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 January 1, 1995 or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Commission File Number 1-302
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ARVIN INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Indiana 35-0550190
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Noblitt Plaza, Box 3000
Columbus, IN 47202-3000
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(Address of principal executive offices) (Zip Code)
812-379-3000
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(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
7.5 percent Convertible New York Stock Exchange
Subordinated Debentures due 2014
Securities registered pursuant to Section 12(g) of the Act: None
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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 $453,535,139 as of February 24, 1995. 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 5, 1995, the Registrant had outstanding 22,250,307 Common Shares
(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 13, 1995 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 January 1, 1995
Page No.
Part I
Item 1 Business
Item 2 Properties
Item 3 Legal Proceedings
Executive Officers
Item 4 Submission of Matters to a Vote of Security Holders
Part II
Item 5 Market for Registrant's Common Equity and Related
Shareholder Matters
Item 6 Selected Financial Data
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 8 Financial Statements and Supplementary Data
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Part III
Item 10 Directors and Executive Officers of the Registrant
Item 11 Executive Compensation
Item 12 Security Ownership of Certain Beneficial Owners and
Management
Item 13 Certain Relationships and Related Transactions
Part IV
Item 14 Exhibits, Financial Statement Schedules and Reports on
Form 8K
Other
Signatures
Part I
Item 1. Business
------------------
As used in this report, the term "Registrant", "Arvin", "Management" or
"Company" means Arvin Industries, Inc. and its subsidiaries, unless the
context otherwise requires.
Arvin is a diversified international manufacturing company supplying
automotive parts and a variety of other products and services through
operating entities in the U.S. and numerous other parts of the world.
Since its founding in 1919, Arvin has grown through internal development,
acquisition and joint venture opportunities. In recent years, the Company's
strategy has been to strengthen its automotive parts businesses by achieving
a balance between sales to both original equipment manufacturers and
replacement parts suppliers on a global basis.
In 1990, the Company acquired Tubauto's engine manifold and exhaust tube
business located in France, as well as a 40 percent interest in a new joint
venture, Arvin-Tubemakers Pty. Ltd., an Australian manufacturer of original
equipment exhaust systems.
During the second quarter of 1992, the Company acquired a 50 percent interest
in Schmitz & Brill GmbH, a German automotive parts manufacturer. Although
the 1990 and 1992 acquisitions are not material to the consolidated results
of the Company, they continue the strategic focus of increasing the Company's
presence in global automotive parts markets.
The Company completed three strategic alliances during the third quarter of
1993. First, the Company's Calspan subsidiary was merged with Space
Industries International, Inc. The Company owns approximately 70 percent of
the new company, Space Industries International, Inc.
Second, the Company acquired a 49.9 percent interest in Way Assauto S.r.l.
located in Asti, Italy. Way Assauto manufactures shock absorbers, MacPherson
struts and related parts and stampings for the original equipment market.
Finally, the Company formed a 50/50 replacement market exhaust joint venture
with Sogefi S.p.A., an Italian company. The new venture includes Sogefi's
former wholly owned subsidiaries Establissements Rosi, with manufacturing and
distribution facilities in France, and Ansa Marmitte, with manufacturing and
distribution facilities in Italy, and a portion of the operating assets of
the Company's Timax business unit.
On March 25, 1994 the Company purchased 80% of the European exhaust
manufacturer MTA S.r.l., located in Mosciano St. Angelo, Italy. MTA
manufactures car exhaust down pipes, catalysts and other related parts.
During the fourth quarter of 1994, the Company purchased 49.9 percent of
Autocomponents Suspension S.r.l., a ride control manufacturer in Melfi,
Italy. Autocomponents Suspension manufactures principally in the original
equipment market.
These acquisitions continue the strategic focus of increasing the Company's
presence in global automotive parts markets.
Effective April 14, 1994, the Company adopted a plan to sell its Schrader
Automotive unit (Schrader). Accordingly, Schrader is reported as a
discontinued operation at January 1, 1995. The Company's prior years'
continuing operating results and financial position have been reclassified to
conform to the current year presentation. In February 1995, the Company
entered into a contract for the sale of Schrader and the transaction was
completed on February 16, 1995.
Additional information on the above events is contained in Note 2 to the
financial statements, Item 8 herein.
Operations
A. Business Segments
The Company's products and services are classified based upon three primary
market segments served: Automotive Original Equipment, Automotive Replacement
and Technology.
Manufacturing facilities for the Automotive Original Equipment and Automotive
Replacement segments are located in the United States, Canada, Mexico,
France, South Africa, the Netherlands, Spain, Italy and the United Kingdom,
and incorporate highly mechanized production lines for stamping, welding,
assembling, testing, laminating, coil coating and rubber molding. The
Technology segment is located in the United States. Its primary business
strategy is to maintain existing contracts and obtain new contracts with the
United States Department of Defense, the National Aeronautics and Space
Administration, other United States Government agencies and industrial and
commercial customers.
Principal raw materials for the manufacturing segments are stainless,
aluminized, galvanized, cold-rolled and vinyl-clad steel; aluminum sheets;
and paint, brass, rubber, oil and zinc, all of which are available from a
number of primary suppliers.
During the year, the Company experienced an interruption in its stainless
steel supply as a result of a labor dispute at a major supplier. The labor
dispute was resolved in the third quarter and normal supply operations have
resumed.
See Note 16 to the financial statements, Item 8 herein, for financial detail
by business segment.
Automotive Original Equipment:
Principal products of the Automotive Original Equipment (OE) segment are
exhaust systems (mufflers, exhaust and tail pipes, catalytic converters and
tubular manifolds), ride control products (shock absorbers and MacPherson
struts), gas-charged lift supports, vacuum actuators, metal tubular parts,
coated coil steel, press-molded thermoplastics and various other vinyl-metal
stampings.
Arvin is a leading producer of original equipment exhaust systems sold to
Ford, General Motors, Chrysler, Mazda, Volvo, Jaguar, Seat and Nissan.
Additionally, the Company's joint venture with Sango Co., Ltd. of Japan
supplies exhaust systems for Toyota and Nummi Motors (GM/Toyota) vehicles
manufactured in the United States and Canada. The Company's Way Assauto and
Autocomponents Suspension joint ventures supply shock absorbers to Fiat
vehicles manufactured in Italy. The Company is also a major supplier of
catalytic converters to Chrysler and supplies original equipment shock
absorbers to Ford, Chrysler, Isuzu, Nissan and Honda in the United States.
The Company's APA subsidiary also supplies ride control products to European
automotive original equipment market customers, which include Ford, Renault,
Seat and Nissan. Arvin's AVM subsidiary is a leading worldwide supplier of
gas-charged lift supports to Chrysler, General Motors, and Mazda and vacuum
actuators to Ford, Chrysler and other OE automotive companies.
Arvin's Roll Coater subsidiary is a leading independent coater of coil steel
which is coated with a zinc-rich primer to inhibit rust and is used in
fabricating automobile and truck body parts. In addition, Roll Coater
supplies pre-coated coils of steel and aluminum to manufacturers of pre-
engineered buildings, metal roofing, office furniture, garage doors, metal
shelving and housings for refrigerators, washers and dryers. Roll Coater also
has a metal embossing line which enables it to offer embossed designs on
prepainted finishes such as metal garage and refrigerator doors. Results of
the Company's Roll Coater subsidiary are included in the OE segment due to
their relative size.
Additional original equipment applications include a variety of decorative
interior and exterior automotive trim parts, stampings and vinyl-metal
laminates, diesel engine oil pans and other fabricated metal parts for
manufacturers of both automobiles and heavy-duty trucks, press-molded
thermoplastics and other assembled metal components.
The majority of the Company's products sold in this segment are handled by
Arvin sales staff located throughout North America and Europe.
Automotive Replacement:
Principal products of the Automotive Replacement (Replacement) segment
include replacement mufflers, exhaust and tail pipes, catalytic converters,
shock absorbers, MacPherson struts, gas-charged lift supports, brake and
front-end parts.
Through Maremont Exhaust, Arvin Exhaust, Timax Exhaust Systems,
Establissements Rosi and Ansa Marmitte, the Company is a leading worldwide
manufacturer and supplier of replacement exhaust systems. Through Gabriel
Ride Control, the Company is a leading North American manufacturer and
supplier of replacement shocks and other ride control products. Products are
marketed under both customers' private labels as well as under the Company's
own brand names: "Maremont", "Arvin", "Supreme", "TIMAX" and "Truckmaster"
for mufflers, "Gabriel" for shock absorbers and "Strong Arm" for gas-charged
lift supports. Maremont Exhaust, AVM and Gabriel Ride Control distribute
their products through mass merchandisers (e.g. Sears, Autozone), installers
(e.g. Meineke and Firestone), and wholesale distributors (e.g. Parts Inc.).
In Europe, significant customers for Timax Exhaust include Kwik-Fit and
Partco. Arvin Exhaust distributes replacement products through original
equipment customers in North America and Europe with installation through
dealership services.
All products in this segment are sold by a combination of the Company's own
sales force and manufacturers' representatives.
Technology:
The Company's 1993 merger of its Calspan subsidiary with Space Industries
International, Inc. resulted in the Company owning approximately 70 percent
of the new Space Industries International, Inc. (SIII). SIII, which consists
of four operating divisions, provides high-technology professional and
technical research, development, testing, engineering and evaluation services
and technologically sophisticated systems and products, principally to the
defense and aerospace industries through contracts with the United States
Government, its prime contractors, and various commercial and industrial
customers. Services include aerodynamics, automobile crash testing and
accident research, tire performance, restraint systems, aircraft systems,
electronic systems analysis, surface and laser chemistry, non-destructive
material evaluation, and networked computer systems. SIII also manufactures
sophisticated electronic monitoring systems, manages government-owned
research facilities on a fixed-term contract basis and operates its own wind
tunnel and flight training simulators. Its major customer is the Department
of Defense, which was responsible for approximately 63 percent of SIII's net
sales in 1994. Other major customers include NASA, other U.S. Government
agencies, and university and industrial customers.
Facilities for SIII are located in the U.S. and employ primarily scientists
and other research-oriented employees.
B. Number of Employees
At year end, the Company had 13,298 employees in its continuing operations
and 1,537 employees in its Schrader operations.
C. Competition and Customer Relationships
Each of the Company's business segments operates in a highly competitive
market. Customer loyalty, developed through longstanding relationships, is a
primary element of competition. The Company's longstanding relationships
with its principal customers has 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 1994, the Company had
sales to one customer that exceeded 10% of its consolidated net sales (Ford
Motor Company - 16.0 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 replacement market for
gas-charged lift supports.
In the Technology segment, the Company competes with numerous private
contractors for the research, development, testing and evaluation business of
federal government agencies. Business in this segment is generally obtained
through sole source negotiated contracts, competitive bidding on fixed-price
or cost-plus fixed-fee service contracts and research and development
contracts or cost plus award fee contracts for the management and operation
of government-owned research and testing facilities. Because of the nature
of government contracting, it is not possible for the Company to estimate its
market position in this segment.
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 currently on a country by country basis. The Company
anticipates that the European Union will continue to phase in emission
control standards in the future. Such emission control regulations will
mandate the use of catalytic converters and/or other emissions control
devices, and should have a positive impact on the results of operations for
the Company.
Arvin believes its facilities either comply with applicable environmental
control regulations or 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.
Item 2. Properties
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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. Discontinued
operations are not included in the segment information which follows. (See
Note 2 to the financial statements, Item 8 herein.)
Automotive Original Equipment:
The Company has approximately 4.9 million square feet to conduct its business
activities related to the OE segment. The Company's original equipment
facilities are currently nearly fully utilized.
Principal manufacturing facilities in the United States are located in
Indiana, Alabama and Tennessee. Additional manufacturing activities are
conducted in Missouri and South Carolina. The facilities in Indiana are
owned, while the other principal 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, the Netherlands and Canada. Additional
manufacturing activities are conducted in South Africa, Italy, France and
Mexico.
Automotive Replacement:
The Company has approximately 3.5 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. Additional manufacturing activities are conducted in
Ohio and South Carolina. 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 and Canada. Other manufacturing activities are conducted in
South Africa, Spain, Mexico, the Netherlands, Italy and France. The major
distribution center in Blackpool, England is leased, as are many other
smaller distribution centers in the United Kingdom and the Netherlands.
Technology:
The Company has approximately .8 million square feet to conduct its research
and testing activities. Research centers are located in New York, Ohio and
Texas. The Company's research centers are nearly fully utilized.
Item 3. Legal Proceedings
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As previously reported, the Company is defending legal actions arising from
the May, 1987, sale of Saco Defense Inc. ("Saco"), a former Maremont
subsidiary, to Chamberlain Manufacturing Corporation ("Chamberlain"), a
subsidiary of Duchossois Industries, Inc.
