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 April 3, 1994
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-302
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ARVIN INDUSTRIES, INC.
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(Exact name of Registrant as specified in its charter)
Indiana 35-0550190
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Noblitt Plaza, Box 3000
Columbus, IN 47202-3000
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(812) 379-3000
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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As of April 3, 1994, the Registrant had outstanding 22,160,739
Common Shares (excluding treasury shares), $2.50 par value.
ARVIN INDUSTRIES, INC.
Part I. Financial Information
Consolidated Statement of Operations
Three Months Ended April 3, 1994 and
April 4, 1993
Consolidated Statement of Financial Condition
April 3, 1994 and January 2, 1994
Consolidated Statement of Cash Flows
Three Months Ended April 3, 1994 and
April 4, 1993
Notes to Consolidated Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
ARVIN INDUSTRIES, INC. AND SUBSIDIARIES
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Consolidated Statement of Operations
(Dollars in millions except per share amounts)
(Unaudited)
Three Months
Ended
------------------------
April April
3, 4,
1994 1993
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NET SALES $479.2 $453.1
COSTS AND EXPENSES:
Cost of goods sold 406.9 382.5
Selling, operating general
and adminstrative 47.6 50.4
Corporate general and
administrative 2.5 3.7
Interest expense 9.6 9.6
Interest income (0.5) (0.6)
Other expense, net 3.6 0.5
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469.7 446.1
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EARNINGS FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 9.5 7.0
Income taxes (3.9) (3.7)
Minority interest share of (income)/loss (0.3) 0.4
Equity earnings (loss) of affiliates (0.2) 1.9
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EARNINGS FROM CONTINUING OPERATIONS 5.1 5.6
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Income from discontinued operations,
net of income taxes of $ 0.1 and
$ 0.4, respectively 0.2 0.5
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NET EARNINGS $5.3 $6.1
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EARNINGS PER COMMON SHARE:
Primary
Continuing Operations $0.23 $0.26
Discontinued Operations $0.01 $0.02
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Total $0.24 $0.28
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AVERAGE COMMON SHARES OUTSTANDING 22,513 22,188
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DIVIDENDS PER COMMON SHARE $0.19 $0.19
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ARVIN INDUSTRIES, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENT OF
FINANCIAL CONDITION
(Dollars in millions)
ARRIL 3, JANUARY 2,
1994 1994
(UNAUDITED) (AUDITED)
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CURRENT ASSETS:
Cash and cash equivalents $24.7 $39.1
Receivables, net of allowances 289.6 255.3
Inventories 110.0 117.9
Other current assets 76.8 78.5
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Total current assets 501.1 490.8
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NON-CURRENT ASSETS:
Property, plant and
equipment (at cost):
Land, buildings, machinery
& equipment 819.3 839.0
Less: Allowance for
depreciation 419.1 428.4
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400.2 410.6
Excess of cost over acquired
net assets 183.8 185.3
Investment in affiliates 84.2 88.0
Net assets related to
discontinued operations 37.9
Other assets 64.9 71.5
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Total non-current assets 771.0 755.4
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$1,272.1 $1,246.2
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LIABILITIES AND SHAREHOLDERS'
EQUITY:
CURRENT LIABILITES:
Short-term debt $20.8 $9.0
Accounts payable 175.8 160.2
Accrued expenses 79.5 85.8
Income taxes payable 5.6 --
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Total current liabilities 281.7 255.0
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Accrued employee benefits 53.2 53.0
Deferred income taxes and other 21.9 24.7
Long-term debt 431.7 433.6
Minority interest 61.0 59.3
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Total non-current liabilities 567.8 570.6
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SHAREHOLDERS' EQUITY:
Capital stock:
Preferred shares (no par
value, authorized 8,978,058
in 1994; none issued and
outstanding -- --
Common shares ($2.50 par
value) 60.3 60.2
Capital in excess of par value 205.9 204.7
Retained earnings 228.4 227.3
Cumulative translation adjustment (27.5) (26.7)
Common shares held in
treasury (at cost) (44.5) (44.9)
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Total shareholders' equity 422.6 420.6
