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 June 30, 1996 or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Commission File Number 1-302
ARVIN INDUSTRIES, INC.
____________________________
(Exact name of registrant as specified in its charter)
Indiana 35-0550190
____________ ______________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Noblitt Plaza, Box 3000
Columbus, IN 47202-3000
_____________________________ ______________
(Address of principal executive (Zip Code)
offices)
812-379-3000
___________________
(Registrant's telephone number including area code)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
As of August 4, 1996, the Registrant had outstanding 22,448,596
Common Shares (excluding treasury shares), $2.50 par value.
Table of Contents
Part I. Financial Information Page
No.
Item 1. Financial Statements
Consolidated Statement of Operations for the
Three Months and Six Months Ended
June 30, 1996 and July 2, 1995 3
Consolidated Statement of Financial Condition
at June 30, 1996 and December 31, 1995 4
Consolidated Statement of Cash Flows for the
Six Months Ended June 30, 1996 and
July 2, 1995 5
Condensed Notes to Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II. Other Information
Item 4. Submission of Matters to a Vote of
Security Holders 13
Item 6. Exhibits and Reports on Form 8K 13
<TABLE>
Part I
Item 1: Financial Statements
Arvin Industries, Inc.
Consolidated Statement of Operations
(Dollars in millions, except per share amounts)
Unaudited
<CAPTION>
Three Months Ended Six Months Ended
-------------------- --------------------
June 30, July 2, June 30, July 2,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales $ 583.3 $ 509.7 $ 1,094.9 $ 1,003.9
Costs and Expenses:
Cost of goods sold 504.7 439.5 954.7 873.2
Selling, operating general and administrative 38.9 38.1 75.3 76.7
Corporate general and administrative 3.9 3.1 7.4 5.2
Restructuring charges -- 1.5 -- 3.6
Special charges (credits) (.7) 6.9 (.4) 6.9
Interest expense 10.3 11.0 20.2 22.1
Interest income (.2) (.2) (.6) (.5)
Other expense, net 1.8 2.0 5.0 3.9
-------- -------- -------- --------
558.7 501.9 1,061.6 991.1
Earnings from Continuing -------- -------- -------- --------
Operations Before Income Taxes 24.6 7.8 33.3 12.8
Income taxes (9.1) (2.9) (12.3) (4.8)
Minority share of income (1.1) (.7) (1.9) (1.4)
Equity income (loss) of affiliates (.3) 1.0 .9 1.1
-------- -------- -------- --------
Earnings from Continuing Operations 14.1 5.2 20.0 7.7
-------- -------- -------- --------
Income from discontinued operations, net of
income taxes of $.0, $.1, $.0 and $1.2, respectively -- .4 -- 2.2
Income from disposal of discontinued operations,
net of income taxes of $.0, $.0, $.0 and $.2, respectively -- -- -- .7
-------- -------- -------- --------
Net Earnings $ 14.1 $ 5.6 $ 20.0 $ 10.6
======== ======== ======== ========
Earnings Per Common Share
Primary:
Continuing Operations $ .63 $ .23 $ .89 $ .35
Discontinued Operations -- .02 -- .13
-------- -------- -------- --------
Total - primary $ .63 $ .25 $ .89 $ .48
======== ======== ======== ========
Fully Diluted:
Continuing Operations $ .60 $ .23 $ .87 $ .35
Discontinued Operations -- .02 -- .13
-------- -------- -------- --------
Total - fully diluted $ .60 $ .25 $ .87 $ .48
======== ======== ======== ========
Average Common Shares Outstanding (000's)
Primary 22,449 22,387 22,391 22,368
Fully Diluted 24,689 25,265 24,633 25,318
Dividends Declared per Common Share $ .19 $ .38 $ .38 $ .57
<FN>
See notes to consolidated financial statements.
</TABLE>
<TABLE>
Arvin Industries, Inc.
