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 October 2, 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
- ------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Noblitt Plaza, Box 3000
Columbus, IN 47202-3000
- ---------------------------------------- --------------
(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 and 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 .
--- ---
As of November 6, 1994, the Registrant had outstanding 22,221,018
Common Shares (excluding treasury shares), $2.50 par value.
ARVIN INDUSTRIES, INC.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statement of Operations
Three Months and Nine Months Ended
October 2, 1994 and October 3, 1993
Consolidated Statement of Financial Condition
October 2, 1994 and January 2, 1994
Consolidated Statement of Cash Flows
Nine Months Ended October 2, 1994 and
October 3, 1993
Condensed Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Part II. Other Information
Item 2. Changes in Securities
Item 6. Exhibits and Reports on Form 8K
ARVIN INDUSTRIES, INC. AND SUBSIDIARIES
- ---------------------------------------
Consolidated Statement of Operations
(Dollars in millions except per share amounts)
(UNAUDITED)
Three Months Ended Nine Months Ended
---------------------- --------------------
October 2, October 3, October 2, October 3,
1994 1993 1994 1993
---------- ---------- ---------- ----------
NET SALES $505.7 $453.1 $1,524.2 $1,403.4
COSTS AND EXPENSES:
Cost of goods sold 429.9 379.7 1,288.0 1,174.8
Selling and operating
general and administrative 45.8 49.2 142.3 148.2
Corporate general and
administrative 3.2 4.5 9.2 12.4
Interest expense 11.0 8.2 31.7 27.0
Interest income (0.2) (0.5) (1.1) (1.5)
Other expense, net 1.1 2.3 6.3 2.5
-------- -------- -------- --------
490.8 443.4 1,476.4 1,363.4
-------- -------- -------- --------
EARNINGS FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 14.9 9.7 47.8 40.0
Income taxes (5.6) (4.1) (19.1) (17.1)
Minority interest (income)/loss (0.5) (0.4) (1.3) 0.3
Equity earnings of affiliates 1.0 1.6 1.5 4.8
------- -------- -------- --------
EARNINGS FROM CONTINUING OPERATIONS 9.8 6.8 28.9 28.0
------- -------- -------- --------
Income from discontinued operations,
net of income taxes of $0.0, $0.5,
$0.1 and $1.7 respectively 0.0 0.6 0.2 2.0
------- -------- -------- --------
NET EARNINGS $9.8 $7.4 $29.1 $30.0
------- -------- -------- --------
EARNINGS PER COMMON SHARE:
Primary Earnings Per Share:
Continuing Operations $0.44 $0.31 $1.29 $1.26
Discontinued Operations $0.00 $0.02 $0.01 $0.09
------- -------- -------- --------
Total $0.44 $0.33 $1.30 $1.35
------- -------- -------- --------
Fully Diluted Earnings Per Share:
Continuing Operations $0.42 $0.31 $1.25 $1.22
Discontinued Operations $0.00 $0.02 $0.01 $0.08
------- -------- -------- --------
Total $0.42 $0.33 $1.26 $1.30
------- -------- -------- --------
AVERAGE COMMON SHARES OUTSTANDING
Primary 22.3 22.4 22.4 22.3
Fully Diluted 25.7 25.8 25.8 25.8
DIVIDENDS PER COMMON SHARE $0.19 $0.19 $0.57 $0.57
<FN>
See notes to consolidated financial statements.