One suit, filed by Chamberlain, is based on assertions that at the time of
the stock sale there were known defects in products manufactured by Saco
under contracts with the Air Force. On December 15, 1993, an order was
entered dismissing the Company as a defendant in this case, however, Maremont
still remains a defendant. Formal discovery has been completed in the
product defects lawsuit and a May, 1995, trial date has been set.
Chamberlain also made a so-called "Voluntary Disclosure" to the United States
Government regarding the alleged product defects, as a result of which a jury
investigation was conducted in Portland, Maine. It is the Company's
understanding that the grand jury has expired and that no indictments were
returned against any present or former Maremont or Saco employees.
Chamberlain filed a further suit against the Company and Maremont in January,
1992, also in the United States District Court for the Northern District of
Illinois, alleging that the Company failed to disclose Saco's liability for
certain workers' compensation claims outstanding at the date of sale.
Summary judgment motions are pending in this case. No trial date has been
set for this case.
The Company is also defending various environmental claims and legal actions
that arise in the normal course of business, including matters in which the
Company has been designated a potentially responsible party at certain waste
disposal sites or has been notified that it may be a potentially responsible
party at other sites as to which no proceedings have been initiated. Neither
the remediation method, amount of remediation costs nor the allocation among
potentially responsible parties has been determined at the majority of these
sites. At some of these sites the information currently available leads the
Company to believe it has very limited or even de minimis responsibility.
In connection with the Platt Saco Lowell operations (a site owned by the
Maremont division prior to Arvin's acquisition of Maremont), the Company is a
participant with the EPA and the current owner in a corrective action
proceeding under the Resource Conservation and Environmental Recovery Act.
Ground water and surface water treatment facilities have been installed as
interim measures. Comments from EPA on the RFI (RECRA Facility
Investigation) were addressed and submitted to the EPA in January 1994. A
Phase Two/Feasibility Study is scheduled to begin in 1995, subject to
response from regulatory agencies. The Company has provided for the
reasonably estimable share of its remediation costs at Platt Saco Lowell.
The Company has provided for reasonably estimable costs of study, cleanup,
remediation and certain other environmental matters, taking into account, as
applicable, available information regarding site conditions, potential
cleanup methods and the extent to which other parties can be expected to bear
those costs. The Company does not expect that resulting liabilities beyond
provisions already recorded will have a materially adverse effect on the
Company's financial position.
<TABLE>
Executive officers of the Registrant:
-------------------------------------
<CAPTION>
Date First
Elected to
Name Age Offices Held Exec. Office
------------------ ---- --------------------------- ------------
<S> <C> <C> <C>
James K. Baker 63 Chairman of the Board of
Directors 1965
Byron O. Pond 58 Chief Executive Officer
and President (& Director) 1990
V. William Hunt 50 Executive Vice President
(& Director) 1980
Joe T. Atkins (1) 66 Senior Vice President
-Supplier Development 1993
Raymond P. Mack 54 Vice President-Human Resources 1993
W. Frederick Meyer 61 Vice President-Public Affairs 1974
Richard A. Smith 49 Vice President-Finance & Chief
Financial Officer (& Director) 1990
Ronald R. Snyder 50 Vice President-General Counsel
& Secretary 1992
<FN>
(1) Mr. Atkins retired in April, 1994.
</TABLE>
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 1994 fiscal year.
Part II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
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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.
<TABLE>
Market Price Ranges and Quarterly Dividends Paid
(Prices and dividends on common shares)
<CAPTION>
1994 1993
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Market Price Market Price
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Dividend High Low Dividend High Low
<S> <C> <C> <C> <C> <C> <C>
First Quarter $ .19 $ 33 3/4 $ 27 3/4 $ .19 $ 37 $ 29 3/4
Second Quarter .19 29 3/8 23 1/2 .19 37 3/4 30 3/4
Third Quarter .19 25 3/4 23 1/2 .19 33 3/4 26 3/4
Fourth Quarter .19 25 7/8 22 13/16 .19 32 25 1/4
</TABLE>
As of March 6, 1995, Arvin had 5,278 holders of record of its common shares.
Item 6. Selected Financial Data
-------------------------------
<TABLE>
Five-year Consolidated Financial Summary
----------------------------------------
<CAPTION>
(In millions, except
per share amounts) 1994 1993 1992 1991 1990
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Results 1
Net Sales $ 2,039.8 $ 1,852.3 $ 1,798.0 $ 1,587.2 $ 1,593.9
Interest expense 43.6 36.8 38.8 41.3 39.6
Earnings (Loss) from
continuing operations (17.4) 37.8 39.9 22.8 33.2
Primary earnings (loss)
per common share (0.78) 1.70 1.70 0.79 1.35
Dividends declared:
Preferred shares -- -- 5.8 7.8 7.8
Common shares 16.9 16.7 13.8 12.8 12.8
Per common share 0.76 0.76 0.70 0.68 0.68
Average number of common
shares outstanding 22.4 22.3 20.1 19.1 18.8
Financial Position
Total assets $ 1,275.3 $ 1,230.1 $ 1,135.2 $ 1,111.4 $ 1,176.9
Long-term debt 416.3 432.4 388.7 333.1 318.4
Total debt 441.4 440.4 409.1 369.9 424.1
Redeemable preferred
shares -- -- -- 100.5 100.5
Shareholders' equity 396.3 420.6 398.4 374.1 374.2
Book value per common
share 17.81 19.04 18.45 19.59 19.75
<FN>
1 From continuing operations
SFAS No.109 was adopted by the Company in 1992 by retroactively restating
1991 and 1990 reported results.
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
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Financial Review
(Dollar amounts in tables in millions)
Overview and Outlook
Arvin recorded sales of $2 billion in 1994, the highest level in the
Company's history. 1994 sales levels represent a 10 percent increase over
1993 and a 13 percent increase over 1992. The 1994 increase in sales was
primarily attributable to strong North American vehicle production and the
easing of recessionary pressures in the European automotive markets.
Results for the year include a fourth quarter charge of $81.1 million ($58.9
million after tax and minority interest) for restructuring and other special
charges. These charges, which are more fully discussed following the
Company's results of operations by segments, allow the Company to further
concentrate its resources to achieve its long-term strategic objectives.
In April, 1994, the Company announced its intention to sell its Schrader
Automotive unit (Schrader). Accordingly, the current and prior years'
financial statements of Arvin report separately the net assets and operating
results of Schrader as a discontinued operation. Beginning in 1994, and in
conjunction with the disposition of Schrader, the Company is reporting its
results in three segments: Automotive Original Equipment, Automotive
Replacement and Technology. Results of the Company's Roll Coater subsidiary
are included in the Automotive Original Equipment segment due to their
relative size.
<TABLE>
Results of Operations
<CAPTION>
Net Sales by Segment 1994 1993 1992
------------------------ ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Automotive Original
Equipment $1,193.9 59% $1,042.9 56% $ 939.0 52%
Automotive Replacement 656.1 32 598.0 32 648.2 36
Technology 189.8 9 211.4 12 210.8 12
-------- ---- -------- ---- -------- ----
Total $2,039.8 100% $1,852.3 100% $1,798.0 100%
======== ==== ======== ==== ======== ====
Operating Income by
Segment 1994 1993 1992
------------------------ ---- ---- ----
Automotive Original
Equipment $ 70.9 142% $ 64.1 56% $ 45.2 39%
Automotive Replacement 33.2 67 49.0 43 62.7 54
Technology (54.3) (109) 1.5 1 8.4 7
-------- ---- -------- ---- -------- ----
Total $ 49.8 100% $ 114.6 100% $ 116.3 100%
======== ==== ======== ==== ======== ====
</TABLE>
Automotive Original Equipment ("OE"), 1994 vs 1993: OE sales in 1994 were
14 percent higher than in 1993 primarily as a result of a 9 percent increase
in the North American automotive build rate and an easing of recessionary
pressures throughout Europe. Pricing pressures reduced sales prices in both
the U.S. and Europe. The impact of lower sales prices was offset in both
markets by Arvin's success in winning significant new business. Operating
income in this segment increased 11 percent for the year as a result of the
higher revenues, improved revenues and margins from coil coating operations
(which contributed $2.6 million of the increase), and the realization of the
benefit of quality and process improvement initiatives. These gains were
somewhat offset by price concessions, start up costs on new strut production,
the negative impact of a labor dispute at one of the Company's major North
American steel suppliers and the devaluation of the Mexican peso. In
addition, the Company recorded a fourth quarter 1994 restructuring charge of
$2.3 million for this segment. Except for the exchange losses of
approximately $1.2 million related to the peso devaluation, currency
fluctuations had a minor impact on the comparative balances of both sales and
operating income.
1993 vs 1992: OE sales increased 11 percent as a result of higher North
American light vehicle production, new exhaust business in North America, and
increased demand for catalyst assemblies in Europe. At constant rates of
exchange, which eliminate the unfavorable exchange rate impact of a stronger
U.S. dollar during the year, the sales increase was 18 percent. Operating
income for the OE segment increased 42 percent in 1993 (55 percent at
constant dollar exchange rates) as a result of worldwide productivity
improvements, higher exhaust volumes in North America and improved margins
from coil coating operations.
Automotive Replacement ("Replacement"), 1994 vs 1993: Replacement sales
increased 10 percent over the prior year. While European sales were up
slightly, stronger increases were seen in the U.S. in both the ride control
and exhaust product lines. Increases in the U.S. were due to Arvin's success
in winning new customers in the exhaust product line and stronger overall
demand, coupled with moderate price increases in ride control products. The
Company also increased, by more than 50 percent, both its U.S. and European
sales of OE replacement parts sold to automotive dealers for service parts.
Operating income improved as a result of productivity improvements in most
markets represented in this segment. However, overall operating income fell
32 percent for this segment due to an $18.0 million restructuring charge and
increased costs associated with obtaining new business in the U.S.
1993 vs 1992: Replacement sales decreased 3 percent at a constant dollar
rate of exchange and 8 percent after inclusion of the effect of a stronger
U.S. dollar during the year. The decrease was primarily due to an
unfavorable distribution channel shift and a lower demand for ride control
products in North America. Operating income decreased 22 percent (17 percent
at constant rates of exchange) for the same time period. Lower volumes, an
unfavorable North American ride control product mix and higher operating
costs associated with reorganizing the European exhaust business all
negatively affected income from operations.
Technology, 1994 vs 1993: Technology sales fell 10 percent primarily as a
result of the Company's reorganization of its service contract business unit
to reflect changes in government procurement practices and to position the
unit more favorably for future contract competitions. As part of this
reorganization, the Company entered into an agreement to transfer a principal
contract to an unconsolidated joint venture company in return for a
participation in future performance fees. The Company owns a 49 percent
interest in the new company. Although the revenues will no longer be
consolidated, upon the successful awarding of this contract to the joint
venture company during the rebidding process, the joint venture arrangement
will permit a level of participation in the future net income associated with
this contract. The effect on the operating income of Arvin is expected to be
immaterial. During 1994, as a result of continued contraction in this
market, Arvin re-evaluated the viability of the recorded goodwill and the
Space Facility Technology assets recorded in this segment. A fourth quarter
restructuring charge of $53.0 million was taken to write off the recorded
value of both of these assets, as well as to account for employee severance
costs, facility consolidation costs and other charges. Excluding this
charge, operating income in this segment was $2.8 million below 1993 levels,
primarily as a result of lower sales and unrecovered indirect costs.
1993 vs 1992: Technology segment sales were flat for 1993 compared to 1992.
Segment sales declined 2 percent during the last six months before the
inclusion of post-merger Space Industries International, Inc. sales.
Contracts awarded declined during the second half of 1993, resulting in lower
realization of fourth quarter revenue. Income for the period decreased 82
percent. Lower operating income was attributed to higher bid and proposal
costs resulting from the increased competition in securing contracts,
expenses associated with the merger of the Company's Calspan subsidiary with
Space Industries (see Note 2) and the expensing of actual overhead rates in
excess of provisional rates billed on government contracts.