Consolidated Statement of Financial Condition
(Dollars in millions, except per share amounts)
Unaudited
<CAPTION>
As of As of
6/30/96 12/31/95
-------- --------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 12.8 $ 15.2
Receivables, net of allowances of $7.5 as of
June 30, 1996 and $4.2 as of December 31, 1995 361.5 276.0
Inventories 114.3 111.8
Other current assets 76.5 80.5
-------- --------
Total current assets 565.1 483.5
-------- --------
Non-Current Assets:
Property, plant and equipment:
Land, buildings, machinery & equipment 973.7 937.0
Less: Accumulated depreciation 511.6 487.6
-------- --------
462.1 449.4
Goodwill, net of amortization of $33.6 as of
June 30, 1996 and $31.3 as of December 31, 1995 156.7 146.0
Investment in affiliates 81.2 92.4
Assets of business transferred under
contractual arrangements 72.4 72.4
Other assets 53.5 47.3
-------- --------
Total non-current assets 825.9 807.5
-------- --------
$ 1,391.0 $ 1,291.0
======== ========
Liabilities and Shareholders' Equity
Current Liabilities:
Short-term debt $ 41.7 $ 41.6
Accounts payable 271.2 216.7
Accrued expenses 112.6 97.3
Income taxes payable 12.0 9.4
-------- --------
Total current liabilities 437.5 365.0
-------- --------
Long-term employee benefits 68.0 52.7
Other long-term liabilities 16.3 13.6
Long-term debt 357.3 360.7
Liabilities and deferred credit of business transferred 72.4 72.4
Minority interest 35.5 31.5
Shareholders' Equity:
Common shares ($2.50 par value) 60.6 60.6
Capital in excess of par value 207.6 207.4
Retained earnings 207.6 196.2
Cumulative translation adjustment (31.4) (24.6)
Common shares held in treasury (at cost) (40.4) (44.5)
-------- --------
Total shareholders' equity 404.0 395.1
-------- --------
$ 1,391.0 $ 1,291.0
======== ========
<FN>
See notes to consolidated financial statements.
</TABLE>
<TABLE>
Arvin Industries, Inc.
Consolidated Statement of Cash Flows
(Dollars in millions)
Unaudited
<CAPTION>
Six Months Ended
--------------------
June 30, July 2,
1996 1995 (1)
--------------------
<S> <C> <C>
Operating Activities:
Net earnings $ 20.0 $ 10.6
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 37.0 36.0
Amortization 2.8 3.1
Long-term employee benefits .4 (1.4)
Equity earnings of affiliates (.9) (1.1)
Minority interest 1.9 2.4
Common stock contributed to employee benefit plan 3.3 1.0
Other 4.6 (4.3)
Change in working capital components excluding
effects of acquisitions and reclassifications:
Receivables (51.7) (17.5)
Inventories and other current assets 5.3 (18.1)
Accounts payable and other accrued expenses 26.7 8.7
Income taxes payable and deferred taxes 3.2 1.0
-------- --------
Net Cash Provided By Operating Activities 52.6 20.4
-------- --------
Investing Activities:
Purchase of property, plant and equipment (36.2) (40.3)
Proceeds from sale of property, plant and equipment 1.3 .8
Cash proceeds from sale of business, net of cash balances 2.0 36.2
Other 1.2 1.6
-------- --------
Net Cash Used For Investing Activities (31.7) (1.7)
-------- --------
Financing Activities:
Change in short-term debt, net (11.2) 17.0
Principal payments on long-term debt (3.4) (16.1)
Dividends paid (8.5) (8.5)
Other .2 (.2)
-------- --------
Net Cash Used For Financing Activities (22.9) (7.8)
-------- --------
Cash and Cash Equivalents:
Effect of exchange rate changes on cash (.4) .5
-------- --------
Net increase (decrease) (2.4) 11.4
Beginning of the period 15.2 22.4
-------- --------
End of the Period $ 12.8 $ 33.8
======== ========
<FN>
(1) Certain amounts have been reclassified to conform with current year presentation.