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$1,272.1 $1,246.2
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ARVIN INDUSTRIES, INC. AND SUBSIDIARIES
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Consolidated Statement of Cash Flows
(Dollars in millions except per share amounts)
(Unaudited)
Three Months Ended
April 3, April 4,
1994 1993
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OPERATING ACTIVITIES:
Net earnings 5.3 6.1
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation 17.7 16.4
Amortization of intangibles 1.7 1.5
Deferred income taxes, long-term (1.6) (0.6)
Other (4.0) 1.4
Changes in operating assets and liabilities:
Receivables (48.7) (19.8)
Inventories and other current assets (1.7) (14.2)
Payables and other accrued expenses 27.2 16.3
Income taxes payable and deferred taxes 7.4 (13.9)
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NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES 3.3 (6.8)
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INVESTING ACTIVITIES:
Purchase of property, plant and equipment (20.8) (21.2)
Proceeds from sale of property, plant
and equipment 0.1 2.4
Other -- (0.8)
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NET CASH USED FOR INVESTING
ACTIVITIES (20.7) (19.6)
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FINANCING ACTIVITIES:
Change in short-term debt, net 12.8 20.9
Proceeds from long-term borrowings 75.0 --
Principal payments on long-term debt (75.0)
Purchase of treasury shares -- (0.1)
Exercise of stock options 1.1 3.4
Dividends paid (4.2) (4.1)
Other (0.8) (0.9)
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NET CASH PROVIDED BY FINANCING
ACTIVITIES 8.9 20.2
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CASH AND CASH EQUIVALENTS:
Effect of exchange rate changes on cash (0.6) (0.5)
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Net decrease (9.1) (6.7)
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Beginning of the year 39.1 14.6
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End of the quarter 30.0 7.9
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ARVIN INDUSTRIES, INC. AND SUBSIDIARIES
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Notes to Consolidated Financial Statements
1. In the opinion of management, the accompanying
unaudited consolidated financial statements contain all
adjustments necessary to present a fair statement of the
results of operations for the periods reported. All such
adjustments are of a normal and recurring nature.
2. The results of operations are not necessarily
indicative of the results to be expected for the full
year.
3. Effective April 14, 1994, the Company adopted a plan to
sell its Schrader Automotive unit. Accordingly,
Schrader is reported as a discontinued operation at April
3, 1994, and the consolidated financial statements have been
reclassified to report separately the net assets and
operating results of the business. The Company's prior
years operating results have been restated to reflect
continuing operations.
Net assets of the discontinued operation at April 3, 1994
consist of assets amounting to $ 61 million
and liabilities of $ 23 million. The selling price is expected
to approximate Schrader's book value at the time of the closing of the
transaction, plus selling expenses. Schrader's revenues for the quarters
ended April 3, 1994 and April 4, 1993 were $ 23 million and
$ 23 million, respectively.
4. There were options for 1,891,270 and 1,709,856 common
shares outstanding as of April 3, 1994 and April 4,
1993, respectively. Earnings per share calculations include
the dilutive options in the determination of the weighted
average common and common equivalent shares outstanding.
Interest paid, net of tax, on the 7.5 percent convertible
subordinated debentures is added to net earnings in
calculating fully diluted earnings per share.
5. The Company's method of pooling by individual natural
inventory components (e.g., steel, substrate, labor and
overhead) in computing an overall weighted average index
that is applied to the total dollar value of the ending
inventory makes it impractical to classify LIFO inventories
into the finished goods, work in process and raw material
components.
6. The Company is also defending various environmental claims
and legal actions that arise in the normal course of
business, including matters in which the Company has been
designated a potentially responsible party at certain waste
disposal sites or has been notified that it may be a
potentially responsible party at other sites as to which no
proceedings have been initiated. Neither the remediation
method, amount of remediation costs nor the allocation
among potentially responsible parties has been determined
at the majority of these sites. At some of these sites the
information currently available leads the Company to
believe it has very limited or even de minimis
responsibility.