Restructuring and Special Charges of $81.1 million ($58.9 million after tax
and minority interest or $2.63 per share) are included in results of
operations in the fourth quarter of 1994. These charges represent costs
associated with reducing the carrying values of underperforming assets to
estimated fair values, a provision for an early retirement program and
severance benefits for involuntary staff reductions, consolidation of
manufacturing facilities and certain product lines, and environmental and
other reserve increases. The workforce reductions and consolidation of
manufacturing facilities and product lines will be substantially complete by
December 31, 1995, and are an effort to concentrate resources allowing the
Company to achieve its long-term strategic growth objectives. The expected
cash outlay, to be paid out over the next three years, is $22.1 million and
is expected to be funded from cash generated from operations. The remaining
$59.0 million of the charges pertains to non-cash items, such as asset write-
downs and asset write-offs. Expected future benefits to cash flow include
lower cash outlays for salaries and wages of $8.7 million annually beginning
in 1996. In addition, depreciation expense and goodwill amortization will be
reduced an estimated $1.9 million in 1995 and thereafter. The components of
the restructuring and special charges are as follows:
<TABLE>
<CAPTION>
Automotive
Original Automotive Corporate
Equipment Replacement Technology Other Total
--------- ----------- ---------- ------- ------
<S> <C> <C> <C> <C> <C>
Employee Separations $ 2.1 $ 5.3 $ .7 $ --- $ 8.1
Asset Write-downs .2 7.1 19.6 --- 26.9
Goodwill Impairment --- --- 29.6 --- 29.6
Facility Consolidations --- 5.6 2.7 --- 8.3
Other Special Charges --- --- .4 7.8 8.2
--------- ----------- ---------- ------- ------
Total $ 2.3 $ 18.0 $ 53.0 $ 7.8 $ 81.1
========= =========== ========== ======= ======
</TABLE>
Employee separation costs are based on the minimum levels that would be paid
to the affected employees pursuant to the Company's workforce reduction
program and contractual provisions of government programs for international
business units. Although there are no additional restructuring plans under
consideration, the Company expects additional 1995 charges for severance and
relocation costs of approximately $4.3 million which are related to the 1994
plan. Current accounting guidelines do not permit the accrual of these
charges in 1994. The total number of employees to be separated under the
plan is 338.
For the evaluation of goodwill impairment, the Company segregated its
operating assets and cash flows into business units. Management believes that
such segregation is the most meaningful level for which cash flows are
identifiable and independent of one another. Cash flows were projected for
each business unit based on the approximate remaining goodwill amortization
periods. Internal plan projections were used to estimate revenue for the
1995 base period and a growth rate of 2 percent was assumed for most business
units. These projections assumed that capital expenditures would approximate
depreciation expense, and that gross profit and operating expenses would
generally increase proportionately with the sales growth assumptions.
Undiscounted cash flows were compared to the total net assets of each
business unit to determine if an impairment existed. To determine the amount
of technology segment goodwill impairment, future cash flows were discounted
at 12 percent, a rate which management believes is commensurate with the
risks involved.
The technology segment, which includes the merger of Space Industries
International, Inc. during the third quarter of 1993, continued to be
affected by more competition for fewer available contracts during all of
1994. As a result, the Company initiated a comprehensive review of the
carrying value of its intangible assets. The profitability assumptions for
the technology segment reflect both the increased competition and the
conclusion that the full recovery of the costs associated with the
development of certain Space Facility Technology relating to the design,
integration, and operation of a man-tended space facility is unlikely. As a
result, undiscounted cash flows were insufficient to recover the technology
segment's goodwill and the capitalized costs relating to the Space Facility
Technology. Accordingly, based on the discounted future cash flows, the
Company recorded an impairment of $29.6 million to goodwill and a charge for
approximately $18.2 million of capitalized Space Facility Technology costs in
the technology segment in the fourth quarter of 1994. There were no other
goodwill impairments identified within the Company's remaining business
units.
Facility consolidations include efforts to consolidate and restructure
selected organizations in Europe, Canada, and the United States. The
increase in environmental and other reserves relates primarily to the
completion of a feasibility study to identify and measure remediation costs
at the Platt Saco Lowell site previously owned by the Company's Maremont
subsidiary.
Corporate General and Administrative expenses decreased 21 percent or $3.4
million in 1994 after a $1.8 million (13 percent) increase in 1993. The 1994
decrease was primarily the result of reduced expenditures for employee costs
and professional services. Another factor contributing to the 1994 decrease
was that approximately $.6 million of one-time expenses related to the
consolidation of the Companys domestic data center operations were incurred
in 1993. 1993 expense was higher than 1992 because of the data center charge
and higher employee costs and professional services.
Interest Expense increased 18 percent or $6.8 million in 1994. The increase
was a result of higher average borrowing rates on higher average outstanding
debt. In 1993 interest expense decreased $2.0 million from 1992 principally
because of lower interest rates, cash flow from operations and proceeds from
the sale of two million shares of common stock in the third quarter of 1992.
Other Expenses, net increased $1.9 million in 1994. The increase was
primarily the result of higher foreign exchange losses, goodwill amortization
and the accelerated amortization of debt issuance cost due to the repurchase
and retirement of some of the Company's long-term debt. Other expenses, net
decreased $8.2 million in 1993 compared to 1992. The primary reason for the
decrease was a 1992 provision for claims, litigation charges, and settlement
costs related to various product and other liability cases and environmental
matters in which the Company was involved. In addition, 1993 benefited from
the favorable effect of lower business consolidation and relocation expenses.
Equity Earnings of Affiliates for 1994 was relatively unchanged from 1993.
1993 earnings were $3.5 million lower than 1992 as a result of losses from
new European joint ventures and the amortization of their acquisition costs.
Minority Shareholders' Share of Loss increased $12.6 million for the year.
The increase is primarily a result of the minority share portion ($14.6
million) of the 1994 restructuring charge. This increase was somewhat offset
as a result of 1994 earnings of the Company's Timax business unit. A portion
of the Timax unit was contributed to the 50/50 European joint venture with
Sogefi S.p.A. in the third quarter of 1993. Additionally, 1994 minority
interest income was enhanced by improved results from the Company's Spanish
subsidiary, AP Amortiguadores, S.A.
Income from Disposal of Discontinued Operations of $.8 million relates to
earnings of the Company's Schrader subsidiary after the decision to sell this
business. Income prior to this measurement date is recorded as "Income from
discontinued operations." In February 1995, the Company entered into a
contract for the sale of Schrader. The transaction was completed on February
16, 1995, and the gain to be recorded during the first quarter of 1995 will
be immaterial.
Change in Accounting The Company elected adoption of Statements of
Financial Accounting Standards (SFAS) No. 106 and 112 effective December 30,
1991 (See Note 12). These changes are reflected in the accompanying
financial information.
Financial Condition
Liquidity During 1994, cash provided by operations was $116.1 million,
compared to $103.7 million in 1993 and $135.5 million in 1992. Cash provided
by operating activities increased in 1994 and decreased in 1993, 12 percent
and 23 percent, respectively. The changes were a result of year-end
fluctuations in other assets, other current assets, payables, and other
accrued expenses. The current ratio decreased from 1.9 at the end of 1993 to
1.5 at the end of 1994.
Accounts Receivable and Accounts Payable both increased substantially (24
percent and 30 percent) primarily as a result of a 27 percent increase in
December sales over the prior year and an industry trend towards longer
payment cycles.
Other Assets decreased $12.4 million due to the write-off of $18.2 million of
capitalized Space Facility Technology costs and the addition of $5.1 million
of long-term deferred tax assets.
Accrued Expenses increased $27.9 million, primarily due to the restructuring
reserve, a reclassification of legal reserves, and increases in interest
payable and accrued tooling.
Capital Resources On January 26, 1994, the Company exercised its option to
call, at par, all of its outstanding $75.0 million principal amount of 8 3/8
percent notes due March 1, 1997. On February 16, 1994, the Company completed
the issue of $75.0 million principal amount of 6 7/8 percent notes due
February 15, 2001. The proceeds of this issue were used to retire the 8 3/8
percent notes on March 1, 1994. The Company repurchased approximately $17.2
million of its outstanding 9 1/8 percent sinking fund debentures due 2017.
It also repurchased approximately $7.3 million of its outstanding 7.5 percent
convertible subordinated debentures. Under the Company's shelf registration
with the Securities and Exchange Commission, which became effective in April,
1994, the Company may issue up to $225.0 million of various Arvin debt and
equity securities. The proceeds from the issuance of the securities will be
used for general corporate purposes.
Based on the Company's projected cash flow from operations and existing
financing credit facility arrangements, management believes that sufficient
liquidity is available to meet anticipated capital and dividend requirements
over the foreseeable future as well as the cash outlays resulting from the
restructuring program.
Funds generated from the sale of Schrader will be used to reduce the
Company's debt and for other corporate purposes.
Capital expenditures of continuing operations were $103.4 and $90.3 million
in 1994 and 1993, respectively, and related to ongoing production
improvements, product enhancements, new production, manufacturing
efficiencies as well as normal replacement. Planned capital expenditures for
1995 are adequate for normal growth and replacement and are consistent with
projections for future sales and earnings. Near-term expenditures are
expected to be funded from internally generated funds.
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.
Legal/Environmental Matters The Company is defending various environmental
claims and legal actions that arise in the normal course of its business,
including matters in which the Company has been designated a potentially
responsible party at certain waste disposal sites or has been notified that
it may be a potentially responsible party at other sites as to which no
proceedings have been initiated. At a majority of these sites, the
information currently available leads the Company to believe it has very
limited or even de minimis responsibility. At other sites, neither the
remediation method, amount of remediation costs nor the allocation among
potentially responsible parties has been determined. Where reasonable
estimates are possible, the Company has provided for the costs of study,
cleanup, remediation, and certain other costs, taking into account, as
applicable, available information regarding site conditions, potential
cleanup methods and the extent to which other parties can be expected to bear
those costs.
The Company is a participant with the EPA and the current owner of a site
previously owned by the Company's Maremont subsidiary in a corrective action
proceeding under the Resource Conservation and Environmental Recovery Act.
In the fourth quarter of 1994, based on the results of an environmental
study, the Company accrued for its share of the reasonably estimable minimum
remediation costs at this site, which include costs incurred in connection
with further studies and design of a remediation plan, remedial costs,
including cleanup activities, and administrative, legal and consulting fees.
Given the inherent uncertainties in evaluating legal and environmental
exposures, actual costs to be incurred in future periods may vary from the
currently recorded estimates. The Company expects that any sum it may be
required to pay in connection with legal and environmental matters in excess
of the amounts recorded will not have a material adverse effect on its
financial condition.
Other Matters On March 25, 1994, the Company purchased the European exhaust
manufacturer MTA S.r.l., located in Mosciano St. Angelo, Italy. MTA
manufactures car exhaust down pipes, catalysts and other related parts.
During the fourth quarter of 1994, the Company purchased 49.9 percent of
Autocomponents Suspension S.r.l., a ride control manufacturer in Melfi,
Italy. Autocomponents Suspension manufactures principally for the original
equipment market and is accounted for under the equity method.
Item 8. Financial Statements and Supplementary Data
Page No.
----------------------------------------------------
Index to Financial Statements
Financial Statements:
Consolidated Statement of Operations for each of the
three years in the period ended January 1, 1995
Consolidated Statement of Financial Condition at
January 1, 1995 and January 2, 1994
Consolidated Statement of Shareholders' Equity for each
of the three years in the period ended January 1, 1995
Consolidated Statement of Cash Flows for each
of the three years in the period ended January 1, 1995
Notes to Consolidated Financial Statements
Report of Independent Accountants and Independent
Auditors' Report.
Financial Statement Schedules:
For each of the three years in the period ended January 1, 1995
II Valuation and Qualifying Accounts
Supplementary Data:
Selected Quarterly Financial Data
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.
<PAGE>
<TABLE>
Arvin Industries, Inc.
Consolidated Statement of Operations
(Dollars in millions, except per share amounts)
<CAPTION>
1994 1993 1992
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $ 2,039.8 $ 1,852.3 $ 1,798.0
Costs and Expenses:
Cost of goods sold 1,723.6 1,552.8 1,475.1
Selling, operating general and administrative 191.5 187.9 202.6
Corporate general and administrative 12.6 16.0 14.2
Restructuring 72.9 ---- ----
Special charges 8.2 ---- ----
Interest expense 43.6 36.8 38.8
Interest income (2.7) (2.1) (2.4)
Other expense, net 6.3 4.4 12.6
----------------------------------------------------------------------------------------------------------------------------------
2,056.0 1,795.8 1,740.9
----------------------------------------------------------------------------------------------------------------------------------
Earnings from Continuing
Operations Before Income Taxes (16.2) 56.5 57.1
Income taxes (18.2) (23.2) (25.0)
Minority interest in net loss of consolidated subsidiaries 13.3 .7 .5
Equity earnings of affiliates 3.7 3.8 7.3
----------------------------------------------------------------------------------------------------------------------------------
Earnings from Continuing Operations (17.4) 37.8 39.9
----------------------------------------------------------------------------------------------------------------------------------
Income from discontinued operations, net of income
taxes of $.1, $2.1, and $1.6, respectively .3 2.5 ----
Income from disposal of discontinued operations, net of
income taxes of $1.3, $0, and $0, respectively .8 ---- ----
----------------------------------------------------------------------------------------------------------------------------------
Earnings Before Effect of Changes
in Accounting Principles (16.3) 40.3 39.9
Effect of change in accounting for postretirement
benefits other than pensions ---- ---- (27.6)
Effect of change in accounting for postemployment
benefits ---- ---- (5.9)
----------------------------------------------------------------------------------------------------------------------------------
Net Earnings (Loss) $ (16.3) $ 40.3 $ 6.4
Dividends on preferred shares ---- ---- (5.8)
----------------------------------------------------------------------------------------------------------------------------------
Net Earnings (Loss) Applicable to Common Shares $ (16.3) $ 40.3 $ .6
----------------------------------------------------------------------------------------------------------------------------------
Earnings/(Charges) per Common Share
Primary:
Continuing Operations $ (.78) $ 1.70 $ 1.70
Discontinued Operations .05 .11 .00
Effect of change in accounting for postretirement
benefits other than pensions ---- ---- (1.38)
Effect of change in accounting for postemployment
benefits ---- ---- (.29)
----------------------------------------------------------------------------------------------------------------------------------
Total - primary $ (.73) $ 1.81 $ .03
----------------------------------------------------------------------------------------------------------------------------------
Fully Diluted:
Continuing Operations $ (.78) $ 1.64 $ 1.70
Discontinued Operations .05 .10 .00
Effect of change in accounting for postretirement
benefits other than pensions ---- ---- (1.38)
Effect of change in accounting for postemployment
benefits ---- ---- (.29)
----------------------------------------------------------------------------------------------------------------------------------
Total - fully diluted $ (.73) $ 1.74 $ .03
----------------------------------------------------------------------------------------------------------------------------------
Average Common Shares Outstanding
Primary 22,386 22,311 20,054
Fully Diluted 25,778 25,793 23,658
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Arvin Industries, Inc.
