SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Mark one
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the Fiscal year
ended December 29, 1996 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.
----------------------
(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 (Zip Code)
executive offices)
812-379-3000
--------------------
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
----------------------- ------------------------
Common Shares par value $2.50 New York Stock Exchange
(voting), together with Preferred Chicago Stock Exchange
Share Purchase Rights
Securities registered pursuant to Section 12(g) of the Act:
None
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 [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of the Registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any
amendment to Form 10-K. [ ]
The aggregate market value of the voting stock held by non-
affiliates of the Registrant was $476,310,589 as of February 21,
1997. For purposes of the foregoing calculation only, included
as affiliate-owned shares are those owned by the Registrant's
directors and officers. Such inclusion (is not intended and)
should not be construed as an admission that such persons are
affiliates of the Registrant for any other purpose.
As of March 2, 1997, the Registrant had outstanding 24,471,312
Common Shares (including employee stock benefit trust shares
and excluding treasury shares), $2.50 par value.
Documents Incorporated by Reference
--------------------------------------
Portions of the registrant's definitive Proxy Statement, for the
Annual Meeting of Shareholders to be held April 17, 1997 and
filed with the Securities and Exchange Commission pursuant to
Regulation 14A, are incorporated by reference in Part III of this
Form 10-K.
ARVIN INDUSTRIES, INC.
Index to Annual Report on Form 10-K
Fiscal Year Ended December 29, 1996
Page No.
Part I
Item 1 Business 3
Item 2 Properties 5
Item 3 Legal Proceedings 6
Executive Officers 7
Item 4 Submission of Matters to a Vote of Security Holders 7
Part II
Item 5 Market for Registrant's Common Equity and Related
Shareholder Matters 8
Item 6 Selected Financial Data 8
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 8 Financial Statements and Supplementary Data 16
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 42
Part III
Item 10 Directors and Executive Officers of the Registrant 43
Item 11 Executive Compensation 43
Item 12 Security Ownership of Certain Beneficial Owners and
Management 43
Item 13 Certain Relationships and Related Transactions 43
Part IV
Item 14 Exhibits, Financial Statement Schedules and Reports
on Form 8K 43
Other
Signatures 46
Part I
Item 1. Business
Arvin Industries, Inc. (which together with its consolidated
subsidiaries is referred to herein as "Arvin" or "the Company")
is a diversified international manufacturer and supplier of
automotive parts and a variety of other products through
operating entities in the United States (U.S.) and numerous other
countries. The Company is a worldwide leader in automotive
exhaust systems and ride control products for the original
equipment and replacement markets. The Company's consolidated
revenues were over $2 billion in fiscal 1996. Since its founding
in 1919, Arvin has grown through internal development,
acquisitions and a number of international joint ventures. In
recent years, the Company's strategy has been to strengthen its
automotive parts businesses by achieving a mix of sales to both
original equipment manufacturers ("OEMs") and replacement market
parts suppliers on a global basis. Recently, management has
implemented a series of strategic initiatives to increase the
Company's global competitive position within the automotive parts
marketplace.
The Company classifies its business based on the two primary
markets it serves: Automotive Original Equipment ("OE") and
Automotive Replacement ("Replacement"). In fiscal 1996, Arvin
derived approximately 70 percent of its total revenues from the
OE market, with the remaining 30 percent coming from replacement
market sales.
Automotive Original Equipment:
Principal products of the Automotive Original Equipment segment
include exhaust systems (mufflers, exhaust and tail pipes,
catalytic converters and tubular manifolds), ride control
products (shock absorbers and struts), gas springs, vacuum
actuators, metal tubular parts, coated coil steel and aluminum,
press-molded thermoplastics and vinyl-metal stampings.
Primary customers of the Automotive Original Equipment segment
include Chrysler, Fiat, Ford, General Motors, Honda, Mazda,
Mercedes Benz, Mitsubishi, Nissan, Renault, Toyota/Nummi,
Volkswagen/SEAT and Volvo. The Company believes that it is the
leading exhaust system supplier to OE customers in North America
and Europe, and among the top three OE ride control suppliers in
these markets.
Arvin's OE segment has undergone a significant transformation in
the last decade, moving to a fully integrated engineering,
development and production operation. This transformation has
been driven by the shift in customer requirements and a change in
the capabilities required to be a successful, long term
participant in this market.
Arvin competes with other independent parts suppliers and with
manufacturers' captive parts operations. The Company has
significantly enhanced its delivery capabilities geographically
since the late 1980s through both acquisitions and the formation
of a number of international joint ventures. Arvin believes that
its aggressive capital spending program has resulted in world-
class manufacturing operations, capable of delivering outstanding
value and quality to its customers.
Automotive Replacement:
The principal products, brand names and primary customers of the
Automotive Replacement segment are set forth below. The Company
believes that it is among the top two replacement exhaust and
ride control manufacturers in both North America and Europe.
Principal products include mufflers, exhaust and tail pipes,
catalytic converters, shock absorbers, MacPherson struts and gas
springs.
Brand names for mufflers include Maremont, Cherry Bomb, TIMAX,
ANSA, ROSI, and TESH. Shock absorbers are marketed under the
Gabriel brand name and gas-charged lift supports are marketed
under the Strong Arm brand name.
Primary customers of the Automotive Replacement segment include
retailers (Sears, Canadian Tire, Pep Boys and AutoZone),
wholesale distributors (Parts, Inc., United Auto Parts and
General Parts) and installers (Meineke and Kwik-Fit).
The Company's replacement market operations compete with both
OEMs and independent suppliers in North America and Europe, and
serve the market through its own sales force as well as a network
of manufacturers' representatives. The Company's competitive
position has been enhanced by rigorous attention to lead time
reduction, with some product offerings improving from seven days
to about one day. The foregoing has enabled the Company to
increase its order fill rate and to provide quick order
turnaround through more responsive manufacturing operations.
These enhanced manufacturing processes have also had a positive
impact on the cost and quality of the product.
B. Number of Employees
At year-end, the Company had 12,982 employees.
C. Competition and Customer Relationships
Each of the Company's business segments operates in a highly
competitive market. Customer loyalty, developed through long-
standing relationships, is a primary element of competition as
well as competitive product pricing and customized services
provided. The Company's long-standing relationships with its
principal customers have been dependent upon the Company's
ability to meet such customers' quantity and quality requirements
in a timely manner.
The loss of a principal customer or a significant decline in the
requirements for the Company's products (resulting, for example,
from a prolonged strike against the customer) could have a
materially adverse effect on the operating results or financial
condition of the Company. In 1996, the Company had sales to
three customers that exceeded 10% of its consolidated net sales
(Ford Motor Company - 19.1 percent, General Motors Corporation -
13.0 percent and Chrysler Corporation - 10.2 percent).
In the OE segment, the Company competes with vehicle
manufacturers and independent suppliers. The Company believes
that it is the leading supplier among four major competitors in
the North American OE exhaust systems market and one of the
leaders among nine major competitors in the European Union. For
OE ride control products, the Company believes that it is one of
the three largest suppliers in the North American market and one
of seven major suppliers in the European Union.
The Company also competes with vehicle manufacturers and
independent suppliers in the Replacement segment. The Company
believes that it is one of four primary suppliers in the North
American automotive replacement exhaust systems market and one of
three major suppliers in the European Union. The Company is one
of two major suppliers in the North American automotive
replacement ride control products market and is one of several
suppliers in the European Union. The Company is the leader in
the U.S. replacement market for gas-charged lift supports.
D. Regulations
United States air pollutant emissions as well as acoustical
emissions are controlled by government regulations that, coupled
with mandated fuel economy improvements, continue to affect
Arvin. Over the near term, the Company does not anticipate any
regulatory changes that will materially impact the use of
catalytic converters in the United States.
European air pollutant emissions regulations continue to become
more stringent and are applicable throughout the European Union.
Current legislation requires catalytic converters to be fitted to
all newly produced gasoline fueled passenger cars. Further
reductions in the permissible levels of emissions have been
introduced in 1996 in the "Stage 2" standards. Additional
tightening of the standards are planned for "Stage 3" in the year
2000. The Company believes that the introduction of more
stringent standards should have a positive impact on the results
of operations for the Company.
Arvin believes that its facilities either comply with applicable
environmental control regulations or that remedial action is
being taken to bring such facilities into compliance. While Arvin
does not believe that continuing compliance will have a material
effect on its competitive or financial condition, some additional
capital expenditures and other expenses will be required to
maintain compliance with such regulations.
E. Patents
The Company owns a considerable number of patents and patent
applications which are, in its judgment, adequate for, but not
essential to, the conduct of its businesses.
F. Research and Development
Expenses for the development of new products and processes,
including significant improvements and refinements to existing
products were $26.2 $24.7, and $22.8, million for 1996, 1995, and
1994, respectively.
Item 2. Properties
- ------------------
The Company has manufacturing facilities, distribution outlets,
sales offices and research centers located throughout the world.
The Company believes that all of its plants have been adequately
maintained and are suitable for its current needs through
productive utilization of the facilities.
Automotive Original Equipment:
- ------------------------------
The Company has approximately 6.3 million square feet to conduct
its business activities related to the OE segment. The Company's
original equipment facilities are nearly fully utilized.
Principal manufacturing facilities in the United States are
located in Indiana, Missouri, Alabama and Tennessee. Additional
manufacturing activities are conducted in South Carolina. The
facilities in Indiana, Missouri, South Carolina and Tennessee are
owned, while the other manufacturing facilities are leased.
Principal sales offices for this segment are leased in Rochester
Hills and Farmington Hills, Michigan.
Principal manufacturing facilities outside of the United States
are located in the United Kingdom, Spain, Italy, the Netherlands
and Canada. Additional manufacturing activities are conducted in
South Africa, France and Mexico.
Automotive Replacement:
- -----------------------
The Company has approximately 2.8 million square feet of space to
conduct its Automotive Replacement business. The Company's
Replacement facilities are nearly fully utilized.
Principal manufacturing facilities located within the United
States are in Tennessee and Oklahoma. Also, the Replacement
operations lease warehouses in Utah and South Carolina from which
products are distributed.
Principal manufacturing facilities located outside the U. S. are
in the United Kingdom. Other manufacturing activities are
conducted in South Africa, Spain, Mexico, Italy and France. The
major distribution center in Blackpool, England is leased, as are
other smaller distribution centers in the United Kingdom.
Item 3. Legal Proceedings
- -------------------------
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 Recovery Act. The Company has 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.
Two previously disclosed suits filed by Chamberlain Manufacturing
Corporation were settled during 1996. Both claims grew out of
the May 1987 sale of a Maremont unit, Saco Defense, Inc., to
Chamberlain and related to (i) certain worker compensation cases
pending at the time of the sale and (ii) assertions of
nonconforming products being shipped to the U.S. government prior
to the sale. The settlement, which included dismissal of all
litigation, was within amounts previously reserved for this
litigation and did not have a significant impact on the Company's
1996 results of operations.
Executive Officers of the Registrant:
- -------------------------------------
Date First
Elected to
Name Age Offices Held Exec. Office
- ----------------- --- --------------------------------- ------------
Byron O. Pond 60 Chairman of the Board of Directors
and Chief Executive Officer (1) 1990
James K. Baker 65 Vice-Chairman of the Board of
Directors (1) 1965
V. William Hunt 52 President and Chief Operating 1980
Officer (1)
Raymond P. Mack 56 Vice President-Human Resources 1993
Richard A. Smith 51 Vice President-Finance and Chief
Financial Officer (1) 1990
Ronald R. Snyder 52 Vice President-General Counsel
and Secretary 1992
E. Leon Viars 57 Executive Vice President 1995
Bernard Kievit 55 Vice President 1995
<FN>
(1) Also a member of the Board of Directors
All terms of all officers of the Registrant run until their
respective successors are elected and qualified.
All listed executive officers except Mr. Snyder have been
employed by the Registrant or one of its subsidiaries for the
past five years. Mr. Snyder joined Arvin in his current capacity
in December, 1992. Previously, he was a partner in the
Indianapolis law firm of Barnes & Thornburg.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of Security Holders during
the fourth quarter of the 1996 fiscal year.
Part II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters
- ----------------------------------------------------------
Arvin's common shares are listed on the New York Stock Exchange
and the Chicago Stock Exchange. Set forth below are the
dividends declared and the high and low sales prices of the
common shares for each quarter during the last two fiscal years.
Market Price Ranges and Quarterly Dividends Paid
(Prices and dividends on common shares)
1996 1995
---------------------------- --------------------------
Market Price Market Price
------------------- -----------------
Dividend High Low Dividend High Low
-------- ------ ----- -------- ------ -----
First Quarter $ .19 $ 22 3/8 $ 16 3/4 $ .19 $ 24 7/8 $ 19 3/4
Second Quarter .19 24 7/8 19 3/4 .19 23 3/4 20 3/4
Third Quarter .19 24 5/8 19 5/8 .19 24 1/8 20 7/8
Fourth Quarter .19 25 1/4 22 3/4 .19 22 1/8 16 1/8
As of March 7, 1997, Arvin had 4,510 holders of record of its
common shares.
