SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the quarterly period ended July 2, 1995
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ________ to ________
Commission File Number 1-302
ARVIN INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Indiana 35-0550190
--------------------------------- -----------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
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)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes [
X ] No [ ]
As of August 6, 1995, the Registrant had outstanding 22,334,138 Common
Shares (excluding treasury shares), $2.50 par value.
<PAGE>
Table of Contents
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statement of Operations for the Three Months
and Six Months Ended July 2, 1995 and July 3, 1994
Consolidated Statement of Financial Condition at
July 2, 1995 and January 1, 1995
Consolidated Statement of Cash Flows for the Six Months
Ended July 2, 1995 and July 3, 1994
Condensed Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II. Other Information
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8K
<PAGE>
<PAGE>
Part I
Item 1. Financial Statements
<TABLE>
Arvin Industries, Inc.
Consolidated Statement of Operations
(Dollars in millions, except per share amounts)
<CAPTION>
Unaudited Unaudited
--------------------- ---------------------
Three Months Ended Six Months Ended
--------------------- ---------------------
July 2, July 3, July 2, July 3,
1995 1994 1995 1994
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Sales $ 566.6 $ 539.3 $ 1,120.0 $ 1,018.5
Costs and Expenses:
Cost of goods sold 483.6 451.4 964.8 858.1
Selling, operating general and administrative 48.6 49.0 93.0 96.6
Corporate general and administrative 3.1 3.5 5.2 6.0
Interest expense 11.2 11.1 22.7 20.7
Interest income (.5) (.4) (1.1) (.9)
Other expense, net 8.4 1.2 9.9 5.0
Restructuring charges 1.5 -- 3.6 --
------- ------- ------- -------
555.9 515.8 1,098.1 985.5
------- ------- ------- -------
Earnings from Continuing
Operations Before Income Taxes 10.7 23.5 21.9 33.0
Income taxes (4.2) (9.7) (8.6) (13.6)
Minority share of income (1.6) (.5) (3.9) (.8)
Equity income of affiliates .7 .7 .5 .5
------- ------- ------- -------
Earnings from Continuing Operations 5.6 14.0 9.9 19.1
------- ------- ------- -------
Income from discontinued operations, net of
income taxes of $.0, $.0, $.0 and $.1, respectively -- -- -- .2
Income from disposal of discontinued operations,
net of income taxes of $.0, $.0, $.2 and $.0, respectively -- -- .7 --
------- ------- ------- -------
Net Earnings $ 5.6 $ 14.0 $ 10.6 $ 19.3
======= ======= ======= =======
Earnings Per Common Share
Primary:
Continuing Operations $ .25 $ .63 $ .45 $ .85
Discontinued Operations -- -- .03 .01
------- ------- ------- -------
Total - primary $ .25 $ .63 $ .48 $ .86
======= ======= ======= =======
Fully Diluted:
Continuing Operations $ .25 $ .59 $ .45 $ .83
Discontinued Operations -- -- .03 .01
------- ------- ------- -------
Total - fully diluted $ .25 $ .59 $ .48 $ .84
======= ======= ======= =======
Average Common Shares Outstanding (000's)
Primary 22,387 22,355 22,368 22,434
Fully Diluted 25,265 25,776 25,318 25,855
Dividends Declared per Common Share $ 0.38 $ 0.38 $ 0.57 $ 0.57
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Arvin Industries, Inc.
