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 2, 1995 or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number 1-302
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 (I.R.S. Employer
of incorporation or organization) Identification No.)
One Noblitt Plaza, Box 3000
Columbus, IN 47202-3000
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(Address of principal (Zip Code)
executive offices)
812-379-3000
----------------
(Registrant's telephone number including area code)
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 [ ]
As of May 7, 1995, the Registrant had outstanding 22,310,412
Common Shares (excluding treasury shares), $2.50 par value.
Table of Contents
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statement of Operations for the Three
Months Ended April 2, 1995 and April 3, 1994
Consolidated Statement of Financial Condition at
April 2, 1995 and January 1, 1995
Consolidated Statement of Cash Flows for the Three
Months Ended April 2, 1995 and April 3, 1994
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 6. Exhibits and Reports on Form 8K
Part I.
Item 1. Financial Statements
Arvin Industries, Inc.
Consolidated Statement of Operations
(Dollars in millions, except per share amounts)
Unaudited
----------------------------
Three Months Ended
----------------------------
April 2, April 3,
1995 1994
----------- -----------
Net Sales $ 553.4 $ 479.2
Costs and Expenses:
Cost of goods sold 481.2 406.9
Selling, operating general and administrative 44.4 47.6
Corporate general and administrative 2.1 2.5
Restructuring charges 2.1 --
Interest expense 11.5 9.6
Interest income (.6) (.5)
Other expense, net 1.4 3.6
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542.1 469.7
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Earnings from Continuing
Operations Before Income Taxes 11.3 9.5
Income taxes (4.4) (3.9)
Minority share of income (2.3) (.3)
Equity losses of affiliates (.2) (.2)
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Earnings from Continuing Operations 4.4 5.1
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Income from discontinued operations, net of
income taxes of $.0 and $.1, respectively -- .2
Income from disposal of discontinued operations,
net of income taxes of $.2 and $.0, respectively .7 --
---------- ----------
Net Earnings $ 5.1 $ 5.3
========== ==========
Earnings Per Common Share
Primary:
Continuing operations $ .20 $ .23
Discontinued operations .03 .01
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Total - Primary $ .23 $ .24
Fully Diluted: ========== ==========
Continuing operations $ .20 $ .23
Discontinued operations .03 .01
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Total -Fully Diluted $ .23 $ .24
========== ==========
Average Common Shares Outstanding (000's)
Primary 22,348 22,513
Fully Diluted 25,371 25,934
Dividends Per Common Share $ .19 $ .19
========== ==========
See notes to consolidated financial statements.
Arvin Industries, Inc.
Consolidated Statement of Financial Condition
(Dollars in millions, except per share amounts)
Unaudited Audited
---------- ----------
As of As of
4/2/95 1/1/95
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Assets
Current Assets:
Cash and cash equivalents $ 37.1 $ 17.6
Receivables, net of allowances of $7.3 as of
April 2, 1995 and $4.8 as of January 1, 1995 338.4 302.4
Inventories 117.2 105.9
Other current assets 101.9 76.4
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Total current assets 594.6 502.3
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Non-Current Assets:
Property, plant and equipment:
Land, buildings, machinery & equipment 950.9 890.1
Less: Allowance for depreciation 490.5 458.8
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460.4 431.3
Goodwill, net of amortization of $27.8 as of
April 2, 1995 and $26.6 as of January 1, 1995 149.4 150.4
Investment in affiliates 78.2 91.9
Net assets of discontinued operations -- 40.8
Other assets 59.8 58.6
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Total non-current assets 747.8 773.0
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$ 1,342.4 $ 1,275.3
========== ==========
Liabilities and Shareholders' Equity
Current Liabilities:
Short-term debt $ 80.0 $ 25.1
Accounts payable 243.1 198.7
Accrued expenses 111.5 113.5
Income taxes payable 2.9 1.5
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Total current liabilities 437.5 338.8
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Long-term employee benefits 61.2 63.5
Deferred income taxes and other liabilities 15.4 15.3
Long-term debt 364.3 416.3
Minority interest 63.4 45.1
Shareholders' Equity:
Common shares ($2.50 par value) 60.4 60.4
Capital in excess of par value 206.5 206.6
Retained earnings 194.9 194.1
Minimum pension liability adjustment (.6) (.6)
Cumulative translation adjustment (18.3) (20.7)
Common shares held in treasury (at cost) (42.3) (43.5)
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Total shareholders' equity 400.6 396.3
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$ 1,342.4 $ 1,275.3
========== ==========
See notes to consolidated financial statements.