Item 6. Selected Financial Data
- -------------------------------
Six-Year Consolidated Financial Summary
In millions, (except per share amounts)
1996 1995 1994 1993 1992 1991
------- ------- ------- ------- ------- -------
Operating Results (1)
Net sales $ 2,212.7 $ 1,966.4 $ 1,849.5 $ 1,640.8 $ 1,587.2 $ 1,373.4
Interest expense 38.8 42.5 42.8 35.0 36.5 39.4
Earnings from
continuing operations 47.1 17.9 24.6 38.4 36.4 17.9
Primary earnings per
common share 2.09 .80 1.10 1.72 1.52 .53
Dividends declared:
Preferred shares -- -- -- -- 5.8 7.8
Common shares 17.1 16.9 16.9 16.7 13.8 12.8
Per common share .76 .76 .76 .76 .70 .68
Average number of common
shares outstanding 22.5 22.4 22.4 22.3 20.1 19.1
Financial Position
Total assets $ 1,380.2 $ 1,291.0 $ 1,231.5 $ 1,175.5 $ 1,110.6 $ 1,086.2
Long-term debt 294.0 360.7 416.3 432.2 388.7 333.1
Total debt 346.6 402.3 441.4 440.1 409.1 369.9
Redeemable preferred shares -- -- -- -- -- 100.5
Shareholders' equity 437.4 395.1 396.3 420.6 398.4 374.1
Book value per
common share 19.38 17.76 17.81 19.04 18.45 19.59
<FN>
(1) From continuing operations
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
- -----------------------------------------------------------
Overview
Arvin's 1996 consolidated sales were at the highest level in the
Company's history. The Company recorded sales of $2.2 billion, a
13 percent increase over 1995. The primary factors that
contributed to the increase were increased market share in the
original equipment segment in both the United States (U.S.) and
Western Europe, the Company's acquisition of a controlling
interest in Way Assauto S.r.l., growth in Western Europe's new
car market of 6.6 percent, improved product mix due to higher
value exhaust production in North American original equipment,
and improved pricing in the replacement market.
Graphic Table - Bar-graph indicating annual sales for original
equipment and replacement segments, respectively, for the
following years, in millions:
1996 $1,549.5 and $663.2
1995 $1,337.2 and $629.2
1994 $1,194.7 and $654.8
Operating income increased 21 percent, to $120.1 million, in
1996. In addition to the increased volume, improved product mix
and improved pricing mentioned above, the increase in operating
income resulted from a reduction in new business costs in the
North American Automotive Replacement operations.
Graphic Table - Bar-graph indicating annual operating income for
original equipment and replacement segments, respectively, for
the following years, in millions:
1996 $71.6 and $48.5
1995 $67.8 and $31.7
1994 $70.9 and $33.2
Currency fluctuations had a negative impact on the comparative
levels of sales and operating income during 1996. Using a
constant exchange rate basis, sales increased 14 percent and
operating income increased 24 percent.
Results of Operations (in millions)
Net Sales by Segment 1996 1995 1994
- ------------------- -------------- -------------- --------------
Automotive Original
Equipment $1,549.5 70% $1,337.2 68% $1,194.7 65%
Automotive
Replacement 663.2 30 629.2 32 654.8 35
--------- ----- --------- ----- --------- -----
Total $2,212.7 100% $1,966.4 100% $1,849.5 100%
========= ===== ========= ===== ========= =====
Operating Income
by Segment 1996 1995 1994
- ------------------- -------------- -------------- --------------
Automotive Original
Equipment $ 71.6 60% $67.8 68% $ 70.9 68%
Automotive
Replacement 48.5 40 31.7 32 33.2 32
--------- ----- --------- ----- --------- -----
Total $120.1 100% $99.5 100% $104.1 100%
========= ===== ========= ===== ========= =====
Automotive Original Equipment (OE), 1996 vs. 1995: Sales in the
OE segment of $1,549.5 million for 1996 were 16 percent higher
than OE sales for 1995. Market forces in the Company's primary
markets of Western Europe and North America
Graphic Table - Pie-chart indicating percentage of 1996 sales
from original equipment and replacement segments:
Original Equipment Sales 70%
Replacement Sales 30%
were mixed. Western Europe's car registrations increased 6.6
percent, while North American car and light truck production
declined 1.3 percent. Despite these mixed market influences, the
Company experienced strong increases in sales volumes. Increased
volume in ongoing operations accounted for 52 percent of the
overall increase, while volume increases as a result of the
consolidation of the ride control manufacturer Way Assauto S.r.l.
contributed 16 percent of the increase. In addition to the
increased volume, the Company's OE markets continued a trend
toward higher quality, higher valued original equipment parts,
which contributed approximately 21 percent of the increase.
Coated steel and other component automotive parts posted modest
volume increases when compared with the prior year. Offsetting
these strong positive trends were selective price concessions,
which averaged less than one percent of OE sales.
Operating income of $71.6 million in the OE segment for 1996
improved by $3.8 million, or 6 percent, despite the first quarter
effect of the General Motors strike, estimated at $2.5 million.
Volume increases and the positive effect on product mix as a
result of a more complex product line were the primary drivers of
the increase. Previously mentioned price concessions were offset
by negotiated material price decreases.
Comparison of the effect of changes in volume from period to
period is subject to a number of limitations, principally
centered around what constitutes a "unit" for volume measurement.
The appropriate measure of a "unit" varies over time as products
develop, varies among the different countries in which the
Company operates, and varies within each operating unit of the
Company. As a result, there is a certain degree of imprecision
and subjectivity in estimating the impact of volume changes.
1995 vs. 1994: Sales in the OE segment of $1,337.2 million for
1995 were 12 percent higher than OE sales for 1994. The effect
of price changes on sales was negligible. Ride control units
sold increased in every major market served. Exhaust unit sales
declined in the United States as a result of lower vehicle
production, and increased throughout Western Europe. The effect
of net increased sales volume of exhaust systems approximated $21
million, while ride control's unit volume increase approximated
$22 million. The Company recognized increased sales volumes
despite essentially level market volumes in Western Europe and a
modest decline in the North American market. The Company's sales
volume in Mexico declined an estimated $17.7 million as a result
of general economic conditions in that country. Sales increases
in excess of identified price and volume factors reflect the
industry's demand for higher quality, more expensive OE parts.
Coated steel volumes were level with the prior year, while
changing volumes in other component automotive parts posted
modest decreases.
Operating income of $67.8 million in the OE segment for 1995
declined by $3.1 million, or 4 percent, when compared with 1994.
The decline was primarily a result of increased material and
labor costs of approximately $18 million, offset by the positive
effect of productivity improvements of approximately $12 million.
Selling price increases contributed approximately $3 million to
the current year's operating income. Costs to complete the 1994
restructuring plan for this segment, which were not eligible to
be expensed in 1994 under generally accepted accounting
principles, exceeded the 1994 restructuring charge by
approximately $1 million.
Automotive Replacement (Replacement), 1996 vs. 1995: Sales in the
Replacement segment of $663.2 million for 1996 were 5 percent
higher than Replacement sales for 1995. Improved pricing
contributed approximately 55 percent of the overall increase.
The Company's recent acquisition of a controlling interest in Way
Assauto S.r.l. accounted for approximately 28 percent of the
increase. Both the North American and West European replacement
exhaust markets reported a decline in total market volume;
however, favorable channel and product mix effectively offset
those market declines.
Operating units in the Replacement segment sell their product
through a variety of different customer "channels" including
merchandisers, installers, and wholesale distributors. As a
result of period to period variations in this "channel mix," in
addition to normal variations in "product mix," the average price
of units sold may not correspond to price changes. As in the OE
segment, there is also a certain degree of imprecision and
subjectivity in estimating the impact of period to period volume
changes, principally because of questions as to what constitutes
a "unit" for volume measurement. The appropriate measure of a
"unit" varies over time as products develop, varies among the
different countries in which the Company operates, and varies
within each operating unit of the Company.
Graphic Table - Pie-chart indicating percentage of 1996 operating
income from original equipment and replacement segments:
Original Equipment Operating Income 60%
Replacement Operating Income 40%
Operating income in the Replacement segment increased $16.8
million during 1996, when compared to 1995. In addition to the
improved pricing mentioned above, operating income improved as a
result of reduced expenditures to obtain new business, which
decreased $9.3 million in the current period, from the unusually
high level reported in the prior year. Increased accounts
receivable collection costs of $3.1 million, a one-time customer
stock adjustment of approximately $3.0 million, and a reserve of
$2.6 million, which resulted from a decision to consolidate some
of the Company's West European distribution locations, offset
those positive factors. Material cost reductions nearly offset
labor inflation.
1995 vs. 1994: Sales in the Replacement segment of $629.2 million
for 1995 were 4 percent lower than Replacement sales for 1994,
despite the overall 2 percent positive effect on sales of price
increases. Volume fell at an overall rate of 3 percent. The
volume decline was most pronounced in the North American exhaust
aftermarket, where the Company's 13 percent decline in volume
approximated the estimated overall North American market
decrease. All North American markets reported volume declines.
The West European replacement exhaust market also reported a
slight decline in volume. Sales to developing countries
continued to post strong increases.
Operating income in the Replacement segment decreased $1.5
million during 1995, when compared to 1994. Labor and material
cost inflation amounted to approximately $7 million. Volume
declines accounted for an estimated $5 million of the decrease
and increased costs of acquiring new customers accounted for
approximately $3 million of the decrease. Both 1994 and 1995
reflect unusually high costs to acquire new business. Total 1995
new business costs were elevated by significant amounts
pertaining to new customer commitments made prior to year-end
1994. At year-end 1995, the comparable commitments to new
customers were negligible. Reported results for 1994 include
$18.0 million of restructuring costs for this segment. Costs to
complete the 1994 restructuring program in the Replacement
segment were less than $1 million in 1995.
Corporate general and administrative expenses in 1996 increased
$5.4 million to $17.6 million. The increase was primarily a
result of increased employee costs. The 1995 expense of $12.2
million, a 3 percent decrease when compared to 1994, was
primarily the result of reduced expenditures for employee costs
and professional services.
Restructuring charges result from the Company's restructuring
plan announced during the fourth quarter of 1994. The workforce
reductions and consolidation of manufacturing facilities and
product lines announced as a part of that restructuring were
substantially completed by year-end 1995. Severance expense
resulting from the plan was $3.0 and $7.4 million for 1995 and
1994, respectively. Severance expense for 1995 is net of a $.6
million income adjustment to severance reserves established in
1994. Cash expenditures during 1995 included $2.9 million for
continuing operations' employees separated under the 1994
restructuring plan and $.5 million for employees in discontinued
operations. The total number of actual employee separations was
308 versus 338 as a part of the plan. Nine employees of
discontinued operations are included in both the actual and
planned employee separations.
The 1994 restructuring expense includes $7.3 million for asset
write downs to reduce the carrying value of underperforming
assets to their estimated fair values. A majority of the assets
written down were a part of a facility consolidation in the
Replacement segment, which closed its Canadian exhaust
manufacturing and distribution facilities and merged those
operations into the U.S. parent company. Facility consolidations
in the U.S. also included a consolidation of Replacement ride
control manufacturing operations and a consolidation of certain
Replacement administrative functions.
Facility consolidations also took place in Western Europe, where
the Company closed a Replacement ride control distribution
facility. Restructuring expense for 1995 and 1994 includes $1.7
and $5.6 million of facility consolidations expense,
respectively. Reported expense for 1995 is net of $.5 million of
income as a result of an adjustment to facility consolidation
reserves established in 1994. Cash expenditures during 1995 to
complete facility consolidations approximated $2.3 million for
continuing and $.8 million for discontinued operations.
The results of discontinued operations for 1994 include
restructuring and special charges totaling $53.0 million, which
were primarily to reduce the carrying values of underperforming
assets, including goodwill.
Special charges and credits, net: Included in 1996 special
charges is a $2.6 million reserve for future lease commitments at
abandoned or under-utilized properties, which resulted from a
decision to consolidate some of the Company's West European
distribution locations. Special charges also include $1.7
million for the net addition to legal and environmental reserves,
primarily for operations previously owned by the Company's
Maremont subsidiary, $1.5 million for costs related to the
redemption of the Company's 7.5 percent subordinated convertible
debentures and $1.2 million for contract termination costs.
Offsetting these charges is a special credit of $2.0 million
related to a 1996 insurance settlement.
During 1995, based upon a judgment entered against an Arvin
subsidiary and assessments by legal counsel of other pending
legal matters, the Company added $13.7 million to its litigation
reserves. The 1995 results also include a special credit of $3.2
million as a result of a settlement with a party potentially
liable for certain costs in connection with various environmental
matters.