At the Company's former Platt Saco Lowell operations, the Company
is a participant with the EPA and the current owner
in a corrective action proceeding under the Resource
Conservation and Environmental Recovery Act. Ground water
and surface treatment facilities have been installed as
interim measures. A final phase remediation feasibility
study is expected to commence in 1994 to identify potential
remediation alternatives and related cost estimates. Pending
completion of such study the Company does not possess sufficient
information to reasonably estimate its remediation costs at
Platt Saco Lowell beyond provisions already recorded.
The Company has provided for reasonably estimable costs of study,
cleanup, remediation and certain other environmental matters,
taking into account, as applicable, avaliable information regarding
site conditions, potential cleanup methods and the extent to which
other parties can be expected to bear those costs. The Company
does not expect that resulting liabilities beyond provisions
already recorded will have a materially adverse effect on the
Company's financial position.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
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Sales from continuing operations for the quarter ended April
3, 1994 were $479 million, representing an increase of
$26 million, or 6 percent, over first quarter 1993 sales of $453
million. First quarter 1994 earnings from continuing
operations were $5.1 million, a decrease of $0.5 million
when compared to 1993 first quarter income of $5.6
million. Earnings per common share from continuing
operations of $.23 in the first quarter of 1994 represented
a $.03 per share decrease from the $.26 earnings per share
reported in the first quarter of 1993.
SEGMENT INFORMATION
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AUTOMOTIVE ORIGINAL EQUIPMENT
Original Equipment ("OE") segment sales from continuing
operations increased $13 million, or 5 percent, to $258 million
in the first quarter of 1994 versus $245 million
in the first quarter of 1993. OE operating profit was 2 percent
higher at $12.4 million during the first quarter of 1994
versus $12.2 million in the first quarter of 1993.
Increased OE sales during the first quarter of 1994 were
attributable to increased North American vehicle production,
which was 270,000 units or 8 percent higher than the first quarter
of 1993, and new exhaust business in North America. European
sales volumes remained flat when compared to the first quarter
of 1993. OE operating profit, worldwide, was virtually unchanged
primarily due to the continued recessionary and pricing pressures in
Europe.
AUTOMOTIVE REPLACEMENT
Automotive Replacement ("Replacement") segment sales
increased $12 million, or 9 percent, to $142 million in 1994
compared to $130 million in the first quarter of 1993.
Replacement operating profit for the first quarter of
1994 reflected a 57 percent increase to $7.7 million versus
1993 first quarter Replacement operating profit of $4.9 million.
The increase in 1994 first quarter Replacement sales was
primarily the result of increased demand for replacement products in
the U.S. Demand for Replacement products in Europe during the first
quarter was comparable to the first quarter of 1993. The increase in
operating profit was the combined result of increased sales and
productivity gains in selling, general and administration.
TECHNOLOGY
During the third quarter of 1993, the Company completed the combination
of the assets of its Calspan subsidiary with the assets of Space Industries,
Inc. This transaction was accounted for as a purchase. The Company
owns approximately 70 percent of the new company, Space Industries
International, Inc.
Technology segment sales of $53 million for the first
quarter of 1994 were virtually unchanged from the first quarter
of 1993. Operating profit decreased $1.2 million, to $0.1 million
during the first quarter of 1994, from $1.3 million in the
first quarter of 1993.
Operating profit declined during the quarter partially as a result
of the former Calspan subsidiary encountering continued increased
competition in securing government contracts. This has resulted
in higher costs being incurred in conjunction with new bid and
proposal activity.
The operating profit of the former Space Industries, Inc. was
adversely affected during the first quarter of 1994 primarily
due to lower government spending on space related programs
combined with increased general and administrative costs in
establishing a Washington D.C. based company headquarters.
Space Industries, Inc. had capitalized $18.2 million related
to an Industrial Space Facility (ISF). The ISF is the result
of SIII-developed technology necessary to design, integrate
and operate a man-tended orbital space facility. Until the U.S.
Government makes decisions regarding the scope, schedule and cost of the
anticipated International Space Station, the future
economic potential of the ISF is uncertain. The ISF does not
require any substantial additional engineering support at this time.