ARVIN INDUSTRIES, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(Dollars in millions) (UNAUDITED)
October 2, JANUARY 2,
1994 1994 (1)
---------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $33.0 $34.3
Receivables, net of allowances 322.0 242.9
Inventories 122.5 108.3
Other current assets 83.9 75.1
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Total current assets 561.4 460.6
--------- --------
NON-CURRENT ASSETS:
Land, buildings, machinery
& equipment (at cost) 874.1 791.4
Less: Allowance for
depreciation 454.6 403.2
-------- --------
419.5 388.2
Excess of cost over acquired
net assets 183.4 185.3
Investment in affiliates 85.6 84.0
Net assets of discontinued
operations 42.5 41.0
Other non-current assets 59.9 71.0
--------- --------
Total non-current assets 790.9 769.5
---------- --------
TOTAL ASSETS $1,352.3 $1,230.1
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt $31.0 $8.0
Accounts payable 191.0 153.3
Accrued expenses 96.9 80.7
Income taxes payable 9.4 0.0
-------- --------
Total current liabilities 328.3 242.0
-------- --------
Accrued employee benefits 55.0 52.4
Deferred income taxes and other 24.8 23.3
Long-term debt 431.5 432.4
Minority interest 63.4 59.3
-------- --------
Total non-current liabilities 574.7 567.4
-------- --------
SHAREHOLDERS' EQUITY:
Capital stock:
Preferred shares (no par value)
8,978,058 authorized ; none issued -- --
Common shares ($2.50 par value) 60.4 60.2
Capital in excess of par value 206.4 204.8
Retained earnings 243.8 227.3
Cumulative translation adjustment (17.4) (26.7)
Common shares held in
treasury (at cost) (43.9) (44.9)
--------- ---------
Total shareholders' equity 449.3 420.7
----------- ---------
TOTAL LIABILITIES AND STOCK EQUITY $1,352.3 $1,230.1
=========== =========
<FN>
(1) Certain amounts have been reclassified to conform with current year
presentation.
See notes to consolidated financial statements.
ARVIN INDUSTRIES, INC. AND SUBSIDIARIES
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Consolidated Statement of Cash Flows
(Dollars in millions)(UNAUDITED)
Nine Months Ended
---------------------
October 2, October 3,
1994 1993
---------- ----------
OPERATING ACTIVITIES:
Net earnings $29.1 $30.0
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation 53.6 48.0
Amortization of intangibles 5.4 4.8
Deferred income taxes, long-term (2.0) (14.9)
Other 2.4 4.3
Changes in operating assets and liabilities:
Receivables (79.7) (18.3)
Inventories and other current assets (24.2) 0.1
Payables and other accrued expenses 56.9 11.3
Income taxes payable and current
deferred taxes 9.6 (12.5)
------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 51.1 52.8
-------- --------
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (68.3) (61.9)
Acquisition, net of cash (7.5) (12.4)
Proceeds from sale of property, plant
and equipment 0.8 8.0
Proceeds from long-term receivables 12.6 --
Other -- (5.3)
-------- --------
NET CASH USED FOR INVESTING ACTIVITIES (62.4) (71.6)
-------- --------
FINANCING ACTIVITIES:
Change in short-term debt, net 22.6 27.1
Proceeds from long-term borrowings 86.0 --
Principal payments on long-term debt (87.1) (2.8)
Purchase of treasury shares -- (0.1)
Exercise of stock options 1.4 8.8
Dividends paid (12.6) (12.5)
Other -- 0.4
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 10.3 20.9
-------- --------
CASH AND CASH EQUIVALENTS:
Effect of exchange rate changes on cash 0.3 (1.5)
-------- -------
Net (decrease) increase (0.7) 0.6
-------- -------
Beginning of the year, including cash
and equivalents of discontinued operations 39.1 14.6
-------- -------
End of the period, including cash and
equivalents of discontinued operations 38.4 15.2
-------- -------
<FN>
See notes to consolidated financial statements
ARVIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of management, the accompanying unaudited consolidated
financial statements have been prepared in accordance with the
accounting policies described in the Company's Annual Report to
Shareholders and Form 10-K and 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 (Schrader). Although the agreement previously
announced for the sale of Schrader has been terminated, Arvin is
continuing to actively pursue the disposition of Schrader. Accordingly,
Schrader is reported as a discontinued operation at October 2, 1994 and
the consolidated financial statements have been reclassified to report
separately the net assets and operating results of Schrader. The
Company's prior years' continuing operating results and financial
position have been reclassified to exclude Schrader's operating results
and net assets to be sold.
Net assets of the discontinued operation at October 2, 1994 consist
primarily of assets amounting to $63.2 million and liabilities of $20.7
million. Schrader's revenues for the nine months ended October 2, 1994
and October 3, 1993 were $66.5 million and $67.3 million, respectively.