Consolidated Statement of Financial Condition
(Dollars in millions, except per share amounts)
Unaudited Audited
---------- ----------
As of As of
7/2/95 1/1/95
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<S> <C> <C>
Assets
-----------
Current Assets:
Cash and cash equivalents $ 36.8 $ 17.6
Receivables, net of allowances of $11.5 as of
July 2, 1995 and $4.8 as of January 1, 1995 339.3 302.4
Inventories 111.4 105.9
Other current assets 100.6 76.4
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Total current assets 588.1 502.3
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Non-Current Assets:
Property, plant and equipment:
Land, buildings, machinery & equipment 975.0 890.1
Less: Allowance for depreciation 507.9 458.8
---------- ----------
467.1 431.3
Goodwill, net of amortization of $29.0 as of
July 2, 1995 and $26.6 as of January 1, 1995 148.3 150.4
Investment in affiliates 76.0 91.9
Net assets of discontinued operations -- 40.8
Other assets 57.8 58.6
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Total non-current assets 749.2 773.0
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$ 1,337.3 $ 1,275.3
========== ==========
Liabilities and Shareholders' Equity
-------------------------------------------------
Current Liabilities:
Short-term debt $ 76.1 $ 25.1
Accounts payable 229.4 198.7
Accrued expenses 130.9 113.5
Income taxes payable 4.4 1.5
---------- ----------
Total current liabilities 440.8 338.8
---------- ----------
Long-term employee benefits 62.1 63.5
Deferred income taxes and other liabilities 16.2 15.3
Long-term debt 358.0 416.3
Minority interest 63.7 45.1
Shareholders' Equity:
Common shares ($2.50 par value) 60.5 60.4
Capital in excess of par value 207.1 206.6
Retained earnings 192.0 194.1
Minimum pension liability adjustment (.6) (.6)
Cumulative translation adjustment (19.9) (20.7)
Common shares held in treasury (at cost) (42.6) (43.5)
---------- ----------
Total shareholders' equity 396.5 396.3
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$ 1,337.3 $ 1,275.3
========== ==========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Arvin Industries, Inc.
Consolidated Statement of Cash Flows
(Dollars in millions)
(Unaudited)
-------------------------
Six Months Ended
-------------------------
July 2, July 3,
1995 1994 (1)
--------------------------
<S> <C> <C>
Operating Activities:
Net earnings $ 10.6 $ 19.3
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 38.6 35.9
Amortization 3.1 3.4
Long-term employee benefits (1.4) 2.4
Deferred income taxes, long-term .7 (1.5)
Minority interest 3.9 0.8
Other 2.1 (3.8)
Changes in operating assets and liabilities:
Receivables (23.1) (83.1)
Inventories and other current assets (14.3) (11.7)
Accounts payable and other accrued expenses 11.7 55.5
Income taxes payable and deferred taxes 0.9 9.4
------- -------
Net Cash Provided by Operating Activities 32.8 26.6
------- -------
Investing Activities:
Purchase of property, plant and equipment (42.5) (39.3)
Proceeds from sale of property, plant and equipment 0.8 0.3
Acquisition, net of cash -- (7.5)
Cash proceeds from sale of business 36.2 --
Other (5.2) 12.6
Beginning cash balance of previously unconsolidated subsidiary 16.9 --
------- -------
Net Cash Provided By/(Used For) Investing Activities 6.2 (33.9)
------- -------
Financing Activities:
Change in short-term debt, net (1.3) 14.2
Proceeds from long-term borrowings 0.2 75.0
Principal payments on long-term debt (16.1) (83.2)
Dividends paid (8.5) (8.3)
Other 0.6 1.4
------- -------
Net Cash Used For Financing Activities (25.1) (0.9)
------- -------
Cash and Cash Equivalents:
Effect of exchange rate changes on cash 0.5 0.2
------- -------
Net increase/(decrease) 14.4 (8.0)
Beginning of the period 22.4 39.1
------- -------
End of the Period $ 36.8 $ 31.1
======= =======
(1) Certain amounts have been reclassified to conform with current year presentation.
See notes to consolidated financial statements.
</TABLE>
ARVIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements and
should be read in conjunction with the financial statements and notes
thereto appearing in the Company's annual report on Form 10-K for the
year ended January 1, 1995.
In the opinion of management, all adjustments considered necessary for
a fair presentation of the results of operations for the periods
reported have been included. Other than the adjustments described in
Note 7 and Note 11, all such adjustments are of a normal and recurring
nature.
The results of operations for the six months ended July 2, 1995 are not
necessarily indicative of the results to be expected for the full year
ending December 31, 1995.