The 1994 special charge of $7.8 million included increases in
environmental and other reserves related primarily to the
completion of a feasibility study which identified and estimated
remediation costs at the Platt Saco Lowell site previously owned
by the Company's Maremont subsidiary.
Gain on sale of affiliate: During the fourth quarter of 1996,
the Company sold its 31.4 percent equity interest in its
Argentinean affiliate, Fric Rot S.A.I.C., for $17.3 million. The
pre-tax gain on the sale was $10.8 million.
Interest expense decreased 9 percent or $3.7 million in 1996.
The decrease was primarily a result of the 10 percent decrease in
average outstanding debt. During 1995 interest expense decreased
less than 1 percent, mirroring a decrease in average outstanding
debt of less than 1 percent over the same period.
Other expense, net increased $.2 million in 1996 and $2.1
million in 1995. Increased charitable contributions of $1.2
million, non-manufacturing asset write-downs of $1.1 million and
increased net loss on sale of capital assets of $1.1 million in
1996 were offset by a decrease in foreign currency transaction
losses. The 1995 increase was primarily a result of a $1.6
million increase in foreign currency transaction losses,
primarily in Mexico.
Equity earnings of affiliates increased $3.3 million in 1996. Of
that increase, $2.6 million reflects stronger OE sales and
profits in the United States; $1.0 million of the increase was
contributed by the Company's Argentinean affiliate, which was
sold in December 1996.
During 1995, the Company instituted a review of an
underperforming 50 percent owned joint venture serving the West
European Original Equipment market. The Company's previously
disclosed negotiations were satisfactorily concluded and approved
by regulatory agencies in the second quarter of 1996. An
agreement was also reached with the Company's joint venture
partner and lending institutions for the restructuring of the
joint venture's debt. The agreement did not have a material
impact on the Company's financial statements.
Minority interest in net income of consolidated subsidiaries
increased $.3 million in the current year and $.5 million in
1995. The 1996 increase was primarily a result of improved
results from the Company's 75 percent owned Spanish subsidiary,
AP Amortiguadores, S.A. (APA). The 1995 increase was a result of
improved earnings of both the Company's Timax business unit and
APA.
Income (Loss) from discontinued operations: During 1995, Arvin
completed the sale of its Schrader Automotive unit (Schrader) and
its 70 percent ownership interest in Space Industries
International, Inc. (Space Industries). The 1995 income
represents the results of Space Industries for the first nine
months of 1995. In 1994, the $41.7 million loss primarily
represents losses from Space Industries, net of $.3 million of
earnings from Schrader. Included in Space Industries' 1995
results are a one-time credit of $3.9 million to reduce prior
years' accruals of employee benefits and a one-time charge
approximating $1.6 million for the settlement of certain
retirement benefits.
For 1994, the results of Space Industries include a pre-tax
restructuring and special charge of $53.0 million ($40.1 million
net of tax and minority interest). The components of this charge
were employee separations of $.7 million, asset write-downs of
$19.6 million, goodwill impairment of $29.6 million, facility
consolidations of $2.7 million and other special charges of $.4
million. There were no further restructuring charges or credits
in 1995 for Space Industries.
Income from disposal of discontinued operations relates to
earnings of the Company's Schrader subsidiary after the decision
to sell this business, adjustments in 1995 to tax liabilities
related to the Schrader business, and a provision to adjust the
carrying value of preferred stock received in conjunction with
the sale of Schrader. There was no gain or loss recorded on the
disposition of Space Industries.
Financial Condition
Liquidity: Working capital decreased $32.4 million or 27 percent
in 1996. Accounts receivable increased 10 percent and accounts
payable increased 19 percent, primarily due to the consolidation
of Way Assauto S.r.l. Days sales outstanding at the end of 1996
were 49.8 days compared to 50.7 days at the end of 1995. Short-
term debt increased 26 percent primarily as a result of the
December 27, 1996 redemption of the 7.5 percent convertible
subordinated debentures. The current ratio decreased from 1.3 at
the end of 1995 to 1.2 at the end of 1996. (See the Consolidated
Statement of Cash Flows for a detailed analysis of changes in
cash.)
Assets of business transferred under contractual arrangements and
Liabilities and deferred credit of business transferred represent
100 percent of the assets of the Company's former subsidiary,
Space Industries, which was sold to a new company formed by the
senior management of Space Industries for approximately $30.6
million in cash. Under the agreement, the Company guaranteed
approximately $22.9 million of the new company's debt incurred as
a part of the transaction. The guarantee amount, which was $18.0
million at December 29, 1996, is scheduled to decline on a
quarterly basis before expiring on September 30, 1999. The
accounting for the Space Industries transaction follows the
treatment set forth in the Securities and Exchange Commission's
Staff Accounting Bulletins - Topic 5E (SAB Topic 5E) "Accounting
for divestiture of a subsidiary or other business operation."
Capital Resources:
On December 27, 1996, the Company redeemed the remaining $61.9
million of its 7.5 percent convertible subordinated debentures at
par value plus a 2.25 percent call premium. On January 28, 1997,
in connection with the redemption of the convertible subordinated
debt, Arvin Capital I, a subsidiary of Arvin Industries, Inc.,
issued $100 million of its 9.5 percent Capital Securities,
maturing on February 1, 2027, callable in 10 years. Proceeds from
this issue have been or are expected to be used for the
acquisition of additional shares in Autocomponents Suspension
S.r.l., the purchase of the remaining shares of Timax Exhaust
Systems Holding B.V. (TESH), general corporate purposes and to
pay down short-term borrowings incurred in connection with the
December 27, 1996 redemption of the convertible subordinated
debentures.
On January 29, 1997 the Company exercised its option to purchase
an additional 5 percent of Autocomponents Suspension S.r.l. for a
purchase price of $1.8 million.
In January 1997 the Company notified Sogefi S.p.A. of its intent
to exercise its option to acquire the remaining 50 percent of the
joint venture with Sogefi S.p.A. The anticipated purchase price
is $30 million. The purchase of the remaining half of the joint
venture company, TESH, based in the Netherlands, will further
increase the Company's European replacement market presence.
During the fourth quarter of 1996, the Company sold its 31.4
percent equity interest in Fric Rot S.A.I.C., for $17.3 million.
The pre-tax gain on the sale was $10.8 million. Funds generated
from the December 1996 sale of Fric Rot were used to reduce the
Company's debt and for other corporate purposes.
Based on the Company's projected cash flow from operations and
existing credit facility arrangements, management believes that
sufficient liquidity is available to meet anticipated capital and
dividend requirements over the foreseeable future. Capital
expenditures of continuing operations were $79.1, $98.8 and
$100.7 million in 1996, 1995 and 1994, respectively, and related
to ongoing production improvements, product enhancements, new
production, and manufacturing efficiencies as well as normal
replacement. Business acquisitions, net of cash acquired, and
additional investments in affiliates were $16.5 and $10.1 million
in 1996 and 1994, respectively. Planned capital expenditures for
1997 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 the issuance of
capital securities and from internally generated funds.
Financial Instruments and Risk Management: The Company uses
financial derivatives, including forward exchange contracts and
options and interest rate swaps and options, to manage its global
foreign exchange and interest rate exposure. The foreign
exchange derivatives serve primarily to protect the functional
currency value of certain non-functional currency positions and
anticipated transactions of the Company and its foreign
subsidiaries. (See also Notes 1 and 7 to the Consolidated
Financial Statements.)
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 Recovery Act. The Company has 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.
Two previously disclosed suits filed by Chamberlain Manufacturing
Corporation were settled during 1996. Both claims grew out of
the May 1987 sale of a Maremont unit, Saco Defense, Inc., to
Chamberlain and related to (i) certain worker compensation cases
pending at the time of the sale and (ii) assertions of
nonconforming products being shipped to the U.S. government prior
to the sale. The settlement, which included dismissal of all
litigation, was within amounts previously reserved for this
litigation and did not have a significant impact on the Company's
1996 results of operations.
Item 8. Financial Statements and Supplementary Data
Page No.
Index to Consolidated Financial Statements
Consolidated Financial Statements:
Consolidated Statement of Operations for each of the three
years in the period ended December 29, 1996 17
Consolidated Statement of Financial Condition at
December 29, 1996 and December 31, 1995 18
Consolidated Statement of Shareholders' Equity for each
of the three years in the period ended December 29, 1996 19
Consolidated Statement of Cash Flows for each of the
three years in the period ended December 29, 1996 20
Notes to Consolidated Financial Statements 21
Report of Independent Accountants 40
Financial Statement Schedules:
For each of the three years in the period ended December 29, 1996
II Valuation and Qualifying Accounts 41
Supplementary Data:
Selected Quarterly Financial Data 42
Financial statements of unconsolidated affiliates have been
omitted because the registrant's proportionate share of the
income from continuing operations before income taxes, and total
assets of each such company is less than 20% of the respective
consolidated amounts, and the investment in and advances to each
company is less than 20% of consolidated total assets.
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission
are not required under the related instructions, are not
applicable or the required information is shown in the financial
statements or the notes thereto.
Arvin Industries, Inc.
Consolidated Statement of Operations
(Dollars in millions, except per share amounts)
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
Net Sales $ 2,212.7 $ 1,966.4 $ 1,849.5
Costs and Expenses:
Cost of goods sold 1,940.2 1,707.7 1,573.7
Selling, operating general and administrative 151.1 152.3 149.9
Corporate general and administrative 17.6 12.2 12.6
Restructuring -- 4.7 20.3
Special charges and credits, net 5.0 10.5 7.8
Gain on sale of affiliate (10.8) -- --
Interest expense 38.8 42.5 42.8
Interest income (1.9) (1.3) (2.7)
Other expense, net 8.6 8.4 6.3
- ----------------------------------------------------------------------------------------------------------
2,148.6 1,937.0 1,810.7
- ----------------------------------------------------------------------------------------------------------
Earnings from Continuing
Operations Before Income Taxes 64.1 29.4 38.8
Income taxes (19.7) (11.2) (16.2)
Minority interest in net income
of consolidated subsidiaries (2.5) (2.2) (1.7)
Equity earnings of affiliates 5.2 1.9 3.7
- ----------------------------------------------------------------------------------------------------------
Earnings from Continuing Operations 47.1 17.9 24.6
- ----------------------------------------------------------------------------------------------------------
Income (Loss) from discontinued operations, net of
income tax of $.0, $.5, and $2.1, respectively -- .4 (41.7)
Income from disposal of discontinued operations, net of
income tax (tax benefit) of $.0 ($2.8) and $1.3, respectively -- .7 .8
- ----------------------------------------------------------------------------------------------------------
Net Earnings (Loss) $ 47.1 $ 19.0 $ (16.3)
==========================================================================================================
Earnings (Loss) per Common Share
Primary:
Continuing operations $ 2.09 $ .80 $ 1.10
Discontinued operations -- .05 (1.83)
- ----------------------------------------------------------------------------------------------------------
Total - primary $ 2.09 $ .85 $ (.73)
==========================================================================================================
Average Common Shares Outstanding (000's)
Primary 22,516 22,355 22,386
<FN>
See notes to consolidated financial statements.
Arvin Industries, Inc.
Consolidated Statement of Financial Condition
(Dollars in millions, except per share amounts)
As of As of
12/29/96 12/31/95
- ------------------------------------------------------------------------------------------------------
Assets:
Current Assets:
Cash and cash equivalents $ 39.4 $ 15.2
Receivables, net of allowances of $6.7 in 1996 and $4.2 in 1995 304.7 276.0
Inventories (at lower of cost or market) 115.9 111.8
Current income tax benefit 27.8 18.5
Other current assets 51.1 62.0
- ------------------------------------------------------------------------------------------------------
Total current assets 538.9 483.5
- ------------------------------------------------------------------------------------------------------
Non-Current Assets:
Property, plant and equipment (at cost):
Land 13.5 15.2
Buildings and leasehold improvements 166.0 164.4
Machinery and equipment 799.6 720.0
Construction in progress 31.9 37.4
- ------------------------------------------------------------------------------------------------------
1,011.0 937.0
Less accumulated depreciation 547.1 487.6
- ------------------------------------------------------------------------------------------------------
463.9 449.4
Goodwill, net of amortization of $32.3 in 1996 and $31.3 in 1995 158.0 146.0
Investment in affiliates 85.7 92.4
Assets of business transferred under contractual arrangements 72.4 72.4
Other assets 61.3 47.3
- ------------------------------------------------------------------------------------------------------
Total non-current assets 841.3 807.5
- ------------------------------------------------------------------------------------------------------
$ 1,380.2 $ 1,291.0
======================================================================================================
Liabilities and Shareholders' Equity:
Current Liabilities:
Short-term debt $ 52.6 $ 41.6
Accounts payable 257.7 216.7
Employee related costs 54.6 38.8
Accrued expenses 70.2 58.5
Income taxes payable 17.7 9.4
- ------------------------------------------------------------------------------------------------------
Total current liabilities 452.8 365.0
- ------------------------------------------------------------------------------------------------------
Long-term employee benefits 67.0 52.7
Other long-term liabilities 22.4 13.6
Long-term debt 294.0 360.7
Liabilities and deferred credit of business transferred 72.4 72.4
Minority interest 34.2 31.5
Commitments and contingencies (Note 10)
Shareholders' Equity:
Capital Stock:
Preferred shares (no par value, authorized 8,978,058;
none issued and outstanding) .0 .0
Common shares ($2.50 par value, authorized 50,000,000;
issued 26,149,217 in 1996 and 24,228,602 in 1995) 65.4 60.6
Capital in excess of par value 247.3 207.4
Retained earnings 226.2 196.2
Cumulative translation adjustment (19.9) (24.6)
Employee stock benefit trust (42.2) .0
Common shares held in treasury (at cost) (39.4) (44.5)
- ------------------------------------------------------------------------------------------------------
Total shareholders' equity 437.4 395.1
- ------------------------------------------------------------------------------------------------------
$ 1,380.2 $ 1,291.0
======================================================================================================
<FN>
See notes to consolidated financial statements.