<FN>
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 December 31, 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. Except for the
restructuring and special charges described in Note 5 and in
Management's Discussion and Analysis, all such adjustments are of
a normal recurring nature.
The results of operations for the three and six months ended June
30, 1996 are not necessarily indicative of the results to be
expected for the full year ending December 29, 1996.
Note 2. There were options for 2.2 and 2.0 million common shares
outstanding as of June 30, 1996 and July 2, 1995, respectively.
Earnings per share calculations include dilutive options in the
determination of the weighted average common and common
equivalent shares outstanding. Fully diluted earnings per share
calculations include dilutive options and assume conversion of
the 7.5% convertible subordinated debentures 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 3. 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 LIFO 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 their finished goods, work in
process and raw material components.
Note 4. In June, 1996, the Company increased their ownership in
Way Assauto S.r.l. from 49.9% to 54.9%. The purchase price of
$8.0 million is included in "Accrued Expenses" on the June 30,
1996 Consolidated Statement of Financial Condition. The assets
and liabilities of Way Assauto and the minority share ownership
of these assets and liabilities are included in the June 30, 1996
Consolidated Statement of Financial Condition. Non-cash assets
acquired, liabilities assumed and minority interest included in
the June 30, 1996 Consolidated Statement of Financial Condition
were $72.8, $65.2 and $3.4 million, respectively. Goodwill
resulting from this transaction of $7.7 million will be amortized
using the straight-line method over a forty year period.
Note 5. The Company is defending various environmental claims and
legal actions that arise in the normal course of its business,
including matters in which the Company has been designated a
potentially responsible party at certain waste disposal sites or
has been notified that it may be a potentially responsible party
at other sites as to which no proceedings have been initiated.
At a majority of these sites, the information currently available
leads the Company to believe it has very limited or even de
minimis responsibility. At other sites, neither the remediation
method, amount of remediation costs nor the allocation among
potentially responsible parties has been determined. Where
reasonable estimates are possible, the Company has provided for
the costs of study, cleanup, remediation, and certain other
costs, taking into account, as applicable, available information
regarding site conditions, potential cleanup methods and the
extent to which other parties can be expected to bear those
costs.
The Company is a participant with the EPA and the current owner
of a site previously owned by the Company's Maremont subsidiary
in a corrective action proceeding under the Resource Conservation
and Recovery Act. The Company has accrued for its share of the
reasonably estimable minimum remediation costs at this site,
which include costs incurred in connection with further studies
and design of a remediation plan, remedial costs, including
cleanup activities, and administrative, legal and consulting
fees. Given the inherent uncertainties in evaluating legal and
environmental exposures, actual costs to be incurred in future
periods may vary from the currently recorded estimates. The
Company expects that any sum it may be required to pay in
connection with legal and environmental matters in excess of the
amounts recorded will not have a material adverse effect on its
financial condition.
Two previously disclosed suits filed by Chamberlain Manufacturing
Corporation were settled during the second quarter. Both suits
grew out of the May 1987 sale of a Maremont unit, Saco Defense,
Inc., to Chamberlain and related to (i) certain worker
compensation cases pending at the time of the sale and (ii)
assertions of nonconforming products being shipped to the U.S.
government prior to the sale. The settlement, which included
dismissal of all litigation, was within amounts previously
reserved for this litigation and did not have a significant
impact on the Company's results of operations.
Note 6. In conjunction with the September 29, 1995 sale of Space
Industries International, Inc., the Company guaranteed
approximately $22.9 million of the purchaser's (Calspan SRL
Corporation) debt. The guarantee amount, which was $19.3 million
at June 30, 1996, is scheduled to decline quarterly over a four
year period before expiring on September 30, 1999. It is not
practicable to estimate the fair value of the guarantee; however,
the Company does not anticipate that it will incur losses as a
result of this guarantee.