Arvin Industries, Inc.
Consolidated Statement of Cash Flows
(Dollars in millions)
(Unaudited)
-----------------------
Three Months Ended
-----------------------
April 2, April 3,
1995 1994 <F1>
-------- --------
Operating Activities:
Net earnings $ 5.1 $ 5.3
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 20.2 17.7
Amortization 1.5 1.7
Long-term employee benefits (1.9) ---
Deferred income taxes, long-term (2.6) (1.6)
Minority interest 2.3 0.3
Other 1.7 (4.3)
Changes in operating assets and liabilities:
Receivables (30.0) (48.7)
Inventories and other current assets (24.8) (1.7)
Accounts payable and other accrued expenses 16.6 27.2
Income taxes payable and deferred taxes 2.6 7.4
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Net Cash Provided By/(Used For) Operating Activities (9.3) 3.3
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Investing Activities:
Purchase of property, plant and equipment (19.0) (20.8)
Proceeds from sale of property, plant and equipment 0.8 0.1
Proceeds from sale of business segment 36.2 ---
Cash balance of previously unconsolidated subsidiary 16.9 ---
-------- --------
Net Cash Provided By/(Used For) Investing Activities 34.9 (20.7)
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Financing Activities:
Change in short-term debt, net 3.1 12.8
Proceeds from long-term borrowings --- 75.0
Principal payments on long-term debt (8.9) (75.0)
Dividends paid (4.2) (4.2)
Other --- 0.3
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Net Cash Provided By/(Used For) Financing Activities (10.0) 8.9
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Cash and Cash Equivalents:
Effect of exchange rate changes on cash (0.9) (0.6)
-------- --------
Net increase/(decrease) 14.7 (9.1)
Beginning of the period 22.4 39.1
-------- --------
End of the Period $ 37.1 $ 30.0
======== ========
<F1> Certain amounts have been reclassified to conform with current year presentation.
See notes to consolidated financial statements.
ARVIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. 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 and
should be read in conjunction with the financial statements and
notes thereto appearing in the Company's annual report on Form
10-K for the year ended January 1, 1995.
In the opinion of management, all adjustments considered necessary
for a fair presentation of the results of operations for the periods
reported have been included. Other than the adjustment described in
note 11, all such adjustments are of normal recurring nature.
The results of operations for the three months ended April 2,
1995 are not necessarily indicative of the results to be expected
for the full year ending December 31, 1995.
Note 2. Results of operations in the first quarter of 1995
include $2.0 million restructuring charges for early retirement
program costs and $.1 million of other restructuring costs.
These costs were anticipated and disclosed as a part of the 1994
restructuring, but they were not permissible for 1994 accrual
under current accounting guidelines. Cash flows for the quarter
include $.3 million for restructuring costs which were accrued in
1994 and $.1 million of other restructuring costs accrued and
paid during the quarter. The remaining workforce reductions and
consolidation of manufacturing facilities and product lines
announced as a part of the 1994 restructuring will be
substantially complete by December 31, 1995. Seventy-three
employees terminated under early retirement during the first
quarter of 1995. The total number of employees to be separated
under the 1994 restructuring plan is now estimated to be 276.
Note 3. Effective April 14, 1994, the Company adopted a plan to
sell its Schrader Automotive unit (Schrader). Accordingly,
Schrader is reported as a discontinued operation at January 1,
1995.