Arvin Industries, Inc.
Consolidated Statement of Shareholders' Equity
(Dollars in millions, except per share amounts)
Year Ended
------------------------------------------------------------------------
12/29/1996 12/31/1995 1/1/1995
----------------------- ----------------------- -----------------------
Shares Amount Shares Amount Shares Amount
=======================================================================================================================
Common Shares:
Beginning balance 24,228,602 $ 60.6 24,163,510 $ 60.4 24,076,912 $ 60.2
Shares issued to employee
stock benefit trust 1,800,000 4.5 -- -- -- --
Exercise of stock options 56,900 .1 65,092 .2 86,598 .2
Conversion of 7.5% convertible
subordinated debentures 63,715 .2 -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Ending balance 26,149,217 65.4 24,228,602 60.6 24,163,510 60.4
- -----------------------------------------------------------------------------------------------------------------------
Capital in Excess of Par Value:
Beginning balance 207.4 206.6 204.7
Shares issued to employee
stock benefit trust 37.7 -- --
Exercise of stock options .9 1.0 1.5
Shares contributed to employee
benefit plan (.3) (.2) .4
Conversion of 7.5% convertible
subordinated debentures 1.7 -- --
Shares contributed to charitable foundation (.1) -- --
- -----------------------------------------------------------------------------------------------------------------------
Ending balance 247.3 207.4 206.6
- -----------------------------------------------------------------------------------------------------------------------
Retained Earnings:
Beginning balance 196.2 194.1 227.3
Net earnings (loss) 47.1 19.0 (16.3)
Cash dividends ($.76 per
common share per year) (17.1) (16.9) (16.9)
- -----------------------------------------------------------------------------------------------------------------------
Ending balance 226.2 196.2 194.1
- -----------------------------------------------------------------------------------------------------------------------
Pension Liability Adjustment:
Beginning balance -- (.6) --
Minimum pension liability adjustment -- .6 (.6)
- -----------------------------------------------------------------------------------------------------------------------
Ending balance -- -- (.6)
- -----------------------------------------------------------------------------------------------------------------------
Cumulative Translation Adjustment:
Beginning balance (24.6) (20.7) (26.7)
Amounts related to disposal of operations -- (2.0) --
Translation adjustments during the year 4.7 (1.9) 6.0
- -----------------------------------------------------------------------------------------------------------------------
Ending balance (19.9) (24.6) (20.7)
- -----------------------------------------------------------------------------------------------------------------------
Employee Stock Benefit Trust:
Beginning balance -- -- -- -- -- --
Establishment of trust (1,800,000) (42.2) -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Ending balance (1,800,000) (42.2) -- --
- -----------------------------------------------------------------------------------------------------------------------
Common Shares in Treasury:
Beginning balance (1,977,366) (44.5) (1,913,663) (43.5) (1,981,909) (44.9)
Stock exchanged for stock
options exercised (7,161) (.2) (5,212) (.1) (3,836) (.1)
Shares contributed to employee
benefit plan 160,650 4.1 48,574 1.2 72,082 1.5
Shares contributed to charitable foundation 47,140 1.2 -- -- -- --
Shares purchased -- (107,065) (2.1) -- --
- -----------------------------------------------------------------------------------------------------------------------
Ending balance (1,776,737) (39.4) (1,977,366) (44.5) (1,913,663) (43.5)
- -----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity $ 437.4 $ 395.1 $ 396.3
=======================================================================================================================
<FN>
See notes to consolidated financial statements.
Arvin Industries, Inc.
Consolidated Statement of Cash Flows
(Dollars in millions)
<CAPTION
1996 1995 1994
- ------------------------------------------------------------------------------------------------
Operating Activities:
Net earnings (loss) $ 47.1 $ 19.0 $ (16.3)
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation 73.9 69.3 71.2
Amortization 5.8 5.6 7.0
Asset write-downs 3.6 1.1 26.9
Goodwill impairment -- -- 29.6
Long-term employee benefits (.7) (.9) 12.3
Deferred income taxes, long-term 2.8 (1.5) (12.7)
Minority interest 2.5 3.1 (14.2)
Other 1.7 .2 (3.3)
Changes in operating assets and liabilities:
Receivables 6.3 .6 (60.2)
Inventories and other current assets .7 (19.8) (2.0)
Accounts payable and other accrued expenses 21.4 10.2 77.8
Income taxes payable and deferred taxes 8.5 5.9 --
- ------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 173.6 92.8 116.1
- ------------------------------------------------------------------------------------------------
Investing Activities:
Purchase of property, plant and equipment (79.1) (100.5) (106.6)
Proceeds from sale of property, plant and equipment 5.4 1.9 2.9
Investments in affiliates (8.5) -- (2.6)
Business acquisitions, net of cash acquired (8.0) -- (7.5)
Cash proceeds from sale of businesses, net
of cash balances of businesses sold 19.3 55.3 --
Other 1.0 (1.7) (1.2)
- ------------------------------------------------------------------------------------------------
Net Cash Used for Investing Activities (69.9) (45.0) (115.0)
- ------------------------------------------------------------------------------------------------
Financing Activities:
Change in short-term debt, net 17.7 2.1 17.4
Proceeds from long-term borrowings 3.2 51.5 85.6
Principal payments on long-term debt (87.4) (92.0) (106.6)
Dividends paid (12.9) (16.9) (16.9)
Other (.8) .7 2.1
- ------------------------------------------------------------------------------------------------
Net Cash Used for Financing Activities (80.2) (54.6) (18.4)
- ------------------------------------------------------------------------------------------------
Cash and Cash Equivalents:
Effect of exchange rate changes on cash .7 (.4) .6
- ------------------------------------------------------------------------------------------------
Net increase (decrease) 24.2 (7.2) (16.7)
Beginning of the year 15.2 22.4 39.1
- ------------------------------------------------------------------------------------------------
End of the year $ 39.4 $ 15.2 $ 22.4
================================================================================================
<FN>
See notes to consolidated financial statements.
Income tax payments totaled $13.6 million in 1996, $13.6 million in 1995, and $31.7 million in 1994.
Interest payments totaled $40.8 million in 1996, $45.0 million in 1995, and $42.8 million in 1994.
Arvin Industries, Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in millions unless noted otherwise)
Note 1 - Significant Accounting Policies:
Principles of Consolidation: The consolidated financial
statements include the accounts of Arvin Industries, Inc. ("the
Company") and its majority-owned subsidiaries. All significant
intercompany transactions have been eliminated. The Company's
investments in 20 to 50 percent owned companies are accounted for
on the equity method. Accordingly, the Company's share of the
earnings of these companies is included in consolidated net
income. Investments in other companies are carried at the lower
of cost or fair value.
Cash Equivalents: The Company considers all highly liquid
investments purchased with a maturity of three months or less to
be cash equivalents.
Inventories: Substantially all inventories located in the United
States (U.S.) are valued under the last-in, first-out (LIFO) cost
method. The remaining inventories are valued primarily on a
first-in, first-out (FIFO) basis.
Property, Plant and Equipment and Depreciation: Property, plant
and equipment, including capital leases and significant additions
or improvements extending asset lives, are stated at cost less
accumulated depreciation. Depreciation is recorded using the
straight-line method over the estimated useful lives of the
assets for financial reporting purposes. The estimated service
lives to compute depreciation range from 10 to 40 years for
buildings and 7 to 12 years for machinery, equipment and
fixtures. Where appropriate, the Company uses accelerated
depreciation methods for tax purposes. Maintenance and repair
costs are expensed as incurred.
Goodwill: Goodwill represents the excess of cost over the fair
value of assets acquired and is generally amortized using the
straight-line method over 40 years. The Company assesses the
recoverability of its goodwill whenever adverse events or changes
in circumstances or business climate indicate that expected
future cash flows (undiscounted and without interest charges) for
individual business units may not be sufficient to support
recorded goodwill. If undiscounted cash flows are not sufficient
to support the recorded asset, an impairment is recognized to
reduce the carrying value of the goodwill based on the expected
discounted cash flows of the business unit. Expected cash flows
are discounted at a rate commensurate with the risk involved.
Foreign Currency: The Company uses the local currency as the
functional currency for all of its consolidated operating
subsidiaries outside of the U.S. Results are translated into
U.S. dollars using monthly average exchange rates, while assets
and liabilities are translated into U.S. dollars using year-end
exchange rates. The resulting translation adjustments are
recorded in a separate component of shareholders' equity.
Foreign currency transactions resulted in a gain of $.3 million
in 1996 and losses of $4.0 and $2.4 million in 1995 and 1994,
respectively.
Derivatives: Derivative financial instruments are used by the
Company to manage foreign currency and interest rate exposures.
The Company uses the designation method to qualify foreign
currency and interest rate derivative transactions for hedge
accounting treatment. Gains and losses on foreign currency
hedges of existing assets and liabilities are included in the
carrying amounts of those assets and liabilities and are
recognized in income on a current basis, while gains and losses
on anticipated debt issuance transactions are deferred and
amortized as an adjustment to interest expense. Gains and losses
on derivative transactions affecting anticipated foreign currency
cash flows are also recognized in income on a current basis.
Gains and losses on interest rate swap and option agreements,
which qualify as hedges of existing liabilities, are deferred and
are recognized as an adjustment to interest expense as realized
over the lives of the agreements.
Pension Plans: Substantially all of the Company's employees in
the U.S. are covered by non-contributory trusteed pension plans.
Employees of certain of the Company's international operations
are covered by either contributory or non-contributory trusteed
pension plans. Benefits are based on, in the case of certain
plans, final average salary and years of service and, in the case
of other plans, a fixed amount for each year of service. Net
periodic pension costs are determined using the Projected Unit
Credit Cost method. The Company's funding policy provides that
annual contributions to the pension trusts will be at least equal
to the minimum amounts required by ERISA in the U.S. and
actuarial recommendations or statutory requirements in other
countries.
Research and Development Costs: Expenditures relating to the
development of new products and processes, including significant
improvements and refinements to existing products, are expensed
as incurred. The amounts charged against income in 1996, 1995,
and 1994 were $26.2, $24.7 and $22.8 million, respectively.
Graphic Table - Bar-graph indicating research and development
costs for the following years, in millions:
1996 $26.2
1995 $24.7
1994 $22.8
Income Taxes: Deferred income taxes are provided for the
temporary differences between the financial reporting basis and
the tax basis of assets and liabilities.
Earnings Per Share: Earnings per share are based on the weighted
average number of common and common equivalent shares
(principally stock options) outstanding during the year. Shares
of common stock issued to a related trust are not considered in
the calculation of earnings per share until such shares are
released from the trust to the employee benefit plans to fund the
obligations for which the trust was established.
Reclassifications: Certain amounts in the accompanying financial
statements and notes thereto have been reclassified to conform to
the current year presentation.
Use of Estimates: The preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
Fiscal Year: The Company's fiscal year ends on the Sunday
nearest to December 31.
Note 2 - Acquisitions, Divestitures and Discontinued Operations:
In January 1997 the Company notified Sogefi S.p.A. of its intent
to exercise its option to acquire the remaining 50 percent of the
joint venture with Sogefi S.p.A. The anticipated purchase price
is approximately $30 million. The purchase of the remaining half
of the Netherlands based joint venture company, Timax Exhaust
Systems Holdings, B.V. (TESH), will further increase the
Company's European replacement market presence.
On January 29, 1997 the Company exercised its option to purchase
an additional 5 percent of Autocomponents Suspension S.r.l., a
ride control manufacturer in Melfi, Italy, for an estimated
purchase price of $1.8 million. The Company's previous 49.9
percent share of Autocomponents Suspension S.r.l. was acquired in
1994.
During the fourth quarter of 1996, the Company sold its 31.4
percent equity interest in its Argentinean affiliate, Fric Rot
S.A.I.C., for $17.3 million. The pre-tax gain on the sale was
$10.8 million.