During the third quarter of 1995, the Company instituted a review
of an underperforming 50 percent owned joint venture serving the
European Original Equipment market. The Company's previously
disclosed negotiations have been satisfactorily concluded and
approved by regulatory agencies. An agreement has been reached
with the Company's joint venture partner and lending
institutions for the restructuring of the joint venture's debt.
The agreement did not have a material impact on the Company's
financial statements.
Note 7. Changes in Shareholders' Equity
(Dollars in millions)
For the Six Months Ended
------------------------
6/30/96 7/2/95
------- ------
Beginning balance $ 395.1 $ 396.3
Exercise of stock options .5 .7
Purchase of treasury stock .0 (.2)
Common stock dividends declared (8.5) (12.7)
Net earnings 20.0 10.6
Translation adjustments during the period (6.8) .8
Common stock contributed to Arvin
Foundation .4 .0
Common stock contributed to employee
benefit plan 3.3 1.0
------- ------
Total shareholders' equity $ 404.0 $ 396.5
====== ======
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Review
(Dollar amounts in tables in millions)
Overview
Arvin recorded sales of $1,094.9 million for the six months ended
June 30, 1996, a $91.0 million, or nine percent, increase over
sales during the same period in 1995. During the second quarter,
Arvin recorded sales of $583.3 million, a $73.6 million, or 14
percent, increase over the second quarter 1995 sales. The primary
reason for the sales increases was significant volume increases
in the European original equipment exhaust business which
exceeded the overall European market's growth, resulting in
improved market share. New business and a shift to higher
quality products in the North American original equipment exhaust
business also had a significant positive impact on the Company's
sales.
For the six months ended June 30, 1996, earnings from continuing
operations increased $12.3 million, to $20.0 million. During the
second quarter, Arvin's earnings from continuing operations
increased $8.9 million, to $14.1 million. The replacement segment
operating profits, the primary driver of the increase, rebounded
on relatively flat sales as the Company's North American
replacement businesses started to recover from 1995's poor
results by significantly reducing new business costs, while
benefiting from restructuring actions initiated late in 1994.
Several actions were taken during the current quarter to enhance
the Company's global market presence in the production of exhaust
systems and catalytic converters. In April, the Company signed a
letter of intent with Shanghai Xian Hua Automotive Fittings
Industry (Group) Company of Shanghai, China. In May, the Company
signed a Memorandum of Understanding with Anand Group to form a
joint venture in India. In June, the Company formed a joint
venture company, Able-Arvin Company Limited, which will be
located just outside of Bangkok, Thailand. There were no cash
investments as a result of these agreements during the second
quarter.
Results of Operations
Second Quarter First Six Months
Net Sales by Segment 1996 1995 1996 1995
- --------------------- ------ ------ ------- ------
Automotive Original
Equipment $399.6 $338.1 $ 767.0 $ 683.5
Automotive Replacement 183.7 171.6 327.9 320.4
------ ------ ------- -------
Total $583.3 $509.7 $1,094.9 $1,003.9
====== ====== ======= =======
Operating Income by Second Quarter First Six Months
Segment (1) 1996 1995 1996 1995
- --------------------- ----- ----- ----- -----
Automotive Original
Equipment $18.8 $16.3 $35.2 $34.5
Automotive Replacement 20.9 13.6 28.8 15.4
----- ----- ----- -----
Total $39.7 $29.9 $64.0 $49.9
===== ===== ===== =====
(1) Reflects income from continuing operations prior to Corporate
allocated expenses.
Currency fluctuations, resulting from a stronger U.S. dollar,
reduced the level of consolidated sales by $11.8 million during
the second quarter and $12.2 million for the six months ended
June 30, 1996. Currency fluctuations also reduced consolidated
operating income by $1.3 million and $1.5 million during the
second quarter and for the first six months of 1996,
respectively.