In February 1995, the Company entered into a contract for the
sale of Schrader. The transaction was completed on February 16,
1995. An initial payment for the estimated selling price
of $43.0 million was received and the estimated
gain recorded during the first quarter of 1995 was
$.7 million, net of tax.
Note 4. There were options for 2.1 and 1.9 million common shares
outstanding as of April 2, 1995 and April 3, 1994, respectively.
Earnings per share calculations include 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.
Note 5. The Company uses the method of pooling, by individual
natural inventory components (e.g., steel, substrate, labor and
overhead), in computing an overall weighted average index. The
index is applied to the total dollar value of the ending
inventory. This method of pooling makes it impractical to
classify LIFO inventories into the finished goods, work in
process and raw material components.
Note 6. During the first quarter 1995, the Company repurchased,
at approximately book value, $7.8 million of its outstanding 7.5
percent convertible subordinated debentures. The remaining 7.5
percent convertible subordinated debentures, due in 2014, are
convertible into common shares at a rate of approximately 35.09
shares for each $1,000 debenture held.
Note 7. The Company is defending various environmental claims
and legal actions that arise in the normal course of its
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. At a majority of these sites, the information
currently available leads the Company to believe it has very
limited or even de minimis responsibility. At other sites,
neither the remediation method, amount of remediation costs nor
the allocation among potentially responsible parties has been
determined. 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 is a participant with the EPA and the current owner
of a site previously owned by the Company's Maremont subsidiary
in a corrective action proceeding under the Resource Conservation
and Environmental Recovery Act. In the fourth quarter of 1994,
based on the results of an environmental study, the Company
accrued for its share of the reasonably estimable minimum
remediation costs at this site, which include costs incurred in
connection with further studies and design of a remediation plan,
remedial costs, including cleanup activities, and administrative,
legal and consulting fees. Given the inherent uncertainties in
evaluating legal and environmental exposures, actual costs to be
incurred in future periods may vary from the currently recorded
estimates. The Company expects that any sum it may be required
to pay in connection with legal and environmental matters in
excess of the amounts recorded will not have a material adverse
effect on its financial condition.
Note 8. Arvin's Board of Directors has approved a one million
share Common Share Repurchase Program. The objective of the
program is to meet benefit plan obligations, including employee
stock options. Repurchases under the program may take place from
time to time in the market.
Note 9. Changes in Shareholders' Equity
(Dollars in millions)
For the Three
Months Ended
------------------
4/2/95 4/3/94
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Beginning balance $ 396.3 $ 420.6
Exercise of stock options 0 1.0
Cash dividends (4.2) (4.2)
Net earnings 5.1 5.3
Translation adjustments during the period 2.4 (.8)
Shares contributed to employee benefit plan 1.0 .7
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Total shareholders' equity $ 400.6 $ 422.6
======= =======
Note 10. Effective January 1, 1995, significant changes were
made to the by-laws of a previously unconsolidated subsidiary,
which provide Arvin the ability to control this joint venture.
Accordingly, the Company has consolidated the 1995 financial
results of the subsidiary, which were accounted for under the
equity method in prior periods. Since Arvin's 50 percent
ownership interest in the joint venture remains the same, there
is no effect on the Company's earnings from continuing
operations. However, the consolidation of the previously
unconsolidated subsidiary increased first quarter 1995 net sales
and earnings from continuing operations before income taxes by
$26.3 million and $2.2 million, respectively.
Note 11. During the first quarter of 1995, a one time adjustment
of $3.9 million was recorded to reduce prior years' accruals of
employee benefits in the Technology segment.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Review
(Dollar amounts in tables in millions)
Overview
Arvin recorded sales of $553.4 million for the first quarter of
1995, which represents a 15 percent increase over the first
quarter of 1994 sales of $479.2 million. The increase in sales
was primarily attributable to strong North American vehicle
production, the easing of recessionary pressures in the European
automotive markets and the consolidation of a previously
unconsolidated Arvin joint venture.