During the fourth quarter of 1996, the Company purchased the
remaining 20 percent of the European exhaust manufacturer MTA
S.r.l., located in Mosciano St. Angelo, Italy for $1.2 million.
MTA manufactures car exhaust down pipes, catalysts and other
related parts principally for the original equipment market.
Goodwill resulting from this transaction will be amortized using
the straight-line method over a 40 year period. The Company's
previous 80 percent ownership interest was purchased during the
first quarter of 1994.
On June 26, 1996, the Company increased its ownership in Way
Assauto S.r.l. from 49.9 percent to 54.9 percent for $8.0
million. The results of Way Assauto's operations are included in
the Company's consolidated financial results subsequent to the
date of acquisition of this controlling interest. Way Assauto is
located in Asti, Italy and manufactures principally for the
original equipment market. Goodwill resulting from this
transaction will be amortized using the straight-line method over
a 40 year period.
On September 29, 1995, the Company completed the sale of its
ownership interest in Space Industries International, Inc. (SIII)
to a new company formed by the senior management of SIII for
$30.6 million in cash. The accompanying financial statements
present the results of SIII's operations as discontinued
operations. SIII's 1995 revenues through the sale date and 1994
revenues were $95.5 million and $189.8 million, respectively.
Income (Loss) from discontinued operations includes $.4 and
($42.0) million for SIII for 1995 and 1994, respectively.
In conjunction with the September 29, 1995 sale of SIII, the
Company guaranteed a portion of the purchaser's debt (see Note
10). As a result of this guarantee, the Company has accounted
for the SIII transaction following the treatment set forth in the
Securities and Exchange Commission's Staff Accounting Bulletins -
Topic 5E (SAB Topic 5E) "Accounting for divestiture of a
subsidiary or other business operation." Accordingly, the assets
of SIII at the sale date have been recorded under the caption
"Assets of business transferred under contractual arrangements"
with a corresponding amount recorded as "Liabilities and deferred
credit of business transferred." The Company will continue to
follow this accounting treatment until the amount of the
outstanding debt guarantee declines to a level which permits the
Company to record the transaction as a sale for accounting
purposes.
The Company sold its Schrader Automotive unit on February 16,
1995. Proceeds from the sale included $36.2 million cash and
preferred stock and warrants with a face value of $8.5 million.
The gain on the sale, recorded in the first quarter 1995, was $.7
million, net of tax. The results of Schrader have been classified
as discontinued operations in the accompanying financial
statements. Schrader's 1995 revenues through the sale date and
1994 revenues were $13.1 and $91.2 million, respectively. Income
from discontinued operations includes $.3 million for Schrader
for 1994. Income from disposal of discontinued operations
related to Schrader was $.7 and $.8 million for 1995 and 1994,
respectively. The effective tax rate included in these amounts
differs from the U.S. statutory rate due to rate differentials
related to the non-U.S. subsidiaries of Schrader. In addition,
the 1995 difference relates to an adjustment to tax liabilities
arising from permanent book versus tax basis differences.
Note 3 - Special Charges and Credits and Restructuring:
Special charges and credits, net for 1996 of $5.0 million include
$2.6 million to reserve for future lease commitments at abandoned
or under-utilized properties, which resulted from a decision to
consolidate some of the Company's European distribution
locations. Special charges also include $1.2 million for
contract termination costs, $1.7 million for the net additions to
legal and environmental reserves for operations previously owned
by the Company's Maremont subsidiary, and a special credit of
$2.0 million, which resulted from insurance settlements. In
addition, the Company recorded a special charge of $1.5 million
related to the fourth quarter redemption of its 7.5 percent
convertible subordinated debentures, which were due in 2014.
During 1995, based upon a judgment entered against an Arvin
subsidiary and assessments by legal counsel of other pending
legal matters, the Company added $13.7 million to its litigation
reserves. The 1995 results also include a special credit of $3.2
million as a result of an insurance settlement.
The 1994 special charge of $7.8 million included increases in
environmental and other reserves related primarily to the
completion of a feasibility study which identified and estimated
remediation costs at the Platt Saco Lowell site previously owned
by the Company's Maremont subsidiary.
The Company announced a restructuring plan during the fourth
quarter of 1994. The workforce reductions and consolidation of
manufacturing facilities and product lines announced as a part of
that restructuring were substantially completed by year-end 1995.
Severance expense resulting from the plan was $3.0 and $7.4
million for 1995 and 1994, respectively. The total number of
actual employee separations was 308 versus 338 as a part of the
plan. Nine employees of discontinued operations are included in
both the actual and planned employee separations.
Facility consolidations took place in Europe, Canada, and the
United States. Restructuring expense for 1995 and 1994 includes
$1.7 and $5.6 million of facility consolidations expense,
respectively.
The 1994 restructuring expense includes $7.3 million for asset
write downs. The results of discontinued operations for 1994
also included restructuring and special charges totaling $53.0
million, which were primarily to reduce the carrying values of
underperforming assets, including goodwill.
Note 4 - Inventories:
The Company uses the dollar-value link chain method for
calculating its LIFO inventories. It is impractical to classify
LIFO inventories into the finished goods, work in process and raw
material components since in determining the overall index, the
Company uses the method of pooling by individual inventory
components; e.g., steel, substrate, labor and overhead. The
effect of reductions in LIFO inventories increased pre-tax
earnings $.1 and $1.2 million in 1995 and 1994, respectively.
Approximately $55.8 and $42.0 million of total inventories at
year-end 1996 and 1995 were stated on the LIFO method. The
current costs of these inventories exceeded their LIFO value by
approximately $4.9 and $4.6 million at year-end 1996 and 1995,
respectively.
Note 5 - Income Taxes:
Earnings from continuing operations before income taxes were as
follows:
1996 1995 1994
----- ----- -----
United States $ 23.8 $ (8.9)$ 29.2
International 40.3 38.3 9.6
----- ----- -----
$ 64.1 $ 29.4 $ 38.8
===== ===== =====
The provision for income taxes was as follows:
1996 1995 1994
----- ----- -----
Current tax expense:
Federal $ 6.9 $ (.3) $ 9.0
State 2.3 1.2 2.2
International 15.8 17.1 11.5
Deferred tax expense:
Federal (3.0) (5.6) (3.1)
State (1.8) (.6) (.3)
International (.5) (.6) (3.1)
----- ----- -----
Continuing operations provision $ 19.7 $ 11.2 $ 16.2
===== ===== =====
The provision for income taxes was different from the U.S.
federal statutory rate applied to earnings from continuing
operations before income taxes, and is reconciled as follows:
1996 1995 1994
----- ----- -----
Statutory rate 35.0 % 35.0 % 35.0 %
State and local income taxes, net 1.0 2.8 3.0
International tax rate difference (1.1) 1.0 7.5
Amortization of goodwill 2.8 5.2 4.0
Foreign tax credit utilization, net (.4) (3.3) (6.1)
Other items, net (.3) (2.7) (1.7)
Subtotal 37.0 38.0 41.7
Capital loss carryforward utilization (6.3) .0 .0
----- ----- -----
Effective tax rate 30.7 % 38.0 % 41.7 %
===== ===== =====
Deferred tax assets (liabilities) are comprised of the following
at fiscal year-end:
1996 1995
----- -----
Gross deferred tax assets:
Accrued employee benefits $ 18.4 $ 18.9
Inventory and receivables reserves 17.7 10.2
Environmental and other legal reserves 7.6 11.5
Accrued vacation pay .8 .8
Other 5.6 4.0
Net losses and tax credit carryforward 21.8 26.2
Valuation allowance for deferred tax assets (16.0) (21.8)
----- -----
Deferred tax assets, net of
valuation allowance 55.9 49.8
----- -----
Gross deferred tax liabilities:
Depreciation (29.9) (30.4)
Pension (1.5) (1.4)
----- -----
Gross deferred tax liabilities (31.4) (31.8)
----- -----
Net deferred tax assets $ 24.5 $ 18.0
===== =====
During 1996, the valuation allowance for deferred tax assets
decreased by $5.8 million. The decrease was caused principally
by a capital loss carryforward utilized in connection with the
gain on sale of an affiliate.
Net operating loss, capital loss, and tax credit carryforwards
available in various tax jurisdictions at December 29, 1996
expire in the amounts of $.5, $1.0, $2.5, $13.3, $2.0 and $2.5
million for the years 1997 through 2002 and beyond, respectively.
Graphic Table - Bar-graph indicating the effective tax rate for
the following years:
1996 (1) 37.0%
1995 38.0%
1994 41.7%
(1) Effective tax rate prior to capital loss carryforward
utilization.
Realization of deferred tax assets is dependent upon taxable
income within the carryback and carryforward periods available
under the tax laws. Although realization of deferred tax assets
in excess of deferred tax liabilities is not certain, management
has concluded that it is "more likely than not" that the Company
will realize the full benefit of U.S. deferred tax assets, except
for approximately $7.7 million of capital loss carryforward.
While in the aggregate, the Company's non-U.S. subsidiaries have
generated cumulative taxable income over the last three years,
certain non-U.S. subsidiaries are in net operating loss
carryforward positions. There is currently insufficient evidence
as required by Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes," to substantiate recognition
of net deferred tax assets in the financial statements for
certain of those non-U.S. subsidiaries in a net operating loss
carryforward position. Accordingly, a valuation allowance of
$8.3 million has been recorded. It is reasonably possible that
sufficient positive evidence could be generated in the near term
at one or more of these non-U.S. subsidiaries to support a
reduction in the valuation allowance. Increases in the valuation
allowance at the Company's non-U.S. subsidiaries were $2.0, $2.4,
and $2.9 million and reductions of valuation allowances were
$4.0, $1.5, and $3.9 million for 1996, 1995, and 1994,
respectively.
At year-end 1996, consolidated retained earnings included
undistributed earnings of non-U.S. subsidiaries of approximately
$114.1 million. These earnings are permanently invested and are
not considered available for distribution to the parent company
or will be remitted substantially free of additional U.S. income
taxes. Accordingly, no provision has been made for income taxes
that may be payable upon remittance of such earnings.
Note 6 - Borrowings:
At fiscal year-end, long-term debt consisted of:
1996 1995
----- -----
Capital lease obligations $ 5.1 $ 5.4
9-5/8% medium-term notes due 1996 -- 15.0
7.94% notes due 2005 50.0 50.0
6-7/8% notes due 2001 74.9 74.9
9.8% - 9.98% medium-term notes due 1998 45.0 45.0
10% medium-term notes due 2000 49.8 49.7
7-1/2% convertible subordinated
debentures due 2014 -- 63.8
9-1/8% sinking fund debentures due 2017 28.4 28.4
10-3/8% Euro-Sterling Notes due 2018 43.2 43.5
Other 4.1 6.5
Less: Current maturities (6.5) (21.5)
----- -----
$ 294.0 $ 360.7
===== =====
Maturities of long-term debt for fiscal 1997 through 2001 are
$5.6, $51.9, $6.9, $56.4 and $82.0 million, respectively.
Capital lease payments for fiscal 1997 through 2000 of $1.2,
$1.6, $1.2 and $1.8 million, respectively, include $.7 million of
interest.
The company has two revolving credit facilities totaling $100.0
million, both with a termination date of June 6, 1999. At
December 29, 1996, there were no borrowings under these
facilities. In addition, the Company has uncommitted credit
facilities totaling $279.1 million with various domestic and
foreign banks. At December 29, 1996, borrowings under these
facilities totaled $39.2 million.
The weighted average interest rates on short-term borrowings at
December 29, 1996 and at December 31, 1995 were 5.6 percent and
6.4 percent, respectively.
Graphic Table - Bar-graph indicating total debt for the following
years, in millions:
1996 $346.6
1995 $402.3
1994 $441.4
During 1996, $1.9 million of the 7.5 percent convertible
subordinated debentures were converted to common shares at a rate
of approximately 35.09 shares for each $1,000 debenture held. On
December 27, 1996, the Company redeemed the remaining $61.9
million of convertible debentures at par value plus a 2.25
percent call premium. This redemption was funded with cash on
hand and short-term borrowings.
On January 28, 1997, in connection with the redemption of the
convertible subordinated debt, Arvin Capital I, a subsidiary of
Arvin Industries, Inc., issued $100 million of 9.5 percent
capital securities, maturing on February 1, 2027, callable in 10
years. Proceeds from this issue have been or are expected to be
used for the acquisition of additional shares in Autocomponents,
the purchase of the remaining shares in TESH, general corporate
purposes and to pay down short term borrowings incurred in
connection with the December 27, 1996 redemption of the
convertible debentures.
Note 7 - Financial Instruments and Risk Management:
The Company uses financial derivatives, including forward
exchange contracts and options and interest rate swaps and
options, to manage its global foreign exchange and interest rate
exposure. The foreign exchange derivatives serve primarily to
protect the functional currency value of non-functional currency
positions and anticipated transactions of the Company and its
foreign subsidiaries. The interest rate derivative transactions
are used principally to manage the Company's floating rate
exposure target within parameters that are consistent with its
long-term financial strategy and to hedge anticipated debt
issuance transactions. Interest rate derivative contracts are
linked to specific debt instruments. The Company does not hold
or issue derivative financial instruments for trading purposes or
use leveraged derivatives in its financial risk management
program.