Automotive Original Equipment ("OE"): Sales in the OE segment
were $767.0 million for the first six months of 1996,
representing an increase of $83.5 million or 12 percent over the
prior year. The year to date increase reflects market growth in
the Company's OE markets, the Company's growing market share and
a continuing trend toward higher quality and higher priced
original equipment parts. Offsetting these strong positive
trends were minor price concessions, which averaged less than one
percent. The Company's total OE volume increased approximately
8.3 percent for the period, outpacing market growth for the six
month period. During the same period, European car registrations
increased 4.8 percent and vehicle production in the U.S. and
Canada fell 3.5 percent.
Second quarter OE sales were $399.6 million, an increase of 18
percent, or $61.5 million over those of the prior year. Price
concessions, which averaged less than one percent, were more than
offset by volume gains of almost 17 percent. The Company
estimates that its volume increases to OE market customers grew
at a rate which was more than twice the estimated overall market
growth for the three month period.
Operating profit in the OE segment increased $.7 million in the
first six months when compared to the same period of 1995.
Increased volume contributed approximately $4.8 million to
increased operating profit, however price reductions cost an
estimated $5.5 million. Ongoing productivity gains were offset
by the productivity losses caused by the General Motors strike in
the first quarter, estimated at $2.5 million. The cost of labor
increased $6.4 million. Negotiated material cost decreases
contributed an estimated $4.7 million to the six month period.
Operating profit in the prior year's six month period was reduced
by foreign exchange losses, stemming primarily from the Company's
Mexican operations. Currency transaction gains and losses were
minimal in the current period, which improved operating profit by
$1.2 million. A stronger U.S. dollar results in lower reported
earnings from the Company's foreign subsidiaries. This
translation effect reduced current period earnings by $.9
million. Operating profit in the prior year's six month period
included early retirement expenses of $1.7 million. There were
no comparable restructuring costs in the current year. The trend
toward higher quality automotive parts also contributed to
improved earnings in the current year.
Operating profit in the OE segment increased $2.5 million during
the second quarter of 1996 as compared to the same period of
1995. Increased volume contributed approximately $5.6 million to
increased operating profit, however price reductions cost an
estimated $3.6 million. Productivity gains offset increases in
the cost of labor. Negotiated material cost decreases
contributed $3.3 million to the quarter. The negative effect of
the strong dollar on the translation of foreign earnings was $.8
million. Net losses on tooling write-offs and asset sales in
1995 and 1996 resulted in a $2.6 million reduction in the current
quarter's operating profit.
Comparison of the effect of changes in volume from period to
period is subject to a number of limitations, principally
centered around what constitutes a "unit" for volume measurement.
The appropriate measure of a "unit" varies over time as products
develop, varies among the different countries in which the
Company operates, and varies within each operating unit of the
Company. As a result, there is a certain degree of imprecision
and subjectivity in estimating the impact of volume changes.
Automotive Replacement ("Replacement"): Replacement sales of
$327.9 million for the six months ended June 30, 1996 increased
two percent over sales of $320.4 million during the same period
in 1995. Price increases contributed $12.5 million to sales
during the first six months; however, a $4.2 million impact from
a reduction in volume partially offset this positive sales
movement.
Replacement sales during the second quarter of $183.7 million
increased seven percent over sales of $171.6 million during the
same period in 1995. Increased unit volume contributed $7.2
million and price increases contributed an additional $5.9
million to sales during the quarter.
Operating profit for the replacement segment rebounded from $15.4
million during the first six months of 1995 to $28.8 million
during the first six months of 1996. In addition to the price
increases mentioned above, productivity improvements in excess of
wage increases contributed approximately $2.7 million and
negotiated material price decreases contributed another $1.2
million to the improvement in operating profit for the first six
months. Volume declines had an estimated $1.7 million negative
impact and additions to accounts receivable reserves reduced
profits an estimated $3.1 million. The Company's North American
exhaust operation continued to recover from its poor results in
1995 by reducing new business costs $4.9 million. The negative
effect of the strong dollar on the translation of foreign
earnings was $.6 million.