Earnings from continuing operations decreased from $5.1 million
in the first quarter of 1994 to $4.4 million in the first quarter
of 1995. Earnings from continuing operations includes both 1995
restructuring charges of $2.1 million and a one-time positive
adjustment of $3.9 million to employee benefit accruals in the
Technology segment.
Except for the exchange losses of approximately $.9 million
related to the devaluation of the Mexican peso, currency
fluctuations had a minor positive impact on the comparative
balances of both sales and operating income.
Results of Operations
Net Sales by Segment First Quarter First Quarter
1995 1994
------------ ------------
Automotive Original Equipment $370.7 67% $283.9 59%
Automotive Replacement 148.5 27 142.4 30
Technology 34.2 6 52.9 11
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Total $553.4 100% $479.2 100%
------ ---- ------ ----
Operating Income by Segment<F1> First Quarter First Quarter
1995 1994
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Automotive Original Equipment $ 20.4 77% $ 15.3 66%
Automotive Replacement 1.7 7 7.7 33
Technology 4.3 16 .1 1
------ ---- ------ ----
Total $ 26.4 100% $ 23.1 100%
<F1> Reflects income from continuing operations prior to
Corporate allocated expenses.
Automotive Original Equipment ("OE"): First quarter 1995 OE
sales were 31 percent higher than the first quarter 1994. The
increase was primarily a result of an increase in the North
American automotive build rate, continued strengthening of the
European market, significant new business and improved
revenues and margins from coil coating operations. In addition,
approximately 30 percent of the increase was a result of the
consolidation of sales from an Arvin joint venture which was
previously unconsolidated. Offsetting these positive movements
in sales were pricing pressures in both the U.S. and Europe,
continued start up costs on new strut production and the
deteriorating economic conditions surrounding the Company's
Mexican operations.
Operating income in this segment increased 33 percent during the
first quarter of 1995 when compared to the first quarter of 1994.
The increase can be attributed to the higher sales revenues and
productivity improvements. These gains were somewhat offset by
price concessions, inflation and early retirement expenses.
Automotive Replacement ("Replacement"): Replacement sales
increased 4 percent over the prior year. A slight sales decrease
in the U.S. was offset by a strong increase in the European Union
sales of both exhaust and ride control product lines. European
Union sales increased 22 percent at reported exchange rates and
12 percent at a constant rate of exchange. The increase was
primarily a result of improving economic conditions throughout
the European Union.
Operating profit for the replacement market was down
significantly in the U.S. market as a result of increased costs
associated with obtaining new business. The European market,
however, experienced strong increases in operating profit on
increased sales.
Technology: Technology sales decreased 35 percent. The
Company's reorganization of its service contract business unit
contributed $16.5 million of the decline. As part of this
reorganization, the Company entered into an agreement to transfer
a principal contract to an unconsolidated joint venture company
in return for a participation in future performance fees. The
Company owns a 49 percent interest in the new company. Although
the revenues are no longer consolidated, the joint venture
arrangement permits a level of participation in net income
associated with this contract.
Operating profit for the technology segment improved
significantly due to a one time adjustment of $3.9 million to
reduce prior years' accruals of employee benefits.
Corporate General and Administrative expenses decreased 16
percent or $.4 million in the first quarter of 1995. The decrease
was primarily the result of reduced expenditures for employee
costs and professional services.
Interest Expense increased 20 percent or $1.9 million in the
first quarter of 1995. The increase was a result of higher
average borrowing rates on higher average outstanding debt.
Other Expenses, net decreased $2.2 million in the first quarter
of 1995. The decrease was primarily a result of a gain on the
sale of a property held for sale and the reduction of goodwill
amortization as a result of goodwill written off as a part of the
1994 restructuring.
Restructuring Charges of $2.1 million, related to the 1994
restructuring plan, are included in results of operations in the
first quarter of 1995. These charges represent $2.0 million of
costs for an early retirement program and $.1 million of other
costs of consolidation. The workforce reductions and
consolidation of manufacturing facilities and product lines will
be substantially complete by December 31, 1995, and are an effort
to concentrate resources allowing the Company to achieve its
long-term strategic growth objectives. The Company expects
additional 1995 charges to be consistent with 1994 estimates.