4. There were options for 1,866,527 and 1,804,673 common shares outstanding
as of October 2, 1994 and October 3, 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% 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 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. The remediation method,
amount of remediation costs or the allocation among potentially
responsible parties has not been determined at the majority of these
sites. Where reasonable estimates are possible the Company has
provided for the 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 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.
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 to
identify potential remediation alternatives and related cost estimates
is expected to be substantially completed in 1995. At this time, the
Company does not possess sufficient information to reasonably estimate
its remediation costs at Platt Saco Lowell.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
SALES FROM CONTINUING OPERATIONS for the quarter ended October 2, 1994
were $506 million, representing an increase of $53 million, or 12 percent,
over third quarter 1993 sales of $453 million. Year-to-date 1994 sales
from continuing operations were $1,524 million, a 9 percent increase over
1993 nine month sales of $1,403 million.
EARNINGS FROM CONTINUING OPERATIONS for the third quarter 1994 were $9.8
million, an increase of $3.0 million or 44 percent when compared to 1993
third quarter earnings of $6.8 million. Earnings from continuing operations
for the nine month period ended October 2, 1994 were $28.9 million, an
increase of $.9 million or 3 percent over 1993 nine month earnings of $28
million. Primary earnings per common share from continuing operations of
$.44 in the third quarter of 1994 represented a $.13 per share increase
over the $.31 earnings per share reported in the third quarter of 1993.
CORPORATE GENERAL AND ADMINISTRATIVE expenses decreased 29% or $1.3 million
for the third quarter and 26% or $3.2 million in the first nine months when
compared to the same periods in 1993. The decreases are the result of reduce
d expenditures for employee costs and professional services.
INTEREST EXPENSE for the third quarter of 1994 increased $2.8 million or
34% over the comparable quarter of 1993. Interest expense for the first
nine months increased $4.7 million or 17%. The increases were a result of
higher average borrowing rates on higher average outstanding debt.
OTHER EXPENSES, NET increased $3.8 million for the first nine months
compared to the same period in 1993. The year-to-date increase is primarily
the result of higher foreign exchange losses, goodwill amortization, and an
increase of debt issuance costs.
EQUITY EARNINGS FROM AFFILIATES for the third quarter of 1994 decreased
$.6 million and decreased $3.3 million for the first nine months of 1994
when compared to the same periods in 1993. The decreases were primarily
attributable to operating and recessionary pressures in Europe, Australian
affiliate closure reserves, foreign exchange losses, and competitive pricing
and material cost increases in the United States.
INCOME TO MINORITY SHAREHOLDERS increased $.1 million for the third
quarter and $1.6 million for the first nine months. The year-to date
increase is primarily the result of 1994 earnings of the Company's Timax
business unit. A portion of the Timax unit was contributed to the 50/50
European joint
venture with Sogefi S.p.A. in the third quarter of 1993. Additionally, the
year-to-date and quarter minority interest income were improved by improved
results from the Company's primary Spanish subsidiary.
RESULTS OF OPERATIONS BY SEGMENT
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AUTOMOTIVE ORIGINAL EQUIPMENT ("OE") SEGMENT sales from continuing
operations increased $33 million, or 16 percent, to $244 million in the
third quarter of 1994 versus $211 million in the third quarter of 1993.
OE operating profit from continuing operations was 51 percent higher at
$10.9 million during the third quarter of 1994 versus $7.2 million in the
third quarter of 1993. During the first nine months of 1994 OE sales from
continuing operations were $782 million, an 11 percent increase over sales
of $707 million for the first nine months of 1993. OE operating profit from
continuing operations increased 17 percent in the first nine months of 1994
to $38.5 million versus $32.9 million in 1993.
Increased OE sales during 1994 were attributable to increased North American
light vehicle production, which was 387,000 units or 14 percent higher than
the third quarter of 1993 and 1,098,000 units or 12 percent higher for the
first nine months of 1994. Additionally, increased European demand,
especially for catalytic converters, has contributed to increased sales in
the OE segment. Operating profit for both the quarter and nine month
periods increased as a result of increased volume and productivity in both
the U.S. and Europe. These gains were somewhat offset by price concessions,
start up costs on new strut production, and the negative impact of a labor
dispute at one of the Company's major North American steel suppliers.