The recovery of the capitalized costs is dependent on SIII's future
success in selling technology, related services, or engineering designs
of the ISF at profitable terms.
INDUSTRIAL
Industrial segment sales of $26 million for the first
quarter of 1994 increased $1 million, or 2 percent, relative to
the first quarter of 1993. Operating profit of $2.9 million
decreased $0.3 million when compared to the first
quarter of 1993. Operating profit was negatively impacted
by an unfavorable product mix during the quarter.
The continued recessionary pressures in Europe during the
first quarter of 1994 negatively affected the the Company's
equity earnings from affiliates.
FINANCIAL CONDITION
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LIQUIDITY
The Company's working capital decreased $16 million from
year-end 1993 through April 3, 1994, primarily due to the reclassification
of the net assets related to the discontinued Schrader
operations. The reclassification also resulted in a drop in
the current ratio to 1.8 at April 3, 1994 compared to 1.9 at year-end 1993.
On April 11, 1994 the Company filed a shelf registration with the
Securities and Exchange Commission. Under this filing, which
became effective April 22, 1994, the Company may issue up to
$225 million of various Arvin debt and equity securities.
The proceeds generated from the sale of Schrader will be used to
reduce debt.
CAPITAL EXPENDITURES
1994 planned capital expenditures are adequate for normal
replacement and consistent with projections for future sales
and earnings. Current year expenditures are expected to be
funded from internally generated funds. During the first
quarters of both 1994 and 1993 capital expenditures were
approximately $21 million.
OTHER MATTERS
Effective April 14, 1994 the Company adopted a plan to sell its
Schrader Automotive unit. Accordingly, Schrader has been reported
as a discontinued operation at April 3, 1994 and the consolidated
financial statements have been reclassified to report separately the
net assets and operating results of the business. The selling
price of the business is expected to approximate Schrader's net book
value at the time the transaction is closed, plus selling expenses.
The Company is also defending various environmental claims
and legal actions that arise in the normal course of business,
including matters in which the Company has been designated
a potentially responsible party at certain waste
disposal sites or has been notified that it may be a
potentially responsible party at other sites as to which no
proceedings have been initiated. Neither the remediation
method, amount of remediation costs nor the allocation among
potentially responsible parties has been determined at the
majority of these sites. At some of these sites the information
currently available leads the Company to believe
it has very limited or even de minimis responsibility.
At the Company's former Platt Saco Lowell operations, the
Company is a participant with the EPS and the current owner
in a corrective action proceeding under the Resource Conservation
and Environmental Recovery Act. Ground water and surface treatment
facilities have been installed as interim measures. A final phase
remediation feasibility study is expected to commence in 1994 to
identify potential remediation alternatives and related cost estimates.
Pending completion of such study the Company does not possess sufficient
information to reasonsably estimate its remediation costs at
Platt Saco Lowell beyond provisions already recorded.
The Company has provided for reasonably estimable costs of study,
cleanup, remediation and certain other environmental matters, taking
into account, as applicable, available information
regarding site conditions, potential cleanup methods and the
extent to which other parites can be expected to
bear those costs. The Company does not expect that resulting
liabilities beyond provisions already recorded will have
a materially adverse effect on the Company's financial position.
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
4 Indenture, dated as of July 3, 1990, between
the registrant and Harris Trust and Savings
Bank, as trustee (Incorporated herein by
reference to exhibit 4-4 to the registrant's
Registration Statement on Form S-3, No. 33-53087).
(b) Reports on Form 8-K.
Report dated February 3, 1994 - Items 5 and 7:
On January 26, 1994, the registrant announced
the call for redemption in full on March 1, 1994
of its 8 3/8 percent Notes due March 1, 1997. On
February 2, 1994, the registrant announced its
unaudited operating results for the fiscal year
and quarter ended January 2, 1994. The registrant
also reported its offering of $75,000,000 of
Notes due February 15, 2001 and filed certain
exhibits relating to that offering.
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.
ARVIN INDUSTRIES, INC.
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(Registrant)
_______________________
R.A. Smith
Vice President-Finance,
Chief Financial Officer &
Chief Accounting Officer
Date: May 13, 1994