Minority Share of Income increased $2.0 million for the first
quarter when compared to the first quarter of 1994. The increase
is primarily a result of the minority share, net of tax, of the
one time adjustment for employee benefit accruals in the
technology segment ($.7 million) and the consolidation of a
previously unconsolidated joint venture ($.7 million).
Income from Disposal of Discontinued Operations of $.7 million
represents the estimated gain on the sale of the business.
Income prior to the first quarter 1994 measurement date is
recorded as "Income from discontinued operations." In February
1995, the Company entered into a contract for the sale of
Schrader. The transaction was completed on February 16, 1995.
Financial Condition
Liquidity During the first quarter of 1995, working capital
decreased $6.4 million. The primary reason for the decrease is
from the reclassification, to current portion of long term debt,
of the Company's 9.97 percent notes maturing in the first quarter
of 1996. The current ratio decreased from 1.5 at the end of 1994
to 1.4 at the end of the first quarter of 1995.
Cash and Cash Equivalents increased $19.5 million from the end of
1994 to the end of the first quarter of 1995. The primary reason
for the increase is the consolidation of the Company's previously
unconsolidated joint venture with cash and cash equivalents of
$17.1 million.
Accounts Receivable and Accounts Payable both increased
substantially (12 percent and 22 percent) primarily as a result
of a 27 percent increase in March sales over December sales.
Other Current Assets increased $25.5 million. The primary reason
for the increase is the consolidation of the Company's previously
unconsolidated joint venture, increased customer tooling and a
receivable for property sold.
Capital Resources 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 anticipated capital and dividend requirements
over the foreseeable future as well as the cash outlays resulting
from the 1994 restructuring program.
Planned capital expenditures for 1995 are adequate for normal
growth and replacement and are consistent with projections for
future sales and earnings. Near-term expenditures are expected
to be funded from internally generated funds.
Funds generated from the February 16, 1995 sale of Schrader (See
Note 3) were used to reduce the Company's debt and for other
corporate purposes.
Legal/Environmental Matters The Company is defending various
environmental claims and legal actions that arise in the normal
course of its 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. At a majority of these sites,
the information currently available leads the Company to believe
it has very limited or even de minimis responsibility. At other
sites, neither the remediation method, amount of remediation
costs nor the allocation among potentially responsible parties
has been determined. 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 is a participant with the EPA and the current owner
of a site previously owned by the Company's Maremont subsidiary
in a corrective action proceeding under the Resource Conservation
and Environmental Recovery Act. In the fourth quarter of 1994,
based on the results of an environmental study, the Company
accrued for its share of the reasonably estimable minimum
remediation costs at this site, which include costs incurred in
connection with further studies and design of a remediation plan,
remedial costs, including cleanup activities, and administrative,
legal and consulting fees. Given the inherent uncertainties in
evaluating legal and environmental exposures, actual costs to be
incurred in future periods may vary from the currently recorded
estimates. The Company expects that any sum it may be required
to pay in connection with legal and environmental matters in
excess of the amounts recorded will not have a material adverse
effect on its financial condition.
Part II
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
- ------------
03 Amended and Restated Bylaws
including Amendment to 6.1
of the Bylaws approved
by the Board of Directors
on February 9, 1995 filed herewith as Exhibit 3
11 Computation of Earnings Per Share filed herewith as Exhibit 11
27 Financial Data Schedule filed herewith as Exhibit 27
b. Reports Filed on Form 8-K
- -----------------------------
None
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
the report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Arvin Industries, Inc.
by: /s/ R. A. Smith
------------------------------
R.A. Smith
Vice President-Finance & Chief
Financial Officer
by: /s/ W. M. Lowe, Jr.
------------------------------
W. M. Lowe, Jr.
Controller & Chief Accounting Officer
Date: May 15, 1995