Consolidated Statement of Financial Condition
(Dollars in millions, except per share amounts) As of As of
<CAPTION>
1/1/95 1/2/94
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Current Assets:
Cash and cash equivalents $ 17.6 $ 34.3
Receivables, net of allowances of $4.8 in 1994 and $5.1 in 1993 302.4 242.9
Inventories (at lower of cost or market) 105.9 108.3
Other current assets 76.4 75.1
---------------------------------------------------------------------------------------------------------------------------------
Total current assets 502.3 460.6
---------------------------------------------------------------------------------------------------------------------------------
Non-Current Assets:
Property, plant and equipment (at cost):
Land 15.2 16.9
Buildings and leasehold improvements 154.5 140.4
Machinery & equipment 680.1 581.5
Construction in progress 40.3 52.6
---------------------------------------------------------------------------------------------------------------------------------
890.1 791.4
Less: Allowance for depreciation 458.8 403.2
---------------------------------------------------------------------------------------------------------------------------------
431.3 388.2
Goodwill, net of amortization of $26.6 in 1994 and $26.9 in 1993 150.4 185.3
Investment in affiliates 91.9 84.0
Net assets of discontinued operations 40.8 41.0
Other assets 58.6 71.0
---------------------------------------------------------------------------------------------------------------------------------
Total non-current assets 773.0 769.5
---------------------------------------------------------------------------------------------------------------------------------
$ 1,275.3 $ 1,230.1
---------------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity:
Current Liabilities:
Short-term debt $ 25.1 $ 8.0
Accounts payable 198.7 153.3
Accrued employee compensation costs 44.1 39.2
Accrued expenses 69.4 41.5
Income taxes payable 1.5 ----
---------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 338.8 242.0
---------------------------------------------------------------------------------------------------------------------------------
Long-term employee benefits 63.5 52.4
Deferred income taxes and other liabilities 15.3 23.4
Long-term debt 416.3 432.4
Minority interest 45.1 59.3
Commitments and contingencies (Note 10)
Shareholders' Equity:
Capital Stock:
Preferred shares (no par value, authorized 8,978,058
in 1994 and 1993; none issued and outstanding) ---- ----
Common shares ($2.50 par value, authorized 50,000,000;
issued 24,163,510 in 1994 and 24,076,912 in 1993) 60.4 60.2
Capital in excess of par value 206.6 204.7
Retained earnings 194.1 227.3
Minimum pension liability adjustment (0.6) ----
Cumulative translation adjustment (20.7) (26.7)
Common shares held in treasury (at cost) (43.5) (44.9)
---------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 396.3 420.6
---------------------------------------------------------------------------------------------------------------------------------
$ 1,275.3 $ 1,230.1
---------------------------------------------------------------------------------------------------------------------------------
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Arvin Industries, Inc.
Consolidated Statement of Shareholders' Equity
(Dollars in millions, except per share amounts)
<CAPTION>
Year Ended
---------------------------------------------------------------------------
1/1/95 1/2/94 1/3/93
---------------------- ---------------------- -----------------------
Shares Amount Shares Amount Shares Amount
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common Shares:
Beginning balance 24,076,912 $ 60.2 23,691,462 $ 59.2 21,148,646 $ 52.9
Common share offering --- --- --- --- 2,000,000 5.0
Exercise of stock options 86,598 .2 385,450 1.0 333,572 .8
Conversion of preferred shares to common --- --- --- --- 209,244 .5
---------------------------------------------------------------------------------------------------------------------------------
Ending balance 24,163,510 $ 60.4 24,076,912 $ 60.2 23,691,462 $ 59.2
---------------------------------------------------------------------------------------------------------------------------------
Capital in Excess of Par Value:
Beginning balance $ 204.7 $ 194.4 $ 133.8
Common share offering --- --- 46.9
Exercise of stock options 1.5 8.2 6.0
Conversion of preferred shares to common --- --- 5.4
Shares contributed to employee benefit plan .4 2.1 2.3
---------------------------------------------------------------------------------------------------------------------------------
Ending balance $ 206.6 $ 204.7 $ 194.4
---------------------------------------------------------------------------------------------------------------------------------
Retained Earnings:
Beginning balance $ 227.3 $ 203.7 $ 219.9
Net earnings (loss) (16.3) 40.3 6.4
Preferred share redemption premium --- --- (3.0)
Cash dividends per share on:
Preferred shares-redeemable --- --- (5.8)
Common shares-($.76 per year for 1994, $.76 per
year for 1993, and $.70 per year for 1992) (16.9) (16.7) (13.8)
---------------------------------------------------------------------------------------------------------------------------------
Ending balance $ 194.1 $ 227.3 $ 203.7
---------------------------------------------------------------------------------------------------------------------------------
Pension Liability Adjustment:
Beginning balance $ --- $ --- $ ---
Minimum pension liability adjustment (.6) --- ---
---------------------------------------------------------------------------------------------------------------------------------
Ending balance $ (.6) $ --- $ ---
---------------------------------------------------------------------------------------------------------------------------------
Cumulative Translation Adjustments:
Beginning balance $ (26.7) $ (12.5) $ 14.4
Translation adjustments during the year 6.0 (14.2) (26.9)
---------------------------------------------------------------------------------------------------------------------------------
Ending balance $ (20.7) $ (26.7) $ (12.5)
---------------------------------------------------------------------------------------------------------------------------------
Common Shares in Treasury:
Beginning balance (1,981,909) $ (44.9) (2,093,121) $ (46.4) (2,205,541) $ (47.0)
Stock exchanged for stock options exercised (3,836) (.1) (7,572) (.2) (41,098) (1.1)
Shares contributed to employee benefit plan 72,082 1.5 133,231 2.1 153,518 1.7
Purchase of oddlot shares --- --- (14,447) (.4) --- ---
---------------------------------------------------------------------------------------------------------------------------------
Ending balance (1,913,663) $ (43.5) (1,981,909) $ (44.9) (2,093,121) $ (46.4)
---------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity $ 396.3 $ 420.6 $ 398.4
---------------------------------------------------------------------------------------------------------------------------------
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Arvin Industries, Inc.
Consolidated Statement of Cash Flows
(Dollars in millions)
<CAPTION>
1994 1993 1992
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities:
Net earnings(loss) $ (16.3) $ 40.3 $ 6.4
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 71.2 63.5 62.7
Amortization 7.0 6.5 6.2
Asset write-downs 26.9 --- ---
Goodwill impairment 29.6 --- ---
Long-term employee benefits 12.3 (.6) 53.6
Deferred income taxes, long-term (12.7) (5.4) (7.0)
Minority interest (14.2) (1.3) (4.1)
Other (3.3) 6.8 (12.2)
Changes in operating assets and liabilities:
Receivables (60.2) 27.4 (10.8)
Inventories and other current assets (2.0) (14.0) 12.3
Accounts payable and other accrued expenses 77.8 (9.0) 43.0
Income taxes payable and deferred taxes --- (10.5) (14.6)
---------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 116.1 103.7 135.5
---------------------------------------------------------------------------------------------------------------------------------
Investing Activities:
Purchase of property, plant and equipment (106.6) (92.9) (101.2)
Proceeds from sale of property, plant and equipment 2.9 10.2 2.6
Investments in affiliates (2.6) (12.4) (9.4)
Business acquisitions, net of cash acquired (7.5) --- ---
Other (1.2) (5.4) 7.7
---------------------------------------------------------------------------------------------------------------------------------
Net Cash Used For Investing Activities (115.0) (100.5) (100.3)
---------------------------------------------------------------------------------------------------------------------------------
Financing Activities:
Change in short-term debt, net 17.4 (11.7) (17.9)
Proceeds from long-term borrowings 85.6 48.3 3.8
Principal payments on long-term debt (106.6) (4.8) (46.1)
Purchase of treasury shares --- (.6) (1.1)
Exercise of stock options 2.1 9.2 6.8
Proceeds from common shares issued, net of expenses --- --- 51.8
Dividends paid (16.9) (16.7) (19.6)
Other --- .1 (3.4)
---------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided By/(Used For) Financing Activities (18.4) 23.8 (25.7)
---------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents:
Effect of exchange rate changes on cash 0.6 (2.5) (2.5)
---------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) (16.7) 24.5 7.0
Beginning of the year 39.1 14.6 7.6
---------------------------------------------------------------------------------------------------------------------------------
End of the year $ 22.4 $ 39.1 $ 14.6
---------------------------------------------------------------------------------------------------------------------------------
<FN>
See notes to consolidated financial statements.
Income tax payments totaled $31.7 million in 1994, $59.2 million in 1993 and $39.6 million in 1992.
Interest payments totaled $42.8 million in 1994, $38.6 million in 1993 and $41.0 million in 1992.
</TABLE>
<PAGE>
Arvin Industries, Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in tables in millions unless noted otherwise)
Note 1 - Significant Accounting Policies:
Consolidation: The consolidated financial statements include the accounts of
Arvin Industries, Inc. and its majority-owned subsidiaries. Affiliated
companies in which Arvin does not have a controlling interest are accounted
for using the equity method.
Cash Equivalents: The Company considers all highly liquid debt instruments
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 stated under the last-in, first-out (LIFO) cost method. The
remaining inventories are stated 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 and accelerated
methods for income 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 amortized using the straight line method over periods
of generally 40 years for the manufacturing segments.
The Company assesses the recoverability of its goodwill annually and 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 are not 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.
Contract Revenue Recognition: Revenues on short and long-term service
contracts for both government and industry are recorded using the percentage
of completion method. Provisions for anticipated losses are made in the
period in which they first become determinable. Unbilled receivables were
$21.4 and $20.9 million at year-end 1994 and 1993, respectively.
Foreign Currency : The Company uses the local currency as the functional
currency for all of its consolidated operations 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. Gains and losses from foreign
currency transactions are included in net earnings and were not material for
the periods presented.
Derivatives: Gains and losses on foreign currency hedges of existing assets
and liabilities are included in the carrying amount of those assets and
liabilities and are recognized in income, on a current basis, as part of
those carrying amounts. Gains and losses on hedges of anticipated foreign
currency transactions are recognized in income on a current basis. Gains and
losses on interest rate swap agreements, which qualify as hedges of existing
liabilities, are deferred and are recognized as yield adjustments over the
life of the agreement.
Pension Plans: Substantially all domestic employees of the Company 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 for 1994, 1993, and 1992 were 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 United States and actuarial recommendations
in other countries.
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 outstanding during the year.
Dividends on the Company's convertible exchangeable preferred shares, which
were issued in the third quarter of 1989, are deducted from net earnings
prior to calculating earnings per share for 1992. The convertible
exchangeable preferred shares were exchanged in 1992 for the convertible
subordinated debentures due 2014.
Reclassifications: Certain amounts in the accompanying financial statements
and notes thereto have been reclassified to conform to the current year
presentation.
Fiscal Year: The Company's fiscal year ends on the Sunday nearest to December
31.
Note 2 - Acquisitions and Discontinued Operations:
In 1992, the Company acquired a 50 percent interest in Schmitz & Brill GmbH,
a German automotive parts manufacturer. Schmitz & Brill is accounted for
under the equity method.
During the third quarter of 1993, the Company completed the combination of
the assets of its Calspan and SRL subsidiaries with the assets of Space
Industries International, Inc. This transaction was accounted for as a
purchase. The Company owns approximately 70 percent of the new company,
Space Industries International, Inc.