AUTOMOTIVE REPLACEMENT ("REPLACEMENT") SEGMENT sales from continuing
operations increased $17 million, or 11 percent, to $175 million in the
third quarter of 1994 versus $158 million in the third quarter of 1993.
During the first nine months of 1994 Replacement segment sales from
continuing operations increased 9 percent to $496 million versus $456
million for the first nine months of 1993. Replacement operating profit
from continuing operations for the third quarter of 1994 reflected a 7
percent increase to $14.3 million when compared to the 1993 third quarter's
$13.4 million. Replacement operating profit from continuing operations
increased 14 percent to $43.2 million for the first nine months versus
$37.9 million for the same period during 1993.
The increase in third quarter and year-to-date sales is primarily
attributable to an increase in the Company's North American market share
and an increase in average price per unit sold. The 7 percent increase in
Replacement operating profit for the quarter is a result of increased sales,
offset somewhat by changeover costs for new customers. The year-to-date
increase in operating profit is a result of increased sales and productivity
improvements, including productivity gains in selling and general and
administration.
INDUSTRIAL SEGMENT sales of $33 million for the third quarter of 1994
increased $4 million, or 14 percent, when compared to the third quarter
1993 sales of $29 million. Operating profit of $5.0 million increased $.7
million, or 16 percent, when compared to the third quarter 1993 operating
profit of $4.3 million. Industrial sales of $91 million for the first nine
months of 1994 increased $10 million or 12 percent relative to the first
nine months of 1993. Operating profit increased $1.5 million or 14 percent
over the first nine months of 1993. The current year increase in sales and
profits is attributable to growing demand and increased market share in this
segment.
TECHNOLOGY SEGMENT revenues of $53 million for the third quarter of 1994
were 2 percent lower than the third quarter 1993 revenues of $54 million.
Revenues of $156 million for the first nine months of 1994 were 3 percent
lower than 1993 nine months revenues of $160 million. The third quarter
operating deficit of $(0.2) million in 1994 is an improvement over the
third quarter 1993 deficit of $(0.7). However, the first nine months
operating deficit of $(0.7) million is still below operating profit of
$2.3 million for the first nine months of 1993.
During the third quarter of 1993, the Company completed the combination of
the assets of its Calspan unit with Space Industries, Inc. The Company
owns approximately 70% of the combined company, Space Industries
International, Inc.(SIII). In addition to the dilutive effect of the
merger, increased competition in the market for new contracts, along with
higher general and administrative expenses, have contributed to the decline
in operating profits in the segment.
Furthermore, SIII has restructured its service contract business unit to
reflect changes in government procurement practices and to position the unit
more favorably for future contract competitions. As part of this
restructuring, SIII has entered into an agreement to transfer a principal
contract to an unconsolidated joint venture company in return for a
participation in future performance fees. SIII will own a 49 percent
interest in the new company. Transfer approval from the government is
expected by SIII during the fourth quarter of 1994. Although the transfer
will result in a reduction in prospective revenues, it is expected, upon
the successful awarding of this contract to the joint venture company during
the rebidding process, that the joint venture arrangement will permit a
level of participation in the future net income associated with this
contract. The effect on the operating profit of Arvin is expected to be
immaterial.
In addition, the management of SIII is in the process of implementing
a downsizing program to improve its competitiveness. Although some
of the areas have been identified and the costs recognized in the third
quarter, the costs associated with additional programs expected to be
identified will continue to have an effect at least through the fourth
quarter of 1994.
Space Industries, Inc., prior to the merger with Calspan, had capitalized
$18.2 million in costs related to certain Space Facility Technology. The
Space Facility Technology represents the cost of developing the technology
necessary to design, integrate and operate a man-tended orbital space
facility and other space operations. SIII is no longer accumulating costs
in this program area. The recovery of the capitalized costs is dependent
on SIII's future success in selling technology, related services, or
engineering designs related to these costs at profitable terms. SIII
plans, beginning in the fourth quarter of 1994, to initiate a comprehensive
review to determine the future economic viability of this Space Facility
Technology, its carrying value, and other related intangibles. No
conclusions have been reached at this date.