Operating profit for the replacement market increased $7.3
million during the second quarter to $20.9 million. In addition
to price increases in both exhaust and ride control, productivity
improvements, in excess of wage increases, contributed $.8
million to the second quarter operating profit and increased
volume added another $1.3 million. The Company's North American
exhaust operation continued to recover from poor results in 1995
by reducing new business costs during the second quarter by $3.4
million. The negative effect of the strong dollar on the
translation of foreign earnings was $.5 million.
Operating units in the Replacement segment sell their product
through a variety of different customer "channels" including
merchandisers, installers, and wholesale distributors. As a
result of period to period variations in this "channel mix," in
addition to normal variations in "product mix," the average price
of units sold may not correspond to price changes. There is also
a certain degree of imprecision and subjectivity in estimating
the impact of period to period volume changes, principally
because of questions as to what constitutes a "unit" for volume
measurement. The appropriate measure of a "unit" varies over
time as products develop, varies among the different countries in
which the Company operates, and varies within each operating unit
of the Company.
Corporate General and Administrative expenses increased $2.2
million during the first six months and $.8 million during the
second quarter of 1996. The increases were primarily attributable
to expenditures for employee costs and investor and community
relations expenses.
Restructuring Charges: The workforce reductions and consolidation
of manufacturing facilities and product lines related to the 1994
restructuring plan were substantially completed in 1995. There
were no charges related to the 1994 restructuring plan included
in the 1996 results of operations.
Special Charges (Credits): Special credits reflected in 1996 are
primarily the result of a second quarter insurance settlement,
which on a year-to-date basis is partially offset by first
quarter legal and environmental accruals pertaining to previously
disclosed suits. The 1995 special charge of $6.9 million
represents a second quarter charge as a result of a judgment
against an Arvin subsidiary for breach of contract in connection
with the 1987 sale of Saco Defense, Inc. This litigation was
settled in the second quarter of 1996.
Interest Expense decreased nine percent during the first six
months and seven percent during the second quarter, when compared
to the same periods in 1995. The decreases in both the quarter
and year-to-date amounts were primarily a result of lower average
outstanding long-term debt, which decreased by seven percent both
during the quarter and for the six months.
Other Expense, net increased $1.1 million in the first six months
of 1996 and decreased $.2 million for the second quarter. The
increase for the six months was primarily a result of gains on
fixed asset sales reported in 1995, increased contributions in
1996, and the write-off of certain deferred expenses in 1996.
Equity Income (Loss) of Affiliates decreased for the six and
three months ended June 30, 1996 by $.2 and $1.3 million,
respectively, when compared to the same periods in 1995. The
decreases were primarily attributable to the results of the
Company's Italian OE ride control subsidiary and French
aftermarket exhaust subsidiary.
During the third quarter of 1995, the Company instituted a review
of an underperforming 50 percent owned joint venture serving the
European Original Equipment market. The Company's previously
disclosed negotiations have been satisfactorily concluded and
approved by regulatory agencies. An agreement has been reached
with the Company's joint venture partner and lending
institutions for the restructuring of the joint venture's debt.
The agreement did not have a material impact on the Company's
financial statements.
Financial Condition
Liquidity During the first six months of 1996, accounts
receivable and accounts payable increased 31 percent and 25
percent, respectively, primarily as a result of the
consolidation of Way Assauto and the seasonal increase in June
over December sales. Days sales outstanding at the end of the
first six months were 56.8 days compared to 50.7 days at the end
of 1995. The net change in accounts receivable, accounts payable
and accrued employee benefits was the primary reason for the $9.0
million increase in working capital during the first six months
of 1996. The current ratio of 1.3 at June 30, 1996 stayed
constant when compared to the end of 1995. The Company's debt to
capital ratio was 48.5 percent at the end of 1995 and decreased
to 47.6 percent at June 30, 1996. For a detailed analysis of
changes in cash, see the Consolidated Statement of Cash Flows.
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
for the foreseeable future.
Planned capital expenditures for 1996 are adequate for normal
growth and replacement and are consistent with internal
projections for future sales and earnings. Near-term
expenditures are expected to be funded from internally generated
funds.