Note 2. Results of operations for the first six months of 1995 include
$2.8 million of restructuring charges for early retirement program
costs and $.8 million of other restructuring costs. These costs were
anticipated and disclosed as a part of the 1994 restructuring, but they
were not permissible for 1994 accrual under current accounting
guidelines. Cash paid for the first six months includes $5.6 million
for restructuring costs which were accrued in 1994 and $3.6 million of
other restructuring costs accrued and paid during the first six months.
The remaining workforce reductions and consolidation of manufacturing
facilities and product lines announced as a part of the 1994
restructuring will be substantially complete by December 31, 1995. A
total of 279 employees were separated from employment through the end
of the second quarter as a part of the 1994 restructuring plan. The
total number of employees to be separated under the 1994 restructuring
plan is estimated to be 352.
Note 3. Effective April 14, 1994, the Company adopted a plan to sell
its Schrader Automotive unit (Schrader). Accordingly, Schrader is
reported as a discontinued operation at January 1, 1995. Schrader's
revenues through the February 16, 1995 sale date were $13.1 million.
In February 1995, the Company entered into a contract for the sale of
Schrader. The transaction was completed on February 16, 1995. An
initial payment for the estimated selling price of $43.0 million,
consisting of $36.2 million in cash and $6.8 million in preferred stock
and the cash value of warrants, was received and the estimated gain
recorded in the first quarter 1995 was $.7 million, net of tax.
Note 4. There were options for 2.0 and 1.9 million common shares
outstanding as of July 2, 1995 and July 3, 1994, respectively.
Earnings per share calculations include dilutive options in the
determination of the weighted average common and common equivalent
shares outstanding. Interest paid, net of tax, on the 7.5 percent
convertible subordinated debentures is added to net earnings in
calculating fully diluted earnings per share.
Note 5. The Company uses the method of pooling, by individual natural
inventory components (e.g., steel, substrate, labor and overhead), in
computing an overall weighted average index. The index is applied to
the total dollar value of the ending inventory. This method of pooling
makes it impractical to classify LIFO inventories into finished goods,
work in process and raw material components.
Note 6. The Company repurchased, at approximately book value, $7.8
million of its outstanding 7.5 percent convertible subordinated
debentures during the first quarter 1995 and $2.0 million during the
second quarter 1995. Subsequent to the end of the second quarter 1995,
the Company has purchased an additional $6.9 million of the 7.5 percent
convertible subordinated debentures. The remaining 7.5 percent
convertible subordinated debentures, due in 2014, are convertible into
common shares at a rate of approximately 35.09 shares for each $1,000
debenture held.
Note 7. During the second quarter of 1995, a judgment for $8.0 million
was entered for breach of contract against Maremont Corporation, an
Arvin subsidiary, in favor of Chamberlain Manufacturing Corporation.
The previously disclosed case grew out of the May 1987 sale of a
Maremont unit, Saco Defense, Inc., to Chamberlain and relates to
certain worker compensation cases which were pending at the time of the
sale. Chamberlain has petitioned the court for pre-judgment interest
and for attorney fees, costs and expenses. These petitions are being
contested and have not been ruled upon. As a result of the judgment
and potential additional costs related to that judgment, Arvin added
$6.9 million in the second quarter to previously established litigation
reserves. The Company has filed a motion to set aside the judgment
and, if necessary, intends to appeal the judgment.
Another previously disclosed suit, filed by Chamberlain, is based on
assertions that at the May 1987 stock sale there were known non-
conforming 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 non-conforming
product lawsuit. No trial date has been set.
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.
The Company is defending various environmental claims and legal actions
that arise in the normal course of its business, including matters in
which the Company has been designated a potentially responsible party
at certain waste disposal sites or has been notified that it may be a
potentially responsible party at other sites as to which no proceedings
have been initiated. At a majority of these sites, the information
currently available leads the Company to believe it has very limited or
even de minimis responsibility. At other sites, the remediation
method, amount of remediation costs, or the allocation among
potentially responsible parties have not 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. Given the inherent
uncertainties in evaluating legal and environmental exposures, actual
costs to be incurred in future periods may vary from the currently
recorded estimates. The Company expects that any sum it may be
required to pay in connection with legal and environmental matters in
excess of the amounts recorded will not have a material adverse effect
on its financial condition.