Also during the third quarter of 1993, the Company purchased 49.9 percent of
European ride control manufacturer Way Assauto S.r.l., located in Asti,
Italy. Way Assauto manufactures principally for the original equipment
market and is accounted for under the equity method.
In the third quarter of 1993, the Company also formed a 50/50 joint venture
with Sogefi S.p.A., an Italian company. The new venture includes Sogefi's
formerly wholly owned subsidiaries Establissements Rosi S.A. and Ansa
Marmitte S.p.A. and a portion of the operating assets of the Company's Timax
business unit.
Non-cash assets acquired, liabilities assumed and minority interest arising
from these 1993 transactions were $59.3, $3.6 and $55.7 million,
respectively.
On March 25, 1994 the Company purchased 80% of the European exhaust
manufacturer MTA S.r.l., located in Mosciano St. Angelo, Italy. MTA
manufactures car exhaust down pipes, catalysts and other related parts.
During the fourth quarter of 1994, the Company purchased 49.9 percent of
Autocomponents Suspension S.r.l., a ride control manufacturer in Melfi,
Italy. Autocomponents Suspension manufactures principally for the original
equipment market and is accounted for under the equity method.
Effective April 14, 1994, the Company adopted a plan to sell its Schrader
Automotive unit (Schrader). Accordingly, Schrader is reported as a
discontinued operation at January 1, 1995. The Company's prior years'
continuing operating results and financial position have been reclassified to
conform to the current year presentation.
In February 1995, the Company entered into a contract for the sale of
Schrader. The transaction was completed on February 16, 1995, and the gain
to be recorded during the first quarter of 1995 will be immaterial.
Net assets of the Schrader operation at January 1, 1995, consist of assets
and liabilities amounting to $63.7 and $22.9 million, respectively.
Schrader's revenues for the years ended January 1, 1995, January 2, 1994, and
January 3, 1993, were $91.2, $87.1, and $92.2 million, respectively.
Note 3 - Restructuring and Special Charges
Results of operations in the fourth quarter of 1994 include special charges
of $81.1 million ($58.9 million after-tax and minority interest or $2.63 per
share) for costs associated with reducing the carrying values of
underperforming assets to estimated fair values, a provision for an early
retirement program and severance benefits for involuntary staff reductions,
consolidation of manufacturing facilities and certain product lines, and
environmental and other reserve increases. The workforce reductions and
consolidation of manufacturing facilities and product lines will be
substantially complete by December 31, 1995, and are an effort to concentrate
resources allowing the Company to achieve its long-term strategic growth
objectives. The components of the restructuring and special charges are as
follows:
<TABLE>
<CAPTION>
Automotive
Original Automotive Corporate
Equipment Replacement Technology Other Total
--------- ----------- ---------- ------- ------
<S> <C> <C> <C> <C> <C>
Employee Separations $ 2.1 $ 5.3 $ .7 $ --- $ 8.1
Asset Write-downs .2 7.1 19.6 --- 26.9
Goodwill Impairment --- --- 29.6 --- 29.6
Facility Consolidations --- 5.6 2.7 --- 8.3
Other Special Charges --- --- .4 7.8 8.2
--------- ----------- ---------- ------- ------
Total $ 2.3 $ 18.0 $ 53.0 $ 7.8 $ 81.1
========= =========== ========== ======= ======
</TABLE>
Employee separation costs are based on the minimum levels that would be paid
to the affected employees pursuant to the Company's workforce reduction
program and contractual provisions of government programs for international
business units. Although there are no additional restructuring plans under
consideration, the Company expects additional severance and relocation costs
of $4.3 million to be incurred during 1995 which were not permitted to be
charged in 1994, under Generally Accepted Accounting Principles. The total
number of employees to be separated under the plan is 338.
For the evaluation of goodwill impairment, the Company segregated its
operating assets and cash flows into business units. Management believes that
such segregation is the most meaningful level for which cash flows are
identifiable and independent of one another. Cash flows were projected for
each business unit based on the approximate remaining goodwill amortization
periods. Internal plan projections were used to estimate revenue for the
1995 base period and a growth rate of 2% was assumed for most business
units. These projections assumed that capital expenditures would approximate
depreciation expense, and that gross profit and operating expenses would
generally increase proportionately with the sales growth assumptions.
Undiscounted cash flows were compared to the total net assets of each
business unit to determine if an impairment existed. To determine the amount
of technology segment goodwill impairment, future cash flows were discounted
at 12%, a rate which management believes is commensurate with the risks
involved.
The technology segment, which was merged with Space Industries International,
Inc. during the third quarter of 1993, continued to be affected by more
competition for fewer available contracts during all of 1994. As a result,
the Company initiated a comprehensive review of the carrying value of its
intangible assets. The profitability assumptions for the technology segment
reflect both the increased competition and the conclusion that the full
recovery of the costs associated with the development of certain Space
Facility Technology relating to the design, integration, and operation of a
man-tended space facility is unlikely. As a result, undiscounted cash flows
were insufficient to recover the technology segment's goodwill and the
capitalized costs relating to the Space Facility Technology. Accordingly,
based on the discounted future cash flows, the Company recorded an impairment
of $29.6 million to goodwill and a charge for approximately $18.2 million of
capitalized Space Facility Technology costs in the technology segment in the
fourth quarter of 1994. There were no other goodwill impairments identified
within the Company's remaining business segments.
Facility consolidations include efforts to consolidate and restructure
selected organizations in Europe, Canada, and the United States. The
increase in environmental and other reserves relates primarily to the
completion of a feasibility study to identify and measure remediation costs
at the Platt Saco Lowell site previously owned by the Company's Maremont
subsidiary.
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 reduction in
LIFO inventories increased pre-tax earnings in the amount of $1.2 million in
1994, $.8 million in 1993 and $2.3 million in 1992.
Approximately $49.2 million and $54.5 million of total inventories at year-
end 1994 and 1993 were stated on the LIFO method. The excess replacement
costs of these inventories over the stated LIFO value were approximately $4.7
million and $5.9 million, respectively.
Note 5 - Income Taxes:
Earnings from continuing operations before income taxes were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----- ------ -----
<S> <C> <C> <C>
United States $ (25.8) $ 44.6 $ 23.9
International 9.6 11.9 33.2
----- ------ -----
$ (16.2) $ 56.5 $ 57.1
===== ====== =====
</TABLE>
The provision for income taxes was as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----- ------ -----
<S> <C> <C> <C>
Current tax expense:
Federal $ 8.7 $ 13.9 $ 13.9
State 2.5 2.2 1.8
International 11.5 8.0 11.7
Deferred tax expense:
Federal (1.1) (.2) (2.8)
State (.3) 0 (.1)
International (3.1) (.7) .5
----- ------ -----
Continuing operations provision $ 18.2 $ 23.2 $ 25.0
===== ====== =====
</TABLE>
The provision for income taxes at the Company's effective tax rate differed
from the provision for income taxes at the statutory rate as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----- ------ -----
<S> <C> <C> <C>
Statutory rate $ (5.7) $ 19.8 $ 19.4
State and local income taxes, net 1.1 1.4 1.2
International tax rate difference 2.9 3.5 3.4
Amortization of excess purchase price 2.0 1.8 1.7
Foreign tax credit utilization, net (2.3) (2.8) (.5)
Goodwill write-off 10.4 --- ---
Valuation allowance of deferred
assets 10.0 --- ---
Other items, net (.2) (.5) (.2)
----- ------ -----
Provision for income taxes $ 18.2 $ 23.2 $ 25.0
===== ====== =====
</TABLE>
Deferred tax assets (liabilities) are comprised of the following at fiscal
year end:
<TABLE>
<CAPTION>
1994 1993
------ -----
<S> <C> <C>
Gross deferred tax assets:
Accrued employee benefits $ 25.9 $ 21.2
Inventory and receivables 10.8 2.9
Environmental and other legal 7.2 1.8
Vacation 1.9 2.6
Other 7.1 .5
Net operating losses and tax credit
carryforward 23.8 11.3
Valuation allowance for deferred tax assets (26.2) (7.3)
------ -----
Net deferred tax asset 50.5 33.0
------ -----
Gross deferred tax liabilities:
Depreciation (30.3) (29.8)
Pension (3.2) (3.8)
Gross deferred tax liability (33.5) (33.6)
------ -----
Net deferred tax assets/(liabilities) $ 17.0 $ (.6)
====== =====
</TABLE>
During 1994, the Company increased the valuation allowance to reflect the
estimated amount of deferred tax assets which may not be realized due to the
expiration of net operating losses. Deferred tax assets relating to net
operating loss (NOL) carryforwards were available in various tax
jurisdictions at January 1, 1995 expiring in 1995, 1996, 1997, 1998 and 1999
in the amounts of $.5, $1.5, $1.9, $3.8 and $2.8 million, respectively. The
amount expiring in the year 2000 and forward is $13.3 million.
At year-end 1994 consolidated retained earnings included undistributed
earnings of non-U.S. subsidiaries which amounted to approximately $107.2
million. These earnings are indefinitely reinvested in non-U.S. operations
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:
<TABLE>
<CAPTION>
1994 1993
------ -----
<S> <C> <C>
Capital lease obligations (see Note 9) $ 6.2 $ 1.1
9-5/8% - 10% medium-term notes due 1996 15.0 15.0
9.97% notes due 1996 50.0 50.0
8-3/8% notes due 1997 --- 74.9
6-7/8% notes due 2001 74.9 ---
9.8% - 9.9% medium-term notes due 1998 45.0 45.0
10% medium-term notes due 2000 49.7 49.7
7-1/2% convertible subordinated
debentures due 2014 90.3 97.5
9-1/8% sinking fund debentures due 2017 29.4 46.5
10-3/8% Euro-Sterling Notes due 2018 47.4 48.0
Other 15.2 6.9
Less: Current maturities (6.8) (2.2)
------ -----
$416.3 $432.4
====== =====
</TABLE>
Maturities of long-term debt for fiscal 1995 through 1999 are $6.8, $74.1,
$7.2, $52.1 and $7.1 million, respectively.
The Company has two revolving credit facilities totaling $100 million, both
with a termination date of August 25, 1997. At January 1, 1995, there was
$2.0 million outstanding under these facilities. In addition, the Company
has uncommitted credit facilities totaling $252 million. At January 1, 1995,
borrowings under these facilities totaled $16.3 million.
On January 26, 1994, the Company exercised its option to call, at par, all of
its outstanding $75.0 million principal amount of 8 3/8 percent notes due
March 1, 1997. On February 16, 1994, the Company completed the issue of
$75.0 million principal amount of 6 7/8 percent notes due February 15, 2001.
The proceeds of this issue were used to retire the 8 3/8 percent notes on
March 1, 1994.
In October, 1993, one of the Company's foreign subsidiaries issued 10 3/8
percent Notes due 2018 under a financing agreement, guaranteed by the
Company, which resulted in net proceeds of $48.0 million.
During 1994, the Company repurchased approximately $17.2 million of its
outstanding 9 1/8 percent sinking fund debentures due 2017. It also
repurchased approximately $7.3 million of its outstanding 7.5 percent
convertible subordinated debentures. These convertible subordinated
debentures, due 2014, are convertible into common shares at a rate of
approximately 35.09 shares for each $1,000 debenture held.
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 certain 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. The
Company does not hold or issue derivative financial instruments for trading
purposes.
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. The Company does not
use leveraged derivatives in its financial risk management program.
Interest Rate Risk Management: The Company had interest rate swap agreements
totaling $247.0 and $50.0 million notional amount with commercial and
investment banks ("the counterparties") at January 1, 1995 and January 2,
1994, respectively. At January 2, 1994, the Company also had a $75.0 million
option agreement, which was subsequently exercised and is included in the
January 1, 1995 total swap amount. Under the swaps, the Company agrees to
exchange with the counterparties the difference between fixed rate and
floating rate interest amounts calculated on the notional amounts. $172.0
million notional amount of the swap agreements effectively changes long-term
debt issued by the Company or its subsidiaries from a fixed to a floating
rate of interest at January 1, 1995. The average fixed interest rate received
on these swaps during the year was 5.5%, while the average floating rate paid
approximated 6.1%. The remaining $75.0 million of swaps at year end 1994
result in the Company paying a fixed rate of interest while receiving a
floating rate of interest. The average fixed interest rate paid on these
agreements during the year was 8.4%, while the average floating rate received
approximated 4.6%. At January 2, 1994, the Company had $50.0 million
notional amount of swap agreements which changed its long-term debt from a
fixed to a floating rate of interest. The average floating interest rate paid
on these agreements during the year was 3.5%, while the average fixed rate
received approximated 5.3%.