The notional amounts of interest rate swaps serve as the basis
for the cash flows from the swaps, but do not represent the
Company's exposure through its use of these instruments. The
Company is exposed to credit losses in the event of
nonperformance (which is not anticipated) by the counterparties
to the agreements. Forward agreements are subject to the
creditworthiness of the counterparties, which are principally
large banks.
Interest Rate Risk Management: The Company had no interest rate
swap agreements outstanding at December 29, 1996. At December
31, 1995, the Company had interest rate swap agreements totaling
$246.6 million notional amount with commercial and investment
banks (the counterparties). Under each swap, the Company agreed
to exchange with the counterparties the difference between fixed
rate and floating rate interest amounts calculated on the
notional amounts. In each case, the floating rate was the LIBOR,
reset every six months. At year-end 1995, $171.6 million
notional amount of the swap agreements effectively changed long-
term debt issued by the Company or its subsidiaries from a fixed
to a floating rate of interest. The average fixed interest rate
received on such swaps during the year was 5.5 percent. The
remaining $75.0 million of swaps at year-end 1995 resulted in the
Company paying a fixed rate of interest while receiving a
floating rate of interest. The average fixed interest rate paid
on such swaps during the year was 8.4 percent. The net impact of
the Company's interest rate hedging was $2.9 million expense in
both 1996 and 1995 and $2.4 million expense in 1994. During
1995, the Company used the short sale of U.S. Treasury securities
to fix the effective interest cost of a new debt issue completed
in October. There was no material gain or loss on this short
sale, nor were there any such anticipatory hedges outstanding at
either year end.
Foreign Exchange Risk Management: At year-end 1996 and 1995, the
Company had forward exchange contracts totaling $126.8 and $55.2
million, respectively, to hedge certain financial and operating
transactions denominated in currencies other than various
functional currencies. The full amount of the forward contracts
at year-end 1996 and 1995 hedged existing non-functional currency
denominated assets and liabilities. Although the Company used
forward contracts during 1996 and 1995 to hedge anticipated non-
functional currency denominated transactions, there were none
outstanding at either year-end. The forward exchange contracts
are principally in the major European currencies, and are usually
for a term not exceeding one year.
During 1996 and in prior years, the Company also used foreign
exchange options to reduce the Company's exposure to changes in
exchange rates. These option contracts were principally in the
major European currencies, and were written for a term of less
than one year. There were no option contracts outstanding at
year-end 1996 or 1995.
Fair Value of Financial Instruments: Interest rate swap
agreements had a carrying value of a $.7 million liability at
December 31, 1995. The fair value of these agreements
approximated a $3.7 million liability at that date. Fair value
of these agreements generally reflects the estimated amounts that
the Company would have paid to terminate the contracts at the
reporting date.
At December 29, 1996 the fair value of long-term debt, including
that due within one year, approximated $318.6 million. The
carrying value at that date was $300.5 million. At year-end 1995
the fair and carrying values of debt were $414.2 and $382.2
million, respectively. The fair value of debt was estimated for
both years using quoted market prices and discounted cash flow
analyses, based on the Company's incremental borrowing rates for
similar types of lending arrangements. The differences between
the carrying and fair values of the foreign exchange contracts at
year-end 1996 and 1995 were not material.
Note 8 - Stock Based Compensation:
The Company has options outstanding under two stock-based
compensation plans: the 1988 Stock Benefit Plan and the 1978
Stock Option Plan. The 1988 Stock Benefit Plan made available
2,760,000 shares of common stock for employee grant awards.
These awards may include incentive and non-statutory stock
options, stock appreciation rights, restricted shares and
performance shares or units.
The Company has elected to continue following Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and related Interpretations in accounting for its
employee stock options. Accordingly, no compensation cost has
been recognized for the Company's fixed stock option plans.
The 1996 income statement includes $.8 million of compensation
expense for performance shares granted under the 1988 plan. A
total of 24,500 performance shares were awarded in 1997 based on
the Company's achievement of certain profitability measures
during 1996. Compensation expense for 1996 was estimated based
on an anticipated grant of 24,500 shares and the closing year-end
share price of $24 3/4. Recipients of performance share grants
are required to hold at least 50 percent of the shares granted
for a minimum period of three years.
Stock option grants are outstanding under both the 1978 and 1988
plans. The exercise price of each option is not less than the
fair market value of the Company's common stock on the date of
grant. Options granted generally vest one year from grant date
and generally expire ten years from grant date.
All outstanding options under the 1978 Stock Option Plan, if not
exercised, will expire in 1997. No additional options may be
granted under this plan.
A summary of the Company's fixed incentive stock option activity
is presented below:
1996 1995 1994
Options outstanding at
beginning of year 2,271,050 2,096,339 1,936,595
Options granted 401,609 325,450 345,850
Options exercised (56,900) (65,092) (86,598)
Options expired (169,500) (85,647) (99,508)
---------- ---------- ----------
Options outstanding at year-end 2,446,259 2,271,050 2,096,339
========== ========== ==========
Options exercisable at year-end 1,944,650 1,795,600 1,600,489
========== ========== ==========
Options available for grant at
year-end 614,006 62,915 324,245
Weighted average option prices
per share:
At beginning of year $25.07 $25.77 $25.47
Granted 20.49 18.56 25.00
Exercised 17.37 16.47 18.10
Expired 31.07 24.08 23.93
Outstanding at year-end 24.07 25.07 25.77
Exercisable at year-end 24.17 25.48 25.14
For the weighted-average fair value of options granted during the
year, the fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model with
the following weighted-average assumptions used for grants in
1996 and 1995, respectively: dividend yield of 3.7 and 4.1
percent; expected volatility of 27.8 and 27.8 percent, risk-free
interest rates of 6.4 and 5.7 percent; and expected lives of 4.4
and 4.4 years.
1996 1995
----- -----
Weighted-average fair value per option
of options granted during the year. $4.73 $4.02
Had compensation cost for the Company's employee stock options
been determined based on the fair value at the grant dates for
awards under those plans consistent with the method of Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation," the Company's net income and earnings per
share would have been reduced to the pro forma amounts indicated
below:
1996 1995
----- -----
Net Income
As reported $ 47.1 $ 19.0
Pro forma 45.3 17.2
Primary earnings per share
As reported $ 2.09 $ .85
Pro forma 2.01 .77
The following table summarizes information about stock options
outstanding and options exercisable at December 29, 1996.
Options Options
Outstanding Exercisable
-----------------------------------------------------------------
Weighted- Weighted- Weighted-
Number Average Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 12/29/96 Life Price at 12/29/96 Price
- --------------- ----------- ----------- ---------- ----------- ----------
$14.00 - $18.99 508,410 6.19 years $ 17.91 508,410 $ 17.91
$19.00 - $23.99 776,459 7.42 years 21.93 382,350 23.51
$24.00 - $28.99 630,090 6.09 years 25.14 622,590 25.15
$29.00 - $33.99 338,350 6.68 years 29.26 338,350 29.26
$34.00 - $38.99 192,950 3.67 years 36.30 92,950 36.13
Employee Stock Benefit Trust (the Trust): In December 1996 the
Company established the Trust to satisfy future obligations
arising under existing benefit plans, including stock plans,
401(k) plans, and other employee benefit plans as designated by
the Company and to promote employee ownership in the Company.
The Company sold 1.8 million newly issued shares of common stock
to the Trust in exchange for a promissory note of $42.2 million
that bears interest at the rate of 8 percent per annum. The
Trust has a ten year life during which it will utilize the common
stock to satisfy those obligations.
Note 9 - Operating Leases:
Certain of the Company's manufacturing plants, warehouses and
offices are leased facilities. The Company also leases
manufacturing and office equipment. Future minimum lease
payments of operating leases net of related sublease income are
$9.7 million in 1997, $9.5 million in 1998, $8.4 million in 1999,
$7.4 million in 2000, $4.8 million in 2001 and $20.7 million
thereafter. Net rental expense under these leases in 1996, 1995
and 1994 was $15.5, $15.4 and $13.0 million, respectively.
Note 10 - Contingencies:
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. The Company has 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, remediation
costs, cleanup activities, and administrative, legal and
consulting fees.
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, the remediation method,
amount of remediation costs, or the allocation among potentially
responsible parties has not been determined. Where reasonable
estimates are possible, the Company has provided for the
undiscounted 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.
Two previously disclosed suits filed by Chamberlain Manufacturing
Corporation were settled during 1996. Both claims grew out of
the May 1987 sale of a Maremont unit, Saco Defense, Inc., to
Chamberlain and related to (i) certain worker compensation cases
pending at the time of the sale and (ii) assertions of
nonconforming products being shipped to the U.S. government prior
to the sale. The settlement, which included dismissal of all
litigation, was within amounts previously reserved for this
litigation and did not have a significant impact on the Company's
1996 results of operations.
At December 29, 1996 and December 31, 1995, respectively, the
Company had accrued $14.1 and $9.6 million for environmental
remediation costs and $3.3 and $21.0 million for its estimated
liability related to pending legal matters. 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.
In conjunction with the September 29, 1995 sale of Space
Industries International, Inc., the Company guaranteed
approximately $22.9 million of the purchaser's (Calspan SRL
Corporation) debt. The guarantee amount, which was $18.0 and
$21.7 million at December 29, 1996 and December 31, 1995,
respectively, is scheduled to decline quarterly over a four year
period before expiring on September 30, 1999. It is not
practicable to estimate the fair value of the guarantee; however,
the Company does not anticipate that it will incur losses as a
result of this guarantee.
During 1995, the Company instituted a review of an
underperforming 50 percent owned joint venture serving the
European Original Equipment market. The Company's previously
disclosed negotiations were satisfactorily concluded and approved
by regulatory agencies in the second quarter of 1996. An
agreement was also reached with the Company's joint venture
partner and lending institutions for the restructuring of the
joint venture's debt. The agreement did not have a material
impact on the Company's financial statements.
Note 11 - Pension Plans:
The Company has contributory and non-contributory defined benefit
pension plans for its continuing operations. Plan benefits are
paid through pension trusts that are sufficiently funded to
ensure that the plans can pay benefits to retirees as they become
due. Net pension expense for these plans consists of the
following components:
1996 1995 1994
------ ------ ------
Service cost $ 9.3 $ 7.6 $ 8.5
Interest cost 20.8 20.1 17.8
Actual (gain) loss on assets (42.2) (46.4) 14.9
Net amortization and deferral 16.3 22.7 (37.8)
------ ------ ------
Net periodic pension cost $ 4.2 $ 4.0 $ 3.4
====== ====== ======
The Company's pension obligations for its United States plans
were projected to, and the assets were valued as of the end of
1996 and 1995. The plan assets, comprised almost entirely of
high grade stocks and bonds, included 1.3 and 1.2 million shares
of the Company's common stock at year-end 1996 and 1995,
respectively.
Assumptions used in determining the projected benefit obligation
for the domestic and international plans are as follows:
1996 1995 1994
----- ----- -----
United States Plans
Discount Rate for Obligations 7.25% 7.00% 8.00%
Expected Return on Plan Assets 9.00% 9.00% 9.00%
Average Salary Increases 4.75% 4.75% 4.75%
International Plans
Discount Rate for Obligations 8.00% 8.00% 9.00%
Expected Return on Plan Assets 9.00% 9.00% 9.00%
Average Salary Increases 6.00% 6.00% 7.00%
The following tables summarize the funded status of the Company's
pension plans:
Plans for Plans for
which which
assets accumulated
exceed benefits
accumulated exceed
1996 benefits assets
- ------------------------------ ---------- ----------
Benefit obligation
Vested $ (157.0) $ (110.1)
Nonvested (10.0) (7.3)
------- -------
Accumulated benefit obligation (167.0) (117.4)
Projected impact of future
salary increases (26.4) (.7)
------- -------
Projected benefit obligation (193.4) (118.1)
Plan assets at market value 210.5 114.7
------- -------
Funded status 17.1 (3.4)
Unamortized initial asset (4.8) (3.5)
Unrecognized (gain) loss (12.7) .3
Unrecognized prior service cost 4.3 7.5
------- -------
Prepaid pension cost $ 3.9 $ .9
======= =======
Plans for Plans for
which which
assets accumulated
exceed benefits
accumulated exceed
1995 benefits assets
- ------------------------------ ---------- ----------
Benefit obligation
Vested $ (148.1) $ (103.9)
Nonvested (6.7) (6.0)
------- -------
Accumulated benefit obligation (154.8) (109.9)
Projected impact of future
salary increases (24.0) (.7)
------- -------
Projected benefit obligation (178.8) (110.6)
Plan assets at market value 181.2 103.6
------- -------
Funded status 2.4 (7.0)
Unamortized initial asset (5.5) (4.2)
Unrecognized loss 2.4 4.6
Unrecognized prior service cost 4.5 7.6
Additional minimum liability -- (7.3)
------- -------
Prepaid pension cost (pension
liability) $ 3.8 $ (6.3)
======= =======
Note 12 - Other Postretirement Benefits:
The Company provides certain retiree health care benefits
covering a majority of U.S. salaried employees. Employees are
generally eligible for benefits upon retirement and completion of
a specified number of years of credited service. The plans are
contributory based on years of service, with contributions
adjusted annually. The Company generally does not pre-fund these
benefits and has the right to modify or terminate certain of
these plans in the future.