Note 8. Arvin's Board of Directors has approved a one million share
Common Share Repurchase Program. The objective of the program is to
meet benefit plan obligations, including employee stock options.
Repurchases under the program may take place from time to time in the
market.
Note 9. Changes in Shareholders' Equity
(Dollars in millions)
For the Six Months Ended
--------------------------
7/2/95 7/3/94
--------- ----------
Beginning balance $396.3 $420.6
Exercise of stock options .7 1.3
Purchase of treasury stock (.2) 0
Cash dividends declared (12.7) (8.3)
Net earnings 10.6 19.3
Translation adjustments during the period .8 4.6
Shares contributed to employee benefit plan 1.0 1.0
--------- ----------
Total shareholders' equity $396.5 $438.5
========= ==========
Note 10. Effective January 1, 1995, significant changes were made to
the by-laws of a previously unconsolidated subsidiary, which provide
Arvin the ability to control this joint venture. Accordingly, the
Company has consolidated the 1995 financial results of the subsidiary,
which were accounted for under the equity method in prior periods.
Since Arvin's 50 percent ownership interest in the joint venture
remains the same, there is no effect on the Company's earnings from
continuing operations. However, the consolidation of the previously
unconsolidated subsidiary increased net sales and earnings from
continuing operations before income taxes during the second quarter
1995 by $26.8 million and $2.6 million, respectively. The year to date
net sales and earnings from continuing operations before income taxes
for 1995 increased $53.1 million and $4.8 million, respectively.
Note 11. During the first quarter of 1995, a one-time adjustment of
$3.9 million was recorded in the Technology segment to reduce prior
years' accruals of employee benefits, which will no longer be offered
to employees retiring after October, 1995.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Review
(Dollar amounts in tables in millions)
Overview
Arvin's sales for the six months ended July 2, 1995 increased 10
percent, to $1,120.0 million from $1,018.5 million for the six months
ended July 3, 1994. Arvin recorded sales of $566.6 million for the
second quarter 1995, which represents a 5 percent increase over the
second quarter 1994 sales of $539.3 million.
Earnings from continuing operations decreased to $9.9 million for the
six months ended July 2, 1995 from $19.1 million for the six months
ended July 3, 1994. Earnings from continuing operations decreased to
$5.6 million in the second quarter 1995 from $14.0 million in the
second quarter 1994. Earnings from continuing operations include a
non-recurring charge of $6.9 million ($4.2 million net of tax) in the
second quarter related to an eight million dollar judgment against an
Arvin subsidiary for breach of contract in connection with a 1987
divestiture and a one-time positive adjustment in the first quarter of
$3.9 million ($2.4 million net of tax) to reduce prior years' accruals
of employee benefits in the Technology segment.
Currency fluctuations had a positive impact on the comparative balances
of sales and operating profit for both the quarter and year to date
periods. After eliminating the effects of the weaker dollar, sales
increased 3 percent for the quarter and 8 percent for the six month
period. Operating income fell 25 percent and 13 percent for the
quarter and six months, respectively, on a constant exchange rate
basis.
Results of Operations
1995 1994 1995 1994
Second Second First Six First Six
Net Sales Quarter Quarter Months Months
Automotive Original Equipment $ 362.8 $ 310.5 $ 733.5 $ 594.4
Automotive Replacement 172.3 178.0 320.8 320.5
Technology 31.5 50.8 65.7 103.6
------ ------ -------- --------
Total $566.6 $539.3 $1,120.0 $1,018.5
====== ====== ======== ========
1995 1994 1995 1994
Second Second First Six First Six
Operating Income by Segment(1)Quarter Quarter Months Months
Automotive Original Equipment $18.9 $19.7 $39.3 $35.0
Automotive Replacement 13.6 21.2 15.3 28.9
Technology .3 (.5) 4.6 (.4)
------ ------ -------- --------
Total $32.8 $40.4 $59.2 $63.5
====== ====== ======== ========
(1) Reflects income from continuing operations prior to Corporate
allocated expenses.