Foreign Exchange Risk Management: At year end 1994 and 1993, the Company had
forward exchange contracts totaling $44.1 and $68.6 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 1994 and 1993 hedged existing non-functional
currency denominated assets and liabilities. Although the Company used
forward contracts during 1994 and 1993 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 1994 and in prior years, the Company has also used foreign exchange
options to protect the U. S. dollar value of anticipated foreign currency
earnings. These option contracts are principally in the major European
currencies, and are usually for a term not exceeding one year. There were no
option contracts outstanding at year end 1994 or 1993.
Fair Value of Financial Instruments: The carrying value of interest rate
swap agreements was a $1.5 million liability at January 1, 1995. The fair
value of these agreements approximated an $11.4 million liability at that
date. At year end 1993, the carrying and fair values for the swap and option
agreements were a $.2 million liability and a $5.2 million liability,
respectively. The fair value of these agreements generally reflects the
estimated amounts that the Company would pay to terminate the contracts at
the reporting date. The difference between the fair value and carrying value
of the swap agreements at year end 1994 is offset by the corresponding $11.3
million difference between the fair and carrying values of long-term debt,
including that due within one year, of $411.8 and $423.1 million,
respectively. At year end 1993, the fair and carrying values of debt were
$483.4 and $434.6 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 1994 and 1993 are not
material.
The original term of the interest rate swap agreements is typically three
years. The maturities of the current swap agreements range from January,
1996 to March, 1997.
Note 8 - Stock Options:
Two stock benefit plans for key employees have been authorized by the
Company's shareholders. The Company's 1988 Stock Benefit Plan was amended in
1993 to increase the number of common shares that may be made subject to
awards under the Plan from 1,800,000 to 2,760,000. Stock options are granted
at not less than the fair market value on the date of grant and generally
expire ten years later.
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Options outstanding at
beginning of year 1,936,595 1,897,022 1,794,337
Options granted 345,850 467,050 461,000
Options exercised (86,598) (385,450) (333,572)
Options expired (99,508) (42,027) (24,743)
--------- --------- ---------
Options outstanding at
year-end 2,096,339 1,936,595 1,897,022
========= ========= =========
Options available for
grant at year-end 324,245 573,545 67,345
Weighted average option
prices per share:
Granted $ 25.00 $ 30.78 $ 23.88
Exercised 18.10 21.34 17.47
Expired 23.93 28.89 25.29
Outstanding 25.77 25.47 23.40
</TABLE>
Note 9 - Leases:
All non-cancelable leases with an initial term greater than one year have
been classified as either capital or operating leases. Future minimum lease
payments and related sublease income are as follows:
<TABLE>
<CAPTION>
Operating Leases
Capital -----------------
Leases Rents Subleases
-------- ----- ---------
<S> <C> <C> <C>
Fiscal year:
1995 $ 1.2 $ 12.7 $ 1.0
1996 1.2 10.5 1.0
1997 1.2 8.2 .9
1998 1.1 6.9 .7
1999 1.1 5.6 .5
Thereafter 1.8 34.3 3.8
----- ---- ----
Total minimum lease payments $ 7.6 $ 78.2 $ 7.9
==== ====
Less: Amount representing
interest 1.4
----
Present value of minimum
lease payments 6.2
Included in short-term debt .8
-----
Included in long-term debt $ 5.4
=====
</TABLE>
Rent expense under operating leases was as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------ ------
<S> <C> <C> <C>
Annual rent $ 15.1 $ 18.5 $ 21.6
Less: sublease rent 2.1 2.5 2.3
---- ---- ----
Net rent expense $ 13.0 $ 16.0 $ 19.3
==== ==== ====
</TABLE>
Capital lease assets included in property, plant and equipment are as
follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Land $ .4 $ .4
Buildings 4.5 4.5
Machinery and equipment 13.6 13.4
---- ----
18.5 18.3
Less: Accumulated depreciation 8.7 13.4
---- ----
$ 9.8 $ 4.9
==== ====
</TABLE>
Note 10 - Contingencies:
The Company is defending various environmental claims and legal actions that
arise in the normal course of its business, including matters in which the
Company has been designated a potentially responsible party at certain waste
disposal sites or has been notified that it may be a potentially responsible
party at other sites as to which no proceedings have been initiated. At a
majority of these sites, the information currently available leads the
Company to believe it has very limited or even de minimis responsibility. At
other sites, neither the remediation method, amount of remediation costs nor
the allocation among potentially responsible parties has been determined.
Where reasonable estimates are possible, the Company has provided for the
costs of study, cleanup, remediation, and certain other costs, taking into
account, as applicable, available information regarding site conditions,
potential cleanup methods and the extent to which other parties can be
expected to bear those costs.
The Company is a participant with the EPA and the current owner of a site
previously owned by the Company's Maremont subsidiary in a corrective action
proceeding under the Resource Conservation and Environmental Recovery Act.
In the fourth quarter of 1994, based on the results of an environmental
study, the Company accrued for its share of the reasonably estimable minimum
remediation costs at this site, which include costs incurred in connection
with further studies and design of a remediation plan, remedial costs,
including cleanup activities, and administrative, legal and consulting fees.
Given the inherent uncertainties in evaluating legal and environmental
exposures, actual costs to be incurred in future periods may vary from the
currently recorded estimates. The Company expects that any sum it may be
required to pay in connection with legal and environmental matters in excess
of the amounts recorded will not have a material adverse effect on its
financial condition.
Note 11 - Pension Plans:
The Company has contributory and non-contributory defined benefit pension
plans. 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 consist of the following
components:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Service cost $ 11.2 $ 9.4 $ 9.2
Interest cost 20.5 19.0 17.5
Actual (gain)loss on assets 11.3 (36.1) (31.6)
Net amortization and deferral (38.0) 12.3 8.3
----- ----- -----
Net periodic pension cost $ 5.0 4.6 3.4
===== ===== =====
</TABLE>
The following tables summarize the funded status of the Company's pension
plans:
<TABLE>
<CAPTION>
Plans for which Plans for which
assets exceed accumulated
accumulated benefits exceed
1994 benefits assets
---------------------------------- --------------- ---------------
<S> <C> <C>
Actuarial present value of
benefit obligation
Vested $ (144.6) $ (89.4)
Nonvested (9.6) (6.4)
------- ------
Accumulated benefit obligation (154.2) (95.8)
Projected impact of future
salary increases (29.4) (.7)
------- ------
Projected benefit obligation (183.6) (96.5)
Plan assets at market value 204.7 87.9
------- ------
Projected benefit obligation less
than (in excess of) plan assets 21.1 (8.6)
Unamortized initial asset (8.6) (4.7)
Unrecognized (gain) loss on assets (6.2) 6.3
Unrecognized prior service cost 4.3 7.3
Amount reflected as an intangible
asset 1 --- (7.3)
Amount reflected as minimum
pension liability 1 --- (.8)
------- ------
Prepaid pension cost (pension
liability) $ 10.6 $ (7.8)
======= =======
<FN>
1 The provisions of SFAS No. 87, "Employers' Accounting for Pensions,"
require the recognition of an additional minimum liability for each defined
benefit plan for which the accumulated benefit obligation exceeds plan
assets. This amount has been recorded as a long-term liability with an
offsetting intangible asset. Because the asset recognized may not exceed the
amount of unrecognized prior service cost and transition obligation on an
individual plan basis, the balance, net of tax benefits, is reported as a
separate reduction of shareholders' equity at January 1, 1995.
</TABLE>
<TABLE>
<CAPTION>
Plans for which Plans for which
assets exceed accumulated
accumulated benefits exceed
1993 benefits assets
---------------------------------- --------------- ---------------
<S> <C> <C>
Actuarial present value of
benefit obligation
Vested-Pension Plans $ (141.5) $ (92.4)
Nonvested-Pension Plans (9.7) (5.8)
------- ------
Accumulated benefit obligation (151.2) (98.2)
Projected impact of future
salary increases (27.7) (.2)
------- ------
Projected benefit obligation (178.9) (98.4)
Plan assets at market value 213.8 94.7
------- ------
Projected benefit obligation less
than (in excess of) plan assets 34.9 (3.7)
Unamortized initial asset (9.7) (5.3)
Unrecognized (gain) loss on assets (16.4) 2.2
Unrecognized prior service cost 2.2 6.8
------- ------
Prepaid expense $ 11.0 $ ---
======= ======
</TABLE>
The Company's domestic pension obligations were projected to, and the assets
were valued as of the end of 1994 and 1993. The plan assets, comprised
almost entirely of high grade stocks and bonds, included 1.3 million shares
of the Company's common stock at both year-end 1994 and 1993.
Assumptions used in determining the projected benefit obligation for the
domestic and international plans are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Domestic Plans
--------------
Discount Rate for Obligations 8.00% 7.50% 8.25%
Expected Return on Plan Assets 9.00% 9.00% 9.00%
Average Salary Increases 4.75% 4.75% 5.00%
International Plans
-------------------
Discount Rate for Obligations 9.00% 7.50% 10.00%
Expected Return on Plan Assets 9.00% 9.00% 10.00%
Average Salary Increases 7.00% 5.50% 7.50%
</TABLE>
Note 12 - Other Postretirement and Postemployment Benefits:
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 does not
pre-fund these benefits and has the right to modify or terminate certain of
these plans in the future.
In the fourth quarter of 1992, the Company adopted the provisions of the
Financial Accounting Standards Board's Statement No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," changing to the
accrual method of accounting for these benefits effective December 30, 1991.
A pre-tax charge of $44.9 million ($27.6 million after taxes or $1.38 per
share) was recorded as the effect of the accounting change at the beginning
of 1992.
The components of other postretirement benefit expense are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Service cost-benefits earned
during the period $ 1.5 $ 1.7 $ 1.7
Interest cost on accumulated
postretirement benefit obligation 3.4 3.9 3.6
Net amortization and deferral (.1) -- --
---- ---- ----
Net periodic postretirement benefit cost $ 4.8 $ 5.6 $ 5.3
==== ==== ====
</TABLE>
The accumulated postretirement benefit obligation in the accompanying balance
sheet, is comprised of the following components:
<TABLE>
<CAPTION>
1994 1993
----- ----
<S> <C> <C>
Retirees $ (19.9) $ (21.3)
Fully eligible active plan participants (3.6) (2.5)
Other active plan participants (18.6) (26.2)
----- ----
Total accumulated post retirement
benefit obligation (42.1) (50.0)
Unrecognized net actuarial gains (13.1) (2.2)
----- ----
Accrued postretirement benefit obligation $ (55.2) $ (52.2)
===== =====
</TABLE>
Future benefit costs for 1993 were estimated assuming medical costs would
increase at a 14 percent annual rate for 1994 decreasing to a 7 percent
annual growth rate ratably over the next 7 years and then remaining at a 7
percent growth rate thereafter. Future benefit costs for 1994 were estimated
assuming medical costs would increase at a 12 percent annual rate for 1995
decreasing to a 6 percent annual growth rate ratably over the next 6 years
and then remaining at a 6 percent growth rate thereafter. A 1 percent
increase in this annual trend rate would have increased the accumulated
postretirement benefit obligation at January 1, 1995 by 17 percent. The
effect of this change on the aggregate of service and interest cost for 1994
would be an increase of 21 percent. The weighted average discount rate used
to estimate the accumulated postretirement benefit obligation was 8 percent
and 7.5 percent at year-end 1994 and 1993, respectively.
Certain of the Company's non-U.S. subsidiaries provide limited non-pension
benefits to retirees. Most retirees outside the United States are covered by
government sponsored and administered programs, and the cost of these
programs is not significant to the Company.
Other Postemployment Benefits: In the fourth quarter of 1992, the Company
adopted SFAS No. 112, "Employers' Accounting for Postemployment Benefits,"
effective December 30, 1991. SFAS No. 112 requires the use of the accrual
method of accounting for postemployment benefits as service is rendered.
Postemployment benefits include disability benefits, severance benefits,
supplemental unemployment benefits, workers' compensation benefits, and
continuation of health care benefits and life insurance coverage. Prior to
1992, the Company accounted for certain types of these benefits on a pay-as-
you-go basis. The effect of adopting SFAS No. 112 in 1992 resulted in an
$8.2 million pre-tax charge ($5.9 million after tax or $0.29 per share).
Note 13 - Redeemable Preferred Shares:
On September 30, 1992, the Company exercised its option to exchange
$100,455,000 of outstanding $3.75 convertible exchangeable preferred shares
for 7.5 percent convertible subordinated debentures due 2014. As a result of
the exercise, the Company issued 209,244 Arvin common shares to holders of
exchangeable preferred shares exercising their right to convert such shares
to common stock. All remaining convertible exchangeable shares were
exchanged for $97,526,000 of 7.5 percent convertible subordinated debentures.