The components of other postretirement benefit expense for
continuing operations are as follows:
1996 1995 1994
---- ---- ----
Service cost $ 1.0 $ .9 $ 1.2
Interest cost 2.4 2.7 2.6
Other (.4) (.3) --
---- ---- ----
Total cost $ 3.0 $ 3.3 $ 3.8
==== ==== ====
The accumulated postretirement benefit obligation in the
accompanying balance sheet is comprised of the following
components:
1996 1995
------ ====
Retirees $ (19.0) $ (16.4)
Fully eligible active plan participants (2.7) (2.7)
Other active plan participants (14.2) (15.5)
------ ------
Total accumulated postretirement benefit
obligation (35.9) (34.6)
Unrecognized net actuarial gains (9.7) (9.9)
------ ------
Accrued postretirement benefit obligation $ (45.6) $ (44.5)
====== ======
Future benefit costs for 1995 were estimated assuming medical
costs would increase at a 10 percent annual rate for 1996
decreasing to a 5 percent annual growth rate ratably over the
next 5 years and then remaining at a 5 percent growth rate
thereafter. Future benefit costs for 1996 were estimated
assuming medical costs would increase at a 9 percent annual rate
for 1997 decreasing to a 5 percent annual growth rate ratably
over the next 4 years and then remaining at a 5 percent growth
rate thereafter. A one percent increase in this annual trend
rate would have increased the accumulated postretirement benefit
obligation at December 29, 1996 by 16.6 percent. The effect of
this change on the aggregate of service and interest cost for
1996 would be an increase of 20.7 percent. The weighted average
discount rate used to estimate the accumulated postretirement
benefit obligation was 7.25 percent and 7 percent at year-end
1996 and 1995, respectively.
Certain of the Company's non-U.S. subsidiaries provide limited
non-pension benefits to retirees in addition to government
sponsored programs. The cost of these programs is not
significant to the Company. Most retirees outside the United
States are covered by government sponsored and administered
programs.
Note 13 - Impact of New Accounting Standards:
In June 1996 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 125 (SFAS 125),
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." This statement is effective for
transfers and servicing of financial assets and extinguishments
of liabilities occurring after December 31, 1996, and will be
applied prospectively. The Company does not expect that
implementation of SFAS 125 will have a material impact on its
results from operations or financial position.
Note 14 - Shareholders' Rights Plan:
The Company enacted a preferred share purchase rights plan
pursuant to a Rights Agreement dated May 29, 1986 ("the Rights
Plan.") The Rights Plan has been amended twice since 1986 and in
1996 the term of the Rights Plan was extended to June 13, 2006.
Under the Rights Plan, one preferred share purchase Right
("Right") trades with each share of the Company's common stock.
Each Right entitles its holder, until the earlier of June 13,
2006 or the redemption of the Rights, to purchase from the
Company one one-hundredth of a share of the Company's Series C
Junior Participating Preferred Stock (the "Preferred Stock") at
an exercise price of $90 per one one-hundredth share, subject to
adjustment. The Rights are redeemable by the Board of Directors
at $.10 per Right at any time prior to the acquisition by a
person or group of beneficial ownership of 20 percent or more of
the Company's common stock. The right to exercise the Rights
terminates at the time the Board elects to redeem them. At no
time do the Rights have any voting rights.
The Rights are not exercisable or transferable apart from the
Company's common stock until the earlier of (i) ten days
following a public announcement that a person or group has
acquired beneficial ownership of 20 percent or more of the
outstanding common stock or (ii) ten business days after
commencement, or announcement of an intention to make a tender
offer or exchange offer, which would result in a person or group
beneficially owning 20 percent or more of the outstanding common
stock. When exercisable, the holder of the Right (other than the
person or group acquiring or attempting to acquire beneficial
ownership of 20 percent or more of the Company's common stock)
has the right to purchase, at the current exercise price of the
Right, a number of the Company's common stock having a market
value equal to twice the current exercise price of the Right. If
20 percent or more (but less than 50 percent) of the common stock
is acquired by a person or group, the Board of Directors may
exchange each Right for one share of common stock.
The Rights have certain anti-takeover effects and may cause
substantial dilution to a person or group that attempts to
acquire the Company on terms not approved by the Board. The 20
percent acquisition "trigger point" can be reduced to 10 percent
by the Board.
Note 15 - Concentrations of Risk:
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of trade accounts
receivable. The Company's customer base includes most
significant automotive manufacturers and a large number of well
known jobbers, distributors, and installers of automotive
replacement parts in North America and Europe. The Company
generally does not require collateral and the majority of its
trade receivables are unsecured. Although the Company is
directly affected by the financial well-being of the automotive
industry, management does not believe significant credit risk
exists at December 29, 1996.
The Company relies on several key vendors to supply its primary
raw material needs for each of its markets. Although there are a
limited number of manufacturers in each market capable of
supplying these needs, the Company believes that other suppliers
could provide for the Company's needs on comparable terms.
Abrupt changes in the supply flow could, however, cause a delay
in manufacturing and a possible inability to meet sales
commitments on schedule or a possible loss of sales, which would
affect operating results adversely.
Note 16 - Business Segments:
The Company is engaged in the manufacture and sale of automotive
parts and other products and services, primarily in the United
States and Europe.
1996 1995 1994
-------- -------- --------
Net Sales:
Automotive Original Equipment $ 1,549.5 $ 1,337.2 $ 1,194.7
Automotive Replacement 663.2 629.2 654.8
-------- -------- --------
Total net sales $ 2,212.7 $ 1,966.4 $ 1,849.5
======== ======== ========
Operating Income from Continuing
Operations:
Automotive Original Equipment $ 71.6 $ 67.8 $ 70.9
Automotive Replacement 48.5 31.7 33.2
-------- -------- --------
Operating income by segment 120.1 99.5 104.1
Less:
Expenses unrelated to segments, net 12.3 16.7 12.6
Gain on sale of shares in affiliate (10.8) -- --
Corporate general and administrative 17.6 12.2 12.6
Net interest expense 36.9 41.2 40.1
-------- -------- --------
Earnings from continuing operations
before income taxes $ 64.1 $ 29.4 $ 38.8
======== ======== ========
Identifiable assets:
Automotive Original Equipment $ 799.8 $ 711.4 $ 650.4
Automotive Replacement 349.8 326.7 338.9
-------- -------- --------
Total identifiable assets 1,149.6 1,038.1 989.3
General Corporate and Discontinued
Operations(1) 230.6 252.9 242.2
-------- -------- --------
Total assets $ 1,380.2 $ 1,291.0 $ 1,231.5
======== ======== ========
Depreciation and amortization:
Automotive Original Equipment $ 61.9 $ 53.0 $ 46.2
Automotive Replacement 17.2 19.1 23.6
General Corporate and Discontinued
Operations .6 2.8 8.4
-------- -------- --------
Total depreciation and amortization $ 79.7 $ 74.9 $ 78.2
======== ======== ========
Additions to property, plant and equipment:
Automotive Original Equipment $ 66.1 $ 79.3 $ 80.0
Automotive Replacement 11.8 19.2 20.2
General Corporate and Discontinued
Operations 1.2 2.0 6.4
-------- -------- --------
Total capital additions $ 79.1 $ 100.5 $ 106.6
======== ======== ========
1 Consists primarily of cash and cash equivalents, prepaid
expenses, non-current assets, net assets of discontinued
operations, and assets of business transferred under
contractual arrangements.
Graphic Table - Bar-graph indicating sales in the United States,
Europe and Other, respectively, for the following years, in
millions:
1996 $1,233.1, $759.9 and $219.7
1995 $1,129.4, $635.0 and $202.0
1994 $1,130.7, $523.1 and $195.7
Sales exported out of the United States and sales between
business segments (affiliated customers) were not significant and
are thus not separately reported. Information on the Company's
geographic areas is as follows:
1996 1995 1994
-------- -------- --------
Net sales:
United States $ 1,233.1 $ 1,129.4 $ 1,130.7
Europe 759.9 635.0 523.1
Other 219.7 202.0 195.7
-------- -------- --------
Total net sales $ 2,212.7 $ 1,966.4 $ 1,849.5
======== ======== ========
Operating Income:
United States $ 50.0 $ 44.6 $ 63.8
Europe 50.5 39.8 27.7
Other 19.6 15.1 12.6
-------- -------- --------
Total operating income $ 120.1 $ 99.5 $ 104.1
======== ======== ========
Identifiable assets:
United States $ 561.5 $ 506.8 $ 493.8
Europe 528.8 470.8 428.6
Other 59.3 60.5 66.9
-------- -------- --------
Total identifiable assets $ 1,149.6 $ 1,038.1 $ 989.3
======== ======== ========
Sales to three customers, primarily in the Automotive Original
Equipment segment, exceeded 10 percent of total net sales in
1996, 1995 or 1994. Sales to those customers were as follows:
1996 1995 1994
-------------- -------------- --------------
% of % of % of
Amount Sales Amount Sales Amount Sales
------ ----- ------ ----- ------ -----
Customer one $ 423.1 19.1% $ 379.4 19.3% $ 326.8 17.7%
Customer two 286.8 13.0% 243.3 12.4% 202.2 10.9%
Customer three 226.2 10.2% 179.3 9.1% 168.1 9.1%
----- ----- ----- ----- ----- -----
$ 936.1 42.3% $ 802.0 40.8% $ 697.1 37.7%
===== ===== ===== ===== ===== =====
Note 17 - Investments in Affiliates:
Included in Arvin's continuing operations at December 29, 1996,
are equity interests of 50 percent or less owned companies
engaged in the production and distribution of automotive exhaust
and ride control products. Amounts presented include the
accounts of the following equity affiliates: Etablissements Rosi
S.A. (50%), Ansa Marmitte S.p.A. (50%), Autocomponents Suspension
S.r.l. (49.9%), Arvin Sango, Inc. (50%), Schmitz & Brill GmbH
(50%), Gabriel Mexico S.A. (40%), Gabriel de Venezuela (41.9%)
and Cofap-Arvin (40%). The Company holds numerous other, smaller
equity investments at a 40 to 50 percent ownership level.
As of December 29, 1996 and December 31, 1995, the excess of cost
over acquired net assets for companies accounted for by the
equity method was $34.0 and $36.5 million, respectively. In 1996
and 1995, the Company received dividends from affiliates of $3.4
and $2.9 million, respectively.
Summarized financial information of affiliates accounted for
under the equity method at year-end 1996, 1995 and 1994 follows.
The consolidation of Way Assauto and the sale of Fric Rot during
1996 are primarily responsible for the change in reported
summarized financial information at year-end 1996.
Condensed Statement of
Operations: 1996 1995 1994
----- ----- -----
Net sales $ 408.7 $ 557.1 $ 507.0
Gross profit 82.8 95.3 87.9
Net earnings 10.9 9.1 13.2
Condensed Statement of
Financial Condition: 1996 1995 1994
----- ----- -----
Current assets $ 107.5 $ 247.3 $ 204.0
Non-current assets 180.6 177.6 173.7
----- ----- -----
$ 288.1 $ 424.9 $ 377.7
===== ===== =====
Current liabilities $ 71.9 $ 162.0 $ 118.8
Non-current liabilities 107.1 137.3 133.5
Shareholders' equity 109.1 125.6 125.4
----- ----- -----
$ 288.1 $ 424.9 $ 377.7
===== ===== =====
REPORT OF INDEPENDENT ACCOUNTANTS
To The Shareholders and Board of Directors of
Arvin Industries, Inc.
In our opinion, based upon our audits and the report of other
auditors, the accompanying consolidated statements of financial
condition and the related consolidated statements of operations,
of shareholders' equity and of cash flows present fairly, in all
material respects, the financial position of Arvin Industries,
Inc. and its subsidiaries at December 29, 1996 and December 31,
1995, and the results of their operations and their cash flows
for each of the three years in the period ended December 29,
1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We
did not audit the financial statements of Space Industries
International, Inc., an approximately 70% owned subsidiary sold
on September 29, 1995 (see notes 2 and 10 to consolidated
financial statements), as of and for the year ended January 1,
1995. Such statements reflect net sales of $190 million for the
year ended January 1, 1995, the results of which are included in
income (loss) from discontinued operations. Those statements
were audited by other auditors whose report thereon has been
furnished to us, and our opinion herein, insofar as it relates to
the amounts included for Space Industries International, Inc. for
the year ended January 1, 1995, is based solely on the report of
other auditors. We conducted our audits of these statements in
accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits and the report of other auditors provide a reasonable
basis for the opinion expressed above.