Automotive Original Equipment ("OE"): Sales in the OE segment of
$733.5 million for the six months ended July 2, 1995 were 23 percent
higher than OE sales for the same period in 1994. Second quarter 1995
OE sales of $362.8 million were 17 percent higher than sales of $310.5
million in the second quarter 1994. The increase in sales was
primarily attributable to the consolidation of a previously
unconsolidated Arvin joint venture, significant new business in North
American exhaust products, and new business in Europe for both exhaust
and ride control products . The consolidation of the previously
unconsolidated Arvin joint venture contributed 38 percent of the year-
to-date increase and 51 percent of the second quarter increase.
Offsetting these positive movements in sales were a four percent
decrease in North American vehicle production during the second quarter
when compared with second quarter 1994, pricing pressures in the U.S.
and Europe, and the sluggish economic conditions surrounding the
Company's Mexican operations.
Operating profit in the OE segment increased $4.3 million or 12 percent
during the first six months of 1995, when compared to the first six
months of 1994. Operating profit decreased $.8 million or 4 percent
during the second quarter of 1995, when compared to the second quarter
of 1994. The year to date increase is primarily attributable to higher
sales revenues, the consolidation of a previously unconsolidated
subsidiary, and productivity improvements in exhaust products. In
addition, the 1994 earnings were negatively impacted by additional
operating costs incurred as a result of a labor dispute at one of the
Company's major North American steel suppliers. Gains in revenues and
production were somewhat offset by continued recognition of start up
costs on new strut production, inflationary pressures, price
concessions, and early retirement expenses. The second quarter
decrease is primarily a result of lower margins due to customer
reductions in build schedules, continued recognition of start up costs
on new strut production, and increased material costs. The amount of
the second quarter 1995 decrease was affected by the absence of
operating costs incurred in the second quarter 1994 as a result of the
labor dispute at one of the Company's major North American steel
suppliers.
Automotive Replacement ("Replacement"): Sales in the Replacement
segment of $320.8 million for the six months ended July 2, 1995 were
one percent higher than Replacement sales for the same period in 1994.
Second quarter 1995 Replacement sales of $172.3 million were 3 percent
lower than sales of $178.0 million in the second quarter 1994. The
year-to-date increase was primarily attributable to a strong increase
in the European Union sales of both exhaust and ride control product
lines, offset by a slight sales decrease during the first quarter in
the U.S. The second quarter decrease was a result of depressed exhaust
sales in the U.S. and in Europe, offset somewhat by a second quarter
improvement in ride control sales in both the U.S. and Europe.
Operating profit in the Replacement segment decreased $13.5 million or
47 percent during the first six months of 1995, when compared to the
first six months of 1994. Operating profit decreased $7.6 million or
36 percent during the second quarter of 1995, when compared to the
second quarter of 1994. The operating profit for the replacement
market was down significantly in the U.S. exhaust market as a result of
lower sales volume, competitive pricing, restructuring expenses,
increased material costs and increased costs associated with obtaining
new business.
Technology: Sales in the Technology segment of $65.7 million for the
six months ended July 2, 1995 were 37 percent lower than sales for the
same period in 1994. Second quarter 1995 Technology sales of $31.5
million were 38 percent lower than the second quarter 1994. The
Company's reorganization of its service contract business unit was
responsible for $38.0 million of the year-to-date decline and $19.3
million of the second quarter decline. As part of this reorganization,
the Company entered into an agreement to transfer a principal contract
to an unconsolidated joint venture company in return for a
participation in future performance fees. The Company owns a 49
percent interest in the new company. Although the revenues are no
longer consolidated, the joint venture arrangement permits a level of
participation in net income associated with this contract.
Operating profit for the Technology segment for the six month period
improved significantly due to a one time adjustment of $3.9 million in
the first quarter, to reduce prior years' accruals of employee
benefits. Additionally, improved gross margins on fixed price
contracts continued in the second quarter.