Note 14 - Shareholders' Equity:
Preferred Stock Purchase Rights: In 1986, the Company declared a dividend of
one Preferred Stock Purchase Right ("Right") for each share of the Company's
common stock, par value $2.50 per share, payable to shareholders of record on
June 13, 1986. Each Right entitles its holder, until the earlier of June 13,
1996 and the redemption of the Right, to purchase one-hundredth of a share of
the Company's Series C Junior Participating Preferred Stock, of which 500,000
shares are authorized. The exercise price is $90 per share, subject to
certain anti-dilution provisions. The Rights have no voting power.
The Rights are currently not exercisable, certificates representing the
Rights have not been issued, and the Rights automatically trade with the
Company's common shares. The Rights become exercisable in the event of an
attempt by a person or group to acquire beneficial ownership of 20 percent or
more on the outstanding common stock on terms not approved by the Company's
Board of Directors. The Rights, if exercised, will result in substantial
dilution. The Rights are redeemable by the Board of Directors for $.10 per
Right at any time prior to acquisition by a person or group of beneficial
ownership of 20 percent or more of the Company's common shares, at which time
they become non-redeemable. The Rights expire on June 13, 1996.
In February, 1989, the Company's Board approved an amendment to these Rights
which entitles current shareholders to buy the Company's common shares at a
reduced price should a third party acquire a 20 percent or more ownership.
In November, 1994, the Company's Board approved a second amendment to these
Rights which allows for the Company's Board to exchange each Right for one
share of common stock following a triggering acquisition; eliminates an
exception to its "flip-in" provision; adds an inadvertent acquisition
exception; and allows for reduction of the triggering threshold to 10
percent.
Note 15 - Concentrations of Credit 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 January 1, 1995.
Note 16 - Business Segments:
The Company is engaged in the manufacture and sale of a broad range of
products and services. Beginning in 1994, and in conjunction with the
disposition of Schrader, the Company is reporting its results in three
segments as shown in the following table. Results of the Company's Roll
Coater subsidiary are included in the Automotive Original Equipment segment
due to their relative size.
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Net Sales:
Automotive Original Equipment $1,193.9 $1,042.9 $ 939.0
Automotive Replacement 656.1 598.0 648.2
Technology 189.8 211.4 210.8
------- -------- -------
Total net sales from continuing operations $2,039.8 $1,852.3 $1,798.0
======= ======== =======
Income from continuing operations:
Automotive Original Equipment $ 70.9 $ 64.1 $ 45.2
Automotive Replacement 33.2 49.0 62.7
Technology (54.3) 1.5 8.4
------- -------- -------
Total income from continuing operations 49.8 114.6 116.3
Less:
Expenses unrelated to segments 12.5 7.4 8.6
Corporate general and administrative 12.6 16.0 14.2
Net interest expense 40.9 34.7 36.4
------- -------- -------
Total earnings before income taxes $ (16.2) $ 56.5 $ 57.1
======= ======== =======
Identifiable assets:
Automotive Original Equipment $ 650.4 $ 588.1 $ 536.1
Automotive Replacement 338.9 286.8 357.6
Technology 60.0 114.9 98.6
------- -------- -------
Total identifiable assets 1,049.3 989.8 992.3
General Corporate (1) 226.0 240.3 142.9
------- -------- -------
Total assets $1,275.3 $1,230.1 $1,135.2
======= ======== =======
Depreciation and amortization:
Automotive Original Equipment $ 46.2 $ 40.7 $ 39.1
Automotive Replacement 23.6 21.3 22.2
Technology 3.7 3.1 2.7
General Corporate and Discontinued
Operations 4.7 4.9 4.9
------- -------- -------
Total depreciation and amortization $ 78.2 $ 70.0 $ 68.9
======= ======== =======
Additions to property, plant and equipment:
Automotive Original Equipment $ 80.0 $ 60.3 $ 66.7
Automotive Replacement 20.2 27.3 30.1
Technology 2.7 2.4 2.1
General Corporate and Discontinued
Operations 3.7 2.9 2.3
------- -------- -------
Total capital additions $ 106.6 $ 92.9 $ 101.2
======= ======== =======
<FN>
1 Consists primarily of cash and cash equivalents, prepaid expenses,
non-current assets and net assets of discontinued operations.
</TABLE>
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:
<TABLE>
<CAPTION>
1994 1993 1992
------- -------- -------
<S> <C> <C> <C>
Net sales:
United States $1,321.0 $1,226.7 $1,150.6
Europe 523.1 442.5 482.4
Other international 195.7 183.1 165.0
------- -------- -------
Total net sales $2,039.8 $1,852.3 $1,798.0
======= ======== =======
Income from continuing operations:
United States $ 9.5 $ 82.9 $ 70.0
Europe 27.7 16.5 29.2
Other international 12.6 15.2 17.1
------- -------- -------
Total income from continuing operations $ 49.8 $ 114.6 $ 116.3
======= ======== =======
Identifiable assets:
United States $ 553.8 $ 549.5 $ 531.1
Europe 428.6 367.9 415.1
Other international 66.9 72.4 46.1
------- -------- -------
Total identifiable assets $1,049.3 $ 989.8 $ 992.3
======= ======== =======
</TABLE>
Sales to customers which exceeded 10% of total net sales in 1994, 1993 and
1992 are shown below. Sales to all three customers are included in the
business segments as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------------- -------------- --------------
% of %of %of
Business Segment Amount Sales Amount Sales Amount Sales
---------------------- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Automotive
Original Equipment
customer one $326.8 16.0% $292.7 15.8% $322.5 17.9%
customer two 202.2 9.9% 195.4 10.5% 146.8 8.2%
Technology 145.0 7.1% 194.0 10.5% 199.5 11.1%
---------------------- ------ ----- ------ ----- ------ -----
$674.0 33.0% $682.1 36.8% $668.8 37.2%
---------------------- ====== ===== ====== ===== ====== =====
</TABLE>
Note 17 - Investments in Affiliates:
Included in Arvin's continuing operations at January 1, 1995, are equity
interests of 50% or less owned companies, in which Arvin does not have a
controlling interest, engaged in the production and distribution of
automotive exhaust and ride control products. Amounts presented include the
accounts of the following equity affiliates: Timax Exhaust Systems'
subsidiaries Establissements Rosi S.A. and Ansa Marmitte S.p.A. (50%), Arvin
Sango, Inc. (50%), Way Assauto S.r.l. (49.9%) and Schmitz & Brill GmbH (50%).
As of January 1, 1995 and January 2, 1994, the amount of investment in
companies accounted for by the equity method include unamortized goodwill in
the amounts of $36.0 million and $35.0 million, respectively. In 1994 and
1993, the Company received dividends from affiliates of $1.6, and $1.3
million, respectively.
Summarized financial information of the affiliates is as follows:
<TABLE>
<CAPTION>
Condensed Statement of Operations: 1994 1993 1992
------------------------------------------ -------- ------- --------
<S> <C> <C> <C>
Net Sales $ 507.0 $ 361.6 $ 270.4
Gross Profit 87.9 71.1 47.6
Operating Earnings 39.3 28.6 29.9
Net Earnings 13.2 14.0 18.0
</TABLE>
<TABLE>
<CAPTION>
Condensed Statement of Financial Condition: 1994 1993 1992
------------------------------------------ -------- ------- --------
<S> <C> <C> <C>
Current assets $ 204.0 $ 175.5 $ 103.5
Non-current assets 173.7 173.7 105.8
-------- -------- --------
$ 377.7 $ 349.2 $ 209.3
======== ======== ========
Current liabilities $ 118.8 $ 98.5 $ 83.6
Non-current liabilities 133.5 135.6 41.8
Shareholders' equity 125.4 115.1 83.9
-------- -------- --------
$ 377.7 $ 349.2 $ 209.3
======== ======== ========
</TABLE>
<PAGE>
Report of Independent Accountants
To the Shareholders and Board of Directors
Arvin Industries, Inc.
In our opinion, based upon our audits and the report of other auditors, the
consolidated financial statements listed in the accompanying index present
fairly, in all material respects, the financial position of Arvin Industries,
Inc. and its subsidiaries at January 1, 1995 and January 2, 1994, and the
results of their operations and their cash flows for each of the three years
in the period ended January 1, 1995, 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, which statements reflect total assets of
$74.3 and $126.6 at January 1, 1995 and January 2, 1994, respectively, and
net sales of $190.4 and $212.0 for the years ended January 1, 1995 and
January 2, 1994, respectively. 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., 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.
As discussed in Note 12 to the consolidated financial statements, in 1992 the
Company adopted Statement of Financial Accounting Standards (SFAS) 106
"Employers' Accounting for Postretirement Benefits Other than Pensions," and
SFAS 112 "Employers' Accounting for Postemployment Benefits."
Price Waterhouse LLP
Indianapolis, Indiana
February 1, 1995
Independent Auditors' Report
The Board of Directors
Space Industries International, Inc.:
We have audited the accompanying consolidated balance sheets of Space
Industries International, Inc. and subsidiaries (formerly Calspan Holding
Corporation) as of January 1, 1995 and January 2, 1994 and the related
consolidated statements of operations, shareholders equity and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
The financial statements of Space Industries International, Inc. and
subsidiaries (formerly Calspan Holding Corporation) as of January 3, 1993
were audited by other auditors whose report dated April 16, 1993 expressed an
unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted accounting
standards. Those standards 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.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Space
Industries International, Inc. and subsidiaries (formerly Calspan Holding
Corporation) as of January 1, 1995 and January 2, 1994, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
Our report dated January 25, 1994, on the consolidated financial statements
of Space Industries International, Inc. and subsidiaries (formerly Calspan
Holding Corporation) as of and for the year ended January 2, 1994, contained
an explanatory paragraph that stated that the recovery of the $18,154,619 of
capitalized costs related to the Space Facility Technology was dependent on
the future success in selling the Space Facility Technology or the Industrial
Space Facility or the related service, at profitable terms, or the sale of
the engineering designs of the Industrial Space Facility. As described in
Note 4, due to recent developments and a decision by the Company to focus on
other activities, the Company determined that the recovery of these
capitalized costs is highly unlikely. Accordingly, these costs were expensed
in fiscal 1994.
KPMG Peat Marwick
Houston, Texas
January 25, 1995
<PAGE>
<TABLE>
Arvin Industries, Inc.
Schedule II
Valuation and Qualifying
Accounts
(Dollars in millions)
<CAPTION>
Additions
Charged
Balance to Profit Charged Deductions Balance
Beginning and Loss to Other from at End
Description of year or Income Accounts Reserves of Year
-------------------------- ---------- --------- -------- --------- -------
<S> <C> <C> <C> <C> <C>
Year Ended January 1, 1995
--------------------------
Allowance for doubtful
accounts $ 5.1 $ 2.2 $0.4(1) $(2.9)(2) $ 4.8
Accumulated amortization
of goodwill $26.9 $ 5.9 $ -- $(6.2) $26.6
Valuation allowance for
deferred tax assets $ 7.3 $19.2 $ -- $(.3) $26.2
Year Ended January 2, 1994
--------------------------
Allowance for doubtful
accounts $ 3.7 $ 3.5 $ -- $(2.1)(2) $ 5.1
Accumulated amortization
of goodwill $21.5 $ 5.4 $ -- $ -- $26.9
Valuation allowance for
deferred tax assets $ 6.5 $ 1.3 $ -- $ (.5) $ 7.3
Year Ended January 3, 1993
--------------------------
Allowance for doubtful
accounts $ 6.2 $ 1.5 $(0.2)(1) $(3.8)(2) $ 3.7
Accumulated amortization
of goodwill $16.4 $ 5.1 $ -- $ -- $21.5
Valuation allowance for
deferred tax assets $ 5.3 $ 1.7 $ -- $(0.5) $ 6.5
<FN>
(1) Includes translation adjustment.
(2) Includes accounts charged off, net of recoveries and reclassification of
reserves.
</TABLE>
<TABLE>
Quarterly Financial Data (Unaudited)
Summarized quarterly financial data for 1994 and 1993 are as follows:
(Dollars in millions, except per share amounts)
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------------- ------------------ ----------------- ------------------
1994 1993 1994 1993 1994 1993 1994 1993
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 479.2 $ 453.1 $ 539.3 $ 497.2 $ 505.7 $ 453.1 $ 515.6 $ 448.9
Gross profit 72.4 70.6 88.0 84.6 75.8 73.4 80.0 70.8
Earnings (Loss)
Continuing operations 5.1 5.6 14.0 15.5 9.8 6.8 (46.3) 9.8
Net 5.3 6.1 14.0 16.5 9.8 7.4 (45.5) 10.3
Earnings (Loss) per common share
Primary - Continuing operations $ 0.23 $ 0.26 $ 0.63 $ 0.70 $ 0.44 $ 0.31 $ (2.07) $ 0.44
Primary - Net 0.24 0.28 0.63 0.74 0.44 0.33 (2.03) 0.46
Fully Diluted - Continuing operations 0.23 0.26 0.59 0.65 0.42 0.31 (2.07) 0.42
Fully Diluted - Net 0.24 0.28 0.59 0.68 0.42 0.33 (2.03) 0.44
</TABLE>
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 13, 1995, 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 Registrant
for the Annual Meeting of Shareholders to be held April 13, 1995 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 13, 1995
under the captions "Certain Beneficial Owners" and "Election of Directors"
and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
--------------------------------------------------------------
None.