Hedging The Company uses derivative financial instruments from
time-to-time to hedge certain financial and operating
transactions denominated in currencies other than functional
currencies. The Company believes that adequate controls are in
place to monitor these activities which are not financially
material.
Legal/Environmental Matters The Company is defending various
environmental claims and legal actions that arise in the normal
course of its business, including matters in which the Company
has been designated a potentially responsible party at certain
waste disposal sites or has been notified that it may be a
potentially responsible party at other sites as to which no
proceedings have been initiated. At a majority of these sites,
the information currently available leads the Company to believe
it has very limited or even de minimis responsibility. At other
sites, neither the remediation method, amount of remediation
costs nor the allocation among potentially responsible parties
has been determined. Where reasonable estimates are possible,
the Company has provided for the costs of study, cleanup,
remediation, and certain other costs, taking into account, as
applicable, available information regarding site conditions,
potential cleanup methods and the extent to which other parties
can be expected to bear those costs.
The Company is a participant with the EPA and the current owner
of a site previously owned by the Company's Maremont subsidiary
in a corrective action proceeding under the Resource Conservation
and Recovery Act. The Company has accrued for its share of the
reasonably estimable minimum remediation costs at this site,
which include costs incurred in connection with further studies
and design of a remediation plan, remedial costs, including
cleanup activities, and administrative, legal and consulting
fees. Given the inherent uncertainties in evaluating legal and
environmental exposures, actual costs to be incurred in future
periods may vary from the currently recorded estimates. The
Company expects that any sum it may be required to pay in
connection with legal and environmental matters in excess of the
amounts recorded will not have a material adverse effect on its
financial condition.
Two previously disclosed suits filed by Chamberlain Manufacturing
Corporation were settled during the second quarter. Both claims
grew out of the May 1987 sale of a Maremont unit, Saco Defense,
Inc., to Chamberlain and related to (i) certain worker
compensation cases pending at the time of the sale and (ii)
assertions of nonconforming products being shipped to the U.S.
government prior to the sale. The settlement, which included
dismissal of all litigation, was within amounts previously
reserved for this litigation and did not have a significant
impact on the Company's results of operations.
Other Matters: In October 1995, the FASB issued Statement No.
123, "Accounting for Stock-Based Compensation." This statement
is effective for fiscal years beginning after December 15, 1995.
The Company will continue to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25) and related Interpretations in accounting for its employee
stock options. Under APB 25, because the exercise price of the
Company's employee stock options is not less than the market
price of the underlying stock on the date of grant, no
compensation expense is recognized. The Company will adopt the
additional disclosure requirements of Statement No. 123 in 1996.
Part II
Item 4. Submission of Matters to a Vote of Security Holders
The Company held the Annual Meeting of Shareholders on April 18,
1996 at which security holders elected five directors nominated
for three-year terms expiring in 1999, approved an amendment to
the 1988 Stock Benefit Plan 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
- --------------------- ---------- ---------
William D. George 18,513,268 942,070
Frederick R. Meyer 18,511,259 944,080
Byron O. Pond 18,451,550 1,003,788
Richard A Smith 18,507,536 947,802
Arthur R. Velasquez 18,504,457 948,881
Voting on: For Against Abstain
- ----------- ----------- --------- -------
Amendment to the 1988
Stock Benefit Plan 15,453,322 3,769,271 232,746
Broker
Ratify appointment For Against Abstain Non-Vote
of auditors
- ---------------------- ---------- ------- ------- ------
Price Waterhouse LLP 19,366,676 41,493 41,769 5,400
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
Report dated - May 10, 1996
Item 5 and 7 reported
At its April 18, 1996 regular meeting, the Board of Directors of
Arvin Industries amended Section 6.1 of its By-Laws to expand the
categories of affiliated entities for which the Company may
guarantee obligations upon the approval of certain designated
officers.
Report dated - May 10, 1996
Item 5 and 7 reported
The Company amended The Rights Agreement to extend the term of
the rights issued thereunder for a period of ten additional
years.