FINANCIAL CONDITION
- -------------------
Working capital increased $14.5 million from year end 1993 through
October 2, 1994. The current ratio decreased from 1.9 at year end 1993 to
1.7 at the end of the third quarter 1994.
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 from the issuance of the
securities will be used for general corporate purposes.
Based on the Company's projected cash flow from operations and existing
financing credit facility arrangements, management believes that sufficient
liquidity is available to meet its anticipated capital and dividend
requirements over the foreseeable future.
Funds expected to be generated from the sale of Schrader will be used to
reduce the Company's debt.
Planned capital expenditures for 1994 are adequate for normal growth and
replacement and are consistent with projections for future sales and
earnings. Current year expenditures are expected to be funded from
internaly generated funds. During the first nine months capital
expenditures were $68.3 and $61.9 million in 1994 and 1993, respectively.
OTHER MATTERS
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The Company is 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. The remediation method, amount of remediation costs or the
allocation among potentially responsible parties has not been determined
at the majority of these sites. Where reasonable estimates are possible,
the Company has provided for the costs of study, cleanup, remediation, and
certain other costs, taking into account, as applicable, available
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 the resulting liabilities beyond provisions
already recorded will have a materially adverse effect on the Company's
financial position.
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 to identify potential remediation alternatives and related cost
estimates is expected to be substantially completed in 1995. At this
time, the Company does not possess sufficient information to
reasonably estimate its remediation costs at Platt Saco Lowell.
On March 25, 1994 the Company purchased the European exhaust manufacturer
MTA Srl, located in Mosciano St. Angelo, Italy. MTA manufactures car
exhaust down pipes, catalysts and other related parts.
Part II. Other Information
Item 2. Changes in Securities
(a) On November 10, 1994 the Board of Directors of Arvin
Industries, Inc. (the "Company") authorized an amendment to
the Rights Agreement dated as of May 28, 1986, as amended as
of February 23, 1989 (the "Rights Agreement") between the
Company and Harris Trust and Savings Bank, as Rights Agent.
The Rights Agreement was amended (the "Amendment") to (1)
eliminate an exception to its "flip-in" provisions for cash
tender offers for all of the outstanding shares of Common
Stock, par value $2.50 per share, of the Company (the
"Common Shares") pursuant to which the acquiring person
becomes the beneficial owner of 80% or more of the
outstanding Common Shares, (2) add an "exchange provision",
(3) provide that if the Board determines that a person has
inadvertently become an Acquiring Person (as defined in the
Rights Agreement) and such person promptly divests of a
sufficient number of Common Shares, such person will not be
deemed to be an Acquiring Person, and (4) explicitly provide
the Company with the authority to reduce the triggering
threshold to 10%. Accordingly, the "flip-in" provisions
provide, among other things, that if 20% or more of the
Common Shares are acquired by a person or group of
affiliated or associated persons, or if during such time as
there is a person or group of affiliated or associated
persons which own 20% or more of the Common Shares certain
transactions occur which increase the ownership of such
person or group of affiliated or associated persons by more
than 1%, then each holder of a Right (as defined in the
Rights Agreement) other than such person or group of
affiliated or associated persons would have the right to
purchase a number of Common Shares having a market value
equal to twice the current exercise price of the Right. In
addition, the "exchange provision" provides that if 20% or
more (but less than 50%) of the Common Shares are acquired
by any person or group of affiliated or associated persons,
the Company's Board of Directors may exchange each Right for
one Common Share. In these situations, the Rights owned by
any person or group of affiliated or associated persons
holding 20% or more of the Company's Common Shares become
void and cannot be exercised.
A copy of the form of the Amendment is attached as an
exhibit hereto and is incorporated herein by reference. The
above description of the Amendment is qualified in its
entirety by reference to such exhibit.
(b) None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
04 - Instruments Defining the Rights of
Security Holders
11 - Computation of Earnings Per Share of
Common Stock
27 - Financial Data Schedule
(b) Reports on Form 8-K
None
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.
ARVIN INDUSTRIES, INC.
----------------------
(Registrant)
W. M. Lowe, Jr.
Controller and Chief
Accounting Officer
Date: November 15, 1994