During the third quarter of 1993, Arvin merged its wholly owned
Technology subsidiary, Calspan, with Space Industries International,
Inc. and reduced its ownership to 70 percent. The resulting status of
the Technology segment as a stand-alone entity permits management to
consider a broader array of alternatives for this business, which is
considered non-core to Arvin's overall corporate strategy.
Corporate General and Administrative expenses decreased 13 percent or
$.8 million in the first six months of 1995 and 11 percent in the
second quarter. The decrease was primarily the result of reduced
expenditures for employee costs and professional services.
Interest expense increased by ten percent or $2.0 million for the first
six months of 1995 versus the comparable period of 1994. The increase
was a result of higher average borrowing rates on slightly lower
average outstanding debt. For the quarter, interest expense increased
one percent or $.1 million on higher average borrowing rates and lower
outstanding debt.
Other Expenses, net increased $4.9 million in the first six months of
1995 and $7.2 million in the quarter. The increase was primarily a
result of the $6.9 million charged in the second quarter as a result of
the judgment against an Arvin subsidiary for breach of contract in
connection with a 1987 divestiture. The year to date increase was
offset by a first quarter gain on the sale of a property held for sale
and the reduction of goodwill amortization as a result of goodwill
written off as a part of the 1994 restructuring.
Restructuring Charges related to the 1994 restructuring plan of $3.6
million are included in results of operations in the first six months
of 1995. Of that amount, $1.5 million is included in the second
quarter of 1995. These charges represent $2.8 million of costs for
work force reductions for the first six months including $.8 million
charged in the second quarter. There were $.8 million of other costs
of consolidation included in the first six months of 1995. Of that
amount, $.7 million is included in the second quarter. The workforce
reductions and consolidation of manufacturing facilities and product
lines will be substantially complete by December 31, 1995 and are an
effort to concentrate resources allowing the Company to achieve its
long-term strategic growth objectives. The Company expects total 1995
restructuring expenses for workforce reduction and relocation to
approximate $4.0 million. Restructuring costs for 1995 facility
consolidations are expected to approximate $2.1 million.
Minority Share of Income increased $3.1 million for the first six
months of 1995 and $1.1 million for the second quarter. The increases
are primarily a result of the consolidation of a previously
unconsolidated joint venture ($1.5 million for the first six months and
$.8 million for the second quarter) and the minority share, net of tax,
of the first quarter one time adjustment for employee benefit accruals
in the Technology segment ($.7 million).
Income from Disposal of Discontinued Operations of $.7 million
represents the estimated gain on the sale of Schrader. Income from the
operations of Schrader since the first quarter 1994 measurement date is
recorded as "Income from disposal of discontinued operations." In
February 1995, the Company entered into a contract for the sale of
Schrader. The transaction was completed on February 16, 1995.
Financial Condition
Liquidity During the first six months of 1995, working capital
decreased $16.2 million or 10 percent. The primary reason for the
decrease is the reclassification of $50.0 million of the Company's 9.97
percent notes maturing in the first quarter of 1996 to current portion
of long term debt. The Company has plans to replace the $50 million of
9.97 percent debt due in 1996 with a comparable amount of new debt.
Other changes that affected the working capital include increased
accounts receivable and accounts payable balances, and a substantial
increase in cash and cash equivalents (see Consolidated Statement of
Cash Flows). The current ratio decreased from 1.5 at the end of 1994
to 1.3 at July 2, 1995.
Accounts Receivable and Accounts Payable both increased substantially
(12 percent and 16 percent) primarily as a result of sales increases
over the comparable quarter end levels. Days sales outstanding at the
end of the second quarter was 58.2 days compared to 57.4 days at the
end of 1994.
Other Current Assets increased $24.2 million. The primary reason for
the increase is the consolidation of the Company's previously
unconsolidated joint venture, and increased customer tooling.
Capital Resources Based on the Company's projected cash flow from
operations and existing financing credit facility arrangements,
management believes that sufficient liquidity is available to meet
anticipated capital and dividend requirements over the foreseeable
future as well as the cash outlays resulting from the 1994
restructuring program.
