 29, 1996. 4
Consolidated statements of cash flows for the
six months ended February 28, 1997 and
February 29, 1996. 5
Notes to consolidated financial statements at
February 28, 1997. 6-7
Item 2. Management's Financial Analysis 8-9
PART II. OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
2
PART I: FINANCIAL INFORMATION
ECHLIN INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
February 28, August 31,
1997 1996
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(unaudited) (A)
ASSETS
Current assets:
Cash and cash equivalents $ 3,808 $ 16,106
Accounts receivable, less-allowance for
doubtful accounts of $4,897 and $5,621 426,984 370,837
Inventories, at lower of cost (first-in,
first-out) or market:
Raw materials and component parts 194,598 167,215
Work in process 90,039 87,140
Finished goods 462,375 425,027
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Total inventories 747,012 679,382
Other current assets 60,110 42,687
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Total current assets 1,237,914 1,109,012
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Property, plant and equipment, at cost 1,270,411 1,155,495
Accumulated depreciation (575,747) (534,186)
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Property, plant and equipment, net 694,664 621,309
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Marketable securities 82,940 83,578
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Intangible assets, net 365,694 226,292
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Other assets 85,608 90,563
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Total assets $2,466,820 $2,130,754
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $ 41,635 $ 21,596
Current portion of long-term debt 9,454 6,286
Accounts payable, trade 244,591 264,532
Accrued taxes on income 22,071 33,985
Accrued liabilities 179,835 197,828
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Total current liabilities 497,586 524,227
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Long-term debt 796,146 468,013
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Deferred income taxes 126,403 129,640
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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 62,702,268 and 62,242,279 62,702 62,242
Capital in excess of par value 352,903 350,935
Retained earnings 694,283 658,235
Foreign currency translation adjustments (62,618) (61,953)
Net unrealized investment gains 2,410 2,410
Treasury stock, at cost, 270,264 shares (2,995) (2,995)
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Total shareholders' equity 1,046,685 1,008,874
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Total liabilities and shareholders' equity $2,466,820 $2,130,754
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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
ECHLIN INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share data)
Three Months Ended Six Months Ended
Feb. 28, Feb. 29, Feb. 28, Feb. 29,
1997 1996 1997 1996
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Net sales $842,219 $735,902 $1,693,127 $1,449,669
Cost of goods sold 645,375 549,053 1,280,394 1,069,718
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Gross profit on sales 196,844 186,849 412,733 379,951
Selling and administrative
expenses 151,858 141,863 301,062 275,729
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Income from operations 44,986 44,986 111,671 104,222
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Interest expense (11,806) (11,633) (23,015) (22,351)
Interest income 3,097 2,329 6,294 5,158
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Interest expense, net (8,709) (9,304) (16,721) (17,193)
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Income before taxes 36,277 35,682 94,950 87,029
Provision for taxes 12,676 12,128 33,232 29,802
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Net income $ 23,601 $ 23,554 $ 61,718 $ 57,227
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Average shares outstanding 62,409 61,918 62,377 61,884
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Earnings per share $0.38 $0.38 $0.99 $0.92
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Dividends per share $0.22 $0.205 $0.44 $0.41
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See notes to consolidated financial statements.
4
ECHLIN INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Six Months Ended
February 28, February 29,
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1997 1996
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Cash flows from operating activities:
Net income $ 61,718 $57,227
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 56,363 46,119
Gain on sale of business (7,360) -
Changes in assets and liabilities, excluding
acquisitions' balance sheets:
Accounts receivable (18,097) (56,393)
Inventories (49,734) (11,460)
Other current assets (12,241) (12,940)
Accounts payable (43,038) (4,891)
Taxes on income (15,350) 3,040
Accrued liabilities (33,235) (17,667)
Other 2,170 (2,619)
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Cash (used for) provided by
operating activities (58,804) 416
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Cash flows from financing activities:
Long-term and short-term borrowings 692,683 375,666
Long-term and short-term repayments (377,842) (243,795)
Sale of accounts receivable - 55,000
Proceeds from common stock issuances 2,094 1,814
Dividends paid (27,380) (24,756)
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Cash provided by financing activities 289,555 163,929
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Cash flows from investing activities:
Capital expenditures, net (68,945) (48,477)
Sales of marketable securities 2,142 19,437
Net assets of businesses acquired (177,425) (147,110)
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Cash used for investing activities (244,228) (176,150)
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Impact of foreign currency changes on cash 1,179 (6,243)
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Decrease in cash and cash equivalents (12,298) (18,048)
Cash and cash equivalents at beginning
of period 16,106 27,700
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Cash and cash equivalents at end of period $ 3,808 $ 9,652
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See notes to consolidated financial statements.
5
ECHLIN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. General:
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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 six-month period ended February 28, 1997 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:
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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. This transaction was accounted for as a pooling of interests and
as a result the financial statements for the six months ended February
28, 1997 include Iroquois' results of operations. Since the acquisition
did not have a material impact on the company, prior years' results were
not restated.