Price Waterhouse LLP
/s/ Price Waterhouse LLP
Indianapolis, Indiana
January 29, 1997
Arvin Industries, Inc.
Schedule II
Valuation and Qualifying Accounts
(Dollars in millions)
Additions
Balance Charged to Charged to Deductions Balance at
Beginning Profit Other from End of
Description of Year or Loss Accounts Reserves Year
- ------------ --------- --------- --------- --------- ---------
Year ended December 29, 1996
- ----------------------------
Allowance for doubtful accounts $ 4.2 $ 5.5 $ .1 (1) $ 3.1 (2) $ 6.7
Accumulated amortization of
goodwill $ 31.3 $ 5.1 $ 1.6 (1) $ 2.5 (4) $ 32.3
Valuation allowance for deferred
tax assets $ 21.8 $ 2.0 $ -- $ 7.8 (5) $ 16.0
Year ended December 31, 1995
- ----------------------------
Allowance for doubtful accounts $ 3.8 $ 2.5 $ .1 (1) $ 2.2 (2) $ 4.2
Accumulated amortization of
goodwill $ 26.6 $ 4.7 $ -- $ -- $ 31.3
Valuation allowance for deferred
tax assets $ 9.5 $ 13.8 $ -- $ 1.5 $ 21.8
Year Ended January 1, 1995
- ----------------------------
Allowance for doubtful accounts $ 2.6 $ 1.9 $ .5 (1) $ 1.2 (2) $ 3.8
Accumulated amortization of
goodwill $ 22.0 $ 4.7 $ -- $ .1 (3) $ 26.6
Valuation allowance for deferred
tax assets $ 10.5 $ 2.9 $ -- $ 3.9 $ 9.5
<FN>
(1) Includes translation adjustment.
(2) Includes accounts charged off, net of recoveries and reclassification of reserves.
(3) Includes fully amortized goodwill written off.
(4) Includes reclassifications.
(5) Principally the utilization of capital loss carryforwards.
QUARTERLY FINANCIAL DATA (UNAUDITED)
(Dollars in millions, except per share amounts)
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------
1996 1995 1996 1995 1996 1995 1996 1995
----- ----- ----- ----- ----- ----- ----- -----
Net sales $ 511.6 $ 494.2 $ 583.3 $ 509.7 $ 557.1 $ 462.1 $ 560.7 $ 500.4
Gross profit 61.6 60.6 78.6 70.2 70.9 58.2 61.4 69.7
Earnings
Continuing operations 5.9 2.6 14.1 5.2 8.3 2.7 18.8 7.4
Net 5.9 5.1 14.1 5.6 8.3 1.0 18.8 7.4
Earnings
per common share
Primary
Continuing operations $ .26 $ .12 $ .63 $ .23 $ .37 $ .12 $ .83 $ .33
Net .26 .23 .63 .25 .37 .04 .83 .33
Fully Diluted
Continuing operations .26 .12 .60 .23 .36 .12 .80 .33
Net .26 .23 .60 .25 .36 .04 .80 .33
<FN>
Note 1: Earnings from continuing operations for 1996 includes $10.8 million gain on
sale of shares in affiliate. Earnings from continuing operations for 1996
also includes special charges and credits, net of $.3, $(.7), $6.2 and $(.8)
million in quarters one, two, three and four, respectively.
Note 2: Earnings from continuing operations for 1995 includes restructuring and
special charges and credits, net of $2.1, $8.4, ($4.6) and $5.3 million in
quarters one, two, three and four, respectively.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
- --------------------------------------------------------
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
- -----------------------------------------------------------
Information regarding Directors of the Registrant is contained in
the definitive proxy statement of the Registrant for the Annual
Meeting of Shareholders to be held April 17, 1997, under the
captions "Election of Directors" and "Compliance with Forms 3, 4
and 5 Reporting Requirements", and is incorporated herein by
reference.
Item 11. Executive Compensation
- -------------------------------
This information is contained in the definitive proxy statement
of the Registrant for the Annual Meeting of Shareholders to be
held April 17, 1997 under the caption "Executive Compensation"
(exclusive of the portion under the subcaption "Report of the
Compensation Committee on Executive Compensation") and is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners
and Management
- ----------------------------------------------------------
This information is contained in the definitive proxy statement
of the Registrant for the Annual Meeting of Shareholders to be
held April 17, 1997 under the captions "Certain Beneficial
Owners" and "Election of Directors" and is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions
- -------------------------------------------------------
See Notes 2 and 10 to the Consolidated Financial Statements, Item
8 herein, with respect to the Company's sale of its ownership
interest in Space Industries International, Inc. to Calspan SRL
Corporation of which Joseph P. Allen, a director of Arvin, is
president, chief executive officer and a shareholder.
Part IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K
- ---------------------------------------------------------------
(a) (1) Financial Statements
The following financial statements are filed as part of this
report See index to Consolidated Financial Statements in Item 8.
Consolidated Statement of Operations for each of the
three years in the period ended December 29, 1996
Consolidated Statement of Financial Condition at
December 29, 1996 and December 31, 1995
Consolidated Statement of Shareholders' Equity for each
of the three years in the period ended December 29, 1996
Consolidated Statement of Cash Flows for each of the
three years in the period ended December 29, 1996
Notes to Consolidated Financial Statements
Report of Independent Accountants
(a) (2) Financial Statement Schedules
Financial Statement Schedules:
For each of the three years in the period ended
December 29, 1996
II Valuation and Qualifying Accounts
The registrant's Consolidated Financial Statement schedules are
included in Item 8 herein.
(a) (3) Exhibits
The exhibits filed as a part of this Annual Report on Form 10-K
are:
Exhibit Incorporated Herein By
Number Exhibit Reference as Filed With
- ------ ------------------------------------ ------------------------------
3(A) Amended and Restated Articles of 1990 Form 10-K as Exhibit 3(A)
Incorporation and Amendments Thereto
3(B) Amended and Restated By-Laws Form 8-K dated May 10, 1996 as
Exhibit 3(ii)
Instruments defining the Rights of Security-Holders, including
Indentures: Pursuant to Item 601 (b)(4)(iii)(A) of Regulation
S-K, the registrant is not filing certain documents because the
total amount of debt securities authorized under each such
document does not exceed 10 percent of the total assets of the
registrant and its subsidiaries on a consolidated basis. The
registrant agrees to furnish a copy of each such document to the
Commission upon request.
4(A) Indenture dated as of March 1, 1987 Registration Statement No.33-10941
relating to $200 million aggregate as Exhibit 4
principal amount debt securities
4(B) Indenture dated as of July 10, 1989 Registration Statement No.33-29230
relating to 7.5 percent Convertible as Exhibit 4.5
Subordinated Debentures due 2014
4(C) Indenture dated July 3, 1990 relating Registration Statement No.33-34818
to Debt Securities of Arvin Overseas as Exhibit 4(a)
Finance B.V., unconditionally
guaranteed by Arvin Industries, Inc.
4(D) Indenture dated July 3, 1990 relating Registration Statement No.33-53087
to Senior Debt Securities. as Exhibit 4-4
4(E) Rights Agreement, as amended Form 8-K dated May 10, 1996
Form 8-K dated June 16, 1986
Form 8-K dated February 28, 1989
Form 10-Q for the third quarter
ended 10-2-94 as Exhibit 4
4(F) Amended and Restated Declaration of Form 8-K dated February 10, 1997
Trust dated as of January 28, 1997 as Exhibit 4.3
relating to 9.5 percent Capital
Securities of Arvin Capital I,
guaranteed by Arvin Industries, Inc.
4(G) Indenture dated as of January 28, 1997 Registration Statement No. 333-
relating to 9.5 percent Junior 18521 as Exhibit 4.4
Subordinated Deferrable Interest
Debentures due 2027, held by Arvin
Capital I
4(H) First Supplemental Indenture dated as Form 8-K dated February 10, 1997
of January 28, 1997 relating to 9.5 as Exhibit 4.5
percent Junior Subordinated Deferrable
Interest Debentures due 2027, held by
Arvin Capital I
4(I) Capital Securities Guarantee Agreement Registration Statement No. 333-
dated as of January 28, 1997 relating 18521 as Exhibit 4.7Form 8-K dated
to the 9.5 percent Capital Securities May 10, 1996
of Arvin Capital I, guaranteed by Form 8-K dated June 16, 1986
Arvin Industries, Inc.Rights Form 8-K dated February 28, 1989
Agreement, as amended Form 10-Q for the third quarter
ended
10-2-94 as Exhibit 4
10(A) * 1978 Stock Option Plan for Officers 1980 Form 10-K as Exhibit 10(A)
and Key Employees
-Amendments 1982 Form 10-K as Exhibit 10(A),
Form 10-Q for the first quarter
ended 4-1-84 as Exhibit 10(A),
Form 10-Q for the first quarter
ended 4-5-87 as Exhibit 10(A)
10(B) * Management Incentive Plans 1995 Form 10-K as Exhibit 10(B)
10(C) * Employment Agreement with Byron O. Form 10-Q for the third quarter
Pond dated October 31, 1993 ended 10-4-93 as Exhibit 10(F)
10(D) * Unfunded Deferred Compensation Plan 1982 Form 10-K as Exhibit 10(D)
for Directors
10(E) * 1988 Arvin Industries, Inc. Stock 1991 Form 10-K as Exhibit 10(E)
Benefit Plan
-Amendments Form S-8 dated November 26, 1996
Form 10-Q/A for the quarter ended
July 4, 1993 as Exhibit 10(E)
10(F) Employee Stock Benefit Trust effective Form 8-K dated January 20, 1997 as
as of December 20, 1996 relating to Exhibit 99.1
The Arvin Industries, Inc. Employee
Stock Benefit Trust
10(G) Common Stock Purchase Agreement dated Form 8-K dated January 20, 1997 as
December 20, 1996 relating to The Exhibit 99.2
Arvin Industries, Inc. Employee Stock
Benefit Trust
11 Computation of Earnings Per Share filed herewith as Exhibit 11
12 Computation of Ratios filed herewith as Exhibit 12
21 Subsidiaries of the Registrant filed herewith as Exhibit 21
23(A) Consent of Independent Accountants filed herewith as Exhibit 23(A)
23(B) Consent of Independent Accountants filed herewith as Exhibit 23(B)
23(C) Independent Auditors' Report and
Consent of Independent Accountants filed herewith as Exhibit 23(C)
27 Financial Data Schedule filed herewith as Exhibit 27
<FN>
* This exhibit is a management contract or compensatory plan or
arrangement.
(b) Reports on Form 8-K
Report Dated - May 10, 1996
Item 5. Other Events
On April 18, 1996 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 and November 10, 1994, (the "Rights Agreement") between the
Company and Harris Trust and Savings Bank, as Rights Agent. The
Rights Agreement was amended (the "Amendment") to extend the term
of the rights issued thereunder for a period of ten additional
years. The rights are now set to expire on June 13, 2006.
Report Dated - May 10, 1996
Item 5. Other Events
At its April 18, 1996 regular meeting, the Board of Directors of
Arvin Industries amended Section 6.1 of its ByLaws to expand the
categories of affiliated entities for which the Company may
guarantee obligations upon the approval of certain designated
officers.
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: March 24, 1997
The signatures that follow constitute a majority of the Board of
Directors of the Registrant.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant in the capacities and on the dates
indicated.
/s/ B. O. Pond March 24, 1997
________________________________ ______________
B. O. Pond
Chairman of the Board of
Directors
and Chief Executive Officer
/s/ J. K. Baker March 24, 1997
________________________________ ______________
J. K. Baker
Vice-Chairman of the Board of
Directors
/s/ V. W. Hunt March 24, 1997
________________________________ ______________
V. W. Hunt
President, Chief Operating
Officer
and Director
/s/ R. A. Smith March 24, 1997
________________________________ ______________
R. A. Smith
Vice President-Finance, Chief
Financial Officer
and Director
/s/ I. W. Gorr March 24, 1997
________________________________ ______________
I. W. Gorr
Director
/s/ F. R. Meyer March 24, 1997
________________________________ ______________
F. R. Meyer
Director
/s/ A. R. Velasquez March 24, 1997
________________________________ ______________
A. R. Velasquez
Director
/s/ J. P. Allen March 24, 1997
________________________________ ______________
J. P. Allen
Director
/s/ S. C. Beering March 24, 1997
________________________________ ______________
S. C. Beering
Director
/s/ J. P. Flannery March 24, 1997
________________________________ ______________
J. P. Flannery
Director
/s/ R. W. Hanselman March 24, 1997
________________________________ ______________
R. W. Hanselman
Director
/s/ D. J. Kacek March 24, 1997
________________________________ ______________
D. J. Kacek
Director