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 financial statements in Item 8.
Consolidated Statement of Operations for each of the
three years in the period ended January 1, 1995
Consolidated Statement of Financial Condition at
January 1, 1995 and January 2, 1994
Consolidated Statement of Shareholders' Equity for each
of the three years in the period ended January 1, 1995
Consolidated Statement of Cash Flows for each of the
three years in the period ended January 1, 1995
Notes to Consolidated Financial Statements
Report of Independent Accountants and Independent
Auditors' Report.
(a) (2) Financial Statement Schedules
-------------------------------------
Financial Statement Schedules:
For each of the three years in the period ended January 1, 1995
II Valuation and Qualifying Accounts
The registrant's 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:
<TABLE>
<CAPTION>
Exhibit Incorporated Herein By
Number Exhibit Reference as Filed With
----- ------------------------------------- ---------------------------
<S> <C> <C>
3(A) Amended and Restated Articles of 1990 Form 10-K as Exhibit
Incorporation and Amendments Thereto 3(A)
3(B) Amended and Restated By-Laws Form 8-K dated
November 10, 1994 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% 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
relating to $200 million aggregate No. 33-10941 as Exhibit 4
principal amount debt securities
4(B) Indenture dated as of July 10, 1989 Registration Statement
relating to 7.5 percent Convertible No. 33-29230 as Exhibit 4.5
Subordinated Debentures due 2014
4(C) Indenture dated July 3, 1990 relating Registration Statement
to Debt Securities of Arvin Overseas No. 33-34818 as Exhibit 4(a)
Finance B.V., unconditionally
guaranteed by Arvin Industries, Inc.
4(D) Rights Agreement, as amended 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
10(A) * 1978 Stock Option Plan for Officers 1980 Form 10-K as Exhibit
and Key Employees 10(A)
-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 filed herewith as Exhibit
10(B)
10(C) * Employment Agreement with Byron O. Form 10-Q for the third
Pond dated October 31, 1993 quarter ended 10-4-93 as
Exhibit 10(F)
10(D) * Unfunded Deferred Compensation Plan 1982 Form 10-K as Exhibit
for Directors 10(D)
10(E) * 1988 Arvin Industries, Inc. Stock 1991 Form 10-K as Exhibit
Benefit Plan 10(E)
-Amendments Form 10-Q/A for the quarter
ended July 4, 1993 as
Exhibit 10(E)
11 Computation of Earnings Per Share filed herewith as Exhibit 11
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) Consent of Independent Auditors 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.
</TABLE>
(b) Reports on Form 8-K
-----------------------
Report Dated - November 10, 1994
Items 5 and 7 Reported - On November 10, 1994 the Board of Directors
adopted amendments to Sections 2.9 and 3.7 of the Company's Amended and
Restated By-Laws. The effect of the amendment to Section 2.9, as
amended, is to provide that the Chairman shall fix and announce the time
of the opening and closing of the polls for each matter upon which the
shareholders are to vote. The effect of the amendment to Section 3.7,
as amended, is to provide that special meetings of the Board of
Directors shall be called by the Chairman or, in his or her absence, by
the Secretary, upon the written request of a majority of the Board.
<PAGE>
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.
/s/ R.A. Smith
by: ---------------------------
R.A. Smith
Vice President-Finance & Chief
Financial Officer
/s/ W. M. Lowe, Jr.
by: ---------------------------
W. M. Lowe, Jr.
Controller & Chief Accounting Officer
Date: March 24, 1995
<PAGE>
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/ J. K. Baker February 22, 1995
----------------------------------- -----------------
J. K. Baker
Chairman of the Board of Directors
/s/ B. O. Pond February 22, 1995
----------------------------------- -----------------
B. O. Pond
President and Chief Executive Officer and
Director
/s/ V. W. Hunt February 22, 1995
----------------------------------- -----------------
V. W. Hunt
Executive Vice President and Director
/s/ R. A. Smith February 22, 1995
----------------------------------- -----------------
R. A. Smith
Vice President-Finance, Chief Financial Officer
and Director
/s/ I. W. Gorr February 22, 1995
----------------------------------- -----------------
I. W. Gorr
Director
/s/ D. J. Kacek February 22, 1995
----------------------------------- -----------------
D. J. Kacek
Director
/s/ A. R. Velasquez February 22, 1995
----------------------------------- -----------------
A. R. Velasquez
Director
<PAGE>
Exhibit 10 (B)
Management Incentive Plans
For many years the Company has established annual incentive plans for its
executive officers and other key employees. These plans provide for the
payment to the eligible employees of additional cash compensation based on
Company, divisional or individual performance as measured against criteria
established at the beginning of the year. The executive officers of the
Company were eligible for incentive compensation payments under the "1994
Executive Incentive Plan" which provided for payments based on earnings per
share and the achievement of certain financial and other business-related
objectives at the beginning of the year.
<PAGE>
Exhibit 11
Computation of Earnings Per Share
<TABLE>
Arvin Industries, Inc.
Computation of Earnings (Loss) Per Share of Common Stock
(amounts in millions except per share amounts)
Unaudited
<CAPTION>
1994 1993 1992
------------------------------------- ----- ----- -----
<S> <C> <C> <C>
Primary Earnings Per Share
------------------------------
Income (Loss) from continuing operations $(17.4) $37.8 $39.9
Income from discontinued operations, net of tax 1.1 2.5 0.0
Effect of change in accounting for postretirement
benefits other than pension - - (27.6)
Effect of change in accounting for postemployment
benefits - - (5.9)
----- ----- -----
Net income (loss) (16.3) 40.3 6.4
Dividends on preferred shares - - (5.8)
----- ----- -----
Net income (loss) to common stock $(16.3) $40.3 $ 0.6
===== ===== =====
Average shares of common stock outstanding 22.2 21.9 19.7
Incremental common shares applicable to common
stock options based on the common stock daily
average market price during the period 0.2 0.4 0.4
----- ----- -----
Average common shares, as adjusted 22.4 22.3 20.1
===== ===== =====
Earnings (Loss) per average share of common stock
(including common stock equivalents):
Continuing operations $ (0.78) $ 1.70 $ 1.70
Discontinued operations 0.05 0.11 0.00
Effect of change in accounting for
postretirement benefits other than pension - - (1.38)
Effect of change in accounting for
postemployment benefits - - (0.29)
----- ----- -----
$ (0.73) $ 1.81 $ 0.03
===== ===== =====
Fully Diluted Earnings Per Share:(1)
--------------------------------------
Income (Loss) from continuing operations $ (17.4) $ 37.8 $ 39.9
Income from discontinued operations, net of tax 1.1 2.5 0.0
Effect of change in accounting for postretirement
benefits other than pension - - (27.6)
Effect of change in accounting for postemployment
benefits - - (5.9)
----- ----- -----
Net income (loss) (16.3) 40.3 6.4
Add back 7.5% convertible debentures' interest
expense, net of tax 4.5 4.5 1.1
----- ----- -----
Net income (loss) to common stock assuming
full dilution $ (11.8) $ 44.8 $ 7.5
===== ===== =====
Average shares of common stock outstanding 22.2 21.9 19.7
Incremental common shares applicable to common
stock options based on the more dilutive of the
common stock ending or average market price
during the period 0.2 0.5 0.4
Average common shares issuable assuming
conversion of 7.5% convertible exchangeable
preferred shares - - 2.4
Average common shares issuable assuming
conversion of 7.5 % convertible subordinated
debentures 3.4 3.4 1.2
----- ----- -----
Average common shares assuming full dilution 25.8 25.8 23.7
===== ===== =====
Fully diluted earnings (loss) per average
share assuming conversion of all applicable
securities:
Continuing operations $ (0.50) $ 1.64 $ 1.73
Discontinued operations 0.04 0.10 0.00
Effect of change in accounting for
postretirement benefits other than pension - - (1.16)
Effect of change in accounting for
postemployment benefits - - (0.25)
----- ----- -----
$ (0.46) $ 1.74 $ 0.32
===== ===== =====
<FN>
1 Fully diluted earnings per share amounts are shown for 1994 and 1992 in
accordance with Securities and Exchange Commission requirements although not
in accordance with A.P.B. 15 because they result in anti-dilution.
</TABLE>
<PAGE>
Exhibit 21
Subsidiaries of Arvin Industries, Inc.
Set forth below are the names of certain subsidiaries, at least 50% owned,
directly or indirectly, of the Company included in the consolidated financial
statements of the Company and its subsidiaries in the Company's Annual Report
on Form 10-K for the year ended January 1, 1995. Certain subsidiaries, which
when considered in the aggregate would not constitute a significant
subsidiary, are omitted from the list below.
<TABLE>
<CAPTION>
State or Other
Jurisdiction
Company Name of Incorporation
------------------------------------ ------------------
<S> <C>
Continuing Operations:
Maremont Corporation Delaware
Maremont Exhaust Products, Inc. Delaware
Gabriel Europe, Inc. Delaware
Q International, Inc. Delaware
Space Industries International, Inc. Delaware
Gabriel Ride Control Products, Inc. Delaware
Roll Coater, Inc. Indiana
Arvin International Holdings, Inc. Indiana
AVM, Inc. South Carolina
Arvin Automotive of Canada Canada
Arvin Ride Control Products, Inc. Canada
Arvin de Mexico S.A. de C.V. Mexico
Arvin-Cheswick B.V. The Netherlands
Arvin International Holland B.V. The Netherlands
Arvin-Cheswick S.A. Spain
Arvin International U.K., PLC United Kingdom
Arvin Cheswick U.K. Ltd. United Kingdom
Gabriel S. A. (Pty.) Ltd. South Africa
Discontinued Operations:
Schrader Automotive, Inc. Delaware
Valvulas Schrader do Brasil, S.A. Brazil
Schrader Automotive, Inc. Canada
Schrader Automotive S.A. (Pty.) Ltd. South Africa
</TABLE>
<PAGE>
Exhibit 23(A)
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-50371, No. 33-50381, No. 33-21717, No. 33-
19049, No. 33-04407, No. 2-97395, No. 2-78417 and No. 33-40438) of Arvin
Industries, Inc. of our report dated February 1, 1995 appearing in this Form
10 -K.
Price Waterhouse LLP
Indianapolis, Indiana
March 22, 1994
Exhibit 23(B)
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-3 ( No. 33-41242
and No. 33-53087) of Arvin Industries, Inc. of our report dated February 1,
1995 appearing in this Form 10 - K.
Price Waterhouse LLP
Indianapolis, Indiana
March 22, 1994
Exhibit 23(C)
Consent of Independent Accountants
The Board of Directors
Space Industries International, Inc.:
We consent to the incorporation by reference in the registration statements
of Form S - 3 and Form S - 8 of Arvin Industries, Inc. of our report dated
January 25, 1995, relating to the consolidated balance sheets of Space
Industries International, Inc. and subsidiaries as of January 1, 1995 and the
related consolidated statement of operations, shareholders' equity, and cash
flows for the year then ended which report appears in the January 1, 1995
annual report on Form 10-K of Arvin Industries, Inc. We also consent to the
reference to our firm under the heading "Experts" in the registration.
KPMG Peat Marwick LLP
March 17, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted
from Form 10-K for the period ended January 1, 1995 and is
qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> Jan-01-1995
<PERIOD-START> Jan-03-1994
<PERIOD-END> Jan-01-1995
<PERIOD-TYPE> YEAR
<CASH> 17,600
<SECURITIES> 0
<RECEIVABLES> 307,200
<ALLOWANCES> (4,800)
<INVENTORY> 105,900
<CURRENT-ASSETS> 502,300
<PP&E> 890,100
<DEPRECIATION> 458,800
<TOTAL-ASSETS> 1,275,300
<CURRENT-LIABILITIES> 338,800
<BONDS> 416,300
0
0
<COMMON> 60,400
<OTHER-SE> 335,900
<TOTAL-LIABILITY-AND-EQUITY> 1,275,300
<SALES> 2,039,800
<TOTAL-REVENUES> 2,039,800
<CGS> 1,723,600
<TOTAL-COSTS> 1,915,100
<OTHER-EXPENSES> 87,400
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43,600
<INCOME-PRETAX> (16,200)
<INCOME-TAX> 18,200
<INCOME-CONTINUING> (17,400)
<DISCONTINUED> 1,100
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,300)
<EPS-PRIMARY> (0.73)
<EPS-DILUTED> (0.73)
</TABLE>