During September 1996, the company acquired Long Manufacturing, Ltd.
(Long), headquartered in Oakville, Ontario, Canada, for approximately
$170 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. The Long and Nobel acquisitions were
accounted for using the purchase method of accounting.
NOTE 3. Borrowing Arrangements:
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Commercial paper, domestic notes payable and certain notes payable with
foreign banks at February 28, 1997 were 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 February 28, 1997 were 5.39% for commercial paper, 5.44% for
domestic notes payable and 3.54% for foreign notes payable.
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ECHLIN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 4. Sale of Business:
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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 $7,360,000, was deducted
from selling and administrative expenses in the accompanying
consolidated statements of income. The gain on the sale added $0.07
to earnings per share.
NOTE 5. Earnings per share:
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The Financial Accounting Standards Board recently 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 as shown on the income statements are
calculated by dividing net income by the average number of common
shares outstanding. Diluted earnings per share is arrived by dividing
net income by the 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 and six month
periods ended February 28, 1997, proforma diluted earnings per share
would have been $0.37 and $0.98, respectively.
7
ECHLIN INC.
MANAGEMENT'S FINANCIAL ANALYSIS
Results of Operations:
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For the three and six months ended February 28, 1997, net sales
increased 14 percent and 17 percent, respectively, over the
corresponding periods of a year ago. The majority of this growth
was due to businesses acquired during the past year including the
Automotive Segment of Handy & Harman, Long Manufacturing, Nobel
Plastiques SA and Iroquois Tool Systems, Inc.
Net sales of comparable operations rose 4 percent for both the
three and six month periods. Domestically, operations increased 3
and 4 percent for the quarter and six months, respectively,
reflecting the impact of price changes and new product
introductions. Unit volume for the quarter was down as the
continued softness in aftermarket demand for "under-the-hood"
products and higher than normal returned goods from our customers,
combined to offset continued growth in our automotive brake and
fluid system businesses. For the six months, unit volume was flat
with last year. Foreign comparable operations improved 6 and 3
percent for the quarter and six month period, respectively,
reflecting price increases and the introduction of new products.
In addition, second quarter unit volume was higher as increased
demand for brake products in Canada and Europe offset continued
weakness in our European heavy duty business. Unit volume was
lower for the six months reflecting the downturn in European heavy
duty production experienced throughout the period. Translation
rate changes during the quarter increased sales primarily due to a
weaker dollar in relation to the British pound. Year-to-date sales
were lowered due to translation rate changes affecting our
operations in Germany, South Africa and Mexico.
The gross profit to sales percentage for the six months declined
from 26.2 a year ago to 24.4, while for the second quarter the
percentage decreased to 23.4 from 25.4. Production was kept below
planned levels in an effort to keep inventory in line with current
demand. In addition, higher than normal costs of returned goods
and changes in Echlin's business mix, negatively impacted margins.
Although selling and administrative expenses increased for the
three and six month periods, they declined as a percentage of
sales. For the second quarter, they declined to 18.0 percent from
19.2 percent a year ago, while for the six month period expenses
declined to 17.8 percent vs. 19.0 percent last year. The dollar
increase and percent of sales reduction for both periods was
primarily due to current year acquisitions of original equipment
businesses, which have expense-to-sales ratios below our historical
average.
When compared to the prior year, net interest expense decreased
$595,000 for the quarter and $472,000 for the six month period, as
higher interest income earned from our Puerto Rican investment
portfolio offset increased interest expense due to higher average
debt levels.
8
MANAGEMENT'S FINANCIAL ANALYSIS (cont.'d)
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Liquidity and Sources of Capital:
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During the first six months of fiscal 1996, operations used
$58,804,000 of cash vs. the prior year when they provided $416,000.
The additional outflow reflected higher inventory purchases to meet
increased demand at certain locations and for new products, along
with the timing of liability and tax payments. Partially
offsetting these working capital outflows are increased cash
inflows from accounts receivable collections.
Net debt increased $346,935,000 from year end primarily due to
business acquisitions, current year capital expenditures and
working capital requirements. Total debt to total capital was 45
percent, up from 41 percent a year ago and 33 percent at August 31,
1996.
Capital expenditures are $20 million above last year. This
increase represented normal spending by companies acquired during
the past year, tooling and machinery for new product introductions,
and the purchase of a facility in the United Kingdom which had
previously been leased.
9
ECHLIN INC.
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
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1. Exhibit (3) (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 are being filed as an Exhibit.
2. During the quarter ended February 28, 1997, the company did not
file any Reports on Form 8-K.
10
SIGNATURES
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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 14, 1997 Joseph A. Onorato
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Joseph A. Onorato
Vice President and
Chief Financial Officer
Date: April 14, 1997 Jon P. Leckerling
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Jon P. Leckerling
Vice President, General
Counsel and Corporate
Secretary
11