Planned capital expenditures for 1995 are adequate for normal growth
and replacement and are consistent with projections for future sales
and earnings. Near-term expenditures are expected to be funded from
internally generated funds.
Funds generated from the February 16, 1995 sale of Schrader (See Note
3) were used to reduce the Company's debt and for other corporate
purposes.
Legal/Environmental Matters During the second quarter of 1995, a
judgment for $8.0 million was entered for breach of contract against
Maremont Corporation, an Arvin subsidiary, in favor of Chamberlain
Manufacturing Corporation. The previously disclosed case grew out of
the May 1987 sale of a Maremont unit, Saco Defense, Inc., to
Chamberlain and relates to certain worker compensation cases which were
pending at the time of the sale. Chamberlain has petitioned the court
for pre-judgment interest and for attorney fees, costs and expenses.
These petitions are being contested and have not been ruled upon. As a
result of the judgment and potential additional costs related to that
judgment, Arvin added $6.9 million in the second quarter to previously
established litigation reserves. The Company has filed a motion to set
aside the judgment and, if necessary, intends to appeal the judgment.
Another previously disclosed suit, filed by Chamberlain, is based on
assertions that at the May 1987 stock sale there were known non-
conforming 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 non-conforming
product lawsuit. No trial date has been set.
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.
The Company is defending various environmental claims and legal actions
that arise in the normal course of its business, including matters in
which the Company has been designated a potentially responsible party
at certain waste disposal sites or has been notified that it may be a
potentially responsible party at other sites as to which no proceedings
have been initiated. At a majority of these sites, the information
currently available leads the Company to believe it has very limited or
even de minimis responsibility. At other sites, the remediation
method, amount of remediation costs, or the allocation among
potentially responsible parties have not 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. 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 In March, 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 121 which
establishes new accounting standards for evaluating and recording
impairments of long-lived assets. The statement is effective for
fiscal years beginning after December 15, 1995. The impact of adoption
of the new statement has not been quantified.
Part II
Item 1. Legal Proceedings
During the second quarter of 1995, a judgment for $8.0 million was
entered for breach of contract against Maremont Corporation, an Arvin
subsidiary, in favor of Chamberlain Manufacturing Corporation. The
previously disclosed case grew out of the May 1987 sale of a Maremont
unit, Saco Defense, Inc., to Chamberlain and relates to certain worker
compensation cases which were pending at the time of the sale.
Chamberlain has petitioned the court for pre-judgment interest and for
attorney fees, costs and expenses. These petitions are being contested
and have not been ruled upon. As a result of the judgment and
potential additional costs related to that judgment, Arvin added $6.9
million in the second quarter to previously established litigation
reserves. The Company has filed a motion to set aside the judgment
and, if necessary, intends to appeal the judgment.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held the Annual Meeting of Shareholders on April 13, 1995
at which security holders elected four directors nominated for three-
year terms expiring in 1998 and ratified the Board of Directors'
appointment of Price Waterhouse as the Company's independent certified
public accountants.
The results of the voting in connection with the above items were as
follows:
Voting on Directors
For Withheld BrokerNon-Vote
Joseph P. Allen 18,772,945 266,741 0
Steven C. Beering 18,808,450 231,236 0
Joseph P. Flannery 18,817,565 222,121 0
V. William Hunt 18,823,776 215,910 0
Ratify appointment of auditors
For Against Abstain BrokerNon-Vote
Price Waterhouse 18,919,183 61,616 58,887 0
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
11 Computation of Earnings Per Share filed herewith as Exhibit 11
27 Financial Data Schedule filed herewith as Exhibit 27
b. Reports Filed on Form 8-K
None
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused the report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Arvin Industries, Inc.
by: /s/ R. A. Smith
____________________________________________
R.A. Smith
Vice President-Finance & Chief
Financial Officer
by: /s/ W. M. Lowe, Jr
____________________________________________
W. M. Lowe, Jr.
Controller & Chief Accounting Officer
Date: August 14, 1995
Exhibit 11
<TABLE>
<CAPTION>
Arvin Industries, Inc.