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/ Richard A. Smith
__________________________
Richard A. Smith
Vice President-Finance & Chief
Financial Officer
by: /s/ William M. Lowe, Jr.
__________________________
William M. Lowe, Jr.
Controller & Chief Accounting Officer
Date: August 13, 1996
<TABLE>
Exhibit 11
Arvin Industries, Inc.
Computation of Earnings Per Share of Common Stock
(Amounts in millions, except per share amounts)
Unaudited
<CAPTION>
Three Months Ended Six Months Ended
----------------- -----------------
June 30, July 2, June 30, July 2,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Primary Earnings Per Share
Income from continuing operations $ 14.1 $ 5.2 $ 20.0 $ 7.7
Income from discontinued operations, net of tax -- .4 -- 2.9
-------- -------- -------- --------
Net income to common stock $ 14.1 $ 5.6 $ 20.0 $ 10.6
======== ======== ======== ========
Average shares of common stock outstanding 22.4 22.3 22.3 22.3
Incremental common shares applicable to common
stock options based on the common stock daily .1 .1 .1 .1
average market price during the period
-------- -------- -------- --------
Average common shares, as adjusted 22.5 22.4 22.4 22.4
======== ======== ======== ========
Earnings per average share of common stock
(including common stock equivalents):
Continuing operations $ .63 $ .23 $ .89 $ .35
Discontinued operations -- .02 -- .13
-------- -------- -------- --------
$ .63 $ .25 $ .89 $ .48
======== ======== ======== ========
Fully Diluted Earnings Per Share: (1)
Income from continuing operations $ 14.1 $ 5.2 $ 20.0 $ 7.7
Income from discontinued operations, net of tax -- .4 -- 2.9
-------- -------- -------- --------
Net income 14.1 5.6 20.0 10.6
Add back 7.5% convertible debentures' after tax
interest expense. .7 .9 1.5 1.9
-------- -------- -------- --------
Net income to common stock assuming full dilution $ 14.8 $ 6.5 $ 21.5 $ 12.5
======== ======== ======== ========
Average shares of common stock outstanding 22.4 22.3 22.3 22.3
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 .1 .1 .1 .1
Average common shares issuable assuming conversion
of 7.5% convertible subordinated debentures 2.2 2.9 2.2 2.9
-------- -------- -------- --------
Average common shares assuming full dilution 24.7 25.3 24.6 25.3
======== ======== ======== ========
Fully diluted earnings per average share assuming
conversion of all applicable securities:
Continuing operations $ .60 $ .25 $ .87 $ .38
Discontinued operations -- .01 -- .12
-------- -------- -------- --------
$ .60 $ .26 $ .87 $ .50
======== ======== ======== ========
<FN>
(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.
<FN>
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 June 30, 1996 and is
qualified in its entirety by
reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<FISCAL-YEAR-END> Dec-29-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Jun-30-1996
<PERIOD-TYPE> 6-MOS
<CASH> 12,800
<SECURITIES> 0
<RECEIVABLES> 369,000
<ALLOWANCES> (7,500)
<INVENTORY> 114,300
<CURRENT-ASSETS> 565,100
<PP&E> 973,700
<DEPRECIATION> 511,600
<TOTAL-ASSETS> 1,391,000
<CURRENT-LIABILITIES> 437,500
<BONDS> 357,300
0
0
<COMMON> 60,600
<OTHER-SE> 343,400
<TOTAL-LIABILITY-AND-EQUITY> 1,391,000
<SALES> 1,094,900
<TOTAL-REVENUES> 1,094,900
<CGS> 954,700
<TOTAL-COSTS> 1,030,000
<OTHER-EXPENSES> 4,600
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,200
<INCOME-PRETAX> 33,300
<INCOME-TAX> 12,300
<INCOME-CONTINUING> 20,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,000
<EPS-PRIMARY> .89
<EPS-DILUTED> .87
</TABLE>