Computation of Earnings Per Share of Common Stock
(Amounts in millions, except per share amounts)
Unaudited Unaudited
------------------ ------------------
Three Months Ended Six Months Ended
------------------ ------------------
July 2, July 3, July 2, July 3,
1995 1994 1995 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
Primary Earnings Per Share
Income from continuing operations $ 5.6 $ 14.0 $ 9.9 $ 19.1
Income from discontinued operation, net of tax 0.0 0.0 0.7 0.2
------- ------- ------- -------
Net income to common stock $ 5.6 $ 14.0 $ 10.6 $ 19.3
======= ======= ======= =======
Average shares of common stock outstanding 22.3 22.2 22.3 22.1
Incremental common shares applicable to common
stock options based on the common stock daily
average market price during the period 0.1 0.2 0.1 0.3
------- ------- ------- -------
Average common shares, as adjusted 22.4 22.4 22.4 22.4
======= ======= ======= =======
Earnings per average share of common stock
(including common stock equivalents):
Continuing operations $ 0.25 $ 0.63 $ 0.45 $ 0.85
Discontinued operations -- -- 0.03 0.01
------- ------- ------- -------
$ 0.25 $ 0.63 $ 0.48 $ 0.86
======= ======= ======= =======
Fully Diluted Earnings Per Share: (1)
Income from continuing operations $ 5.6 $ 14.0 $ 9.9 $ 19.1
Income from discontinued operation, net of tax 0.0 0.0 0.7 0.2
------- ------- ------- -------
Net income 5.6 14.0 10.6 19.3
Add back 7.5% convertible debentures' after tax
interest expense. 0.9 1.1 1.9 2.2
------- ------- ------- -------
Net income to common stock assuming full dilution $ 6.5 $ 15.1 $ 12.5 $ 21.5
======= ======= ======= =======
Average shares of common stock outstanding 22.3 22.2 22.3 22.1
Incremental common shares applicable to common stock
options based on the more dilutive ending or average
market price of the common stock during the period 0.1 0.2 0.1 0.4
Average common shares issuable assuming conversion
of 7.5% convertible subordinated debentures 2.9 3.4 2.9 3.4
------- ------- ------- -------
Average common shares assuming full dilution 25.3 25.8 25.3 25.9
======= ======= ======= =======
Fully diluted earnings per average share assuming
conversion of all applicable securities:
Continuing operations $ 0.26 $ 0.59 $ 0.47 $ 0.83
Discontinued operations -- -- 0.03 0.01
------- ------- ------- -------
$ 0.26 $ 0.59 $ 0.50 $ 0.84
======= ======= ======= =======
1) Fully diluted earnings per share amounts are shown for the second quarter and six months of 1995 in accordance
with Securities and Exchange Commission requirements although not in accordance with A.P.B. 15 because they
result in anti-dilution.
See notes to consolidated financial statements.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted
from Form 10-Q for the period ended July 2, 1995 and is
qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-START> Jan-02-1995
<PERIOD-END> Jul-02-1995
<PERIOD-TYPE> 6-MOS
<CASH> 36,800
<SECURITIES> 0
<RECEIVABLES> 350,800
<ALLOWANCES> (11,500)
<INVENTORY> 111,400
<CURRENT-ASSETS> 588,100
<PP&E> 975,000
<DEPRECIATION> 507,900
<TOTAL-ASSETS> 1,337,300
<CURRENT-LIABILITIES> 440,800
<BONDS> 358,000
0
0
<COMMON> 60,500
<OTHER-SE> 336,000
<TOTAL-LIABILITY-AND-EQUITY> 1,337,300
<SALES> 1,120,000
<TOTAL-REVENUES> 1,120,000
<CGS> 964,800
<TOTAL-COSTS> 1,057,800
<OTHER-EXPENSES> 13,500
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,700
<INCOME-PRETAX> 21,900
<INCOME-TAX> 8,600
<INCOME-CONTINUING> 9,900
<DISCONTINUED> 700
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,600
<EPS-PRIMARY> .48
<EPS-DILUTED> .48
</TABLE>
